<PAGE>
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, 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 September 30, 1994.
<PAGE>
PART I. Item 1. Financial Statements
TRICO PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
September 30 December 31
1994 1993
------------ -----------
Current assets:
Cash and equivalents $ 441 $ 419
Accounts receivable 48,372 51,263
Inventories 28,223 32,108
Other current assets 1,914 3,083
Customer tooling in progress 5,642 4,339
Deferred restructuring expenses 17,278 16,215
-------- --------
Total current assets 101,870 107,427
Property, plant and equipment, net 68,362 67,000
Other assets 3,258 3,445
-------- --------
Total assets $173,490 $177,872
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 9,521 $ 8,139
Current portion of long-term debt 2,503 2,174
Accounts payable 28,833 31,850
Payrolls and other liabilities 15,654 16,383
Liability for restructuring expenses 2,878 3,726
-------- --------
Total current liabilities 59,389 62,272
-------- --------
Long-term debt 30,791 39,714
Other liabilities 5,562 5,574
Non-current restructuring liabilities 757 860
-------- --------
Total non-current liabilities 37,110 46,148
-------- --------
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 843 696
Retained earnings 70,707 64,226
Cumulative translation adjustments (3,321) (4,379)
Minimum pension liability adjustment (2,769) (2,769)
Loans to employees - stock purchases (757) (500)
Treasury stock, at cost - 821,371 and
831,788 shares, respectively (8,637) (8,747)
-------- --------
Total shareholders' equity 76,991 69,452
-------- --------
Total liabilities and shareholders' equity $173,490 $177,872
======== ========
The accompanying notes are an integral part of these financial statements
2
<PAGE>
PART I. Item 1. (continued)
TRICO PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30
(Dollars in thousands, except per share amounts)
1994 1993
---- ----
Net sales $87,539 $71,525
Cost of goods sold:
Excluding restructuring expenses 74,167 66,629
Restructuring expenses --- 4,818
------- -------
Gross profit 13,372 78
Selling and administrative expenses 8,432 8,134
------- -------
Operating income (loss) 4,940 (8,056)
Other income 243 188
Interest expense (1,065) (1,302)
------- -------
Income (loss) before income taxes 4,118 (9,170)
Income tax provision 1,618 408
------- -------
Net income (loss) 2,500 (9,578)
Retained earnings, July 1 68,207 62,420
------- -------
Retained earnings, September 30 $70,707 $52,842
======= =======
Net income (loss) per share $1.33 $(5.14)
======= =======
The accompanying notes are an integral part of these financial statements
3
<PAGE>
PART I. Item 1. (continued)
TRICO PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(Dollars in thousands, except per share amounts)
1994 1993
---- ----
Net sales $270,557 $229,721
Cost of goods sold:
Excluding restructuring expenses 235,144 204,520
Restructuring expenses --- 4,818
-------- --------
Gross profit 35,413 20,383
Selling and administrative expenses 23,079 24,545
-------- --------
Operating income (loss) 12,334 (4,162)
Other income 589 349
Interest expense (3,104) (3,640)
-------- --------
Income (loss) before income taxes 9,819 (7,453)
Income tax provision 3,338 674
-------- --------
Net income (loss) 6,481 (8,127)
Retained earnings, January 1 64,226 60,969
-------- --------
Retained earnings, September 30 $ 70,707 $ 52,842
======== ========
Net income (loss) per share $3.46 $(4.38)
======== ========
The accompanying notes are an integral part of these financial statements
4
<PAGE>
PART I. Item 1. (continued)
TRICO PRODUCTS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
1994 1993
---- ----
Cash flows provided by (used in)
operating activities:
Net income $ 6,481 $ (8,127)
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 10,298 10,256
Provision for restructuring expense --- 4,818
Gain on sale of property, plant and equipment (336) (293)
Gain on sale of investment in joint venture (285) ---
Remeasurement gain (227) (45)
Deferred taxes (237) (626)
Change in assets and liabilities:
Accounts receivable 4,235 (10,024)
Inventories 4,413 (2,420)
Other assets (793) (778)
Payables, payroll and other liabilities (4,145) (1,603)
Liability for restructuring expenses (1,110) (4,472)
-------- --------
Net cash from operating activities 18,294 (13,314)
-------- --------
Cash flows provided by (used in)
investing activities:
Capital expenditures - property, plant
and equipment (10,083) (10,737)
Proceeds from sale of property, plant
and equipment 389 4,303
Proceeds from sale of joint venture 450 1,000
-------- --------
Net cash from investing activities (9,244) (5,434)
-------- --------
Cash flows provided by (used in)
financing activities:
Net increase (decrease) in borrowings
under revolving credit agreements and
notes payable (9,181) 14,793
Proceeds from new debt facilities 1,756 9,380
Principal payments under long-term debt (1,868) (6,593)
-------- --------
Net cash from financing activities (9,293) 17,580
-------- --------
Effect of exchange rate changes on cash 265 48
-------- --------
Net increase (decrease) in cash and equivalents 22 (1,120)
Cash and equivalents, January 1 419 1,195
-------- --------
Cash and equivalents, September 30 $ 441 $ 75
======== ========
The accompanying notes are an integral part of these financial statements
5
<PAGE>
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
September 30:
1994 1993
--------- ---------
Weighted average shares - quarter 1,878,629 1,864,078
Weighted average shares - nine months 1,874,894 1,854,966
3. Inventories - Approximately 85% of inventories were valued using the
LIFO method at both September 30, 1994 and December 31, 1993. The
major classes of inventory were as follows:
September 30, December 31,
1994 1993
------------- ------------
(Dollars in thousands)
Finished goods $ 8,610 $ 8,016
Work-in-process 7,167 7,341
Raw materials and supplies 12,446 16,751
------- -------
$28,223 $32,108
======= =======
6
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PART I. Item l. (continued)
4. Property, plant and equipment, at cost -
September 30, December 31,
1994 1993
------------- ------------
(Dollars in thousands)
Land $ 2,088 $ 2,083
Buildings 38,554 38,410
Machinery and equipment 114,950 110,533
Improvements in progress 11,122 4,443
-------- --------
166,714 155,469
Less accumulated depreciation 98,352 88,469
-------- --------
$ 68,362 $ 67,000
======== ========
Depreciation expense for the nine months ended September 30, 1994 and
1993 was $10,298,000 and $10,256,000, respectively.
5. Statement of cash flows related disclosures - The Company entered
into financing transactions in 1994 and 1993 resulting in capital
lease obligations of $753,000 and $594,000, respectively. Cash paid
during the nine months for interest and income taxes were as follows:
September 30, September 30,
1994 1993
------------- -------------
Interest $3,807,000 $3,858,000
Income taxes 4,630,000 204,000
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 October 31, 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 September 30, 1994, to be
from $5.7 million to $20.5 million. $5.7 million of loss
contingencies is included in Payrolls and other liabilities at
September 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 nine 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 six
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
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.
8
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PART I. Item l. (continued)
8. Commitments, contingencies and legal matters (continued)
With respect to another remaining site known as the Booth Oil,
Robinson Street, North Tonawanda site, the Company's exposure for
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 twenty PRP's dispute
that estimate based upon their belief that existing alternative
remediation technologies are feasible at a significantly lower cost.
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 $1.7 million of
loss contingencies for environmental cleanup costs has been accrued
at September 30, 1994 and is included in the above mentioned $5.7
million included in Payrolls and other liabilities.
The U.S. Customs Service continues its investigation of the Company's
compliance with customs regulations and may assert 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
<PAGE>
Part I. Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations -
Three months ended September 30:
Manufacturing operations for the third quarter resulted in an operating
profit of $4,940,000 compared to a loss of $3,238,000 in 1993, exclusive
of 1993 restructuring expenses of $4,818,000. North American operations
improved as operating income was $4,744,000 compared to a loss of
$3,530,000 in 1993, excluding restructuring expenses of $2,900,000 in
1993. The improvement in North American earnings was primarily due to
improved margins and increased sales volume. In the United Kingdom
operations, increased sales volume reduced the operating loss to $216,000
compared to an operating loss of $918,000 in 1993, excluding
restructuring expenses of $1,918,000 in 1993. Australian operations
resulted in an operating income of $412,000 compared to operating income
of $1,210,000 in 1993 as sales volumes to North American operations were
reduced.
Sales increased $16,014,000 or 22.4%, primarily in the North American
operations due to an increase in original equipment market pricing and
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 $2,720,000, or 3.8%. Excluding
restructuring expenses of $4,818,0000, COGS was 84.7% of sales as
compared to 93.2% in the third quarter of 1993. The decrease as a
percentage of net sales of 8.5% was due to increased margins in North
American operations as a result of the favorable effect of higher sales
volumes relative to fixed manufacturing overhead as well as improved
supplier performance which reduced premium freight and labor costs
compared to 1993.
10
<PAGE>
Part I. Item 2. (continued)
Results of Operations (continued)
Selling and administrative expenses increased $298,000 or 3.7% from the
third quarter of 1993 primarily due to an increased liability for stock
appreciation rights (SAR's) issued in 1990, sales and use taxes and
increased legal fees partially offset by decreased research and
development expenses and distribution expenses and income from an
insurance settlement in 1993. The SAR's have increased in value due to
the increase in the market value of the Company's common stock.
Interest expense decreased $237,000 as lower debt levels were partially
offset by higher interest rates.
Nine months ended September 30:
Manufacturing operations for the first nine months resulted in an
operating profit of $12,334,000 compared to $656,000 in 1993, excluding
1993 restructuring expenses of $4,818,000. North American operations
improved as operating income increased to $13,366,000 from a loss of
$130,000 in 1993, excluding restructuring expenses of $2,900,000 in 1993.
The improvement in North American earnings was primarily due to improved
margins and increased sales volume. United Kingdom operations worsened
as lower margins resulted in increased operating losses of $1,756,000
compared to $1,287,000 in 1993, excluding restructuring expenses of
$1,918,000 in 1993. Australian operations earned operating income of
$724,000 compared to operating income of $2,073,000 in 1993 as sales
volumes to North American operations were reduced.
Sales increased $40,836,000 or 17.8%, primarily in the North American
operations. North American sales increased 18.8% due to an increase in
original equipment market pricing and 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.
11
<PAGE>
Part I. Item 2. (continued)
Results of Operations (continued)
Cost of goods sold (COGS) increased $25,806,000, or 12.3%. Excluding
1993 restructuring expenses of $4,818,000, COGS was 86.9% of sales as
compared to 89.0% in 1993. The decrease as a percentage of net sales of
2.1% was due to increased margins in North American operations as a
result of the aforementioned effect of higher sales volumes relative to
fixed manufacturing overhead as well as improved supplier performance
which reduced premium freight and labor costs compared to 1993.
Selling and administrative expenses decreased $1,466,000 or 6.0% from
1993 primarily due to decreased research and development expenses and
distribution expenses.
Interest expense decreased $536,000 as lower debt levels were partially
offset by higher interest rates.
12
<PAGE>
PART l. Item 2. (continued)
Liquidity and Capital Resources -
The Company generated $18,294,000 of cash from operating activities.
Net income before depreciation and amortization was $16,779,000.
Operating cash was used to reduce net debt levels by $9,293,000 and
invest in capital expenditures of $10,083,000.
The Company has total credit facilities of $67,200,000 with credit
available under these lines of $14,749,000 at September 30, 1994. In
North America, the Company has credit facilities of $52,400,000. 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 has been amended by extending the maturity
date to October 31, 1995 and reducing the borrowing rate to prime plus
150 basis points. Availability under this facility at September 30, 1994
was $12,800,000. The Company's U.K. subsidiary currently has 7,900,000
pounds sterling or approximately $12,454,000 in credit facilities, both
unsecured and secured. Availability under these facilities at September
30, 1994 was approximately 903,000 pounds sterling or approximately
$1,424,000. The Company's Australian subsidiary has credit facilities of
$3,100,000 Australian dollars or approximately $2,294,000. Availability
under these facilities at September 30, 1994 was $710,000 Australian
dollars or approximately $525,000.
Expenditures for the current portion of restructuring liabilities
will total $2,878,000. 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.
13
<PAGE>
PART l. Item 2. (continued)
Liquidity and Capital Resources (continued)
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 $17,340,000. 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 $17,278,000
included in current assets. The proceeds from the sale is expected to
generate cash of approximately $17,340,000 and be received approximately
twelve months from the receipt of the final approval of the rezoning.
In the first nine months of 1994, the Company generated cash flow
from operations of $18.3 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, while providing for increased capital to fund
growth opportunities.
14
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
On October 4, 1994, Environmental Waste Technology (EWT), the
original disposal contractor for the Frontier Chemical-Royal Avenue
(Phase I) Superfund Site, filed an action in New York State Supreme
Court, Monroe County, naming the Frontier Chemical Superfund Site
Potentially Responsible Party Group as a defendant, among others,
alleging breach of contract and seeking monetary damages from the
defendant group (of which the Company is one of approximately four
hundred and twenty-nine (429) distinct business entities). In September
1994, the Company learned that it may be subject to a claim as a
potentially responsible party, on a de-minimis basis, at a site commonly
known as the Frontier Chemical-Pendelton, New York Site. No additional
information is known at this time.
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
15
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PART II. Other Information (continued)
Item 5. Other Information
The Company has been in discussion with a number of firms that have
expressed interest in acquiring the Company. Goldman Sachs has been
retained as financial advisor in connection with a possible sale of the
Company and solicitations of expression of interests relating thereto.
The Company is considering all possible strategies to maximize
shareholder value and is hopeful that its strategic future will be
clarified by year-end.
Item 6. Exhibits and Reports on Form 8-K
None
16
<PAGE>
PART II. Other Information (continued)
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: 11/01/94 /s/ Christopher T. Dunstan
Christopher T. Dunstan,
Vice Chairman, Senior Vice
President Finance and
Administration, CFO
Date: 11/01/94 /s/ Eric B. Brooks
Eric B. Brooks,
Controller
(Chief Accounting Officer)
17
<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 441
<SECURITIES> 0
<RECEIVABLES> 48,372
<ALLOWANCES> 0
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0
0
<OTHER-SE> 56,066
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