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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
Commission File Number 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.)
9 West 57th Street, New York, New York 10019
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(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 May 9, 1997, 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, 1997
PART I
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Page
Number
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Item 1. - Financial Statements (Unaudited):
Consolidated Statements of Operations................................... 3
Consolidated Balance Sheets............................................. 4
Consolidated Statement of Stockholder's Equity.......................... 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................................................... 8
PART II
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Item 1. - Legal Proceedings....................................................... 14
Item 6. - Exhibits and Reports on Form 8-K........................................ 14
Signatures ........................................................................ 15
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PART I. FINANCIAL INFORMATION
Item 1. - Financial Statements
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period
Ended March 31,
-------------------
1997 1996
----- (000's) ----
REVENUES................................................................... $ 83,532 $118,242
COSTS AND EXPENSES:
Cost of goods sold.................................................... 68,132 96,262
General and administrative............................................ 9,466 11,645
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OPERATING INCOME........................................................... 5,934 10,335
Interest expense...................................................... (7,204) (8,713)
Interest and other income - net....................................... 926 530
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INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM................................................ (344) 2,152
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INCOME TAX PROVISION (BENEFIT):
Current............................................................... 396 682
Deferred.............................................................. (15) 327
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381 1,009
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INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................................... (725) 1,143
EXTRAORDINARY ITEM - Loss on repurchase of
debt (no income tax benefit).......................................... - (393)
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NET INCOME (LOSS) ......................................................... $ (725) 750
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See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS (000's)
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 17,700 $ 29,112
Accounts receivable...................................................... 90,334 71,551
Inventories:
Finished goods....................................................... 26,309 33,618
Raw materials........................................................ 17,253 19,476
Other current assets..................................................... 30,753 30,226
Prepaid expenses......................................................... 20,528 14,635
-------- --------
Total Current Assets................................................. 202,877 198,618
PROPERTY, PLANT AND EQUIPMENT - net........................................... 198,125 198,887
OTHER ASSETS.................................................................. 29,674 29,126
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Total................................................................ $430,676 $426,631
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LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt..................................... $ 17,595 $ 17,481
Short-term debt.......................................................... 13,573 15,348
Accounts payable......................................................... 50,523 38,033
Accrued expenses and other current liabilities........................... 27,654 33,321
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Total Current Liabilities............................................ 109,345 104,183
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LONG-TERM DEBT - net:
Senior indebtedness, notes payable and other obligations................. 155,228 152,539
Senior subordinated indebtedness - net................................... 114,202 114,175
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Long-Term Debt - net................................................. 269,430 266,714
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OTHER LIABILITIES............................................................. 29,474 29,480
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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
Retained earnings........................................................ 6,225 9,345
Cumulative translation adjustment........................................ (179) (367)
Unrealized gains (losses) on marketable securities....................... (261) 634
-------- --------
Total Stockholder's Equity........................................... 22,427 26,254
-------- --------
Total................................................................ $430,676 $426,631
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See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Three Month Period Ended March 31, 1997
(Unaudited)
Additional Cumulative Unrealized
Preferred Common Paid-In Retained Translation Gains (Losses)
Stock Stock Capital Earnings Adjustment on Securities Total
----- ----- ------- -------- ---------- ------------- -----
(000's)
BALANCE, January 1, 1997............ $7,960 $ - $8,682 $9,345 $(367) $634 $26,254
Net loss ........................... (725) (725)
Dividends paid:
Common stock................... (1,970) (1,970)
Preferred stock................ (425) (425)
Net change during period............ 188 (895) (707)
------ ---------- ------ ------ ----- ------ -------
BALANCE, March 31, 1997............. $7,960 $ - $8,682 $6,225 $(179) $(261) $22,427
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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,
---------------
1997 1996
---- ----
(000's)
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
Operations:
Net income (loss)........................................................ $ (725) $ 750
Items not requiring (providing) cash:
Depreciation and amortization........................................ 4,859 6,107
Deferred taxes and other - net....................................... (210) 2,065
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Total........................................................... 3,924 8,922
Working capital management:
Accounts receivable and other current assets......................... (17,868) (21,958)
Inventories.......................................................... 9,532 1,531
Prepaid expenses..................................................... (5,893) (1,376)
Accounts payable..................................................... 12,490 2,907
Accrued expenses and other current liabilities....................... (5,667) (9,219)
Cash used by operations and working -------- -------
capital management.......................................... (3,482) (19,193)
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INVESTMENT ACTIVITIES:
Additions to property, plant and equipment............................... (3,857) (3,026)
Purchases of marketable securities and other short-term investments...... (4,898) (3,261)
Sales of marketable securities and other short-term investments.......... 3,456 93
Other - net ............................................................ (1,264) 1,749
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Cash used by investment activities.............................. (6,563) (4,445)
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FINANCING ACTIVITIES:
Increase (decrease) in short-term debt................................... (1,775) 7,457
Increase in long-term debt............................................... 6,500 41,708
Repurchases, payments and current maturities of long-term debt........... (3,697) (42,391)
Dividends to stockholder................................................. (2,395) (2,081)
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Cash provided (used) by financing activities.................... (1,367) 4,693
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DECREASE IN CASH AND CASH EQUIVALENTS......................................... (11,412) (18,945)
CASH AND CASH EQUIVALENTS:
Beginning of period...................................................... 29,112 32,872
-------- -------
End of period............................................................ $ 17,700 $13,927
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See notes to unaudited consolidated financial statements.
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TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION AND OTHER MATTERS
The consolidated financial statements of Trans-Resources, Inc. ("TRI"),
include TRI and its direct and indirect wholly-owned subsidiaries, after
elimination of intercompany accounts and transactions. TRI's principal
subsidiaries are Cedar Chemical Corporation ("Cedar"), and Cedar's two
wholly-owned subsidiaries, NMPC, Inc. (name changed from New Mexico Potash
Corporation upon completion of the sale of its potash operations in August,
1996; "NMPC"), and Vicksburg Chemical Company ("Vicksburg"); EDP, Inc. (name
changed from Eddy Potash, Inc. upon completion of the sale of its potash
operations in August, 1996; "EDP"); Na-Churs Plant Food Company ("Na-Churs");
and Haifa Chemicals Ltd. ("HCL") and HCL's wholly-owned subsidiary, Haifa
Chemicals South, Ltd. ("HCSL"). TRI is a wholly-owned subsidiary of TPR
Investment Associates, Inc. ("TPR"). 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.
On August 16, 1996 NMPC and EDP sold substantially all of their assets
for an aggregate consideration of $56,154,000, including a payment for working
capital of $11,154,000, and the assumption of specified liabilities (but
excluding, among other things, certain antitrust litigation). Approximately 50%
of the aggregate sales proceeds were applied to prepay debt secured by the
assets of NMPC or EDP. In connection with the sale, Vicksburg entered into a
five year potash supply agreement, at prevailing market rates during the period
(subject to certain adjustments), with the buyer.
NMPC and EDP had conducted the Company's potash mining and production
operations. During the three month period ended March 31, 1996, the potash
operations contributed approximately $16,000,000 (14%) to the Company's
consolidated revenues, after eliminating intercompany sales.
See Item 2 below - "Management's Discussion and Analysis of Financial
Condition and Results of Operations Other Matters" for certain information
regarding a labor dispute and strike at HCL.
In the opinion of management, the unaudited consolidated financial
statements for the three month periods ended March 31, 1997 and 1996,
respectively, 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
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ended March 31, 1997 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 Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (the "Form 10-K") which
has been filed with the Securities and Exchange Commission.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth, as a percentage of revenues and the
percentage dollar change of those items as compared to the prior period, certain
items appearing in the unaudited consolidated financial statements of the
Company.
Percentage Period
of Revenues to
Three Month Period
Period Ended Changes
March 31, Increase
1997 1996 (Decrease)
---- ---- ----------
Revenues..................................................... 100.0% 100.0% (29.4)%
Costs and expenses:
Cost of goods sold...................................... 81.6 81.4 (29.2)
General and administrative.............................. 11.3 9.9 (18.7)
---- ----
Operating income............................................. 7.1 8.7 (42.6)
Interest expense........................................ (8.6) (7.4) (17.3)
Interest and other income - net......................... 1.1 .5 74.7
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Income (loss) before income taxes and extraordinary item..... (.4) 1.8 (116.0)
Income tax provision......................................... .5 .8 (62.2)
---- ----
Income (loss) before extraordinary item...................... (.9) 1.0 (163.4)
Extraordinary item........................................... - (.4) 100.0
---- ----
Net income (loss)............................................ (.9)% .6% (196.7)%
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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. These forward-looking statements include, but are
not limited to, statements concerning future revenues (e.g., impact of HCL work
stoppage and strike and inflation in Israel); expenses (e.g., cost savings
resulting from HCL's new labor agreement, future environmental costs and capital
expenditures); and access to lending sources and Israeli Government
entitlements. Such forward-looking statements involve unknown and uncertain
risks, uncertainties and other 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. Such 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 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 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; raw material costs and availability; the final outcome of the
legal proceedings to which the Company is a party (see Item 3- "Legal
Proceedings" in the Form 10-K); and other factors referenced in this Form 10-Q
(or in the Company's Form 10-K).
LABOR DISRUPTION AT HCL
Technicians and engineers of HCL are members of the Union of
Technicians and Engineers, which operates throughout Israel. The other employees
of HCL are members of the "Histadrut", the dominant labor union in Israel. The
terms of employment of all employees are governed by a Specific Collective
Agreement ("SCA") negotiated by HCL with the Histadrut and the representatives
of the employees. In 1994, an agreement was signed with the technicians and
engineers for the three year period ended December 31, 1996. In 1995, an SCA was
signed with the Histadrut and the representatives of the employees for the two
year period ended December 31, 1996. In September, 1996, in accordance with its
rights pursuant to the above-mentioned agreements, HCL announced the
cancellation of such agreements effective with their expiration dates. HCL also
announced its intent to negotiate a new SCA with basic changes for the period
commencing after December 31, 1996.
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As a result of the announced cancellation of the labor agreements,
during October, 1996 HCL suffered several work stoppages and other job actions
which adversely affected plant productivity, which was followed by a complete
work stoppage and plant shut-down from October 29 to November 14, 1996. Based on
a decision of a regional labor court, HCL's plant was then ordered to be
re-opened temporarily. The court also ordered HCL and representatives of the
workers to continue to negotiate a settlement of the labor dispute.
Nothwithstanding the court's ruling, HCL suffered numerous job actions by its
workers which again led to very low productivity. On December 3, 1996 the
workers declared a strike and the plant was shut-down. The plant remained closed
until March 10, 1997 when a new SCA was signed for the three year period ending
December 31, 1999. Subsequent to March 10, 1997, HCL's plant reopened and
gradually began production. By the end of April, 1997, HCL estimates that its
plant was operating at approximately 90% of capacity.
As a result of the strike at HCL, the first quarter of 1997 was
significantly impacted by a reduction in sales volume, lower gross margins due
to reduced productivity, resulting in the under-absorption of fixed overhead,
coupled with inventory shortages requiring purchases from third parties and
increased general and administrative expenses arising from higher security and
other costs. This adverse impact was partially offset by lower labor costs.
Management believes that the cost savings as a result of the changes in
the terms of the new SCA over the labor costs it would otherwise have incurred
during the next few years will substantially exceed the costs incurred during
the period of labor disruption. Such savings will commence during the second
quarter of 1997.
RESULTS OF OPERATIONS
Three month period ended March 31, 1997 compared with the three month
period ended March 31, 1996:
Revenues decreased by 29.4% to $83,532,000 in 1997 from $118,242,000 in
1996, a decrease of $34,710,000, resulting from decreased sales of specialty
plant nutrients and industrial chemicals ($18,700,000) as a result of the HCL
strike and a decrease of sales of potash ($16,000,000) as a result of the sale
of the Company's potash operations. See "Labor Disruption at HCL" above for
information regarding a labor dispute and strike at HCL commencing October,
1996.
Cost of goods sold as a percentage of revenues increased slightly to
81.6% in 1997 compared with 81.4% in 1996. Gross profit was $15,400,000 in 1997
compared with $21,980,000 in 1996 (18.4% of revenues in 1997 compared with 18.6%
of revenues in 1996), a decrease of $6,580,000. The primary factors resulting in
the decreased gross profit were (i) less favorable currency rates in the 1997
period, (ii) the adverse effect of the strike at HCL (net of HCL's claim for
reimbursement from an Israeli industrial association for partial contribution
towards the costs suffered during the period of the strike) (see "Labor
Disruption at HCL" above) and (iii) the sale of the Company's
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potash operations. These decreases were partially offset by higher organic
chemical margins in the 1997 period. General and administrative expense
decreased to $9,466,000 in 1997 from $11,645,000 in 1996, but increased as a
percentage of revenues (11.3% of revenues in 1997 compared with 9.9% of revenues
in 1996). During the 1997 period, HCL's general and administrative expense
(security costs, communications expenses, etc.) was adversely effected by the
strike.
As a result of the matters described above, the Company's operating
income decreased by $4,401,000 to $5,934,000 in 1997 as compared with
$10,335,000 in 1996.
Interest expense decreased by $1,509,000 ($7,204,000 in 1997 compared
with $8,713,000 in 1996) primarily as a result of (i) the maturity of the
Company's outstanding Senior Subordinated Reset Notes in September, 1996 and
(ii) the prepayment of senior bank debt upon the sale of the Company's potash
operations. Interest and other income net increased in 1997 by $396,000,
principally as the result of certain realized gains on marketable securities in
the 1997 period.
As a result of the above factors, income before income taxes and
extraordinary item decreased by $2,496,000 in 1997. 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 losses for which there is no current tax benefit.
In the 1996 period the Company acquired $11,237,000 principal amount of
its Senior Subordinated Reset Notes, which resulted in a loss of $393,000. Such
loss (which has no current tax benefit) is classified as an extraordinary item
in the accompanying Consolidated Statements of Operations. No such debt was
acquired in the 1997 period.
CAPITAL RESOURCES AND LIQUIDITY
The Company's consolidated working capital at March 31, 1997 and
December 31, 1996 was $93,532,000 and $94,435,000, respectively.
Operations for the three month periods ended March 31, 1997 and 1996,
after adding back non-cash items, provided cash of approximately $3,900,000 and
$8,900,000, respectively. During such periods other changes in working capital
used cash of approximately $7,400,000 and $28,100,000, respectively, resulting
in cash being used by operating activities and working capital management of
approximately $3,500,000 and $19,200,000, respectively.
Investment activities during the three month periods ended March 31,
1997 and 1996 used cash of approximately $6,600,000 and $4,400,000,
respectively, including additions to property in 1997 and 1996 of approximately
$3,900,000 and $3,000,000, respectively, purchases of marketable securities and
other short-term
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investments of approximately $4,900,000 and $3,300,000, respectively, and sales
of marketable securities and other short-term investments of approximately
$3,500,000 and $100,000, respectively. No major property additions occurred in
the 1996 or 1997 periods.
Financing activities during the three month periods ended March 31,
1997 and 1996 provided (used) cash of approximately ($1,400,000) and $4,700,000,
respectively.
As of March 31, 1997, the Company had outstanding long-term debt
(excluding current maturities) of $269,430,000. The Company's primary source of
liquidity is cash flow generated from operations and its unused credit lines.
Approximately 90% of HCL's sales are made outside of Israel in various
currencies, of which approximately 40% are in U.S. dollars, with the remainder
principally in Western European currencies. In order to mitigate the impact of
currency fluctuations against the U.S. dollar, the Company has a general policy
of hedging a significant 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 Statement of Financial Accounting
Standards No. 52 and accordingly, 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 income 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, 1997 and 1996, would have decreased by approximately
$3,500,000 and $1,600,000, respectively.
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.
CAPITAL EXPENDITURES
During the three month period ended March 31, 1997 the Company invested
approximately $3,900,000 in capital expenditures. The Company currently
anticipates that capital expenditures for the year ending December 31, 1997 will
aggregate approximately $17,000,000. The Company's capital expenditures will be
used primarily for increasing certain production capacity and efficiency,
product diversification and for ecological matters.
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INFLATION
Inasmuch as only approximately $62,000,000 of HCL's annual operating
costs are denominated in New Israeli Shekels ("NIS"), HCL is exposed to
inflation in Israel to a limited extent. The combination of price increases
coupled with devaluation of the NIS have in the past generally enabled HCL to
avoid a material adverse impact from inflation in Israel. However, HCL's
earnings increase or decrease to the extent that the rate of future NIS
devaluation differs from the rate of Israeli inflation. For the years ended
December 31, 1996 and 1995 the inflation rate of the NIS as compared to the U.S.
Dollar exceeded the devaluation rate in Israel by 6.9% and 4.2%, respectively.
ENVIRONMENTAL MATTERS
See Item 1 - "Business - Environmental Matters" and Note O of Notes to
Consolidated Financial Statements included in the Company's Form 10-K for
information regarding environmental matters relating to the Company's various
facilities.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
As previously disclosed in the Form 10-K, the David B. Gaebler v. New
Mexico Potash Corporation, et al. purported class action on behalf of indirect
purchasers of potash outside of California had been dismissed by the Circuit
Court of Cook County, Illinois, and the dismissal affirmed by an appellate
court. On April 2, 1997, the Illinois Supreme Court denied plaintiff's request
for leave to appeal the Gaebler decision.
Item 6. Exhibits and Reports on Form 8-K
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(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
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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)
Date: May 9, 1997 Lester W. Youner
-----------------------------
Vice President, Treasurer and
Chief Financial Officer
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TRANS-RESOURCES, INC.
INDEX TO EXHIBITS
Exhibit Description Page No.
- ------- ----------- --------
27 Financial Data Schedule. 17
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