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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[Mark One]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
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Commission File Number 33-11634
TRANS-RESOURCES, INC.
Delaware 36-2729497
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
375 Park Avenue, New York, New York 10152
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code (212) 888-3044
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(Exact name of registrant as specified in its charter)
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Indicate by check mark whether 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 registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
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At May 15, 2000, there were outstanding 3,000 shares of common stock, par value
of $.01 per share, all of which were owned by TPR Investment Associates, Inc., a
privately-held Delaware corporation.
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TRANS-RESOURCES, INC.
Form 10-Q Index
March 31, 2000
Page
PART I Number
- ------ ------
Item 1. - Financial Statements:
Consolidated Statements of Operations..................................... 3
Consolidated Balance Sheets............................................... 4
Consolidated Statements of Stockholder's Equity and Comprehensive Income.. 5
Consolidated Statements of Cash Flows..................................... 6
Notes to Unaudited Consolidated Financial Statements...................... 7
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 11
Item 3. - Quantitative and Qualitative Disclosures About Market Risk................ 18
PART II
- -------
Item 6. - Exhibits and Reports on Form 8-K.......................................... 19
Signatures .......................................................................... 20
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PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period
Ended March 31,
--------------------------
2000 1999
---------- ---------
(000's)
REVENUES ....................................... $ 138,179 $ 127,757
COSTS AND EXPENSES:
Cost of goods sold ...................... 117,580 99,342
General and administrative .............. 20,458 15,578
---------- ---------
OPERATING INCOME ............................... 141 12,837
Interest expense ........................ (12,649) (10,542)
Interest and other income (expense) - net 680 56
---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ............. (11,828) 2,351
INCOME TAX PROVISION (BENEFIT):
Current ................................. 327 807
Deferred ................................ (950) 705
---------- ---------
Total ............................... (623) 1,512
---------- ---------
NET INCOME (LOSS) .............................. $ (11,205) $ 839
========== =========
See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
-------- --------
(Unaudited)
(000's)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 18,974 $ 9,354
Accounts receivable....................................................... 131,173 102,942
Inventories:
Finished goods....................................................... 92,805 91,549
Raw materials........................................................ 26,039 29,515
Other current assets...................................................... 60,015 65,646
Prepaid expenses.......................................................... 20,675 21,867
--------- ---------
Total Current Assets................................................. 349,681 320,873
PROPERTY, PLANT AND EQUIPMENT - NET.............................................. 326,780 325,463
OTHER ASSETS..................................................................... 58,858 60,363
--------- ---------
Total........................................................ $735,319 $706,699
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................................... $ 11,335 $ 11,288
Short-term debt........................................................... 66,786 58,331
Accounts payable.......................................................... 100,243 84,321
Accrued expenses and other current liabilities............................ 54,320 58,821
--------- ---------
Total Current Liabilities............................................ 232,684 212,761
========= =========
LONG-TERM DEBT - NET ............................................................ 516,060 496,016
--------- ---------
OTHER LIABILITIES................................................................ 56,797 58,134
--------- ---------
STOCKHOLDER'S EQUITY:
Preferred stock, $1.00 par value, 100,000 shares
authorized, issued and outstanding................................... 7,960 7,960
Common stock, $.01 par value, 3,000 shares authorized,
issued and outstanding............................................... - -
Additional paid-in capital................................................ 8,682 8,682
Accumulated deficit....................................................... (67,534) (54,243)
Cumulative translation adjustment......................................... (1,688) (1,704)
Unrealized losses on marketable securities................................ (17,642) (20,907)
--------- ---------
Total Stockholder's Equity (Deficit)................................. (70,222) (60,212)
========= =========
Total....................................................... $ 735,319 $706,699
========= =========
See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
Three Month Period Ended March 31, 2000
(Unaudited)
Unrealized
Additional Cumulative Losses On
Preferred Common Paid-In Accumulated Translation Marketable Comprehensive
Stock Stock Capital Deficit Adjustment Securities Total Income (Loss)
--------- ------ ---------- ----------- ----------- ---------- ----- -------------
(000's)
BALANCE,
January 1, 2000....... $ 7,960 $ - $ 8,682 $(54,243) $(1,704) $(20,907) $(60,212)
Net loss ................ (11,205) (11,205) $(11,205)
Dividends paid:
Common stock............... (1,874) (1,874)
Preferred stock............ (212) (212)
Net change during
period................ 16 3,265 3,281 3,281
------- ------- -------- ---------- --------- ---------- ---------- ---------
BALANCE,
March 31, 2000........ $ 7,960 $ - $ 8,682 $(67,534) $(1,688) $(17,642) $(70,222) $ (7,924)
======= ======= ======== ========== ========= ========== ========== =========
See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Month Period
Ended March 31,
----------------------------
2000 1999
--------- ---------
(000's)
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
Operations:
Net income (loss)............................................................ $(11,205) $ 839
Items not requiring (providing) cash:
Depreciation and amortization of property, plant and equipment
and other assets.................................................. 7,005 6,258
Amortization of deferred financing costs and accretion of
interest expense.................................................. 3,099 2,663
Deferred taxes and other - net.......................................... (1,886) 22
Working capital management:
Accounts receivable and other current assets............................ (25,250) (20,405)
Inventories............................................................. 2,220 (3,674)
Prepaid expenses........................................................ 1,192 (1,585)
Accounts payable........................................................ 15,922 14,775
Accrued expenses and other current liabilities.......................... (4,501) (7,742)
--------- ---------
Cash used in operations and working
capital management.......................................... (13,404) (8,849)
--------- ---------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment................................... (7,957) (26,363)
Purchases of marketable securities and other short-term investments.......... - (1,280)
Sales of marketable securities and other short-term investments.............. 2,650 10,487
Other - net, including approximately $10 million relating to the purchase
of an equity investment in Lego in 1999 .............................. 4,592 (12,575)
--------- ---------
Cash used in investment activities................................ (715) (29,731)
--------- ---------
FINANCING ACTIVITIES:
Increase in short-term debt.................................................. 8,455 12,598
Increase in long-term debt................................................... 21,531 34,555
Repurchases, payments and current maturities of long-term debt............... (4,161) (633)
Cash dividends to stockholder................................................ (2,086) (2,601)
--------- ---------
Cash provided by financing activities............................. 23,739 43,919
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 9,620 5,339
CASH AND CASH EQUIVALENTS:
Beginning of period.......................................................... 9,354 12,387
--------- ---------
End of period................................................................ $ 18,974 $ 17,726
========= =========
See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION AND OTHER MATTERS
The consolidated financial statements of Trans-Resources, Inc. ("TRI"),
include TRI and its direct and indirect independently managed and financed
subsidiaries, after elimination of intercompany accounts and transactions. TRI's
principal subsidiaries are Haifa Chemicals Ltd. ("HCL") and HCL's wholly-owned
subsidiary, Haifa Chemicals South, Ltd. ("HCSL"); Cedar Chemical Corporation
("Cedar"), and Cedar's wholly-owned subsidiary, Vicksburg Chemical Company
("Vicksburg"); Na-Churs Plant Food Company ("NaChurs"); Plant Products Co. Ltd.
("Plant Products"); and EMV Kft. ("EMV"). TRI is a wholly-owned subsidiary of
TPR Investment Associates, Inc. Unless the context otherwise requires, as used
herein, the term "the Company" means TRI together with its direct and indirect
subsidiaries. Certain prior period amounts have been reclassified to conform to
the manner of presentation in the current period.
Substantially all of the Company's revenues, operating profits and
identifiable assets are related to the chemical industry. The Company is a
global developer, producer and marketer of specialty plant nutrients and
specialty industrial and agricultural chemicals and distributes its products
internationally.
Effective January 1, 2000, the Company implemented a new organizational
structure comprised of three sectors: Specialty Plant Nutrients, Horticulture
and Organic Chemicals, and grouped its operations into these three general
categories. The Specialty Plant Nutrients Sector includes the agricultural and
industrial lines of HCL (including HCSL) and Vicksburg and the irrigation
products of HCL's subsidiary, Lego Irrigation, Ltd. ("Lego"). The Horticulture
Sector includes NaChurs, Plant Products and two other wholly-owned subsidiaries,
VJ Growers Supply, Inc. ("VJ") and TRI-Pro, Inc. The Organic Chemicals Sector
includes Cedar's West Helena organic operations, EMV and Riceco, LLC, a joint
venture 50% owned by Cedar. Effective February 19, 1999, the Company acquired a
majority interest in VJ, which markets specialty plant nutrients and other
products for commercial horticulture. On March 9, 1999, as contemplated by the
terms of the 1998 purchase of 42% of the outstanding Lego shares, a subsidiary
of HCL purchased, pursuant to an option, an additional 35% equity interest in
Lego. The remaining 23% equity interest in Lego publicly trades on the Tel Aviv
(Israel) stock exchange. The acquisitions described herein have been accounted
for using the purchase method of accounting. The aggregate purchase price paid
for these 1999 acquisitions was approximately $11.0 million and resulted in
approximately $4.1 million in goodwill (generally being amortized over a 20 year
period). On
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March 9, 2000, as contemplated by the terms of the 1999 purchase of VJ, all of
the remaining outstanding shares of VJ were acquired.
As previously disclosed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (the "Form 10-K"), the Company is a party to
litigation arising out of an October 23, 1995 release of nitrogen tetroxide at a
Bogalusa, Louisiana plant of a customer of Vicksburg. The nitrogen tetroxide had
been produced and sold by Vicksburg. The plaintiffs in these suits seek
unspecified damages arising out of the alleged exposure to toxic fumes. The
Louisiana class action and the Mississippi suits (collectively referred to
herein as the "Bogalusa Litigation") named a number of other defendants, in
addition to TRI and certain of its subsidiaries. During August, 1998, the
Company entered into conditional agreements to settle the claims in the Bogalusa
Litigation. During March, 1999, amended and restated conditional agreements to
settle the claims were executed by the parties. If the conditions of the
settlement are satisfied, the Company's funding obligation would be an aggregate
of approximately $32.4 million plus (i) $4.6 million, which amount equals the
amount which one of the settling insurance companies shall have paid to the
Company for reimbursement of defense costs (the "Defense Depletion Amount") and
(ii) interest payments at 6.25% per annum which commenced on April 1, 1999 on
the not as yet escrowed portion of $17 million, as described below. The initial
$10 million of the funding obligation was deposited in escrow on August 31, 1998
and an additional $5 million was deposited in escrow on March 31, 1999. In
addition, on or about April 1, 1999 two settling insurance companies contributed
an aggregate of $25 million, less the Defense Depletion Amount. If the
settlement is finalized, the Company will assign to the plaintiffs its rights
under another $26 million of insurance coverage. The Company is scheduled to
escrow an additional $6.8 million on December 31, 2000, and $5.1 million on both
June 30, 2001 and December 31, 2001. In 1998, the Company recorded a charge of
approximately $36.2 million to cover the cost of the conditional settlement and
the related legal expenses (included in the caption "Interest and other income
(expense)-net", see the Company's December 31, 1999 Consolidated Statement of
Operations in the Form 10-K). For further information regarding the Bogalusa
Litigation and the conditional settlement relating thereto see Part I - Item 3 -
"Legal Proceedings" in the Form 10-K.
In the opinion of management, the unaudited consolidated financial
statements for the three month periods ended March 31, 2000 and 1999, include
all adjustments, which comprise only normal recurring accruals, necessary for a
fair presentation of the results for such periods. The results of operations for
the three month period ended March 31, 2000 are not necessarily indicative of
results that may be expected for any other interim period or the full fiscal
year. It is suggested that these unaudited consolidated financial statements be
read in conjunction with the financial statements and notes thereto included in
the Form 10-K.
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B. INFORMATION CONCERNING BUSINESS SEGMENTS
As a result of the adoption of a new organizational structure effective
January 1, 2000, the Company has changed the reporting of its business segments.
The new structure is comprised of three reportable segments: Specialty Plant
Nutrients, Horticulture and Organic Chemicals. Financial data for periods
reported prior to the adoption of the new organizational structure have been
restated to conform to the presentation according to SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information".
The Company's reportable segments are strategic business units that
offer different product categories reflecting the different product uses. The
Company produces and markets potassium nitrate and co-products through the
Specialty Plant Nutrients business unit. Fertilizers, agrochemicals and related
products are produced and marketed through the Horticulture business unit. The
Organic Chemicals business unit produces and markets herbicides and other crop
protection chemicals.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. All intersegment sales prices
are market based. The Company evaluates sector performance based on operating
earnings of its respective business units.
Segment information for the three-month periods ended March 31, 2000 and
1999 was as follows:
Three Month Period
Ended March 31,
----------------------
2000 1999
-------- --------
(in millions)
Revenues
--------
Specialty Plant Nutrients $ 95.2 $ 94.9
Horticulture 24.4 20.1
Organic Chemicals 26.6 17.2
-------- --------
Total segment revenues 146.2 132.2
Intersegment revenues (8.0) (4.4)
-------- --------
Total revenues $ 138.2 $ 127.8
======== ========
Operating income
----------------
Specialty Plant Nutrients $ (0.5) $ 11.0
Horticulture 1.4 1.4
Organic Chemicals 2.0 1.8
-------- --------
Total segment operating income 2.9 14.2
Corporate items and eliminations (2.8) (1.4)
-------- --------
Total operating income $ 0.1 $ 12.8
======== ========
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C. STOCKHOLDER'S EQUITY
The Company has received investment grants from the Government of Israel
for certain capital investments made by HCL. The Company initially records
investment grants received as a reduction of the capitalized asset which are
then amortized over the estimated useful life of the respective asset. From 1986
through March 31, 2000 the Company received cumulative gross investment grants
of approximately $73.0 million. If the Company instead recorded the capitalized
assets at their cost, the Company's Stockholder's Equity at March 31, 2000 would
have been increased by approximately $52.0 million ($73.0 less accumulated
depreciation of $21.0 million) as a result of these grants.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the three month period ended March 31, 2000 TRI had a net loss
of $11.2 million compared with net income of $0.8 million in 1999. EBITDA
(operating income plus depreciation and amortization) for 2000 was $7.1 million
compared with $19.1 million in 1999. Net sales in 2000 were $138.2 million
compared with $127.8 million in 1999. The Company's results for the first
quarter of 2000 were adversely affected by the continued decline of the Euro
against the U.S. dollar and reductions in the production of potassium nitrate.
Over 25% of the Company's sales are priced in European currencies tied to the
Euro. The effect of the decline in the Euro's exchange rate is estimated to
have reduced the Company's earnings by approximately $3.7 million. During the
first quarter of 2000, the Company operated at a reduced production rate of
potassium nitrate to avoid building inventories no longer required because of
its increased production capacity. In addition, through the reduction in
production the Company is demonstrating its market leadership position by
avoiding the creation of a significant imbalance in supply and demand of
potassium nitrate. The Company expects to increase its production level later
in the year.
The Company initiated a Profit Improvement Program earlier this year.
Over $10 million in savings are expected from this program by the end of this
year and it is thought that more opportunities for savings exist. Through the
Profit Improvement Program, permanent reductions to the cost structure will be
implemented, ensuring the Company's ability to be the low cost producer and
enabling it to remain the market leader.
The following table sets forth, as a percentage of revenues, certain
items appearing in the unaudited consolidated financial statements of the
Company.
Percentage
of Revenues
------------------
Three Month
Period Ended
March 31,
------------------
2000 1999
---- ----
Revenues:
Specialty Plant Nutrients ............... 65.1% 71.8%
Horticulture ............................ 16.7 15.2
Organic Chemicals ....................... 18.2 13.0
----- -----
Total Revenues ...................... 100.0% 100.0%
Costs and expenses:
Cost of goods sold ...................... 85.1 77.8
General and administrative .............. 14.8 12.2
----- -----
Operating income .............................. .1 10.0
Interest expense ........................ (9.2) (8.3)
Interest and other income (expense) - net .5 .1
----- -----
Income (loss) before income taxes ............. (8.6) 1.8
Income tax provision (benefit) ................ (.5) 1.1
----- -----
Net income (loss) ............................. (8.1)% .7%
====== =====
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RESULTS OF OPERATIONS
Three month period ended March 31, 2000 compared with the three month
period ended March 31, 1999:
Revenues increased by 8.2% to $138.2 million in 2000 from $127.8 million
in 1999, an increase of $10.4 million. The increase resulted primarily from
increased sales in the Horticulture and Organic businesses. The Specialty Plant
Nutrient Sector sales were substantially the same as the prior year.
Cost of goods sold as a percentage of revenues increased to 85.1% in
2000 compared with 77.8% in 1999. Gross profit was $20.6 million in 2000, or
14.9% of revenues, compared with $28.4 million or 22.2% of revenues in 1999, a
decrease of $7.8 million. The primary factors resulting in the decreased gross
profit in 2000 were (i) lower comparable sales and margins achieved by the
Specialty Plant Nutrients Sector primarily due to a decline in the exchange rate
for the Euro, lower prices and volumes and the effect of the lower gross margins
of Lego which is included for the entire quarter in 2000. Gross profit in the
Horticulture Sector increased principally due to higher sales. Organic
Chemicals' gross profit was ahead of the prior year in spite of a decline in
revenues from contract work, which caused a reduction in the absorption of
fixed costs.
General and administrative expense increased to $20.5 million in 2000
from $15.6 million in 1999, an increase of $4.9 million (14.8% of revenues in
2000 compared to 12.2% of revenues in 1999). This increase was principally due
to the inclusion of acquisitions for the full 2000 quarter, and one-time costs
associated with the relocation of TRI's corporate office in New York City.
As a result of the matters described above, the Company's operating
income decreased by $12.7 million to $0.1 million in the first quarter of 2000
compared with $12.8 million in the comparable period of 1999.
Interest expense increased by $2.1 million to $12.6 million in 2000
compared with $10.5 million in 1999 primarily as a result of (i) certain
increased borrowings during the last three quarters of 1999 and the first
quarter of 2000 relating to the Company's acquisition and capital expenditure
programs and (ii) marginally higher interest rates. Interest and other income
(expense) - net increased in 2000 by $0.6 million, principally as the result of
increased investment income.
As a result of the above factors, income (loss) before income taxes,
decreased by $14.2 million in 2000. The Company's provisions for income taxes
are impacted by the mix between domestic and foreign earnings and vary from the
U.S. Federal statutory rate principally due to the impact of foreign operations
and certain items which are not taxable.
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CAPITAL RESOURCES AND LIQUIDITY
The Company's consolidated working capital at March 31, 2000 and
December 31, 1999 was $117.0 million and $108.1 million, respectively.
Operations for the three month periods ended March 31, 2000 and 1999,
after adding back non-cash items, and changes in working capital, used cash of
approximately $13.4 million and $8.8 million, respectively.
Investment activities during the three month periods ended March 31,
2000 and 1999 used cash of approximately $.7 million and $29.7 million,
respectively. These amounts include: (i) additions to property in 2000 and 1999
of approximately $8.0 million (approximately $3.8 million related to the
completion of the expansion program) and $26.4 million, respectively; (ii)
purchases of marketable securities and other short-term investments of
approximately none and $1.3 million, respectively; (iii) sales of marketable
securities and other short-term investments of approximately $2.6 million and
$10.5 million, respectively; and (iv) other items of approximately $4.6 million
and $12.6 million, respectively (including the purchase of the additional
equity interest in Lego of approximately $10 million in 1999). The property
additions in the prior year period relates primarily to the Company's expansion
of its potassium nitrate and food grade phosphates capacity in Israel and the
construction of a plant at the Company's Vicksburg facility in the United
States to produce monoammonium phosphate ("MAP") and monopotassium phosphate
("MKP").
Financing activities during the three month periods ended March 31, 2000
and 1999 provided cash of approximately $23.7 million and $43.9 million,
respectively. The 1999 amount relates primarily to borrowings in connection with
the Company's acquisition and capital expenditure programs.
As of March 31, 2000, the Company had outstanding long-term debt
(excluding current maturities) of $516.1 million. The Company's primary sources
of liquidity are cash flows generated from operations, its unused credit lines
and the proceeds from the sale of marketable securities and other investments.
INVESTMENT GRANTS
The Company has received investment grants from the Government of Israel
for certain capital investments made by HCL. The Company initially records these
grants as a reduction of the capitalized asset which is then amortized over the
estimated useful life of the respective asset. From 1986 through March 31, 2000,
the Company received cumulative gross investment grants of approximately $73.0
million. If the Company had instead recorded the capitalized assets at their
cost, the Company's Stockholder's Equity at March 31, 2000 would have been
increased
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by approximately $52.0 million ($73.0 million less accumulated depreciation of
$21.0 million) as a result of these grants.
The following table details, on a proforma basis, the effect these
grants would have had on stockholder's equity:
March 31, December 31,
2000 1999
--------- ---------
(in millions)
Stockholder's equity (deficit) $ (70.2) $ (60.2)
Effect of investment grants 52.0 52.5
--------- ---------
Proforma stockholder's equity (deficit) $ (18.2) $ (7.7)
========== =========
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements herein (and in the Form 10-K) constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical facts included herein (and in the Form 10-K) are forward-looking
statements, including, but not limited to, statements concerning future
revenues; expenses; capital requirements; access to lending sources and Israeli
Government entitlements; inflation in Israel; outcomes of legal proceedings and
statements identified or qualified by words such as "likely," "will,"
"suggests," "may," "would," "could," "should," "expects," "anticipates,"
"estimates," "plans," "projects," "believes," or similar expressions (and
variants of such words or expressions). Such forward-looking statements involve
known and unknown risks, uncertainties and other factors ("Cautionary Factors")
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The Cautionary Factors
include, among others, the following: political stability, inflation and
currency rates in those foreign countries (including, without limitation,
Israel) in which the Company generates a significant portion of its production,
sales and earnings; current or future environmental developments or government
regulations which would require the Company to make substantial expenditures,
and changes in, or the failure of the Company to comply with, such government
regulations; the potentially hazardous nature of certain of the Company's
products; the ability to achieve and sustain anticipated labor cost reductions
at HCL; the Company's ability to continue to service and refinance its debt; new
plant start-up costs; competition; changes in business strategy or expansion
plans; agricultural trends; raw material costs and availability; the final
outcome of the legal proceedings to which the Company is a party and the
conditional settlement of the Bogalusa Litigation, including, without
limitation, satisfaction by the parties of the terms and numerous conditions of
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such conditional settlement (see Part I - Item 3 "Legal Proceedings" in the Form
10-K); and other factors referenced in this Form 10-Q (or in the Form 10-K).
Given these uncertainties, investors and prospective investors are
cautioned not to place undue reliance on such forward-looking statements. All
forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by the
Cautionary Factors.
FORWARD-LOOKING LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Company's 10 3/4 % Senior Notes due 2008 and
interest and principal repayments under other indebtedness represent significant
obligations of the Company and its subsidiaries. For a description of the
amortization required on the Company's other indebtedness see Note G to
Consolidated Financial Statements included in the Form 10-K. During the years
ended December 31, 1999 and 1998, the Company incurred significant capital
expenditures pursuant to its plan to increase capacity for potassium nitrate,
food grade phosphates and the construction of a plant to manufacture MAP and MKP
(the "Plan"). The Company completed the Plan during 1999. Ongoing maintenance
capital expenditures are expected to be approximately $16 million per year.
The Company's primary sources of liquidity are cash flows from
operations, borrowings under the credit facilities of the Company and proceeds
from the sale of marketable securities. As of March 31, 2000, the Company had
approximately $36 million of borrowing availability. Dividends and other
distributions from the Company's subsidiaries are, in part, a source of cash
flow available to the Company. The Company believes that, based on current and
anticipated financial performance, cash flow from operations, borrowings under
the Company's credit facilities, dividends and other distributions available
from the Company's subsidiaries and proceeds from the sale of marketable
securities and other investments will be adequate to meet anticipated
requirements for capital expenditures, working capital and scheduled principal
and interest payments. However, the Company's capital requirements may change.
The ability of the Company to satisfy its capital requirements and to repay or
refinance its indebtedness will be dependent upon the future financial
performance of the Company, which in turn will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond the Company's control. See "Special Note Regarding Forward-Looking
Statements" above.
FOREIGN CURRENCIES
Approximately $170 million of the Company's total sales for the
year ended December 31, 1999 were made outside of Israel in currencies other
than the U.S. dollar (principally in Western European currencies). Accordingly,
to the extent that the U.S. dollar weakens or strengthens versus the applicable
corresponding foreign currency, the Company's results are favorably or
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unfavorably affected. In order to mitigate the impact of currency fluctuations
against the U.S. dollar, the Company may from time to time hedge a portion of
its foreign sales denominated in Western European currencies by entering into
forward exchange contracts. A portion of these contracts qualify as hedges
pursuant to SFAS No. 52 and, accordingly, applicable unrealized gains and losses
arising therefrom are deferred and accounted for in the subsequent year as part
of sales. Unrealized gains and losses for the remainder of the forward exchange
contracts are recognized in operations currently. If the Company had not
followed such a policy of entering into forward exchange contracts in order to
hedge its foreign sales, and instead recognized income based on the then
prevailing foreign currency rates, the Company's income before income taxes for
the three month periods ended March 31, 2000 and 1999, would have decreased by
approximately $1.2 million and $4.6 million, respectively.
The Company determines when to enter in hedging transactions (and the
extent of its foreign currency denominated sales it wishes to hedge) based on
its ongoing review of the currency markets. The principal purpose of the
Company's hedging program (which is for other than trading purposes) is to
mitigate the impact of fluctuations against the U.S. dollar, as well as to
protect against significant adverse changes in exchange rates. Accordingly, the
gains and losses recognized relating to the hedging program in any particular
period and the impact on revenues had the Company not had such a program are not
necessarily indicative of its effectiveness.
On January 1, 1999, eleven of fifteen member countries of the European
Union established fixed conversion rates between their existing currencies
("legacy currencies") and one common currency - the Euro. On January 1, 1999,
the Euro began trading on currency exchanges and may be used in business
transactions. The conversion to the Euro eliminates currency exchange rate risk
between the member countries. Beginning in January, 2002, new Euro-denominated
bills and coins will be issued, and legacy currencies will be withdrawn from
circulation. The Company will be affected by the Euro conversion and has
established plans to address the issues raised by the Euro currency conversion.
These issues include, among others, the need to adapt computer and financial
systems, the competitive impact of cross-border price transparency which may
make it more difficult for businesses to charge different prices for the same
products on a country-by-country basis, recalculating currency risk and
recalibrating derivatives and other financial instruments. The Company does not
expect any required system conversion costs to be material. Due to numerous
uncertainties, the Company cannot reasonably estimate the effects one common
currency will have on pricing and the resulting impact, if any, on the
Company's financial condition or its results of operations.
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INVESTMENT IN LASER/ESC
On November 9, 1997, Laser Industries Limited ("Laser"), a publicly
traded manufacturer of lasers for medical use in which the Company had an
ownership interest accounted for by the equity method, and ESC Medical Systems
Ltd. ("ESC"), signed a definitive agreement (the "Agreement") to combine the two
companies through an exchange of shares. The transaction closed on February 23,
1998. ESC develops, manufactures, and markets medical devices utilizing both
state-of-the-art lasers and proprietary intense pulsed light source technology
for non-invasive treatment of varicose veins and other benign vascular lesions,
as well as for hair removal, skin cancer, skin rejuvenation and other clinical
applications. ESC shares are traded in the United States on the NASDAQ National
Market System. The Company's investment in ESC is accounted for pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115").
As of December 31, 1997, the Company carried its investment in the Laser
shares at approximately $9.1 million. Based on the quoted market value of the
ESC shares ($35.00 per share), as of February 20, 1998, the last day of trading
before the combination, the Company recognized a pre-tax gain of approximately
$22.9 million during the first quarter of 1998, which gain was included in the
caption "Interest and other income (expense) - net" in the Consolidated
Statement of Operations. Subsequent to the exchange of shares, the Company
carries its investment in the ESC shares in "Other current assets" in the
accompanying March 31, 2000 and December 31, 1999 Consolidated Balance Sheets.
As of March 31, 2000, the quoted market value of the ESC shares was
approximately $11.62 per share, resulting in the Company recording an unrealized
loss of approximately $16.2 million. The unrealized loss relating to ESC is
included in the caption "Unrealized losses on marketable securities" in the
accompanying March 31, 2000 Consolidated Balance Sheet. With respect to the
Company's investment in ESC, Management of the Company is not aware of any
events that have occurred regarding ESC that would indicate anything other than
a temporary impairment of the Company's investment in ESC.
ENVIRONMENTAL MATTERS
See Part I - Item 1 - "Business" - "Environmental Matters" and Note P to
Consolidated Financial Statements included in the Company's Form 10-K for
information regarding environmental matters relating to the Company's various
facilities.
OTHER MATTERS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities and measure those instruments at fair value. Depending on
the intended use of the derivative,
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changes in derivative fair values may be charged to operations unless the
derivative qualifies as a hedge under SFAS 133 requirements. SFAS 133, as
amended by SFAS 137, is effective for all quarters of fiscal years beginning
after June 15, 2000 (January 1, 2001 for the Company). The Company is evaluating
the impact, if any, of SFAS 133 on its consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Item 7A in the
Company's Form 10-K. No material change has occurred as of March 31, 2000.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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.
TRANS-RESOURCES, INC.
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(Registrant)
WILLIAM DOWD
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Vice President and
Chief Financial Officer
Date: May 15, 2000
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TRANS-RESOURCES, INC.
INDEX TO EXHIBITS
Exhibit Description
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27 Financial Data Schedule.
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