<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-----------------------------------------------------
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -------------------
Commission file number 0-784
---------------------------------------------------------
DETREX CORPORATION
- --------------------------------------------------------------------------------
(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, Suite 500, Southfield, Michigan 48075
- ------------------------------------------------------- ------------
(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 12(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
----- -----
Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE> 2
FORM 10-K
The aggregate market value (based upon the NASDAQ Closing Price) of Common
Capital Stock on March 14, 1997 of Detrex Corporation held by nonaffiliates was
approximately $12,271,459.
The number of shares of Common Capital Stock, $2 Par Value, outstanding on
March 14, 1997 was 1,583,414.
Documents incorporated by reference:
Part and Item Number
of Form 10-K into
Document which Incorporated
--------- --------------------------
1. Detrex Corporation Part II Items 5 through 8
Annual Report to Part IV, Item 14
Shareholders for the year
ended December 31, 1996
2. Detrex Corporation Part III, Items 10, 11, 12
Notice of Annual and 13
Meeting of Shareholders
and Proxy Statement for
the Annual Meeting of
Shareholders to be held
April 24, 1997
2
<PAGE> 3
FORM 10-K
PART I
ITEM 1. BUSINESS
Detrex Corporation was incorporated in Michigan in 1925. Detrex Corporation and
its subsidiaries (the Company) operate predominantly in a single industry,
chemicals and allied products, services, and supply processes for use by
manufacturing and service industries and is comprised of the following
operations:
Detrex Corporation - a specialty chemicals company
- Equipment Division - designs, engineers and sells industrial parts cleaning
equipment
- Solvents Division - distributes and recycles parts cleaning solvents and
disposes industrial wastes
- RTI Laboratories - provides analytical and environmental laboratory
services
- Automation Division - engineers and sells automation and material handling
equipment
Subsidiaries of Detrex Corporation
- The Elco Corporation - produces petroleum additives, pharmaceutical
intermediates, and hydrochloric acid
- Harvel Plastics, Inc. - manufactures PVC and CPVC pipe and custom
extrusions
- Seibert-Oxidermo, Inc. - produces industrial and automotive paint and other
coatings
The products are primarily sold by sales-service engineers and most sales are
direct to industrial users. Net sales by product line for each of the last
five years are set forth below:
<TABLE>
<CAPTION>
Product Line
--------------------------------
Chemical
Products Chemical
and Services Equipment Total
------------ ----------- ------------------
<S> <C> <C> <C>
1996 $78,017,582 $18,807,854 $96,825,436
1995 77,698,771 16,603,228 94,301,999
1994 79,975,998 20,120,445 100,096,443
1993 85,895,760 19,682,709 105,578,469
1992 79,326,021 17,428,137 96,754,158
</TABLE>
Of the $78 million included in 1996 Chemical Products and Services sales,
approximately $15.0 million (19%) represent sales by the Company's solvents
division, $13.4 million (17%) represent sales by its paint subsidiary, $22.3
million (29%) represent sales by its lubricants subsidiary, $26.3 million (34%)
represent sales by its plastic pipe subsidiary and $1 million (1%) represent
sales of other related chemical products and services.
All of the Company's business units operate in highly competitive markets which
are mainly national in scope, although approximately 12% of the business is
done internationally principally by its lubricants subsidiary and its plastic
pipe subsidiary. Generally, for all products there are numerous competitors
with no one company or a small number of companies being dominant. The Company
operates in niche markets and its principal methods of competition in various
markets include service, price and quality, depending on the market serviced.
No material part of the business is dependent upon a single customer or a few
customers.
3
<PAGE> 4
FORM 10-K
PART I (CONTINUED)
ITEM 1. BUSINESS (Continued)
The backlog of orders at any one time is generally not significant to the
Company's business. At December 31, 1996, the Company's backlog of Equipment
orders was approximately $4.0 million and the Company expects to complete all
of these orders in the first half of 1997. During 1996, the Company sold its
industrial furnace division so the backlog of equipment orders is lower than in
previous years. For a discussion of the sale of this division, see Note 9 to
the Consolidated Financial Statements and Management's Discussion and Analysis
in the Annual Report.
Raw materials essential to the Company's various products are generally
commodity materials and are readily available from competitive sources. The
Company's solvents division is continuing to go through a major transition in
the marketplace, primarily because of the phasing out of certain ozone
depleting solvents and other regulatory actions. As a result, the division is
increasingly marketing substitutes for such solvents, including aqueous based
cleaners, is expanding its permits to enable it to handle more waste codes, and
is becoming involved in the parts cleaning business.
The Company owns various patents and trademarks which aid in maintaining the
Company's competitive position; these expire at various times within the next
seventeen years. The expiration of such patents and trademarks should not have
a material adverse effect on the Company's operations. No material portion of
the Company's business is seasonal or subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the government.
The approximate dollar amounts spent during 1996, 1995, and 1994 on research
sponsored by the Company were $1,114,000, $1,272,000 and $1,784,000,
respectively. The number of professional employees engaged in such activities
were 15 for 1996, 17 for 1995, and 28 for 1994.
There are no customers to which sales were made in an amount which equals ten
percent or more of consolidated revenues.
The Company does not expect to incur significant capital expenditures for
environmental compliance in 1997. However, the Company does expect to continue
to incur significant professional fees and expenses in connection with its
environmental compliance efforts. The Company maintains an environmental
reserve which at December 31, 1996 totaled $10.3 million, of which $1.0 million
is estimated to be spent in 1997. A more detailed discussion of environmental
matters is included under Item 3 - Legal Proceedings and in Management's
Discussion and Analysis in the Annual Report.
The Company employed 345 persons as of December 31, 1996.
The Company is not engaged in manufacturing operations in foreign countries;
however, 12% of its sales are derived from customers in foreign countries.
4
<PAGE> 5
FORM 10-K
PART I (CONTINUED)
ITEM 1. BUSINESS (Concluded)
The Company utilized a combination of internally generated funds and receipt of
federal income tax refunds to finance its activities during 1996. As of
December 31, 1996, working capital was $8.5 million compared to $6.3 million at
December 31, 1995. For a discussion of the Company's credit agreement, see
Note 5 to the Consolidated Financial Statements and Management's Discussion and
Analysis in the Annual Report.
ITEM 2. PROPERTIES
The Company's administrative offices are located in approximately 7,500 square
feet of leased space at 24901 Northwestern Hwy., Suite 500, Southfield,
Michigan.
Detrex and its subsidiaries conduct manufacturing and research operations in
numerous locations of which ten are owned as follows:
1) A 70,000 square foot inactive plant in Redford Township, Michigan is located
on seven acres of land. There are above ground storage facilities for raw
materials and finished products. The plant is currently listed for sale.
2) A plant located on 57 acres in Ashtabula, Ohio is used in connection with
the manufacture of hydrochloric acid, reagent grade chemicals, pharmaceutical
intermediates and N-methyl pyrrole.
3) The Company's lubricants subsidiary manufactures gear and oil additives in a
plant located in Cleveland, Ohio on 5 acres of land and 59,000 square feet of
office, research and plant space. This plant is equipped with mixing and
blending equipment and storage facilities. Additional manufacturing of
additives is done in a plant consisting of 12,800 square feet at Hooven
(Cincinnati), Ohio located on 3.6 acres of leased land. The company is
negotiating for an extension to June 1998 of the current lease or possible
purchase of the property, and has alternative plans for relocation if
necessary.
4) The Company's plastic pipe subsidiary manufactures plastic pipe in a plant
located on 20 acres of land and 228,500 square feet of office and plant space
located in Easton, Pennsylvania. Extruders and special dies are used to
manufacture the plastic PVC pipe from resin. Production and warehouse
facilities have been expanded several times since this subsidiary was acquired
in 1968, and leased warehouse space has been added in California.
5) Seibert-Oxidermo, Inc. manufactures industrial finishing materials and
automotive paints in a plant located in Detroit, Michigan containing 26,200
square feet of office and plant space on one acre of land. Additional
manufacturing of automotive paints is done in a plant located in Romulus,
Michigan containing 35,300 square feet of office, research and plant space on
40 acres of land.
5
<PAGE> 6
FORM 10-K
PART I (CONTINUED)
ITEM 2. PROPERTIES (Concluded)
6) The Company owns a building used as a research laboratory and office in
Bowling Green, Kentucky. The plant formerly used for manufacturing in Bowling
Green is currently listed for sale.
7) The Company owns a warehouse and sales office facility located in Detroit,
Michigan. The building area is approximately 20,000 square feet and is located
on approximately one-half acre of land.
8) The Company owns a warehouse and sales office facility located in Los
Angeles, California. The Building area is approximately 10,000 square feet and
is located on one acre of land in the industrial section of the city.
9) The Company owns a warehouse and sales office facility located in Charlotte,
North Carolina. The Building area is approximately 11,000 square feet and is
located on one acre of land.
10)The Company owns a warehouse and sales office facility located in
Indianapolis, Indiana. The building area is approximately 8,600 square feet
and is located on one acre of land.
ITEM 3. LEGAL PROCEEDINGS
The Environmental Protection Agency ('EPA') has notified the Company and at
least seventeen other companies that they may be potentially responsible for
sharing 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 environmental
contamination at several sites, including properties owned by the Company. The
Company added $.8 million to the reserve in 1996, $.1 million in 1995 and $8.5
million in 1994. The amount of the reserve at December 31, 1996 and 1995 is
$10.3 million and $10.2 million, respectively, which amounts were calculated
without taking into consideration any possible insurance recoveries. The
Company established a $.9 million receivable at December 31, 1996 to reflect a
settlement whereby the Company will recover prior environmental costs incurred
at a site where the Company formerly conducted business.
6
<PAGE> 7
FORM 10-K
PART I (CONTINUED)
ITEM 3. LEGAL PROCEEDINGS (Concluded)
The reserve includes a provision for the Company's anticipated share of
remedial investigation and 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 are expected to 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.
The Company is a defendant in an action brought by the Carrier Corporation in
Superior Court for Los Angeles County, California. An order granting the
Company Summary Judgement was reversed by an appellate court in late 1992.
Carrier has alleged that a product manufactured by the Company has
malfunctioned causing environmental damage to its property. The Court ordered
that the trial be separated into two phases. The first phase proceeded to
trial in October of 1994 and was completed in December of 1994. On March 29,
1995 the Court rendered its decision ruling, among other things that, the
Company was negligent in connection with the design and installation of the
product which constituted a defect in workmanship.
The second phase of the trial on the issue whether the defect found by the
Court in the first phase caused Carrier's damages and the issue of contractual
indemnity began in July, 1996 and was completed in September, 1996. On
December 5, 1996 the Court rendered a Tentative Decision finding in favor of
the Company and against Carrier and awarded costs of suit to the Company. The
Court directed the Company to prepare and present a detailed Statement of
Decision articulating additional findings and conclusions so long as they were
not inconsistent with the Tentative Decision. The Company has complied with
the Court's request but the Court has not yet signed a final Statement of
Decision.
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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
7
<PAGE> 8
FORM 10-K
PART I (CONTINUED)
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all executive officers of the registrant at March 24,
1997 and their positions and offices with the registrant are as follows:
<TABLE>
<CAPTION>
Name and Age Positions and Offices
------------ ---------------------
<S> <C> <C>
W. C. King (52) Chairman and Chief Executive Officer (a)
T. E. Mark (44) President and Chief Operating Officer (b)
G. J. Israel (56) Vice President - Finance, Treasurer and Chief
Financial Officer (c)
R. M. Currie (43) Secretary and General Counsel (d)
E. R. Rondeau (62) Controller (e)
</TABLE>
(a) Mr. King joined the Company as President and Chief Executive Officer
in April 1995. He was elected Chairman of the Board in January 1996. Prior to
joining the Company, Mr. King was President and Chief Operating Officer of
Masland Industries from 1992 to 1994 and prior to that, Vice President and
Group Executive of Allied Signal.
(b) Mr. Mark joined the Company as President and Chief Operating Officer
in January 1996. Prior to that he was President and General Manager of ABB
Paint Finishing from 1990 to 1996.
(c) Mr. Israel was elected Vice President - Finance and Chief Financial
Officer on February 25, 1993 and Treasurer in 1994. Mr. Israel came to the
Company from Chrysler Corporation where he served for 26 years in numerous
financial positions. His most recent position was Vice President and
Controller-Treasurer of Chrysler Canada Ltd.
(d) Mr. Currie joined the Company as General Counsel on July 16, 1993. He
was named Secretary and General Counsel on November 1, 1994. Prior to joining
the Company, Mr. Currie was engaged in private law practice.
(e) Mr. Rondeau served as Assistant Controller of the Company for more
than five years before being elected Controller on March 25, 1993.
All officers of the Company are elected annually and hold office until their
successors are chosen and qualify in their stead.
8
<PAGE> 9
FORM 10-K
PART II
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Page (and caption) in 1996
Detrex Corporation
10-K Item Annual Report to Shareholders*
--------- ------------------------------
<S> <C> <C>
5. Market for Registrant's Common
Stock and Related Shareholder Matters:
(a) Market and market prices
of the common stock 16- Selected Quarterly Data
(b) Approximate number of
holders of common stock - Highlights
(c) Dividend history 16- Selected Quarterly Data
6. Selected Financial Data 15- Selected Financial Data
7. Management's Discussion and 12-14 - Management's Discussion and
Analysis of Financial Condition Analysis of Financial Condition
and Results of Operations and Results of Operations
8. Financial Statements and Supplementary
Data:
- Detrex Corporation Consolidated
Balance Sheets, December 31,
1996 and 1995 4,5
- Consolidated Statements of
Operations and Retained Earnings
for the Years Ended December 31,
1996, 1995, and 1994 3
- Consolidated Statements of Cash
Flows for the Years Ended
December 31, 1996, 1995, and 1994 6
- Notes to Consolidated Financial
Statements 7-11
- Independent Auditors' Report 2
With the exception of the aforementioned
information and the information incorporated
by reference in Items 5, 6 and 7, the
Annual Report to Shareholders is not
to be deemed filed as part of this
Form 10-K Annual Report.
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure Not Applicable
* Detrex Corporation's Annual Report to Shareholders for the year ended
December 31, 1996 is incorporated herein as Exhibit 13 under Item 14(a) 3 of
Part IV.
</TABLE>
9
<PAGE> 10
FORM 10-K
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference from the
information set forth under the caption "Election of Directors" in the Detrex
Corporation Proxy Statement (the "Proxy Statement") for the Annual Meeting of
Shareholders to be held April 24, 1997. The information required for Executive
Officers of the Company is included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
information set forth under the caption "Executive Compensation and Other
Transactions" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated by reference from the
information set forth under the caption "Election of Directors" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
information set forth under the captions "Election of Directors" and "Executive
Compensation and Other Transactions" in the Proxy Statement.
10
<PAGE> 11
FORM 10-K
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. All Financial Statements
Detrex Corporation and Subsidiaries (incorporated by reference
to the Company's Annual Report to Shareholders for the year
ended December 31, 1996-see Part II)
(a) 2. Financial Statement Schedules Page
----
Independent Auditors' Report 15
Schedule II - Valuation and Qualifying
Accounts for the Years Ended December 31, 1996,
1995, and 1994. 16
Financial Statements and Financial Statement Schedules Omitted:
Other financial statement schedules are omitted because of the absence of the
conditions under which they are required.
11
<PAGE> 12
FORM 10-K
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (Continued)
(a) 3. Exhibits
<TABLE>
<S> <C> <C>
3(a) Articles of Incorporation, as amended, is hereby
incorporated by reference to Commission file #0-784,
Annual Report on Form 10-K for the year ended
December 31, 1987, as Exhibit 3(a) --
3(b) Bylaws, as amended, are hereby incorporated by reference
to Commission file #0-784, Annual Report on Form 10-K
for the year ended December 31, 1993, as Exhibit 3(b) --
4 Shareholders Rights Plan is hereby incorporated by
reference to Commission file #0-784 8-K Report dated
May 4, 1990, as Exhibit 4 --
Executive Compensation Plans and Arrangements
10(a) 1993 Stock Option Plan is hereby incorporated by reference to
Commission file # 0-784 1993 proxy statement dated March
26, 1993, as Exhibit 10(a) --
10(b) 1993 Stock Option Plan for outside directors is hereby
incorporated by reference to 1993 proxy statement dated
March 2, 1993, as Exhibit 10(b)
10(c) 1994 Stock-Cash Incentive Plan is hereby incorporated by --
reference to Commission file #0-784 Annual Report on Form
10-K for the year ended December 31, 1993, as exhibit 10(c)
10(d) Employment Agreement - Gerald J. Israel, is hereby
incorporated by reference to Commission file # 0-784
Annual Report on Form 10-K for the year ended
December 31, 1992 as Exhibit 10(h) --
</TABLE>
12
<PAGE> 13
FORM 10-K
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (Continued)
(a) 3. Exhibits (Continued)
<TABLE>
<S> <C> <C>
10(e) Employment Agreement - Joseph F. Schatt, is hereby
incorporated by reference to Commission file # 0-784
Annual Report on Form 10-K for the year ended December 31,
1993, as Exhibit 10(i) --
10(f) Employment Agreement - Robert M. Currie, is hereby
incorporated by reference to Commission file #0-784
Annual Report on Form 10-K for the year ended December 31,
1994, as Exhibit 10(g) --
10(g) Temporary Employment Agreement - William C. King, is hereby
incorporated by reference to Commission file #0-784
Annual Report on Form 10-K for the year ended December 31,
1995 , as Exhibit 10(i) --
10(h) Employment Agreement - William C. King, is hereby
incorporated by reference to Commission file #0-784
Annual Report on Form 10-K for the year ended December 31,
1995, as Exhibit 10(j) --
10(i) Employment Agreement - Thomas E. Mark, is hereby
incorporated by reference to Commission file #0-784
Annual Report on Form 10-K for the year ended December 31,
1995, as Exhibit 10(k) --
Other Material Contracts
10(j) Revolving Credit Agreement and Amended Term Loan Agreement
dated March 11, 1994 in the aggregate amount of $12 Million --
is hereby incorporated by reference to Commission file #0-784
Annual Report on Form 10-K for the year ended December 31, 1993
10(k) First Amendment to Credit Agreement and Waiver, dated as of
December 31, 1994, is hereby incorporated by reference to
Commission file #0-784 Annual Report on Form 10-K for the year
ended December 31, 1994 as Exhibit 10(j) --
</TABLE>
13
<PAGE> 14
FORM 10-K
PART IV (CONCLUDED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (Concluded)
(a) 3. Exhibits (Concluded)
<TABLE>
<S> <C> <C>
10(l) Forbearance Letter from Comerica Bank as agent for Comerica Bank
and NBD Bank dated as of March 22, 1996, is hereby incorporated
by reference to Commission file #0-784 Annual Report on Form 10-K
for the year ended December 31, 1995 as Exhibit 10(n) --
10(m) Commitment Letter from Comerica Bank dated March 22, 1996,
is hereby incorporated by reference to Commission file #0-784
Annual Report on Form 10-K for the year ended December 31, 1995 --
as Exhibit 10(o)
10(n) Credit Agreement with Comerica Bank dated as of June 13, 1996, is
hereby incorporated by reference to Commission file #0-784 Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996 as Exhibit 10(p) --
10(o) First Amendment to Comerica Credit Agreement, dated as of Attached as
December 5, 1996 an Exhibit
10(p) Term Sheet with Comerica Bank dated February 27, 1997 outlining Attached as
new term loan and reaffirmation of existing revolving credit note an Exhibit
13 Annual Report to Shareholders for the year ended December 31, 1996 Attached as
an Exhibit
21 Subsidiaries of the Registrant Attached as
an Exhibit
Consents of Experts and Counsel
23 Consent of Auditors Attached as
an Exhibit
27 Financial Data Schedule Attached as
an Exhibit
(b) No Form 8-K was filed in the fourth quarter of 1996
</TABLE>
14
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Detrex Corporation:
We have audited the consolidated financial statements of Detrex Corporation and
its subsidiaries (the "Company") as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996, and have issued our
report thereon dated February 27, 1997; such consolidated financial statements
and report is included elsewhere in this Form 10-K. Our audits also included
the financial statement schedule of Detrex Corporation and its subsidiaries,
listed in Item 14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
Deloitte & Touche LLP
Detroit, Michigan
February 27, 1997
15
<PAGE> 16
DETREX CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES
<PAGE> 17
FORM 10-K
SCHEDULE II
DETREX CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additions
----------------------------
Balance Charged to Charged Balance
Beginning Costs and to Other at End
Description of Year Expenses Accounts Deductions of Year
------------ ----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
- ----------------------------
Inventory Valuation Reserves $330,251 67,446 220,788 $176,909
Finished Machines Valuation
Reserves $398,950 7,927 63,570 $343,307
Allowance for Uncollectible
Accounts $458,693 226,905 290,999 $394,599
Year Ended December 31, 1995
- ----------------------------
Inventory Valuation Reserves $235,617 221,458 158,441 285,265 $330,251
Finished Machines Valuation
Reserves $899,332 30,000 530,382 $398,950
Allowance for Uncollectible
Accounts $329,634 546,991 417,932 $458,693
Year Ended December 31, 1994
- ----------------------------
Inventory Valuation Reserves $876,783 74,548 715,714 $235,617
Finished Machines Valuation
Reserves $934,169 34,837 $899,332
Allowance for Uncollectible
Accounts $240,171 229,738 140,275 $329,634
</TABLE>
16
<PAGE> 18
FORM 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
---------------------------------
(Registrant)
Date March 24, 1997 By W. C. King
--------------------------
W. C. King
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this twenty-fourth day of March 1997 by the
following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
--------- -----
W. C. King Chairman and Chief Executive
------------------------ Officer
W. C. King
T. E. Mark President and Chief Operating
------------------------ Officer
T. E. Mark
G. J. Israel Vice President, Treasurer and
------------------------ Chief Financial Officer
G. J. Israel
E. R. Rondeau Controller and Chief Accounting
------------------------ Officer
E. R. Rondeau
B. W. Cox Director
------------------------
B. W. Cox
R. A. Emmett, III Director
------------------------
R. A. Emmett, III
J. F. Mangold Director
------------------------
J. F. Mangold
B. W. McCleary Director
------------------------
B. W. McCleary
A. R. Thalacker Director
------------------------
A. R. Thalacker
J. D. Withrow Director
------------------------
J. D. Withrow
17
<PAGE> 19
DETREX CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10(o) First Amendment to Comerica Credit Agreement, dated
as of December 5, 1996
10(p) Term Sheet with Comerica Bank dated February 27, 1997
outlining new term loan and reaffirmation of existing
revolving credit note
13 Annual Report to Shareholders for the year ended
December 31, 1996
21 Subsidiaries of the Registrant
23 Consent of Auditors
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10(O)
FIRST AMENDMENT TO
CREDIT AGREEMENT
------------------
THIS FIRST AMENDMENT ("Amendment") dated as of December 5, 1996, by and
among the borrowers listed on Schedule 1 (collectively "Companies") and
Comerica Bank, a Michigan banking corporation ("Bank").
RECITALS:
A. Companies and Bank entered into a Credit Agreement
("Agreement") dated as of June 13, 1996.
B. Companies and Bank desire to amend the Agreement as hereinafter
set forth.
NOW, THEREFORE, the parties agree as follows:
1. The definition of "Lending Availability" set forth in Section 1
of the Agreement is amended to read in its entirety as follows:
"'Lending Availability' shall mean as of any date of
determination thereof, the sum of (a) eighty percent (80%) of Eligible
Accounts plus (b) (i) until the date Detrex receives payment of the
note by Atmosphere Furnace Company dated October 21, 1996 and due
January 2, 1997 payable to Detrex twenty five percent (25%) of
Eligible Inventory and (ii) from and after the date Detrex receives
payment of such note, twenty percent (20%) of Eligible Inventory;
provided, however, in no event shall the amount of Lending Availability
determined under clause (b) exceed Two Million Dollars ($2,000,000)."
2. The definition of "Minimum Amount" set forth in Section 1 of
the Agreement is amended to read in its entirety as follows:
"'Minimum Amount' shall mean $15,400,000 plus an amount equal
to the Applicable Increase for each fiscal quarter of Detrex ending on
or after March 31, 1996."
3. Companies hereby represent and warrant that, after giving
effect to the amendments contained herein, (a) execution, delivery and
performance of this Amendment and any other documents and instruments required
under this Amendment or the Agreement are within each Company's corporate
powers, have been duly authorized, are not in contravention of law or the terms
of any Company's Articles of Incorporation or Bylaws, and do not require the
consent or approval of any governmental body, agency, or authority; and this
Amendment and any other documents and instruments required under this Amendment
or the Agreement, will be valid and binding in accordance with their terms;
(b) the continuing representations and
<PAGE> 2
warranties of each Company set forth in Sections 7.1 through 7.15 of the
Agreement are true and correct on and as of the date hereof with the same force
and effect as made on and as of the date hereof; (c) the continuing
representations and warranties of each Company set forth in Section 7.16 of the
Agreement are true and correct as of the date hereof with respect to the most
recent financial statements furnished to the Bank by Companies in accordance
with Section 10.1 of the Agreement; and (d) no Event of Default (as defined in
the Agreement) or condition or event which, with the giving of notice or the
running of time, or both, would constitute an Event of Default under the
Agreement, has occurred and is continuing as of the date hereof.
4. Except as expressly provided herein, all of the terms and conditions of
the Agreement remain unchanged and in full force and effect.
5. This Amendment shall be effective as of the date first above written.
IN WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK DETREX CORPORATION
By: Mark A. Reifel By: Gerald J. Israel
---------------------- ------------------------------
Gerald J. Israel
Its: Vice President
--------------------- Its: Vice President- Finance and
Chief Financial Officer
THE ELCO CORPORATION
By: Gerald J. Israel
----------------
Gerald J. Israel
Its: Treasurer
2
<PAGE> 3
HARVEL PLASTICS, INC.
By: Gerald J. Israel
------------------
Gerald J. Israel
Its: Director
SEIBERT-OXIDERMO, INC.
By: Gerald J. Israel
-------------------
Gerald J. Israel
Its: Treasurer
3
<PAGE> 4
SCHEDULE 1
----------
Detrex Corporation
The Elco Corporation
Harvel Plastics, Inc.
Seibert-Oxidermo, Inc.
4
<PAGE> 1
Exhibit 10(p)
[COMERICA LOGO]
February 6, 1997
DETREX CORPORATION
REVOLVING CREDIT NOTE APPROVED BY COMERICA BANK:
Borrowers:
- ---------
Detrex Corporation, The Elco Corporation, Harvel Plastics, Inc., and
Seibert-Oxidermo, Inc. as joint and several obligors.
Facility:
- --------
$12,000,000 Revolving Credit with a $1,250,000 sublimit for standby letters of
credit. Total Revolving Credit debt and outstanding letters of credit are not
to exceed the lesser of the Revolving Credit amount or the Borrowing Formula.
Maturity Date:
- -------------
May 1, 1998.
Borrowing Formula:
- -----------------
- 80% of eligible Accounts Receivable
- Up to $2,000,000 of inventory advances based on 20% of eligible Raw Material
and Finished Goods at Harvel Plastics, Inc., Seibert-Oxidermo, Inc. and The
Elco Corporation.
Collateral:
- ----------
- First security interest in Borrowers' assets, including accounts receivable,
general intangibles, inventory, machinery, and equipment.
- A first mortgage on commercial properties located at: 401 Emmett Ave.
Bowling Green, KY; 325 Emmett Ave., Bowling Green, KY; and 26000 Capitol
Ave., Redford, MI; and 300 Kuebler Rd., Easton, PA.
Support
- -------
Pledge and first perfected security interest in the stock of Harvel Plastics,
Inc., Seibert-Oxidermo, Inc., and The Elco Corp.
Interest Rate:
- -------------
Prime + 1.0.
Commitment Fee:
- --------------
75 basis points on the unused portion, monthly in arrears.
Other Fees:
- ----------
- Letter of credit fees of 2.50% per annum, payable annually in advance.
- A $50,000 commitment fee.
- All costs, inclduing but not limited to legal and audit fees, shall be for
the account of Borrowers.
<PAGE> 2
[COMERICA LOGO]
February 6, 1997
DETREX CORPORATION
(Continued)
TERM LOAN APPROVED BY COMERICA BANK:
Borrowers:
- ---------
Detrex Corporation, The Elco Corporation, Harvel Plastics, Inc., and
Seibert-Oxidermo, Inc. as joint and several obligors.
Term Loan Amount:
- ----------------
$2,000,000 Term Loan
Purpose:
- -------
To fund capital expenditures.
Maturity Date:
- -------------
May 1, 1998.
Amortization:
- ------------
Sixty months.
Monthly Payment:
- ---------------
$33,333.33 per month plus interest.
Collateral:
- ----------
Same as the Revolving Credit Note above.
Support
- -------
Same as the Revolving Credit Note above.
Interest Rate:
- -------------
Prime + 1.5.
Loan Closing Fee:
- ----------------
1.0%
Other Fees:
- ----------
All costs, including but not limited to legal and audit fees, shall be for the
account of Borrowers.
-2-
<PAGE> 3
[COMERICA LOGO]
February 6, 1997
DETREX CORPORATION
(Continued)
NEGATIVE COVENANTS:
- - Consolidated Cash Flow Coverage
-------------------------------
Borrowers shall maintain a Consolidated Cash Flow Coverage ratio of not less
than:
Calculation Date Measuring Period Ratio
---------------- ---------------- -------
3/31/97 1/1/97 - 3/31/97 0.35
6/30/97 1/1/97 - 6/30/97 0.45
9/30/97 1/1/97 - 9/30/97 0.55
12/31/97 1/1/97 - 12/31/97 0.60
3/31/98 & each fiscal The four preceding fiscal 0.75
quarter thereafter quarters ending on such
determination date
Where "Consolidated Cash Flow Coverage" is equal to Adjusted Net Income +
Depreciation + Amortization DIVIDED by Capital Expenditures + Current
Maturities of LTD (excluding balloon payments) + Payment on Capital Leases
during the specified period + Dividends + the amount of cash expenditures
which are deductions from environmental reserves.
"Adjusted Net Income" is defined as GAAP Net Income from continuing operations
after taxes less the amount of any recoveries in environmental reserves (net
of taxes) and plus the amount of any deductions related to increases in
environmental reserves (net of taxes).
- - Consolidated Current Ratio
--------------------------
Borrowers shall maintain a Consolidated Current Ratio of at least:
Period Ratio
------------ -----------
12/31/96 and thereafter 1.20 to 1.0
Where "Consolidated Current Ratio" is equal to Current Assets other than
Deferred Income Taxes divided by Current Liabilities. All other Current
Assets and Current Liabilities are defined according to GAAP. Revolving
credit debt shall be classified as current for compliance purposes.
- - Consolidated Tangible Net Worth
-------------------------------
Borrowers shall maintain a minimum Consolidated tangible Net Worth of
$15,400,000 to increase by 100% of quarterly net income after taxes with no
reductions for losses beginning 3/31/96.
"Consolidated Tangible Net Worth" is defined as the excess of the net book
value of all assets (other than Patents, Patent Rights, Trademarks, Trade
Names, Franchises, Copy Rights, Licenses, Goodwill, and similar intangible
assets) after all appropriate deductions in accordance with GAAP (including,
without limitation, reserves for doubtful receivables, obsolescence,
depreciation, and amortization), over all Debt and Minority Interests.
-3-
<PAGE> 4
[COMERICA LOGO]
February 6, 1997
DETREX CORPORATION
(Continued)
NEGATIVE COVENANTS CONT.
- - Consolidated Leverage Ratio
---------------------------
Borrowers shall maintain a "Consolidated Leverage Ratio" of Total Liabilities
divided by Tangible Net Worth of not more than:
Period Ratio
- ------ -----
12/31/96 and thereafter 2.75 to 1.0
Where "Total Liabilities" are defined according to GAAP.
ONGOING REPORTING REQUIREMENTS:
-----------------------------
- - Weekly Report of Accounts Receivable the following Thursday of each week.
- - Monthly Detailed Accounts Receivable Aging within 20 days of month end.
- - Monthly Detailed Report of Eligible Inventory within 20 days of month end.
- - Monthly Detailed Accounts Payable Report within 20 days of month end.
- - Monthly Consolidated Financial Statements of Detrex Corporation within 30
days of month end including a Statement of Income and Earnings and Balance
Sheets.
- - Monthly internal results by business unit within 30 days of month end.
- - Monthly Financial Statements of The Elco Corporation, Harvel Plastics, Inc.,
and Seibert-Oxidermo, Inc. including a Statement of Income and Earnings and
Balance Sheets within 30 days of month end.
- - Monthly Covenant Compliance Certificates within 30 days of month end.
- - Annual Audited Consolidated Financial Statements of Detrex and its
consolidated subsidiaries within 90 days of year end.
- - Annual audited Financial Statements of Harvel Plastics, Inc. within 90 days
of year end
- - Annual Projections within 30 days of year end, Quarterly updates for the
current fiscal year within 45 days of quarter end.
- - Other information provided to shareholders and the SEC within five days of
delivery.
- - Asset Based Bank Audits as scheduled (currently on a semi-annual basis).
- - Lockbox with Dominion of Funds for all locations
CONDITION OF CLOSING:
- ---------------------
- - Receipt of the audited FY 1996 financial statements.
-4-
<PAGE> 5
[COMERICA LOGO]
February 6, 1997
DETREX CORPORATION
(Continued)
OTHER PROVISIONS:
- All other provisions outlined in the Credit Agreement dated as of June 13,
1996 and amended as of December 5, 1996 ("Agreement") shall apply to this
Term Sheet. Any discrepancies between the Agreement and this Term Sheet,
other than the new Term Loan conditions and changes to the financial
covenants, shall be governed by the terms and conditions of the Agreement.
- The Borrowers shall acknowledge and agree to these terms and return this
term sheet to the undersigned by no later than 6:00 p.m. on March 3, 1997.
- The second amendment to the Agreement and the Term Loan documents must be
executed no later than April 30, 1997. As a condition of closing these loan
accommodations, Comerica must be provided with all documents required by
Comerica in form and substance satisfactory to Comerica. A further
condition of funding these loans is Comerica's continued satisfaction with
Borrower's consolidated financial condition, operations, and economic
environment which may be reviewed by Comerica at any time.
- - The borrowers agree to provide a copy of the Management Letter issued by
Deloitte Touche LLP after the completion of the audited FY 1996 financial
statements.
- - The commitments set forth herein shall not be assignable by the Borrowers
by operation of law, or otherwise, are not intended to create any rights in
favor of and may not be relied upon by any third party.
- - No change in this commitment letter shall be binding upon the Bank unless
expressed in writing and signed by the Bank.
Please contact me if you have any questions.
Very truly yours,
Mark A. Reifel
Mark A. Reifel
Vice President
ACKNOWLEDGED AND AGREED:
DETREX CORPORATION
By: G.J. Israel Date: February 27 , 1997
---------------------------- ----------------------
Its: V.P. - Finance
---------------------------
-5-
<PAGE> 6
[COMERICA LOGO]
February 6, 1997
DETREX CORPORATION
(Continued)
THE ELCO CORPORATION
By: /s/ G.J. Israel Date: February 27, 1997
---------------- -----------------
Its: Treasurer
----------------
HARVEL PLASTICS, INC.
By: /s/ G.J. Israel Date: February 27, 1997
--------------- -----------------
Its: Director
----------------
SEIBERT-OXIDERMO, INC.
By: /s/ G.J. Israel Date: February 27, 1997
--------------- -----------------
Its: Treasurer
------------------
-6-
<PAGE> 1
EXHIBIT 13
DETREX CORPORATION AND SUBSIDIARIES
1996 ANNUAL REPORT TO SHAREHOLDERS
<PAGE> 2
------------------------------------------
DETREX
CORPORATION
1996 ANNUAL REPORT
------------------------------------------
<PAGE> 3
HIGHLIGHTS(1)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Net sales.................................... $96,825,000 $94,302,000 $100,096,000
Net income (loss)............................ 415,000 (1,869,000) (5,639,000)
Income (loss) per common share............... .26 (1.18) (3.56)
Stockholders' equity per common share........ 10.93 10.67 11.85
Additions to land, buildings and equipment
(including capital leases)................. 3,110,000 2,662,000 2,860,000
Current ratio................................ 1.4 to 1 1.3 to 1 1.3 to 1
Number of stockholders....................... 387 425 477
Number of employees.......................... 345 347 367
</TABLE>
(1) This information should be considered in conjunction with
the Consolidated Financial Statements and Management's
Discussion and Analysis.
- --------------------------------------------------------------------------------
DETREX GROUP OF COMPANIES(1)
-- Detrex Corporation -- a specialty chemicals company
- Equipment Division -- designs, engineers and sells industrial parts
cleaning equipment
- Solvents Division -- distributes and recycles parts cleaning solvents
and disposes industrial wastes
- RTI Laboratories -- provides analytical and environmental laboratory
services
- Automation Division -- engineers and sells automation and material
handling equipment
-- Subsidiaries of Detrex Corporation
- The Elco Corporation -- produces petroleum additives, pharmaceutical
intermediates, and hydrochloric acid
- Harvel Plastics, Inc. -- manufactures PVC and CPVC pipe and custom
extrusions
- Seibert-Oxidermo, Inc. -- produces industrial and automotive paint and
other coatings
(1) For more information about the products of Detrex and its subsidiaries, see
page 16 of this Annual Report or visit our Web Site at http://www.detrex.com
<PAGE> 4
TO OUR SHAREHOLDERS:
The year 1996 marked the return to profitability for Detrex. Your Company
reported net income of $415,000, compared to a net loss of $1,869,000 for the
year ended December 31, 1995. The year-to-year improvement in pre-tax earnings
was $3,127,000 and $2,285,000 on an after-tax basis.
This earnings improvement was generated through profitable performance in
five of six business units. The Equipment Division, which had incurred losses
for the last five years, returned to profitability on a significant increase in
sales. Seibert-Oxidermo, our paint subsidiary, continued to provide solid
results as several new customers were brought on stream. Elco, our lubricant
additive subsidiary, generated the strongest performance in its history through
improved responsiveness to customer needs. RTI, our laboratory analysis
division, succeeded in generating a profit in spite of extremely competitive
conditions in the environmental and analytical testing field. Harvel, our
plastics pipe subsidiary, continued to deliver excellent performance by focusing
on quality in its operations, products and customer service. The Solvents and
Environmental Services Division continued to deal with adverse market
developments which resulted in a loss for the year; however, the results were
significantly improved from the prior year.
During the year, we sold the industrial furnace division to a strategic
buyer. This divestiture was designed to shape the Company around a core family
of businesses and to generate funds for investment in growth opportunities for
these businesses. The operations we now have are focused on customer needs in
chemical related goods, services and equipment. Each business has a defined plan
for servicing customers in its market niche; this includes identification of
growth opportunities in our areas of expertise. In November, we initiated such a
growth investment when we broke ground on a new plant in Ashtabula, Ohio. This
plant will be utilized for increased production of zinc based lubricant
additives targeted for industrial applications and is expected to be fully
operational by the first quarter of 1998.
We continue to pay close attention to cash management with working capital
of $8.5 million at year-end, compared to $6.3 million at December 31, 1995. Our
bank borrowing was reduced by $2.9 million while $4.2 million was reinvested in
the business through R&D and capital expenditures. Our capital expenditures are
focused on plant improvement projects and new business opportunities which
generate strong returns.
During 1996, the Detrex team achieved profitability by capitalizing on
actions taken to improve the position of the Company. We successfully
implemented a shift in management focus to the individual business units close
to our customers, employees and suppliers. We now have a solid management team
and a core set of businesses which represent the platform on which we will build
the Detrex of the future. Our immediate goals are to increase shareholder value
by continuing to achieve profitable performance, growing sales volume, and
generating funds for investment in the business.
We thank you and the entire Detrex family for the support given the
management of the Company. With your backing, we are confident that we can grow
the value of your Company.
Thomas E. Mark William C. King
President and Chief Operating Officer Chairman and Chief Executive Officer
1
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
------------------------------------
Suite 900
600 Renaissance Center
Deloitte & Touche LLP Letterhead Detroit, Michigan 48243-1704
To the Board of Directors and Stockholders of
Detrex Corporation
We have audited the accompanying consolidated balance sheets of Detrex
Corporation and its subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of operations and retained earnings and of cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Detrex Corporation and its
subsidiaries at December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 27, 1997
Deloitte & Touche Logo
2
<PAGE> 6
DETREX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
NET SALES................................................... $96,825,436 $94,301,999 $100,096,443
Cost of sales............................................... 74,100,218 73,062,297 77,135,002
Selling, general and administrative expenses................ 18,970,621 20,027,863 18,909,812
Provision for depreciation and amortization................. 3,188,758 3,393,721 3,405,273
Net environmental (income) expense.......................... (100,000) 100,039 8,500,000
Other (income) expense -- net............................... (571,118) (689,350) (494,384)
Minority interest........................................... 280,014 242,110 262,488
Interest expense............................................ 919,947 886,106 681,920
Gain on sale of Pacific Industrial Furnace Division......... (368,985) -- --
----------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES........................... 405,981 (2,720,787) (8,303,668)
Credit for income taxes..................................... (9,387) (851,484) (2,664,788)
----------- ----------- ------------
NET INCOME (LOSS)........................................... 415,368 (1,869,303) (5,638,880)
RETAINED EARNINGS AT BEGINNING OF YEAR...................... 13,704,454 15,573,757 21,212,637
----------- ----------- ------------
RETAINED EARNINGS AT END OF YEAR............................ $14,119,822 $13,704,454 $ 15,573,757
=========== =========== ============
PER COMMON SHARE:
NET INCOME (LOSS)........................................... $.26 $(1.18) $(3.56)
==== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 7
DETREX CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
<TABLE>
<CAPTION>
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 1,311,045 $ 2,764,360
Accounts receivable (less allowance for uncollectible
accounts of $395,000 in 1996 and $459,000 in 1995)........ 15,203,184 13,956,017
Note receivable............................................. 1,562,665 --
Refundable U.S. income taxes................................ 1,003,827 3,040,772
Inventories................................................. 9,058,167 8,437,505
Prepaid expenses and other.................................. 878,263 978,819
Deferred income taxes....................................... 759,063 1,991,087
----------- -----------
TOTAL CURRENT ASSETS................................. 29,776,214 31,168,560
LAND, BUILDINGS AND EQUIPMENT:
Land........................................................ 993,602 993,602
Buildings and improvements.................................. 15,938,390 15,914,676
Machinery and equipment..................................... 29,539,130 28,668,642
Construction in progress.................................... 819,122 762,885
----------- -----------
47,290,244 46,339,805
Less allowance for depreciation and amortization............ 27,916,193 26,203,114
----------- -----------
LAND, BUILDINGS AND EQUIPMENT -- NET................. 19,374,051 20,136,691
LAND, BUILDINGS AND EQUIPMENT HELD FOR SALE OR LEASE........ 2,820,125 2,664,773
PREPAID PENSIONS............................................ 1,280,886 1,226,348
DEFERRED INCOME TAXES....................................... 1,367,265 1,412,973
OTHER ASSETS................................................ 973,858 1,049,376
----------- -----------
$55,592,399 $57,658,721
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 8
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Loans payable............................................... $ 5,627,453 $ 8,500,000
Current maturities of capital leases........................ 385,366 606,779
Accounts payable............................................ 11,123,341 9,007,603
Environmental reserve....................................... 1,027,000 1,527,000
Accrued compensation........................................ 699,520 643,089
Other accruals.............................................. 2,398,802 4,566,997
----------- -----------
TOTAL CURRENT LIABILITIES............................ 21,261,482 24,851,468
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS.............. 393,800 518,258
ACCRUED POSTRETIREMENT BENEFITS............................. 4,293,584 3,985,885
ENVIRONMENTAL RESERVE....................................... 9,244,297 8,681,199
ACCRUED PENSION AND OTHER................................... 1,344,330 1,142,388
MINORITY INTEREST........................................... 1,746,236 1,586,221
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........................................... 14,119,822 13,704,454
----------- -----------
TOTAL STOCKHOLDERS' EQUITY........................... 17,308,670 16,893,302
----------- -----------
$55,592,399 $57,658,721
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 9
DETREX CORPORATION
CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)....................................... $ 415,368 $(1,869,303) $(5,638,880)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization...................... 3,188,758 3,393,721 3,405,273
(Gain) Loss on sale or write-off of buildings,
machinery and equipment........................ 107,488 (189,066) (209,102)
Deferred income taxes.............................. 1,277,731 2,721,155 (3,067,559)
Changes to operating assets and liabilities that
provided (used) cash:
Accounts receivable.............................. (1,247,167) 4,103,160 (1,329,201)
Note receivable.................................. (1,562,665) -- --
Refundable U.S. income taxes..................... 2,036,945 (3,040,772) --
Inventories...................................... (620,662) 509,579 (1,508,571)
Prepaid expenses and other....................... 46,018 (248,742) 12,685
Other assets..................................... 20,761 (133,535) (52,426)
Accounts payable................................. 2,115,738 (2,757,588) 1,552,158
Environmental reserve............................ 63,098 (2,382,738) 7,590,937
Accrued compensation............................. 56,431 (179,561) (162,265)
Postretirement benefits.......................... 307,699 349,569 322,034
Other accruals................................... (1,806,234) 1,148,045 (2,164,240)
----------- ----------- -----------
TOTAL ADJUSTMENTS.............................. 3,983,939 3,293,227 4,389,723
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................ 4,399,307 1,423,924 (1,249,157)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (2,664,387) (2,095,379) (2,200,669)
Proceeds from disposal of machinery and equipment....... 1,615 235,321 309,036
Proceeds from sale of Industrial Chemical Specialties
Division............................................. -- -- 1,650,000
----------- ----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES........ (2,662,772) (1,860,058) (241,633)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings......................................... -- 3,000,000 3,500,000
Repayment of long-term debt............................. -- (1,000,000) (2,001,361)
Repayment of short-term debt -- net..................... (2,872,547) -- --
Principal payments under capital lease obligations...... (317,303) (815,468) (872,011)
Common stock issued..................................... -- -- 28,020
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................ (3,189,850) 1,184,532 654,648
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ (1,453,315) 748,398 (836,142)
Cash and cash equivalents at beginning of year.............. 2,764,360 2,015,962 2,852,104
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 1,311,045 $ 2,764,360 $ 2,015,962
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................... $ 1,023,564 $ 771,564 $ 633,767
Income taxes....................................... $ 223,044 $ 284,579 $ 261,825
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations incurred in connection with
the acquisition of equipment........................... $ 445,649 $ 566,628 $ 658,967
Capital lease terminations.............................. $ 152,931 $ 175,708 $ 90,220
Sale of PIFCO........................................... $ 1,562,665 -- --
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 10
DETREX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION
Detrex Corporation and its subsidiaries operate predominantly in a single
industry: chemicals and allied products, services, and processes for use by
manufacturing and service industries. The principal products include specialty
chemicals, lubricant additives, pharmaceutical intermediates, cleaning solvents,
hydrochloric acid, PVC and CPVC plastic pipe, industrial finishing materials and
paints, automation equipment, degreasing equipment, and environmental and
analytical laboratory services. The products are primarily sold by sales-service
engineers and most sales are direct to industrial users.
All of the Company's business units operate in highly competitive markets
which are mainly national in scope, although approximately 12% of the Company's
business is done internationally principally by its lubricants subsidiary and
its plastic pipe subsidiary. Generally, for all products there are numerous
competitors with no one company or a small number of companies being dominant.
The Company operates in niche markets and its principal methods of competition
in various markets include service, price and quality, depending on the market
serviced. No material part of the business is dependent upon a single customer
or a few customers and therefore vulnerability from this aspect is not a factor.
However, certain of the Company's business units sell primarily to automotive or
automotive related companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statements
The consolidated financial statements comprise those of the Company and its
subsidiaries. All balances and transactions between the companies have been
eliminated. Certain amounts for 1994 and 1995 have been reclassified to conform
with 1996 classifications.
Inventories and Accounts Receivable
Inventories are stated at lower of cost or market. Cost of raw materials,
including raw materials in work in process and finished goods inventories,
generally is determined by using the last-in, first-out method. Labor and burden
in inventory are determined by using the average cost method. Inventories
relating to fixed-price contracts are stated at the accumulated cost of
material, labor and burden less related progress billings.
Revenue from most of the Company's equipment contracts is recognized using
the completed contract method because the impact on results of operations does
not differ materially from use of the percentage-of-completion method. Revenue
from large equipment construction contracts is recognized using the
percentage-of-completion method.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost. Depreciation and
amortization are provided over the estimated useful lives of the assets using
the straight-line method for financial reporting purposes. Leased equipment is
amortized over the lease term or estimated useful life of the asset.
Annual depreciation rates are as follows:
<TABLE>
<S> <C>
Buildings................................ 2.5-20%
Leasehold improvements................... 2.5-20%
Yard facilities.......................... 5-6 2/3%
Machinery and equipment.................. 6 2/3-33 1/3%
Office furniture and fixtures............ 10-25%
</TABLE>
Research and Development
Research and development costs are charged to operations as incurred.
Research and development costs for 1996, 1995 and 1994 were approximately
$1,114,000, $1,272,000, and $1,784,000, respectively.
Earnings (Loss) Per Common Share
Earnings (loss) per common share is based upon the average number of common
shares outstanding during the year. Shares subject to stock options are not
considered in per share calculations since there is no dilutive effect.
Cash Flows
For purposes of the consolidated statements of cash flows, cash equivalents
are defined as short-term highly-liquid investments with a maturity of three
months or less at date of purchase.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
notes receivable, accounts payable, and debt under the Revolving Credit
Agreement approximated fair values.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the balance sheet date and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
7
<PAGE> 11
3. INVENTORIES
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials.............. $ 3,005,399 $ 2,861,900
Work in progress........... 1,785,310 1,989,115
Finished goods............. 5,768,376 4,897,266
Less: Progress billings on
work in progress......... (1,500,918) (1,310,776)
----------- -----------
$ 9,058,167 $ 8,437,505
=========== ===========
</TABLE>
The excess of current cost over the stated last-in, first-out value is
approximately $1,635,000 and $1,855,000 at December 31, 1996 and 1995. As a
result of liquidating inventories carried at costs incurred in prior years, the
Company's 1995 net loss before income taxes was decreased by $502,000.
4. CAPITAL AND OPERATING LEASES
Capitalized lease assets (primarily automobiles, trucks and lab equipment)
included in machinery and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Machinery and equipment...... $2,140,025 $3,081,776
Accumulated amortization..... 1,151,240 1,654,301
---------- ----------
Leased assets -- net......... $ 988,785 $1,427,475
========== ==========
</TABLE>
Rent expense applicable to operating leases for 1996, 1995 and 1994 was
$565,000, $569,000 and $925,000, respectively.
Minimum annual lease payments for leases in effect at December 31, 1996 are
as follows:
<TABLE>
Minimum Lease Payments: Capital Operating
-------- ----------
<S> <C> <C>
1997...................... $450,022 $ 466,245
1998...................... 272,889 404,382
1999...................... 126,548 284,178
2000...................... 55,850 108,445
2001...................... 22,974 60,000
2002 and thereafter....... -- 135,000
-------- ----------
Total minimum lease payments... 928,283 $1,458,250
==========
Less amount representing
interest..................... 149,117
--------
Present value of net minimum
lease payments............... 779,166
Less current portion........... 385,366
--------
Non-current portion............ $393,800
========
</TABLE>
5. REVOLVING CREDIT AGREEMENT AND TERM LOAN
The Company finalized a new Credit Agreement (the Agreement) with Comerica
Bank on June 13, 1996. The Agreement provides for a credit facility of up to
$12.0 million, collateralized by the Company's inventory, accounts receivable,
certain fixed assets, and stock of subsidiaries. The Agreement contains, among
other provisions, requirements for maintaining defined levels of tangible net
worth and various financial statement ratios. Interest under the Agreement is
based on the prime interest rate. The Company has received a commitment from
Comerica Bank to extend the current facility to May 1, 1998. The commitment also
provides for an additional $2.0 million Term Loan facility.
The weighted average interest rate for short term borrowings under the
Agreement for the year ended December 31, 1996 was 10.07%, compared to 8.10% for
the year ended December 31, 1995 and 7.94% for the year ended December 31, 1994.
6. INCOME TAXES
The net credit for income taxes, calculated in accordance with SFAS No. 109
for 1996, 1995 and 1994, included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current for tax purposes:
Federal................. $(1,146,060) $(3,851,066) $ --
State and local......... 74,381 278,427 336,199
----------- ----------- -----------
Total Current......... (1,071,679) (3,572,639) 336,199
----------- ----------- -----------
Deferred income taxes:
Federal................. 948,152 2,609,310 (2,647,688)
State and local......... 114,140 111,845 (353,299)
----------- ----------- -----------
Total Deferred........ 1,062,292 2,721,155 (3,000,987)
----------- ----------- -----------
Credit for income taxes... $ (9,387) $ (851,484) $(2,664,788)
=========== =========== ===========
</TABLE>
Deferred tax assets (liabilities) at December 31, 1996 and 1995 relate to
the following temporary differences and carryforwards:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforward........ $ 1,049,617 $ 1,077,543
Alternative minimum tax credit
carryforward......................... 383,144 383,144
Accruals for:
Postretirement benefits.............. 1,644,013 1,526,195
Environmental........................ 3,932,879 3,908,719
Restructuring........................ 43,268 213,780
Self insurance reserve............... 187,621 414,681
Inventory related...................... 460,635 556,773
Other.................................. 225,875 221,165
----------- -----------
Gross deferred tax assets.......... 7,927,052 8,302,000
----------- -----------
Valuation allowance.................... (467,000) (467,000)
----------- -----------
Depreciation........................... (2,919,663) (2,788,135)
Undistributed earnings of the Company's
DISC................................. (1,484,017) (1,234,345)
Insurance Refund....................... (344,610) --
Other.................................. (585,434) (408,460)
----------- -----------
Gross deferred tax liabilities..... (5,333,724) (4,430,940)
----------- -----------
Net deferred tax assets............ $ 2,126,328 $ 3,404,060
=========== ===========
</TABLE>
The Company has net operating loss carryforwards of $511,131, $1,669,081,
$789,891 and $117,006 that expire in 2006, 2007, 2010 and 2011, respectively.
8
<PAGE> 12
The reasons for the difference between the income tax provision and income
taxes computed at 34% for 1996, 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -----------
<S> <C> <C> <C>
Computed 'expected' tax
provision................... $ 138,034 $(925,068) $(2,823,247)
State and local income taxes,
net of federal tax
benefit..................... 124,424 257,580 (14,193)
Nondeductible meal and
entertainment expense....... 63,504 57,324 48,098
Tax refund carryback tax rate
differential................ (364,319) (791,805)
Deferred tax asset valuation
allowance................... -- 467,000
Other -- net.................. 28,970 83,485 124,554
--------- --------- -----------
$ (9,387) $(851,484) $(2,664,788)
========= ========= ===========
</TABLE>
In 1995, the Company established a valuation allowance of $467,000 against
its deferred tax assets. The Company is continuing to evaluate the need for the
valuation reserve.
7. LAND, BUILDINGS AND EQUIPMENT HELD FOR SALE OR LEASE
In 1993, the Company sold one division and outsourced manufacturing at
another location. As a result, the Company has two facilities available for sale
or lease. Neither facility is currently utilized and the Company is actively
pursuing the sale or lease of both.
8. PENSION AND POSTRETIREMENT COSTS
The Company and its subsidiaries have several non-contributory, defined
benefit pension plans which cover substantially all employees. Benefits for
salaried employees are based on years of service and the employee's average
monthly compensation using the highest five consecutive years preceding
retirement. Benefits for hourly employees are generally based on a specified
payment per month for each year of service. The Company's funding policy is to
contribute amounts sufficient to provide for benefits earned to date and those
expected to be earned in the future.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligations
were 7.50% and 4.0%, respectively, at December 31, 1996 and 7.25% and 4.0%,
respectively, at December 31, 1995. The expected long-term rate of return on
assets was 8.5% in both years. The following table sets forth the plans' funded
status and amounts recognized in the Company's balance sheet at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligations:
Vested benefits.................... $23,253,400 $22,094,843
Non-vested benefits................ 1,065,066 1,042,117
----------- -----------
Total............................ $24,318,466 $23,136,960
=========== ===========
Projected benefit obligations for
service rendered to date............. $26,515,239 $25,360,581
Plan assets at fair value -- primarily
equity and fixed income bond funds... 29,678,284 27,923,010
----------- -----------
Excess of plan assets over projected
benefit obligations.................. 3,163,045 2,562,429
Unrecognized net asset at January 1,
1986 being recognized principally
over 15 years........................ (950,426) (1,246,551)
Unrecognized net gain from past
experience different from that
assumed.............................. (1,888,671) (1,102,264)
Additional minimum liability........... (156,892) (129,654)
----------- -----------
Net pension asset (liability).......... $ 167,056 $ 83,960
=========== ===========
</TABLE>
Net pension credit included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost-benefits
earned during the year... $ 584,825 $ 467,594 $ 556,058
Interest cost on projected
benefit obligations...... 1,869,757 1,755,902 1,671,239
Actual return on plan
assets................... (3,506,258) (4,310,407) 885,828
Net amortization and
deferral................. 979,521 1,956,305 (3,366,137)
----------- ----------- -----------
Net pension credit......... $ (72,155) $ (130,606) $ (253,012)
=========== =========== ===========
</TABLE>
The Company has a 401(k) plan covering its salaried employees. Employees
can contribute up to 15% of their salaries. The Company makes no contribution to
this plan.
Certain divisions and subsidiaries of the Company provide contributory
defined benefit health care plans for retirees, subject to various conditions
and limitations.
Net periodic postretirement benefit costs included the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits attributed
to service during the period... $171,286 $161,389 $156,144
Interest cost on accumulated
postretirement benefit
obligation..................... 284,266 290,573 264,224
-------- -------- --------
Net periodic postretirement
benefit cost................... $455,552 $451,962 $420,368
======== ======== ========
</TABLE>
9
<PAGE> 13
The Company's postretirement benefit plans are not funded. The status of
the plans at December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees................................. $2,149,113 $1,866,703
Fully eligible active plan
participants........................... 283,839 273,351
Other active plan participants........... 1,653,460 1,596,113
Unrecognized net gain.................... 207,172 249,718
---------- ----------
Total accrued postretirement
benefits............................. $4,293,584 $3,985,885
========== ==========
</TABLE>
For measurement purposes, a 8.7% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1996. The rate is assumed
to decrease gradually over the next 8 years to 5.5% in 2002 and thereafter. The
assumption for the health care cost trend rate has a significant effect on the
amount of the obligation and periodic cost reported. An increase in the assumed
health care cost trend rates by 1.0% in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996 by approximately
$685,685 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by approximately
$91,019.
The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at December 31, 1996, 7.25% at
December 31, 1995 and 8.5% at December 31, 1994.
9. SALE OF PACIFIC INDUSTRIAL FURNACE DIVISION
On October 21, 1996, the Company completed the sale of the net assets of
its Pacific Industrial Furnace Company (PIFCO) division. A portion of the
consideration was received as a $1,562,665 note which was paid in 1997. Also,
the Company entered into a consulting agreement which provides that it will
receive compensation for providing certain services to the buyer over the next
four years. The 1996 pre-tax gain on the sale of this division was $369,000.
Included in 1996 results are sales of $4.6 million and a before tax loss of
$573,000 applicable to PIFCO.
10. OTHER INCOME -- NET
Other income includes interest income of approximately $182,000, $272,000
and $46,000 for 1996, 1995 and 1994, respectively.
11. CONTINGENCIES
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 for all the companies 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 environmental
contamination at several sites, including properties owned by the Company. The
Company added $.8 million to the reserve in 1996, $.1 million in 1995, and $8.5
million in 1994. The amounts of the reserve at December 31, 1996 and 1995 were
$10.3 million and $10.2 million respectively, which amounts were calculated
without taking into consideration any possible insurance recoveries. Included in
Accounts Receivable at December 31, 1996 is a $.9 million receivable reflecting
a settlement whereby the Company will recover prior environmental costs incurred
at a site where the Company formerly conducted business.
The reserve described above includes a provision for the Company's
anticipated share of remedial investigation and 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 are expected to 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
10
<PAGE> 14
should not have a material impact on the Company's consolidated financial
position.
12. PREFERRED STOCK
The Company has authorized 1,000,000 shares of $2 par value preferred
stock, issuable in series. No shares were issued or outstanding as of December
31, 1996, 1995 and 1994.
13. STOCK PURCHASE RIGHTS
The Company has in place a Shareholder Rights Plan, under which preferred
stock purchase rights were distributed to shareholders as a dividend of one
Right for each outstanding share of Common Stock. Each Right will entitle
shareholders to buy one one-hundredth of a newly issued share of Series A
Preferred Stock of the Company at an exercise price of $80, subject to
adjustment. The Rights will be exercisable only if a person or group acquires
beneficial ownership of 15% or more of the Company's outstanding Common Stock or
commences a tender or exchange offer upon consummation of which a person or
group would beneficially own 30% or more of the Company's outstanding Common
Stock. Until they become exercisable, the Rights will be evidenced by the Common
Stock certificates and will be transferred only with such certificates.
If any person becomes the beneficial owner of 15% or more of the Company's
outstanding Common Stock, or if a holder of 15% or more of the Company's Common
Stock engages in certain self-dealing transactions or a merger transaction in
which the Company is the surviving corporation and its Common Stock remains
outstanding, then each Right not owned by such person or certain related parties
will entitle its holder to purchase, at the Right's then-current exercise price,
shares of the Company's Common Stock (or, in certain circumstances, units of the
Company's Series A Preferred Stock, cash, property or other securities of the
Company) having a market value equal to twice the then-current exercise price.
In addition, if the Company is involved in a merger or other business
combination transaction with another person after which its Common Stock does
not remain outstanding, or sells 50% or more of its assets or earning power to
another person, each Right will entitle its holder to purchase, at the Right's
then-current exercise price, shares of common stock of such other person having
a market value equal to twice the then-current exercise price. The Company will
generally be entitled to redeem the Rights at $.01 per Right at any time until
the tenth business day following public announcement that a person or group has
acquired 15% or more of the Company's Common Stock. The Plan will expire on May
4, 2000 unless the Rights are earlier redeemed by the Company.
14. STOCK OPTIONS
On April 22, 1993, the shareholders of the Company approved the
Corporation's 1993 Stock Option Plan (the Management Plan) and the Corporation's
1993 Stock Option Plan for Outside Directors (the Directors' Plan). At December
31, 1996, pursuant to the Management Plan and employment agreements, key
executives have options outstanding totaling 119,000 shares, of which 101,000
represents options granted in 1996. These shares have exercise prices ranging
from $5.00 to $9.50. Pursuant to the Directors' Plan, options for 21,000 shares
in 1993 and 6,000 shares in 1994, 1995 and 1996 have been granted at exercise
prices ranging from $7.31 to $13.20. Options for 3,000 of these shares were
exercised in 1994 at $9.34 a share. The options outstanding under the Directors'
Plan total 36,000 at December 31, 1996 and the total under both plans is
155,000. Of these 155,000 options, 62,750 with a weighted average exercise price
of $8.28 were exercisable at December 31, 1996 and 92,250 with a weighted
average price of $6.66 were unexercisable. All options expire ten years from
date of grant.
The total number of shares reserved for issuance upon exercise of options
under the Management Plan is 150,000 shares and under the Directors' Plan is
50,000 shares. No options have expired under the Directors' Plan. Options for
5,000 shares were forfeited in 1996 under the Management Plan.
In accordance with Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation, the Company has elected to continue to
report compensation by applying the requirements of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and therefore has
recorded no charge to income for stock options. The Pro-forma effect of applying
the Black-Scholes option valuation model to options granted in 1995 and 1996 is
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income (loss) as reported (in
thousands)......................... $415 $(1,869)
Pro-forma net income (loss) (in
thousands)......................... 347 (1,890)
Earnings (loss) per share as
reported........................... .26 (1.18)
Pro-forma earnings (loss) per
share.............................. .22 (1.19)
</TABLE>
For 1996 and 1995, the assumptions underlying the Black-Scholes model
include (i) an expected volatility of .36 and .42 respectively based upon the
prior ten years of month-end closing stock prices, (ii) a risk-free rate of
return of 5.99% and 7.23% respectively, which approximates the 10-year Treasury
Bond rate, and (iii) a ten year period from time of grant until exercise.
11
<PAGE> 15
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Detrex Corporation and its consolidated subsidiaries (the Company) earned
$415,000 for the year ended December 31, 1996, compared to a net loss of
$1,869,000 for the year ended December 31, 1995 and a net loss of $5,639,000 for
the year ended December 31, 1994. In 1996, the Company incurred a loss in its
Solvents and Environmental Services Division but had earnings from all of its
other continuing businesses. Also the Company recorded a loss of $573,000 from
operations of the Pacific Industrial Furnace Company (PIFCO) division which it
sold in October 1996 and a gain on the sale of $369,000.
The $2.3 million earnings improvement over last year was generated through
profitable performance in five of six business units. The Equipment Division,
which had incurred losses for the last five years, returned to profitability on
a significant increase in sales. Seibert-Oxidermo, our paint subsidiary,
continued to provide solid results as several new customers were brought on
stream. Elco, our lubricant additive subsidiary, generated the strongest
performance in its history through improved responsiveness to customer needs and
its entry into the pharmaceutical intermediates market. RTI, our laboratory
analysis division, succeeded in generating a profit in spite of extremely
competitive conditions in the environmental and analytical testing field.
Harvel, our plastics pipe subsidiary, continued to deliver excellent performance
by focusing on quality in its operations, products and customer service. The
Solvents and Environmental Services Division continued to deal with adverse
market developments which resulted in a loss for the year; however, the results
were significantly improved from the prior year.
The Company continues to analyze its environmental reserve and makes
adjustments to reflect changes from updated or new studies and any other
significant developments. During 1996, the Company added $800,000 to the
reserve. Also in 1996, the Company reflected in income a $900,000 settlement
whereby the Company will recover expenses incurred in conjunction with clean up
costs at a site where the Company formerly conducted business. For a more
detailed explanation of the Company's liabilities for environmental matters,
refer to Footnote 11 of the Consolidated Financial Statements.
COMPARATIVE OPERATING DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ----------------
$ % $ % $ %
------ ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales................................................ 96,825 100.0 94,302 100.0 100,096 100.0
Gross margin............................................. 22,725 23.5 21,240 22.5 22,961 22.9
Selling, general and administrative expenses............. 18,971 19.6 20,028 21.2 18,910 18.9
Depreciation and amortization............................ 3,189 3.3 3,394 3.6 3,405 3.4
Gain on sale of PIFCO.................................... 369 .4 -- -- -- --
Net income (loss)........................................ 415 .4 (1,869) (2.0) (5,639) (5.6)
</TABLE>
1996 COMPARED TO 1995 -- Net sales in 1996 increased $2.5 million over 1995
amounts. Revenue increases occurred at the Company's Equipment Division, its
paint subsidiary (Seibert-Oxidermo, Inc.), its plastic pipe subsidiary (Harvel
Plastics, Inc.) and its lubricant additives subsidiary (The Elco Corporation).
Revenue decreases occurred at the Solvents and Environmental Services Division
and at PIFCO which was sold in October.
Gross margin in 1996 was 23.5%, compared to 22.5% in 1995. The increase is
attributable to improved margins at the Company's Equipment Division and The
Elco Corporation (Elco). These two business units had the largest increase in
sales, were able to control costs, and therefore benefitted from economies of
scale. In addition, Elco entered the pharmaceutical intermediates market where
margins are better than Elco's traditional product lines.
The $1.0 million decrease in selling, general and administrative expenses
is attributable to cost cutting and control activities that took place, and a
reduction in termination and severance pay. Cost cutting was most prevalent in
the Company's Solvents and Environmental Services Division. This cost cutting
action contributed to a smaller loss for this division in 1996 than the one that
occurred in 1995.
12
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
The 1996 provision for depreciation and amortization is approximately the
same as in 1995 for all of the Company's current business units. The overall
reduction in depreciation expense is primarily attributable to no depreciation
in 1996 on a former production facility currently held for sale.
Interest expense increased in 1996 as a result of higher interest rates
being incurred on the short-term borrowings under the Company's credit facility.
This rate increase was partially offset by lower borrowings.
The income tax credit in 1996 reflects the normal federal income tax
provision, state and local income taxes, and a credit reflecting the recognition
of a rate differential resulting from the carry-back of certain components of
this year's taxable loss to a tax year in which the statutory rate was 46%. The
Company has net operating loss carryforwards of approximately $3.0 million at
December 31, 1996, representing a federal income tax benefit of approximately
$1.0 million.
1995 COMPARED TO 1994 -- In 1995, net sales decreased $5.8 million. The
major reason for the decrease was a significant reduction in revenue at the
Company's Solvents and Environmental Services Division resulting from changing
environmental laws, along with smaller decreases at the Company's Industrial
Furnace Division, its Equipment Division, and its paint subsidiary. The
Company's plastic pipe and lubricant additives subsidiaries both had increases
in revenue.
Gross margin in 1995 was approximately the same as in 1994 with the gross
margin in 1995 being 22.5% versus the 22.9% margin in 1994.
The increase in selling, general and administrative expenses reflects a
$500,000 provision for termination pay, increases in the provision for bad debts
and increases in selling expenses at most of the Company's business units.
The provision for depreciation and amortization is approximately the same
as the prior year for all of the Company's major business units.
Interest expense for 1995 was higher than in 1994 due to increased
borrowings in 1995 and higher interest rates.
The income tax credit for both 1995 and 1994 reflects a credit for federal
income taxes, partially offset by state and local income tax expense. In
addition, during 1995 a credit of $792,000 was recorded to reflect a rate
differential resulting from the carryback of certain components of prior year
net operating losses to tax years in which the statutory rate was 46%, partially
offset by a charge of $467,000 establishing a valuation reserve against deferred
tax assets.
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
The Company utilized a combination of internally generated funds and
receipt of federal income tax refunds to finance its activities during 1996. As
explained in Footnote 5 of the Consolidated Financial Statements, the Company
entered into a new Revolving Credit Agreement with Comerica Bank in June, 1996.
The Company has received a commitment from Comerica Bank to extend the current
facility to May 1, 1998. The commitment also provides for an additional $2.0
million term loan.
Working capital was $8.5 million at December 31, 1996, compared to $6.3
million at December 31, 1995.
The Company's capital expenditures (including capital leases) totaled
$3,110,000 in 1996. This compares to $2,662,000 in 1995 and $2,860,000 in 1994.
Capital expenditures in 1997 are estimated to be $4.8 million. The increase
represents additional demand for lubricant additives and the need for plant
improvements.
The Company made cash payments of $1.0 million that were charged to its
environmental reserve in 1996; the Company also recovered $400,000 as a result
of revised allocations and a negotiated settlement with a vendor. It is
anticipated that cash expenditures for environmental matters will be
approximately $1.0 million in 1997.
The Company has paid no dividends since the second quarter of 1991 and
cannot forecast when the dividend will be restored.
13
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
For 1997, the Company plans to continue to borrow under its Revolving
Credit Agreement and to utilize internally generated funds, including the
receipt of a federal income tax refund, to finance its activities.
OTHER
The Company has reviewed the requirements of Statement of Financial
Accounting Standard (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of and has concluded that no
charges to income are necessary.
As indicated in Footnote 14 of the Consolidated Financial Statements, the
Company has elected to continue to report compensation by applying the
requirements of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. The Company has adopted the disclosure requirements of SFAS
No. 123, Accounting for Stock-Based Compensation.
14
<PAGE> 18
SELECTED FINANCIAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net sales.............................................. $96,825 $94,302 $100,096 $105,578 $96,754
Income (loss) before accounting change................. 415 (1,869) (5,639) (1,570) (2,981)
Cumulative effect of accounting change................. -- -- -- -- (1,813)
Net income (loss)...................................... 415 (1,869) (5,639) (1,570) (4,794)(1)
Earnings (loss) per common share before accounting
change............................................... .26 (1.18) (3.56) (.99) (1.88)
Cumulative effect of accounting change per common
share................................................ -- -- -- -- (1.15)
Earnings (loss) per common share....................... .26 (1.18) (3.56) (.99) (3.03)(1)
Total assets........................................... 55,592 57,659 61,775 59,052 59,662
Net working capital.................................... 8,515 6,317 6,968 10,721 8,164
Capital expenditures................................... 2,664 2,095 2,201 1,464 2,166
Long-term debt......................................... 394 518 702 3,030 4,602
Stockholders' equity................................... 17,309 16,893 18,763 24,373 25,943
Stockholders' equity per common share.................. 10.93 10.67 11.85 15.42 16.42
Number of employees.................................... 345 347 367 388(2) 495
Percentages to net sales:
Gross margin...................................... 23.5 22.5 22.9 23.8 23.7
Net income (loss)................................. .4 (2.0) (5.6) (1.5) (5.0)(1)
Net income (loss) as a percent of:
Average total assets.............................. .7 (3.1) (9.3) (2.6) (8.1)(1)
January 1st stockholders' equity.................. 2.5 (10.0) (23.1) (6.1) (15.6)(1)
Current ratio.......................................... 1.4 1.3 1.3 1.5 1.4
</TABLE>
NOTES FOR SELECTED FINANCIAL DATA
(1) Includes a one time charge of $1,812,600 reflecting the adoption of
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, effective January 1, 1992.
(2) At January 1, 1994.
15
<PAGE> 19
PRODUCTS OF THE DETREX GROUP OF COMPANIES
<TABLE>
<S> <C> <C>
CHEMICALS DIVISION(1) EQUIPMENT DIVISION HARVEL PLASTICS, INC.
P.O. BOX 1398, 325 EMMETT AVENUE, P.O. BOX 757,
ASHTABULA, OHIO 44004 BOWLING GREEN, EASTON, PENNSYLVANIA 18042
R. D. WYVILL, General Manager KENTUCKY 42101 E. E. WISMER, President
N-Methyl Pyrrole and Pyrrole D. R. CRANDELL, PVC and CPVC Plastic Pipe
Semi-conductor Grade Division President Solid Bar, Heavy Wall Tubular Stock,
Hydrochloric Acid Aqueous and Semi-Aqueous Angle Stock, Custom Extrusions
Pharmaceutical Intermediates Equipment SEIBERT-OXIDERMO, INC.
(1) Operated by The Elco Corporation Electronic Component Cleaning 16255 WAHRMAN,
SOLVENTS AND and Defluxing Machines ROMULUS, MICHIGAN
ENVIRONMENTAL SERVICES Vapor Degreasers 48174
DIVISION AUTOMATION DIVISION D. A. CHURCH, President
24901 NORTHWESTERN HWY, 24901 NORTHWESTERN HWY, Industrial and Automotive Coatings
SUITE 512 SOUTHFIELD, MICHIGAN Conductive Primers for Rigid and
SOUTHFIELD, MICHIGAN 48075 Flexible Plastics
48075 C. K. UTZ, General Manager Adhesion Promoters for Plastics
D. R. CRANDELL, Division President Automation and Material Automotive Parts Enamels
Virgin or Recycled Solvents Handling Equipment Solvent and Water-Borne Coatings
Solvent Reclamation and THE ELCO CORPORATION
Waste Management 1000 BELT LINE ST.,
RTI LABORATORIES DIVISION CLEVELAND, OHIO 44109
31628 GLENDALE, R. D. WYVILL, President
LIVONIA, MICHIGAN Petroleum Additives for
48050 Hydraulic Fluids, Industrial
J. G. SINGH, General Manager Gear Oils, Greases and
Analytical Laboratory Services Metalworking Fluids
</TABLE>
SUPPLEMENTARY INFORMATION (Unaudited)
Selected Quarterly Data (Thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
1996 Quarters 1995 Quarters
---------------------------------------- ----------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $23,453 $25,060 $24,312 $24,000 $21,514 $25,373 $22,643 $24,772
Gross margin on sales........... 5,642 5,616 5,874 5,593 4,561 5,548 5,401 5,730
Net income (loss)............... 256 35 113 11 (970) (192) (339) (368)
Per common share................ .16 .02 .07 .01 (.62) (.12) (.21) (.23)
Stock price range(1)
High.......................... 7 7 1/4 8 1/2 8 3/4 6 3/4 7 1/2 9 1/2 10 1/2
Low........................... 5 3/4 5 1/4 5 4 3/4 3 1/2 5 3/4 6 3/4 7 1/2
</TABLE>
(1) Stock price range was obtained from NASDAQ quotations.
16
<PAGE> 20
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
<S> <C>
BRUCE W. COX W. C. KING
President, B. W. Cox Company, Chairman and Chief Executive Officer
Manufacturers Representative
T. E. MARK
ROBERT A. EMMETT, III President and Chief Operating Officer
Partner, Reed Smith Shaw & McClay,
Attorneys, Washington, D.C. G. J. ISRAEL
Vice President-Finance, Treasurer and
WILLIAM C. KING Chief Financial Officer
Chairman and Chief Executive Officer
R. M. CURRIE
JOHN F. MANGOLD Secretary and General Counsel
Manufacturing Consultant
E. R. RONDEAU
THOMAS E. MARK Controller
President and Chief Operating Officer
BENJAMIN W. McCLEARY
Partner, McFarland Dewey & Co.,
Investment Bankers, New York City
ARBIE R. THALACKER
Partner, Shearman & Sterling,
Attorneys, New York City
JOHN D. WITHROW
Retired President and Chief Operating Officer,
Lectron Products Inc.
AUDIT COMMITTEE
JOHN F. MANGOLD, Chairman
ARBIE R. THALACKER
ROBERT A. EMMETT, III
TRANSFER AGENT AND
REGISTRAR
STATE STREET BANK AND TRUST COMPANY
AUDITORS
DELOITTE & TOUCHE LLP
</TABLE>
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION FOR THE YEAR 1996 WILL BE FURNISHED WITHOUT CHARGE TO
SHAREHOLDERS UPON WRITTEN REQUEST. REQUESTS ARE TO BE SENT TO VICE
PRESIDENT-FINANCE, DETREX CORPORATION, 24901 NORTHWESTERN HWY., SUITE 500,
SOUTHFIELD, MICHIGAN 48075.
<PAGE> 21
DETREX CORPORATION
GENERAL OFFICES -- 24901 NORTHWESTERN HWY., SUITE 500, SOUTHFIELD, MICHIGAN
48075
- --------------------------------------------------------------------------------
MAILING ADDRESS -- P.O. BOX 5111, SOUTHFIELD, MI 48086-5111
Telephone: (810) 358-5800
INTERNET ADDRESS -- http://www.detrex.com
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation
Name of Subsidiary or Organization
------------------ ---------------
<S> <C> <C>
The Elco Corporation Ohio (1)
ELDISC Export Co. (100% owned by The Elco Corporation) Delaware (1)
Harvel Plastics, Inc. (85% owned by The Elco Corporation) Pennsylvania (1)
Seibert-Oxidermo, Inc. Michigan (1)
Detrex Industrial Water Treatment Michigan (2)
Wayne Chemical Products Company Michigan (2)
</TABLE>
(1) Financial statements of subsidiary company included in the
Consolidated financial statements.
(2) Inactive Corporations
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-80818 and No. 33-80820 of Detrex Corporation Form S-8 of our report dated
February 27, 1997 appearing in this Annual Report on Form 10-K of Detrex
Corporation for the year ended December 31, 1996.
Deloitte & Touche LLP
Detroit, Michigan
March 21, 1997
<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 STATMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,311
<SECURITIES> 0
<RECEIVABLES> 17,161
<ALLOWANCES> 395
<INVENTORY> 9,058
<CURRENT-ASSETS> 29,776
<PP&E> 47,290
<DEPRECIATION> 27,916
<TOTAL-ASSETS> 55,592
<CURRENT-LIABILITIES> 21,261
<BONDS> 394
0
0
<COMMON> 3,167
<OTHER-SE> 14,142
<TOTAL-LIABILITY-AND-EQUITY> 55,592
<SALES> 96,825
<TOTAL-REVENUES> 96,825
<CGS> 74,100
<TOTAL-COSTS> 74,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 920
<INCOME-PRETAX> 406
<INCOME-TAX> (9)
<INCOME-CONTINUING> 415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 415
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>