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, 1998 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 (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 July 27, 1998 1,583,414 shares of the registrant's stock were outstanding.
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DETREX CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE
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Item 1 Condensed Consolidated Balance Sheets-
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Unaudited Statements
of Operations For the Three and Six Months
Ended June 30, 1998 and 1997 4
Consolidated Unaudited Statements of Cash
Flows-Six Months Ended June 30, 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 4 Submission of Matters to Vote of Security Holders 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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DETREX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
June 30, 1998 December 31, 1997
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ASSETS
Current Assets:
Cash and cash equivalents $ 219,593 $ 398,093
Accounts receivable (less allowance for uncollectible accounts
of $263,000 in 1998 and $372,000 in 1997) 13,379,246 16,296,172
Buildings & equipment held for sale - current -- 1,425,000
Inventories:
Raw materials 3,848,167 3,390,407
Work in process 4,952 355,459
Finished goods 6,287,030 5,996,243
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Total Inventories 10,140,149 9,742,109
Prepaid expenses and other 302,937 692,543
Deferred income taxes 1,349,842 1,349,842
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Total Current Assets 25,391,767 29,903,759
Land, buildings, and equipment-net 22,619,346 21,348,429
Land, buildings, and equipment held for sale or lease 1,350,239 1,350,239
Bond proceeds held for investment - restricted 2,973,046 --
Prepaid pensions 1,444,454 1,338,951
Deferred income taxes 879,237 693,406
Other assets 868,049 935,978
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$55,526,138 $55,570,762
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable $ 5,830,236 $ 5,699,836
Current maturities of capital leases 280,801 303,464
Accounts payable 7,815,744 9,843,411
Environmental reserve 1,485,000 1,485,000
Accrued compensation 321,495 1,184,740
Other accruals 1,537,782 2,113,776
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Total Current Liabilities 17,271,058 20,630,227
Long term portion of capital lease obligations 522,702 569,396
Industrial development bonds 4,000,000 --
Accrued postretirement benefits 4,588,982 4,488,982
Environmental reserve 7,481,694 8,090,952
Accrued pensions and other 889,952 1,028,285
Minority interest 2,052,080 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 15,530,822 15,632,925
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Total Stockholders' Equity 18,719,670 18,821,773
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$55,526,138 $55,570,762
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SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF
OPERATIONS
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
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Net sales $21,292,432 $23,715,780 $42,728,123 $46,876,992
Cost of sales 16,387,141 17,922,334 32,401,320 35,497,134
Selling, general and administrative expenses 4,393,027 4,137,625 8,599,921 8,378,171
Provision for depreciation and amortization 836,572 825,953 1,634,040 1,612,670
Other income and deductions (168,437) 238,319 (236,252) 198,434
Minority interest 72,491 95,864 140,932 164,196
Interest expense 177,963 222,111 359,207 415,583
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Income before income taxes (406,325) 273,574 (171,045) 610,804
Provision (credit) for income taxes (158,347) (62,007) (68,941) 139,235
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Net income (loss) $ (247,978) $ 335,581 $ (102,104) $ 471,569
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Net income (loss) per common share:
Basic $ (.15) $ .21 $ (.06) $ .30
Diluted $ (.15) $ .21 $ (.06) $ .30
Weighted average shares outstanding:
Basic 1,583,414 1,583,414 1,583,414 1,583,414
Effects of dilutive stock options -- 26,289 -- 26,289
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Diluted 1,583,414 1,609,703 1,583,414 1,609,703
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SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (102,104) $ 471,569
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,634,020 1,612,670
(Gain) Loss on disposal of property (750) 247,810
Deferred income taxes (185,831) 98,570
Minority interest 110,933 134,194
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable 2,916,926 (971,213)
Refundable U.S. income taxes -- 1,003,827
Note receivable -- 1,562,665
Inventories (398,040) 38,217
Prepaid expenses and other 284,104 221,340
Other assets 345,693 (8,882)
Accounts payable (2,027,667) (2,355,001)
Environmental reserve (609,258) (262,021)
Accrued compensation (863,245) 7,741
Other accruals (714,327) 183,844
Postretirement benefits 100,000 87,000
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Total adjustments 592,558 1,600,761
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Net cash provided by operating activities 490,454 2,072,330
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,829,025) (2,063,574)
Proceeds from disposal of property 1,368,000 2,125
Unused proceeds from bond issue - restricted for capital expenditures (2,973,046) --
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Net cash used in investing activities (4,434,071) (2,061,449)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term bank debt 130,400 (534,342)
Principal payments under capital lease obligations (142,298) (222,104)
Proceeds from debt issued 4,000,000 --
Debt issuance costs (222,985) --
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Net cash provided by (used in) financing activities 3,765,117 (756,446)
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Net decrease in cash and cash equivalents (178,500) (745,565)
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 $ 219,593 $ 565,480
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 365,085 $ 402,661
Income taxes $ 138,012 $ 90,544
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ 119,373 $ 556,665
Capital lease terminations $ 46,432 $ 90,960
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 six 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 property owned by the
Company. The amount of the reserve at June 30, 1998 is $9.0 million. 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 SIX MONTHS ENDED
June 30 June 30
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1998 1997 1998 1997
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$ % $ % $ % $ %
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Sales 21,292 100.0 23,716 100.0 42,728 100.0 46,877 100.0
Gross margin 4,905 23.0 5,793 24.4 10,327 24.2 11,380 24.3
Selling, general and administrative expenses 4,393 20.6 4,138 17.4 8,600 20.1 8,378 17.9
Depreciation and amortization 837 3.9 826 3.5 1,634 3.8 1,613 3.4
Net income (loss) (248) (1.2) 336 1.4 (102) (0.2) 472 1.0
Detrex Corporation and its consolidated subsidiaries (the Company) incurred a
net loss of $247,978 for the second quarter of 1998 compared with net income of
$335,581 for the second quarter of 1997. For the first half of 1998, the Company
incurred a net loss of $102,104 compared with net income of $471,569 for the
first half of 1997.
Sales for the six month period were down $4.1 million as all of the Company's
business units recorded declines in sales except its plastic pipe subsidiary,
Harvel Plastics, and its research laboratory, RTI. The current economic
situation in Asia, the slowdown in computer chip manufacturing, the strong U.S.
dollar, and the effects of the General Motors strike all contributed to the
decline in volume.
The gross margin for the Company remained approximately the same for the six
month period, 24.2% versus 24.3% a year ago. However, there was a decline in
gross margin for the second quarter, 23.0% in the second quarter of 1998,
compared to 24.4% for the same period in 1997 as we experienced a drop in volume
and pricing pressure from the external factors referred to above.
The increase in selling, general and administrative expenses is attributable to
economic increases in all of the Company's operating units and additional
marketing and technical support personnel in some of our business units. These
increases more than offset a credit in pension expense.
The provision for depreciation and amortization is slightly higher than a year
ago since depreciation of plant additions in Ashtabula, Ohio began in 1998.
Interest expense is lower than in 1997 due to lower interest rates which
resulted from the renegotiation of the Company's credit agreement.
The income tax credit in 1998 reflects a credit for federal income tax,
partially offset by state and local income tax expense.
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DETREX CORPORATION
Liquidity, Financial Condition, and Capital Resources
The Company utilized internally generated funds and the proceeds from the sale
of a closed plant to finance its activities during the first half of 1998. In
addition, Harvel Plastics is financing its expansion in California with
industrial development bonds.
In April 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 June 30, 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 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The 73rd Annual Meeting of the Stockholders of Detrex
Corporation was held in Southfield, Michigan on the
23rd day of April 1998.
(b) Election of Messrs. Cox, Mark and Withrow as
Directors of the Third Class to hold office for three
year terms and until their successors have been
elected and qualify:
Mr. Cox Mr. Mark Mr. Withrow
For 1,378,137 1,378,137 1,378,137
Against -- -- --
Abstain 10,121 10,121 10,121
Messrs. Emmett, King, Mangold, McCleary, and Thalacker 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, 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 8/6/98 S.J. Quinlan
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S.J. Quinlan
Controller and Chief Accounting Officer
Date 8/6/98 G.J. Israel
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G.J. Israel
Vice President - Finance and Chief Financial
Officer
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Exhibit Index
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Exhibit No. Description
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27 Financial Data Schedule