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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, 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
(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
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At August 11, 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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Form 10-Q
TRANS-RESOURCES, INC.
Form 10-Q Index
June 30, 1997
PART I
Page
Number
------
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
Item 6. - Exhibits and Reports on Form 8-K ............................... 15
Signatures ............................................................... 16
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Form 10-Q
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,
-------------- --------------
(000's)
1997 1996 1997 1996
--------- --------- --------- ---------
REVENUES .............................. $ 110,751 $ 122,422 $ 194,283 $ 240,664
COSTS AND EXPENSES:
Cost of goods sold ............... 88,590 100,030 156,722 196,292
General and administrative ....... 10,832 11,440 20,298 23,085
--------- --------- --------- ---------
OPERATING INCOME ...................... 11,329 10,952 17,263 21,287
Interest expense ................. (7,217) (8,335) (14,421) (17,048)
Interest and other income - net .. 1,610 398 2,536 928
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM .............. 5,722 3,015 5,378 5,167
--------- --------- --------- ---------
INCOME TAX PROVISION:
Current .......................... 197 744 593 1,426
Deferred ......................... 908 807 893 1,134
--------- --------- --------- ---------
1,105 1,551 1,486 2,560
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY
ITEM ............................. 4,617 1,464 3,892 2,607
EXTRAORDINARY ITEM - Loss on repurchase
of debt (no income tax benefit) .. -- (160) -- (553)
--------- --------- --------- ---------
NET INCOME ............................ $ 4,617 $ 1,304 $ 3,892 $ 2,054
========= ========= ========= =========
See notes to unaudited consolidated financial statements.
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Form 10-Q
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
--------- ---------
(Unaudited)
(000's)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 23,256 $ 29,112
Accounts receivable .................................... 101,006 71,551
Inventories:
Finished goods ..................................... 25,883 33,618
Raw materials ...................................... 16,136 19,476
Other current assets ................................... 32,426 30,226
Prepaid expenses ....................................... 17,115 14,635
--------- ---------
Total Current Assets ............................... 215,822 198,618
PROPERTY, PLANT AND EQUIPMENT - NET ......................... 196,781 198,887
OTHER ASSETS ................................................ 34,031 29,126
--------- ---------
Total .............................................. $ 446,634 $ 426,631
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................... $ 17,449 $ 17,481
Short-term debt ........................................ 16,276 15,348
Accounts payable ....................................... 58,273 38,033
Accrued expenses and other current liabilities ......... 30,826 33,321
--------- ---------
Total Current Liabilities .......................... 122,824 104,183
--------- ---------
LONG-TERM DEBT - NET:
Senior indebtedness, notes payable and other obligations 152,135 152,539
Senior subordinated indebtedness - net ................. 114,230 114,175
--------- ---------
Long-Term Debt - net ............................... 266,365 266,714
--------- ---------
OTHER LIABILITIES ........................................... 29,421 29,480
--------- ---------
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 ...................................... 10,842 9,345
Cumulative translation adjustment ...................... (144) (367)
Unrealized gains on marketable securities .............. 684 634
--------- ---------
Total Stockholder's Equity ......................... 28,024 26,254
--------- ---------
Total .............................................. $ 446,634 $ 426,631
========= =========
See notes to unaudited consolidated financial statements.
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Form 10-Q
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Six Month Period Ended June 30, 1997
(Unaudited)
Additional Cumulative Unrealized
Preferred Common Paid-In Retained Translation Gains
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 income ............... 3,892 3,892
Dividends paid:
Common stock ........ (1,970) (1,970)
Preferred stock ..... (425) (425)
Net change during period.. 223 50 273
------- ------- ------- ------- ------- ------- -------
BALANCE, June 30, 1997 ... $ 7,960 $ -- $ 8,682 $10,842 $ (144) $ 684 $28,024
======= ======= ======= ======= ======= ======= =======
See notes to unaudited consolidated financial statements.
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Form 10-Q
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Period
Ended June 30,
------------------------
1997 1996
-------- --------
(000's)
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
Operations:
Net income .................................................... $ 3,892 $ 2,054
Items not requiring (providing) cash:
Depreciation and amortization ............................. 10,002 12,054
Deferred taxes and other - net ............................ (696) 667
-------- --------
Total ................................................ 13,198 14,775
Working capital management:
Accounts receivable and other current assets .................. (33,376) (34,750)
Inventories ................................................... 11,075 3,683
Prepaid expenses .............................................. (2,480) (638)
Accounts payable .............................................. 20,240 5,989
Accrued expenses and other current liabilities ................ (2,495) (3,744)
-------- --------
Cash provided (used) by operations and working
capital management ................................... 6,162 (14,685)
-------- --------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment ........................ (7,415) (6,921)
Purchases of marketable securities and other short-term investments (5,355) (3,833)
Sales of marketable securities and other short-term investments ... 7,076 623
Other - net ....................................................... (4,421) 7,682
-------- --------
Cash provided (used) by investment activities ............. (10,115) (2,449)
-------- --------
FINANCING ACTIVITIES:
Increase in short-term debt ....................................... 928 8,582
Increase in long-term debt ........................................ 6,500 47,522
Repurchases, payments and current maturities of long-term debt .... (6,936) (52,492)
Distributions to stockholder ...................................... (2,395) (2,081)
-------- --------
Cash provided (used) by financing activities .............. (1,903) 1,531
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS .............................. (5,856) (15,603)
CASH AND CASH EQUIVALENTS:
Beginning of period ............................................... 29,112 32,872
-------- --------
End of period ..................................................... $ 23,256 $ 17,269
======== ========
See notes to unaudited consolidated financial statements.
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Form 10-Q
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 operates through its
subsidiaries, principally: Cedar Chemical Corporation ("Cedar"), and Cedar's
wholly-owned subsidiary, Vicksburg Chemical Company ("Vicksburg"); 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, Inc. (name changed from New Mexico Potash
Corporation upon completion of the sale of its potash operations; "NMPC"), a
wholly-owned subsidiary of Cedar, and EDP, Inc. (name changed from Eddy Potash,
Inc. upon completion of the sale of its potash operations; "EDP"), a
wholly-owned subsidiary of the Company, 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 six month period ended June 30, 1996, the potash
operations contributed approximately $29,000,000 (12%) 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 Labor Disruption at HCL" for certain
information regarding a labor dispute and strike at HCL.
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In the opinion of management, the unaudited consolidated financial
statements for the six month periods ended June 30, 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 six month period ended June 30, 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 Percentage Period
of Revenues to of Revenues to
Three Month Period Six Month Period
Period Ended Changes Period Ended Changes
June 30, Increase June 30, Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
----- ----- ----- ----- ----- -----
Revenues .......................... 100.0% 100.0% (9.5)% 100.0% 100.0% (19.3)%
Costs and expenses:
Cost of goods sold ............ 80.0 81.7 (11.4) 80.7 81.6 (20.2)
General and administrative .... 9.8 9.3 (5.3) 10.4 9.5 (12.1)
----- ----- ----- ----- -----
Operating income .................. 10.2 9.0 3.4 8.9 8.9 (18.9)
Interest expense .............. (6.5) (6.8) (13.4) (7.4) (7.1) (15.4)
Interest and other income - net 1.5 0.3 304.5 1.3 0.4 173.3
----- ----- ----- ----- -----
Income before income taxes
and extraordinary item ........ 5.2 2.5 89.8 2.8 2.2 4.1
Income tax provision .............. 1.0 1.3 (28.8) 0.8 1.1 (42.0)
----- ----- ----- ----- -----
Income before extraordinary item .. 4.2 1.2 215.4 2.0 1.1 49.3
Extraordinary item ................ -- (0.1) 100.0 -- (0.2) 100.0
----- ----- ----- ----- -----
Net income ........................ 4.2% 1.1% 254.1% 2.0% 0.9% 89.5%
===== ===== ===== ===== ===== =====
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Form 10-Q
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.
Notwithstanding 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 May, 1997, HCL's plant was operating
at approximately full capacity.
As a result of the strike at HCL, 1997 (particularly the first quarter)
was significantly impacted by a reduction in sales volume, resulting in the
under-absorption of fixed overhead, and lower gross margins due to reduced
productivity, 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 commenced during the second quarter
of 1997.
RESULTS OF OPERATIONS
Three month period ended June 30, 1997 compared with the three month
period ended June 30, 1996:
Revenues decreased by 9.5% to $110,751,000 in 1997 from $122,422,000 in
1996, a decrease of $11,671,000, resulting from decreased sales of specialty
plant nutrients and industrial chemicals ($1,800,000) as a result of the HCL
strike and less favorable currency exchange rates in 1997 and a decrease of
sales of potash ($13,500,000) as a result of the sale of the Company's potash
operations, which were partially offset by higher sales of organic chemicals
($3,600,000). 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 decreased to 80.0% in
1997 compared with 81.7% in 1996. Gross profit was $22,161,000 in 1997 compared
with $22,392,000 in 1996 (20.0% of revenues in 1997 compared with 18.3% of
revenues in 1996), a decrease of $231,000. The primary factors resulting in the
decreased gross profit were (i) less favorable currency exchange rates in the
1997 period ($8,100,000) and (ii) the adverse effect of the strike at HCL (see
"Labor Disruption at HCL" above). These decreases were almost fully offset by
lower raw material, energy and
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wage costs, certain selling price increases and by higher organic chemical
margins in the 1997 period. General and administrative expense decreased to
$10,832,000 in 1997 from $11,440,000 in 1996, but increased slightly as a
percentage of revenues (9.8% of revenues in 1997 compared with 9.3% of revenues
in 1996).
As a result of the matters described above, the Company's operating
income increased by $377,000 to $11,329,000 in 1997 as compared with $10,952,000
in 1996.
Interest expense decreased by $1,118,000 ($7,217,000 in 1997 compared
with $8,335,000 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 $1,212,000,
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 increased by $2,707,000 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 $7,885,000 principal amount of
its Senior Subordinated Reset Notes, which resulted in a loss of $160,000. 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.
Six month period ended June 30, 1997 compared with the six month period
ended June 30, 1996:
Revenues decreased by 19.3% to $194,283,000 in 1997 from $240,664,000
in 1996, a decrease of $46,381,000, resulting from decreased sales of specialty
plant nutrients and industrial chemicals ($20,600,000) primarily as a result of
the HCL strike and less favorable currency exchange rates in 1997 and a decrease
of sales of potash ($29,400,000) as a result of the sale of the Company's potash
operations, which were partially offset by higher sales of organic chemicals
($3,600,000). 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 decreased to 80.7% in
1997 compared with 81.6% in 1996. Gross profit was $37,561,000 in 1997 compared
with $44,372,000 in 1996 (19.3% of revenues in 1997 compared with 18.4% of
revenues in 1996), a decrease of $6,811,000. The primary factors resulting in
the decreased gross profit were (i) less favorable currency exchange rates in
the 1997 period ($10,600,000), (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 potash
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operations. These decreases were partially offset by higher organic chemical
margins in the 1997 period and lower raw material, energy and wage costs and
certain selling price increases. General and administrative expense decreased to
$20,298,000 in 1997 from $23,085,000 in 1996, but increased as a percentage of
revenues (10.4% of revenues in 1997 compared with 9.5% of revenues in 1996).
During the 1997 period, certain HCL general and administrative expenses
(security costs, communications expenses, etc.) were adversely effected by the
strike.
As a result of the matters described above, the Company's operating
income decreased by $4,024,000 to $17,263,000 in 1997 as compared with
$21,287,000 in 1996.
Interest expense decreased by $2,627,000 ($14,421,000 in 1997 compared
with $17,048,000 in 1996) primarily as a result of (i) the maturity of the
Company's 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 $1,608,000, 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 increased by $211,000 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 $19,122,000 principal amount of
its Senior Subordinated Reset Notes, which resulted in a loss of $553,000. 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 June 30, 1997 and
December 31, 1996 was $92,998,000 and $94,435,000, respectively.
Operations for the six month periods ended June 30, 1997 and 1996,
after adding back non-cash items, provided cash of approximately $13,200,000 and
$14,800,000, respectively. During such periods other changes in working capital
used cash of approximately $7,000,000 and $29,500,000, respectively, resulting
in cash being provided (used) by operating activities and working capital
management of approximately $6,200,000 and ($14,700,000), respectively.
Investment activities during the six month periods ended June 30, 1997
and 1996 used cash of approximately $10,100,000 and $2,400,000, respectively,
including additions to property in 1997 and 1996 of approximately $7,400,000 and
$6,900,000, respectively, purchases of marketable securities and other
short-term investments of approximately $5,400,000 and $3,800,000, respectively,
and sales of marketable securities and other short-term investments of
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approximately $7,100,000 and $600,000, respectively. No major property additions
occurred in the 1997 or 1996 periods.
Financing activities during the six month periods ended June 30, 1997
and 1996 provided (used) cash of approximately ($1,900,000) and $1,500,000,
respectively.
As of June 30, 1997, the Company had outstanding long-term debt
(excluding current maturities) of $266,365,000. 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 six month
periods ended June 30, 1997 and 1996, would have decreased by approximately
$3,900,000 and $3,200,000, 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 six month period ended June 30, 1997 the Company invested
approximately $7,400,000 in capital expenditures. The Company currently
anticipates that capital expenditures for the year ending December 31, 1997 will
aggregate approximately $20,000,000. 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.
OTHER MATTERS
Effective August 1, 1997, Cedar and Westrade USA, Inc. ("Westrade")
formed Riceco LLC ("Riceco"), to market propanil, combination rice herbicides
and other rice-related chemicals (other than fertilizers) on a worldwide basis.
Cedar and Westrade each own 50% of Riceco.
Riceco, unlike other marketing companies which often serve several
markets, will concentrate solely on rice-related products. By capitalizing on
the strengths of Cedar and Westrade in formulation and production, Riceco's goal
is to become a significant marketer of rice-related products throughout the
world. All of Riceco's propanil products and combination formulations will be
produced by Cedar.
Westrade is a wholly owned subsidiary of Westrade, Inc., a Cayman
Islands corporation, which produces, markets and distributes various
agricultural chemicals.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10.16 - Credit Agreement, dated as of November 3, 1995 and
amended and restated as of July 31, 1997, among Cedar Chemical
Corporation, the Lenders listed on the signature pages thereof and The
Chase Manhattan Bank, as Administrative Agent (exhibits and schedules
omitted).
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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Form 10-Q
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)
Date: August 11, 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.
- ------- ----------- --------
10.16 Credit Agreement, dated as of November 3, 1995 and amended and
restated as of July 31, 1997, among Cedar Chemical Corporation, the
Lenders listed on the signature pages thereof and The Chase
Manhattan Bank, as Administrative Agent (exhibits and schedules
omitted).
27 Financial Data Schedule.
17