<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1997
Commission File No. 0-16032
Melamine Chemicals, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 64-0475913
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 18 West Donaldsonville, Louisiana 70346
- --------------------------------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 473-3121
NOT APPLICABLE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filled 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 of 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
----- -----
5,627,934 shares of Melamine Chemicals, Inc. common stock $.01 par value per
share were outstanding on October 29, 1997. Registrant has no other class of
common stock outstanding.
(This document contains 9
sequentially numbered pages
including exhibits, indices, and
financial statements, notes to
financial statements and schedules.
The exhibit index to this document
is located at page 8.)
<PAGE> 2
Part I. Financial Information
<TABLE>
<CAPTION>
MELAMINE CHEMICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<S> <C> <C>
September 30, June 30,
1997 1997
------------- ----------
ASSETS
Current assets:
Cash and temporary investments $31,954,217 33,381,898
Receivables:
Trade (net of allowance for doubtful debts of
$175,000 at September and June) 6,688,117 8,902,384
Other 336,665 183,889
----------- ----------
Total receivables 7,024,782 9,086,273
----------- ----------
Inventories:
Finished goods 277,000 588,000
Supplies 189,546 214,958
----------- ----------
Total inventories 466,546 802,958
----------- ----------
Prepaid expenses:
Spare parts 2,412,392 2,179,773
Other 645,564 517,855
----------- ----------
Total prepaid expenses 3,057,956 2,697,628
----------- ----------
Deferred income taxes 37,957 37,957
----------- ----------
Total current assets 42,541,458 46,006,714
----------- ----------
Plant and equipment, at cost 48,404,619 48,052,680
Less accumulated depreciation 29,489,564 28,380,158
----------- ----------
Net plant and equipment 18,915,055 19,672,522
Notes receivable 10,000,000 10,000,000
Other assets 78,188 70,083
----------- ----------
$71,534,701 75,749,319
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,833,157 5,248,930
Accrued expenses 1,043,521 1,834,217
Income taxes 412,284 4,730,304
----------- ----------
Total current liabilities 6,288,962 11,813,451
----------- ----------
Deferred income taxes 6,926,892 6,926,892
Deferred income 6,965,000 6,965,000
Stockholders' equity:
Preferred stock of $1 par value
Authorized 2,000,000 shares; none issued 0 0
Common stock of $.01 par value. Authorized
20,000,000 shares; issued and outstanding 5,626,934 at
September and 5,529,900 at June 56,269 55,299
Additional paid-in capital 18,425,008 17,275,399
Retained earnings 32,872,570 32,713,278
----------- ----------
Total stockholders' equity 51,353,847 50,043,976
----------- ----------
$71,534,701 75,749,319
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
MELAMINE CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 11,841,675 15,356,718
Cost of sales 10,919,862 12,974,553
------------ ----------
Gross profit 921,813 2,382,165
Selling, general and administrative expenses 1,086,283 868,257
Research and development costs 73,181 63,825
------------ ----------
Operating profit (loss) (237,651) 1,450,083
Other income (expense):
Interest income 527,742 92,395
Miscellaneous (55,838) 5,850
------------ ----------
Earnings before income taxes 234,253 1,548,328
Income tax expense 74,961 495,465
------------ ----------
Net earnings $ 159,292 1,052,863
============ =========
Earnings per common share:
Primary $ .03 .19
============ =========
Fully diluted $ .03 .19
============ =========
Weighted average shares outstanding 5,597,606 5,455,300
============ =========
Dividends per common share $ 0.00 0.00
============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MELAMINE CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 159,292 1,052,863
Adjustments to reconcile net earnings
to net cash provided (used) by operating
activities:
Depreciation 1,115,091 1,059,882
Increase in deferred income taxes 0 385,496
Change in assets and liabilities:
Decrease (increase) in:
Receivables 2,061,491 547,358
Inventories 336,412 (416,789)
Prepaid expenses (360,328) (713,200)
Increase (decrease) in:
Accounts payable (415,773) 580,383
Accrued expenses (790,696) (289,856)
Income taxes (4,318,020) 0
Amounts due to related parties 0 (110,582)
------------ ----------
Cash provided (used) by operating activities (2,212,531) 2,095,555
------------ ----------
Cash flows from investing activities:
Capital expenditures (357,624) (105,070)
Decrease (increase) in other investing activities (8,105) 3,458
------------ ----------
Cash used by investing activities (365,729) (101,612)
------------ ----------
Proceeds from exercise of stock options 1,150,579 0
------------ ----------
Cash from financing activities 1,150,579 0
------------ ----------
Increase (decrease) in cash and cash equivalents (1,427,681) 1,993,943
------------ ----------
Cash and cash equivalents at beginning of period 33,381,898 5,529,644
------------ ----------
Cash and cash equivalents at end of period $ 31,954,217 7,523,587
============ ==========
Suppplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 4,392,981 64,711
============ ==========
Interest $ 160,000 0
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the three-month periods ended
September 30, 1997 and 1996 have not been audited by independent accountants,
but in the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the consolidated
balance sheet, consolidated statement of operations and consolidated statement
of cash flows at the dates and for the periods indicated have been made. Results
of operations for interim periods are not necessarily indicative of results of
operations for the respective full years.
2. CONTINGENCIES
Various legal actions are pending against the Company which seek relief or
damages, including an action seeking contribution to clean-up costs of a
Superfund site by plaintiff parties identified as principally responsible by the
United States Environmental Protection Agency. While the final outcome of these
matters cannot be predicted with certainty at this time, management believes,
after consulting with counsel, that the ultimate liability, if any, will not
have a material effect on the consolidated financial position and results of
operations of the Company.
3. SUBSEQUENT EVENT
On October 9, 1997, the Company entered into a merger agreement with
Borden Chemical, Inc., a subsidiary of Borden, Inc. Under the agreement, Borden
Chemical agreed to acquire the Company for $20.50 per share. The purchase of the
Company's shares is subject to, among other things, the valid tender of at least
51% of the outstanding shares and expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the first quarter of fiscal 1998, the Company's cash position
decreased by $1.4 million. The decrease was due primarily to a payment of $4.4
million in income taxes, which was largely offset by earnings, non-cash expenses
and a $2.1 million decrease in receivables.
During the first quarter of fiscal 1997, the Company incurred capital
expenditures of approximately $358,000. Capital expenditures are expected to
total approximately $1.5 million for the fiscal year. These capital expenditures
are expected to be funded out of operations and the Company's cash position.
Results of Operations
The results for the three-month periods ended September 30, 1997 and 1996
follow:
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Sales:
Millions of pounds 21.7 28.7
Average price/pound 54.5(cent) 53.4(cent)
Production:
Millions of pounds 20.5 27.4
Cost of sales/pound 50.3(cent) 45.1(cent)
</TABLE>
Sales volume for the first quarter of fiscal 1998 decreased by 24% compared
to the same period in fiscal 1997. The decrease was due entirely to the limited
production volume for the quarter. Partially
5
<PAGE> 6
offsetting the decreased volume was a 2% increase in sales prices. The price
increase reflects a very strong market for melamine worldwide.
The cost of sales for the first fiscal quarter of 1998 increased by
5.2(cent) per pound as compared to the same period last year. The cost of sales
increased by 8.5(cent) per pound because the Company's raw material supplier
restricted the amount of urea supply during the quarter. This restriction
reduced production by approximately seven million pounds. Partially offsetting
this increased cost was a reduction in the price of raw material.
Selling, general and administrative expenses increased by $218,000 in the
first quarter of fiscal 1998 as compared to the first quarter of fiscal 1997.
The increase was due primarily to $200,000 in costs incurred in connection with
the previously announced merger agreement with Borden Chemical, Inc.
During the second quarter of fiscal 1998, the Company will take its annual
maintenance shut down. The shut down is expected to last approximately three
weeks and to decrease production for the quarter by approximately six million
pounds. The decreased production is expected to have a negative impact on cost
of sales similar to that in the first fiscal quarter of 1998. In addition, sales
volume will also be negatively affected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments during the quarter ended
September 30, 1997.
Item 6. Exhibits and reports on Form 8-K.
A. Exhibits
2 Agreement and Plan of Merger, dated as of October 9, 1997,
among Borden Chemical, Inc., MC Merger Corp. and the
Company.(1)
3.1 Restated Certificate of Incorporation of the Company.(2)
3.2 Amended By-laws of the Company.(2)
3.3 Amendment No. 1 to the Amended By-laws.(3)
3.4 Amendment No. 2 to the Amended By-laws.(4)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's
Restated Certificate of Incorporation and Amended By-laws
defining the rights of holders of Common Stock.
4.2 Specimen of Common Stock Certificate.(2)
4.3 Registration Rights Agreement by and among the Company,
Ashland and First Mississippi.(2)
4.4 Rights Agreement, dated November 15, 1990, between the Company
and Wachovia Bank and Trust Company, N.A. (now Wachovia Bank,
N.A.) as Rights Agent.(5)
4.5 Amendment to Rights Agreement, dated as of August 7, 1991.(5)
4.6 Second Amendment to Rights Agreement, dated as of August 3,
1994.(5)
6
<PAGE> 7
4.7 Third Amendment to Rights Agreement, dated as of October 9,
1997.(1)
4.8 Fourth Amendment to Rights Agreement, dated as of October 9,
1997.(1)
10.1 Feedstock Agreement dated as of July 1, 1997 among the
Company, Triad Nitrogen, Inc. and Mississippi Chemical
Corporation.(4)
10.2 Site Lease and Servitude Agreement dated as of July 1, 1997 by
and among Triad Nitrogen, Inc. Mississippi Chemical
Corporation and the Company.(4)
11 Statement re computation of per share earnings.
27 Financial Data Schedule
99.1 Offer to Purchase.(1)
- --------------------
(1) Incorporated by reference from the Company's Solicitation/
Recommendation Statement on Form 14D-9 dated October 15, 1997.
(2)Incorporated by reference from the Company's Registration Statement on
form S-1 (Registration No. 33-15181).
(3)Incorporated by reference from the Company's Registration Statement on
Form S-8 (Registration No. 33-20497).
(4)Incorporated by reference from the Company's Annual Report on Form 10-K,
as amended by the Company's Form 10-K/A, for the fiscal year ended June 30,
1997.
(5)Incorporated by reference from the Company's Registration Statement on
Form 8-A dated November 9, 1990 as amended by the Company's Form 8 dated
August 20, 1991 and the Company's Form 8-A/A dated December 8, 1994.
B. Reports on Form 8-K
A Form 8-K dated July 18, 1997 was filed by the Company relating to the
financial results for the year ended June 30, 1997.
Form 8-K dated August 15, 1997 was filed by the Company relating to
Ashland's increased offer to purchase the Company.
A Form 8-K dated August 26, 1997 was filed by the Company relating to its
financial advisor's, Goldman, Sachs & Co.'s, continuing review of Ashland's
offer and other available alternatives.
A Form 8-K dated August 27, 1997 was filed by the Company relating to
Ashland Inc. confirming its offer of August 14 to purchase all of the
issued and outstanding shares of the Company that it does not own.
A Form 8-K dated September 8, 1997 was filed by the Company announcing that
it has temporarily reduced its melamine production due to equipment repairs
being performed by its primary raw materials supplier, Triad Nitrogen Inc.
A Form 8-K dated October 10, 1997 was filed by the Company announcing that
Borden Chemical, Inc. agreed to acquire Melamine Chemicals, Inc. for $20.50
per share in a cash tender offer.
A Form 8-K dated October 22, 1997 was filed by the Company relating to the
financial results for the first quarter.
7
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Melamine Chemicals, Inc.
-----------------------------------------
(Registrant)
Date: October 29, 1997 /s/ Fred Huber
-----------------------------------------
Fred Huber
President & Chief Executive Officer
Date: October 29, 1997 /s/ Wayne D. DeLeo
-----------------------------------------
Wayne D. DeLeo
Vice President & Chief Financial Officer
8
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
9
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET EARNINGS AND SHARES
USED IN ARRIVING AT NET EARNINGS PER SHARE
THREE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Primary and Fully Diluted
-------------------------
Three Months Ended
September 30, 1997
------------------
<S> <C>
Earnings:
Net earnings $ 159,292
----------
Less: Dividends on preferred stock --
Net earnings applicable to common stock $ 159,292
==========
Computation of weighted number of shares outstanding:
----------------------------------------------------
Shares outstanding on a diluted basis 5,597,606
----------
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 31,954,217
<SECURITIES> 0
<RECEIVABLES> 7,024,782
<ALLOWANCES> 175,000
<INVENTORY> 466,546
<CURRENT-ASSETS> 42,541,458
<PP&E> 48,404,619
<DEPRECIATION> 28,489,564
<TOTAL-ASSETS> 71,534,701
<CURRENT-LIABILITIES> 6,288,962
<BONDS> 0
0
0
<COMMON> 56,269
<OTHER-SE> 51,297,578
<TOTAL-LIABILITY-AND-EQUITY> 71,534,701
<SALES> 11,841,675
<TOTAL-REVENUES> 11,841,675
<CGS> 10,919,862
<TOTAL-COSTS> 10,919,862
<OTHER-EXPENSES> (471,904)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 234,253
<INCOME-TAX> 74,961
<INCOME-CONTINUING> 159,292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,292
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
