<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File Number 0-4539
TRANS-INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2598139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2637 S. Adams Road, Rochester Hills, MI 48309
(Address of principal executive offices) (Zip Code)
(248) 852-1990
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
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 and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
---
As of February 28, 1998, 3,074,400 shares of Common Stock were outstanding
and the aggregate market value of the Common Stock held by non-affiliates of the
registrant (based upon the last sale price on the NASDAQ National Market) was
approximately $17,418,648.
DOCUMENTS INCORPORATED BY REFERENCE
Information called for by Part III (Items 10, 11, 12, and 13) is
incorporated by reference from the Registrant's definitive proxy statement in
connection with its Annual Meeting of Shareholders to be held on May 13, 1998,
which Proxy Statement will be filed pursuant to Regulation 14A.
<PAGE> 2
PART I
Item 1 Business.
Introduction
Trans-Industries, Inc. (the "Company") was incorporated in
Delaware in 1967 to acquire the business of Transign, Inc., a company founded in
1952 to manufacture mechanical bus signs. Initially, the Company produced
mechanical signage for the mass transit market, but its current efforts are
concentrated on electronic systems for the display of information, bus lighting
products and source extraction systems for the environmental market. These
products are sold to virtually all aspects of the transportation industry and to
a broad range of commercial and industrial markets. The Company has two major
customers - Orion Bus Industries and Nova Bus Corp. - which accounted for over
10 percent of consolidated annual sales. Although Orion Bus Industries and Nova
Bus Corp. are highly valued customers, the Company does not consider itself
dependent upon them for continued, ongoing sales. Sales volume is significantly
affected by state and municipal government spending for mass transit, highway
systems, and airports. As of February 28, 1998, the Company's backlog was
$13,232,400, compared with $10,748,200 and approximately $8,641,900 for the same
dates in 1997 and 1996, respectively. Of the current backlog, it is anticipated
that 90 percent will be completed within one year.
Operations
A. Industry Segment.
The Company is a leader in the supply of lighting and information
display systems for mass transit operations. Also, new and growing markets are
being developed for electronic information display systems, liquid crystal
displays, and the Company's dust control product line. Dust control is an air
impurity extraction system that is designed to remove air pollution at its
source. Based on the nature of the Company's products, production process, types
of customers, and marketing methods, management believes the Company operates in
predominately one broad
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industry segment which is the transportation industry. The Company continues to
decrease its dependence upon the mass transit portion of this market.
B. Foreign and Domestic Operations and Export Sales.
Through subsidiaries, the Company operates manufacturing,
assembly, sales, and service facilities in the United Kingdom. These operations
sell products purchased from the affiliated domestic companies, as well as
products manufactured in the United Kingdom, to customers in Europe, Australia,
and Asia. Additional foreign sales are made on an export basis from domestic
offices as well as through certain agents abroad. Summarized financial
information about foreign operations and exports are in Notes G and I to the
Consolidated Financial Statements.
C. Research and Quality Control.
The Company's principal research activities are conducted at its
product development center in Rochester Hills, Michigan, where line maintenance
and new product programs are carried out according to perceived market
opportunities. Quality control, rather than being centralized, is a function
performed at each manufacturing plant.
Approximately $700,000, $587,000, and $438,000 were spent on
research and development during the years ended December 31, 1997, 1996, and
1995, respectively.
D. Competition.
In each of the market niches where the Company competes, there are
one or more competitors. Sizes of these concerns range from small to large
integrated enterprises, both domestically and internationally, with no single
company dominating the various markets. The Company owns and has licensed United
States and foreign patents relating to the manufacture of most of its products,
but these are not deemed sufficient to substantially minimize competition from
other parties. It is felt that success in the marketplace is due to the ability
to compete on the basis of price, service, and product performance.
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E. Raw Materials.
The principal raw materials used by the Company include steel,
plastics, electronic components, and synthetic materials, all of which are
presently available in adequate supply on the open market.
F. Employee Relations.
The Company employs approximately 290 people, supplemented by
temporary workers, with a minority of these employees covered by a union
contract that expires August 7, 1998. The Company considers its overall labor
relations with employees to be good.
The Company maintains profit sharing and 401-K plans for all of
its full-time employees who are not part of a bargaining unit.
The Company adopted a stock option plan, in 1996, for officers,
directors, and key employees of the Company and its subsidiaries. (See Note H to
the financial statements)
G. Environmental Considerations.
The Company believes it is in compliance with all state and
federal regulations for environmental control and safety, and the related
expenditures are generally not significant.
H. Directors and Officers of the Registrant.
See Part III, Item 10 for certain information regarding officers
and directors.
Item 2. Properties.
Domestic operations are conducted at six principal facilities.
Four are owned, of which two are located in Waterford, Michigan, one in
Rochester Hills, Michigan and one in Bad Axe, Michigan. Two locations are
leased. One of the leased facilities is located in Rochester Hills, Michigan
under a lease agreement expiring in February 1999. The other leased facility is
in
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Wilmington, North Carolina and is leased through January 1999. International
operations are conducted in England at a leased facility located in Leeds, and
an owned facility in Telford. The lease agreement for the facility in Leeds
expires in December 2009.
The plants, all of which are well maintained and in good operating
condition, contain an aggregate of approximately 219,000 square feet of floor
space. Generally, the plants have been operating on a five day a week basis with
frequent overtime.
Item 3. Legal Proceedings.
The Company is the plaintiff in a patent infringement lawsuit
filed in the Federal District Court for the Eastern District of Michigan, the
Southern Division. During November of 1993, an advisory jury recommended a
decision in favor of the Company. In April of 1994, the judge concurred with the
advisory jury and ordered that the defendant be enjoined from any further
manufacture, use, or sale of the accused patented device. It was also ordered
that the defendant pay approximately $3 million in damages. During 1994, the
defendant appealed the case. In 1995, the Court of Appeals reaffirmed the
Company's patent as valid and infringed but remanded the case back to the
Federal District Court to make further findings of fact and to reevaluate the
amount of the award. In January of 1998, the Federal District Court again
ordered that the defendant pay approximately $3 million in damages with interest
to be determined by the court. A final outcome is expected to be reached in
1998. Because this decision can be further appealed by the Defendant, the
ultimate award to the Company will be recorded in the financial statements when
realized. Additionally, any award received by the Company will be net of certain
contingent fees related to the lawsuit.
Item 4. Submission of Matters to a Vote for Security Holders.
No matters were submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through solicitations
of proxies or otherwise.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Common Stock is traded on the Over-the-Counter Market and is
included in the National Association of Securities Dealers Automated Quotation
System under the symbol TRNI. The following table sets forth the range of trade
prices as reported by the National Securities Dealers Association, Inc. for the
preceding two years:
Trade Prices
High Low
---- ---
1997
First Quarter 6.50 4.69
Second Quarter 6.75 5.50
Third Quarter 10.13 5.88
Fourth Quarter 13.25 9.50
1996
First Quarter 5.13 2.88
Second Quarter 8.13 4.75
Third Quarter 7.50 4.63
Fourth Quarter 5.50 4.63
These quotations reflect actual transactions without retail markup, markdown, or
commission.
As of December 31, 1997, there were 270 registered holders of the
Common Stock of the Registrant.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
OPERATIONS 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $ 35,382,461 $ 29,919,604 $ 24,934,101 $ 23,202,257 $ 25,571,607
Cost of Sales 22,824,939 19,007,311 17,109,368 16,615,601 19,691,806
Interest Expense 637,401 782,684 909,458 809,060 717,979
Income Tax Exp./(Benefit) 1,498,000 851,000 277,000 30,000 (65,000)
Earnings/(Loss) before Cum
Effect of Change in
Accounting Method 2,711,560 1,722,758 823,733 (481,413) (588,466)
Net Earnings/(Loss) 2,711,560 1,722,758 823,733 (481,413) (488,466)
FINANCIAL CONDITION
Current Assets 16,081,326 13,369,606 13,558,083 10,818,940 12,117,324
Current Liabilities 7,795,272 7,164,283 8,235,987 5,981,338 6,880,011
Working Capital 8,286,054 6,205,323 5,322,096 4,837,602 5,237,313
Current Ratio 2.06 1.87 1.65 1.81 1.76
Net Property, Plant
and Equipment 5,012,911 4,520,969 4,106,041 4,600,485 4,864,205
Long Term Debt 3,561,838 3,992,566 4,271,314 5,318,208 5,737,887
Stockholders' Equity 9,640,246 6,921,771 5,086,374 3,991,183 4,403,428
Total Assets 21,618,928 18,515,167 18,148,039 15,995,926 17,683,476
Tangible Net Worth
and Subordinated Debt(a) 9,220,026 6,663,201 5,076,091 4,979,187 5,243,241
COMMON SHARE DATA
Earnings/(Loss) before Cum
Effect of Change in
Accounting Method $ .88 $ .56 $ .28 $(.16) $(.20)
Net Earnings/(Loss) (b)
Net Earnings/(Loss) (b)
Basic $ .88 $ .56 $ .28 $(.16) $(.17
Diluted $ .86 $ .54 $ .26 $(.16) $(.17
Book Value (c) $3.14 $2.25 $1.65 $1.36 $1.50
Average Shares Outstanding
Basic 3,072,000 3,075,000 2,952,000 2,927,000 2,927,000
Diluted 3,151,000 3,203,000 3,519,000 2,927,000 2,927,000
</TABLE>
(a) Tangible net worth equals total assets less intangible assets, less total
liabilities. Subordinated debt in the period of 1993 to 1996 consisted of
two convertible subordinated debentures, the last of which was retired in
1997. (See Note E of notes to consolidated financial statements.)
(b) Based on weighted average number of common shares and equivalents
outstanding.
(c) Based on shares outstanding at year end.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. Forward-Looking Statements
This discussion highlights significant factors influencing the
financial condition and results of operations of Trans-Industries, Inc. It
should be read in conjunction with the financial statements and related notes.
This discussion includes certain forward-looking statements based on
management's estimates of trends and economic factors in the markets in which
the corporation is active, as well as the corporation's business plans. In light
of recent securities law developments, including the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, the corporation notes that
such forward-looking statements are subject to risks and uncertainties.
Accordingly, the corporation's actual results may differ from those set forth in
such statements. Significant changes in economic conditions, regulatory or
legislative changes affecting Trans-Industries, Inc., its competitors, or the
markets in which it is active, or changes in other factors may cause future
results to vary from those expected by the corporation. The "Forward-Looking
Information" section in the corporation's Information Statement discusses
certain factors that may cause such differences to occur.
OPERATIONS
1997 Compared With 1996
Sales for 1997 were $35.4 million compared to $29.9 million for
the previous year. This sales increase of $5.5 million, or 18.4 percent, from
1996 sales levels was attributable to continued growth in sales of the Company's
multi-functional lighting systems and its electronic variable message signs. For
1997, all subsidiaries contributed to the increased sales volume by surpassing
1996 sales levels. Continued strong demand for transit buses, as well as
increased market share, accounted for the improved sales levels in 1997.
Inflationary impact on sales for 1996 and 1997 was minimal.
For the first quarter of 1998, the Company expects sales to be up
from the levels achieved for the same period last year. This sales increase
reflects the continuation of growth in each of the niche markets the Company
serves.
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The Company's pretax income for 1997 amounted to $4,209,560
compared to $2,573,758 for the 1996 fiscal year. This increase of $1,635,802, or
64 percent, is primarily attributable to increased sales volume.
Cost of sales for 1997 was $22,824,939 compared to $19,007,311 for
the prior year. As a percentage of sales, cost of sales showed a slight increase
to 64.6 percent in 1997, from 63.5 percent in 1996. The increase of 1.1 percent
reflects pricing and delivery problems associated with a major international
contract realized by the Company in 1997.
Selling, general, and administrative expenses increased to
$7,917,545 in 1997, from $7,654,370 in 1996. This increase of $263,175, or 3.4
percent, was primarily associated with increased marketing efforts and an
increase in research and development expenditures.
Interest expense decreased in 1997 to $637,401 from $782,684 in
1996. This decrease of $145,283 was due to lower borrowings in 1997. The Company
has reviewed its computer processing systems and does not expect to incur any
material costs associated with the start of a new millenium and the "year 2000
issue".
1996 Compared With 1995
Sales for 1996 were $29.9 million compared to $24.9 million for
the previous year. This sales increase of $5.0 million, or 20.1 percent from
1995 sales levels, was attributable to continued growth in sales of the
Company's multi-functional lighting systems used in mass transit vehicles.
Additionally, the Company enjoyed a substantial increase in the sale of its
electronic destination signs. 1996 sales of this product to the mass transit
market doubled over the 1995 sales level. Increased bus production, as well as
increased market share, accounted for the improved sales levels in 1996.
Inflationary impact on sales for 1995 and 1996 was minimal.
For the first quarter of 1997, the Company's sales were up from
the levels achieved for the same period last year. The increase in sales was due
primarily to a strong market for the Company's bus lighting products and its
variable message displays.
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The Company's pretax income for 1996 amounted to $2,573,758
compared to $1,100,733 of pretax income for the 1995 fiscal year. This increase
of $1,473,025, or 134 percent, was primarily attributable to increased sales
volume.
Cost of sales for 1996 was $19,007,311 compared to $17,109,368 for
the year before. As a percentage of sales, cost of sales decreased to 63.5
percent in 1996, from 68.6 percent in 1995. The decrease of 5.1 percent was
attributable primarily to the increased sales volume in 1996.
Selling, general, and administrative expenses increased to
$7,654,370 in 1996, from $5,937,896 in 1995. This increase of $1,716,474 was not
isolated in any specific area of operations, rather it was made up of many
varied expenditures relating to increased sales volume. A majority of the
increase can be isolated to these areas: (1) Bad debt expense increased
approximately $394,000 over 1995 levels. This was primarily the result of a
major U.S. bus builder declaring bankruptcy in 1996. The Company believes its
possibility of ever collecting is nil, therefore the entire receivable was
written off. (2) Increased sales and marketing efforts, though quite effective,
accounted for approximately $236,000 of increased expenditures over 1995. (3)
The Company also recorded increases in its incentive pay, professional fees, and
research and development expenses of approximately $239,000, $135,000, and
$149,000, respectively.
Interest expense decreased in 1996 to $782,684 from $909,458. This
decrease of $126,774 was primarily due to lower borrowings in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of year end 1997, the Company had $8.3 million of working
capital compared with $6.2 million at year end 1996 and $5.3 million at year end
1995. This increase in working capital of $2.1 million resulted primarily from
the Company's increased profitability and utilization of assets. In October of
1995 the Company retired $700,000 of convertible debentures with funds acquired
through short term borrowings, which were repaid in 1996. In 1997, the Company
repurchased the last of the convertible subordinated debentures which were
outstanding in the
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amount of $214,284. Funds for this transaction were provided for by the
Company's short term credit line. If the Company's award of approximately $3
million in its patent litigation is upheld on appeal, liquidity will be
enhanced.
At December 31, 1997, there were no material commitments for
capital expenditures. It is expected that capital expenditures for 1998 will
approximate those recorded in 1997. It is management's belief that cash flow
from operations and short term borrowings will be sufficient for working capital
requirements, debt service obligations, and capital expenditures for the ensuing
year.
DIVIDENDS
The Company has not paid cash dividends on its common stock for
its three most recent fiscal years. The Company's term loan agreement restricts
the payment of cash dividends on its common stock. See Note E to the
Consolidated Financial Statements.
Item 8. Financial Statements.
The following pages contain the Consolidated Balance Sheets as of
December 31, 1997 and 1996 and the related Consolidated Statement of Earnings,
Stockholders' Equity and Cash Flows for each of the years in the three year
period ended December 31, 1997, including the reports of the Company's
independent certified public accountants.
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CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
DECEMBER 31, 1997, 1996 AND 1995
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CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................................. 14
FINANCIAL STATEMENTS
Consolidated Balance Sheets..................................................................... 15
Consolidated Statements of Earnings............................................................. 17
Consolidated Statement of Stockholders' Equity.................................................. 18
Consolidated Statements of Cash Flows........................................................... 19
Notes to Consolidated Financial Statements...................................................... 20
SUPPLEMENTAL INFORMATION
Schedule II - Valuation and Qualifying Accounts................................................. 32
</TABLE>
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Trans-Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Trans-Industries, Inc. (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 each of the three years in the period
ended December 31, 1997. 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 our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of
Trans-Industries, Inc. and Subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
We have also audited Schedule II for each of the three years in the period ended
December 31, 1997. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
Grant Thornton LLP
Detroit, Michigan
February 6, 1998
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 132,297 $ 358,764
Accounts receivable, less allowance for doubtful
accounts of $213,000 in 1997 and $109,000
in 1996 8,433,468 6,195,865
Inventories 6,824,438 6,162,592
Deferred income taxes 444,000 373,000
Prepaid expenses and other current assets 247,123 279,385
---------- ----------
Total Current Assets 16,081,326 13,369,606
PROPERTY AND EQUIPMENT - AT COST
Land 314,503 370,814
Land improvements 126,660 126,660
Buildings 4,992,360 5,234,892
Machinery and equipment 7,848,472 6,582,016
---------- ----------
13,281,995 12,314,382
Less accumulated depreciation and amortization 8,269,084 7,793,413
---------- ----------
Net property and equipment 5,012,911 4,520,969
Excess of cost over net assets acquired, net of
accumulated amortization of $1,158,846 in
1997 and $1,114,275 in 1996 178,383 222,854
Other assets 346,308 401,738
---------- ----------
$21,618,928 $18,515,167
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Note payable to bank $ 3,503,262 $ 2,539,142
Current maturities of long-term debt 193,389 250,243
Accounts payable 2,419,154 2,779,171
Income taxes payable 88,000 195,000
Accrued liabilities 1,591,467 1,400,727
------------ ------------
Total Current Liabilities 7,795,272 7,164,283
Long-term debt, excluding current maturities 3,561,838 3,992,566
Deferred income taxes 197,000 126,000
Other liabilities 424,572 310,547
COMMITMENTS AND CONTINGENCIES (NOTE J) - -
STOCKHOLDERS' EQUITY
Preferred stock of $1 par value per share, authorized
500,000 shares; none issued - -
Common stock of $0.10 par value per share, authorized
10,000,000 shares; issued and outstanding 3,073,200
and 3,072,000 shares in 1997 and 1996, respectively 307,320 307,200
Additional paid-in capital 4,062,116 4,053,985
Retained earnings 5,273,244 2,561,684
Foreign currency translation adjustment (2,434) (1,098)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,640,246 6,921,771
------------ ------------
$ 21,618,928 $ 18,515,167
============ ============
</TABLE>
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $35,382,461 $29,919,604 $24,934,101
Cost of goods sold 22,824,939 19,007,311 17,109,368
---------- ---------- ----------
Gross profit 12,557,522 10,912,293 7,824,733
Selling, general and administrative expense 7,917,545 7,654,370 5,937,896
---------- ---------- ----------
Operating earnings 4,639,977 3,257,923 1,886,837
Other expense (income), net
Interest expense 637,401 782,684 909,458
Other (206,984) (98,519) (123,354)
---------- ---------- ----------
430,417 684,165 786,104
---------- ---------- ----------
Earnings before income taxes 4,209,560 2,573,758 1,100,733
Income tax expense 1,498,000 851,000 277,000
---------- ---------- ----------
Net earnings $ 2,711,560 $ 1,722,758 $ 823,733
============ ============ ============
Earnings per share:
Basic $ .88 $ .56 $ .28
============ ============ ============
Diluted $ .86 $ .54 $ .26
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON TREASURY PAID-IN
STOCK STOCK CAPITAL
-------- -------- ---------
<S> <C> <C> <C>
Balance at January 1, 1995 $ 295,000 $ (2,300) $ 3,796,546
Issuance of 150,000 shares of
common stock 15,000 - 285,000
Net earnings - - -
Foreign currency translation adjustment - - -
----------- ----------- -----------
Balance at December 31, 1995 310,000 (2,300) 4,081,546
Purchase of 5,000 shares of
treasury stock - (500) (27,561)
Retirement of 28,000 shares of
treasury stock (2,800) 2,800 -
Net earnings - - -
Foreign currency translation adjustment - - -
----------- ----------- -----------
Balance at December 31, 1996 307,200 - 4,053,985
Issuance of 1,200 shares of common stock 120 - 8,131
Net earnings - - -
Foreign currency translation adjustment - - -
----------- ----------- -----------
Balance at December 31, 1997 $ 307,320 $ - $ 4,062,116
=========== =========== ===========
<CAPTION>
FOREIGN
CURRENCY
RETAINED TRANSLATION
EARNINGS ADJUSTMENT TOTAL
--------- ---------- ---------
<S> <C> <C> <C>
Balance at January 1, 1995 $ 15,193 $ (113,256) $ 3,991,183
Issuance of 150,000 shares of
common stock - - 300,000
Net earnings 823,733 - 823,733
Foreign currency translation adjustment - (28,542) (28,542)
----------- ----------- -----------
Balance at December 31, 1995 838,926 (141,798) 5,086,374
Purchase of 5,000 shares of
treasury stock - - (28,061)
Retirement of 28,000 shares of
treasury stock - - -
Net earnings 1,722,758 - 1,722,758
Foreign currency translation adjustment 0 140,700 140,700
----------- ----------- -----------
Balance at December 31, 1996 2,561,684 (1,098) 6,921,771
Issuance of 1,200 shares of common stock - - 8,251
Net earnings 2,711,560 - 2,711,560
Foreign currency translation adjustment - (1,336) (1,336)
----------- ----------- -----------
Balance at December 31, 1997 $ 5,273,244 $ (2,434) $ 9,640,246
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 2,711,560 $ 1,722,758 $ 823,733
Adjustments to reconcile net earnings to net
cash provided by operations:
Depreciation of property and equipment 710,868 629,376 662,253
Bad debt expense 213,625 439,120 44,633
Amortization of goodwill 44,571 44,571 44,571
(Gain) loss on sale of property and equipment (141,200) (11,546) 23,797
Deferred income tax benefit - (154,000) (146,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,451,228) 211,692 (1,524,177)
(Increase) decrease in inventories (649,914) (188,175) (1,156,592)
(Decrease) increase in accounts payable (360,017) (322,785) 666,846
Increase (decrease) in other 285,457 (49,867) 725,055
----------- ----------- -----------
Net cash provided by operating activities 363,722 2,321,144 164,119
INVESTING ACTIVITIES
Purchases of property and equipment (1,333,793) (1,080,808) (278,456)
Proceeds from sale of property and equipment 272,083 48,050 86,850
----------- ----------- -----------
Net cash used in investing activities (1,061,710) (1,032,758) (191,606)
FINANCING ACTIVITIES
Proceeds from long-term borrowings - - 513,377
Repayments of long-term borrowings (487,582) (708,738) (948,582)
Repayments of obligations under capital leases - - (19,803)
Net proceeds (repayments) on line of credit 964,120 (442,646) 592,421
Purchase of treasury stock - (28,061) -
Proceeds from sale of common stock 8,251 - -
----------- ----------- -----------
Net cash provided by (used in) financing activities 484,789 (1,179,445) 137,413
Effect of foreign currency exchange rate changes (13,268) 140,700 (28,542)
----------- ----------- -----------
Net (decrease) increase in cash (226,467) 249,641 81,384
Cash at beginning of year 358,764 109,123 27,739
----------- ----------- -----------
Cash at end of year $ 132,297 $ 358,764 $ 109,123
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 641,609 $ 795,443 $ 918,576
Income taxes paid (refunded) $ 1,605,000 $ 1,232,000 $ (93,000)
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
During 1995, the deferred compensation plan sponsored by the Company (the Plan)
acquired $300,000 of the Company's convertible subordinated debentures held by
Figgie International, Inc. The Plan exercised its conversion privileges and the
Company issued 150,000 shares of its common stock and retired the debt.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
<PAGE> 20
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE A - NATURE OF OPERATIONS
The Company is a multinational manufacturer of lighting and information display
systems. The principal markets for its products are the United States, the
United Kingdom and Canada. Sales volume is significantly affected by state and
municipal government spending for mass transit, highway systems and airports.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent company
and its wholly owned subsidiaries (the Company). All significant intercompany
balances and transactions have been eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market (net
realizable value).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
straight line and accelerated methods over the estimated useful lives of the
assets which range from 10-40 years for buildings and 3-10 years for machinery
and equipment.
GOODWILL
The excess of the cost of the investment in a wholly owned subsidiary (Transign,
Inc.) over the equity in underlying net assets at the date of acquisition is
being amortized over 30 years.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated principally at
year-end exchange rates. Income and expense accounts are converted using the
average exchange rate prevailing throughout the period. The gains and losses
resulting from the translation of these accounts are reported as a separate
component of stockholders' equity.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development costs approximated $700,000, $587,000 and $438,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
20
<PAGE> 21
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and the effects of operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes enactment date.
EARNINGS PER SHARE
During 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which
is effective for financial statements issued after December 15, 1997. The new
standard eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed. Basic earnings per share excludes
dilution and is computed by dividing income available to common shareholders by
the weighted-average common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised and converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. The Company adopted this pronouncement at December 31,
1997. All per share data in the accompanying consolidated financial statements
has been restated to reflect application of this new pronouncement.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments approximate their fair values.
21
<PAGE> 22
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW PRONOUNCEMENTS
In June 1997, the FASB issued No. 130, "Reporting of Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components (revenues, expense, gains, and losses)
in a full set of financial statements. This statement also requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This statement
is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company does not
anticipate that adoption of SFAS 130 will have a material effect on the
consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"), which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to stockholders. This statement also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement requires the reporting of financial and descriptive
information about an enterprise's reportable operating segments. This statement
is effective for financial statements for periods beginning after December 15,
1997. In the initial year of adoption, comparative information for earlier years
is to be restated. The Company does not anticipate that the adoption of SFAS 131
will have a material effect on the consolidated financial statements.
NOTE C - EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator of the basic
and diluted earnings per share computations.
<TABLE>
<CAPTION>
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------ ----------
<S> <C> <C> <C>
Year ended December 31, 1997
Basic earnings per share
Earnings available to common
stockholders $2,711,560 3,072,300 $ .88
Effect of dilutive securities
Stock options - 15,885 -
Convertible debt 8,250 62,500 (.02)
---------- ---------- -----
Diluted earnings per share
Earnings available to stockholders
plus assumed conversions $2,719,810 3,150,685 $ .86
========== ========== =====
</TABLE>
22
<PAGE> 23
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE C - EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------ ----------
<S> <C> <C> <C>
Year ended December 31, 1996
Basic earnings per share
Earnings available to common
stockholders $1,722,758 3,074,917 $.56
Effect of dilutive securities
Convertible debt 17,229 128,570 (.02)
---------- ---------- ----
Diluted earnings per share
Earnings available to stockholders
plus assumed conversions $1,739,987 3,203,487 $.54
========== ========== ====
</TABLE>
<TABLE>
<CAPTION>
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------ ----------
<S> <C> <C> <C>
Year ended December 31, 1995
Basic earnings per share
Earnings available to common
stockholders $ 823,732 2,952,000 $.28
Effect of dilutive securities
Subordinated debentures 55,000 417,000 (.01)
Convertible debt 19,800 150,000 (.01)
--------- --------- ----
Diluted earnings per share
Earnings available to stockholders
plus assumed conversions $ 898,532 3,519,000 $.26
========= ========= ====
</TABLE>
NOTE D - INVENTORIES
The major components of inventories at December 31 are:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials and purchased parts $3,471,708 $3,213,861
Work in process 1,178,684 976,993
Finished goods 2,174,046 1,971,738
----------- -----------
$6,824,438 $6,162,592
=========== ===========
</TABLE>
23
<PAGE> 24
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE E - LINE OF CREDIT AND LONG-TERM DEBT
The Company has a secured line of credit facility with a bank. The facility
allows the Company to borrow, based on qualifying accounts receivable and
inventory, up to $6,500,000 with interest at the bank's prime lending rate
(effective rate of 8.50% at December 31, 1997) or a Eurodollar based rate
(effective rate of 8.3875% at December 31, 1997), elected by the Company at the
time of each advance. Interest is payable monthly on prime rate based advances
and no less frequently than quarterly on Eurodollar rate based advances.
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Term note, payable in monthly installments of $40,496, including interest at
.25% above the bank's prime lending rate with a balloon payment of $3,179,777 on
October 1, 1999. The note is secured by substantially all the
assets of Trans-Industries, Inc., and subsidiaries $3,463,885 $3,618,406
Convertible subordinated debentures, payable in annual
installments of $42,858 plus interest at 10% 0 214,284
Mortgage note payable in monthly installments of $3,476
plus interest at 8.99%. The mortgage is collateralized by
certain property and is due August 9, 2003 176,816 211,108
Term note, payable in monthly installments of $3,229, including interest at
1.25% above the bank's prime lending
rate 0 80,733
Term note, payable in monthly installments of $896,
including interest at a rate of 6%. The note is due January
21, 2002 114,526 118,278
---------- ----------
3,755,227 4,242,809
Less current maturities 193,389 250,243
---------- ----------
$3,561,838 $3,992,566
========== ==========
</TABLE>
The convertible subordinated debentures were held by the Gerald J. Murphy
charitable trust, Kirksville College of Osteopathic Medicine, trustee. Dr.
Murphy is a member of the board of directors of Trans-Industries, Inc. These
subordinated debentures were convertible into common shares at any time at a
conversion price of $2 per share (or as adjusted, as defined in the debenture
agreement). The debentures were paid in full during 1997.
24
<PAGE> 25
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE E - LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt by year are as follows:
<TABLE>
<S> <C>
1998 $ 193,389
1999 3,314,357
2000 57,926
2001 92,525
2002 97,030
----------
$3,755,227
==========
</TABLE>
The term loan and line of credit agreements, as amended, require the Company to
maintain certain financial ratios. The agreements also restrict the payment of
dividends, repurchase of common stock, and acquisition of fixed assets.
NOTE F - LEASES
The Company leases facilities and equipment under operating leases with
unexpired terms ranging from one to five years. Rent expense for all operating
leases approximated $321,000, $309,000, and $331,000 for 1997, 1996 and 1995,
respectively. Future minimum rentals required under noncancelable lease
agreements are not material.
NOTE G - INCOME TAXES
The components of earnings before income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Domestic $4,405,544 $2,657,803 $1,094,188
Foreign (195,984) (84,045) 6,545
---------- ---------- ----------
$4,209,560 $2,573,758 $1,100,733
========== ========== ==========
</TABLE>
Income taxes have been charged to operations as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Current $1,498,000 $1,005,000 $ 423,000
Deferred - (154,000) (146,000)
---------- ---------- ---------
Total income tax expense $1,498,000 $ 851,000 $ 277,000
========== ========== =========
</TABLE>
25
<PAGE> 26
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE G - INCOME TAXES (CONTINUED)
A reconciliation of actual income tax expense to the expected amounts computed
by applying the effective U.S. federal income tax rate of 34 percent to earnings
or losses before income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Expected income tax expense $1,431,000 $875,000 $374,000
Goodwill amortization not deductible
for income tax purposes 15,000 15,000 15,000
Loss (income) of foreign subsidiaries
without tax effect 67,000 29,000 (2,000)
Foreign subsidiaries' tax benefit - - (80,000)
Other items, net (15,000) (68,000) (30,000)
---------- -------- --------
Actual income tax expense $1,498,000 $851,000 $277,000
========== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant deferred
tax assets and liabilities at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DEFERRED DEFERRED
TAX TAX
YEAR ENDED DECEMBER 31, 1997 ASSETS LIABILITIES
- ------------------------------------- --------- -----------
<S> <C> <C>
Plant and equipment, principally depreciation $ - $303,000
Inventory valuation allowance 227,000 -
Accrued expenses, deductible when paid 316,000 -
Foreign tax loss carryforwards 619,000 -
Other items 7,000 -
----------- --------
1,169,000 303,000
Less valuation allowance on deferred tax assets (619,000) -
----------- --------
$ 550,000 $303,000
=========== ========
<CAPTION>
DEFERRED DEFERRED
TAX TAX
YEAR ENDED DECEMBER 31, 1996 ASSETS LIABILITIES
- ------------------------------------- --------- -----------
<S> <C> <C>
Plant and equipment, principally depreciation $ - $145,000
Inventory valuation allowance 196,000 -
Accrued expenses, deductible when paid 274,000 -
Foreign tax loss carryforwards 554,000 -
Other items 9,000 87,000
----------- --------
1,033,000 232,000
Less valuation allowance on deferred tax assets (554,000) -
----------- --------
$ 479,000 $232,000
=========== ========
</TABLE>
26
<PAGE> 27
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE G - INCOME TAXES (CONTINUED)
The Company has a foreign tax net operating loss carryforward of approximately
$1,680,000 at December 31, 1997. A valuation allowance of $554,000 has been
recognized to reduce the deferred tax assets principally due to the uncertainty
of realizing the benefit of the tax loss carryforward. The valuation allowance
increased by $65,000 and $19,000 in 1997 and 1996, respectively.
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a Voluntary Employee Benefit Trust (Plan) designed to provide
for the payment or reimbursement of all or a portion of certain medical and
dental expenses to eligible participants. Eligible participants include active
full-time employees of the Company and their dependents. Eligible terminated and
retired employees may continue to participate in the Plan, on a contributory
basis, for up to 18 months subsequent to the date of termination or retirement.
The provision for Company contributions to the Plan approximated $380,000,
$321,000 and $402,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company has a deferred compensation plan for all employees who are not part
of a bargaining unit. Company contributions are voluntary and are established as
a percentage of each participant's base salary. Company contributions to the
Plan were $260,000, $229,000 and $225,000 for 1997, 1996 and 1995, respectively.
In 1996, shareholders approved the adoption of the 1996 Stock Option Plan (the
Plan) for the officers, directors, and key employees of the Company.
The Plan is administered by an Option Committee (Committee) appointed by the
Board of Directors. The Committee has the authority, subject to Board of
Directors resolutions and the provisions of the Plan, to determine the persons
to whom awards will be granted, the number, type and terms of the awards,
including vesting and to interpret the plan.
The Plan permits the granting of incentive stock options, non-qualified stock
options and stock appreciation rights (SAR). The total number of shares of
common stock with respect to which awards may be granted under the Plan is
200,000 shares. The option price of each option and the base for calculation of
appreciation of each SAR will be not less than the fair market value at the date
of grant. The term of each option will be fixed and may not exceed ten years
from the date of grant. The Committee may make options exercisable in
installments and may accelerate exercisability.
The Financial Accounting Standards Board issued Statement No. 123, "Accounting
for Stock Based Compensation" ("SFAS No. 123") for transactions entered into
during 1996 and thereafter. The Statement established a fair value method of
accounting for employee stock options and similar equity instruments such as
warrants, and encourages all companies to adopt that method of accounting for
all of their employee stock compensation plans. However, the Statement allows
companies to continue measuring compensation cost for such plans using
accounting guidance in place prior to SFAS No. 123. Companies that elect to
remain with the former method of accounting must make pro-forma disclosures of
net income and earnings per share as if the fair value method provided for in
SFAS No. 123 had been adopted.
27
<PAGE> 28
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE H - EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company has not adopted the fair value accounting provisions of SFAS No.
123. Accordingly, SFAS No. 123 has no impact on the Company's consolidated
financial position or results of operation.
The Company accounts for the stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." No compensation costs have been
recognized for the plan. Had compensation cost for the plan been determined
based on the fair value of the options at the grant dates consistent with the
method of SFAS No. 123, the Company's net income and income per share would have
been as follows for the year ended December 31, 1996:
Net earnings
As reported $ 1,722,758
Pro forma $ 1,645,428
Basic earnings per share
As reported $ .56
Pro forma $ .54
Diluted earnings per share
As reported $ .54
Pro forma $ .51
The fair value of each option is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions:
Dividend yield 0%
Expected volatility 67.39%
Risk-free interest rate 6.84%
Expected lives 10 years
A summary of the status of the Company's stock option plan as of December 31,
1996 and 1997 and changes during the years then ended is as follows:
<TABLE>
<CAPTION>
1996 1997
--------------------------------- --------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
STOCK EXERCISE STOCK EXERCISE
OPTIONS SAR'S PRICE OPTIONS SAR'S PRICE
------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year - - $ - 136,000 81,600 $6.875
Granted 136,000 81,600 6.875 - - -
Exercised - - - 1,200 - 6.875
Forfeited - - - 4,800 3,600 6.875
------- ------ ------ ------- ------ ------
Outstanding at end of year 136,000 81,600 $6.875 130,000 78,000 $6.875
======= ====== ====== ======= ====== ======
</TABLE>
The fair value of the options and SAR's granted during 1996 was $5.50.
28
<PAGE> 29
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE H - EMPLOYEE BENEFIT PLANS (CONTINUED)
The options are for a ten year duration with twenty percent vesting in each of
the first five years. The SAR's are for a four year duration with one-third
vesting in each of the first three years. Holders of SAR's will not, upon
exercise, be issued shares of stock, but will receive in cash or other property
in the sole discretion of the option committee, the difference between the base
price and the market price of the Company's stock on the date of exercise. Since
the SAR's were issued in tandem with stock options, upon exercise of an SAR the
holder must surrender an equivalent number of stock options.
All of the above options and SAR's were issued during 1996. 26,000 shares
underlying the options and the SAR's were exercisable at December 31, 1997.
NOTE I - CONCENTRATION OF CREDIT RISK AND GEOGRAPHIC SEGMENT INFORMATION
The Company has two major customers which account for 10 percent or more of
consolidated net sales in 1997. Sales to these customers amounted to $8,538,000.
The Company had one major customer in 1996. Sales to this customer amounted to
$4,200,000. The Company had two major customers in 1995. Sales to these
customers amounted to $4,100,000. Additionally, sales to foreign customers
(primarily in the United Kingdom and Canada) amounted to 23 percent of
consolidated net sales in 1997, 1996 and 1995. Total accounts receivable from
foreign customers approximated $1,525,000 and $1,600,000 at December 31, 1997
and 1996, respectively.
Financial information summarized by geographic area is as follows:
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM ELIMINATIONS CONSOLIDATION
---------- --------- ------------ --------------
<S> <C> <C> <C> <C>
December 31, 1997
Sales and revenue
To Unaffiliated customers $31,507,312 $ 3,875,149 $ - $35,382,461
Transfers between
geographic areas - 90,685 (90,685) -
----------- ----------- ------------ -----------
Total sales revenue $31,507,312 $ 3,965,834 $ (90,685) $35,382,461
Operating income (loss)
before income taxes $ 4,405,544 $ (195,984) $ - $ 4,209,560
Identifiable assets $33,070,724 $ 3,183,296 $(14,635,092) $21,618,928
December 31, 1996
Sales and revenue
To Unaffiliated customers $26,962,006 $ 2,957,598 $ - $29,919,604
Transfers between
geographic areas - 168,960 (168,960) -
----------- ----------- ------------ -----------
Total sales revenue $26,962,006 $ 3,126,558 $ (168,960) $29,919,604
</TABLE>
29
<PAGE> 30
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
NOTE I - CONCENTRATION OF CREDIT RISK AND GEOGRAPHIC SEGMENT INFORMATION
(CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
Operating income (loss)
before income taxes $ 2,657,803 $ (84,045) $ - $ 2,573,758
Identifiable assets $27,228,621 $ 2,369,661 $(11,083,115) $18,515,167
December 31, 1995
Sales and revenue
To Unaffiliated customers $22,077,083 $2,857,018 $ - $24,934,101
Transfers between
geographic areas - 389,866 (389,866) -
----------- ----------- ------------ -----------
Total sales revenue $22,077,083 $ 3,246,884 $ (389,866) $24,934,101
Operating income before
income taxes $ 1,094,188 $ 6,545 $ - $ 1,100,733
Identifiable assets $24,885,482 $ 2,361,834 $ (9,099,277) $18,148,039
</TABLE>
NOTE J - CONTINGENCIES
The Company is the plaintiff in a patent infringement lawsuit filed in the
Federal District Court for the Eastern District of Michigan, the Southern
Division. During November of 1993, an advisory jury recommended a decision in
favor of the Company. In April of 1994, the judge concurred with the advisory
jury and ordered that the defendant be enjoined from any further manufacture,
use, or sale of the accused patented device. It was also ordered that the
defendant pay approximately $3,000,000 in damages. During 1994, the defendant
appealed the case. In 1995, the Court of Appeals reaffirmed the Company's patent
as valid and infringed but remanded the case back to the Federal District Court
to make further findings of fact and to reevaluate the amount of the award. In
January of 1998, the Federal District Court again ordered that the defendant pay
approximately $3,000,000 in damages with interest to be determined by the court.
A final outcome is expected to be reached in 1998. Because this decision can be
further appealed by the Defendant, the ultimate award to the Company will be
recorded in the financial statements when realized. Additionally, any award
received by the Company will be net of certain contingent fees related to the
lawsuit.
30
<PAGE> 31
SUPPLEMENTAL INFORMATION
31
<PAGE> 32
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
ALLOWANCE FOR ALLOWANCE FOR
DOUBTFUL DOUBTFUL VALUATION
ACCOUNTS BAD WRITE-OFF OF ACCOUNTS ALLOWANCE
BEGINNING DEBT UNCOLLECTIBLE END OF ON DEFERRED
OF PERIOD EXPENSE ACCOUNTS PERIOD TAX ASSETS
----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995 $129,000 $ 45,000 $ 37,000 $137,000 $535,000
Year ended December 31, 1996 $137,000 $439,000 $467,000 $109,000 $554,000
Year ended December 31, 1997 $109,000 $214,000 $110,000 $213,000 $619,000
</TABLE>
32
<PAGE> 33
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
Not applicable.
33
<PAGE> 34
PART III
Item 10. Directors and Executive Officers of the Registrant.
<TABLE>
<CAPTION>
Name of Director (a)
or Officer (b) Age Office Held and/or Principal Occupation Term Expires
-------------------- --- --------------------------------------- ------------
<S> <C> <C> <C>
Dale S. Coenen (a) 69 Chairman of the Board and President May 1998
and (b) since 1972.
Duncan Miller (a) 73 Director since 1967, Investment May 1998
Counselor.
Gerald J. Murphy (a) 80 Director since 1971, private investor. Retired 2/98
Matthew M. Wirgau (a) 46 Director since 1992, President - May 1998
The Lobb Company
Robert J. Ruben (b) 74 Secretary since 1967. May 1998
Kai R. Kosanke (b) 47 Vice-President since January 1987 May 1998
Controller - 1983 thru 1987
Accounting Manager - 1981 thru 1983.
Paul Clemo (b) 37 Assistant Secretary since May 1991 May 1998
Assistant Treasurer since May 1991.
</TABLE>
The Company's directors and executive committee's fees for 1997
were as follows: Dale S. Coenen $25,000.00; Duncan Miller, $25,000.00; Gerald J.
Murphy, $25,000.00; and Matthew M. Wirgau, $25,000.00.
Mr. Miller is a director of W. R. Berkley Corp.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions
The information called for by Part III (Items 11, 12, and 13, and
additional information regarding Item 10), is incorporated by reference from the
Registrant's definitive proxy statement in connection with its Annual Meeting of
Shareholders to be held on May 13, 1998, which Proxy Statement will be filed
pursuant to Regulation 14A.
34
<PAGE> 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1, 2. Consolidated Financial Statements for Trans-Industries, Inc.
and Subsidiaries for years ended December 31, 1997, 1996, and 1995
are filed under Part II, Item 8.
3. Exhibits:
Exhibit 3 (a) Restated Certificate of Incorporation incorporated
herein by reference to Form 8 filed May 17, 1982. Exhibit 3 (b)
Bylaws incorporated herein by reference to Registration Statement
No. 2-30317. Exhibit 13 (b) Form 10-Q for quarter ended September
30, 1997, filed with the Securities and Exchange Commission on
November 10, 1997 incorporated herein by reference. Exhibit 21 List
of Subsidiaries (see page 35).
(b) No reports on Form 8-K for the three months ended December 31, 1997
were required to be filed.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TRANS-INDUSTRIES, INC.
Date: 3/25/98 /s/ Dale S. Coenen
------------------------------ --------------------------
Dale S. Coenen
Chairman of the Board of
Directors and Chief Executive
Office
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons, which include
the President, the Chief Financial Officer, the Assistant Treasurer, and a
majority of the Board of Directors on behalf of the Registrant and in the
capacities and on the dates indicated:
/s/ Dale S. Coene President 3/25/98
- -------------------------- ----------------
(Dale S. Coenen)
/s/ Kai Kosanke
- -------------------------- Vice-President 3/25/98
(Kai Kosanke) and Chief Financial Officer -----------------
/s/ Paul Clemo Assistant Treasurer 3/25/98
- -------------------------- -----------------
(Paul Clemo)
/s/ Matthew M. Wirgau Director 3/25/98
- -------------------------- -----------------
(Matthew M. Wirgau)
36
<PAGE> 37
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 21
Exhibit 21. List of Subsidiaries
State or Other
Name and Address Jurisdiction
Transign, Inc. Michigan
3777 Airport Road
Waterford, Michigan 48329
Transmatic, Inc. Delaware
6145 Delfield Ind. Park Drive
Waterford, Michigan 48329
Transmatic Europe, Ltd. United Kingdom
(A Subsidiary of Transmatic, Inc.)
B 3 Hortonwood 10
Telford, Shropshire
TF1 4ES England
Vultron, Inc. Delaware
2600 Bond Street
Rochester Hills, Michigan 48309
Vultron International, Ltd. United Kingdom
(A Subsidiary of Vultron, Inc.)
City Park Industrial Estate
Gelderd Road
Leeds
LS12 6DR England
37
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 132,297
<SECURITIES> 0
<RECEIVABLES> 8,646,468
<ALLOWANCES> 213,000
<INVENTORY> 6,824,438
<CURRENT-ASSETS> 16,081,326
<PP&E> 13,281,995
<DEPRECIATION> 8,269,084
<TOTAL-ASSETS> 21,618,928
<CURRENT-LIABILITIES> 7,795,272
<BONDS> 3,986,410
0
0
<COMMON> 307,320
<OTHER-SE> 9,332,926
<TOTAL-LIABILITY-AND-EQUITY> 21,618,928
<SALES> 35,382,461
<TOTAL-REVENUES> 35,589,445
<CGS> 22,824,939
<TOTAL-COSTS> 7,917,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 637,401
<INCOME-PRETAX> 4,209,560
<INCOME-TAX> 1,498,000
<INCOME-CONTINUING> 2,711,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,711,560
<EPS-PRIMARY> .88
<EPS-DILUTED> .86
</TABLE>
