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 March 31, 1997
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
50 Public Square
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 March 31, 1997: Common Stock, $.01 Par
Value - 18,626,772 shares.
<PAGE>
INDEX
OM GROUP, INC.
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -- March 31, 1997 and
December 31, 1996
Condensed consolidated statements of income -- Three months
ended March 31, 1997 and 1996
Condensed consolidated statements of cash flows - Three
months ended March 31, 1997 and 1996
Notes to condensed consolidated financial statements - March
31, 1997
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)
March 31,
1997 December 31,
(Unaudited) 1996
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,177 $ 7,818
Accounts receivable 76,412 60,054
Inventories 223,260 195,050
Other current assets 9,135 8,245
-------- --------
Total Current Assets 316,984 271,167
PROPERTY, PLANT AND EQUIPMENT
Land 2,740 467
Buildings and improvements 48,653 40,569
Machinery and equipment 140,050 122,695
Furniture and fixtures 6,185 4,074
-------- --------
197,628 167,805
Less accumulated depreciation 61,154 57,184
-------- --------
136,474 110,621
OTHER ASSETS
Unprocessed inventory 12,429 27,499
Goodwill and other intangible assets 117,714 23,036
Other assets 9,354 6,310
-------- --------
TOTAL ASSETS $592,955 $438,633
======== ========
-2-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 2,094 $ 3,586
Accounts payable 79,854 77,330
Other accrued expenses 15,770 16,390
-------- --------
Total Current Liabilities 97,718 97,306
LONG-TERM LIABILITIES
Long-term debt 259,295 109,295
Contract payable 12,429 27,499
Deferred income taxes 24,262 17,773
Other long-term liabilities 7,389 1,438
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 18,759,346 shares 188 188
Capital in excess of par value 102,125 102,125
Retained earnings 93,060 86,345
Treasury stock (132,574 shares at March 31, 1997
and 141,432 shares at December 31, 1996,
at cost) (3,031) (3,095)
Foreign currency translation adjustments (480) (241)
-------- --------
Total Stockholders' Equity 191,862 185,322
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $592,955 $438,633
======== ========
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
March 31,
--------------------
1997 1996
-------- --------
OPERATIONS
Net sales $110,055 $102,853
Cost of products sold 83,477 82,642
------- -------
26,578 20,211
Selling, general and
administrative expenses 10,882 7,953
------- -------
INCOME FROM OPERATIONS 15,696 12,258
OTHER INCOME (EXPENSE)
Interest expense (3,666) (1,894)
Interest income 21 34
Foreign exchange gain 285 170
------- -------
(3,360) (1,690)
------- -------
INCOME BEFORE INCOME TAXES 12,336 10,568
Income taxes 4,120 3,417
------- -------
NET INCOME $ 8,216 $ 7,151
======= =======
Net income per share $0.43 $0.37
Dividends paid per common share $0.08 $0.07
Weighted average shares (000) 19,327 19,232
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)
Three Months Ended
March 31,
-------------------
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income $8,216 $7,151
Items not affecting cash:
Depreciation and amortization 5,001 4,356
Foreign exchange gain (285) (170)
Deferred income taxes 46 532
Changes in operating assets and liabilities (28,112) (11,837)
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (15,134) 32
INVESTING ACTIVITIES
Expenditures for property, plant and equipment, net (7,875) (6,053)
Acquisition of businesses (123,745)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (131,620) (6,053)
FINANCING ACTIVITIES
Dividend payments (1,501) (1,367)
Long-term borrowings 150,047 10,107
Payments of long-term debt (1,400) (4,000)
Purchase of treasury stock 64 54
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 147,210 4,794
Effect of exchange rate changes on cash (97) (241)
------- -------
Increase (decrease) in cash 359 (1,468)
Cash and cash equivalents at beginning of period 7,818 9,098
------- -------
Cash and cash equivalents at end of period $8,177 $7,630
======= =======
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)
March 31, 1997
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, 1996.
In February, 1997, Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" was issued. SFAS No. 128
establishes standards for computing and presenting earnings per
share. The Company must adopt SFAS No. 128 for the year ending
December 31, 1997 and believes the effect of adoption will not
be material.
Note B Inventories
Inventories consist of the following:
March 31, December 31,
1997 1996
Raw materials and supplies $130,098 $116,389
Finished goods 97,074 87,980
-------- --------
227,172 204,369
LIFO reserve (3,912) (9,319)
-------- --------
Total inventories $223,260 $195,050
======== ========
-6-
<PAGE>
Part I Financial Information
Item 1 Financial Statements
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.
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months
Ended March 31, 1996
Net sales for the three months ended March 31, 1997 were $110.1
million, an increase of 7.0% compared to the same period for
1996. The increase in sales resulted principally from an
increase in physical volume of products sold and the
acquisition of SCM Metal Products, Inc. (SCM), which offset a
decline in the Company's cobalt product prices resulting from
lower cobalt market prices.
Cobalt market prices ranged from $19 to $22 per pound during
the three month period ended March 31, 1997 compared to a range
of $28 to $32 per pound during the same period in 1996. The
market price of nickel ranged from $2.88 to $3.66 per pound
during the three months ended March 31, 1997 compared to $3.43
to $3.78 per pound during the same period in 1996.
Pounds of product sold by the Company were approximately 34.4
million pounds in the three month period ended March 31, 1997
compared to 23.5 million pounds in the same period in 1996.
The following table sets forth the pounds of carboxylates,
salts and powders sold during each period:
-7-
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended March 31,
--------------------------- Percentage
(in millions of pounds) 1997 1996 Change
---- ---- ------
Carboxylates 11.7 10.0 17.0%
Salts 14.8 12.8 15.6%
Powders 7.9 0.7 1,028.6%
---- ---- --------
34.4 23.5 46.4%
==== ==== ========
The increase in physical volume of carboxylate products sold
resulted principally from increased sales of PVC heat
stabilizers in the United States and carboxylates in Europe.
The increase in physical volume of salt and powder products
sold reflects 1.5 million and 7.2 million pounds of primarily
copper salt and powder products sold, respectively, as a result
of the SCM acquisition on January 21, 1997.
Gross profit increased to $26.6 million for the three month
period ended March 31, 1997, a 31.5% increase over the same
period in 1996. The improvement in gross profit was primarily
the result of the acquisition of SCM and higher physical
volumes of product sold. Cost of products sold decreased to
75.9% for the three months ended March 31, 1997 from 80.3% of
net sales during the same period of 1996 primarily because of
lower cobalt prices.
Selling, general and administrative expenses increased to 9.9%
of net sales for the first three months of 1997 compared to
7.7% of net sales in the same period in 1996 due to the decline
in net sales resulting from lower cobalt market prices.
Other expense in 1997 was $3.4 million compared to $1.7 million
in 1996, due primarily to increased interest expense on higher
outstanding borrowings as a result of the acquisition of SCM.
Income taxes as a percentage of income before tax increased to
33.4% for the first three months of 1997 from 32.3% in the same
period in 1996 due to the non-tax deductible goodwill incurred
in the acquisition of SCM.
-8-
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Net income for the three month period ended March 31, 1997 was
$8.2 million, an increase of $1.1 million from the same period
in 1996, due to the aforementioned factors.
Liquidity and Capital Resources
The Company increased its revolving credit facility by $120
million in January, 1997 to finance the acquisition of SCM
Metal Products. In April, 1997, the Company sold 3,450,000
shares of common stock at $26.75 per share in a public
offering. The net proceeds of the offering, in the amount of
$87.6 million, were used to pay down debt incurred in acquiring
SCM. After giving effect to the acquisition and the offering,
the Company's maximum credit, under its credit facility, is
$180 million.
The Company believes that it will have sufficient cash
generated by operations and through its 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 under this line to finance working
capital and certain capital expenditures, including, without
limitation, the purchase of additional raw materials.
Forward Looking Statements
The Company is making this statement in order to satisfy the
"safe harbor" provisions contained in the Private Securities
Litigation Reform Act of 1995. The foregoing discussion
includes forward-looking statements relating to the business of
the Company. Forward-looking statements contained herein or in
other statements made by the Company are subject to
uncertainties and factors relating to the Company's operations
and business environment, all of which are difficult to predict
and many of which are beyond the control of the Company, that
could cause actual results of the Company to differ materially
from those matters expressed in or implied by forward-looking
statements. The Company believes that the following factors,
among others, could affect its future performance and cause
actual results of the Company to differ materially from those
expressed in or implied by forward-looking statements made by
or on behalf of the Company: (a) the price and supply of raw
materials, particularly cobalt, nickel and copper; (b)
-9-
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
continued growth in demand for the Company's products;
(c)risks associated with environmental liability inherent in
the nature of a chemical business; (d) uncertainty relating to
the Company's ability to identify suitable acquisition
candidates and to finance, consummate and assimilate such
future acquisitions; (e) the effect of fluctuations in
currency exchange rates upon the Company's international
operations; and (f) the effect of non-currency risks of
investing in and conducting operations in foreign countries,
including those relating to political, social, economic and
regulatory factors.
-10-
<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
The following report on Form 8-K was filed during the three
months ended March 31, 1997:
1) The Company's Current Report on Form 8-K filed with the
Commission on January 28, 1997 regarding the Company's
acquisition of SCM Metal Products, Inc.;
2) The Company's Current Report on Form 8-K/A filed with the
Commission on March 21, 1997 containing financial
information regarding the Company's acquisition of SCM
Metal Products, Inc.;
3) The Company's Current Report on Form 8-K filed with the
Commission on April 22, 1997 regarding the Company's
quarterly results as of and for the three months ended
March 31, 1997.
-11-
<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.
May 7, 1997 OM GROUP, INC.
/s/ James M. Materna
------------------------
James M. Materna
Chief Financial Officer
(Duly authorized signatory of OM Group, Inc.)
-12-
<PAGE>
Exhibit 11
OM GROUP, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
March 31,
----------------------
1997 1996
---------- ----------
Issued at March 31 18,626,772 18,630,195
Net effect of repurchased treasury
shares and dilutive stock options
based on the treasury stock method 700,326 601,445
---------- ----------
Totals 19,327,098 19,231,640
========== ==========
Net income (000) $8,216 $7,151
====== ======
Per share amount $0.43 $0.37
====== ======
-13-
<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 March 31, 1997, and the related condensed
consolidated statements of income and cash flows for the three-month
periods ended March 31, 1997 and 1996. 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, 1996, 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, 1997, 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, 1996, 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
May 5, 1997
<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 report dated May 5,
1997, relating to the unaudited condensed consolidated interim financial
statements of OM Group, Inc. which are included in its Form 10-Q for the
quarter ended March 31, 1997.
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
333-23729 OM Group, Inc. - Form S-3 Registration
Statement -- 3,000,000 Shares April 24, 1997
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
May 5, 1997
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the
OM Group, Inc. Consolidated Balance Sheets at March 31, 1997 (Unaudited)
and the OM Group, Inc. Consolidated Statements of Income for the three
months ended March 31, 1997 (Unaudited) and is qualified in its entirely
by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 8,177
<SECURITIES> 0
<RECEIVABLES> 76,412
<ALLOWANCES> 0
<INVENTORY> 223,260
<CURRENT-ASSETS> 316,984
<PP&E> 197,628
<DEPRECIATION> 61,154
<TOTAL-ASSETS> 592,955
<CURRENT-LIABILITIES> 97,718
<BONDS> 0
0
0
<COMMON> 188
<OTHER-SE> 191,862
<TOTAL-LIABILITY-AND-EQUITY> 592,955
<SALES> 110,055
<TOTAL-REVENUES> 110,055
<CGS> 83,477
<TOTAL-COSTS> 83,477
<OTHER-EXPENSES> 10,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,666
<INCOME-PRETAX> 12,336
<INCOME-TAX> 4,120
<INCOME-CONTINUING> 8,216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,216
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
