10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (MARK ONE) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 2000 or [ ] 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: 333-15789 ChemFirst Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Mississippi 64-0679456 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 North Street, Jackson, MS 39202-3095 -------------------------------------------------------------------------------- (Address of principal (Zip Code) executive offices) Registrant's Telephone Number, including Area Code: 601/948-7550 -------------------- 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 --- --- Class Outstanding at July 31, 2000 ----------------------------- ---------------------------- Common Stock, $1 Par Value 15,305,077 2 Part I. Financial Information Item 1. Financial Statements ChemFirst Inc. Consolidated Balance Sheets (Unaudited) (In Thousands of Dollars)
June 30 December 31 2000 1999 ------------ ------------ Assets: Current assets Cash and cash equivalents $ 8,162 14,551 Accounts receivable 62,792 67,913 Inventories: Finished products 44,401 36,860 Work in process 3,657 3,565 Raw materials and supplies 16,951 22,238 ------------ ------------ Total inventories 65,009 62,663 ------------ ------------ Prepaid expenses and other current assets 7,613 9,794 Net current assets of discontinued operations -- 2,532 ------------ ------------ Total current assets 143,576 157,453 ------------ ------------ Investments and other assets 18,666 19,189 Property, plant and equipment 397,904 390,329 Less: accumulated depreciation and amortization 178,002 164,584 ------------ ------------ Property, plant and equipment, net 219,902 225,745 ------------ ------------ $ 382,144 402,387 ============ ============ Liabilities and Stockholders' Equity: Current liabilities Notes payable $ 8,435 7,668 Accounts payable 16,173 18,919 Deferred revenue -- 373 Accrued expenses and other current liabilities 14,349 17,523 Current liabilities of discontinued operations 1,421 -- ------------ ------------ Total current liabilities 40,378 44,483 ------------ ------------ Long-term debt 41,357 24,224 Other long-term liabilities 26,231 26,130 Deferred income taxes 20,774 18,178 Minority interest 649 649 Stockholders' equity: Common stock 15,284 17,901 Additional paid-in capital 25,801 25,543 Accumulated other comprehensive income 305 287 Retained earnings 211,365 244,992 ------------ ------------ Total stockholders' equity 252,755 288,723 ------------ ------------ $ 382,144 402,387 ============ ============
The accompanying notes are an integral part of these financial statements. 2 3 ChemFirst Inc. Consolidated Statements of Operations (Unaudited) (In Thousands of Dollars and Shares, Except Per Share Amounts)
3 Months Ended 6 Months Ended June 30 June 30 ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Sales $ 98,590 80,341 194,481 150,185 Cost of sales 72,128 58,202 143,143 108,552 ------------ ------------ ------------ ------------ Gross margin 26,462 22,139 51,338 41,633 General, selling and administrative expenses 14,764 12,262 28,695 23,768 Research and development expenses 1,984 1,666 3,910 3,541 Other operating income, net 729 1,075 1,534 2,881 ------------ ------------ ------------ ------------ Operating earnings 10,443 9,286 20,267 17,205 Interest income 65 341 188 823 Interest expense 740 538 1,401 1,486 Other expense, net (75) (261) (59) (228) ------------ ------------ ------------ ------------ Earnings from continuing operations before income taxes 9,693 8,828 18,995 16,314 Income tax expense 3,634 3,355 7,123 6,200 ------------ ------------ ------------ ------------ Earnings from continuing operations 6,059 5,473 11,872 10,114 Gain on disposal of business, net of taxes -- -- 9,656 -- ------------ ------------ ------------ ------------ Net earnings $ 6,059 5,473 21,528 10,114 ============ ============ ============ ============ Earnings per common share: Continuing operations $ 0.38 0.30 0.73 0.55 Gain on disposal of business, net of taxes 0.00 0.00 0.59 0.00 ------------ ------------ ------------ ------------ Net earnings $ 0.38 0.30 1.32 0.55 ============ ============ ============ ============ Average shares outstanding 15,738 18,255 16,358 18,323 Earnings per common share, assuming dilution: Continuing operations $ 0.38 0.30 0.72 0.55 Gain on disposal of business, net of taxes 0.00 0.00 0.59 0.00 ------------ ------------ ------------ ------------ Net earnings $ 0.38 0.30 1.31 0.55 ============ ============ ============ ============ Average shares outstanding, assuming dilution 15,839 18,500 16,467 18,518 Cash dividend declared per share $ 0.10 0.10 0.20 0.20
The accompanying notes are an integral part of these financial statements. 3 4 ChemFirst Inc. Consolidated Statements of Cash Flows (Unaudited) (In Thousands of Dollars)
June 30 ---------------------------- 2000 1999 ------------ ------------ Cash flows from operations: Net earnings $ 21,528 10,114 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 14,455 13,097 Provision for losses on receivables 31 86 Gain on disposal of business, net of taxes (9,656) -- Gain on disposal of equity investee -- (750) Deferred taxes and other items 3,218 6,833 Change in current assets and liabilities, net of effects of dispositions (1,447) (20,400) ------------ ------------ Net cash provided by continuing operations 28,129 8,980 Net cash provided by discontinued operations -- 9,061 ------------ ------------ Net cash provided by operating activities 28,129 18,041 ------------ ------------ Cash flows from investing activities: Proceeds from sale of business 12,582 -- Capital expenditures (7,575) (11,442) Other investing activities 373 29,537 ------------ ------------ Net cash provided by investing activities 5,380 18,095 ------------ ------------ Cash flows from financing activities: Net borrowings (repayments) on notes payable 17,900 (30,182) Dividends (3,152) (3,652) Purchase of common stock (54,623) (8,866) Proceeds from issuance of common stock 102 326 ------------ ------------ Net cash used in financing activities (39,773) (42,374) ------------ ------------ Effect of exchange rate changes on cash (125) (9) ------------ ------------ Net decrease in cash and cash equivalents (6,389) (6,247) Cash and cash equivalents at beginning of period 14,551 11,226 ------------ ------------ Cash and cash equivalents at end of period $ 8,162 4,979 ============ ============ Supplemental disclosures of cash flow information Cash paid during the period for: Interest, net of amounts capitalized $ 1,369 1,475 ============ ============ Income tax payments (refunds), net $ 3,593 1,715 ============ ============
The accompanying notes are an integral part of these financial statements. 4 5 ChemFirst Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited. In Thousands of Dollars) Note 1 - General The financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Certain prior year amounts have been reclassified to conform to the 2000 presentation. In the opinion of management, the financial statements reflect all adjustments (all are of a normal and recurring nature) which are necessary to present fairly the financial position, results of operations and cash flows for the interim periods. These financial statements should be read in conjunction with the Annual Report of the Company and Form 10-K for the year ended December 31, 1999. Note 2 - Discontinued Operations The net assets and liabilities of discontinued operations included in the consolidated financial statements are classified as current liabilities and current assets at June 30, 2000 and December 31,1999, respectively, as follows:
Engineered Products and Services Steel and Other Totals ------------ -------------------- ------------ At June 30, 2000: Net current liabilities of discontinued operations $ 644 777 1,421 ============ ============ ============ At December 31, 1999: Net current assets of discontinued operations $ 12,459 (9,927) 2,532 ============ ============ ============
The statements of operations have been reclassified to separate discontinued and continuing operations. The gain on disposal of business in the first quarter of the current year, net, in the amount of $9,656, was primarily due to an adjustment in the provision for income taxes related to the discontinued operations of Getchell Gold Corporation. The Company reevaluated its tax exposure during the quarter ended March 31, 2000, when various statutes governing the handling of the disposition for tax purposes expired. 5 6 Note 3 - Effect Of Adopting Accounting Changes In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. In June 2000, the SEC issued SAB No. 101B, Second Amendment: Revenue Recognition in Financial Statements. SAB 101B delays the implementation date of SAB 101 for registrants with fiscal years that begin between December 16, 1999 and March 15, 2000 until the fourth quarter of 2000. The Company's existing practice, as outlined by generally accepted accounting principles, has been to recognize revenue only when realized or realizable and earned. As such, SAB 101 is not expected to have a material effect on consolidated financial position or results of operations. Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998 and, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The statement establishes accounting and reporting standards for derivative instruments and for hedging activities. All derivatives are required to be recognized as either assets or liabilities in the statement of financial position and measured at fair value. Changes in fair value will be reported either in earnings or outside earnings depending on the intended use of the derivative and the resulting designation. Entities applying hedge accounting are required to establish at the inception of the hedge the method used to assess the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The Company currently follows SFAS No. 52, "Foreign Currency Translation," and applies hedge accounting treatment to certain foreign currency transactions by entering into foreign currency option contracts and forward exchange contracts. Gains and losses associated with currency rate changes on contracts hedging foreign currency transactions are recorded in income and generally offset the transaction losses or gains on the foreign currency cash flows that they are intended to hedge. Gains and losses on contracts hedging firm sales commitments are deferred until the related transactions are consummated. The effect of adopting the Statement is currently being evaluated, however, based on current activity, the Company does not believe the effects of adoption will be material to its financial position or results of operation. 6 7 Note 4 - Earnings Per Share Basic EPS is based on the average number of common shares outstanding during each period. Diluted EPS includes the effect of outstanding common stock equivalents ("CSEs"). The following is a reconciliation of the numerators (income) and denominators (weighted-average shares) of the basic and diluted per share computations for net earnings:
Three Months Ended June 30 2000 1999 ------------------------------------ ------------------------------------ Income Shares EPS Income Shares EPS ---------- ---------- ---------- ---------- ---------- ---------- (Thousands, except per share amounts) Earnings per Common Share: Basic $ 6,059 15,738 $ 0.38 $ 5,473 18,255 $ 0.30 Dilutive effect of CSEs -- 101 -- -- 245 -- ---------- ---------- ---------- ---------- ---------- ---------- Diluted $ 6,059 15,839 $ 0.38 $ 5,473 18,500 $ 0.30 ========== ========== ========== ========== ========== ==========
Six Months Ended June 30 2000 1999 ------------------------------------ ------------------------------------ Income Shares EPS Income Shares EPS ---------- ---------- ---------- ---------- ---------- ---------- (Thousands, except per share amounts) Earnings per Common Share: Basic $ 21,528 16,358 $ 1.32 $10,114 18,323 $ 0.55 Dilutive effect of CSEs -- 109 (.01) -- 195 -- ---------- ---------- ---------- ---------- ---------- ---------- Diluted $ 21,528 16,467 $ 1.31 $10,114 18,518 $ 0.55 ========== ========== ========== ========== ========== ==========
Note 5 - Comprehensive Income Total comprehensive income for the three months ended June 30, 2000 and 1999, was $6.2 million and $5.5 million, respectively. Comprehensive income for the six months ended June 30, 2000 and 1999, was $21.5 million and $10.1 million, respectively. Total comprehensive income for the Company includes net income and foreign currency translation adjustments. 7 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Six months ended June 30, 2000 compared to the six months ended June 30, 1999 Consolidated Results Results from continuing operations for the six months ended June 30, 2000, were earnings of $11.9 million or $0.72 per share, up 17% and 31%, respectively, from earnings of $10.1 million or $0.55 per share from the same period of the prior year. Earnings rose on a 29% increase in sales, which was driven by higher volume. Earnings per share were up due to the higher earnings and a reduction in shares outstanding due to share repurchases. Segment Operations Segment Information (In Thousands of Dollars)
6 Months Ended June 30 2000 1999 ------------ ------------ Sales: Electronic and Other Specialty Chemicals $ 106,852 87,415 Polyurethane Chemicals 87,629 62,770 ------------ ------------ Total $ 194,481 150,185 ============ ============ Operating profit before income taxes: Electronic and Other Specialty Chemicals $ 7,728 7,841 Polyurethane Chemicals 17,898 15,245 ------------ ------------ 25,626 23,086 Unallocated corporate expenses (5,359) (5,881) Interest expense, net (1,213) (663) Other expense, net (59) (228) ------------ ------------ Total $ 18,995 16,314 ============ ============
Electronic and Other Specialty Chemicals pretax operating profits for the current year were $7.7 million, down 1% versus the same period of the prior year. Sales were up 22% over last year on higher electronic chemical volumes, however, lower unit margins in other specialty chemicals due to product mix more than offset better electronic chemical performance. 8 9 In June 2000 an explosion disrupted the supply of hydroxylamine from the Nissin Chemical plant in Japan. This is a key ingredient in the Company's patented HDA(R) remover products for the semiconductor industry. The Nissin plant was our sole supplier and until last year the only producer of hydroxylamine. However, the Company had been working for some time to qualify hydroxylamine from a new BASF plant that started up in late 1999. Although BASF is increasing production and is considering a second plant, current hydroxylamine supplies cannot keep pace with the record worldwide demand for hydroxylamine. As a result, BASF has placed its customers, including the Company, on allocation and we in turn have put our customers on allocation. Increased availability of hydroxylamine should occur as BASF increases production. We are working with customers to extend or conserve current remover supplies in their production processes and substitute other products to support their production levels. The Company is pursuing an insurance claim which could significantly reduce losses associated with this disruption. The insurance is subject to a $1 million deductible. Polyurethane Chemicals pretax operating profits for the six months were up 17% to $17.9 million on a 40% increase in sales versus the same period last year. Sales were up on a 17% increase in volume and a 20% increase in average unit price. The higher volume reflects continued strong aniline demand. The higher unit sales price primarily reflects the pass-through to customers of the increase in cost of benzene, which is used as a raw material. Unallocated corporate expenses for the current year were $5.4 million, down from $5.9 million in the prior year, primarily related to a reduction in benefit expense. Net interest expense for the year was up $0.6 million from the prior year to $1.2 million on lower interest income. Results of Operations - Three months ended June 30, 2000 compared to the three months ended June 30, 1999 Consolidated Results Results from continuing operations for the three months ended June 30, 2000, were earnings of $6.1 million or $0.38 per share, up 11% and 27%, respectively from earnings of $5.5 million or $0.30 per share for the same quarter of the prior year. Earnings rose on a 23% increase in sales, which was driven by higher volume. Earnings per share were up due to the higher earnings and reduction in shares outstanding due to share repurchases. 9 10 Segment Operations Segment Information (In Thousands of Dollars)
3 Months Ended June 30 2000 1999 ------------ ------------ Sales: Electronic and Other Specialty Chemicals $ 55,694 47,498 Polyurethane Chemicals 42,896 32,843 ------------ ------------ Total $ 98,590 80,341 ============ ============ Operating profit before income taxes: Electronic and Other Specialty Chemicals $ 4,783 4,302 Polyurethane Chemicals 8,434 8,040 ------------ ------------ 13,217 12,342 Unallocated corporate expenses (2,774) (3,057) Interest expense, net (675) (197) Other expense, net (75) (260) ------------ ------------ Total $ 9,693 8,828 ============ ============
Electronic and Other Specialty Chemicals pretax operating profits for the current year were up 11% versus the same quarter of the prior year to $4.8 million, with sales up 17%. Sales were up over last year on higher volumes of electronic chemical residue removers and resins for Deep Ultra Violet resists and were not affected by the disruption in hydroxylamine supply. Polyurethane Chemicals pretax operating profits for the quarter were up 5% to $8.4 million on higher sales versus the same quarter last year. Sales were up 31% due to a 10% increase in volume and an 18% increase in average unit price. The higher volume reflects continued strong aniline demand. The higher unit sales price primarily reflects the pass-through to customers of the increase in cost of benzene, which is used as a raw material. Unallocated corporate expenses for the current quarter were $2.8 million, down from $3.1 million for the same period in the prior year. Net interest expense for the current quarter was up $0.5 million from the prior year on higher average debt due to current year share repurchases. Discontinued Operations A gain of $9.7 million on disposal of discontinued operations was recorded during the quarter ended March 31, 2000. The gain included $10.1 million from a reduction in estimated tax liabilities related to the distribution of Getchell Gold Corporation in 1995. The reduction in estimated tax liabilities resulted from the Company's reevaluation of tax exposure items associated with the Getchell Gold Corporation distribution. The Company reevaluated its tax 10 11 exposure during the quarter ended March 31, 2000, when various statutes governing the handling of the disposition for tax purposes expired. Also, during the first quarter of the current year, the Company recorded an additional $0.4 million loss on disposal of discontinued operations related to final settlement of post-closure issues associated with the dispositions of Callidus Technology, Inc. and FirstMiss Steel, Inc. Capital Resources and Liquidity Cash flow from continuing operations for the current year was $28.1 million, up from $9.0 million in the prior year. Prior year operating cash flow was lower primarily due to increased accounts receivable. Net cash provided by investing activities in the current year included $12.6 million in proceeds from the sale of the Company's steel business and $1.5 million collected on a note related to a previous property sale. These proceeds were used to assist in repurchasing shares of the Company's stock. During the current year, $54.6 million was expended under the Company's authorized repurchasing program versus $8.9 million for the same period of the prior year. The Company has approximately $36.8 million remaining for additional share repurchases under the current authorization. Forward-Looking Statements Certain statements included in this Form 10-Q which are not historical in nature, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, as well as other forward-looking statements made from time to time by the Company, or in the Company's press releases and filings with the U.S. Securities and Exchange Commission, are based on certain underlying assumptions and expectations of management. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties include, but are not limited to, general economic conditions, availability and pricing of raw materials including hydroxylamine, supply/demand balance for key products, new product development, manufacturing efficiencies, conditions of and product demand by key customers, the timely completion and start up of construction projects, pricing pressure as a result of domestic and international market forces and the downturn in certain foreign markets, insurance coverage related to the disruption in supply of hydroxylamine and other factors as may be discussed in the company's Form 10-K for the fiscal year ended December 31, 1999. 11 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to changes in financial market conditions in the normal course of its business, including changes in interest rates and foreign currency exchange rates. At June 30, 2000, the Company's derivative and other financial instruments related to foreign operations included a series of yen option collars representing total option puts and calls of 140 million yen each, with a minimum U.S. dollar value of $1.3 million and a maximum U.S. dollar value of $1.5 million, and contract expiration dates ranging from July 2000 through January 2001. The Company also has short-term debt denominated in Japanese yen with a current U.S. dollar value of $ 8.4 million. Due to the short-term nature and amount of these yen obligations, the Company does not consider its exposure to fluctuations in foreign currency exchange rates or interest rates to be material. The Company utilizes fixed and variable-rate debt to maintain liquidity and fund its domestic business operations, with the terms and amounts based on business requirements, market conditions and other factors. At June 30, 2000, this included long-term debt denominated in U.S. dollars and long-term revolving credit facility borrowings. The market value of the Company's fixed rate borrowings was approximately $24.0 million. A 100 basis point change in interest rates (all other variables held constant) as of June 30, 2000, would result in an approximate $1.0 million annualized change in fair market value but would not affect interest expense or cash flow. At June 30, 2000, the Company had $17.0 million in variable-rate debt. A 100 basis point change in interest rates (all other variables held constant) on this portion of the Company's debt would result in an annualized change in interest expense of approximately $0.17 million. Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders on May 23, 2000, the Company stockholders, pursuant to proxies solicited under Regulation 14A, elected four directors for terms to expire in 2003, and one director for a term to expire in 2001, or until their successors are elected and qualify. The following votes were cast: Term expiration 2003 -------------------- Michael J. Ferris 14,232,623 shares voted for ----------- 642,942 shares withheld ----------- John F. Osborne 14,289,545 shares voted for ----------- 586,020 shares withheld ----------- William A. Percy, II 14,289,754 shares voted for ----------- 585,811 shares withheld -----------
12 13 R. Gerald Turner 14,264,826 shares voted for ----------- 610,739 shares withheld ----------- Term expiration 2001 -------------------- Richard P. Anderson 14,287,623 shares voted for ----------- 642,942 shares withheld -----------
In addition, a resolution was submitted to shareholders for the adoption of an amendment to the ChemFirst Inc. 1998 Long-Term Incentive Plan. The vote was as follows: 1998 Long-Term Incentive Plan Amendment 13,474,948 shares voted for ------------ 103,342 shares withheld ------------ 1,297,275 shares voted against ------------
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule Exhibit 27.1 - Restated Financial Data Schedule (b) Reports on Form 8-K No report on Form 8-K was filed by the Registrant during the three months ended June 30, 2000. 13 14 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. CHEMFIRST INC. August 11, 2000 /s/ J. Kelley Williams ---------------- ---------------------- Date J. Kelley Williams Chairman and Chief Executive Officer August 11, 2000 /s/ Troy B. Browning ----------------- --------------------- Date Troy B. Browning Controller (Principal Accounting Officer) 15 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------ ----------- 27 - Financial Data Schedules 27.1 - Restated Financial Data Schedules