<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 Commission file number 0-784
DETREX CORPORATION
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(Exact name of registrant as specified in its charter)
Michigan 38-0480840
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24901 Northwestern Hwy., Ste. 500, Southfield, MI 48075
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 358-5800
Securities registered pursuant to section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- -------------------------
None None
Securities registered pursuant to Section (g) of the Act:
Common Capital Stock, $2 Par Value
----------------------------------
(Title of Class)
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 and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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As of May 1, 1996 1,583,414 shares of the registrant's stock were outstanding.
<PAGE> 2
DETREX CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE
------ --------------------- ----
Item 1 Consolidated Condensed Balance Sheets -
March 31, 1996 and December 31, 1995 3
Consolidated Condensed Unaudited Statements
of Operations -Three Months Ended March 31, 4
1996 and 1995
Consolidated Unaudited Statements of Cash Flows-
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Condensed Unaudited
Financial Statements 6
Item 2 Management's Discussion and Analysis of
Interim Financial Information 7-8
PART II OTHER INFORMATION
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Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
<PAGE> 3
DETREX CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 1,590,437 $ 2,764,360
Accounts receivable (less allowance for uncollectible accounts
of $559,000 in 1996 and $459,000 in 1995) 16,756,845 13,956,017
Refundable U.S. income taxes 1,342,906 3,040,772
Inventories:
Raw materials 3,220,310 2,861,900
Work in process 655,074 678,339
Finished goods 5,577,099 4,897,266
----------- -----------
Total Inventories 9,452,483 8,437,505
Prepaid expenses and other 649,191 978,819
Deferred income taxes 1,991,087 1,991,087
----------- -----------
Total Current Assets 31,782,949 31,168,560
Land, buildings, and equipment-net 19,671,886 20,136,691
Land, buildings, and equipment held for sale or lease 2,664,773 2,664,773
Prepaid pensions 1,226,348 1,226,348
Deferred income taxes 1,420,795 1,412,973
Other assets 1,010,226 1,049,376
----------- -----------
$57,776,977 $57,658,721
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Loans payable-short-term $8,000,000 $8,500,000
Current portion of capital lease obligations 606,779 606,779
Accounts payable 9,667,988 9,007,603
Environmental reserve 1,527,000 1,527,000
Accrued compensation 448,621 643,089
Accrued expenses - non-active locations 195,234 558,319
Other accruals 4,797,209 4,008,678
----------- -----------
Total Current Liabilities $25,242,831 $24,851,468
Long term portion of capital lease obligations 488,117 518,258
Accrued postretirement benefits 4,075,885 3,985,885
Environmental reserve 8,228,172 8,681,199
Minority interest 1,643,502 1,586,221
Accrued pensions 1,193,968 1,142,388
Stockholders' Equity:
Common capital stock, $2 par value, authorized 4,000,000 shares,
outstanding 1,583,414 shares 3,166,828 3,166,828
Additional paid-in capital 22,020 22,020
Retained earnings 13,715,654 13,704,454
----------- -----------
Total Stockholders' Equity 16,904,502 16,893,302
----------- -----------
$57,776,977 $57,658,721
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
3
<PAGE> 4
DETREX CORPORATION
CONSOLIDATED CONDENSED UNAUDITED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
---- ----
<S> <C> <C>
Net Sales $23,999,570 $24,771,931
Cost of sales 18,523,416 19,169,288
Selling, general and administrative expenses 4,583,084 4,991,172
Provision for depreciation and amortization 798,390 845,307
Other income and deductions (145,738) (91,180)
Minority interest 57,282 57,960
Interest expense 247,560 199,796
----------- -----------
Loss before income taxes (64,424) (400,412)
Credit for income taxes (75,624) (31,928)
----------- -----------
Net income (loss) $ 11,200 $ (368,484)
=========== ===========
Net income (loss) per common share $ .01 $ (0.23)
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
4
<PAGE> 5
DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 11,200 $ (368,484)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 798,390 845,309
Deferred income taxes (7,823) (131,416)
Loss on sale or write off of equipment 18,446
Minority interest 57,281 57,959
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable (2,800,828) 1,085,312
Refundable U.S. income taxes 1,697,866
Inventories (1,014,978) 804,360
Prepaid expenses and other 329,628 252,813
Other assets 18,151 18,140
Accounts payable 660,385 (2,411,608)
Environmental reserve (453,027) (283,721)
Accrued compensation (194,468) (247,255)
Accrued expenses - non-active locations (363,085) (166,920)
Other accruals 840,111 134,799
Postretirement benefits 90,000 90,000
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Total Adjustments (323,951) 47,772
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Net cash provided by (used in) operating activities (312,751) (320,712)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (202,387) (190,651)
Proceeds from sale of equipment 1,887 --
----------- -----------
Net cash used in investing activities (200,500) (190,651)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings -- 1,000,000
Repayment of short-term bank debt (500,000) --
Repayment of long-term bank debt -- (250,000)
Principal payments under capital lease obligations (160,672) (208,899)
----------- -----------
Net cash provided by (used in) financing activities (660,672) 541,101
----------- -----------
Net decrease in cash and cash equivalents (1,173,923) 29,738
Cash and cash equivalents at beginning of period 2,764,360 2,015,962
----------- -----------
Cash and cash equivalents at end of period $1,590,437 $2,045,700
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 269,425 $ 182,715
Income taxes $ 77,250 $ 51,800
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ 177,900 $ 63,880
Capital lease terminations $ 47,369 $ (44,342)
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
5
<PAGE> 6
DETREX CORPORATION
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated condensed
unaudited financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 1996 and December 31, 1995, and the results of operations for the
three months ended March 31, 1996 and 1995, and changes in cash flows for the
three months ended March 31, 1996 and 1995. Certain amounts for 1995 have been
reclassified to conform with 1996 classifications. The information furnished
for the quarter may not be indicative of results to be expected for the full
year.
2. The Company has two divisions that supply major industrial equipment. These
divisions generally use the completed contract method of accounting, only using
percentage-of-completion accounting for large contracts and when use of that
method versus the completed contract method of accounting has a material effect
on the results of operations. In the three months ended March 31, 1996 the
Company recognized revenue on one large contract using the
percentage-of-completion method of accounting.
3. The Environmental Protection Agency ("EPA") has notified the Company
and at least seventeen other companies that they may be potentially responsible
for sharing the costs in a proceeding to clean up contaminated sediments in
the Fields Brook watershed in Ashtabula, Ohio. The EPA issued a Record of
Decision in 1986 concerning the methods it recommends using to accomplish this
task at an estimated total cost of $48,000,000. The Company and the other
potentially responsible parties have expressed their disagreement with this
recommendation and are continuing to negotiate with the EPA as to how best to
effect the clean up operation. The Company believes that the Fields Brook
remedial investigation and feasibility studies referred to below will be an
important factor in the negotiation with the EPA.
The Company maintains a reserve for anticipated expenditures over the next
several years in connection with remedial investigations, feasibility studies,
remedial design, and remediation relating to the clean up of contamination at
several sites including property owned by the Company. The Company conducted a
comprehensive review of its reserves during the fourth quarter of 1994 and
added $8.5 million to this reserve. The total amount of the reserve at March
31, 1996 is $9.7 million, which amount was calculated without taking into
consideration any possible insurance recoveries.
The reserve includes a provision for the Company's anticipated share of
remedial investigation and feasibility studies to determine sources of
contamination and methods of remediation in the Fields Brook watershed referred
to above, as well as a provision for costs that may be incurred in connection
with remediation of the Fields Brook watershed and other sites. Some of these
studies have been completed; others are ongoing. In many cases, the methods of
remediation remain to be agreed upon.
The Company expects to continue to incur professional fees, expenses and
capital expenditures in connection with its environmental compliance efforts.
In addition to the above, there are several other claims and lawsuits
pending against the Company and its subsidiaries.
The amount of liability to the Company with respect to costs of
remediation of contamination of the Fields Brook watershed and of other sites,
and the amount of liability with respect to several other claims and lawsuits
against the Company, was based on available data. The Company has established
its reserves in accordance with its interpretation of the principles outlined
in Statement of Financial Accounting Standards No. 5 and Securities and
Exchange Commission Staff Accounting Bulletin No. 92. In the event that any
additional accruals should be required in the future with respect to such
matters, the amounts of such additional accruals could have a material impact
on the results of operations to be reported for a specific accounting period
but should not have a material impact on the Company's consolidated financial
position.
6
<PAGE> 7
DETREX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF INTERIM FINANCIAL INFORMATION
Results of Operations
Summarized below is selected operating data for the current fiscal period and
the comparable data for the same period last year (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31
----------------------------
1996 1995
------------- -------------
$ % $ %
------ ----- ------ -----
<S> <C> <C> <C> <C>
Sales 24,000 100.0 24,772 100.0
Gross margin 5,476 22.8 5,603 22.6
Selling, general and administrative expenses 4,583 19.1 4,991 20.1
Depreciation and amortization 798 3.3 845 3.4
Net income (loss) 11 .04 (368) (1.5)
</TABLE>
Detrex Corporation and its consolidated subsidiaries (the Company) reported
net income of $11,200 for the first quarter of 1996 compared to a net loss of
$368,484 for the first quarter of 1995.
Net sales for the three months were $0.7 million lower than the same period
last year, primarily reflecting lower sales in the Company's solvents and
environmental services division and its industrial furnace division, partially
offset by increased sales from its equipment division and its lubricants
subsidiary. The equipment division increase was significantly effected by
recording a major contract under the percentage-of-completion accounting
method.
Cost of sales as a percent of sales was approximately the same in both years.
Gross margin percentages were 22.8% for the first three months of 1996,
compared to 22.6% for the first three months of 1995.
The decrease in selling, general and administrative expenses is attributable to
the cost cutting activities that took place in 1995.
The provision for depreciation and amortization is approximately the same as
the prior year for all of the Company's business units.
Interest expense is higher in 1996 when compared to 1995, reflecting increased
borrowings and higher rates.
The income tax credit in 1996 and 1995 reflects a credit for federal income
taxes, partially offset by state and local income tax expense. In addition, a
credit was recorded in the first quarter of 1996 to reflect the recognition of
a rate differential resulting from the carry-back of certain components of
prior year net operating losses to tax years in which the statutory rate was
46%.
7
<PAGE> 8
DETREX CORPORATION
Liquidity, Financial Condition, and Capital Resources
The Company utilized a combination of internally generated funds and receipt of
a federal income tax refund to finance its activities during the first three
months of 1996. The Company is in the process of finalizing a Revolving Credit
Agreement with Comerica Bank. The new Agreement will contain, among other
provisions, requirements for maintaining defined levels of tangible net worth
and various financial statement ratios, including working capital, debt to
equity and cash coverage ratios. The credit facility will be collateralized by
the Company's inventory, accounts receivable, certain fixed assets, and stock
of subsidiaries.
Working capital was $6.5 million at March 31, 1996 compared to $6.3 million at
December 31, 1995. The Company has paid no dividends since the second quarter
of 1991 and cannot forecast when the dividend will be restored.
8
<PAGE> 9
DETREX CORPORATION
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE
(b) A report on Form 8-K was filed on January 24, 1996 to announce that
William C. King was named Chairman and CEO and Thomas E. Mark was named
President and COO.
9
<PAGE> 10
DETREX CORPORATION
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.
DETREX CORPORATION
Date 5/14/96 E. R. Rondeau
---------------------------------------
E. R. Rondeau
Controller and Chief Accounting Officer
Date 5/14/96 G. J. Israel
---------------------------------------
G. J. Israel
Vice President - Finance and Chief
Financial Officer
10
<PAGE> 11
EXHIBIT INDEX
Exhibit
No. Description Page
- ------- ----------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,590
<SECURITIES> 0
<RECEIVABLES> 17,316
<ALLOWANCES> 559
<INVENTORY> 9,452
<CURRENT-ASSETS> 31,783
<PP&E> 46,392
<DEPRECIATION> 26,720
<TOTAL-ASSETS> 57,777
<CURRENT-LIABILITIES> 25,243
<BONDS> 488
<COMMON> 3,167
0
0
<OTHER-SE> 13,738
<TOTAL-LIABILITY-AND-EQUITY> 57,777
<SALES> 24,000
<TOTAL-REVENUES> 24,000
<CGS> 18,523
<TOTAL-COSTS> 18,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248
<INCOME-PRETAX> (64)
<INCOME-TAX> (76)
<INCOME-CONTINUING> 11
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
