Detrex Corporation (DTRX), today announced 2016 net income of $0.5 million, or $0.29 per fully diluted share, compared to 2015 net income of $2.3 million, or $1.33 per fully diluted share. The large difference in income is primarily due to 2016 pre-tax charges of $2.5 million for restructuring costs and pension expense. Restructuring and relocation of the holding company to Elco’s Cleveland facilities resulted in $1.4 million in severance costs for the corporate staff and $0.1 million in relocation and other personnel costs. This restructuring will result in approximately $0.8 million in ongoing annual savings. Pension expense increased by $1.1 million year over year primarily due to a $0.8 million non-cash settlement loss from a buy out of certain pension liabilities. In 2016 net income includes a $0.25 million pre-tax charge to increase the environmental reserve to $1.8 million, a pre-tax environmental charge of $0.3 million was included in 2015 results.
“We are positive about the outlook going forward as US domestic markets appear to be rebounding, and work done at Elco during the past few years is beginning to yield results as is evidenced by improved revenue and profitability in the fourth quarter of 2016 and the first two months of 2017” said President, CEO and Chairman Tom Mark. The Company also announced that it will pay a $0.25 quarterly dividend on March 23, 2017 to shareholders of record as of March 9, 2017.
Elco’s sales in 2016 were $37.5 million compared to sales of $38.9 million in 2015. Modest headwinds continued in the US domestic market while export sales helped to offset most of this decline, increasing from 25% in 2015 to 32% of total sales in 2016. Most of the export growth was in metalworking and grease applications where the company has focused most of its product development. Product lines which show particular promise are the Company’s light color low odor sulfurized additives, chlorinated paraffin replacements, and additive packages for grease. A number of product approvals have been obtained with domestic customers, and revenue growth will depend on improving market conditions to drive utilization of these products.
Elco's 2016 operating margin of $5.1 million was slightly ahead of 2015 on lower sales as the result of increased gross margins. Gross margin, expressed as a percent of sales, was 32.5% in 2016 compared to 30.4% in 2015. Favorable product mix and slightly lower manufacturing expenses were the primary contributors. Overhead expenses increased marginally as we continue to make investments in sales, R&D and personnel.
The Company’s environmental liability activities during the year were related to the sites that were retained after the 2013 liability transfer transaction. An additional $0.25 million pre-tax environmental provision was made for future costs as reserves were updated with the most recent information. The year-end environmental reserve was $1.8 million, and $0.3 million is expected to be spent in 2017.
The Company's frozen defined benefit plans improved with a $2.1 million underfunded balance at the end of 2016 compared to a $3.7 million underfunded balance at the end of 2015. Contributing to this improvement was an investment gain of $2.1 million on the pension portfolio in 2016, while discount rates were held constant at 4.50% for both years. The pension plan bought out the pension liabilities for a limited group of vested former employees for $1.5 million which resulted in a non-cash settlement loss of $0.8 million. The Company does not expect to make material pension contributions during 2017.
The year end bank loan balance, net of cash on hand, was $1.1 million compared to a net balance of $1.6 million at the end of 2015. Significant spending during 2016 included capital expenditures of $0.9 million, severance payments of $0.6 million, environmental spending of $0.2 million, and shareholder dividend payments of $1.7 million.
“In 2016, we took action to improve the future profitability of Detrex by reducing the holding company overhead while strengthening the foundation for Elco’s growth and earnings. We are positioned for improved performance as these investments yield results” said Tom Mark. “The Board is in the process of evaluating strategic opportunities to generate shareholder value and will keep you informed of our progress.”
About Detrex Corporation
Founded in 1925, Detrex Corporation through its subsidiary The Elco Corporation is a leading manufacturer of high performance specialty chemicals including additives for industrial petroleum products and high purity hydrochloric acid.
Forward Looking Statements
Statements included in this press release that are not historical in nature are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Act”). The words “believe,” “expect,” “anticipate,” “estimate,” “guidance,” “target” and similar expressions identify forward-looking statements. The Company cautions readers that forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in the forward-looking statements. Certain risks and uncertainties are identified from time to time in the Company’s reports. Some factors that could cause results to differ materially from those projected in the forward-looking statements include: market conditions, environmental remediation costs, pension expense and funding requirements, liquidation value of assets, and marketability of real estate and the market value and future liquidity of Detrex stock. The Company claims the protection of the safe harbor for forward-looking statements contained in the 1995 Act.
|Detrex Corporation and Subsidiaries|
|Condensed Consolidated Statements of Income|
|Years Ended December 31, 2016 and 2015|
|Cost of sales||25,336||27,058|
|Selling, general and administrative expense||9,985||7,114|
|Provision for depreciation and amortization||1,333||1,311|
|Provision for corporate environmental reserves||251||300|
|Interest (income) expense, net||213||96|
|Other (Income) Expense, net||16||13|
|Income before income taxes||390||2,994|
|Provision for income taxes||(108||)||692|
|Basic earnings per common share:||$||0.29||$||1.37|
|Fully diluted earnings per common share:||$||0.29||$||1.33|
|Shares outstanding,fully diluted||1,704||1,726|
|Condensed Consolidated Balance Sheets|
|Dec 31||Dec 31|
|Property and equipment, net||8,687||9,144|
|Liabilities and stockholders' equity|
|Detrex Corporation shareholders' equity||11,064||10,794|
|Total liabilities and stockholders' equity||$||22,525||$||22,328|