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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, 1996
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 ______
The registrant has 2,004,930 common shares, no par value, outstanding as of
March 31, 1996.
This document contains 10 pages
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PART 1. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The accompanying condensed balance sheets as of March 31, 1996 and 1995,
and related statements of income and retained earnings and statements of cash
flows for the periods ended March 31, 1996 and 1995 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, 1995 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 1995 annual report to shareholders. The interim results of operations
are not necessarily indicative of the results for the complete year.
CHEMI-TROL CHEMICAL CO.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED
--------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
Revenues:
Net sales $ 11,861,481 $14,190,785
Interest and financing income 301,019 284,186
------------ -----------
12,162,500 14,474,971
Costs and expenses:
Cost of sales 10,463,116 12,255,990
Selling expenses 956,704 839,225
General and administrative expenses 599,178 669,414
Interest 354,896 254,336
------------ -----------
12,373,894 14,018,965
------------ -----------
Income (loss) before income taxes (211,394) 456,006
Provision (credit) for income taxes (84,000) 175,000
------------ -----------
Net income (loss) (127,394) 281,006
Retained earnings at beginning of period 17,131,962 18,179,042
------------ -----------
17,004,568 18,460,048
Stock dividends paid (Note 3) -- 1,800,011
------------ -----------
Retained earnings at end of period $ 17,004,568 $16,660,037
============ ===========
Net income (loss) per common share (Note 3) $ (.06) $ .14
============ ===========
See accompanying notes.
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CHEMI-TROL CHEMICAL CO.
CONDENSED BALANCE SHEETS
March 31, December 31, March 31,
1996 1995 1995
----------- ------------ -----------
ASSETS
Current assets:
Cash $ 61,764 $ 80,991 $ 81,460
Notes and accounts receivable 18,005,053 16,528,958 16,518,298
Net investment in sales-type leases 986,532 1,005,265 1,031,914
Inventories (Note 1) 14,184,154 11,799,651 12,933,004
Prepaid expenses and other assets 1,721,930 1,201,688 1,481,560
---------- ---------- ----------
Total current assets 34,959,433 30,616,553 32,046,236
Property, plant and equipment, net 11,105,205 11,042,091 10,396,194
Investments and other assets 6,164,222 6,933,895 7,373,507
---------- ---------- ----------
$52,228,860 $48,592,539 $49,815,937
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,652,397 $ 1,507,831 $ 3,989,483
Accounts payable 7,915,106 7,102,503 10,594,626
Income taxes 11,065 148,629 131,769
Dividends payable -- 180,444 --
Accrued liabilities 2,575,848 2,543,124 2,971,936
Long-term debt due within one year 4,873,873 4,703,306 3,391,906
---------- ---------- ----------
Total current liabilities 21,028,289 16,185,837 21,079,720
Long-term debt 8,711,236 9,789,973 6,857,413
Deferred federal income tax 894,000 894,000 628,000
Shareholders' equity:
Common stock, without par value;
6,000,000 shares authorized
2,004,930 shares issued and
outstanding (Note 3) 4,590,767 4,590,767 4,590,767
Retained earnings 17,004,567 17,131,962 16,660,037
---------- ---------- ----------
Total shareholders'
equity 21,595,334 21,722,729 21,250,804
---------- ---------- ----------
$52,228,859 $48,592,539 $49,815,937
=========== =========== ===========
See accompanying notes.
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CHEMI-TROL CHEMICAL CO.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996 and 1995
1996 1995
---- ----
Operating activities:
Net income (loss) $ (127,394) $ 281,006
Adjustments to reconcile net income
to net cash provided by operating activities:
Notes receivable from product
sales (846,165) (2,296,194)
Notes receivable sold 691,217 712,134
Collections from customers on notes
receivable 940,753 1,415,222
Proceeds from sales-type leases 297,405 277,831
Additions to net investment in sales-
type leases (104,808) (55,059)
Depreciation 313,806 300,874
Gain on sale of property
and equipment (26,525) (21,117)
Changes in operating assets and liabilities:
Accounts receivable (1,762,569) (707,035)
Inventories (2,384,503) (3,552,334)
Prepaid expenses (520,242) (324,139)
Other assets 96,477 (62,274)
Accounts payable 812,603 3,880,169
Income taxes payable (137,564) 26,272
Accrued liabilities 32,724 122,314
----------- -----------
Net cash used in operating activities (2,724,785) (2,330)
Investing activities:
Additions to property and equipment (376,919) (560,303)
Proceeds from disposals of property and
equipment 26,525 56,699
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Net cash used in investing activities (350,394) (503,604)
Financing activities:
Notes payable - net 4,144,566 489,483
Payments of long-term debt (908,170) (1,112,193)
Additions to long-term debt -- 377,000
Dividend payments (180,444) (164,056)
Cash dividends issued for fractional shares -- (1,418)
----------- -----------
Net cash provided by (used in) financing
activities 3,055,952 (411,184)
----------- -----------
Decrease in cash and cash equivalents (19,227) (917,118)
Cash and cash equivalents at beginning of period 80,991 998,578
----------- -----------
Cash and cash equivalents at end of period $ 61,764 $ 81,460
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 284,024 $ 229,191
=========== ===========
Cash paid for income taxes $ 158,633 $ 88,728
=========== ===========
See accompanying notes
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CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
1. INVENTORIES
Inventories at March 31, 1996, December 31, 1995 and March 31, 1995 are as
follows:
March 31, December 31, March 31,
1996 1995 1995
----------- ----------- -----------
Manufacturing inventories:
Raw materials and supplies $ 3,634,627 $ 3,304,000 $ 3,529,882
Work in process 469,193 465,290 527,637
Finished goods 2,602,155 2,061,184 816,223
Purchased inventory held for resale 7,145,542 5,694,549 7,481,974
Chemicals and other materials
used in contracting 332,637 274,628 577,288
----------- ----------- -----------
$14,184,154 $11,799,651 $12,933,004
=========== =========== ===========
2. SALE OF NOTES WITH RECOURSE
The Company at March 31, 1996 has a contingent liability of $3,130,000 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 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, 1996 and 1995 are
as follows:
Three months ended March 31
---------------------------
1996 1995
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Revenues (unaffiliated customers):
Tank $ 6,577,503 $ 8,307,406
Cal-Van Tools 4,016,773 3,348,234
Cory Orchard & Turf 1,126,495 1,465,170
Chemical 433,832 1,348,447
Corporate interest 7,897 5,714
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Total revenues $ 12,162,500 $ 14,474,971
============ ============
Operating profit (loss):
Tank $ 459,901 $ 871,587
Cal-Van Tools (63,445) 89,725
Cory Orchard & Turf (951) 45,310
Chemical (84,335) (70,397)
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Total operating profit 311,170 936,225
General corporate expenses (382,888) (374,482)
Corporate interest income 7,897 5,714
Corporate interest expense (147,573) (111,451)
------------ ------------
Income (loss) before income taxes $ (211,394) $ 456,006
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FIRST QUARTER ENDED MARCH 31, 1996 VS. FIRST QUARTER ENDED MARCH 31, 1995
For the first quarter of 1996, the Company's revenues decreased by 16.0%
from the prior year record levels to $12,162,500. Cal-Van Tools was the only
division of the four operating segments that increased revenues over 1995
levels.
Revenues in the Tank Division, which accounted for 54.1% of the total
Company's first quarter revenues, decreased by 20.8% from prior year record
levels. The decrease was comprised of a 21.7% decrease in net sales, which was
partially offset by a 5.3% increase in interest and financing income. A
temporary slow-down in demand, caused in part by adverse weather across much of
the midwest, led to the decrease in sales. The lower sales level, as well as
period costs associated with a production slow-down to adjust inventories, were
largely responsible for the 47.2% decrease in operating profit of the division.
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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 by 20.0% while operating
results dropped to a $63,445 loss for the quarter from an operating profit of
$89,725 a year earlier. Disproportionate increases of 26.6% in cost of sales and
a 28.8% increase in selling expenses were largely responsible for the decrease
in operating results. Period selling costs related to aggressive sales policies
were responsible for the disproportionate increase in selling expenses. A price
increase of approximately 2.6%, effective April 15th, should bring margins more
in line during the second quarter.
The Chemical Group's revenues decreased by 67.8% while operating loss
increased slightly to $84,335 from a first quarter loss of $70,397 in 1995.
Available contracts and weather conditions combined to delay contracting work
and reduce revenues during the quarter. The Contract Division operations, which
account for approximately 80% of the Group's revenues, are just beginning in the
first quarter and so first quarter results are not indicative of a full year's
performance.
Cory Orchard & Turf's first quarter net sales decreased by 23.1% from the
prior year's record level largely as a result of the adverse weather that slowed
demand for the division's products. The lower sales level plus selling and
general administrative expenses, which decreased by the lesser rate of 9.8% over
the prior year's levels, combined to decrease first quarter operating results
from an operating profit of $45,310 in 1995 to an operating loss of $951 in
1996.
For the Company as a whole, cost of sales decreased by 14.6%, somewhat less
than the 16.4% decrease in net sales, and resulted in tighter margins. Selling
expenses increased by 14.0%, while general and administrative expenses decreased
by 10.5% during the quarter. Interest income increased by approximately 5.9%.
Interest expense increased by 39.5%, largely as a result of the increase in
average borrowings outstanding during the first quarter of 1996. For the quarter
the Company recorded a net loss of $127,394 or $.06 per share as compared to a
net income of $281,006 or $.14 per share in 1995.
Management remains optimistic about the year as both the Company's Chemical
Group and its Cory Orchard & Turf Division do not begin full operations until
the second quarter, and current backlog in the Tank and Cal-Van Tools Divisions
remains strong.
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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 a good 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,
1996.
March 31, 1996 March 31, 1995
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Working capital $13,931,144 $10,966,516
Working capital ratio 1.7 to 1 1.5 to 1
Unused commitment for
term financing of
customer notes and
leases $ 2,076,500 $ 7,500,000
Unpledged notes and
leases $ 1,121,170 $ 5,900,000
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 $7,433,263 and to finance sales-type leases was
$2,571,900 at March 31, 1996. The Company has a yearly commitment for year ended
May 2, 1997 to provide long-term financing for tank notes and leases extended to
customers for an additional $7 million beyond amounts currently outstanding on
May 2, 1996.
Due to the seasonal nature of the operations of the Company's Chemical
Group and extended payment terms in certain other 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 mid-September
and October. As a result it is necessary for the Company to borrow short-term
funds. For this reason, the Company has arranged a short-term borrowing limit of
$15.75 million through local banks. The Company had $3,989,483 outstanding on
its short-term borrowing line at March 31, 1995. The Company had $5,652,397
outstanding on its line at March 31, 1996.
The capital expenditure budget for 1996 is $794,000. 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
---------------------------------
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 10, 1996
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