<PAGE>
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 September 30, 1996
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
3800 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 September 30, 1996: Common Stock, $.01 Par Value -
12,410,460 shares.
<PAGE>
INDEX
OM GROUP, INC.
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -- September 30, 1996 and
December 31, 1995
Condensed consolidated statements of income -- Three months ended
September 30, 1996 and 1995; Nine months ended September 30, 1996
and 1995
Condensed consolidated statements of cash flows -- Nine months
ended September 30, 1996 and 1995
Notes to condensed consolidated financial statements -- September
30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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
(11) Statement regarding computation of earnings per share
(15) Independent Accountants' Review Report
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
-1-
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
September 30,
1996 December 31,
(Unaudited) 1995
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,263 $ 9,098
Accounts receivable 58,561 71,959
Inventories 194,997 139,067
Other current assets 10,082 13,817
-------- --------
Total Current Assets 268,903 233,941
PROPERTY, PLANT AND EQUIPMENT
Land 468 331
Buildings and improvements 38,738 33,607
Machinery and equipment 113,645 102,576
Furniture and fixtures 4,476 3,427
-------- --------
157,327 139,941
Less accumulated depreciation 54,044 42,661
-------- --------
103,283 97,280
OTHER ASSETS
Unprocessed inventory 20,231
Goodwill and other intangible assets 22,932 23,842
Other assets 3,963 2,979
-------- --------
TOTAL ASSETS $419,312 $358,042
======== ========
-2-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 3,548 $ 5,263
Accounts payable 83,147 61,917
Other accrued expenses 14,080 19,766
-------- --------
Total Current Liabilities 100,775 86,946
LONG-TERM LIABILITIES
Long-term debt 96,295 89,845
Contract payable 20,231
Deferred income taxes 21,860 18,597
Other long-term liabilities 1,224 1,226
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 30,000,000 shares;
issued 12,506,250 shares 125 125
Capital in excess of par value 102,088 102,088
Retained earnings 80,067 61,763
Treasury stock (95,790 shares at September 30,
1996 and 86,112 shares at December 31, 1995,
at cost) (3,120) (2,512)
Foreign currency translation adjustments (233) (36)
-------- --------
Total Stockholders' Equity 178,927 161,428
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $419,312 $358,042
======== ========
See notes to condensed Consolidated Financial Statements
-3-
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- ---------
OPERATIONS
Net sales $89,071 $80,967 $293,409 $255,370
Cost of products sold 68,166 62,490 231,263 200,215
------- ------- ------- -------
20,905 18,477 62,146 55,155
Selling, general and
administrative expenses 7,869 7,378 23,768 22,285
------- ------- ------- -------
INCOME FROM OPERATIONS 13,036 11,099 38,378 32,870
OTHER INCOME (EXPENSE)
Interest expense (1,776) (1,387) (5,530) (3,744)
Interest income 86 80 217 199
Foreign exchange (loss) gain (45) (29) 167 (414)
------- ------- ------- -------
(1,735) (1,366) (5,146) (3,959)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 11,301 9,763 33,232 28,911
Income taxes 3,631 3,157 10,828 9,493
------- ------- -------- --------
NET INCOME $ 7,670 $ 6,606 $ 22,404 $ 19,418
======= ======= ======== ========
Net income per share $0.60 $0.52 $1.75 $1.52
Dividends paid per common share $0.11 $0.09 $0.33 $0.27
Weighted average shares (000) 12,834 12,779 12,838 12,752
See notes to condensed Consolidated Financial Statements
-4-
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Nine Months Ended
September 30,
-------------------
1996 1995
-------- --------
OPERATING ACTIVITIES
Net income $22,404 $19,418
Items not affecting cash:
Depreciation and amortization 12,537 9,996
Foreign exchange (gain) loss (167) 414
Deferred income taxes 3,263 4,874
Changes in operating assets and liabilities (24,120) (27,960)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,917 6,742
INVESTING ACTIVITIES
Expenditures for property, plant and equipment, net (17,662) (24,225)
Acquisition of businesses (150) (14,854)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (17,812) (39,079)
FINANCING ACTIVITIES
Dividend payments (4,100) (3,356)
Long-term borrowings 19,318 67,556
Payments of long-term debt (14,427) (37,155)
Purchase of treasury stock (608) (1,061)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 183 25,984
Effect of exchange rate changes on cash (123) 12
------- -------
Decrease in cash (3,835) (6,341)
Cash and cash equivalents at beginning of period 9,098 8,592
------- -------
Cash and cash equivalents at end of period $ 5,263 $ 2,251
======= =======
See notes to condensed Consolidated Financial Statements
-5-
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1996
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. 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, 1995.
Note B Inventories
Current inventories consist of the following:
September 30, December 31,
1996 1995
-------- --------
Raw materials and supplies $127,740 $ 99,853
Finished goods 83,258 74,715
-------- --------
210,998 174,568
LIFO reserve (16,001) (35,501)
-------- --------
Total current inventories $194,997 $139,067
======== ========
Unprocessed inventory represents cobalt slag feedstock. The cost of
the cobalt obtained from the slag feedstock is based upon prevailing
market prices. A twelve-month supply of the cobalt slag is included
in inventory; the remainder of the slag is classified as non-current
unprocessed inventory.
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.
-6-
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Net sales for the three months ended September 30, 1996 were $89.1
million, an increase of 10.0% compared to the same period for 1995.
The increase in sales resulted principally from increases in physical
volume of products sold and from changes in product mix, more than
offsetting a decline in the Company's product prices resulting from
decreasing cobalt market prices.
Cobalt market prices ranged from $20 to $24 per pound during the three
month period ended September 30, 1996 compared to a range of $27 to
$29 per pound during the same period in 1995. The market price of
nickel ranged from $3.13 to $3.45 per pound during the three months
ended September 30, 1996 compared to $3.77 to $4.15 per pound during
the same period in 1995.
Pounds of product sold by the Company were approximately 24.2 million
pounds in the three month period ended September 30, 1996 compared to
21.3 million pounds in the same period in 1995. The following table
sets forth the pounds of carboxylates, salts and powders sold during
each period:
Three Months Ended September 30, Percentage
(in millions of pounds) 1996 1995 Change
----- ----- -------
Carboxylates 11.2 10.4 7.7%
Salts 12.3 10.4 18.3%
Powders 0.7 0.5 40.0%
----- -----
24.2 21.3 13.6%
===== =====
The increase in carboxylate products sold resulted principally from
higher sales in Europe. The increase in salt products sold resulted
principally from higher sales of cobalt based products. The increase
in powders sold resulted principally from higher sales of coarse grade
powders.
Gross profit increased to $20.9 million for the three month period
ended September 30, 1996, a 13.1% increase over the same period in
1995. The improvement in gross profit was primarily the result of
higher physical volume of products sold. Cost of products sold
decreased to 76.5% of net sales for the three months ended September
30, 1996 from 77.2% of net sales during the same period of 1995
primarily because of lower cobalt market prices.
Selling, general and administrative expenses decreased to 8.8% of net
sales for the third quarter of 1996 from 9.1% of net sales for the
same period in 1995, as net sales increased greater than general
increases in these expenses.
-7-
<PAGE>
Other expense in 1996 was $1.7 million compared to $1.3 million in
1995, due primarily to increased interest expense on higher
outstanding borrowings.
Income taxes as a percentage of income before tax remained the same at
approximately 32% for the three months of 1996 compared to the same
period of 1995.
Net income for the three month period ended September 30, 1996 was
$7.7 million, an increase of $1.1 million from the same period in
1995, due to the aforementioned factors.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Net sales for the nine months ended September 30, 1996 were $293.4
million, an increase of 14.9% compared to the same period for 1995.
The increase in sales resulted principally from increases in physical
volume of products sold and from changes in product mix, more than
offsetting a decline in the Company's product prices resulting from
decreasing cobalt market prices.
Cobalt market prices ranged from $20 to $32 per pound during the nine
month period ended September 30, 1996 compared to a range of $27 to
$30 per pound during the same period in 1995. The market price of
nickel ranged from $3.13 to $3.78 per pound during the nine months
ended September 30, 1996 compared to $3.17 to $4.57 per pound during
the same period in 1995.
Pounds of product sold by the Company were approximately 72.0 million
pounds in the nine month period ended September 30, 1996 compared to
67.1 million pounds in the same period in 1995. The following table
sets forth the pounds of carboxylates, salts and powders sold during
each period:
Nine Months Ended September 30, Percentage
(in millions of pounds) 1996 1995 Change
----- ----- -------
Carboxylates 32.3 31.2 3.5%
Salts 37.6 34.5 9.0%
Powders 2.1 1.4 50.0%
----- -----
72.0 67.1 7.3%
===== =====
The increase in salt products sold resulted principally from higher
sales of cobalt based products. The increase in powders sold resulted
principally from higher sales of coarse grade cobalt powders.
Gross profit increased to $62.1 million for the nine month period
ended September 30, 1996, a 12.7% increase over the same period in
1995. The improvement in gross profit was primarily the result of
higher physical volume of cobalt based products sold. Cost of
products sold remained approximately the same at 78% of net sales for
the nine months ended September 30, 1996 compared to the same period
of 1995.
-8-
<PAGE>
Selling, general and administrative expenses decreased to 8.1% of net
sales for the first nine months of 1996 from 8.7% of net sales for the
same period in 1995, as net sales increased greater than general
increases in these expenses.
Other expense in 1996 was $5.1 million compared to $4.0 million in
1995, due primarily to increased interest expense on higher
outstanding borrowings.
Income taxes as a percentage of income before tax remained
approximately the same at 33% as compared to the same period in 1995.
Net income for the nine month period ended September 30, 1996 was
$22.4 million, an increase of $3.0 million from the same period in
1995, due to the aforementioned factors.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996, the Company's working
capital needs increased due to cobalt inventory purchases and
transportation costs and advance payments associated with certain
cobalt shipments. These factors were partially offset by falling
cobalt raw material prices.
The Company's revolving credit facility was revised in October, 1996
to increase available credit from $60 million to $120 million and
expand its sources of capital by adding two new institutions.
The Company believes that it will have sufficient cash generated by
operations and available through its revolving and other 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 to finance working capital and certain capital
expenditures, including, without limitation, the purchase of
additional raw materials.
-9-
<PAGE>
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
The following exhibits are included herein:
Exhibit (11) Statement Regarding Computation of Earnings Per Share
Exhibit (15) Independent Accountants' Review Report
Exhibit (15) Letter re: Unaudited Interim Financial Information
Exhibit (27) Financial Data Schedule
There were no reports on Form 8-K filed during the three months ended
September 30, 1996.
-10-
<PAGE>
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.
November 1, 1996 OM GROUP, INC.
/s/ James M. Materna
--------------------------
James M. Materna
Chief Financial Officer
(Duly authorized signatory
of OM Group, Inc.)
-11-
<PAGE>
Exhibit 11
OM GROUP, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Issued at September 30 12,506,250 12,506,250 12,506,250 12,506,250
Net effect of repurchased
treasury shares and
dilutive stock options
based on the treasury
stock method 328,162 272,573 332,241 246,128
---------- ---------- ---------- ----------
Totals 12,834,412 12,778,823 12,838,491 12,752,378
========== ========== ========== ==========
Net income (000) $7,670 $6,606 $22,404 $19,418
====== ====== ======= =======
Per share amount $0.60 $0.52 $1.75 $1.52
====== ====== ======= =======
-12-
<PAGE>
Independent Accountants' Review Report
Stockholders and Board of Directors
OM Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of OM
Group, Inc. as of September 30, 1996, and the related condensed consolidated
statements of income for the three-month and nine-month periods ended
September 30, 1996 and 1995, and the condensed consolidated statements of cash
flows for the nine-month periods ended September 30, 1996 and 1995. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of OM Group, Inc. as of December 31,
1995, and the related consolidated statements of income, stockholders' equity,
and cash flows for the year then ended, not presented herein, and in our
report dated January 30, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1995, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Cleveland, Ohio
November 1, 1996
<PAGE>
Acknowledgment of Independent Accountants
Stockholders and Board of Directors
OM Group, Inc.
We are aware of the incorporation by reference in the following Registration
Statements of OM Group, Inc. of our reports dated May 9, 1996, August 2, 1996
and November 1, 1996, relating to the unaudited condensed consolidated interim
financial statements of OM Group, Inc. which are included in its Form 10-Q for
the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996:
Registration
Number Description Filing Date
- ------------ ----------------------------------- ----------------
33-74674 OM Group, Inc. Long-Term Incentive
Compensation Plan - Form S-8
Registration Statement - 1,015,625 Shares January 27, 1994
333-07529 OMG Americas, Inc. Employees' Profit
Sharing Plan -- Form S-8 Registration
Statement - 250,000 Shares July 3, 1996
333-07531 OM Group, Inc. Non-Employees Directors'
Equity Plan -- Form S-8 Registration
Statement - 250,000 Shares July 3, 1996
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a
part of the registration statements prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Cleveland, Ohio
November 1, 1996
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the OM
Group, Inc. Consolidated Balance Sheets at September 30, 1996 (Unaudited) and
the OM Group, Inc. Consolidated Statements of Income for the three months and
nine months ended September 30, 1996 (Unaudited) and is qualified in its
entirely by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 5,263 5,263
<SECURITIES> 0 0
<RECEIVABLES> 58,561 58,561
<ALLOWANCES> 0 0
<INVENTORY> 194,997 194,997
<CURRENT-ASSETS> 268,903 268,903
<PP&E> 157,327 157,327
<DEPRECIATION> 54,044 54,044
<TOTAL-ASSETS> 419,312 419,312
<CURRENT-LIABILITIES> 100,775 100,775
<BONDS> 0 0
0 0
0 0
<COMMON> 125 125
<OTHER-SE> 178,927 178,927
<TOTAL-LIABILITY-AND-EQUITY> 419,312 419,312
<SALES> 89,071 293,409
<TOTAL-REVENUES> 89,071 293,409
<CGS> 68,166 231,263
<TOTAL-COSTS> 68,166 231,263
<OTHER-EXPENSES> 7,869 23,768
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,776 5,530
<INCOME-PRETAX> 11,301 33,232
<INCOME-TAX> 3,631 10,828
<INCOME-CONTINUING> 7,670 22,404
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,670 22,404
<EPS-PRIMARY> .60 1.75
<EPS-DILUTED> .60 1.75
