DETREX CORPORATION - (DTRX:PK) Contact: Thomas E. Mark
Phone: (248) 358-5800 FAX: (248) 799-7192

 

April 25, 2013

PRESS RELEASE

Detrex Corporation Announces Earnings for Full Year 2012 and the Signing of a Non-binding Letter of Intent for an Environmental Liability Transfer

Southfield, Michigan – April 25, 2013 - Detrex Corporation (DTRX.PK), today announced 2012 full year net income of $7.7 million, or $4.49 per fully diluted share, compared to $4.3 million, or $2.53 per fully diluted share, in 2011. The Company also announced the signing of a non-binding letter of intent to enter into a transaction to transfer a significant portion of its environmental liabilities to a third party.

The Company took significant action to enhance shareholder value in 2012. The key initial achievement was the sale of Harvel which was timely since it captured the value in that subsidiary as its markets began to shift away from its core business as a domestic stand-alone pipe supplier towards global full systems suppliers. The proceeds from the sale of Harvel opened up a range of strategic opportunities. The most significant of these was the aggressive pursuit of solutions to the legacy environmental liabilities. These liabilities have long been a source of uncertainty and a significant drain on resources. At the end of 2012 the Company took a $13.9 million pre-tax ($9.1 million after tax) charge to earnings for this liability and with the announcement of a pending liability transfer transaction, the Company believes that it will have improved predictability and sustainability of earnings and cash flow. In addition, the Harvel sale proceeds made it possible to eliminate all bank debt, aggressively fund the pension plans, pay dividends to shareholders, position Detrex as a true specialty chemicals company, and enhance the potential for generating more shareholder value. The Company’s remaining subsidiary, The Elco Corporation, continued to generate solid operating results while these issues were being addressed.

Harvel was sold for approximately $50 million that provided Detrex with net after-tax proceeds of approximately $38 million. Earnings for the year include the resulting after-tax gain of $14.7 million. Detrex sales from continuing operations consist solely of revenue generated by Elco. The year-on-year reduction in sales was 11.2% and the Company generated a net loss from continuing operations of $7.0 million, inclusive of pre-tax environmental charges of $15.7 million. Detrex’s overall net income, including the net gain on the Harvel sale reported in discontinued operations, was $7.7 million.

Elco generated solid performance with 2012 sales of $43.4 million. This is $5.5 million lower than sales in the prior year and is largely due to the absence of tolling revenues in 2012, lower sales to a major customer, and overall sluggish industrial lubricant market activity in the second half of the year. Elco’s lower 2012 revenues resulted in pre-tax earnings of $8.7 million compared to $10.2 million generated in 2011. Elco’s EBITDA for 2012 was a solid $9.8 million. The Company continued to invest in Elco during the year with capital expenditures of nearly $1.8 million to support its future growth initiatives by enhancing technical and production capabilities. The Company expects strong performance in the years to come as customer interest in Elco’s products continues to grow.

In 2012 the Company engaged nationally recognized consultants who have expertise in assessing and estimating the overall costs for transferring the liability for a portfolio of environmentally contaminated sites to a third party. As part of this process, the Company and its consultants contacted firms that engage in the business of assuming and managing to completion, environmental liabilities from others. This in turn led to negotiations with one firm who recently signed a non-binding letter of intent to enter into an environmental liability transfer transaction. The cost for pursuing this transaction coincides closely with the estimate that the Company and its consultants developed for such a transfer. Based on this analysis and the pending transaction, the estimated total cost to clean up the contaminated sites was $17 million at December 31, 2012. The environmental reserve was increased to match this estimate which necessitated a pre-tax charge to income of $15.7 million for the year. This compares to a charge of $2.7 million in 2011 to bring the year-end 2011 environmental reserve to $4.1 million. The 2012 charge to earnings and increase in the balance sheet reserve is intended to eliminate the need for additional charges against earnings in the foreseeable future. The Company has the ability to fund the discharge of the Company’s liability over a period of many years or in the form of a risk transfer transaction. The source of funds will be free cash flow from operations in combination with cash reserves and bank debt, if required. In addition, a significant Federal Income tax refund will be realized if a liability transfer transaction is completed.

The underfunded status of the pension plans decreased in 2012 to approximately $4 million, principally due to a $5.0 million discretionary pension contribution in addition to normal contributions of $1.7 million. The effect of the large cash contributions was partially offset by a one percent reduction in the discount rate used for calculating the plan liabilities. The Company anticipates continuing to fund the pension plans in 2013 with contributions of at least $1.6 million. The Harvel pension plan was assumed by the Buyer in connection with the sale and is not recognized as part of the pension obligations from continuing operations on the 2012 and 2011 balance sheets.

The major cash outlays for the year were Elco capital expenditures of $1.8 million, pension funding of $6.7 million, environmental spending of $2.8 million and shareholder dividends totaling $6.7 million. In addition, the Company fully paid down its bank debt of $15.3 million in the beginning of January 2012. The Company has secured a new $5 million term loan and $5 million revolving credit facility with J.P. Morgan Chase; the Company has not borrowed against its new credit facility.

President and CEO Tom Mark said, “The achievements in 2012 marked a significant step in our quest to effectively position Detrex to deliver shareholder value. Not only did we achieve strong operational and financial results, but we also succeeded in capturing the value in Harvel. During the year we were able to improve shareholder value through a combination of dividends, providing greater clarity on environmental and pension liabilities, as well as reducing overall balance sheet liabilities. We now have a more easily understood and transparent picture of the Company’s health and prospects. We will use this as a base to continue to evaluate and embrace strategic opportunities to generate shareholder value.”


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.
 

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