1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000 Commission file number 0-784
DETREX CORPORATION
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-0480840
- ------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24901 Northwestern Hwy., Ste. 500, Southfield, MI 48075
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 358-5800
---------------------------
Securities registered pursuant to section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -----------------------
None None
Securities registered pursuant to Section (g) of the Act:
Common Capital Stock, $2 Par Value
----------------------------------
(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
------- -------
As of November 2, 2000 1,583,414 shares of the registrant's stock were
outstanding.
2
DETREX CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1 Condensed Consolidated Balance Sheets-
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Unaudited Statements
of Operations For the Three and Nine Months
Ended September 30, 2000 and 1999 4
Consolidated Unaudited Statements of Cash Flows-
Nine Months Ended September 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
- ------- -----------------
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
3
DETREX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
September 30, 2000 December 31,1999
------------------ ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 371,915 $ 381,269
Accounts receivable (less allowance for uncollectible accounts
of $310,000 in 2000 and $259,000 in 1999) 12,275,684 13,363,021
Inventories:
Raw materials 3,295,545 4,981,780
Work in process 328,664 332,187
Finished goods 7,422,838 7,109,459
----------- -----------
Total Inventories 11,047,047 12,423,426
Prepaid expenses and other 892,127 991,888
Deferred income taxes 1,512,345 1,419,370
----------- -----------
Total Current Assets 26,099,118 28,578,974
Land, buildings, and equipment-net 24,166,324 26,687,145
Prepaid pensions 2,115,847 1,760,243
Deferred income taxes -- 1,454,663
Other assets 481,115 1,136,948
----------- -----------
$52,862,404 $59,617,973
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable $ 956,789 $ 8,313,749
Current portion of long-term debt 600,000 866,000
Current maturities of capital leases 190,582 214,349
Accounts payable 9,363,328 11,403,039
Environmental reserve 1,500,000 1,500,000
Accrued compensation 750,302 300,362
Other accruals 3,668,903 2,258,978
----------- -----------
Total Current Liabilities 17,029,904 24,856,477
Long term portion of capital lease obligations 229,078 267,942
Long-term debt 2,900,000 4,802,775
Accrued postretirement benefits 4,852,822 4,702,822
Environmental reserve 5,108,996 5,834,555
Accrued pensions and other 100,696 100,696
Minority interest 2,430,158 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 17,021,902 13,703,479
----------- -----------
Total Stockholders' Equity 20,210,750 16,892,327
----------- -----------
$52,862,404 $59,617,973
=========== ===========
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
3
4
DETREX CORPORATION
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
Net sales $21,021,822 $19,982,375 $66,180,464 $57,302,952
Cost of sales 15,798,855 15,283,532 49,833,976 43,627,657
Selling, general and administrative expenses 3,832,724 3,990,688 11,663,111 11,569,884
Provision for depreciation and amortization 898,568 857,721 2,648,417 2,565,288
Net loss (gain) from property transactions (572) 72,604 98,287 (307,602)
Other (income) and deductions (66,853) (82,026) (248,756) (192,410)
Minority interest 109,289 34,326 329,778 143,158
Interest expense 331,381 248,167 969,053 554,642
---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes 118,430 (422,637) 886,598 (657,665)
Provision (credit) for income taxes 48,087 (201,021) 374,820 (242,333)
---------- ---------- ---------- ----------
Net income (loss) from continuing operations 70,343 (221,616) 511,778 (415,332)
Discontinued operations:
Income (loss) from operations of
Seibert-Oxidermo, Inc. net of tax (1,949) (46,803) 109,201 23,292
Gain on sale of Seibert-Oxidermo, Inc.
net of tax 2,697,444 -- 2,697,444 --
---------- ---------- ---------- -----------
Net income (loss) $2,765,838 ($268,419) $3,318,423 ($392,040)
========== ========== ========== ===========
Basic and diluted earnings (loss) per common share:
From continuing operations $ 0.04 $ (.14) $ 0.32 $ (.26)
From discontinued operations 1.70 (.03) 1.77 .01
---------- ---------- ---------- -----------
Net income (loss) per share $ 1.74 $ (0.17) $ 2.09 $ (0.25)
========== ========== ========== ===========
Number of shares outstanding (basic and diluted) 1,583,414 1,583,414 1,583,414 1,583,414
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
4
5
DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,318,423 $ (392,040)
Adjustments to reconcile net income(loss)
Income from discontinued operations (2,806,645) (23,292)
Depreciation and amortization 2,648,417 2,565,288
Loss (gain) on disposal of property 98,287 (307,602)
Deferred income taxes (84,160) (346,122)
Minority interest 269,779 83,159
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable (1,068,538) (1,564,901)
Accounts receivable-other -- (530,000)
Inventories (852,408) (1,235,042)
Prepaid expenses and other (267,149) (403,282)
Other assets 645,339 90,502
Accounts payable (1,262,340) 909,977
Environmental reserve (725,559) (421,478)
Accrued compensation 448,710 178,495
Other accruals (430,835) 352,153
Postretirement benefits 150,000 161,000
------------ ------------
Total adjustments (3,237,103) (491,145)
------------ ------------
Net cash provided by (used in) continuing operating 81,320 (883,185)
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,532,138) (3,997,277)
Sale/disposal of fixed assets 84,626 504,414
Change in proceeds from bond issue -- 1,247,902
---------------------------
Net cash used in continuing investing activities (1,447,512) (2,244,961)
Proceeds from the sale of Seibert-Oxidermo, Inc. 11,050,971 --
Net cash provided by discontinued investing activities -- 88,579
---------------------------
Net cash provided by (used in) investing activities 9,603,459 (2,156,382)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving credit facility (7,356,960) 1,651,879
Borrowing under equipment loan facility 1,523,500
Repayment of long term debt (2,168,775) (10,000)
Principal payments under capital lease obligations (168,398) (180,373)
------------ ------------
Net cash provided by (used in) financing activities (9,694,133) 2,995,006
------------ ------------
Net increase in cash and cash equivalents (9,354) (44,560)
Cash and cash equivalents at beginning of period 381,269 192,689
------------ ------------
Cash and cash equivalents at end of period $ 371,915 $ 148,129
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,078,974 $ 657,104
Income taxes $ 16,000 $ 176,585
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ 105,767 $ 26,500
Capital lease terminations $ -0- $ 29,256
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
5
6
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 nine months
may not be indicative of results to be expected for the full year.
2. Effective September 30, 2000, Seibert-Oxidermo, Inc., a subsidiary of Detrex
Corporation, completed the sale of the assets used in its paint business, other
than real estate, to Red Spot Paint and Varnish. Co., Inc. for $11,061,000. The
sale resulted in a gain before tax of $4,219,000 and a net gain of $2,697,000.
3. 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 September 30, 2000 was $6.6 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.
6
7
DETREX CORPORATION
4. The Company has three operating segments that meet the quantitative
thresholds of Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information". See Note 2 regarding
sale of Seibert Oxidermo on September 30, 2000:
- - Harvel Plastics - manufactures PVC and CVPC pipe and custom extrusions
- - Elco Corporation - produces lubricant additives, hydrochloric acid and
fine chemicals
- - 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 September 30, 2000 and 1999 and the nine months ended
September 30, 2000 and 1999 is as follows:
Three Months Ended Nine Months Ended
September 30 September 30
- ---------------------------------------------- ----------------------------------- ---------------------------------
2000 1999 2000 1999
Net sales:
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Harvel Plastics $12,089,943 9,096,969 $36,758,620 $26,406,672
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Elco Corporation 4,919,624 5,291,885 15,779,428 15,165,978
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Parts Cleaning Technologies 3,882,702 5,170,188 13,232,062 14,420,978
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Other 129,553 423,333 410,354 1,309,324
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Total $21,021,822 $19,982,375 $66,180,464 $57,302,952
=========== =========== =========== ===========
Income (loss) from continuing operations
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
before income taxes:
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Harvel Plastics 1,202,292 377,936 3,627,912 1,575,173
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Elco Corporation 233,971 497,558 1,109,365 1,190,046
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Parts Cleaning Technologies (239,316) (126,209) (569,020) (563,500)
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Other 141,138 111,161 542,963 322,386
- --------------------------------------------- ---------------- ------------------ ---------------- ----------------
Sub-total 1,338,085 860,446 4,711,220 2,524,105
- --------------------------------------------- ---------------- ------------------ ---------------- ----------------
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Corporate administrative expense (841,682) (937,737) (2,522,640) (2,809,291)
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Corporate interest expense (268,915) (174,869) (751,335) (416,394)
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Other (109,058) (170,473) (550,647) 43,914
- ---------------------------------------------- ---------------- ------------------ ---------------- ----------------
Total $118,430 $ (422,637) $ 886,598 $ (657,665)
======== =========== ========= ===========
7
8
DETREX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF INTERIM FINANCIAL INFORMATION
Results of Operations
Detrex Corporation and its consolidated subsidiaries ("the Company") earned
$70,343 from continuing operations in the third quarter of 2000, compared with a
loss of $221,616 for the same period in 1999. For the first nine months of 2000,
the Company earned $511,778 from continuing operations, compared with a loss of
$415,332 for the first nine months 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 Month Ended Nine Month Ended
Sept 30 Sept 30
- ---------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
$ % $ % $ % $ %
- ---------------------------------------------------------------------------------------------------------------------------
Sales 21,022 100.00 19,982 100.0 66,180 100.00 57,303 100.0
- ---------------------------------------------------------------------------------------------------------------------------
Gross margin 5,223 24.8 4,698 23.5 16,346 24.7 13,675 24.1
- ---------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 3,833 18.2 3,991 20.0 11,663 17.6 11,570 20.2
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 899 4.3 858 4.3 2,648 3.6 2,565 4.5
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) from continuing operations 70 0.3 (221) (1.1) 512 0.8 (415) (0.7)
- ---------------------------------------------------------------------------------------------------------------------------
Sales for the nine month period were up $8.9 million, or 15.5%, driven primarily
by continued strong demand for plastic pipe manufactured by Harvel Plastics
("Harvel"). Harvel's sales increased by $10.3 million. This increase was offset
somewhat by a $1.2 million decrease in revenues for the Parts Cleaning
Technologies Division ("Parts Cleaning"), as the market for industrial cleaning
equipment continues to be depressed.
Gross margins improved to 24.8% during the third quarter from 23.5%, and for the
year to date period to 24.7% from 24.1%, as manufacturing efficiencies, driven
primarily by volume increases at Harvel, more than offset the adverse effects of
higher raw material costs.
Selling and administrative expenses, improved by 2.6 percentage points over a
year ago, primarily as a result of the increased volumes, as overall expenses
remained relatively stable.
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.
8
9
DETREX CORPORATION
Results of Operations - Segment Disclosure
Harvel sales increased 33% for the third quarter, and 39% year to date, compared
to the same periods in 1999. Earnings before taxes increased over 200% compared
to the third quarter of 1999, and has increased over 120% on a year-to-date
basis. This performance reflects the capacity increase from the new California
production and warehouse facility, which has allowed Harvel to meet the
continued strong demand in the construction industry.
Elco's revenues increased year-to-date over 1999 by approximately 4%; however,
in the third quarter, sales declined by 7% compared to the same period in 1999.
Revenues overseas have been adversely impacted by the strength of the dollar,
which have made Elco's products less competitive. Earnings have decreased by
approximately 7% year-to-date, due to higher selling expenses, primarily in the
international area, where the company continues to invest to improve its
presence.
Parts Cleaning revenues declined by $1.3 million in the third quarter, compared
to the same period in 1999, reflecting the continued weakness in the industrial
cleaning equipment market. Following the consolidation of the Solvent and
Equipment Divisions in April 2000, Parts Cleaning was able to reduce operating
expenses in the quarter. However, the division incurred a loss due to the
significant decline in volume.
Liquidity, Financial Condition, and Capital Resources
The Company utilized internally generated funds to finance its operations during
the first nine months of 2000. Additionally, with the proceeds from the sale of
Seibert, the Company repaid its equipment term loan in its entirety on September
29, and reduced its borrowings under the revolving credit facility to
approximately $1.0 million. The Company will continue to finance its activities
with its existing credit facilities for calendar year 2000.
Working capital at September 30, 2000 was $9.1 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.
Other
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards Number 133, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities", which was subsequently amended by Statement
Number 138, in June 2000. During preliminary work relating to these Statements,
the Company has not become aware of any transactions which would affect its
financial reporting. The Company will continue to review these Statements, but
does not believe that they will have any material effect on the Company.
9
10
DETREX CORPORATION
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10(p) - Seventh Amendment to Comerica
Credit Agreement, dated as of September 29, 2000
(b) A report was filed on Form 8-K on September 5, 2000
announcing that Detrex has negotiated the sale of the
assets of its paint subsidiary, Seibert- Oxidermo,
Inc.
10
11
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 11/2/00 S.J. Quinlan
--------- -------------------------------------------
S.J. Quinlan
Controller and Chief Accounting Officer
Date 11/2/00 G.J. Israel
--------- -------------------------------------------
G.J. Israel
Vice President - Finance and Chief
Financial Officer
11
12
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
10(p)- -Seventh Amendment to Comerica Credit Agreement, dated as of
September 29, 2000
27 Financial Data Schedule