<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, 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 June 30, 1996.
This document contains 11 pages
<PAGE> 2
PART 1. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The accompanying condensed balance sheets as of June 30, 1996 and 1995, and
related statements of income and retained earnings and statements of cash flows
for the periods ended June 30, 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
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
---------------------------- ---------------------------
Revenues:
<S> <C> <C> <C> <C>
Net sales $19,427,250 $20,925,427 $31,288,731 $35,116,212
Interest and financing
income 197,133 256,949 498,152 541,135
----------- ----------- ----------- -----------
19,624,383 21,182,376 31,786,883 35,657,347
Costs and expenses:
Cost of sales 16,938,346 17,717,123 27,401,462 29,973,113
Selling expenses 924,461 903,045 1,881,165 1,742,270
General and
administrative 732,358 1,031,055 1,331,536 1,700,469
Interest 415,996 323,559 770,892 577,895
----------- ----------- ----------- -----------
19,011,161 19,974,782 31,385,055 33,993,747
----------- ----------- ----------- -----------
Income before income
taxes 613,222 1,207,594 401,828 1,663,600
Income taxes 255,000 478,000 171,000 653,000
----------- ----------- ----------- -----------
Net income 358,222 729,594 230,828 1,010,600
Retained earnings at
beginning of period 17,004,568 16,660,037 17,131,962 18,179,042
----------- ----------- ----------- -----------
17,362,790 17,389,631 17,362,790 19,189,642
Stock dividends paid -- -- -- 1,800,011
Cash dividends declared 180,444 180,443 180,444 180,443
----------- ----------- ----------- -----------
Retained earnings at
end of period $17,182,346 $17,209,188 $17,182,346 $17,209,188
=========== =========== =========== ===========
Per common share (Note 3): $ .18 $ .36 $ .12 $ .50
=== === === ===
Cash dividends declared $ .09 $ .09 $ .09 $ .09
=== === === ===
</TABLE>
See accompanying notes.
- 2 -
<PAGE> 3
CHEMI-TROL CHEMICAL CO.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31, June 30
1996 1995 1995
----------- ----------- -----------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash $ 60,620 $ 80,991 $ 8,746
Notes and accounts receivable 23,705,596 16,528,958 22,205,750
Net investment in sales-type leases 785,347 1,005,265 958,466
Inventories (Note 1) 12,383,525 11,799,651 13,073,285
Prepaid expenses and other assets 1,299,581 1,201,688 1,079,282
----------- ----------- -----------
Total current assets 38,234,669 30,616,553 37,325,529
Property, plant and equipment, net 11,146,901 11,042,091 10,952,586
Investments and other assets 5,019,614 6,933,895 6,515,251
----------- ----------- -----------
$54,401,184 $48,592,539 $54,793,366
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8,419,917 $ 1,507,831 $ 5,916,184
Accounts payable 7,229,160 7,102,503 9,509,409
Income taxes 128,933 148,629 576,923
Dividends payable -- 180,444 --
Accrued liabilities 2,790,042 2,543,124 3,443,343
Long-term debt due within one year 4,751,734 4,703,306 4,093,664
----------- ----------- -----------
Total current liabilities 23,319,786 16,185,837 23,539,523
Long-term debt 8,414,285 9,789,973 8,825,888
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 17,182,346 17,131,962 17,209,188
----------- ----------- -----------
Total shareholders'
equity 21,773,113 21,722,729 21,799,955
----------- ----------- -----------
$54,401,184 $48,592,539 $54,793,366
=========== =========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 4
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
Operating activities:
<S> <C> <C>
Net income $ 230,828 $ 1,010,600
Adjustments to reconcile net income
to net cash provided by operating activities:
Notes receivable from product sales (1,540,449) (3,556,962)
Notes receivable sold 965,082 1,261,307
Collections from customers on notes
receivable 2,287,159 2,588,368
Proceeds from sales-type leases 1,067,744 1,311,973
Additions to net investment in sales-
type leases (125,058) (319,482)
Depreciation 640,755 611,445
Gain on sale of property
and equipment (15,177) (43,428)
Changes in operating assets and liabilities:
Accounts receivable (7,663,394) (6,755,158)
Inventories (583,874) (3,692,616)
Prepaid expenses (97,893) 78,140
Other assets (33,523) (1,169)
Accounts payable 126,657 2,794,952
Income taxes payable (19,696) 471,426
Accrued liabilities 246,918 593,721
----------- -----------
Net cash used in operating activities (4,513,921) (3,646,883)
Investing activities:
Additions to property and equipment (757,313) (1,449,580)
Proceeds from disposals of property and
equipment 26,925 101,324
----------- -----------
Net cash used in investing activities (730,388) (1,348,256)
Financing activities:
Notes payable - net 6,912,086 2,416,184
Payments of long-term debt (2,487,568) (2,441,960)
Additions to long-term debt 1,160,308 4,377,000
Dividend payments (360,888) (344,499)
Cash dividends issued for fractional shares -- (1,418)
----------- -----------
Net cash provided by financing
activities 5,223,938 4,005,307
----------- -----------
Decrease in cash (20,371) (989,832)
Cash at beginning of period 80,991 998,578
----------- -----------
Cash at end of period $ 60,620 $ 8,746
Supplemental cash flow information: =========== ===========
Cash paid for interest $ 701,203 $ 547,903
=========== ===========
Cash paid for income taxes $ 190,765 $ 121,574
=========== ===========
</TABLE>
See accompanying notes
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<PAGE> 5
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
1. INVENTORIES
Inventories at June 30, 1996, December 31, 1995 and June 30, 1995 are
as follows:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Manufacturing inventories:
Raw materials and supplies $ 2,598,128 $ 3,304,000 $ 3,011,691
Work in process 556,411 465,290 466,588
Finished goods 1,833,657 2,061,184 2,440,424
Purchased inventory held for resale 6,581,894 5,694,549 6,060,585
Chemicals and other materials
used in contracting 813,435 274,628 1,093,997
----------- ----------- -----------
$12,383,525 $11,799,651 $13,073,285
=========== =========== ===========
</TABLE>
2. SALE OF NOTES WITH RECOURSE
The Company at June 30, 1996 has a contingent liability of $2,830,000
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 dividend 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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<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, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues (unaffiliated customers):
<S> <C> <C> <C> <C>
Tank $ 6,727 $ 7,973 $ 13,305 $ 16,280
Chemical 5,612 6,386 6,045 7,735
Cal-Van Tools 4,931 4,316 8,948 7,664
Cory Orchard & Turf 2,352 2,503 3,479 3,968
Corporate interest 2 4 10 10
-------- -------- -------- --------
Total revenues $ 19,624 $ 21,182 $ 31,787 $ 35,657
======== ======== ======== ========
Operating profit:
Tank $ 390 $ 845 $ 850 $ 1,717
Chemical 429 473 345 402
Cal-Van Tools 271 347 207 437
Cory Orchard & Turf 165 134 164 179
-------- -------- -------- --------
Total operating profit 1,255 1,799 1,566 2,735
General corporate expense (425) (453) (808) (828)
Corporate interest income 2 4 10 10
Corporate interest expense (219) (142) (366) (253)
-------- -------- -------- --------
Income before income
taxes $ 613 $ 1,208 $ 402 $ 1,664
======== ======== ======== ========
</TABLE>
SECOND QUARTER ENDED JUNE 30, 1996, VS. SECOND QUARTER ENDED JUNE 30, 1995
The Company's earnings and revenues decreased from prior year record levels
for the second quarter ended June 30, 1996. Revenues decreased by 7.4% to $19.6
million while net income decreased by 50.9% to $358,000 or 18 cents per share.
Revenues of the Tank Division decreased by 15.6% from prior year record
levels, while operating profits decreased by 53.8%. The decrease in revenues was
comprised of a 15.4% decrease in net sales and a 22.9% decrease in interest and
financing income.
- 6 -
<PAGE> 7
The Chemical Group's sales decreased by 12.1% while operating profit
decreased by 9.3%. The decrease in sales was comprised of a 17.9% decrease in
sales of the Contract Division and a 10.2% decrease in the sales of CADCO, the
materials sales division. Rainfall in the Company's prime market area was nearly
double the normal levels during the quarter and was largely responsible for the
decrease in sales.
During the second quarter ended June 30, 1996, Cal-Van Tools revenues
increased by 14.3% to record levels, while cost of sales increased at a higher
rate of 22.5% causing margins to tighten. The disproportionate increase in cost
of sales was largely responsible for the 21.9% decrease in operating profit from
prior year second quarter levels. Selling and general administrative expenses
decreased by 5.9% during the quarter.
Cory Orchard & Turf increased operating profits by 23.5% even though
revenues for the quarter were down 6.0% from prior year levels. Decreases in
cost of sales and divisional operating expenses which fell at higher rates of
7.8% and 6.4%, respectively, coupled to increase operating profits.
For the Company as a whole, net sales decreased by 7.2%, while cost of
sales decreased by 4.4%, thus decreasing gross profits by 22.4%. During the
quarter selling expenses increased by 2.4%, while general and administrative
expenses decreased by 29.0%. The decrease in general and administrative
expenses was the result of lower bonus and profit sharing allocations at the
lower profit level. Interest and financing income decreased by 23.2%. Interest
expense increased by 28.6%, largely as a result of the increase in average
borrowings outstanding during the second quarter of 1996. For the quarter the
Company recorded net income of $358,222 or $.18 per share as compared to a
record net income of $729,594 or $.36 per share in 1995.
FIRST SIX MONTHS OF 1996 VS. FIRST SIX MONTHS OF 1995
For the six months ended June 30, 1996, revenues totaled $31.8 million
versus $35.7 million for the first half of 1995.
The Tank Division, which during the first half of 1996 accounted for 42% of
the Company's revenues and 54% of the operating profit, saw revenues decrease by
18.6% over prior record levels and operating profit decrease by 50.5%. A
temporary slow-down in demand, caused in part by adverse weather across much of
the midwest, led to the decrease in revenues. The lower sales level, as well as
period costs associated with a production slow-down to adjust inventories, were
largely responsible for the first half decrease in operating profit of the
division.
- 7 -
<PAGE> 8
During the first half of 1996, the Chemical Group's revenues decreased by
21.8% while operating profit fell by a lessor 14.4%. The increase in gross
profit margins of .3% and reduction in selling and general administration
expenses of 26.3% were responsible for the disproportionate decrease in
operating profit.
Cal-Van Tools sales rose by 16.8% to record levels of $8.9 million during
the first six months of 1996. Ongoing mergers and consolidations of customers in
this mature market have caused increases in sales and market share but at the
cost of reduced margins. Gross profit decreased by 9.2% and was largely
responsible for the 52.5% decrease in operating profit over the prior year six
month levels. Selling and general administrative expenses increased by 5.4%
during the six months.
A very cold March and very wet April and May had a negative effect on first
half results of the Cory Orchard & Turf Division. First half 1996 sales
decreased by 12.3% while operating profits decreased by the lessor rate of 8.3%.
Improved margins were somewhat offset by selling and general administrative
expenses which were down by a disproportionate 8% to hold the decrease in
operating profit to 8.3%.
For the Company as a whole, cost of sales decreased by 8.6%, somewhat less
than the 10.9% decrease in net sales, and resulted in tighter margins. During
the six months, selling expenses increased by 8.0% while general and
administrative expenses decreased by 21.7%. Interest income was down by 7.9%.
Interest expense increased by approximately 33.4%, largely as a result of the
increase in average borrowings outstanding during the first half of 1996. For
the period the Company recorded net income of $230,828 or $.12 per share as
compared to net income of $1,010,600 or $.50 per share in 1995. The effective
tax rate increased from 39.3% in 1995 to 42.6% in 1996, largely as a result of
the effects of comparable non-deductible expenses at the lower profit level.
The Company remains optimistic and the general outlook appears strong for
the rest of the year. The Company believes that some of the work lost due to the
rainy-cold weather that hurt the first half can be made up in the second half of
the year.
- 8 -
<PAGE> 9
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, 1996, was $14,914,883.
This is an increase of $484,167 over working capital of $14,430,716 at December
31, 1995. The working capital ratio has decreased from 1.89 to 1.64 over this
same period; however, the ratio of 1.64 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, making it 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. At June 30,
1996 and 1995, the Company had borrowings under these lines of credit of
$8,419,917 and $5,916,184, respectively.
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
$7,083,490 and to finance sales-type leases was $2,222,437 at June 30, 1996. 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 combination of short-term borrowings outstanding
and current year long-term financing does not exceed $15.75 million.
The capital expenditure budget for 1996 is $794,000. The Company intends to
make these expenditures with funds provided from operations.
- 9 -
<PAGE> 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 -
<PAGE> 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
and Controller (Chief
Accounting Officer and
Chief Financial Officer
also signing on behalf of
the registrant as duly
authorized officer)
Dated: August 2, 1996
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 60,620
<SECURITIES> 0
<RECEIVABLES> 24,015,596
<ALLOWANCES> 310,000
<INVENTORY> 12,383,525
<CURRENT-ASSETS> 38,234,669
<PP&E> 21,020,032
<DEPRECIATION> 9,873,131
<TOTAL-ASSETS> 54,401,184
<CURRENT-LIABILITIES> 23,319,786
<BONDS> 13,166,019
<COMMON> 4,590,767
0
0
<OTHER-SE> 17,182,346
<TOTAL-LIABILITY-AND-EQUITY> 54,401,184
<SALES> 31,288,731
<TOTAL-REVENUES> 31,786,883
<CGS> 27,401,462
<TOTAL-COSTS> 27,401,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,534
<INTEREST-EXPENSE> 770,892
<INCOME-PRETAX> 401,828
<INCOME-TAX> 171,000
<INCOME-CONTINUING> 230,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,828
<EPS-PRIMARY> .12
<EPS-DILUTED> .09
</TABLE>
