1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 1997
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. 018797
CHEMI-TROL CHEMICAL CO.
(Exact name of registrant as specified in its charter)
OHIO 34-4439286
(State or other jurisdiction of (IRS 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 June 30, 1997
This document contains 11 pages
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PART 1. FINANCIAL INFORMATION
Financial Statements
- --------------------
The accompanying condensed balance sheets as of June 30, 1997 and 1996,
and related condensed statements of income and retained earnings and statements
of cash flows for the periods ended June 30, 1997 and 1996 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, 1996 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 1996 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 Six months ended
------------------------------ -------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
Revenues:
Net sales $ 17,839,934 $ 17,075,070 $ 31,703,711 $ 27,810,056
Interest and financing income 235,616 197,133 462,678 498,152
------------ ------------ ------------ ------------
18,075,550 17,272,203 32,166,389 28,308,208
Costs and expenses:
Costs of sales 15,416,410 14,965,971 27,137,300 24,478,401
Selling expenses 704,497 789,227 1,410,693 1,623,090
General and admin. expenses 759,593 652,584 1,554,344 1,197,843
Interest 233,241 382,883 420,291 709,878
------------ ------------ ------------ ------------
17,113,741 16,790,665 30,522,628 28,009,212
------------ ------------ ------------ ------------
Income from continuing operations
before income taxes 961,809 481,538 1,643,761 298,996
Provision for income taxes 363,000 199,532 635,385 127,000
------------ ------------ ------------ ------------
Income from continuing operations 598,809 282,006 1,008,376 171,996
Discontinued operations (Note 4):
Income (loss) from discontinued
operations net of tax -- 76,216 (40,721) 58,832
Gain on disposal of division
net of tax -- -- 270,198 --
------------ ------------ ------------ ------------
Income from discontinued
operations -- 76,216 229,477 58,832
------------ ------------ ------------ ------------
Net income 598,809 358,222 1,237,853 230,828
Retained earnings at beginning
of period 18,307,515 17,004,567 17,668,471 17,131,962
------------ ------------ ------------ ------------
18,906,324 17,040,389 18,906,324 17,362,790
Dividends declared 180,445 180,443 180,445 180,444
------------ ------------ ------------ ------------
Retained earnings at end of
period $ 18,725,879 $ 17,182,346 $ 18,725,879 $ 17,182,346
============ ============ ============ ============
Income (loss) per common share
Continuing operations $ .30 $ .14 $ .50 $ .09
Discontinued operations (Nt. 4):
Income (loss) from operations -- .04 (.02) .03
Gain on disposal of division -- -- .14 --
------------ ------------ ------------ ------------
Net income per
common share $ .30 $ .18 $ .62 $ .12
============ ============ ============ ============
See accompanying notes.
(2)
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CHEMI-TROL CHEMICAL CO.
CONDENSED BALANCE SHEETS
June 30, December 31, June 30,
1997 1996 1996
-------------------------------------------
ASSETS
Current assets:
Cash $ 27,302 $ 112,506 $ 60,620
Notes and accounts receivable 19,083,950 18,965,249 22,286,472
Net investment in sales-type leases 516,387 684,120 785,347
Inventories (Note 1) 8,150,301 8,861,127 10,409,896
Prepaid expenses and other assets 1,132,585 1,140,873 1,299,581
Current assets of discontinued operations (Note 4) -- 2,346,175 3,392,753
----------- ----------- -----------
Total current assets 28,910,525 32,110,050 38,234,669
Property, plant and equipment, net 9,770,149 9,650,578 10,104,138
Investments and other assets 4,143,782 4,661,592 5,019,614
Property, plant and equipment of discontinued
operations (Note 4) -- 1,001,147 1,042,763
----------- ----------- -----------
$42,824,456 $47,423,367 $54,401,184
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 449,118 $ 2,964,916 $ 8,419,917
Accounts payable 5,994,366 7,359,161 7,229,160
Income taxes 257,817 230,485 128,933
Dividends payable -- 180,444 --
Accrued liabilities 3,181,295 2,923,177 2,790,042
Long-term debt due within one year 6,723,449 7,300,679 4,751,734
----------- ----------- -----------
Total current liabilities 16,606,045 20,958,862 23,319,786
Long-term debt 2,025,765 3,329,267 8,414,285
Deferred federal income tax 876,000 876,000 894,000
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 18,725,879 17,668,471 17,182,346
----------- ----------- -----------
Total shareholders'
equity 23,316,646 22,259,238 21,773,113
----------- ----------- -----------
$42,824,456 $47,423,367 $54,401,184
=========== =========== ===========
See accompanying notes.
(3)
4
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
OPERATING ACTIVITIES: 1997 1996
----------- -----------
Income from continuing operations $ 1,008,376 $ 171,996
Adjustments to reconcile income from
continuing operations to cash provided (used)
by continuing operations:
Notes receivable from product sales (2,761,458) (1,540,449)
Notes receivable sold 847,010 965,082
Collections from customers on notes
receivable 2,127,868 2,287,159
Proceeds from sales-type leases 737,535 1,067,744
Addition to net investment in sales-
type leases (169,395) (125,058)
Depreciation 619,180 598,588
Gain on sale of property
and equipment (41,712) (15,177)
Increase in allowance for doubtful accounts 85,000 --
Changes in operating assets and liabilities:
Accounts receivable (295,764) (6,773,974)
Inventories 710,825 (344,396)
Prepaid expenses 8,288 (97,893)
Other assets (3,554) (33,523)
Accounts payable (915,677) 126,657
Income taxes payable 27,332 (19,696)
Accrued liabilities 258,118 246,918
----------- -----------
Cash provided (used) by continuing operations 2,241,973 (3,486,022)
Cash provided (used) by discontinued operations (Note 4) 2,146,086 (1,027,899)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 4,388,059 (4,513,921)
INVESTING ACTIVITIES:
Additions to property and equipment (749,248) (757,313)
Proceeds from disposals of property and
equipment- continuing operations 66,580 26,925
Net proceeds from sale of property, plant and
equipment of discontinued operations (Note 4) 1,415,942 --
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 733,274 (730,388)
FINANCING ACTIVITIES:
Notes payable - net (2,964,916) 6,912,086
Payments of long-term debt (1,880,732) (2,487,568)
Proceeds from long-term borrowings -- 1,160,308
Dividend payments (360,889) (360,888)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (5,206,537) 5,223,938
----------- -----------
Decrease in cash (85,204) (20,371)
Cash at beginning of period 112,506 80,991
----------- -----------
Cash at end of period $ 27,302 $ 60,620
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 398,918 $ 701,203
=========== ===========
Cash paid for income taxes $ 760,668 $ 190,765
=========== ===========
See accompanying notes.
(4)
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CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
1. Inventories
-----------
Inventories at June 30, 1997, December 31, 1996 and June 30, 1996 are as
follows:
June 30, December 31, June 30,
1997 1996 1996
-------------------------------------------
Manufacturing inventories:
Raw material and supplies $ 1,917,473 $ 2,584,509 $ 2,598,128
Work in process 425,833 438,662 556,411
Finished goods 1,040,963 1,188,521 1,833,657
Purchased inventory held for resale 3,887,171 4,296,911 4,608,265
Materials used in contracting 878,861 352,524 813,435
----------- ----------- -----------
$ 8,150,301 $ 8,861,127 $10,409,896
=========== =========== ===========
2. Sale of Notes With Recourse
---------------------------
The Company at June 30, 1997 has a contingent liability of $2,675,460
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. 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.
4. Discontinued Operations
-----------------------
On March 25, 1997, Chemi-Trol Chemical Co. sold its Cory Orchard and
Turf Division to Terra International, Inc. "Terra" for approximately $4.8
Million under an asset purchase agreement. The sale resulted in a net gain
of $270,198 after income taxes of $179,697. Terra is a Delaware
Corporation having an address of 600 Fourth Street, PO Box 6000 Sioux
City, IA 51202-6000. Summary operating results of the discontinued Cory
Orchard and Turf operations for the quarter and six months ended June 30th
are as follows:
Three months ended Six months ended
------------------ ----------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
Revenues $ -- $2,352,180 $ 911,943 $3,478,675
========== ========== ========== ==========
Income (loss) before income taxes $ -- $ 131,685 $ (67,803) $ 102,832
----------
Income taxes (credit) -- 55,468 (27,082) 44,000
---------- ---------- ---------- ----------
Net income (loss) $ -- $ 76,217 $ (40,721) $ 58,832
========== ========== ========== ==========
Interest on borrowings under the Company's general credit facilities
was allocated to discontinued operations based on the ratio of net assets of the
discontinued Cory Orchard and Turf operations to the total net assets of the
Company plus existing debt under the Company's general credit facilities.
Interest expense allocated to discontinued operations during the six months
ended June 30, 1997 was $18,567 and for the three months and the six months
ended June 30, 1996 was $33,113 and $61,014, respectively.
(5)
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Capsule segment results ( in thousands) for the periods ended June 30,
1997 and 1996 are as follows:
Three months ended June 31 Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues (unaffiliated customers):
Tank $ 8,761 $ 6,727 $ 18,379 $ 13,305
Cal-Van Tools 4,220 4,931 7,796 8,948
Chemical 5,087 5,612 5,978 6,045
Corporate interest 8 2 13 10
-------- -------- -------- --------
Total revenues $ 18,076 $ 17,272 $ 32,166 $ 28,308
======== ======== ======== ========
Operating profit
Tank $ 1,064 $ 588 $ 2,510 $ 1,255
Cal-Van Tools 233 271 150 207
Chemical 261 429 214 345
-------- -------- -------- --------
Total operating profit 1,558 1,288 2,874 1,807
General corporate expenses (371) (425) (823) (808)
Corporate interest income 8 2 13 10
Corporate interest expense (233) (383) (420) (710)
-------- -------- -------- --------
Income from continuing operations
before income taxes $ 962 $ 482 $ 1,644 $ 299
======== ======== ======== ========
Second quarter ended June 30, 1997 vs. Second quarter ended June 30, 1996
- -------------------------------------------------------------------------
The Company's second quarter revenues from continuing operations rose 4.7%
to $18,075,550 from $17,272,203 in the second quarter of last year. Income from
continuing operations increased sharply by 112% to $598,809, or 30 cents per
share, compared to $282,006, or 14 cents per share, in 1996. Net earnings
totaled $598,809, or 30 cents, compared to $385,222, or 18 cents per share in
the prior year.
The Tank Division scored record sales for the second quarter, up 30.6% to
$8,533,249 from the prior year's $6,531,943. Operating profits from the
manufacturing portion of the segment rose 113% to $835,955 from 1996 second
quarter profits of $392,530. Total operating profit, which includes the leasing
and finance operations, increased to $1,063,903 from $587,731 a year earlier.
During the second quarter ended June 30, 1997 the Chemical Group's sales
decreased by 9.4%. The decrease in sales was comprised of a 6.4% decrease in
sales of the Contract Division and an 18.0% decrease in the sales of CADCO, the
material sales division. Operating profits decreased from $428,870 to $261,124,
in the current year second quarter, largely as a result of the decrease in sales
and tighter margins in the pavement marking operations of the Contract Division.
(6)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Cal-Van Tools reported sales of $4,219,812 down 14.4% from the prior year's
record sales of $4,931,335. Operating profits for the quarter were $232,936
against $270,920 in the 1996's second quarter, a decrease of 14.0%.
On June 26, 1997 Chemi-Trol Chemical Co. and Ronald A. Peterson, Inc.
jointly announced that they had ceased negotiations toward a definitive purchase
agreement for Chemi-Trol's Cal-Van Tools Division. Previously on April 28, 1997,
Chemi-Trol had announced that it had entered into a nonbinding letter of
intent, subject to negotiation of a definitive purchase agreement, with Ronald
A. Peterson, Inc. Subsequently, Chemi-Trol reported that they had renewed their
search for a buyer for its Cal-Van Tools Division.
For the Company as a whole, net sales from continuing operations increased
by 4.5% while cost of sales increased at a lesser rate of 3.0% resulting in a
14.9% increase in gross profit. Selling expenses decreased by 10.7% largely as a
result of the decrease in selling expenses at the Cal-Van Tools Division.
General and administrative expenses increased by 16.4% largely a result of
increased bonus and profit sharing allocations at the higher profit level.
Interest income for the second quarter increased by 19.2% as operations in
leasing and financing rebounded slightly. Interest expenses from
continuing operations decreased by 39.1% as average borrowings for working
capital needs decreased sharply from the prior year levels. For the second
quarter of 1997 the Company recorded income from continuing operations of
$598,809 or 30 cents per share, compared to $282,006, or 14 cents per share, in
1996. Prior year second quarter income from discontinued operations was $76,216,
or 4 cents per share, resulting in a net income number of $358,222 or 18 cents
per share, in 1996 compared to a net income of $598,809, or 30 cents per share,
earned in the second quarter of 1997.
First six months of 1997 vs. first six months of 1996
- -----------------------------------------------------
For the first six months of 1997 revenues from continuing operations
totaled $32.2 million versus $28.3 million for the first half of 1996, an
increase of 13.6%. Net income rose to a record 1.2 million, or 62 cents per
share, after a gain on disposal of a division, versus $231,000, or 12 cents a
share, a year earlier.
The Tank Division, which during the first six months of 1997 account for
57% of the Company's revenues and 87% of the operating profit, reported record
revenues up 38% over the prior year's slightly depressed six month levels.
Operating profit for the division doubled to a record $2.5 million from $1.25 in
the prior year, largely as a result of the increase in sales.
During the first half of 1997, the Chemical Group revenues decreased
slightly, by 1.1%, to $5.98 million while operating profit fell by 38%.
Competitive bidding in the Pavement Marking operations of the Contract Division
caused margins to tighten and was largely responsible for the Group's decrease
in operating profit.
The Cal-Van Tools segment recorded sales of $7.8 million, down 12.9% from a
record $8.9 million in 1996's first half. The lower sales level, coupled with
selling and general administrative expenses, decreasing at a lessor rate of
9.3%, resulted in operating profits for the segment decreasing by 27.5% to
$150,510 from $207,475 in the first half of 1996.
For the Company as a whole, net sales from continuing operations increased
by 14.0%, while cost of sales increased at a lesser rate of 10.9%, and resulted
in a 37.1% increase in gross profit. Selling
(7)
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
expenses decreased by 13.1% largely as a result of reduction in expenses at the
Cal-Van Tools Division. General and administrative first expenses for the
Company
increased by 29.8%, largely as a result of increased bonus and profit sharing
allocations at the higher profit level. For the first half of 1997 operations in
leasing and financing slowed somewhat and was responsible for the
7.1% decrease in interest and financing income. Interest expenses decreased
sharply, by 40.8%, as average borrowings for working capital needs of continuing
operations decreased during the first half of 1997. For the first six months of
1997 the Company posted income from continuing operations of $1,008,376, or 50
cents per share, an increase of more than 5 times a year ago's earnings of
$171,996, or 9 cents per share. Current first half income from discontinued
operations totaled $229,477, or 12 cents per share, and was comprised of a
$270,198 gain from the disposal of the Cory Orchard & Turf Division and a first
half operating loss of $40,721. This compares to a first half income of
$58,832, or 3 cents per share, for discontinued operations in 1996. Total
Company net income totaled $1,237,853, or 62 cents per share, compared to
$230,828 or 12 cents per share, in 1996's first half.
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 (in thousands), the Company remains in a
good position and its ability to borrow funds remains strong as evidenced by the
unused commitment for term financing and the unpledged notes and leases at June
30, 1997.
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
Working capital $ 12,304 $ 11,151 $ 14,915
Working capital ratio 1.74 to 1 1.53 to 1 1.64 to 1
Unused commitment for term financing
of customer notes and leases $ 7,000 $ 4,781 $ 7,500
Unpledged notes and leases 2,429 1,407 None
Total working capital of the Company at June 30, 1997, was $12,304,480.
This is an increase of $1,153,292 over working capital of $11,151,188 at
December 31, 1996. The working capital ratio has increased from 1.53 to 1.74
over this same period; and the ratio of 1.74 to 1 indicates that the Company
remains in a satisfactory position to meet its short term obligations. The
increase in the working capital ratio is primarily caused by the sale of the
Cory Orchard & Turf Operations.
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 $4,295,390 and to finance sales-type leases was
$1,096,428 at June 30, 1997. The Company has a commitment for the year ended
May 2, 1998 to provide long-term financing for tank notes and leases the
extended to customers for an additional $7 million beyond amounts currently
outstanding on May 2, 1997.
Due to the seasonal nature of the operation of the Company's Chemical
Group and extended payment terms in certain other divisions, the Company has an
uneven cash flow pattern. Operations of
(8)
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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 has borrowed $449,118 on its line at June 30,
1997.
The capital expenditure budget for 1997 is $782,000. The Company intends to
make these expenditures with funds provided from operations.
(9)
10
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
(10)
11
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/Treasurer and
Controller (Chief Accounting
Officer and Chief Financial Officer
also signing on behalf of the
registrant as duly authorized
officer)
(11)