SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
[No Fee Required]
For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[No Fee Required]
For the transition period from to
Commission file number 0-3108
TRION, INC.
(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 25-0922753
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.50
(Title of class)
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 requirement for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 3, 1997.
Common Stock, par value $.50 - $29,193,036
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of March 3, 1997.
6,997,519 shares of Common Stock, par value $.50
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the annual Proxy Statement
dated March 11, 1997 are incorporated by reference into Part III.
<p>1
PART I
Item 1. Business.
General
Trion, Inc. (the "Company" or "Trion") was incorporated in 1946 in
the Commonwealth of Pennsylvania and is principally engaged in the design,
manufacture, sale and distribution of equipment to improve indoor air quality
("IAQ"). On August 1, 1995 the Company acquired Envirco Corporation
("Envirco"), a manufacturer and distributor of ultra clean air systems and
components located in Albuquerque, New Mexico. In addition, on August 30,
1996 the Company acquired Herrmidifier Company, Inc. ("Herrmidifier"), a
manufacturer and distributor of humidification systems and components located
in Lancaster, Pennsylvania.
Products and Markets
The Company's industry segments are Engineered Products, Consumer
Products and European Operations. See Note L to the financial statements
included in Item 8 of this Annual Report on Form 10-K for financial
information concerning the Company's industry segments.
Engineered Products. The Engineered Products group designs,
manufactures and sells indoor air quality and dust collection equipment.
Engineered Products comprised 73%, 65% and 57% of the Company's total sales in
the years 1996, 1995 and 1994, respectively.
The Company's Sanford, North Carolina operation provides air
cleaning equipment and systems primarily designed for industrial, residential,
commercial and specialty uses. These products are used in a wide variety of
industries including microelectronics, residential, metal working,
pharmaceuticals, medical, commercial buildings, general manufacturing and
ships and submarines. Products range from custom-engineered systems that
remove large volumes of airborne contaminants caused by industrial processes
to self-contained air cleaners used to capture tobacco smoke, dust and pollen
in environments such as enclosed work areas, restaurants and homes.
Through its subsidiary Envirco, the Company utilizes high
efficiency particulate arrestance ("HEPA") and ultra low particulate
arrestance ("ULPA") technologies in applications including cleanrooms in the
semiconductor and microelectronics industries and systems to provide hospitals
with clean environments for surgery rooms, cancer research, patient isolation
and sterile medication preparation. The Company's products include the
patented MAC-10r used in cleanroom applications and Hospi-Gardr, a portable
filtration unit used in medical applications.
Herrmidifier, acquired in 1996, designs, manufactures and sells
humidification products used for residential, commercial, and industrial
applications. Products range from custom-designed systems used in industrial
processes to residential humidifiers installed with heating and air
conditioning systems in homes.
The Company also manufacturers equipment to electrostatically
distribute microthin films of lubricants, corrosion inhibitors and other
protective coatings to metal strips on high speed lines.
<p>2
Consumer Products. The Company's Consumer Products group, also
located in Sanford, North Carolina, manufactures and markets appliance air
cleaners, including both tabletop and free standing console units. Trion's
appliance units historically have been marketed principally to retailers and
others on a private label basis. In recent years, the Company has begun to
market products under Trion brand names. The Company has plans to introduce a
new line of products in 1997. Consumer Products comprised 16%, 24% and 29% of
the Company's total sales in the years 1996, 1995 and 1994, respectively.
European Operations. European Operations consists of sales and
distribution primarily in Europe of both engineered and consumer IAQ products
manufactured at Trion's U.S. facilities. European Operations comprised 11%,
11% and 14% of the Company's total sales in the years 1996, 1995 and 1994,
respectively.
Technologies
In its air cleaning products, the Company utilizes what it
believes to be the industry's broadest range of technologies to collect
airborne contaminants.
- HEPA filtration utilizes laminar flow filtration which ensures
even and constant airflow and has 99.97% efficiency on 0.3
micron size particles. ULPA filtration functions similarly
and has 99.999% efficiency on 0.12 micron size particles. These
processes provide the level of airborne contamination control
essential for applications requiring ultra-clean air, such as
cleanrooms and hospital and laboratory settings.
- Electrostatic precipitators are high efficiency electronic
air filters. In an electrostatic precipitator, air passes
through an ionizing section where airborne particles are
electrically charged by ions in an electrostatic field.
The charged particles then enter a collecting cell where
the particles are repelled from charged plates and collected
on grounded plates within the cell. This process is highly
effective at capturing submicron particulate, including
particulate found in tobacco smoke, dust, pollen, welding
smoke and oil mists from machining operations.
- In a media filtration system, air passes through media
filters that trap airborne particles. Some of these
filters, like cartridge collectors, can collect submicron
particulate, such as welding smoke, as well as larger
particulate. Other filters, like bag collectors, are
useful for larger particulate such as that generated in
machining and welding processes. In some systems, air
passes through a prefilter where large particles are
collected and then pass through a second or third media
filter where smaller particles are collected.
In its humidification products, the Company also uses multiple
technologies. Humidification is accomplished by introducing moisture in the
form of steam, water vapor or water droplets into the air system. The
moisture raises the relative humidity of the air stream to a desired level for
human comfort, protection of valuable articles and manufacturing processes.
<p>3
Raw Materials and Purchased Components
Raw materials and components used by the Company in the
manufacturing process are either readily available from a number of suppliers
or are manufactured by the Company from raw materials that have such
availability.
Aluminum, steel and filter paper represent principal raw materials
in the Company's products. Prices for aluminum, steel and filter paper can be
subject to wide fluctuation and the Company's products cannot always be priced
to take into account such fluctuations, especially in the short term. Other
significant materials used by the Company include motors, blowers, injection
molded plastics, media filters, packaging materials and various electrical
components. In aggregate, the cost of materials in 1996 increased slightly
less than the consumer price index, whereas, in 1995 prices of raw materials
increased slightly ahead of the consumer price index. The Company does not
anticipate significant cost increases during 1997.
Sales and Distribution
Engineered Products are sold in North America by the Company's own
sales force to end users, contractors and distributors as well as through
manufacturers' representatives. Consumer Products are sold directly to
retailers, distributors and other companies for ultimate sale to consumers
through retail outlets.
Trion sells appliance air cleaners on a recurring basis to Sears,
Roebuck and Co. within Consumer Products. This customer represented
approximately 6% of consolidated sales in 1996 and the loss of the account
could have an adverse effect on the Company.
The Company's indoor air quality products are sold throughout the
world. Through Trion Limited, a wholly-owned subsidiary, the Company has a
marketing and distribution office in Andover, England, servicing primarily the
European market directly and through distributors and representatives. The
Company's products are also sold in other countries outside Europe through
distributors and representatives, principally in the Pacific Rim.
For information regarding the Company's export sales, see Note L
to the financial statements included in Item 8 of this Annual Report on Form
10-K.
Competition
While the Company is a principal competitor in most of its
markets, the indoor air quality industry is highly competitive. In Engineered
Products, the Company and its major competitors, Honeywell, Inc., White-
Rodgers, a division of Emerson Electric, United Air Specialists, Inc., a
subsidiary of CLARCOR, Inc., American Air Filter Co., Inc., Research Products
Corporation, Torit, a division of Donaldson Co., Inc., Farr Company, and
Flanders Filters, Inc., account for the predominant share of the market in the
lines in which they compete. In Consumer Products, while appliance air
cleaners are sold by a large number of companies, Honeywell, Inc., Bionaire,
Inc. and Trion together have the predominant share of the market. Of the
three, Trion is the only manufacturer of electronic appliance air cleaners.
Principal competitors outside the United States include some of these
companies as well as foreign competitors. Competition in the Company's market
<p>4
segment is primarily on the basis of price, product technology, product
quality and customer service with a majority of the Company's business
obtained through competitive bidding. Some of the Company's competitors have
assets and/or sales substantially in excess of the Company.
Patents and Trademarks
The Company holds a number of patents that relate to the design
and use of its products, some of which it considers significant to the overall
conduct of the Company's business. No patents which the Company considers
significant will expire within the next five years.
The Company owns several trademarks that it considers important in
the marketing of its products and believes that its rights in these trademarks
are adequately protected and of unlimited duration.
Research and Development
The Company's ongoing research and development program involves
creating new products and redesigning existing products to reduce
manufacturing costs and to increase product efficiencies. During 1996, 1995
and 1994, the Company spent approximately $1,259,000, $977,000 and $743,000,
respectively, on research and development activities.
Employees
As of December 31, 1996, the Company employed approximately 469
persons worldwide. The Company's employees are not represented by a union.
The Company believes its employee relations are satisfactory.
Backlog
The backlog of unfilled orders at December 31, 1996 was $6,912,000
compared to $9,564,000 at the prior year-end. Substantially all of this
backlog is scheduled for shipment during 1997.
Risks
As a cautionary note to investors, statements made in this Annual
Report on Form 10-K which are not historical are forward - looking
statements that involve risks and uncertainties. In addition, the Company may
from time to time make oral forward - looking statements. There are several
important factors that could cause actual results to differ materially from
those contained in any forward - looking statement made by or on behalf of the
Company. Such factors include, but are not limited to, those set forth below.
Acquisition Strategy
The Company has initiated an acquisition program as part of its
strategic plan. The Company's acquisition strategy entails the potential risk
inherent in assessing the value, strengths, weaknesses, contingent and other
liabilities and potential profitability of acquisition candidates and in
integrating the operations of acquired companies. There can be no assurance
that suitable acquisition opportunities will be available, that the Company
<p>5
will have access to the capital required to finance potential acquisitions,
that the Company will continue to acquire businesses or that any business
acquired will be integrated successfully or prove profitable.
Potential Fluctuations in Operating Results
The Company can experience fluctuations in operating results, both
on a quarterly and annual basis, caused by various factors, including general
economic conditions and the factors discussed below under "Cyclicality".
Fluctuations in the Company's operating results, particularly quarter-to-
quarter, are also affected in certain of its markets by the timing of customer
orders, the pattern of customer purchasing cycles and the resulting changes in
product mix.
Fluctuations in Raw Material Costs
Aluminum, steel and filter paper represent principal raw materials
in the Company's products. Prices for these materials can be subject to wide
fluctuation and the Company's products cannot always be priced to take into
account such fluctuations, especially in the short term. See "Business - Raw
Materials and Purchased Components" for a more detailed discussion of raw
materials used in the Company's business.
Cyclicality
Sales of Engineered Products in general are tied to capital
spending levels. A significant percentage of the Company's sales of
residential wholehouse air cleaners is dependent upon new residential
construction, which is a cyclical industry. In addition, the Company has
substantial sales of products for cleanroom applications to the
microelectronics industry, which can be cyclical. Sales of Consumer Products
may also be subject to cycles due to the seasons and weather conditions.
Competition
While the Company is a principal competitor in most of its
markets, the indoor air quality industry is highly competitive. Competition
is primarily on the basis of price, product quality, product technology and
customer service, with a majority of the Company's business obtained through
competitive bidding. See "Business - Competition" for a more detailed
discussion of competition in the Company's markets.
Intellectual Property
The Company's success is dependent in part on its ability to
protect proprietary technology contained in certain of its products. While
Trion's critical technologies are patented, there can be no assurance that
this will prove sufficient to deter misappropriation of those technologies or
independent third-party development of rival technologies, which would have an
adverse effect on the Company's sales. The defense and prosecution of patent
suits are both costly and time-consuming, even if the outcome is favorable to
the Company. In foreign countries, the expenses associated with such
proceedings can be prohibitive. In addition, there is an inherent
unpredictability in obtaining and enforcing patents in foreign countries.
<p>6
Reliance on Key Personnel
The Company's operations are dependent on the continued efforts of
senior management, in particular Steven L. Schneider, its President and Chief
Executive Officer. Should any of the senior managers be unable to continue in
their present roles, the Company's prospects could be adversely affected.
Potential Regulatory Risks
The Company's business and products may be significantly
influenced by the constantly changing body of environmental laws and
regulations, which require that certain environmental standards be met and
impose liability for the failure to comply with such standards. While the
Company endeavors at its facilities to assure compliance with environmental
laws and regulations, future changes in such standards could have an adverse
effect on the Company. In addition, to some extent, changes in the
liabilities and risks imposed by the environmental laws on the Company's
customers could impact demand for certain of the Company's products or impose
greater liabilities and risks on the Company, which could also have an adverse
effect on the Company's business.
International Transactions
The Company has sold and expects it will continue to sell products
in areas outside the United States. Such transactions entail the risks
associated with conducting business internationally, including the risk of
currency fluctuations, slower payment of invoices and possible social,
political and economic instability.
Item 2. Properties.
The Company owns a 263,000 square foot modern brick facility on 27 acres
in Sanford, North Carolina which houses the Company's corporate headquarters
as well as manufacturing, engineering, sales and distribution operations.
This property plus equipment are pledged to secure industrial revenue bonds
totaling $3,200,000 at December 31, 1996. The bonds mature on November 1,
2011. The carrying value of assets pledged to secure these bonds was
approximately $4,574,000 at December 31, 1996. In addition, the Company
leases a 45,000 square foot facility in Albuquerque, New Mexico which houses
Envirco and a 53,000 square foot facility in Lancaster, Pennsylvania which
houses Herrmidifier. Both leases expire in 1998.
Foreign properties consist of a 53,000 square foot facility located in
Andover, England owned by the Company.
The Company's facilities in Sanford, Lancaster and Andover are suitable
for their intended uses, however, Sanford and Andover have excess capacity for
current needs. The facility in Albuquerque is approaching full capacity. The
facility in Andover, England remains for sale.
Item 3. Legal Proceedings.
Neither the Company nor its subsidiaries are party to any material
pending legal proceedings nor is any of their property subject to such
proceedings.
<p>7
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 4.(a) Executive Officers of the Registrant.
Positions and
Name Age Office Held
Steven L. Schneider (1) 53 President, Chief
Executive Officer
Brian H. Boender (2) 47 Vice President - Sales
and Marketing
Charles A. Haynes (3) 48 Vice President - Engineering
Calvin J. Monsma (4) 45 Vice President and
Chief Financial Officer
Herbert A. Rose (5) 42 Vice President - Sales
and Marketing
J. Gary Waters (6) 51 Vice President - Finance
On March 31, 1993 the Company and Mr. Schneider entered into an employment
agreement which was subsequently amended and restated on July 28, 1995 (the
"Agreement") providing for his employment as President and Chief Executive
Officer for a three-year term commencing on May 24, 1993 and which, after the
initial term, is automatically extended for an additional year on each
anniversary date. A more complete discussion regarding the Agreement may be
found under the caption "Compensation Agreements" on page 11 of the annual
Proxy Statement dated March 11, 1997 and is incorporated herein by reference.
All other executive officers serve at the discretion of the Board.
(1) Mr. Schneider joined the Company on May 24, 1993. For a period of more
than five years prior to joining the Company, Mr. Schneider served as Group
President of Tomkins Industries U.S.A., a subsidiary of Tomkins PLC, a
diversified manufacturing company.
(2) Prior to joining the Company on July 19, 1993, Mr. Boender was Vice
President-International for White-Rodgers (Division of Emerson Electric Co.),
a leading manufacturer in the HVAC industry, from May 1992 until July 1993 and
Vice President-Sales and Marketing from 1989 until 1992.
(3) Prior to joining the Company on July 6, 1994, Mr. Haynes was Engineering
Director of Heating Products for NORDYNE, a leading manufacturer of HVAC
products for modular housing and residential applications from August 1992
until June 1994. Prior to joining NORDYNE, for a period of more than three
years, Mr. Haynes was the Engineering Program Manager for New Product
Development at United Technologies Corporation's Allied Products Division of
Carrier Air Conditioning and was responsible for the design and development of
various indoor air quality and electric heat products.
(4) Prior to joining the Company on July 11, 1994, Mr. Monsma was employed by
Concurrent Computer Corporation, a provider of high-performance real-time
computer systems, serving as Director of Finance for worldwide sales and
international operations until he joined the Company.
<p>8
(5) Mr. Rose joined Trion on January 15, 1996. From September 1991 to
January 1996 he served in various sales and marketing responsibilities at
Whirlpool Corporation, including Director of Merchandising for that company's
appliance business with Sears and Director of Trade Marketing for the
Whirlpool, KithchenAid and Roper brands in North America.
(6) Mr. Waters assumed responsibility for the newly created position of Vice
President Finance for North America Operations on November 1, 1996. Prior to
that he had served as Vice President Operations since September 1, 1994 and
Vice President and Controller from 1989 until his election as Vice President
Operations.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
MARKET AND DIVIDEND INFORMATION
The Company's common stock trades on the Nasdaq National Market under the
symbol: "TRON". There were 1,060 shareholders of record on January 2, 1997.
High and low sales prices and dividends declared by quarter for the last two
years were:
<TABLE>
<CAPTION>
1996 1995
1996 Market Price Dividends 1995 Market Price Dividends
Quarter Ended High Low Declared High Low Declared
<S> <C> <C> <C> <C> <C> <C>
March 31. . . . . $6.88 $4.62 $0.02 $6.25 $4.62 $0.02
June 30 . . . . . $9.00 $5.88 $0.02 $6.25 $5.12 $0.02
September 30. . . $7.12 $5.12 $0.02 $6.62 $5.38 $0.02
December 31 . . . $5.88 $3.69 $0.02 $6.25 $4.88 $0.02
</TABLE>
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
FINANCIAL AND PERFORMANCE HIGHLIGHTS
(dollars in thousands, except per share data)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales . . . . . . . . . . $62,401 $49,565 $39,090 $40,209 $39,228
Net Income (Loss) . . . . . . $ 1,112 $ 2,303 $ 1,734 $ 1,686 $ (274)*
Return on Sales (Loss) . . . 1.8% 4.6% 4.4% 4.2% (0.7)%
Shareholders' Equity . . . . $21,042 $20,142 $18,007 $15,854 $14,109
Return on Beginning
Shareholders' Equity (Loss). 5.5% 12.8% 10.9% 11.9% (1.8)%
Total Assets . . . . . . . . $40,796 $40,464 $27,146 $25,427 $24,057
Long-Term Debt . . . . . . . $ 9,908 $10,836 $ 3,525 $ 3,923 $ 4,163
Working Capital . . . . . . . $14,182 $16,486 $15,385 $13,547 $11,875
Per Common Share:
Earnings (Loss) . . . . . . . $ 0.16 $ 0.33 $ 0.25 $ 0.25 $ (0.04)*
Dividends Declared . . . . . $ 0.08 $ 0.08 $ None $ None $ None
Book Value . . . . . . . . . $ 3.01 $ 2.90 $ 2.61 $ 2.32 $ 2.08
</TABLE>
<p>9
All amounts have been restated to reflect the acquisition of the Herrmidifier
Company in August 1996 which was accounted for as a pooling of interest. The
restated financial and performance highlights for 1995 through 1992 above
include the historical financial statements of Herrmidifier Company for the
years ended December 31, 1995 and 1994 and the years ended March 31, 1994 and
1993. For years prior to 1993 and including the year ended March 31, 1994,
Herrmidifier Company presented financial statements based on a fiscal year end
March 31. For the three-month period ended March 31, 1994, which results have
been included in both the financial and performance highlights for 1994 and
1993, Herrmidifier Company net sales were approximately $1,827,000 and net
income was approximately $156,000. Past performance is not indicative of
future results.
*A non-recurring charge related to a management restructuring reduced net
income by $969,000 or $0.14 per share
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis incorporates the performance of
Herrmidifier Company, Inc. (Herrmidifier), acquired by the Company on August
30, 1996. The acquisition was accounted for as a pooling of interest, whereby
the current and prior period statements of financial condition and results of
operations are included. Accordingly, the prior periods presented and
discussed have been restated.
Results of Operations
Net sales for the year 1996 were $62,401,000, a 26% improvement over the prior
year's $49,565,000 which, in turn, was a 27% increase over the $39,090,000
reported in 1994. The substantial increase in each of the years was primarily
due to the acquisition of the Envirco Corporation in Albuquerque, New Mexico
("Envirco") in August 1995. Twelve months' activity was included in 1996, five
months' activity in 1995, and no activity in 1994. North American base
business sales increased 1% during 1996 and increased 6% in 1995. Although
Envirco generated a significant increase in sales year on year, there was a
downward trend in the second half of 1996 due to the slowdown in capital
spending by the microelectronics industry. Sales by consolidated European
Operations increased by 26% in 1996 over 1995 due to the introduction of
Envirco products in that market as well as the generally improving economic
conditions in Europe. European Operations sales declined 4% in 1995 mainly due
to the decline in business in the German market.
Improvement in Engineered Products sales reflect management's emphasis on
growing this segment. Combined with the acquisitions of Herrmidifier and
Envirco, Engineered Products revenues increased by 42% in 1996 and 45% in
1995. The Consumer Products segment declined by 17% in 1996 as compared to
1995 primarily due to a delay in the introduction of a new line of appliance
air cleaner products for a major retailer which is now expected to occur in
the first half of 1997. Consumer Products recorded a 6% increase in 1995 over
1994, primarily due to increased sales to a major retail customer and the
introduction of a new HEPA air cleaner appliance product in the second half.
Management expects to continue its strategic focus on the Engineered Products
component of the business while protecting and cultivating the Consumer
Products segment.
<p>10
Consolidated gross profit as a percentage of sales declined to 33.6% in 1996
as compared to 36.2% and 36.8% in 1995 and 1994, respectively. Generally, the
decline in this ratio in 1996 was due to increased sales of Envirco products,
which have a lower gross profit margin, product and customer mix and the
Company's commitment to reducing inventory balances to improve asset
management. In the case of finished goods and work-in-process elements, this
inventory reduction caused a lower level of direct labor to be expended and a
reduced amount of overhead being absorbed, resulting in higher comparative
cost of products sold. In 1995, the Company experienced price increases in raw
materials such as aluminum, steel, plastics, motors and packaging which were
slightly ahead of the consumer price index. In both years, the Company's value
analysis and profit improvement programs as well as advances and changes to
manufacturing processes partially offset cost increases. Evaluation of
production methods, facilities and locations will continue.
Operating expenses as a percentage of sales were 28.5% in 1996 in comparison
to 27.9% and 29.7% in 1995 and 1994, respectively. Although spending on direct
advertising was down in 1996, the slight increase in 1996 was primarily the
result of the Company's increased investment in sales and marketing efforts,
especially in the Consumer Products segment, which incurred higher costs as a
result of developing the new line of appliance air cleaner products. The
reduction in the ratio in the 1995 and 1994 comparative period is attributable
to the synergies developed by the acquisition of Envirco and in 1994 included
a onetime charge of $125,000 for the closure of the Company's German
subsidiary and the consolidation of European operations. Savings continue to
be generated by the profit improvement programs implemented by the Company.
Interest expense during 1996 was $856,000 as compared to $578,000 in 1995 and
$275,000 in 1994. The increases in 1996 and 1995 were due primarily to a net
increase in borrowing of $6,800,000 for the Envirco acquisition in August 1995
with twelve months' interest in 1996 as compared to five months in 1995. In
addition, the Company has entered into an interest rate hedge agreement on
$6,000,000 at an interest rate fixed at 7.5% for three years in order to
reduce the impact of fluctuations in interest rates on its floating debt.
Amortization expense for 1996 was $344,000 as compared to $143,000 in 1995 and
zero in 1994 due to the goodwill recorded for the August 1995 acquisition of
Envirco.
Onetime acquisition expenses for the Herrmidifier acquisition in August 1996
were $414,000.
Income taxes were $502,000, $1,366,000, and $982,000, or an effective rate of
31.1%, 37.2% and 36.2% in 1996, 1995, and 1994, respectively. The primary
reason for the reduction in taxes and the effective tax rate in 1996 was the
utilization of net operating loss carryforwards resulting from the income
generated in the Company's subsidiary in the United Kingdom. Due to prior
years' losses, this favorable tax treatment in the United Kingdom will
continue with available tax losses being carried forward indefinitely.
Net income for the year ended 1996 was $1,112,000 as compared to $2,303,000 in
1995 and $1,734,000 in 1994. Corresponding earnings per share were $0.16,
$0.33 and $0.25 in 1996, 1995 and 1994, respectively. The 1996 results were
impacted by the previously discussed changes in gross profit, the investments
made in sales and marketing programs and the onetime charge for the
acquisition of Herrmidifier, which negatively impacted earnings per share by
<11>
$0.06. In 1995, net income increased as compared to 1994 primarily due to the
incremental sales volume generated by Envirco.
Liquidity and Sources of Capital
Cash flow from operations was sufficient to fund working capital requirements.
Capital expenditures during the most recent period were significantly above
prior periods due to the investment in streamlining manufacturing and
production processes and tooling for new products. The cash balance on hand
increased to $2,073,000 at 1996 year end, from $497,000 in 1995. The reduction
in cash from 1994 to 1995 was primarily due to the purchase of the Envirco
operation. In addition to the Company's own funds, supplemental bank
borrowings of $3,000,000 were required during 1996 to fund the previously
mentioned capital spending and to retire the debt of Herrmidifier. In 1995,
bank borrowings of $6,800,000 were required to fund the Envirco acquisition.
Working capital decreased to $14,182,000 in 1996 as compared to $16,486,000 in
1995, primarily due to the increase in the current portion of long-term debt.
The ratio of current assets to current liabilities in 1996 was 2.4 to 1
compared to 2.9 to 1 a year ago. The Company has taken and will continue to
take measures to manage and control accounts receivable and inventory balances
in order to improve utilization of available resources.
Currently, the Company has an unsecured line of credit in the amount of
$18,000,000 with Wachovia Bank of North Carolina, N.A. which, when combined
with operating cash flow, is deemed sufficient to fund future operating
requirements. Anticipated acquisition financing requirements may require the
Company to seek additional sources of credit. These funds would be used
primarily for financing activities associated with future growth opportunities
through additional acquisitions. The Company has no commitments with respect
to any additional acquisitions at this time.
<12>
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and the report of independent auditors
are set forth below. Information required by Item 302, "Supplementary Data,"
is set forth in Note J of the Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands, except per share amounts)
TRION, INC. AND SUBSIDIARIES
Year Ended December 31
1996 1995 1994
(Restated) (Restated)
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . $62,401 $49,565 $39,090
Cost and expenses:
Cost of products sold . . . . . . . . . 41,487 31,603 24,716
Selling, administration
and engineering expenses. . . . . . . 17,792 13,851 11,625
Interest . . . . . . . . . . . . . . . 856 578 275
Amortization . . . . . . . . . . . . . 344 143 --
Acquisition expense . . . . . . . . . . 414 -- --
Other expense (income), net . . . . . . (106) (279) (242)
60,787 45,896 36,374
Income before income taxes . . . . . . . . 1,614 3,669 2,716
Income tax expense (benefit):
Current . . . . . . . . . . . . . . . . 685 1,314 951
Deferred . . . . . . . . . . . . . . . (183) 52 31
502 1,366 982
Net income for the year . . . . . . . . . . 1,112 2,303 1,734
Retained earnings at beginning of year . . 15,620 13,831 12,097
Dividends declared: ($0.08 per share) . . . (539) (514) --
Retained earnings at end of year . . . . . $16,193 $15,620 $13,831
Net income per share of common stock . . . $ 0.16 $ 0.33 $ 0.25
See notes to consolidated financial statements
</TABLE>
<p>13
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(in thousands)
TRION, INC. AND SUBSIDIARIES
ASSETS December 31
1996 1995
(Restated)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . $ 2,073 $ 497
Trade accounts receivable less allowance for
doubtful accounts: ($448,000 in 1996 and
$346,000 in 1995) . . . . . . . . . . . . . . 11,650 13,086
Inventories . . . . . . . . . . . . . . . . . . 9,329 10,098
Prepaid expenses and other current assets . . . 882 1,062
Deferred current income taxes . . . . . . . . . 94 598
Total current assets . . . . . . . . . . . . 24,028 25,341
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . 78 78
Buildings . . . . . . . . . . . . . . . . . . . 5,467 5,168
Equipment . . . . . . . . . . . . . . . . . . . 16,928 14,269
Allowance for depreciation . . . . . . . . . . (13,250) (12,066)
9,223 7,449
OTHER ASSETS
Goodwill less accumulated amortization:
($486,000 in 1996 and $143,000 in 1995) . . . 6,393 6,736
Deferred income taxes . . . . . . . . . . . . . 338 --
Other non-current assets . . . . . . . . . . . 814 938
7,545 7,674
$40,796 $40,464
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . $ 3,900 $ 5,797
Accrued expenses:
Compensation and fringes . . . . . . . . . . 1,054 717
Selling and promotions . . . . . . . . . . . 636 491
Other . . . . . . . . . . . . . . . . . . . . 1,515 1,198
Income taxes . . . . . . . . . . . . . . . . . 77 325
Current portion of long-term debt . . . . . . . 2,664 327
Total current liabilities . . . . . . . . . . 9,846 8,855
LONG-TERM DEBT . . . . . . . . . . . . . . . . . 9,908 10,836
OTHER NON-CURRENT LIABILITIES . . . . . . . . . . -- 282
DEFERRED INCOME TAXES . . . . . . . . . . . . . . -- 349
19,754 20,322
SHAREHOLDERS' EQUITY
Common stock, par value $0.50 a share:
Authorized 20,000,000 shares
Issued and outstanding: (6,997,519 in 1996
and 6,951,483 in 1995). . . . . . . . . . . 3,499 3,476
Additional paid-in capital . . . . . . . . . . 1,017 866
Retained earnings . . . . . . . . . . . . . . . 16,193 15,620
Foreign currency translation adjustment - unrealized 333 180
21,042 20,142
$ 40,796 $40,464
See notes to consolidated financial statements
</TABLE>
<p>14
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
TRION, INC. AND SUBSIDIARIES
Year Ended December 31
1996 1995 1994
(Restated) (Restated)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . $1,112 $2,303 $1,734
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . 1,581 1,147 1,114
Amortization . . . . . . . . . . . . . . . 344 143 --
Deferred income taxes . . . . . . . . . . . (183) 52 31
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . 1,436 (2,612) (622)
Inventory and prepaid expenses . . . . . 934 (1,806) 794
Accounts payable and accrued expenses . . (1,829) 2,151 (684)
Foreign currency transaction loss (gain) . (68) (26) 89
Net cash provided by operating activities 3,327 1,352 2,456
INVESTING ACTIVITIES
Purchase of Envirco Corporation . . . . . . . -- (8,502) --
Retirement of Envirco Corporation debt . . . . -- (1,958) --
Purchases of property, plant and equipment . . (3,176) (1,606) (767)
Proceeds from disposals of equipment . . . . . 27 66 4
Net cash used by investing activities . . (3,149) (12,000) (763)
FINANCING ACTIVITIES
Net proceeds from master credit facility . . . 3,500 6,906 270
Principal payments on long-term debt . . . . . (1,901) -- (300)
Stock issued . . . . . . . . . . . . . . . . . 174 234 224
Cash dividends paid . . . . . . . . . . . . . (528) (386) --
Net cash provided (used) by
financing activities . . . . . . . . . 1,245 6,754 194
Effect of foreign exchange rate changes on cash 153 242 123
Increase (decrease) in cash . . . . . . . . . . 1,576 (3,652) 2,010
Cash at beginning of year . . . . . . . . . . . 497 4,149 2,139
Cash at end of year . . . . . . . . . . . . . . $2,073 $ 497 $4,149
See notes to consolidated financial statements
</TABLE>
<p>15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES
Principles of Consolidation: The financial statements include the accounts of
the Company's subsidiaries, all of which are wholly owned. All significant
intercompany transactions have been eliminated.
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Translation of Foreign Currencies: Assets and liabilities of foreign
subsidiaries are translated using year-end exchange rates and revenues and
expenses are translated using exchange rates prevailing during the year.
Unrealized currency translation adjustments are recorded as a component of
shareholders' equity and are not included in income until realized.
Operations: The Company is principally engaged in the design, manufacture and
sale of equipment to improve the quality of indoor air in the consumer,
residential, commercial and industrial markets, and equipment to
electrostatically distribute micro-thin films of lubricants, corrosion
inhibitors and other protective coatings to metal strips on high speed process
lines.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out method for domestic raw materials and by
the first-in, first-out method for all other inventories. Obsolete or slow
moving inventory is written off or written down when it is determined that the
carrying value of the particular item exceeds realizable value.
Property, Plant and Equipment: Property, plant and equipment are carried at
cost. Depreciation is computed by the straight-line method. The range of the
estimated lives used in depreciating buildings are 25 to 40 years and for
equipment 4 to 10 years.
Intangible Assets: The carrying value of intangible assets are reviewed if the
facts and circumstances indicate impairment of their carrying value. Any
impairment in the carrying value of such intangibles is recorded when
identified.
Long-Lived Assets: Effective January 1, 1996, the Company adopted FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (SFAS 121), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. The adoption of SFAS 121 did not materially affect the financial
statements.
Pension and Savings Plans: The Company has one noncontributory defined benefit
pension plan and three defined contribution profit sharing plans covering
eligible employees. (See Note I)
<p>16
Net Sales: The Company generally recognizes revenues on product sales when
goods are shipped.
Advertising Costs: It is the Company's policy to expense all advertising costs
in the year the advertising occurs. Advertising expenses were $764,000,
$923,000 and $521,000 for the years 1996, 1995 and 1994, respectively.
Research and Development Expenses: Included in selling, administration and
engineering expenses is $1,259,000, $977,000 and $743,000 for research and
development in the years 1996, 1995 and 1994, respectively. It is a policy of
the Company to expense research and development costs in the year incurred.
Warranty Expenses: The Company has a warranty reserve which has been
established at a percentage of cost of sales. This percentage, which is
subject to regular review, is based on the history of warranty expenses
incurred.
Net Income Per Share: Net income per share of common stock is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the year (6,976,252 in 1996, 6,929,396 in 1995 and
6,881,229 in 1994). Outstanding stock options are not considered in computing
earnings per share as the effect would not be material.
Statement of Cash Flows: For purposes of this statement, the Company considers
all highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Reclassification: Certain amounts in 1995 and 1994 have been reclassified to
conform to present classifications. These reclassifications have no effect on
previously reported shareholders' equity or financial results.
Restatement: The Company's 1995 and 1994 financial statements have been
restated to include the results of Herrmidifier Company, Inc., a company
acquired in 1996 accounted for as a pooling of interest.
NOTE B - ACQUISITIONS
On August 30,1996, the Company acquired 100% of the outstanding stock of
Herrmidifier Company, Inc. (Herrmidifier) located in Lancaster, Pennsylvania
for 500,000 shares of the Company's Common Stock. Related to this transaction,
the Company recognized approximately $414,000 in non-recurring transaction
costs. The transaction was accounted for by the pooling of interest method,
and accordingly, the consolidated financial statements for the periods
presented have been restated to include Herrmidifier.
<p>17
The following are reconciliations of net sales and net income (loss)
previously reported by the Company for the years ended 1995 and 1994, with the
combined amounts currently presented in the financial statements for those
years:
(in thousands) Year Ended December 31, 1995
Company Herrmidifier Consolidated
Net sales $43,695 $ 5,870 $49,565
Net income $ 2,234 $ 69 $ 2,303
(in thousands) Year Ended December 31, 1994
Company Herrmidifier Consolidated
Net sales $34,077 $ 5,013 $39,090
Net income (loss) $ 1,779 $ (45) $ 1,734
In addition, the following table presents the results of operations for
Herrmidifier for the eight months ended August 30, 1996, the period prior to
the acquisition:
Herrmidifier Company, Inc.
(in thousands) (Unaudited)
Eight Months Ended August 30, 1996
Net sales $ 4,486
Cost of products sold 3,112
Selling, administrative and engineering 1,364
Interest 83
Other expenses (income), net (15)
Loss before income taxes (58)
Income tax benefit (30)
Net loss $ (28)
On August 1, 1995 the Company acquired all of the outstanding common stock of
Envirco Corporation (Envirco), a manufacturer and distributor of ultra-clean
air systems and components located in Albuquerque, New Mexico for cash
consideration of approximately $7,986,000. The Company incurred costs of
approximately $516,000; consisting principally of a finders fee, accounting
and legal expenses. The acquisition was financed through a combination of cash
on hand and borrowings of $6,800,000. The details of the credit facility are
discussed in Note D.
In a related transaction, the Company and/or Envirco entered into employment
agreements and/or non-compete agreements with five key employees of Envirco.
These agreements have terms which vary from two to five years, maintain salary
levels previously in effect, and, in certain circumstances based upon company
performance, provide incentive payments and options to purchase the Company's
common stock at $6.00 per share.
The Envirco acquisition was accounted for using the purchase method, with the
assets and liabilities of the business recorded at their estimated fair value
at the acquisition date. The excess of total acquisition cost over the fair
value of the net assets acquired was classified as goodwill and is being
amortized on a straight line basis over 20 years. The results of operations of
Envirco are included in these consolidated statements of income as of the date
of the acquisition.
<p>18
If Envirco had been acquired at the beginning of 1995 and 1994, the unaudited
pro forma summary of consolidated results of operations would have been
reported as: net sales of $57,308,000 and $50,633,000; net income of
$2,400,000 and $1,834,000; and net income per share of $0.35 and $0.27,
respectively. These pro forma results do not purport to be indicative of the
results that would have actually been attained, or that will be attained in
the future.
NOTE C - INVENTORIES
(in thousands)
1996 1995
Raw materials . . . . . . . . . . . . . . . . $ 4,939 $ 5,946
Work in process and finished products . . . . 4,390 4,152
$ 9,329 $10,098
If the first-in, first-out method of accounting for cost had been used for
domestic raw materials, inventories would have been approximately $371,000 and
$355,000 more at December 31, 1996 and 1995, respectively.
NOTE D - LINE OF CREDIT/LONG-TERM DEBT
In September 1995, the Company obtained a master credit facility in the United
States which allows the Company to borrow up to $18,000,000 at the London
Interbank Offering Rate of interest plus 1.3% which expires in September,
1998. The structure of the master credit facility includes an $8,000,000
thirty six (36) month revolving line of credit and a $10,000,000 sixty (60)
month declining balance term loan with 12.5% of the balance as of March 1997
payable every six months beginning March 1997. As of December 31, 1996 and
1995, the amount outstanding on the revolving line of credit was $1,000,000
and $0, respectively, and is included in accounts payable.
Long-term debt for the periods is comprised of the following:
(in thousands)
<TABLE>
1996 1995
<S> <C> <C>
Term Loan . . . . . . . . . . . . . . . . . . . . . . . $ 8,800 $ 6,800
Notes, Envirco Acquisition . . . . . . . . . . . . . . 458 458
Industrial Development Revenue Refunding Bonds, 1995. . 3,200 3,200
Herrmidifier; Long-Term Debt . . . . . . . . . . . . . -- 705
Other . . . . . . . . . . . . . . . . . . . . . . . . . 114 --_
12,572 11,163
Less: Current portion of long-term debt . . . . . . . . 2,664 327
Total long-term debt . . . . . . . . . . . . . . . . . $ 9,908 $10,836
</TABLE>
In addition, as part of the purchase and sale agreement associated with the
acquisition of Envirco Corporation, the Company issued a note for $458,000;
due in October of 1997 and bearing interest at the fixed rate of 6%.
The industrial development revenue refunding bonds, due in November of 2011,
bear interest, inclusive of fees for the letter of credit, remarketing, and
other financing charges, of approximately 5.5% and require no principal
payments until maturity. The bonds are secured by the Sanford facility,
including real property and equipment.
<p>19
Maturities on long-term debt over the next five years are as follows: 1997 -
$2,664,000; 1998 - $2,256,000; 1999 - $2,252,000; 2000- $2,200,000; and 2001 -
$0.
In order to reduce the impact of fluctuations in interest rates on its
floating rate debt the Company entered into an interest rate hedge agreement.
On December 31, 1996, the Company had one interest rate hedge agreement
outstanding. It effectively fixes the rate of interest on $6,000,000 of debt
at a rate of 7.5% for a period of three years.
NOTE E - LEASES
The Company leases manufacturing facilities in Albuquerque, New Mexico and
Lancaster, Pennsylvania. Both leases expire in 1998. In addition, the Company
leases a small amount of other equipment. Total lease payments were $546,000
in 1996 and $302,000 in 1995. Future minimum lease payments in effect at
December 31, 1996 are as follows:
(in thousands)
1997 $ 548,000
1998 191,000
1999 30,000
2000 and thereafter 0
Total $ 769,000
NOTE F - INCOME TAXES
The liability method is used in accounting for income taxes as prescribed by
FASB Statement No. 109, Accounting for Income Taxes (SFAS 109). Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Income before income taxes consisted of the following:
(in thousands)
1996 1995 1994
Domestic . . . . . $ 841 $ 3,575 $ 2,631
Foreign . . . . . 773 94 86
$ 1,614 $ 3,669 $ 2,717
Federal, foreign and state income tax expenses (benefit) consisted of the
following:
(in thousands)
<TABLE>
1996 1995 1994
Current Deferred Current Deferred Current Deferred
<S> <C> <C> <C> <C> <C> <C>
Federal .... $ 592 $ (165) $ 1,181 $ 42 $ 814 $ 23
Foreign..... 2 -- 20 -- 10 --
State ...... 91 (18) 113 10 127 8
$ 685 $ (183) $ 1,314 $ 52 $ 951 $ 31
</TABLE>
<p>20
Income tax payments were $772,000 in 1996, $1,016,000 in 1995 and $1,259,000
in 1994.
<TABLE>
1996 1995
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation and amortization . . . $ 506 $ 495
Prepaid pension expenses . . . . . . . . . . . . 131 97
Total liabilities . . . . . . . . . . . . . . . . 637 592
Deferred tax assets:
Foreign operating loss carryforward . . . . . . 876 1,141
Product warranty reserve . . . . . . . . . . . . 156 93
Inventory reserve (including UCR) . . . . . . . . 241 227
Allowances for doubtful accounts . . . . . . . . 126 87
Other reserves . . . . . . . . . . . . . . . . . 415 434
Total assets . . . . . . . . . . . . . . . . . . 1,814 1,982
Valuation allowance . . . . . . . . . . . . . . . (745) (1,141)
Net deferred tax assets . . . . . . . . . . . . . 1,069 841
Net asset . . . . . . . . . . . . . . . . . . . . $ 432 $ 249
</TABLE>
At December 31, 1996, the Company had operating loss carryforwards of
$2,394,000 in England that are available indefinitely to offset future taxable
income of that subsidiary. For financial reporting purposes, a valuation
allowance has been recognized to offset the deferred tax assets related to the
carryforward.
A reconciliation of income tax expense (benefit) to the statutory rate
follows:
<TABLE>
(in thousands)
1996 1995 1994
<S> <C> <C> <C>
Statutory rate . . . . . . . . . . . . . . $ 549 $ 1,247 $ 924
Tax difference of foreign subsidiaries
primarily related to effect of tax
benefits on operating losses . . . . . . (261) 31 (19)
Non-qualified stock options . . . . . . . . -- (47) 35
Non-deductible acquisition expenses . . . . 141 -- --
Other . . . . . . . . . . . . . . . . . . . 73 135 42
Total income tax expense . . . . . . . . . $ 502 $ 1,366 $ 982
</TABLE>
NOTE G - STOCK OPTIONS
At December 31, 1996, the Company had two incentive stock option plans in
effect - the "1985 Plan" and the "1995 Plan." Under terms of both plans
options to purchase shares of common stock have been granted to officers and
other key executives at prices not less than the fair market value of the
stock on the date of grant. Options may be granted for a term of up to ten
years at the discretion of the Board of Directors. At December 31, 1996, there
were no shares available for future grants under the 1985 Plan and 238,517
shares available under the 1995 Plan.
<p>21
A summary of transactions relating to options during 1996 and 1995 follows:
<TABLE>
Shares Price Range Value
<S> <C> <C> <C>
Balance Outstanding December 31, 1994 . . 182,654 $ 770,429
Granted . . . . . . . . . . . . . . . . . 31,204 $4.81 - $5.50 151,544
Exercised . . . . . . . . . . . . . . . . (3,000) $3.75 - $3.88 (11,500)
Cancelled . . . . . . . . . . . . . . . . (2,000) $5.50 (11,000)
Balance December 31, 1995 . . . . . . . . 208,858 899,473
Granted . . . . . . . . . . . . . . . . . 46,483 $4.88 - $6.13 278,458
Exercised . . . . . . . . . . . . . . . . (41,596) $2.50 - $5.63 (143,228)
Expired . . . . . . . . . . . . . . . . . (8,000) $3.88 (31,000)
Balance December 31, 1996 . . . . . . . . 205,745 $1,003,703
Exercisable at December 31, 1995 . . . . 138,214 $2.50 - $5.63 $ 532,288
Exercisable at December 31, 1996 . . . . 116,819 $2.88 - $5.63 $ 521,954
</TABLE>
All incentive stock options were granted for a period of five years and may be
exercised for one-third of the shares in each year following the date of
grant. In addition, during 1993, non-qualified stock options were granted for
100,000 shares at $2.50 per share, 75,000 shares at $3.00 per share and 70,000
at $3.13 per share. The market value on the date of grant of 175,000 shares
was $3.75 and the market value on the date of grant of 70,000 shares was
$4.38. The options for 175,000 shares were granted for a period of five years.
Vesting of 100,000 of these shares is 25% per year commencing in May 1993, and
75,000 of these shares vest at 33 1/3% per year commencing May 1994. In 1995,
43,300 of the $2.50 per share options were exercised. The options for 70,000
shares are for a period of ten years and were vested immediately. In 1996,
non-qualified stock options were granted for 8,000 shares at $6.00 per share
and 20,000 shares at $6.00 per share. The per share market value on the date
of grant of the 8,000 shares was $5.50 and the 20,000 shares was $6.13. The
difference between grant prices and market prices at the date of grant are
charged to expense over the respective vesting periods.
The Company has elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and related Interpretations in accounting for
its employee stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, Accounting for
Stock-Based Compensation (SFAS 123), requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB
25, because the exercise price of the Company's employee incentive stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
<p>22
Pro forma information regarding net income and earnings per share is required
by SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31,1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 1995 and 1996: risk
free interest rate of 6.25%; a weighted average dividend yield of 1.43%; a
volatility factor of .412; and an expected life of five years. The effects of
applying SFAS 123 for providing pro forma disclosure are not indicative of
future amounts until the new rules are applied to all outstanding awards.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
(in thousands, except per share amounts)
1996 1995
Pro forma net income $ 1,027 $ 2,281
Pro forma earnings per share $ 0.15 $ 0.33
The weighted average per share fair value of options granted in the year ended
December 31, 1996 and 1995 was $2.39 and $1.88, respectively.
NOTE H - STOCK TRANSACTIONS
<TABLE>
Common Stock Additional
Shares Amount Paid-In Capital
<S> <C> <C> <C>
Balance December 31, 1994 . . . . . . . 6,899,183 $3,449,591 $ 661,030
Board of Directors retainer fee . . . . 6,000 3,000 33,000
Exercise of stock options . . . . . . . 46,300 23,150 174,925
Balance December 31, 1995 . . . . . . . 6,951,483 3,475,741 868,955
Board of Directors retainer fee . . . . 4,440 2,220 25,530
Exercise of stock options . . . . . . . 41,596 20,798 122,430
Balance December 31, 1996 . . . . . . . 6,997,519 $3,498,759 $1,016,915
</TABLE>
NOTE I - PENSION AND SAVINGS PLANS
The Company maintains a noncontributory defined benefit retirement plan for
substantially all Sanford employees. Benefits are based on earnings and years
of service. The Company's funding policy is to contribute annually the amount
required by the Employee Retirement Income Security Act. Assets of the Plan
are managed by a trustee and invested in marketable securities, bonds and
money market instruments. Based on actuarial studies as of January 1 of each
year, the contribution required was $0 for 1996, $191,000 for 1995 and $0 for
1994.
<p>23
The following table sets forth the plan status at December 31:
(in thousands)
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $5,239,000 in 1996,
$5,054,000 in 1995 and $4,641,000 in 1994 . . $(5,414) $(5,091) $(4,670)
Projected benefit obligation for
service rendered to date . . . . . . . . . . . $(5,414) $(5,091) $(4,961)
Plan assets at fair market value . . . . . . . . 6,626 6,263 5,463
Plan assets in excess of projected
benefit obligation . . . . . . . . . . . . . . 1,212 1,172 502
Unrecognized prior service cost . . . . . . . . (19) (21) (22)
Unrecognized net (gain) loss . . . . . . . . . . (756) (765) 120
Unrecognized net asset . . . . . . . . . . . . . (198) (223) (248)
Prepaid pension expense . . . . . . . . . . . . $ 239 $ 163 $ 352
</TABLE>
Net pension cost included the following components:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits earned during
the period . . . . . . . . . . . . . . . . . . $ 175 $ 304 $ 276
Interest cost on projected benefit obligation. . 349 343 311
Actual return on plan assets . . . . . . . . . . (373) (1,016) 153
Net amortization and deferral of unrecognized
net gain (loss) . . . . . . . . . . . . . . . (9) 585 (607)
Amortization of unrecognized net asset . . . . . (25) (25) (25)
Amortization of prior service costs . . . . . . (2) (2) (2)
Net periodic pension cost . . . . . . . . . . . $ 115 $ 189 $ 106
</TABLE>
A weighted average discount rate of 7.0% in 1996, 1995 and in 1994 and a rate
of increase in future compensation levels of 5.5% in 1996, 1995 and 1994, were
used in determining the actuarial present value of the projected benefit
obligation. The expected long-term rate of return on plan assets was 6.0% for
1996 and 8.0% for 1995 and 1994.
The Company also maintains defined contribution profit sharing plans as
described in Section 401(k) of the Internal Revenue Code of 1986. Participants
may elect to defer from 1% to 18% of their total cash compensation. The
maximum deferral allowed for income tax purposes was $9,500 in 1996 and $9,240
in 1995. There are also other limitations placed upon highly compensated
employees, as defined in the plans.
The Company may make discretionary matching contributions to these plans.
During 1996 and 1995, the Company contributed $131,000 and $96,000,
respectively, representing 25% to 50% of the employee's deferral up to a
maximum of 1.25% to 2.00% of total cash compensation.
Amounts deferred, including Company matching contributions, are invested by a
trustee in a variety of investment options as directed by the participant.
<p>24
NOTE J - SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly financial data for the years ended December 31, 1996 and
1995 are set forth below:
(in thousands, except per share data)
<TABLE>
Net Income
Cost of Net Income (Loss)
Quarter Ended Net Sales Products Sold (Loss) Per Share
1996:
<S> <C> <C> <C> <C>
March 31 . . . . . . $16,869 $11,408 $ 574 $ 0.09
June 30 . . . . . . 16,922 11,175 702 0.10
September 30 . . . . 12,936 8,803 (600) (0.09)
December 31 . . . . 15,674 10,101 436 0.06
Year 1996 . . . . $62,401 $41,487 $ 1,112 $ 0.16
1995 (Restated):
March 31 . . . . . . $10,034 $ 6,558 $ 469 $ 0.07
June 30 . . . . . . 9,838 6,228 526 0.08
September 30 . . . . 12,590 7,863 567 0.08
December 31 . . . . 17,103 10,954 741 0.10
Year 1995 . . . . $49,565 $31,603 $ 2,303 $ 0.33
</TABLE>
NOTE K - FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable. The Company maintains cash and cash equivalents
with various financial institutions. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
entities comprising the Company's customer base. However, as of December 31,
1996, the Company's receivable from one customer was $1,148,000. The carrying
amount reported in the balance sheet for cash and cash equivalents, accounts
receivable, accounts payable and long-term debt approximate their fair values.
NOTE L- INDUSTRY SEGMENT INFORMATION
The Company's operations are classified in three general industry segments:
Engineered Products; Consumer Products and European Operations.
North American Engineered Products include air quality products manufactured
for commercial, industrial and marine applications, equipment manufactured for
permanent installation in residential air handling systems, and equipment
designed to electrostatically distribute micro-thin films of lubricants,
corrosion inhibitors and other protective coatings to metal strips on high
speed process lines.
North American Consumer Products include portable room-size air cleaning
units, small appliance models and equipment and components sold to other
suppliers of air cleaners.
<p>25
European Operations consists of Trion Limited (and Trion GmbH in 1994) which
functions in Europe as a sales and distribution operation. U.S. manufacturing
operations provide products for resale. Trion GmbH ceased operations at the
end of 1994.
Net sales by segment include only sales to unaffiliated customers as reported
in the Company's consolidated income statement. Segment income from operations
is net sales less cost of products sold and certain operating expenses. In
computing income from operations, other income, general corporate expenses,
domestic interest expense and taxes on income have been excluded.
The Company's Sanford manufacturing facility serves all segments; therefore,
specific identification of its property, plant and equipment and inventory is
not practicable. These assets and related depreciation were allocated to
segments based on estimates. General corporate assets were principally cash
and cash equivalents, office equipment and engineering equipment.
Net sales of the Company in 1996 include approximately $1,033,000 of direct
and indirect sales to the United States Government ($1,466,000 in 1995 and
$1,277,000 in 1994). These sales are included in the Engineered Products
group. Sales to a significant customer in the Consumer Products group were
$3,553,000 in 1996; $6,288,000 in 1995 and $5,967,000 in 1994.
Export sales from the United States to unaffiliated customers were as follows:
(in thousands)
1996 1995 1994
Pacific Rim . . . . . . . . . . $ 7,419 $ 3,947 $ 2,577
Europe . . . . . . . . . . . . . 709 452 178
Other . . . . . . . . . . . . . 1,760 1,114 795
$ 9,888 $ 5,513 $ 3,550
<p>26
NOTE L- INDUSTRY SEGMENT INFORMATION - (continued)
Additional information on industry segments is set forth below:
(in thousands)
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Net sales to unaffiliated customers:
North American Operations:
Engineered Products . . . . . . . $45,598 $32,168 $22,123
Consumer Products . . . . . . . . 9,949 11,939 11,305
European Operations . . . . . . . . 6,854 5,458 5,662
Total . . . . . . . . . . . . $62,401 $49,565 $39,090
Income (loss) from operations:
North American Operations:
Engineered Products . . . . . . . $ 4,341 $ 4,617 $ 3,994
Consumer Products . . . . . . . . 54 1,463 1,364
European Operations . . . . . . . . 458 (59) (537)
Total . . . . . . . . . . . . 4,853 6,021 4,821
General Corporate:
Other income . . . . . . . . . . 106 113 104
Interest . . . . . . . . . . . . (856) (578) (275)
Other expenses . . . . . . . . . (2,489) (1,887) (1,934)
Total . . . . . . . . . . . . (3,239) (2,352) (2,105)
Income (loss) before income taxes . . $ 1,614 $ 3,669 $ 2,716
Identifiable assets:
North American Operations:
Engineered Products . . . . . . . $25,694 $22,297 $10,269
Consumer Products . . . . . . . . 4,910 9,015 5,517
European Operations . . . . . . . . 7,620 5,918 5,450
General Corporate . . . . . . . . . 2,572 3,234 5,910
Total . . . . . . . . . . . . $40,796 $40,464 $27,146
Depreciation and amortization:
North American Operations:
Engineered Products . . . . . . . $ 1,229 $ 666 $ 512
Consumer Products . . . . . . . . 213 273 268
European Operations . . . . . . . 245 227 222
General Corporate . . . . . . . . . 238 124 112
Total . . . . . . . . . . . $ 1,925 $ 1,290 $ 1,114
</TABLE>
<p>27
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Trion, Inc.
Sanford, North Carolina
We have audited the accompanying consolidated balance sheets of Trion, Inc.
and subsidiaries as of December 31,1996 and 1995, and the related consolidated
statements of income and retained earnings and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the 1995 and 1994 financial statements of Herrmidifier Company,
Inc., which was combined with the Company in 1996 in a transaction accounted
for as a pooling of interest. Total assets of Herrmidifier Company, Inc.
represent 9% of consolidated assets for 1995 and total revenues constituted
12% and 13% of consolidated revenues for 1995 and 1994, respectively. Those
statements were audited by other auditors whose reports have been provided to
us, and our opinion, insofar as it relates to amounts included for
Herrmidifier Company, Inc. is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Trion, Inc. and subsidiaries
at December 31, 1996 and 1995, and the consolidated results of their
operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Raleigh, North Carolina
January 31, 1997
<p>28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
"Election of Directors" on pages 4 through 6, "Security Ownership" on page 7
and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 8 of the
annual Proxy Statement dated March 11, 1997 are incorporated herein by
reference.
See Part I, Item 4.(a) of this report for the required information on
executive officers.
Item 11. Executive Compensation.
"Executive Compensation" on pages 8 through 13 (excluding the information
under the subheading "Compensation Committee Report on Executive Compensation"
on pages 12 and 13), "Service Agreement" on page 15 and information concerning
Directors' compensation on page 7 of the annual Proxy Statement dated March
11, 1997 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
"Security Ownership" on page 7 and information concerning Directors' ownership
on pages 4 through 6 of the annual Proxy Statement dated March 11, 1997 are
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
"Service Agreement" on page 15 of the annual Proxy Statement dated March 11,
1997 is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 14. (a) (1) and (2)- The following consolidated financial statements of
Trion, Inc. and subsidiaries, included in the annual report of the Company to
its shareholders for the year ended December 31, 1996 are included in Item 8
beginning on page 13 hereof:
Consolidated Balance Sheets -- December 31, 1996 and 1995.
Consolidated Statements of Income and Retained Earnings -- years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows -- years ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements -- December 31, 1996.
Report of Independent Auditors, Ernst & Young LLP -- January 31, 1997.
<p>29
Independent Accountants' Report, Kuntz Lesher Siegrist & Martini LLP - October
2, 1996 is incorporated herein by reference to Exhibit 99.1 of this Form 10-K.
Parent company financial statements are not included because restricted net
assets of subsidiaries after intercompany eliminations are less than 25% of
consolidated net assets.
Item 14. (a) (3) - See Index to Exhibits beginning on page 33 hereof including
the Report of Kuntz Lesher Siegrist & Martini LLP relating to the Herrmidifier
Company, Inc. included as Exhibit 99.1 of this Form 10-K.
Item 14. (b) - There were no reports on Form 8-K filed by the Registrant
during the last quarter of the period covered by this report.
Item 14. (c) - The Exhibits required by Item 601 of Regulation S-K are filed
herewith and incorporated by reference herein. See Index to Exhibits on page
33 hereof.
Item 14. (d) - The following consolidated financial statement schedule of
Trion, Inc. and subsidiaries is included on page 32 hereof:
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and therefore have been
omitted.
<p>30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Steven L. Schneider 3/26/97
Steven L. Schneider, Date
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Steven L. Schneider 3/26/97 /s/ James E. Heins 3/26/97
Steven L. Schneider, Date James E. Heins, Date
President, Chief Executive Director
Officer and Director
(Principal Executive Officer)
/s/ Calvin J. Monsma 3/26/97 /s/ F. Trent Hill 3/26/97
Calvin J. Monsma, Date F. Trent Hill, Date
Vice President and Director
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Hugh E. Carr 3/26/97 /s/ Grant R. Meyers 3/26/97
Hugh E. Carr, Date Grant R. Meyers, Date
Director Director
/s/ Joseph W. Deering 3/26/97 /s/ Samuel J. Wornom III 3/26/97
Joseph W. Deering, Date Samuel J. Wornom III, Date
Director Director
/s/ Seddon Goode, Jr. 3/26/97
Seddon Goode, Jr., Date
Director
<p>31
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
TRION, INC. AND SUBSIDIARIES
Col. A Col. B Col. C Col. D Col. E Col. F
ADDITIONS
Balance at Charged to Charged to Balance at
Beginning Costs and Other end of
of Period Expenses Accts. - Deductions Period
Describe Describe
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful (1)
accounts $ 346,000 $ 302,000 $ - $ 200,000 $ 448,000
Valuation allowance for (2)
deferred tax asset 1,141,000 - - 396,000 745,000
---------- ---------- ----------- ----------- ----------
$1,487,000 $ 302,000 $ - $ 596,000 $1,193,000
========== ========== =========== =========== ==========
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful (3) (1)
accounts $ 186,000 $ 148,000 $ 119,000 $ 107,000 $ 346,000
Valuation allowance for (4)
deferred tax asset 1,125,000 - 16,000 - 1,141,000
---------- ---------- ----------- ----------- ----------
$1,311,000 $ 148,000 $ 135,000 $ 107,000 $1,487,000
========== ========== =========== =========== ==========
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful (1)
accounts $ 183,000 $ 98,000 $ - $ 95,000 $ 186,000
Valuation allowance for (2)
deferred tax asset 1,350,000 - - 225,000 1,125,000
---------- ---------- ----------- ----------- ----------
$1,533,000 $ 98,000 $ - $ 320,000 $1,311,000
========== ========== =========== =========== ==========
<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) Utilization of net operating loss carryforwards and valuation adjustment.
(3) Balance of Envirco Corporation as of August 1, 1995 acquisition.
(4) Book provision to tax return adjustment.
</FN>
</TABLE>
<p>32
INDEX TO EXHIBITS
The following Exhibits to this report are filed herewith or, if marked with an
asterisk (*), are incorporated herein by reference:
Exhibit
Number Description of Exhibits
3.1 Articles of Incorporation (incorporated herein by reference to
Exhibit 3.1 to Form 10-K for the year ended December 31, 1985,
file number 0-3108). (*)
3.2 Bylaws (incorporated herein by reference to Exhibit 3.2 to Form 10-K
for the year ended December 31, 1994, file number 0-3108). (*)
4.1 $18,000,000 Credit Agreement dated September 8, 1995 (incorporated
herein by reference to Exhibit 4.1 to Form 10-K for the year ended
December 31, 1995, file number 0-3108). (*)
10.1 1997 Management Incentive Plan as adopted in December 1996. (**)
10.2 1985 Trion, Inc. Incentive Stock Option Plan as adopted and approved
by shareholders on April 16, 1985 (incorporated herein by reference
to Exhibit A to Proxy Statement dated April 16, 1985, file number
0-3108). (*) (**)
10.3 Form of option for the 1985 Trion, Inc. Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 10.4 to Form 10-K for
the year ended December 31, 1986, file number 0-3108). (*) (**)
10.4 Trion Savings Plus Plan, effective January 1, 1987 as approved in
November 1986 (incorporated herein by reference to Exhibit 10.5 to
Form 10-K for the year ended December 31, 1986, file number 0-3108).
(*) (**)
10.5 Loan Agreement dated August 1, 1984 between The Lee County
Industrial Facilities and Pollution Control Financing Authority and
Trion, Inc. (incorporated herein by reference to Exhibit 10.1 to
Form 10-Q for the quarter ended September 30, 1984, file number
0-3108). (*)
10.6 Note dated September 11, 1984 from Trion, Inc. to The Lee County
Industrial Facilities and Pollution Control Financing Authority
(incorporated herein by reference to Exhibit 10.2 to Form 10-Q for
the quarter ended September 30, 1984, file number 0-3108). (*)
10.7 Guaranty and Purchase Agreement dated as of August 1, 1984 from
Trion, Inc. to Wachovia Bank and Trust Company, N.A. (incorporated
herein by reference to Exhibit 10.3 to Form 10-Q for the quarter
ended September 30, 1984, file number 0-3108). (*)
10.8 Stock Option Agreement between Samuel J. Wornom III and Trion, Inc.
dated September 21, 1993 (incorporated herein by reference to
Exhibit 10.2 to form 10-Q for the quarter ended September 30, 1993,
file number 0-3108). (*) (**)
<p>33
INDEX TO EXHIBITS
(continued)
10.9 Stock Option Agreement between Steven L. Schneider and Trion, Inc.
dated March 31, 1993 (incorporated herein by reference to Exhibit
10.2 to form 10-Q for the quarter ended June 30, 1993, file number
0-3108). (*) (**)
10.10 Service Agreement dated October 30, 1992 between Trion, Inc. and
Hugh E. Carr, a director of Trion, Inc. (incorporated herein by
reference to Exhibit 10.8 to Form 10-K for the year ended December
31, 1992, file number 0-3108). (*) (**)
10.11 Trion, Inc. 1995 Stock Incentive Plan (incorporated herein by
reference to the Registrant's Registration Statement No.033-59095
on Form S-8 dated May 4, 1995). (*) (**)
10.12 Form of option for the Trion, Inc. 1995 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.14 to Form 10-K for
the year ended December 31, 1995, file number 0-3108). (*) (**)
10.13 First Amendment to Stock Option Agreement between Steven L.
Schneider and Trion, Inc. dated July 28, 1995 (incorporated herein
by reference to Exhibit 10.15 to Form 10-K for the year ended
December 31, 1995, file number 0-3108). (*) (**)
10.14 Amended and Restated Employment Agreement between Steven L.
Schneider and Trion, Inc. dated July 28, 1995 (incorporated herein
by reference to Exhibit 10.16 to Form 10-K for the year ended
December 31, 1995, file number 0-3108). (*). (**)
10.15 Trion, Inc. 1995 Non-Employee Director Stock Plan (incorporated
herein by reference to the Registrant's Registration Statement
No.033-58561 on Form S-8 dated April 12, 1995). (*) (**)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors; Ernst & Young LLP.
23.2 Consent of Independent Auditors; Kuntz Lesher Siegrist & Martini LLP
27 Financial Data Schedule.
99.1 Independent Accountants' Report; Kuntz Lesher Siegrist & Martini LLP
(**) Management Contract or Compensatory Plan.
<p>34
EXHIBIT 10.1
Trion, Inc.
1997 Management Incentive Plan
The Management Incentive Plan (MIP) is for Company officers and other key
staff residing in the United States. The Compensation Committee of the Board
of Directors (Committee) will administer the MIP with assistance from the
Chief Executive Officer.
The Committee shall determine annually those persons who will participate in
the MIP. It is anticipated that only those executives who have a significant
and recurring impact on the Company's annual operating results will be
eligible. Based on the present organizational structure, only officers and
other members of the management team will be eligible.
The MIP will be awarded if a minimum working capital hurdle rate is achieved
for the year. This hurdle rate is defined as the twelve-month average of
inventory plus accounts receivable less accounts payable divided by the sales
volume on a consolidated basis.
The targeted incentive, as a percentage of base salary, will vary by position
and responsibility and may be changed by the Committee from one year to the
next or for organizational changes during the year. Following are the current
relationships:
Target
Incentive Incentive Basis
--------- ----------------------------------------
Percent Company Business Unit Individual
of Base Performance Performance Performance
President and CEO 50% 80% - 20%
Vice President and CFO 35% 80% - 20%
Vice Presidents; Sales/Marketing 50% - 80% 20%
Vice President Engineering 35% - 80% 20%
Vice President Finance 35% - 80% 20%
Other Key Management Employees 15%-35% - 80% 20%
Consolidated Company performance will be measured and weighted as follows:
Net sales 40%
Income before Taxes 60%
Business unit performance is measured on a similar basis using net sales and
operating income with the specific weighting determined by the individual
position.
Each target will be established annually at the beginning of the year.
<p>1
Individual performance goals will be established by the officer responsible
and the participant after discussions and analyses of current requirements.
Individual goals will be set to enhance achievement of Company goals and will
be weighted accordingly.
The incentive related to each element of the Company's performance and
Business Unit performance will be earned as follows:
Percentage of
Attainment Incentive Earned
Threshold 0%
Target 100%
Maximum 150%
The amount of incentive earned will be prorated for actual performance between
the threshold and maximum levels.
Performance targets will be established annually at the discretion of the
Compensation Committee with the assistance of the Chief Executive Officer.
Acquisitions made in 1997 are not included.
Extraordinary or unusual events will be excluded from measurement of the
Company and individual performances. The Committee will determine the events
considered extraordinary or unusual and will use generally accepted accounting
principles as a guideline in the determination.
It is anticipated that the incentive will be paid to participants annually
after completion of the audit by independent accountants. If employment is
terminated by reason of death, disability or retirement during the plan year,
the participant will receive a pro rata share of the incentive earned for the
year. For determining the pro rata share, months employed during the year
will be rounded up to the next highest full month. If a participant's
employment is terminated during the plan year for any other reason, pro rata
payment of the incentive will be at the sole discretion of the Committee.
Exhibit 21.1 Parents and Subsidiaries
The Company and its active subsidiaries as of December 31, 1996 are as
follows:
State/Country Percentage of
Name of Company of Incorporation Securities Owned
Trion, Inc. Pennsylvania Parent
Trion, Limited United Kingdom 100%
Envirco Corporation New Mexico 100%
Herrmidifier Company, Inc. Pennsylvania 100%
Exhibit 23.1 - Consent of Ernst & Young LLP
We consent to the use of our report dated January 31, 1997 included in this
Annual Report (Form 10-K) of Trion Inc..
Our audits also included the financial statement schedule of Trion Inc. listed
in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits. We did not audit the 1995 and 1994
financial statements of Herrmidifier Company, Inc., which was combined with
the Company in 1996 in a transaction accounted for as a pooling of interest.
Total assets of Herrmidifier Company, Inc. represent 9% of consolidated assets
for 1995 and total revenue constituted 12% and 13% of consolidated revenues
for 1995 and 1994, respectively. We have been furnished with the reports of
other auditors with respect to the 1995 and 1994 financial statements and
schedules of Herrmidifier Company, Inc.. In our opinion, based on our audits
and the reports of the other auditors, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-4164) pertaining to the Trion Inc. 1982 and 1985
Incentive Stock Options Plans, the Registration Statement (Form S-8 No. 33-
69706) pertaining to the Stock Option Agreements between Trion Inc. and Steven
L. Schneider dated March 31, 1993; Edwin V. Clarke, Jr. dated September 17,
1993; and Samuel J. Wornom, III dated September 21, 1993, the Registration
Statement (Form S-8 No. 33-58561) pertaining to the Trion Inc. 1995 Non-
Employee Director Stock Plan, and in the Registration Statement (Form S-8 No.
33-59095) pertaining to the Trion Inc. 1995 Stock Incentive Plan of our report
dated January 31, 1997, with respect to the consolidated financial statements
included in this Annual Report (Form 10-K) of Trion, Inc., and our report
included in the preceding paragraph with respect to the financial statement
schedule included in this Annual Report (Form 10-K) of Trion Inc..
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
March 21, 1997
Exhibit 23.2 - Consent of Kuntz Lesher Siegrist & Martini LLP
We consent to the use of our report dated October 2, 1996, with respect
to the financial statements of Herrmidifier Company, Inc. (not presented
separately herein), included in this Annual Report (Form 10-K) of Trion,
Inc.
Our audits also included the financial statement schedule of
Herrmidifier Company, Inc. for the years ended December 31, 1995 and
1994 titled Schedule II - Valuation and Qualifying Accounts and Reserves
(not presented separately herein). This schedule is the responsibility
of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-4164) pertaining to the Trion, Inc. 1982 and
1985 Incentive Stock Options Plans, the Registration Statement (Form S-8
No. 33-69706) pertaining to the Stock Option Agreements between Trion,
Inc. and Steven L. Schneider dated March 31, 1993; Edwin V. Clarke, Jr.
dated September 17, 1993; and Samuel J. Wornom III dated September 21,
1993, the Registration Statement (Form S-8 No. 33-58561) pertaining to
the Trion, Inc. 1995 Non-Employee Director Stock Plan, and in the
Registration Statement (Form S-8 No. 33-59095) pertaining to the Trion,
Inc. 1995 Stock Incentive Plan of our report dated October 2, 1996, with
respect to our report included in this Annual Report (Form 10-K) of
Trion, Inc.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,073,000
<SECURITIES> 0
<RECEIVABLES> 12,098,000
<ALLOWANCES> 448,000
<INVENTORY> 9,329,000
<CURRENT-ASSETS> 24,028,000
<PP&E> 22,473,000
<DEPRECIATION> 13,250,000
<TOTAL-ASSETS> 40,796,000
<CURRENT-LIABILITIES> 9,846,000
<BONDS> 3,200,000
3,499,000
0
<COMMON> 0
<OTHER-SE> 17,543,000
<TOTAL-LIABILITY-AND-EQUITY> 40,796,000
<SALES> 62,401,000
<TOTAL-REVENUES> 62,401,000
<CGS> 41,487,000
<TOTAL-COSTS> 60,037,000
<OTHER-EXPENSES> (106,000)
<LOSS-PROVISION> 302,000
<INTEREST-EXPENSE> 856,000
<INCOME-PRETAX> 1,614,000
<INCOME-TAX> 502,000
<INCOME-CONTINUING> 1,112,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,112,000
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
EXHIBIT 99.1
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Herrmidifier Company, Inc.
Lancaster, Pennsylvania
We have audited the balance sheets of Herrmidifier Company, Inc. as
of December 31, 1995 and 1994, and the related statements of income and
retained earnings and cash flows for the years then ended (not presented
separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly in all material respects, the financial position of Herrmidifier
Company, Inc. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
October 2, 1996
