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 June 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 June 30, 1996: Common Stock, $.01 Par Value-- 12,421,708
shares.
<PAGE>
INDEX
OM GROUP, INC.
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -- June 30, 1996 and December
31, 1995
Condensed consolidated statements of income - Three months ended
June 30, 1996 and 1995; Six months ended June 30, 1996 and 1995
Condensed consolidated statements of cash flows -Six months ended
June 30, 1996 and 1995
Notes to condensed consolidated financial statements-- June 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
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 Date Schedule
-1-
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
June 30,
1996 December 31,
(Unaudited) 1995
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,718 $ 9,098
Accounts receivable 64,462 71,959
Inventories 161,726 139,067
Other current assets 13,669 13,817
-------- --------
Total Current Assets 249,575 233,941
PROPERTY, PLANT AND EQUIPMENT
Land 468 331
Buildings and improvements 35,257 33,607
Machinery and equipment 111,777 102,576
Furniture and fixtures 3,922 3,427
-------- --------
151,424 139,941
Less accumulated depreciation 50,465 42,661
-------- --------
100,959 97,280
OTHER ASSETS
Unprocessed inventory 21,900
Goodwill and other intangible assets 23,238 23,842
Other assets 2,333 2,979
-------- --------
TOTAL ASSETS $398,005 $358,042
======== ========
-2-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 4,730 $ 5,263
Accounts payable 69,381 61,917
Other accrued expenses 14,864 19,766
-------- --------
Total Current Liabilities 88,975 86,946
LONG-TERM LIABILITIES
Long-term debt 92,438 89,845
Contract payable 21,900
Deferred income taxes 20,325 18,597
Other long-term liabilities 1,211 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 73,762 61,763
Treasury stock (84,542 shares at June 30, 1996
and 86,112 shares at December 31, 1995,
at cost) (2,621) (2,512)
Foreign currency translation adjustments (198) (36)
-------- --------
Total Stockholders' Equity 173,156 161,428
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $398,005 $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 Six Months Ended
June 30, June 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- ---------
OPERATIONS
Net sales $101,485 $84,974 $204,338 $174,403
Cost of products sold 80,455 65,843 163,097 137,725
------- ------- ------- -------
21,030 19,131 41,241 36,678
Selling, general and
administrative expenses 7,946 7,578 15,899 14,907
------- ------- ------- -------
INCOME FROM OPERATIONS 13,084 11,553 25,342 21,771
OTHER INCOME (EXPENSE)
Interest expense (1,860) (1,437) (3,754) (2,357)
Interest income 97 52 131 119
Foreign exchange gain (loss) 42 (113) 212 (385)
------- ------- ------- -------
(1,721) (1,498) (3,411) (2,623)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 11,363 10,055 21,931 19,148
Income taxes 3,780 3,333 7,197 6,336
------- ------- ------- -------
NET INCOME $ 7,583 $ 6,722 $14,734 $12,812
======= ======= ======= =======
Net income per share $0.59 $0.53 $1.15 $1.01
Dividends paid per common share $0.11 $0.09 $0.22 $0.18
Weighted average shares (000) 12,863 12,746 12,842 12,739
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)
Six Months Ended
June 30,
-------------------
1996 1995
-------- --------
OPERATING ACTIVITIES
Net income $14,734 $12,812
Items not affecting cash:
Depreciation and amortization 8,674 6,367
Foreign exchange (gain) loss (212) 385
Deferred income taxes 1,728 3,264
Changes in operating assets and liabilities (11,837) (11,943)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,087 10,885
INVESTING ACTIVITIES
Expenditures for property, plant and equipment, net (11,753) (15,069)
Acquisition of businesses (5,313)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (11,753) (20,382)
FINANCING ACTIVITIES
Dividend payments (2,735) (2,238)
Long-term borrowings 10,220 12,400
Payments of long-term debt (8,000 (2,155)
Purchase of treasury stock (109) (696)
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (624) 7,311
Effect of exchange rate changes on cash (90) 59
------- -------
Increase (decrease) in cash 620 (2,127)
Cash and cash equivalents at beginning of period 9,098 8,592
------- -------
Cash and cash equivalents at end of period $9,718 $6,465
======= =======
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)
June 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:
June 30, December 31,
1996 1995
-------- --------
Raw materials and supplies $114,397 $ 99,853
Finished goods 77,080 74,715
-------- --------
191,477 174,568
LIFO reserve (29,751) (35,501)
-------- --------
Total current inventories $161,726 $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 June 30, 1996 Compared to Three Months Ended June
30, 1995
Net sales for the three months ended June 30, 1996 were $101.5
million, an increase of 19.4% 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.
Cobalt market prices ranged from $24 to $29 per pound during the three
month period ended June 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 $3.42 to $3.78 per pound during the three months ended
June 30, 1996 compared to $3.17 to $3.71 per pound during the same
period in 1995.
Pounds of product sold by the Company were approximately 24.4 million
pounds in the three month period ended June 30, 1996 compared to 21.5
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 June 30, Percentage
(in millions of pounds) 1996 1995 Change
----- ----- -------
Carboxylates 11.1 10.3 7.8%
Salts 12.6 10.7 17.8%
Powders 0.7 0.5 40.0%
----- -----
24.4 21.5 13.5%
===== =====
The increase in salt products sold resulted principally from higher
sales of cobalt based products.
Gross profit increased to $21.0 million for the three month period
ended June 30, 1996, a 9.9% 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 increased to
79.3% of net sales for the three months ended June 30, 1996 from 77.5%
of net sales during the same period of 1995 primarily because of
product mix.
Selling, general and administrative expenses decreased to 7.8% of net
sales for the second quarter of 1996 from 8.9% 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 $1.7 million compared to $1.5 million in
1995, due primarily to increased interest expense on higher
outstanding borrowings.
-7-
<PAGE>
Income taxes as a percentage of income before tax remained the same at
approximately 33% for the three months of 1996 compared to the same
period of 1995.
Net income for the three month period ended June 30, 1996 was $7.6
million, an increase of $0.9 million from the same period in 1995, due
to the aforementioned factors.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30,
1995
Net sales for the six months ended June 30, 1996 were $204.3 million,
an increase of 17.2% compared to the same period for 1995. The
increase in sales resulted principally from changes in product mix,
which resulted in higher physical volume of cobalt based products
sold.
Cobalt market prices ranged from $24 to $32 per pound during the six
month period ended June 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 $3.42 to $3.78 per pound during the six months ended June
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 47.8 million
pounds in the six month period ended June 30, 1996 compared to 45.8
million pounds in the same period in 1995. The following table sets
forth the pounds of carboxylates, salts and powders sold during each
period:
Six Months Ended June 30, Percentage
(in millions of pounds) 1996 1995 Change
----- ----- -------
Carboxylates 21.1 20.8 1.4%
Salts 25.3 24.1 5.0%
Powders 1.4 0.9 55.6%
----- -----
47.8 45.8 4.4%
===== =====
The increase in physical volume of powder products sold was the result
of higher sales of coarse grade cobalt powder.
Gross profit increased to $41.2 million for the six month period ended
June 30, 1996, a 12.4% 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 79% of net sales for the six months
ended June 30, 1996 compared to the same period of 1995.
Selling, general and administrative expenses decreased to 7.8% of net
sales for the first six months of 1996 from 8.5% of net sales for the
same period in 1995, as net sales increased greater than general
increases in these expenses.
-8-
<PAGE>
Other expense in 1996 was $3.4 million compared to $2.6 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 six month period ended June 30, 1996 was $14.7
million, an increase of $1.9 million from the same period in 1995,
due to the aforementioned factors.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company's working
capital needs remained approximately the same as falling cobalt raw
material prices were offset by transportation costs and advance
payments associated with certain cobalt shipments.
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 4 Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of OM Group, Inc. was held on May
7, 1996. An election of Directors was held at which Lee R. Brodeur,
Thomas R. Miklich and James P. Mooney were nominated and elected for
terms which expire in 1999. The following votes were cast for or were
withheld with respect to each of the nominees:
Director For Withheld
----------------- ---------- --------
Lee R. Brodeur 10,058,719 27,171
Thomas R. Miklich 10,058,939 26,951
James P. Mooney 10,058,939 26,951
Other directors whose terms of office as Directors continued after the
meeting are:
Term of
Director Office Expires
------------------ ----------------
Eugene Bak 1998
William M. LeSuer 1996
John E. Mooney 1997
Markku Toivanen 1997
Ernst & Young LLP was re-appointed as independent public accountants:
For - 10,081,282, against - 1,016, abstain - 3,592.
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 Date Schedule
There were no reports on Form 8-K filed during the three months ended
June 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.
August 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 Six Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Issued at June 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 356,709 240,285 335,780 232,903
---------- ---------- ---------- ----------
Totals 12,862,959 12,746,535 12,842,030 12,739,153
========== ========== ========== ==========
Net income (000) $7,583 $6,722 $14,734 $12,812
====== ====== ======= =======
Per share amount $0.59 $0.53 $1.15 $1.01
====== ====== ======= =======
-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 June 30, 1996, and the related condensed consolidated
statements of income for the three-month and six-month periods ended June 30,
1996 and 1995, and the condensed consolidated statements of cash flows for the
six-month periods ended June 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 principals.
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
August 2, 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 and August 2,
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 and June 30, 1996:
Registration
Number Description Filing Date
- ------------ ----------------------------------- ----------------
33-74674 OM Group, Inc. Long-Term Incentive
Compensation Plan - Form S-8
Registration Statement January 27, 1994
333-07529 OMG Americas, Inc. Employees' Profit
Sharing Plan -- Form S-8 Registration
Statement July 3, 1996
333-07531 OM Group, inc. Non-Employees Directors'
Equity Plan -- Form S-8 Registration
Statement 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
August 2, 1996
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the OM
Group, Inc. Consolidated Balance Sheets at June 30, 1996 (Unaudited) and the
OM Group, Inc. Consolidated Statements of Income for the three months and six
months ended June 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 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 9,718 9,718
<SECURITIES> 0 0
<RECEIVABLES> 64,462 64,462
<ALLOWANCES> 0 0
<INVENTORY> 161,726 161,726
<CURRENT-ASSETS> 249,575 249,575
<PP&E> 151,424 151,424
<DEPRECIATION> 50,465 50,465
<TOTAL-ASSETS> 398,005 398,005
<CURRENT-LIABILITIES> 88,975 88,975
<BONDS> 0 0
0 0
0 0
<COMMON> 125 125
<OTHER-SE> 173,031 173,031
<TOTAL-LIABILITY-AND-EQUITY> 398,005 398,005
<SALES> 101,485 204,338
<TOTAL-REVENUES> 101,485 204,338
<CGS> 80,455 163,097
<TOTAL-COSTS> 80,455 163,097
<OTHER-EXPENSES> 7,946 15,899
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,860 3,754
<INCOME-PRETAX> 11,363 21,931
<INCOME-TAX> 3,780 7,197
<INCOME-CONTINUING> 7,583 14,734
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,583 14,734
<EPS-PRIMARY> .59 1.15
<EPS-DILUTED> .59 1.15
