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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 March 31, 2001 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 May 10, 2001 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-(Unaudited)
March 31, 2001 and (Audited) December 31, 2000 3
Condensed Consolidated Unaudited Statements
of Operations For the Three Months
Ended March 31, 2001 and 2000 4
Consolidated Unaudited Statements of Cash Flows-
Three Months Ended March 31, 2001 and 2000 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 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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DETREX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
March 31, 2001 December 31, 2000
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ASSETS
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Current Assets:
Cash and cash equivalents $ 171,489 $ 363,829
Accounts receivable (less allowance for uncollectible accounts
of $228,000 in 2001 and $244,000 in 2000) 11,486,622 11,591,331
Inventories:
Raw materials 3,826,175 3,185,785
Work in process 506,549 277,790
Finished goods 7,714,594 6,920,821
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Total Inventories 12,047,318 10,384,396
Prepaid expenses and other 481,719 786,915
Deferred income taxes 2,159,169 1,955,959
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Total Current Assets 26,346,317 25,082,430
Land, buildings, and equipment-net 21,453,214 24,238,494
Property held for sale 2,321,195 --
Prepaid pensions 2,315,343 2,253,947
Other assets 522,140 442,204
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$52,958,209 $52,017,075
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Loans payable $ 7,373,455 $ 6,830,335
Current portion of long-term debt 500,000 600,000
Current maturities of capital leases 168,414 168,414
Accounts payable 7,291,089 5,227,072
Environmental reserve 2,100,000 2,100,000
Accrued compensation 307,473 656,442
Other accruals 2,290,847 2,583,040
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Total Current Liabilities 20,031,278 18,165,303
Long term portion of capital lease obligations 138,618 194,418
Long-term debt 2,400,000 2,900,000
Accrued postretirement benefits 3,728,027 3,728,027
Environmental reserve 2,744,743 2,937,103
Accrued pension and other 551,198 551,198
Minority interest 2,579,169 2,507,635
Deferred income taxes 651,733 651,733
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 16,944,595 17,192,810
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Total Stockholders' Equity 20,133,443 20,381,658
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$52,958,209 $52,017,075
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SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF
OPERATIONS
Three Months Ended
March 31
2001 2000
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NET SALES $20,238,834 $22,947,503
Cost of sales 15,671,212 17,208,438
Selling, general and administrative expenses 3,767,948 4,085,671
Provision for depreciation and amortization 966,169 868,359
Net loss from property transactions -- 13,904
Other income and deductions (53,837) (40,937)
Minority interest 71,534 114,575
Interest expense 237,961 306,464
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(Loss) income from continuing operations before income taxes (422,153) 391,029
(Credit) provision for income taxes (173,938) 168,707
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Net (loss) income from continuing operations $ (248,215) $ 222,322
Income from discontinued operations -- 69,235
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Net (loss) income $ (248,215) $ 291,557
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Basic and diluted earnings per share:
From continuing operations $ (.16) $ .14
From discontinued operations -- .04
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Net income $ (.16) $ .18
Weighted average shares outstanding:
Basic 1,583,414 1,583,414
Effects of dilutive stock options -- 8,317
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Diluted 1,583,414 1,591,731
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SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (248,215) $ 291,557
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
(Income) from discontinued operations -- (69,235)
Depreciation and amortization 966,169 868,359
Loss on sale of fixed assets -- 13,904
Deferred income taxes (203,210) 83,940
Minority interest 71,534 114,576
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable (58,627) (3,859,857)
Inventories (1,662,922) 150,887
Prepaid expenses and other 247,186 196,356
Other assets (79,935) 105,887
Accounts payable 2,034,516 (681,097)
Environmental reserve (192,360) (104,512)
Accrued compensation (348,969) 255,064
Other accruals 346,942 275,329
Postretirement benefits -- 75,000
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Total adjustments 1,120,324 (2,575,399)
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Net cash provided by (used in) continuing operating activities 872,109 (2,283,842)
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Net cash (used in) provided by discontinued operating activities (450,660) 25,599
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Net cash provided by (used in) operating activities 421,449 (2,258,243)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (380,014) (337,348)
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Net cash (used in) continuing investing activities (380,014) (337,348)
Net cash (used in) discontinued investing activities (121,095) (22,093)
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Net cash (used in) investing activities (501,109) (359,441)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility 543,120 3,207,419
Principal payments under capital lease obligations (55,800) (56,601)
Repayment of long-term debt (600,000) (591,500)
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Net cash (used in) provided by financing activities (112,680) 2,559,318
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Net decrease in cash and cash equivalents (192,340) (58,366)
Cash and cash equivalents at beginning of period 363,829 381,269
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Cash and cash equivalents at end of period $ 171,489 $ 322,903
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 237,172 $ 315,465
Income taxes $ 56,500 $ -0-
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ -0- $ -0-
Capital lease terminations $ -0- $ -0-
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 2000, including the presentation of
the effects of the sale of the Company's paint subsidiary (Note 2) as
discontinued operations, have been reclassified to conform with 2001
classifications. The information furnished for the three months may not be
indicative of results to be expected for the full year.
2. Effective September 30, 2000, the Company completed the sale of the assets,
excluding real estate, of its paint subsidiary to Red Spot Paint & Varnish Co.,
for $11.1 million. The sale resulted in a net gain of $2.6 million. In addition,
the Company and Red Spot entered into an agreement whereby the Company would
manufacture for Red Spot for a period of four months commencing October 1, 2000
and ending January 31, 2001. Following the completion of this agreement, the
property related to this discontinued segment is currently held for sale.
3. The Company entered into a new Credit Agreement (the Agreement) with Comerica
Bank on April 25, 2001. The Agreement, which has an expiration date of April 25,
2003, provides for a credit facility of up to $13.0 million, collateralized by
the Company's inventory, accounts receivable, certain fixed assets, and stock of
subsidiaries. The Agreement contains, among other provisions, requirements for
maintaining defined levels of tangible net worth and various financial statement
ratios. Interest rates negotiated under the Agreement are based on eurodollar
and/or prime rate based formulas, and are more favorable than those in the old
agreement. The Agreement also provides up to $5 million in Term Loan facilities
to finance capital expenditures.
4. 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 clean-up is currently in progress and is expected
to be completed by the end of 2001. The Company's remaining share of clean-up
costs is anticipated to be in the range of approximately $1.3 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 amount of the reserve at March 31, 2001 was $4.8 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 in the
late 1980's. 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.
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DETREX CORPORATION
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, is 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.
5. 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":
- Harvel Plastics - manufacturer of high quality PVC and CVPC
pipe and custom extrusions
- Elco Corporation - manufacturer of high performance specialty
chemicals including lubricant additives, fine chemicals, and
hydrochloric acid
- Parts Cleaning Technologies Division - provides solutions for
production parts cleaning needs, including equipment,
solvents, recycling of waste, and contract parts cleaning
Other includes consulting, a business sold in 2000, property transactions,
minority interest and provisions for certain employee benefit items. Data for
the three months ended March 31, 2001 and 2000 is as follows:
Three Months Ended March 31
2001 2000
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Net sales:
Harvel Plastics $ 11,259,376 $12,395,631
Elco Corporation 4,963,689 5,715,278
Parts Cleaning Technologies Division 4,127,003 4,665,842
Other (includes intercompany eliminations) (111,234) 170,752
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Total $ 20,238,834 $22,947,503
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Earnings (loss) before income taxes:
Harvel Plastics $ 776,949 $ 1,260,452
Elco Corporation 301,861 484,378
Parts Cleaning Technologies Division (442,996) (224,799)
Other 12,500 143,191
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Sub-total $ 648,314 $ 1,663,222
Corporate administrative expense (848,736) (915,484)
Corporate interest expense (192,731) (224,209)
Other (29,000) (132,500)
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Total (loss) income from continuing operations $ (422,153) $ 391,029
before taxes ============ ===========
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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") incurred a
net loss of $248,215 from continuing operations compared to income from
continuing operations of $222,322 for the same period a year ago. Net sales for
the period were $20.2 million compared to $22.9 million last year.
Summarized below is selected operating data for the current fiscal period and
the comparable data for the same period last year (in thousands):
Three Months Ended
March 31
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2001 2000
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$ % $ %
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Sales 20,239 100.00 22,948 100.0
Gross margin 4,568 22.6 5,739 25.0
Selling, general and administrative expenses 3,768 18.6 4,086 17.8
Depreciation and amortization 966 4.8 868 3.8
Net (loss) income from continuing operations (248) (1.2) 223 1.0
Sales for the quarter decreased by $2.7 million compared to the same period in
2000 due to the general economic slow-down in manufacturing and pressure on
exports due to the continued strength of the U.S. dollar. All three of the
Company's business units encountered weak market conditions which resulted in
the overall revenue decline of 11.8%.
The gross margin of the Company decreased by $1.2 million compared to the same
period a year ago, primarily due to the decrease in total revenues. Margins as a
percentage of sales declined from 25.0% to 22.6% as a result of lower capacity
utilization at The Elco Corporation ("Elco") and Harvel Plastics, Inc.
("Harvel") caused by the volume shortfall, a less favorable product mix at Parts
Cleaning Technologies Division (`Parts Cleaning"), and, to a lesser extent, an
increase in natural gas costs at Elco.
Selling and administrative expenses decreased by approximately $300,000. Year
over year reductions were made in Parts Cleaning, Elco and the corporate office.
Expenses increased modestly at Harvel to accommodate the growth of this
subsidiary during the past year.
The provision for depreciation and amortization is higher than in 2000 as a
result of capital expenditures at both Harvel and Elco.
Interest expense in 2001 is lower due to a decrease in interest rates and the
repayment of the Company's term loans in September of 2000 and a $600,000
principal payment of the Industrial Development bonds in January 2001.
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DETREX CORPORATION
The credit for income taxes was approximately 41% of the pre-tax loss from
continuing operations in 2001, compared to an effective rate of approximately
43% of the pretax income from continuing operations recorded in 2000.
Results of Operations - Segment Disclosure
Harvel's sales in the first quarter of 2001 declined by $1.1 million, or 9.2%,
compared to the same period in 2000, as demand dropped sharply in the middle of
the quarter. Sales were down in both industrial and commercial segments. Erratic
raw material resin pricing contributed to unsettled market conditions and put
pressure on margins. Lower capacity utilization and less favorable product mix
served to further reduce margins and earnings.
Elco's sales were down approximately $750,000, of which approximately $500,000
was attributable to reduced export sales of additives and pyrolles due to the
strength of the U.S. dollar, and approximately $250,000 was the result of the
general economic slowdown in the domestic additive and pyrolle business. Margins
were down from year ago levels due to reduced volume effects and an increase in
natural gas costs, offset somewhat by pricing actions taken in the first
quarter.
Parts Cleaning incurred losses as both sales and margins were down from a year
ago. The primary cause of both the revenue loss and margin deterioration was
lower sales in the automotive related contract parts cleaning portion of the
business. The Company is continuing to narrow the focus of this business.
Liquidity, Financial Condition, and Capital Resources
The Company utilized internally generated funds to finance its operations during
the first quarter. Long term debt was reduced by $600,000 and borrowings under
the Revolving Credit Agreement increased by $543,000. Working capital was $6.3
million compared to $4.1 million a year ago.
In April, the Company negotiated a new credit facility with Comerica Bank (Note
3). In addition to extending the existing $13.0 million Revolving Credit
Agreement, $5.0 million is now available to finance capital expenditures.
Interest rates are more favorable than those in the prior agreement.
The Company has paid no dividends since the second quarter of 1991 and cannot
forecast when the dividend will be restored.
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10- Amended and Restated Credit Agreement dated
April 25, 2001
(b) There were no Reports on Form 8-K filed for the quarter
ended March 31, 2001
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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 5/10/01 /s/ T.M. Mark
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T.M. Mark
President and Chief Executive Officer
Date 5/10/01 /s/ S. J. Quinlan
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S. J. Quinlan
Treasurer, Controller and Chief Accounting Officer
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