<PAGE> 1
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 September 30, 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
------ ------
The registrant has 2,004,930 common shares, no par value, outstanding
as of September 30, 1995
This document contains 10 pages
<PAGE> 2
PART 1. FINANCIAL INFORMATION
Financial Statements
--------------------
The accompanying condensed balance sheets as of September 30, 1995 and
1994, and related condensed statements of income and retained earnings and
statements of cash flows for the periods then ended 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
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------------------------------
9/30/95 9/30/94 9/30/95 9/30/94
------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $18,591,217 $18,679,899 $53,707,429 $50,914,643
Interest and financing income 245,476 266,533 786,611 795,543
----------- ----------- ---------- ----------
18,836,693 18,946,432 54,494,040 51,710,186
Costs and expenses:
Cost of sales 16,234,369 16,301,773 46,207,482 44,022,140
Selling expenses 960,073 803,256 2,702,343 2,453,560
General and administrative 644,555 659,049 2,345,024 2,279,251
Interest 378,168 315,399 956,063 830,266
----------- ----------- ---------- ----------
18,217,165 18,079,477 52,210,912 49,585,217
----------- ----------- ---------- ----------
Income before income taxes 619,528 866,955 2,283,128 2,124,969
Income taxes 229,000 334,000 882,000 834,000
----------- ----------- ---------- ----------
Net income 390,528 532,955 1,401,128 1,290,969
Retained earnings beginning
of period 17,209,188 17,819,492 18,179,042 19,027,715
----------- ----------- ---------- -----------
17,599,716 18,352,447 19,580,170 20,318,684
Stock dividends paid --- --- 1,800,011 1,802,185
Cash dividends declared 180,444 163,359 360,887 327,411
----------- ----------- ---------- -----------
Retained earnings end of period $17,419,272 $18,189,088 $17,419,272 $18,189,088
=========== =========== ========== ==========
Per common share (Note 3):
Net income $.20 $.26 $.70 $.64
==== ==== ==== ====
Cash dividends declared $.09 $.08 $.18 $.16
==== ==== ==== ====
</TABLE>
See accompanying notes.
-2-
<PAGE> 3
CHEMI-TROL CHEMICAL CO.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 63,059 $ 998,578 $ 184,757
Notes and accounts receivable 24,276,601 15,677,232 20,641,651
Net investment in sales-type leases 960,715 1,086,679 1,095,564
Inventories (Note 1) 12,781,893 9,380,670 9,774,581
Prepaid expenses 779,991 1,157,421 655,628
----------- ------------ -----------
Total current assets 38,862,259 28,300,580 32,352,181
Property, plant and equipment, net 10,937,399 10,172,347 10,031,759
Investments and other assets 5,706,202 7,444,433 6,588,695
----------- ------------ -----------
$55,505,860 $45,917,360 $48,972,635
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $10,837,280 $ 3,500,000 $ 5,500,000
Accounts payable 6,950,305 6,714,457 6,292,008
Income taxes 198,265 105,497 280,889
Dividends payable --- 164,056 ---
Accrued liabilities 3,001,358 2,849,622 3,118,770
Long-term debt due within one year 3,888,913 3,748,685 4,470,144
----------- ----------- -----------
Total current liabilities 24,876,121 17,082,317 19,661,811
Long-term debt 7,991,700 7,235,827 7,918,562
Deferred federal income tax 628,000 628,000 411,000
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 17,419,272 18,179,042 18,189,088
------------ ------------ ------------
Total shareholders'
equity 22,010,039 20,971,216 20,981,262
------------ ------------ ------------
$55,505,860 $45,917,360 $48,972,635
============ ============ ============
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Operating activities
Net income $ 1,401,128 $ 1,290,969
Adjustments to reconcile net income
to net cash provided by operating activities:
Notes receivable from product
sales (4,059,431) (4,639,282)
Notes receivable sold 1,688,774 1,642,652
Collections from customers on notes
receivable 3,581,530 2,755,410
Proceeds from sales-type leases 1,604,264 795,934
Additions to net investment in sales-
type leases (761,030) (719,121)
Depreciation 926,884 887,010
Increase in allowance for doubtful accounts --- 30,000
Gain on disposal of property
and equipment (44,263) (3,679)
Changes in operating assets and liabilities:
Accounts and notes receivable (8,907,007) (7,357,270)
Inventories (3,401,223) (1,291,823)
Prepaid expenses 377,430 584,620
Other assets 117,726 (86,613)
Accounts payable 235,848 2,179,124
Income taxes payable 92,768 246,732
Accrued liabilities 151,736 226,122
----------- -----------
Net cash used in operating activities (6,994,866) (3,459,215)
Investing activities
Additions to property and equipment (1,750,997) (856,941)
Proceeds from disposals of property and
equipment 103,324 38,064
----------- -----------
Net cash used in investing activities (1,647,673) (818,877)
Financing activities
Net borrowings under line of credit 7,337,280 4,200,000
Additions to long-term debt 4,647,000 3,418,178
Payments of long-term debt (3,750,899) (3,297,607)
Dividend payments (524,943) (476,557)
Payments in lieu of issuing fractional
shares (1,418) (1,133)
------------ ------------
Net cash provided by financing
activities 7,707,020 3,842,881
------------ ------------
Decrease in cash (935,519) (435,211)
Cash at beginning of period 998,578 619,968
------------ ------------
Cash at end of period $ 63,059 $ 184,757
============ ============
Supplemental cash flow information:
Cash paid for interest $ 957,522 $ 739,506
============ ============
Cash paid for income taxes $ 729,232 $ 311,955
============ ============
</TABLE>
See accompanying notes
-4-
<PAGE> 5
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
1. Inventories
-----------
Inventories at September 30, 1995, December 31, 1994 and
September 30, 1994 are as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
------------- ------------ -------------
<S> <C> <C> <C>
Manufacturing inventories:
Raw materials and supplies $ 3,514,191 $ 2,440,090 $ 2,342,212
Work in process 532,570 434,293 455,800
Finished goods 2,730,669 713,027 1,157,427
Purchased inventory held for resale 5,396,823 5,503,321 4,966,667
Chemicals and other materials
used in contracting 607,640 289,939 852,475
----------- ----------- -----------
$12,781,893 $ 9,380,670 $ 9,774,581
=========== =========== ===========
</TABLE>
2. Sale of Notes With Recourse
---------------------------
The Company at September 30, 1995 has a contingent liability of
$3,005,000 for customers' installment notes sold with recourse to the
Chemi-Trol Chemical Co. 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.
4. Commitments and Contingencies
-----------------------------
The Company, along with five other parties, has been designated in a
letter dated July 13, 1995, as a potentially responsible party by the United
States Environmental Protection Agency (the "EPA") at the County Line Landfill,
Fremont, Ohio, under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended. The EPA is requesting that the potentially
responsible parties initiate an Engineering Evaluation and Cost Analysis (EECA)
to evaluate what future response activities may be necessary at the site, which
was licensed and operated as a landfill from 1969 to 1984. The potentially
responsible parties have commenced participation in an engineering evaluation
at the site.
There is no volumetric ranking of parties available. Although the EPA
takes the position that any potentially responsible party is liable jointly and
severally for response costs, the Company is only one of many parties believed
to have usedthe site. There is also no information as to the extent and nature
of any necessary future response action at the site. During the period in
question the Company maintained various insurance policies and management is
exploring the availability of coverage of claims which may arise. Because of
the preliminary state of this matter and lack of information, it is not possible
to estimate the financial impact or range of probable financial impact on the
Company.
During the quarter ended September 30, 1995, the Company has expensed
$9,132, its portion of the expenses of the current engineering evaluation, but
has not reflected any amount or accrued expenses to cover any future cost of
additional evaluation or remediation relating to the site.
-5-
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Capsule segment results (in thousands of dollars) for the periods ended
September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (unaffiliated customers):
Tank $ 8,380 $ 8,461 $24,660 $23,235
Chemical 4,841 5,406 12,576 12,223
Cal-Van Tools 3,534 3,306 11,198 10,676
Cory Orchard & Turf 2,079 1,764 6,047 5,552
Corporate interest and other
income 3 10 13 24
------ ------- ------- -------
Total revenues $18,837 $18,947 $54,494 $51,710
======= ======= ======= =======
Operating profit (loss):
Tank $ 748 $ 827 $ 2,465 $ 2,459
Chemical 341 258 743 290
Cal-Van Tools 18 238 454 673
Cory Orchard & Turf 113 (2) 292 147
------- ------- ------- -------
Total operating profit 1,220 1,321 3,954 3,569
General corporate expenses (372) (316) (1,200) (1,174)
Corporate interest income 3 10 13 24
Corporate interest expense (231) (148) (484) (294)
------- ------- ------- -------
Income before income taxes $ 620 $ 867 $ 2,283 $ 2,125
======= ======= ======= =======
</TABLE>
Third quarter ended September 30, 1995 vs. third quarter ended September 30,
- -------------------------------------------------------------------------------
1994
- ----
Revenues for the third quarter ended September 30, 1995 totaled
$18,836,693, down less than one percent (.5%) from a year ago. Net income
declined to $390,528 or 20 cents per share, from the year-earlier quarter's
$532,955 or 26 cents per share.
Revenues in the Tank Division, which accounted for 44.4% of the
Company's revenues during the quarter, decreased slightly (.9%) from 1994
levels. Increased costs of raw materials and competitive pressures caused
margins to tighten and resulted in a 11.6% decrease in gross profit which was
largely responsible for the 9.5% decrease in operating profit of the Tank
Division.
Chemical Group revenues were down 10.4% from the prior year third
quarter as a result of scheduled downtime for equipment maintenance necessary to
change the types of materials being applied. However, operating profits during
the same period increased 32.0%. The increase in operating profit was the
result of 9.1% increase in gross profit coupled with a 30.2% decrease in selling
and general administrative expenses. Reductions in staff and realignment of
sales territories resulted in the lower quarterly sales expense.
-6-
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Revenues for the Cal-Van Tools Division increased by 6.9% to record
levels during the third quarter; however, operating profits decreased by 92.3%.
Disproportionate increases of 10.4% in cost of sales, 43.0% in selling
expenses, and 10.6% in divisional general and administrative expenses combined
to decrease operating profits from the prior year levels. The increase in
selling expense was the result of an aggressive marketing program.
Cory Orchard & Turf increased net sales by 17.9%, while cost of sales
increased by only 13.8%. The lower than proportionate increase in cost of
sales coupled with decreases in selling and general and administrative expenses
of 9.6% and 4.0%, respectively, resulted in a $115,105 increase in operating
results from the prior year's depressed level.
For the Company as a whole net sales decreased by .5% while cost of
sales decreased at a lessor rate of .4% to decrease gross profit by $21,278 or
.9%. Selling expenses increased by 19.5% while general and administrative
expense decreased by 2.2%. Third quarter interest income decreased by 7.9%
while interest expense increased 19.9% over 1994 levels. The increase in
interest expense was the result of increased borrowings to meet short-term
working capital needs. The Company's effective tax rate decreased from 38.5%
in 1994 to 37.0% in 1995. Net income for the quarter decreased by 26.7% to
$390,528 or 20 cents per share from $532,955 or 26 cents per share.
First nine months of 1995 vs. first nine months of 1994
- -------------------------------------------------------
Nine months revenues for the Company increased 5.4% to record levels,
and net income increased by 8.5% to 70 cents per share compared to 64 cents per
share in 1994.
The Tank Division revenues increased by 6.1% while cost of sales
increased by 7.3% resulting in an increase in gross profit of less than 1%
(.3%). Increases in selling and general administrative expenses of 9.3% were
offset by 12.9% reductions in interest expense related to the financing
operations of the division. Operating profit for the first nine months was up
.2% over prior year levels.
Increases in revenues of 2.3% in the Contract Division and 5.2% in
CADCO, the material sales division, combined to increase Chemical Group
revenues by 2.8% during the nine months. Increased margins in the Contract
Division combined with a 12.5% reduction in selling and general administrative
expenses and resulted in operating profits increasing over 2 1/2 times 1994
nine month depressed levels to $742,687.
Cal-Van Tools nine month revenues increased by 4.9% to record levels,
while cost of sales increased by 5.7% over prior year levels. The
disproportionate increase in cost of sales coupled with increases in selling
and general and administrative expenses of 18.5% and 6.8%, respectively,
resulted in a decrease in operating profit of 32.4%.
Revenues of the Cory Orchard & Turf Division increased by 8.9% while
cost of sales decreased by 7.1%, resulting in a 20.2% increase in gross profit.
The increase in gross profit coupled with a 1.2% increase in selling and
general administrative expenses resulted in a 98.5% increase in operating
profits for the nine month period.
For the Company as a whole net sales increased by 5.5% while cost of
sales increased at the lessor rate of 5.0% to provide an increase in gross
margins and profits. Selling expense increased 10.1% largely as a result of
operations in the Cal-Van Tools Division. Nine month general and
administrative expenses increased 2.9% over 1994 levels. Interest expense
increased by 15.1% as the result of increased borrowings and higher rates
during the period. Led by profit increases in its Chemical Group
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
and Cory Orchard & Turf Division and sustained performance at its Tank
Division, net earnings climbed 8.5% to $1,401,128, or 70 cents per share, after
adjusting for the 10% stock dividend paid in March 1995. The effective tax
rate decreased from 39.2% in 1994 to 38.6% in 1995.
Liquidity and Capital Resources
- -------------------------------
The working capital position of the Company remains strong. At
September 30, 1995, working capital was $13,986,138. This is an increase of
$200,132 over working capital of $13,786,006 at June 30, 1995 and in increase
of $2,767,875 over working capital of $11,218,263 at December 31, 1994. The
current ratio of the Company at September 30, 1995 was 1.6 to 1, unchanged from
June 30, 1995. The strength of this ratio indicates that the Company is in a
good position to meet its short-term obligations.
The Company's increase for the nine months in working capital was
largely provided from operations and short-term borrowings. Long-term
borrowings of $4,647,000 during the first nine months were used to finance
customers' installment notes receivable and sales type leases of steel tanks
produced by the Company's Tank Division. Outstanding borrowings at September
30, 1995 amount to $6,083,732 to fund the customers' installment notes
receivable and $2,147,204 to fund the sales type leases. In order to meet the
anticipated needs of customers, the Company has a commitment from an area bank
to provide long-term financing for tank notes extended to customers for an
additional $7 million during the current year, provided the combination of
short-term borrowings outstanding and current year long-term financing does not
exceed $12 million.
Due to the seasonal nature of the operations of the Company's Chemical
Group and the extension of payment terms in certain divisions, the Company has
an uneven cash flow pattern. Operations of the Chemical Group begin
approximately mid-April and run through November. There are substantial
startup expenses for this division associated with inventory build-up and the
purchase of equipment and supplies. A large portion of these expenses fall due
in the period of May through July. Since the majority of the contracts
performed by this division are for political subdivisions and the contracts
stretch over the entire summer season, a high percentage of the payments are not
recieved until mid-September and October. This places the Company in a tight
cash position from June through 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. At
September 30, 1995, the Company had short-term borrowings of $10,837,280 under
these lines of credit. Normally, beginning in November, the Company has excess
cash to repay these short-term borrowings and to invest on a short-term basis.
Contingencies
- -------------
See Note 4 to the Financial Statements.
-8-
<PAGE> 9
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Annual meeting July 20, 1995
(b) F.J. Roynon, J.P. Simcox and R.F. Veh were elected as directors
for a term of three years and until their successors are elected
and qualified. The term of office as directors for A.F. Doust,
K.D. Lauck and W.B. LLoyd continues for one more year and until
their successors are elected and qualified. The term of office as
directors for R.J. Dudley, R.H. Moyer and R.W. Woolf continues for
two more years and until their sucessors are elected and qualified.
(c) Each matter voted upon at the meeting and the shares voted were
as follows.
(1) On the proposal to elect the following directors for a
term of three years the votes were as follows:
<TABLE>
<CAPTION>
Number of Votes *
---------------------------
Withhold
For Authority
---------------------------
<S> <C> <C>
F.J. Roynon 1,566,822 341,162
J.P. Simcox 1,567,095 341,162
R.F. Veh 1,567,056 341,162
</TABLE>
(2) On the proposal to appoint Ernst & Young as the independent
auditors of the Company to audit the books and accounts of
the Company for the year ended December 31, 1995 the number
of shares voted was 1,970,144; 1,966,009 shares were voted
in favor; 2,226 shares were voted against; and 1,909 shares
abstained.*
(3) A motion at the meeting to adopt a resolution to ratify,
approve and confirm the published annual report of
the President to the shareholders and the acts of the
Directors and Officers for the past year was unanimously
approved by shareholders present.
* Approximately all but 1.7% of the outstanding
shares were represented at the meeting. Information on
broker non-votes has not been separately tabulated.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits. None
(b) Reports on Form 8-K. None
-9-
<PAGE> 10
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: November 10, 1995
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 63,059
<SECURITIES> 0
<RECEIVABLES> 24,586,601
<ALLOWANCES> 310,000
<INVENTORY> 12,781,893
<CURRENT-ASSETS> 38,862,259
<PP&E> 20,120,482
<DEPRECIATION> 9,183,083
<TOTAL-ASSETS> 55,505,860
<CURRENT-LIABILITIES> 24,876,121
<BONDS> 11,880,613
<COMMON> 4,590,767
0
0
<OTHER-SE> 17,419,272
<TOTAL-LIABILITY-AND-EQUITY> 55,505,860
<SALES> 53,707,429
<TOTAL-REVENUES> 54,494,040
<CGS> 46,207,482
<TOTAL-COSTS> 46,207,482
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 471,874
<INCOME-PRETAX> 2,283,128
<INCOME-TAX> 882,000
<INCOME-CONTINUING> 1,401,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,401,128
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
