UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from
to .
Commission file number 0-23454
TOTAL CONTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2394872
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
422 Business Center, A130 North Dr., Oaks, PA 19456
(Address of principal executive offices ) (Zip Code)
(610) 666-7777
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 4,641,600 shares of Common Stock, par value $0.01 per
share were outstanding at May 10, 1997.
Total Containment, Inc.
Index
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
March 31, 1997 and December 31, 1996 4
Condensed Consolidated Statement of Income -
Three months ended March 31, 1997 and 1996 5
Condensed Consolidated Statement of Cash
Flows - Three months ended March 31, 1997
and 1996 6
Notes to Condensed Consolidated Financial
Statements - March 31, 1997 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31,
Dec. 31,
1997
1996
(In thousands) (In
thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 81
$ 616
Accounts receivable, net 8,166
7,453
Inventories - Note 2 8,993
7,248
Other assets 3,728
3,677
Total current assets $20,968
$18,994
Molds and tooling costs, net 1,277
1,362
Property and equipment, net 2,747
2,511
Patents, patent rights and licenses,
net 5,099
5,155
Goodwill, net 5,503
5,545
Other assets 1,336
1,398
Total Assets $36,930
$34,965
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit borrowings $ 4,049
$ 3,677
Current portion of long-term debt 980
770
Accounts payable and accrued expenses 7,488
5,125
Warranty reserve 1,200
1,161
Total current liabilities $13,717
$10,733
Long-term debt 2,094
1,894
Warranty reserve 2,675
3,322
Total liabilities 18,486
15,949
Shareholders' Equity:
Common stock - $0.01 par value;
authorized 20,000,000 shares;
4,641,600 shares issued and outstanding 46
46
Capital in excess of par value 13,729
13,729
Retained earnings 4,775
5,217
Equity adjustment from foreign
currency translation (106)
24
Total shareholders' equity 18,444
19,016
Total Liabilities & Shareholders' Equity $36,930
$34,965
See notes to condensed consolidated financial statements.
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three months
ended
March 31,
1997
1996
(In thousands, except per
share data)
Net sales $ 8,259
$ 7,045
Cost of sales 5,625
4,464
Gross profit 2,634
2,581
Selling, general and administrative 3,088
2,357
Amortization of patents, licenses and
goodwill 136
126
Income from operations (590)
98
Interest expense 147
52
Income before income taxes (737)
46
Income tax expense (295)
33
Net income $ (442)
$ 13
Net income per share $ (0.10)
$ 0.00
Weighted average shares and share
equivalents used in computation of net
income per share 4,642
4,642
See notes to condensed consolidated financial statements.
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three months
ended
March 31,
1997
1996
(In
thousands)
Cash flows from operating activities:
Net cash used for operating activities $ (877)
$ (658)
Cash flows from investing activities:
Purchase of property and equipment (440)
(1,597)
Other -
-
Net cash used for investing activities (440)
(1,597)
Cash flows from financing activities:
Net borrowings on long-term debt 410
486
Net borrowings under line of credit 372
1,816
Net cash provided by financing
activities 782
2,302
Net increase (decrease) in cash $ (535)
$ 47
See notes to condensed consolidated financial statements.
TOTAL CONTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The unaudited Condensed Consolidated Financial Statements of
Total Containment, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and disclosures required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The results of
operations of the Company for the three month period ended,
March 31, 1997, are not necessarily indicative of the results
that may be expected for any other interim period or for a full
year. For further information, refer to the Consolidated
Financial Statements and notes thereto included in the Registrant
Company's Annual Report and Form 10-K for the year ended
December 31, 1996.
Note 2 - Inventories
The components of inventory consist of the following:
Mar. 31, Dec. 31,
1997 1996
(In thousands)
Raw materials $ 652 $ 503
Finished goods 8,341 6,745
$ 8,993 $ 7,248
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a Delaware corporation organized in 1986 and
is a leading manufacturer and distributor of underground systems
and products for the conveyance and containment of petroleum and
alcohol based motor vehicle fuels from underground storage tanks
to aboveground fuel dispensers. The principal end users of the
Company's products are service stations, convenience stores and
other retail sellers of gasoline, gasohol and other motor vehicle
fuels, and government bodies, utilities and other fleet vehicle
operators.
Net Sales
The Company's net sales for the quarter ended March 31,
1997, were $8.3 million compared to $7.0 million for the
corresponding quarter in 1996. The increase was primarily
attributable to increased sales from the acquisition of American
Containment, Inc., as well as additional sales of underground
flexible piping systems.
Gross Profit
The primary component of the Company's cost of sales is the
product manufacturing costs paid to various third party
manufacturers. Other components are the variable and fixed costs
of operating the Company's warehouses, depreciation of molds,
tools and equipment, and warranty expense. The Company's gross
profit for the quarters ended March 31, 1997 and 1996 was similar
at $2.6 million.
The Company's gross profit percentage decreased to 31.9% for
the quarter ended March 31, 1997, compared to 36.6% for the
corresponding quarter in 1996. The decrease was attributable to
increased pressure on pricing, an increase in freight costs and
manufacturing overhead, along with an increase in the cost of
certain purchased materials.
Operating Expense
Selling, general and administrative expenses consist
primarily of salaries and related employee benefits, payroll
taxes, commissions, royalties, legal expenses and other general,
administrative and overhead costs. Selling, general and
administrative expenses for the quarter ended March 31, 1997 were
$3.1 million compared to $2.4 million for the first quarter of
1996. The increase was primarily attributable to increased legal
expenses incurred for litigation as well as additional
administrative costs associated with the acquisition of American
Containment, Inc.
Interest Expense
Interest expense for the quarter ended March 31, 1997 was
$147,000 compared to $52,000 for the corresponding quarter in
1996. The increase was due to the Company's borrowings on its
term loans for expansion purposes and an increase in the
Company's line of credit activity.
Amortization of Intangibles
Amortization of intangibles consists of the amortization of
goodwill over a period of 40 years and the amortization of
various patents and licenses that are amortized on a straight-
line basis over the estimated lives of the patents (which range
from 13 to 17 years) at the acquisition date or subsequent
issuance date.
Income Taxes
Income tax expense (benefit) for the quarter ended March 31,
1997 was ($295,000) compared to $33,000 for the corresponding
quarter in 1996. The decrease was due to the decrease in the
Company's income before income taxes.
Net Income
The Company's net income (loss) for the quarter ended
March 31, 1997 was ($442,000) compared to $13,000 for the
corresponding quarter in 1996. The decrease for the period is
the result of a decrease in gross margin due to, among other
things, increased pressure on pricing, as well as higher costs
associated with the acquisition of American Containment, Inc. and
certain litigation expense.
Seasonality and Economic Conditions
The Company's sales are affected by the timing of planned
construction of new service stations and the retrofitting of
existing service stations by end users, both of which are
influenced by inclement weather and general economic conditions.
Accordingly, the Company's net sales and operating results for
the quarter ended March 31 are generally adversely affected.
Liquidity and Capital Resources
The Company had working capital of $7.3 million and
$8.3 million at March 31, 1997 and December 31, 1996,
respectively. The decrease in working capital was primarily
attributable to, among other things, warranty charges related to
the Enviroflex pipe, as well as purchases for expansion
purposes.
The Company satisfies its working capital needs primarily
through funds generated by operations and by borrowings under a
$6.0 million unsecured line of credit facility with a commercial
bank.
The Company believes that its presently available funds,
existing credit facility and the cash flow expected to be
generated from operations will be adequate to satisfy its
anticipated working capital requirements for the foreseeable
future.
Part II. Other Information
Item 1. Legal Proceedings
A description of the Company's pending legal proceedings
have been previously reported in the Company's Annual Report and
Form 10-K for the fiscal year ended December 31, 1996.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company,
incorporated herein by reference to exhibit 3(a)
to Registration Statement No. 33-70456 on Form S-1
of the Company
3.2 By laws of the Company, incorporated herein by
reference to exhibit 3(b) to Registration
Statement No. 33-70456 on Form S-1 of the Company
10 Agreement and Plan of Merger, dated as of
March 26, 1997, between Total Containment, Inc.
and TCI New Corp., incorporated herein by
reference to Exhibit A to the Company's definitive
proxy statement dated March 31, 1997 prepared in
connection with its 1997 annual meeting of
stockholders.
11 Statement re: Computation of Earnings Per Share
(unaudited)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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.
TOTAL CONTAINMENT, INC.
Date: May 14, 1997 By:/s/ Pierre Desjardins
Pierre Desjardins
President and Chief Executive
Officer
Date: May 14, 1997 By:/s/ Jeffrey A. Boehmer
Jeffrey A. Boehmer
Principal Financial Officer
Exhibit Index
Exhibit No. Description
3.1 Certificate of Incorporation of the Company,
incorporated herein by reference to exhibit 3(a)
to Registration Statement No. 33-70456 on Form S-1
of the Company
3.2 By laws of the Company, incorporated herein by
reference to exhibit 3(b) to Registration
Statement No. 33-70456 on Form S-1 of the Company
10 Agreement and Plan of Merger, dated as of
March 26, 1997, between Total Containment, Inc.
and TCI New Corp., incorporated herein by
reference to Exhibit A to the Company's definitive
proxy statement dated March 31, 1997 prepared in
connection with its 1997 annual meeting of
stockholders.
11 Statement re: Computation of Earnings Per Share
(unaudited)
27 Financial Data Schedule