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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, 1994.
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 0-870
TRICO PRODUCTS CORPORATION
(Exact name of Registrant as specified in its charter)
New York 16-066-5680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
817 Washington Street, Buffalo, New York 14203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 716-852-5700
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
1,878,629 shares of common stock were outstanding at June 30, 1994.
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PART I. Item 1. Financial Statements
TRICO PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
June 30 December 31
1994 1993
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Current assets:
Cash and equivalents $ 484 $ 419
Accounts receivable 44,480 51,263
Inventories 28,947 32,108
Other current assets 2,139 3,083
Customer tooling in progress 4,554 4,339
Deferred restructuring expenses 16,917 16,215
-------- --------
Total current assets 97,521 107,427
Property, plant and equipment, net 68,585 67,000
Other assets 3,577 3,445
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Total assets $169,683 $177,872
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 9,125 $ 8,139
Current portion of long-term debt 2,334 2,174
Accounts payable 29,392 31,850
Payrolls and other liabilities 16,220 16,383
Liability for restructuring expenses 3,006 3,726
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Total current liabilities 60,077 62,272
-------- --------
Long-term debt 29,038 39,714
Other liabilities 5,706 5,574
Non-current restructuring liabilities 638 860
-------- --------
Total non-current liabilities 35,382 46,148
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Shareholders' equity:
Common stock, without par value -
2,700,000 shares authorized and issued
at stated value of $7.75 per share 20,925 20,925
Additional paid-in capital 841 696
Retained earnings 68,207 64,226
Cumulative translation adjustments (3,588) (4,379)
Minimum pension liability adjustment (2,769) (2,769)
Loans to employees - stock purchases (755) (500)
Treasury stock, at cost - 821,371 and
831,788 shares, respectively (8,637) (8,747)
-------- --------
Total shareholders' equity 74,224 69,452
-------- --------
Total liabilities and shareholders' equity $169,683 $177,872
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The accompanying notes are an integral part of these financial statements
2
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PART I. Item 1. (continued)
TRICO PRODUCTS CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS AND EARNINGS
REINVESTED IN THE BUSINESS
FOR THE THREE MONTHS ENDED JUNE 30
(Dollars in Thousands)
1994 1993
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Net sales $87,787 $77,675
Cost of goods sold 76,670 67,252
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Gross profit 11,117 10,423
Selling, general and administrative expenses 7,549 8,200
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Operating income 3,568 2,223
Other income 131 (78)
Interest expense (953) (1,216)
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Income before income taxes 2,746 929
Income tax provision 850 179
------- -------
Net income 1,896 750
Retained earnings, April 1 66,311 61,670
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Retained earnings, June 30 $68,207 $62,420
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Net income per share $1.01 $0.40
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The accompanying notes are an integral part of these financial statements
3
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PART I. Item 1. (continued)
TRICO PRODUCTS CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS AND EARNINGS
REINVESTED IN THE BUSINESS
FOR THE SIX MONTHS ENDED JUNE 30
(Dollars in Thousands)
1994 1993
-------- --------
Net sales $183,018 $158,196
Cost of goods sold 160,977 137,891
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Gross profit 22,041 20,305
Selling, general and administrative expenses 14,647 16,411
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Operating income 7,394 3,894
Other income 346 161
Interest expense (2,039) (2,338)
-------- --------
Income before income taxes 5,701 1,717
Income tax provision 1,720 266
-------- --------
Net income 3,981 1,451
Retained earnings, January 1 64,226 60,969
-------- --------
Retained earnings, June 30 $ 68,207 $ 62,420
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Net income per share $2.13 $0.78
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The accompanying notes are an integral part of these financial statements
4
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PART I. Item 1. (continued)
TRICO PRODUCTS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(Dollars in Thousands)
1994 1993
Cash flows provided by (used in) -------- -------
operating activities:
Net income $ 3,981 $ 1,451
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 7,350 6,982
Gain on sale of property, plant and equipment (213) (252)
Remeasurement gain (337) (52)
Other (235) (47)
Change in assets and liabilities:
Accounts receivable 7,596 (3,231)
Inventories 3,543 (326)
Other assets 379 (1,440)
Payables, payroll and other liabilities (2,858) (2,298)
Liability for restructuring expenses (988) (3,693)
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Net cash from operating activities 18,218 (2,906)
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Cash flows provided by (used in)
investing activities:
Capital expenditures - property, plant
and equipment (7,663) (7,728)
Proceeds from sale of property, plant
and equipment 233 2,320
Proceeds from sale of joint venture - 1,000
-------- -------
Net cash from investing activities (7,430) (4,408)
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Cash flows provided by (used in)
financing activities:
Net increase (decrease) in borrowings
under revolving credit agreements and
notes payable (9,775) 4,931
Proceeds from new debt facilities - 7,535
Principal payments under long-term debt (1,303) (6,031)
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Net cash from financing activities (11,078) 6,435
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Effect of exchange rate changes on cash 355 51
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Net increase (decrease) in cash and equivalents 65 (828)
Cash and equivalents, January 1 419 1,195
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Cash and equivalents, June 30 $ 484 $ 367
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The accompanying notes are an integral part of these financial statements
5
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PART I. Item l. (continued)
TRICO PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The information included in this report reflects all adjustments
which are, in the opinion of Management, necessary to a fair
statement of the results for the interim periods. This report has
not been audited by Independent Accountants and the information
herein is subject to year-end adjustments and audit. The
consolidated financial statements and notes thereto, included herein,
should be read in conjunction with the consolidated financial
statements and notes thereto for the years ended December 31, 1993,
1992 and 1991 that are included in Item 8 of Part II of the 1993
Annual Report to the Securities and Exchange Commission on Form 10-K.
2. Earnings per share - Earnings per share are based on the following
weighted average number of shares outstanding during the period ended
June 30:
1994 1993
--------- ---------
Weighted average shares - quarter 1,876,089 1,853,523
Weighted average shares - six months 1,873,027 1,850,409
3. Inventories - Approximately 85% of inventories were valued using the
LIFO method at both June 30, 1994 and December 31, 1993. The major
classes of inventory were as follows:
June 30, December 31,
1994 1993
-------- ------------
(Dollars in thousands)
Finished goods $ 9,720 $ 8,016
Work-in-process 6,252 7,341
Raw materials and supplies 12,975 16,751
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$28,947 $32,108
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6
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PART I. Item l. (continued)
4. Property, plant and equipment, at cost -
June 30, December 31,
1994 1993
-------- ------------
(Dollars in thousands)
Land $ 2,087 $ 2,083
Buildings 38,433 38,410
Machinery and equipment 112,835 110,533
Improvements in progress 10,403 4,443
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163,758 155,469
Less accumulated depreciation 95,173 88,469
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$ 68,585 $ 67,000
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Depreciation expense for the six months ended June 30, 1994 and 1993
was $7,350,000 and $6,982,000, respectively.
5. Statement of cash flows related disclosures - The Company entered
into financing transactions in 1994 and 1993 resulting in capital
lease obligations of $673,000 and $594,000, respectively. Cash paid
during the six months for interest and income taxes were as follows:
June 30, June 30,
1994 1993
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Interest $2,535,000 $889,000
Income taxes 3,330,000 -
6. Income taxes - The income tax provision represents alternative
minimum tax on North American income.
7. Long-term debt - The maturity date of the Company's revolving credit
agreement has been extended to July 30, 1995.
7
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PART I. Item l. (continued)
8. Commitments, contingencies and legal matters - In the normal course
of business, the Company is subject to certain product recalls and
various liabilities, some contingent in nature, relating to
environmental cleanup costs and lawsuits. The Company estimates the
range of loss exposure for such items at June 30, 1994, to be from
$4.1 million to $20.0 million. $4.1 million of loss contingencies is
included in Payrolls and Other Liabilities at June 30, 1994. The
outcome of these matters, individually or in the aggregate, is not
expected to have a material effect on the financial position, results
of operations or cash flows of the Company.
The Company has been identified as a potentially responsible party
("PRP") at eight sites that are under the jurisdiction of the United
States Environmental Protection Agency or the New York State
Department of Environmental Conservation ("DEC"). The Company's
exposure for material loss contingencies for the remediation of five
of these sites is considered remote at this time. Of the three
remaining sites, the Company's exposure for loss contingencies for
the remediation of the site known as Roblin Steel, Tonawanda, New
York, is not known at this time, as no estimated range of the cost to
remediate the site is available, nor has the Company's share
percentage of these remediation costs been determined, because a
Remedial Investigation/Feasibility Study has not yet been commenced.
However, although no estimate of the cost to remediate the site is
determinable at this time, it should be noted that the Roblin Steel
this site is adjacent to another site that was previously remediated
(Envirotek II) at a total cost of approximately $3 million. For the
Envirotek II site, the Company's share percentage of the remediation
cost was 3.6% or approximately $100,000. It is this adjacent site
which is alleged to have partially contaminated a portion of the
Roblin Steel Site. Assuming that the current group of participants
at the Envirotek II site will carry over to the Roblin Steel site,
the Company's share will likely be approximately $30,000 for every $1
million in expenses.
With respect to another remaining site known as the Booth Oil,
Robinson Street, North Tonawanda site, the Company's exposure for 8
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PART I. Item l. (continued)
8. Commitments, contingencies and legal matters (continued)
loss contingencies for the remediation of this site is not known at
this time since the Company's liability, if any, with respect to the
site has not yet been established and, consequently, no allocation
has been made with respect to the Company's share percentage. At the
present time, the New York State Department of Environmental
Conservation has estimated the cost for the remediation of the site
at approximately $20 million, but the existing PRP's dispute that
estimate based upon their belief that existing alternative
remediation technologies are feasible.
The Company is one of twenty PRP's for purposes of site investigation
and possible remediation at the Pfohl Brothers Landfill. The DEC
estimates the costs for this remedial effort to be approximately $53
to $60 million. The Company has entered into a preliminary
participation agreement with ten other companies to jointly negotiate
with New York State to remediate the site and to pursue
non-participating entities. The Company's exposure for loss
contingencies for the remediation of the Pfohl Brothers Landfill has
been preliminarily estimated at 1.03% of the $53-$60 million
estimated cost to remediate the site, or in the range of $0.5 to $0.6
million. This preliminary share percentage is subject to future
review and negotiation.
The Company reviews and evaluates its exposure for environmental loss
contingencies on a quarterly basis. Approximately $1.3 million of
loss contingencies for environmental cleanup costs has been accrued
at June 30, 1994 and is included in the above mentioned $4.1 million
included in Payrolls and other Liabilities.
The U.S. Customs Service continues to aggressively investigate the
Company's compliance with customs regulations and may assert
substantial additional duties and penalties. The Company's exposure
for loss contingencies for this matter is not determinable at this
time. However, the Company will continue to aggressively defend its
position.
9
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Part I. Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations -
Three months ended June 30:
Manufacturing operations for the second quarter resulted in a profit of
$3,568,000 compared to $2,223,000 in the second quarter of 1993, an
increase of 61%. North American operations improved as operating income
increased to $4,156,000 from $2,502,000 in 1993. The improvement in
North American earnings was primarily due to improved margins and sales
volume. United Kingdom operations worsened as a 9% increase in sales
volume was not sufficient to offset decreased margins resulting in an
operating loss of $921,000 compared to operating loss of $825,000 in
1993. Australian operations resulted in an operating income of $333,000
compared to operating income of $546,000 in 1993 as sales volumes to
North American operations were reduced.
Sales increased $10,112,000 or 13.0%, primarily in the North American
operations due to an increase in original equipment market shipments.
These shipments are up due to higher new vehicle sales over the prior
year and the Company's displacement of a competitor's product at an
original equipment customer.
Cost of goods sold (COGS) increased $9,418,000, or 14.0%. COGS was 87.3%
of sales as compared to 86.6% in the second quarter of 1993. The
increase as a percentage of net sales of 0.7% was due to decreased
margins in U.K. and Australian operations as a result of competitive
pressures on pricing.
Selling, general and administrative expenses decreased $651,000 or 7.9%
from the second quarter of 1993 primarily due to decreased research and
development expenses and distribution expenses.
Interest expense decreased $263,000 as lower debt levels were partially
offset by higher interest rates.
10
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Part I. Item 2. (continued)
Results of Operations -
Six months ended June 30:
Manufacturing operations for the first six months resulted in a profit of
$7,394,000 compared to $3,894,000 in 1993, an increase of 90%. North
American operations improved as operating income increased to $8,622,000
from $3,400,000 in 1993. The improvement in North American earnings was
primarily due to improved margins and sales volume. United Kingdom
operations worsened as a 3% decrease in sales volume and lower margins
resulted in increased operating losses of $1,540,000 compared to $369,000
in 1993. Australian operations earned operating income of $312,000
compared to operating income of $863,000 in 1993 as sales volumes to
North American operations were reduced.
Sales increased $24,822,000 or 15.7%, primarily in the North American
operations. North American sales increased 18% due to an increase in
original equipment market shipments. These shipments are up due to
higher new vehicle sales over the prior year and the Company's
displacement of a competitor's product at an original equipment customer.
Cost of goods sold (COGS) increased $23,086,000, or 16.7%. COGS was
88.0% of sales as compared to 87.2% in 1993. The increase as a
percentage of net sales of 0.8% was due to decreased margins in U.K. and
Australian operations as a result of competitive pressures on pricing.
Selling, general and administrative expenses decreased $1,764,000 or
10.7% from 1993 primarily due to decreased research and development
expenses and distribution expenses.
Interest expense decreased $299,000 as lower debt levels were partially
offset by higher interest rates.
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PART l. Item 2. (continued)
Liquidity and Capital Resources -
The Company generated $18,218,000 of cash from operating activities.
Net income before depreciation and amortization was $11,331,000.
Operating cash was used to reduce debt levels by $11,078,000 and invest
in capital expenditures of $7,663,000.
The Company has total credit facilities of $65,700,000 with credit
available under these lines of $15,136,000 at June 30, 1994. In North
America, the Company has credit facilities of $51,100,000. The revolving
credit facility provides for borrowings of up to $42,000,000 to the
extent of available collateral and is secured by accounts receivable and
inventory. This facility was recently amended by extending the maturity
date to July 30, 1995 and reducing borrowing costs by 50 basis points to
prime plus 150 basis points. Availability under this facility at June
30, 1994 was $13,200,000. The Company's U.K. subsidiary currently has
7,900,000 pounds sterling or approximately $12,200,000 in credit
facilities, both unsecured and secured. Availability under these
facilities at June 30, 1994 was approximately 438,000 pounds sterling or
approximately $676,000. The Company's Australian subsidiary has credit
facilities of $3,300,000 Australian dollars or approximately $1,730,000.
Availability under these facilities at June 30, 1994 was $1,700,000
Australian dollars or approximately $1,260,000.
Expenditures for the current portion of restructuring liabilities
will total $3,006,000. The Company expects capital expenditures over the
next twelve months to be in the range of $12 million to $15 million.
Funding for these is expected to be provided by cash generated from
operations. Existing credit facilities will be used to fund seasonal
working capital fluctuations. See note 8 to the Consolidated Financial
Statements for a discussion of contingent items.
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PART l. Item 2. (continued)
Liquidity and Capital Resources -
The Company entered into a contract in September 1993 for the sale of
its nine acres of land in London for 11,000,000 pounds sterling or
approximately $17,000,000. The contract is contingent upon obtaining
governmental approval to rezone the property from industrial to non-food
retail park use. Local and regional governmental agencies have given
approval to the rezoning of the property from industrial to non-food
retail park use, with final approval from the Department of the
Environment pending. The Company expects this final approval to be
granted prior to the end of the year. Upon satisfaction of the
contingency to the contract of sale, the Company expects the gain on the
sale of the land to offset the accounting recognition of the deferred
restructuring expenses of 10,960,000 pounds sterling or $16,936,000
included in current assets. The proceeds from the sale is expected to
generate cash of approximately $17,000,000 and be received approximately
twelve months from the receipt of the final approval of the rezoning.
In the first six months of 1994, the Company generated cash flow from
operations of $18.2 million as a result of strong earnings and working
capital reductions. Cash flows from earnings represent the Company's
primary sources of cash. Additionally, the Company anticipates
generating cash from the sale of its land in the United Kingdom.
Management expects cash from operations and existing credit facilities
will be sufficient to meet capital requirements and other planned
commitments over the next twelve months. Management expects in the
long-term to be able to significantly reduce worldwide debt with cash
generated from operations.
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PART II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On May 20, 1994, the Registrant held its Annual Meeting of
Shareholders. At the Annual Meeting, Paul A. Schoellkopf and Albert R.
Mugel were elected directors of the Registrant, each to serve until the
1997 Annual Meeting. The following is a summary of the voting for
directors, with the exception of A. Neville Procter who passed away on
May 19, 1994:
Votes
Nominee Votes for Withheld
Paul A. Schoellkopf 1,337,967 301,581
Albert R. Mugel 1,337,149 302,399
The Registrant also has directors whose terms continue after the
Annual Meeting. The terms of office of Christopher T. Dunstan, J. Walter
Frey, and William F. Milliken, Jr. expire at the Annual Meeting in 1995
and the terms of Randolph A. Marks, William Rollo, and Richard L. Wolf
expire at the Annual Meeting in 1996.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
14
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PART II. Other Information
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.
TRICO PRODUCTS CORPORATION
Date: 8/05/94 /s/ Christopher T. Dunstan
Christopher T. Dunstan,
Vice Chairman, Senior Vice
President Finance and
Administration, CFO
Date: 8/05/94 /s/ Eric B. Brooks
Eric B. Brooks,
Controller
(Chief Accounting Officer)
15
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