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 January 31, 1997
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: 10,455,598 shares as of February 28, 1997.
<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, 1996, 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.
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
Quarter Ended
January 31,
Dollars in thousands, except per share amounts
1997 1996
<S> <C> <C>
Net sales $71,534 $65,240
Costs and expenses:
Cost of sales 60,686 55,485
Research 2,056 1,794
Selling, general and administrative 4,035 3,968
Other expense, net 238 6
Income from operations 4,519 3,987
Interest expense, net 297 411
Income before income taxes 4,222 3,576
Income tax expense 1,708 1,448
Net income $ 2,514 $ 2,128
Net income per share (Note 1) $ .24 $ .20
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
BALANCE SHEETS
<CAPTION>
(Dollars in thousands, except per share amounts)
January 31, October 31,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash $ 1,049 $ 1,060
Accounts receivable 38,613 47,166
Inventories (Note 2) 23,304 18,151
Other current assets 5,936 5,019
68,902 71,396
Property, plant and equipment 108,807 107,119
Less accumulated depreciation 35,846 33,489
Net property, plant and equipment 72,961 73,630
Other assets 10,100 8,228
$151,963 $153,254
Liabilities & Shareholders' Equity
Current liabilities:
Short-term debt $ 13,338 $ 9,995
Trade accounts payable 22,011 26,363
Accrued liabilities 8,428 10,504
43,777 46,862
Long-term debt, less current portion 12,130 13,145
Deferred income taxes 10,884 10,486
Accrued environmental liabilities 2,766 3,037
Shareholders' equity:
Common stock (par value $.01 per share;
authorized 30,000,000 shares; issued
and outstanding 10,469,718 shares at
January 31, 1997 and 10,465,940 at
October 31, 1996) 110 110
Additional paid-in capital 10,804 10,803
Retained earnings 80,076 77,562
Currency translation adjustments 39 (74)
Restricted stock awards (1,463) (1,463)
Treasury stock, at cost (495,829 shares
at January 31, 1997 and 499,607
shares at October 31, 1996) (7,160) (7,214)
82,406 79,724
$151,963 $153,254
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
Dollars in thousands
Quarter Ended
January 31,
1997 1996
<S> <C> <C>
Operating Activities
Net income $2,514 $2,128
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,375 2,173
Deferred income taxes 398 897
Other, net 334 (62)
Changes in working capital:
Accounts receivable 8,553 5,705
Inventories (5,153) (6,687)
Trade accounts payable and accrued liabilities (6,428) 3,075
Other current assets (917) 123
Net cash provided by operating activities 1,676 7,352
Investing Activities
Capital expenditures (1,697) (1,441)
Investment in joint venture (2,343)
Other, net 15
Net cash used by investing activities (4,040) (1,426)
Financing Activities
Increase (decrease) in debt, net 2,328 (3,519)
Purchase of treasury stock (3,936)
Proceeds from exercise of stock options 25 83
Net cash provided (used) by financing activities 2,353 (7,372)
Decrease in cash (11) (1,446)
Cash at beginning of period 1,060 1,904
Cash at end of period $1,049 $ 458
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Dollars in thousands, except share amounts
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Balance October 31, 1996 10,465,940 $110 $10,803 $77,562
Net income 2,514
Issuance of common
stock for restricted
stock awards 1,500 8
Exercise of stock options 2,278 (7)
Balance January 31, 1997 10,469,718 $110 $10,804 $80,076
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (CONTINUED)
<CAPTION>
Currency Restricted
Translation Stock Treasury
Adjustments Award Stock
<S> <C> <C> <C>
Balance October 31, 1966 $ (74) $(1,463) $(7,214)
Net income
Issuance of common stock
for restricted stock
awards 22
Exercise of stock options 32
Currency translation
adjustments 113
Balance January 31, 1997 $ 39 $(1,463) $(7,160)
</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 10,493,031 and 10,624,682
for the quarters ended January 31, 1997 and 1996,
respectively.
2. The major classes of inventories consist of the following:
<TABLE>
Dollars in thousands
<CAPTION>
January 31, October 31,
1997 1996
<S> <C> <C>
Manufactured products $14,945 $11,916
Raw materials, supplies and
work-in-process 8,359 6,235
$23,304 $18,151
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
General
The following discussion and analysis of results of operations and
financial condition of McWhorter should be read in conjunction
with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996. Except for historical information contained
herein, certain matters set forth in this Form 10-Q are forward-
looking statements that involve certain risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements.
Results of Operations
Net sales for the first quarter were $71,534,000, a 10 percent
increase from last year's first quarter net sales of $65,240,000. The
increase reflects a 15 percent volume increase offset by
3 percent price and 2 percent mix decreases. In the first quarter of
1997 volume was much stronger than a year ago mainly in the
architectural coatings market and Composite Polymers business.
The Company is optimistic about continued volume growth for the
remainder of 1997.
The Company's gross profit margin for the first quarter of 1997
was 15.2 percent compared to 15.0 percent in last year's first
quarter. Current year margins were favorably impacted by
a number of ongoing internal process improvements. These
favorable effects were partially offset by negative price
comparisons and lower margin product mix in the quarter.
Operating expenses (research, selling, general and administrative)
for the first quarter were 8.5 percent of sales compared to 8.8
percent in the prior year first quarter. Higher actual expenses
compared to last year were primarily the result of additional
research personnel.
<PAGE>
In February of 1997, the Company announced plans to construct a
35,000 square foot laboratory facility in Carpentersville, Illinois.
The projected cost of this new facility is $5,500,000, and is
scheduled to open in the spring of 1998. As a result of this project,
the Company will be closing the facility that is currently leased in
Minneapolis. Employees from product development and technical
support groups will be relocated to the new facility to serve
McWhorter's Liquid Coatings, Powder Coatings and Composite
Polymer businesses. Approximately 36 employees in Research
and Development and Information Technology services will be
impacted by the closing.
In total, the Company expects to incur approximately $1,300,000
of pretax charges to operating earnings, $773,500 after taxes, or
eight cents per share related to this move. Due to the Company's decision
in February, an after-tax charge of two to four cents per share is expected
to be recorded in the second quarter of 1997 for costs associated with the
estimated amount of termination benefits to be paid to certain employees.
The Company also expects to record an after-tax charge, primarily in the
second quarter of 1998, of three to five cents per share for costs
to be incurred in connection with the relocation of existing
employees, hiring of new employees, and costs related to moving
equipment from Minneapolis to Carpentersville.
Interest expense was down 28 percent from last year's first quarter
reflecting a reduction in debt levels of $3,000,000 from January 31,
1996 and lower average interest rates.
The effective tax rate was 40.5 percent in 1997 and 1996.
Net income for the first quarter was $2,514,000, or $.24 per share,
a 20 percent per-share increase over last year's first quarter net
income of $2,128,000, or $.20 per share.
Financial Condition
In the first quarter of 1997 operations generated cash of $1,676,000
compared to $7,352,000 in the first quarter of 1996. The
difference was primarily from changes in working capital. The
Company's current ratio was 1.6 at January 31, 1997.
Investing activities used cash of $4,040,000 in the first quarter of
1997 compared to $1,426,000 in the first quarter of 1996. The
increase was primarily because the Company made its initital
funding of its equity portion of the joint venture in McWhorter
Technologies Thailand Company, Ltd. (McWhorter Thailand) in
the amount of $2,343,000 in the first quarter of 1997. This 40
percent equity investment is accounted for under the equity
method, and is carried as a long-term investment in other assets on
the balance sheet. Capital expenditures of $1,697,000 and
$1,441,000 in the first quarter of 1997 and 1996, respectively, were
primarily for productivity improvements. Capital spending for
fiscal year 1997 is currently anticipated to be approximately
$9,000,000.
Financing activities provided cash of $2,353,000 in the first quarter
of 1997 compared to using cash of $7,372,000 in the first quarter
of 1996. Debt as a percentage of invested capital was 23.6 percent
at January 31, 1997, up slightly from 22.5 percent at October 31,
1996. Total debt increased to $25,468,000 at January 31, 1997
from $23,140,000 at October 31, 1996. This
<PAGE>
increase was primarily attributed to the Company's funding of its
equity investment in McWhorter Thailand. In the first quarter of
1996, the Company paid down debt of $3,519,000 and purchased
treasury stock for $3,936,000.
The Board of Directors of the Company has adopted a resolution
authorizing the repurchase by the Company of up to an aggregate
of 500,000 shares of its common stock over a twelve-month period
ending in February 1998. As of February 28, 1997, the Company
had acquired 28,420 of these shares at a total cost of $553,000.
The Company has a $60,000,000 unsecured revolving credit
facility that terminates on February 10, 1999. At January 31, 1997,
$50,000,000 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.
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 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 first
quarter of 1997.
<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
Vice President and Chief Financial Officer
Date: March 10, 1997
<PAGE>
EXHIBIT 11.1 - Statement regarding computation of net income per share
<TABLE>
<CAPTION>
Quarter Ended
January 31,
1997 1996
<S> <C> <C>
Primary
Average common shares outstanding 10,467,440 10,712,144
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 119,945 7,892
Total 10,493,031 10,625,682
Net income $2,514,000 $2,128,000
Net income per share $ .24 $ .20
Fully Diluted
Average common shares outstanding 10,467,440 10,712,144
Net effect of dilutive stock options--
based on the treasury stock method
using the ending market price, if
higher than average market price 143,224 7,892
Total 10,610,664 10,720,036
Net income $2,514,000 $2,128,000
Net income per share $ .24 $ .20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Income, Balance Sheets and Statements of Cash Flows and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 1,049
<SECURITIES> 0
<RECEIVABLES> 38,613
<ALLOWANCES> 0
<INVENTORY> 23,304
<CURRENT-ASSETS> 68,902
<PP&E> 108,807
<DEPRECIATION> 35,846
<TOTAL-ASSETS> 151,963
<CURRENT-LIABILITIES> 43,777
<BONDS> 4,285
0
0
<COMMON> 110
<OTHER-SE> 82,296
<TOTAL-LIABILITY-AND-EQUITY> 151,963
<SALES> 71,534
<TOTAL-REVENUES> 71,534
<CGS> 60,686
<TOTAL-COSTS> 60,686
<OTHER-EXPENSES> 6,626
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 297
<INCOME-PRETAX> 4,222
<INCOME-TAX> 1,708
<INCOME-CONTINUING> 2,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,514
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
