<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter Ended September 30, 1997
-----------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---------------------- ------------------
Commission File Number: 333-15789
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ChemFirst Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Mississippi 64-0679456
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 North Street, Jackson, MS 39202-3095
- --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, including Area Code: 601/948-7550
---------------------------
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 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
--- ---
Class Outstanding at October 31, 1997
- -------------------------- -------------------------------
Common Stock, $1 Par Value 20,259,840
<PAGE> 2
Part I. Financial lnformation
Item 1. Financial Statements
ChemFirst Inc.
Consolidated Balance Sheets (Unaudited)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Sept. 30 Dec. 31
1997 1996
-------- --------
<S> <C> <C>
Assets:
Current assets
Cash and cash equivalents $ 13,094 68,385
Accounts receivable 64,757 64,645
Inventories:
Finished products 26,523 28,434
Work in process 19,588 22,772
Raw materials and supplies 20,975 18,815
-------- --------
Total inventories 67,086 70,021
-------- --------
Prepaid expenses and other current assets 12,156 10,786
-------- --------
Total current assets 157,093 213,837
-------- --------
Investments and other assets 58,647 56,171
Property, plant and equipment 338,340 293,627
Less: accumulated depreciation and amortization 136,037 140,545
-------- --------
Property, plant and equipment, net 202,303 153,082
-------- --------
$418,043 423,090
======== ========
Liabilities and Stockholders' Equity:
Current liabilities
Notes payable to banks $ 5,000 --
Current instalments of long-term debt 872 973
Deferred revenue 3,461 7,778
Accounts payable 33,489 37,236
Accrued expenses and other current liabilities 22,379 37,370
-------- --------
Total current liabilities 65,201 83,357
-------- --------
Long-term debt 1,328 2,122
Deferred revenue and other liabilities 18,234 15,661
Deferred income taxes 18,051 13,464
Stockholders' equity:
Common stock 20,316 20,673
Additional paid-in capital 18,717 16,586
Retained earnings 276,196 271,227
-------- --------
Total stockholders' equity 315,229 308,486
-------- --------
$418,043 423,090
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
ChemFirst Inc.
Consolidated Statements of Operations (Unaudited)
(In Thousands of Dollars and Shares, Except Per Share Amounts)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
Sept. 30 Sept. 30
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales $106,088 95,432 327,987 290,639
Interest and other income 1,578 2,775 5,293 5,096
-------- -------- -------- --------
107,666 98,207 333,280 295,735
-------- -------- -------- --------
Costs and expenses:
Cost of sales 79,370 72,540 250,099 226,699
General, selling and
administrative expenses 16,326 15,831 45,917 45,678
Other operating expenses 976 1,353 3,188 5,230
Restructuring costs and asset write-downs -- -- -- 18,256
Interest expense 90 1,765 315 6,288
-------- -------- -------- --------
96,762 91,489 299,519 302,151
-------- -------- -------- --------
Earnings (loss) before income taxes 10,904 6,718 33,761 (6,416)
Income tax expense (benefit) 4,307 2,886 13,335 (1,770)
Equity in net earnings of equity investees 203 258 2,368 542
-------- -------- -------- --------
Earnings (loss) from continuing operations $ 6,800 4,090 22,794 (4,104)
Earnings from discontinued operations, net of taxes -- 8,699 -- 26,221
Loss on disposal of business, net of taxes -- -- -- (1,746)
-------- -------- -------- --------
Net earnings $ 6,800 12,789 22,794 20,371
======== ======== ======== ========
Earnings (loss) per common share:
Continuing operations $ 0.33 0.20 1.09 (0.20)
Discontinued operations -- 0.41 -- 1.18
-------- -------- -------- --------
Earnings per common share $ 0.33 0.61 1.09 0.98
======== ======== ======== ========
Average shares outstanding 20,839 20,894 20,943 20,887
Cash dividend declared
per share $ 0.10 0.10 0.30 0.30
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
ChemFirst Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Sept. 30
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 22,794 20,371
Adjustments to reconcile earnings to
net cash provided by operating activities:
Depreciation and amortization 15,623 13,516
Restructuring costs and asset write-downs -- 18,256
Deferred taxes and other items (1,873) (3,144)
Change in current assets and liabilities, net
of effects of dispositions (17,096) 800
Net earnings of discontinued operations -- (24,475)
-------- --------
Net cash provided by continuing operations 19,448 25,324
Net cash provided by discontinued operations 2 24,271
-------- --------
Net cash provided by operations 19,450 49,595
-------- --------
Cash flows from investing activities:
Capital expenditures (65,863) (33,069)
Proceeds from sale of subsidiary 2,100 --
Other investing activities 1,610 876
-------- --------
Net cash used in continuing operations (62,153) (32,193)
Net cash used in discontinued operations -- (38,732)
-------- --------
Net cash used in investing activities (62,153) (70,925)
-------- --------
Cash flows from financing activities:
Proceeds of revolving credit agreement borrowings 5,000 --
Principal repayments of long-term debt (619) (18,290)
Proceeds from issuance of long-term debt -- 11,000
Dividends (6,132) (6,183)
Purchase of common stock (12,179) (12)
Proceeds from issuance of common stock 1,342 --
-------- --------
Net cash used in financing activities (12,588) (13,485)
-------- --------
Net decrease in cash and cash equivalents (55,291) (34,815)
Cash and cash equivalents at beginning of period 68,385 46,083
-------- --------
Cash and cash equivalents at end of period $ 13,094 11,268
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest, net of amounts capitalized $ 357 6,428
======== ========
Income taxes, net $ 7,467 1,348
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
ChemFirst Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited. In Thousands of Dollars)
NOTE 1 - GENERAL
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the financial statements reflect all adjustments (of a normal and
recurring nature) which are necessary to present fairly the financial position,
results of operations and cash flows for the interim periods. These financial
statements should be read in conjunction with the Annual Report of the Company
and Form 10-K for the transition period ended December 31, 1996.
NOTE 2 - DISCONTINUED OPERATIONS
On December 23, 1996, First Mississippi Corporation completed the
spinoff of ChemFirst Inc. (the "Company") and on December 24, 1996, First
Mississippi and its fertilizer operations ("Fertilizer") were merged with a
wholly-owned subsidiary of Mississippi Chemical Corporation. For financial
reporting purposes, this transaction was accounted for as a disposal of the
fertilizer business.
The statement of operations for the three months and nine months ended
September 30, 1996, have been reclassified to separate discontinued and
continuing operations. Revenues and net earnings of the discontinued fertilizer
operations for that period were as follows:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Sales and revenues $60,267 172,736
======= =======
Income from operations before taxes 13,813 41,241
Income tax expense 5,114 15,020
------- -------
Earnings from discontinued operation, net $ 8,699 26,221
======= =======
</TABLE>
<PAGE> 6
A pretax loss of $2,700 was recorded during the nine months ended September
30, 1996, related to previously discontinued businesses and is included in loss
on disposal of business, net of applicable income tax benefits of $954, in the
accompanying financial statements.
NOTE 3 - RESTRUCTURING COSTS AND ASSET WRITE-DOWNS
During the quarter ended June 30, 1996, the company recorded charges of
$18,256 related to a plan to close its aluminum dross processing facility at
Millwood, West Virginia. On January 14, 1997, the Company sold all its aluminum
dross processing assets for $4,100. For the six-month period from July 1 to
December 31, 1996, and the three month and nine month periods ended September
30, 1997, the Company recorded $3,293, $590 and $1,748, respectively, in cash
expenditures against its accrual reserves.
NOTE 4 - INDUSTRY SEGMENT INFORMATION
During the quarter ended September 30, 1997, the Company changed the name
of its Combustion and Thermal Plasma segment to Engineered Products and Services
to more accurately describe the nature of its operations.
NOTE 5 - EFFECT OF ADOPTING ACCOUNTING STANDARDS CHANGE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 - Earnings per Share, in February 1997. This
Statement's objective is to simplify the computation of earnings per share (EPS)
previously found in APB Opinion No. 15, "Earnings per Share", and to make the
U.S. standard for computing EPS more compatible with the EPS standards of other
countries and with that of the International Accounting Standards Committee. It
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that shared in the
earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS
pursuant to Opinion 15.
This Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not allowed. It requires restatement of all prior-period EPS data presented.
Adoption of this Statement is expected to have an immaterial effect on the
Company's future and restated EPS.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations - Nine months ended September 30, 1997 compared to the
nine months ended September 30, 1996
Consolidated Results
Earnings from continuing operations for the nine months ended September 30,
1997, were $22.8 million versus a loss of $4.1 million for the same period of
the prior year. Prior year results include $23.6 million ($15.1 million after
tax) in write-downs and operating losses related to the Company's aluminum
processing operations that were sold in January 1997. In addition, current year
operations reflect higher profits in Chemicals and Engineered Products and
Services, a $1.8 million increase in earnings from equity investees and a $6.4
million decrease in net interest expense versus the prior year. Earnings from
equity investees for the current year include a $1.5 million net gain on a
technology exchange agreement made by Melamine Chemicals, Inc. Interest expense
declined due to the extinguishment of substantially all debt of the Company with
the disposition of Fertilizer operations in December 1996. Earnings from
discontinued operations for the prior year include the results of the disposed
Fertilizer operations.
Segment Operations
Industry Segment Information
(In Thousands of Dollars)
<TABLE>
<CAPTION>
9 Months Ended
September 30
-------------------------------
1997 1996
--------- -------
<S> <C> <C>
Sales
Chemicals $ 216,234 187,109
Engineered Products and Services 55,689 47,718
Steel 56,064 55,812
--------- -------
Total $ 327,987 290,639
========= =======
Operating profit (loss) before income taxes
Chemicals $ 38,005 35,630
Engineered Products and Services 2,220 (28,456)
Steel (754) (157)
--------- -------
Unallocated corporate expenses (8,351) (9,558)
Interest income (expense), net 2,345 (4,076)
Other income, net 296 201
--------- -------
Total $ 33,761 (6,416)
========= =======
</TABLE>
<PAGE> 8
Chemicals pretax operating profits were up 7% over the prior year primarily
due to higher custom manufacturing sales. Total chemicals sales grew 16% over
the prior year on increased sales volume.
Engineered Products and Services pretax operating profits for the current
year were $2.2 million versus losses of $28.5 million last year. Prior year
Engineered Products and Services results include $23.6 million in write-downs
and operating losses related to the aluminum dross processing business. In
addition, results for the current year reflect improvement in combustion
operations where prior year results were hurt by cost overruns in several large
projects. Sales were up 17% over the prior year. Steel results for the current
year were down $0.6 million versus the prior year which included a gain on asset
sales.
Net interest income for the current year included $2.7 million of interest
income offset by $0.3 million of interest expense. Prior year's net interest
expense included $6.3 million of interest expense offset by $2.2 million of
interest income. The lower interest expense is due to the extinguishment of
substantially all debt of the Company with the disposition of Fertilizer
operations in December 1996. Unallocated corporate expense declined from the
prior year primarily due to lower professional service cost.
Results of Operations - Three months ended September 30, 1997
compared to the three months ended September 30, 1996
Consolidated Results
Earnings from continuing operations for the three months ended September
30, 1997, were $6.8 million versus $4.1 million for the same period of the prior
year. Results improved on better performance from Engineered Products and
Services and lower corporate and interest expense.
<PAGE> 9
Segment Operations
Industry Segment Information
(In Thousands of Dollars)
<TABLE>
<CAPTION>
3 Months Ended
September 30
-------------------------------
1997 1996
--------- ------
<S> <C> <C>
Sales
Chemicals $ 69,743 64,351
Engineered Products and Services 18,099 14,875
Steel 18,246 16,206
--------- ------
Total $ 106,088 95,432
========= ======
Operating profit (loss) before income taxes
Chemicals $ 12,908 12,881
Engineered Products and Services 919 (356)
Steel (604) (581)
--------- ------
13,223 11,944
Unallocated corporate expenses (3,080) (4,136)
Interest income (expense), net 553 (1,255)
Other income, net 208 165
--------- ------
Total $ 10,904 6,718
========= ======
</TABLE>
Chemicals pretax operating profits were $12.9 million, unchanged from the
prior year, which included license proceeds from a major electronic chemicals
competitor. Sales grew 8% for the period, primarily due to increased electronic
and specialty chemical volume.
Engineered Products and Services pretax operating profits were $0.9 million
versus losses of $0.4 million last year as sales grew 22%. Steel sales were up
13% over the prior year on higher volume, however, operating results were
unchanged.
Net interest income for the current year included $0.6 million of interest
income offset by $0.1 million of interest expense. Prior year's net interest
expense included $1.8 million of interest expense offset by $0.5 million of
interest income. The lower interest expense is due to the extinguishment of
substantially all debt of the Company with the disposition of Fertilizer
operations. Unallocated corporate expense declined from the prior year primarily
due to lower professional service cost.
<PAGE> 10
Capital Resources and Liquidity
Net cash provided by continuing operations for the current year was
down $5.9 million versus the prior year primarily due to the reduction of
accruals related to the disposition of Fertilizer and aluminum recovery
operations. The net cash flow used in investing activities for the current year
reflects increased capital expenditures in chemicals and the receipt of $2.1
million in proceeds from the sale of aluminum recovery operations. Cash flow
used in financing activities for the current year includes $12.2 million for the
purchase of 507,989 shares of ChemFirst common stock. At period end, $7.8
million of the $20.0 million repurchase authorization announced in January 1997
had not been spent.
Proposed Sale of Melamine Chemicals, Inc.
On October 9, 1997, Borden Chemical, Inc. announced plans to acquire
Melamine Chemicals, Inc. for $20.50 per share in a cash tender offer. The
company owns 1,275,000 Melamine shares and has agreed to support the
acquisition. If completed, the sale would result in an after tax gain of
approximately $8.9 million and net after tax proceeds of $16.8 million.
<PAGE> 11
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
(c) Sales of Unregistered Securities
Pursuant to February 1997 Amendments to the Registrant's Benefits
Restoration Plan (the "BRP"), Deferred Income Plan for Directors,
Officers and Key Employees ("Plan A") and Deferred Compensation Plan
for Outside Directors ("Plan B"), participants in each of these plans
were given the opportunity to have any future amounts deferred under
these plans, as well as any existing cash balances under these plans,
invested in phantom share units ("Share Units"). Participants in the
BRP and Plan B were entitled, effective July 1, 1997, to purchase
Share Units at a price equal to 85% of the fair market value of a
share of the Registrant's Common Stock on the date of purchase or
conversion, as the case may be, provided, however, that initial
conversions of existing cash balances into Share Units were priced at
the fair market value of a share of the Registrant's Common Stock on
July 1, 1997. Participants in Plan A were entitled to purchase Share
Units at a price equal to the fair market value of a share of the
Registrant's Common Stock on the date of purchase or conversion, as
the case may be, provided, however, that initial conversions of
existing cash balances into Share Units were priced at the fair market
value of a share of the Registrant's Common Stock on September 15,
1997. Accordingly, during the three months ended September 30, 1997,
participants in the above referenced plans acquired 193,437 Share
Units for an aggregate purchase price of $4,651,143. The above
referenced Share Units issued by the Registrant during the three
months ending September 30, 1997 were not registered under the
Securities Act of 1933 in reliance upon the registration exemption set
forth in Regulation D under the Securities Act of 1933, which
exemption was made available to the Registrant due to the limited
number of participants in each of the above referenced plans and the
Registrant's compliance with all other requirements of such exemption.
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Registrant during the
three months ended September 30, 1997.
<PAGE> 13
SIGNATURES
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.
CHEMFIRST INC.
November 11, 1997 /s/ J. Kelley Williams
- -------------------------- ---------------------------------------
Date J. Kelley Williams
Chairman and Chief Executive Officer
November 11, 1997 /s/ R. Michael Summerford
- -------------------------- ---------------------------------------
Date R. Michael Summerford
Vice President & Chief Financial Officer
<PAGE> 14
EXHIBIT INDEX
EXHIBITS
27 - Financial Data Schedules
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,094
<SECURITIES> 0
<RECEIVABLES> 65,704
<ALLOWANCES> 947
<INVENTORY> 67,086
<CURRENT-ASSETS> 157,093
<PP&E> 338,340
<DEPRECIATION> 136,037
<TOTAL-ASSETS> 418,043
<CURRENT-LIABILITIES> 65,201
<BONDS> 1,328
0
0
<COMMON> 20,316
<OTHER-SE> 294,913
<TOTAL-LIABILITY-AND-EQUITY> 418,043
<SALES> 327,987
<TOTAL-REVENUES> 333,280
<CGS> 250,099
<TOTAL-COSTS> 250,099
<OTHER-EXPENSES> 3,188
<LOSS-PROVISION> 887
<INTEREST-EXPENSE> 315
<INCOME-PRETAX> 33,761
<INCOME-TAX> 13,335
<INCOME-CONTINUING> 22,794
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,794
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
