<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 March 31, 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 (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
March 31, 1997
This document contains 10 pages
<PAGE> 2
PART 1. FINANCIAL INFORMATION
Financial Statements
--------------------
The accompanying condensed balance sheets as of March 31, 1997 and
1996, and related statements of income and retained earnings and statements of
cash flows for the periods ended March 31, 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
<TABLE>
<CAPTION>
Three months ended
----------------------------------
March 31, 1997 March 31, 1996
--------------- ---------------
<S> <C> <C>
Revenues:
Net sales $ 13,863,777 $ 10,734,986
Interest and financing income 227,062 301,019
------------ ------------
14,090,839 11,036,005
Costs and expenses:
Cost of sales 11,720,890 9,512,430
Selling expenses 706,196 833,863
General and administrative expenses 794,751 545,259
Interest 187,050 326,995
------------ ------------
13,408,887 11,218,547
Income (loss) from continuing operations
before income taxes 681,952 (182,542)
Provision (credit) for income taxes 272,385 (72,532)
------------ ------------
Income (loss) from continuing operations 409,567 (110,010)
Discontinued operations (Note 4):
Loss from discontinued operations
net of tax credits of $ 27,082 in 1997
and $ 11,468 in 1996 (40,721) (17,385)
Gain on disposal of division
net of tax of $ 179,697 270,198 --
------------ ------------
Gain (loss) from discontinued operations 229,477 (17,385)
------------ ------------
Net income (loss) 639,044 (127,395)
Retained earnings at beginning of period 17,668,471 17,131,962
------------ ------------
Retained earnings at end of period $ 18,307,515 $ 17,004,567
============ ============
Income (loss) per common share
Continuing operations $ .20 $ (.05)
Discontinued operations (Note 4):
Loss from operations (.02) (.01)
Gain on disposal of division .14 --
------------ ------------
Net income (loss) per common share $ .32 $ (.06)
============ ============
</TABLE>
See accompanying notes
-2-
<PAGE> 3
CHEMI-TROL CHEMICAL CO.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
-------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 9,214 $ 112,506 $ 61,764
Notes and accounts receivable 17,518,745 18,965,249 17,103,993
Net investment in sales-type leases 674,782 684,120 986,532
Inventories (Note 1) 8,523,377 8,861,127 11,646,989
Prepaid expenses and other assets 1,510,254 1,140,873 1,721,930
Current assets of discontinued operations (Note 4) -- 2,346,175 3,438,225
----------- ----------- -----------
Total current assets 28,236,372 32,110,050 34,959,433
Property, plant and equipment, net 9,822,499 9,650,578 10,012,050
Investments and other assets 5,094,930 4,661,592 6,164,222
Property, plant and equipment of discontinued
operations (Note 4) -- 1,001,147 1,093,154
----------- ----------- -----------
$43,153,801 $47,423,367 $52,228,859
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities:
Notes payable $ -- $ 2,964,916 $ 5,652,397
Accounts payable 6,314,825 7,359,161 7,915,106
Income taxes 367,203 230,485 11,065
Dividends payable -- 180,444 --
Accrued liabilities 2,870,775 2,923,177 2,575,848
Long-term debt due within one year 7,168,751 7,300,679 4,873,873
----------- ----------- -----------
Total current liabilities 16,721,554 20,958,862 21,028,289
Long-term debt 2,657,965 3,329,267 8,711,236
Deferred federal income tax 876,000 876,000 894,000
Shareholder's 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 18,307,515 17,668,471 17,004,567
----------- ----------- -----------
Total shareholders'
equity 22,898,282 22,259,238 21,595,334
----------- ----------- -----------
$43,153,801 $47,423,367 $52,228,859
=========== =========== ===========
</TABLE>
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<PAGE> 4
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
OPERATING ACTIVITIES: 1997 1996
----- -----
<S> <C> <C>
Income (loss) from continuing operations $ 409,567 $ (110,010)
Adjustments to reconcile income (loss) from
continuing operations to cash
provided (used) by continuing operations:
Notes receivable from product sales (1,969,269) (846,165)
Notes receivable sold 400,271 691,217
Collections from customers on notes
receivable 1,079,520 940,753
Proceeds from sales-type leases 176,415 297,405
Addition to net investment in sales-
type leases (117,872) (104,808)
Depreciation 308,331 292,126
Gain on sale of property
and equipment (41,312) (26,525)
Increase in allowance for doubtful accounts 35,000 --
Changes in operating assets and liabilities:
Accounts receivable 1,441,815 (1,341,212)
Inventories 337,750 (1,511,489)
Prepaid expenses (369,382) (480,242)
Other assets (23,375) 96,477
Accounts payable (1,044,336) 812,603
Income taxes payable 136,718 (177,564)
Accrued liabilities (52,402) (37,276)
----------- -----------
Cash provided (used) by continuing operations 707,439 (1,504,710)
Cash provided (used) by discontinued operations (Note 4) 2,146,086 (1,220,075)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,853,525 (2,724,785)
INVESTING ACTIVITIES:
Additions to property and equipment (465,481) (376,919)
Proceeds from disposals of property and
equipment- continuing operations 41,312 26,525
Net proceeds from sale of property, plant and
equipment of discontinued operations (Note 4) 1,415,942 --
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 991,773 (350,394)
FINANCING ACTIVITIES:
Notes payable - net (2,964,916) 4,144,566
Payments of long-term debt (803,230) (908,170)
Dividend payments (180,444) (180,444)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (3,948,590) 3,055,952
----------- -----------
Decrease in cash (103,292) (19,227)
Cash at beginning of period 112,506 80,991
----------- -----------
Cash at end of period $ 9,214 $ 61,764
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 205,617 $ 284,024
=========== ===========
Cash paid for income taxes $ 288,282 $ 158,633
=========== ===========
</TABLE>
See accompanying notes
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<PAGE> 5
-4-
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
1. Inventories
-----------
Inventories at March 31, 1997, December 31, 1996 and March 31, 1996 are
as follows:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
--------------------------------------------------
Manufacturing inventories:
<S> <C> <C> <C>
Raw material and supplies $2,040,321 $ 2,584,509 $ 3,634,627
Work in process 513,584 438,662 469,193
Finished goods 1,185,714 1,188,521 2,602,155
Purchased inventory held for resale 4,499,136 4,296,911 4,608,377
Chemicals and other materials
used in contracting 284,622 352,524 332,637
---------- ----------- -----------
$8,523,377 $ 8,861,127 $11,646,989
========== =========== ===========
</TABLE>
2. Sale of Notes With Recourse
---------------------------
The Company at March 31, 1997 has a contingent liability of $2,671,927
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.
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 gain of
$270,198 after 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 ended March 31st are as follows: 1997 1996 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Revenues $ 911,943 $ 1,126,495 $1,465,170
========= =========== ==========
Income (loss) before income taxes (67,803) (28,853) 23,743
Income taxes (credit) (27,082) (11,468) 9,112
--------- ----------- ----------
Net income (loss) $ (40,721) $ (17,385) $ 14,631
========= =========== ==========
</TABLE>
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 first quarter totaled $18,567 in 1997, $27,901 in 1996 and
$21,567 in 1995.
-5-
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Capsule segment results for the periods ended March 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1997 1996
---- ----
Revenues (unaffiliated customers):
<S> <C> <C>
Tank $ 9,617,571 $ 6,577,503
Cal-Van Tools 3,576,702 4,016,773
Chemical 891,703 433,832
Corporate interest 4,863 7,897
------------ ------------
Total revenues $ 14,090,839 $ 11,036,005
============ ============
Operating profit (loss):
Tank $ 1,446,262 $ 667,224
Cal-Van Tools (82,426) (63,445)
Chemical (47,586) (84,335)
------------ ------------
Total operating profit 1,316,250 519,444
General corporate expenses (452,111) (382,888)
Corporate interest income 4,863 7,897
Corporate interest expense (187,050) (326,995)
------------ ------------
Income (loss)from continuing operations
before income taxes $ 681,952 $ (182,542)
============ ============
</TABLE>
First quarter ended March 31, 1997 vs. first quarter ended March 31, 1996
-------------------------------------------------------------------------
The Company's 1997 first quarter revenues were the highest in the Company's
history. Revenues from continuing operations rose 26.7% to $14,090,839 from
$11,036,005 in the first quarter of last year. Income from continuing operations
made a sharp rebound from the year-ago quarter to $409,567, or 20 cents a share,
versus a loss of $110,010, or 5 cents a share, in 1996's quarter. Net earnings
totaled $639,044, or 32 cents per share, compared to a loss of $127,395, or 6
cents per share, in the prior year.
On March 25, 1997, the Company announced that it had successfully completed
the sale of the assets of its Cory Orchard and Turf Division to Terra
International, Inc. for approximately $4.8 million. The disposition was pursuant
to a plan announced by the Company in December 1996 to concentrate on its core
businesses: the Tank Division and the Chemical Group.
The Tank Division scored record sales for the first quarter, up 49.5% to
$9,395,372 from the prior year's $6,284,381. Operating profit from manufacturing
rose 227% to 13% of sales or $1,224,063, from the year earlier's $374,102, or 6%
of sales. Total operating profit which includes the leasing and finance
operations, was $1,446,262 against $667,224 a year earlier.
-6-
<PAGE> 7
The Company's Chemical Group sales rose 105.5% to $891,703 from $433,832 from
the prior year when adverse weather led to a late spring season. This division
had an operating loss of $47,586 for 1997's first quarter versus an operating
loss last year of $84,335. The Chemical Group's first quarter is normally
dominated by start-up costs associated with contracting, and primary earnings
for this segment are generated in the second and third quarters.
The Cal-Van Tools segment reported $3,576,702 in sales, down from a record
$4,016,773 in 1996's first quarter. The operating loss for the division totaled
$82,426 compared to a loss of $63,445 a year earlier. The overall automotive
market was slow in the earlier part of the quarter but began to pick up in both
February and March.
On April 28, 1997 Chemi-Trol Chemical Co. and Ronald A. Peterson, Inc.
jointly announced that they had signed a non-binding letter of intent under
which Peterson will acquire Chemi-Trol's Cal-Van Tools unit for an undisclosed
consideration. The transaction is contingent upon the parties negotiating a
mutually satisfactory definitive agreement.
For the Company as whole, net sales from continuing operations increased by
29.1% while cost of sales increased at a lessor rate of 23.2% and resulted in a
75.3% increase in gross profit. Selling expenses decreased by 15.3% largely as a
result of the decrease in selling expenses at the Cal-Van Tools Division.
General administrative expenses increased 45.8% largely as a result of increased
bonus and profit sharing allocations at the higher profit level. Interest income
decreased by approximately 24.6% as operations in the Leasing and Finance
Division slowed. Interest expenses from continuing operations decreased sharply,
by 42.8%, as average borrowings for working capital needs decreased during the
first quarter of 1997. For the quarter the Company recorded income from
continuing operations of $409,567, or 20 cents per share, compared to a loss of
$110,010, or 5 cents per share in 1996. Current quarter income from discontinued
operations totaled $299,477, or 12 cents per share, which was comprised of a
$270,198 gain from the disposal of Cory Orchard and Turf Division combined with
a current operating loss of $40,721. Net income totaled $639,044, or 32 cents
per share, compared to a loss of $127,395 or 6 cents per share, in 1996's first
quarter.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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, the Company remains in a good position
as the ability to borrow funds remains strong as evidenced by the unused
commitment for term financing and the unpledged notes and leases at March 31,
1997.
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Working capital $11,514,818 $13,931,144
Working capital ratio 1.7 to 1 1.7 to 1
Unused commitment for term financing
of customer notes and leases 4,780,500 2,076,500
Unpledged notes and leases 1,483,293 1,121,170
</TABLE>
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 $6,070,250 and to finance sales-type leases was
$1,479,355 at March 31, 1997. The Company has a commitment for year ended May 2,
1998 to provide long-term financing for tank notes and leases 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 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 had not borrowed on its line at
March 31, 1997.
The capital expenditure budget for 1997 is $782,000. The Company
intends to make these expenditures with funds provided from operations.
-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.
The registrant filed an 8-K dated March 25, 1997 which reported under
item 5, other events the completion of the sale of its Cory Orchard and Turf
Division to Terra International Inc. Terra purchased accounts receivable,
inventory, and fixed assets and Chemi-Trol retained all liabilities. There were
no financial statements filed as a part of this report.
-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: May 12, 1997
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,214
<SECURITIES> 0
<RECEIVABLES> 17,888,745
<ALLOWANCES> 370,000
<INVENTORY> 8,523,377
<CURRENT-ASSETS> 28,236,372
<PP&E> 19,822,663
<DEPRECIATION> 10,000,164
<TOTAL-ASSETS> 43,153,801
<CURRENT-LIABILITIES> 16,721,554
<BONDS> 9,826,716
<COMMON> 4,590,767
0
0
<OTHER-SE> 18,307,515
<TOTAL-LIABILITY-AND-EQUITY> 43,153,801
<SALES> 13,863,777
<TOTAL-REVENUES> 14,090,839
<CGS> 9,512,430
<TOTAL-COSTS> 9,512,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 187,050
<INCOME-PRETAX> 681,952
<INCOME-TAX> 272,385
<INCOME-CONTINUING> 409,567
<DISCONTINUED> 229,477
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 639,044
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
