UNITED STATES
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 September 30, 2003
Commission File Number 001-12515
OM GROUP, INC.
(exact name of registrant as specified in its charter)
| Delaware | 52-1736882 | |
| (state or other jurisdiction of | (I.R.S., Employer | |
| incorporation or organization) | Identification Number) |
127 Public Square
1500 Key Tower
Cleveland, Ohio 44114-1221
(Address of principal executive offices)
(zip code)
(216) 781-0083
(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 and 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
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934)
Yes X No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of September 30, 2003: Common Stock, $.01 Par Value - 28,354,804 shares.
INDEX
OM GROUP, INC.
| Part I | Financial Information | |||||
| Item 1. | Financial Statements (Unaudited) | |||||
| Condensed consolidated balance sheets - September 30, 2003 and December 31, 2002 | ||||||
| Condensed statements of consolidated operations - Three months ended September 30, 2003 and 2002; Nine months ended September 30, 2003 and 2002 | ||||||
| Condensed statements of consolidated cash flows - Nine months ended September 30, 2003 and 2002 | ||||||
| Notes to condensed consolidated financial statements - September 30, 2003 | ||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |||||
| Item 4. | Controls and Procedures | |||||
| Part II | Other Information | |||||
| Item 1. | Legal Proceedings - Not applicable | |||||
| Item 2. | Changes in Securities - Not applicable | |||||
| Item 3. | Defaults upon Senior Securities - Not applicable | |||||
| Item 4. | Submission of Matters to a Vote of Security Holders - Not applicable | |||||
| Item 5. | Other information - Not applicable | |||||
| Item 6. | Exhibits and Reports on Form 8-K | |||||
| (a) | Exhibits | |||||
| (b) | Reports on Form 8-K | |||||
| Signature | ||||||
Part I Financial Information
Item 1 Financial Statements
| September 30, | December 31, | ||||||||||
| ASSETS | 2003 | 2002 | |||||||||
CURRENT ASSETS |
|||||||||||
Cash and cash equivalents |
$ | 62,129 | $ | 11,650 | |||||||
Accounts receivable |
126,533 | 99,632 | |||||||||
Inventories |
267,480 | 304,654 | |||||||||
Other current assets |
75,979 | 90,365 | |||||||||
Total Current Assets |
532,121 | 506,301 | |||||||||
PROPERTY, PLANT AND EQUIPMENT |
|||||||||||
Land |
5,563 | 5,420 | |||||||||
Buildings and improvements |
172,453 | 178,373 | |||||||||
Machinery and equipment |
493,252 | 507,185 | |||||||||
Furniture and fixtures |
14,992 | 15,822 | |||||||||
| 686,260 | 706,800 | ||||||||||
Less accumulated depreciation |
225,939 | 201,571 | |||||||||
| 460,321 | 505,229 | ||||||||||
OTHER ASSETS |
|||||||||||
Goodwill and other intangible assets |
191,658 | 189,178 | |||||||||
Other assets |
113,423 | 91,451 | |||||||||
Assets of discontinued operations |
1,046,977 | ||||||||||
TOTAL ASSETS |
$ | 1,297,523 | $ | 2,339,136 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||
CURRENT LIABILITIES |
|||||||||||
Current portion of long-term debt |
$ | 6,750 | |||||||||
Accounts payable |
$ | 89,737 | 95,685 | ||||||||
Other accrued expenses |
153,298 | 53,519 | |||||||||
Total Current Liabilities |
243,035 | 155,954 | |||||||||
LONG -TERM LIABILITIES |
|||||||||||
Long-term debt |
400,314 | 1,187,650 | |||||||||
Deferred income taxes |
61,847 | 64,136 | |||||||||
Minority interests and other long-term liabilities |
78,553 | 64,820 | |||||||||
Liabilities of discontinued operations |
396,691 | ||||||||||
STOCKHOLDERS’ EQUITY |
|||||||||||
Preferred stock, $0.01 par value: |
|||||||||||
Authorized 2,000,000 shares; no shares issued or outstanding |
|||||||||||
Common stock, $0.01 par value: |
|||||||||||
Authorized 60,000,000 shares; issued 28,402,163 shares in
2003 and 2002 |
284 | 284 | |||||||||
Capital in excess of par value |
490,741 | 490,741 | |||||||||
Retained
earnings (deficit) |
39,610 | (17,943 | ) | ||||||||
Treasury stock (47,359 shares in 2003 and 2002, at cost) |
(2,255 | ) | (2,255 | ) | |||||||
Accumulated other comprehensive (loss) income |
(13,940 | ) | 2,008 | ||||||||
Unearned compensation |
(666 | ) | (2,950 | ) | |||||||
Total Stockholders’ Equity |
513,774 | 469,885 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 1,297,523 | $ | 2,339,136 | |||||||
See notes to condensed Consolidated Financial Statements
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Net sales |
$ | 240,567 | $ | 186,532 | $ | 655,149 | $ | 546,472 | ||||||||||
Cost of products sold |
210,780 | 133,184 | 564,391 | 391,644 | ||||||||||||||
Cost
of products sold– write-down of inventories |
108,222 | 108,222 | ||||||||||||||||
| 29,787 | (54,874 | ) | 90,758 | 46,606 | ||||||||||||||
Selling, general and administrative expenses |
34,109 | 28,786 | 81,017 | 71,108 | ||||||||||||||
INCOME (LOSS) FROM OPERATIONS |
(4,322 | ) | (83,660 | ) | 9,741 | (24,502 | ) | |||||||||||
OTHER INCOME (EXPENSE) |
||||||||||||||||||
Interest expense |
(9,291 | ) | (6,304 | ) | (30,181 | ) | (18,791 | ) | ||||||||||
Foreign exchange (loss) gain |
(809 | ) | (1,171 | ) | (68 | ) | 5,424 | |||||||||||
Investment income and other, net |
337 | (629 | ) | 1,368 | 2,071 | |||||||||||||
| (9,763 | ) | (8,104 | ) | (28,881 | ) | (11,296 | ) | |||||||||||
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTERESTS |
(14,085 | ) | (91,764 | ) | (19,140 | ) | (35,798 | ) | ||||||||||
Income tax (benefit) expense |
(11,681 | ) | (15,425 | ) | (12,978 | ) | 1,409 | |||||||||||
Minority interests |
212 | (24 | ) | (1,155 | ) | (45 | ) | |||||||||||
LOSS FROM CONTINUING OPERATIONS |
(2,616 | ) | (76,315 | ) | (5,007 | ) | (37,162 | ) | ||||||||||
DISCONTINUED OPERATIONS |
||||||||||||||||||
Income (Loss) from Discontinued Operations, net of tax |
1,986 | 5,149 | (92 | ) | 14,865 | |||||||||||||
Net gain on disposal of Discontinued Operations, net
of tax |
62,652 | 62,652 | ||||||||||||||||
Income from Discontinued Operations, net of tax |
64,638 | 5,149 | 62,560 | 14,865 | ||||||||||||||
NET INCOME (LOSS) |
$ | 62,022 | $ | (71,166 | ) | $ | 57,553 | $ | (22,297 | ) | ||||||||
Net income (loss) per common share - basic |
||||||||||||||||||
Continuing operations |
$ | (0.09 | ) | $ | (2.70 | ) | $ | (0.18 | ) | $ | (1.34 | ) | ||||||
Discontinued operations |
2.28 | 0.18 | 2.21 | 0.54 | ||||||||||||||
Net income (loss) |
$ | 2.19 | $ | (2.52 | ) | $ | 2.03 | $ | (0.80 | ) | ||||||||
Net income (loss) per common share - assuming dilution |
||||||||||||||||||
Continuing operations |
$ | (0.09 | ) | $ | (2.70 | ) | $ | (0.18 | ) | $ | (1.34 | ) | ||||||
Discontinued operations |
2.28 | 0.18 | 2.21 | 0.54 | ||||||||||||||
Net income (loss) |
$ | 2.19 | $ | (2.52 | ) | $ | 2.03 | $ | (0.80 | ) | ||||||||
Weighted average shares outstanding (000) |
||||||||||||||||||
Basic |
28,323 | 28,285 | 28,310 | 27,719 | ||||||||||||||
Assuming dilution |
28,329 | 28,285 | 28,313 | 27,719 | ||||||||||||||
Dividends paid per common share |
$ | — | $ | 0.14 | $ | — | $ | 0.42 | ||||||||||
See notes to condensed Consolidated Financial Statements
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
OPERATING ACTIVITIES |
||||||||||||
Loss from continuing operations |
$ | (5,007 | ) | $ | (37,162 | ) | ||||||
Items not affecting cash: |
||||||||||||
Depreciation and amortization |
44,730 | 40,147 | ||||||||||
Foreign exchange loss (gain) |
68 | (5,424 | ) | |||||||||
Minority interests |
(1,155 | ) | (45 | ) | ||||||||
Restructuring and other charges, less cash spent |
30,689 | |||||||||||
Write-down of inventories — lower of cost or market |
108,222 | |||||||||||
Changes in operating assets and liabilities |
(4,990 | ) | (129,816 | ) | ||||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
64,335 | (24,078 | ) | |||||||||
INVESTING ACTIVITIES |
||||||||||||
Expenditures for property, plant and equipment, net |
(6,995 | ) | (51,780 | ) | ||||||||
Divestiture of business |
4,000 | |||||||||||
Investments in unconsolidated subsidiary |
(5,333 | ) | ||||||||||
NET CASH USED IN INVESTING ACTIVITIES |
(6,995 | ) | (53,113 | ) | ||||||||
FINANCING ACTIVITIES |
||||||||||||
Payments of long-term debt |
(794,400 | ) | (245,977 | ) | ||||||||
Dividend payments |
(11,899 | ) | ||||||||||
Long-term borrowings |
129,772 | |||||||||||
Proceeds from exercise of stock options |
3,127 | |||||||||||
Proceeds from sale of common shares |
225,805 | |||||||||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
(794,400 | ) | 100,828 | |||||||||
CASH (USED IN) PROVIDED BY CONTINUING OPERATIONS |
(737,060 | ) | 23,637 | |||||||||
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS |
783,089 | (18,401 | ) | |||||||||
Effect of exchange rate changes on cash and cash equivalents |
4,450 | (716 | ) | |||||||||
Increase in cash and cash equivalents |
50,479 | 4,520 | ||||||||||
Cash and cash equivalents at beginning of period |
11,650 | 18,680 | ||||||||||
Cash and cash equivalents at end of period |
$ | 62,129 | $ | 23,200 | ||||||||
See notes to condensed Consolidated Financial Statements
| Note A | Basis of Presentation | |
| The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair financial presentation have been included. Past operating results are not necessarily indicative of the results which may occur in future periods, and the interim period results are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. | ||
|
In connection with the preparation of the accompanying condensed
consolidated financial statements, the Company made certain
adjustments to the results reported in the press release on
October 30, 2003, related to the significant events that
occurred during the quarter. The first adjustment relates to the sale
of the Company’s Precious Metals business during the third quarter
for approximately $814 million in cash. The Company previously
reported a net gain on this sale of $53.7 million after-tax.
However, the amount of expenses associated with this sale and
deducted from the gain has been determined to be less than previously
estimated.
Additionally, the Company had previously recorded certain charges against the gain related
to the exit of certain facilities, the sale of a Corporate asset, and
severance and other executive compensation arrangements, all of which
were indirectly related to the sale of the Precious Metals business.
However, these charges have been reclassified as restructuring
and other charges in continuing operations, as under generally accepted
accounting principles they more directly relate to the Company’s
ongoing businesses. These adjustments increased the net gain on the
sale to $62.7 million, after-tax. The second adjustment relates to the $45.0 million of restructuring and other charges reported in the October 30, 2003 release. The Company determined that its estimate of inventory costs previously reflected in the restructuring charge included inventory that has a value that can be realized in future continuing operations. Accordingly, this inventory has been removed from restructuring and other charges. In addition, it was determined that certain restructuring and other charges more properly related to the first and second quarters of 2003 ($4.7 million and $4.9 million, respectively). As a result of these changes and the reclassifications from the net gain as noted above, restructuring and other charges for the third quarter of 2003 have been reduced to $23.5 million. The Company will file amended Form 10-Q’s for the first and second quarters of 2003 as a result of these changes. During the fourth quarter of 2002, the Company shut down the U.S. manufacturing operations of the Fidelity electroless nickel business in Newark, New Jersey, and accounted for it as a discontinued operation. During the third quarter of 2003, the Company concluded that the revenue streams for this business have sufficiently continued through tolling arrangements with outside processors, and, accordingly, has reclassified these results to continuing operations for all periods presented. The operating results of this business are summarized as follows (in millions): |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net sales |
$ | 4.2 | $ | 5.9 | $ | 12.8 | $ | 16.8 | ||||||||
Operating loss (a) |
(6.0 | ) | (1.2 | ) | (11.0 | ) | (2.8 | ) | ||||||||
| (a) - Operating loss for the three and nine months ended September 30, 2003 includes restructuring and other charges of $5.9 million and $8.4 million, respectively. |
| Operating results for Fidelity U.S. pertaining to the fourth quarter of 2002, representing net sales of $5.1 million and operating loss of $5.4 million (including restructuring charges of $3.6 million), will be reclassified in the Company‘s Annual Report on Form 10-K for the year ending December 31, 2003. | ||
| Note B | Divestitures of Precious Metals and SCM Metal Products, Inc. | |
| On July 31, 2003, the Company completed the sale of its Precious Metals business (PMG business) to Umicore for |