<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, 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 September 30, 1996.
This document contains 11 pages
<PAGE> 2
PART 1. FINANCIAL INFORMATION
Financial Statements
--------------------
The accompanying condensed balance sheets as of September 30, 1996 and
1995, and related condensed statements of income and retained earnings and
statements of cash flows for the period 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, 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
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ ------------------
9/30/96 9/30/95 9/30/96 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Net sales $20,446,891 $18,591,217 $51,735,622 $ 53,707,429
Interest and financing income 214,538 245,476 712,690 786,611
----------- ----------- ----------- -----------
20,661,429 18,836,693 52,448,312 54,494,040
Costs and expenses:
Cost of sales 17,614,520 16,234,369 45,015,982 46,207,482
Selling expenses 922,241 960,073 2,803,406 2,702,343
General and administrative 882,601 644,555 2,214,137 2,345,024
Interest 443,578 378,168 1,214,470 956,063
----------- ----------- ----------- -----------
19,862,940 18,217,165 51,247,995 52,210,912
----------- ----------- ----------- -----------
Income before income taxes 798,489 619,528 1,200,317 2,283,128
Income taxes 313,000 229,000 484,000 882,000
----------- ----------- ----------- -----------
Net income 485,489 390,528 716,317 1,401,128
Retained earning beginning
of period 17,182,346 17,209,188 17,131,962 18,179,042
----------- ----------- ----------- -----------
17,667,835 17,599,716 17,848,279 19,580,170
Stock dividends paid -- -- -- 1,800,011
Cash dividends declared 180,443 180,444 360,887 360,887
----------- ----------- ----------- -----------
Retained earnings end
of period $17,487,392 $17,419,272 $17,487,392 $17,419,272
=========== =========== =========== ===========
Per common share (Note 3):
Net income $.24 $.20 $.36 $.70
==== ==== ==== ====
Cash dividends declared $.09 $.09 $.18 $.18
==== ==== ==== ====
</TABLE>
See accompanying notes
-2-
<PAGE> 3
CHEMI-TROL CHEMICAL CO.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 81,987 $ 80,991 $ 63,059
Notes and accounts receivable 27,200,754 16,528,958 24,276,601
Net investment in sales-type leases 685,526 1,005,265 960,715
Inventories (Note 1) 11,547,904 11,799,651 12,781,893
Prepaid expenses 877,879 1,201,688 779,991
----------- ----------- -----------
Total current assets 40,394,050 30,616,553 38,862,259
Property, plant and equipment, net 10,910,206 11,042,091 10,937,399
Investments and other assets 4,238,148 6,933,895 5,706,202
----------- ----------- -----------
$55,542,404 $48,592,539 $55,505,860
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $11,238,492 $ 1,507,831 $10,837,280
Accounts payable 6,924,258 7,102,503 6,950,305
Income taxes 263,685 148,629 198,265
Dividends payable -- 180,444 --
Accrued liabilities 2,783,124 2,543,124 3,001,358
Long-term debt due within one year 4,158,983 4,703,306 3,888,913
----------- ----------- -----------
Total current liabilities 25,368,542 16,185,837 24,876,121
Long-term debt 7,201,703 9,789,973 7,991,700
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 17,487,392 17,131,962 17,419,272
----------- ----------- -----------
Total shareholders'
equity 22,078,159 21,722,729 22,010,039
----------- ----------- -----------
$55,542,404 $48,592,539 $55,505,860
=========== =========== ===========
</TABLE>
See accompanying notes
-3-
<PAGE> 4
CHEMI-TROL CHEMICAL CO.
STATEMENT OF CASH FLOWS
Nine months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating activities
Net income $ 716,317 $ 1,401,128
Adjustments to reconcile net income to net
cash used in operating activities:
Notes receivable from product sales (2,511,904) (4,059,431)
Notes receivable sold 1,614,971 1,688,774
Collections from customers on notes receivable 3,454,814 3,581,530
Proceeds from sales-type leases 1,423,759 1,604,264
Additions to net investment in sales-type leases (165,702) (761,030)
Depreciation 986,462 926,884
Increase in allowance for doubtful accounts 75,000 --
Gain on disposal of property and equipment (15,752) (44,263)
Changes in operating assets and liabilities:
Accounts and notes receivable (11,518,182) (8,907,007)
Inventories 251,747 (3,401,223)
Prepaid expenses 323,809 377,430
Other assets (29,066) 117,726
Accounts payable (178,245) 235,848
Income taxes payable 115,056 92,768
Accrued liabilities 240,000 151,736
------------ ------------
Net cash used in operating activities (5,216,916) (6,994,866)
Investing activities
Additions to property and equipment (873,415) (1,750,997)
Proceeds from disposals of property and equipment 34,590 103,324
------------ ------------
Net cash used in investing activities (838,825) (1,647,673)
Financing activities
Net borrowings under line of credit 9,730,661 7,337,280
Additions to long-term debt 1,160,308 4,647,000
Payments of long-term debt (4,292,901) (3,750,899)
Dividend payments (541,331) (524,943)
Payments in lieu of issuing fractional shares -- (1,418)
------------ ------------
Net cash provided by financing activities 6,056,737 7,707,020
------------ ------------
Decrease in cash 996 (935,519)
Cash at beginning of period 80,991 998,578
------------ ------------
Cash at end of period $ 81,987 $ 63,059
============ ============
Supplemental cash flow information:
Cash paid for interest $ 1,149,755 $ 957,522
============ ============
Cash paid for income taxes $ 368,944 $ 729,232
============ ============
</TABLE>
See accompanying notes
-4-
<PAGE> 5
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
1. Inventories
-----------
Inventories at September 30, 1996, December 31, 1995, and September
1994 are as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------ ----------- ------------
<S> <C> <C> <C>
Manufacturing inventories:
Raw materials and supplies $ 2,257,988 $ 3,304,000 $ 3,514,191
Work in process 505,247 465,290 532,570
Finished goods 1,436,063 2,061,184 2,730,669
Purchased inventory held for resale 6,556,282 5,694,549 5,396,823
Chemicals and other materials used
in contracting 792,324 274,628 607,640
----------- ----------- -----------
$11,547,904 $11,799 651 $12,781,893
=========== =========== ===========
</TABLE>
2. Sale of Notes With Recourse
---------------------------
The Company at September 30, 1996 has a contingent liability of
$2,715,000 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 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.
-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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended Sept. 30, ended Sept. 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (unaffiliated customers):
Tank $ 9,167 $ 8,380 $22,472 $24,660
Chemical 5,464 4,841 11,510 12,576
Cal-Van Tools 4,410 3,534 13,358 11,198
Cory Orchard & Turf 1,618 2,079 5,096 6,047
Corporate interest and other income 2 3 12 13
------- ------- ------- ------
Total revenues $20,661 $18,837 $52,448 $54,494
======= ======= ======= =======
Operating profit:
Tank $ 981 $ 748 $ 1,831 $ 2,465
Chemical 397 341 742 743
Cal-Van Tools 131 18 338 454
Cory Orchard & Turf 22 113 186 292
------- ------- ------- -------
Total operating profit $ 1,531 $ 1,220 $ 3,097 $ 3,954
General corporate expenses (469) (372) (1,276) (1,200)
Corporate interest income 2 3 12 13
Corporate interest expense (266) (231) (633) (484)
------- ------- ------- -------
Income before income taxes $ 798 $ 620 $ 1,200 $ 2,283
======= ======= ======= =======
</TABLE>
Third quarter ended September 30, 1996, vs. third quarter ended
- ---------------------------------------------------------------
September 30, 1995
------------------
The Company's revenues increased by 9.7% to $20,661,429, a record for a
third quarter. Three of the four operating divisions increased both sales and
operating profit over prior year third quarter levels. Net income increased by
24.3% to $485,489 or 24 cents per share, compared to $390,528, or 20 cents per
share, in 1995.
Revenues of the Tank Division increased by 9.4% to record third quarter
levels while operating profit increased by 31.7% over the prior year third
quarter. The increase in revenues was comprised of the 10.0% increase in net
sales which was partially offset by an 11.1% decrease in interest and financing
income. Cost of sales increased at the lesser rate of 6.3% increasing both gross
margins and gross profit and was largely responsible for the increase in
operating profit.
-6-
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Chemical Group revenues increased by 12.9% and operating profit
increased by 16.8% during the third quarter of 1996. Sales of the Contract
Division, which comprised 87.7% of the Group's revenues, increased by 12.9% and
sales of CADCO, the material sales division, increased by 12.6%. Cost of sales
increased at the disproportionate rate of 12.6% and resulted in increased gross
margins. The increase in sales and margins combined to increase operating
profit.
Third quarter sales of the Cal-Van Tools Division increased by 24.8% to
a record $4,410,062. Cost of sales increased at a higher rate of 26.6% causing
gross profit to increase by only 17.8%. The increase in sales coupled with a
disproportionate increase of 2.4% in selling and general administrative expenses
increased operating profit from $18,262 during last year's third quarter to
$130,892 in the current year.
Cory Orchard & Turf's net sales decreased by 22.1% as weather
conditions not conducive to the sale of the Division's product continued in the
third quarter. Operating profits decreased by over 80% largely as a result of
the decrease in sales.
For the Company as a whole, net sales increased by 10.0% while cost of
sales increased at a lesser rate of 8.5% and resulted in a 20.2% increase in
gross profit. Selling expense decreased by 3.9% while general and administrative
expense increased by 36.9%. The increase in general and administrative expense
was partially the result of increased profit sharing allocations due to the
higher profit levels. Third quarter interest and financing income decreased by
12.6% while interest expense increased by 17.3% over 1995 levels. The increase
in interest expense was the result of increased borrowings to meet short term
working capital needs. For the quarter, net income for the Company increased by
24.3% to $485,489 or $.24 per share from $390,528 or $.20 per share in the prior
year quarter.
First nine months of 1996 vs. first nine months of 1995
- -------------------------------------------------------
For the first nine months of 1996, revenues decreased by 3.8% from
$54.5 million in 1995 to $52.4 million in 1996.
The Tank Division revenues, which during the first three quarters of
1996 accounted for 43% of the Company's revenues, decreased by 8.9% over prior
year record levels while operating profit decreased by 25.7%. A temporary
reduction in demand, during the first six months, 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 reduced production
schedule during the first half to adjust inventories, were largely responsible
for the nine month decrease in operating profit of the Tank Division.
During the first nine months, the Chemical Group's revenues decreased
by 8.5% while operating profit was virtually unchanged. The increase in gross
profit margins of .2% and the 16.7% reduction of selling, general and
administrative expenses resulted in the maintenance of operating profit at the
lower revenue level.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
(continued)
Cal-Van Tools Division's first three quarters sales increased by 19.3%
to record levels of $13.4 million. Ongoing mergers and consolidations of
customers in this mature market have caused any increase in sales and market
shares to come at the cost of reduced margins. The decrease in gross margins
resulted in a 1.2% decrease in gross profit. This decrease coupled with a 4.3%
increase in selling, general and administrative expenses resulted in a 25.6%
decrease in operating profits.
A very cold March, a very wet April and May followed by a very dry and
mild summer had a negative effect on the nine months results of the Cory Orchard
& Turf Division. Sales for the period were down 15.7% and operating profit was
down by 36.5%. Slightly improved margins partially offset the shortfall in
sales and held the decrease in gross profit to 14.2%. The largely fixed selling,
general and administrative expenses decreased by only 3.5% and were largely
responsible for operating profit decreasing at the higher rate than sales.
For the Company as a whole, cost of sales decreased by 2.6%, somewhat
less than the 3.6% decrease in net sales, and resulted in tighter margins.
During the nine months selling expenses increased by 3.7% while general and
administrative expenses decreased by 5.6%. Interest and financing income
decreased by 9.4%. An increase in average borrowing outstanding during the
first three quarters of 1996 resulted in a 27.0% increase in interest expense.
For the nine months period the Company recorded net income of $716,317 or $.36
per share as compared to net income of $1,401,128 or $.70 per share in 1995. The
effective tax rate increased from 38.6% in 1995 to 40.3% in 1996, largely as a
result of the effects of comparable non-deductible expenses at the lower profit
levels.
The Company remains optimistic and the general outlook appears strong
for the rest of the year.
Liquidity and Capital Resources
- -------------------------------
The working capital position of the Company remains strong. At
September 30, 1996, working capital was $15,025,508. This is an increase of
$110,625 over working capital of $14,914,883 at June 30, 1996 and an increase of
$594,792 over working capital of $14,430,716 at December 31, 1995. The current
ratio of the Company at September 30, 1996 was 1.6 to 1, unchanged from June 30,
1996. 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 $1,160,308 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, 1996 amount
to $6,249,530 to fund the customers' installment notes receivable and $1,629,645
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 $7.5 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.
-8-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
(continued)
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 is not received 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 $15.75 million through local banks. At September 30, 1996,
the Company had short-term borrowings of $11,238,492 under these lines of
credit. Beginning in October, the Company expects to have excess cash to begin
repaying these short-term borrowings.
-9-
<PAGE> 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Annual meeting July 18, 1996
(b) A.F. Doust, K.D. Lauck, and W.B. Lloyd 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 R.J. Dudley, R.H. Moyer and
R.W. Woolf continues for one more year and until their
successors are elected and qualified. The term of office
as directors for F.J. Roynon, J.P. Simcox, and R.F. Veh
continues for two more years and until their successors
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 A.F. Doust, W.B. Lloyd and K.D.
Lauck as directors for a term of three years the votes
for A.F. Doust were 1,940,408, with 7,179 votes withheld,
for W.B. Lloyd were 1,940,408, with 7,179 votes withheld,
and for K.D. Lauck were 1,937,171, with 10,416 votes
withheld.*
(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, 1996 the number
of shares voted was 1,947,587; 1,942,015 shares were voted
in favor; 4,361 shares were voted against; and 1,211 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 2.9% 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.
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: November 12, 1996
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 81,987
<SECURITIES> 0
<RECEIVABLES> 27,510,754
<ALLOWANCES> 310,000
<INVENTORY> 11,547,904
<CURRENT-ASSETS> 40,394,050
<PP&E> 21,087,401
<DEPRECIATION> 10,177,195
<TOTAL-ASSETS> 55,542,404
<CURRENT-LIABILITIES> 25,368,542
<BONDS> 11,360,686
<COMMON> 4,590,757
0
0
<OTHER-SE> 17,487,392
<TOTAL-LIABILITY-AND-EQUITY> 22,078,159
<SALES> 51,735,622
<TOTAL-REVENUES> 52,448,312
<CGS> 45,015,982
<TOTAL-COSTS> 45,015,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 1,214,470
<INCOME-PRETAX> 1,200,317
<INCOME-TAX> 484,000
<INCOME-CONTINUING> 716,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 716,317
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
