<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ____ TO ____
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 847-428-2657
CARPENTERSVILLE, ILLINOIS 60110 (Registrant's telephone number
(Address of principal executive offices, including area code)
including zip code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
------------------- --------------------
Common Stock, $0.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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 / /
As of January 31, 2000, 9,950,685 shares of common stock were outstanding.
1
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED 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 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 expected for the
year. The financial statements and the accompanying discussion and analysis of
results of operations and financial condition should be read in conjunction with
the financial statements and notes contained in McWhorter's Annual Report on
Form 10-K for the fiscal year ended October 31, 1999. All references to years
are to fiscal years ended October 31. Unless otherwise stated, per share
information is on a diluted basis.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended January 31,
-------------------------------------
2000 1999
-------------------- ----------------
<S> <C> <C>
Net sales $ 103,299 $ 96,235
Costs and expenses:
Cost of sales 90,128 81,566
Research 2,923 2,865
Selling, general and administrative 7,428 7,843
Other income, net (111) (67)
---------------- -------------
Income from operations 2,931 4,028
Interest expense, net 2,130 1,981
---------------- -------------
Income before income taxes 801 2,047
Income tax expense 328 839
---------------- -------------
Net income $ 473 $ 1,208
================ =============
Earnings per share - basic (Note 1) $ .05 $ .12
================ =============
Earnings per share - diluted (Note 1) $ .05 $ .12
================ =============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
January 31, October 31, January 31,
2000 1999 1999
---------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 9,042 $ 3,665 $ 5,736
Accounts receivable 72,489 82,174 72,047
Inventories (Note 2) 46,213 42,243 42,670
Other current assets 10,525 12,404 12,865
--------- --------- ---------
138,269 140,486 133,318
Property, plant and equipment 225,434 220,307 201,644
Accumulated Depreciation (76,585) (73,184) (61,951)
--------- --------- ---------
Net property, plant and equipment 148,849 147,123 139,693
Intangibles, net 67,980 71,176 75,336
Other assets 3,651 3,277 7,905
--------- --------- ---------
$ 358,749 $ 362,062 $ 356,252
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 18,220 $ 16,549 $ 22,233
Trade accounts payable 52,657 54,052 47,565
Accrued liabilities 12,757 14,848 15,004
--------- --------- ---------
83,634 85,449 84,802
Long-term debt, less current portion 134,975 134,036 130,760
Deferred income taxes 24,560 25,130 24,890
Accrued environmental liabilities 1,425 1,425 1,445
Other liabilities 5,057 4,859 5,687
Shareholders' equity:
Common stock (par value $.01 per share;
authorized 30,000,000 shares; issued 10,871,193 shares
at January 31, 2000 and October 31, 1999, and 10,965,547
at January 31, 1999) 109 109 110
Additional paid-in capital 9,745 9,748 11,111
Retained earnings 118,198 117,725 107,032
Accumulated other comprehensive income (loss) (4,917) (2,288) 1,762
Treasury stock, at cost (920,508 shares at January 31,
2000, 925,008 shares at October 31, 1999, and
618,218 shares at January 31, 1999) (14,523) (14,593) (10,082)
Other 486 462 (1,265)
--------- --------- ---------
109,098 111,163 108,668
--------- --------- ---------
$ 358,749 $ 362,062 $ 356,252
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Shareholders'
Stock Capital Earnings Income (Loss) Stock Other Equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1998 $ 110 $ 10,931 $105,824 $ 2,381 $(10,471) $(1,331) $ 107,444
Net income 11,901 11,901
Currency translation adjustments (4,669) (4,669)
---------
Comprehensive income(loss) 7,232
---------
Issuance of common stock for
restricted stock awards 179 504 683
Forfeitures of restricted
stock awards (1) (1,462) (264) 1,727
Deferred compensation stock plan 13 (17) 66 62
Exercise of stock options 87 31 118
Purchase of treasury stock (4,376) (4,376)
---- --------- -------- -------- -------- ------- ---------
Balance at October 31, 1999 $109 $ 9,748 $117,725 $ (2,288) $(14,593) $ 462 $ 111,163
Net income 473 473
Currency translation adjustments (2,629) (2,629)
------
Comprehensive income(loss) (2,156)
------
Issuance of common stock for
restricted stock awards (3) 70 24 91
---- --------- -------- -------- -------- ------- ---------
Balance at January 31, 2000 $109 $ 9,745 $118,198 $ (4,917) $(14,523) $ 486 $ 109,098
==== ========= ======== ======== ======== ======= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended January 31,
------------------------------
2000 1999
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 473 $ 1,208
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,371 4,505
Deferred income taxes (51) (232)
Other, net (136) (101)
Changes in working capital:
Accounts receivable 9,024 10,332
Inventories (4,455) (2,669)
Trade accounts payable and accrued liabilities (3,142) (3,287)
Other current assets (538) (1,035)
-------- --------
Net cash provided by operating activities 5,546 8,721
INVESTING ACTIVITIES
Capital expenditures (7,973) (3,370)
Sale of interest in joint venture 1,400
Other, net 2,045 (49)
-------- --------
Net cash used by investing activities (4,528) (3,419)
FINANCING ACTIVITIES
Increase (decrease) in debt, net 4,359 (3,587)
Other, net (78)
-------- --------
Net cash provided (used) by financing activities 4,359 (3,665)
Increase in cash 5,377 1,637
Cash at beginning of period 3,665 4,099
-------- --------
Cash at end of period $ 9,042 $ 5,736
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
Basic earnings per share reflect reported net income divided by the
weighted average number of common shares outstanding. Diluted earnings per
share include the dilutive effect of stock equivalents outstanding during
the year. Stock equivalents consist primarily of stock options and are
included in the calculation of weighted average shares outstanding using
the treasury stock method. Basic weighted average shares reconciled to
diluted weighted average shares as follows:
<TABLE>
<CAPTION>
Quarter Ended January 31,
-------------------------
IN THOUSANDS 2000 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
Basic weighted average shares 10,009 10,290
Stock equivalents 36 95
------------------------------------------------------------------------------------------
Diluted weighted average shares 10,045 10,385
=========================================================================================
</TABLE>
2. INVENTORIES
The major classes of inventories were:
<TABLE>
<CAPTION>
January 31, October 31, January 31,
IN THOUSANDS 2000 1999 1999
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Manufactured products $ 29,685 $ 26,057 $ 28,793
Raw materials, supplies and work-in-process 16,528 16,186 13,877
------------------------------------------------------------------------------------------
$ 46,213 $ 42,243 $ 42,670
==========================================================================================
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" in 1999.
This standard requires disclosure of segment information using the management
approach, or the basis used internally to evaluate operating performance and to
decide resource allocations.
McWhorter is a global specialty chemical company that manufactures and sells a
broad range of resins and dispersed pigments used in the coatings and reinforced
fiberglass plastics industries. The Company has two reportable segments: Coating
Resins and Colorants, and Composite Polymers. The Company's liquid coating
resins, powder coating resins, and colorants product lines are aggregated in the
Coating Resins and Colorants segment. The Coating Resins and Colorants segment
manufactures and sells resins and dispersed pigments used in the industrial and
consumer paints and coatings industry. The Composite Polymers segment
manufactures and sells resins used in the reinforced fiberglass plastics
industry. Segment information for the comparative quarters was:
<TABLE>
<CAPTION>
Quarter Ended January 31,
-------------------------
IN THOUSANDS 2000 1999
- ------------------------------------------------------------------
<S> <C> <C>
NET SALES
Coating Resins and Colorants $ 82,006 $ 78,183
Composite Polymers 21,293 18,052
- ------------------------------------------------------------------
Consolidated $103,299 $ 96,235
==================================================================
OPERATING INCOME
Coating Resins and Colorants $ 2,842 $ 3,564
Composite Polymers 2,293 3,136
Corporate net expenses and other (2,204) (2,672)
- ------------------------------------------------------------------
Consolidated $ 2,931 $ 4,028
==================================================================
</TABLE>
RESULTS OF OPERATIONS
Consolidated net sales in the first quarter of 2000 increased to $103.3 million
from $96.2 million in the same period in 1999, an increase of 7 percent.
Double-digit volume growth in the Company's powder coating resins, colorants,
and composite polymers product lines and strong single-digit volume growth in
the liquid coating resins product line resulted in the net sales increase.
Foreign exchange rate differences negatively impacted quarter net sales
comparisons by 3 percent. Selling price reductions and sales mix had a negative
2 percent impact on the quarter net sales comparisons.
Consolidated gross margins were 12.8 percent in first quarter of 2000 compared
to 15.2 percent a year ago. Lower margins in the first quarter of 2000 were
primarily the result of rising raw material costs. The Company has implemented
selling price increases for all of its product lines,
7
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but these increases have lagged the raw material cost increases. The Company
expects raw material costs to continue to increase through the second quarter
and then stabilize in the second half of the year. Higher manufacturing costs
associated with the Chicago Heights, Illinois facility closure and the
resourcing of powder coating resins manufacturing from Carpentersville, Illinois
to Columbus, Georgia also contributed to the unfavorable margin comparison. The
Company expects to recognize some benefit of these cost reduction efforts in the
second half of 2000 and full benefit in 2001.
Net sales for the Coating Resins and Colorants segment were $82.0 million in the
first quarter of 2000 versus $78.2 million in the same period in 1999, an
increase of 5 percent. Strong volume growth in all of the segment's product
lines led to the increase. Foreign exchange rate differences negatively impacted
quarter net sales comparisons by 3 percent.
Operating margins for the Coating Resins and Colorants segment were 3.5 percent
and 4.6 percent in the first quarter of 2000 and 1999, respectively. Higher raw
material costs were the primary reason for the margin decline. Higher
manufacturing costs also contributed to the unfavorable margin comparison.
Net sales for the Composite Polymers segment were $21.3 million in the first
quarter of 2000 versus $18.1 million in the same period a year ago, an increase
of 18%. Double-digit volume growth resulted in the increase.
Operating margins for the Composite Polymers segment were 10.8 percent and 17.4
percent in the first quarter of 2000 and 1999, respectively. Higher raw material
costs, particularly the cost of styrene, caused the margin decrease. The Company
anticipates continued increases in the cost of styrene through the second
quarter. The Company expects planned second quarter selling price increases to
partially offset higher raw material costs.
Corporate net expenses and other decreased to $2.2 million in the first quarter
of 2000 from $2.7 million in the first quarter of 1999. Lower administration
costs in North America in the first quarter of 2000 and a favorable foreign
exchange rate impact resulted in the reduction in expense.
Net interest expense was $2.1 million in the first quarter of 2000 compared to
$2.0 million in the same period last year. Higher interest rates in the first
quarter of 2000 resulted in the increase.
The effective tax rate for the first quarter in 2000 and 1999 was 41%.
Net income for the first quarter of 2000 was $.5 million, or $.05 per share,
compared to $1.2 million, or $.12 per share, in the same period last year.
FINANCIAL CONDITION
At January 31, 2000, the Company's net working capital was $54.6 million and the
current ratio was 1.7 compared to net working capital of $55.0 million and a
current ratio of 1.6 at October 31, 1999. At January 31, 1999, the Company's net
working capital was $48.5 million and the current ratio was 1.6. Cash provided
by operations was $5.5 million in the first quarter of 2000 compared to $8.7
million in the first quarter of 1999. Lower net income and higher volume-related
8
<PAGE>
inventory levels resulted in the decrease.
Investing activities used cash of $4.5 million in the first quarter of 2000
compared to $3.4 million in the same period a year ago. Capital expenditures
increased to $8.0 million in the first quarter of 2000 compared to $3.4 million
last year's first quarter. First quarter 2000 capital expenditures were
primarily for capacity expansion in composite polymers, powder coating resins,
and water-based liquid coating resins, the implementation of an Enterprise
Resource Planning (ERP) package, and the construction of a pilot facility. First
quarter 1999 capital expenditures were primarily for the implementation of the
ERP package, capacity expansion, and productivity improvements. Capital spending
for 2000 is expected to be approximately $20.0 million. Sale of interest in
joint venture, for the first quarter of 2000, includes the receipt of a $1.4
million payment related to the final settlement from the Company's 1999 sale of
its interest in a Chinese joint venture. First quarter 2000 other investing
activities include the receipt of a $2.2 million payment related to the
settlement of the escrow established as part of the acquisition of Syntech S.p.A
in 1997.
Financing activities provided cash of $4.4 million in the first quarter of 2000
and used cash of $3.7 million in the same period in 1999. The change resulted
primarily from working capital requirements and the additional capital
expenditures in 2000. Debt as a percentage of invested capital was 58.4% at
January 31, 2000 compared to 57.5% at October 31, 1999 and 58.5% at January 31,
1999. Total debt increased to $153.2 million at January 31, 2000 compared to
$150.6 million at October 31, 1999 and $153.0 at January 31, 1999.
The Company has a $150 million unsecured revolving credit facility that
terminates on July 30, 2002. At January 31, 2000, $19.9 million was available
under this facility. The Company's European subsidiaries, primarily the Italian
subsidiary, have short-term lines of credit that are cancellable at any time in
the amount of $23.3 million of which $13.4 million was available for future use
at January 31, 2000. These credit facilities and internally generated funds are
expected to be adequate to finance the Company's capital expenditures and other
operating requirements.
Under a resolution adopted by the Board of Directors in May 1999, the Company is
authorized to repurchase 500,000 shares of its common stock. Under this
resolution, which expires in May 2000, repurchases of 32,000 shares have been
made as of January 31, 2000. No repurchases were made in the first quarter of
2000.
With respect to environmental liabilities, management reviews each facility,
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.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT -
AMENDMENT
Management's discussion and analysis contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such statements relate to, among other things, expenditures, costs, cost
reductions or savings, cash flow, and operating improvements, and are indicated
by words such as "believes", "expects", "anticipates",
9
<PAGE>
and similar words and phrases. Such statements are subject to inherent
uncertainties and risks which could cause actual results to vary materially from
expected results, including but not limited to the following: levels of
industrial activity and economic conditions in the U.S. and other countries
around the world, pricing pressures and other competitive factors, and levels of
capital spending in certain industries, all of which could have a material
impact on the Company's order rates and product sale prices; McWhorter's ability
to integrate and operate acquired businesses on a profitable basis; the
relationship of the U.S. dollar to other currencies and its impact on pricing
and cost competitiveness; interest rates; utilization of McWhorter's capacity
and the effect of capacity utilization on McWhorter's costs; labor market
conditions and raw material costs; developments with respect to contingencies,
such as environmental matters and litigation; and other risks detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in information relating to market risk since
the Company's disclosure included in Item 7A of Form 10-K as filed with the
Securities and Exchange Commission on January 27, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION: None.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule for the first quarter of 2000
(b) No reports on Form 8-K were filed during the first quarter of 2000.
11
<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
Vice President and Chief
Financial Officer
Date: February 25, 2000
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 9,042
<SECURITIES> 0
<RECEIVABLES> 72,489
<ALLOWANCES> 0
<INVENTORY> 46,213
<CURRENT-ASSETS> 138,269
<PP&E> 225,434
<DEPRECIATION> 76,585
<TOTAL-ASSETS> 358,749
<CURRENT-LIABILITIES> 83,634
<BONDS> 134,975
0
0
<COMMON> 109
<OTHER-SE> 108,989
<TOTAL-LIABILITY-AND-EQUITY> 358,749
<SALES> 103,299
<TOTAL-REVENUES> 103,299
<CGS> 90,128
<TOTAL-COSTS> 90,128
<OTHER-EXPENSES> 10,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,130
<INCOME-PRETAX> 801
<INCOME-TAX> 328
<INCOME-CONTINUING> 473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
