1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 1-7399
TCC INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Texas 74-1366626
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
816 Congress Avenue, Suite 1250, Austin, TX 78701
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(Address of principal executive offices) (Zip code)
(512) 320-0976
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the 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 the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 2,762,115 shares as
of May 9, 1997.
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Part I. Contents of Consolidated Financial Information:
Page Number(s)
--------------
Consolidated Balance Sheet 1 - 2
Consolidated Statement of Operations 3
Condensed Consolidated Statement of Cash Flows 4
Consolidated Statement of Shareholders' Equity 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis 8 - 9
Part II. Other Information 10 - 11
Signatures 12
3
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In Thousands)
March 31, December 31,
ASSETS 1997 1996
Current assets: --------------- ---------------
Cash and cash equivalents $ 2,201 $ 2,723
Receivables:
Trade receivables, net
of allowance of
$107 and $104, respectively 3,649 2,518
Other, including
interest 68 48
--------------- ---------------
3,717 2,566
--------------- ---------------
Inventories:
Raw materials 1,007 877
Work in progress 227 90
Finished goods 5,465 5,664
--------------- ---------------
6,699 6,631
--------------- ---------------
Other 668 185
--------------- ---------------
Total current assets 13,285 12,105
--------------- ---------------
Property, plant and
equipment 9,954 9,879
Accumulated depreciation (5,749) (5,652)
--------------- ---------------
4,205 4,227
--------------- ---------------
Intangible assets:
Goodwill 1,170 1,181
Patents and trademarks 79 57
--------------- ---------------
1,249 1,238
Accumulated amortization (454) (443)
--------------- ---------------
795 795
--------------- ---------------
Other assets 600 602
--------------- ---------------
Total assets $18,885 $17,729
=============== ===============
The accompanying notes are an integral part of
the consolidated financial statements.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - continued
(Unaudited)
(In Thousands, except share amounts)
LIABILITIES AND March 31, December 31,
SHAREHOLDERS' EQUITY 1997 1996
--------------- ---------------
Current liabilities:
Notes payable $ 3,230 $ 2,033
Current maturities of
long-term debt 204 225
Accounts payable 898 565
Accrued expenses 1,052 971
Customer deposits 349 432
--------------- ---------------
Total current
liabilities 5,733 4,226
--------------- ---------------
Long-term debt, less
current maturities 1,683 1,755
Deferred liabilities 219 224
--------------- ---------------
Total liabilities 7,635 6,205
--------------- ---------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, authorized
2,000,000 shares, no par
value, no shares issued -- --
Common stock, authorized
10,000,000 shares, par
value $1 per share,
2,841,601 shares issued 2,842 2,842
Additional paid-in capital 8,744 8,746
Cumulative foreign currency
translation adjustment 12 54
Retained earnings (accumulated
deficit) (89) 144
--------------- ---------------
11,509 11,786
Less treasury stock,
79,486 and 80,486 shares,
respectively, at cost (259) (262)
--------------- ---------------
Total shareholders'
equity 11,250 11,524
--------------- ---------------
Total liabilities
and shareholders'
equity $18,885 $17,729
=============== ===============
The accompanying notes are an integral part of the consolidated
financial statements.
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5
TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, except per share amounts)
For the Three Months Ended
March 31,
1997 1996
--------------- ---------------
Revenue $ 4,537 $ 5,312
Cost of goods sold 2,907 3,679
--------------- ---------------
Gross profit 1,630 1,633
Selling, general and administrative
expenses 1,760 1,771
--------------- ---------------
Operating loss (130) (138)
--------------- ---------------
Other income (expense):
Interest income 20 29
Interest expense (155) (131)
Other, net 39 45
--------------- ---------------
(96) (57)
--------------- ---------------
Loss before provision (benefit)
for income taxes (226) (195)
Provision (benefit) for income taxes:
Federal 0 0
State 7 (2)
--------------- ---------------
7 (2)
--------------- ---------------
Net loss $ (233) $ (193)
=============== ===============
Weighted average number of common and
common equivalent shares outstanding 2,762 2,759
=============== ===============
Loss per common and common
equivalent share: $ (0.08) $(0.07)
=============== ===============
The accompanying notes are an integral part of
the consolidated financial statements.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands, except per share amounts)
For the Three Months Ended
March 31,
1997 1996
--------------- ---------------
Net cash used by operating activities $(1,497) $(1,435)
-------------- --------------
Cash flows from investing activities:
Additions to property, plant and equipment (138) (47)
Proceeds from sale of assets 10 110
Other, net (22) 2
-------------- --------------
Net cash provided (used) by investing
activities (150) 65
-------------- --------------
Cash flows from financing activities:
Net borrowings of short-term debt 1,197 1,697
Long-term debt paid (73) (140)
Other, net 1 (11)
-------------- --------------
Net cash provided by financing activities 1,125 1,546
-------------- --------------
Net increase (decrease) in cash and
cash equivalents (522) 176
Cash and cash equivalents at beginning
of period 2,723 2,224
-------------- --------------
Cash and cash equivalents at end
of period $2,201 $2,400
============== ==============
The accompanying notes are an integral part of the
consolidated financial statements.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(unaudited)
(in thousands)
Cumulative
Foreign Retained
Par Value Addt'l Currency Earnings
Number of of Common Paid-in Translation (Accumulated Treasury
Shares Shares Capital Adjustment Deficit) Stock Total
--------- ---------- ------- ----------- -------- ---------- --------
Balances,
January 1, 1997 2,842 $ 2,842 $ 8,746 $ 54 $ 144 $ (262) $ 11,524
Net loss (233) (233)
Exercise of stock
options -- -- (2) -- -- 3 1
Foreign currency
translation
adjustment (42) (42)
------- ------- ------- --------- -------- ---------- --------
Balances,
March 31, 1997 2,842 $ 2,842 $ 8,744 $ 12 $ (89) $ (259) $ 11,250
======= ======= ======= ========= ======== ========== ========
The accompanying notes are an integral part of the
consolidated financial statements.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of
TCC Industries, Inc. and Subsidiaries ("the Company"), and have been presented
in accordance with the reporting requirements for interim financial statements.
Such requirements do not include all of the disclosures normally required by
generally accepted accounting principles or those normally made in an Annual
Report on Form 10-K. Certain amounts have been reclassified for consistency in
presentation. In connection therewith readers are referred to the Company's
most recent Annual Report on Form 10-K filed for the year ended December 31,
1996. The information furnished herein reflects all adjustments which, in the
opinion of management, are of a normal recurring nature and necessary for a
fair statement of the results of interim periods. Such results for interim
periods are not necessarily indicative of the results to be expected for a full
year, principally due to seasonal fluctuations in wholesale distribution
revenue.
Income Taxes
The Company and its wholly owned domestic subsidiaries join in
filing a consolidated federal income tax return. The provision (benefit) for
income taxes for interim financial reporting is determined utilizing the
estimated annual effective tax rate method of allocation. Separate state and
foreign income tax returns are filed by subsidiaries where required.
Statement of Cash Flows
For purposes of the condensed consolidated statement of cash
flows, the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Foreign Currency Translation
The consolidated financial statements of Meyer Europe, Ltd.
are translated into U.S. dollars in accordance with SFAS 52, "Foreign Currency
Translation". SFAS 52 requires the foreign operations to be translated using
current exchange rates for balance sheet items, historical rates for capital
accounts, and average exchange rates for income statement items. The resulting
translation adjustments are recorded directly into a separate component of
shareholders' equity.
Note 2 Restrictions on Net Assets:
Certain of the Company's subsidiaries have bank loan agreements which
contain provisions that can limit or restrict the transfer of funds to the
parent company in the form of cash dividends, loans or advances. Such
restrictions are based on each subsidiaries' income and other formulas
contained in the respective loan agreements. Substantially all of the Company's
net assets are restricted by the loan agreements, except as to the
aforementioned transfers of funds allowed under the loan agreements.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 3 Commitments and Contingencies
There are sundry claims pending against certain of the
Company's subsidiaries, all of which are incidental to the ordinary course of
business and, in the opinion of Company management, should not result in any
significant liability.
Note 4 Shareholders' Equity
The loss per share for the three months ended March 31, 1997 and 1996
is calculated using the weighted average number of common shares outstanding.
Common share equivalents would have diluted the loss per share and were
therefore excluded from the computation.
Note 5 Pending Matters
On February 26, 1997, the Board of Directors of the Company decided to
expand the scope of the engagement of Rauscher Pierce Refsnes, the Company's
investment banking firm, for the purpose of evaluating all strategic
alternatives for enhancing shareholder value, including having the firm assist
with such alternatives as a material acquisition of or merger with another
company, the sale of all or part of the Company, or a leveraged buyout by
management and/or new investors.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of the results
of operations and financial condition of TCC Industries, Inc. and Subsidiaries
("the Company") during the periods included in the accompanying consolidated
financial statements. The discussion below relates to material changes in the
results of operations for the three months ended March 31, 1997 as
compared to the same period ended March 31, 1996 and to material changes
in the financial condition of the Company occurring since the prior fiscal year
end of December 31, 1996. The reader is invited to review Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 for further details regarding the significant factors
affecting the results of operations and financial condition of the Company.
COMPARISONS OF THE RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Revenue
Consolidated revenue decreased $774,000 (14.6%) to $4.5 million in the
first quarter of 1997, as compared to revenue of $5.3 million for the first
quarter of 1996. The decrease in revenue is primarily attributable to a
decrease at the wholesale distribution segment.
Manufacturing revenue decreased 4.9% to $2.4 million in the first
quarter of 1997, down from $2.5 million in the same quarter in 1996. This
decrease results from a $309,000 (16.3%) increase at Meyer Machine, the
manufacturing segment's U.S. based operation, and a $434,000 (67.2%) decrease
at Meyer Vi-Tech, the European based operation. The increase at Meyer Machine
is primarily the result of a 32.3% increase in sales of equipment. The increase
in equipment sales primarily resulted from the higher backlog at December 31,
1996 ($1,471,000) when compared to December 31, 1995 ($779,000). The increased
backlog at Meyer Machine at December 31, 1996 as compared to December 31, 1995
primarily resulted from increased demand for equipment from customers in the
company's traditional core markets as well as increases in orders from new
markets Meyer Machine has been developing. The decrease in revenue at Meyer
Vi-tech is primarily attributable to a decrease in sales of equipment of 78.2%
partially offset by 124.3% increase in parts and service sales when compared to
the first quarter of 1996. The decrease in equipment sales at Meyer Vi-Tech
primarily resulted form the lower backlog at December 31, 1996 ($32,000) when
compared to December 31, 1995 ($559,000). The decreased backlog at Meyer
Vi-Tech primarily resulted from timing differences of shipments. The increase
in Meyer Vi-Tech parts and service sales resulted from an overall increase in
the installed base of equipment.
Wholesale distribution revenue decreased 23.6% during the first quarter
of 1997 to $2.1 million, when compared to the same quarter in 1996. The decrease
in revenue is primarily the result of increased competition for the higher
volume, lower margin customers.
Gross Profit
During the first quarter of 1997, higher gross profit margins
substantially offset the impact of lower sales resulting in consolidated gross
profit remaining virtually the same in the first quarter of 1997, $1,630,000
when compared to $1,633,000 for the same period in 1996. The consolidated gross
profit margin in the first quarter of 1997 was 35.9% as compared to 30.7% for
the same period in 1996. Gross profit margins improved at both the manufacturing
and wholesale distribution segments. The gross profit margin at the
manufacturing segment improved seven percentage points for the first quarter of
1997 when compared to the same period in 1996. The improvement is primarily
attributable to a reduction in material costs, as a percentage of sales,
resulting from steps taken in 1996 to reduce certain component costs. In
addition, while information is not readily available to determine the impact of
each item, gross profit margins at the manufacturing segment were also
positively impacted by price increases and an improved product sales mix. The
gross profit margin at the wholesale distribution segment improved three point
four percentage points due to an improved product sales mix towards fewer sales
qualifying for quantity discounts.
Selling, General and Administrative
Consolidated selling, general and administrative expenses decreased
$11,000 in the first quarter of 1997, when compared to the first quarter of
1996, in spite of the fact that there was a first quarter 1997 charge of
approximately $80,000 attributable to the costs of a proxy contest. Selling,
general and administrative expenses at the manufacturing segment increased
$73,000 during the first quarter of 1997 when compared to the first quarter of
1996 primarily due to a $41,000 increase in selling and marketing expenses.
Selling, general and administrative expenses at the wholesale distribution
segment were down $104,000 during the first quarter of 1997 when compared to the
first quarter of 1996, primarily due to lower selling and marketing expenses,
and lower wages and wage related costs. Overhead expense at the parent company
level, except for the $80,000 in expenses related to the proxy contest,
decreased $61,000, primarily due to lower salary and related expenses.
Other Income (Expense)
Interest expense increased $24,000 during the first quarter of 1997
when compared to the same period in 1996 due to a higher effective interest
rate on borrowings.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS -- (Continued)
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $7.6 million and
a current ratio of 2.3 to 1. This compares to working capital of $7.9 million
and a current ratio of 2.9 to 1 at December 31, 1996. Cash for the three
months ended March 31, 1997 decreased $522,000 while total liabilities
increased $1,430,000. The increase in liabilities is primarily the result of an
increase in notes payable to fund the growth in receivables that occurs during
the first quarter of each year from the seasonal surge in product sales at the
wholesale distribution segment.
At March 31, 1997 Meyer Machine maintained a $1,200,000 bank line of
credit, of which approximately $1,000,000 was available after a reduction of
$162,000 to support a letter of credit issued by the bank as partial collateral
for the real estate lien note payable to a bank by Meyer Vi-Tech. Meyer Machine
has a commitment from its primary bank lender to provide a line of credit for up
to $500,000, if needed, for equipment purchases. This commitment expires in June
1998.
At March 31, 1997, Allen-Lewis maintained a line of credit with a bank
that provided maximum borrowing capabilities of $4.0 million, subject to a
borrowing base calculation, for working capital purposes and letters of credit.
At March 31, 1997, Allen-Lewis had approximately $130,000 available under this
line of credit. This commitment expires in July 1997 at which time, management
believes the credit facility will be renewed.
TCC Industries, Inc. (parent company) has an $85,000 line of credit and
a $500,000 line of credit, both of which are used to supplement the short-term
cash needs of the parent company. Neither of these lines of credit had balances
outstanding at March 31, 1997.
Each of the subsidiaries' bank lines of credit agreements contain
provisions that limit or restrict the transfer of funds to the parent company
in the form of cash dividends, loans or advances, based on each such
subsidiaries' income and other formulas contained in the respective loan
agreements. Management does not believe the restrictions will have a
significant effect on the parent company's ability to meet ordinary cash
obligations in 1997. However, these restrictions could negatively impact the
Company's ability to pay cash dividends in the future, if the respective banks
do not waive such restrictions. Management anticipates that each subsidiary
will be able to finance the current installments on its debt agreements through
their own cash flows from operations during 1997.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 3 to the financial statements included elsewhere
herein for a discussion of legal proceedings.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of TCC Industries, Inc. was
held on May 7, 1997, for the purpose of electing two directors
to the board of Directors and approving the appointment by the
Board of Directors of Coopers & Lybrand L.L.P. as the firm of
independent accountants to audit the accounts of the Company
for the fiscal year ended December 31, 1997. During the
meeting, proxies and ballots were delivered to an independent
election judge for review and tabulation, and the meeting was
recessed until May 23, 1997, at which time it is anticipated
the meeting will be reconvened to announce the election
judge's tabulation of the proxies and ballots if final
results are then available.
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TCC INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
PART II - OTHER INFORMATION (CONTINUED)
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
6(a) Exhibits:
3.21 1997 Amendment No. 2 to the Third Amended and
Restated Bylaws of TCC Industries, Inc.
10.10.2 Amendment to Employment Agreement by and among the
Company and Lawrence W. Schumann dated as of
January 9, 1997.
10.11.2 Amendments to Employment Agreement by and among A.L.
Investors, Inc. and Larry T. Marek through January 9,
1997.
10.22 Employment Agreement by and among Eugene W. Teeter and
Meyer Machine Company dated as of January 9, 1997.
11 The computation of fully diluted earnings per share
would be the same as primary earnings per share,
which is easily discernable on the face of the
statements of operations included elsewhere herein.
27 Financial Data Schedules:
(i) For the quarterly period ended March 31, 1997.
6(b) Reports on Form 8-K:
The following is the date and description of the events
reported on Forms 8-K filed during the first quarter of 1997:
Date of Earliest Event
Reported on Form 8-K Description
None.
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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.
TCC INDUSTRIES, INC.
----------------------------------------
(Registrant)
/s/ LAWRENCE W. SCHUMANN
----------------------------------------
LAWRENCE W. SCHUMANN
President, Duly Authorized Officer,
and Principal Financial Officer
of Registrant
Date: May 14, 1997
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EXHIBIT INDEX
EXHIBIT
NO.
- -------
3.21 1997 Amendment No. 2 to the Third Amended and Restated Bylaws of TCC
Industries, Inc.
10.10.2 Amendment to Employment Agreement by and among the Company and
Lawrence W. Schumann dated as of January 9, 1997.
10.11.2 Amendments to Employment Agreement by and among A.L. Investors, Inc.
and Larry T. Marek through January 9, 1997.
10.22 Employment Agreement by and among Eugene W. Teeter and Meyer Machine
Company dated as of January 9, 1997.
11 The computation of fully diluted earnings per shares would be the same
as primary earnings per share, which is easily discernable on the face
of the statements of operations included elsewhere herein.
27 Financial Data Schedules:
(i) For the quarterly period ended March 31, 1997.