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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
QUARTERLY REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 1994 Commission file number 1-11013
SPECIALTY CHEMICAL RESOURCES, INC.
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Exact name of registrant as specified in its charter
Delaware 34-1366838
---------------------- ------------------------
State of incorporation I.R.S. Employer I.D. No.
9100 Valley View Road; Macedonia, Ohio 44056
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Address of principal executive offices and zip code
(216) 468-1380
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Registrant's telephone number, including area code
Indicate by a 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 twelve (12) months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past ninety
(90) days. Yes__X__ No_____.
The number of outstanding shares of the registrant's common stock as
of October 25, 1994 was 3,932,777. The registrant has no other class of
stock outstanding.
_________________________________________________________________________
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Specialty Chemical Resources, Inc.
Form 10-Q/A
For the quarter ended September 30, 1994
Index
Part I Financial Information Page
Item 1. Financial Statements..........................................3
Condensed Balance Sheets......................................3
Condensed Statements of Operations, 3 Months..................5
Condensed Statements of Operations, 9 Months..................6
Condensed Statements of Cash Flows, 3 Months..................7
Condensed Statements of Cash Flows, 9 Months..................8
Notes to Financial Statements.................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................10
Part II Other Information
Item 1. Legal Proceedings............................................13
Item 6. Exhibits & Reports on Form 8-K...............................13
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
<CAPTION>
September 30, 1994 December 31, 1993
(Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 18,324 $ 32,691
Accounts Receivables 6,401,224 6,824,594
Receivables - Other (Note C) -0- 4,308,481
Inventories (Note B) 7,254,311 6,342,379
Prepaid expenses 366,654 165,731
Refundable Income Taxes -0- 853,783
------------ ------------
Total current assets 14,040,513 18,527,659
Property, plant and equipment
At cost 10,411,060 10,187,905
Less accumulated depreciation
and amortization (2,544,627) (1,956,503)
------------ ------------
7,866,433 8,231,402
Other assets
Goodwill 21,124,496 21,586,547
Other 1,404,245 1,568,208
------------ -------------
22,528,741 23,154,755
------------ -------------
Total assets $ 44,435,687 $ 49,913,816
============ ============
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
(continued)
<CAPTION>
September 30, 1994 December 31, 1993
(Unaudited) (Audited)
---------------- -----------------
<S> <C> <C>
Current liabilities
Capital lease obligations $ 2,800 $ -0-
Accounts payable 5,018,261 6,660,088
Deferred Income Taxes 337,261 326,345
Accrued expenses 998,315 487,436
Accrued other, including
acquisition costs 137,845 171,160
----------- -----------
Total current liabilities 6,494,482 7,645,029
Long-term obligations
less current maturities 4,800,000 9,948,000
Capital lease obligations 10,171 -0-
Deferred Income Taxes 1,690,111 2,507,018
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Total non-current liabilities 6,500,282 12,455,018
Stockholders' equity
Preferred stock - $.01 par value;
authorized 2,000,000 shares
Common Stock - $.10 par value;
authorized 13,000,000 shares;
issued and outstanding 3,932,777
and 3,932,780 393,279 393,279
Additional paid in capital 41,878,573 41,878,573
Accumulated deficit (10,830,929) (12,458,083)
----------- -----------
31,440,923 29,813,769
----------- -----------
$44,435,687 $49,913,816
=========== ===========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 3 month periods ended:
<CAPTION>
September 30, 1994 September 30, 1993
------------------ ------------------
<S> <C> <C>
Net Sales $11,942,573 $12,821,542
Cost of Goods Sold 9,966,231 9,961,541
----------- -----------
Gross profit 1,976,342 2,860,001
Selling, general and administrative
expenses 1,698,557 1,602,314
Amortization of intangibles 218,448 215,769
----------- -----------
Operating profit (loss) 59,337 1,041,918
Other (income) expense
Interest expense 134,648 141,682
Other (15,084) ( 7,850)
----------- -----------
119,564 133,832
----------- -----------
Earnings (loss) before income
taxes and extraordinary items ( 60,227) 908,086
Income taxes (benefit) (211,000) 329,200
----------- -----------
Net Earnings (loss) before extra-
ordinary items 150,773 578,886
Extraordinary gain (loss) (831,000) -
----------- -----------
Net earnings (loss) $ (680,227) $ 578,886
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Earnings (loss) per common share:
Earnings (loss) before extra-
ordinary item $ .04 $ .15
Extraordinary item $ (.21) $ .00
---------- -----------
Net Earnings $ (.17) $ .15
========== ===========
Weighted average shares outstanding 3,932,777 3,948,377
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 9 month periods ended:
<CAPTION>
September 30, 1994 September 30, 1993
------------------ ------------------
<S> <C> <C>
Net Sales $32,437,452 $34,223,709
Cost of Goods Sold 27,147,678 26,723,960
----------- -----------
Gross profit 5,289,774 7,499,749
Selling, general and administrative
expenses 5,007,951 4,684,052
Amortization of intangibles 655,344 647,306
----------- -----------
Operating profit (loss) (373,521) 2,168,391
Other (income) expense
Interest expense 455,295 364,564
Other (18,173) (28,217)
----------- -----------
437,122 336,347
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Earnings (loss) before income
taxes and extraordinary items (810,643) 1,832,044
Income taxes (benefit) (274,000) 669,000
----------- -----------
Net earnings (loss) before extra-
ordinary items (536,643) 1,163,044
Extraordinary gain (net of income
taxes) (Note C) 2,163,797 -0-
----------- -----------
Net earnings $ 1,627,154 $ 1,163,044
=========== ===========
Earnings (loss) per common share:
Earnings (loss) before extra-
ordinary item $ (.14) $ .29
Extraordinary item $ .55 $ -0-
---------- ----------
Net earnings $ .41 $ .29
========== ==========
Weighted average shares outstanding 3,932,777 3,945,423
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 3 month periods ended:
<CAPTION>
September 30, 1994 September 30, 1993
------------------ ------------------
<S> <C> <C>
Net cash provided (used) by operating
activities $ (399,461) $ (488,037)
Cash flows from investing activities:
Expenditures for property, plant and
equipment - net (259,278) 37
----------- ----------
Net cash provided (used) by
investing activities (259,278) 37
Cash flows from financing activities:
Increase (decrease) in capital lease
obligations 10,171 -
Payments on revolver (1,870,000) (4,760,000)
Proceeds on revolver 2,514,000 5,248,000
----------- -----------
Net cash provided (used) by
financing activities 654,171 488,000
----------- -----------
Net increase (decrease) in cash
and cash equivalents ( 4,568) -
Cash and cash equivalents at beginning
of period 22,892 980
----------- -----------
Cash and cash equivalents at end
of period $ 18,324 $ 980
=========== ===========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
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<TABLE>
Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 9 month periods ended:
<CAPTION>
September 30, 1994 September 30, 1993
------------------ ------------------
<S> <C> <C>
Net cash provided (used) by operating
activities $ 5,477,895 $(4,390,722)
Cash flows from investing activities:
Expenditures for property, plant and
equipment - net (354,433) ( 74,739)
----------- ----------
Net cash provided (used) by
investing activities (354,433) ( 74,739)
Cash flows from financing activities:
Payments on revolver (15,165,000) (11,809,330)
Increase (decrease) in capital lease
obligations 10,171 -
Proceeds on revolver 10,017,000 16,197,000
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Net cash provided (used) by
financing activities (5,137,829) 4,387,670
----------- -----------
Net increase (decrease) in cash
and cash equivalents (14,367) (77,791)
Cash and cash equivalents at beginning
of period 32,691 78,771
----------- -----------
Cash and cash equivalents at end
of period $ 18,324 $ 980
=========== ===========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
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Specialty Chemical Resources, Inc.
Notes to Financial Statements
Note A - Summary of Significant Accounting Policies
The accompanying audited and unaudited financial statements have been
prepared in conformity with generally accepted accounting principles and all
adjustments are of a normal recurring nature and are, in the opinion of
management, necessary to present fairly the financial position of Specialty
Chemical Resources, Inc. (The Company) at December 31, 1993 and September 30,
1994 and the results of operations and cash flows for the interim periods ended
September 30, 1994.
Company inadvertently used a 10 year life for depreciation in
machinery and equipment placed into service this year (assets replaced due to
December, 1992 Macedonia plant fire). The Company has determined the useful
life on this machinery and equipment to be 16 years. For the nine-months ended
September 30, 1994, the impact (related to the change in depreciation) to
earnings before taxes and extraordinary items was $164,042 and for the quarter
$55,397. The effective tax rate for the nine-months ended September 30, 1994
was revised to 33.8% upon electing gain recognition on the replacement of the
fire damaged assets with the filing of the tax return in the third quarter.
The tax affect based on this revised rate for the nine-months ended September
30, 1994 and the quarter was a benefit of $211,000. The extraordinary gain
booked in the second quarter had a tax impact of $831,000 of tax, which arose
on the replacement of the fire damaged assets with the filing of the tax
return.
Any other significant accounting policies employed in the preparation of
the financial statements are included in the Company's most recent Form 10-K.
Note B - Inventories
Inventories are stated at the lower of cost or market determined by the
last-in, first-out (LIFO) method for raw materials and the first-in, first-out
(FIFO) method for finished goods.
The Company's inventories consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------ -----------
<S> <C> <C>
Raw materials $4,490,782 $4,181,837
Finished goods 3,337,302 2,734,315
---------- ----------
Total FIFO cost 7,828,084 6,916,152
Less: Excess of FIFO cost over
LIFO 573,773 573,773
---------- ----------
Total LIFO cost $7,254,311 $6,342,379
---------- ----------
</TABLE>
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Note C - Receivables - Other and Extraordinary Item
During the nine-month period ended September 30, 1994, the Company
received a total of $8,396,814 from its insurance carrier. The final payment,
received June 24, 1994, in the amount of $6,588,333 represents final settlement
on all claims for the December, 1992 fire. The repayment of these monies was
first used to reduce "Receivables - Other" with the remainder resulting in an
extraordinary gain of $2,163,797 (net of taxes).
Note E - Legal Proceedings
There have been no material changes in the status of legal proceedings
pending against the Company other than that which was reported on the Company's
most recent Form 10-K.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
In December, 1992, the company experienced a non-chemical fire at its
Macedonia, Ohio facility. The fire adversely effected production capabilities
at this facility, which adverse effect continued through 1993.
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain items included in the Company's
Statement of Operations.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 83.7% 78.1% 83.5% 77.7%
------ ------ ------ ------
Gross profit.................................... 16.3% 21.9% 16.5% 22.3%
Selling, general and administrative expenses...... 15.4% 13.7% 14.2% 12.5%
Operating profit.(loss)......................... (1.2%) 6.3% .5% 8.1%
Interest expense.................................. 1.4% 1.1% 1.1% 1.1%
</TABLE>
Net sales of $32,437,452 for the nine-month period ended September 30,
1994, were $1,786,257, or 5.2%, below the comparable period in the prior year.
This decrease was a result of reduced demand for automotive and industrial
maintenance products.
For the third quarter ended September 30, 1994, net sales of
$11,942,573 were $878,969, or 6.9%, below the comparable period, in the
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prior year. This decrease was mainly attributable to the same factors
discussed above with respect to the nine-month period ended September 30, 1994.
Cost of goods sold for the nine-month period ended September 30, 1994,
increased by $423,718 as compared to the same period in the prior year. This
increase was due principally to increased charges for utilities and increased
repair/maintenance expense.
Cost of goods sold increased as a percentage of net sales from 78.1%
to 83.7% for the nine-month periods ended September 30, 1993 and 1994,
respectively. The increase in percent of sales was due to reduced sales during
the 1994 period.
Cost of goods sold increased by $4,690 for the three-months ended
September 30, 1994. Cost of goods sold increased as a percentage of net sales
from 77.7% to 83.5% for the three-months ended September 30, 1994 as compared
to the same period in the prior year. The increase was due primarily to reduce
sales during the 1994 period.
Selling, general and administrative expenses were $5,007,951 for the
nine-month period September 30, 1994, or 15.4% of net sales. Selling, general
and administrative expenses were $4,684,052 or 13.7% of net sales for the same
period in 1993. The increase of $323,899 was due principally to an increase in
commission expense incurred from the sales of branded products and increased
freight charges. The increase in percent of sales was due primarily to reduced
sales during the 1994 period.
Selling, general, and administrative expenses were $1,698,557 for the
quarter end September 30, 1994, or 14.2% of net sales. Selling, general, and
administrative expenses were $1,602,314, or 12.5% of net sales for the same
period in 1993. The increase $96,243 was due principally to an increase in
commission expense incurred from the sales of branded products. The increase in
percent of sales was due to reduced sales during the 1994 period.
Interest expense for the nine-months ended September 30, 1994, was
1.4% of net sales versus 1.1% for the comparable period in the prior year.
Interest expense was $455,295 for the nine-months ended September 30, 1994, an
increase of $90,731 from the nine-months ended September 30, 1993. This
increase was due to increased borrowing as well as higher interest rates. See
"Liquidity and Capital Resources".
Interest expense for the quarters ended, September 30, 1994, was 1.1%
of net sales the same as 1.1% for the comparable period in the prior year.
Interest expense was $134,648 for the quarter ended September 30, 1994, a
decrease of $7,034 from the quarter ended September 30, 1993. See "Liquidity
and Capital Resources".
The Company recorded net earnings for the nine-months ended September
30, 1994, of $1,627,154, or $.41 per share on weighted average shares
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outstanding of 3,932,777. This compared to a net earnings of $1,163,044, or
$.29 per share on weighted average shares outstanding of 3,945,423 for the same
period in the prior year. The earnings for the nine-month period ended
September 30, 1994 were the result of an extraordinary gain of $2,163,797 (net
of taxes), or $.55 per share on weighted average shares outstanding of
3,932,777. The extraordinary gain resulted from the insurance settlement on
the property and business interruption costs related to the December, 1992 fire
at the Macedonia, Ohio plant. Had the Company not recognized the extraordinary
gain, a net loss would have been reported of $536,643, or $.14 per share on
3,932,777 weighted average shares outstanding.
For the quarter ended September 30, 1994, the Company lost $.17 per
share on weighted average shares outstanding of 3,932,777 as compared to
earning $.15 per share on weighted average shares outstanding of 3,948,777 for
the same period in the prior year. The earnings for the quarter ended
September 30, 1994, were effected by an $831,000 tax adjustment or $.21 per
share on the extraordinary gain realized in the second quarter. The tax
adjustment arose upon electing gain recognition on the replacement of the fire
damaged assets with the filing of the tax return in the third quarter. Had the
Company not recognized the extraordinary loss, a net gain would have been
reported of $150,773, or $.04 per share on 3,932,777 weighted average shares
outstanding.
Liquidity and Capital Resources
As of September 30, 1994, the Company's ratio of current assets to
current liabilities was 2.39 to 1 and the quick ratio (cash, cash equivalents,
and accounts receivable, divided by current liabilities) was 1.13 to 1.
During the nine-months ended September 30, 1994, the Company incurred
$455,295 in interest expense and made interest payments totaling $368,657.
Accrued interest at September 30, 1994 was $76,514. Substantially all of the
Company's interest expense was related to the "Credit Agreement" discussed
below.
The Company, as borrower, is a party to a credit agreement (the
"Credit Agreement") that provides for a $10,000,000 revolving line of credit at
an interest rate equal to the prime rate or the London Inter-Bank Offered Rate
(LIBOR), at the Company's election. The Credit Agreement, entered into on
March 30, 1992 and expiring on May 31, 1995, is a facility that allows for
borrowings based upon a formula comprised of inventory, accounts receivable and
fixed assets, less environmental compliance reserve, if any.
Under the terms of the Credit Agreement, the Company is required to
comply with various covenants, the most restrictive of which relate to
restrictions on distributions from the Company to its stockholders, maintenance
of certain financial ratios and levels of tangible net worth and limits on
capital expenditures. As of September 30, 1994,
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approximately $5,380,000 was unused and available under the Credit Agreement.
The Company spent $223,155 on capital improvements during the
nine-month period ended September 30, 1994. The Company expects to spend
approximately $500,000 on capital improvements during the current fiscal year.
Such expenditures are expected to be funded from cash generated by operations
and borrowings under the Credit Agreement.
Part II - Other Information
Item 1. Legal Proceedings
There have been no material changes in the status of legal proceedings
pending against the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are included with this report.
(b) The Company filed no reports on Form 8-K during the quarter ended
September 30, 1994.
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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.
Specialty Chemical Resources, Inc.
By: /s/ COREY ROTH March 22, 1995
-----------------------------------
Corey Roth
Vice President, and Treasurer
(Principal Financial Officer)
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