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 June 30, 1997 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 July 31, 1997 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-
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Unaudited Statements
of Operations For the Three and Six Months
Ended June 30, 1997 and 1996 4
Consolidated Unaudited Statements of Cash Flows-
Six Months Ended June 30, 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
- ------- -----------------
Item 4 Submission of Matters to Vote of Security Holders 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
3
DETREX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
June 30, 1997 December 31, 1996
--------------- ------------------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 565,480 $ 1,311,045
Accounts receivable (less allowance for uncollectible accounts
of $360,000 in 1997 and $395,000 in 1996) 16,174,397 15,203,184
Refundable U.S. income taxes -- 1,003,827
Note receivable -- 1,562,665
Inventories:
Raw materials 3,285,886 3,005,399
Work in process 174,482 284,392
Finished goods 5,559,582 5,768,376
------------ -----------
Total Inventories 9,019,950 9,058,167
Prepaid expenses and other 627,891 878,263
Deferred income taxes 760,104 759,063
------------ -----------
Total Current Assets 27,147,822 29,776,214
Land, buildings, and equipment-net 20,297,721 19,374,051
Land, buildings, and equipment held for sale or lease 2,570,125 2,820,125
Prepaid pensions 1,309,918 1,280,886
Deferred income taxes 1,267,654 1,367,265
Other assets 975,744 973,858
------------ -----------
$53,568,984 $55,592,399
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Loans payable $ 5,093,111 $ 5,627,453
Current maturities of capital leases 363,699 385,366
Accounts payable 8,768,340 11,123,341
Environmental reserve 1,027,000 1,027,000
Accrued compensation 707,261 699,520
Other accruals 2,921,875 2,398,802
============ ============
Total Current Liabilities 18,881,286 21,261,482
Long term portion of capital lease obligations 659,068 393,800
Accrued postretirement benefits 4,380,584 4,293,584
Environmental reserve 8,982,276 9,244,297
Accrued pensions and other 1,005,101 1,344,330
Minority interest 1,880,430 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 14,591,391 14,119,822
----------- -----------
Total Stockholders' Equity 17,780,239 17,308,670
----------- -----------
$53,568,984 $55,592,399
=========== ===========
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
3
4
DETREX CORPORATION
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF
OPERATIONS
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
---- ---- ---- ----
Net sales $23,715,780 $24,311,963 $46,876,992 $48,311,533
Cost of sales 17,859,102 18,464,911 35,351,985 36,889,814
Selling, general and administrative expenses 4,200,857 4,614,097 8,523,320 9,295,694
Provision for depreciation and amortization 825,953 787,343 1,612,670 1,585,733
Other income and deductions 238,319 (161,449) 198,434 (307,187)
Minority interest 95,864 94,336 164,196 151,618
Interest expense 222,111 267,552 415,583 515,112
----------- ----------- ----------- -----------
Income before income taxes 273,574 245,173 610,804 180,749
Provision (credit) for income taxes (62,007) 132,194 139,235 56,570
----------- ----------- ----------- -----------
$ 335,581 $ 112,979 $ 471,569 $ 124,179
=========== =========== =========== ===========
Net income per common share $ .21 $ .07 $ .30 $ .08
=========== =========== =========== ===========
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
4
5
DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30
-------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 471,569 $ 124,179
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,612,670 1,585,733
Loss on disposal of property 247,810 17,186
Deferred income taxes 98,570 312,876
Minority interest 134,194 121,617
Changes to operating assets and liabilities that provided
(used) cash:
Accounts receivable (971,213) (929,573)
Refundable U.S. income taxes 1,003,827 3,040,772
Note receivable 1,562,665 --
Inventories 38,217 (604,592)
Prepaid expenses and other 221,340 344,063
Other assets (8,882) 30,828
Accounts payable (2,355,001) (1,075,568)
Environmental reserve (262,021) (873,212)
Accrued compensation 7,741 (125,482)
Other accruals 183,844 (165,621)
----------- ------------
Postretirement benefits 87,000 180,000
----------- ------------
Total adjustments 1,600,761 1,859,027
----------- ------------
Net cash provided by operating activities 2,072,330 1,983,206
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,063,574) (683,545)
Proceeds from disposal of property 2,125 3,007
----------- ------------
Net cash used in investing activities (2,061,449) (680,538)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term bank debt - net (534,342) (2,169,425)
Principal payments under capital lease obligations (222,104) (310,672)
----------- -----------
Net cash used in financing activities (756,446) (2,480,097)
----------- -----------
Net (decrease) in cash and cash equivalents (745,565) (1,177,429)
Cash and cash equivalents at beginning of period 1,311,045 2,764,360
----------- -----------
Cash and cash equivalents at end of period $ 565,480 $ 1,586,931
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 402,661 $ 643,848
Income taxes $ 90,544 $ 117,132
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of $ 556,665 $ 177,900
equipment
Capital lease terminations $ (90,960) $ (47,369)
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 1996 have been reclassified to
conform with 1997 classifications. The information furnished for the six
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 June 30, 1997 is
$10.0 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.
6
7
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 SIX MONTHS ENDED
June 30 June 30
------- -------
1997 1996 1997 1996
---- ---- ---- -----
$ % $ % $ % $ %
- - - - - - - -
Sales 23,716 100.0 24,312 100.0 46,877 100.0 48,312 100.0
Gross margin 5,857 24.7 5,847 24.0 11,525 24.6 11,422 23.6
Selling, general and administrative 4,201 17.7 4,614 19.0 8,523 18.2 9,296 19.2
expenses
Depreciation and amortization 826 3.5 787 3.2 1,613 3.4 1,586 3.3
Net income 336 1.4 113 0.5 472 1.0 124 0.3
Detrex Corporation and its consolidated subsidiaries (the Company) reported net
income of $335,581 for the second quarter of 1997 compared to net income of
$112,979 for the second quarter of 1996. For the six month period, the Company
earned $471,569 compared to net income of $124,179 in 1996. The year-to-year
improvement is $347,390. This is the sixth consecutive profitable quarter for
the Company; all seven operating units were profitable in both the quarter and
six month period.
Primarily as a result of selling a division in the fourth quarter of 1996,
sales for the first six months were $1.4 million less than the comparable
period last year. However, two of our subsidiaries, Seibert-Oxidermo and
Harvel Plastics, had increases of $1.0 million and $1.2 million respectively.
The overall gross margin for the Company improved to 24.6% from the 23.6% level
last year, reflecting productivity improvements at certain of the Company's
business units.
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 for the first half of 1997 reflects state, local and
federal income taxes, partially offset by an adjustment to the deferred tax
valuation allowance that was established in 1995. Income tax expense in 1996
reflects the normal provisions, partially offset by a credit to reflect the
recognition of 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%.
7
8
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 six months of 1997. Borrowings under the Company's credit
facility were reduced to $5.1 million at June 30, 1997, down $1.2 million from
the $6.3 million level at June 30, 1996.
Working capital was $8.3 million at June 30, 1997 compared to $6.7 million at
June 30, 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.
8
9
DETREX CORPORATION
PART II - OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The 72nd Annual Meeting of the Stockholders of Detrex
Corporation was held in Southfield, Michigan on the
24th day of April 1997.
(b) Election of Messrs. Emmett, McCleary and Thalacker as
Directors of the Second Class to hold office for three year
terms and until their successors have been elected and qualify:
Mr. Emmett Mr. McCleary Mr. Thalacker
---------- ------------ -------------
For 1,290,924 1,290,974 1,290,135
Against -- -- --
Abstain 100,674 100,624 101,463
Messrs. Cox, King, Mangold, Mark and Withrow continue as
directors.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) No reports on Form 8-K have been filed for the quarter ended
June 30, 1997.
9
10
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 7/31/97
---------- ---------------------------------------
E.R. Rondeau
Controller and Chief Accounting Officer
Date 7/31/97
---------- ---------------------------------------
G.J. Israel
Vice President - Finance and Chief
Financial Officer
10
11
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule