UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X 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 No. 0-3108
TRION, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0922753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
P. O. Box 760, 101 McNeill Road, Sanford, North Carolina 27331-0760
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 919/775-2201
Not applicable
(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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 1, 1996.
6,978,519 shares of Common Stock, par value $.50.
<p>
<TABLE>
Part I
Item 1. Financial Statements
TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $46,727 $32,462 $12,936 $12,590
Cost and expenses:
Cost of products sold 31,386 20,649 8,803 7,863
Selling, administrative
and engineering 13,006 9,291 4,355 3,715
Interest 628 339 218 174
Amortization 258 55 86 55
Acquisition expense 414 - 414 -
Other expenses (income) (79) (306) (20) (69)
45,613 30,028 13,856 11,738
Income (loss) before income taxes 1,114 2,434 (920) 852
Income tax (benefit) 438 872 (320) 285
Net income (loss) for the period $ 676 $ 1,562 $ (600) $ 567
Net income (loss) per common share $ .10 $ .23 $ (.09) $ .08
Dividends declared $ .06 $ .06 $ .02 $ .02
See notes to consolidated condensed financial statements.
<p>
</TABLE>
<TABLE>
TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
<CAPTION>
ASSETS
September 30 December 31
1996 1995
Unaudited Restated
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,211 $ 497
Trade accounts receivable, less allowance for
doubtful accounts (1996 and 1995 - $346,000) 10,824 13,086
Inventories 10,867 10,098
Prepaid expenses and other current assets 1,569 1,660
Total current assets 24,471 25,341
Property, plant and equipment:
Land 78 78
Buildings 5,128 5,168
Machinery and equipment 16,865 14,269
Allowance for depreciation (13,124) (12,066)
8,947 7,449
Other assets:
Goodwill less accumulated amortization:
($401,000 in 1996 and $143,000 in 1995) 6,479 6,736
Other non-current assets 868 938
7,347 7,674
$40,765 $40,464
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals $ 7,305 $ 8,528
Current portion of long-term debt 2,506 92
Total current liabilities 9,811 8,620
Long-term debt 9,968 11,071
Other non-current liabilities 100 282
Deferred income taxes 364 349
20,243 20,322
Shareholders' equity:
Common stock, par value $.50 a share:
Authorized 20,000,000 shares
Issued and outstanding: 1996 - 6,978,519 and
1995 - 6,951,483 3,489 3,476
Additional paid-in capital 953 866
Retained earnings 15,897 15,620
Foreign currency translation adjustment -
unrealized 183 180
20,522 20,142
$40,765 $40,464
See notes to consolidated condensed financial statements.
</TABLE>
<p>
<TABLE>
TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Nine Months Ended September 30
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 676 $ 1,562
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,500 1,006
Deferred income taxes (17) 93
Changes in operating assets and liabilities:
Accounts receivable 2,176 (2,008)
Inventory and prepaid expenses (585) (1,541)
Accounts payable and accrued expenses (3,667) 1,878
Gain on disposal of equipment (3) (18)
Foreign currency transaction loss (68) (57)
Net cash provided by operating activities 12 915
INVESTING ACTIVITIES
Purchase of property, plant and equipment (2,661) (1,098)
Purchase of Envirco, Inc. - (8,300)
Proceeds from disposal of equipment 10 21
Net cash used by investing activities (2,651) (9,377)
FINANCING ACTIVITIES
Net proceeds from master credit facility 3,000 7,093
Payoff of acquired debt (710) (2,012)
Proceeds from issuance of common stock 1,378 146
Cash dividends paid (388) (257)
Net cash provided by financing activities 3,280 4,970
Effect of exchange rate changes on cash 73 202
Increase (Decrease) in cash and
cash equivalents 714 (3,290)
Cash and cash equivalents at beginning of
period 497 4,149
Cash and cash equivalents at end of period $ 1,211 $ 859
See notes to consolidated condensed financial statements.
</TABLE>
<p>
TRION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
Note A - Basis of presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and therefore
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation of the interim periods have been
reflected in the reported financial information. For further information,
refer to the consolidated financial statements and footnotes included in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.
Certain amounts in the consolidated condensed financial statements for the year
ended December 31, 1995 have been reclassified to conform with the
presentations and classifications consistent with the unaudited consolidated
condensed financial statements for the nine months period ended
September 30, 1996.
The Company adopted FASB 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of," in the first quarter of
1996. The adoption of this accounting standard did not have a material effect
on the results of the period.
On August 30, 1996, the Company issued 500,000 shares of common stock at a par
value of $0.50 per share in exchange for 100% of the common stock outstanding
of Herrmidifier. The purchase price, as determined by the Stock Purchase
Agreement dated July 31, 1996, totaled approximately $2,952,000. The
transaction was accounted for under the pooling of interests method of
accounting. All current period financial statements and financial information
reflect the combination of the Company and Herrmidifier and prior period
financial statements and financial information have been restated to reflect
the combination.
It is a standard and accepted practice used by the Company in the preparation
of the financial statements in conformity with generally accepted accounting
principles that estimates and assumptions are used by management that affect
the amounts reported in the financial statements. Actual results could differ
from those estimates.
Note B - Net Income (loss) per Share of Common Stock
The pro forma weighted average shares outstanding for the years ended September
30, 1996 and 1995 gives effect to the issuance of 500,000 shares of Trion
common stock as the purchase price of Herrmidifier. These shares are
included in the computation of pro forma weighted average shares outstanding as
if they had been issued as of January 1, 1996 and 1995.
Net income (loss) per share of common stock is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the periods. The average number of common shares outstanding for the
nine-month period ended September 30 was 6,972,093 in 1996 and 6,924,058 in
1995, and 6,978,519 and 6,930,509 for the three-month periods ended September
30, 1996 and 1995; respectively. Outstanding stock options are not considered
in computing earnings per share as the effect would not be material.
<p>
Note C - Inventories
The Registrant does not maintain an integrated dollar perpetual inventory
system. During the interim periods, inventories are charged with actual costs
incurred and relieved at product standard costs. Such standards are updated at
least annually. Based upon the components of inventory at the preceding
physical inventory date and charges to and relief of inventories during the
interim period, the components of inventory are estimated as follows (in
thousands):
September 30 December 31
1996 1995
Raw materials $ 6,292 $ 5,971
Work-in-process and
finished goods 4,575 4,127
$10,867 $10,098
Cost of domestic raw materials inventory is determined by the last-in,
first-out method. No provision has been made during the interim period to
reflect changes in last-in, first-out values since the preceding December 31.
Management believes that such provision, if any, would not be significant.
Note D - Acquisition
On the close of business the day of August 30, 1996, Trion, Inc. ("Trion")
acquired all the issued and outstanding shares of Herrmidifier Company, Inc.
common stock for 500,000 shares of Trion common stock. The number of shares of
Trion common stock delivered to Herrmidifier's stockholders was defined in the
Stock Purchase Agreement dated July 31, 1996.
Immediately after closing the above transaction, Trion paid the outstanding
balances on the existing Herrmidifier line of credit, term loan and note
payables totaling $1,345,000.
The following table represents the results of operations for Herrmidifier for
the period prior to the acquisition and are included in the results of
operations of the Company for the three and nine month periods ended
September 30, 1996.
<TABLE>
Herrmidifier Company, Inc.
(Unaudited)
(Amounts in thousands)
<CAPTION>
Eight Months Ended Two Months Ended
August 31, 1996 August 31, 1996
<S> <C> <C>
Net sales $4,486 $1,269
Cost of products sold 3,112 880
Selling, administrative
and engineering 1,364 578
Interest 83 22
Other expenses (income) (15) (4)
Income (loss) before income taxes (58) (207)
Income tax (benefit) (30) (85)
Net income $ (28) $ (122)
</TABLE>
<p>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Material Changes in Results of Operations
On August 30, 1996, the Company issued 500,000 shares of common stock at a par
value of $0.50 per share in exchange for 100% of the common stock outstanding
of Herrmidifier. The purchase price, as determined by the Stock Purchase
Agreement dated July 31, 1996, totaled approximately $2,952,000. The
transaction was accounted for under the pooling of interests method of
accounting. The financial statements for all periods presented and any
related financial information included herein have been combined under the
pooling of interests method of accounting. The following discussion and
analysis of financial condition and results of operations are based on these
consolidated financial statements of Trion and Herrmidifier that have been
restated accordingly.
Net sales for the quarter ended September 30, 1996 were $12,936,000 compared
to $12,590,000 for the same period a year ago, a 3 percent increase over 1995.
This increase was tempered by the recent softness in capital spending by the
microelectronics industry which is expected to continue near term and by a
delay in the introduction of a new line of air cleaner products for a major
retailer which is now expected to occur next year. Sales by the consolidated
European operations increased 18 percent from the same period last year and
sales of traditional North American Engineered Products did improve 2 percent
during the period, combining to offset a North American Consumer Products
sales decrease of 3 percent.
Net sales for the nine months ended September 30, 1996 increased 44 percent
over the prior year, from $32,462,000 in 1995 to $46,727,000 in 1996. During
the nine-month period, sales of traditional North American Engineered Products
increased 77 percent compared to the prior year period primarily due to the
purchase of the Envirco Corporation in August of 1995 whereby nine months of
activity were included in the 1996 period as compared to only two months in
1995. North American Consumer Products net sales declined 16 percent which
was primarily the result of a consumer promotional program offered in 1995 by
a major retail customer which was not repeated in 1996 and the previously
mentioned delay in the introduction of new products. Sales by the
consolidated European Operations recorded a 1 percent increase over the same
period last year.
A consolidated net loss of $600,000 was recorded during the third quarter of
1996. This compares to consolidated net income of $567,000 from the same
period a year ago. The most recent nine months generated $676,000 in net
income, a 57 percent decrease from the $1,562,000 recorded in the same period
of 1995. These shortfalls are attributed to charges of approximately $400,000
incurred in the third quarter of 1996 for the acquisition of Herrmidifier
Company, Inc., the recent softness in capital spending by the microelectronics
industry, the delay in the introduction of a new line of air cleaner products
for a major retailer, and higher manufacturing costs due to lower levels of
production and inventory reduction programs, described below.
The Company's backlog of unshipped customer orders decreased to $6,175,000 at
September 30, 1996, a 7 percent decrease from last year's $6,658,000. This
reduction reflects the aforementioned impact of the recent decline in capital
spending in the microelectronics industry. Excluding Envirco, the Company's
backlog and order bookings year to date were slightly higher than the prior
year.
<p>
During the first three quarters of 1996 consolidated gross margin grew to
$15,341,000, an increase of $3,528,000 which is largely attributable to the
additional sales volume contributed by Envirco. Cost of products sold as a
percentage of sales were 68.1 percent in the third quarter of 1996 as compared
to 62.5 percent in the same period a year ago. For the nine months ended
September 30, 1996 and 1995, cost of products sold as a percentage of net
sales were 67.2 percent and 63.6 percent, respectively. Accounting for the
majority of the increase in cost of products sold as a percentage of sales
were: product and customer mix; generally lower margins on products
manufactured by Envirco; and the Company's commitment to reducing inventory
levels. The Company has continued to focus its attention on improving its
utilization of all operating assets for long-term profitability. The Company
has instituted a program to reduce all components of inventory which, in the
case of the finished goods and work-in-process elements, causes a lower level
of direct labor to be expended and a lower level of overhead to be absorbed
resulting in higher period costs. Also contributing to the higher cost of
products sold as a percentage of sales were costs related to the establishment
of work cells, set up of additional production lines and plant rearrangements,
both in Sanford and in Albuquerque, to facilitate changes in product mix and
volumes. These modifications are expected to lower manufacturing costs in the
long-term.
Selling, administrative and engineering expenses increased during the third
quarter of 1996 to $4,355,000 as compared to $3,715,000 in 1995. The primary
cause for the increase is attributed to the aforementioned acquisition
expenses related to Herrmidifier, plus a full quarter of operating expenses
for Envirco which was acquired on August 1, 1995. The Company continues to
assess the facilities, locations and environments in which it operates.
Selling, administrative and engineering expenses reported for the nine months
ended September 30, 1996 increased to $13,006,000 as compared to $9,291,000 in
1995 and, as a percentage of sales, were 27.8 percent in 1996 and 28.6 percent
in 1995.
Interest expense during the first nine months of 1996 was $628,000. This is
an increase of $289,000 over the same period in 1995 and is attributable to
the $6,800,000 borrowed to finance the Envirco acquisition. The Company's
annualized interest rate on borrowing is approximately 7.5 percent.
Income taxes for the third quarter ended September 30, 1996 were a credit of
$320,000 or 34.8 percent of the pretax loss. In the comparable period in
1995, income taxes were $285,000 or 33.5 percent of pretax earnings. Income
taxes for the nine-month period ended September 30, 1996 and 1995 were
$438,000 and $872,000 (equivalent rates 39.3 percent and 35.8 percent),
respectively. The primary reason for the increase in the effective tax rate
in the third quarter is the non-deductibility of goodwill amortization expense
related to the Envirco acquisition.
The resulting earnings per share for the third quarter of 1996 were a loss of
$0.09, compared with income of $0.08 for the same period in 1995. The nine
months ended September 30, 1996 and 1995 generated $0.10 and $0.23 net income
per common share, respectively.
Material Changes in Liquidity and Financial Condition
The financial condition of the Company remains strong with the current ratio
at 2.5:1 and working capital decreasing to $14,460,000 from the $16,721,000 at
1995 year-end. The primary cause for the reduction in working capital is the
classification of $2.5 million of debt from long-term to short-term due to the
maturity of long-term debt as per the credit agreement. Long-term debt is now
48.6 percent of equity and total shareholders' equity has risen 2 percent to
<p>
$20,522,000. The Company believes working capital and current credit
agreements are adequate to meet its operating and capital requirements during
the foreseeable future.
It is a standard and accepted practice used by the Company in the preparation
of the financial statements in conformity with generally accepted accounting
principles that estimates and assumptions are used by management that affect
the amounts reported in the financial statements. Actual results could differ
from those estimates.
<TABLE>
SEGMENT DATA
(Unaudited)
(In thousands)
Nine Months Ended Three Months Ended
September 30 September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers:
North American Operations:
Engineered Products $35,604 $20,113 $ 9,170 $ 8,964
Consumer Products 6,904 8,187 2,304 2,385
European Operations 4,219 4,162 1,462 1,241
$46,727 $32,462 $12,936 $12,590
Income (loss) from operations:
North American Operations:
Engineered Products $ 3,410 $ 2,764 $ 72 $ 956
Consumer Products 100 1,082 (8) 354
European Operations (5) (40) (31) 80
3,505 3,806 33 1,390
General Corporate:
Other income 79 306 20 68
Interest (U.S.) (628) (339) (218) (174)
Other expense (1,842) (1,339) (755) (432)
(2,391) (1,372) (953) (538)
Income (loss) before income taxes $ 1,114 $ 2,434 $ (920) $ 852
</TABLE>
North American Engineered Products sales increased by $206,000 during the
third quarter of 1996 as compared to the same quarter a year ago. For the
nine months ended September 30, 1996 this increase was $15,491,000. These
improvements, 2 percent in the third quarter and 77 percent in the first nine
months of 1996, were driven by the Envirco acquisition and augmented by
improving residential product sales within the segment. Third quarter income
from operations in North American Engineered Products declined $884,000,
primarily due to the aforementioned product mix changes and inventory actions.
For the nine month period, income from operations in North American Engineered
Products rose $646,000 over last year's comparable period primarily because
the 1996 period included nine months activity related to Envirco whereas the
1995 period included only two months. Management expects the engineered
products component to continue to out perform the Company's other segments in
the long-term.
North American Consumer Products sales declined $81,000 during the third
quarter of 1996 as compared to the same period last year. For the nine months
ended September 30, 1996 the decrease was $1,283,000. This drop was primarily
due to a promotional program that was offered by a major retail customer in
1995, but not repeated in 1996. Income from operations decreased by $362,000
in the third quarter and $982,000 for the nine-month period as compared to the
same period a year ago primarily due to the decline in sales volume and
increased product costs.
<p>
Sales in the European Operations segment increased 18 percent or $221,000 in
the third quarter and 1 percent or $57,000 in the first nine months of 1996 as
compared to prior year comparable periods. The European Operations segment
recorded a loss from operations of $31,000 in the third quarter of 1996 as
compared to income from operations of $80,000 in 1995 primarily due to product
mix and currency exchange differences. For the first nine months in 1996,
European Operations improved by $35,000 over the prior year reflecting the
impact of continued savings generated by consolidating European Operations in
1995. Management expects consolidated European Operations will continue to
make positive contributions going forward.
PART II
Item 6(a). Exhibits
27 - Financial Data Schedule.
Item 6(b). Report on Form 8-K
One report, dated September 16, 1996, on Form 8-K was filed during the quarter
ending September 30, 1996, to report a business acquisition. No financial
statements were filed as part of that report.
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.
TRION, INC.
(Registrant)
Date: November 14, 1996 /s/ Steven L. Schneider
Steven L. Schneider
President and Chief
Executive Officer
Date: November 14, 1996 /s/ Calvin J. Monsma
Calvin J. Monsma
Vice President and Chief
Financial Officer
<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> 1,211
<SECURITIES> 0
<RECEIVABLES> 11,170
<ALLOWANCES> 346
<INVENTORY> 10,867
<CURRENT-ASSETS> 24,471
<PP&E> 22,071
<DEPRECIATION> 13,124
<TOTAL-ASSETS> 40,765
<CURRENT-LIABILITIES> 7,305
<BONDS> 3,200
0
0
<COMMON> 3,489
<OTHER-SE> 17,033
<TOTAL-LIABILITY-AND-EQUITY> 40,765
<SALES> 46,727
<TOTAL-REVENUES> 46,727
<CGS> 31,386
<TOTAL-COSTS> 44,677
<OTHER-EXPENSES> 179
<LOSS-PROVISION> 129
<INTEREST-EXPENSE> 628
<INCOME-PRETAX> 1,114
<INCOME-TAX> 438
<INCOME-CONTINUING> 676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 676
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
