10-Q 1 d81898e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 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 September 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 October 31, 2000 -------------------------- -------------------------------- Common Stock, $1 Par Value 14,822,504 2 ChemFirst Inc. Consolidated Balance Sheets (Unaudited) (In Thousands of Dollars)
September 30 December 31 2000 1999 ------------ ------------ Assets: Current assets Cash and cash equivalents $ 8,228 14,551 Accounts receivable 50,675 67,913 Inventories: Finished products 50,404 36,860 Work in process 3,190 3,565 Raw materials and supplies 20,373 22,238 ------------ ------------ Total inventories 73,967 62,663 ------------ ------------ Prepaid expenses and other current assets 10,235 9,794 Net current assets of discontinued operations -- 2,532 ------------ ------------ Total current assets 143,105 157,453 ------------ ------------ Investments and other assets 18,554 19,189 Property, plant and equipment 401,545 390,329 Less: accumulated depreciation and amortization 184,850 164,584 ------------ ------------ Property, plant and equipment, net 216,695 225,745 ------------ ------------ $ 378,354 402,387 ============ ============ Liabilities and Stockholders' Equity: Current liabilities Notes payable $ 8,164 7,668 Accounts payable 21,713 18,919 Deferred revenue 100 373 Accrued expenses and other current liabilities 14,575 17,523 Net current liabilities of discontinued operations 322 -- ------------ ------------ Total current liabilities 44,874 44,483 ------------ ------------ Long-term debt 37,423 24,224 Other long-term liabilities 26,717 26,130 Deferred income taxes 22,787 18,178 Minority interest 649 649 Stockholders' equity: Common stock 14,869 17,901 Additional paid-in capital 27,370 25,543 Accumulated other comprehensive income 270 287 Retained earnings 203,395 244,992 ------------ ------------ Total stockholders' equity 245,904 288,723 ------------ ------------ $ 378,354 402,387 ============ ============
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 9 Months Ended September 30 September 30 -------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Sales $ 90,548 79,275 285,029 229,460 Cost of sales 69,349 54,514 212,492 163,066 ---------- ---------- ---------- ---------- Gross margin 21,199 24,761 72,537 66,394 General, selling and administrative expenses 13,907 12,805 42,601 36,573 Research and development expenses 1,891 1,914 5,801 5,455 Other operating income (expense), net 3,558 (212) 5,092 2,669 ---------- ---------- ---------- ---------- Operating earnings 8,959 9,830 29,227 27,035 Interest income 91 122 279 945 Interest expense 755 435 2,156 1,921 Other expense, net (51) (109) (111) (337) ---------- ---------- ---------- ---------- Earnings from continuing operations before income taxes 8,244 9,408 27,239 25,722 Income tax expense 3,092 3,446 10,215 9,646 ---------- ---------- ---------- ---------- Earnings from continuing operations 5,152 5,962 17,024 16,076 Gain on disposal of business, net of taxes -- -- 9,656 -- ---------- ---------- ---------- ---------- Net earnings $ 5,152 5,962 26,680 16,076 ========== ========== ========== ========== Earnings per common share: Continuing operations $ 0.34 0.33 1.06 0.88 Gain on disposal of business, net of taxes 0.00 0.00 0.60 0.00 ---------- ---------- ---------- ---------- Net earnings $ 0.34 0.33 1.66 0.88 ========== ========== ========== ========== Average shares outstanding 15,253 18,152 15,990 18,266 Earnings per common share, assuming dilution: Continuing operations $ 0.33 0.32 1.06 0.87 Gain on disposal of business, net of taxes 0.00 0.00 0.59 0.00 ---------- ---------- ---------- ---------- Net earnings $ 0.33 0.32 1.65 0.87 ========== ========== ========== ========== Average shares outstanding, assuming dilution 15,470 18,411 16,135 18,482 Cash dividend declared per share $ 0.10 0.10 0.30 0.30
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)
9 Months Ended September 30 -------------------------- 2000 1999 ---------- ---------- Cash flows from operations: Net earnings $ 26,680 16,076 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 21,829 19,523 Provision for losses on receivables 61 133 Gain on disposal of business, net of taxes (9,656) -- Gain on disposal of equity investee -- (750) Deferred taxes and other items 5,411 9,259 Change in current assets and liabilities, net of effects of dispositions 3,671 (26,410) ---------- ---------- Net cash provided by continuing operations 47,996 17,831 Net cash provided by discontinued operations -- 20,312 ---------- ---------- Net cash provided by operating activities 47,996 38,143 ---------- ---------- Cash flows from investing activities: Proceeds from sale of business 12,582 -- Capital expenditures (11,215) (16,932) Proceeds from collection of note receivable 1,468 29,569 Other investing activities (928) (3,000) ---------- ---------- Net cash provided by investing activities 1,907 9,637 ---------- ---------- Cash flows from financing activities: Net borrowings (repayments) on notes payable 13,696 (33,796) Dividends (4,680) (5,463) Purchase of common stock (66,732) (9,830) Proceeds from issuance of common stock 1,608 1,338 ---------- ---------- Net cash used in financing activities (56,108) (47,751) ---------- ---------- Effect of exchange rate changes on cash (118) 75 ---------- ---------- Net increase (decrease) in cash and cash equivalents (6,323) 104 Cash and cash equivalents at beginning of period 14,551 11,226 ---------- ---------- Cash and cash equivalents at end of period $ 8,228 11,330 ========== ========== Supplemental disclosures of cash flow information Cash paid during the period for: Interest, net of amounts capitalized $ 1,822 1,909 ========== ========== Income tax payments (refunds), net $ (3,816) 1,947 ========== ==========
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 September 30, 2000 and December 31,1999, respectively, as follows:
Engineered Products and Services Steel and Other Totals ---------- ---------- ---------- At September 30, 2000: Net current liabilities of discontinued operations $ 281 41 322 ========== ========== ========== 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. 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 September 30 2000 1999 ------------------------ ------------------------ Income Shares EPS Income Shares EPS ------ ------ ------ ------ ------ ------ (Thousands, except per share amounts) Earnings per Common Share: Basic $5,152 15,253 $ 0.34 $5,962 18,152 $ 0.33 Dilutive effect of CSEs -- 217 (.01) -- 259 (.01) ------ ------ ------ ------ ------ ------ Diluted $5,152 15,470 $ 0.33 $5,962 18,411 $ 0.32 ====== ====== ====== ====== ====== ======
6 7
Nine Months Ended September 30 2000 1999 --------------------------- --------------------------- Income Shares EPS Income Shares EPS ------- ------- ------- ------- ------- ------- (Thousands, except per share amounts) Earnings per Common Share: Basic $26,680 15,990 $ 1.66 $16,076 18,266 $ 0.88 Dilutive effect of CSEs -- 145 (.01) -- 216 (.01) ------- ------- ------- ------- ------- ------- Diluted $26,680 16,135 $ 1.65 $16,076 18,482 $ 0.87 ======= ======= ======= ======= ======= =======
Note 5 - Comprehensive Income Total comprehensive income for the three months ended September 30, 2000 and 1999, was $5.1 million and $6.0 million, respectively. Comprehensive income for the nine months ended September 30, 2000 and 1999, was $26.7 million and $16.2 million, respectively. Total comprehensive income for the Company includes net income and foreign currency translation adjustments. Note 6 - Commitments and Contingencies 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 the Company's sole supplier and until last year the only producer of hydroxylamine. However, the Company has qualified hydroxylamine from a new BASF plant that started up in late 1999. BASF's current supply capabilities are less than the worldwide demand for hydroxylamine. As a result, BASF is allocating hydroxylamine to its customers, including the Company, which in turn has put its customers on allocation. BASF, which increased production capacity through debottlenecking efforts in September, has recently announced that it will further increase capacity during the first quarter of 2001 from 4,000 metric tons p.a. to 5,700 metric tons p.a. (calculated as a 50% solution). Such expansion may result in additional supplies of hydroxylamine in the first half of 2001, however, it is unclear at this time how BASF's increased capacity will be allocated among its customers, exactly when additional product will be available and what impact it will have on the Company. Although Nissin and Honeywell International Inc. have both announced plans to construct new hydroxylamine plants, the timing for construction and start-up of these anticipated plants is not known with certainty. An insurance claim to recover lost profits and additional expenses has been filed under the Company's business interruption policy. The claims process may be lengthy and its final outcome cannot be predicted with certainty. At September 30, 2000, $2.4 million, after meeting a $1 million deductible, was recorded as the initial installment of the claim. The $2.4 million is reflected in the accompanying consolidated statement of operations as Other Operating Income. 7 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Nine months ended September 30, 2000 compared to the nine months ended September 30, 1999 Consolidated Results Results from continuing operations for the nine months ended September 30, 2000, were earnings of $17.0 million or $1.06 per diluted share, up 6% and 22%, respectively, from earnings of $16.1 million or $0.87 per diluted share from the same period of the prior year. Earnings rose on better results in Polyurethane operations, driven by increased 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)
9 Months Ended September 30 2000 1999 ---------- ---------- Sales: Electronic and Other Specialty Chemicals $ 149,647 126,646 Polyurethane Chemicals 135,382 102,814 ---------- ---------- Total $ 285,029 229,460 ========== ========== Operating profit before income taxes: Electronic and Other Specialty Chemicals $ 11,091 12,092 Polyurethane Chemicals 26,034 24,060 ---------- ---------- 37,125 36,152 Unallocated corporate expenses (7,898) (9,117) Interest expense, net (1,877) (976) Other expense, net (111) (337) ---------- ---------- Total $ 27,239 25,722 ========== ==========
Electronic and Other Specialty Chemicals pretax operating profits for the current year were $11.1 million, down 8% versus the same period of the prior year. Sales were up 18% over last year on higher electronic chemical volumes. Operating results were hurt by higher energy and raw materials costs and lower volumes and margins in agricultural specialty chemicals. Demand for semiconductor chemicals remains strong, but sales were hurt by a shortage of hydroxylamine raw material caused by an explosion in June 2000 at the Nissin Chemical plant supplying the material. The effect on earnings was offset by net insurance of $2.4 million, after meeting a $1.0 million deductible. The Company anticipates that its insurance should significantly reduce lost profits associated with the disruption. Polyurethane Chemicals pretax operating profits for the nine months were up 8% to $26.0 million on a 32% increase in sales versus the same period last year. Sales were up on a 5% increase in volume and a 25% increase in average unit price. The higher volume reflects continued strong 8 9 aniline demand. The higher unit sales price primarily reflects the pass-through to customers of the increase in the cost of benzene. Unallocated corporate expenses for the current year were $7.9 million, down from $9.1 million in the prior year, primarily related to a reduction in benefit expense. Net interest expense for the year was up $0.9 million from the prior year to $1.9 million on lower interest income. Results of Operations - Three months ended September 30, 2000 compared to the three months ended September 30, 1999 Consolidated Results Results from continuing operations for the three months ended September 30, 2000, were earnings of $5.2 million or $0.33 per diluted share. Results for the same quarter of the prior year were earnings of $6.0 million or $0.32 per diluted share. Earnings declined on lower polyurethane chemical volume and higher costs and lower volumes in agricultural specialty chemicals. Sales were up 14% for the period, primarily due to higher energy and raw material pass-throughs. Earnings per share were up on fewer shares outstanding. 9 10 Segment Operations Segment Information (In Thousands of Dollars)
3 Months Ended September 30 2000 1999 ---------- ---------- Sales: Electronic and Other Specialty Chemicals $ 42,796 39,231 Polyurethane Chemicals 47,752 40,044 ---------- ---------- Total $ 90,548 79,275 ========== ========== Operating profit before income taxes: Electronic and Other Specialty Chemicals $ 3,363 4,251 Polyurethane Chemicals 8,135 8,815 ---------- ---------- 11,498 13,066 Unallocated corporate expenses (2,539) (3,236) Interest expense, net (664) (313) Other expense, net (51) (109) ---------- ---------- Total $ 8,244 9,408 ========== ==========
Electronic and Other Specialty Chemicals pretax operating profits for the current year were down 21% versus the same quarter of the prior year to $3.4 million, with sales up 9%. Sales were up over last year on higher volumes of electronic chemical residue removers and deep ultra violet resins. Operating results were hurt, however, by lower margins in other specialty chemicals, primarily due to higher energy and raw material costs and product mix. Polyurethane Chemicals pretax operating profits for the quarter were down 8% to $8.1 million versus the same quarter last year. Sales were up 19% as a 38% increase in average unit price offset a 14% decrease in volume. The higher unit sales price primarily reflects the pass-through to customers of the increase in the cost of benzene. The Company's Baytown aniline facility shut down in mid-October due to an interruption in the supply of nitric acid raw material but re-started on October 28. . The earnings impact is expected to be negligible. Unallocated corporate expenses for the current quarter were $2.5 million, down from $3.2 million for the same period in the prior year on reduced insurance and benefit expenses. Net interest expense for the current quarter was up $0.4 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 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. 10 11 Capital Resources and Liquidity Cash flow from continuing operations for the current year was $48.0 million, up from $17.8 million in the prior year. Prior year operating cash flow was lower primarily due to increased working capital. 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, $66.7 million was expended under the Company's authorized repurchasing program versus $9.8 million for the same period of the prior year. The Company has approximately $23.3 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, conference calls 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 and nitric acid, 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 insurance coverage and timing of any claim payments related to the disruption in supply of hydroxylamine, the interruption in the supply of nitric acid at the Baytown, TX facility and other factors as may be discussed in the company's Form 10-K for the fiscal year ended December 31, 1999. 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 September 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 80 million yen each, with a minimum U.S. dollar value of $0.7 million and a maximum U.S. dollar value of $0.9 million, and contract expiration dates ranging from October 2000 through January 2001. The Company also has short-term debt denominated in Japanese yen with a current U.S. dollar value of $8.2 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. 11 12 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 September 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 September 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 September 30, 2000, the Company had $13.0 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 $0.13 million. Part II. Other Information 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 September 30, 2000. 12 13 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. November 13, 2000 /s/ J. Kelley Williams ------------------ ---------------------- Date J. Kelley Williams Chairman and Chief Executive Officer November 13, 2000 /s/ Troy B. Browning ------------------- --------------------- Date Troy B. Browning Controller (Principal Accounting Officer) 14 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 27 Financial Data Schedule 27.1 Restated Financial Data Schedule