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 March 31, 1998
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 of 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 and 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 May 8, 1998.
7,148,331 shares of Common Stock, par value $.50
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<TABLE>
Part I
Item 1. Financial Statements
TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months
Ended March 31
1998 1997
<S> <C> <C>
Net sales . . . . . . . . . . . . . $ 15,981 $ 13,572
Cost and expenses:
Cost of products sold . . . . . 10,733 9,175
Selling, administration
and engineering expenses . . . 4,583 4,110
Interest . . . . . . . . . . . . 219 224
Amortization . . . . . . . . . . 86 86
Other expense (income), net. . . (57) (33)
15,564 13,562
Income before income taxes . . . . 417 10
Income tax expense . . . . . . . . 146 4
Net income for the period . . . . . $ 271 $ 6
Earnings per share of common
stock - basic . . . . . . . . . $ 0.04 $ 0.00
Earnings per share of common
stock - assuming dilution . . . $ 0.04 $ 0.00
Cash dividends declared
per common share. . . . . . . . $ 0.02 $ 0.02
See notes to consolidated condensed financial statements
</TABLE>
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<TABLE>
TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
ASSETS
March 31 December 31
_ 1998* _ _ 1997
<S> <C> <C>
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . $ 920 $ 2,979
Trade accounts receivable, less allowance
for doubtful accounts (1998 - $295,000 and
1997 - $454,000) . . . . . . . . . . . . . . 10,550 11,815
Inventories . . . . . . . . . . . . . . . . . 9,491 9,228
Prepaid expenses and other current assets . . 476 536
Deferred current income taxes . . . . . . . . 161 163
Total current assets . . . . . . . . . . . 21,598 24,721
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . 78 78
Building . . . . . . . . . . . . . . . . . . . 5,415 5,428
Equipment. . . . . . . . . . . . . . . . . . . 20,297 19,810
Allowance for depreciation . . . . . . . . . . (15,321) (14,861)
10,469 10,455
OTHER ASSETS
Goodwill less accumulated amortization:
($917,000 in 1998 and $831,000 in 1997) . . 5,963 6,049
Deferred income taxes . . . . . . . . . . . . 330 323
Other non-current assets . . . . . . . . . . . 676 644
6,969 7,016
$39,036 $42,192
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accruals . . . . . . . . $ 6,520 $ 8,567
Current portion of long-term debt . . . . . . 2,500 2,508
Total current liabilities . . . . . . . . . 9,020 11,075
LONG-TERM DEBT . . . . . . . . . . . . . . . . . 7,000 8,250
16,020 19,325
SHAREHOLDERS' EQUITY
Common stock, par value $0.50 a share:
Authorized 20,000,000 shares
Issued and outstanding:
1998 - 7,128,797 and
1997 - 7,128,797 . . . . . . . . . . . . 3,564 3,564
Additional paid-in capital . . . . . . . . . . 1,448 1,448
Retained earnings . . . . . . . . . . . . . . 17,809 17,681
Accumulated other comprehensive income . . . . 195 174
23,016 22,867
$39,036 $42,192
See notes to consolidated condensed financial statements
* Unaudited
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TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Three Months
Ended March 31
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . $ 271 $ 6
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . 473 420
Amortization . . . . . . . . . . . . . . . . . 86 86
Deferred income taxes . . . . . . . . . . . . . (5) -
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . 1,265 1,246
Inventory and other. . . . . . . . . . . . . (235) (1,055)
Accounts payable and accrued expenses . . . (1,047) 395
Foreign currency transaction loss (gain). . . . (6) 30
Net cash provided by
operating activities . . . . . . . . . . . 802 1,128
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net . . . (487) (1,233)
Net cash used by investing activities . . . (487) (1,233)
FINANCING ACTIVITIES
Net proceeds from (payments on)
master credit facility . . . . . . . . . . . . (1,000) 1,200
Principal payments on long-term debt . . . . . . . . (1,250) (1,250)
Cash dividends paid. . . . . . . . . . . . . . . . . (143) (140)
Other. . . . . . . . . . . . . . . . . . . . . . . . (8) -
Net cash provided (used) by
financing activities . . . . . . . . . . . (2,401) (190)
Effect of foreign exchange rate changes on cash . . . . 27 279
Increase (decrease) in cash . . . . . . . . . . . . . . (2,059) (16)
Cash and cash equivalents at beginning of period . . . 2,979 2,073
Cash and cash equivalents at end of period . . . . . . $ 920 $ 2,057
See notes to consolidated condensed financial statements
</TABLE>
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TRION, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1998
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 have been reflected in the
reported financial information. Operating results for the three month period
ended March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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, 1997.
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 - Earnings per Share of Common Stock
The following tables set forth the computation of basic and diluted earnings
per share:
March 31
1998 1997
Numerator for basic and
diluted earnings per share:
Net income . . . . . . . . . . $ 271,000 $ 6,000
Denominator:
Denominator for basic
earnings per share - weighted
average shares: . . . . . . . 7,128,797 6,997,519
Effect of dilutive securities:
Employee stock options . . 62,189 110,399
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversions . . . . . 7,190,986 7,107,918
Basic earnings per share . . . . . $ 0.04 $ 0.00
Diluted earnings per share. . . . . $ 0.04 $ 0.00
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 products 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):
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March 31 December 31
__ 1998 ___ 1997
Raw materials . . . . . . . . . . . . . $ 5,316 $ 5,169
Work-in-process and finished goods. . . 4,175 4,059
$ 9,491 $ 9,228
Cost of domestic 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 - Segment Information
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131), which is effective for years beginning after
December 15, 1997. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is not required to be applied
to interim periods in the initial year of adoption and therefore the Company
will make the new disclosure requirements in its 1998 annual report. The
adoption of SFAS 131 did not affect results of operations or financial
position and will not have a significant effect on the Company's reported
segment disclosures in its 1998 annual report.
Supplemental information regarding the segments historically reported by the
Company are included in the Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Note E - Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement had no impact on
the Company's net income or shareholders' equity. SFAS 130 requires
unrealized gains and losses on the Company's available-for-sale securities and
foreign currency translation adjustments, which prior adoption were reported
separately in shareholders' equity to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.
Total comprehensive income (loss) amounted to $292,000 and ($137,000) during
the first quarter of 1998 and 1997, respectively. The differences between
reported net income and these amounts was due to foreign currency translation
adjustments.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
<TABLE>
SEGMENT DATA
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
March 31 _
1998 1997
<S> <C> <C>
Net sales to unaffiliated customers:
North American Operations:
Engineered Products . . . . . . $11,420 $10,324
Consumer Products . . . . . . . 3,111 2,029
European Operations . . . . . . . 1,450 1,219
15,981 13,572
Income (loss) from operations:
North American Operations:
Engineered Products . . . . . . 1,144 879
Consumer Products . . . . . . . 117 -
European Operations . . . . . . . (63) (148)
1,198 731
General Corporate:
Other income . . . . . . . . . . 57 33
Interest (U.S.) . . . . . . . . . (219) (224)
Other expense . . . . . . . . . . (619) (530)
(781) (721)
Income before income taxes . . . . . $ 417 $ 10
</TABLE>
Consolidated net sales for the quarter ended March 31, 1998 were $15,981,000
compared to $13,572,000 from the same period a year ago, an 18 percent
increase from 1997. This increase was attributable to higher sales volumes in
all of the Company's reported segments. In North America, both the engineered
products and consumer products areas recorded increases over the previous
year. A large portion of the increase in the engineered products sector was
attributable to increased shipments of the Company's residential products
although all major product lines recorded some improvement. The Company's
Envirco subsidiary also recorded a slight increase in sales during the first
quarter of 1998 as compared to the first quarter in 1997 despite the market
pressures caused by the Asian economic conditions. The increase in the
consumer products segment is directly related to increases in shipments of the
new line of appliance products, introduced early in 1997 with corresponding
shipments not occurring until after the first quarter. The Company's European
operation posted a 19 percent gain over the previous year due to a general
improvement in order levels of engineered products.
The Company's backlog of unshipped customer orders was $7,373,000 at March 31,
1998, down from the $9,217,000 backlog reported a year ago primarily due to
delayed shipments of the Company's new line of appliance products in the first
quarter of 1997.
On a consolidated basis, the cost of products sold as a percentage of sales
for the quarter ended March 31, 1998 was 67.2 percent as compared to 67.6
percent a year ago. This improvement was primarily due to the higher sales
volumes, improved absorption of fixed overheads, and a favorable product mix
in engineered products offset by higher net sales in the Consumer Products
segment which traditionally has a higher cost of products sold percentage than
the Company's other segments.
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Consolidated gross profit for the first quarter ended March 31, 1998 was
$5,248,000 as compared to $4,397,000 in the 1997 period, the difference being
primarily attributable to the higher sales volume.
Consolidated selling, administration and engineering expenses as a percentage
of net sales decreased to 28.7 percent during the first quarter ended March
31, 1998, as compared to 30.3 percent in 1997. This decrease in the
percentage is primarily attributable to the higher sales volume. In terms of
dollars spent, selling, administration and engineering expenses increased
approximately 12 percent in the comparative quarter due to higher costs
associated with selling commissions, promotions and other costs directly
related to higher sales.
Additionally, the Company's operating efficiencies were impacted by the
consolidation of the Company's Lancaster, Pennsylvania manufacturing plant
into its Sanford, North Carolina facility.
Interest expense during the first quarter of 1998 was $219,000 as compared to
$224,000 the year before due to lower borrowings offset by a slightly higher
rate of interest.
Income taxes for the first quarter of 1998 were $146,000 and reflect an
effective tax rate of 35 percent.
Consolidated net income for the first quarter ended March 31, 1998 was
$271,000 as compared to $6,000 reported a year ago. The difference is
primarily attributable to the higher net sales, and lower cost of products
sold as a percentage of sales, and lower selling, administration and
engineering expenses as a percentage of sales.
The resulting earnings per share (basic and diluted) reported for the first
quarter of 1998 was $0.04, as compared to $0.00 for the first quarter of 1997.
Liquidity and Sources of Capital
The financial condition of the Company is strong with the current ratio
increasing to 2.4:1 as compared to 2.2:1 at 1997 year-end. Working capital
decreased to $12,578,000 from the $13,646,000 at the end of 1997. This change
is primarily the result of the Company's repayment of borrowings. Long-term
debt has declined to 30.4 percent of equity and total shareholders' equity is
$23,016,000. The Company expects to replace its existing credit agreement
within the next several months.
Management believes working capital and current credit arrangements will be
adequate to meet its operating and capital requirements during the foreseeable
future.
Implications of the Year 2000 Issue
The Company uses numerous software applications and computer programs
throughout the various functions within its organization which may require
modification in order to address the upcoming millennium change in the year
2000. The Company's assessment of the year 2000 issue, the impact on
operations and the estimated cost will be completed in early 1999. The cost
of making the necessary corrections will be expensed as incurred. Management
does not expect these costs to have a material impact on the Company's ongoing
results of operations.
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The foregoing discussion contains forward-looking statements about the
Company's financial condition and results of operations, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's judgment only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements
to reflect events and circumstances that arise after the date hereof. Factors
that may cause the Company's actual results to differ materially from those
anticipated in forward-looking statements include the following: generally
adverse economic and industry conditions, including a decline in demand for
IAQ products or significant changes in preferences in or use of such products;
changes in the competitive environment, including increased competition in the
Company's primary markets and consolidation in the air quality industry;
economic or political changes in the countries in which the Company operates
or adverse trade regulations; and non-availability of resources for the
Company, or its suppliers and customers, to complete their respective Year
2000 compliance effectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the Registrant was held on
April 21, 1998.
(b) Directors elected at the meeting were Hugh E. Carr,
Joseph W. Deering and Seddon Goode, Jr. Other continuing
directors are James E. Heins, F. Trent Hill, Jr., Grant R. Meyers,
Steven L. Schneider, and Samuel J. Wornom III.
(c) The only substantive matter voted upon at the meeting was the
election of three directors for a term of three years. All
nominees for directors as listed in the proxy statement were
elected with the following vote:
Nominees For Withheld
Hugh E. Carr 5,665,747 14,227
Joseph W. Deering 5,595,574 84,400
Seddon Goode, Jr. 5,595,574 84,400
Item 6(a). Exhibits
The following exhibits are filed herewith:
27 Financial Data Schedule
Item 6(b). Report on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
period covered by this report.
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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: May 14, 1998 /s/ Steven L. Schneider
Steven L. Schneider
President and
Chief Executive Officer
Date: May 14, 1998 /s/ Calvin J. Monsma
Calvin J. Monsma
Vice President and
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 920,000
<SECURITIES> 0
<RECEIVABLES> 10,845,000
<ALLOWANCES> 295,000
<INVENTORY> 9,491,000
<CURRENT-ASSETS> 21,598,000
<PP&E> 25,790,000
<DEPRECIATION> 15,321,000
<TOTAL-ASSETS> 39,036,000
<CURRENT-LIABILITIES> 9,020,000
<BONDS> 3,200,000
0
0
<COMMON> 3,564,000
<OTHER-SE> 19,452,000
<TOTAL-LIABILITY-AND-EQUITY> 39,036,000
<SALES> 15,981,000
<TOTAL-REVENUES> 15,981,000
<CGS> 10,733,000
<TOTAL-COSTS> 15,564,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18,000
<INTEREST-EXPENSE> 219,000
<INCOME-PRETAX> 417,000
<INCOME-TAX> 146,000
<INCOME-CONTINUING> 271,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 271,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
