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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, 1997 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 (810) 358-5800
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 April 25, 1997 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 Condensed Consolidated Balance Sheets-
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Unaudited Statements
of Operations For the Three Months
Ended March 31, 1997 and 1996 4
Consolidated Unaudited Statements of Cash Flows-
Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated 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 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, 1997 December 31, 1996
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ASSETS
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Current Assets:
Cash and cash equivalents $ 1,630,132 $ 1,311,045
Accounts receivable (less allowance for uncollectible accounts
of $338,000 in 1997 and $395,000 in 1996) 15,554,625 15,203,184
Refundable U.S. income taxes -- 1,003,827
Note receivable -- 1,562,665
Inventories:
Raw materials 3,519,815 3,005,399
Work in process 198,040 284,392
Finished goods 6,257,339 5,768,376
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Total Inventories 9,975,194 9,058,167
Prepaid expenses and other 626,646 878,263
Deferred income taxes 760,104 759,063
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Total Current Assets 28,546,701 29,776,214
Land, buildings, and equipment-net 19,852,720 19,374,051
Land, buildings, and equipment held for sale or lease 2,820,125 2,820,125
Prepaid pensions 1,280,886 1,280,886
Deferred income taxes 1,242,156 1,367,265
Other assets 944,539 973,858
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$54,687,127 $55,592,399
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Loans payable $ 5,534,065 $ 5,627,453
Current maturities of capital leases 396,648 385,366
Accounts payable 9,490,264 11,123,341
Environmental reserve 1,027,000 1,027,000
Accrued compensation 508,785 699,520
Other accruals 2,865,120 2,398,802
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Total Current Liabilities 19,821,882 21,261,482
Long term portion of capital lease obligations 686,142 393,800
Accrued postretirement benefits 4,383,584 4,293,584
Environmental reserve 9,202,191 9,244,297
Accrued pensions and other 1,334,103 1,344,330
Minority interest 1,814,567 1,746,236
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 14,255,810 14,119,822
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Total Stockholders' Equity 17,444,658 17,308,670
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$54,687,127 $55,592,399
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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
1997 1996
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Net sales $23,161,212 $23,999,570
Cost of sales 17,492,883 18,424,903
Selling, general and administrative expenses 4,322,463 4,681,597
Provision for depreciation and amortization 786,717 798,390
Other income and deductions (39,885) (145,738)
Minority interest 68,332 57,282
Interest expense 193,472 247,560
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Income (loss) before income taxes 337,230 (64,424)
Provision (credit) for income taxes 201,242 (75,624)
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Net income $ 135,988 $ 11,200
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Net income per common share $ .09 $ .01
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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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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 135,988 $ 11,200
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 786,717 798,390
(Gain)/ Loss on disposal of property (2,161) 18,446
Deferred income taxes 124,068 (7,823)
Minority interest 68,332 57,281
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable (351,441) (2,800,828)
Refundable U.S. income taxes 1,003,827 1,697,866
Note receivable 1,562,665 --
Inventories (917,027) (1,014,978)
Prepaid expenses and other 251,617 329,628
Other assets 25,821 18,151
Accounts payable (1,633,077) 660,385
Environmental reserve (42,106) (453,027)
Accrued compensation (190,735) (194,468)
Other accruals 456,090 477,026
Postretirement benefits 90,000 90,000
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Total adjustments 1,232,590 (323,951)
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Net cash provided by (used in) operating activities 1,368,578 (312,751)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (831,823) (202,387)
Proceeds from disposal of property -- 1,887
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Net cash used in investing activities (831,823) (200,500)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term bank debt - net (93,388) (500,000)
Principal payments under capital lease obligations (124,280) (160,672)
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Net cash used in financing activities (217,668) (660,672)
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Net increase (decrease) in cash and cash equivalents 319,087 (1,173,923)
Cash and cash equivalents at beginning of period 1,311,045 2,764,360
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Cash and cash equivalents at end of period $ 1,630,132 $ 1,590,437
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 194,128 $ 269,425
Income taxes $ 61,000 $ 77,250
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ 481,851 $ 177,900
Capital lease terminations $ 53,947 $ 47,369
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 1996 have been reclassified to
conform with 1997 classifications. The information furnished for the three
months may not be indicative of results to be expected for the full year.
2. 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 for all companies 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 environmental
contamination at several sites, including property owned by the Company. The
Company added $.8 million to the reserve in 1996, $.1 million in 1995, and $8.5
million in 1994. The amount of the reserve at March 31, 1997 is $10.2 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 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 are expected to 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
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March 31
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1997 1996
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$ % $ %
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Sales 23,161 100.0 24,000 100.0
Gross margin 5,668 24.5 5,574 23.2
Selling, general and administrative expenses 4,322 18.7 4,682 19.5
Depreciation and amortization 787 3.4 798 3.3
Net income (loss) 136 0.6 11 .04
Detrex Corporation and its consolidated subsidiaries (the Company) reported net
income of $135,988 for the first quarter of 1997 compared to $11,200 net income
for the first quarter of 1996. This is the fifth consecutive profitable
quarter for the Company and a quarter in which all seven operating units were
profitable.
Net sales for the three months were slightly less than the same period last
year as a result of a division having been sold in the fourth quarter of 1996.
Partially offsetting this were sales increases at the Company's paint
subsidiary, Seibert-Oxidermo, and its plastic pipe subsidiary, Harvel Plastics.
The overall gross margin for the Company improved to 24.5% from the 23.2% level
last year. The major reason for the increase was improved margins at the
Company's Solvents and Environmental Services Division.
The decrease in selling, general and administrative expenses is primarily
attributable to a division being sold in the fourth quarter of 1996 and the
cost cutting activities that took place at the Company's Solvents and
Environmental Services Division.
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 lower in 1997 than in 1996 due to the lower level of
borrowings.
Income tax expense in 1997 reflects the normal provision for federal, state and
local income taxes. The credit in 1996 reflects the normal provisions, offset
by a credit reflecting a rate differential resulting from the carryback of
certain components of 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 the
collection of a note from the sale of a division to finance its activities
during the first three months of 1997. At the end of March, the Company
received a federal income tax refund of approximately $1.0 million.
Also during the quarter, the Company formalized the commitment it had received
from Comerica Bank extending its current credit facility to May 1, 1998 and
providing for an additional $2.0 million term loan facility. Borrowings under
the facility at March 31, 1997 were $5.5 million; there were no borrowings
under the term loan portion.
Working capital was $8.7 million at March 31, 1997 compared to $6.5 million at
March 31, 1996 and $8.5 million at December 31, 1996. The Company has paid no
dividends since the second quarter of 1991 and cannot forecast when the
dividend will be restored.
Other
The Company implemented AICPA Statement of Position 96-1, Environmental
Remediation Liabilities. Implementation had no material impact on the results
of operations or the Company's consolidated financial position.
The Company will be required to adopt Statement of Financial Accounting
Standards No. 128, Earnings per Share, in the fourth quarter of 1997.
Implementation is not expected to have a significant impact on the Company's
earnings per share.
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DETREX CORPORATION
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) 10(q) - Second Amendment to Comerica Credit Agreement, dated
as of March 31, 1997.
(b) No reports on Form 8-K have been filed for the quarter ended
March 31, 1997.
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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 4/28/97 /s/ E.R. Rondeau
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E.R. Rondeau
Controller and Chief Accounting Officer
Date 4/28/97 /s/ G.J. Israel
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G.J. Israel
Vice President - Finance and Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No. Description
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10(q) Second Amendment to Credit Agreement
27 Financial data schedule