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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 September 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.
(Exact name of registrant as specified in its charter)
Delaware 36-2729497
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer 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
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 November 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
SEPTEMBER 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............................................................. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 19
PART II
Item 6. Exhibits and Reports on Form 8-K...................................................... 20
Signatures ...................................................................................... 21
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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 Nine Month Period
Ended September 30, Ended September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(000's)
REVENUES .................................... $ 104,661 $ 111,365 $ 377,930 $ 390,097
COSTS AND EXPENSES:
Cost of goods sold ...................... 95,764 88,710 327,202 302,186
Selling, general, and administrative .... 17,296 19,318 57,186 51,845
--------- --------- --------- ---------
OPERATING INCOME (LOSS) ..................... (8,399) 3,337 (6,458) 36,066
Interest expense ........................ (14,724) (12,205) (40,924) (34,460)
Interest and other income (expense) - net (753) 144 273 1,431
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ........... (23,876) (8,724) (47,109) 3,037
--------- --------- --------- ---------
INCOME TAX PROVISION (BENEFIT):
Current ................................. (536) (21) 493 1,938
Deferred ................................ (534) 249 (2,040) 2,185
--------- --------- --------- ---------
Total ............................... (1,070) 228 (1,547) 4,123
--------- --------- --------- ---------
NET LOSS .................................... $ (22,806) $ (8,952) $ (45,562) $ (1,086)
========= ========= ========= =========
See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
--------- ---------
ASSETS (Unaudited)
(000's)
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 22,667 $ 9,354
Accounts receivable .................................... 110,949 102,942
Inventories:
Finished goods ....................................... 83,250 91,549
Raw materials ........................................ 25,245 29,515
Other current assets ................................... 65,232 65,646
Prepaid expenses ....................................... 24,655 21,867
--------- ---------
Total Current Assets ............................... 331,998 320,873
PROPERTY, PLANT AND EQUIPMENT, NET ....................... 322,528 325,463
OTHER ASSETS ............................................. 49,481 60,363
--------- ---------
Total ............................................ $ 704,007 $ 706,699
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................... $ 21,398 $ 11,288
Short-term debt ........................................ 56,318 58,331
Accounts payable ....................................... 79,680 84,321
Accrued expenses and other current liabilities ......... 52,992 58,821
--------- ---------
Total Current Liabilities .......................... 210,388 212,761
--------- ---------
LONG-TERM DEBT - NET ..................................... 521,232 496,016
--------- ---------
OTHER LIABILITIES ........................................ 49,670 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 ............................. 21,072 8,682
Accumulated deficit .................................... (101,891) (54,243)
Cumulative translation adjustment ...................... (2,225) (1,704)
Unrealized losses on marketable securities ............. (2,199) (20,907)
--------- ---------
Total Stockholder's Equity (Deficit) ............... (77,283) (60,212)
--------- ---------
Total ............................................ $ 704,007 $ 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)
Nine Month Period Ended September 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 ............. (45,562) (45,562) $ (45,562)
Dividends paid:
Common stock ....... (1,874) (1,874)
Preferred stock .... (212) (212)
Contributed capital .. 12,390 12,390
Net change during
period ............. (521) 18,708 18,187 18,187
--------- --------- --------- --------- --------- --------- --------- ----------
BALANCE,
September 30, 2000 . $ 7,960 $ -- $ 21,072 $(101,891) $ (2,225) $ (2,199) $ (77,283) (27,375)
========= ========= ========= ========= ========= ========= ========= ==========
See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Month Period
Ended September 30,
-----------------------------
2000 1999
-------- --------
(000's)
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
Operations:
Net loss ........................................................ $(45,562) $ (1,086)
Items not requiring (providing) cash:
Depreciation and amortization of property, plant and equipment
and other assets ............................................ 19,705 20,263
Amortization of deferred financing cost and accretion of
interest expense ............................................ 9,468 8,174
Deferred taxes and other - net ................................ (4,968) 2,447
Working capital management:
Accounts receivable ............................................. (8,007) (8,462)
Inventories ..................................................... 12,569 (10,617)
Prepaid expenses and other current assets ....................... (1,836) 1,107
Accounts payable ................................................ (4,641) 3,837
Accrued expenses and other current liabilities .................. (5,829) (8,388)
-------- --------
Cash provided by (used in) operations and working
capital management ......................................... (29,101) 7,275
-------- --------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment - net .................. (15,702) (66,437)
Purchases of marketable securities and other short-term
investments ..................................................... -- (25,695)
Sales of marketable securities and other short-term investments ... 12,840 21,497
Other - net, including approximately $10 million relating to the
purchase of an additional equity investment in Lego in 1999 ..... 10,119 (13,685)
-------- --------
Cash provided by (used in) investment activities ............ 7,257 (84,320)
-------- --------
FINANCING ACTIVITIES:
Increase (decrease) in short-term debt - net ...................... (2,013) 3,165
Increase in long-term debt ........................................ 36,208 82,478
Repurchases, payments and current maturities of long-term debt .... (9,342) (9,862)
Cash contributed by TPR ........................................... 12,390 --
Cash dividends to stockholder ..................................... (2,086) (3,245)
-------- --------
Cash provided by financing activities ....................... 35,157 72,536
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 13,313 (4,509)
CASH AND CASH EQUIVALENTS:
Beginning of period ............................................... 9,354 12,387
-------- --------
End of period ..................................................... $ 22,667 $ 7,878
======== ========
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. ("TPR"). 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,
V-J 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,
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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. Pursuant to the conditional
agreements, the Company is required 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).
Pursuant to the terms of the amended and restated conditional agreements, the
Company was required to make an interest payment of approximately $.3 million on
September 30, 2000. The Company has deferred such interest payment and has
commenced discussions with representatives of the plaintiffs to seek deferral of
amounts due under the conditional agreements. 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.
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In the opinion of management, the unaudited consolidated financial
statements for the three and nine month periods ended September 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 nine month periods ended September 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.
Pursuant to a financing transaction concluded in August, the Company
received $21,375,000 from TPR for working capital. As part of the transaction,
TPR provided a lender a junior security interest in the Company's common stock,
and a subsidiary of the Company gave the lender a security interest in 1,962,847
shares of ESC Medical Systems, Ltd. ("ESC") common stock.
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.
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Segment information for the three and nine-month periods ended
September 30, 2000 and 1999 was as follows:
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
------------------------- -------------------------
2000 1999 2000 1999
------ ------ ------ ------
(In millions)
Revenues
Specialty Plant Nutrients ............... $ 83.9 $ 88.7 $272.7 $286.5
Horticulture ............................ 15.7 17.9 72.0 71.3
Organic Chemicals ....................... 12.3 11.3 55.7 49.8
------ ------ ------ ------
Total segment revenues ................ 111.9 117.9 400.4 407.6
Intersegment revenues ................... (7.2) (6.5) (22.5) (17.5)
------ ------ ------ ------
Total revenues ................... $104.7 $111.4 $377.9 $390.1
====== ====== ====== ======
Operating income (loss)
Specialty Plant Nutrients ............... $ (3.6) $ 5.1 $ (4.6) $ 29.1
Horticulture ............................ (1.9) (.8) 3.2 4.7
Organic Chemicals ....................... (1.1) 1.2 2.0 7.6
------ ------ ------ ------
Total segment operating income (loss) . (6.6) 5.5 0.6 41.4
Corporate items and eliminations ........ (1.8) (2.2) (7.1) (5.3)
------ ------ ------ ------
Total operating income (loss) .... $ (8.4) $ 3.3 $ (6.5) $ 36.1
====== ====== ====== ======
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 assets,
which are then amortized over the estimated useful life of the respective
assets. From 1986 through September 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 September 30, 2000 would have been increased by approximately $50.3
million ($73.8 million less accumulated depreciation of $23.5 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 September 30, 2000, TRI had a net loss
of $22.8 million compared with a net loss of $9.0 million in 1999. EBITDA
(operating income plus depreciation and amortization) for 2000 was $(2.2)
million compared with $11.1 million in 1999. Net sales in the third quarter of
2000 were $104.7 million compared with $111.4 million in 1999.
For the nine month period ended September 30, 2000, TRI had a net loss
of $45.6 million compared with a net loss of $1.1 million in 1999. EBITDA for
2000 was $13.2 million compared with $56.3 million in 1999. Net sales in the
first nine months of 2000 were $377.9 million compared with $390.1 million in
1999.
All three of the Company's business sectors experienced declines in
operating income in the third quarter of 2000. In the Specialty Plant Nutrients
Sector, competition in the potassium nitrate market resulted in lower sales
prices ($2.1 million). The business was also adversely affected by the
continuing decline in the exchange rate of the Euro against the U.S. dollar
($4.0 million). About one-third of the Company's revenues are denominated in
Euros. Higher energy prices also had a negative impact ($1.2 million) on
reported results. The Company's Organics sector experienced reduced operating
income ($2.3 million) principally due to a shortage of contract manufacturing
projects which normally cover a significant portion of the sector's fixed costs
and reduced demand for certain products. The Horticulture Sector experienced
lower operating income ($1.1 million) primarily due to the weak domestic
agricultural economy.
The Company initiated a Profit Improvement Program ("PIP") earlier this
year with the objective of realizing expense reductions totaling $10 million
during 2000. As of September 30, 2000, the Company estimates that it has
realized $12.3 million from its PIP and has identified projects which are
expected to provide future annual benefits in excess of $20 million.
The preceding paragraph includes forward-looking statements. See
"Special Note Regarding Forward-Looking Statements" below.
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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 Nine Month Period
Ended September 30, Ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
----- ----- ----- -----
Revenues
Specialty Plant Nutrients ............. 75.0% 75.2% 68.1% 70.3%
Horticulture .......................... 14.0 15.2 18.0 17.5
Organic Chemicals ..................... 11.0 9.6 13.9 12.2
----- ----- ----- -----
Total Revenues .................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold .................... 91.5 79.7 86.6 77.5
Selling, general and administrative ... 16.5 17.3 15.1 13.3
----- ----- ----- -----
Operating income (loss) ................... (8.0) 3.0 (1.7) 9.2
Interest expense ...................... (14.1) (11.0) (10.8) (8.8)
Interest and other income (expense)-net (0.7) 0.2 0.1 0.4
----- ----- ----- -----
Income (loss) before income taxes ......... (22.8) (7.8) (12.4) 0.8
Income tax provision (benefit) ............ (1.0) 0.2 (0.4) 1.1
----- ----- ----- -----
Net loss .................................. (21.8)% (8.0)% (12.0)% (0.3)%
===== ===== ===== =====
RESULTS OF OPERATIONS
Three-month period ended September 30, 2000 compared with the three-month
period ended September 30, 1999:
Cost of goods sold as a percentage of revenues increased to 91.5% in
2000 compared with 79.7% in 1999. Gross profit was $8.9 million in 2000, or 8.5%
of revenues, compared with $22.7 million or 20.3% of revenues in 1999, a
decrease of $13.8 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 for potassium nitrate and
phosphoric acid and derivative products and a decline in the exchange rate for
the Euro. Gross profit in the Organic Chemicals Sector decreased primarily due
to a decline in revenues from contract manufacturing, which caused a reduction
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 expenses decreased to $17.3 million
in 2000 from $19.3 million in 1999, a decrease of $2.0 million (16.5% of
revenues in 2000 compared to 17.3% of revenues in 1999). This decrease was
principally due to the initial inclusion of an acquisition in the third quarter
of the prior year.
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As a result of the matters described above, the Company's operating
income decreased by $11.7 million to $(8.4) million in the third quarter of 2000
compared with $3.3 million in the comparable period of 1999.
Interest expense increased by $2.5 million to $14.7 million in the
third quarter of 2000 compared with $12.2 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 in 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 $15.2 million in 2000. The Company's provision for income taxes is
impacted by the mix between domestic and foreign earnings and varies from the
U.S. Federal statutory rate principally due to the impact of foreign operations
and certain items which are not taxable.
Nine-month period ended September 30, 2000 compared with the nine-month
period ended September 30, 1999:
Revenues decreased by 3.1% to $377.9 million in 2000 from $390.1
million in 1999, a decrease of $12.2 million. The decrease resulted primarily
from decreased sales volumes and prices for potassium nitrate in the Specialty
Plant Nutrient Sector, offset in part from increased sales volumes in the
Horticulture and Organic businesses.
Cost of goods sold as a percentage of revenues increased to 86.6% in
2000 compared with 77.5% in 1999. Gross profit was $50.7 million in 2000, or
13.4% of revenues, compared with $87.9 million or 22.5% of revenues in 1999, a
decrease of $37.2 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 and a decline in
the exchange rate for the Euro. Gross profit in the Horticulture Sector
decreased principally due to lower margins on slightly higher sales volumes.
Organic Chemicals' gross profit in the first nine 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 expenses increased to $57.2 million
in 2000 from $51.8 million in 1999, an increase of $5.4 million (15.1% of
revenues in 2000 compared to 13.3% of revenues in 1999). This increase was
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.
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As a result of the matters described above, the Company's operating
income decreased by $42.6 million to $(6.5) million in the first nine months of
2000 compared with $36.1 million in the comparable period of 1999.
Interest expense increased by $6.4 million to $40.9 million in 2000
compared with $34.5 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 in 2000
for working capital, and (iii) marginally higher interest rates. Interest and
other income (expense) - net declined in 2000 by $1.2 million, principally due
to a decrease in investment income.
As a result of the above factors, income (loss) before income taxes,
decreased by $50.1 million in 2000. The Company's provision for income taxes is
impacted by the mix between domestic and foreign earnings and varies 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 September 30, 2000 and
December 31, 1999 was $121.6 million and $108.1 million, respectively.
Operations for the nine month periods ended September 30, 2000 and
1999, after adding back non-cash items, and changes in working capital, provided
(used) cash of approximately $(29.1) million and $7.3 million, respectively.
Investment activities during the nine month periods ended September 30,
2000 and 1999 provided (used) cash of approximately $7.3 million and $(84.3)
million, respectively. These amounts include: (i) additions to property in 2000
and 1999 of approximately $15.7 million (approximately $3.8 million related to
the completion of the expansion program) and $66.4 million, respectively; (ii)
purchases of marketable securities and other short-term investments of
approximately none and $25.7 million, respectively; (iii) sales of marketable
securities and other short-term investments of approximately $12.8 million and
$21.5 million, respectively; and (iv) other items of approximately $10.1 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 nine month periods ended September 30,
2000 and 1999 provided cash of approximately $35.2 million and $72.5 million,
respectively. The 2000 amount related primarily to working capital
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borrowings and funds received from TPR (see Note A, above) and the 1999 amount
relates primarily to borrowings in connection with the Company's acquisition and
capital expenditure programs.
As of September 30, 2000, the Company had outstanding long-term debt
(excluding current maturities) of $521.2 million. The Company's primary sources
of liquidity have been cash flows generated from operations, credit lines,
contributed capital from TPR 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 assets which is then
amortized over the estimated useful life of the respective assets. From 1986
through September 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
September 30, 2000 would have been increased by approximately $50.3 million
($73.8 million less accumulated depreciation of $23.5 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:
September 30, December 31,
2000 1999
-------- --------
(In millions)
Stockholder's equity (deficit)........... $ (77.3) $ (60.2)
Effect of investment grants.............. 50.3 52.5
-------- --------
Proforma stockholder's equity (deficit).. $ (27.0) $ (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
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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, civil unrest, 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
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 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, proceeds from
the sale of marketable securities and other investments and advances from TPR.
As of September 30, 2000, the Company had approximately $29 million undrawn
under existing credit facilities. Dividends and other distributions from the
Company's subsidiaries are, in part, a source of cash flow which may be
available to the Company. Losses incurred by the Company in recent periods will
make securing additional financing difficult. As a result, the Company is
evaluating other options which may include the sale of
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assets unrelated to its core businesses. However, if economic conditions
affecting the Company's operations were not to improve, additional actions,
which may affect the Company's capital structure, may be required. 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 may be
accounted for in the subsequent year. 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 nine month periods ended September 30, 2000 and 1999, would have
decreased by approximately $4.0 million and $5.3 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
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2002, new Euro-denominated bills and coins will be issued, and legacy currencies
will be withdrawn from circulation. The Company has 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 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 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 September 30, 2000 and December 31, 1999 Consolidated Balance
Sheets. As of September 30, 2000, the quoted market value of the ESC shares was
$18.75 per share, resulting in the Company recording an unrealized loss of
approximately $2.2 million. The unrealized loss relating to ESC is included in
the caption "Unrealized losses on marketable securities" in the accompanying
September 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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In August, the Company granted a bank a security interest in
substantially all of the ESC shares held by the Company as security for a loan
to TPR (see Note A, above).
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 September 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 September 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.
(Registrant)
WILLIAM DOWD
Vice President and
Chief Financial Officer
Date: November 16, 2000
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
INDEX OF EXHIBITS
Exhibit Description
------- -----------
27 Financial Data Schedule.
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