<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
Commission File Number 33-11634
TRANS-RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 36-2729497
incorporation or organization) (I.R.S. Employer Identification No.)
9 West 57th Street, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 888-3044
--------------------
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
---- ----
At November 12, 1997, there were outstanding 3,000 shares of common stock, par
value of $.01 per share, all which were owned by TPR Investment Associates,
Inc., a privately-held Delaware corporation.
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TRANS-RESOURCES, INC.
Form 10-Q Index
September 30, 1997
Page
PART I Number
------
Item 1. - Financial Statements (Unaudited):
Consolidated Statements of Operations ..................... 3
Consolidated Balance Sheets ............................... 4
Consolidated Statement of Stockholder's Equity ............ 5
Consolidated Statements of Cash Flows ..................... 6
Notes to Unaudited Consolidated Financial Statements ...... 7
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 8
PART II
Item 6. - Exhibits and Reports on Form 8-K ................... 16
Signatures .................................................... 17
2
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PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
-------------------- --------------------
(000's)
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES .............................. $ 92,653 $ 90,910 $ 286,936 $ 331,574
COSTS AND EXPENSES:
Cost of goods sold ............... 76,565 75,914 233,287 272,206
General and administrative ....... 10,674 11,464 30,972 34,549
--------- --------- --------- ---------
OPERATING INCOME ...................... 5,414 3,532 22,677 24,819
Interest expense ................. (7,294) (7,799) (21,715) (24,847)
Interest and other income - net .. 1,287 24,547 3,823 25,475
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ........... (593) 20,280 4,785 25,447
--------- --------- --------- ---------
INCOME TAX PROVISION:
Current .......................... 189 488 782 1,914
Deferred ......................... 161 652 1,054 1,786
--------- --------- --------- ---------
350 1,140 1,836 3,700
--------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ............................. (943) 19,140 2,949 21,747
EXTRAORDINARY ITEM - Loss on repurchase
of debt (no income tax benefit) .. -- -- -- (553)
--------- --------- --------- ---------
NET INCOME (LOSS) ..................... $ (943) $ 19,140 $ 2,949 $ 21,194
========= ========= ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
3
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
(000's)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 25,550 $ 29,112
Accounts receivable .................................... 87,329 71,551
Inventories:
Finished goods ..................................... 35,002 33,618
Raw materials ...................................... 18,397 19,476
Other current assets ................................... 17,871 24,664
Prepaid expenses ....................................... 18,446 14,635
--------- ---------
Total Current Assets ............................... 202,595 193,056
PROPERTY, PLANT AND EQUIPMENT - NET ......................... 198,451 198,887
OTHER ASSETS ................................................ 40,449 34,688
--------- ---------
Total .............................................. $ 441,495 $ 426,631
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................... $ 17,555 $ 17,481
Short-term debt ........................................ 20,252 15,348
Accounts payable ....................................... 61,004 38,033
Accrued expenses and other current liabilities ......... 25,486 33,321
--------- ---------
Total Current Liabilities .......................... 124,297 104,183
--------- ---------
LONG-TERM DEBT - NET:
Senior indebtedness, notes payable and other obligations 148,480 152,539
Senior subordinated indebtedness - net ................. 114,259 114,175
--------- ---------
Long-Term Debt - net ............................... 262,739 266,714
--------- ---------
OTHER LIABILITIES ........................................... 28,691 29,480
--------- ---------
STOCKHOLDER'S EQUITY:
Preferred stock, $1.00 par value, 100,000 shares
authorized, issued and outstanding ................. 7,960 7,960
Common stock, $.01 par value, 3,000 shares authorized,
issued and outstanding ............................. -- --
Additional paid-in capital ............................. 8,682 8,682
Retained earnings ...................................... 9,254 9,345
Cumulative translation adjustment ...................... (341) (367)
Unrealized gains on marketable securities .............. 213 634
--------- ---------
Total Stockholder's Equity ......................... 25,768 26,254
--------- ---------
Total .............................................. $ 441,495 $ 426,631
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
4
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Nine Month Period Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional Cumulative Unrealized
Preferred Common Paid-In Retained Translation Gains
Stock Stock Capital Earnings Adjustment on Securities Total
----- ----- ------- -------- ---------- ------------- -----
(000's)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 .. $ 7,960 $ -- $ 8,682 $ 9,345 $ (367) $ 634 $26,254
Net income ................ 2,949 2,949
Dividends paid:
Common stock ......... (2,402) (2,402)
Preferred stock ...... (638) (638)
Net change during period .. 26 (421) (395)
------- ------- ------- ------- ------- ------- -------
BALANCE, September 30, 1997 $ 7,960 $ -- $ 8,682 $ 9,254 $ (341) $ 213 $25,768
======= ======= ======= ======= ======= ======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
5
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period
Ended September 30,
--------------------
1997 1996
---- ----
(000's)
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
<S> <C> <C>
Operations:
Net income .................................................... $ 2,949 $ 21,194
Items not requiring (providing) cash:
Depreciation and amortization ............................. 15,346 17,426
Deferred taxes and other - net ............................ (1,565) (22,806)
-------- --------
Total ................................................ 16,730 15,814
Working capital management:
Accounts receivable and other current assets .................. (15,340) (10,041)
Inventories ................................................... (305) (4,546)
Prepaid expenses .............................................. (3,811) (2,495)
Accounts payable .............................................. 22,971 2,276
Accrued expenses and other current liabilities ................ (7,835) (9,609)
-------- --------
Cash provided (used) by operations and working
capital management ................................... 12,410 (8,601)
-------- --------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment ........................ (14,185) (10,828)
Purchases of marketable securities and other short-term investments (1,878) (5,294)
Sales of marketable securities and other short-term investments ... 8,233 889
Other - net, including proceeds from sale of potash operations
in 1996 ....................................................... (6,021) 61,272
-------- --------
Cash provided (used) by investment activities ............. (13,851) 46,039
-------- --------
FINANCING ACTIVITIES:
Increase in short-term debt ....................................... 4,904 8,645
Increase in long-term debt ........................................ 6,500 49,264
Repurchases, payments and current maturities of long-term debt .... (10,485) (89,083)
Distributions to stockholder ...................................... (3,040) (2,726)
-------- --------
Cash used by financing activities ......................... (2,121) (33,900)
-------- --------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .................................................. (3,562) 3,538
CASH AND CASH EQUIVALENTS:
Beginning of period ............................................... 29,112 32,872
-------- --------
End of period ..................................................... $ 25,550 $ 36,410
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
6
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation and Other Matters
The consolidated financial statements of Trans-Resources, Inc. ("TRI"),
include TRI and its direct and indirect wholly-owned subsidiaries, after
elimination of intercompany accounts and transactions. TRI operates through its
subsidiaries, principally: Cedar Chemical Corporation ("Cedar"), and Cedar's
wholly-owned subsidiary, Vicksburg Chemical Company ("Vicksburg"); Na-Churs
Plant Food Company ("Na-Churs"); and Haifa Chemicals Ltd. ("HCL") and HCL's
wholly-owned subsidiary, Haifa Chemicals South, Ltd. TRI is a wholly-owned
subsidiary of TPR Investment Associates, Inc. As used herein, the term "the
Company" means TRI together with its direct and indirect subsidiaries. Certain
prior period amounts have been reclassified to conform to the manner of
presentation in the current period.
On August 16, 1996 NMPC, Inc. (name changed from New Mexico Potash
Corporation upon completion of the sale of its potash operations; "NMPC"), a
wholly-owned subsidiary of Cedar, and EDP, Inc. (name changed from Eddy Potash,
Inc. upon completion of the sale of its potash operations; "EDP"), a
wholly-owned subsidiary of the Company, sold substantially all of their assets
for an aggregate consideration of $56,154,000, including a payment for working
capital of $11,154,000, and the assumption of specified liabilities (but
excluding, among other things, certain antitrust litigation). Approximately 50%
of the aggregate sales proceeds were applied to prepay debt secured by the
assets of NMPC or EDP. In connection with the sale, Vicksburg entered into a
five year potash supply agreement, at prevailing market rates during the period
(subject to certain adjustments), with the buyer.
NMPC and EDP had conducted the Company's potash mining and production
operations. During the nine month period ended September 30, 1996, the potash
operations contributed approximately $35,000,000 (11%) to the Company's
consolidated revenues, after eliminating intercompany sales.
See Item 2 below - "Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") - Labor Disruption at HCL" for
certain information regarding a labor dispute and strike at HCL and "MD&A -
Investment in Laser Industries Limited" ("Laser") for certain information
regarding the Company's investment in Laser.
7
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In the opinion of management, the unaudited consolidated financial
statements for the nine month periods ended September 30, 1997 and 1996,
respectively, include all adjustments, which comprise only normal recurring
accruals, necessary for a fair presentation of the results for such periods. The
results of operations for the nine month period ended September 30, 1997 are not
necessarily indicative of results that may be expected for any other interim
period or the full fiscal year. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (the "Form 10-K"), which has been
filed with the Securities and Exchange Commission.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth, as a percentage of revenues and the
percentage dollar change of those items as compared to the prior period, certain
items appearing in the unaudited consolidated financial statements of the
Company.
<TABLE>
<CAPTION>
Percentage Percentage
of Revenues Period of Revenues Period
----------- to ------------ to
Three Month Period Nine Month Period
Period Ended Changes Period Ended Changes
September 30, ---------- September 30, ----------
------------- Increase ------------- Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues .............................. 100.0% 100.0% 1.9% 100.0% 100.0% (13.5)%
Costs and expenses:
Cost of goods sold ................ 82.7 83.5 .9 81.3 82.1 (14.3)
General and administrative ........ 11.5 12.6 (6.9) 10.8 10.4 (10.4)
----- ----- ----- -----
Operating income ...................... 5.8 3.9 53.3 7.9 7.5 (8.6)
Interest expense .................. (7.8) (8.6) (6.5) (7.6) (7.5) (12.6)
Interest and other income - net ... 1.4 27.0 (94.8) 1.4 7.7 (85.0)
----- ----- ----- -----
Income (loss) before income taxes
and extraordinary item ............ (0.6) 22.3 (102.9) 1.7 7.7 (81.2)
Income tax provision .................. 0.4 1.3 (69.3) 0.7 1.1 (50.4)
----- ----- ----- -----
Income (loss) before extraordinary item (1.0) 21.0 (104.9) 1.0 6.6 (86.4)
Extraordinary item .................... -- -- -- -- (0.2) 100.0
----- ----- ----- -----
Net income (loss) ..................... (1.0)% 21.0% (104.9)% 1.0% 6.4% (86.1)%
===== ===== ===== ===== ===== =====
</TABLE>
8
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements herein (and in the Form 10-K) constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are
not limited to, statements concerning future revenues (e.g., impact of HCL work
stoppage and strike and inflation in Israel, and gain from the exchange of the
Company's Laser shares); expenses (e.g., cost savings resulting from HCL's new
labor agreement, future environmental costs and capital expenditures); and
access to lending sources and Israeli Government entitlements. Such
forward-looking statements involve unknown and uncertain risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: political
stability, inflation and currency rates in those foreign countries (including,
without limitation, Israel) in which the Company generates a significant portion
of its production, sales and earnings; current or future environmental
developments or regulations which would require the Company to make substantial
expenditures, and changes in, or the failure of the Company to comply with, such
government regulations; the potentially hazardous nature of certain of the
Company's products; the ability to achieve anticipated labor cost reductions at
HCL; the Company's ability to continue to service and refinance its debt; new
plant start-up costs; competition; changes in business strategy or expansion
plans; raw material costs and availability; the final outcome of the legal
proceedings to which the Company is a party (see Item 3- "Legal Proceedings" in
the Form 10-K); whether the exchange transaction involving Laser will be
consummated; and other factors referenced in this Form 10-Q (or in the Company's
Form 10-K).
LABOR DISRUPTION AT HCL
Technicians and engineers of HCL are members of the Union of
Technicians and Engineers, which operates throughout Israel. The other employees
of HCL are members of the "Histadrut", the dominant labor union in Israel. The
terms of employment of all employees are governed by a Specific Collective
Agreement ("SCA") negotiated by HCL with the Histadrut and the representatives
of the employees. In 1994, an agreement was signed with the technicians and
engineers for the three year period ended December 31, 1996. In 1995, an SCA was
signed with the Histadrut and the representatives of the employees for the two
year period ended December 31, 1996.
In September, 1996, in accordance with its rights pursuant to the
above-mentioned agreements, HCL announced the cancellation of such agreements
effective with their expiration dates. HCL also announced its intent to
negotiate a new SCA with basic changes for the period commencing after December
31, 1996.
9
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As a result of the announced cancellation of the labor agreements,
during October, 1996 HCL suffered several work stoppages and other job actions
which adversely affected plant productivity, which was followed by a complete
work stoppage and plant shut-down from October 29 to November 14, 1996. Based on
a decision of a regional labor court, HCL's plant was then ordered to be
re-opened temporarily. The court also ordered HCL and representatives of the
workers to continue to negotiate a settlement of the labor dispute.
Notwithstanding the court's ruling, HCL suffered numerous job actions by its
workers which again led to very low productivity. On December 3, 1996 the
workers declared a strike and the plant was shut-down. The plant remained closed
until March 10, 1997 when a new SCA was signed for the three year period ending
December 31, 1999. Subsequent to March 10, 1997, HCL's plant reopened and
gradually began production. By the end of May, 1997, HCL's plant was operating
at approximately full capacity.
As a result of the strike at HCL, 1997 (particularly the first quarter)
was significantly impacted by a reduction in sales volume, resulting in the
under-absorption of fixed overhead, and lower gross margins due to reduced
productivity, coupled with inventory shortages requiring purchases from third
parties and increased general and administrative expenses arising from higher
security and other costs. This adverse impact was partially offset by lower
labor costs.
Management believes that the cost savings as a result of the changes in
the terms of the new SCA over the labor costs it would otherwise have incurred
during the next few years will substantially exceed the costs incurred during
the period of labor disruption. Such savings commenced during the second quarter
of 1997.
RESULTS OF OPERATIONS
Three month period ended September 30, 1997 compared with the three
month period ended September 30, 1996:
Revenues increased by 1.9% to $92,653,000 in 1997 from $90,910,000 in
1996, an increase of $1,743,000, resulting from increased sales of specialty
plant nutrients and industrial chemicals ($7,100,000) as a result of an increase
in quantities sold partially offset by less favorable currency exchange rates in
1997 and an increase in sales from organic chemicals ($500,000). These increases
were partially offset by a decrease of sales of potash ($5,900,000) as a result
of the sale of the Company's potash operations.
Cost of goods sold as a percentage of revenues decreased to 82.7% in
1997 compared with 83.5% in 1996. Gross profit was $16,088,000 in 1997 compared
with $14,996,000 in 1996 (17.3% of revenues in 1997 compared with 16.5% of
revenues in 1996), an increase of $1,092,000. The primary factors resulting in
the increased gross profit were higher organic chemical margins in the 1997
period, which were partially offset by less favorable currency exchange rates in
1997. General and administrative expense decreased by $790,000 to $10,674,000 in
1997 from $11,464,000 in 1996,
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and decreased as a percentage of revenues (11.5% of revenues in 1997 compared
with 12.6% of revenues in 1996). This decrease was primarily attributable to the
Company's potash operations, which were sold in 1996.
As a result of the matters described above, the Company's operating
income increased by $1,882,000 to $5,414,000 in 1997 as compared with $3,532,000
in 1996.
Interest expense decreased by $505,000 ($7,294,000 in 1997 compared
with $7,799,000 in 1996) primarily as a result of (i) the maturity of the
Company's outstanding Senior Subordinated Reset Notes in September, 1996 and
(ii) the prepayment of senior bank debt upon the sale of the Company's potash
operations. Interest and other income - net decreased in 1997 by $23,260,000,
principally as the result of the gain on the sale of the Company's potash
operations ($22,900,000) in the 1996 period.
As a result of the above factors, income before income taxes and
extraordinary item decreased by $20,873,000 in 1997. The Company's provisions
for income taxes are impacted by the mix between domestic and foreign earnings
and vary from the U.S. Federal statutory rate principally due to the impact of
foreign operations and certain losses for which there is no current tax benefit.
Nine month period ended September 30, 1997 compared with the nine month
period ended September 30, 1996:
Revenues decreased by 13.5% to $286,936,000 in 1997 from $331,574,000
in 1996, a decrease of $44,638,000, resulting from decreased sales of specialty
plant nutrients and industrial chemicals ($13,400,000) primarily as a result of
the HCL strike and less favorable currency exchange rates in 1997 and a decrease
of sales of potash ($35,300,000) as a result of the sale of the Company's potash
operations, which were partially offset by higher sales of organic chemicals
($4,100,000). See "Labor Disruption at HCL" above for information regarding a
labor dispute and strike at HCL commencing October, 1996.
Cost of goods sold as a percentage of revenues decreased to 81.3% in
1997 compared with 82.1% in 1996. Gross profit was $53,649,000 in 1997 compared
with $59,368,000 in 1996 (18.7% of revenues in 1997 compared with 17.9% of
revenues in 1996), a decrease of $5,719,000. The primary factors resulting in
the decreased gross profit were (i) less favorable currency exchange rates in
the 1997 period ($12,400,000), (ii) the adverse effect of the strike at HCL (net
of HCL's claim for reimbursement from an Israeli industrial association for
partial contribution towards the costs suffered during the period of the strike)
(see "Labor Disruption at HCL" above) and (iii) the sale of the Company's potash
operations. These decreases were partially offset by higher organic chemical
margins in the 1997 period, lower raw material, energy and wage costs and
increased selling prices for the Company's specialty plant nutrients and
industrial chemicals. General and administrative expense decreased by $3,577,000
to $30,972,000 in 1997 from $34,549,000 in 1996, but increased slightly as a
percentage of revenues (10.8% of revenues in 1997 compared with 10.4% of
revenues
11
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in 1996). Most of the decreased expense related to the Company's potash
operations, which were sold in 1996. During the 1997 period, certain HCL general
and administrative expenses (security costs, communications expenses, etc.) were
adversely effected by the strike.
As a result of the matters described above, the Company's operating
income decreased by $2,142,000 to $22,677,000 in 1997 as compared with
$24,819,000 in 1996.
Interest expense decreased by $3,132,000 ($21,715,000 in 1997 compared
with $24,847,000 in 1996) primarily as a result of (i) the maturity of the
Company's Senior Subordinated Reset Notes in September, 1996 and (ii) the
prepayment of senior bank debt upon the sale of the Company's potash operations.
Interest and other income - net decreased in 1997 by $21,652,000, principally as
the result of the gain on the sale of the Company's potash operations
($22,900,000) in the 1996 period, partially offset by certain realized gains on
marketable securities in the 1997 period.
As a result of the above factors, income before income taxes and
extraordinary item decreased by $20,662,000 in 1997. The Company's provisions
for income taxes are impacted by the mix between domestic and foreign earnings
and vary from the U.S. Federal statutory rate principally due to the impact of
foreign operations and certain losses for which there is no current tax benefit.
In the 1996 period the Company acquired $19,122,000 principal amount of
its Senior Subordinated Reset Notes, which resulted in a loss of $553,000. Such
loss (which has no current tax benefit) is classified as an extraordinary item
in the accompanying Consolidated Statements of Operations. No such debt was
acquired in the 1997 period.
CAPITAL RESOURCES AND LIQUIDITY
The Company's consolidated working capital at September 30, 1997 and
December 31, 1996 was $78,298,000 and $88,873,000, respectively.
Operations for the nine month periods ended September 30, 1997 and
1996, after adding back non-cash items, provided cash of approximately
$16,700,000 and $15,800,000, respectively. During such periods other changes in
working capital used cash of approximately $4,300,000 and $24,400,000,
respectively, resulting in cash being provided (used) by operating activities
and working capital management of approximately $12,400,000 and ($8,600,000),
respectively.
Investment activities during the nine month periods ended September 30,
1997 and 1996 provided (used) cash of approximately ($13,900,000) and
$46,000,000, respectively, including additions to property in 1997 and 1996 of
approximately $14,200,000 and $10,800,000, respectively, purchases of marketable
securities and other short-term investments of approximately $1,900,000 and
$5,300,000, respectively, and sales of marketable securities and other
short-term investments of approximately $8,200,000 and $900,000, respectively.
No major property additions occurred
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in the 1997 or 1996 periods. During 1996 the Company sold its potash operations
and realized gross proceeds of approximately $56,200,000. Approximately 50% of
such gross proceeds were applied to prepay certain senior indebtedness related
to the Company's potash operations. Such 1996 prepayment is included in
financing activities in the paragraph below.
Financing activities during the nine month periods ended September 30,
1997 and 1996 used cash of approximately $2,100,000 and $33,900,000,
respectively.
As of September 30, 1997, the Company had outstanding long-term debt
(excluding current maturities) of $262,739,000. The Company's primary source of
liquidity is cash flow generated from operations and its unused credit lines.
Approximately 90% of HCL's sales are made outside of Israel in various
currencies, of which approximately 40% are in U.S. dollars, with the remainder
principally in Western European currencies. In order to mitigate the impact of
currency fluctuations against the U.S. dollar, the Company has a general policy
of hedging a significant portion of its foreign sales denominated in Western
European currencies by entering into forward exchange contracts. A portion of
these contracts qualify as hedges pursuant to Statement of Financial Accounting
Standards No. 52 and accordingly, unrealized gains and losses arising therefrom
are deferred and accounted for in the subsequent year as part of sales.
Unrealized gains and losses for the remainder of the forward exchange contracts
are recognized in income currently. If the Company had not followed such a
policy of entering into forward exchange contracts in order to hedge its foreign
sales, and instead recognized income based on the then prevailing foreign
currency rates, the Company's income before income taxes for the nine month
periods ended September 30, 1997 and 1996, would have decreased by approximately
$5,600,000 and $4,100,000, respectively.
The principal purpose of the Company's hedging program (which is for
other than trading purposes) is to mitigate the impact of fluctuations against
the U.S. dollar, as well as to protect against significant adverse changes in
exchange rates. Accordingly, the gains and losses recognized relating to the
hedging program in any particular period and the impact on revenues had the
Company not had such a program are not necessarily indicative of its
effectiveness.
CAPITAL EXPENDITURES
During the nine month period ended September 30, 1997 the Company
invested approximately $14,200,000 in capital expenditures. The Company
currently anticipates that capital expenditures for the year ending December 31,
1997 will aggregate approximately $20,000,000. The Company's capital
expenditures will be used primarily for increasing certain production capacity
and efficiency, product diversification and for ecological matters.
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INFLATION
Inasmuch as only approximately $62,000,000 of HCL's annual operating
costs are denominated in New Israeli Shekels ("NIS"), HCL is exposed to
inflation in Israel to a limited extent. The combination of price increases
coupled with devaluation of the NIS have in the past generally enabled HCL to
avoid a material adverse impact from inflation in Israel. However, HCL's
earnings increase or decrease to the extent that the rate of future NIS
devaluation differs from the rate of Israeli inflation. For the years ended
December 31, 1996 and 1995 the inflation rate of the NIS as compared to the U.S.
Dollar exceeded the devaluation rate in Israel by 6.9% and 4.2%, respectively.
ENVIRONMENTAL MATTERS
See Item 1 - "Business - Environmental Matters" and Note O of Notes to
Consolidated Financial Statements included in the Company's Form 10-K for
information regarding environmental matters relating to the Company's various
facilities.
INVESTMENT IN LASER INDUSTRIES LIMITED
On November 9, 1997, Laser, a corporation in which the Company has an
ownership interest accounted for by the equity method, and ESC Medical Systems
Ltd. ("ESC"), signed a definitive agreement (the "Agreement") to combine the two
companies through an exchange of shares. Under the terms of the Agreement, which
has been approved by the Board of Directors of both Laser and ESC, outstanding
shares of Laser will be exchanged at a fixed exchange ratio (the "Exchange
Ratio") of .75 of a share of ESC for each Laser share, subject to certain
adjustments. The transaction is expected to close by the end of the first
quarter of 1998, subject to approval by the shareholders of both companies and
Israeli and United States regulatory and other approvals. Both Laser and ESC
have the right to terminate the Agreement if the average share price of ESC (as
defined), is less than $30.00 per share. The Company's ability to sell the ESC
shares will be governed by securities law volume restrictions.
As of September 30, 1997, the Company carries its investment in the
Laser shares at approximately $8,500,000, which amount is included in "other
assets" in the accompanying Consolidated Balance Sheet. Based on the quoted
market value of the ESC shares ($42.00 per share) as of November 7, 1997, the
most recent trading day prior to the Agreement, and after considering the
Exchange Ratio, the Company would recognize a pre-tax gain of approximately
$30,000,000 if the transaction had closed as of such date. The ultimate gain
that will be recognized by the Company will be based on the ESC share price at
the date of closing.
In addition to the ownership of the Laser shares described above, the
Company also owns a warrant (the "Laser Warrant") which enables the Company to
purchase 250,000 Laser shares at an exercise price of $5.75 per share, or an
aggregate exercise price of approximately $1,400,000 (the "Aggregate Exercise
Price"). In accordance with the Agreement and the Exchange Ratio, this warrant
will enable the Company to obtain 187,500 ESC shares upon payment
14
<PAGE> 15
of the Aggregate Exercise Price. Based on the quoted market value of the ESC
shares on November 7, 1997, such 187,500 ESC shares would have an aggregate
quoted market value of approximately $7,900,000. The Company currently has a
carrying value of the Laser Warrant of $750,000, which amount is included in
"other assets" in the accompanying Consolidated Balance Sheets.
Laser is a leader in the design, manufacturing, marketing and servicing
of a broad range of cosmetic and surgical laser systems for use in a variety of
medical applications. ESC develops, manufactures and markets medical devices
utilizing both state-of-the-art lasers and proprietary intense pulsed light
source technology for non-invasive treatment of varicose veins and other benign
vascular lesions, as well as for hair removal, skin cancer, skin rejuvenation
and other clinical applications. Both the Laser and ESC shares are traded in the
United States on the NASDAQ National Market System.
OTHER MATTERS
The Company is evaluating the potential impact of the situation
commonly referred to as the "Year 2000 problem". The Year 2000 problem, which is
common to most corporations, concerns the inability of information systems,
primarily computer software programs, to properly recognize and process date
sensitive information related to the year 2000. Preliminary assessment indicates
that solutions will involve a mix of purchasing new systems and modifying
existing systems and confirming vendor compliance. The Company is currently
evaluating the expected costs to be incurred in connection with the Year 2000
problem, but expects that such costs will not be significant.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), and SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 131 establishes standards
for reporting financial and descriptive information for reportable segments on
the same basis that is used internally for evaluating segment performance and
the allocation of resources to segments. The Company is evaluating the effect,
if any, of SFAS 131, on its operating segment reporting disclosure. SFAS 130
establishes standards for presenting certain items that are excluded from net
income and reported as components of stockholders' equity, such as foreign
currency translation. These statements are effective for fiscal years beginning
after December 15, 1997. The adoption of these statements will not have a
material effect on the Company's results of operations or financial position.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS-RESOURCES, INC.
---------------------
(Registrant)
Date: November 12, 1997 Lester W. Youner
-------------------------
Vice President, Treasurer and
Chief Financial Officer
17
<PAGE> 18
TRANS-RESOURCES, INC.
INDEX TO EXHIBITS
Exhibit Description Page No.
- ------- ----------- --------
27 Financial Data Schedule.
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 25,550
<SECURITIES> 0
<RECEIVABLES> 87,329
<ALLOWANCES> 0
<INVENTORY> 53,399
<CURRENT-ASSETS> 202,595
<PP&E> 312,547
<DEPRECIATION> 114,096
<TOTAL-ASSETS> 441,495
<CURRENT-LIABILITIES> 124,297
<BONDS> 262,739
0
7,960
<COMMON> 0
<OTHER-SE> 17,808
<TOTAL-LIABILITY-AND-EQUITY> 441,495
<SALES> 286,936
<TOTAL-REVENUES> 286,936
<CGS> 233,287
<TOTAL-COSTS> 233,287
<OTHER-EXPENSES> 30,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,715
<INCOME-PRETAX> 4,785
<INCOME-TAX> 1,836
<INCOME-CONTINUING> 2,949
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,949
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
