<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ______
Commission file number 000-29278
KMG CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2640529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10611 HARWIN DRIVE, SUITE 402
HOUSTON, TEXAS 77036
(Address of principal executive offices)
(713) 988-9252
(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 Exchange Act 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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 6,820,169 shares of common
stock
<PAGE>
PART I --- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
KMG CHEMICALS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 31 July 31,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS $14,789,060 $14,826,501
PROPERTY, PLANT AND EQUIPMENT -
Net of accumulated depreciation 3,338,604 2,189,958
NOTES RECEIVABLE, Less current portion 107,237 116,781
DEFERRED TAX ASSET 300,869 289,684
OTHER ASSETS 8,880,329 7,889,455
----------- -----------
TOTAL $27,416,099 $25,312,379
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $7,580,814 $ 5,169,002
LONG TERM DEBT 2,326,296 2,554,414
----------- -----------
Total liabilities 9,907,110 7,723,416
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
10,000,000 shares authorized,
none issued
Common stock, $.01 par value,
40,000,000 shares authorized,
7,000,169 shares issued and
6,820,169 shares outstanding 70,002 70,002
Additional paid-in capital 1,140,381 1,129,507
Treasury stock (900,000)
Retained earnings 17,198,606 16,389,454
----------- -----------
Total stockholders' equity 17,508,989 17,588,963
----------- -----------
TOTAL $27,416,099 $25,312,379
=========== ===========
</TABLE>
See notes to consolidated financial statements.
1
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KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
NET SALES $8,302,040 $8,833,089
COST OF SALES 5,155,010 5,450,933
---------- ----------
Gross Profit 3,147,030 3,382,156
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,679,356 1,802,129
---------- ----------
Operating Income 1,467,674 1,580,027
OTHER INCOME (EXPENSE):
Interest & Dividend Income 123,673 66,679
Interest Expense (62,799) (78,043)
Other 2,347 2,040
---------- ----------
Total Other Income (Expense) 63,221 (9,324)
INCOME BEFORE INCOME TAX 1,530,895 1,570,703
Provision For Income Tax (581,740) (565,453)
---------- ----------
NET INCOME $ 949,155 $1,005,250
========== ==========
EARNINGS PER SHARE:
Basic $ 0.14 $ 0.14
========== ==========
Diluted $ 0.14 $ 0.14
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 6,972,778 7,000,169
========== ==========
Diluted 7,017,950 7,054,907
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL TOTAL
SHARES PAR PAID-IN TREASURY RETAINED STOCKHOLDERS'
ISSUED VALUE CAPITAL STOCK EARNINGS EQUITY
--------- ------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1999 7,000,169 $70,002 $1,063,385 $ 0 $12,824,656 $13,958,043
Warrants issued for services 66,122 66,122
Dividends (280,007) (280,007)
Net income 3,844,805 3,844,805
--------- ------- ---------- --------- ----------- -----------
BALANCE AT JULY 31, 2000 7,000,169 70,002 1,129,507 0 16,389,454 17,588,963
========= ======= ========== ========= =========== ===========
Warrants issued for services 10,874 10,874
Purchase of 180,000 shares
of treasury stock (900,000) (900,000)
Dividends (140,003) (140,003)
Net income 949,155 949,155
--------- ------- ---------- --------- ----------- -----------
BALANCE AT OCTOBER 31, 2000 7,000,169 $70,002 $1,140,381 $(900,000) $17,198,606 $17,508,989
========= ======= ========== ========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
KMG CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31
--------------------------
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 949,155 $1,005,250
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 265,310 266,117
(Gain) on sale of securities (829)
Options and warrants issued for services 10,874 47,997
Deferred income tax asset (11,185) (10,681)
Changes in operating assets and liabilities:
Accounts receivable - trade 266,028 110,408
Accounts receivable - other (48,988) 10,992
Inventories (1,457,945) (724,848)
Prepaid expenses and other assets (46,192) 81,137
Accounts payable 1,212,937 (269,524)
Accrued liabilities 1,182,450 280,595
----------- ----------
Net cash provided by operating activities $ 2,322,444 $ 796,614
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (30,952) (40,274)
Proceeds from sale of securities 7,752
Loans to third parties - short term 6,104
Collection of notes receivable 698,373 2,162
Product line purchase from Zeneca affiliate (2,300,000)
Additions to other assets (73,878) (197,403)
----------- ----------
Net cash used in investing activities $(1,706,457) $ (221,659)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (211,694) (196,450)
Purchase of treasury stock (900,000)
Payment of dividends (140,003) (140,003)
----------- ----------
Net cash used in financing activities $(1,251,697) $ (336,453)
----------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (635,710) 238,502
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,830,843 4,840,963
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,195,133 $5,079,465
=========== ==========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid during the period for interest $ 62,799 $ 78,043
Cash paid during the period for income taxes $ 73,266 $ 63,986
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION - The unaudited condensed consolidated
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission and reflect in the
opinion of management all adjustments, consisting only of normal recurring
accruals, that are necessary for a fair presentation of financial position and
results of operations for the interim periods presented. These financial
statements include the accounts of KMG Chemicals, Inc. and its subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation. Certain information and footnote disclosures
required by accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
The financial statements included herein should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended July 31, 2000.
(2) EARNINGS PER SHARE - Basic earnings per share has been computed by
dividing net income by the weighted average shares outstanding. Diluted earnings
per share has been computed by dividing net income by the weighted average
shares outstanding plus dilutive potential common shares.
The following table presents information necessary to calculate basic
and diluted earnings per share for periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
October 31
2000 1999
------------ ------------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net Income $ 949,155 $ 1,005,250
------------ ------------
Weighted Average Shares Outstanding 6,972,778 7,000,169
------------ ------------
Basic Earnings Per Share $ 0.14 $ 0.14
============ ============
DILUTED EARNINGS PER SHARE
Net Income $ 949,155 $ 1,005,250
------------ ------------
Weighted Average Shares Outstanding 6,972,778 7,000,169
Shares Issuable from Assumed Conversion of
Common Share Options 45,172 54,738
------------ ------------
Weighted Average Shares Outstanding, as
Adjusted 7,017,950 7,054,907
------------ ------------
Diluted Earnings Per Share $ 0.14 $ 0.14
============ ============
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales and certain
other financial data, including the amount of the change between the three month
periods ended October 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
October 31
---------------------------- Increase/
2000 1999 (Decrease)
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............. $ 8,302,040 $ 8,833,089 $ (531,049)
Gross profit........... $ 3,147,030 $ 3,382,156 $ (235,126)
Gross profit as a
percent of net sales... 37.9% 38.3% (0.4)%
Net income............. $ 949,155 $ 1,005,250 $ (56,095)
Earnings per share..... $ 0.14 $ 0.14 $ 0.00
Weighted average
shares outstanding .... 6,972,778 7,000,169 (27,391)
</TABLE>
SALES REVENUE
Net sales revenue for the first quarter of fiscal 2001 was 6% less than
in the first quarter of fiscal 2000. Net sales revenue declined on reduced sales
volume for creosote products. Creosote sales were adversely affected by the
continued deferral of railroad crosstie replacement by major railroads.
Management believes that demand for its wood treating chemical is no longer
declining but will likely remain soft during fiscal 2001.
GROSS PROFIT
Gross profit for the first quarter of fiscal 2001 was approximately
$235 thousand less than in the same quarter of the prior fiscal year. The
Company's gross profit margin was 37.9% for the first quarter of this fiscal
year as compared to 38.3% in the same quarter of fiscal 2000. The decrease in
gross profit is in line with the reduction in net sales.
6
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first quarter of
fiscal 2001 were approximately $123 thousand less than in that same period of
the prior fiscal year. This decline is primarily caused by a timing difference
in expenses associated with the Company's ongoing acquisition efforts.
OTHER INCOME (EXPENSE)
The $73 thousand improvement in other income is attributable to the
combination of higher cash balances held by the Company during the first quarter
of the current fiscal year and higher interest rates realized on those cash
balances.
NEW DEVELOPMENTS
The Company acquired an herbicides product line from an affiliate of
Zeneca Ag Products, Inc. ("Zeneca"), monosodium and disodium methanearsonic
acid herbicides ("MSMA products"), on October 3, 2000 for $2.3 million plus
the payment of an earnout on adjusted net sales of the herbicides over five
years. MSMA products are sold under the name Bueno(R) 6 and used in the
United States and elsewhere in the world primarily as a cotton crop
herbicide. The Company believes that its sales of MSMA products in fiscal
2001 will be approximately $5-7 million. The selling season for MSMA products
is largely in the last half of the Company's fiscal year. Zeneca's affiliate
will continue to produce MSMA products for the Company in calendar 2000. The
Company intends to begin moving the purchased manufacturing equipment to its
Matamoros, Mexico plant in January 2001, to reassemble it and restart
production late in calender 2001. Through the end of the first quarter of
fiscal 2001, the Company has purchased approximately $2 million in MSMA
products inventory from Zeneca's affiliate under a toll manufacturing
agreement.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 2001, the Company invested
approximately $131 thousand in capital improvements. The Company also paid an
initial installment of $1.3 million to purchase the MSMA products line and will
pay a second installment of $1 million when the MSMA products production
equipment is delivered early in 2001. These payments are being financed out of
the Company's working capital. The principal balance of the Company's term loan
with SouthTrust Bank of Alabama, National Association ("SouthTrust") was
approximately $3.2 million as of October 31, 2000. As of that same date, the
Company had no borrowings under its revolving loan with SouthTrust, but its
borrowing base availability under that loan was $2.5 million.
7
<PAGE>
In October 2000, the Company purchased 180,000 shares of the common
stock of the Company from its President, David L. Hatcher, at a price of $5.00
per share. The per share purchase price was established by the Board of
Directors on August 29, 2000 when it approved the purchase and was based on the
then current price of the common stock. Of the total purchase price of $900
thousand, Mr. Hatcher used $674 thousand of the proceeds to purchase the
Company's interest in a participation loan by Sterling Bank to National Health
Capital, Ltd. ("NHC"), to purchase a second loan to NHC and to repay loans made
to him by the Company in fiscal 1998 and 1992.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain information included or incorporated by reference in this
report is forward-looking, including statements contained in "Management's
Discussion and Analysis of Operations." It includes statements regarding the
intent, belief and current expectations of the Company and its directors and
officers. Forward-looking information involves important risks and uncertainties
that could materially alter results in the future from those expressed in these
the statements. These risks and uncertainties include, but are not limited to,
the ability of the Company to maintain existing relationships with long-standing
customers, the ability of the Company to successfully implement productivity
improvements, cost reduction initiatives, facilities expansion and the ability
of the Company to develop, market and sell new products and to continue to
comply with environmental laws, rules and regulations. Other risks and
uncertainties include uncertainties relating to economic conditions,
acquisitions and divestitures, government and regulatory policies, technological
developments and changes in the competitive environment in which the Company
operates. Persons reading this report are cautioned that such statements are
only predictions and that actual events or results may differ materially. In
evaluating such statements, readers should specifically consider the various
factors that could cause actual events or results to differ materially from
those indicated by the forward-looking statements.
8
<PAGE>
PART II --- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of the shareholders of the Company was held on
November 21, 2000. At that meeting, the shareholders voted to elect all the
nominees for director as follows:
<TABLE>
<CAPTION>
NOMINEES VOTES FOR VOTES AGAINST
-------- --------- -------------
<S> <C> <C>
David L. Hatcher 6,589,056 331
George W. Gilman 6,589,056 331
Bobby D. Godfrey 6,589,056 331
Fred C. Leonard, III 6,589,056 331
Charles M. Neff, Jr. 6,589,056 331
Richard L. Urbanowski 6,589,056 331
</TABLE>
The shareholders also voted to ratify the appointment of Deloitte &
Touche LLP as independent accountants and auditors of the Company for fiscal
year 2001. The vote was 6,588,508 votes for the ratification, 500 votes against
and 379 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed during the first quarter on
October 18, 2000 and reported on the MSMA products line
acquisition. See, "Management's Discussion and Analysis of
Operations--New Developments."
9
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KMG Chemicals, Inc.
By: /s/ David L. Hatcher Date: December 14, 2000
--------------------------------
David L. Hatcher, President
By: /s/ Jack Vernie Date: December 14, 2000
--------------------------------
Jack Vernie, Controller
