1
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 June 30, 2000 Commission file number 0-784
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DETREX CORPORATION
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(Exact name of registrant as specified in its charter)
Michigan 38-0480840
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24901 Northwestern Hwy., Ste. 500, Southfield, MI 48075
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 358-5800
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Securities registered pursuant to section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section (g) of the Act:
Common Capital Stock, $2 Par Value
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(Title of Class)
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 and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
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As of July 27, 2000 1,583,414 shares of the registrant's stock were outstanding.
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DETREX CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE
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Item 1 Condensed Consolidated Balance Sheets-
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Unaudited Statements
of Operations For the Three and Six Months
Ended June 30, 2000 and 1999 4
Consolidated Unaudited Statements of Cash Flows-
Six Months Ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Unaudited
Financial Statements 6-7
Item 2 Management's Discussion and Analysis of
Interim Financial Information 8-9
PART II OTHER INFORMATION
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Item 4 Submission of Matters to Vote of Security Holders 10
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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DETREX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
June 30, 2000 December 31, 1999
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ASSETS
Current Assets:
Cash and cash equivalents $ 433,424 $ 381,269
Accounts receivable (less allowance for uncollectible accounts
of $281,000 in 2000 and $259,000 in 1999) 14,424,081 13,363,021
Inventories:
Raw materials 4,519,371 4,981,780
Work in process 387,209 332,187
Finished goods 7,571,210 7,109,459
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Total Inventories 12,477,790 12,423,426
Prepaid expenses and other 685,010 991,888
Deferred income taxes 1,419,370 1,419,370
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Total Current Assets 29,439,675 28,578,974
Land, buildings, and equipment-net 25,389,575 26,687,145
Prepaid pensions 2,001,319 1,760,243
Deferred income taxes 1,227,782 1,454,663
Other assets 1,032,769 1,136,948
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$59,091,120 $59,617,973
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable $ 9,038,945 $ 8,313,749
Current portion of long-term debt 1,000,800 866,000
Current maturities of capital leases 191,568 214,349
Accounts payable 10,023,134 11,403,039
Environmental reserve 1,500,000 1,500,000
Accrued compensation 508,995 300,362
Other accruals 2,364,397 2,258,978
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Total Current Liabilities 24,627,839 24,856,477
Long term portion of capital lease obligations 178,874 267,942
Long-term debt 4,154,975 4,802,775
Accrued postretirement benefits 4,852,822 4,702,822
Environmental reserve 5,380,132 5,834,555
Accrued pensions and other 100,696 100,696
Minority interest 2,350,869 2,160,379
Stockholders' Equity:
Common capital stock, $2 par value, authorized 4,000,000 shares,
Outstanding 1,583,414 shares 3,166,828 3,166,828
Additional paid-in capital 22,020 22,020
Retained earnings 14,256,065 13,703,479
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Total Stockholders' Equity 17,444,913 16,892,327
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$59,091,120 $59,617,973
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SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
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Net sales $25,960,161 $22,205,658 $52,866,246 $44,199,672
Cost of sales 19,563,423 17,042,859 39,699,359 33,553,777
Selling, general and administrative expenses 4,562,208 4,465,617 9,429,981 8,870,625
Provision for depreciation and amortization 959,701 942,293 1,919,271 1,870,272
Net loss (gain) from property transactions 84,955 -- 98,859 (380,206)
Other income and deductions (144,057) (53,628) (182,745) (94,083)
Minority interest 105,914 47,678 220,489 108,832
Interest expense 387,370 213,002 744,455 399,279
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Income (loss) before income taxes 440,647 (452,163) 936,577 (128,824)
Provision (credit) for income taxes 179,619 (124,838) 383,992 (5,203)
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Net income (loss) $ 261,028 $ (327,325) $ 552,585 $ (123,621)
=========== =========== ========= ===========
Net income (loss) per common share:
Basic $ 0.16 $ (.21) $ 0.35 $ (.08)
Diluted $ 0.16 $ (.21) $ 0.35 $ (.08)
Weighted average shares outstanding:
Basic 1,583,414 1,583,414 1,583,414 1,583,414
Effects of dilutive stock options -- -- -- --
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Diluted 1,583,414 1,583,414 1,583,414 1,583,414
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SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS Six Months Ended
June 30
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 552,585 $ (123,621)
Adjustments to reconcile net income(loss) to net cash provided by(used in)
Operating activities:
Depreciation and amortization 1,919,271 1,870,272
Loss (gain) on disposal of property 98,859 (380,206)
Deferred income taxes 226,881 (77,191)
Minority interest 190,490 78,833
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable (1,061,060) (1,075,484)
Inventories (54,365) (915,947)
Prepaid expenses and other 65,802 (652)
Other assets 97,184 41,340
Accounts payable (1,379,905) 333,835
Environmental reserve (454,423) (433,884)
Accrued compensation 208,633 274,946
Other accruals 105,588 (206,802)
Postretirement benefits 150,000 150,000
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Total adjustments 112,955 (340,940)
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Net cash provided by (used in) operating activities 665,540 (464,561)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (798,359) (2,825,546)
Sale/disposal of fixed assets 84,626 380,000
Change in proceeds from bond issue -- 1,182,366
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Net cash used in investing activities (713,733) (1,263,180)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility 725,196 1,236,033
Borrowing under equipment loan facility 170,000 1,200,000
Repayment of long term debt (683,000) (10,000)
Principal payments under capital lease obligations (111,848) (135,192)
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Net cash provided by financing activities 100,348 2,290,841
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Net increase in cash and cash equivalents 52,155 563,100
Cash and cash equivalents at beginning of period 381,269 192,689
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Cash and cash equivalents at end of period $ 433,424 $ 755,789
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 696,264 $ 340,925
Income taxes $ 8,000 $ 130,412
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ -0- $ 26,500
Capital lease terminations $ -0- $ 24,963
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying condensed consolidated
unaudited financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the results of operations for
the periods presented. Certain amounts for 1999 have been reclassified to
conform with 2000 classifications. The information furnished for the six months
may not be indicative of results to be expected for the full year.
2. The Company and at least seventeen other companies are potentially
responsible for sharing the costs in a proceeding to clean up contaminated
sediments in the Fields Brook watershed in Ashtabula, Ohio. The Environmental
Protection Agency (`EPA') issued a Record of Decision in 1986 concerning the
methods it recommends using to accomplish this task. The Company and the other
potentially responsible parties negotiated with the EPA as to how best to effect
the clean up operation. After negotiation, an agreement was reached with the EPA
on clean-up methodology. The Company's share of clean-up costs is anticipated to
be in the range of approximately $2.5 million.
The Company maintains a reserve for anticipated expenditures over the next
several years in connection with remedial investigations, feasibility studies,
remedial design, and remediation relating to the clean up of environmental
contamination at several sites, including properties owned by the Company. The
amounts of the reserve at June 30, 2000 was $6.9 million. The reserve includes a
provision for the Company's anticipated share of remediation in the Fields Brook
watershed referred to above, as well as a provision for costs that are expected
to be incurred in connection with remediation of other sites. Some of these
studies have been completed; others are ongoing. In some cases, the methods of
remediation remain to be agreed upon.
The Company expects to continue to incur professional fees, expenses and
capital expenditures in connection with its environmental compliance efforts. In
addition to the above, there are several other claims and lawsuits pending
against the Company and its subsidiaries. One of those lawsuits involves the
division of costs between several potentially responsible companies for
reimbursement to the EPA for costs it incurred to conduct environmental
remediation at a drum and barrel recycler, which the Company had utilized
several years ago. The potentially responsible companies entered into an
Agreement to, among other things, jointly defend the cost claims of the EPA. A
dispute arose amongst the potentially responsible companies over the Agreement
which resulted in the filing of a lawsuit. The matter went to trial before a
jury in June of 1999 and a judgment was entered against the Company in the
amount of approximately $750,000, plus interest and attorney fees. The Company
is taking an appeal to the Michigan Court of Appeals and believes it has
reasonable grounds to seek reversal of the judgment.
The amount of liability to the Company with respect to costs of
remediation of contamination of the Fields Brook watershed and of other sites,
and the amount of liability with respect to several other claims and lawsuits
against the Company, was based on available data. The Company has established
its reserves in accordance with its interpretation of the principles outlined in
Statement of Financial Accounting Standards No. 5 and Securities and Exchange
Commission Staff Accounting Bulletin No. 92. In the event that any additional
accruals should be required in the future with respect to such matters, the
amounts of such additional accruals could have a material impact on the results
of operations to be reported for a specific accounting period but should not
have a material impact on the Company's consolidated financial position.
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DETREX CORPORATION
3. The Company has four operating segments that meet the quantitative
thresholds of Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information":
- Harvel Plastics - manufactures PVC and CVPC pipe and custom
extrusions
- Elco Corporation - produces lubricant additives, hydrochloric acid
and fine chemicals
- Seibert-Oxidermo - supplies paint, primers and specialty coatings
for the automotive industry
- Parts Cleaning Technologies - designs, engineers and sells
industrial cleaning equipment, distributes virgin or reclaimed
solvents and aqueous or semi-aqueous cleaning chemistries and
provides parts cleaning services.
Other includes consulting, businesses sold in 1999, property transactions,
minority interest and provisions for certain employee benefit items. Data for
the three months ended June 30, 2000 and 1999 and the six months ended June 30,
2000 and 1999 is as follows:
Three Months Ended June 30 Six Months Ended June 30
2000 1999 2000 1999
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Net sales:
Harvel Plastics $12,273,046 8,611,848 $24,668,677 $17,309,703
Elco Corporation 5,144,526 4,610,565 10,859,804 9,874,093
Seibert-Oxidermo 3,749,022 3,497,969 7,707,604 6,879,095
Parts Cleaning Technologies 4,683,517 5,060,712 9,349,359 9,250,787
Other 110,050 424,564 280,802 885,994
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Total $25,960,161 $22,205,658 $52,866,246 $44,199,672
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Earnings (loss) before income taxes:
Harvel Plastics 1,165,168 523,942 2,425,620 1,197,237
Elco Corporation 391,196 140,455 875,574 692,488
Seibert-Oxidermo 115,170 119,764 275,192 199,008
Parts Cleaning Technologies (105,226) (84,143) (330,025) (437,279)
Other 141,892 72,196 285,083 211,225
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Sub-total 1,708,200 772,214 3,531,444 1,862,679
Corporate administrative expense (765,474) (956,296) (1,680,958) (1,871,554)
Corporate interest expense (309,873) (177,476) (589,203) (334,329)
Other (192,206) (90,605) (324,706) 214,380
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Total $ (440,647) $ (452,163) $ 936,577 $ (128,824)
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DETREX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF INTERIM FINANCIAL INFORMATION
Results of Operations
Detrex Corporation and its consolidated subsidiaries ("the Company") reported
net income of $261,028 for the second quarter of 2000, compared with a net loss
of $327,325 for the second quarter of 1999. For the first six months of 2000,
the Company reported net income of $552,585, compared with a net loss of 123,621
for the first half of 1999.
Summarized below is selected operating data for the current fiscal period and
the comparable data for the same period last year (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
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2000 1999 2000 1999
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$ % $ % $ % $ %
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Sales 25,960 100.00 22,206 100.0 52,866 100.00 44,200 100.0
Gross margin 6,397 24.6 5,163 23.2 13,167 24.9 10,646 24.1
Selling, general and administrative expenses 4,562 17.6 4,466 20.6 9,430 17.8 8,871 20.1
Depreciation and amortization 960 3.7 942 4.2 1,919 3.6 1,871 4.2
Net income (loss) 261 1.0 (327) (1.5) 553 1.0 (124) (0.3)
Sales for the six month period were up $8.7 million, or 19.6%, driven primarily
by continued strong demand for plastic pipe manufactured by Harvel Plastics
("Harvel"). Harvel's sales increased by $7.4 million. Smaller increases were
registered by the additives subsidiary, The Elco Corporation ("Elco"), and the
paint subsidiary, Seibert -Oxidermo ("Seibert"), which saw revenues increase by
$.9 million and $.8 million, respectively.
Gross margins improved to 24.6% during the second quarter from 23.2%, and for
the year to date period to 24.9% from 24.1%, as manufacturing efficiencies more
than offset the adverse effects of higher raw material costs. The exception was
Parts Cleaning Technologies Division ("Parts Cleaning") where margins declined
during the second quarter as a result of lower shipments.
Selling and administrative expenses, expressed as a percentage of sales,
improved 2.3% over a year ago. Overall expenses rose, as volume increases at
Harvel, Elco and Seibert necessitated additional sales and technical support.
The provision for depreciation and amortization is slightly higher than in 1999,
primarily as a result of higher depreciation of equipment at Harvel.
Interest expense is higher due to an increase in borrowing levels and higher
interest rates from a year ago.
The effective income tax rate in 2000 is higher than in 1999 due to higher state
and local income tax expense.
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DETREX CORPORATION
Results of Operations - Segment Disclosure
Harvel sales for the second quarter and year to date increased 42.5% over the
prior year periods, and earnings before taxes increased over 120% in the second
quarter and 102% year to date. This performance resulted from the continued
strong demand in the construction industry, and the ability to better service
the western region of the country from the new California production and
warehouse facility.
Elco's sales improved over 1999 by approximately 10%. Earnings improved over
1999, primarily as a result of improved margins due to manufacturing
efficiencies, which offset higher selling expenses, primarily in the
international area, where the company continues to invest to improve its
presence.
Seibert's sales and earnings improved on a year to date basis due to continued
high automotive demand, new applications and the growing acceptance of its
PopFree(TM) primer. Manufacturing efficiencies resulting from a 1999 plant
consolidation also contributed to the earnings improvement. In the second
quarter of 2000, results were adversely impacted by the bankruptcy of one
customer.
In April 2000 the Company's Solvent and Equipment Divisions were consolidated to
form the Parts Cleaning Technologies Division. In conjunction with this
consolidation, termination costs of approximately $.1 million before taxes were
recorded. Excluding the termination costs, results improved in the second
quarter in spite of lower volumes.
Liquidity, Financial Condition, and Capital Resources
The Company utilized internally generated funds and increased borrowings under
both the equipment term loan and the revolving credit facility to finance
operating activities and $.8 million in capital expenditures during the first
half of 2000. The Company borrowed $.2 million under its equipment facility in
May 2000, and borrowings under its revolving credit facility increased by $.7
million during the first half the year; paydowns on the revolver totaled $2.5
million in the second quarter, as receivables were converted to cash. The
Company will continue to finance its activities with its existing credit
facilities for calendar year 2000.
Working capital at June 30, 2000 was $4.8 million, as compared to $3.7 million
at December 31, 1999. The company has paid no dividends since the second quarter
of 1991 and cannot forecast when the dividend will be restored.
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DETREX CORPORATION
PART II - OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The 75th Annual Meeting of the Stockholders of Detrex
Corporation was held in Southfield, Michigan on the
27th day of April 2000.
(b) Election of Mr. Zimmer as Director of the First Class
to hold office for a two year term or until his
successor has been elected and has qualified:
For 1,327,655
Against --
Abstain 86,383
Election of Mssrs. Emmett, McCleary and Thalacker as
Directors of the Second Class to hold office for
three year terms or until their successors have been
elected and qualify:
Mr. Emmett Mr. McCleary Mr. Thalacker
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For 1,308,764 1,309,155 1,308,764
Against -- -- --
Abstain 105,274 104,883 105,274
Messrs. King, Mangold, Mark, and Withrow continue as
directors.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) (1) A report on Form 8-K was filed on April 27, 2000
announcing the extension of the Company's Shareholder
Rights Plan for ten years.
(2) A report on Form 8-K was filed on May 16, 2000
announcing that the Registrant's common stock will be
traded the Nasdaq SmallCap Market as opposed to the
Nasdaq National Market effective May 17, 2000.
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DETREX CORPORATION
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.
DETREX CORPORATION
Date 8/4/00 S.J. Quinlan
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S.J. Quinlan
Controller and Chief Accounting Officer
Date 8/4/00 G. J. Israel
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G.J. Israel
Vice President - Finance and Chief Financial Officer
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Exhibit Index
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Exhibit No. Description
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27 Financial Data Schedule