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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, 1998 Commission file number 0-784
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 April 24, 1998 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 Condensed Consolidated Balance Sheets-
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Unaudited Statements
of Operations For the Three Months
Ended March 31, 1998 and 1997 4
Consolidated Unaudited Statements of Cash
Flows- Three Months Ended March 31, 1998
and 1997 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 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, 1998 December 31, 1997
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ASSETS
Current Assets:
Cash and cash equivalents $ 440,899 $ 398,093
Accounts receivable (less allowance for uncollectible accounts
of $325,000 in 1998 and $372,000 in 1997) 15,047,140 16,296,172
Buildings & equipment held for sale - current -- 1,425,000
Inventories:
Raw materials 3,431,922 3,390,407
Work in process 201,008 355,459
Finished goods 6,345,550 5,996,243
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Total Inventories 9,978,480 9,742,109
Prepaid expenses and other 406,716 692,543
Deferred income taxes 1,349,842 1,349,842
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Total Current Assets 27,223,077 29,903,759
Land, buildings, and equipment-net 21,875,111 21,348,429
Land, buildings, and equipment held for sale or lease 1,350,239 1,350,239
Bond proceeds held for investment-restricted 3,880,000 --
Prepaid pensions 1,338,951 1,338,951
Deferred income taxes 686,540 693,406
Other assets 1,261,332 935,978
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$57,615,250 $55,570,762
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable 5,488,432 5,699,836
Current maturities of capital leases 280,544 303,464
Accounts payable 9,347,959 9,843,411
Environmental reserve 1,485,000 1,485,000
Accrued compensation 315,705 1,184,740
Other accruals 2,228,134 2,113,776
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Total Current Liabilities 19,145,774 20,630,227
Long term portion of capital lease obligations 504,587 569,396
Industrial development bonds 4,000,000 --
Accrued postretirement benefits 4,563,982 4,488,982
Environmental reserve 7,528,431 8,090,952
Accrued pensions and other 895,240 1,028,285
Minority interest 2,009,589 1,941,147
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 15,778,799 15,632,925
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Total Stockholders' Equity 18,967,647 18,821,773
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$57,615,250 $55,570,762
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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
1998 1997
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Net sales $ 21,435,691 $ 23,161,212
Cost of sales 16,014,179 17,574,800
Selling, general and administrative expenses 4,207,315 4,240,546
Provision for depreciation and amortization 797,468 786,717
Other income and deductions (68,236) (39,885)
Minority interest 68,441 68,332
Interest expense 181,244 193,472
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Income before income taxes 235,280 337,230
Provision for income taxes 89,406 201,242
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Net income $ 145,874 $ 135,988
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Net income per common share:
Basic $ .09 $ .09
Diluted $ .09 $ .09
Weighted average shares outstanding:
Basic 1,583,414 1,583,414
Effects of dilutive stock options 67,001 13,289
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Diluted 1,650,415 1,596,703
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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
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 145,874 $ 135,988
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 797,468 786,717
Gain on disposal of property -- (2,161)
Deferred income taxes 6,866 124,068
Minority interest 68,442 68,332
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable 1,249,032 (351,441)
Refundable U.S. income taxes -- 1,003,827
Note receivable -- 1,562,665
Inventories (236,371) (917,027)
Prepaid expenses and other 285,827 251,617
Other assets (84,658) 25,821
Accounts payable (495,452) (1,633,077)
Environmental reserve (562,521) (42,106)
Accrued compensation (869,035) (190,735)
Other accruals (18,687) 456,090
Postretirement benefits 75,000 90,000
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Total adjustments 215,911 1,232,590
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Net cash provided by operating activities 361,785 1,368,578
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,348,959) (831,823)
Proceeds from disposal of property 1,369,672 --
Investment of bond proceeds - restricted (3,880,000) --
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Net cash used in investing activities (3,859,287) (831,823)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term bank debt - net (211,404) (93,388)
Principal payments under capital lease obligations (65,870) (124,280)
Proceeds from debt issued 4,000,000 --
Debt issuance costs (182,418) --
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Net cash provided by (used in) financing activities 3,540,308 (217,668)
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Net increase in cash and cash equivalents 42,806 319,087
Cash and cash equivalents at beginning of period 398,093 1,311,045
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Cash and cash equivalents at end of period $ 440,899 $ 1,630,132
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 186,517 $ 194,128
Income taxes $ 66,197 $ 61,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ 17,715 $ 481,851
Capital lease terminations $ 39,575 $ 53,947
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 1997 have been reclassified to
conform with 1998 classifications. The information furnished for the three
months may not be indicative of results to be expected for the full year.
2. 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 have 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 Company's share of clean-up costs is
anticipated to be in the range of approximately $3.0 to $3.5 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, 1998 was $9.0 million. The
reserve includes a provision for the Company's anticipated share of remediation
in the Fields Brook watershed referred to above, as well as a provision for
costs that are expected to be incurred in connection with remediation of other
sites. Some of these studies have been completed; others are ongoing. In some
cases, the methods of remediation remain to be agreed upon.
The Company expects to continue to incur professional fees, expenses
and capital expenditures in connection with its environmental compliance
efforts. In addition there are several other claims and lawsuits pending
against the Company and its subsidiaries.
The amount of liability to the Company with respect to costs of
remediation of contamination of the Fields Brook watershed and of other sites,
and the amount of liability with respect to several other claims and lawsuits
against the Company, was based on available data. The Company has established
its reserves in accordance with its interpretation of the principles outlined
in Statement of Financial Accounting Standards No. 5 and Securities and
Exchange Commission Staff Accounting Bulletin No. 92. In the event that any
additional accruals should be required in the future with respect to such
matters, the amounts of such additional accruals could have a material impact
on the results of operations to be reported for a specific accounting period
but should not have a material impact on the Company's consolidated financial
position.
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DETREX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF INTERIM FINANCIAL INFORMATION
Results of Operations
Summarized below is selected operating data for the current fiscal period and
the comparable data for the same period last year (in thousands):
Three Months Ended
March 31
1998 1997
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$ % $ %
Sales 21,436 100.0 23,161 100.0
Gross margin 5,422 25.3 5,586 24.1
Selling, general and administrative expenses 4,207 19.6 4,241 18.3
Depreciation and amortization 797 3.7 787 3.4
Net income 146 .7 136 .6
Detrex Corporation and its consolidated subsidiaries (the Company) reported net
income of $145,874 for the first quarter of 1998 compared to $135,988 net income
for the first quarter of 1997. This is the ninth consecutive profitable quarter
for the Company.
Sales for the three months were $1.7 million less than the same period last
year, primarily a result of lower sales in the Company's Equipment Division. Two
subsidiaries, Harvel Plastics Inc. and The Elco Corporation, had increases in
sales.
The gross margin for the Company improved to 25.3% from the 24.1% 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 credit in pension expense, partially offset by small economic
increases at all of the Company's operating units.
The provision for depreciation and amortization is slightly higher than a year
ago since depreciation of the Company's new plant in Ashtabula, Ohio began in
the first quarter of 1998.
Interest expense is lower in 1998 than in 1997 due to the lower level of
borrowings in the first quarter of 1998.
Income tax expense in 1998 reflects an effective tax rate of 38% for federal,
state and local income taxes.
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DETREX CORPORATION
Liquidity, Financial Condition, and Capital Resources
The Company utilized a combination of internally generated funds and the
proceeds from the sale of a closed plant to finance its activities during the
first three months of 1998.
In March 1998, $4.0 million of industrial development bonds were issued to
finance the expansion of Harvel Plastics in California. As of March 31, 1998,
$3.9 million of the proceeds were held for investment in a restricted trust.
On April 22, 1998, the Company and Comerica Bank amended the Company's credit
agreement and extended the facility to May 1, 2000. The major change in the new
agreement is a reduction in the interest rate from prime plus one percent to
prime.
Working capital was $8.1 million at March 31, 1998 compared to $9.3 million at
December 31, 1997. The Company has paid no dividends since the second quarter of
1991 and cannot forecast when the dividend will be restored.
Other
The Company will be implementing Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information in the
fourth quarter of 1998. At the current time the Company cannot determine how
many segments it will be reporting.
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DETREX CORPORATION
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 4 - Statement regarding Harvel Plastics, Inc.
financing instruments.
Exhibit 10(o) - Third Amendment to Comerica Credit
Agreement, dated as of April 22, 1998.
(b) No reports on Form 8-K have been filed for the
quarter ended March 31, 1998.
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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 5/5/98 S.J. Quinlan
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S.J. Quinlan
Controller and Chief
Accounting Officer
Date 5/5/98 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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4 Statement regarding Harvel Plastics, Inc.
financing instruments.
10(o) Third amendment to Comerica Credit
Agreement dated as of April 22, 1998.
27 Financial Data Schedule