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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number 0-22572
OM GROUP, INC.
(exact name of registrant as specified in its charter)
Delaware 52-1736882
(state or other jurisdiction of (I.R.S., Employer
incorporation or organization) Identification Number)
Tower City
50 Public Square
3500 Terminal Tower
Cleveland, Ohio 44113-2204
(Address of principal executive offices)
(zip code)
(216) 781-0083
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 31, 2000: Common Stock, $.01 Par Value - 23,876,042
shares.
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INDEX
OM GROUP, INC.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- March 31, 2000 and
December 31, 1999
Condensed statements of consolidated income -- Three months ended
March 31, 2000 and 1999
Condensed statements of consolidated cash flows -- Three months ended
March 31, 2000 and 1999
Notes to condensed consolidated financial statements -- March 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II. Other Information
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in Securities - Not applicable
Item 3. Defaults upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not applicable
Item 5. Other information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
(10) Material Contracts
(15.1) Independent Accountants' Review Report
(15.2) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
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OM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited)
March 31, December 31,
ASSETS 2000 1999
- ------ ----------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 5,461 $ 9,433
Accounts receivable 101,873 100,492
Inventories 333,086 332,810
Other current assets 66,184 54,289
----------- -----------
TOTAL CURRENT ASSETS 506,604 497,024
PROPERTY, PLANT AND EQUIPMENT
Land 6,103 6,099
Buildings and improvements 94,075 93,819
Machinery and equipment 336,087 317,388
Furniture and fixtures 14,561 14,419
----------- -----------
450,826 431,725
Less accumulated depreciation 118,010 112,910
----------- -----------
332,816 318,815
OTHER ASSETS
Goodwill and other intangible assets 182,544 183,974
Other assets 20,027 18,108
----------- -----------
TOTAL ASSETS $ 1,041,991 $ 1,017,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Short-term debt and current portion of long-term debt $ 11,000 $ 25
Accounts payable 66,144 77,037
Other accrued expenses 44,633 47,794
----------- -----------
TOTAL CURRENT LIABILITIES 121,777 124,856
LONG TERM LIABILITIES
Long-term debt 384,938 384,888
Deferred income taxes 33,345 31,434
Other long-term liabilities 37,780 27,515
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value:
Authorized 2,000,000 shares; no shares issued or outstanding
Common stock, $0.01 par value:
Authorized 60,000,000 shares; issued 23,959,346 shares 240 240
Capital in excess of par value 258,855 258,815
Retained earnings 210,171 198,047
Treasury stock (83,304 shares in 2000
and 165,161 shares in 1999, at cost) (2,870) (5,537)
Accumulated other comprehensive loss (1,773) (1,837)
Unearned compensation (472) (500)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 464,151 449,228
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,041,991 $ 1,017,921
=========== ===========
See notes to condensed Consolidated Financial Statements
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OM GROUP, INC.
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Thousands of dollars, except per share data)
(Unaudited)
Three Months Ended
March 31,
-------------------------
2000 1999
-------------------------
Net sales $ 148,285 $ 114,113
Cost of products sold 106,283 77,004
-------------------------
42,002 37,109
Selling, general and administrative expenses 14,961 14,306
-------------------------
INCOME FROM OPERATIONS 27,041 22,803
OTHER INCOME (EXPENSE)
Interest expense (5,452) (4,450)
Interest income 105 15
Foreign exchange (loss) gain (72) 400
-------------------------
(5,419) (4,035)
-------------------------
INCOME BEFORE INCOME TAXES 21,622 18,768
Income taxes 6,472 5,795
-------------------------
NET INCOME $ 15,150 $ 12,973
=========================
Net income per common share $ 0.63 $ 0.55
Net income per common share - assuming dilution $ 0.63 $ 0.54
Dividends paid per common share $ 0.11 $ 0.10
See notes to condensed Consolidated Financial Statements
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OM GROUP, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Thousands of dollars)
(Unaudited)
Three Months Ended
March 31,
--------------------------------
2000 1999
--------------------------------
OPERATING ACTIVITIES
Net income $ 15,150 $ 12,973
Items not affecting cash:
Depreciation and amortization 7,525 6,881
Foreign exchange loss (gain) 72 (400)
Deferred income taxes 1,912 (3,472)
Changes in operating assets and liabilities (29,899) (43,927)
--------------------------------
NET CASH USED IN OPERATING ACTIVITIES (5,240) (27,945)
INVESTING ACTIVITIES
Expenditures for property, plant and equipment, net (9,358) (17,275)
Acquisitions of businesses (2,650)
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES (9,358) (19,925)
FINANCING ACTIVITIES
Dividend payments (2,622) (2,375)
Long-term borrowings 50 56,221
Short-term borrowings 11,000
Payments of long-term debt (25)
Payments of short-term debt (2,000)
Purchase of treasury stock (728) (1,864)
Proceeds from exercise of stock options 2,962 189
--------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,637 50,171
Effect of exchange rate changes on cash and cash equivalents (11) (227)
--------------------------------
(Decrease) increase in cash and cash equivalents (3,972) 2,074
Cash and cash equivalents at beginning of period 9,433 7,750
--------------------------------
Cash and cash equivalents at end of period $ 5,461 $ 9,824
================================
See notes to condensed Consolidated Financial Statements
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Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
(Thousands of dollars, except per share amounts)
Note A Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair financial presentation have been included. Past
operating results are not necessarily indicative of the results which
may occur in future periods. For further information refer to the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1999.
In June, 1998, SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 provides a comprehensive
and consistent standard for the recognition and measurement of
derivatives and hedging activities. The Company must adopt SFAS No. 133
no later than the first quarter of fiscal year 2001; adoption of this
statement is not expected to have a material effect on earnings or the
financial position of the Company.
Note B Inventories
-----------
Inventories consist of the following:
March 31, December 31,
2000 1999
---- ----
Raw materials and supplies $135,561 $137,337
Finished goods 138,746 138,417
-------- --------
274,307 275,754
LIFO reserve 58,779 57,056
-------- --------
Total inventories $333,086 $332,810
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Note C Contingent Matters
------------------
The Company is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution
control laws and regulations in the jurisdictions in which it operates.
As is the case with other companies in similar industries, the Company
faces exposure from actual or potential claims and legal proceedings
involving environmental matters. Although it is very difficult to
quantify the potential impact of compliance with or liability under
environmental protection laws, management believes that the ultimate
aggregate cost to the Company of environmental remediation, as well as
other legal proceedings arising out of operations in the normal course
of business, will not result in a material adverse effect upon its
financial condition or results of operations.
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Part I Financial Information
Item 1 Financial Statements
Note D Computation of Earnings per Share
---------------------------------
The following table sets forth the computation of net income per common
share and net income per common share - assuming dilution (shares in
thousands):
Three Months Ended
March 31
--------
2000 1999
---- ----
Net income $15,150 $12,973
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Weighted average number of shares outstanding 23,876 23,703
Dilutive effect of stock options 334 541
------- -------
Weighted average number of shares outstanding -
assuming dilution 24,210 24,244
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Net income per common share $.63 $.55
==== ====
Net income per common share -
assuming dilution $.63 $.54
==== ====
Note E Comprehensive Income
--------------------
The principal differences between net income as reported in the
condensed statements of consolidated income and comprehensive income
are foreign currency translation adjustments recorded in stockholders'
equity. Comprehensive income for the three months ended March 31, 2000
and 1999 was $15,214 and $12,704, respectively, and did not differ
materially from net income.
Note F Subsequent Events (Unaudited)
-----------------------------
On April 4, 2000, the Company acquired Outokumpu Nickel Oy (OKN), a
world class nickel refinery located in Harjavalta, Finland, with annual
sales in fiscal 1999 of approximately $330 million. The cash purchase
price of $173.7 million was financed entirely through bank borrowings.
The final purchase price is subject to adjustment based on the actual
assets and liabilities of OKN at the closing date. The acquisition,
which is not reflected in the accompanying financial statements, will be
accounted for by the purchase method of accounting.
In conjunction with the OKN acquisition, the Company increased its
existing credit facilities to $675 million, comprised of a $325 million
revolving credit facility, a $150 million five-year term loan and a
$200 million seven-year term loan.
On April 28, 2000, the Company purchased 19.9% of Weda Bay Minerals,
Inc., by way of a private placement of treasury shares, for a cash
purchase price of $4.6 million. This transaction is the initial phase of
the Company's commitment to provide up to $18 million of financing to
complete a bankable feasibility study for the development of the
Halmahera Island nickel and cobalt laterite deposits.
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Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended
March 31, 1999
Net sales for the three months ended March 31, 2000 were $148.3 million,
an increase of 29.9% compared to the same period for 1999. The increase
in sales resulted principally from increases in physical volume of
products sold and higher sales of cobalt containing products.
The following table summarizes market price fluctuations on the primary
raw materials used by the Company in manufacturing its products:
Market Price Ranges per Pound
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Cobalt - 99.3% Grade $11.91 to $15.25 $6.70 to $17.43
Nickel $ 3.69 to $ 4.74 $1.81 to $ 2.33
Copper $ 0.78 to $ 0.87 $0.61 to $ 0.66
The following table sets forth the pounds of carboxylates, salts and
powders sold during each period:
Three Months Ended March 31,
---------------------------- Percentage
(in millions of pounds) 2000 1999 Change
---- ---- ------
Carboxylates 19.5 17.5 11.4%
Salts 27.0 23.9 13.0%
Powders 12.1 10.3 17.5%
---- ----
58.6 51.7 13.3%
==== ====
The increase in physical volume of carboxylate products sold was
primarily due to increased sales of cobalt catalysts and driers in
Europe and stronger sales of PVC plastic additives in Asia Pacific. The
increase in physical volume of salt products reflects higher sales of
battery grade chemicals in Asia Pacific; strong demand for cobalt and
nickel products in the United States, particularly to customers in the
steel and pigments and ceramics industries; and increased volume of
electronics chemicals to the printed circuit board industry. The
increase in physical volume of powders sold reflects increases in cobalt
powder sales to the battery industry in Asia Pacific, tungsten powders
to the hard metal tool and diamond tool industries in the Americas, and
copper powders used in automotive applications.
Gross profit increased to $42.0 million for the three month period ended
March 31, 2000, a 13.2% increase over the same period in 1999. The
improvement in gross profit was primarily the result of increased
volumes. Cost of products sold increased to 71.7% for the three months
ended March 31, 2000 from 67.5% of net sales during the same period of
1999 as a result of higher sales of lower value added cobalt containing
products and higher nickel and copper pricing.
Selling, general and administrative expenses increased by $.7 million in
the three month period ended March 31, 2000 from the same period in
1999, resulting from general increases in administrative costs due to
the Company's growth. However, due to the increase in net sales
resulting from increases in physical volume of products sold, selling,
general and administrative expenses decreased to 10.1% of net sales for
the first three months of 2000 compared to 12.5% of net sales for the
same period in 1999.
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Part I
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Other expense - net in 2000 was $5.4 million compared to $4.0 million in
1999, due primarily to increased interest expense on higher outstanding
borrowings as a result of payments made on capital expenditures.
Income taxes as a percentage of income before income taxes decreased to
29.9% for the first quarter of 2000 from 30.9% in the same period in
1999. The lower effective tax rate is due primarily to higher income
earned in the relatively low statutory tax country of Finland and a tax
holiday in Malaysia.
Net income for the three month period ended March 31, 2000 was $15.2
million, an increase of $2.2 million from the same period in 1999, due
to the aforementioned factors.
LIQUIDITY AND CAPITAL RESOURCES
During the three month period ended March 31, 2000, the Company's net
working capital increased by approximately $13 million compared to
December 31,1999, primarily due to advance payments made for
cobalt-copper alloy funded through bank borrowings. Capital expenditures
in the first quarter were primarily related to the continuing smelter
construction project in Lubumbashi, Democratic Republic of Congo. These
capital expenditures were funded through cash generated by operations as
well as additional borrowings under the Company's revolving credit
facility.
In April, 2000, the Company's credit facilities were revised and
increased to $675 million, in conjunction with the acquisition of
Outokumpu Nickel Oy. These senior secured credit facilities are
comprised of a $325 million revolving credit facility, a $150 million
five-year term loan and a $200 million seven-year term loan.
The Company believes that it will have sufficient cash generated by
operations and through its credit facilities to provide for its future
working capital and capital expenditure requirements and to pay
quarterly dividends on its common stock, subject to the Board's
discretion. Subject to several limitations in its credit facilities, the
Company may incur additional borrowings under this line to finance
working capital and certain capital expenditures, including, without
limitation, the purchase of additional raw materials.
FORWARD LOOKING STATEMENTS
The Company is making this statement in order to satisfy the "safe
harbor" provisions contained in the Private Securities Litigation Reform
Act of 1995. The foregoing discussion includes forward-looking
statements relating to the business of the Company. Such forward-looking
statements are subject to uncertainties and factors relating to the
Company's operations and business environment, all of which are
difficult to predict and many of which are beyond the control of the
Company, that could cause actual results of the Company to differ
materially from those matters expressed in or implied by such
forward-looking statements. The Company believes that the following
factors, among others, could affect its future performance and cause
actual results of the Company to differ materially from those expressed
in or implied by forward-looking statements made by or on behalf of the
Company: (a) the price and supply of raw materials, particularly cobalt,
copper and nickel; (b) demand for metal-based specialty chemicals in the
mature markets in the United States and Europe; (c) demand for
metal-based
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Part I
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
specialty chemicals in Asia-Pacific and other less mature markets; and
(d) the effect of non-currency risks of investing in and conducting
operations in foreign countries, including those relating to political,
social, economic and regulatory factors, together with fluctuations in
currency exchange rates upon the Company's international operations.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
A discussion of market risk exposures is included in Part II, Item 7a,
"Qualitative and Quantitative Disclosure About Market Risk", of the
Company's 1999 Annual Report on Form 10-K. There have been no material
changes during the three months ended March 31, 2000.
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
The following exhibits are included herein:
Exhibit (10) Material Contracts
10.1 Credit Agreement dated as of April 3, 2000 among OM Group, Inc. as
borrower; the lending institutions named therein as lenders; DLJ
Capital Funding, Inc. as a lender, the syndication agent and a
joint lead arranger; National City Bank as a lender,
administrative agent, collateral agent and a joint lead arranger;
and ABN Amro Bank N.V. as a lender and documentation agent.
Exhibit (15.1) Independent Accountants' Review Report
Exhibit (15.2) Letter re: Unaudited Interim Financial Information
Exhibit (27) Financial Data Schedule
The following report on Form 8-K was filed during the three months ended
March 31, 2000.
1. The Company's Current Report on Form 8-K filed with the Commission on
April 18, 2000 regarding the Company's acquisition of Outokumpu
Nickel Oy.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 12, 2000 OM GROUP, INC.
/s/ James M. Materna
---------------------------------------------
James M. Materna
Chief Financial Officer
(Duly authorized signatory of OM Group, Inc.)
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