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 September 30, 2000
[ ] 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 November 14, 2000 was 5,661,661.
<PAGE> -2-
LINDBERG CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Part I Financial Information: Page No.
--------
Item 1. Consolidated Statements of Earnings - Three Months
and Nine Months Ended September 30, 2000 and 1999..... 3
Consolidated Balance Sheets - As of September 30, 2000
and December 31, 1999................................. 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999..................... 5
Notes to the Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk........................................... 11
Part II Other Information:
Item 1. Legal Proceedings....................................... 11
Item 6. Exhibits and Reports on Form 8-K........................ 11
Signatures.............................................. 12
<PAGE> -3-
PART I FINANCIAL INFORMATION
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net Sales $ 33,422,645 $ 29,010,315 $ 95,030,600 $ 92,735,118
Cost of Sales (25,077,524) (21,156,538) (69,958,840) (65,678,777)
------------ ------------ ------------ ------------
Gross Profit 8,345,121 7,853,777 25,071,760 27,056,341
Selling and
Administrative Expenses (5,043,693) (4,532,767) (14,846,981) (14,331,087)
------------ ------------ ------------ ------------
Operating Earnings 3,301,428 3,321,010 10,224,779 12,725,254
Interest Expense (Net) (971,458) (545,612) (2,330,179) (1,647,835)
Investment Earnings 78,616 44,430 241,526 74,050
------------ ------------ ------------ ------------
Earnings Before
Income Taxes 2,408,586 2,819,828 8,136,126 11,151,469
Provision for
Income Taxes (963,338) (1,157,123) (3,254,117) (4,571,545)
------------ ------------ ------------ ------------
Net Earnings $ 1,445,248 $ 1,662,705 $ 4,882,009 $ 6,579,924
============ ============ ============ ============
Basic Net Earnings
Per Share $ .26 $ .28 $ .86 $ 1.12
============ ============ ============ ============
Weighted Average
Shares Outstanding 5,661,661 5,908,312 5,661,487 5,898,529
Diluted Net Earnings
Per Share $ .25 $ .28 $ .86 $ 1.10
============ ============ ============ ============
Weighted Average
Shares Outstanding
and Equivalents 5,677,398 5,994,410 5,678,370 5,984,842
Cash Dividends
Declared and Paid $ .08 $ .08 $ .24 $ .24
============ ============ ============ ============
<PAGE> -4-
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2000 1999
------ (Unaudited)
Current Assets: ------------ ------------
Cash $ 292,715 $ 272,649
Receivables (Net) 22,130,587 17,492,480
Other Current Assets 5,338,188 5,002,613
------------ ------------
Total Current Assets 27,761,490 22,767,742
Property and Equipment:
Cost 143,035,577 134,055,319
Accumulated Depreciation (63,035,469) (62,693,233)
------------ ------------
Net Property and Equipment 80,000,108 71,362,086
Goodwill (Less Accumulated
Amortization) 40,701,030 32,717,675
Long-Term Notes Receivable 2,728,131 2,761,413
Other Non-Current Assets 2,440,438 2,402,162
------------ ------------
Total Assets $153,631,197 $132,011,078
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current Maturities on
Long-Term Debt $ 313,847 $ 46,695
Notes Payable 2,000,000 2,000,000
Accounts Payable 4,034,468 2,760,142
Accrued Expenses 7,879,006 7,048,246
------------ ------------
Total Current Liabilities 14,227,321 11,855,083
Non-Current Liabilities:
Deferred Income Taxes 14,238,612 14,058,612
Long-Term Debt (Less
Current Maturities) 56,631,397 41,337,949
Other Non-Current Liabilities 5,264,901 5,018,882
------------ ------------
Total Non-Current Liabilities 76,134,910 60,415,443
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 31,326,834 31,326,150
Retained Earnings 38,429,937 34,906,679
Treasury Shares (1,011,736 in 2000
and 1,012,336 in 1999), at Cost (6,436,348) (6,440,164)
Cumulative Foreign Translation
Adjustment (25,199) (25,855)
Underfunded Pension Liability
Adjustment (92,992) (92,992)
------------ ------------
Total Stockholders' Equity 63,268,966 59,740,552
Total Liabilities and
Stockholders' Equity $153,631,197 $132,011,078
============ ============
<PAGE> -5-
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Increase (Decrease) in Cash September 30,
-----------------------
2000 1999
Cash Flows from Operating Activities: ---------- ----------
Net Earnings $4,882,009 $6,579,924
Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operating
Activities:
Depreciation 5,990,560 5,686,749
Goodwill Amortization 951,835 671,653
Change in Assets and Liabilities (2,220,534) (2,407,840)
---------- ----------
Total Adjustments to Reconcile Net
Earnings to Net Cash Provided by
Operating Activities 4,721,861 3,950,562
---------- ----------
Net Cash Provided by Operating
Activities 9,603,870 10,530,486
Cash Flows from Investing Activities:
Capital Expenditures (6,262,590) (8,294,630)
Acquisitions, Net of Cash Acquired (19,612,545) (9,937,072)
Sale of Land and Building 2,196,700 --
Sale of Discontinued Operations 83,282 2,299,411
----------- -----------
Net Cash Used in Investing Activities (23,595,153) (15,932,291)
Cash Flows from Financing Activities:
Net Borrowings Under Revolving
Credit Agreement 14,800,000 6,900,000
Issuance of Note Payable 607,645 --
Repayment of Note Payable (20,000) --
Other Debt (17,545) (77,181)
Dividends Paid (1,358,751) (1,416,887)
---------- ----------
Net Cash Provided by Financing
Activities 14,011,349 5,405,932
---------- ----------
Net Increase in Cash 20,066 4,127
Cash at Beginning of Period 272,649 157,391
---------- ----------
Cash at End of Period $ 292,715 $ 161,518
========== ==========
Supplemental Disclosures of
Cash Flow Information:
Interest Paid $2,609,154 $1,946,492
Income Taxes Paid (Net of Refunds) 3,119,128 4,633,108
<PAGE> -6-
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 consolidated
financial statements and the notes thereto included in the
company's latest annual report on Form 10-K.
Statements for the three month and nine month periods ended
September 30, 2000 and September 30, 1999 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 Acquisitions
On June 2, 2000, the company acquired all of the assets of
Thermo TerraTech Inc.'s heat treating services group ("HTSG").
The acquired group includes the operations of Metallurgical in
Minneapolis, Metal Treating in Milwaukee and Cal-Doran in Los
Angeles and San Diego. The company purchased the assets
collectively from HTSG for $17.3 million, with $15.7 million
paid at closing and $1.6 million paid subsequent to June 30,
2000 as a final purchase price adjustment. On August 18, 2000
the company acquired all of the assets of Industrial Heat
Treating & Metallurgical Company, Inc. of Indianapolis,
Indiana, for $1.7 million of cash and $600,000 of a note
payable. Cash payments made as part of each purchase were
funded with borrowings under the company's revolving credit
agreement.
The preliminary allocation of the purchase price of HTSG
included in the company's financial statements for the quarter
is as follows: (in thousands)
Property and Equipment $ 8,918
Accounts Receivable 2,433
Other Assets 44
Goodwill 8,275
Accounts Payable (30)
Environmental Reserve (1,000)
Other Liabilities (1,360)
--------
$ 17,280
<PAGE> -7-
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.
The following table presents pro forma information for the
three month and nine month periods ended September 30, 1999
and September 30, 2000 of the combined entities of Lindberg
Corporation and HTSG.
The pro forma information assumes the acquisition had taken
place at the beginning of the periods presented (in thousands,
except per share data).
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
Unaudited 2000 1999 2000 1999
------- ------- -------- --------
Net Sales $33,423 $33,368 $102,577 $106,229
Net Earnings 1,445 1,802 5,022 7,006
Net Earnings
Per Diluted Share .25 .30 .88 1.17
Adjustments to the statement of earnings include additional
depreciation and interest charges, goodwill amortization,
adjustments 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 Material Changes
No material changes have occurred with respect to the
company's contingent liabilities outlined in the company's
1999 10-K through the date of this report. However, the
company did establish reserves for environmental contingencies
of $1.0 million in connection with the acquisition of HTSG.
NOTE 4 Other
In the first quarter of 2000, the company and a partner
formed an ion-plasma nitriding technology company in the Los
Angeles area named Accurate Ion Technologies, LLC ("Accurate
Ion"). The company holds a 25% interest in Accurate Ion and
accounts for this investment under the equity method of
accounting. As such, the company records its share of the
income of Accurate Ion in the period earned.
<PAGE> -8-
"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 September 30, 2000, the company's total debt was $58.9 million, an
increase of $15.5 million from $43.4 million outstanding at December 31,
1999. The company's total debt to capitalization ratio was 48% at the
end of the third quarter of 2000 as compared to 42% at the end of 1999.
The principal reasons for the increase in the level of debt during the
first nine months of 2000 were the acquisition of the heat treating
services group of Thermo TerraTech Inc. ("HTSG") in June 2000 for $17.3
million and the acquisition of Industrial Heat Treating & Metallurgical
Company, Inc. ("IHT") in August 2000 for $2.3 million. The purchase
price for each acquisition was funded with additional borrowings under
the company's revolving credit agreement and, in the case of IHT, the
issuance of $600,000 of a note payable to the sellers. Partially
offsetting the increase in debt from these acquisitions was the receipt
of $2.2 million of cash in April 2000 from the sale of land and a
building which the company owned and had been leasing to the purchaser
of one of the company's previously discontinued Precision Products
businesses. Cash generated through operations for the nine-month period
also offset the effect of the acquisitions to a degree.
The company maintains, with two banks, a revolving credit facility with
a total borrowing capacity of $70 million. The maturity date of the
agreement relating to the facility is December 2002. At September 30,
2000, the company had $18 million of available capacity under that
revolving credit facility.
Capital expenditures for the first nine months of 2000 were $6.3
million, a decrease from $8.3 million in the corresponding period of
1999. The spending in the first nine months of 2000 related primarily
to the acquisition of additional furnaces and equipment at the company's
facilities.
On July 28, 2000, the Board of Directors declared a cash dividend of
$.08 on each share of the company's common stock, payable on
September 1, 2000. The total cash dividends paid on the latter date were
$453,000. This compared to a cash dividend payout of $.08 per share of
common stock, or $473,000, in the same period of 1999.
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 2000 and in the longer term.
<PAGE> -9-
OF RESULTS OF OPERATIONS:
Quarter ended September 30, 2000 and 1999
Net sales for the quarter ended September 30, 2000 were $33.4 million,
an increase of $4.4 million, or 15%, from $29.0 million in the
corresponding period of 1999. Excluding the acquisitions of HTSG and
IHT, which contributed $4.8 million in sales to the third quarter 2000
results, the company's sales decreased by 1% versus the third quarter of
1999. The decline in sales, after considering the effect of the
acquisitions, resulted primarily from a lower level of sales in the
month of July 2000 as compared to the same month last year.
Gross profit for the third quarter of 2000 was $8.3 million, up
$400,000, or 5%, from $7.9 million in the third quarter of 1999. The
gross profit improved in the quarter as a result of contributions from
the acquisitions during the quarter. The company's gross margin in the
third quarter of 2000 was 25.0%, compared to 27.1% in the same period of
1999. A significant factor in the decrease in the gross margin was
higher energy costs - in particular, increased natural gas costs
nationally and electricity costs in Southern California. It is
estimated that about half of the decline in gross margin was related to
the effect of higher energy costs. The company has implemented
adjustments in its pricing in an effort to mitigate to the extent
possible the effect of the higher energy costs in the future. However,
there can be no assurances that the effects of the higher energy costs
will be fully offset.
Selling and administrative expenses for the third quarter of 2000 were
$5.0 million, up from $4.5 million in the same period of 1999.
Excluding $500,000 of expenses related to HTSG and IHT in the 2000
period, selling and administrative expenses were $4.5 million -
essentially level with the third quarter of 1999. Selling and
administrative expenses as a percentage of sales were 15.1% for the
third quarter of 2000, down from 15.6% in the same period of 1999.
Interest expense net of interest income in the third quarter of 2000 was
$971,000, compared to $546,000 in the third quarter of 1999. The
increase resulted largely from higher borrowing levels due to the
acquisitions of HTSG and IHT. Higher interest rates to a lesser degree
contributed to the increased expense for the period.
During the third quarter of 2000, the company recorded investment
earnings of $79,000 relating to two companies in which it holds a
minority interest, Thixomat, Inc. ("Thixomat") and Accurate Ion
Technologies, LLC ("Accurate Ion"). In the third quarter of 1999, the
company recorded investment earnings of $44,000 related to Thixomat.
Reflecting the above, net earnings in the third quarter of 2000 were
$1.4 million, down from $1.7 million for the corresponding period of
1999. Diluted earnings per share in the third quarter of 2000 were $.25
as compared to $.28 in the third quarter of 1999. The weighted number
of shares and equivalents for the third quarter of 2000, compared to the
same quarter of 1999, were lower as a result of the purchase by the
company of 264,000 shares of common stock for the treasury in December
1999.
Nine months ended September 30, 2000 and 1999
Net sales for the nine months ended September 30, 2000 were $95.0
million, up $2.3 million, or 2%, from $92.7 million in the corresponding
period of 1999. Excluding the effect of the acquisitions of HTSG and
IHT in the comparison, sales for the 2000 period declined 4% from the
first nine months of 1999. This decline in net sales was largely
reflective of reduced business levels, in comparison to the year-ago
period, at company facilities serving customers in the commercial
aerospace industry in the first six months of 2000.
<PAGE> -10-
Gross profit for the first nine months of 2000 was $25.1 million, down
$2.0 million, or 7%, from $27.1 million for the first nine months of
1999. The gross profit decline in the 2000 period was largely the
result of the decrease in net sales, excluding the effect of
acquisitions, during the period. Also adversely affecting the gross
profit in the 2000 period was higher energy costs, which began to move
significantly upward during the second quarter of the year. The
company's gross margin in the first nine months of 2000 was 26.4%
compared to 29.2% in the corresponding period of 1999. In addition to
the negative effect of higher energy costs on gross margin in 2000, the
decline was reflective of the adverse effect of the lower sales in
relation to the company's relatively fixed cost structure.
Selling and administrative expenses for the first nine months of 2000
were $14.8 million as compared to $14.3 million for the same period of
1999. Excluding expenses relating to HTSG and IHT, selling and
administrative expenses in the 2000 period were $14.2 million, 1% below
the figure for 1999. As a percent of sales, selling and administrative
expenses were 15.6% for the first nine months of 2000 - essentially
level with the prior year.
Interest expense net of interest income in the first nine months of 2000
was $2.3 million, compared to $1.6 million in the first nine months of
1999. The increase in net expense in 2000 related primarily to
additional borrowings due to the acquisitions of HTSG and IHT, and to a
lesser degree to higher interest rates in the 2000 period.
During the first nine months of 2000, the company recorded income of
$242,000 from its investments in Thixomat and Accurate Ion. In the same
period of 1999, $74,000 in investment earnings related solely to
Thixomat were recorded.
Reflecting the above, net earnings in the first nine months of 2000 were
$4.9 million, down from $6.6 million for the corresponding period of
1999. Diluted earnings per share in the first nine months of 2000 were
$.86 as compared to $1.10 in the same period of 1999.
<PAGE> -11-
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change during the nine months ended
September 30, 2000 from the disclosures about market risk
provided in the company's latest annual report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
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.
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
10. Amended and Restated Supplemental Pension Plan dated
September 5, 2000
11. Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended
September 30, 2000.
<PAGE> -12-
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/s/Stephen S. Penley
-------------------------
Stephen S. Penley
Executive Vice President
and Chief Financial Officer
Dated: November 14, 2000
