<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000 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., Ste. 500, Southfield, MI 48075
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 358-5800
------------------
Securities registered pursuant to section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None None
Securities registered pursuant to Section (g) of the Act:
Common Capital Stock, $2 Par Value
----------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
As of April 25, 2000 1,583,414 shares of the registrant's stock were
outstanding.
<PAGE> 2
DETREX CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
<S> <C> <C>
Item 1 Condensed Consolidated Balance Sheets-(Unaudited)
March 31, 2000 and (Audited) December 31, 1999 3
Condensed Consolidated Unaudited Statements
of Operations For the Three Months
Ended March 31, 2000 and 1999 4
Consolidated Unaudited Statements of Cash Flows-
Three Months Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Unaudited
Financial Statements 6-7
Item 2 Management's Discussion and Analysis of
Interim Financial Information 8-9
PART II OTHER INFORMATION
- ------- -----------------
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
2
<PAGE> 3
DETREX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED AUDITED
March 31, 2000 December 31, 1999
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 322,903 $ 381,269
Accounts receivable (less allowance for uncollectible accounts
of $228,000 in 2000 and $244,000 in 1999) 17,301,611 13,363,021
Inventories:
Raw materials 4,430,451 4,981,780
Work in process 59,686 332,187
Finished goods 7,956,712 7,109,459
----------- -----------
Total Inventories 12,446,849 12,423,426
Prepaid expenses and other 742,353 991,888
Deferred income taxes 1,419,370 1,419,370
----------- -----------
Total Current Assets 32,233,086 28,578,974
Land, buildings, and equipment-net 26,027,109 26,687,145
Prepaid pensions 1,817,318 1,760,243
Deferred income taxes 1,335,056 1,454,663
Other assets 1,083,566 1,136,948
----------- -----------
$62,496,135 $59,617,973
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Loans payable $11,521,168 $8,313,749
Current portion of long-term debt 966,000 866,000
Current maturities of capital leases 201,588 214,349
Accounts payable 10,789,158 11,403,039
Environmental reserve 1,500,000 1,500,000
Accrued compensation 555,287 300,362
Other accruals 2,560,156 2,258,978
----------- ----------
Total Current Liabilities 28,093,357 24,856,477
Long term portion of capital lease obligations 224,102 267,942
Long-term debt 4,111,275 4,802,775
Accrued postretirement benefits 4,777,822 4,702,822
Environmental reserve 5,730,044 5,834,555
Accrued pension and other 100,696 100,696
Minority interest 2,274,955 2,160,379
Stockholders' Equity:
Common capital stock, $2 par value, authorized 4,000,000 shares,
outstanding 1,583,414 shares 3,166,828 3,166,828
Additional paid-in capital 22,020 22,020
Retained earnings 13,995,036 13,703,479
----------- -----------
Total Stockholders' Equity 17,183,884 16,892,327
----------- -----------
$62,496,135 $59,617,973
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
3
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DETREX CORPORATION
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
Net sales $26,906,085 $21,994,014
Cost of sales 20,142,436 16,510,918
Selling, general and administrative expenses 4,867,773 4,405,008
Provision for depreciation and amortization 953,070 927,979
Net (gain)/ loss from property transactions 13,904 (380,206)
Other income and deductions (38,688) (40,455)
Minority interest 114,575 61,154
Interest expense 357,085 186,277
----------- -----------
Income before income taxes 495,930 323,339
Provision for income taxes 204,373 119,635
----------- -----------
Net income $ 291,557 $ 203,704
=========== ===========
Net income per common share:
Basic $ .18 $ .13
Diluted $ .18 $ .13
Weighted average shares outstanding:
Basic 1,583,414 1,583,414
Effects of dilutive stock options -- 8,317
------------ -----------
Diluted 1,583,414 1,591,731
============ ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
4
<PAGE> 5
DETREX CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------
2000 1999
----- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 291,557 $ 203,704
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 953,070 927,979
Loss (gain) on sale of fixed assets 13,904 (380,206)
Deferred income taxes 119,607 63,982
Minority interest 114,576 61,155
Changes to operating assets and liabilities that provided (used) cash:
Accounts receivable (3,938,590) (721,240)
Inventories (23,423) (503,552)
Prepaid expenses and other 192,460 270,063
Other assets 105,889 128,936
Accounts payable (613,881) (137,092)
Environmental reserve (104,512) (341,125)
Accrued compensation 254,925 155,785
Other accruals 301,175 441,788
Postretirement benefits 75,000 75,000
----------- -----------
Total adjustments (2,549,800) 41,473
----------- -----------
Net cash provided by (used in) operating (2,258,243) 245,177
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (359,441) (1,374,054)
Proceeds from the sale of fixed assets -- 380,000
Change in proceeds from bond issue -- 797,546
------------ -----------
Net cash used in investing activities (359,441) (196,508)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility 3,207,419 446,360
Principal payments under capital lease obligations (56,601) (72,276)
Repayment of long-term debt (591,500) --
------------ -----------
Net cash provided by financing activities 2,559,318 374,084
------------ -----------
Net increase in cash and cash equivalents (58,366) 422,753
Cash and cash equivalents at beginning of period 381,269 192,689
------------ -----------
Cash and cash equivalents at end of period $ 322,903 $ 615,442
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 315,465 $ 186,517
Income taxes $ -0- $ 66,197
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred with the acquisition of equipment $ -0- $ 17,715
Capital lease terminations $ -0- $ 39,575
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
5
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DETREX CORPORATION
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying condensed consolidated
unaudited financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the results of operations for
the periods presented. The information furnished for the three months may not be
indicative of results to be expected for the full year.
2. The Company and at least seventeen other companies are potentially
responsible for sharing the costs in a proceeding to clean up contaminated
sediments in the Fields Brook watershed in Ashtabula, Ohio. The Environmental
Protection Agency (`EPA') issued a Record of Decision in 1986 concerning the
methods it recommends using to accomplish this task. The Company and the other
potentially responsible parties negotiated with the EPA as to how best to effect
the clean up operation. After negotiation, an agreement was reached with the EPA
on clean-up methodology. The Company's share of clean-up costs is anticipated to
be in the range of approximately $2.5 million.
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 amounts of the reserve at March 31, 2000 was $7.2 million. The
reserve includes a provision for the Company's anticipated share 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 other
sites. Some of these studies have been completed; others are ongoing. In some
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. One of those lawsuits involves
the division of costs between several potentially responsible companies for
reimbursement to the EPA for costs it incurred to conduct environmental
remediation at a drum and barrel recycler, which the Company had utilized
several years ago. The potentially responsible companies entered into an
Agreement to, among other things, jointly defend the cost claims of the EPA. A
dispute arose amongst the potentially responsible companies over the Agreement
which resulted in the filing of a lawsuit. The matter went to trial before a
jury in June of 1999 and a judgment was entered against the Company in the
amount of approximately $750,000, plus interest and attorney fees. The Company
is taking an appeal to the Michigan Court of Appeals and believes it has
reasonable grounds to seek reversal of the judgment.
The amount of liability to the Company with respect to costs of
remediation of contamination of the Fields Brook watershed and of other sites,
and the amount of liability with respect to several other claims and lawsuits
against the Company, was based on available data. The Company has established
its reserves in accordance with its interpretation of the principles outlined in
Statement of Financial Accounting Standards No. 5 and Securities and Exchange
Commission Staff Accounting Bulletin No. 92. In the event that any additional
accruals should be required in the future with respect to such matters, the
amounts of such additional accruals could have a material impact on the results
of operations to be reported for a specific accounting period but should not
have a material impact on the Company's consolidated financial position.
6
<PAGE> 7
DETREX CORPORATION
3. The Company has five operating segments that meet the quantitative thresholds
of Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information":
-Harvel Plastics - manufactures PVC and CVPC pipe and custom extrusions
-Elco Corporation - produces lubricant additives, hydrochloric acid and fine
chemicals
-Seibert-Oxidermo - supplies paint, primers and specialty coatings for the
automotive industry
-Equipment Division - designs, engineers and sells industrial cleaning
equipment
-Solvents Division - distributes virgin or reclaimed solvents and aqueous or
semi-aqueous cleaning chemistries and provides parts cleaning services.
Other includes consulting, businesses sold in 1999, property transactions,
minority interest and provisions for certain employee benefit items. Data for
the three months ended March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------
Three Months Ended March 31
- ------------------------------------------------------- -----------------------------------------
2000 1999
---- ----
- ------------------------------------------------------- --------------------- -------------------
Net sales:
- ------------------------------------------------------- --------------------- -------------------
<S> <C> <C>
Harvel Plastics $12,395,631 $ 8,697,855
- ------------------------------------------------------- --------------------- -------------------
Elco Corporation 5,715,278 5,263,528
- ------------------------------------------------------- --------------------- -------------------
Seibert-Oxidermo 3,958,582 3,381,126
- ------------------------------------------------------- --------------------- -------------------
Equipment Division 1,070,578 493,124
- ------------------------------------------------------- --------------------- -------------------
Solvents Division 3,595,264 3,696,951
- ------------------------------------------------------- --------------------- -------------------
Other 170,752 461,430
----------- -----------
- ------------------------------------------------------- --------------------- -------------------
Total $26,906,085 $21,994,014
=========== ===========
- ------------------------------------------------------- --------------------- -------------------
Earnings (loss) before income taxes:
- ------------------------------------------------------- --------------------- -------------------
Harvel Plastics $1,260,452 $ 673,295
- ------------------------------------------------------- --------------------- -------------------
Elco Corporation 484,378 552,033
- ------------------------------------------------------- --------------------- -------------------
Seibert-Oxidermo 160,022 79,244
- ------------------------------------------------------- --------------------- -------------------
Equipment Division (279,783) (369,475)
- ------------------------------------------------------- --------------------- -------------------
Solvents Division 54,984 16,339
- ------------------------------------------------------- --------------------- -------------------
Other 143,191 139,029
------- -------
- ------------------------------------------------------- --------------------- -------------------
Sub-total 1,823,244 1,090,465
- ------------------------------------------------------- --------------------- -------------------
- ------------------------------------------------------- --------------------- -------------------
Corporate administrative expense (915,484) (915,258)
- ------------------------------------------------------- --------------------- -------------------
Corporate interest expense (279,330) (156,853)
- ------------------------------------------------------- --------------------- -------------------
Other (132,500) 304,985
--------- ---------
- ------------------------------------------------------- --------------------- -------------------
Total $ 495,930 $ 323,339
========= =========
- ------------------------------------------------------- --------------------- -------------------
</TABLE>
7
<PAGE> 8
DETREX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF INTERIM FINANCIAL INFORMATION
Results of Operations
Detrex Corporation and its consolidated subsidiaries (the Company) reported net
income of $291,557 for the first quarter of 2000 compared to $203,704 net income
for the comparable period last year. This year's results reflect entirely
operating income whereas the first quarter of 1999 benefitted from a net gain
from property transactions totalling $380,000 before tax and $250,000 after tax.
Summarized below is selected operating data for the current fiscal period and
the comparable data for the same period last year (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Three Months Ended
- --------------------------------------------------------------------------------------
March 31
- --------------------------------------------------------------------------------------
2000 1999
---- ----
- --------------------------------------------------------------------------------------
$ % $ %
- - - -
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales 26,906 100.00 21,994 100.0
- --------------------------------------------------------------------------------------
Gross margin 6,764 25.1 5,483 24.9
- --------------------------------------------------------------------------------------
Selling, general and administrative expenses 4,868 18.1 4,405 20.0
- --------------------------------------------------------------------------------------
Depreciation and amortization 953 3.5 928 4.2
- --------------------------------------------------------------------------------------
Net gain/ (loss) from property transactions (14) (.05) 380 1.7
- --------------------------------------------------------------------------------------
Net income 292 1.1 204 .9
- --------------------------------------------------------------------------------------
</TABLE>
Sales for the quarter were up $4.9 million largely due to a $3.7 million
increase at Harvel Plastics ("Harvel"). All other segments, with the exception
of the Company's Solvents Division, contributed to the increase.
The gross margins of the Company were approximately the same as the first
quarter of last year. Each of the five segments had some improvement in margins
contributing to the overall .2% improvement.
Selling and administrative expenses as a percentage of sales improved by almost
2% over a year ago. However, expenses were up in total from additional sales and
technical support at Harvel, The Elco Corporation ("Elco"), and Seibert-Oxidermo
("Seibert") as volume increased.
The provision for depreciation and amortization is slightly higher than in 1999,
primarily a result of higher depreciation of equipment at Harvel.
Interest expense is higher due to an increase in borrowings and higher interest
rates from a year ago.
The effective income tax rate in 2000 is higher than in 1999 due to to higher
state and local income tax expense.
Results of Operations - Segment Disclosure
Harvel had a record quarter in both sales and earnings resulting from strong
demand in the construction industry and the ability to better service the
western part of the country from its new California facility.
Elco's sales revenue increased by approximately $450,000 but its earnings were
lower as a result of higher expenses, primarily in the international sales area
where the company is investing to improve its presence.
8
<PAGE> 9
DETREX CORPORATION
Seibert's sales and earnings were both up from a year ago as a result of high
automotive demand, new applications and the growing acceptance of its PopFree
primer. Seibert also benefitted from manufacturing efficiencies from last year's
consolidation of two plants into one.
Equipment Division's sales were up from a year ago but not at a level that
allowed this division to show a profit as the weakness in the cleaning equipment
market stretched into 2000. Reorganization of this division took place in April
of this year and the streamlined division is being combined with the Solvents
Division to form a new business unit, Detrex Parts Cleaning Technologies. We
expect this new business unit to be profitable in the second half of the year.
Solvents Division earned a small profit even though revenue was $100,000 lower.
The Solvents Division continues to offer alternative chemistries to its
traditional chlorinated solvents customers and is providing parts cleaning
services to some large industrial companies.
Liquidity, Financial Condition, and Capital Resources
The Company primarily utilized increased borrowings under its revolving credit
facility to finance its activities during the first three months of 2000. The
increased borrowings were required to support $3.9 million of higher receivables
as sales volume increased 17.3% over the fourth quarter of 1999 and 22.3% over
the first quarter of last year. The Company expects to borrow at approximately
the current levels for the remainder of the year.
Working capital was $4.1 million at March 31, 2000 compared to $3.7 million at
December 31, 1999. The Company has paid no dividends since the second quarter of
1991 and cannot forecast when the dividend will be restored.
PART II - OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) No reports on Form 8-K have been filed for the
quarter ended March 31, 2000.
9
<PAGE> 10
DETREX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DETREX CORPORATION
Date 4/26/00 /s/ S. J. Quinlan
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S. J. Quinlan
Controller and Chief Accounting Officer
Date 4/26/00 /s/ G. J. Israel
------- --------------------------------------------
G. J. Israel
Vice President - Finance and Chief Financial
Officer
10
<PAGE> 11
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 323
<SECURITIES> 0
<RECEIVABLES> 17,529
<ALLOWANCES> 228
<INVENTORY> 12,447
<CURRENT-ASSETS> 32,233
<PP&E> 60,928
<DEPRECIATION> 34,900
<TOTAL-ASSETS> 62,496
<CURRENT-LIABILITIES> 28,093
<BONDS> 3,124
0
0
<COMMON> 3,167
<OTHER-SE> 14,017
<TOTAL-LIABILITY-AND-EQUITY> 62,496
<SALES> 26,906
<TOTAL-REVENUES> 26,906
<CGS> 20,142
<TOTAL-COSTS> 20,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 357
<INCOME-PRETAX> 496
<INCOME-TAX> 204
<INCOME-CONTINUING> 292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 292
<EPS-BASIC> .18
<EPS-DILUTED> .18
</TABLE>
