<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 June 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 June 30, 1995.
This document contains 10 pages
<PAGE> 2
PART 1. FINANCIAL INFORMATION
Financial Statements
- --------------------
The accompanying condensed balance sheets as of June 30, 1995 and
1994, and related statements of income and retained earnings and statements of
cash flows for the periods 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 Three months ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $20,925,427 $19,007,920 $35,116,212 $32,234,744
Interest and financing income 256,949 265,146 541,135 529,010
------------ ------------ ------------ ------------
21,182,376 19,273,066 35,657,347 32,763,754
Costs and expenses:
Cost of sales 17,717,123 16,638,444 29,973,113 27,720,367
Selling expenses 903,045 855,804 1,742,270 1,650,304
General and administrative 1,031,055 782,256 1,700,469 1,620,202
Interest 323,559 274,541 577,895 514,867
------------ ------------ ------------ ------------
19,974,782 18,551,045 33,993,747 31,505,740
------------ ------------ ------------ ------------
Income before income taxes 1,207,594 722,021 1,663,600 1,258,014
Income taxes 478,000 290,000 653,000 500,000
------------ ------------ ------------ ------------
Net income 729,594 432,021 1,010,600 758,014
Retained earnings beginning of
period 16,660,037 17,551,523 18,179,042 19,027,715
------------ ------------ ------------ ------------
17,389,631 17,983,544 19,189,642 19,785,729
Stock dividends paid --- --- 1,800,011 1,802,185
Cash dividends declared 180,443 164,052 180,443 164,052
------------ ------------ ------------ ------------
Retained earnings at end of period $17,209,188 $17,819,492 $17,209,188 $17,819,492
============ ============ ============ ============
Per common share (Note 3): $.36 $.22 $.50 $.38
==== ==== ==== ====
Cash dividends declared $.09 $.08 $.09 $.08
==== ==== ==== ====
</TABLE>
See accompanying notes.
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<PAGE> 3
CHEMI-TROL CHEMICAL CO.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 8,746 $ 998,578 $ 111,821
Notes and accounts receivable 22,205,750 15,677,232 17,929,066
Net investment in sales-type leases 958,466 1,086,679 1,086,390
Inventories (Note 1) 13,073,285 9,380,670 10,439,532
Prepaid expenses and other assets 1,079,282 1,157,421 947,063
----------- ----------- -----------
Total current assets 37,325,529 28,300,580 30,513,872
Property, plant and equipment, net 10,952,586 10,172,347 7,376,738
Investments and other assets 6,515,251 7,444,433 10,049,669
----------- ----------- -----------
$54,793,366 $45,917,360 $47,940,279
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,916,184 $ 3,500,000 $ 4,500,000
Accounts payable 9,509,409 6,714,457 5,372,307
Income taxes 576,923 105,497 411,679
Dividends payable --- 164,056 ---
Accrued liabilities 3,443,343 2,849,622 3,371,351
Long-term debt due within one year 4,093,664 3,748,685 4,358,395
----------- ----------- -----------
Total current liabilities 23,539,523 17,082,317 18,013,732
Long-term debt 8,825,888 7,235,827 8,903,881
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
17,209,188 18,179,042 17,819,492
----------- ----------- -----------
Total shareholders'
equity 21,799,955 20,971,216 20,611,666
----------- ----------- -----------
$54,793,366 $45,917,360 $47,940,279
=========== =========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 4
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF CASH FLOWS
Six months ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Operating activities:
Net income $ 1,010,600 $ 758,014
Adjustments to reconcile net income
to net cash provided by operating activities:
Notes receivable from product sales (3,556,962) (3,702,079)
Notes receivable sold 1,261,307 1,192,418
Collections from customers on notes receivable 2,588,368 1,937,558
Proceeds from sales-type leases 1,311,973 524,851
Additions to net investment in sales-type leases (319,482) (525,309)
Depreciation 611,445 593,991
Gain on disposal of property and
equipment (43,428) (4,153)
Changes in operating assets and liabilities:
Accounts and notes receivable (6,755,158) (5,003,732)
Inventories (3,692,616) (1,956,774)
Prepaid expenses 78,140 293,185
Other assets (1,169) (68,281)
Accounts payable 2,794,952 1,259,423
Income taxes payable 471,426 377,522
Accrued liabilities 593,721 478,703
-------------- -------------
Net cash used in operating activities (3,646,883) (3,844,663)
Investing activities:
Additions to property and equipment (1,449,580) (581,358)
Proceeds from disposals of property and
equipment 101,324 38,064
-------------- -------------
Net cash used in investing activities (1,348,256) (543,294)
Financing activities:
Notes payable - net 2,416,184 3,200,000
Payments of long-term debt (2,441,960) (2,235,712)
Additions to long-term debt 4,377,000 3,229,853
Dividend payments (344,499) (313,198)
Repurchase of fractional shares related to
stock dividend (1,418) (1,133)
-------------- -------------
Net cash provided by financing
activities 4,005,307 3,879,810
-------------- -------------
Decrease in cash and cash equivalents (989,832) (508,147)
Cash and cash equivalents at beginning of period 998,578 619,968
-------------- -------------
Cash and cash equivalents at end of period $ 8,746 $ 111,821
============== =============
Supplemental cash flow information:
Cash paid for interest $ 547,903 $ 430,735
============== =============
Cash paid for income taxes $ 121,574 $ 83,522
============== =============
</TABLE>
See accompanying notes
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<PAGE> 5
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
1. Inventories
-----------
Inventories at June 30, 1995, December 31, 1994 and June 30, 1994
are as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1995 December 31, 1994
(Unaudited) 1994 (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Manufacturing inventories:
Raw materials and supplies $ 3,011,691 $ 2,440,090 $ 2,293,917
Work in process 466,588 434,293 386,566
Finished goods 2,440,424 713,027 1,401,576
Purchased inventory held for resale 6,060,585 5,503,321 5,113,831
Chemicals and other materials
used in contracting 1,093,997 289,939 1,243,642
----------- ----------- -----------
$13,073,285 $ 9,380,670 $10,439,532
=========== =========== ===========
</TABLE>
2. Sale of Notes With Recourse
---------------------------
The Company at June 30, 1995 has a contingent liability of $3,046,000
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.
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 to evaluate what future response activities may be
necessary at the site, which was licensed and operated as a landfill from
1969 to 1984. An initial meeting with the EPA and the potentially
responsible parties has been set for August 14, 1995.
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 used the 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 stage 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.
At June 30, 1995, the Company has not reflected any amount or accrued
expenses to cover any future cost of 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) for the periods ended June 30,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Quarter ended June 30, Six months ended June 30,
---------------------- ------------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues (unaffiliated customers):
Tank $ 7,973 $ 7,002 $16,280 $14,773
Chemical 6,386 5,817 7,735 6,818
Cal-Van Tools 4,316 4,069 7,664 7,370
Cory Orchard & Turf 2,503 2,378 3,968 3,788
Corporate interest 4 7 10 14
------- ------- ------- -------
Total revenues $21,182 $19,273 $35,657 $32,763
======= ======= ======= =======
Operating profit:
Tank $ 845 $ 631 $ 1,717 $ 1,632
Chemical 473 88 402 32
Cal-Van Tools 347 339 437 435
Cory Orchard & Turf 134 128 179 149
------- ------- ------- -------
Total operating profit 1,799 1,186 2,735 2,248
General corporate expenses (453) (410) (828) (858)
Corporate interest income 4 7 10 14
Corporate interest expense (142) (61) (253) (146)
------- ------- ------- -------
Income before income taxes $ 1,208 $ 722 $ 1,664 $ 1,258
======= ======= ======= =======
</TABLE>
Second quarter ended June 30, 1995 vs. second quarter ended June 30, 1994
-------------------------------------------------------------------------
Both earnings and revenues climbed to record highs for the quarter ended
June 30, 1995. Revenues increased 9.9% to $21.2 million while net income rose
68.9% to $729,000 or 36 cents per share. All four operating segments had higher
revenues and operating profits for the quarter and the total Company backlogs
were at an all-time high of $14.3 million.
Tank Division revenues increased 13.9% to record levels, while operating
profits increased by 33.9%. The increase in revenues was largely the result of
a 9.9% increase in units shipped. Backlog for the segment was 58% higher at
June 30, 1995, which would indicate a strong fall season.
Sales for the Chemical Group increased 9.8% and operating profits
increased by over 435% from the depressed levels of the prior year. The increase
in operating profit was largely the result of increased gross profit margins as
cost of sales increased at a lesser rate of 2.9% at the higher sales level.
During the quarter Cal-Van Tools Division increased revenues by 6.1% to
record levels while operating profits increased by 2.6% over 1994 second quarter
levels.
-6-
<PAGE> 7
Cory Orchard and Turf Division increased revenues by 5.2% and operating
profits by 4.1%. The 7% increase in gross profit was offset by a 8.8% increase
in selling and general administrative expenses and resulted in the operating
profit increasing at a lesser rate.
For the Company as a whole net sales increased by 10.1%, while cost of
sales increased by 6.4%, thus increasing gross profit by 35.4%. Selling
expense increased by 5.5%, while general and administrative expense increased
by 31.8%, largely as a result of larger bonus and profit sharing allocations at
the higher profit level. Quarterly interest income decreased, slightly by 3.1%
and interest expense increased by 17.9% as outstanding borrowings and interest
rates increased over prior year levels. The effective tax rate decreased
from 40.2% in 1994 to 39.6% in 1995. Net income for the period increased by
68.9% to 36 cents per share from 22 cents per share earned in the second
quarter of 1994.
First six months of 1995 vs. first six months of 1994
-----------------------------------------------------
Revenues for the Company increased by 8.8% and net income climbed 33.3%
to $1,010,600, or 50 cents per share against $758,000 or 38 cents per share in
the first half of 1994. This was the second best six month earnings performance
in the entire 43-year history of the Company. All four operating segments
increased revenues and operating profits over the prior year levels.
The Tank Division, which during the first six months of 1995 accounted
for 45% of the Company's sales and 60% of the operating profit, increased
revenues by 10.2% to record levels and operating profit by 5.2% over the prior
year first half. Selling expense increased by 13.2% largely as a result of the
addition of two additional field sales personnel during the period. The 21.5%
increase in the Division's general and administrative expense was the result of
increased bonus and profit sharing allocations at the Company's higher profit
level.
The Chemical Group increased sales 13.5% while operating profits rose
by 12.5 times the prior year depressed levels to lead the Company's increase in
earning performance during the first half. The climb in operating profit was
principally due to cost of sales increasing at lesser rate of 8.6%, which
caused gross profits to rise by almost 107%. The Group's performance was
largely the result of operations in the Contract Division where vegetation
management sales were 18.8% ahead of 1994 and the gross profit for the division
jumped over 168% from the prior year first half.
During the first half Cal-Van Tools Division revenues rose 4.0% to
record levels and operating profits increased by .5%. A 5.2% increase in gross
profit was offset by a 7.0% increase in selling and general administrative
expenses and resulted in the disproportionate increase in operating profit.
In May Cal-Van began to utilize its new 32,000-square foot warehouse addition.
The Cory Orchard & Turf Division experienced an increase in sales of
4.7% and 20% higher operating profit during the first six months while facing
continued extremely tough competition. Selling and general administrative
expenses rose 5.7% in the first half.
For the Company as a whole net sale increased by 8.9%, while cost of
sales rose at a lesser rate of 8.1%, causing gross margins to increase.
Selling expenses and general administrative expenses increased by 5.6% and
5.0%, respectively. Interest income rose by 2.3% over prior year first half
levels. Higher rates and increased borrowings during the period caused
interest expense to increase by 12.2%. Net income climbed 33.3% to $1.01
million or 50 cents per share from $758,000 or 38 cents per share for the first
half of 1994. The effective tax rate decreased from 39.8% in 1994 to 39.3% in
1995.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
- -------------------------------
Total working capital of the Company at June 30, 1995 was $13,786,006.
This is an increase of $2,567,743 over working capital of $11,218,263 at
December 31, 1994. The working capital ratio has decreased from 1.66 to 1.59
over this same period; however, the ratio of 1.59 to 1 indicates that the
Company remains in a satisfactory position to meet its short term obligations.
The decrease in the working capital ratio is primarily caused by the seasonal
nature of the Chemical Group operations.
Due to the seasonal nature of the operations of the 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 mid-April and run through November, resulting in an inventory
and accounts receivable build-up and additional expenditures for the purchase
of equipment and supplies, principally during 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 received until mid-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 June 30, 1995, the Company had borrowings of
$5,916,184 under these lines of credit.
Long-term borrowings are primarily 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 $7,185,304 and to finance sales-type leases was $2,044,437 at
June 30, 1995. The Company has a commitment from an area bank to provide
long-term financing for tank notes or leases extended to customers for an
additional$ 7.5 million during the current year, provided the combin-ation of
short-term borrowings outstanding and current year long-term financing does not
exceed $12.75 million.
The capital expenditure budget for 1995 is $2,072,000. The Company
intends to make these expenditures with funds provided from operations.
Contingencies
- -------------
See note 4 to the Financial Statements.
-8-
<PAGE> 9
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
-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: August 11, 1995
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 8,746
<SECURITIES> 0
<RECEIVABLES> 22,515,750
<ALLOWANCES> 310,000
<INVENTORY> 13,073,285
<CURRENT-ASSETS> 37,325,529
<PP&E> 19,824,699
<DEPRECIATION> 8,872,113
<TOTAL-ASSETS> 54,793,366
<CURRENT-LIABILITIES> 23,539,523
<BONDS> 12,919,552
<COMMON> 4,590,767
0
0
<OTHER-SE> 17,209,188
<TOTAL-LIABILITY-AND-EQUITY> 21,799,955
<SALES> 35,116,212
<TOTAL-REVENUES> 35,657,347
<CGS> 29,973,113
<TOTAL-COSTS> 29,973,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 577,895
<INCOME-PRETAX> 1,663,600
<INCOME-TAX> 653,000
<INCOME-CONTINUING> 1,010,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,010,600
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
