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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission File Number 0-8287
LINDBERG CORPORATION
Delaware 36-1391480
---------------------- ----------------------
State of Incorporation IRS Identification No.
6133 North River Road, Suite 700
Rosemont, Illinois 60018
(847) 823-2021
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 10, 1998 was: $36,631,612.
The number of shares of the Registrant's Common Stock outstanding as of
March 10, 1998 was: 4,845,481.
Documents Incorporated by Reference
-----------------------------------
Those sections or portions of the Registrant's 1997 Annual Report to
Stockholders (the"Annual Report") and of the Registrant's definitive Proxy
Statement for use in connection with its annual meeting of stockholders to
be held on April 24, 1998 (the "Proxy Statement"), described in the cross
reference sheet and attached hereto, are incorporated by reference into
Parts I, II and III of this report.
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<TABLE>
<CAPTION>
Table of Contents
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Item Number and Caption Page
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PART I
Item 1 Business.............................. Annual Report, pp. 17-18, 23
(Notes 2, 3 and 13);
herein, pp. 4-6
Item 2 Properties............................ 6-7
Item 3 Legal Proceedings..................... Annual Report, pp. 21-22
(Note 10); herein, pp. 5-7
Item 4 Submission of Matters to a Vote
of Security Holders................... 7
PART II
Item 5 Market for the Registrant's
Common Equity and Related
Stockholder Matters................... Annual Report, p. 25
"Stock Market Information"
and Annual Report, p. 19
(Note 5); herein, p. 7
Item 6 Selected Financial Data............... Annual Report, p. 23
"Five-Year Financial Review";
herein, p. 7
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations............. Annual Report, pp. 12-13
"Management's Discussion and
Analysis"; herein, p. 7
Item 7A Quantitative and Qualitative
Disclosures About Market Risk ........ 7
Item 8 Financial Statements and
Supplementary Data.................... Annual Report, pp. 14-23
"Consolidated Financial
Statements" and "Notes to
Consolidated Financial
Statements"; herein, p. 8
Item 9 Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure.............. 8
</TABLE>
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<TABLE>
<CAPTION>
Item Number and Caption Page
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PART III
Item 10 Directors and Executive Officers
of the Registrant
(a) Identification of directors........ Proxy Statement, pp. 1-3,
"The Election of Directors";
herein, p. 8
(b) Identification of executive officers 8
Item 11 Executive Compensation................. Proxy Statement, pp. 3-8,
"Executive Compensation";
herein, p. 8
Item 12 Security Ownership of Certain
Beneficial Owners and Management....... Proxy Statement, pp. 12-13,
"Stock Ownership";
herein, p. 8
Item 13 Certain Relationships and Related
Transactions........................... Proxy Statement, p. 2,
"The Election of Directors",
and p. 6, "Executive
Compensation - Compensation
Committee Interlocks and
Insider Participation";
herein, p. 9
PART IV
Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K...... 9-12
Signatures...................................... 13
Exhibit Index................................... 14-17
</TABLE>
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Part I
"Safe Harbor" Statement: Statements contained herein that are not based on
historical facts are forward-looking statements subject to uncertainties and
risks including, but not limited to, product and service demand and acceptance;
economic conditions; the impact of competition and pricing; capacity and supply
constraints or difficulties; results of financing and acquisition efforts;
regulatory and other legal issues; and other risks detailed in the Company's
other Securities Exchange Commission filings.
Item 1. Business
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General development of business
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Lindberg Corporation (the "Company") was founded in 1922, and incorporated in
Illinois in 1924. The first public offering of Company stock was held in 1959.
In 1976, the Company changed its state of incorporation from Illinois to
Delaware. Throughout its history, the Company has maintained a program of
internal growth and outside acquisitions resulting in the 28 heat treating
plants, located across the country, in operation currently. The Company is
the largest commercial provider of heat treating in the nation.
On July 31, 1997, the Company acquired all of the outstanding shares of
Ticorm, Inc. for $1.9 million of cash and $1.9 million of notes payable. On
October 1, 1997, the Company acquired the remaining 50% share of its joint
venture partnership - Alumatherm Heat Treating Company ("Alumatherm") - from
its partners for $6.5 million of cash and $6.3 million of notes payable.
Each of these acquired companies is in the heat treating business in the Los
Angeles area. Cash payments made as part of each purchase were funded with
additional borrowings under the Company's revolving credit agreement.
Subsequent to year-end, on January 16, 1998, the Company acquired all of the
outstanding shares of Industrial Steel Treating Co. and, in a related
transaction, all of the outstanding shares of Fabriform Metal Brazing, Inc.
for approximately $11 million. Both companies are located in the Los Angeles
area and primarily serve the aerospace market.
On December 22, 1997, the Board of Directors approved a plan to sell the
Company's Precision Products business segment ("Precision Products"). Although
difficult to predict, the Company expects to sell the segment during 1998.
Precision Products is reported as discontinued operations, and the consolidated
financial statements have been reclassified to segregate the net assets and
operating results of the business. The Precision Products segment consists of
two aluminum die casting facilities (Impact Industries, Inc. and Arrow-Acme
Company) and one aluminum semi-permanent mold foundry (Harris Metals, Inc.).
At December 31, 1997, net assets of the discontinued operations of
approximately $17.5 million consisted of $7.4 million of net current assets,
$14.2 million of equipment and $2.6 million of other net assets, less the
allowance for the estimated loss on disposal.
Narrative description of business
- ---------------------------------
The Company operates in the field of metallurgical products, providing
customers with heat treating of metal, a process which improves mechanical
properties, durability and wear resistance. While heat treating is offered
through a range of processes, market needs historically have dictated a degree
of specialization for most plants. Among the many heat treating processes
offered are hardening and tempering, carburizing, nitriding, selective
hardening, solution treating and aging, stress relieving, normalizing, brazing
and other specialty processes. These products are provided to customers both
with and without their own heat treating capabilities.
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In addition to providing heat treating from its own plants, the Company also
provides heat treating through its Strategic Partnership 2000, or SP 2000,
program. The SP 2000 program allows the Company to provide heat treating to
its SP 2000 customers, typically manufacturers with a significant requirement
for heat treating, using dedicated equipment at either its own or its
customers' facilities.
The Company's heat treating plants are each located in a major industrial area.
The market for heat treating for any plant is largely confined to its local
geographic area. Major industries served include agricultural and construction
equipment, automotive/truck, aerospace, consumer products, defense, fabricated
metal products, oil field machinery, tool and die and precision machined
products. Parts processed for these industries include machined pieces,
fasteners, forgings, castings and stampings made of nearly all types of ferrous
and certain nonferrous metals, including aluminum and titanium. Because of
the wide customer base served, the loss of a single customer or a few customers
would not have a material adverse effect on the Company. No customer accounted
for more than 10% of the Company's annual net sales in 1997.
Each plant has competition of varying degrees of intensity. Each competes in
its market area on the basis of quality, reliable delivery and price. Plant
management is largely responsible for its own pricing and cost control, and
thus has the flexibility to respond to local area market conditions. There
are competitors in particular localities larger than the Company's facility
located therein. Some of these firms are divisions or subsidiaries of large
companies and, therefore, have access to substantial resources. Competition
also exists from captive heat treating facilities of manufacturing concerns,
although the Company also considers such concerns as potential customers.
The basic raw material for the Company's heat treating is energy in the forms
of natural gas and electricity. The Company has not experienced any material
restrictions by its suppliers of these sources of energy.
The Company is party to various lawsuits and claims arising in the ordinary
course of business. Management, after review and consultation with legal
counsel, considers that any liability resulting from these matters would not
materially affect the financial condition or results of operations of the
Company.
The Company employs some environmentally hazardous materials. The Company has
made expenditures to comply with laws and regulations relating to the
protection of the environment, including studies, investigations and
remediation of ground contamination, and expects to make such expenditures in
the future in its efforts to comply with existing and future requirements.
While such expenditures to date have not materially affected the Company's
capital expenditures, competitive position, financial condition or results of
operations, there can be no assurance that more stringent regulation or
enforcement in the future will not have such effects.
In some cases, the Company has notified state authorities of a possible need
for remediation at sites it previously operated or currently operates. At all
such sites costs which may be incurred are difficult to accurately predict
until the level of contamination is determined, and would be subject to
increase if more contamination is discovered during investigation or
remediation or if state authorities require more remediation than anticipated.
Such costs may be less if the contamination proves to be less than currently
expected and to the extent costs are covered by insurance or are allocable to
others.
The Company has also been notified by various state and federal governmental
authorities that they believe it may be a "potentially responsible party" or
otherwise have responsibility with respect to clean-up obligations at three
waste disposal sites which were never owned or operated by the Company. The
Company is participating in negotiations for settlement with the relevant
authorities or other parties believed by the Company to be responsible for
clean-up obligations and further believes its responsibility to be of a minor
nature. Management believes that the ultimate outcome will not have a material
effect on the Company's financial condition or results of operations.
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At December 31, 1997, the Company had reserves of approximately $900,000 to
cover future anticipated costs. The Company has estimated a range of costs in
establishing these reserves. Such reserves give no effect to possible
recoveries from insurers or other potentially responsible parties nor do they
reflect any discount for the several years over which investigation or
remediation amounts may be paid out.
The Company operates with a limited backlog due to the nature of its
businesses. Customer produced parts are processed on a very short turnaround
basis; therefore, backlog in facilities is generally estimated to be less than
one week.
At December 31, 1997, the Company had 975 employees within its continuing
operations, as compared to 667 as of December 31, 1996. Of these employees,
190 were covered by collective bargaining agreements. Four agreements
(negotiations in connection with two of such agreements are substantially
complete), covering 111 employees, will expire during 1998.
The Company is a minority stockholder in a consortium of five industrial
partners called Thixomat, Inc. This company was formed in 1989 to promote
and commercialize a new metal parts casting technology called ThixomoldingTM.
This process is expected to reduce energy and material consumption while
yielding higher production rates and closer tolerances of metal castings. The
Company employs the ThixomoldingTM process at its THX Molding division which
produces magnesium parts.
Item 2. Properties
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<TABLE>
<CAPTION>
The principal plants of the Company are as follows:
Leased
Location or Owned
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<S> <C>
Compton, CA Leased
Garden Grove, CA Leased
Gardena, CA Leased
Los Angeles, CA Owned
Paramount, CA Leased
Santa Fe Springs, CA Leased
Westminster, CA Owned
Berlin, CT Owned
Waterbury, CT Leased
Melrose Park, IL Owned
Wichita, KS Leased
Worcester, MA Owned
Lansing, MI Owned
Minneapolis, MN Leased
St. Louis, MO Owned
Rochester, NY Leased
Solon, OH Owned
Tulsa, OK Owned
Houston, TX Owned
New Berlin, WI Owned
Racine, WI Owned
</TABLE>
The Company also occupies building space at certain of its customers' locations
related to the Company's SP 2000
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program. The Company's corporate office is located in Rosemont, Illinois and
is a leased building.
The Company's facilities are suitable for their respective uses and are, in
general, adequate for the Company's current needs. All facilities serve
largely localized markets and customers. Those providing products in markets
where economic activity is strong at any particular time operate at relatively
high levels of plant utilization. The Company believes that it has sufficient
capacity at its current facilities to absorb additional workloads at any
reasonably anticipatable levels.
Item 3. Legal Proceedings
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Incorporated by reference to pages 21-22 of the Annual Report - Note
10 to the Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
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None
Executive Officers of the Registrant
------------------------------------
Information regarding the executive officers of the Registrant is
contained in Part III of this report, Item 10(b), and is
incorporated by reference into Part I of this report in reliance
on General Instruction G(3) to Form 10-K.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
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Incorporated by reference to page 25 of the Annual Report, section
entitled "Stock Market Information" and to page 19 of the Annual
Report - Note 5 to the Consolidated Financial Statements. As of
March 10, 1998, the Company had 464 stockholders of record.
Item 6. Selected Financial Data
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Incorporated by reference to page 23 of the Annual Report, section
entitled "Five-Year Financial Review."
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Incorporated by reference to pages 12-13 of the Annual Report,
section entitled "Management's Discussion and Analysis."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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Not Applicable.
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Item 8. Financial Statements and Supplementary Data
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Incorporated by reference to pages 14-23 of the Annual Report,
section entitled "Consolidated Financial Statements" and "Notes
to Consolidated Financial Statements."
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
- ------- -----------------------------------------------------------
None
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Identification of Directors
---------------------------
Incorporated by reference to pages 1-3 of the Proxy Statement,
section entitled "The Election of Directors."
(b) Identification of Executive Officers
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<TABLE>
<CAPTION>
N a m e A g e P o s i t i o n
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<S> <C> <C>
Leo G. Thompson 57 President (since October 1987) and Chief
Executive Officer (since January 1991).
Stephen S. Penley 48 Chief Financial Officer (since January
1989), Senior Vice President (since July
1993), Secretary (since October 1990);
formerly Treasurer (January 1989 to July
1996), Vice President (from January 1989
to July 1993).
Michael W. Nelson 50 Senior Group Vice President (since March
1998); formerly Senior Vice President and
President of Heat Treat Operations (July
1993 to March 1998), Vice President -
Central Region (from July 1990 to June
1993).
</TABLE>
Executive Officers of the Company are elected annually by the Board of
Directors of the Company in April.
Item 11. Executive Compensation
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Incorporated by reference to pages 3-8 of the Proxy Statement,
section entitled "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
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Incorporated by reference to pages 12-13 of the Proxy Statement,
section entitled "Stock Ownership."
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Item 13. Certain Relationships and Related Transactions
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Incorporated by reference to page 2 of the Proxy Statement, section
entitled "The Election of Directors", and to page 6, section entitled
"Executive Compensation - Compensation Committee Interlocks and
Insider Participation."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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<TABLE>
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(a) Certain Documents Filed as Part of this report Page or Reference (1)
---------------------------------------------- ---------------------
1. Financial Statements
------------------------
Consolidated Statements of Earnings and
Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 .............. Annual Report, p. 14
Consolidated Balance Sheets as of
December 31, 1997 and 1996 .................... Annual Report, p. 15
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996
and 1995 ...................................... Annual Report, p. 16
Notes to Consolidated Financial Statements .... Annual Report, p. 17-23
Report of Independent Public Accountants ...... Annual Report, p. 24
2. Financial Statement Schedule (2)
--------------------------------------
II. Valuation and Qualifying Accounts
and Reserves ............................. 11
Report of Independent Public Accountants
on Schedule ................................... 12
</TABLE>
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1) Matters incorporated by reference from the Lindberg Corporation 1997
Annual Report.
2) Schedules other than that listed above are omitted for the reason that
they are not required or are not applicable, or because the required
information is shown in the financial statements or notes thereto.
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(b) Reports on Form 8-K.
--------------------
The following Form 8-K was filed during the quarter ended
December 31, 1997:
The acquisition, on October 1, 1997, of the remaining 50% partnership
interest in a California general partnership engaged in the business of
aluminum and titanium heat treating from Aerospace Aluminum Heat Treating
Company and Alta Canada Corporation was reported under Item 2 of Form 8-K.
In accordance with Form 8-K requirements, no financial statements were
filed with this Form 8-K.
(c) Exhibits Required by Item 601 of Regulation S-K.
------------------------------------------------
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit
Index which is attached hereto at pages 14-17 and which is incorporated
herein by reference.
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<TABLE>
<CAPTION>
LINDBERG CORPORATION AND SUBSIDIARIES
-------------------------------------
SCHEDULE II--VALUATION AND
----------------------------
QUALIFYING ACCOUNTS AND RESERVES
--------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
Allowance for Doubtful Accounts
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1997 1996 1995
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<S> <C> <C> <C>
Balance at beginning of year $325,000 $296,000 $235,000
Provision charged to expense
during the year 121,000 95,000 167,000
Write-offs during the year,
net of recoveries (142,000) (66,000) (106,000)
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Balance at end of year $304,000 $325,000 $296,000
======== ======== ========
</TABLE>
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REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
ON SCHEDULE
To the Stockholders of
Lindberg Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Lindberg
Corporation's annual report to stockholders incorporated by reference in
this Form 10-K and have issued our report thereon dated January 22, 1998.
Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 22, 1998
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
LINDBERG CORPORATION
BY ___________________
Stephen S. Penley
Senior Vice President and Chief
Financial Officer; Principal
Financial and Accounting Officer
Dated March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the date indicated.
- -------------------------
Stephen S. Penley
Senior Vice President and Chief Financial
Officer; Principal Financial and
Accounting Officer
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Leo G. Thompson
President and Chief Executive
Officer, and a Director
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George H. Bodeen
Director
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Dr. Raymond F. Decker
Director
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Raymond A. Jean
Director
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John W. Puth
Director
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J. Thomas Schanck
Director
March 31, 1998
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LINDBERG CORPORATION
Annual Report on Form 10-K
for the Year Ended December 31, 1997
Exhibit Index
<TABLE>
<CAPTION>
Number and Description of Exhibit Reference
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<S> <C>
1. Not applicable
2. Plan of acquisition, reorganization, arrangement, liquidation
or succession
2.1 Purchase Agreement dated October 1, 1997
among Aerospace Aluminum Heat Treating
Company, Alta Canada Corporation and
Lindberg Corporation (1)
2.2 Purchase Agreement dated January 16, 1998
among the stockholders of Industrial Steel
Treating Co. and Lindberg Corporation (2)
3. Articles of Incorporation and By-Laws
3.1 Certificate of Incorporation (composite) (3)
3.2 1979 Amendment to Certificate of Incorporation (4)
3.3 1987 Amendment to Certificate of Incorporation (5)
3.4 By-Laws (as amended) (6)
4. Instruments defining the rights of
security holders, including indentures (7)
4.1 Amended and Restated Credit Agreement
Dated as of April 28, 1994 (8)
4.2 First Amendment to Amended and Restated Credit
Agreement dated as of November 2, 1995 (9)
4.3 Second Amendment to Amended and Restated Credit
Agreement dated as of January 31, 1996 (10)
4.4 Third Amendment to Amended and Restated Credit
Agreement dated as of September 29, 1997 (11)
4.5 Fourth Amendment to Amended and Restated Credit
Agreement dated as of February 10, 1998 Attached
4.6 Note Agreement dated as of October 15, 1995 (12)
4.7 Rights Agreement, dated November 21, 1996, between
Registrant and Harris Trust and Savings Bank, as rights agent (13)
5-9. Not applicable
</TABLE>
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<TABLE>
<CAPTION>
Number and Description of Exhibit Reference
- --------------------------------- ---------
<S> <C>
10. Material contracts
10.1 Description of Bonus Program (14)
10.2 Consulting Agreement Between the Registrant
and G.H. Bodeen dated October 25, 1990 * (15)
10.3 1991 Stock Option Plan for Key Employees * (16)
10.4 1991 Stock Option Plan for Directors (as amended
and restated) * (17)
10.5 Employment Agreement, dated September 17, 1996,
Between the Registrant and Leo G. Thompson * (18)
10.6 Employment Agreement, dated September 17, 1996,
Between the Registrant and Stephen S. Penley * (19)
11. Statement re computation of per share earnings Attached
12. Not applicable
13. Information in Annual Report to Stockholders
incorporated herein by reference Attached
14-20. Not Applicable
21. Subsidiaries of the Registrant Attached
22. Not Applicable
23. Consent of Independent Public Accountants Attached
24-26. Not Applicable
27. Financial Data Schedule Attached
28. Not Applicable
</TABLE>
- -------------------------
(*) Identifies management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c).
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References:
- -----------
(1) Incorporated by reference to Exhibit 2.1 of the Registrant's Report on
Form 8-K, dated October 1, 1997, Commission file No. 0-8287.
(2) Incorporated by reference to Exhibit 2 of the Registrant's Report on
Form 8-K, dated January 16, 1998, Commission file No. 0-8287.
(3) Incorporated by reference to Exhibit 3.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1980, Commission
file no. 0-8287.
(4) Incorporated by reference to Exhibit 3.2 of the Registrant's Report on
Form 10-Q for the quarter ended March 31, 1995, Commission file
no. 0-8287.
(5) Incorporated by reference to page 6 of the Registrant's Definitive Proxy
Statement on Schedule 14A filed with the Commission in connection with
the Registrant's 1987 annual meeting of stockholders, Commission
file no. 0-8287.
(6) Incorporated by reference to Exhibit 3.4 of the Registrant's Report on
Form 10-K for the year ended December 31, 1996, Commission file
no. 0-8287.
(7) Other instruments defining the rights of the holders of long-term debt
of the Registrant, which is described in Note 5 to the financial
statements incorporated herein, are omitted pursuant to Regulation S-K
Item 601 (b) (4) (iii) (A). The Registrant agrees to furnish copies of
such agreements to the Securities and Exchange Commission upon request.
(8) Incorporated by reference to Exhibit 4.2 of the Registrant's Report on
Form 8-K dated April 29, 1994, Commission file no. 0-8287.
(9) Incorporated by reference to Exhibit 4.2 of the Registrant's Report on
Form 10-Q for the quarter ended September 30, 1995, Commission file
no. 0-8287.
(10) Incorporated by reference to Exhibit 4.3 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995, Commission
file no. 0-8287.
(11) Incorporated by reference to Exhibit 4.1 of the Registrant's Report on
Form 8-K, dated October 1, 1997, Commission file No. 0-8287.
(12) Incorporated by reference to Exhibit 4.3 of the Registrant's Report on
Form 10-Q for the quarter ended September 30, 1995, Commission file
no. 0-8287.
(13) Incorporated by reference to Exhibit 99.1 of the Registrant's Form 8-A
filed with the Commission on December 6, 1996, Commission file no. 0-8287.
(14) Incorporated by reference to page 6 of the Registrant's Definitive Proxy
Statement on Schedule 14A filed with the Commission in connection with
the Registrant's 1996 annual meeting of stockholders, Commission file
no. 0-8287.
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References:
- -----------
(15) Incorporated by reference to Exhibit 10.5 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, Commission
file no. 0-8287.
(16) Incorporated by reference to Appendix A of the Registrant's Definitive
Proxy Statement on Schedule 14A filed with the Commission in connection
with the Registrant's 1995 annual meeting of stockholders, Commission
file no. 0-8287.
(17) Incorporated by reference to Appendix A of the Registrant's Definitive
Proxy Statement on Schedule 14A filed with the Commission in connection
with the Registrant's 1997 annual meeting of stockholders, Commission
file no. 0-8287.
(18) Incorporated by reference to Exhibit 10.1 of the Registrant's Report on
Form 10-Q for the quarter ended September 30, 1996, Commission file
no. 0-8287.
(19) Incorporated be reference to Exhibit 10.2 of the Registrant's Report on
Form 10-Q for the quarter ended September 30, 1996, Commission file
no. 0-8287.
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EXHIBIT 4.5
FOURTH AMENDMENT
TO
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is entered into as of February 10, 1998 among
LINDBERG CORPORATION, a Delaware corporation (the "Company"), various
financial institutions (collectively, the "Banks"), and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (successor by merger to
Bank of America Illinois), as agent for the Banks (in such capacity,
the "Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, the Agent and the Banks are parties to an
Amended and Restated Credit Agreement dated as of April 28, 1994 (as
heretofore amended, the "Credit Agreement"); and
WHEREAS, the Company has requested that the Credit Agreement be
amended in certain respects.
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS.
-------------
Terms defined in the Credit Agreement and not otherwise defined
herein are used herein as therein defined.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. On the Effective
------------------------------
Date (defined below), (x) the amendments to the Credit Agreement set
forth in Sections 2.1, 2.2, 2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 below
------------ --- --- --- --- --- --- ---
shall be effective as of the Effective Date and (y) the amendment to
the Credit Agreement set forth in Section 2.3 below shall become
-----------
effective as of December 31, 1997. On the Effective Date:
2.1 The definition of "Commitment Termination Date" in Section
1.1 of the Credit Agreement shall be amended and restated to read in
its entirety as follows:
Commitment Termination Date means April 30, 2000 (or such
---------------------------
later date as may be set as the Commitment Termination Date
pursuant to Section 2.14) or such other date on which the
------------
Commitments shall terminate pursuant to Section 6 or 12.
--------- --
<PAGE> 2
2.3 The definition of "Funded Debt to Cash Flow Ratio" in
Section 1.1 of the Credit Agreement shall be amended and restated to
read in its entirety as follows:
Funded Debt to Cash Flow Ratio means the ratio of Funded
------------------------------
Debt to EBITDA for the most recently ended Computation Period;
provided that for purposes of calculating EBITDA for any period,
--------
(A) any loss recognized upon the sale or characterization as a
discontinued asset of the Company's Precision Products business
shall be disregarded and (B) the consolidated net income
(excluding, to the extent reflected in determining such
consolidated net income, extraordinary gains and losses for such
period and other non-cash or non-recurring charges, and plus, to
the extent deducted in determining such consolidated net income,
interest expense, income tax expense, depreciation, depletion and
amortization for such period) of any Person, or attributable to
any assets, acquired by the Company or any Subsidiary during such
period shall be included on a pro forma basis for such period
--- -----
(assuming the consummation of each such acquisition and the
incurrence or assumption of any Debt in connection therewith
occurred on the first day of such period, but without any
adjustment for expected cost savings or other synergies) if (i)
either (x) the audited consolidated balance sheet of such
acquired Person and its consolidated Subsidiaries as at the end
of the fiscal year of such Person preceding the acquisition of
such Person and the related audited consolidated statements of
income, stockholders' equity and cash flows for the such fiscal
year have been provided to the Agent and the Banks and have been
reported on without a qualification arising from the scope of the
audit or a "going concern" or like qualification or exception or
(y) such other financial information furnished to the Banks with
respect to such period and such acquisition has been found
acceptable by the Required Banks and (ii) either (x) any
subsequent unaudited financial statements for such Person for the
period prior to the acquisition of such Person were prepared on a
basis consistent with such audited financial statements, have
been provided to the Agent and the Banks and have been reported
on without a qualification arising from the scope of the audit or
a "going concern" or like qualification or (y) such other
financial information furnished to the Banks with respect to such
period and such acquisition has been found acceptable by the
Required Banks.
2.4 The definition of "Interest Coverage Ratio" in Section 1.1
of the Credit Agreement shall be amended and restated to read in its
entirety as follows:
Interest Coverage Ratio means, as of the last day of any
-----------------------
Fiscal Quarter, the ratio of (a) Consolidated Net Income before
deducting Interest Expense and taxes for the Computation Period
ending on such day to (b) Proforma Interest Expense as of such
day; provided, however, that for the purposes of calculating
--------- -------
clause (a) above any loss recognized upon the sale or
----------
characterization as a discontinued asset of the Company's
Precision Products business shall be disregarded.
-2-
<PAGE> 3
2.5 Section 1.1 of the Credit Agreement shall be amended by
adding the following definition in its appropriate alphabetical
position:
Net Cash Proceeds means:
-----------------
(a) with respect to the sale, transfer, or other disposition by
the Company or any Subsidiary of any asset (including any
stock of any Subsidiary), the aggregate cash proceeds
(including cash proceeds received by way of deferred payment
of principal pursuant to a note, installment receivable or
otherwise, but only as and when received) received by the
Company or any Subsidiary pursuant to such sale, transfer or
other disposition, net of (i) the direct costs relating to
such sale, transfer or other disposition (including sales
commissions and legal, accounting and investment banking
fees), (ii) taxes paid or reasonably estimated by the
Company to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax
sharing arrangements) and (iii) amounts required to be
applied to the repayment of any Indebtedness secured by a
Lien on the asset subject to such sale, transfer or other
disposition (other than the Loans); and
(b) with respect to any issuance of Debt, the aggregate cash
proceeds received by the Company or any Subsidiary pursuant
to such issuance, net of the direct costs relating to such
issuance (including sales and underwriter's commissions,
private placement fees and legal, accounting and investment
banking fees).
2.6 Section 2.1 of the Credit Agreement shall be amended by
replacing the amount "$35,000,000" where it appears at the end of
clauses (a) and (c)(y) of such Section with the amount "$45,000,000."
2.7 Section 6.2.1 of the Credit Agreement shall be amended and
restated to read in its entirety as follows:
6.2.1 Mandatory Prepayments. (a) The Company shall make a
---------------------
prepayment of the Revolving Loans forthwith upon the occurrence
of any of the following in the following amounts:
(i) Upon any sale, transfer or other disposition by the
Company or any Subsidiary of any assets constituting a division,
in an amount equal to 100% of the Net Cash Proceeds of such sale,
transfer or other disposition.
(ii) Upon any sale, transfer or other disposition (including
by way of merger or consolidation) by the Company or any
Subsidiary of any of the capital stock of any of the Company's
Subsidiaries to a Person other than the Company or a Subsidiary,
in an amount equal to 100% of the Net Cash Proceeds of such sale.
-3-
<PAGE> 4
(iii) Upon the receipt of any Net Cash Proceeds from the
issuance of any Debt of the Company or any Subsidiary, in an
amount equal to 100% of such Net Cash Proceeds.
(b) On each date on which the Revolving Commitments are
reduced pursuant to Section 6.1.2, the Company shall make a
-------------
prepayment of the Revolving Loans in the amount (if any) by which
the outstanding principal amount of the Revolving Loans exceeds
the Revolving Commitments.
2.8 Section 10.11 of the Credit Agreement shall be amended and
restated to read in its entirety as follows:
10.11 Funded Debt to Cash Flow Ratio. Not permit the Funded
------------------------------
Debt to Cash Flow Ratio as of the last day of any Fiscal Quarter
to exceed 2.25:1.
2.9 Schedule I to the Credit Agreement shall be amended by
----------
replacing the amounts "$21,000,000", "$14,000,000" and "$35,000,000",
respectively, under the column "Amount of Revolving Commitment" with
the figures "$27,000,000", "$18,000,000" and "$45,000,000",
respectively.
SECTION 3. CONDITIONS PRECEDENT.
--------------------
The amendments to the Credit Agreement set forth in Section 2 of
---------
this Amendment shall become effective at or as of the times set forth
in Section 2 above on such date (the "Effective Date") when the
---------
following conditions precedent have been satisfied:
3.1 Receipt of Documents. The Agent shall have received all of
--------------------
the following, each duly executed and dated the date hereof, and each
in a sufficient number of signed counterparts to provide one to each
Bank:
(a) Amendment. An original of this Amendment duly
---------
executed by the Company and each Bank and an original of the
consent attached to the foot hereof (the "Consent") executed
by Impact.
(b) Revolving Note. A Revolving Note executed by the
--------------
Company payable to the order of each Bank in an aggregate
principal amount equal to the maximum Revolving Loan
Commitment of such Bank (collectively, the "New Notes").
(c) Resolutions. A copy, certified by the secretary or
-----------
an assistant secretary of each of the Company and Impact, of
resolutions of the Board of Directors of such Person
authorizing or ratifying the execution and delivery of (i)
in the case of the Company, this Amendment and the New Notes
and the borrowings under the Credit Agreement, as amended
hereby and (ii) in the case of Impact, the Consent.
-4-
<PAGE> 5
(d) Incumbency and Signatures. A certificate of the
-------------------------
secretary or an assistant secretary of each of the Company
and Impact certifying the names of the officer or officers
of such Person authorized to sign (i) in the case of the
Company, this Amendment and the New Notes and (ii) in the
case of Impact, the Consent, together with a sample of the
true signature of each such officer.
(e) Certificate. A certificate, dated the Effective
-----------
Date and signed by a duly authorized representative of the
Company, as to the matters set forth in Section 3.2, in form
-----------
and substance satisfactory to the Agent.
(f) Other. Such other documents as the Agent or any
-----
Bank may reasonably request.
3.2 Warranties True and Absence of Defaults. (i) No Event of
---------------------------------------
Default or Unmatured Event of Default shall have occurred and shall be
continuing as of the Effective Date (after giving effect to this
Amendment) and (ii) the warranties set forth in the Credit Agreement
and each other Loan Document shall be true and correct in all material
respects with the same effect as if made on the Effective Date.
3.3 Amendment Fee. The Agent shall have received for the
-------------
account of the Banks (pro rata according to each Bank's Total
Percentage) an amendment fee of $10,000.
SECTION 4. MISCELLANEOUS.
-------------
4.1 Governing Law. This Amendment shall be a contract made
-------------
under and governed by the internal laws of the State of Illinois.
4.2 Counterparts. This Amendment may be executed in any number
------------
of counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when so executed and
delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same
instrument.
4.3 References to Credit Agreement. Except as amended hereby,
------------------------------
the Credit Agreement shall remain in full force and effect and is
hereby ratified and confirmed in all respects. On and after the
effectiveness hereof, each reference in the Credit Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import,
and each reference to the Credit Agreement in any Note or other Loan
Document, shall be deemed a reference to the Credit Agreement, as
amended hereby.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized
as of the date and year first above written.
LINDBERG CORPORATION
By: ________________________________
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, as Agent
By: ________________________________
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS,
as a Bank
By: ________________________________
Title:
HARRIS TRUST AND SAVINGS BANK
By: ________________________________
Title:
-6-
<PAGE> 7
The undersigned, Impact Industries, Inc., hereby acknowledges,
consents and agrees to the foregoing Amendment, and reaffirms that its
obligations under the Guaranty dated as of April 29, 1994 executed in
favor of the Agent and the Banks continue in full force and effect
with respect to the Credit Agreement, as amended by the foregoing
Amendment.
IMPACT INDUSTRIES, INC.
By: ________________________________
Title:
-7-
<PAGE> 1
<TABLE>
<CAPTION>
Exhibit 11
COMPUTATION OF NET EARNINGS PER COMMON SHARE
Years Ended December 31,
------------------------
<S> <C> <C> <C>
1997 1996 1995
EARNINGS ---- ---- ----
Earnings from Continuing Operations $ 6,961,090 $ 4,838,274 $ 4,172,840
Earnings (Loss) from Discontinued Operations (6,698,240) 178,118 1,461,676
----------- ----------- -----------
Net Earnings $ 262,850 $ 5,016,392 $ 5,634,516
=========== =========== ===========
SHARES
- ------
Weighted Average Number of
Common Shares Outstanding
(See Note) 4,806,834 4,756,789 4,724,489
Additional Shares Assuming
Conversion of Stock Options 125,994 103,766 39,002
--------- --------- ---------
Weighted Average Common Shares
Outstanding and Equivalents 4,932,828 4,860,555 4,763,491
========= ========= =========
Basic Earnings Per Share:
Earnings From Continuing Operations $ 1.45 $ 1.01 $ .89
Earnings (Loss) From Discontinued Operations (1.40) .04 .30
------- ------- -------
Net Earnings $ .05 $ 1.05 $ 1.19
======= ======= =======
Diluted Earnings Per Share:
Earnings From Continuing Operations $ 1.41 $ .99 $ .88
Earnings (Loss) From Discontinued Operations (1.36) .04 .30
------- ------- -------
Net Earnings $ .05 $ 1.03 $ 1.18
======= ======= =======
Note: All activity during the year has been adjusted for the number of days
in the year that the shares were outstanding.
</TABLE>
<PAGE> 1
EXHIBIT 13
<TABLE>
<CAPTION>
Financial Highlights
% Change
Increase/
Years Ended December 31, 1997 1996 (Decrease)
----------------------------------------------------------------------------
<S> <C> <C> <C>
Operations (in thousands)
Net Sales $ 88,784 $ 72,776 22%
Earnings From Continuing Operations 6,961 4,838 44%
-----------------------------------------------------------------------------
Financial Position (in thousands)
Total Assets $ 89,563 $ 74,888 20%
Total Debt 36,166 21,601 67%
Stockholders' Equity 32,091 33,047 (3%)
Debt/Capitalization Ratio 53% 40% 33%
-----------------------------------------------------------------------------
Per Share Data
Earnings From Continuing
Operations - Diluted $ 1.41 $ .99 42%
Cash Dividends .32 .29 10%
Book Value 6.65 6.91 (4%)
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Net Sales (in thousands)
1997 $ 88,784
1996 $ 72,776
1995 $ 67,967
1994 $ 59,380
1993 $ 55,609
<CAPTION>
<S> <C>
Earnings (Loss) From Continuing Operations (in thousands)
1997 $ 6,961
1996 $ 4,838
1995 $ 4,173
1994 $ 2,443
1993 $ (2,266)
</TABLE>
Safe Harbor Statement Statements contained in this annual report that
are not based on historical facts are forward-looking statements
subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance; economic conditions; the
impact of competition and pricing; capacity and supply constraints or
difficulties; results of financing and acquisition efforts; regulatory
and other legal issues; and other risks detailed in the company's
Securities and Exchange Commission filings.
-1-
<PAGE> 2
Management's Discussion and Analysis
Of Financial Condition: During 1997, the Company's level of borrowing
increased by $14.6 million to $36.2 million at year-end from $21.6
million at December 31,1996. The ratio of debt to total capitalization
was 53% at the close of 1997 as compared to 40% at year-end 1996.
The most significant factor in the year-over-year increase in
borrowing was the use of funds in 1997 for the acquisitions of Ticorm,
Inc. ("Ticorm") for $3.8 million and the remaining 50% share of the
Company's joint venture partnership Alumatherm Heat Treating Company
("Alumatherm") from its partner for $12.8 million. The Company
completed these acquisitions using a combination of bank borrowings
and notes payable. At year-end 1997, the notes payable related to
Ticorm ($1.9 million) and Alumatherm ($6.3 million) remained.
Another main use of funds in 1997 was for capital expenditures. A
total of $7.3 million was spent on capital projects during the year,
as compared to $5.4 million in 1996. This was a 37% increase over the
prior year. The figures for both 1996 and 1997 exclude amounts related
to the purchase price of acquisitions and amounts related to
discontinued operations.
Capital investments in 1997 were made primarily to accommodate new
business opportunities and, to a lesser degree, upgrade facilities and
equipment. Spending related to the Company's SP 2000 program
represented about 25% of the total capital spending. Approximately 19%
of 1996 capital spending was for SP 2000 projects. Also during 1997,
the Company made significant capital outlays for new furnace
installations at several of its heat treating facilities. The Company
anticipates that continued spending for SP 2000 projects and for
upgrading plant and equipment at an increased number of facilities
will result in a level of capital spending in 1998 of approximately
$8.5 million.
Levels of working capital associated with accounts receivable and
accounts payable were increased at year-end 1997 from the prior year
largely as a result of additional requirements related to companies
acquired in 1997. As the Company's heat treating customers maintain
ownership of products shipped to the Company for processing, the
business does not have a working capital need related to inventories.
During 1997, the Company made cash outlays related to environmental
matters. These outlays largely included costs for consulting/
engineering, legal support, and in certain cases, remediation. The
Company believes it will continue to make such expenditures in the
future, but that such spending will continue to have a limited effect
on its financial condition and liquidity.
During 1997, the Board of Directors declared cash dividends totaling
$.32 per share, which amounted to a total of $1.5 million paid to
stockholders during the year. This represented an increase of 12% from
the $1.4 million in cash dividends paid in 1996.
In the fourth quarter of 1997, the Company, with the approval of its
Board of Directors, established a plan to divest itself of its
Precision Products business segment and sell the underlying divisions.
As a result, the segment is reported as discontinued operations in the
financial statements and prior years have been restated. At December
31, 1997, net assets of discontinued operations totaled $17.5 million.
The Company anticipates that these operations will be sold during
1998, and proceeds from the expected sales will be used either to
reduce debt or to fund additional capital investments and acquisitions
in the heat treating business.
The Company believes that its borrowing capacity and funds generated
through operations will be sufficient to meet currently foreseen
capital investment and working capital needs in support of existing
business both in 1998 and in the longer term.
Of Results of Operations: 1997 Versus 1996 Net sales from continuing
operations increased 22% to $88.8 million in 1997 from $72.8 million
in 1996. The higher level of sales resulted primarily from the
acquisition of three heat treating companies from May 1996 through
October 1997, expansion of the Company's SP 2000 program during 1997
and growth at certain heat treating divisions where customer demand
was strong -- in particular those serving the commercial aerospace
industry.
The acquisition of Vac-Hyd in 1996, and of Ticorm and Alumatherm in
1997 accounted for 48% of the increase in revenue for 1997. Also
during 1997, the Company expanded the number of SP 2000 sites in
operation to seven from six at the close of 1996. This program
provided sales in 1997 of $6.2 million in comparison to $3.9 million
in 1996, thereby contributing to the overall increase in Company sales
in 1997. Finally, while not all of the Company's heat treating
divisions generated sales growth in 1997 as compared to the prior
year, heat treating operations in existence at the beginning of 1996
reported an overall 9% increase in sales.
Gross profit as a percentage of net sales increased to 28.3% for 1997
from 27.8% in the prior year. The increase in gross profit was related
primarily to the higher level of sales during 1997 providing
incremental earnings in excess of the prior year's rate of gross
profit and to cost containment efforts.
Selling and administrative expenses were $13.2 million in 1997, or
14.9% of sales, as compared to $11.5 million (15.8% of sales) in 1996.
The increase year-over-year in the level of expenses resulted
primarily from the addition of expenses through the acquisitions of
Ticorm and Alumatherm.
During 1997, for the first nine months of the year prior to the
Company's acquisition of its partner's 50% interest in the joint
venture, equity
-12-
<PAGE> 3
earnings related to the Alumatherm partnership recorded by the
Company totaled $1.4 million. This compared to $893,000 recorded
for the full year 1996.
Interest expense in 1997 increased to $1.7 million from $1.5 million
in the prior year. This resulted from the increased level of
borrowings due to acquisitions. The average interest rate on
borrowings in 1997 was 6.6% compared to 6.7% for 1996.
Reflecting the above items, the Company recorded net earnings from
continuing operations in 1997 of $7.0 million, or $1.41 per diluted
share, as compared to $4.8 million, or $.99 per diluted share, in
1996.
The results of the Company's Precision Products segment, net of income
taxes, are presented as discontinued operations. In 1997, an after-tax
loss of $754,000 from operations was recorded compared to $178,000 in
earnings for 1996. Also in 1997, the Company recorded a $5.9 million
after-tax charge related to an estimated loss on the eventual sale of
the segment's operations. The loss from operations in 1997 resulted
largely from a sales decline at the segment's Impact Industries
division. The Company concluded to divest the Precision Products
businesses and concentrate financial and operating resources on the
higher margin core heat treating business, which had represented
approximately 70% of total Company sales during 1997.
Net earnings for 1997 were $263,000, or $.05 per diluted share, as
compared to $5.0 million, or $1.03 per diluted share, in 1996.
Although the Company cannot accurately determine the exact effect of
inflation on its operations, it does not believe inflation had a
material effect during either year on sales or results of operations.
Of Results of Operations: 1996 Versus 1995 Net sales from continuing
operations for 1996 of $72.8 million increased 7.1% from $68.0 million
in 1995. Within the overall increase for the Company's heat treating
business, results were mixed with some operations showing gains while
others reported lower sales. In general, the higher revenues in total
related to additional sales from SP 2000 projects, the acquisition of
Vac-Hyd and improvement at divisions serving the commercial aerospace
market.
Gross profit as a percentage of sales was 27.8% in 1996 as compared to
28.3% for the prior year. The decline in the percentage year-to-year
resulted from higher discretionary costs in certain areas of the
Company, which more than offset the positive effect produced by the
increase in revenues during 1996.
Selling and administrative expenses at $11.5 million for 1996 were
essentially unchanged from the prior year figure. In 1996, the Company
recorded $893,000 in equity earnings related to its ownership in the
Alumatherm partnership. This more than doubling of the $301,000
recognized during 1995 resulted from the operation showing strong
sales and earnings growth related chiefly to its participation in the
improving commercial aerospace industry.
Interest expense fell 7.7% to $1.5 million in 1996 from $1.6 million
in 1995. This resulted from lower interest rate experience during
1996, which more than offset higher levels of borrowings which the
Company maintained during the year -- in particular after the
acquisition of Vac-Hyd in May 1996.
Results in 1995 also included a $615,000 gain related to a fire at the
Company's facility in Ohio. The complete destruction of one major
piece of equipment and subsequent capitalization of a new furnace
resulted in an involuntary conversion gain reported as other income.
Reflecting largely the above issues, the Company recorded net earnings
from continuing operations in 1996 of $4.8 million, or $.99 per
diluted share, as compared to $4.2 million, or $.88 per diluted share,
in 1995.
The Company's discontinued Precision Products operations recorded
earnings after-tax of $178,000 in 1996 as compared to $1.5 million in
1995. The reduced level of earnings in 1996 resulted from lower sales
within the segment for the year -- principally at the Impact
Industries operation.
Net earnings for 1996 were $5.0 million, or $1.03 per diluted share,
as compared to $5.6 million, or $1.18 per diluted share, in 1995.
Year 2000 Issue: The Company is in the process of investigating the
possible effect of the Year 2000 issue on its operating, accounting
and other systems. Based on preliminary reviews, the Company believes
that its internal systems and those supplied it by third parties are
or will be Year 2000 compliant without any material additional
expense. However, there can be no assurance that the Company's
operations will not be adversely affected by this issue, particularly
as it relates to compliance by the Company's customers and suppliers.
Subsequent Events: In January 1998, the Company acquired all of the
outstanding common stock of Industrial Steel Treating Company and
Fabriform Metal Brazing, Inc., two related companies located in the
Los Angeles area which provide heat treating processing for customers
primarily in the aerospace market. The cash purchase price for the two
companies was $11 million in total, which was funded with additional
borrowings under the Company's revolving credit agreement. The two
companies had sales of approximately $11 million in 1997.
Effective February 10, 1998, the Company's revolving credit agreement
with two banks was amended to increase the total borrowing facility
from $35.0 million to $45.0 million and to adjust certain loan
covenants. As of March 3, 1998, the Company had $13.7 million of
available borrowing capacity under its amended revolving credit
agreement.
-13-
<PAGE> 4
Consolidated Financial Statements
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
For the Years Ended December 31, 1997 1996 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 88,783,577 $ 72,776,202 $ 67,967,257
Cost of Sales (63,691,330) (52,519,365) (48,702,131)
-------------------------------------------------------------------------------------------------------
Gross Profit 25,092,247 20,256,837 19,265,126
Selling and Administrative Expenses (13,211,421) (11,507,041) (11,530,647)
Equity in Earnings of Partnership 1,436,328 892,822 301,195
-------------------------------------------------------------------------------------------------------
Operating Earnings 13,317,154 9,642,618 8,035,674
Interest Expense (Net) (1,681,103) (1,511,312) (1,637,740)
Gain on Asset Conversion -- -- 615,242
-------------------------------------------------------------------------------------------------------
Earnings From Continuing Operations Before Income Taxes 11,636,051 8,131,306 7,013,176
Provision for Income Taxes -- Continuing Operations (4,674,961) (3,293,032) (2,840,336)
-------------------------------------------------------------------------------------------------------
Earnings From Continuing Operations 6,961,090 4,838,274 4,172,840
Discontinued Operations, Net of Income Taxes:
Earnings (Loss) From Operations (754,240) 178,118 1,461,676
Estimated Loss on Sale (5,944,000) -- --
-------------------------------------------------------------------------------------------------------
Earnings (Loss) From Discontinued Operations (6,698,240) 178,118 1,461,676
-------------------------------------------------------------------------------------------------------
Net Earnings $ 262,850 $ 5,016,392 $ 5,634,516
=======================================================================================================
Basic Earnings Per Share:
Earnings From Continuing Operations $ 1.45 $ 1.01 $ .89
Earnings (Loss) From Discontinued Operations (1.40) .04 .30
-------------------------------------------------------------------------------------------------------
Net Earnings $ .05 $ 1.05 $ 1.19
=======================================================================================================
Diluted Earnings Per Share:
Earnings From Continuing Operations $ 1.41 $ .99 .88
Earnings (Loss) From Discontinued Operations (1.36) .04 .30
-------------------------------------------------------------------------------------------------------
Net Earnings $ .05 $ 1.03 $ 1.18
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Underfunded
For the Years Ended December 31, Common Additional Retained Treasury Pension Liability
1997, 1996 and 1995 Shares Paid-In Capital Earnings Shares Adjustment TOTAL
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $14,183,493 $ 1,531,600 $14,561,840 $(5,405,657) $(202,760) $24,668,516
--------------------------------------------------------------------------------------------------------------------------------
Net Earnings 5,634,516 5,634,516
Dividends Paid (1,181,054) (1,181,054)
Exercise of Stock Options (19,494) 58,619 39,125
Pension Adjustment 21,332 21,332
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 14,183,493 1,512,106 19,015,302 (5,347,038) (181,428) 29,182,435
--------------------------------------------------------------------------------------------------------------------------------
Net Earnings 5,016,392 5,016,392
Dividends Paid (1,379,120) (1,379,120)
Exercise of Stock Options (18,700) 292,387 273,687
Pension Adjustment (46,492) (46,492)
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 14,183,493 1,493,406 22,652,574 (5,054,651) (227,920) 33,046,902
--------------------------------------------------------------------------------------------------------------------------------
Net Earnings 262,850 262,850
Dividends Paid (1,537,935) (1,537,935)
Exercise of Stock Options 32,786 213,430 246,216
Pension Adjustment 73,385 73,385
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $14,183,493 $ 1,526,192 $21,377,489 $(4,841,221) $(154,535) $32,091,418
================================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-14-
<PAGE> 5
<TABLE>
<CAPTION>
Consolidated Balance Sheets
For the Years Ended December 31, 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 283,270 $ 36,228
Receivables, Less Allowance for Doubtful
Accounts of $304,000 in 1997 and
$325,000 in 1996 14,875,005 10,461,635
Prepaid and Refundable Income Taxes 1,380,768 1,687,534
Note Receivable -- 1,102,600
Prepaid Expenses 632,846 633,386
Net Assets of Discontinued Operations 17,475,866 25,272,160
Other Current Assets 1,616,774 371,053
-----------------------------------------------------------------------------
Total Current Assets 36,264,529 39,564,596
Property and Equipment:
Land 1,745,246 1,745,246
Buildings and Improvements 16,674,207 15,663,434
Machinery and Equipment 71,363,851 63,135,960
Construction in Progress 1,819,101 2,007,217
-----------------------------------------------------------------------------
Total Property and Equipment 91,602,405 82,551,857
Less-Accumulated Depreciation (52,505,822) (51,673,102)
-----------------------------------------------------------------------------
Net Property and Equipment 39,096,583 30,878,755
Goodwill 11,537,742 314,738
Investment in Partnership -- 1,607,632
Other Non-Current Assets 2,664,577 2,521,855
-----------------------------------------------------------------------------
Total Assets $89,563,431 $74,887,576
=============================================================================
Liabilities
Current Liabilities:
Current Maturities on Long-Term Debt $ 83,328 $ --
Notes Payable 10,220,000 901,437
Accounts Payable 3,540,279 3,180,271
Accrued Expenses:
Salaries and Wages 1,775,352 1,221,914
Taxes, other than Income 543,795 511,213
Employee Insurance and Benefits 1,395,126 1,436,917
Utilities 658,741 593,776
Other 1,900,780 1,619,272
-----------------------------------------------------------------------------
Total Current Liabilities 20,117,401 9,464,800
Non-Current Liabilities:
Deferred Income Taxes 6,149,001 6,847,504
Long-Term Debt (Less Current Maturities) 25,862,512 20,700,000
Accrued Pension 3,342,458 3,148,114
Other Non-Current Liabilities 2,000,641 1,680,256
-----------------------------------------------------------------------------
Total Non-Current Liabilities 37,354,612 32,375,874
Stockholders' Equity:
Common Shares, $2.50 par value:
Authorized 12,000,000 shares in 1997 and 1996;
Issued 5,673,397 shares in 1997 and 1996 14,183,493 14,183,493
Additional Paid-In Capital 1,526,192 1,493,406
Retained Earnings 21,377,489 22,652,574
Treasury Shares (845,016 in 1997
and 894,256 in 1996), at Cost (4,841,221) (5,054,651)
Underfunded Pension Liability Adjustment (154,535) (227,920)
-----------------------------------------------------------------------------
Total Stockholders' Equity 32,091,418 33,046,902
-----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $89,563,431 $74,887,576
=============================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these balance sheets.
-15-
<PAGE> 6
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (Decrease) in Cash
Cash Flows From Operating Activities:
Net Earnings $ 262,850 $ 5,016,392 $ 5,634,516
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation 4,084,315 3,689,743 3,459,246
Equity Earnings, Net of Cash Distributions (235,128) (692,822) (301,195)
Goodwill Amortization 119,347 5,000 --
Increase (Decrease) in Deferred Taxes 101,497 732,996 (376,879)
Estimated Loss on Sale of Discontinued Operations 5,944,000 -- --
Gain on Asset Conversion -- -- (615,242)
Change in Assets and Liabilities:
Receivables (2,337,872) (165,047) (788,998)
Prepaid and Refundable Income Taxes 310,846 (626,989) 966,601
Prepaid Expenses and Other Current Assets (220,486) (12,417) 62,989
Accounts Payable 18,311 (150,594) (1,741,409)
Accrued Expenses 356,720 (484,785) (868,754)
Net Assets of Discontinued Operations 1,052,294 (522,631) (1,851,911)
Other 698,788 (1,571,556) 319,754
----------------------------------------------------------------------------------------------
Total Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operating Activities 9,892,632 200,898 (1,735,798)
----------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 10,155,482 5,217,290 3,898,718
----------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital Expenditures (7,336,401) (5,365,396) (4,028,647)
Cash Received for Sale of Alloy Wire Belt 1,102,600 1,000,000 --
Investment in Alumatherm, Net of Cash Received (12,757,711) -- --
Investment in Ticorm, Net of Cash Received (3,797,556) -- --
Investment in Vac-Hyd -- (2,325,560) --
Proceeds from Notes Receivable -- -- 400,000
----------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (22,789,068) (6,690,956) (3,628,647)
----------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net Borrowings (Payments) Under
Revolving Credit Agreement 7,100,000 1,800,000 (2,700,000)
Note Payable for Purchase of Vac-Hyd (901,437) 901,437 --
Borrowings Under Senior Note Agreement -- -- 10,000,000
Payments on Bank Term Loan -- -- (6,300,000)
Notes Payable for Purchase of Ticorm 1,900,000 -- --
Notes Payable for Purchase of Alumatherm 6,320,000 -- --
Dividends Paid (1,537,935) (1,379,120) (1,181,054)
----------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 12,880,628 1,322,317 (181,054)
----------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 247,042 (151,349) 89,017
Cash at Beginning of Year 36,228 187,577 98,560
----------------------------------------------------------------------------------------------
Cash at End of Year $ 283,270 $ 36,228 $ 187,577
==============================================================================================
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 1,679,402 $ 1,649,277 $ 1,686,270
Income Taxes Paid 3,875,117 3,235,993 3,287,073
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-16-
<PAGE> 7
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1997, 1996 and 1995
Note 1. Accounting Policies
--------------------------------
A. Nature of Operations The company serves metal-using and metal-
working industries, providing commercial metal heat treating.
B. Principles of Consolidation The consolidated financial statements
include the accounts of Lindberg Corporation and its subsidiaries.
Significant intercompany balances and transactions have been
eliminated.
The company's 50% share of a heat treating partnership was carried at
cost plus equity in undistributed earnings from the partnership
formation on July 1, 1994, until the acquisition of that entity on
October 1, 1997 (see footnote 2).
C. Revenue Recognition The company recognizes revenues from sales
upon shipment to its customers.
D. Property and Depreciation Property and equipment are stated at
cost. Depreciation is provided on the straight line method for
financial statement purposes and on accelerated methods for income tax
purposes. Maintenance costs are charged to expense as incurred.
Expenditures which improve efficiency or capacity or extend the useful
life of assets are capitalized. Interest cost incurred during the
period of construction of plant and equipment is capitalized as part
of the cost of such plant and equipment.
E. Income Taxes The company determines its tax provision and deferred
tax balance in compliance with SFAS 109, "Accounting for Income
Taxes". Under this approach, the provision for income taxes
represents income taxes paid or payable for the current year adjusted
for the change in deferred taxes during the year. Deferred income
taxes reflect the net tax effects of temporary differences between the
financial statement bases and the tax bases of assets and liabilities
and are adjusted for changes in tax rates and tax laws when changes
are enacted.
F. Earnings Per Share Effective January 1, 1997, the company adopted
SFAS 128, "Earnings per Share" (SFAS 128). The provisions of SFAS
128 require computations of basic and diluted earnings per share.
Diluted earnings per share reflects the potential dilution that could
occur if outstanding stock options were converted into common stock.
Dilutive shares used in the calculations for the years ended December
31, 1997, 1996 and 1995 were 4,932,828, 4,860,555, and 4,763,491,
respectively. Basic earnings per share excludes dilution effects.
Earnings per share for all years have been computed in accordance with
SFAS 128.
G. Use of Estimates The preparation of these financial statements, in
conformity with generally accepted accounting principles, required the
use of certain estimates by management in determining the company's
assets, liabilities, revenues and expenses. Actual results could
differ from those estimates.
H. Impairment of Long-Lived Assets Effective January 1, 1996, the
company adopted SFAS 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121).
The provisions of SFAS 121 require a review of long-lived assets
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The
company does not believe that any impairment of long-lived assets has
occurred, and, therefore, the adoption of SFAS 121 did not have any
effect on the company's statements of earnings in 1997 or 1996.
I. Reclassifications Certain prior period amounts have been
reclassified to be consistent with the 1997 presentation.
Note 2. Acquisitions
--------------------------------
On May 31, 1996, the company acquired the assets of Vac-Hyd for $1.4
million of cash and a note payable of $.9 million. On July 31, 1997,
the company acquired all of the outstanding shares of Ticorm, Inc. for
$1.9 million of cash and $1.9 million of notes payable. On October 1,
1997, the company acquired the remaining 50% share of its joint
venture partnership -- Alumatherm Heat Treating Company
("Alumatherm") -- from its partner for $6.5 million of cash and
$6.3 million of notes payable. Each of these acquired businesses is a
heat treating company in the Los Angeles area. Cash payments made as
part of each purchase were funded with additional borrowings under the
company's revolving credit agreement.
Prior to the purchase of Alumatherm, the company reported its results
under the equity method of accounting as an unconsolidated
partnership. Accordingly, the company's statements of earnings for the
years ended December 31, 1996 and 1995 and for the nine months ended
September 30, 1997, include the company's equity in Alumatherm's
earnings. The company's investment in Alumatherm was included in Total
Assets for the year ended December 31, 1996; subsequent to the
purchase, the financial position for Alumatherm was included in the
company's balance sheet on a fully consolidated basis.
All of the acquisitions were accounted for using the purchase method;
accordingly, the results of operations have been included in the
consolidated totals of the company since the dates of their respective
acquisitions. The cost of the acquisitions has been allocated to the
assets and liabilities based on their estimated fair market value.
Goodwill is amortized using the straight line method over 30 years.
With the exception of Alumatherm, the acquired companies did not
materially impact the consolidated financial position or results of
operations for the periods presented. The preliminary allocation of
the total cost of Alumatherm, which includes the purchase price and
the elimination of the related equity investment account, is as
follows: (in thousands)
<TABLE>
<CAPTION>
Alumatherm
--------------------------------------
<S> <C>
Property and Equipment $ 3,575
Accounts Receivable 1,921
Goodwill 9,873
Other Assets 237
Accounts Payable (281)
Other Liabilities (722)
--------------------------------------
$14,603
</TABLE>
-17-
<PAGE> 8
The following table presents pro forma information for the combined
entities of Lindberg Corporation and Alumatherm for the twelve months
ended December 31, 1997 and 1996 assuming the acquisition had taken
place at the beginning of the periods presented (in thousands, except
per share data).
<TABLE>
<CAPTION>
Unaudited 1997 1996
-------------------------------------------------------------
<S> <C> <C>
Net Sales $98,962 $81,806
Earnings from Continuing Operations 7,831 5,181
Net Earnings 1,133 5,359
Per Diluted Share:
Earnings from Continuing Operations 1.59 1.07
Net Earnings .23 1.10
</TABLE>
Adjustments to the statements of earnings include additional
depreciation and interest charges, goodwill amortization, the
reduction of certain other expenses and income tax effects. The pro
forma information is provided for illustrative purposes only and is
not necessarily reflective of the future results of the company or
results of operations that would have actually occurred had the
transaction been in effect for the periods presented.
Note 3. Discontinued Operations
--------------------------------
On December 22, 1997, the Board of Directors approved a plan to sell
the company's Precision Products business segment ("Precision
Products"). Although difficult to predict, the company expects to
sell the segment during 1998. Precision Products is reported as
discontinued operations, and the consolidated financial statements
have been reclassified to segregate the net assets and operating
results of the business. The Precision Products segment consists of
two aluminum die casting facilities (Impact Industries, Inc. and
Arrow-Acme Company) and one aluminum semi-permanent mold foundry
(Harris Metals, Inc.).
The estimated loss recorded during 1997 for the sale of Precision
Products was $6.7 million, which included a reduction in asset values
of $5.8 million and a provision for anticipated closing costs and
operating losses until disposal of $.9 million. The loss was reported
net of an income tax benefit of $.8 million, for an after-tax loss of
$5.9 million.
The loss on the sale of Precision Products was based on estimates of
the proceeds expected to be realized on the sale of the operations.
The amounts the company will ultimately realize could differ
materially from the amounts assumed in arriving at the loss on
disposal of the discontinued operations. Summary operating results of
the discontinued operations for 1997, 1996 and 1995 are as follows:
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C>
Net sales $34,567 $41,244 $54,037
Costs and expenses 35,835 40,945 51,580
-------------------------------------------------------------
Earnings (loss) before taxes (1,268) 299 2,457
Provision (benefit) for
income taxes (514) 121 995
-------------------------------------------------------------
Net income (loss) $ (754) $ 178 $ 1,462
</TABLE>
At December 31, 1997, net assets of the discontinued operations of
approximately $17.5 million consisted of $7.4 million of net current
assets, $14.2 million of equipment and $2.6 million of other net
assets, less the allowance for the estimated loss on disposal.
Note 4. Income Taxes
--------------------------------
The major components of the provision for income taxes for 1997, 1996
and 1995 are as follows: (in thousands)
<TABLE>
<CAPTION>
Current Deferred Total
---------------------------------------------------------
<S> <C> <C> <C>
1997 Federal $3,448 $269 $3,717
State 800 51 851
Canadian 107 -- 107
---------------------------------------------------------
$4,355 $320 $4,675
---------------------------------------------------------
1996 Federal $2,142 $386 $2,528
State 620 74 694
Canadian 54 17 71
---------------------------------------------------------
$2,816 $477 $3,293
---------------------------------------------------------
1995 Federal $1,852 $211 $2,063
State 737 40 777
---------------------------------------------------------
$2,589 $251 $2,840
</TABLE>
The provision for income taxes includes deferred tax expense (benefit)
resulting from timing differences in the recognition of revenue and
expense for tax and financial statement purposes. The sources of these
differences and the tax effect of each are as follows: (in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $158 $137 $ 88
Restructuring activities -- -- 385
Environmental control activities (49) 241 (370)
Other 211 99 148
-----------------------------------------------------------------
$320 $477 $251
</TABLE>
-18-
<PAGE> 9
The differences between the provision for income taxes at the
statutory rate and that shown in the consolidated statements of
earnings are summarized as follows: (in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Consolidated pretax earnings
at statutory rate $3,956 $2,765 $2,384
State income taxes, net of
federal tax benefit 614 429 370
Other 105 99 86
----------------------------------------------------------------
$4,675 $3,293 $2,840
</TABLE>
Significant components of the company's deferred tax liabilities and
assets at December 31, 1997, and 1996 are as follows: (in thousands)
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------------
<S> <C> <C>
Deferred Tax Liabilities:
Tax depreciation over book $(6,104) $(7,452)
Reserve for discontinued operations (840) --
Other liabilities (482) (398)
-----------------------------------------------------------------
Total Deferred Tax Liabilities $(7,426) $(7,850)
-----------------------------------------------------------------
Deferred Tax Assets:
Reserves not deducted for tax $ 761 $ 829
Employee benefit provisions in
excess of cash payments 1,221 1,266
Other assets 148 324
-----------------------------------------------------------------
Total Deferred Tax Assets $ 2,130 $ 2,419
-----------------------------------------------------------------
Net Deferred Tax Liability $(5,296) $(5,431)
-----------------------------------------------------------------
Included in Balance Sheet in:
Prepaid and Refundable Income Taxes $ 853 $ 1,417
Deferred Income Taxes (6,149) (6,848)
-----------------------------------------------------------------
$(5,296) $(5,431)
</TABLE>
Note 5. Debt
--------------------------------
Long-term debt consists of the following: (in thousands)
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------
<S> <C> <C>
Senior notes $10,000 $10,000
Revolving credit 17,800 10,700
Notes payable 8,366 901
------------------------------------------------------
36,166 21,601
Less-current maturities (10,303) (901)
------------------------------------------------------
$25,863 $20,700
</TABLE>
In April 1994, the company entered into an unsecured revolving credit
agreement (the "Agreement") with two banks which provided for a line
of credit of $20,000,000 and a term loan of $7,000,000.
In November 1995, the company refinanced its debt. Ten million dollars
of senior notes were issued, the proceeds of which were used to retire
the outstanding balance of the company's term loan and a portion of
the outstanding balance on its revolving credit facility. The notes
bear interest at 7.16% annually and have a seven-year final maturity.
Equal annual principal payments on the notes commence on the third
anniversary of closing and continue on each anniversary date through
the life of the notes. In conjunction with the refinancing, the
company and its banks amended the Agreement to allow for the issuance
of the senior notes and to terminate the term loan.
In February 1996, the Agreement was amended to increase the total
facility by $5 million to $25 million. The total facility was further
increased by $10 million to $35 million in September 1997 and amended
in February 1998 to increase the facility $10 million to $45 million.
Additionally, the February 1998 amendment extended the maturity date
of the Agreement to April 2000.
The company may choose from two interest rate alternatives -- (i) the
bank's reference rate (prime rate) and (ii) a Eurodollar loan rate
plus an applicable margin based on the company's ratio of funded debt
to earnings before interest, taxes, depreciation and amortization. The
effective interest rate for the Agreement was 6.6% and 6.7% during
1997 and 1996, respectively; the year-end rates were 6.7% and 6.5% for
1997 and 1996, respectively.
The revolving credit and senior note agreements contain various
covenants which, among others, restrict the ability of the company to
pay dividends beyond certain limits and require the company to meet
certain financial ratios. In February 1998, certain covenants in the
Agreement and in the senior notes were modified.
The company also has a second agreement which provides for the
issuance of letters of credit, up to a maximum of $5,000,000. At
December 31, 1997, a letter of credit totaling $4,500,000 was issued
in accordance with an insurance agreement.
Annual maturities of long-term debt, excluding the revolving credit
agreement, for the five years following December 31, 1997 are
$10,303,000, $2,063,000, $2,000,000, $2,000,000 and $2,000,000,
respectively.
Note 6. Leases
--------------------------------
The company has a number of lease agreements related to the rental of
production and administrative facilities and equipment. These are of
varying terms and extend as far as the year 2007.
The following is a schedule of estimated future minimum rental
payments required under leases that have initial or remaining
noncancelable terms in excess of one year as of December 31, 1997: (in
thousands)
-19-
<PAGE> 10
<TABLE>
<CAPTION>
Operating Leases
-------------------------------------
<S> <C>
1998 $1,703
1999 1,635
2000 1,174
2001 882
2002 709
Thereafter 1,220
-------------------------------------
Total minimum payment required $7,323
</TABLE>
The total rent expense for 1997, 1996 and 1995 was $1,765,000,
$1,412,000, and $1,086,000, respectively.
No sublease income is due after 1997.
Note 7. Employee Benefits
--------------------------------
The company and its subsidiaries have various defined benefit pension
plans covering many of their employees. The pension expense related to
these plans for 1997, 1996 and 1995 was $391,000, $455,000, and
$31,000, respectively, which included amortization of past service
cost over 30 years. The standards utilized by the company to fund the
pension plans satisfy the minimum funding requirements under the
provisions of ERISA.
Net periodic pension cost for 1997, 1996 and 1995 included the
following components: (in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period $ 727 $ 776 $ 533
Interest cost on projected
benefit obligations 1,226 1,158 1,076
Return on plan assets (3,760) (2,436) (3,194)
Net amortization and deferral 2,198 957 1,616
-----------------------------------------------------------------
$ 391 $ 455 $ 31
</TABLE>
Table 1 summarizes the funded status of the plans and provides a
reconciliation to the long-term pension liability recorded on the
company's consolidated balance sheets at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Table 1: Reconciliation of Funded Status (in thousands)
-------------------------------------------------------------------------------------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
-------------------------------------------------------------------------------------------------------------
1997 1997 1996 1996
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations $(11,834) $(1,345) $(10,807) $(1,805)
-------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations (12,375) (1,535) (11,295) (2,028)
-------------------------------------------------------------------------------------------------------------
Projected benefit obligations (15,969) (1,787) (14,593) (2,255)
Plan assets at fair value 20,796 383 17,592 714
-------------------------------------------------------------------------------------------------------------
Plan assets in excess of (or less than)
projected benefit obligations 4,827 (1,404) 2,999 (1,541)
Unrecognized net (gain) loss (4,647) 519 (2,452) 619
Unrecognized net (assets) obligations amortized
over average remaining service period of the
employee workforce (919) 73 (1,100) 109
Unrecognized prior service cost 195 191 269 238
Long-term balance sheet liability -- (531) -- (738)
-------------------------------------------------------------------------------------------------------------
Long-term pension liability $ (544) $(1,152) $ (284) $(1,313)
-------------------------------------------------------------------------------------------------------------
</TABLE>
The discount rate used in determining the projected benefit obligation
was 7.50% in 1997 and 1996. The rate of increase in future
compensation levels and the expected long-term rate of return on
assets were 5.0% and 9.0%, respectively, in both 1997 and 1996.
The company and its subsidiaries also have various defined
contribution plans. The company matches 50% of the participants'
contributions up to 4% of compensation. Additionally, the company also
contributes one percent of each employee's compensation for all
employees who are not participants in a defined benefit plan, have six
months of service, and who are still participants in the 401(k)
savings plan at the end of the year. The company made distributions
for contributions and related expenses of $598,000, $544,000, and
$499,000 to these defined contribution plans in 1997, 1996 and 1995,
respectively.
The company provides no other postretirement benefits other than the
benefit plans listed above.
Note 8. Stock Options
--------------------------------
In 1991, the Board of Directors and stockholders approved a stock
option plan for key employees. The plan provides for the issuance,
from time to time, of options to purchase shares of the company's
common stock at prices not less than 100% of the fair market value of
the stock at the time an option is granted. In 1995, the plan was
amended to increase the reserve of common stock available for issuance
upon the exercise of options to 675,000 shares. The following table
summarizes information as to options granted, exercised, cancelled and
outstanding under this plan and options still available under a
similar plan which expired in 1991.
-20-
<PAGE> 11
<TABLE>
<CAPTION>
Average Option
Shares Price per Share
----------------------------------------------------------------
<S> <C> <C>
Outstanding, December 31, 1994 318,400 $ 6.20
Options exercised during year (10,375) 3.77
Options cancelled during year (1,250) 4.63
----------------------------------------------------------------
Outstanding, December 31, 1995 306,775 6.29
Options granted during year 72,900 7.50
Options exercised during year (51,750) 5.29
Options cancelled during year (9,700) 7.30
----------------------------------------------------------------
Outstanding, December 31, 1996 318,225 6.70
Options granted during year 73,900 9.00
Options exercised during year (56,125) 6.26
Options cancelled during year (26,300) 7.52
----------------------------------------------------------------
Outstanding, December 31, 1997 309,700 $7.26
</TABLE>
The company adopted the disclosure-only option under SFAS 123,
"Accounting for Stock Based Compensation" (SFAS 123), as of December
31, 1996. As such, the company continues to account for employee stock
options under APB Opinion 25, as permitted under generally accepted
accounting principles. Accordingly, no compensation cost has been
recognized in the accompanying financial statements related to these
options. Had compensation cost for these plans been determined
consistent with SFAS 123, the company's net earnings and net earnings
per share would have been the following: (in thousands, except per
share data)
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------
<S> <C> <C>
Earnings From Continuing Operations
As Reported $6,961 $4,838
Pro forma 6,796 4,745
Net Earnings
As Reported 263 5,016
Pro forma 165 4,961
-----------------------------------------------------
Diluted Earnings Per Share:
Earnings From Continuing Operations
As Reported $ 1.41 $ .99
Pro forma 1.38 .98
Net Earnings
As Reported .05 1.03
Pro forma .03 1.02
</TABLE>
Since SFAS 123 does not apply to options granted prior to January 1,
1995, the pro forma disclosure is not likely to be indicative of pro
forma results which may be expected in future years.
The fair values of the option grants are estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for 1997 and 1996, respectively: risk-
free interest rates of 5.7% and 6.5%; dividend yields of 2.1% and
3.2%; volatility of 40.1% and 46.0%; and an average expected life of 5
years for both 1997 and 1996. The options vest ratably over 4 years.
The fair value of options granted during 1997 and 1996 were calculated
to be $3.29 and $2.83, respectively.
In 1991, the stockholders approved a stock option plan for members of
the Board of Directors who are not employees of the company, covering
a maximum of 72,000 shares. In 1997, this plan was amended to increase
the reserve of common stock available for issuance upon the exercise
of options to 150,000 shares and to remove the termination date of the
plan, among other changes. Under the terms of this plan, options to
purchase an aggregate of 75,000 shares have been granted. The average
exercise price for these options is $7.74 per share. At December 31,
1997, 75,000 shares were available for future grant.
Note 9. Related Party
--------------------------------
The company holds an 18% equity interest in Thixomat, Inc., a company
formed to promote and commercialize ThixomoldingTM technology. The
Chairman of Thixomat serves on the Board of Directors of Lindberg, and
is also the President and Chief Executive Officer of University
Science Partners, Inc., which holds a 40% equity interest in Thixomat.
In addition, Lindberg holds a seat on Thixomat's Board of Directors.
At December 31, 1997, the company held a $434,000 equity investment in
Thixomat.
Note 10. Commitments and Contingencies
--------------------------------------
The company is a party to various lawsuits and claims arising in the
ordinary course of business. Management, after review and consultation
with legal counsel, considers that any liability resulting from these
matters would not materially affect the financial condition or results
of operations of the company.
The company employs some environmentally hazardous materials. The
company has made expenditures to comply with laws and regulations
relating to the protection of the environment, including studies,
investigations and remediation of ground contamination, and expects to
make such expenditures in the future in its efforts to comply with
existing and future requirements. While such expenditures to date have
not materially affected the company's capital expenditures,
competitive position, financial condition, or results of operations,
there can be no assurance that more stringent regulation or
enforcement in the future will not have such effects.
-21-
<PAGE> 12
In some cases, the company has notified state authorities of a
possible need for remediation at sites it previously operated, or
currently operates. At all such sites, costs which may be incurred are
difficult to accurately predict until the level of contamination is
determined, and would be subject to increase if more contamination is
discovered during investigation or remediation or if state authorities
require more remediation than anticipated. Such costs may be less if
the contamination proves to be less than currently expected and to the
extent costs are covered by insurance or are allocable to others.
The company has also been notified by various state and federal
governmental authorities that they believe it may be a "potentially
responsible party" or otherwise have responsibility with respect to
clean-up obligations at three waste disposal sites which were never
owned or operated by the company. The company is participating in
negotiations for settlement with the relevant authorities or other
parties believed by the company to be responsible for clean-up
obligations and further believes its responsibility to be of a minor
nature. Management believes that the ultimate outcome will not have a
material effect on the company's financial condition or results of
operations.
At December 31, 1997, the company had reserves of approximately
$900,000 to cover future anticipated costs. The company has estimated
a range of costs in establishing these reserves. Such reserves give no
effect to possible recoveries from insurers or other potentially
responsible parties nor do they reflect any discount for the several
years over which investigation or remediation amounts may be paid out.
Note 11. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1997 and 1996 are shown in
Table 2.
<TABLE>
<CAPTION>
Table 2: Quarterly Financial Data (Unaudited)
--------------------------------------------------------------------------------------------------------
(in thousands except for per share amounts) Quarter Ended
--------------------------------------------------------------------------------------------------------
1997 March 31 June 30 September 30 December 31
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $20,646 $20,750 $20,955 $26,433
Gross Profit 6,121 5,128 5,381 8,462
Earnings From Continuing Operations 1,311 1,822 1,547 2,281
Loss From Discontinued Operations (206) (15) (200) (6,277) 1
--------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 1,105 $ 1,807 $ 1,347 $(3,996)
--------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Earnings From Continuing Operations $ .27 $ .38 $ .32 $ .47
Loss From Discontinued Operations (.04) -- (.04) (1.30)
--------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ .23 $ .38 $ .28 $ (.83)
--------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Earnings From Continuing Operations $ .27 $ .37 $ .31 $ .46
Loss From Discontinued Operations (.04) -- (.04) (1.25)
--------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ .23 $ .37 $ .27 $ (.79)
--------------------------------------------------------------------------------------------------------
1996
--------------------------------------------------------------------------------------------------------
Net Sales $17,742 $18,374 $18,262 $18,398
Gross Profit 4,664 5,209 4,903 5,481
Earnings From Continuing Operations 925 1,185 1,050 1,678
Earnings (Loss) From Discontinued Operations 318 285 19 (444)
--------------------------------------------------------------------------------------------------------
Net Earnings $ 1,243 $ 1,470 $ 1,069 $ 1,234
--------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Earnings From Continuing Operations $ .20 $ .25 $ .22 $ .35
Earnings (Loss) From Discontinued Operations .07 .06 -- (.09)
--------------------------------------------------------------------------------------------------------
Net Earnings $ .27 $ .31 $ .22 $ .26
--------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Earnings From Continuing Operations $ .19 $ .24 $ .22 $ .34
Earnings (Loss) From Discontinued Operations .07 .06 -- (.09)
--------------------------------------------------------------------------------------------------------
Net Earnings $ .26 $ .30 $ .22 $ .25
--------------------------------------------------------------------------------------------------------
1 The quarter ended December 31, 1997 includes a net charge of
$5,944,000 related to the discontinuance of the company's Precision
Products segment.
</TABLE>
Note 12. Stockholder Rights Plan
--------------------------------
In 1996, the company declared a dividend distribution of one common
share purchase right on each outstanding share of common stock. The
rights become exercisable after a person or group acquires beneficial
ownership of 20% or more of the common stock of the company or
-22-
<PAGE> 13
publicly announces a tender offer or exchange offer for 20% or more of
the common stock. Initially, each right will entitle its holder to buy
one share of common stock of the company at an exercise price of $40
per share. If a person or group acquires beneficial ownership of 20%
or more of the outstanding common stock of the company: 1.) each right
will entitle its holder to purchase shares of common stock of the
company at one-half their market price, or, in certain circumstances,
at their par value (currently $2.50 per share) and 2.) if the company
or its assets are acquired in certain merger or other transactions,
holders of rights may acquire common stock of the acquiring company
having a market value of twice the exercise price of the right. Rights
held by the 20% holder will become void and will not be exercisable to
purchase shares at the reduced purchase price. The rights, which do
not have voting rights, will expire on November 21, 2006 and may be
redeemed by the company's board of directors at a price of $.01 per
right prior to their expiration or the accumulation of 20% or more of
the company's common stock.
Note 13. Subsequent Event
--------------------------------
On January 16, 1998, the company acquired all of the outstanding
shares of both Industrial Steel Treating Company and Fabriform Metal
Brazing, Inc., heat treating companies in the Los Angeles area, for
$11 million. The acquisitions were funded with borrowings under the
revolving credit agreement.
<TABLE>
<CAPTION>
Five-Year Financial Review
For the Years Ended December 31, 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations (in thousands)
Net Sales $ 88,784 $ 72,776 $ 67,967 $ 59,380 $ 55,609
Gross Profit 25,092 20,257 19,265 15,028 12,905
Selling and Administrative Expenses (13,211) (11,507) (11,530) (10,217) (10,386)
Equity in Earnings of Partnership 1,436 893 301 54 --
Interest Expense, Net of Interest Income (1,681) (1,512) (1,638) (789) (331)
Other Income (Expense) -- -- 615 -- (8,261)
Earnings (Loss) Before Income Taxes 11,636 8,131 7,013 4,076 (6,073)
Provision (Benefit) for Income Taxes 4,675 3,293 2,840 1,633 (2,307)
-----------------------------------------------------------------------------------------------------------------
Earnings (Loss) From Continuing Operations 6,961 4,838 4,173 2,443 (2,266) 1
-----------------------------------------------------------------------------------------------------------------
Earnings (Loss) From Discontinued Operations (net) (6,698) 2 178 1,462 1,931 948
-----------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 263 $ 5,016 $ 5,635 $ 4,374 $ (1,318)
=================================================================================================================
Diluted Earnings Per Share:
Earnings (Loss) From Continuing Operations $ 1.41 $ .99 $ .88 $ .51 $ (.48)
Earnings (Loss) From Discontinued Operations (1.36) .04 .30 .41 .20
-----------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ .05 $ 1.03 $ 1.18 $ .92 $ (.28)
=================================================================================================================
Financial Position (in thousands)
Working Capital $ 16,147 $ 30,100 $ 29,237 $ 23,726 $ 8,616
Property and Equipment (net) 39,097 30,879 27,332 26,224 25,142
Total Assets 89,563 74,888 68,639 65,878 48,223
Long-Term Debt 25,863 20,700 18,900 16,500 7,700
Total Debt 36,166 21,601 18,900 17,900 7,780
Stockholders' Equity 32,091 33,047 29,182 24,669 21,155
=================================================================================================================
Other Financial Information
Cash Dividends Declared and Paid (in thousands) $ 1,538 $ 1,379 $ 1,181 $ 989 $ 941
Cash Dividends Per Share .32 .29 .25 .21 .20
Return on Average Stockholders' Equity 1% 16% 21% 19% (6%)
Book Value Per Share of Stockholders' Equity $ 6.65 $ 6.91 $ 6.17 $ 5.23 $ 4.50
Debt/Capitalization Ratio 53% 40% 39% 42% 27%
Shares Outstanding at Year-End 4,828,381 4,779,141 4,727,391 4,717,016 4,702,541
Capital Expenditures (in thousands) $ 7,336 $ 5,365 $ 4,029 $ 4,396 $ 2,565
Depreciation (in thousands) 4,084 3,690 3,459 3,258 3,457
Number of Employees at Year-End 975 667 642 633 562
=================================================================================================================
1 1993 includes a provision of $8,261,000 ($5,122,000 after-tax) for
the restructuring of the company's heat treat operations and a gain
of $1,500,000 representing the cumulative effect of adopting SFAS
109, Accounting for Income Taxes.
2 1997 includes a net charge of $5,944,000 related to the
discontinuance of the company's Precision Products segment.
</TABLE>
-23-
<PAGE> 14
Report of Independent Public Accountants To the Stockholders of
Lindberg Corporation
We have audited the accompanying consolidated balance sheets of
Lindberg Corporation (a Delaware Corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
earnings, stockholders' equity and cash flows for the years ended
December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lindberg
Corporation and subsidiaries as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for the years ended
December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 22, 1998
-24-
<PAGE> 15
Stock Market Information
The company's common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol LIND. Stock price
quotations can be found in national listings in many daily newspapers.
High and low market prices and dividend payments during the past two
years are as follows:
<TABLE>
<CAPTION>
1997 Market Price Dividend
Quarter High Low Per Share
-----------------------------------------------------
<S> <C> <C> <C>
1st $ 10.000 $ 8.500 $ .08
2nd 9.250 8.500 .08
3rd 12.500 9.000 .08
4th 16.000 11.750 .08
-----------------------------------------------------
$ .32
<CAPTION>
1996 Market Price Dividend
Quarter High Low Per Share
-----------------------------------------------------
<S> <C> <C> <C>
1st $ 10.250 $ 6.375 $ .07
2nd 11.000 8.250 .07
3rd 11.125 8.750 .07
4th 11.000 9.250 .08
-----------------------------------------------------
$ .29
</TABLE>
Stockholder Information
Stock Transfer Agent and Registrar
Harris Trust & Savings Bank Chicago, Illinois
Independent Public Accountants
Arthur Andersen LLP Chicago, Illinois
General Counsel
Bell, Boyd & Lloyd Chicago, Illinois
Corporate Offices
Lindberg Corporation 6133 North River Road, Suite 700,
Rosemont, Illinois, 60018 847 823-2021.
Annual Meeting The annual stockholders' meeting will be held on
Friday, April 24, 1998, at 9 a.m., in the auditorium at Riverway, 6133
North River Road, Rosemont, Illinois. A formal notice of the meeting
will be mailed to stockholders on or about April 1, 1998.
Form 10-K A copy of the company's Annual Report to the Securities and
Exchange Commission (Form 10-K), for the year ended December 31, 1997,
is available to any stockholder upon written request to the Secretary
of the Company, 6133 North River Road, Suite 700, Rosemont, Illinois,
60018.
Directors
George H. Bodeen 2,3
Chairman of the Board
Dr. Raymond F. Decker 1,2
President and
Chief Executive Officer
University Science Partners, Inc.
Chairman, Thixomat, Inc.
Raymond A. Jean 1,3
President and
Chief Operating Officer
Varlen Corporation
John W. Puth 1,3
President
J.W. Puth Associates
J. Thomas Schanck 1,2
Retired Vice Chairman
Illinois Tool Works Inc.
Leo G. Thompson 3
President and
Chief Executive Officer
Committees of the Board:
1 Audit
2 Executive Compensation
3 Finance
Officers
George H. Bodeen
Chairman of the Board
Leo G. Thompson
President and
Chief Executive Officer
Michael W. Nelson
Senior Group Vice President
Stephen S. Penley
Senior Vice President and
Chief Financial Officer
Secretary
Terrence D. Brown
Vice President
Geoffrey S. Calhoun
Vice President
Roger J. Fabian
Vice President
Paul J. McCarren
Group Vice President
Jerome R. Sullivan
Vice President
Brian J. McInerney
Treasurer
Assistant Secretary
-25-
<PAGE> 1
<TABLE>
<CAPTION>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Name Where Incorporated
- ---- ------------------
<S> <C>
Alumatherm Heat Treating Company, L.L.C. Delaware
Fabriform Metal Brazing, Inc. California
Industrial Steel Treating Co. California
Ticorm, Inc. California
Impact Industries, Inc. (1) Delaware
- ---------------------
(1) This subsidiary is part of the discontinued Precision Products segment.
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC AUDITORS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K into the Company's previously
filed Registration Statement File Nos. 33-47323 and 33-60361.
Arthur Andersen LLP
Chicago, Illinois
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000059593
<NAME> LINDBERG CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 283,270
<SECURITIES> 0
<RECEIVABLES> 14,875,005
<ALLOWANCES> 304,000
<INVENTORY> 0
<CURRENT-ASSETS> 36,264,529
<PP&E> 91,602,405
<DEPRECIATION> 52,505,822
<TOTAL-ASSETS> 89,563,431
<CURRENT-LIABILITIES> 20,117,401
<BONDS> 0
0
0
<COMMON> 14,183,493
<OTHER-SE> 1,526,192
<TOTAL-LIABILITY-AND-EQUITY> 89,563,431
<SALES> 88,783,577
<TOTAL-REVENUES> 88,783,577
<CGS> 63,691,330
<TOTAL-COSTS> 63,691,330
<OTHER-EXPENSES> 13,211,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,681,103
<INCOME-PRETAX> 11,636,051
<INCOME-TAX> 4,674,961
<INCOME-CONTINUING> 6,961,090
<DISCONTINUED> (6,698,240)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262,850
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
