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 JUNE 30, 1996.
[ ] 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 practical
date: 4,641,600 shares of Common Stock, par value $0.01 per
share, were outstanding at July 30, 1996.
<PAGE>
Total Containment, Inc.
Index
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - 3
June 30, 1996 and December 31, 1995
Condensed Consolidated Statement of Income - 4
Three months ended June 30, 1996 and
1995 and six months ended June 30, 1996 and 1995
Condensed Consolidated Statement of Cash Flows - 5
Six months ended June 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 10
Security Holders
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
<CAPTION>
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, Dec. 31,
1996 1995
(In thousands, except share data)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 431 $ 337
Accounts receivable, net 7,211 6,316
Inventories - Note 2 6,436 5,691
Other assets 2,596 2,244
Total current assets 16,674 14,588
Molds and tooling costs, net 1,214 1,398
Property and equipment, net 2,120 1,545
Patents, patent rights and licenses,
net 5,036 5,019
Goodwill, net 5,221 5,299
Other assets 2,647 2,853
------- -------
$32,912 $30,702
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Line of credit borrowings $ 2,238 $ 251
Current portion of long-term bank debt 320 240
Accounts payable and accrued expenses 2,846 2,910
Income taxes payable 338 --
Warranty reserve 2,950 2,963
------- -------
Total current liabilities 8,692 6,364
Long-term debt 820 414
Warranty reserve 4,132 5,309
------- -------
Total liabilities 13,644 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 5,453 4,819
Equity adjustment from foreign currency
translation 41 22
------- -------
Total shareholders' equity 19,268 18,615
------- -------
$32,912 $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 Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $9,865 $10,301 $16,910 $18,439
Cost of sales 6,214 6,156 10,677 10,833
Special warranty reserve expense 0 5,000 0 5,000
------ ------- ------- -------
Gross profit (loss) 3,651 (855) 6,233 2,606
Selling, general and administrative 2,444 2,428 4,802 4,877
Amortization of patents, licenses
and goodwill 126 120 252 241
------ ------- ------- -------
Income (loss) from operations 1,081 (3,403) 1,179 (2,512)
Non-recurring transaction expense 0 376 0 376
Interest expense 73 60 125 90
------ ------- -------- -------
Income (loss) before income taxes 1,008 (3,839) 1,054 (2,978)
Income tax expense (benefit) 387 (1,570) 419 (1,202)
------ -------- ------ --------
Net income (loss) $ 621 $(2,269) $ 635 $(1,776)
====== ======== ====== ========
Net income (loss) per share $ 0.13 $ (0.49) $ 0.14 $ (O.38)
====== ======== ====== ========
Weighted average shares and share
equivalents used in computation
of net income per share 4,642 4,642 4,642 4,642
====== ====== ====== =======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
1996 1995
----- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net cash used for operating activities $(1,667) $ 513
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (712) (835)
Other --- (200)
-------- -------
Net cash used for investing activities (712) (1,035)
======== ========
Cash flows from financing activities:
Net borrowings on long-term debt 486 ---
Net borrowings under line of credit 1,988 809
------- -------
Net cash provided by financing activities 2,474 809
------- -------
Net increase in cash $ 95 $ 287
======= =======
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 principals 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
June 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 of the year ended December 31, 1995.
Note 2 - Inventories
The components of inventory consist of the following:
June 30, Dec. 31,
1996 1995
------- --------
(In thousands)
Raw materials $ 427 $ 396
Finished goods 6,009 5,295
------ ------
$6,436 $5,691
====== ======
<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 a 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 six months ended
June 30, 1996, were $9.9 million and $16.9 million, respectively,
as compared to $10.3 million and $18.4 million for the
corresponding periods in 1995. Net sales decreased 4.2% during
the quarter and 8.3% for the first six months of 1996 as compared
to the same periods in the previous fiscal year. The decrease
for both the quarter and the first six months was primarily
attributable to a decrease in sales of all of our products in the
United States due to a slow down in retrofitting of existing
sites caused by a combination of weather, permitting delays and
increased gasoline dispensing profit. This decrease was
partially offset by an increase in sales in Latin and South
America, primarily Mexico, as construction has recently increased
following last year's downturn due to the devaluation of the
peso.
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, depreciation of molds,
tools and equipment, warranty expense and limited assembly costs.
The Company's gross profit (loss) for the quarter and six months
ended June 30, 1996, was $3.7 million and $6.2 million,
respectively, as compared to ($855,000) and $2.6 million for the
corresponding periods in 1995. Gross profit increased 527.0%
during the quarter and 139.2% for the first six months of 1996 as
compared to the same periods in the previous fiscal year. The
increase resulted primarily from a $5 million charge to earnings
to increase the Company's warranty reserve in the second quarter
of 1995.
The Company's gross profit (loss) percentage was 37.0% for
the quarter and 36.9% for the six months ended June 30, 1996, as
compared to (8.3%) and 14.1% for the same periods in the previous
fiscal year. The Company's gross profit (loss) percentage
increased primarily as a result of the aforementioned charge to
warranty expense. This increase was offset by a decrease in
sales for the first six months of 1996, as well as an increase in
the cost 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 six months ended
June 30, 1996, were $2.4 million and $4.8 million, respectively,
as compared to $2.4 million and $4.9 million for the
corresponding periods in 1995. Selling, general and
administrative expenses increased 0.7% during the quarter and
decreased 1.5% for the first six months of 1996 as compared to
the same periods in the previous fiscal year. This increase for
the quarter was due to an increased expenditure on third party
product testing. The decrease for the six month period was due
to a decrease in expenses for legal activities.
Interest Expense
Interest expense for the quarter and six months ended
June 30, 1996, was $73,000 and $125,000, respectively, as
compared to $60,000 and $90,000 for the corresponding periods in
1995. The increase was due to the Company borrowing on a term
loan to increase its manufacturing capabilities which did not
begin until the latter part of fiscal year 1995.
Amortization of Intangibles
Amortization of intangibles consists of the amortization of
goodwill 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 six months ended
June 30, 1996, was $387,000 and $419,000, respectively, as
compared to an expense (benefit) of ($1.6 million) and ($1.2
million) for the corresponding periods in 1995. The increase was
due to the increase in the Company's income before income taxes.
Net Income
The Company's net income (loss) for the quarter and six
months ended June 30, 1996, was $621,000 and $635,000,
respectively, as compared to ($2.3 million) and ($1.8 million)
for the corresponding periods in 1995. Net income increased
127.4% during the quarter and 135.8% for the first six months of
1996 as compared to the same periods in the previous fiscal year.
The increase for both periods is the results of the increase in
the warranty reserve in the second quarter of 1995. This was
partially offset by a decrease in the net sales.
Liquidity and Capital Resources
The Company had working capital of $8.0 million and $8.2
million at June 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
A federal district court jury in Los Angeles, California has
recently returned a verdict in favor of the Company. The suit
was filed by Ameron, Inc. and Environ Products, Inc., against the
Company, Keith Osborne and several companies owned by
Mr. Osborne. The suit claimed breach of contract, trade
defamation, unfair competition, conspiracy and violation of
various federal antitrust laws.
The verdict, which can be appealed, determined, in effect,
that only the Company and Mr. Osborne will be legally entitled to
make, use and sell retractable double-wall, flexible underground
fuel containment systems when a patent protecting this invention
is issued to Mr. Osborne. The Company and Mr. Osborne expect the
patent to be issued in the near future.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The 1995 Annual Meeting of Stockholders (the "Meeting") of
the Company was held on April 19, 1996. Notice of the Meeting
was mailed to stockholders on or about April 3, 1996, together
with proxy solicitation materials prepared in accordance with
Section 14(a) of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder.
The Meeting was held for the following purposes:
1. To elect two Class II directors to hold office until
the 1999 Annual Meeting of Stockholders and until their
successors shall have been elected and qualified
(Matter No. 1);
2. To ratify the appointment by the Company's Board of
Directors of Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending
December 31, 1996 (Matter No. 2); and
3. To transact such other business as may properly come
before the Annual Meeting or any adjournment or
adjournments thereof.
There was no solicitation in opposition to the nominees of
the Board of Directors for election to the Board of
Directors. All nominees of the Board of Directors were
elected. The number of votes cast for or withheld, as well
as the number of abstentions and broker nonvotes for each of
the nominees for election to the Board of Directors were as
follows:
Abstentions
and Broker
Nominee For Withheld Nonvotes
Marcel Dutil 2,852,600 -- --
Bernard Gouin 2,852,300 300 --
Matter No. 2 was approved by stockholders at the Meeting.
The votes cast on this matter were as follows:
Abstentions
and Broker
For Against Nonvotes
2,852,600 0 --
Item 5. Other Information
None.
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 Bylaws of the Company, incorporated herein by
reference to exhibit 3(b) 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 August 14, 1996 /s/ Mark Guindon
Marc Guindon
President and Chief Executive
Officer (Authorized Officer)
Date August 14, 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 Bylaws of the Company, incorporated herein by
reference to Exhibit 3(b) 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
<TABLE>
<CAPTION> Exhibit 11
TOTAL CONTAINMENT, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three months ended Six months ended
June 30, June 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 24 -- 12 --
------ ------ ------ ------
Totals 4,666 4,642 4,654 4,642
====== ====== ====== ======
Net income (loss) $621 ($2,269) $635 ($1,776)
====== ====== ====== ======
Per share amount $0.13 ($0.49) $0.14 ($0.38)
====== ====== ====== ======
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 37 -- 18 --
------ ------ ------ ------
Totals 4,679 4,642 4,660 4,642
====== ====== ====== ======
Net income $621 ($2,269) $635 ($1,776)
====== ====== ====== ======
Per share amount $0.13 ($0.49) $0.14 ($0.38)
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 431
<SECURITIES> 0
<RECEIVABLES> 7,261
<ALLOWANCES> (50)
<INVENTORY> 6,436
<CURRENT-ASSETS> 16,674
<PP&E> 6,370
<DEPRECIATION> (3,036)
<TOTAL-ASSETS> 32,912
<CURRENT-LIABILITIES> 8,692
<BONDS> 0
0
0
<COMMON> 4,642
<OTHER-SE> 41
<TOTAL-LIABILITY-AND-EQUITY> 32,912
<SALES> 16,910
<TOTAL-REVENUES> 16,910
<CGS> 10,677
<TOTAL-COSTS> 15,479
<OTHER-EXPENSES> 252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> 1,054
<INCOME-TAX> 419
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 635
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
