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 April 30, 1996
Commission file number 1-12854
McWhorter Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3919940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East Cottage Place
Carpentersville, Illinois 60110
(Address of principal executive offices, including zip code)
847-428-2657
(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 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
Number of shares outstanding of each of the issuer's classes of common stock,
as of the latest practicable date: 10,480,240 shares as of May 31, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying interim financial statements of McWhorter Technologies,
Inc. (the "Company" or "McWhorter") do not include all disclosures normally
provided in annual financial statements. These financial statements, which
should be read in conjunction with the financial statements contained in
McWhorter's Annual Report on Form 10-K for the fiscal year ended October 31,
1995, are unaudited but include all adjustments that McWhorter's management
considers necessary for a fair presentation. These adjustments consist of
normal recurring accruals. Interim results are not necessarily indicative of
the results for the year. All references to years are to fiscal years ended
October 31 unless otherwise stated.
<TABLE>
STATEMENTS OF INCOME
Dollars in thousands, except per share amounts
<CAPTION>
Quarter Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $76,917 $79,120 $142,157 $146,429
Costs and expenses:
Cost of sales 65,285 68,096 120,770 126,389
Research 1,878 1,821 3,672 3,524
Selling, general and
administrative 3,954 3,906 7,922 7,633
Other expense, net 14 83 20 90
Income from operations 5,786 5,214 9,773 8,793
Interest expense, net 433 596 844 1,168
Income before income taxes 5,353 4,618 8,929 7,625
Income tax expense 2,166 1,824 3,614 3,012
Net income $ 3,187 $ 2,794 $ 5,315 $ 4,613
Net income per share
(Note 1) $ .31 $ .26 $ .51 $ .42
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
BALANCE SHEETS
Dollars in thousands, except per share amounts
<CAPTION>
April 30, October 31,
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash $ 2,659 $ 1,904
Accounts and notes receivable 41,897 41,223
Inventories (Note 2) 20,651 12,020
Other current assets 6,060 5,237
71,267 60,384
Property, plant and equipment 103,854 100,751
Less accumulated depreciation 28,971 24,653
Net property, plant and equipment 74,883 76,098
Other assets 1,829 1,645
$147,979 $138,127
Liabilities & Shareholders' Equity
Current liabilities:
Short-term debt $ 13,262 $ 12,582
Trade accounts payable 22,452 16,066
Accrued liabilities 10,016 9,808
45,730 38,456
Long-term debt, less current portion 19,164 19,182
Deferred income taxes 9,390 6,670
Accrued environmental liabilities 2,179 2,295
Shareholders' equity:
Common stock (par value $.01 per
share; authorized 30,000,000
shares; issued and outstanding
1,480,240 shares at April 30,
1996 and 10,847,064 at
October 31, 1995) 110 110
Additional paid-in capital 10,803 10,895
Retained earnings 69,044 63,729
Restricted stock awards (1,463) (1,463)
Treasury stock, at cost
(485,307 shares at April 30,
1996 and 117,000 shares at
October 31, 1995) (6,978) (1,747)
71,516 71,524
$147,979 $138,127
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
Dollars in thousands
<CAPTION>
Six Months Ended
April 30,
1996 1995
<S> <C> <C>
Operating Activities
Net income $ 5,315 $ 4,613
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 4,388 3,828
Deferred income taxes 2,720 1,793
Other, net (230) 184
Changes in working capital:
Accounts and notes receivable (674) (4,558)
Inventories (8,631) (4,285)
Trade accounts payable &
accrued liabilities 6,616 2,535
Other current assets (823) (426)
Net cash provided by operating
activities 8,681 3,684
Investing Activities
Capital expenditures (3,263) (2,481)
Other, net 20
Net cash used by investing
activities (3,243) (2,481)
Financing Activities
Increase (decrease) in debt, net 662 (418)
Purchase of treasury stock (5,447)
Proceeds from exercise of stock
options 102
Net cash used by financing
activities (4,683) (418)
Increase in cash 755 785
Cash at beginning of period 1,904 1,376
Cash at end of period $ 2,659 $ 2,161
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Dollars in thousands, except share amounts
<CAPTION>
Additional Restricted
Common Stock Paid-in Retained Stock Treasury
Shares Amt Capital Earnings Awards Stock
<S> <C> <C> <C> <C> <C> <C>
Balance October 31,
1995 10,847,064 $110 $10,895 $63,729 $(1,463) $(1,747)
Net income 5,315
Issuance of
common stock for
restricted stock
awards 1,483 22
Exercise of stock
options 14,693 (114) 216
Purchase of treasury
stock (383,000) (5,447)
Balance April 30, 1996
10,480,240 $110 $10,803 $69,044 $(1,463) $(6,978)
</TABLE>
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Net income per share amounts were computed on the basis of the
weighted average number of common and common equivalent shares
outstanding. Such weighted average shares used in the computations
were 10,411,226 and 10,878,079 for the quarters ended April 30,
1996 and 1995, respectively, and 10,514,221 and 10,877,372 for the
six months ended April 30, 1996 and 1995, respectively.
2. The major classes of inventories consist of the following:
<TABLE>
Dollars in thousands
<CAPTION>
April 30, October 31,
1996 1995
<S> <C> <C>
Manufactured products $13,003 $ 6,565
Raw materials, supplies and
work-in-process 7,648 5,455
$20,651 $12,020
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
General
The following discussion of the results of operations and financial
condition of McWhorter should be read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1995.
Results of Operations
Net sales decreased 2.8 percent and 2.9 percent, respectively, in the second
quarter and first six months of 1996 to $76,917,000 and $142,157,000,
respectively, compared to the same periods of 1995. Net sales in both
comparisons were negatively impacted by continued soft market
conditions. The decrease in net sales in the second quarter was primarily
from volume decreases across businesses. For the six months, the
decrease in net sales was due to a 5 percent volume decrease, offset
partially by a 2 percent price increase. The impact of product mix charges
for the quarter and six months was negligible.
The Company's gross profit margin for the second quarter of 1996 was
15.1 percent compared to 13.9 percent in last year's second quarter. For
the six months, the gross profit margin was 15.0 percent versus 13.7
percent for the comparable period a year ago. The higher margins in the
second quarter and for the six months were primarily the result of lower
raw material costs and cost reductions achieved through a number of
internal process improvements implemented throughout 1995, partially
offset by the unfavorable impact of lower volume.
<PAGE>
Operating expenses (research, selling, general and administrative) for the
second quarter were 7.6 percent of sales compared to 7.2 percent in the prior
year second quarter. For the six months, operating expenses were 8.2 percent
of sales compared to 7.6 percent for the same period a year ago. Higher
expenses versus last year were primarily the result of additional headcount,
and the timing of various selling, general and administrative costs.
Net interest expense decreased $163,000, or 27 percent, and $324,000, or
28 percent, for the second quarter and first six months of 1996,
respectively, compared to the same periods in 1995. These comparisons
reflect a reduction in total debt of $6 million from April 30, 1995, and
lower interest rates.
The effective tax rate for the second quarter and first six months of 1996
was 40.5 percent versus 39.5 percent in the comparable periods a year ago.
Net income for the second quarter was $3,187,000, or $.31 per share, a
per-share increase of 19 percent over last year's second quarter net income
of $2,794,000, or $.26 per share. For the six months, net income was
$5,315,000, or $.51 per share, a per-share increase of 21 percent over last
year's six month net income of $4,613,000, or $.42 per share.
Financial Condition
In the first six months of 1996 cash generated by operations was
$8,681,000. The Company's current ratio was 1.6 at April 30, 1996.
Investing activities used cash of $3,243,000 in the first six months of
1996. Capital expenditures of $3,263,000 were primarily for productivity
improvements. Capital spending for fiscal year 1996 is currently
anticipated to be approximately $7,000,000.
Financing activities used cash of $4,683,000 in the first six months of
1996. Debt as a percentage of invested capital was 31.2 percent at April
30, 1996, slightly higher than the 30.8 percent at October 31, 1995. Total
debt increased $662,000 to $32,426,000 at April 30, 1996 from
$31,764,000 at October 31, 1995 primarily from stock repurchases.
In the first six months of 1996 the Company repurchased 383,000 shares
at a total cost of $5,447,000. This completed the Company's repurchase of
500,000 shares under its current authorization. The total cost of the shares
repurchased was $7,194,750 at an average cost per share including
commission of $14.39. In February 1996, the Company announced that its
Board of Directors passed a resolution authorizing the repurchase by the
Company of up to an aggregate of 500,000 additional shares of its
common stock over a twelve-month period.
The Company has a $60,000,000 unsecured revolving credit facility that
terminates on February 10, 1999, unless otherwise extended. At April 30,
1996 $45,000,000 was available under this facility. The credit facility and
internally generated funds are expected to be adequate to finance
McWhorter's capital expenditures and other operating requirements.
<PAGE>
With respect to environmental liabilities, management reviews each
individual site, taking into consideration the numerous factors that
influence the costs that will likely be incurred. Reserves are adjusted as
additional information becomes available to better estimate the total
remediation costs at individual sites. While uncertainties exist with
respect to the amounts and timing of McWhorter's ultimate environmental
liabilities, management believes that such liabilities, individually and in
the aggregate, will not have a material adverse effect on the Company's
financial condition or results of operations.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
On February 21, 1996, the annual meeting of stockholders of the Company
was held. The following individuals were elected directors at the meeting
and the voting results were as follows:
<TABLE>
Directors Votes For Votes Withheld
<S> <C> <C>
D. George Harris 7,981,467 117,289
Michelle L. Collins 8,004,806 93,950
Edward M. Giles 8,008,415 90,341
John G. Johnson, Jr. 8,005,343 93,413
Jeffrey M. Nodland 7,998,234 100,522
John R. Stevenson 7,999,768 98,988
Heinn F. Tomfohrde, III 8,005,667 93,089
</TABLE>
In addition, the following three proposals were submitted to stockholders
as described in the Company's Proxy Statement dated January 10, 1996
and were voted upon and approved by the stockholders at the meeting,
with the voting results as follows:
<TABLE>
Votes Votes Broker
Proposal For Against Abstentions Non-Votes
<S> <C> <C> <C> <C>
Ratification of Ernst & Young
LLP as auditors 8,055,471 33,157 10,128 --
Approval of the 1996 Stock
Incentive Plan 6,757,556 720,181 20,709 610,310
Approval of the 1996 Non-
Employee Director Stock
Option and Award Plan 7,030,968 429,562 27,916 610,310
</TABLE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Statement regarding computation of net income per share
27 Financial Data Schedules
(b) No reports on Form 8-K were filed during the second quarter
of 1996.
<PAGE>
SIGNATURES
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.
McWhorter Technologies, Inc.
/s/ Louise M. Tonozzi-Frederick
Louise M. Tonozzi-Frederick
Controller and Treasurer
Date: June 5, 1996
<PAGE>
<TABLE>
EXHIBIT 11.1 - Statement regarding computation of net income per share
<CAPTION>
Quarter Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary
Average common shares
outstanding 10,482,335 10,868,106 10,598,502 10,866,503
Less: Shares of
restricted stock
awards issued, not
yet vested (94,354) (94,354)
Net effect of dilutive
stock options--based
on the treasury stock
method using average
market price 23,245 9,973 10,073 10,869
Total 10,411,226 10,878,079 10,514,221 10,877,372
Net income $ 3,187,000 $ 2,794,000 $ 5,315,000 $ 4,613,000
Net income per share $ .31 $ .26 $ .51 $ .42
Fully Diluted
Average common shares
outstanding 10,482,335 10,868,106 10,598,502 10,866,503
Net effect of dilutive
stock options--based
on the treasury stock
method using ending
market price, if
higher than average
market price 48,590 10,001 49,965 10,869
Total 10,530,925 10,878,107 10,648,467 10,877,372
Net income $ 3,187,000 $ 2,794,000 $ 5,315,000 $ 4,613,000
Net income per share $ .30 $ .26 $ .50 $ .42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the State of
Income, Balance Sheet, and Statement of Cash Flow and is qualified in it
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 2,659
<SECURITIES> 0
<RECEIVABLES> 41,897
<ALLOWANCES> 385
<INVENTORY> 20,651
<CURRENT-ASSETS> 71,267
<PP&E> 103,854
<DEPRECIATION> 28,971
<TOTAL-ASSETS> 147,979
<CURRENT-LIABILITIES> 45,730
<BONDS> 2,162
0
0
<COMMON> 110
<OTHER-SE> 71,406
<TOTAL-LIABILITY-AND-EQUITY> 147,979
<SALES> 142,157
<TOTAL-REVENUES> 142,157
<CGS> 120,770
<TOTAL-COSTS> 120,770
<OTHER-EXPENSES> 12,458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 844
<INCOME-PRETAX> 8,929
<INCOME-TAX> 3,614
<INCOME-CONTINUING> 5,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,315
<EPS-PRIMARY> .51
<EPS-DILUTED> .50
</TABLE>