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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
COMMISSION FILE NO. 0-18797
CHEMI-TROL CHEMICAL CO.
(Exact name of registrant as specified in its charter)
OHIO 34-4439286
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
2776 CR 69, Gibsonburg, Ohio 43431
(Address of principal executive offices) (Zip Code)
(419) 665-2367
(Registrant's telephone number, including area code)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The registrant has 2,004,930 common shares, no par value, outstanding as of
March 31, 1995.
This document contains 10 pages
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PART 1. FINANCIAL INFORMATION
Financial Statements
The accompanying condensed balance sheets as of March 31, 1995 and 1994,
and related statements of income and retained earnings and statements of cash
flows for the periods ended March 31, 1995 and 1994 are unaudited but include
all adjustments, consisting only of normal recurring accruals, which the Company
considers necessary for a fair presentation of financial position and operating
results. The accompanying condensed balance sheet as of December 31, 1994 has
been derived from the audited year end financial statements. These financial
statements presented are for interim periods and do not include all disclosures
normally provided in annual financial statements; they should be read in
conjunction with financial statements and notes thereto appearing in the
Company's 1994 annual report to shareholders. The interim results of operations
are not necessarily indicative of the results for the complete year.
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
Three months ended
---------------------------------
March 31, 1995 March 31, 1994
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Revenues:
Net sales $14,190,785 $ 13,226,824
Interest and financing income 284,186 263,864
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14,474,971 13,490,688
Costs and expenses:
Cost of sales 12,255,990 11,081,923
Selling expenses 839,225 794,500
General and administrative expenses 669,414 837,946
Interest 254,336 240,326
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14,018,965 12,954,695
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Income before income taxes 456,006 535,993
Provision for income taxes 175,000 210,000
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Net income 281,006 325,993
Retained earnings at beginning of period 18,179,042 19,027,715
----------- ------------
18,460,048 19,353,708
Stock dividends paid (Note 3) 1,800,011 1,802,185
----------- ------------
Retained earnings at end of period $16,660,037 $ 17,551,523
=========== ============
Net income per common share (Note 3) $ .14 $ .16
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See accompanying notes.
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CHEMI-TROL CHEMICAL CO.
CONDENSED BALANCE SHEETS
March 31 December 31, March 31
1995 1994 1994
----------- ----------- -----------
ASSETS
Current Assets:
Cash $ 81,460 $ 998,578 $ 186,514
Notes and accounts receivable 16,518,298 15,677,232 14,290,154
Net investment in sales-type leases 1,031,914 1,086,679 1,056,352
Inventories (Note 1) 12,933,004 9,380,670 10,923,107
Prepaid expenses and other assets 1,481,560 1,157,421 1,827,261
----------- ----------- -----------
Total current assets 32,046,236 28,300,580 28,283,388
Property, plant and equipment, net 10,396,194 10,172,347 10,223,795
Investments and other assets 7,373,507 7,444,433 7,231,279
----------- ----------- -----------
$49,815,937 $45,917,360 $45,738,462
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,989,483 $ 3,500,000 $ ---
Accounts payable 10,594,626 6,714,457 7,587,254
Income taxes 131,769 105,497 178,026
Dividends payable --- 164,056 ---
Accrued liabilities 2,971,936 2,849,622 2,906,541
Long-term debt due within one year 3,391,906 3,748,685 4,212,356
----------- ----------- -----------
Total current liabilities 21,079,720 17,082,317 14,884,177
Long-term debt 6,857,413 7,235,827 9,946,726
Deferred federal income tax 628,000 628,000 563,862
Shareholders' equity:
Common stock, without par value;
6,000,000 shares authorized
2,004,930 shares issued and outstanding
(1,822,796 shares in 1994) (Note 3) 4,590,767 2,792,174 2,792,174
Retained earnings 16,660,037 18,179,042 17,551,523
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Total shareholders'
equity 21,250,804 20,971,216 20,343,697
----------- ----------- -----------
$49,815,937 $45,917,360 $45,738,462
=========== =========== ===========
See accompanying notes.
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CHEMI-TROL CHEMICAL CO.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1995 and 1994
1995 1994
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Operating activities:
Net income $ 281,006 $ 325,993
Adjustments to reconcile net income
to net cash provided by operating activities:
Notes receivable from product
sales (2,296,194) (2,324,755)
Notes receivable sold 712,134 744,530
Collections from customers on notes
receivable 1,415,222 907,581
Proceeds from sales-type leases 277,831 254,658
Additions to net investment in sales-
type leases (55,059) (291,589)
Depreciation 300,874 299,294
Gain on sale of property
and equipment (21,117) (4,153)
Changes in operating assets and liabilities:
Accounts receivable (707,035) (1,092,309)
Inventories (3,552,334) (2,440,349)
Prepaid expenses (324,139) (434,220)
Other assets (62,274) (28,212)
Accounts payable 3,880,169 3,474,370
Income taxes payable 26,272 143,869
Accrued liabilities 122,314 13,893
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Net cash used in operating activities (2,330) (451,399)
Investing activities:
Additions to property and equipment (560,303) (460,787)
Proceeds from disposals of property and
equipment 56,699 38,064
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Net cash used in investing activities (503,604) (422,723)
Financing activities:
Notes payable - net 489,483 (1,300,000)
Payments of long-term debt (1,112,193) (1,109,053)
Additions to long-term debt 377,000 3,000,000
Dividend payments (164,056) (149,146)
Repurchase of fractional shares related to
stock dividend (1,418) (1,133)
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Net cash provided by (used in) financing
activities (411,184) 440,668
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Decrease in cash and cash equivalents (917,118) (433,454)
Cash and cash equivalents at beginning of period 998,578 619,968
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Cash and cash equivalents at end of period $ 81,460 $ 186,514
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 229,191 $ 238,277
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Cash paid for income taxes $ 88,728 $ 57,392
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See accompanying notes
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CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
1. Inventories
Inventories at March 31, 1995, December 31, 1994 and March 31, 1994 are as
follows:
March 31, March 31,
1995 December 31, 1994
(Unaudited) 1994 (Unaudited)
----------- ------------ -----------
Manufacturing inventories:
Raw materials and supplies $ 3,529,882 $ 2,440,090 $ 2,449,814
Work in process 527,637 434,293 426,766
Finished goods 816,223 713,027 1,145,999
Purchased inventory held for resale 7,481,974 5,503,321 5,921,640
Chemicals and other materials
used in contracting 577,288 289,939 978,888
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$12,933,004 $ 9,380,670 $10,923,107
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2. Sale of Notes With Recourse
The Company at March 31, 1995 has a contingent liability of $3,031,000 for
customers' installment notes sold with recourse to the Chemi-Trol Chemical
Company Profit Sharing Plan. The credit risk associated with these notes is
minimal as the Company retains a security interest in the products sold on the
installment basis.
3. Net income per common share
Net income per common share is based on the weighted average number of
shares outstanding of 2,004,930, after giving retroactive effect to the 10%
stock dividends issued in March of 1994 and 1995. Shareholders' rights, which
may have a potentially dilutive effect, have been excluded from the weighted
average shares computation as conditions to the exercisability of such rights
have not been satisfied.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Capsule segment results for the periods ended March 31, 1995 and 1994 are
as follows:
Three months ended March 31
---------------------------
1995 1994
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Revenues (unaffiliated customers):
Tank $ 8,307,406 $ 7,771,859
Cal-Van Tools 3,348,234 3,300,800
Cory Orchard & Turf 1,465,170 1,409,849
Chemical 1,348,447 1,000,830
Corporate interest 5,714 7,350
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Total revenues $14,474,971 $13,490,688
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Operating profit:
Tank $ 871,587 $ 1,001,424
Cal-Van Tools 89,725 96,304
Cory Orchard & Turf 45,310 20,765
Chemical (70,397) (56,370)
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Total operating profit 936,225 1,062,123
General corporate expenses (374,482) (448,131)
Corporate interest income 5,714 7,350
Corporate interest expense (111,451) (85,349)
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Income before income taxes $ 456,006 $ 535,993
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First quarter ended March 31, 1995 vs. first quarter ended March 31, 1994
For the first quarter of 1995, revenues totaled $14.5 million, up 7.3% from
$13.5 million for the first quarter of 1994. All four of the Company's operating
segments increased revenues over 1994 levels with three of the four to record
levels.
The Tank Division, which accounted for 57.4% of the Company's revenues
during the first quarter, increased revenues by 6.9%. The increase in revenues
was comprised of a 6.8% increase in net sales and an 8.6% increase in interest
and financing income. Units shipped during the quarter increased 3.5% to a new
high. Operating profits during the period decreased by 13.0%, largely as a
result of the 11.0% increase in cost of sales which lowered gross profit margins
and resulted in a 16.2% decrease in gross profit. A price increase of
approximately 3%, effec-tive April 10th, should bring margins back in line
during the second quarter. Selling and general administrative expense decreased
by 9.1% during the quarter.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net sales of the Cal-Van Tools Division increased slightly by 1.4% while
operating profit decreased by 6.8%. Cost of sales increased by 2.0% and selling
and general administrative expenses increased by less than 1% (.2%), over prior
year's first quarter levels.
The Chemical Group's revenues increased by 34.7% while operating losses
increased slightly from $56,370 in 1994 to $70,397 in 1995. The increase in
revenues was the result of a 38.1% increase in revenues of CADCO, the material
sales division, coupled with a 31.2% increase in contract sales. The Contract
Division operations, which account for approximately 75% of the Group's
revenues, are just getting started in the first quarter and so the first quarter
results are not indicative of the full year's performance.
Revenues of the Cory Orchard & Turf Division increased by 3.9% to record
levels and operating profit for the quarter increased by 18.2%. The increase in
operating profit was largely the result of increased gross profit margins as the
cost of sales increased at the lesser rate of 2.2% during the period.
For the Company as a whole, cost of sales increased by 10.6% while net
sales increased by 7.3% causing a decrease in gross margins and the resulting
gross profit to decrease by 9.8%. General and administrative expenses decreased
by 20.2%, largely as a result of decreases in certain expenses coupled with
reduced profit sharing and bonus allocations. Interest income and interest
expense increased by 7.7% and 5.8%, respectively. Net income decreased by 13.8%
from $325,993 to $281,006 or 16 cents to 14 cents per share during the first
quarter of 1995. With increases in backlogs of approximately 70% as of April 1,
1995, the Company is optimistic for increasing earnings performance during 1995.
The effective tax rate decreased from 39.2% in 1994 to 38.3% in 1995 as a
result of state and local tax rate changes.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
Liquidity is the measure of a company's ability to generate adequate funds
to meet its needs. Funds can be generated internally from operations or
externally by borrowing. Primary measures of liquidity include the amount of
working capital, the working capital ratio and the ability to borrow long-term
funds. As shown in the following chart, the Company remains in an excellent
position as the ability to borrow funds remains strong as evidenced by the
unused commitment for term financing and the unpledged notes and leases at March
31, 1994.
March 31, 1995 March 31, 1994
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Working capital $10,966,516 $13,399,211
Working capital ratio 1.5 to 1 1.9 to 1
Unused commitment for
term financing of
customer notes and
leases $ 7,500,000 $ 4,500,000
Unpledged notes and
leases $ 5,900,000 $ 1,879,000
A substantial amount of the Company's working capital over the past two
years has been provided from operations. Long-term borrowings are used to
finance customers' installment notes receivable and customers' sales-type leases
of tanks sold by the Tank Division. The total outstanding amount borrowed to
finance notes receivable was $4,316,810 and to finance sales-type leases was
$2,202,553 at March 31, 1995. The Company has a commitment from area banks to
provide long-term financing for tank notes extended to customers for an
additional $7.5 million during the current year, provided the combination of
short-term borrowings out-standing and current year long-term financing does not
exceed $12.75 million.
Due to the seasonal nature of the operations of the Company's Chemical
Group and extended fall payment terms in the Tank and Cory Orchard & Turf
Divisions, the Company has an uneven cash flow pattern. Operations of the
Chemical Group begin approximately late-March and run through November. There
are substantial start-up expenses for this division associated with inventory
build-up and the purchase of equipment and supplies. Since the majority of the
contracts performed by this division are for political sub-divisions and the
contracts stretch over the entire summer season, a high percentage of the
payments are not received until midSeptember and October, occasionally making it
necessary for the Company to borrow short-term funds. For this reason, the
Company has arranged a short-term borrowing limit of $12.75 million through
local banks. The Company had $3,989,483 outstanding on this line at March 31,
1995.
The capital expenditure budget for 1995 is $2,072,000. The Company intends
to make these expenditures with funds provided from operations.
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K. None
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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.
CHEMI-TROL CHEMICAL CO.
/S/ Kevin D. Lauck
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By: Kevin D. Lauck, Secretary and
Controller (Chief Accounting Officer
and Chief Financial Officer also
signing on behalf of the registrant
as duly authorized officer)
Dated: May 12, 1995
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