<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, 1998 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, 1999, 3,139,737 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 $10,690,563.
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 12, 1999,
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 one major
customer - Gillig Corporation - which accounted for over 10 percent of
consolidated annual sales. Although Gillig Corp. is a highly valued customer,
the Company does not consider itself dependent upon it 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,
1999, the Company's backlog was $17,811,600, compared with $13,232,400 and
approximately $10,748,200 for the same dates in 1998 and 1997, 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 industry segment which is the transportation industry.
The Company continues to decrease its dependence upon the mass transit portion
of this market.
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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 Note L 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 $849,000, $700,000, and $587,000 were spent on
research and development during the years ended December 31, 1998, 1997, and
1996, 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.
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.
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F. Employee Relations.
The Company employs approximately 300 people, supplemented by
temporary workers, with a minority of these employees covered by a union
contract that expires August 7, 2001. 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 eight principal facilities.
Four are owned, of which two are located in Waterford, Michigan, one in
Rochester Hills, Michigan and one in Bad Axe, Michigan. Four locations are
leased. One of the leased facilities is located in Rochester Hills, Michigan
under a lease agreement expiring in February 2002. Two leased facilities are in
Wilmington, North Carolina. One facility is leased through January 2001. The
other facility is leased through August 2001. The fourth facility is in Bad Axe,
Michigan and is leased on a month to month basis.
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.
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The plants, all of which are well maintained and in good operating
condition, contain an aggregate of approximately 251,000 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 was the plaintiff in a patent infringement lawsuit
filed in the Federal District Court for the Eastern District of Michigan, the
Southern Division. On April 9, 1998, the District Court awarded the Company
$3,023,773 in damages and $1,119,588 in interest. On May 1, 1998, the defendant
paid the damages awarded to the Company and appealed the interest award. On
January 3, 1999, the Court of Appeals heard the appeal but has yet rendered its'
opinion.
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:
<TABLE>
<CAPTION>
Trade Prices
------------
High Low
---- ---
<S> <C> <C>
1998
First Quarter 14.25 11.00
Second Quarter 16.00 12.50
Third Quarter 14.00 8.25
Fourth Quarter 9.88 7.25
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
</TABLE>
These quotations reflect actual transactions without retail markup, markdown, or
commission.
As of December 31, 1998, there were 244 registered holders of the
Common Stock of the Registrant.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
OPERATIONS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Sales $35,795,386 $35,382,461 $29,919,604 $24,934,101 $ 23,202,257
Cost of Sales 22,296,059 22,824,939 19,007,311 17,109,368 16,615,601
Interest Expense 565,889 637,401 782,684 909,458 809,060
Income Tax Exp./(Benefit) 2,287,000 1,498,000 851,000 277,000 30,000
Net Earnings/(Loss) 4,071,729 2,711,560 1,722,758 823,733 (481,413)
FINANCIAL CONDITION
Current Assets 20,793,971 16,081,326 13,369,606 13,558,083 10,818,940
Current Liabilities 9,895,773 7,795,272 7,164,283 8,235,987 5,981,338
Working Capital 10,898,198 8,286,054 6,205,323 5,322,096 4,837,602
Current Ratio 2.10 2.06 1.87 1.65 1.81
Net Property, Plant
and Equipment 5,731,698 5,012,911 4,520,969 4,106,041 4,600,485
Long Term Debt 3,175,917 3,561,838 3,992,566 4,271,314 5,318,208
Stockholders' Equity 13,349,629 9,640,246 6,921,771 5,086,374 3,991,183
Total Assets 27,086,459 21,618,928 18,515,167 18,148,039 15,995,926
Tangible Net Worth
and Subordinated Debt(a) 12,788,839 9,220,026 6,663,201 5,076,091 4,979,187
COMMON SHARE DATA
Net Earnings/(Loss) (b)(d)
Basic $ 1.30 $ .86 $ .55 $ .27 $ (.16)
Diluted $ 1.28 $ .85 $ .53 $ .25 $ (.16)
Book Value (c) $ 4.25 $ 3.07 $ 2.21 $ 1.61 $ 1.32
Average Shares Outstanding(d)
Basic 3,138,000 3,135,000 3,138,000 3,015,000 2,990,000
Diluted 3,185,000 3,214,000 3,266,000 3,582,000 2,990,000
</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.
(b) Based on weighted average number of common shares and equivalents
outstanding.
(c) Based on shares outstanding at year end.
(d) The average shares outstanding and net earnings/(loss) per share
data for the years 1994 through 1997 have been restated to give
effect to the issuance in 1998 of 62,948 common shares that were
previously not reflected as issued and outstanding. See Note C to
the Consolidated Financial Statements.
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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.
OPERATIONS
1998 Compared With 1997
Sales for 1998 were $35.8 million compared to $35.4 million for
the previous year. Demand for the Company's lighting and environmental products
remained strong during 1998 with revenues from such products increasing
approximately 14%. Overall sales, however, remained essentially unchanged as
this increase was essentially offset by a reduction in the sales level of the
Company's variable message signs.
Several factors contributed to this reduction and management
believes this was a transitional situation with significant growth of variable
message revenues expected in the future due to recently enacted legislation. The
Transportation Equity Act for the 21st Century, which was signed into law in
June of 1998, has spawned a great deal of interest and demand for the Company's
variable message signs, particularly the large overhead highway signs used to
help control traffic patterns and communicate messages to the driving public. To
accommodate the production and sale of these larger signs, the Company addressed
several issues during the year, including software requirements, engineering
design and documentation, reallocation of
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production space, and establishment of procedures for the scheduling and
achievement of factory sign-offs of the completed product. Inflationary impact
on sales for 1998 and 1997 was minimal.
For the first quarter of 1999, 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.
The Company's pretax income for 1998 amounted to $6,358,729
compared to $4,209,560 for 1997. This increase of $2,149,169, or 51%, is
attributable to proceeds received in settlement of a patent lawsuit which it
filed against a competitor for infringing upon its patented lighting module.
The amount of the judgement, net of legal fees, was approximately $2,420.000.
Cost of sales for 1998 was $22,296,059 compared to $22,824,939 for
the prior year. As a percentage of sales, this amounted to a decrease to 62.3
percent in 1998, from 64.5 percent in 1997. This decrease of 2.2 percent is
primarily the result of higher labor and overhead absorption in work-in-process
and finished goods inventory.
Selling, general, and administrative expenses increased to
$9,754,750 in 1998, from $7,917,545 in 1997. This increase of $1,837,205 is
primarily the result of the following:
- Payroll and related costs were up approximately $215,000 - to
accommodate/pay adjustments and the addition of new personnel.
- Legal fees were up approximately $780,000 - primarily related to
settlement of the patent infringement lawsuit.
- Professional fees were up approximately $100,000 - primarily
attributable to tax accounting and investor relation fees.
- Advertising and sales promotion expenses were up approximately
$185,000.
- Service costs were up approximately $206,000 - related to
expansion of the Company's field service and customer support
capabilities.
Interest expense decreased in 1998 to $565,889 from $637,401 in
1997 due primarily to more favorable borrowing rates.
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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, sales were up 15% from the levels
achieved for the same period in 1997. This sales increase reflects the
continuation of growth in each of the niche markets the Company serves.
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, was 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 64.5 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.
LIQUIDITY AND CAPITAL RESOURCES
As of year-end 1998, the Company had $10.9 million of working
capital compared with $8.3 million at year-end 1997 and $6.2 million at year-end
1996. This increase in working capital of $2.6 million resulted primarily from
the Company's increased profitability and utilization of assets. In 1997, the
Company repurchased the last of the convertible subordinated debentures
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which were outstanding in the amount of $214,284. Funds for this transaction
were provided for by the Company's short-term credit line.
On April 9, 1998, the district court awarded the Company
$3,023,773 in damages and $1,119,588 in interest relating to a patent
infringement lawsuit brought against a competitor. On May 1, 1998, the defendant
paid the damages' awarded to the Company and appealed the interest award. If the
Company's interest award of approximately $1.1 million is upheld on appeal,
liquidity will be enhanced.
At December 31, 1998, there were no material commitments for
capital expenditures. However, the Company does expect to double the size and
capacity of one of its manufacturing facilities, at a cost of approximately
$600,000, and to increase its manufacturing capabilities at another location
through the purchase of additional equipment at a cost of approximately
$600,000. With that in mind, capital expenditures are expected to exceed 1998
levels by 80 - 100 percent.
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.
YEAR 2000 DISCLOSURE
Fortunately, the Company, as a whole, is not faced with any
serious consequences relating to the year 2000 issue. An internal review of its
computer systems has been completed and all areas have been identified where
modifications and/or upgrades may be required. This process was completed in the
first half of 1998.
Both U.K. operations are utilizing relatively new software systems
and are already "Year 2000 Compliant". Likewise, the Company's lighting and dust
control operations have installed a new system over the last year and a half.
Testing of the system was completed in October of 1998 and went live in November
1998, thus eliminating potential year 2000 compliance issues. The balance of the
Company's operations utilize the same software, and these modules have been or
are being upgraded. Testing has been completed, and most are in daily use. One
module (payroll) is going to be replaced with new, more current software during
the third
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quarter of 1999. The balance of the modules are in the modification stage and
are expected to be completed during the second quarter of 1999.
Additionally, the Company has talked to some of its larger vendors
and received assurances that there will not be any undue disruptions of services
or products due to year 2000 issues.
The Company has estimated the magnitude of costs to accommodate
the year 2000 date change to be less than $30,000. Because the Company sees
little risk associated with the year 2000 date change, and modifications and
enhancements have progressed so favorably, the Company has not developed a
contingency plan nor does it intend to.
DIVIDENDS
Typically, the Company does not pay cash dividends on its common
stock. However, due to the favorable settlement of the patent infringement
lawsuit, a special one-time dividend of $.10 per share was declared and paid in
1998.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements.
The following pages contain the Consolidated Balance Sheets as of
December 31, 1998 and 1997 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, 1998, including the report 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, 1998, 1997 AND 1996
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CONTENTS
PAGE
Report of Independent Certified Public Accountants......................... 15
FINANCIAL STATEMENTS
Consolidated Balance Sheet............................................. 16
Consolidated Statements of Earnings.................................... 18
Consolidated Statements of Comprehensive Income........................ 19
Consolidated Statement of Stockholders' Equity......................... 20
Consolidated Statements of Cash Flows.................................. 21
Notes to Consolidated Financial Statements............................. 22
SUPPLEMENTAL INFORMATION
Schedule II - Valuation and Qualifying Accounts........................ 34
14
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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, 1998 and 1997 and the related consolidated statements of earnings,
comprehensive income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. 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, 1998 and 1997, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1998, 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, 1998. 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 5, 1999
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 193,579 $ 132,297
Accounts receivable, less allowance for doubtful
accounts of $225,000 in 1998 and $213,000
in 1997 8,658,444 8,433,468
Inventories 10,896,529 6,824,438
Deferred income taxes 461,000 444,000
Prepaid expenses and other current assets 584,419 247,123
----------- -----------
Total Current Assets 20,793,971 16,081,326
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 306,881 314,503
Land improvements 126,660 126,660
Buildings 5,130,411 4,992,360
Machinery and equipment 9,563,794 7,848,472
----------- -----------
15,127,746 13,281,995
Less accumulated depreciation and amortization 9,396,048 8,269,084
----------- -----------
Net property, plant and equipment 5,731,698 5,012,911
Goodwill, less accumulated amortization of
$1,210,875 in 1998 and $1,158,846 in 1997 351,721 178,383
Other assets 209,069 346,308
----------- -----------
$27,086,459 $21,618,928
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Note payable to bank $ 4,645,144 $ 3,503,262
Current maturities of long-term debt 222,726 193,389
Accounts payable 2,792,705 2,419,154
Income taxes payable 614,000 88,000
Accrued liabilities 1,621,198 1,591,467
----------- -----------
Total Current Liabilities 9,895,773 7,795,272
Long-term debt, excluding current maturities 3,175,917 3,561,838
Deferred income taxes 325,000 197,000
Other liabilities 340,140 424,572
COMMITMENTS AND CONTINGENCIES (NOTE K) -- --
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 3,139,737
and 3,136,148 shares in 1998 and 1997, respectively 313,974 313,615
Additional paid-in capital 4,072,081 4,055,821
Retained earnings 9,032,106 5,273,244
Accumulated other comprehensive loss (68,532) (2,434)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,349,629 9,640,246
----------- -----------
$27,086,459 $21,618,928
=========== ===========
</TABLE>
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $35,795,386 $35,382,461 $29,919,604
Cost of goods sold 22,296,059 22,824,939 19,007,311
----------- ----------- -----------
Gross profit 13,499,327 12,557,522 10,912,293
Selling, general and administrative expenses 9,754,750 7,917,545 7,654,370
----------- ----------- -----------
Operating earnings 3,744,577 4,639,977 3,257,923
Other expense (income), net
Interest expense 565,889 637,401 782,684
Patent litigation award (3,023,773) -- --
Other (156,268) (206,984) (98,519)
----------- ----------- -----------
(2,614,152) 430,417 684,165
----------- ----------- -----------
Earnings before income taxes 6,358,729 4,209,560 2,573,758
Income tax expense 2,287,000 1,498,000 851,000
----------- ----------- -----------
Net earnings $ 4,071,729 $ 2,711,560 $ 1,722,758
=========== =========== ===========
Earnings per share:
Basic $ 1.30 $ .86 $ .55
=========== =========== ===========
Diluted $ 1.28 $ .85 $ .53
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net earnings $4,071,729 $2,711,560 $1,722,758
Other comprehensive income (loss)
Equity adjustment from foreign
currency translation (66,098) (1,336) 140,700
---------- ---------- ----------
Comprehensive income $4,005,631 $2,710,224 $1,863,458
========== ========== ==========
</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, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON TREASURY PAID-IN RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
----- ----- ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 316,295 $(2,300) $ 4,075,251 $ 838,926 $(141,798) $ 5,086,374
Purchase of 5,000 shares of treasury stock -- (500) (27,561) -- -- (28,061)
Retirement of 28,000 shares of treasury stock (2,800) 2,800 -- -- -- --
Net earnings -- -- -- 1,722,758 -- 1,722,758
Other comprehensive income -- -- -- -- 140,700 140,700
--------- ------- ----------- ----------- --------- ------------
Balance at December 31, 1996 313,495 -- 4,047,690 2,561,684 (1,098) 6,921,771
Issuance of 1,200 shares of common stock 120 -- 8,131 -- -- 8,251
Net earnings -- -- -- 2,711,560 -- 2,711,560
Other comprehensive loss -- -- -- -- (1,336) (1,336)
--------- ------- ----------- ----------- --------- ------------
Balance at December 31, 1997 313,615 -- 4,055,821 5,273,244 (2,434) 9,640,246
Issuance of 3,589 shares of common stock 359 -- 16,260 -- -- 16,619
Dividends paid -- -- -- (312,867) -- (312,867)
Net earnings -- -- -- 4,071,729 -- 4,071,729
Other comprehensive loss -- -- -- -- (66,098) (66,098)
--------- ------- ----------- ----------- --------- ------------
Balance at December 31, 1998 $ 313,974 $ -- $ 4,072,081 $ 9,032,106 $ (68,532) $ 13,349,629
========= ======= =========== =========== ========= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
<PAGE> 21
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 4,071,729 $ 2,711,560 $ 1,722,758
Adjustments to reconcile net earnings to net
cash provided by operations:
Depreciation of property, plant and equipment 910,080 710,868 629,376
Bad debt expense 172,287 213,625 439,120
Amortization of goodwill 52,129 44,571 44,571
Gain on sale of property and equipment (47,716) (141,200) (11,546)
Deferred income tax expense (benefit) 44,000 -- (154,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (277,347) (2,451,228) 211,692
Increase in inventories (3,941,100) (649,914) (188,175)
Increase (decrease) in accounts payable 223,695 (360,017) (322,785)
Increase (decrease) in other 264,456 285,457 (49,867)
----------- ----------- -----------
Net cash provided by operating activities 1,472,213 363,722 2,321,144
INVESTING ACTIVITIES
Purchases of property and equipment (1,253,912) (1,333,793) (1,080,808)
Proceeds from sale of property and equipment 56,389 272,083 48,050
Acquisition of business, net of cash acquired (286,200) -- --
----------- ----------- -----------
Net cash used in investing activities (1,483,723) (1,061,710) (1,032,758)
FINANCING ACTIVITIES
Repayments of long-term debt (601,189) (487,582) (708,738)
Net proceeds (repayments) on line of credit 1,036,327 964,120 (442,646)
Purchase of treasury stock -- -- (28,061)
Proceeds from sale of common stock 16,619 8,251 --
Dividends paid (312,867) -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities 138,890 484,789 (1,179,445)
Effect of foreign currency exchange rate changes (66,098) (13,268) 140,700
----------- ----------- -----------
Net increase (decrease) in cash 61,282 (226,467) 249,641
Cash at beginning of year 132,297 358,764 109,123
----------- ----------- -----------
Cash at end of year $ 193,579 $ 132,297 $ 358,764
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 556,648 $ 641,609 $ 795,443
=========== =========== ===========
Income taxes paid $ 1,602,000 $ 1,605,000 $ 1,232,000
=========== =========== ===========
Fair value of assets acquired, including goodwill $ 872,632 $ -- $ --
Liabilities assumed (872,632) -- --
Cash paid (286,200) -- --
----------- ----------- -----------
Net cash paid $ (286,200) $ -- $ --
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
<PAGE> 22
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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, PLANT AND EQUIPMENT
Property, plant 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
Goodwill is the excess of the cost over the fair value of net assets acquired
and is amortized over a 10 to 30 year period using the straight-line method.
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 $849,000, $700,000 and $587,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
22
<PAGE> 23
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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
was effective for financial statements issued after December 15, 1997. The new
standard eliminated 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 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 Company's financial instruments consist of the line of credit facility and
long-term debt. The carrying value approximates the estimated fair value based
upon rates and terms available for loans and notes with similar characteristics.
23
<PAGE> 24
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS 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
was effective for fiscal years beginning after December 15, 1997. The Company
adopted this pronouncement during 1998.
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, 1998
Basic earnings per share
Earnings available to common
stockholders $4,071,729 3,138,112 $ 1.30
Effect of dilutive securities
Stock options -- 46,614 (.02)
---------- --------- --------
Diluted earnings per share
Earnings available to stockholders
plus assumed conversions $4,071,729 3,184,726 $ 1.28
========== ========= ========
</TABLE>
24
<PAGE> 25
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE C - EARNINGS PER SHARE (CONTINUED)
<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 3,135,248 $ .86
Effect of dilutive securities
Stock options -- 15,885 --
Convertible debt 8,250 62,500 (.01)
---------- ------------- -------
Diluted earnings per share
Earnings available to stockholders
plus assumed conversions $2,719,810 3,213,633 $ .85
========== ============= =======
<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 3,137,865 $ .55
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 3,266,435 $ .53
========== ============= =======
</TABLE>
During 1998, the Company's stock transfer agent (agent) notified the Company
that the agent's records did not reflect the issuance of 62,948 shares of the
Company's common stock which shares were presented for the payment of dividends.
The certificates underlying the shares were issued prior to 1995. The Company's
Board of Directors authorized the issuance of the 62,948 shares to validate the
underlying certificates. Prior year earnings per share computations were based
on information furnished by the transfer agent and have been revised to give
effect to these shares as if they had been outstanding for all periods
presented. Earnings per share as presented in the accompanying financial
statements have been restated and are less than those previously reported for
1997 and 1996 by $.02 and $.01, respectively.
25
<PAGE> 26
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE D - INVENTORIES
The major components of inventories at December 31 are:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Raw materials and purchased parts $ 4,078,689 $3,471,708
Work in process 4,346,320 1,178,684
Finished goods 2,471,520 2,174,046
----------- ----------
$10,896,529 $6,824,438
=========== ==========
</TABLE>
NOTE E - LINE OF CREDIT AND LONG-TERM DEBT
The Company has an unsecured line of credit facility with a bank. The facility
allows the Company to borrow up to $10,000,000. At December 31, 1997, borrowings
under the facility bore interest at the bank's prime lending rate or the
Eurodollar rate plus 2.45%, elected by the Company at the time of each advance.
During 1998, the facility was amended reducing the interest rates to the bank's
prime lending rate minus .25% or the Eurodollar rate plus 2.25% (effective rate
of 7.5% at December 31, 1998). Interest is payable monthly on prime rate based
advances and no less frequently than quarterly on Eurodollar based rate
advances.
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Term note, payable in monthly installments of $39,036, including interest at the
bank's prime lending rate (effective rate of 7.75% at December 31, 1998) with a
balloon payment of $1,723,141 on October 1, 2004. The note is secured by
substantially all the assets of the Company $3,288,100 $3,463,885
Mortgage note payable in monthly installments of $3,476 plus
interest at 8.99%. The mortgage was collateralized by certain
property and was paid in full during 1998 -- 176,816
Term note, payable in monthly installments of $896, including
interest at a rate of 6%. The note is due January 21, 2002 110,543 114,526
---------- ----------
3,398,643 3,755,227
Less current maturities 222,726 193,389
---------- ----------
$3,175,917 $3,561,838
========== ==========
</TABLE>
26
<PAGE> 27
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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>
1999 $ 222,726
2000 243,399
2001 243,676
2002 377,575
2003 280,625
Thereafter 2,030,642
----------
$3,398,643
==========
</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 property and
equipment.
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 $419,000, $321,000, and $309,000 for 1998, 1997 and 1996,
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>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Domestic $6,134,499 $ 4,405,544 $ 2,657,803
Foreign 224,230 (195,984) (84,045)
---------- ----------- -----------
$6,358,729 $ 4,209,560 $ 2,573,758
========== =========== ===========
</TABLE>
Income taxes have been charged to operations as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Current $2,243,000 $ 1,498,000 $ 1,005,000
Deferred 44,000 -- (154,000)
---------- ----------- -----------
Total income tax expense $2,287,000 $ 1,498,000 $ 851,000
========== =========== ===========
</TABLE>
27
<PAGE> 28
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Expected income tax expense $ 2,162,000 $ 1,431,000 $ 875,000
Goodwill amortization not deductible
for income tax purposes 18,000 15,000 15,000
Loss of foreign subsidiaries without
tax effect 113,000 67,000 29,000
Other items, net (6,000) (15,000) (68,000)
----------- ----------- ---------
Actual income tax expense $ 2,287,000 $ 1,498,000 $ 851,000
=========== =========== =========
</TABLE>
The tax effects of temporary differences that give rise to significant deferred
tax assets and liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DEFERRED DEFERRED
TAX TAX
YEAR ENDED DECEMBER 31, 1998 ASSETS LIABILITIES
- ------------------------------------------------------- ----------- -----------
<S> <C> <C>
Property, plant and equipment, principally depreciation $ -- $421,000
Inventory valuation allowance 117,000 --
Accrued expenses, deductible when paid 440,000 --
Foreign tax loss carryforwards 619,000 --
----------- --------
1,176,000 421,000
Less valuation allowance on deferred tax assets (619,000) --
----------- --------
$ 557,000 $421,000
=========== ========
<CAPTION>
DEFERRED DEFERRED
TAX TAX
YEAR ENDED DECEMBER 31, 1997 ASSETS LIABILITIES
- ------------------------------------------------------- ----------- -----------
<S> <C> <C>
Property, 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
=========== ========
</TABLE>
28
<PAGE> 29
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE G - INCOME TAXES (CONTINUED)
The Company has a foreign tax net operating loss carryforward of approximately
$1,876,000 at December 31, 1998. A valuation allowance of $619,000 has been
recognized to reduce the deferred tax assets principally due to the uncertainty
of realizing the benefit of the tax loss carryforward.
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a Voluntary Employee Benefit Trust (the Trust) 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 Trust, on a
contributory basis, for up to 18 months subsequent to the date of termination or
retirement. The provision for Company contributions to the Trust approximated
$455,000, $380,000 and $321,000 for the years ended December 31, 1998, 1997 and
1996, 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
deferred compensation plan were approximately $270,000, $260,000 and $229,000
for 1998, 1997 and 1996, 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 no 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, 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.
29
<PAGE> 30
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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 operations.
The Company accounts for the Plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." No compensation costs have been recognized for the
Plan. Had compensation costs 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 earnings and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------------
<S> <C> <C> <C>
Net earnings
As reported $ 4,071,729 $ 2,711,560 $ 1,722,758
Pro forma $ 3,887,160 $ 2,521,929 $ 1,645,428
Basic earnings per share
As reported $ 1.30 $ .86 $ .55
Pro forma $ 1.24 $ .80 $ .52
Diluted earnings per share
As reported $ 1.28 $ .85 $ .53
Pro forma $ 1.22 $ .78 $ .50
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions for the options and SAR's granted in 1998 and 1996, respectively:
risk-free interest rates of 5.63% and 6.84%; expected volatility of 56.15% and
67.39%; expected lives of 10 years for options and four years for SAR's for all
years; and no dividend yield for all years.
30
<PAGE> 31
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE H - EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of the status of the Plan as of December 31, 1998, 1997, and 1996 and
changes during the years then ended is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
STOCK EXERCISE STOCK EXERCISE STOCK EXERCISE
OPTIONS SAR'S PRICE OPTIONS SAR'S PRICE OPTIONS SAR'S PRICE
--------- ------- -------- -------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of
year $ 130,000 78,000 $ 6.875 136,000 81,600 $ 6.875 -- -- $ --
Granted 5,000 3,000 13.50 -- -- 136,000 81,600 6.875
Exercised 2,400 2,400 6.875 1,200 -- 6.875 -- -- --
Forfeited 8,400 3,600 6.875 4,800 3,600 6.875 -- -- --
Outstanding at
end of year 124,200 75,000 $ 7.141 130,000 78,000 $ 6.875 136,000 81,600 $6.875
Exercisable at
Year end 47,680 48,000 26,000 26,000 -- --
Weighted
Average fair
value of grants
during the year $ 8.563 $ 8.563 -- -- $ 5.50 $ 5.50
</TABLE>
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 upon exercise,
receive in cash or other property at 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.
NOTE I - BUSINESS ACQUISITION
On September 1, 1998, the Company acquired all of the issued and outstanding
common and preferred stock of The Lobb Company (Lobb), in exchange for $286,200.
The Lobb Company was owned by certain officers and directors of the Company and
is in the residential humidifier business. Goodwill of $217,000 was recorded in
connection with this acquisition, which has been accounted for under the
purchase method of accounting and accordingly the accompanying consolidated
financial statements include Lobb's results from the date of acquisition. Lobb's
operating results for 1998 and 1997 were not significant, accordingly, no pro
forma information is presented.
31
<PAGE> 32
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
NOTE J - SIGNIFICANT CUSTOMERS
The Company has one major customer which accounted for ten percent or more of
consolidated net sales in 1998. Sales to this customer amounted to $3,658,000.
The Company had two major customers 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.
NOTE K - PATENT LITIGATION
The Company was the plaintiff in a patent infringement lawsuit filed in the
Federal District Court for the Eastern District of Michigan, the Southern
Division. On April 9, 1998, the District Court awarded the Company $3,023,773 in
damages and $1,119,588 in interest. On May 1, 1998 the defendant paid the
damages awarded to the Company and appealed the interest award. On January 3,
1999, the Court of Appeals heard the appeal but has yet rendered its' opinion.
NOTE L - SEGMENT INFORMATION
During 1998, the Company adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments.
This statement also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company operates in one
market segment, the transportation industry.
Financial information summarized by geographic is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ---------------------------- --------------------------
LONG- LONG- LONG-
LIVED LIVED LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
----------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States $26,208,932 $5,552,400 $27,527,627 $4,903,047 $22,976,188 $4,536,188
United Kingdom 3,425,315 740,088 2,169,005 634,555 2,379,228 609,373
Canada 4,101,794 -- 3,900,835 -- 4,021,138 --
Other 2,059,345 -- 1,784,994 -- 543,129 --
----------- ---------- ----------- ---------- ----------- ----------
Total $35,795,386 $6,292,488 $35,382,461 $5,537,602 $29,919,604 $5,145,561
=========== ========== =========== ========== =========== ==========
</TABLE>
32
<PAGE> 33
SUPPLEMENTAL INFORMATION
33
<PAGE> 34
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<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, 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
Year ended December 31, 1998 $213,000 $162,000 $150,000 $225,000 $619,000
</TABLE>
34
<PAGE> 35
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) 70 Chairman of the Board and President May 1999
and (b) since 1972.
Duncan Miller (a) 74 Director since 1967, Investment May 1999
Counselor.
Gerald J. Murphy (a) 81 Director since 1971, private investor. Retired 2/98
Matthew M. Wirgau (a) 47 Director since 1992. May 1999
Robert J. Ruben (b) 75 Secretary since 1967. May 1999
Kai R. Kosanke (b) 48 Vice-President since January 1987. May 1999
Controller - 1983 thru 1987.
Accounting Manager - 1981 thru 1983.
Paul Clemo (b) 38 Assistant Secretary since May 1991. May 1999
Assistant Treasurer since May 1991.
O.K. Dealey, Jr. (a) 58 President - Transmatic, Inc. May 1999
and (b) Director since 1998.
Jessie D. Swinea, Jr. (a) 63 President - Vultron, Inc. May 1999
and (b) Director since 1998.
</TABLE>
The Company's directors and executive committee's fees for 1998
were as follows: Dale S. Coenen $25,000.00; Duncan Miller, $25,000.00; Gerald J.
Murphy, $4,167.00; Matthew M. Wirgau, $25,000.00; O.K. Dealey, Jr., $15,625.00;
and Jessie D. Swinea, Jr., $15,625.00
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 12, 1999, which Proxy Statement will be filed
pursuant to Regulation 14A.
35
<PAGE> 36
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, 1998, 1997, and 1996
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, 1998,
filed with the Securities and Exchange Commission on November 12,
1998 incorporated herein by reference.
Exhibit 21 List of Subsidiaries (see page 38).
(b) No reports on Form 8-K for the three months ended December 31,
1998 were required to be filed.
36
<PAGE> 37
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: 3/23/99 /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:
<TABLE>
<S> <C> <C>
/s/ Dale S. Coenen President 3/23/99
- ------------------------------ -------------
(Dale S. Coenen)
/s/ Kai Kosanke Vice-President 3/23/99
- ------------------------------ -------------
(Kai Kosanke) and Chief Financial Officer
/s/ Paul Clemo Assistant Treasurer 3/23/99
- ------------------------------ -------------
(Paul Clemo)
/s/ Jessie D. Swinea, Jr. Director 3/23/99
- ------------------------------ -------------
(Jessie D. Swinea, Jr.)
/s/ O.K. Dealey, Jr. Director 3/23/99
- ------------------------------ -------------
(O.K. Dealey, Jr.)
</TABLE>
37
<PAGE> 1
Exhibit 21. List of Subsidiaries
<TABLE>
<CAPTION>
State or Other
Name and Address Jurisdiction
---------------- ------------
<S> <C>
Transign, Inc. Michigan
3777 Airport Road
Waterford, Michigan 48329
The Lobb Company Michigan
(A Subsidiary of Transign, Inc.)
3777-B 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
</TABLE>
38
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 193,579
<SECURITIES> 0
<RECEIVABLES> 8,883,444
<ALLOWANCES> 225,000
<INVENTORY> 10,896,529
<CURRENT-ASSETS> 20,793,971
<PP&E> 15,127,746
<DEPRECIATION> 9,396,048
<TOTAL-ASSETS> 27,086,459
<CURRENT-LIABILITIES> 9,895,773
<BONDS> 3,516,057
0
0
<COMMON> 313,974
<OTHER-SE> 13,035,655
<TOTAL-LIABILITY-AND-EQUITY> 27,086,459
<SALES> 35,795,386
<TOTAL-REVENUES> 38,975,427
<CGS> 22,296,059
<TOTAL-COSTS> 9,754,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 565,889
<INCOME-PRETAX> 6,358,729
<INCOME-TAX> 2,287,000
<INCOME-CONTINUING> 4,071,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,071,729
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.28
</TABLE>
