UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996.
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 0-23454
Total Containment, Inc.
(Exact name of registrant as specified in its charter)
Delaware 23-2394872
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
422 Business Center, A130 North Dr., Oaks, PA 19456
(Address of principal executive offices ) (Zip Code)
(610)666-7777
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date: 4,641,600 shares of Common Stock, par value
$0.01 per share were outstanding at October 25, 1996.
<PAGE>
Total Containment, Inc.
Index
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - 3
September 30, 1996 and December 31, 1995
Condensed Consolidated Statement of Income - 4
Three months ended September 30, 1996
and 1995 and nine months ended
September 30, 1996 and 1995
Condensed Consolidated Statement of Cash Flows 5
- Nine months ended September 30, 1996 and 1995
Notes to Condensed Consolidated Financial 6
Statements - 1996
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of
Operations
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
<CAPTION>
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
Sep. 30, Dec. 31,
1996 1995
(In thousands, except share data)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 383 $ 337
Accounts receivable, net 8,254 6,316
Inventories - Note 2 7,492 5,691
Other assets 2,459 2,244
Total current assets 18,588 14,588
Molds and tooling costs, net 1,399 1,398
Property and equipment, net 2,243 1,545
Patents, patent rights and licenses, net 5,190 5,019
Goodwill, net 5,586 5,299
Other assets 2,089 2,853
Total assets $35,095 $30,702
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit borrowings $ 3,107 $ 251
Current portion of long-term bank debt 520 240
Accounts payable and accrued expenses 5,723 2,910
Income taxes payable - -
Warranty reserve 2,669 2,963
Total current liabilities 12,019 6,364
Long-term debt 1,960 414
Warranty reserve 1,177 5,309
Total liabilities 15,156 12,087
Shareholders' Equity:
Preferred stock - $0.01 par value;
authorized 1,000 shares; none
issued and outstanding - -
Common stock - $0.01 par value;
authorized 20,000,000 shares;
4,641,600 shares issued and outstanding 46 46
Capital in excess of par value 13,728 13,728
Retained earnings 6,047 4,819
Equity adjustment from foreign
currency translation 118 22
Total shareholders' equity 19,939 18,615
$35,095 $30,702
======= =======
See notes to condensed consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three months ended Nine months ended
Sep 30, Sep 30,
1996 1995 1996 1995
(In thousands, except share data)
<S> <C> <C> <C> <C>
Net sales 11,635 11,152 28,545 29,591
Cost of sales 7,464 6,606 18,141 17,439
Special warranty reserve expense - - - 5,000
Gross profit 4,171 4,546 10,404 7,152
Selling, general and administrative 2,984 2,565 7,786 7,442
Amortization of patents, licenses
and goodwill 134 121 386 362
Income from operations 1,053 1,860 2,232 (652)
Non-recurring transaction expense - - - 376
Interest expense 109 50 234 140
Income before income taxes 944 1,810 1,998 (1,168)
Income tax expense 351 759 770 (443)
Net income 593 1,051 1,228 (725)
========== ========== ========== =========
Net income per share $ 0.13 $ 0.23 $ 0.26 $ (0.16)
========== ========== ========== =========
Weighted average shares and
share equivalents used in
computation of net income
per share $4,677,369 $4,641,600 $4,663,459 $4,641,600
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
1996 1995
Numbers in thousands
<S> <C> <C>
Cash flows generated from operating activities:
Net cash provided by (used for) operating activities (2,288) 1,043
Cash flows used for investing activities:
Purchase of property and equipment (1,348) (1,483)
Other (1,000) -
Net cash used for investing activities (2,348) (1,483)
Cash flows from financing activities:
Net borrowings on long-term debt 1,826 -
Net borrowings under line of credit 2,856 615
Net cash provided by financing activities 4,682 615
Net change in cash $ 46 $ 175
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
TOTAL CONTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The unaudited Condensed Consolidated Financial
Statements of Total Containment, Inc. (the "Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The results of operations of the Company for the three month
period ended, September 30, 1996, are not necessarily indicative
of the results that may be expected for any other interim period
or for a full year. For further information, refer to the
Consolidated Financial Statements and notes thereto included in
the Registrant Company's Annual Report and Form 10-K for the year
ended December 31, 1995.
Note 2 - Inventories
The components of inventory consist of the following:
Sep. 30, Dec. 31,
1996 1995
(In thousands)
Raw materials $ 689 $ 396
Finished goods 6,803 5,296
$7,492 $5,692
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a Delaware corporation organized in
1986. The Company is the leading manufacturer and distributor of
underground systems and products for the conveyance and
containment of petroleum and alcohol based motor vehicle fuels
from underground storage tanks to aboveground fuel dispensers.
The principal end users of the Company's products are service
stations, convenience stores and other retail sellers of
gasoline, gasohol and other motor vehicle fuels, government
bodies, utilities, and other fleet vehicle operators.
Net Sales
The Company's net sales for the quarter and nine months
ended September 30, 1996, were $11.6 million and $28.5 million,
respectively, as compared to $11.2 million and $29.6 million for
the corresponding periods in 1995. Net sales increased 4.3%
during the quarter and decreased 3.5% for the first nine months
of 1996 as compared to the same periods in the previous fiscal
year. The increase in sales for the quarter was primarily
attributable to the acquisition of American Containment as well
as an increase in sales of Enviroflex piping systems in South
East Asia. This was partially offset by a decrease in sales of
all products in the North American market due to recent high
levels of retail fuel prices and profits which delayed the
upgrading of existing sites. The decrease for the nine months
was mainly due to the reduction in sales of all products in North
America caused by, among others, inclement weather and retail
fuel pricing.
Gross Profit
The primary component of the Company's cost of sales is
the product manufacturing costs paid to various third party
manufacturers. Other components are the variable and fixed costs
of operating the Company's warehouses and manufacturing
facilities, depreciation of molds, tools and equipment, warranty
expense and limited assembly costs. The Company's gross profit
for the quarter and nine months ended September 30, 1996, was
$4.2 million and $10.4 million, respectively, as compared to $4.5
and $7.2 million for the corresponding period in 1995. Gross
profit decreased 8.3% during the quarter and increased 45.5% for
the first nine months of 1996 as compared to the same periods in
the previous fiscal year. The decrease in gross profit for the
quarter resulted primarily from an increase in the percentage of
sales accrued for warranty purposes as well as an increase in the
cost of certain purchased items. The increase in gross profit
for the nine months ended September 30, 1996 was due to a $5
million charge to earnings to increase the company's warranty
reserve in the second quarter of 1995. This was partially offset
by an increase in the percentage of sales accrued for warranty
purposes as well as an increase in the cost of certain components
of cost of goods sold.
The Company's gross profit percentage was 35.9% for the
quarter and 36.5% for the nine months ended September 30, 1996,
as compared to 40.8% and 24.2% for the same periods in the
previous fiscal year. The Company's gross profit percentage
decreased primarily as a result of the increase in warranty
reserve provisions and increases in the cost of certain items.
The increase for the nine months was due primarily to the charge
to earnings in 1995, offset by the increase in warranty reserve
provisions and costs of certain purchased items.
Operating Expense
Selling, general and administrative expenses consist
primarily of salaries and related employee benefits, payroll
taxes, commissions, royalties, legal expenses and other general,
administrative and overhead costs. Selling, general and
administrative expenses for the quarter and nine months ended
September 30, 1996, were $3.0 million and $7.8 million
respectively, as compared to $2.6 million and $7.4 million for
the corresponding periods in 1995. Selling, general and
administrative expenses increased 16.3% during the quarter and
4.6% for the first nine months of 1996 as compared to the same
periods in the previous fiscal year. This increase for the
quarter and nine months was due to additional administrative
costs assumed from the acquisition of American Containment.
Interest Expense
Interest expense for the quarter and nine months ended
September 30, 1996, was $109,000 and $234,000, respectively, as
compared to $50,000 and $140,000 for the corresponding periods in
1995. The increase was due to the Company's continued borrowing
on a term loan to increase its manufacturing capabilities as well
as the additional interest expense for the term loan used to
acquire American Containment.
Amortization of Intangibles
Amortization of intangibles consists of the
amortization of goodwill, including goodwill related to purchase
of American Containment, over a period of 40 years and the
amortization of various patents and licenses that are amortized
on a straight-line basis over the estimated lives of the patents
(which range from 13 to 18 years) at the acquisition date or
subsequent issuance date.
Income Taxes
Income tax (benefit) for the quarter and nine months
ended September 30, 1996, was $351,000 and $770,000,
respectively, as compared to an expense (benefit) of $759,000 and
($443,000) for the corresponding periods in 1995. The decrease
in income tax expense for the quarter was due to a reduction in
earnings before income taxes. The increase in income tax expense
for the nine months was due primarily to the reduction of
earnings before taxes in 1995 caused by the aforementioned
increase in the Company's warranty reserve.
Net Income
The Company's net income for the quarter and nine
months ended September 30, 1996, was $593,000 and $1.2 million,
respectively, as compared to $1.1 million and ($725,000) for the
corresponding periods in 1995. Net income decreased 43.6% during
the quarter and increased 269.4% for the first nine months of
1996 as compared to the same periods in the previous fiscal year.
The decrease in net income for the quarter was due primarily to a
reduction in earnings before taxes caused by certain increases in
costs of goods sold and selling, general, and administrative
expenses. The increase for the nine months is the result of the
increase in the warranty reserve in the second quarter of 1995.
This was partially offset by a decrease in net sales and an
increase in both costs of goods sold and selling, general, and
administrative expenses.
Liquidity and Capital Resources
The Company had working capital of $6.6 million and
$8.2 million at September 30, 1996 and December 31, 1995,
respectively. The decrease was due to the reduction in long term
warranty reserve, offset by the Company's net income and
depreciation.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In July of 1991, Meijer, Inc. ("Meijer"), a corporation
that owns and operates grocery stores throughout the State of
Michigan, some of which operate motor vehicle fuel dispensing
stations, filed a lawsuit in the Michigan Circuit Court for the
Seventeenth Judicial District against the Company and 18 other
defendants, including general contractors, subcontractors,
architects and engineers. Meijer alleged, among other claims,
breach of warranty with respect to the alleged failure of the
Company's Pipe Jackets which were installed between 1988 and 1990
at 11 fuel dispensing station sites in Michigan by various third
party contractors as a secondary containment mechanism for a
primary pipe system manufactured by a competitor.
In September of 1996, the Company and Meijer settled
outstanding and potential claims by Meijer against the Company.
The settlement, which is reflected in the Company's financial
statements, has the effect of eliminating any contingent exposure
which the Company possessed as a result of the claims alleged in
Meijer's lawsuit.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Acquisition of American Containment
The Company acquired substantially all of the assets and
certain of the liabilities of American Containment of
Bakersfield, California through American Containment, Inc., a
newly created wholly owned subsidiary. For the year ended
December 31, 1995, American Containment had sales of $3.4
million, and at December 31, 1995, had assets of $842,000 and
liabilities of $392,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company,
incorporated herein by reference to exhibit 3(a)
to Registration Statement No. 33-70456 on Form S-1
of the Company
3.2 By-laws of the Company, incorporated herein by
reference to exhibit 3(a) to Registration
Statement No. 33-70456 on Form S-1 of the Company
11 Statement re: Computation of Earnings Per Share
(unaudited)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
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.
TOTAL CONTAINMENT, INC.
Date November 13, 1996 /s/ Pierre Desjardins
Pierre Desjardins
President and C.E.O.
Date November 13, 1996 /s/ Jeffrey A. Boehmer
Jeffrey A. Boehmer
Vice President Operations
(Principal Financial Officer)
<PAGE>
Exhibit Index
Exhibit No. Description
3.1 Certificate of Incorporation of the Company,
incorporated herein by reference to exhibit 3(a)
to Registration Statement No. 33-70456 on Form S-1
of the Company
3.2 By-laws of the Company, incorporated herein by
reference to exhibit 3(a) to Registration
Statement No. 33-70456 on Form S-1 of the Company
11 Statement re: Computation of Earnings Per Share
(unaudited)
27 Financial Data Schedule
EXHIBIT 11
<TABLE>
<CAPTION>
TOTAL CONTAINMENT, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 4,642 4,642 4,642 4,642
1995 - Options were anti-dilutive
1996 - Net effect of dilutive stock
options based on the treasury
stock method using average
market price 38 --- 22 ---
Totals 4,680 4,642 4,664 4,642
====== ====== ====== ======
Net income (loss) $ 593 $1,051 $1,228 $ (725)
====== ====== ====== ======
Per share amount $ 0.13 $ 0.23 $ 0.26 $(0.16)
====== ====== ====== ======
Fully diluted:
Average shares outstanding 4,642 4,642 4,642 4,642
1995 - Options were anti-dilutive
1996 - Net effect of dilutive stock
options based on the treasury
stock method using
the quarter-end market price
which is greater than the quarter
average market price 38 --- 22 ---
Totals 4,680 4,642 4,664 4,642
Net income $ 593 $1,051 $1,228 $ (725)
======= ====== ====== ======
Per share amount $ 0.13 $ 0.23 $ 0.26 $(0.16)
======= ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 383
<SECURITIES> 0
<RECEIVABLES> 8,304
<ALLOWANCES> (50)
<INVENTORY> 7,492
<CURRENT-ASSETS> 18,588
<PP&E> 6,943
<DEPRECIATION> (3,301)
<TOTAL-ASSETS> 35,095
<CURRENT-LIABILITIES> 12,019
<BONDS> 0
0
0
<COMMON> 4,642
<OTHER-SE> 46
<TOTAL-LIABILITY-AND-EQUITY> 35,095
<SALES> 28,545
<TOTAL-REVENUES> 28,545
<CGS> 18,141
<TOTAL-COSTS> 7,786
<OTHER-EXPENSES> 386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234
<INCOME-PRETAX> 1998
<INCOME-TAX> 770
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,228
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
