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 March 31, 1995 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 (810) 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
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As of May 1,1995 1,583,414 shares of the registrant's stock were outstanding.
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DETREX CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Consolidated Condensed Unaudited Balance
Sheets - March 31, 1995 and December 31, 1994 3
Consolidated Condensed Unaudited Statements
of Operations - Three Months 4
Ended March 31, 1995 and 1994
Consolidated Unaudited Statements of Cash Flows-
Three Months Ended March 31, 1995 and 1994 5
Notes to Consolidated Condensed Unaudited
Financial Statements 6
Item 2 Management's Discussion and Analysis of
Interim Financial Information 7-8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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DETREX CORPORATION
CONSOLIDATED CONDENSED UNAUDITED BALANCE SHEETS
March 31, 1995 December 31, 1994
--------------- ------------------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 2,045,700 $ 2,015,962
Accounts receivable (less allowance for uncollectible accounts
of $417,000 in 1995 and $240,000 in 1994) 16,973,865 18,059,177
Inventories:
Raw materials 2,927,056 2,279,750
Work in process 372,031 1,782,532
Finished goods 4,873,637 4,914,802
----------- -----------
Total Inventories 8,172,724 8,977,084
Prepaid expenses, deferred income taxes and other 2,527,844 2,780,657
----------- -----------
Total Current Assets 29,720,133 31,832,880
----------- -----------
Land, buildings, and equipment-net 21,839,133 22,453,253
Land, buildings, and equipment held for sale 1,187,889 1,187,889
Deferred income taxes and other 6,393,100 6,300,824
----------- -----------
$59,140,255 $61,774,846
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Loans payable-short-term $ 6,500,000 $ 5,500,000
Current maturities of long-term debt and capital leases 1,511,755 1,848,080
Accounts payable 9,353,583 11,765,191
Environmental reserve 1,548,000 1,548,000
Accrued compensation 575,395 822,650
Other accruals 2,787,120 2,644,769
Accrued expenses - non active locations 569,526 736,446
----------- -----------
Total Current Liabilities 22,845,379 24,865,136
----------- -----------
Capital lease obligations 598,469 701,505
Accrued postretirement benefits 3,726,316 3,636,316
Environmental reserve 10,759,216 11,042,937
Other accruals 1,204,683 1,212,235
Minority interest 1,612,071 1,554,112
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 15,205,273 15,573,757
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Total Stockholders' Equity 18,394,121 18,762,605
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$59,140,255 $61,774,846
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SEE NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF
OPERATIONS
Three Months Ended
March 31
1995 1994
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Net Sales $ 24,602,767 $ 23,371,398
Cost of sales 19,000,124 18,112,152
Selling, general and administrative expenses 4,991,172 4,535,170
Provision for depreciation and amortization 845,307 851,869
Other (income) expense-net (91,180) (273,855)
Minority interest 57,960 45,720
Interest expense 199,796 149,403
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Loss before income taxes (400,412) (49,061)
Provision (credit) for income taxes (31,928) 65,221
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Net loss $ (368,484) $ (114,282)
============ ============
Per Common Share:
Net loss $ (.23) $ (.07)
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Cash dividends per common share NONE NONE
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SEE NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
--------
1995 1994
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (368,484) $ (114,282)
----------- ------------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 845,309 851,869
Gain on sale of equipment -- (232,351)
Deferred income taxes (131,416) 1,101
Changes to operating assets and liabilities that provided (used)
cash:
Accounts receivable 1,085,312 356,678
Inventories 804,360 (1,069,352)
Prepaid expenses and other 252,813 236,925
Other assets 18,140 1,599
Accounts payable (2,411,608) (271,236)
Environmental reserve (283,721) (94,880)
Accrued compensation (247,255) (291,338)
Other accruals (32,122) (346,856)
Postretirement benefits 90,000 90,000
Minority interest 57,960 15,720
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Total Adjustments 47,772 (752,121)
----------- ------------
Net cash used in operating activities (320,712) (866,403)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (190,651) (447,978)
Proceeds from disposal of equipment -- 278,476
----------- ------------
Net cash provided by (used in) investing (190,651) (169,502)
activities ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings 1,000,000 --
Repayment of long-term bank debt (250,000) (251,361)
Principal payments under capital lease obligations (208,899) (200,690)
----------- ------------
Net cash used in financing activities 541,101 (452,051)
----------- ------------
Net increase (decrease) in cash and cash equivalents 29,738 (1,487,956)
Cash and cash equivalents at beginning of period 2,015,962 2,852,104
----------- ------------
Cash and cash equivalents at end of period $ 2,045,700 $ 1,364,148
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 182,715 $ 134,825
Income taxes $ 51,800 $ 49,600
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ 63,880 $ 43,701
Capital lease terminations $ (44,342) $ (19,496)
SEE NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated condensed
unaudited financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 1995 and December 31, 1994, and the results of operations for the
three months ended March 31, 1995 and 1994, and changes in cash flows for the
three months ended March 31, 1995 and 1994. Certain amounts for 1994 have been
reclassified to conform with 1995 classifications.
2. The information furnished may not be indicative of results to be
expected for the full year. Generally, the business is not of a seasonal
nature.
3. The Environmental Protection Agency ("EPA") has notified the Company
and at least seventeen other companies that they may be potentially responsible
for sharing the costs in a proceeding to clean up contaminated sediments in
the Fields Brook watershed in Ashtabula, Ohio. The EPA issued a Record of
Decision in 1986 concerning the methods it recommends using to accomplish this
task at an estimated total cost of $48,000,000. The Company and the other
potentially responsible parties have expressed their disagreement with this
recommendation and are continuing to negotiate with the EPA as to how best to
effect the clean up operation. The Company believes that the Fields Brook
remedial investigation and feasibility studies referred to below will be an
important factor in the negotiation with the EPA.
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
contamination at several sites including property owned by the Company. The
Company conducted a comprehensive review of its reserves during the fourth
quarter of 1994 and added $8.5 million to this reserve. The total amount of the
reserve at March 31, 1995 is $12.3 million, which amount was calculated without
taking into consideration any possible insurance recoveries.
The reserve includes a provision for the Company's anticipated share
of a remedial investigation and feasibility studies to determine sources of
contamination and methods of remediation in the Fields Brook watershed referred
to above, as well as a provision for costs that may be incurred in connection
with remediation of the Fields Brook watershed and other sites. Some of these
studies have been completed; others are ongoing. In many 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.
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
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF INTERIM FINANCIAL INFORMATION
Results of Operations
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
--------
1995 1994
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$ % $ %
- - - -
Sales 24,603 100.0 23,371 100.0
Gross margin 5,603 22.8 5,259 22.5
Selling, general and administrative expenses 4,991 20.3 4,535 19.4
Depreciation and amortization 845 3.4 852 3.6
Net loss (368) (1.5) (114) (.5)
Detrex Corporation and its consolidated subsidiaries (the Company) reported a
net loss of $368,484 for the first quarter of 1995 compared to a net loss of
$114,282 for the first quarter of 1994. Included in the 1995 net loss is
$198,000 attributable to the after tax effect of a reserve for termination
costs in conjunction with the resignation of the Company's former President
and CEO.
Net sales for the Company were $1.2 million higher than the same period last
year, primarily the result of increased sales in the Company's plastic pipe
subsidiary and its lubricants subsidiary, partially offset by a decrease in
sales in the Company's solvents and environmental services division.
Cost of sales was approximately the same in both years. Gross margin
percentages were 22.8% in 1995, compared to 22.5% in 1994, with the Company's
plastic pipe subsidiary and paint subsidiary reflecting small increases in
margins.
The increase in selling, general and administrative expenses reflects a
$300,000 addition to the reserve for termination costs, coupled with economic
increases at most of the Company's business units.
The provision for depreciation and amortization is approximately the same as
the prior year for all of the Company's business units.
Interest expense was higher reflecting increased borrowings and higher rates.
The income tax credit in 1995 reflects a credit for federal income taxes,
partially offset by state and local income tax expense. Income taxes for 1994
reflect state and local income tax expense.
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DETREX CORPORATION
Liquidity, Financial Condition, and Capital Resources
The Company utilized a combination of internally generated funds and $1.0
million of borrowings under its Revolving Credit Agreement to finance its
activities during the first quarter of 1995. The additional borrowings were
required to partially alleviate some delays in making payments to vendors.
Management's objective is to keep 1995 capital expenditures in the $3.5 million
range. The Company has paid no dividends since the second quarter of 1991 and
cannot forecast when the dividend will be restored.
Working capital was $6,875,000 at March 31, 1995 compared to $6,968,000 at
December 31, 1994. The current ratio for both periods was 1.3 to 1.
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DETREX CORPORATION
PART II - OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The Company is a defendant in an action brought by the Carrier Corporation in
Superior Court for Los Angeles County, California. An order granting the
Company Summary Judgment was reversed by an appellate court in late 1992.
Carrier has alleged that the product manufactured by the Company has
malfunctioned causing environmental damage to its property. The Court ordered
that the trial be separated into two phases. The first phase proceeded to
trial in October of 1994 and was completed in December of 1994. On March 29,
1995 the Court rendered its decision and ruled on the issues as follows:
- - The court ruled that the contract at issue consisted of Carrier's Purchase
Order, which was accepted by the Company in April of 1979.
- - The Court ruled that the Company was negligent in connection with the
design and installation of the product which constituted a defect in
workmanship.
- - The Court ruled that the sump installed in connection with the operation of
the product was defectively designed, manufactured and installed, but the
Court concluded that Carrier had failed to prove by a preponderance of the
evidence that the Company designed or installed the sump or otherwise
failed to exercise any requisite care in connection with the design or
installation of the sump.
- - The Court ruled that the Company had failed to prove by a preponderance of
the evidence that either Carrier or some third party designed or installed
the sump.
The second phase of the trial is expected to begin in the summer of 1995. The
Company believes it has valid defenses to the claims and is vigorously
defending the action. The Company's product liability insurance carrier is
paying the cost of the defense under a reservation of rights. The Company
believes any judgment against it will be covered by its product liability
insurance.
Item 5 OTHER INFORMATION
On April 11, 1995, Joseph L. Wenzler resigned as President, Chief Executive
Officer and a Director of the Company. The Board of Directors elected William
C. King as interim President and Chief Executive Officer.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
6(b)No reports on Form 8-K have been filed for the quarter ended March 31, 1995
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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 5/9/95 /s/ E.R. RONDEAU
_______________________________________
E.R. Rondeau
Controller and Chief Accounting Officer
Date 5/9/95 /s/ G.J. ISRAEL
_______________________________________
G.J. Israel
Vice President - Finance and Chief
Financial Officer
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EXHIBIT INDEX
Exhibit
No. Description Page
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27 Financial Data Schedule