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 September 30, 1995 Commission file number 0-784
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DETREX CORPORATION
(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 (810) 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
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 1, 1995 1,583,414 shares of the registrant's stock were
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outstanding.
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DETREX CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE
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Item 1 Consolidated Condensed Unaudited Balance
Sheets - September 30, 1995 and December 31, 1994 3
Consolidated Condensed Unaudited Statements
of Operations - Nine Months Ended September 30, 4
1995 and 1994
Consolidated Unaudited Statements of Cash Flows-
Nine Months Ended September 30, 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
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Item 1 Legal Proceedings 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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3
DETREX CORPORATION
CONSOLIDATED CONDENSED UNAUDITED BALANCE SHEETS
September 30, December 31,
1995 1994
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ASSETS
Current Assets:
Cash and cash equivalents $ 1,073,789 $ 2,015,962
Accounts receivable (less allowance for uncollectible accounts
of $491,000 in 1995 and $330,000 in 1994) 17,732,751 18,059,177
Inventories:
Raw materials 2,833,695 2,279,750
Work in process 652,977 1,782,532
Finished goods 5,660,197 4,914,802
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Total Inventories 9,146,869 8,977,084
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Prepaid expenses, deferred income taxes and other 2,911,753 2,780,657
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Total Current Assets 30,865,162 31,832,880
Land, buildings, and equipment-net 21,188,581 22,453,253
Land, buildings, and equipment held for sale 1,187,889 1,187,889
Deferred income taxes and other 6,122,565 6,300,824
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$59,364,197 $61,774,846
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Loans payable-short-term $ 7,000,000 $ 5,500,000
Current maturities of long-term debt and capital leases 1,011,755 1,848,080
Accounts payable 10,156,070 11,765,191
Environmental reserve 1,548,000 1,548,000
Accrued compensation 615,294 822,650
Other accruals 3,550,585 2,644,769
Accrued expenses - non-active locations 568,645 736,446
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Total Current Liabilities 24,450,349 24,865,136
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Capital lease obligations 327,605 701,505
Accrued postretirement benefits 3,906,316 3,636,316
Environmental reserve 10,164,955 11,042,937
Other accruals 1,078,430 1,212,235
Minority interest 1,573,767 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 14,673,927 15,573,757
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Total Stockholders' Equity 17,862,775 18,762,605
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$59,364,197 $61,774,846
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SEE NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONSOLIDATED CONDENSED UNAUDITED STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
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Net Sales $25,172,389 $25,017,072 $72,254,984 $74,530,612
Cost of sales 19,733,179 19,483,735 55,951,603 57,584,515
Selling, general and administrative expenses 4,813,290 4,260,110 14,814,205 13,271,225
Provision for depreciation and amortization 823,362 779,690 2,534,296 2,452,570
Other income and deductions (271,779) (77,218) (431,268) (399,375)
Minority interest 54,443 86,716 169,656 206,223
Interest expense 213,617 187,755 634,371 485,558
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Income (loss) before income taxes (193,723) 296,284 (1,417,879) 929,896
Provision (credit) for income taxes (1,653) 250,028 (518,049) 674,444
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Net income (loss) $ (192,070) $ 46,256 $ (899,830) $ 255,452
============ =========== =========== ===========
Net income (loss) per common share $ (0.12) $ 0.03 $ (0.57) $ 0.16
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SEE NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(899,830) $ 255,452
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 2,534,296 2,452,570
(Gain) on disposal of property (198,259) (241,781)
Deferred income taxes 183,798 365,174
Minority interest 19,655 (1,019,079)
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable 326,426 1,478,746
Receivable due from sale of ICSD 1,650,000
Inventories (199,785) (61,146)
Prepaid expenses and other (236,951) (556,796)
Other assets 37,316 79,560
Accounts payable (1,609,121) (1,604,894)
Environmental reserve (877,982) (662,255)
Accrued compensation (207,356) (419,014)
Accrued expenses - non-active locations (167,801) (272,024)
Other accruals 772,011 (272,005)
Postretirement benefits 270,000 270,000
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Total Adjustments 646,247 1,187,056
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Net cash provided by (used in) operating (253,583) 1,442,508
activities ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,091,811) (1,720,376)
Proceeds from disposal of property 235,321 306,511
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Net cash used in investing activities (856,490) (1,413,865)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings 1,500,000 1,500,000
Repayment of long-term bank debt (750,000) (1,751,361)
Principal payments under capital lease obligations (582,100) (562,929)
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Net cash provided by (used in) financing 167,900 (814,290)
activities ------------ ------------
Net decrease in cash and cash equivalents (942,173) (785,647)
Cash and cash equivalents at beginning of period 2,015,962 2,852,104
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Cash and cash equivalents at end of period $1,073,789 $2,066,457
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 565,808 $ 381,828
Income taxes $ 185,425 $ 234,460
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of $ 242,684 $ 57,914
equipment
Capital lease terminations $(120,809) $ (78,871)
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
September 30, 1995 and December 31, 1994, and the results of operations for the
nine months ended September 30, 1995 and 1994, and changes in cash flows for
the nine months ended September 30, 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 September 30, 1995 is $11.7 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 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 NINE MONTHS ENDED
September 30 September 30
1995 1994 1995 1994
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$ % $ % $ % $ %
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Sales 25,172 100.0 25,017 100.0 72,255 100.0 74,531 100.0
Gross margin 5,439 21.6 5,533 22.1 16,303 22.6 16,946 22.7
Selling, general and administrative
expenses 4,813 19.1 4,260 17.0 14,814 20.5 13,271 17.8
Depreciation and amortization 823 3.3 780 3.1 2,534 3.5 2,453 3.3
Net income (loss) (192) (0.8) 46 0.2 (900) (1.2) 255 0.3
Detrex Corporation and its consolidated subsidiaries (the Company) reported a
net loss of $192,070 for the third quarter of 1995 compared to net earnings of
$46,256 for the third quarter of 1994. For the first nine months of 1995, the
Company reported a net loss of $899,830 compared to net earnings of $255,452
for the first nine months of 1994.
Net sales for the nine months were $2.3 million lower than the same period last
year, primarily reflecting lower sales in the Company's solvents and
environmental services division, partially offset by increased sales from its
plastic pipe subsidiary and its lubricants subsidiary. Net sales for the
quarter were approximately the same as last year.
Cost of sales as a percent of sales was approximately the same in both years.
Gross margin percentages were 22.6% for the first nine months of 1995, compared
to 22.7% for the first nine months of 1994.
The increase in selling, general and administrative expenses for the nine month
period reflects a $500,000 provision for termination costs, increased bad debt
expense, and 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 is higher in 1995 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. In addition, a credit
of $300,000 was recorded in the second quarter of 1995 to reflect a rate
differential resulting from the carry-back of certain components of prior year
net operating losses to tax years in which the statutory rate was 46%.
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DETREX CORPORATION
Liquidity, Financial Condition, and Capital Resources
The Company utilized a combination of internally generated funds and net
borrowings of $750,000 to finance its activities during the first nine months
of 1995. In October, the Company borrowed $1.5 million which
will be used to fund fourth quarter environmental expenditures and partially
alleviate late payments to vendors.
Management's objective is to keep 1995 capital expenditures in the $2.5 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 $6,415,000 at September 30, 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 winter of 1996. 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 6 EXHIBITS AND REPORTS ON FORM 8-K
6(b) No reports on Form 8-K have been filed for the quarter ended September
30, 1995.
27 Financial Data Schedule
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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 11/9/95 /s/ E.R. Rondeau
_________________ _____________________________________
E.R. Rondeau
Controller and Chief Accounting Officer
Date 11/9/95 /s/ G.J. Israel
_________________ ______________________________________
G.J. Israel
Vice President - Finance and Chief
Financial Officer
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EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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27 -- Financial Data Schedule