<PAGE>   1
                                                                      EXHIBIT 13


                     DETREX CORPORATION AND SUBSIDIARIES

                      1998 ANNUAL REPORT TO SHAREHOLDERS


<PAGE>   2
                                                                      EXHIBIT 13

 
                                      ------------------------------------------
 
                                                        DETREX
                                                     CORPORATION
 
                                                  1998 ANNUAL REPORT
 
                                      ------------------------------------------
<PAGE>   3
 
HIGHLIGHTS(1)
 
<TABLE>
<CAPTION>
                                                   1998              1997              1996
                                                -----------       -----------       -----------
<S>                                             <C>               <C>               <C>
Net sales.....................................  $86,039,000       $95,757,000       $96,825,000
Net income (loss).............................     (797,000)        1,513,000           415,000
Income (loss) per common share -- basic.......         (.50)              .96               .26
Stockholders' equity per common share.........        11.38             11.89             10.93
Additions to land, buildings and equipment
  (including capital leases)..................    7,500,000         5,360,000         2,770,000
Current ratio.................................     1.3 to 1          1.4 to 1          1.4 to 1
Number of stockholders........................          443               441               387
Number of employees...........................          366               353               345
</TABLE>
 
(1) This information should be considered in conjunction with
    the Consolidated Financial Statements and Management's
    Discussion and Analysis.
--------------------------------------------------------------------------------
 
DETREX GROUP OF COMPANIES
 
    -- Detrex Corporation -- a specialty chemicals company
 
       - Solvents and Equipment Divisions -- provide solutions for production
         parts cleaning needs, including equipment, solvents, recycling of
         waste, and contract parts cleaning
 
       - Automation Division -- engineering, selling, and servicing automation
         and material handling equipment
 
       - RTI Laboratories -- provides full-service analytical and environmental
         laboratory services
 
    -- Subsidiaries of Detrex Corporation
 
       - Harvel Plastics, Inc. -- manufacturer of high quality PVC and CPVC pipe
         and custom extrusions
 
       - The Elco Corporation -- manufacturer of high performance specialty
         chemicals including lubricant additives, fine chemicals, and
         semi-conductor grade hydrochloric acid
 
       - Seibert-Oxidermo, Inc. -- supplier of primers and functional coatings
         for the automotive industry
<PAGE>   4
 
TO OUR SHAREHOLDERS:
 
     After two profitable years, Detrex incurred a loss of $797,000 in 1998. Our
turnaround stalled on several fronts as we and the chemical industry were
buffeted by the turbulent economic situation in Asia, the slow-down in computer
chip manufacturing and the strong U. S. dollar. These conditions contributed to
a $9.7 million reduction in sales for Detrex. The largest declines were in
cleaning equipment sales and export sales of lubricant additives. This volume
reduction had a big impact on the profitability of our business units and action
was taken to reduce costs by approximately $2.5 million on an annualized basis.
At the same time, we focused the organization on improving sales performance and
generating growth opportunities. As we enter 1999, we have lower costs and are
executing several initiatives to grow the revenue base.
 
     All of the business units responded to the economic conditions by improving
their operations. Harvel Plastics, Inc. succeeded in maintaining year-ago sales
levels in spite of very difficult market conditions; however earnings were down
due to pricing pressure and start-up costs associated with the new California
manufacturing facility. The Elco Corporation was hard hit by the economic
conditions referred to above which resulted in volume and profit declines; the
cost structure was realigned in light of lower volumes. Seibert-Oxidermo, Inc.
struggled with low volume through the first three quarters; sales of new and
existing products improved in the fourth quarter, and this, combined with the
consolidation of manufacturing facilities, should allow it to be profitable in
1999. The Solvents and Environmental Services Division improved year-over-year
earnings in spite of shrinking markets and highly competitive conditions. The
two capital equipment divisions, Automation and Equipment, were hard hit by the
slow-down in industrial spending on plant equipment resulting in losses for the
year. The operations of the Equipment Division have been revised to improve
profitability and the resulting termination pay adversely affected the fourth
quarter. RTI Laboratories has weathered the shake-out in the analytical testing
field and enjoyed improved sales and earnings for the year.
 
     A number of initiatives are underway which will benefit us in the years to
come. We are making progress in controlling environmental liabilities as well as
disposing of non-utilized assets. Numerous growth opportunities are being
pursued in the operating units, including:
 
     - Harvel's new California manufacturing facility is operating and producing
       plastic pipe.
 
     - The Solvents Division has successfully started a contract parts cleaning
       business; we will build on this success by opening additional parts
       cleaning centers in 1999.
 
     - Seibert has developed a paint formulation which helps our customers solve
       difficult quality problems on SMC parts.
 
     - We are expanding production capacity for pyrroles in Elco to meet growing
       demand for these chemicals.
 
     In spite of the disappointing earnings, cash flow from operations was
positive by $1.4 million. These internally generated funds and $4.0 million in
industrial revenue bonds were used to help fund capital expenditures of $7.1
million. These investments were for the expansion of Harvel's operations in
California, various growth initiatives and continuing improvements in plant and
equipment.
 
     We are committed to supporting growth opportunities in all of the operating
units and will focus on achieving improved sales performance in 1999. While we
expect that business conditions in the chemical industry will remain at the
current level for several months, we should be well positioned for improvement
when economic conditions in the industry improve. We thank you and the entire
Detrex family for your continued backing and support.
 
           Thomas E. Mark                           William C. King
 President and Chief Operating Officer     Chairman and Chief Executive Officer
 
                                        1
<PAGE>   5
 
          --------------- INDEPENDENT AUDITORS' REPORT ---------------
 
                       [DELOITTE & TOUCHE LLP LETTERHEAD]
 
To the Board of Directors and Stockholders of
  Detrex Corporation
 
We have audited the accompanying consolidated balance sheets of Detrex
Corporation and its subsidiaries (the Company) as of December 31, 1998 and 1997
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, 1998.
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, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
 
DELOITTE & TOUCHE LLP
 
February 25, 1999
 
 
2
<PAGE>   6
 
DETREX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31
 
<TABLE>
<CAPTION>
                                                                   1998              1997              1996
                                                                -----------       -----------       -----------
<S>                                                             <C>               <C>               <C>
NET SALES...................................................    $86,039,277       $95,756,801       $96,825,436
Cost of sales (exclusive of depreciation)...................     64,754,272        71,356,262        74,147,179
Selling, general and administrative expenses................     18,062,684        17,816,042        18,923,660
Provision for depreciation and amortization.................      3,311,984         3,242,789         3,188,758
Net environmental (income)..................................        --                --               (100,000)
Other (income) expense -- net...............................       (149,210)          293,961          (571,118)
Minority interest...........................................        246,352           314,912           280,014
Interest expense............................................        781,002           723,893           919,947
Gain on sale of Pacific Industrial Furnace Division.........        --                --               (368,985)
                                                                -----------       -----------       -----------
INCOME (LOSS) BEFORE INCOME TAXES...........................       (967,807)        2,008,942           405,981
Provision (Credit) for income taxes.........................       (171,280)          495,839            (9,387)
                                                                -----------       -----------       -----------
NET INCOME (LOSS)...........................................       (796,527)        1,513,103           415,368
RETAINED EARNINGS AT BEGINNING OF YEAR......................     15,632,925        14,119,822        13,704,454
                                                                -----------       -----------       -----------
RETAINED EARNINGS AT END OF YEAR............................    $14,836,398       $15,632,925       $14,119,822
                                                                ===========       ===========       ===========
NET INCOME (LOSS) PER COMMON SHARE:
Basic.......................................................          $(.50)             $.96              $.26
                                                                ===========       ===========       ===========
Diluted.....................................................          $(.50)             $.94              $.26
                                                                ===========       ===========       ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.......................................................      1,583,414         1,583,414         1,583,414
Effects of Dilutive Stock Options...........................        --                 28,056            11,222
                                                                -----------       -----------       -----------
Diluted.....................................................      1,583,414         1,611,470         1,594,636
                                                                ===========       ===========       ===========
</TABLE>
 
See Notes to Consolidated Financial Statements.



                                                                               3
<PAGE>   7
 
DETREX CORPORATION
 
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
 
<TABLE>
<CAPTION>
ASSETS
                                                                 1998              1997
                                                              -----------       -----------
<S>                                                           <C>               <C>
CURRENT ASSETS:
Cash and cash equivalents...................................  $   192,689       $   398,093
Accounts receivable (net of allowance for uncollectible
  accounts of $249,000 in 1998 and $372,000 in 1997)........   12,222,210        16,296,172
Inventories.................................................   10,925,801         9,742,109
Land and building held for sale.............................           --         1,425,000
Prepaid expenses and other..................................      966,651           692,543
Deferred income taxes.......................................    1,924,027         1,349,842
                                                              -----------       -----------
       TOTAL CURRENT ASSETS.................................   26,231,378        29,903,759
 
LAND, BUILDINGS AND EQUIPMENT:
Land........................................................      993,602           993,602
Buildings and improvements..................................   17,051,589        16,555,248
Machinery and equipment.....................................   37,259,191        31,298,526
Construction in progress....................................    2,702,657         2,541,084
                                                              -----------       -----------
                                                               58,007,039        51,388,460
Less allowance for depreciation and amortization............   32,743,694        30,040,031
                                                              -----------       -----------
       LAND, BUILDINGS AND EQUIPMENT -- NET.................   25,263,345        21,348,429
LAND, BUILDING AND EQUIPMENT HELD FOR SALE..................       21,232         1,350,239
INDUSTRIAL DEVELOPMENT BOND PROCEEDS -- RESTRICTED FOR
  CAPITAL EXPENDITURES......................................    1,247,902                --
PREPAID PENSIONS............................................    1,383,246         1,338,951
DEFERRED INCOME TAXES.......................................      689,504           693,406
OTHER ASSETS................................................    1,154,148           935,978
                                                              -----------       -----------
                                                              $55,990,755       $55,570,762
                                                              ===========       ===========
</TABLE>
 
See Notes to Consolidated Financial Statements.
                                        4
<PAGE>   8
 
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                   1998              1997
                                                                -----------       -----------
<S>                                                             <C>               <C>
CURRENT LIABILITIES:
Loans payable...............................................    $ 6,289,774       $ 5,699,836
Current portion of long-term debt...........................        500,000                --
Current maturities of capital lease obligations.............        256,724           303,464
Accounts payable............................................      9,682,835         9,843,411
Environmental reserve.......................................      1,235,000         1,485,000
Accrued compensation........................................        263,872         1,184,740
Other accruals..............................................      2,078,391         2,113,776
                                                                -----------       -----------
       TOTAL CURRENT LIABILITIES............................     20,306,596        20,630,227
 
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS..............        468,142           569,396
INDUSTRIAL DEVELOPMENT BONDS................................      3,500,000                --
ACCRUED POSTRETIREMENT BENEFITS.............................      4,671,375         4,488,982
ENVIRONMENTAL RESERVE.......................................      6,803,817         8,090,952
ACCRUED PENSION AND OTHER...................................        148,079         1,028,285
MINORITY INTEREST...........................................      2,067,500         1,941,147
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...........................................     14,836,398        15,632,925
                                                                -----------       -----------
       TOTAL STOCKHOLDERS' EQUITY...........................     18,025,246        18,821,773
                                                                -----------       -----------
                                                                $55,990,755       $55,570,762
                                                                ===========       ===========
</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>
                                                                 1998              1997              1996
                                                              -----------       -----------       -----------
<S>                                                           <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss).......................................  $  (796,527)      $ 1,513,103       $   415,368
                                                              -----------       -----------       -----------
    Adjustments to reconcile net income (loss) to net cash
       provided by operating activities:
         Depreciation and amortization......................    3,311,984         3,242,789         3,188,758
         Loss on disposal of assets.........................       92,857            42,255           107,488
         Deferred income taxes..............................     (570,283)           83,080         1,277,731
         Minority interest..................................      126,353           194,111           160,015
         Changes to operating assets and liabilities that
             provided (used) cash:
           Accounts receivable..............................    4,073,962        (1,092,988)       (1,247,167)
           Note receivable..................................           --         1,562,665        (1,562,665)
           Refundable U.S. income taxes.....................           --         1,003,827         2,036,945
           Inventories......................................   (1,183,692)         (683,942)         (620,662)
           Prepaid expenses and other.......................     (318,403)          185,720            46,018
           Other assets.....................................       52,597           (34,177)           20,761
           Accounts payable.................................     (160,576)       (1,279,930)        2,115,738
           Environmental reserve............................   (1,537,135)         (695,345)           63,098
           Accrued compensation.............................     (920,868)          485,220            56,431
           Accrued postretirement benefits..................      182,393           195,398           307,699
           Other accruals...................................     (919,380)         (600,271)       (1,966,249)
                                                              -----------       -----------       -----------
             TOTAL ADJUSTMENTS..............................    2,229,809         2,608,412         3,983,939
                                                              -----------       -----------       -----------
             NET CASH PROVIDED BY OPERATING ACTIVITIES......    1,433,282         4,121,515         4,399,307
                                                              -----------       -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures....................................   (7,073,049)       (4,710,327)       (2,324,663)
    Proceeds from disposal of property......................    1,395,549             2,125             1,615
    Unused proceeds from bond issue-restricted for capital
       expenditures.........................................   (1,247,902)               --                --
    Proceeds from insurance settlement......................    1,250,000                --                --
                                                              -----------       -----------       -----------
             NET CASH USED IN INVESTING ACTIVITIES..........   (5,675,402)       (4,708,202)       (2,323,048)
                                                              -----------       -----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from debt issued...............................    4,000,000           --                --
    Debt issuance costs.....................................     (222,985)          --                --
    Borrowing (repayment) under revolving credit facility...      589,938            72,383        (2,872,547)
    Principal payments under capital lease obligations......     (330,237)         (398,648)         (657,027)
                                                              -----------       -----------       -----------
             NET CASH PROVIDED BY (USED IN) FINANCING
                  ACTIVITIES................................    4,036,716          (326,265)       (3,529,574)
                                                              -----------       -----------       -----------
Net decrease in cash and cash equivalents...................     (205,404)         (912,952)       (1,453,315)
Cash and cash equivalents at beginning of year..............      398,093         1,311,045         2,764,360
                                                              -----------       -----------       -----------
Cash and cash equivalents at end of year....................  $   192,689       $   398,093       $ 1,311,045
                                                              ===========       ===========       ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the year for:
         Interest...........................................  $   809,809       $   797,756       $ 1,023,564
         Income taxes.......................................  $   282,413       $   205,472       $   223,044
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
  ACTIVITIES:
    Capital lease obligations incurred in connection with
     the acquisition of equipment...........................  $   425,322       $   649,665       $   445,649
    Capital lease terminations..............................  $   243,080       $   440,149       $   152,931
    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 (the Company) 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, fine chemicals, 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 11% of the Company's
business in 1997 and 14% in 1998 was done outside the United States, 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. 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
petro-chemical companies.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Basis of Financial Statements
 
     The consolidated financial statements comprise those of the Company and its
subsidiaries. All intercompany balances and transactions have been eliminated.
Certain amounts for 1996 and 1997 have been reclassified to conform with 1998
classifications.
 
     Inventories and Accounts Receivable
 
     Inventories are stated at lower of cost or market. Approximately 95% of raw
materials, including raw materials in work in process and finished goods
inventories, is valued by using the last-in, first-out method. Labor and burden
in inventory are determined by using the average cost method. Inventories
relating to equipment contracts are stated at the accumulated cost of material,
labor and burden less related progress billings.
 
     Revenue from the Company's equipment contracts is recognized using the
percentage-of-completion method except when use of the completed contract method
does not have a material impact on the results of operations.
 
     For sales reported under the percentage of completion method, the percent
of revenues is recognized based on the ratio of costs incurred to date to total
costs expected for each project. Revenue recognized for jobs in process at
December 31, 1998 totals $786,453 and costs incurred on these contracts amounts
to $652,211. Included in accounts receivable is $400,089 that has not been
billed to customers due to contractual arrangements.
 
     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>
 
     Interest incurred during construction periods is capitalized. $18,955 was
capitalized in 1998 and $86,540 was capitalized in 1997.
 
     Research and Development
 
     Research and development costs are charged to operations as incurred.
Research and development costs for 1998, 1997 and 1996 were approximately
$1,243,000, $1,365,000, and $1,114,000, respectively.
 
     Earnings (Loss) Per Common Share
 
     Basic earnings (loss) per common share is based upon the average number of
common shares outstanding during the year. Shares subject to in-the-money stock
options are the only items impacting diluted earnings per share.
 
     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, debt under the Revolving Credit Agreement,
and the Industrial Development Bonds issue approximated fair values.
 
                                        

                                                                               7
<PAGE>   11
 
     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.
 
3. INVENTORIES
 
     Inventories at December 31 consist of the following:
 
<TABLE>
<CAPTION>
                                      1998           1997
                                   -----------    ----------
<S>                                <C>            <C>
Raw materials..................    $ 3,435,271    $3,390,407
Work in progress...............        358,079       359,819
Finished goods.................      7,157,247     5,996,243
Less: Progress billings on work
  in progress..................        (24,796)       (4,360)
                                   -----------    ----------
                                   $10,925,801    $9,742,109
                                   ===========    ==========
</TABLE>
 
     The excess of current cost over the stated last-in, first-out value is
approximately $450,000 and $1,345,000 at December 31, 1998 and 1997.
 
4. CAPITAL AND OPERATING LEASES
 
     Capitalized lease assets included in machinery and equipment at December 31
are as follows:
 
<TABLE>
<CAPTION>
                                       1998          1997
                                    ----------    ----------
<S>                                 <C>           <C>
Machinery and equipment.........    $1,367,961    $1,420,319
Accumulated amortization........       700,201       611,394
                                    ----------    ----------
Leased assets -- net............    $  667,760    $  808,925
                                    ==========    ==========
</TABLE>
 
     Rent expense applicable to operating leases for 1998, 1997 and 1996 was
$598,000, $591,000 and $565,000, respectively.
 
     Minimum annual lease payments for leases in effect at December 31, 1998 are
as follows:
 
<TABLE>
<S>                                <C>        <C>
Minimum Lease Payments:             Capital    Operating
                                   --------   ----------
    1999.........................  $328,685   $  699,215
    2000.........................   261,834      540,284
    2001.........................   162,661      484,662
    2002.........................    94,695      497,319
    2003.........................    18,325      490,520
    2004 and thereafter..........        --    4,431,024
                                   --------   ----------
Total minimum lease payments.....  $866,200   $7,143,024
                                              ==========
Less amount representing
  interest.......................   141,334
                                   --------
Present value of net minimum
  lease payments.................   724,866
Less current portion.............   256,724
                                   --------
Non-current portion..............  $468,142
                                   ========
</TABLE>
 
5. REVOLVING CREDIT AGREEMENT AND TERM LOAN
 
     During 1998 the Company amended its Credit Agreement (the Agreement) with
Comerica Bank including an extension of the expiration date to May 1, 2000. 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 equaled the prime interest rate.
The Agreement also provides for a $2.0 million Term Loan facility.
 
     The weighted average interest rate for short term borrowings under the
Agreement for the year ended December 31, 1998 was 8.77%, compared to 9.92% for
the year ended December 31, 1997 and 10.07% for the year ended December 31,
1996.
 
     At December 31, 1998, the Company was not in compliance with certain
financial covenants contained in the Agreement. The terms of the facility were
subsequently amended retroactive to December 31, 1998, and the Company is in
compliance with the amended covenants. The Company expects to be in compliance
with the amended Agreement throughout 1999. Additional changes to the Agreement
include extending the credit facility to May 1, 2001 and changing the interest
rate to prime plus 1/4%.
 
6. INDUSTRIAL DEVELOPMENT BONDS
 
     In connection with the expansion of Harvel Plastics, Inc.'s manufacturing
capacity, $4.0 million of industrial development bonds were issued by the
California Economic Development Financial Authority on March 24, 1998. Interest
rates for these bonds are established weekly based on tax-exempt bond interest
rates. The rate at the end of 1998 was 4.0%. The obligation is backed by a
Letter of Credit issued by Comerica Bank for the total amount of the bonds. The
Letter of Credit is in effect until January 2006 and affords protection against
failed remarketing efforts if any were to occur. The amount and timing of
redemption of the bonds is as follows:
 
<TABLE>
<CAPTION>
         December 31               Amount
------------------------------    --------
<S>                               <C>
1999..........................    $500,000
2000..........................     600,000
2001..........................     500,000
2002..........................     600,000
2003..........................     500,000
2004..........................     600,000
2005..........................     700,000
</TABLE>
 
     At December 31, 1998, $1,247,902 of the proceeds of the bonds were held in
a restricted trust for remaining capital expenditures in connection with the
expansion project.
 
7. OTHER INCOME -- NET
 
     Other income includes interest income of approximately $2,100, $7,000, and
$182,000 for 1998, 1997 and 1996, respectively.
 


                                                                               
8
<PAGE>   12
 
8. INCOME TAXES
 
     Income taxes include the following components:
 
<TABLE>
<CAPTION>
                                   1998        1997         1996
                                 ---------   ---------   -----------
<S>                              <C>         <C>         <C>
Current for tax purposes:
  Federal......................  $  56,951   $  42,032   $(1,146,060)
  State and local..............    178,306     194,559        74,381
                                 ---------   ---------   -----------
    Total current..............    235,257     236,591    (1,071,679)
                                 ---------   ---------   -----------
Deferred income taxes:
  Federal......................   (406,537)    723,261       948,152
  Valuation allowance..........         --    (467,000)      --
  State and local..............         --       2,987       114,140
                                 ---------   ---------   -----------
    Total deferred.............   (406,537)    259,248     1,062,292
                                 ---------   ---------   -----------
Provision (credit) for income
  taxes........................  $(171,280)  $ 495,839   $    (9,387)
                                 =========   =========   ===========
</TABLE>
 
     Deferred tax assets (liabilities) at December 31, 1998 and 1997 relate to
the following temporary differences and carryforwards:
 
<TABLE>
<CAPTION>
                                              1998          1997
                                           -----------   -----------
<S>                                        <C>           <C>
Net operating loss carryforward..........  $   613,747   $   244,815
Alternative minimum tax credit
  carryforward...........................      482,027       425,176
Accruals for:
  Postretirement benefits................    1,788,669     1,718,831
  Environmental..........................    3,078,063     3,666,633
  Restructuring..........................        8,421        41,463
  Self insurance reserve.................      121,738       150,097
Inventory related........................      599,510       429,790
Insurance refund.........................      478,625       --
Other....................................      268,639       184,367
                                           -----------   -----------
    Gross deferred tax assets............    7,439,439     6,861,172
                                           -----------   -----------
Depreciation.............................   (2,998,988)   (3,021,329)
Undistributed earnings of the Company's
  DISC...................................   (1,334,812)   (1,484,017)
Other....................................     (492,108)     (312,578)
                                           -----------   -----------
    Gross deferred tax liabilities.......   (4,825,908)   (4,817,924)
                                           -----------   -----------
    Net deferred tax assets..............  $ 2,613,531   $ 2,043,248
                                           ===========   ===========
</TABLE>
 
     The Company has net operating loss carryforwards of $1,805,139 that expire
in 2010 and 2018.
 
     The reasons for the difference between the income tax provision and income
taxes computed at the statuatory rate of 34% for 1998, 1997 and 1996 are
summarized below:
 
<TABLE>
<CAPTION>
                                      1998        1997        1996
                                    ---------   ---------   ---------
<S>                                 <C>         <C>         <C>
Computed "expected" tax
  provision.......................  $(329,065)  $ 683,040   $ 138,034
State and local income taxes, net
  of federal tax benefit..........    117,682     130,380     124,424
Nondeductible meal and
  entertainment expense...........     69,509      68,655      63,504
Tax refund carryback tax rate
  differential....................     --          --        (364,319)
Deferred tax asset valuation
  allowance.......................     --        (467,000)     --
Other -- net......................    (29,406)     80,764      28,970
                                    ---------   ---------   ---------
                                    $(171,280)  $ 495,839   $  (9,387)
                                    =========   =========   =========
</TABLE>
 
     In 1995, the Company established a valuation allowance of $467,000 against
its deferred tax assets. The Company returned this reserve to income in 1997.
 
9. LAND, BUILDINGS AND EQUIPMENT HELD FOR SALE
 
     In 1993, the Company sold one division and outsourced manufacturing at
another location. As a result, the Company had two facilities available for
sale. One facility was sold in 1998 and the second is under contract to sell and
it is anticipated that the transaction will be finalized during the first half
of 1999. Insurance proceeds of $1,250,000 were received as a result of storm
damage to the second facility and the book value of the property was adjusted
accordingly.
 
10. 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 6.75% and 4.0%, at December 31, 1998, 7.0% and 4.0% at December 31, 1997
and 7.5% and 4.0% at December 31, 1996. The expected long-term rate of return on
assets was 8.5% in 1996 and 1997 and 9.25% in 1998. The following tables set
forth the information required under Statement of Financial Accounting Standards
No. 132:
 
<TABLE>
<CAPTION>
                                 1998           1997
                              -----------    -----------
<S>                           <C>            <C>           
A. CHANGE IN PROJECTED BENEFIT OBLIGATION
  Benefit Obligation at
    January 1.............    $29,056,309    $26,515,238
  Service Cost............        684,709        570,823
  Interest Cost...........      1,992,556      1,942,248
  Actuarial (Gain)/Loss...      1,224,166      1,826,456
  Benefits Paid in
    Measurement Year......     (1,849,575)    (1,798,456)
                              -----------    -----------
  Benefit Obligation at
    December 31...........    $31,108,165    $29,056,309
                              ===========    ===========
B. CHANGE IN PLAN ASSETS
  Market Value of Assets
    at January 1..........    $32,834,181    $29,678,283
  Actual Return on
    Assets................      2,722,420      4,872,550
  Contributions Made in
    Measurement Year......          5,899         81,804
  Benefits Paid in
    Measurement Year......     (1,849,575)    (1,798,456)
                              -----------    -----------
  Market Value of Assets
    at December 31........    $33,712,925    $32,834,181
                              ===========    ===========
</TABLE>
 
                                        7
<PAGE>   13
 
<TABLE>
<CAPTION>
                                 1998           1997
                              -----------    -----------
C. RECONCILIATION OF FUNDED STATUS
<S>                           <C>            <C>           
  Funded Status as of
    December 31...........    $ 2,604,760    $ 3,777,872
  Unrecognized Transition
    (Asset)/Obligation....       (554,975)      (752,700)
  Unrecognized Prior
    Service Cost..........        437,617        480,252
  Unrecognized Net
    (Gain)/Loss...........     (1,221,563)    (2,844,684)
                              -----------    -----------
  Net Pension Asset.......    $ 1,265,839    $   660,740
                              ===========    ===========
</TABLE>
 
<TABLE>
<CAPTION>
                                 1998           1997           1996
                              -----------    -----------    -----------
<S>                           <C>            <C>            <C>
D. NET PERIODIC PENSION CREDIT
  Service Cost............    $   684,709    $   570,823    $   584,825
  Interest Cost...........      1,992,556      1,942,248      1,869,757
  Expected Return on
    Assets................     (2,952,562)    (2,451,343)    (2,304,433)
  Net Amortization........       (323,903)      (316,716)      (222,304)
                              -----------    -----------    -----------
  Net Periodic Pension
    Cost..................    $  (599,200)   $  (254,988)   $   (72,155)
                              ===========    ===========    ===========
</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>
                                       1998        1997        1996
                                     --------    --------    --------
<S>                                  <C>         <C>         <C>
Service cost-benefits attributed
  to service during the period...    $107,647    $100,341    $171,286
Interest cost on accumulated
  postretirement benefit
  obligation.....................     249,066     246,921     284,266
Net amortization.................     (42,301)    (48,580)      --
                                     --------    --------    --------
Net periodic postretirement
  benefit cost...................    $314,412    $298,682    $455,552
                                     ========    ========    ========
</TABLE>
 
     The Company's postretirement benefit plans are not funded. The status of
the plans at December 31, 1998 and 1997 follows:
 
<TABLE>
<CAPTION>
                                                 1998         1997
                                              ----------   ----------
<S>                                           <C>          <C>
Accumulated postretirement benefit
  obligation:
  Retirees..................................  $2,242,022   $2,121,546
  Fully eligible active plan participants...     304,208      248,040
  Other active plan participants............   1,275,976    1,113,065
                                              ----------   ----------
    Subtotal................................   3,822,206    3,482,651
Unrecognized net gain and prior service
  cost......................................     849,169    1,006,331
                                              ----------   ----------
    Total accrued postretirement benefits...  $4,671,375   $4,488,982
                                              ==========   ==========
</TABLE>
 
     The change in accumulated benefit obligation is as follows:
 
<TABLE>
<CAPTION>
                                                 1998         1997
                                              ----------   ----------
<S>                                           <C>          <C>
Accumulated Postretirement Benefit
  Obligation - January 1....................   3,482,651   $4,086,412
Service Cost................................     107,647      100,341
Interest Cost...............................     249,066      246,921
Amendments..................................      --         (213,491)
Actuarial (Gain)/Loss.......................     114,861     (634,248)
Benefits Paid in Measurement Year...........    (132,019)    (103,284)
                                              ----------   ----------
Accumulated Postretirement Benefit
  Obligation - December 31..................  $3,822,206   $3,482,651
                                              ==========   ==========
</TABLE>
 
     For measurement purposes, a 8% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998. The rate is assumed
to decrease gradually over the next 4 years to 5.0% 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, 1998 by approximately 14.8%
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by approximately 16.2%.
 
     The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 6.75% at December 31, 1998, 7.0% at
December 31, 1997 and 7.5% at December 31, 1996.
 
11. 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 a four
year period. 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.
 
12. CONTINGENCIES
 
     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 EPA on
clean-up methodology. The Company's share of clean-up costs is anticipated to be
in the range of approximately $3.0 to $3.5 million.
 
     The Company maintains a reserve for anticipated expenditures over the next
several years in connection with
 
                                        

                                                                              
10
<PAGE>   14
 
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
December 31, 1998 and 1997 were $8.0 million and $9.6 million respectively. 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.
 
     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.
 
13. 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, 1998, 1997 and 1996.
 
14. 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 or group 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 after a person or group becomes the
beneficial owner of 15% or more of the Company's outstanding Common Stock 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.
 
15. 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). A summary of
the fixed stock option grants under Detrex's Management Plan and Directors Plan
as of December 31, 1998, 1997 and 1996, and changes during the years is
presented below.
 
     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. Of the 200,000 options reserved, 7,000 remain available for
future grants under the Management Plan; the time for granting options under the
Directors Plan has expired.
 
<TABLE>
<CAPTION>
                                 Management Plan            Directors Plan
                             ------------------------   -----------------------
                             Shares                     Shares
                              Under    Weighted Ave.    Under    Weighted Ave.
                             Option    Exercise Price   Option   Exercise Price
                             ------    --------------   ------   --------------
<S>                          <C>       <C>              <C>      <C>
1996
  Outstanding at beginning
    of year................   23,000       $8.90        30,000       $9.89
  Granted..................  101,000       6.27          6,000        7.31
  Forfeited................    5,000       8.625          --           --
  Outstanding at end of
    year...................  119,000       6.68         36,000        9.46
1997
  Granted..................    2,000       9.00          6,000        8.13
  Outstanding at end of
    year...................  121,000       6.72         42,000        9.27
1998
  Granted..................   22,000      13.38           --           --
  Outstanding at end of
    year...................  143,000       7.74         42,000        9.27
</TABLE>
 
                                        

                                                                              11
<PAGE>   15
 
     Of the 185,000 options outstanding at December 31, 1998, the weighted
average remaining life is 6.25 years; 131,316 of such options are exercisable at
December 31, 1998. Also, of the 185,000 options outstanding, 83,000 are in-the-
money and 102,000 are out-of-the-money. The range of exercise prices is from
$5.00 to $13.38. The following table summarizes information about stock options
outstanding at December 31, 1998:
 
<TABLE>
<CAPTION>
                      Options Outstanding          Options Exercisable
                 ------------------------------   ---------------------
                           Weighted    Weighted              Weighted
    Range of     Shares     Average    Average    Shares      Average
    Exercise      Under    Remaining   Exercise    Under     Exercise
      Price      Option      Life       Price     Option       Price
    --------     -------   ---------   --------   -------   -----------
  <S>            <C>       <C>         <C>        <C>       <C>
  $ 5.00-$ 8.00   92,000     7.00       $ 5.86     71,250     $ 5.91
  $ 8.01-$11.00   62,000     5.67         8.97     51,066       8.96
  $11.01-$13.38   31,000     5.18        12.95      9,000      11.90
  -------------  -------     ----       ------    -------     ------
  $ 5.00-$13.38  185,000     6.25       $ 8.09    131,316     $ 7.51
</TABLE>
 
     In accordance with the 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 1996, 1997 and
1998 as well as the underlying weighted average Black-Scholes assumptions are as
follows:
 
<TABLE>
<CAPTION>
                                        1998        1997        1996
                                       -------   ----------   --------
<S>                                    <C>       <C>          <C>
Net income (loss) as reported (in
  thousands).........................  $ (797)     $1,513       $415
Pro-forma net income (loss) (in
  thousands).........................    (888)      1,434        347
Earnings (loss) per share as
  reported -- basic..................   (0.50)       0.96       0.26
Pro-forma earnings (loss) per
  share..............................    (.56)       0.91       0.22
Expected Volatility..................    0.50        0.37       0.36
Risk-Free Rate of Return.............    5.62        6.54       5.99
                                         6         6-10         10
Expected Life........................  Years      Years       Years
</TABLE>
 
     Using the assumptions underlying the Black-Scholes model, the per share
weighted average fair value of options granted in 1998, 1997 and 1996 is $7.31,
$4.60 and $3.51.
 
16. SEGMENT REPORTING
 
     Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company has five operating segments that meet the
quantitative thresholds of Statement No. 131:
 
     - Harvel Plastics -- manufactures PVC and CPVC 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.
 
     Information regarding the Company's Automation Division and its RTI
Laboratories Division are combined with Corporate data since they do not meet
the quantitative thresholds. In addition, Corporate data includes interest
expense, corporate administrative expense, discontinued operations and
provisions for certain employee benefit items. Data (in thousands) for 1998,
1997 and 1996 is as follows:
 
<TABLE>
<CAPTION>
                                         1998       1997       1996
                                        -------    -------    -------
<S>                                     <C>        <C>        <C>
Net sales:
  Harvel Plastics.....................  $29,656    $29,638    $26,323
  Elco Corporation....................   19,873     22,759     22,278
  Seibert-Oxidermo....................   12,237     13,783     13,486
  Equipment Division..................    7,291     10,594     13,383
  Solvents Division...................   14,502     15,782     15,181
  Other...............................    2,480      3,201      6,174
                                        -------    -------    -------
    Total.............................  $86,039    $95,757    $96,825
                                        =======    =======    =======
Earnings (loss) before income taxes:
  Harvel Plastics.....................  $ 2,710    $ 3,267    $ 2,661
  Elco Corporation....................    1,237      2,811      2,751
  Seibert-Oxidermo....................     (366)       296        672
  Equipment Division..................     (823)       756        679
  Solvents Division...................      361        291       (818)
                                        -------    -------    -------
    Sub-total.........................  $ 3,119    $ 7,421    $ 5,945
  Corporate administrative expense....   (3,912)    (3,790)    (3,627)
  Corporate interest expense..........     (655)      (576)      (808)
  Other...............................      480     (1,046)    (1,104)
                                        -------    -------    -------
    Total.............................  $  (968)   $ 2,009    $   406
                                        =======    =======    =======
Depreciation and amortization:
  Harvel Plastics.....................  $ 1,204    $ 1,148    $ 1,012
  Elco Corporation....................      924        835        787
  Seibert-Oxidermo....................      330        360        316
  Equipment Division..................       78         87         88
  Solvents Division...................      288        289        332
  Other...............................      488        524        654
                                        -------    -------    -------
    Total.............................  $ 3,312    $ 3,243    $ 3,189
                                        =======    =======    =======
Total assets:
  Harvel Plastics.....................  $21,630    $15,904    $13,908
  Elco Corporation....................   15,139     13,284     11,754
  Seibert-Oxidermo....................    6,949      7,626      7,739
  Equipment Division..................    3,618      5,900      5,626
  Solvents Division...................    5,473      5,869      5,446
  Other...............................    3,245      6,988     11,119
                                        -------    -------    -------
    Total.............................  $56,054    $55,571    $55,592
                                        =======    =======    =======
Sales by customer location:
  United States.......................  $75,730    $85,063    $84,744
  Outside United States...............   10,309     10,694     12,081
                                        -------    -------    -------
    Total.............................  $86,039    $95,757    $96,825
                                        =======    =======    =======
</TABLE>
 


                                                                              
12
<PAGE>   16
 
--------------------------------------------------------------------------------
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     After two profitable years, Detrex Corporation and its consolidated
subsidiaries (the "Company") incurred a loss of $797,000 in 1998. With the
exception of the company's Solvents Division, each of the Company's reporting
segments incurred a decline in earnings in 1998.
 
     Harvel Plastics, Inc. ("Harvel") maintained the same revenue as in 1997 but
earnings were adversely affected by start-up costs associated with its new
California manufacturing facility and margin pressure resulting from world-wide
overcapacity of PVC and CPVC pipe. The Elco Corporation ("Elco") reported
declines in revenue in both its lubricant additives and its hydrochloric acid
product lines. The majority of the decline in lubricant additives was in the
international markets where the strong U.S. dollar had a negative impact; the
decline in hydrochloric acid was attributable to the slowdown in computer chip
manufacturing, an industry which is normally a major purchaser of high-grade
hydrochloric acid. Seibert-Oxidermo, Inc. ("Seibert") recorded a loss in 1998,
compared to profits in both 1996 and 1997. Seibert suffered a loss in volume
which was partially caused by the effects of the General Motors strike in the
second and third quarters. Seibert's business is almost entirely dependent on
the automotive industry, and pricing pressures for suppliers in that industry
continue. The Company's Equipment Division also incurred a loss in 1998 after
two years of earnings. The Equipment Division had a $3.3 million reduction in
revenue as capital spending was reduced in the markets served by this Division.
The Division's 1998 revenues and earnings were negatively impacted by a very
strong 1997 fourth quarter as customers accelerated purchases of new or upgraded
cleaning equipment to meet new government standards required as of December 31,
1997. The Company's Solvents Division reported an increase in earnings even
though revenue declined on a year-to-year basis. The increase in earnings was
primarily attributable to the Division successfully implementing a new contract
parts cleaning business during 1998.
 
     As a result of the losses incurred during the last three quarters of the
year, action was taken to reduce costs both at the Corporate level and at three
of the Company's business units. Manpower, insurance costs and legal expenses
were reduced at the Corporate level. Manpower reductions also took place at the
Equipment Division, Elco and Seibert. Manufacturing expenses were reduced at
both Elco and Seibert. The effect of these actions was to reduce costs by
approximately $2.5 million on an annualized basis.
 
COMPARATIVE OPERATING DATA (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                        1998               1997                1996
                                                                   ---------------    ---------------    ----------------
                                                                     $         %        $         %         $         %
                                                                   ------    -----    ------    -----    -------    -----
      <S>                                                          <C>       <C>      <C>       <C>      <C>        <C>
      Net sales................................................    86,039    100.0    95,757    100.0     96,825    100.0
      Gross margin.............................................    21,285     24.7    24,401     25.5     22,678     23.4
      Selling, general and administrative expenses.............    18,063     21.0    17,816     18.6     18,924     19.5
      Depreciation and amortization............................     3,312      3.8     3,243      3.4      3,189      3.3
      Gain on sale of PIFCO....................................      --       --        --       --          369       .4
      Net income (loss)........................................      (797)     (.9)    1,513      1.6        415       .4
</TABLE>
 
     1998 COMPARED TO 1997 -- Net sales in 1998 reflect a $9.7 million decrease
from the previous year. The largest decrease was in the Company's Equipment
Division as a result of reduced capital spending by customers in the markets we
serve. Decreases also occurred at Elco, Seibert, and the Company's Solvents
Division. During 1998, these business units were adversely affected by the
economic situation in Asia, the slowdown in computer chip manufacturing, and the
General Motors strike. Sales at Harvel were approximately the same as the
previous year.
 
     Gross margin in 1998 was 24.7%, compared to 25.5% in 1997. Margins were
adversely affected by the drop in volume and pricing pressure. Margins at Harvel
were also affected by launch costs at its new California manufacturing facility.
As a result of launching the California operations, Harvel's inventory and
manpower were both higher than December 31, 1997 levels.
 
     The year-to-year increase in selling, general and administrative expenses
is due to economic increases in all of the Company's operating units,
termination and severance costs, and additional marketing and technical support
personnel in some of the Company's business units. These increases more than
offset the increase in pension credits.
 
     The provision for depreciation and amortization is higher than a year ago
as a result of depreciation of plant additions in Ashtabula, Ohio and partial
year depreciation of equipment at Harvel's new facility in California.
 

                                                                                
                                                                              13
<PAGE>   17
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
 
     Interest expense on bank borrowings is approximately $31,000 lower than
last year due to lower rates being negotiated at the time the Company's Credit
Agreement was extended. However, interest expense in 1998 also includes interest
attributable to the tax deferral of income from certain export sales and two
months of interest on Harvel's industrial development bonds. Also, more interest
was capitalized in 1997 than in 1998. The total year-to-year change in interest
expense is an increase of $57,000.
 
     The income tax credit in 1998 reflects a credit for federal income tax,
partially offset by state and local income tax expense. Income tax expense in
1997 reflects state, local and federal income taxes, partially offset by
returning to income the deferred tax valuation allowance that was established in
1995.
 
     1997 COMPARED TO 1996 -- Net sales in 1997 reflect a $3.5 million revenue
increase which replaced nearly all of the $4.6 million sales revenue associated
with the industrial furnace division (PIFCO) which was sold in 1996. Harvel was
the main contributor to the revenue growth.
 
     Gross margin in 1997 was 25.5%, compared to 23.4% in 1996. Improved cost
control at the Company's Equipment and Solvents Divisions accounted for most of
the margin improvement.
 
     The $1.1 million decrease in selling, general and administrative expenses
is primarily attributable to a division being sold in the fourth quarter of
1996, the cost cutting activities that took place at the Company's Solvents
Division and reduction in outside commissions at Elco.
 
     The provision for depreciation and amortization is approximately the same
as the prior year for all of the Company's business units.
 
     In 1996, the "Other income" category reflects royalty income received by
Seibert that ended in early 1997, whereas in 1997 the expense is primarily a
write-down of a plant facility in anticipation of its sale.
 
     During 1997, the Company kept its borrowings under its Credit Agreement at
a lower level than during 1996; consequently interest expense was lower in 1997
than in 1996.
 
     Income tax expense in 1997 reflects state, local and federal income taxes,
partially offset by returning to income the deferred tax valuation allowance
that was established in 1995. Income tax expense in 1996 reflects the normal
provisions, completely offset by a credit to reflect the recognition of 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%.
 
LIQUIDITY, FINANCIAL CONDITION, AND CAPITAL RESOURCES
 
     The Company utilized internally generated funds, and the proceeds from the
sale of a closed plant to finance its operations during 1998. In addition, in
late September, insurance proceeds were received in conjunction with storm
damage to a plant being held for sale. It is anticipated that the plant will be
sold in the first half of 1999. Also, financing for Harvel's expansion in
California was accomplished by obtaining $4.0 million of industrial development
bonds.
 
     The Company's capital expenditures in 1999 are estimated to be $5.5
million. It is anticipated that these expenditures will principally be financed
through internally generated funds and borrowings under existing financing
arrangements.
 
     On February 23, 1999, the Company received reaffirmation of its $12.0
million credit facility. The financial covenants were amended and the interest
rate was increased by 1/4%. The term of the credit facility was extended to May
1, 2001. (See Note 5 to the Consolidated Financial Statements).
 
     Working capital was $5.9 million at December 31, 1998 compared to $9.3
million at December 31, 1997. The Company believes the 1998 working capital
level is adequate. The Company has paid no dividends since the second quarter of
1991 and cannot forecast when the dividend will be restored.
 
YEAR 2000 COMPLIANCE
 
     The Company currently is working to resolve the potential impact of the
Year 2000 on the processing of information by its computerized information
systems. Year 2000 ("Y2K") issues may arise if computer programs have been
written using two digits,
 
                                       
14
<PAGE>   18
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
 
instead of four, to define the applicable year. In such case, a program that
utilizes time-sensitive logic may recognize a date using "00" as the Year 1900
rather than the Year 2000, which could result in miscalculations or system
failures.
 
     In 1997, the Company undertook a study to determine its future computer
hardware and software requirements for its management information systems,
including Y2K compliance considerations. Since then the Company has implemented
a program, consisting of two phases, for achieving upgraded systems and Y2K
compliance. The first phase of the program consisted of replacing the Company's
computerized information systems and programs with new systems and programs that
are Y2K compliant. As of November, 1998, the Company has completed the first
phase. As a result, the Company's accounts payable, accounts receivable and
general ledger were upgraded to new, Y2K compliant systems and programs. The
Company expects to convert its fixed asset records to new, Y2K compliant
programs in the second quarter of 1999.
 
     The second phase of becoming Y2K compliant in its management information
systems is the replacement of computerized information systems and programs that
perform job costing for the Company's Equipment Division and sales invoicing for
the Company's Solvents and Equipment Divisions with Y2K compliant systems and
programs. The Company has started this phase and expects to complete it by
mid-year 1999.
 
     All of the parent Company's operations systems have been reviewed and work
plans have been established to develop Y2K compliance by mid-year 1999. Two of
the Company's subsidiaries, Harvel and Seibert, are substantially compliant at
the present time. Elco has developed a work plan and has an approved capital
expenditure of approximately $75,000 for its Y2K compliance program which is
scheduled to be completed by mid-year 1999.
 
     Since the Company relies on electronic data from certain of its vendors,
financial institutions and customers, the Company has conducted surveys to
determine if these entities are Y2K compliant or are on schedule to become Y2K
compliant before the end of 1999. The Company has sent detailed questionnaires
to approximately 500 vendors, financial institutions and customers to determine
if they are on schedule to become Y2K compliant. Approximately 335 entities have
responded to the questionnaires in varying degrees of detail. All of these
entities have indicated that they are or will become Y2K compliant. However, the
Company has not yet conducted any testing with third parties and therefore has
no assurance that these entities, or others that have not responded, will become
Y2K compliant on a timely basis. If the Company's most significant vendors,
financial institutions and customers fail to become Y2K compliant on a timely
basis, such failure could have a material adverse effect on the Company's
business and operations.
 
     To become Y2K compliant, the Company has appointed an officer as project
coordinator for its Y2K program and has engaged the services of information
systems consultants. As of December 31, 1998, the Company had spent
approximately $500,000 to upgrade its information systems and programs, most for
which were capital expenditures. Although the Company cannot predict with
certainty the remaining expenditures that it will make during 1999 for such
upgrades, the Company's current estimates are in the range of $400,000, most of
which will also be capital expenditures. The Company cannot accurately allocate
the portion of such expenditures for information systems and programs that
relate solely to Y2K compliance.
 
     In the last two years, the Company has dedicated significant management
attention to the Y2K issue. Management updates the Board of Directors on a
regular basis concerning the Company's progress in achieving Y2K compliance.
Because it expects to become Y2K compliant, the Company has not developed a
contingency plan in the event that it should fail to become Y2K compliant. The
Company will continue to monitor its progress in becoming Y2K compliant and will
develop contingency plans as needed if it determines that there will be a
shortfall in its Y2K efforts or those of its vendors, financial institutions and
customers. The Company currently cannot determine the cost of contingency plans,
should they be necessary.
 
     The cost of the Company's Y2K program and the dates by which the Company
believes it will become Y2K compliant are based upon management's best
estimates. The Company cannot assure that it will achieve Y2K compliance
according to this program and actual results could differ from those outlined.
Various factors, including numerous assumptions as to future events, the timely
availability of experienced personnel, the complexity of the transition from its
old systems to the new systems and the compliance efforts of third parties,
which the Company does not control, may adversely affect its Y2K compliance
progress. Any failure to become Y2K compliant on a timely basis could have a
material adverse affect on the Company, including the inability to properly bill
and collect payments from customers, as well as errors and omissions in
accounting and financial data.
 


                                                                              15
<PAGE>   19
 
SELECTED FINANCIAL DATA
(Dollars in thousands except per share amounts)
 
<TABLE>
<CAPTION>
                                                               1998      1997      1996      1995       1994
                                                              -------   -------   -------   -------   --------
<S>                                                           <C>       <C>       <C>       <C>       <C>      
Net sales...................................................  $86,039   $95,757   $96,825   $94,302   $100,096
Net income (loss)...........................................     (797)    1,513       415    (1,869)    (5,639)
Earnings (loss) per common share -- basic...................     (.50)      .96       .26     (1.18)     (3.56)
Earnings (loss) per common share -- diluted.................     (.50)      .94       .26     (1.18)     (3.56)
Total assets................................................   55,991    55,571    55,592    57,659     61,775
Net working capital.........................................    5,925     9,274     8,515     6,317      6,968
Capital expenditures........................................    7,073     4,710     2,325     2,095      2,201
Long term portion of capital lease obligations..............      468       569       394       518        702
Total bank debt.............................................    6,290     5,700     5,627     8,500      5,500
Industrial development bonds................................    4,000        --        --        --         --
Stockholders' equity........................................   18,025    18,822    17,309    16,893     18,763
Stockholders' equity per common share.......................    11.38     11.89     10.93     10.67      11.85
Number of employees.........................................      366       353       345       347        367
Percentages to net sales:
     Gross margin...........................................     24.7      25.5      23.4      22.5       22.9
     Net income (loss)......................................      (.9)      1.6        .4      (2.0)      (5.6)
Net income (loss) as a percent of:
     Average total assets...................................     (1.4)      2.7        .7      (3.1)      (9.3)
     January 1st stockholders' equity.......................     (4.2)      8.7       2.5     (10.0)     (23.1)
Current ratio...............................................      1.3       1.4       1.4       1.3        1.3
</TABLE>
 
SUPPLEMENTARY INFORMATION (Unaudited)
Selected Quarterly Data (Thousands of dollars except per share amounts)
 
<TABLE>
<CAPTION>
                                                 1998 Quarters                                  1997 Quarters
                                    ----------------------------------------       ----------------------------------------
                                      4th        3rd        2nd        1st           4th        3rd        2nd        1st
                                    -------    -------    -------    -------       -------    -------    -------    -------
<S>                                 <C>        <C>        <C>        <C>           <C>        <C>        <C>        <C>
Net sales.......................    $21,198    $22,113    $21,292    $21,436       $25,972    $22,908    $23,716    $23,161
Gross margin on sales...........      5,385      5,573      4,905      5,422         7,224      5,791      5,793      5,586
Net income......................       (428)      (266)      (248)       146           868        173        336        136
Per common share -- basic.......       (.27)      (.17)      (.15)       .09           .55        .11        .21        .09
Per common share -- diluted.....       (.27)      (.17)      (.15)       .09           .53        .11        .21        .09
Stock price range(1)
  High..........................      7 1/4     13 1/2     17 3/4         18        11 1/4      9 7/8      9 1/4      8 1/4
  Low...........................    5 13/16      6 1/4     12          9 3/8         8 3/4      7 1/4      7 1/4      5 3/4
</TABLE>
 
(1) Stock price range was obtained from NASDAQ quotations.
 
                                       
16
<PAGE>   20
 
         DIRECTORS
 
         BRUCE W. COX
         President, B. W. Cox Company,
           Manufacturers Representative
 
         ROBERT A. EMMETT, III
         Partner, Reed Smith Shaw & McClay,
           Attorneys, Washington, D.C.
 
         WILLIAM C. KING
         Chairman and Chief Executive Officer
 
         JOHN F. MANGOLD
         Manufacturing Consultant
 
         THOMAS E. MARK
         President and Chief Operating Officer
 
         BENJAMIN W. McCLEARY
         Member, McFarland Dewey & Co., LLC
           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

         OFFICERS

         W. C. KING
         Chairman and Chief Executive Officer

         T. E. MARK
         President and Chief Operating Officer

         G. J. ISRAEL
         Vice President-Finance, Treasurer and
           Chief Financial Officer

         R. M. CURRIE
         Secretary and General Counsel

         S. J. QUINLAN
         Controller

         BUSINESS UNIT EXECUTIVES

         D. A. CHURCH
         President, Seibert-Oxidermo, Inc.

         D. R. CRANDELL
         President, Solvents and
           Equipment Divisions

         J. G. SINGH
         General Manager, RTI Laboratories

         C. K. UTZ
         General Manager, Automation Division

         E. E. WISMER
         President, Harvel Plastics, Inc.

         R. D. WYVILL
         President, The Elco Corporation and
           General Manager, Chemicals Division

 
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION FOR THE YEAR 1998 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
--------------------------------------------------------------------------------
 
                           Telephone: (248) 358-5800
                   INTERNET ADDRESS -- http://www.detrex.com