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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 June 30, 2000
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 33-11634
TRANS-RESOURCES, INC.
Delaware 36-2729497
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
375 Park Avenue, New York, New York 10152
----------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 888-3044
(Exact name of registrant as specified in its charter)
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
At August 14, 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
JUNE 30, 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 (Loss) 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......................................................... 10
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 Six Month Period
Ended June 30, Ended June 30,
------------------------ ------------------------
2000 1999 2000 1999
---- ---- ---- ----
(000's)
REVENUES $ 135,090 $ 150,975 $ 273,269 $ 278,732
COSTS AND EXPENSES:
Cost of goods sold 113,858 114,134 231,438 213,476
Selling, general, and administrative 19,432 16,949 39,890 32,527
--------- --------- --------- ---------
OPERATING INCOME 1,800 19,892 1,941 32,729
Interest expense (13,551) (11,713) (26,200) (22,255)
Interest and other income - net 346 1,231 1,026 1,287
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (11,405) 9,410 (23,233) 11,761
--------- --------- --------- ---------
INCOME TAX PROVISION (BENEFIT):
Current 702 1,152 1,029 1,959
Deferred (556) 1,231 (1,506) 1,936
--------- --------- --------- ---------
Total 146 2,383 (477) 3,895
--------- --------- --------- ---------
NET INCOME (LOSS) $ (11,551) $ 7,027 $ (22,756) $ 7,866
========= ========= ========= =========
See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
--------- ---------
ASSETS (Unaudited)
(000's)
CURRENT ASSETS:
Cash and cash equivalents $ 15,809 $ 9,354
Accounts receivable 132,199 102,942
Inventories:
Finished goods 86,527 91,549
Raw materials 22,365 29,515
Other current assets 60,529 65,646
Prepaid expenses 23,053 21,867
--------- ---------
Total Current Assets 340,482 320,873
PROPERTY, PLANT and EQUIPMENT - net 324,992 325,463
OTHER ASSETS 59,509 60,363
--------- ---------
Total $ 724,983 $ 706,699
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 18,294 $ 11,288
Short-term debt 59,255 58,331
Accounts payable 89,128 84,321
Accrued expenses and other current liabilities 54,561 58,821
--------- ---------
Total Current Liabilities 221,238 212,761
--------- ---------
LONG-TERM DEBT - net 525,585 496,016
--------- ---------
OTHER LIABILITIES 50,987 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 (79,085) (54,243)
Cumulative translation adjustment (1,863) (1,704)
Unrealized losses on marketable securities (8,521) (20,907)
--------- ---------
Total Stockholder's Equity (Deficit) (72,827) (60,212)
--------- ---------
Total $ 724,983 $ 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 (LOSS)
Six Month Period Ended June 30, 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 ........ (22,756) (22,756) $(22,756)
Dividends paid: --
Common stock .... (1,874) (1,874)
Preferred stock . (212) (212)
Net change during
period .......... (159) 12,386 12,227 12,227
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE,
June 30, 2000 ... $ 7,960 $ -- $ 8,682 $(79,085) $ (1,863) $ (8,521) $(72,827) $(10,529)
======== ======== ======== ======== ======== ======== ======== ========
See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Period
Ended June 30,
2000 1999
-------- --------
OPERATING ACTIVITIES AND WORKING CAPITAL (000's)
MANAGEMENT:
Operations:
Net income (loss) $(22,756) $ 7,866
Items not requiring (providing) cash:
Depreciation and amortization of property, plant and equipment
and other assets 13,531 12,453
Amortization of deferred financing costs and accretion of
interest expense 5,974 5,386
Deferred taxes and other - net (4,308) 830
Working capital management:
Accounts receivable (29,257) (31,925)
Inventories 12,172 3,973
Prepaid expenses and other current assets 3,264 5,424
Accounts payable 4,807 13,880
Accrued expenses and other current liabilities (4,260) (4,778)
-------- --------
Cash provided by (used in) operations and working
capital management (20,833) 13,109
-------- --------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment - net (11,537) (47,035)
Purchases of marketable securities and other short-term investments -- (23,592)
Sales of marketable securities and other short-term investments 6,871 21,165
Other - net, including approximately $10 million relating to the
purchase of an additional equity investment in Lego in 1999 2,116 (13,719)
-------- --------
Cash used in investment activities (2,550) (63,181)
-------- --------
FINANCING ACTIVITIES:
Increase in short-term debt 924 8,176
Increase in long-term debt 35,950 45,690
Repurchases, payments and current maturities of long-term debt (4,950) (6,202)
Cash dividends to stockholder (2,086) (2,813)
-------- --------
Cash provided by financing activities 29,838 44,851
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,455 (5,221)
CASH AND CASH EQUIVALENTS:
Beginning of period 9,354 12,387
-------- --------
End of period $ 15,809 $ 7,166
======== ========
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% of the economic interest in which is 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 March 9, 2000, as
contemplated by the terms of the 1999 purchase of VJ, all of the remaining
outstanding shares of VJ were acquired.
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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, 1998 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 and six month periods ended June 30, 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 and six month periods ended June 30, 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 Statement of Financial
Accounting Standards ("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 and six-month periods ended June 30,
2000 and 1999 was as follows:
Three Month Period Six Month Period
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(in millions)
Revenues
Specialty Plant Nutrients $ 93.6 $ 103.0 $ 188.8 $ 197.8
Horticulture 31.9 33.3 56.3 53.4
Organic Chemicals 16.8 21.3 43.4 38.5
-------- -------- -------- --------
Total segment revenues 142.3 157.6 288.5 289.7
Intersegment revenues (7.2) (6.6) (15.2) (11.0)
-------- -------- -------- --------
Total revenues $ 135.1 $ 151.0 $ 273.3 $ 278.7
======== ======== ======== ========
Operating income (loss)
Specialty Plant Nutrients $ (0.5) $ 13.1 $ (1.0) $ 24.0
Horticulture 3.7 4.1 5.1 5.5
Organic Chemicals 1.0 4.5 3.1 6.3
-------- -------- -------- --------
Total segment operating income 4.2 21.7 7.2 35.8
Corporate items and eliminations (2.4) (1.8) (5.3) (3.1)
-------- -------- -------- --------
Total operating income $ 1.8 $ 19.9 $ 1.9 $ 32.7
======== ======== ======== ========
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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 June 30, 2000 the Company received cumulative gross investment
grants of approximately $73.8 million. If the Company instead recorded the
capitalized assets at their cost, the Company's Stockholder's Equity at June 30,
2000 would have been increased by approximately $51.5 million ($73.8 less
accumulated depreciation of $22.3 million) as a result of these grants.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the three month period ended June 30, 2000 TRI had a net loss of
$11.6 million compared with net income of $7.0 million in 1999. EBITDA
(operating income plus depreciation and amortization) for 2000 was $8.3 million
compared with $26.1 million in 1999. Net sales in the second quarter of 2000
were $135.1 million compared with $151.0 million in the comparable period of
1999.
For the six month period ended June 30, 2000 TRI had a net loss of
$22.8 million compared with net income of $7.9 million in 1999. EBITDA
(operating income plus depreciation and amortization) for 2000 was $15.5 million
compared with $45.2 million in 1999. Net sales in the first half of 2000 were
$273.3 million compared with $278.7 million in 1999.
TRI's second quarter 2000 results were adversely affected by a number
of factors. First, the market for potassium nitrate, the flagship product of
the Specialty Plant Nutrients Sector, is experiencing an excess supply
situation resulting in lower sales volume and price deterioration. A similar
situation exists with regard to phosphoric acid and its derivative products
which are also produced in the Company's Specialty Plant Nutrients Sector. As a
result of these market conditions, production has been curtailed during the
first six months of 2000. The effect of lower production, prices and sales in
the Specialty Sector are estimated to have negatively affected earnings in the
second quarter of 2000 by approximately $10.5 million. Second, the exchange
rate for the Euro continued to decline in the second quarter of 2000 negatively
affecting earnings by approximately $4.0 million compared to the comparable
period of last year. Third, rising energy prices resulted in higher production
costs adversely affecting earnings by approximately $2.6 million in the 2000
quarter.
In the Company's Organic Chemicals Sector weaker sales and a reduced
level of contract manufacturing resulted in lower operating income of
approximately $3.5 million in the second quarter of 2000 compared to the prior
year. A weak farm economy in the midwest United States was principally
responsible for lower sales and operating income in the Horticulture Sector.
The Company initiated a Profit Improvement Program ("PIP") earlier this
year with the objective of realizing
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expense reductions totaling $10 million during 2000. As of June 30, 2000 the
Company had realized $7.3 million from its PIP and projects providing annual
benefits exceeding $20 million had been identified.
The three preceding paragraphs include forward-looking statements. See
"Special Note Regarding Forward-Looking Statements" below.
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 Six Month Period Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Specialty Plant Nutrients 65.8% 61.9% 65.4% 60.6%
Horticulture 22.4 24.0 19.5 25.6
Organic Chemicals 11.8 14.1 15.1 13.8
----- ----- ----- -----
Total Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold 84.3 75.6 84.7 76.6
Selling, general and administrative 14.4 11.2 14.6 11.7
----- ----- ----- -----
Operating income 1.3 13.2 0.7 11.7
Interest expense (10.0) (7.8) (9.6) (8.0)
Interest and other income - net 0.2 0.8 0.4 0.5
----- ----- ----- -----
Income (loss) before income taxes (8.5) 6.2 (8.5) 4.2
Income tax provision (benefit) 0.1 1.5 (0.2) 1.4
----- ----- ----- -----
Net income (loss) (8.6)% 4.7% (8.3)% 2.8%
===== ===== ===== =====
RESULTS OF OPERATIONS
Three-month period ended June 30, 2000 compared with the three-month
period ended June 30, 1999:
Cost of goods sold as a percentage of revenues increased to 84.3% in
2000 compared with 75.6% in 1999. Gross profit was $21.2 million in 2000, or
15.7% of revenues, compared with $36.8 million or 24.4% of revenues in 1999, a
decrease of $15.6 million. The primary factors resulting in the decreased gross
profit in 2000 were lower comparable sales and margins achieved by the Specialty
Plant Nutrients Sector primarily due to lower prices and volumes for potassium
nitrate and phosphoric acid and derivative products, a decline in the exchange
rate for the Euro, and the effect of the lower gross margins of Lego which was
not consolidated in the prior year period. Gross profit in the Organic Chemical
Sector decreased primarily due to a decline in revenues from contract
manufacturing, which caused a reduction
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in the absorption of fixed costs. The Horticulture Sector also experienced a
decline in gross profit principally due to lower sales volumes for certain of
its products.
Selling, general and administrative expense increased to $19.4 million
in 2000 from $16.9 million in 1999, an increase of $2.5 million (14.4% of
revenues in 2000 compared to 11.2% of revenues in 1999). This increase was
principally in the newly acquired companies some of which were not consolidated
in the prior year period.
As a result of the matters described above, the Company's operating
income decreased by $18.1 million to $1.8 million in the second quarter of 2000
compared with $19.9 million in the comparable period of 1999.
Interest expense increased by $1.9 million to $13.6 million in the
second quarter of 2000 compared with $11.7 million in 1999 primarily as a result
of (i) certain increased borrowings during the latter part of 1999 relating to
the Company's acquisition and capital expenditure programs (ii) additional
borrowings during the first half of 2000 for working capital and (iii)
marginally higher interest rates. Interest and other income (expense) - net
decreased in 2000 by $0.9 million, principally as the result of reduced
investment income.
As a result of the above factors, income (loss) before income taxes,
decreased by $20.8 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.
Six-month period ended June 30, 2000 compared with the six-month period ended
June 30, 1999:
Revenues decreased by 2.0% to $273.3 million in 2000 from $278.7
million in 1999, a decrease of $5.4 million. The decrease resulted primarily
from decreased sales volumes and prices for potassium nitrate in the Specialty
Plant Nutrients Sector, offset in part by increased sales volumes in the
Horticulture and Organic businesses.
Cost of goods sold as a percentage of revenues increased to 84.7% in
2000 compared with 76.6% in 1999. Gross profit was $41.8 million in 2000, or
15.3% of revenues, compared with $65.3 million or 23.4% of revenues in 1999, a
decrease of $23.5 million. The primary factors resulting in the decreased gross
profit in 2000 were lower comparable sales and margins achieved by the Specialty
Plant Nutrients Sector primarily due to lower sales volumes and prices for
potassium nitrate and phosphoric acid and derivative products, a decline in the
exchange rate for the Euro, and the effect of lower gross margins of Lego which
was not consolidated in the prior year period. Gross profit in the Horticulture
Sector increased principally due to higher sales volumes. Organic Chemicals'
gross profit in the first six months of 2000 decreased from the prior year
primarily due to a reduced demand for certain products and a decline in contract
manufacturing, which caused a reduction in the absorption of fixed costs.
Selling, general and administrative expense increased to $39.9 million
in 2000 from $32.5 million in 1999, an increase of $7.4 million (14.6% of
revenues in 2000 compared to 11.7% of revenues in 1999). This increase was
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principally due to the inclusion of acquisitions for the full 2000 period 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' operating
income decreased by $30.8 million to $1.9 million in the first six months of
2000 compared with $32.7 million in the comparable period of 1999.
Interest expense increased by $3.9 million to $26.2 million in 2000
compared with $22.3 million in 1999 primarily as a result of (i) certain
increased borrowings during the latter part of 1999 relating to the Company's
acquisition and capital expenditure programs (ii) additional borrowings during
the first half of 2000 for working capital, and (iii) marginally higher interest
rates. Interest and other income (expense) - net declined in 2000 by $0.3
million, principally due to a decrease in investment income.
As a result of the above factors, income (loss) before income taxes,
decreased by $35.0 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.
CAPITAL RESOURCES AND LIQUIDITY
The Company's consolidated working capital at June 30, 2000 and
December 31, 1999 was $119.2 million and $108.1 million, respectively.
Operations for the six month periods ended June 30, 2000 and 1999,
after adding back non-cash items, and changes in working capital, provided
(used) cash of approximately $(20.8) million and $13.1 million, respectively.
Investment activities during the six month periods ended June 30, 2000
and 1999 used cash of approximately $2.6 million and $63.2 million,
respectively. These amounts include: (i) additions to property in 2000 and 1999
of approximately $11.5 million (approximately $3.8 million related to the
completion of the expansion program) and $47.0 million, respectively; (ii)
purchases of marketable securities and other short-term investments of
approximately none and $23.6 million, respectively; (iii) sales of marketable
securities and other short-term investments of approximately $6.9 million and
$21.2 million, respectively; and (iv) other items of approximately $2.1 million
and ($13.7) 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 six month periods ended June 30, 2000
and 1999 provided cash of approximately $29.8 million and $44.9 million,
respectively. The 2000 amount relates primarily to working capital borrowings
and the
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1999 amount relates primarily to borrowings in connection with the Company's
acquisition and capital expenditure programs.
As of June 30, 2000, the Company had outstanding long-term debt
(excluding current maturities) of $525.6 million. The Company's primary sources
of liquidity have been cash flows generated from operations, 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 June 30, 2000, the Company received cumulative gross investment grants
of approximately $73.8 million. If the Company had instead recorded the
capitalized assets at their cost, the Company's Stockholder's Equity at June 30,
2000 would have been increased by approximately $51.5 million ($73.8 million
less accumulated depreciation of $22.3 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:
June 30, December 31,
2000 1999
---- ----
(in millions)
Stockholder's equity (deficit) $ (72.8) $ (60.2)
Effect of investment grants 51.5 52.5
------- -------
Proforma stockholder's equity (deficit) $ (21.3) $ (7.7)
======= =======
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q (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
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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 the PIP and 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; the supply and demand balance
for potassium nitrate; 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 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 substantially 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 and other investments. As of June 30,
2000, the Company had approximately $27 million undrawn under existing credit
facilities. Dividends and other distributions from the Company's subsidiaries
may be, 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 existing or new credit facilities, dividends
and other distributions which may be available from the Company's
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subsidiaries and proceeds from the sale of marketable securities and other
investments should 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
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, "Foreign Currency Translation" 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 entered 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 six month periods ended June 30, 2000 and 1999, would have
decreased by approximately $1.6 million and $5.5 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 has been 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 has
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been 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 has not incurred and
does not expect to incur any required system conversion costs that would be
material.
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".
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 June 30, 2000 and December 31, 1999 Consolidated Balance
Sheets. As of June 30, 2000, the quoted market value of the ESC shares was
$16.375 per share, resulting in the Company recording an unrealized loss of
approximately $6.9 million. The unrealized loss relating to ESC is included in
the caption "Unrealized losses on marketable securities" in the accompanying
June 30, 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.
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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, 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 June 30, 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: August 14, 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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