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 June 30, 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)
Pennsylvania 23-2394872
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
422 Business Center, A130 North Dr., Oaks, Pennsylvania 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 July 30, 1997.
Total Containment, Inc.
Index
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statement of Income -
Three months and six months ended June 30, 1997
and 1996 4
Condensed Consolidated Statement of Cash Flows
- Six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements - June 30, 1997 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 12
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1997 1996
(In thousands) (In thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 363 $ 616
Accounts receivable, net 8,389 7,453
Inventories - Note 2 9,052 7,248
Other assets 3,837 3,677
Total current assets 21,641 18,994
Molds and tooling costs, net 1,223 1,362
Property and equipment, net 3,186 2,511
Patents, patent rights and
licenses, net 5,034 5,155
Goodwill, net 5,462 5,545
Other assets 632 1,398
Total assets $37,178 $34,965
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit borrowings $ 4,432 $ 3,677
Current portion of long-term
debt 1,176 770
Accounts payable and accrued
expenses 7,316 5,125
Warranty reserve 1,525 1,161
Total current liabilities 14,449 10,733
Long-term debt 2,224 1,894
Warranty reserve 1,489 3,322
Total liabilities 18,112 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 3,729 13,729
Retained earnings 5,331 5,217
Equity adjustment from foreign
currency translation (40) 24
Total shareholders' equity 19,066 19,016
Total liabilities & shareholders'
equity $37,178 $34,965
See notes to condensed consolidated financial statements.
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
(In thousands, except share data)
Net sales 12,080 9,865 20,339 16,910
Cost of sales 7,520 6,214 13,142 10,677
Gross profit 4,560 3,651 7,197 6,233
Selling, general and
administrative 3,335 2,444 6,427 4,802
Amortization of patents,
licenses and goodwill 136 126 272 252
Income from operations 1,089 1,081 498 1,179
Interest expense 161 73 308 125
Income before income taxes 928 1,008 190 1,054
Income tax expense 371 387 76 419
Net income 557 621 114 635
Net income per share $ 0.12 $ 0.13 $ 0.02 $ 0.14
Weighted average shares and
share equivalents used in
computation of net income
per share 4,641,600 4,641,600 4,641,600 4,641,600
See notes to condensed consolidated financial statements.
TOTAL CONTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Six months ended
June 30,
1997 1996
(In thousands)
Cash flows from operating activities:
Net cash used for operating activities $ (427) $ (658)
Cash flows from investing activities:
Purchase of property and equipment (1,132) (1,597)
Other 121 -
Net cash used for investing activities (1,011) (1,597)
Cash flows from financing activities:
Net borrowings on long-term debt 430 486
Net borrowings under line of credit 755 1,816
Net cash provided by financing
activities 1,185 2,302
Net increase (decrease) in cash $ (253) $ 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,
June 30, 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:
June 30, December 31,
1997 1996
(In thousands)
Raw materials $ 692 $ 503
Finished goods 8,360 6,745
$9,052 $7,248
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a Pennsylvania corporation and was organized
in 1986. The Company 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, government
bodies, utilities and other fleet vehicle operators.
Net Sales
The Company's net sales for the quarter and six months ended
June 30, 1997, were $12.1 million and $20.3 million,
respectively, as compared to $9.9 million and $16.9 million for
the corresponding periods in 1996. Net sales increased 22.5%
during the quarter and 20.3% for the first six months of 1997 as
compared to the same periods in the previous fiscal year. The
increases for both the quarter and six months were primarily
attributable to sales from American Containment, Inc., as well as
additional sales of underground flexible piping systems in the
United States.
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
profits for the quarter and six months ended June 30, 1997 were
$4.6 million and $7.2 million, respectively, as compared to
$3.7 million and $6.2 million for the corresponding periods in
1996.
The Company's gross profit percentage was 37.7% for the
quarter and 35.4% for the six months ended June 30, 1997, as
compared to 37.0% and 36.9% for the same periods in the previous
fiscal year. The Company's gross profit percentage increased in
the quarter due mainly to reductions in direct material costs.
The decrease in gross profit percentage for the six months was
primarily attributable to an increase in freight costs and
manufacturing overhead which was partially offset by the
reductions in direct material costs.
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 and six months ended
June 30, 1997, were $3.3 million and $6.4 million, respectively,
as compared to $2.4 million and $4.8 million for the
corresponding periods in 1996. Selling, general and
administrative expenses increased 36.5% during the quarter and
increased 33.3% for the six months of 1997 as compared to the
same periods in the previous fiscal year. The increases for the
quarter and six months were due to the additional administrative
costs associated with the acquisition of American Containment,
Inc. as well as increased legal expense for litigation.
Interest Expense
Interest expenses for the quarter and six months ended
June 30, 1997, were $161,000 and $308,000, respectively, as
compared to $73,000 and $125,000 for the corresponding periods in
1996. The increases for the quarter and six months were due to
increased borrowings on 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 18 years) at the acquisition date or subsequent
issuance date.
Income Taxes
Income taxes for the quarter and six months ended June 30,
1997 were $371,000 and $76,000, respectively, as compared to
$387,000 and $419,000 for the corresponding periods in 1996. The
decreases were due to the decreases in the Company's income
before income taxes.
Net Income
The Company's net income for the quarter and six months
ended June 30, 1997, were $557,000 and $114,000, respectively, as
compared to $621,000 and $635,000 for the corresponding periods
in 1996. Net income decreased 10.3% during the quarter and 82%
for the first six months of 1997 as compared to the same periods
in the previous fiscal year. The decreases in net income for
both the quarter and six months ended June 30, 1997 were due to a
reduction in earnings before income taxes caused by an increase
in general and administrative costs associated with the
acquisition of American Containment, Inc., and legal and interest
expense.
Liquidity and Capital Resources
The Company had working capital of $7.2 million and
$8.3 million at June 30, 1997 and December 31, 1996,
respectively. The decrease in working capital was due to, among
other things, warranty charges related primarily to the
Enviroflex pipe, as well as purchases for expansion purposes.
The Company satisfies its working capital needs primarily
through funds generated by operations 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.
Item 1. Legal Proceedings
The Company was a defendant in connection with
counterclaims asserted by Mr. Keith Osborne, OPW Fueling
Components ("OPW"), Buffalo Environmental Products Corporation
("Buffalo") and Intelpro Corporation ("Intelpro") in an action
instituted by the Company in October, 1996, in the United States
District Court for the Eastern District of Pennsylvania. The
counterclaims asserted that the Company breached contractual
undertakings under a settlement agreement to consent to a
transfer by Mr. Osborne of his business, including his retained
rights thereunder. The counterclaims also asserted tortious
interference with contract. The matter was tried in April 1997
and the Court held that the Company did not breach a contractual
undertaking to consent to the transfer, but also held that
Mr. Osborne was entitled to transfer to OPW Mr. Osborne's
business, including patent rights with respect to the
retractability feature of an underground containment system sold
by the Company. The Company did not appeal the Court's decision.
A description of the Company's other pending legal
proceedings has 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
The 1997 Annual Meeting of Stockholders (the "Meeting")
of the Company was held on April 11, 1997. Notice of
the Meeting was mailed to stockholders on or about
March 31, 1997, together with proxy solicitation
materials prepared in accordance with Section 14(a) of
the Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder.
The Meeting was held for the following purposes:
1. To elect two Class I directors to hold office
until the 2000 Annual Meeting of Stockholders and
their successors shall have been elected and
qualified (Matter No. 1);
2. To consider a proposal to adopt an Agreement and
Plan of Merger pursuant to which the Company
changed its state of incorporation from Delaware
to Pennsylvania by merging with and into a newly
formed wholly-owned Pennsylvania subsidiary
(Matter No. 2);
3. To consider a proposal to approve the Company's
1997 Stock Compensation Plan (the "1997 Plan")
(Matter No. 3);
4. To ratify the appointment by the Company's Board
of Directors of Price Waterhouse LLP as the
Company's independent auditors for the fiscal year
ending December 31, 1997 (Matter No. 4); and
5. To transact such other business as may properly
come before the Annual Meeting or any adjournment
or adjournments thereof.
There was no solicitation in opposition to the nominees
of the Board of Directors for election to the Board of
Directors. All nominees of the Board of Directors were
elected. The number of votes cast for or withheld, as
well as the number of abstentions and broker nonvotes
for each of the nominees for election to the Board of
Directors were as follows:
Abstentions
and Broker
Nominee For Withheld Nonvotes
Jean-Claude Arpin 2,719,929 -- --
Marc Guindon 2,719,929 -- --
Matter No. 2 was approved by stockholders at the Meeting.
The votes cast on this matter was as follows:
Abstentions
and Broker
For Against Nonvotes
No. 2 2,649,000 70,929 --
Matter No. 3 was approved by stockholders at the Meeting.
The votes cast on this matter was as follows:
Abstentions
and Broker
For Against Nonvotes
No. 3 2,649,000 70,929 --
Matter No. 4 was approved by stockholders at the Meeting.
The votes cast on this matter was as follows:
Abstentions
and Broker
For Against Nonvotes
No. 4 2,719,929 -- --
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
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 August 14, 1997 By /s/ Pierre Desjardins
Pierre Desjardins
President and Chief Executive
Officer
Date August 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
3.2 Bylaws of the Company
11 Statement re: Computation of Earnings Per share
(unaudited
27 Financial Data Schedule