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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-8287
LINDBERG CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-1391480
------------------------ ------------------------
(State of Incorporation) (IRS Identification No.)
6133 North River Road, Suite 700 Rosemont, Illinois 60018
(847) 823-2021
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(Address and telephone number of registrant's principal executive offices)
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 [ ]
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of May 11, 1999 was 5,905,636.
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LINDBERG CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Part I Financial Information: Page No.
--------
Item 1. Consolidated Statements of Earnings - Three Months
Ended March 31, 1999 and 1998 .............................3
Consolidated Balance Sheets - As of March 31, 1999
and December 31, 1998......................................4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 .............................5
Notes to the Consolidated Financial Statements .............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................8
Part II Other Information:
Item 1. Legal Proceedings .........................................11
Item 6. Exhibits and Reports on Form 8-K ..........................11
Signatures ................................................12
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PART I FINANCIAL INFORMATION
<TABLE>
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net Sales $32,141,140 $30,872,196
Cost of Sales (22,365,635) (21,272,434)
----------- -----------
Gross Profit 9,775,505 9,599,762
Selling and Administrative Expense (5,017,591) (4,723,832)
----------- -----------
Operating Earnings 4,757,914 4,875,930
Interest Expense - Net (530,147) (775,526)
----------- -----------
Earnings Before Income Taxes 4,227,767 4,100,404
Provision for Income Taxes (1,729,309) (1,660,487)
----------- -----------
Net Earnings $ 2,498,458 $ 2,439,917
=========== ===========
Basic Net Earnings Per Share $ .42 $ .50
=========== ===========
Weighted Average Shares Outstanding 5,888,825 4,835,884
=========== ===========
Diluted Net Earnings Per Share $ .42 $ .48
=========== ===========
Weighted Average Shares Outstanding
and Equivalents 5,970,286 5,041,993
=========== ===========
Cash Dividends Declared and Paid $ .08 $ .08
=========== ===========
</TABLE>
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<TABLE>
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
(UNAUDITED)
------------- ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash $ 211,114 $ 157,391
Receivables (Net) 20,802,598 19,281,571
Net Assets of Discontinued Operations -- 2,142,719
Other Current Assets 1,007,318 2,312,127
------------- -------------
Total Current Assets 22,021,030 23,893,808
Property and Equipment:
Cost 133,540,192 125,918,525
Accumulated Depreciation (60,728,386) (59,181,581)
------------- -------------
Net Property and Equipment 72,811,806 66,736,944
Goodwill (Less Accumulated Amortization) 23,899,006 19,922,274
Long-Term Notes Receivable 3,806,237 3,250,000
Other Non-Current Assets 1,701,107 1,686,776
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Total Assets $ 124,239,186 $ 115,489,802
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current Maturities on Long-Term Debt $ 56,439 $ 77,271
Notes Payable 2,000,000 2,000,000
Accounts Payable 2,786,856 4,187,398
Accrued Expenses 8,464,953 9,006,770
------------- -------------
Total Current Liabilities 13,308,248 15,271,439
Non-Current Liabilities:
Deferred Income Taxes 7,115,718 7,055,718
Long-Term Debt (Less Current Maturities) 41,080,151 32,683,630
Other Non-Current Liabilities 4,797,888 4,685,851
------------- -------------
Total Non-Current Liabilities 52,993,757 44,425,199
Stockholders' Equity:
Preferred Stock, $0.01 par value:
Authorized 1,000,000 Shares.
No shares issued. -- --
Common Stock, $0.01 par value:
Authorized 25,000,000 shares.
Issued 6,673,397 shares. 66,734 66,734
Additional Paid-In Capital 31,328,663 31,326,023
Retained Earnings 31,227,876 29,200,569
Treasury Shares (778,761 in 1999
and 790,661 in 1998), at Cost (4,485,932) (4,529,767)
Cumulative Foreign Translation Adjustment (23,546) (93,781)
Underfunded Pension Liability Adjustment (176,614) (176,614)
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Total Stockholders' Equity 57,937,181 55,793,164
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Total Liabilities and Stockholders' Equity $ 124,239,186 $ 115,489,802
============= =============
</TABLE>
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<TABLE>
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash
Cash Flows from Operating Activities:
Net Earnings $ 2,498,458 $ 2,439,917
Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operating Activities:
Depreciation 1,867,562 1,309,901
Goodwill Amortization 183,793 160,686
Change in Assets and Liabilities (2,118,222) 1,308,609
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Total Adjustments to Reconcile Net
Earnings to Net Cash Provided by
Operating Activities (66,867) 2,779,196
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Net Cash Provided by Operating Activities 2,431,591 5,219,113
Cash Flows from Investing Activities:
Capital Expenditures (2,669,056) (2,315,837)
Cash Received for Sale of Discontinued Operations 2,299,411 --
Cash Payments for Acquisitions,
Net of Cash Acquired (9,937,072) (10,613,703)
----------- -----------
Net Cash Used in Investing Activities (10,306,717) (12,929,540)
Cash Flows from Financing Activities:
Net Borrowings Under Revolving Credit Agreement 8,400,000 10,200,000
Repayment of Notes Payable -- (1,840,000)
Dividends Paid (471,151) (386,518)
----------- -----------
Net Cash Provided by Financing Activities 7,928,849 7,973,482
----------- -----------
Net Increase in Cash 53,723 263,055
Cash at Beginning of Period 157,391 283,270
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Cash at End of Period $ 211,114 $ 546,325
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 532,347 $ 562,537
Income Taxes Paid (Net of Refunds) 147,283 232,984
</TABLE>
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LINDBERG CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Condensed Financial Statements
The condensed consolidated financial statements included
herein have been prepared by the company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial
statements and the notes thereto included in the company's
latest annual report on Form 10-K.
Statements for the three month periods ended March 31, 1999
and March 31, 1998 reflect, in the opinion of the company, all
adjustments (consisting only of normal recurring accruals)
necessary to present fairly the results of these periods.
Results for interim periods are not necessarily indicative of
results for a full year.
NOTE 2 Segment Reporting
Effective January 1, 1998, the company adopted SFAS 131,
"Disclosure about Segments of an Enterprise and Related
Information" (SFAS 131). The company does not operate in more
than one segment of business and no customer accounted for
more than 10% of the company's sales.
NOTE 3 Acquisitions
On February 17, 1999, the company acquired all of the
outstanding shares of Metal-Lab of Wisconsin, Inc. ("Metal-
Lab"), located in Sturtevant, Wisconsin, for $9.9 million.
Metal-Lab primarily serves the tool and die industry. The
acquisition was funded with borrowings under the revolving
credit agreement.
The cost of the acquisition 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.
NOTE 4 Debt
In February 1999, the company's revolving credit facility with
its banks was amended to increase the borrowing capacity from
$45 million to $70 million. Additionally, the amendment
extended the maturity date of the agreement relating to the
facility to December 2001 and adjusted certain loan covenants.
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NOTE 5 Material Changes
No material changes have occurred with respect to the
company's contingent liabilities outlined in the company's
1998 10-K through the date of this report.
NOTE 6 Discontinued Operations
On January 18, 1999, the company sold the assets of the
remaining operation of its discontinued Precision Products
segment, Arrow-Acme Company, for cash and a note, thereby
completing the divestiture of that segment. The divestiture
of the Precision Products segment was completed within the
reserves established during the fourth quarter of 1997, when
the company initially accounted for the segment as a
discontinued operation.
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"Safe Harbor" Statement: This report contains "forward-
looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are those that are not statements of historical
fact, including statements regarding future revenues,
expenses and profits. These forward-looking statements are
subject to known and unknown risks, uncertainties or other
factors which may cause the actual results of the company to
be materially different from the historical results or from
any results expressed or implied by the forward-looking statements.
Such risks and factors include, but are not limited to, those discussed
in Exhibit 99.1 of the company's most recently filed Form 10-K with the
Securities Exchange Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION:
At March 31, 1999, the Company's total debt was $43.1 million, an
increase of $8.3 million from $34.8 million outstanding at December
31, 1998. The Company's total debt to capitalization ratio was 43%
at the end of the first quarter of 1999 as compared to 38% at the end
of 1998.
The level of debt increased in the first quarter of 1999 primarily as
a result of the acquisition of Metal-Lab of Wisconsin, Inc. ("Metal-
Lab") on February 17, 1999 for a purchase price, net of cash
received, of $9.9 million. This transaction was funded with
additional borrowings under the Company's revolving credit agreement.
The cash effect of this purchase was offset to a degree by cash
generated from the sale of the assets of the last discontinued
Precision Products segment operation -- Arrow-Acme Company -- during
the quarter, which was used to repay debt.
In February 1999, the Company amended its revolving credit facility
to increase the total borrowing capacity from $45 million to $70
million, extend the maturity date of the agreement relating to the
facility to December 2001 and to adjust certain loan covenants. At
March 31, 1999, the Company had $35 million of available capacity
under the amended revolving credit facility.
Capital expenditures for the first three months of 1999 were $2.7
million, increased from $2.3 million in the corresponding period of
1998. The spending in the first quarter of 1999 related primarily to
the acquisition of additional furnaces and equipment for expansion at
certain of the company's facilities.
On January 30, 1999, the Board of Directors declared a cash dividend
of $.08 on each share of the Company's common stock, payable on March
1, 1999. The total cash dividends paid on the latter date were
$471,000. This compared to a dividend payout of $.08 per share of
common stock, or $387,000, in the corresponding quarter of 1998.
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
businesses for the balance of 1999 and in the longer term.
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OF RESULTS OF OPERATIONS:
Quarter ended March 31, 1999 and 1998
Net sales for the quarter ended March 31, 1999 were $32.1 million, up
$1.2 million, or 4%, from $30.9 million for the corresponding period
in 1998. For the first quarter of 1999, the Company estimates that
acquisitions made subsequent to March 31, 1998 accounted for about 9%
of total net sales. Excluding the estimated effect of those acquisitions,
net sales of the Company's remaining operations decreased by approximately
6% overall.
The decline in net sales at the remaining operations resulted primarily
from weakness in orders from customers in the oilfield and
agricultural equipment markets. Additionally, reduced net sales at Company
facilities serving aerospace markets, where order rates were slow in January
1999 before improving towards the end of the first quarter, contributed to
the decline in net sales.
Gross profit for the first quarter of 1999 was $9.8 million, up $176,000,
or 2%, from $9.6 million for the first quarter of 1998. The gross profit
increase in the first quarter of 1999 related to theincrease in net sales.
The Company's gross margin in the first quarter of 1999 was 30.4%, compared
to 31.1% in the corresponding period of 1998.
Selling and administrative expenses for the first three months of
1999 were $5.0 million, compared to $4.7 million in the first quarter
of 1998. The increase resulted largely from expenses associated with
acquired companies. Selling and administrative expenses as a
percentage of sales were 15.6% for the first quarter of 1999, up
slightly from 15.3% in the corresponding period of 1998.
Interest expense net of interest income in the first quarter of 1999
was $530,000, compared to $776,000 in the first quarter of 1998.
The decrease in 1999 resulted from increased interest income on notes
receivable received during 1998 and early 1999 from the divestiture of the
Precision Products segment operations and from a combination of lower
average borrowing levels and lower interest rates during the first
quarter of 1999.
Reflecting the above, net earnings in the first quarter of 1999 were
$2.5 million, up from $2.4 million for the corresponding period of
1998. Diluted earnings per share in the first quarter of 1999 were
$.42 as compared to $.48 per share in the first quarter of the 1998.
The number of shares outstanding in the first quarter of 1999,
compared to the same quarter of 1998, was higher as a result of the
sale of 1,000,000 shares of common stock in a public offering in the
third quarter of 1998.
POSSIBLE EFFECTS OF YEAR 2000:
The Company categorizes its exposure to Year 2000 issues as follows:
information technology (IT) systems at its operating facilities; IT
systems at its corporate office; embedded technology; customers; and
suppliers.
The Company's IT systems at its operating facilities are, generally,
maintained by Company personnel. The Company is in the process of
upgrading its existing software used for order entry, billing, plant
routing, shipping and process management to make it Year 2000
compliant. The upgrades are expected to be completed by the third
quarter of 1999. No additional employees have been hired, nor have
any additional costs with outside vendors been incurred, to revise
the existing software for compliance or to install upgrades.
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The Company's corporate office utilizes IT systems supplied primarily
by third party vendors for accounting functions and payroll
processing. All such vendors have stated that their software is now
or will be Year 2000 compliant. The Company is monitoring progress
related to stated solutions to the issue and is in the process of
verifying compliance. The Company pays annual maintenance fees for
the use of this software, and no additional costs have been incurred nor
are any expected related to this area.
The Company's operations primarily involve furnaces and ancillary
equipment. Some of these use embedded technology such as
microprocessor-based process controllers. It has been determined that
the embedded technology used in the operations is not date sensitive in
many cases, or is Year 2000 compliant in others.
No single customer accounts for more than 3% of the Company's sales.
In addition, the Company serves over 10,000 customers. The effect on
the Company of the loss of sales from a single customer due to a Year
2000 issue, therefore, will largely be mitigated due to the Company's
diversified customer base. However, there can be no assurance that
individual plants will not be adversely affected by the temporary
loss of one or more major customers.
With respect to suppliers, the Company's largest costs, excluding
labor, are electricity and natural gas. In the event a utility
supplier cannot provide its service for an extended period due to a
Year 2000 issue, the locations involved would be adversely affected.
It is not feasible for the Company to arrange alternative power
sources due to the level of demand involved. Short-term disruptions
are not expected to have a significant impact on the Company due to
geographic dispersion of the Company's facilities. Other purchased
items used in the operations are available from many suppliers and
there is little or no product differentiation. A disruption related
to these suppliers would have little impact on the Company.
While subject to speculation, the most reasonably likely worst case
scenario is currently considered by the Company to be the loss of
either electric or gas power at an operating facility. However, the
Company believes that this occurrence would be localized and tend to
be of a short duration.
The Company also benefits from having over 99% of its revenues
generated within the U.S. which has given the Year 2000 issue a high
focus.
The Company has designated a group of management personnel to
coordinate Year 2000 activities. This group has begun to develop a
Year 2000 contingency plan and intends to complete it in advance of
the Year 2000.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The company is the subject of a pending investigation by the
government and a qui-tam (whistle-blower) lawsuit regarding
alleged violations of the Federal False Claims Act and wrongful
termination. The company learned of the lawsuit in May 1998.
The activities that are the subject of the investigation and
lawsuit relate to only one plant, and in the fourth quarter 1998,
the company established reserves for the potential settlement of
this claim. In the first quarter of 1999, the company reached a
settlement in principle with the government and the plaintiff on
terms consistent with the reserves previously established. The
company expects to complete the settlement in the second quarter
of 1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K
The following exhibits are attached only to the copies of this
report filed with the Securities and Exchange Commission:
Number and Description of Exhibit
---------------------------------
11. Statement Re Computation of Net Earnings Per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended March 31,
1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINDBERG CORPORATION
Principal Financial and Accounting Officer: By
----------------------
Stephen S. Penley
Senior Vice President
and Chief Financial Officer
Dated: May 11, 1999
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Exhibit 11
<TABLE>
Computation of Net Earnings Per Common Share
Three Months Ended
March 31,
--------------------------
1999 1998
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<S> <C> <C>
EARNINGS
- --------
Net Earnings $2,498,458 $2,439,917
========== ==========
SHARES
- ------
Weighted Average Number of
Common Shares Outstanding (See Note) 5,888,825 4,835,884
Additional Shares Assuming
Conversion of Stock Options 81,461 206,109
---------- ----------
Weighted Average Common Shares
Outstanding and Equivalents 5,970,286 5,041,993
========== ==========
Basic Net Earnings Per Share $ .42 $ .50
========== ==========
Diluted Net Earnings Per Share $ .42 $ .48
========== ==========
Note: All activity during the year has been adjusted for the number of
days in the year that the shares were outstanding.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 211,114
<SECURITIES> 0
<RECEIVABLES> 20,802,598
<ALLOWANCES> 647,247
<INVENTORY> 0
<CURRENT-ASSETS> 22,021,030
<PP&E> 133,540,192
<DEPRECIATION> 60,728,386
<TOTAL-ASSETS> 124,239,186
<CURRENT-LIABILITIES> 13,308,248
<BONDS> 0
0
0
<COMMON> 66,734
<OTHER-SE> 31,328,663
<TOTAL-LIABILITY-AND-EQUITY> 124,239,186
<SALES> 32,141,140
<TOTAL-REVENUES> 32,141,140
<CGS> 22,365,635
<TOTAL-COSTS> 22,365,635
<OTHER-EXPENSES> 5,017,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 530,147
<INCOME-PRETAX> 4,227,767
<INCOME-TAX> 1,729,309
<INCOME-CONTINUING> 2,498,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,498,458
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
