-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NB8azpSXm+Jf84bR/BsrCrXyGUSZOCjgScK03QCOqmAGX5PTFxHq4qRUEFSu7mG1 ZWtE6VwX+a5fCoISDI3GIg== 0000059593-98-000018.txt : 19980401 0000059593-98-000018.hdr.sgml : 19980401 ACCESSION NUMBER: 0000059593-98-000018 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINDBERG CORP /DE/ CENTRAL INDEX KEY: 0000059593 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PRIMARY METAL PRODUCTS [3390] IRS NUMBER: 361391480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-08287 FILM NUMBER: 98582607 BUSINESS ADDRESS: STREET 1: 6133 N RIVER RD STE 700 CITY: ROSEMONT STATE: IL ZIP: 60018 BUSINESS PHONE: 7088232021 MAIL ADDRESS: STREET 1: 6133 N RIVER ROAD SUITE 700 STREET 2: 6133 N RIVER ROAD SUITE 700 CITY: ROSEMONT STATE: IL ZIP: 60018 10-K 1 1 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) Commission File Number 0-8287 LINDBERG CORPORATION Delaware 36-1391480 ---------------------- ---------------------- State of Incorporation IRS Identification No. 6133 North River Road, Suite 700 Rosemont, Illinois 60018 (847) 823-2021 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ] The aggregate market value of the voting stock held by non-affiliates of the Registrant on March 10, 1998 was: $36,631,612. The number of shares of the Registrant's Common Stock outstanding as of March 10, 1998 was: 4,845,481. Documents Incorporated by Reference ----------------------------------- Those sections or portions of the Registrant's 1997 Annual Report to Stockholders (the"Annual Report") and of the Registrant's definitive Proxy Statement for use in connection with its annual meeting of stockholders to be held on April 24, 1998 (the "Proxy Statement"), described in the cross reference sheet and attached hereto, are incorporated by reference into Parts I, II and III of this report. -1- 2
Table of Contents ----------------- Item Number and Caption Page - ----------------------- ---- PART I Item 1 Business.............................. Annual Report, pp. 17-18, 23 (Notes 2, 3 and 13); herein, pp. 4-6 Item 2 Properties............................ 6-7 Item 3 Legal Proceedings..................... Annual Report, pp. 21-22 (Note 10); herein, pp. 5-7 Item 4 Submission of Matters to a Vote of Security Holders................... 7 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters................... Annual Report, p. 25 "Stock Market Information" and Annual Report, p. 19 (Note 5); herein, p. 7 Item 6 Selected Financial Data............... Annual Report, p. 23 "Five-Year Financial Review"; herein, p. 7 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............. Annual Report, pp. 12-13 "Management's Discussion and Analysis"; herein, p. 7 Item 7A Quantitative and Qualitative Disclosures About Market Risk ........ 7 Item 8 Financial Statements and Supplementary Data.................... Annual Report, pp. 14-23 "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements"; herein, p. 8 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 8
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Item Number and Caption Page - ----------------------- ---- PART III Item 10 Directors and Executive Officers of the Registrant (a) Identification of directors........ Proxy Statement, pp. 1-3, "The Election of Directors"; herein, p. 8 (b) Identification of executive officers 8 Item 11 Executive Compensation................. Proxy Statement, pp. 3-8, "Executive Compensation"; herein, p. 8 Item 12 Security Ownership of Certain Beneficial Owners and Management....... Proxy Statement, pp. 12-13, "Stock Ownership"; herein, p. 8 Item 13 Certain Relationships and Related Transactions........................... Proxy Statement, p. 2, "The Election of Directors", and p. 6, "Executive Compensation - Compensation Committee Interlocks and Insider Participation"; herein, p. 9 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K...... 9-12 Signatures...................................... 13 Exhibit Index................................... 14-17
-3- 4 Part I "Safe Harbor" Statement: Statements contained herein that are not based on historical facts are forward-looking statements subject to uncertainties and risks including, but not limited to, product and service demand and acceptance; economic conditions; the impact of competition and pricing; capacity and supply constraints or difficulties; results of financing and acquisition efforts; regulatory and other legal issues; and other risks detailed in the Company's other Securities Exchange Commission filings. Item 1. Business - ------- -------- General development of business - ------------------------------- Lindberg Corporation (the "Company") was founded in 1922, and incorporated in Illinois in 1924. The first public offering of Company stock was held in 1959. In 1976, the Company changed its state of incorporation from Illinois to Delaware. Throughout its history, the Company has maintained a program of internal growth and outside acquisitions resulting in the 28 heat treating plants, located across the country, in operation currently. The Company is the largest commercial provider of heat treating in the nation. On July 31, 1997, the Company acquired all of the outstanding shares of Ticorm, Inc. for $1.9 million of cash and $1.9 million of notes payable. On October 1, 1997, the Company acquired the remaining 50% share of its joint venture partnership - Alumatherm Heat Treating Company ("Alumatherm") - from its partners for $6.5 million of cash and $6.3 million of notes payable. Each of these acquired companies is in the heat treating business in the Los Angeles area. Cash payments made as part of each purchase were funded with additional borrowings under the Company's revolving credit agreement. Subsequent to year-end, on January 16, 1998, the Company acquired all of the outstanding shares of Industrial Steel Treating Co. and, in a related transaction, all of the outstanding shares of Fabriform Metal Brazing, Inc. for approximately $11 million. Both companies are located in the Los Angeles area and primarily serve the aerospace market. On December 22, 1997, the Board of Directors approved a plan to sell the Company's Precision Products business segment ("Precision Products"). Although difficult to predict, the Company expects to sell the segment during 1998. Precision Products is reported as discontinued operations, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. The Precision Products segment consists of two aluminum die casting facilities (Impact Industries, Inc. and Arrow-Acme Company) and one aluminum semi-permanent mold foundry (Harris Metals, Inc.). At December 31, 1997, net assets of the discontinued operations of approximately $17.5 million consisted of $7.4 million of net current assets, $14.2 million of equipment and $2.6 million of other net assets, less the allowance for the estimated loss on disposal. Narrative description of business - --------------------------------- The Company operates in the field of metallurgical products, providing customers with heat treating of metal, a process which improves mechanical properties, durability and wear resistance. While heat treating is offered through a range of processes, market needs historically have dictated a degree of specialization for most plants. Among the many heat treating processes offered are hardening and tempering, carburizing, nitriding, selective hardening, solution treating and aging, stress relieving, normalizing, brazing and other specialty processes. These products are provided to customers both with and without their own heat treating capabilities. -4- 5 In addition to providing heat treating from its own plants, the Company also provides heat treating through its Strategic Partnership 2000, or SP 2000, program. The SP 2000 program allows the Company to provide heat treating to its SP 2000 customers, typically manufacturers with a significant requirement for heat treating, using dedicated equipment at either its own or its customers' facilities. The Company's heat treating plants are each located in a major industrial area. The market for heat treating for any plant is largely confined to its local geographic area. Major industries served include agricultural and construction equipment, automotive/truck, aerospace, consumer products, defense, fabricated metal products, oil field machinery, tool and die and precision machined products. Parts processed for these industries include machined pieces, fasteners, forgings, castings and stampings made of nearly all types of ferrous and certain nonferrous metals, including aluminum and titanium. Because of the wide customer base served, the loss of a single customer or a few customers would not have a material adverse effect on the Company. No customer accounted for more than 10% of the Company's annual net sales in 1997. Each plant has competition of varying degrees of intensity. Each competes in its market area on the basis of quality, reliable delivery and price. Plant management is largely responsible for its own pricing and cost control, and thus has the flexibility to respond to local area market conditions. There are competitors in particular localities larger than the Company's facility located therein. Some of these firms are divisions or subsidiaries of large companies and, therefore, have access to substantial resources. Competition also exists from captive heat treating facilities of manufacturing concerns, although the Company also considers such concerns as potential customers. The basic raw material for the Company's heat treating is energy in the forms of natural gas and electricity. The Company has not experienced any material restrictions by its suppliers of these sources of energy. The Company is party to various lawsuits and claims arising in the ordinary course of business. Management, after review and consultation with legal counsel, considers that any liability resulting from these matters would not materially affect the financial condition or results of operations of the Company. The Company employs some environmentally hazardous materials. The Company has made expenditures to comply with laws and regulations relating to the protection of the environment, including studies, investigations and remediation of ground contamination, and expects to make such expenditures in the future in its efforts to comply with existing and future requirements. While such expenditures to date have not materially affected the Company's capital expenditures, competitive position, financial condition or results of operations, there can be no assurance that more stringent regulation or enforcement in the future will not have such effects. In some cases, the Company has notified state authorities of a possible need for remediation at sites it previously operated or currently operates. At all such sites costs which may be incurred are difficult to accurately predict until the level of contamination is determined, and would be subject to increase if more contamination is discovered during investigation or remediation or if state authorities require more remediation than anticipated. Such costs may be less if the contamination proves to be less than currently expected and to the extent costs are covered by insurance or are allocable to others. The Company has also been notified by various state and federal governmental authorities that they believe it may be a "potentially responsible party" or otherwise have responsibility with respect to clean-up obligations at three waste disposal sites which were never owned or operated by the Company. The Company is participating in negotiations for settlement with the relevant authorities or other parties believed by the Company to be responsible for clean-up obligations and further believes its responsibility to be of a minor nature. Management believes that the ultimate outcome will not have a material effect on the Company's financial condition or results of operations. -5- 6 At December 31, 1997, the Company had reserves of approximately $900,000 to cover future anticipated costs. The Company has estimated a range of costs in establishing these reserves. Such reserves give no effect to possible recoveries from insurers or other potentially responsible parties nor do they reflect any discount for the several years over which investigation or remediation amounts may be paid out. The Company operates with a limited backlog due to the nature of its businesses. Customer produced parts are processed on a very short turnaround basis; therefore, backlog in facilities is generally estimated to be less than one week. At December 31, 1997, the Company had 975 employees within its continuing operations, as compared to 667 as of December 31, 1996. Of these employees, 190 were covered by collective bargaining agreements. Four agreements (negotiations in connection with two of such agreements are substantially complete), covering 111 employees, will expire during 1998. The Company is a minority stockholder in a consortium of five industrial partners called Thixomat, Inc. This company was formed in 1989 to promote and commercialize a new metal parts casting technology called ThixomoldingTM. This process is expected to reduce energy and material consumption while yielding higher production rates and closer tolerances of metal castings. The Company employs the ThixomoldingTM process at its THX Molding division which produces magnesium parts. Item 2. Properties - ------- ----------
The principal plants of the Company are as follows: Leased Location or Owned - -------- -------- Compton, CA Leased Garden Grove, CA Leased Gardena, CA Leased Los Angeles, CA Owned Paramount, CA Leased Santa Fe Springs, CA Leased Westminster, CA Owned Berlin, CT Owned Waterbury, CT Leased Melrose Park, IL Owned Wichita, KS Leased Worcester, MA Owned Lansing, MI Owned Minneapolis, MN Leased St. Louis, MO Owned Rochester, NY Leased Solon, OH Owned Tulsa, OK Owned Houston, TX Owned New Berlin, WI Owned Racine, WI Owned
The Company also occupies building space at certain of its customers' locations related to the Company's SP 2000 -6- 7 program. The Company's corporate office is located in Rosemont, Illinois and is a leased building. The Company's facilities are suitable for their respective uses and are, in general, adequate for the Company's current needs. All facilities serve largely localized markets and customers. Those providing products in markets where economic activity is strong at any particular time operate at relatively high levels of plant utilization. The Company believes that it has sufficient capacity at its current facilities to absorb additional workloads at any reasonably anticipatable levels. Item 3. Legal Proceedings - ------- ----------------- Incorporated by reference to pages 21-22 of the Annual Report - Note 10 to the Consolidated Financial Statements. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- None Executive Officers of the Registrant ------------------------------------ Information regarding the executive officers of the Registrant is contained in Part III of this report, Item 10(b), and is incorporated by reference into Part I of this report in reliance on General Instruction G(3) to Form 10-K. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - ------- ----------------------------------------------------- Incorporated by reference to page 25 of the Annual Report, section entitled "Stock Market Information" and to page 19 of the Annual Report - Note 5 to the Consolidated Financial Statements. As of March 10, 1998, the Company had 464 stockholders of record. Item 6. Selected Financial Data - ------- ----------------------- Incorporated by reference to page 23 of the Annual Report, section entitled "Five-Year Financial Review." Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------- ----------------------------------------------------------- Incorporated by reference to pages 12-13 of the Annual Report, section entitled "Management's Discussion and Analysis." Item 7A. Quantitative and Qualitative Disclosures About Market Risk - -------- ---------------------------------------------------------- Not Applicable. -7- 8 Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- Incorporated by reference to pages 14-23 of the Annual Report, section entitled "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements." Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - ------- ----------------------------------------------------------- None PART III Item 10. Directors and Executive Officers of the Registrant - -------- -------------------------------------------------- (a) Identification of Directors --------------------------- Incorporated by reference to pages 1-3 of the Proxy Statement, section entitled "The Election of Directors." (b) Identification of Executive Officers ------------------------------------
N a m e A g e P o s i t i o n - ------- ----- --------------- Leo G. Thompson 57 President (since October 1987) and Chief Executive Officer (since January 1991). Stephen S. Penley 48 Chief Financial Officer (since January 1989), Senior Vice President (since July 1993), Secretary (since October 1990); formerly Treasurer (January 1989 to July 1996), Vice President (from January 1989 to July 1993). Michael W. Nelson 50 Senior Group Vice President (since March 1998); formerly Senior Vice President and President of Heat Treat Operations (July 1993 to March 1998), Vice President - Central Region (from July 1990 to June 1993).
Executive Officers of the Company are elected annually by the Board of Directors of the Company in April. Item 11. Executive Compensation - -------- ---------------------- Incorporated by reference to pages 3-8 of the Proxy Statement, section entitled "Executive Compensation." Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- Incorporated by reference to pages 12-13 of the Proxy Statement, section entitled "Stock Ownership." -8- 9 Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- Incorporated by reference to page 2 of the Proxy Statement, section entitled "The Election of Directors", and to page 6, section entitled "Executive Compensation - Compensation Committee Interlocks and Insider Participation." PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------- ---------------------------------------------------------------
(a) Certain Documents Filed as Part of this report Page or Reference (1) ---------------------------------------------- --------------------- 1. Financial Statements ------------------------ Consolidated Statements of Earnings and Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 .............. Annual Report, p. 14 Consolidated Balance Sheets as of December 31, 1997 and 1996 .................... Annual Report, p. 15 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 ...................................... Annual Report, p. 16 Notes to Consolidated Financial Statements .... Annual Report, p. 17-23 Report of Independent Public Accountants ...... Annual Report, p. 24 2. Financial Statement Schedule (2) -------------------------------------- II. Valuation and Qualifying Accounts and Reserves ............................. 11 Report of Independent Public Accountants on Schedule ................................... 12
- -------------------------- 1) Matters incorporated by reference from the Lindberg Corporation 1997 Annual Report. 2) Schedules other than that listed above are omitted for the reason that they are not required or are not applicable, or because the required information is shown in the financial statements or notes thereto. -9- 10 (b) Reports on Form 8-K. -------------------- The following Form 8-K was filed during the quarter ended December 31, 1997: The acquisition, on October 1, 1997, of the remaining 50% partnership interest in a California general partnership engaged in the business of aluminum and titanium heat treating from Aerospace Aluminum Heat Treating Company and Alta Canada Corporation was reported under Item 2 of Form 8-K. In accordance with Form 8-K requirements, no financial statements were filed with this Form 8-K. (c) Exhibits Required by Item 601 of Regulation S-K. ------------------------------------------------ Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index which is attached hereto at pages 14-17 and which is incorporated herein by reference. -10- 11
LINDBERG CORPORATION AND SUBSIDIARIES ------------------------------------- SCHEDULE II--VALUATION AND ---------------------------- QUALIFYING ACCOUNTS AND RESERVES -------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ---------------------------------------------------- Allowance for Doubtful Accounts - ------------------------------- 1997 1996 1995 -------- -------- -------- Balance at beginning of year $325,000 $296,000 $235,000 Provision charged to expense during the year 121,000 95,000 167,000 Write-offs during the year, net of recoveries (142,000) (66,000) (106,000) -------- -------- -------- Balance at end of year $304,000 $325,000 $296,000 ======== ======== ========
-11- 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To the Stockholders of Lindberg Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Lindberg Corporation's annual report to stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated January 22, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois January 22, 1998 -12- 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. LINDBERG CORPORATION BY ___________________ Stephen S. Penley Senior Vice President and Chief Financial Officer; Principal Financial and Accounting Officer Dated March 31, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated. - ------------------------- Stephen S. Penley Senior Vice President and Chief Financial Officer; Principal Financial and Accounting Officer - ------------------------- Leo G. Thompson President and Chief Executive Officer, and a Director - ------------------------- George H. Bodeen Director - ------------------------- Dr. Raymond F. Decker Director - ------------------------- Raymond A. Jean Director - ------------------------- John W. Puth Director - ------------------------- J. Thomas Schanck Director March 31, 1998 -13- 14 LINDBERG CORPORATION Annual Report on Form 10-K for the Year Ended December 31, 1997 Exhibit Index
Number and Description of Exhibit Reference - --------------------------------- --------- 1. Not applicable 2. Plan of acquisition, reorganization, arrangement, liquidation or succession 2.1 Purchase Agreement dated October 1, 1997 among Aerospace Aluminum Heat Treating Company, Alta Canada Corporation and Lindberg Corporation (1) 2.2 Purchase Agreement dated January 16, 1998 among the stockholders of Industrial Steel Treating Co. and Lindberg Corporation (2) 3. Articles of Incorporation and By-Laws 3.1 Certificate of Incorporation (composite) (3) 3.2 1979 Amendment to Certificate of Incorporation (4) 3.3 1987 Amendment to Certificate of Incorporation (5) 3.4 By-Laws (as amended) (6) 4. Instruments defining the rights of security holders, including indentures (7) 4.1 Amended and Restated Credit Agreement Dated as of April 28, 1994 (8) 4.2 First Amendment to Amended and Restated Credit Agreement dated as of November 2, 1995 (9) 4.3 Second Amendment to Amended and Restated Credit Agreement dated as of January 31, 1996 (10) 4.4 Third Amendment to Amended and Restated Credit Agreement dated as of September 29, 1997 (11) 4.5 Fourth Amendment to Amended and Restated Credit Agreement dated as of February 10, 1998 Attached 4.6 Note Agreement dated as of October 15, 1995 (12) 4.7 Rights Agreement, dated November 21, 1996, between Registrant and Harris Trust and Savings Bank, as rights agent (13) 5-9. Not applicable
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Number and Description of Exhibit Reference - --------------------------------- --------- 10. Material contracts 10.1 Description of Bonus Program (14) 10.2 Consulting Agreement Between the Registrant and G.H. Bodeen dated October 25, 1990 * (15) 10.3 1991 Stock Option Plan for Key Employees * (16) 10.4 1991 Stock Option Plan for Directors (as amended and restated) * (17) 10.5 Employment Agreement, dated September 17, 1996, Between the Registrant and Leo G. Thompson * (18) 10.6 Employment Agreement, dated September 17, 1996, Between the Registrant and Stephen S. Penley * (19) 11. Statement re computation of per share earnings Attached 12. Not applicable 13. Information in Annual Report to Stockholders incorporated herein by reference Attached 14-20. Not Applicable 21. Subsidiaries of the Registrant Attached 22. Not Applicable 23. Consent of Independent Public Accountants Attached 24-26. Not Applicable 27. Financial Data Schedule Attached 28. Not Applicable
- ------------------------- (*) Identifies management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c). -15- 16 References: - ----------- (1) Incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K, dated October 1, 1997, Commission file No. 0-8287. (2) Incorporated by reference to Exhibit 2 of the Registrant's Report on Form 8-K, dated January 16, 1998, Commission file No. 0-8287. (3) Incorporated by reference to Exhibit 3.1 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1980, Commission file no. 0-8287. (4) Incorporated by reference to Exhibit 3.2 of the Registrant's Report on Form 10-Q for the quarter ended March 31, 1995, Commission file no. 0-8287. (5) Incorporated by reference to page 6 of the Registrant's Definitive Proxy Statement on Schedule 14A filed with the Commission in connection with the Registrant's 1987 annual meeting of stockholders, Commission file no. 0-8287. (6) Incorporated by reference to Exhibit 3.4 of the Registrant's Report on Form 10-K for the year ended December 31, 1996, Commission file no. 0-8287. (7) Other instruments defining the rights of the holders of long-term debt of the Registrant, which is described in Note 5 to the financial statements incorporated herein, are omitted pursuant to Regulation S-K Item 601 (b) (4) (iii) (A). The Registrant agrees to furnish copies of such agreements to the Securities and Exchange Commission upon request. (8) Incorporated by reference to Exhibit 4.2 of the Registrant's Report on Form 8-K dated April 29, 1994, Commission file no. 0-8287. (9) Incorporated by reference to Exhibit 4.2 of the Registrant's Report on Form 10-Q for the quarter ended September 30, 1995, Commission file no. 0-8287. (10) Incorporated by reference to Exhibit 4.3 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, Commission file no. 0-8287. (11) Incorporated by reference to Exhibit 4.1 of the Registrant's Report on Form 8-K, dated October 1, 1997, Commission file No. 0-8287. (12) Incorporated by reference to Exhibit 4.3 of the Registrant's Report on Form 10-Q for the quarter ended September 30, 1995, Commission file no. 0-8287. (13) Incorporated by reference to Exhibit 99.1 of the Registrant's Form 8-A filed with the Commission on December 6, 1996, Commission file no. 0-8287. (14) Incorporated by reference to page 6 of the Registrant's Definitive Proxy Statement on Schedule 14A filed with the Commission in connection with the Registrant's 1996 annual meeting of stockholders, Commission file no. 0-8287. -16- 17 References: - ----------- (15) Incorporated by reference to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, Commission file no. 0-8287. (16) Incorporated by reference to Appendix A of the Registrant's Definitive Proxy Statement on Schedule 14A filed with the Commission in connection with the Registrant's 1995 annual meeting of stockholders, Commission file no. 0-8287. (17) Incorporated by reference to Appendix A of the Registrant's Definitive Proxy Statement on Schedule 14A filed with the Commission in connection with the Registrant's 1997 annual meeting of stockholders, Commission file no. 0-8287. (18) Incorporated by reference to Exhibit 10.1 of the Registrant's Report on Form 10-Q for the quarter ended September 30, 1996, Commission file no. 0-8287. (19) Incorporated be reference to Exhibit 10.2 of the Registrant's Report on Form 10-Q for the quarter ended September 30, 1996, Commission file no. 0-8287. -17- EX-4 2 1 EXHIBIT 4.5 FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is entered into as of February 10, 1998 among LINDBERG CORPORATION, a Delaware corporation (the "Company"), various financial institutions (collectively, the "Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (successor by merger to Bank of America Illinois), as agent for the Banks (in such capacity, the "Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company, the Agent and the Banks are parties to an Amended and Restated Credit Agreement dated as of April 28, 1994 (as heretofore amended, the "Credit Agreement"); and WHEREAS, the Company has requested that the Credit Agreement be amended in certain respects. NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows: SECTION 1. DEFINED TERMS. ------------- Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. On the Effective ------------------------------ Date (defined below), (x) the amendments to the Credit Agreement set forth in Sections 2.1, 2.2, 2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 below ------------ --- --- --- --- --- --- --- shall be effective as of the Effective Date and (y) the amendment to the Credit Agreement set forth in Section 2.3 below shall become ----------- effective as of December 31, 1997. On the Effective Date: 2.1 The definition of "Commitment Termination Date" in Section 1.1 of the Credit Agreement shall be amended and restated to read in its entirety as follows: Commitment Termination Date means April 30, 2000 (or such --------------------------- later date as may be set as the Commitment Termination Date pursuant to Section 2.14) or such other date on which the ------------ Commitments shall terminate pursuant to Section 6 or 12. --------- -- 2 2.3 The definition of "Funded Debt to Cash Flow Ratio" in Section 1.1 of the Credit Agreement shall be amended and restated to read in its entirety as follows: Funded Debt to Cash Flow Ratio means the ratio of Funded ------------------------------ Debt to EBITDA for the most recently ended Computation Period; provided that for purposes of calculating EBITDA for any period, -------- (A) any loss recognized upon the sale or characterization as a discontinued asset of the Company's Precision Products business shall be disregarded and (B) the consolidated net income (excluding, to the extent reflected in determining such consolidated net income, extraordinary gains and losses for such period and other non-cash or non-recurring charges, and plus, to the extent deducted in determining such consolidated net income, interest expense, income tax expense, depreciation, depletion and amortization for such period) of any Person, or attributable to any assets, acquired by the Company or any Subsidiary during such period shall be included on a pro forma basis for such period --- ----- (assuming the consummation of each such acquisition and the incurrence or assumption of any Debt in connection therewith occurred on the first day of such period, but without any adjustment for expected cost savings or other synergies) if (i) either (x) the audited consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the fiscal year of such Person preceding the acquisition of such Person and the related audited consolidated statements of income, stockholders' equity and cash flows for the such fiscal year have been provided to the Agent and the Banks and have been reported on without a qualification arising from the scope of the audit or a "going concern" or like qualification or exception or (y) such other financial information furnished to the Banks with respect to such period and such acquisition has been found acceptable by the Required Banks and (ii) either (x) any subsequent unaudited financial statements for such Person for the period prior to the acquisition of such Person were prepared on a basis consistent with such audited financial statements, have been provided to the Agent and the Banks and have been reported on without a qualification arising from the scope of the audit or a "going concern" or like qualification or (y) such other financial information furnished to the Banks with respect to such period and such acquisition has been found acceptable by the Required Banks. 2.4 The definition of "Interest Coverage Ratio" in Section 1.1 of the Credit Agreement shall be amended and restated to read in its entirety as follows: Interest Coverage Ratio means, as of the last day of any ----------------------- Fiscal Quarter, the ratio of (a) Consolidated Net Income before deducting Interest Expense and taxes for the Computation Period ending on such day to (b) Proforma Interest Expense as of such day; provided, however, that for the purposes of calculating --------- ------- clause (a) above any loss recognized upon the sale or ---------- characterization as a discontinued asset of the Company's Precision Products business shall be disregarded. -2- 3 2.5 Section 1.1 of the Credit Agreement shall be amended by adding the following definition in its appropriate alphabetical position: Net Cash Proceeds means: ----------------- (a) with respect to the sale, transfer, or other disposition by the Company or any Subsidiary of any asset (including any stock of any Subsidiary), the aggregate cash proceeds (including cash proceeds received by way of deferred payment of principal pursuant to a note, installment receivable or otherwise, but only as and when received) received by the Company or any Subsidiary pursuant to such sale, transfer or other disposition, net of (i) the direct costs relating to such sale, transfer or other disposition (including sales commissions and legal, accounting and investment banking fees), (ii) taxes paid or reasonably estimated by the Company to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (iii) amounts required to be applied to the repayment of any Indebtedness secured by a Lien on the asset subject to such sale, transfer or other disposition (other than the Loans); and (b) with respect to any issuance of Debt, the aggregate cash proceeds received by the Company or any Subsidiary pursuant to such issuance, net of the direct costs relating to such issuance (including sales and underwriter's commissions, private placement fees and legal, accounting and investment banking fees). 2.6 Section 2.1 of the Credit Agreement shall be amended by replacing the amount "$35,000,000" where it appears at the end of clauses (a) and (c)(y) of such Section with the amount "$45,000,000." 2.7 Section 6.2.1 of the Credit Agreement shall be amended and restated to read in its entirety as follows: 6.2.1 Mandatory Prepayments. (a) The Company shall make a --------------------- prepayment of the Revolving Loans forthwith upon the occurrence of any of the following in the following amounts: (i) Upon any sale, transfer or other disposition by the Company or any Subsidiary of any assets constituting a division, in an amount equal to 100% of the Net Cash Proceeds of such sale, transfer or other disposition. (ii) Upon any sale, transfer or other disposition (including by way of merger or consolidation) by the Company or any Subsidiary of any of the capital stock of any of the Company's Subsidiaries to a Person other than the Company or a Subsidiary, in an amount equal to 100% of the Net Cash Proceeds of such sale. -3- 4 (iii) Upon the receipt of any Net Cash Proceeds from the issuance of any Debt of the Company or any Subsidiary, in an amount equal to 100% of such Net Cash Proceeds. (b) On each date on which the Revolving Commitments are reduced pursuant to Section 6.1.2, the Company shall make a ------------- prepayment of the Revolving Loans in the amount (if any) by which the outstanding principal amount of the Revolving Loans exceeds the Revolving Commitments. 2.8 Section 10.11 of the Credit Agreement shall be amended and restated to read in its entirety as follows: 10.11 Funded Debt to Cash Flow Ratio. Not permit the Funded ------------------------------ Debt to Cash Flow Ratio as of the last day of any Fiscal Quarter to exceed 2.25:1. 2.9 Schedule I to the Credit Agreement shall be amended by ---------- replacing the amounts "$21,000,000", "$14,000,000" and "$35,000,000", respectively, under the column "Amount of Revolving Commitment" with the figures "$27,000,000", "$18,000,000" and "$45,000,000", respectively. SECTION 3. CONDITIONS PRECEDENT. -------------------- The amendments to the Credit Agreement set forth in Section 2 of --------- this Amendment shall become effective at or as of the times set forth in Section 2 above on such date (the "Effective Date") when the --------- following conditions precedent have been satisfied: 3.1 Receipt of Documents. The Agent shall have received all of -------------------- the following, each duly executed and dated the date hereof, and each in a sufficient number of signed counterparts to provide one to each Bank: (a) Amendment. An original of this Amendment duly --------- executed by the Company and each Bank and an original of the consent attached to the foot hereof (the "Consent") executed by Impact. (b) Revolving Note. A Revolving Note executed by the -------------- Company payable to the order of each Bank in an aggregate principal amount equal to the maximum Revolving Loan Commitment of such Bank (collectively, the "New Notes"). (c) Resolutions. A copy, certified by the secretary or ----------- an assistant secretary of each of the Company and Impact, of resolutions of the Board of Directors of such Person authorizing or ratifying the execution and delivery of (i) in the case of the Company, this Amendment and the New Notes and the borrowings under the Credit Agreement, as amended hereby and (ii) in the case of Impact, the Consent. -4- 5 (d) Incumbency and Signatures. A certificate of the ------------------------- secretary or an assistant secretary of each of the Company and Impact certifying the names of the officer or officers of such Person authorized to sign (i) in the case of the Company, this Amendment and the New Notes and (ii) in the case of Impact, the Consent, together with a sample of the true signature of each such officer. (e) Certificate. A certificate, dated the Effective ----------- Date and signed by a duly authorized representative of the Company, as to the matters set forth in Section 3.2, in form ----------- and substance satisfactory to the Agent. (f) Other. Such other documents as the Agent or any ----- Bank may reasonably request. 3.2 Warranties True and Absence of Defaults. (i) No Event of --------------------------------------- Default or Unmatured Event of Default shall have occurred and shall be continuing as of the Effective Date (after giving effect to this Amendment) and (ii) the warranties set forth in the Credit Agreement and each other Loan Document shall be true and correct in all material respects with the same effect as if made on the Effective Date. 3.3 Amendment Fee. The Agent shall have received for the ------------- account of the Banks (pro rata according to each Bank's Total Percentage) an amendment fee of $10,000. SECTION 4. MISCELLANEOUS. ------------- 4.1 Governing Law. This Amendment shall be a contract made ------------- under and governed by the internal laws of the State of Illinois. 4.2 Counterparts. This Amendment may be executed in any number ------------ of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when so executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 4.3 References to Credit Agreement. Except as amended hereby, ------------------------------ the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. On and after the effectiveness hereof, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference to the Credit Agreement in any Note or other Loan Document, shall be deemed a reference to the Credit Agreement, as amended hereby. -5- 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date and year first above written. LINDBERG CORPORATION By: ________________________________ Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ________________________________ Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS, as a Bank By: ________________________________ Title: HARRIS TRUST AND SAVINGS BANK By: ________________________________ Title: -6- 7 The undersigned, Impact Industries, Inc., hereby acknowledges, consents and agrees to the foregoing Amendment, and reaffirms that its obligations under the Guaranty dated as of April 29, 1994 executed in favor of the Agent and the Banks continue in full force and effect with respect to the Credit Agreement, as amended by the foregoing Amendment. IMPACT INDUSTRIES, INC. By: ________________________________ Title: -7- EX-11 3 1
Exhibit 11 COMPUTATION OF NET EARNINGS PER COMMON SHARE Years Ended December 31, ------------------------ 1997 1996 1995 EARNINGS ---- ---- ---- Earnings from Continuing Operations $ 6,961,090 $ 4,838,274 $ 4,172,840 Earnings (Loss) from Discontinued Operations (6,698,240) 178,118 1,461,676 ----------- ----------- ----------- Net Earnings $ 262,850 $ 5,016,392 $ 5,634,516 =========== =========== =========== SHARES - ------ Weighted Average Number of Common Shares Outstanding (See Note) 4,806,834 4,756,789 4,724,489 Additional Shares Assuming Conversion of Stock Options 125,994 103,766 39,002 --------- --------- --------- Weighted Average Common Shares Outstanding and Equivalents 4,932,828 4,860,555 4,763,491 ========= ========= ========= Basic Earnings Per Share: Earnings From Continuing Operations $ 1.45 $ 1.01 $ .89 Earnings (Loss) From Discontinued Operations (1.40) .04 .30 ------- ------- ------- Net Earnings $ .05 $ 1.05 $ 1.19 ======= ======= ======= Diluted Earnings Per Share: Earnings From Continuing Operations $ 1.41 $ .99 $ .88 Earnings (Loss) From Discontinued Operations (1.36) .04 .30 ------- ------- ------- Net Earnings $ .05 $ 1.03 $ 1.18 ======= ======= ======= Note: All activity during the year has been adjusted for the number of days in the year that the shares were outstanding.
EX-13 4 1 EXHIBIT 13
Financial Highlights % Change Increase/ Years Ended December 31, 1997 1996 (Decrease) ---------------------------------------------------------------------------- Operations (in thousands) Net Sales $ 88,784 $ 72,776 22% Earnings From Continuing Operations 6,961 4,838 44% ----------------------------------------------------------------------------- Financial Position (in thousands) Total Assets $ 89,563 $ 74,888 20% Total Debt 36,166 21,601 67% Stockholders' Equity 32,091 33,047 (3%) Debt/Capitalization Ratio 53% 40% 33% ----------------------------------------------------------------------------- Per Share Data Earnings From Continuing Operations - Diluted $ 1.41 $ .99 42% Cash Dividends .32 .29 10% Book Value 6.65 6.91 (4%) -----------------------------------------------------------------------------
Net Sales (in thousands) 1997 $ 88,784 1996 $ 72,776 1995 $ 67,967 1994 $ 59,380 1993 $ 55,609 Earnings (Loss) From Continuing Operations (in thousands) 1997 $ 6,961 1996 $ 4,838 1995 $ 4,173 1994 $ 2,443 1993 $ (2,266)
Safe Harbor Statement Statements contained in this annual report that are not based on historical facts are forward-looking statements subject to uncertainties and risks including, but not limited to, product and service demand and acceptance; economic conditions; the impact of competition and pricing; capacity and supply constraints or difficulties; results of financing and acquisition efforts; regulatory and other legal issues; and other risks detailed in the company's Securities and Exchange Commission filings. -1- 2 Management's Discussion and Analysis Of Financial Condition: During 1997, the Company's level of borrowing increased by $14.6 million to $36.2 million at year-end from $21.6 million at December 31,1996. The ratio of debt to total capitalization was 53% at the close of 1997 as compared to 40% at year-end 1996. The most significant factor in the year-over-year increase in borrowing was the use of funds in 1997 for the acquisitions of Ticorm, Inc. ("Ticorm") for $3.8 million and the remaining 50% share of the Company's joint venture partnership Alumatherm Heat Treating Company ("Alumatherm") from its partner for $12.8 million. The Company completed these acquisitions using a combination of bank borrowings and notes payable. At year-end 1997, the notes payable related to Ticorm ($1.9 million) and Alumatherm ($6.3 million) remained. Another main use of funds in 1997 was for capital expenditures. A total of $7.3 million was spent on capital projects during the year, as compared to $5.4 million in 1996. This was a 37% increase over the prior year. The figures for both 1996 and 1997 exclude amounts related to the purchase price of acquisitions and amounts related to discontinued operations. Capital investments in 1997 were made primarily to accommodate new business opportunities and, to a lesser degree, upgrade facilities and equipment. Spending related to the Company's SP 2000 program represented about 25% of the total capital spending. Approximately 19% of 1996 capital spending was for SP 2000 projects. Also during 1997, the Company made significant capital outlays for new furnace installations at several of its heat treating facilities. The Company anticipates that continued spending for SP 2000 projects and for upgrading plant and equipment at an increased number of facilities will result in a level of capital spending in 1998 of approximately $8.5 million. Levels of working capital associated with accounts receivable and accounts payable were increased at year-end 1997 from the prior year largely as a result of additional requirements related to companies acquired in 1997. As the Company's heat treating customers maintain ownership of products shipped to the Company for processing, the business does not have a working capital need related to inventories. During 1997, the Company made cash outlays related to environmental matters. These outlays largely included costs for consulting/ engineering, legal support, and in certain cases, remediation. The Company believes it will continue to make such expenditures in the future, but that such spending will continue to have a limited effect on its financial condition and liquidity. During 1997, the Board of Directors declared cash dividends totaling $.32 per share, which amounted to a total of $1.5 million paid to stockholders during the year. This represented an increase of 12% from the $1.4 million in cash dividends paid in 1996. In the fourth quarter of 1997, the Company, with the approval of its Board of Directors, established a plan to divest itself of its Precision Products business segment and sell the underlying divisions. As a result, the segment is reported as discontinued operations in the financial statements and prior years have been restated. At December 31, 1997, net assets of discontinued operations totaled $17.5 million. The Company anticipates that these operations will be sold during 1998, and proceeds from the expected sales will be used either to reduce debt or to fund additional capital investments and acquisitions in the heat treating business. The Company believes that its borrowing capacity and funds generated through operations will be sufficient to meet currently foreseen capital investment and working capital needs in support of existing business both in 1998 and in the longer term. Of Results of Operations: 1997 Versus 1996 Net sales from continuing operations increased 22% to $88.8 million in 1997 from $72.8 million in 1996. The higher level of sales resulted primarily from the acquisition of three heat treating companies from May 1996 through October 1997, expansion of the Company's SP 2000 program during 1997 and growth at certain heat treating divisions where customer demand was strong -- in particular those serving the commercial aerospace industry. The acquisition of Vac-Hyd in 1996, and of Ticorm and Alumatherm in 1997 accounted for 48% of the increase in revenue for 1997. Also during 1997, the Company expanded the number of SP 2000 sites in operation to seven from six at the close of 1996. This program provided sales in 1997 of $6.2 million in comparison to $3.9 million in 1996, thereby contributing to the overall increase in Company sales in 1997. Finally, while not all of the Company's heat treating divisions generated sales growth in 1997 as compared to the prior year, heat treating operations in existence at the beginning of 1996 reported an overall 9% increase in sales. Gross profit as a percentage of net sales increased to 28.3% for 1997 from 27.8% in the prior year. The increase in gross profit was related primarily to the higher level of sales during 1997 providing incremental earnings in excess of the prior year's rate of gross profit and to cost containment efforts. Selling and administrative expenses were $13.2 million in 1997, or 14.9% of sales, as compared to $11.5 million (15.8% of sales) in 1996. The increase year-over-year in the level of expenses resulted primarily from the addition of expenses through the acquisitions of Ticorm and Alumatherm. During 1997, for the first nine months of the year prior to the Company's acquisition of its partner's 50% interest in the joint venture, equity -12- 3 earnings related to the Alumatherm partnership recorded by the Company totaled $1.4 million. This compared to $893,000 recorded for the full year 1996. Interest expense in 1997 increased to $1.7 million from $1.5 million in the prior year. This resulted from the increased level of borrowings due to acquisitions. The average interest rate on borrowings in 1997 was 6.6% compared to 6.7% for 1996. Reflecting the above items, the Company recorded net earnings from continuing operations in 1997 of $7.0 million, or $1.41 per diluted share, as compared to $4.8 million, or $.99 per diluted share, in 1996. The results of the Company's Precision Products segment, net of income taxes, are presented as discontinued operations. In 1997, an after-tax loss of $754,000 from operations was recorded compared to $178,000 in earnings for 1996. Also in 1997, the Company recorded a $5.9 million after-tax charge related to an estimated loss on the eventual sale of the segment's operations. The loss from operations in 1997 resulted largely from a sales decline at the segment's Impact Industries division. The Company concluded to divest the Precision Products businesses and concentrate financial and operating resources on the higher margin core heat treating business, which had represented approximately 70% of total Company sales during 1997. Net earnings for 1997 were $263,000, or $.05 per diluted share, as compared to $5.0 million, or $1.03 per diluted share, in 1996. Although the Company cannot accurately determine the exact effect of inflation on its operations, it does not believe inflation had a material effect during either year on sales or results of operations. Of Results of Operations: 1996 Versus 1995 Net sales from continuing operations for 1996 of $72.8 million increased 7.1% from $68.0 million in 1995. Within the overall increase for the Company's heat treating business, results were mixed with some operations showing gains while others reported lower sales. In general, the higher revenues in total related to additional sales from SP 2000 projects, the acquisition of Vac-Hyd and improvement at divisions serving the commercial aerospace market. Gross profit as a percentage of sales was 27.8% in 1996 as compared to 28.3% for the prior year. The decline in the percentage year-to-year resulted from higher discretionary costs in certain areas of the Company, which more than offset the positive effect produced by the increase in revenues during 1996. Selling and administrative expenses at $11.5 million for 1996 were essentially unchanged from the prior year figure. In 1996, the Company recorded $893,000 in equity earnings related to its ownership in the Alumatherm partnership. This more than doubling of the $301,000 recognized during 1995 resulted from the operation showing strong sales and earnings growth related chiefly to its participation in the improving commercial aerospace industry. Interest expense fell 7.7% to $1.5 million in 1996 from $1.6 million in 1995. This resulted from lower interest rate experience during 1996, which more than offset higher levels of borrowings which the Company maintained during the year -- in particular after the acquisition of Vac-Hyd in May 1996. Results in 1995 also included a $615,000 gain related to a fire at the Company's facility in Ohio. The complete destruction of one major piece of equipment and subsequent capitalization of a new furnace resulted in an involuntary conversion gain reported as other income. Reflecting largely the above issues, the Company recorded net earnings from continuing operations in 1996 of $4.8 million, or $.99 per diluted share, as compared to $4.2 million, or $.88 per diluted share, in 1995. The Company's discontinued Precision Products operations recorded earnings after-tax of $178,000 in 1996 as compared to $1.5 million in 1995. The reduced level of earnings in 1996 resulted from lower sales within the segment for the year -- principally at the Impact Industries operation. Net earnings for 1996 were $5.0 million, or $1.03 per diluted share, as compared to $5.6 million, or $1.18 per diluted share, in 1995. Year 2000 Issue: The Company is in the process of investigating the possible effect of the Year 2000 issue on its operating, accounting and other systems. Based on preliminary reviews, the Company believes that its internal systems and those supplied it by third parties are or will be Year 2000 compliant without any material additional expense. However, there can be no assurance that the Company's operations will not be adversely affected by this issue, particularly as it relates to compliance by the Company's customers and suppliers. Subsequent Events: In January 1998, the Company acquired all of the outstanding common stock of Industrial Steel Treating Company and Fabriform Metal Brazing, Inc., two related companies located in the Los Angeles area which provide heat treating processing for customers primarily in the aerospace market. The cash purchase price for the two companies was $11 million in total, which was funded with additional borrowings under the Company's revolving credit agreement. The two companies had sales of approximately $11 million in 1997. Effective February 10, 1998, the Company's revolving credit agreement with two banks was amended to increase the total borrowing facility from $35.0 million to $45.0 million and to adjust certain loan covenants. As of March 3, 1998, the Company had $13.7 million of available borrowing capacity under its amended revolving credit agreement. -13- 4 Consolidated Financial Statements
Consolidated Statements of Earnings For the Years Ended December 31, 1997 1996 1995 ------------------------------------------------------------------------------------------------------- Net Sales $ 88,783,577 $ 72,776,202 $ 67,967,257 Cost of Sales (63,691,330) (52,519,365) (48,702,131) ------------------------------------------------------------------------------------------------------- Gross Profit 25,092,247 20,256,837 19,265,126 Selling and Administrative Expenses (13,211,421) (11,507,041) (11,530,647) Equity in Earnings of Partnership 1,436,328 892,822 301,195 ------------------------------------------------------------------------------------------------------- Operating Earnings 13,317,154 9,642,618 8,035,674 Interest Expense (Net) (1,681,103) (1,511,312) (1,637,740) Gain on Asset Conversion -- -- 615,242 ------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations Before Income Taxes 11,636,051 8,131,306 7,013,176 Provision for Income Taxes -- Continuing Operations (4,674,961) (3,293,032) (2,840,336) ------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations 6,961,090 4,838,274 4,172,840 Discontinued Operations, Net of Income Taxes: Earnings (Loss) From Operations (754,240) 178,118 1,461,676 Estimated Loss on Sale (5,944,000) -- -- ------------------------------------------------------------------------------------------------------- Earnings (Loss) From Discontinued Operations (6,698,240) 178,118 1,461,676 ------------------------------------------------------------------------------------------------------- Net Earnings $ 262,850 $ 5,016,392 $ 5,634,516 ======================================================================================================= Basic Earnings Per Share: Earnings From Continuing Operations $ 1.45 $ 1.01 $ .89 Earnings (Loss) From Discontinued Operations (1.40) .04 .30 ------------------------------------------------------------------------------------------------------- Net Earnings $ .05 $ 1.05 $ 1.19 ======================================================================================================= Diluted Earnings Per Share: Earnings From Continuing Operations $ 1.41 $ .99 .88 Earnings (Loss) From Discontinued Operations (1.36) .04 .30 ------------------------------------------------------------------------------------------------------- Net Earnings $ .05 $ 1.03 $ 1.18 =======================================================================================================
Consolidated Statements of Stockholders' Equity Underfunded For the Years Ended December 31, Common Additional Retained Treasury Pension Liability 1997, 1996 and 1995 Shares Paid-In Capital Earnings Shares Adjustment TOTAL -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 $14,183,493 $ 1,531,600 $14,561,840 $(5,405,657) $(202,760) $24,668,516 -------------------------------------------------------------------------------------------------------------------------------- Net Earnings 5,634,516 5,634,516 Dividends Paid (1,181,054) (1,181,054) Exercise of Stock Options (19,494) 58,619 39,125 Pension Adjustment 21,332 21,332 -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 14,183,493 1,512,106 19,015,302 (5,347,038) (181,428) 29,182,435 -------------------------------------------------------------------------------------------------------------------------------- Net Earnings 5,016,392 5,016,392 Dividends Paid (1,379,120) (1,379,120) Exercise of Stock Options (18,700) 292,387 273,687 Pension Adjustment (46,492) (46,492) -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 14,183,493 1,493,406 22,652,574 (5,054,651) (227,920) 33,046,902 -------------------------------------------------------------------------------------------------------------------------------- Net Earnings 262,850 262,850 Dividends Paid (1,537,935) (1,537,935) Exercise of Stock Options 32,786 213,430 246,216 Pension Adjustment 73,385 73,385 -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $14,183,493 $ 1,526,192 $21,377,489 $(4,841,221) $(154,535) $32,091,418 ================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -14- 5
Consolidated Balance Sheets For the Years Ended December 31, 1997 1996 ----------------------------------------------------------------------------- Assets Current Assets: Cash $ 283,270 $ 36,228 Receivables, Less Allowance for Doubtful Accounts of $304,000 in 1997 and $325,000 in 1996 14,875,005 10,461,635 Prepaid and Refundable Income Taxes 1,380,768 1,687,534 Note Receivable -- 1,102,600 Prepaid Expenses 632,846 633,386 Net Assets of Discontinued Operations 17,475,866 25,272,160 Other Current Assets 1,616,774 371,053 ----------------------------------------------------------------------------- Total Current Assets 36,264,529 39,564,596 Property and Equipment: Land 1,745,246 1,745,246 Buildings and Improvements 16,674,207 15,663,434 Machinery and Equipment 71,363,851 63,135,960 Construction in Progress 1,819,101 2,007,217 ----------------------------------------------------------------------------- Total Property and Equipment 91,602,405 82,551,857 Less-Accumulated Depreciation (52,505,822) (51,673,102) ----------------------------------------------------------------------------- Net Property and Equipment 39,096,583 30,878,755 Goodwill 11,537,742 314,738 Investment in Partnership -- 1,607,632 Other Non-Current Assets 2,664,577 2,521,855 ----------------------------------------------------------------------------- Total Assets $89,563,431 $74,887,576 ============================================================================= Liabilities Current Liabilities: Current Maturities on Long-Term Debt $ 83,328 $ -- Notes Payable 10,220,000 901,437 Accounts Payable 3,540,279 3,180,271 Accrued Expenses: Salaries and Wages 1,775,352 1,221,914 Taxes, other than Income 543,795 511,213 Employee Insurance and Benefits 1,395,126 1,436,917 Utilities 658,741 593,776 Other 1,900,780 1,619,272 ----------------------------------------------------------------------------- Total Current Liabilities 20,117,401 9,464,800 Non-Current Liabilities: Deferred Income Taxes 6,149,001 6,847,504 Long-Term Debt (Less Current Maturities) 25,862,512 20,700,000 Accrued Pension 3,342,458 3,148,114 Other Non-Current Liabilities 2,000,641 1,680,256 ----------------------------------------------------------------------------- Total Non-Current Liabilities 37,354,612 32,375,874 Stockholders' Equity: Common Shares, $2.50 par value: Authorized 12,000,000 shares in 1997 and 1996; Issued 5,673,397 shares in 1997 and 1996 14,183,493 14,183,493 Additional Paid-In Capital 1,526,192 1,493,406 Retained Earnings 21,377,489 22,652,574 Treasury Shares (845,016 in 1997 and 894,256 in 1996), at Cost (4,841,221) (5,054,651) Underfunded Pension Liability Adjustment (154,535) (227,920) ----------------------------------------------------------------------------- Total Stockholders' Equity 32,091,418 33,046,902 ----------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $89,563,431 $74,887,576 =============================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. -15- 6
Consolidated Statements of Cash Flows For the Years Ended December 31, 1997 1996 1995 ---------------------------------------------------------------------------------------------- Increase (Decrease) in Cash Cash Flows From Operating Activities: Net Earnings $ 262,850 $ 5,016,392 $ 5,634,516 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation 4,084,315 3,689,743 3,459,246 Equity Earnings, Net of Cash Distributions (235,128) (692,822) (301,195) Goodwill Amortization 119,347 5,000 -- Increase (Decrease) in Deferred Taxes 101,497 732,996 (376,879) Estimated Loss on Sale of Discontinued Operations 5,944,000 -- -- Gain on Asset Conversion -- -- (615,242) Change in Assets and Liabilities: Receivables (2,337,872) (165,047) (788,998) Prepaid and Refundable Income Taxes 310,846 (626,989) 966,601 Prepaid Expenses and Other Current Assets (220,486) (12,417) 62,989 Accounts Payable 18,311 (150,594) (1,741,409) Accrued Expenses 356,720 (484,785) (868,754) Net Assets of Discontinued Operations 1,052,294 (522,631) (1,851,911) Other 698,788 (1,571,556) 319,754 ---------------------------------------------------------------------------------------------- Total Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities 9,892,632 200,898 (1,735,798) ---------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 10,155,482 5,217,290 3,898,718 ---------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Capital Expenditures (7,336,401) (5,365,396) (4,028,647) Cash Received for Sale of Alloy Wire Belt 1,102,600 1,000,000 -- Investment in Alumatherm, Net of Cash Received (12,757,711) -- -- Investment in Ticorm, Net of Cash Received (3,797,556) -- -- Investment in Vac-Hyd -- (2,325,560) -- Proceeds from Notes Receivable -- -- 400,000 ---------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (22,789,068) (6,690,956) (3,628,647) ---------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net Borrowings (Payments) Under Revolving Credit Agreement 7,100,000 1,800,000 (2,700,000) Note Payable for Purchase of Vac-Hyd (901,437) 901,437 -- Borrowings Under Senior Note Agreement -- -- 10,000,000 Payments on Bank Term Loan -- -- (6,300,000) Notes Payable for Purchase of Ticorm 1,900,000 -- -- Notes Payable for Purchase of Alumatherm 6,320,000 -- -- Dividends Paid (1,537,935) (1,379,120) (1,181,054) ---------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities 12,880,628 1,322,317 (181,054) ---------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash 247,042 (151,349) 89,017 Cash at Beginning of Year 36,228 187,577 98,560 ---------------------------------------------------------------------------------------------- Cash at End of Year $ 283,270 $ 36,228 $ 187,577 ============================================================================================== Supplemental Disclosures of Cash Flow Information: Interest Paid $ 1,679,402 $ 1,649,277 $ 1,686,270 Income Taxes Paid 3,875,117 3,235,993 3,287,073 ----------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -16- 7 Notes to Consolidated Financial Statements For the Years Ended December 31, 1997, 1996 and 1995 Note 1. Accounting Policies -------------------------------- A. Nature of Operations The company serves metal-using and metal- working industries, providing commercial metal heat treating. B. Principles of Consolidation The consolidated financial statements include the accounts of Lindberg Corporation and its subsidiaries. Significant intercompany balances and transactions have been eliminated. The company's 50% share of a heat treating partnership was carried at cost plus equity in undistributed earnings from the partnership formation on July 1, 1994, until the acquisition of that entity on October 1, 1997 (see footnote 2). C. Revenue Recognition The company recognizes revenues from sales upon shipment to its customers. D. Property and Depreciation Property and equipment are stated at cost. Depreciation is provided on the straight line method for financial statement purposes and on accelerated methods for income tax purposes. Maintenance costs are charged to expense as incurred. Expenditures which improve efficiency or capacity or extend the useful life of assets are capitalized. Interest cost incurred during the period of construction of plant and equipment is capitalized as part of the cost of such plant and equipment. E. Income Taxes The company determines its tax provision and deferred tax balance in compliance with SFAS 109, "Accounting for Income Taxes". Under this approach, the provision for income taxes represents income taxes paid or payable for the current year adjusted for the change in deferred taxes during the year. Deferred income taxes reflect the net tax effects of temporary differences between the financial statement bases and the tax bases of assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. F. Earnings Per Share Effective January 1, 1997, the company adopted SFAS 128, "Earnings per Share" (SFAS 128). The provisions of SFAS 128 require computations of basic and diluted earnings per share. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options were converted into common stock. Dilutive shares used in the calculations for the years ended December 31, 1997, 1996 and 1995 were 4,932,828, 4,860,555, and 4,763,491, respectively. Basic earnings per share excludes dilution effects. Earnings per share for all years have been computed in accordance with SFAS 128. G. Use of Estimates The preparation of these financial statements, in conformity with generally accepted accounting principles, required the use of certain estimates by management in determining the company's assets, liabilities, revenues and expenses. Actual results could differ from those estimates. H. Impairment of Long-Lived Assets Effective January 1, 1996, the company adopted SFAS 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). The provisions of SFAS 121 require a review of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The company does not believe that any impairment of long-lived assets has occurred, and, therefore, the adoption of SFAS 121 did not have any effect on the company's statements of earnings in 1997 or 1996. I. Reclassifications Certain prior period amounts have been reclassified to be consistent with the 1997 presentation. Note 2. Acquisitions -------------------------------- On May 31, 1996, the company acquired the assets of Vac-Hyd for $1.4 million of cash and a note payable of $.9 million. On July 31, 1997, the company acquired all of the outstanding shares of Ticorm, Inc. for $1.9 million of cash and $1.9 million of notes payable. On October 1, 1997, the company acquired the remaining 50% share of its joint venture partnership -- Alumatherm Heat Treating Company ("Alumatherm") -- from its partner for $6.5 million of cash and $6.3 million of notes payable. Each of these acquired businesses is a heat treating company in the Los Angeles area. Cash payments made as part of each purchase were funded with additional borrowings under the company's revolving credit agreement. Prior to the purchase of Alumatherm, the company reported its results under the equity method of accounting as an unconsolidated partnership. Accordingly, the company's statements of earnings for the years ended December 31, 1996 and 1995 and for the nine months ended September 30, 1997, include the company's equity in Alumatherm's earnings. The company's investment in Alumatherm was included in Total Assets for the year ended December 31, 1996; subsequent to the purchase, the financial position for Alumatherm was included in the company's balance sheet on a fully consolidated basis. All of the acquisitions were accounted for using the purchase method; accordingly, the results of operations have been included in the consolidated totals of the company since the dates of their respective acquisitions. The cost of the acquisitions has been allocated to the assets and liabilities based on their estimated fair market value. Goodwill is amortized using the straight line method over 30 years. With the exception of Alumatherm, the acquired companies did not materially impact the consolidated financial position or results of operations for the periods presented. The preliminary allocation of the total cost of Alumatherm, which includes the purchase price and the elimination of the related equity investment account, is as follows: (in thousands)
Alumatherm -------------------------------------- Property and Equipment $ 3,575 Accounts Receivable 1,921 Goodwill 9,873 Other Assets 237 Accounts Payable (281) Other Liabilities (722) -------------------------------------- $14,603
-17- 8 The following table presents pro forma information for the combined entities of Lindberg Corporation and Alumatherm for the twelve months ended December 31, 1997 and 1996 assuming the acquisition had taken place at the beginning of the periods presented (in thousands, except per share data).
Unaudited 1997 1996 ------------------------------------------------------------- Net Sales $98,962 $81,806 Earnings from Continuing Operations 7,831 5,181 Net Earnings 1,133 5,359 Per Diluted Share: Earnings from Continuing Operations 1.59 1.07 Net Earnings .23 1.10
Adjustments to the statements of earnings include additional depreciation and interest charges, goodwill amortization, the reduction of certain other expenses and income tax effects. The pro forma information is provided for illustrative purposes only and is not necessarily reflective of the future results of the company or results of operations that would have actually occurred had the transaction been in effect for the periods presented. Note 3. Discontinued Operations -------------------------------- On December 22, 1997, the Board of Directors approved a plan to sell the company's Precision Products business segment ("Precision Products"). Although difficult to predict, the company expects to sell the segment during 1998. Precision Products is reported as discontinued operations, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. The Precision Products segment consists of two aluminum die casting facilities (Impact Industries, Inc. and Arrow-Acme Company) and one aluminum semi-permanent mold foundry (Harris Metals, Inc.). The estimated loss recorded during 1997 for the sale of Precision Products was $6.7 million, which included a reduction in asset values of $5.8 million and a provision for anticipated closing costs and operating losses until disposal of $.9 million. The loss was reported net of an income tax benefit of $.8 million, for an after-tax loss of $5.9 million. The loss on the sale of Precision Products was based on estimates of the proceeds expected to be realized on the sale of the operations. The amounts the company will ultimately realize could differ materially from the amounts assumed in arriving at the loss on disposal of the discontinued operations. Summary operating results of the discontinued operations for 1997, 1996 and 1995 are as follows: (in thousands)
1997 1996 1995 ------------------------------------------------------------- Net sales $34,567 $41,244 $54,037 Costs and expenses 35,835 40,945 51,580 ------------------------------------------------------------- Earnings (loss) before taxes (1,268) 299 2,457 Provision (benefit) for income taxes (514) 121 995 ------------------------------------------------------------- Net income (loss) $ (754) $ 178 $ 1,462
At December 31, 1997, net assets of the discontinued operations of approximately $17.5 million consisted of $7.4 million of net current assets, $14.2 million of equipment and $2.6 million of other net assets, less the allowance for the estimated loss on disposal. Note 4. Income Taxes -------------------------------- The major components of the provision for income taxes for 1997, 1996 and 1995 are as follows: (in thousands)
Current Deferred Total --------------------------------------------------------- 1997 Federal $3,448 $269 $3,717 State 800 51 851 Canadian 107 -- 107 --------------------------------------------------------- $4,355 $320 $4,675 --------------------------------------------------------- 1996 Federal $2,142 $386 $2,528 State 620 74 694 Canadian 54 17 71 --------------------------------------------------------- $2,816 $477 $3,293 --------------------------------------------------------- 1995 Federal $1,852 $211 $2,063 State 737 40 777 --------------------------------------------------------- $2,589 $251 $2,840
The provision for income taxes includes deferred tax expense (benefit) resulting from timing differences in the recognition of revenue and expense for tax and financial statement purposes. The sources of these differences and the tax effect of each are as follows: (in thousands)
1997 1996 1995 ----------------------------------------------------------------- Depreciation $158 $137 $ 88 Restructuring activities -- -- 385 Environmental control activities (49) 241 (370) Other 211 99 148 ----------------------------------------------------------------- $320 $477 $251
-18- 9 The differences between the provision for income taxes at the statutory rate and that shown in the consolidated statements of earnings are summarized as follows: (in thousands)
1997 1996 1995 ---------------------------------------------------------------- Consolidated pretax earnings at statutory rate $3,956 $2,765 $2,384 State income taxes, net of federal tax benefit 614 429 370 Other 105 99 86 ---------------------------------------------------------------- $4,675 $3,293 $2,840
Significant components of the company's deferred tax liabilities and assets at December 31, 1997, and 1996 are as follows: (in thousands)
1997 1996 ----------------------------------------------------------------- Deferred Tax Liabilities: Tax depreciation over book $(6,104) $(7,452) Reserve for discontinued operations (840) -- Other liabilities (482) (398) ----------------------------------------------------------------- Total Deferred Tax Liabilities $(7,426) $(7,850) ----------------------------------------------------------------- Deferred Tax Assets: Reserves not deducted for tax $ 761 $ 829 Employee benefit provisions in excess of cash payments 1,221 1,266 Other assets 148 324 ----------------------------------------------------------------- Total Deferred Tax Assets $ 2,130 $ 2,419 ----------------------------------------------------------------- Net Deferred Tax Liability $(5,296) $(5,431) ----------------------------------------------------------------- Included in Balance Sheet in: Prepaid and Refundable Income Taxes $ 853 $ 1,417 Deferred Income Taxes (6,149) (6,848) ----------------------------------------------------------------- $(5,296) $(5,431)
Note 5. Debt -------------------------------- Long-term debt consists of the following: (in thousands)
1997 1996 ------------------------------------------------------ Senior notes $10,000 $10,000 Revolving credit 17,800 10,700 Notes payable 8,366 901 ------------------------------------------------------ 36,166 21,601 Less-current maturities (10,303) (901) ------------------------------------------------------ $25,863 $20,700
In April 1994, the company entered into an unsecured revolving credit agreement (the "Agreement") with two banks which provided for a line of credit of $20,000,000 and a term loan of $7,000,000. In November 1995, the company refinanced its debt. Ten million dollars of senior notes were issued, the proceeds of which were used to retire the outstanding balance of the company's term loan and a portion of the outstanding balance on its revolving credit facility. The notes bear interest at 7.16% annually and have a seven-year final maturity. Equal annual principal payments on the notes commence on the third anniversary of closing and continue on each anniversary date through the life of the notes. In conjunction with the refinancing, the company and its banks amended the Agreement to allow for the issuance of the senior notes and to terminate the term loan. In February 1996, the Agreement was amended to increase the total facility by $5 million to $25 million. The total facility was further increased by $10 million to $35 million in September 1997 and amended in February 1998 to increase the facility $10 million to $45 million. Additionally, the February 1998 amendment extended the maturity date of the Agreement to April 2000. The company may choose from two interest rate alternatives -- (i) the bank's reference rate (prime rate) and (ii) a Eurodollar loan rate plus an applicable margin based on the company's ratio of funded debt to earnings before interest, taxes, depreciation and amortization. The effective interest rate for the Agreement was 6.6% and 6.7% during 1997 and 1996, respectively; the year-end rates were 6.7% and 6.5% for 1997 and 1996, respectively. The revolving credit and senior note agreements contain various covenants which, among others, restrict the ability of the company to pay dividends beyond certain limits and require the company to meet certain financial ratios. In February 1998, certain covenants in the Agreement and in the senior notes were modified. The company also has a second agreement which provides for the issuance of letters of credit, up to a maximum of $5,000,000. At December 31, 1997, a letter of credit totaling $4,500,000 was issued in accordance with an insurance agreement. Annual maturities of long-term debt, excluding the revolving credit agreement, for the five years following December 31, 1997 are $10,303,000, $2,063,000, $2,000,000, $2,000,000 and $2,000,000, respectively. Note 6. Leases -------------------------------- The company has a number of lease agreements related to the rental of production and administrative facilities and equipment. These are of varying terms and extend as far as the year 2007. The following is a schedule of estimated future minimum rental payments required under leases that have initial or remaining noncancelable terms in excess of one year as of December 31, 1997: (in thousands) -19- 10
Operating Leases ------------------------------------- 1998 $1,703 1999 1,635 2000 1,174 2001 882 2002 709 Thereafter 1,220 ------------------------------------- Total minimum payment required $7,323
The total rent expense for 1997, 1996 and 1995 was $1,765,000, $1,412,000, and $1,086,000, respectively. No sublease income is due after 1997. Note 7. Employee Benefits -------------------------------- The company and its subsidiaries have various defined benefit pension plans covering many of their employees. The pension expense related to these plans for 1997, 1996 and 1995 was $391,000, $455,000, and $31,000, respectively, which included amortization of past service cost over 30 years. The standards utilized by the company to fund the pension plans satisfy the minimum funding requirements under the provisions of ERISA. Net periodic pension cost for 1997, 1996 and 1995 included the following components: (in thousands)
1997 1996 1995 ----------------------------------------------------------------- Service cost -- benefits earned during the period $ 727 $ 776 $ 533 Interest cost on projected benefit obligations 1,226 1,158 1,076 Return on plan assets (3,760) (2,436) (3,194) Net amortization and deferral 2,198 957 1,616 ----------------------------------------------------------------- $ 391 $ 455 $ 31
Table 1 summarizes the funded status of the plans and provides a reconciliation to the long-term pension liability recorded on the company's consolidated balance sheets at December 31, 1997 and 1996.
Table 1: Reconciliation of Funded Status (in thousands) ------------------------------------------------------------------------------------------------------------- Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Benefits Exceed Assets ------------------------------------------------------------------------------------------------------------- 1997 1997 1996 1996 ------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligations $(11,834) $(1,345) $(10,807) $(1,805) ------------------------------------------------------------------------------------------------------------- Accumulated benefit obligations (12,375) (1,535) (11,295) (2,028) ------------------------------------------------------------------------------------------------------------- Projected benefit obligations (15,969) (1,787) (14,593) (2,255) Plan assets at fair value 20,796 383 17,592 714 ------------------------------------------------------------------------------------------------------------- Plan assets in excess of (or less than) projected benefit obligations 4,827 (1,404) 2,999 (1,541) Unrecognized net (gain) loss (4,647) 519 (2,452) 619 Unrecognized net (assets) obligations amortized over average remaining service period of the employee workforce (919) 73 (1,100) 109 Unrecognized prior service cost 195 191 269 238 Long-term balance sheet liability -- (531) -- (738) ------------------------------------------------------------------------------------------------------------- Long-term pension liability $ (544) $(1,152) $ (284) $(1,313) -------------------------------------------------------------------------------------------------------------
The discount rate used in determining the projected benefit obligation was 7.50% in 1997 and 1996. The rate of increase in future compensation levels and the expected long-term rate of return on assets were 5.0% and 9.0%, respectively, in both 1997 and 1996. The company and its subsidiaries also have various defined contribution plans. The company matches 50% of the participants' contributions up to 4% of compensation. Additionally, the company also contributes one percent of each employee's compensation for all employees who are not participants in a defined benefit plan, have six months of service, and who are still participants in the 401(k) savings plan at the end of the year. The company made distributions for contributions and related expenses of $598,000, $544,000, and $499,000 to these defined contribution plans in 1997, 1996 and 1995, respectively. The company provides no other postretirement benefits other than the benefit plans listed above. Note 8. Stock Options -------------------------------- In 1991, the Board of Directors and stockholders approved a stock option plan for key employees. The plan provides for the issuance, from time to time, of options to purchase shares of the company's common stock at prices not less than 100% of the fair market value of the stock at the time an option is granted. In 1995, the plan was amended to increase the reserve of common stock available for issuance upon the exercise of options to 675,000 shares. The following table summarizes information as to options granted, exercised, cancelled and outstanding under this plan and options still available under a similar plan which expired in 1991. -20- 11
Average Option Shares Price per Share ---------------------------------------------------------------- Outstanding, December 31, 1994 318,400 $ 6.20 Options exercised during year (10,375) 3.77 Options cancelled during year (1,250) 4.63 ---------------------------------------------------------------- Outstanding, December 31, 1995 306,775 6.29 Options granted during year 72,900 7.50 Options exercised during year (51,750) 5.29 Options cancelled during year (9,700) 7.30 ---------------------------------------------------------------- Outstanding, December 31, 1996 318,225 6.70 Options granted during year 73,900 9.00 Options exercised during year (56,125) 6.26 Options cancelled during year (26,300) 7.52 ---------------------------------------------------------------- Outstanding, December 31, 1997 309,700 $7.26
The company adopted the disclosure-only option under SFAS 123, "Accounting for Stock Based Compensation" (SFAS 123), as of December 31, 1996. As such, the company continues to account for employee stock options under APB Opinion 25, as permitted under generally accepted accounting principles. Accordingly, no compensation cost has been recognized in the accompanying financial statements related to these options. Had compensation cost for these plans been determined consistent with SFAS 123, the company's net earnings and net earnings per share would have been the following: (in thousands, except per share data)
1997 1996 ----------------------------------------------------- Earnings From Continuing Operations As Reported $6,961 $4,838 Pro forma 6,796 4,745 Net Earnings As Reported 263 5,016 Pro forma 165 4,961 ----------------------------------------------------- Diluted Earnings Per Share: Earnings From Continuing Operations As Reported $ 1.41 $ .99 Pro forma 1.38 .98 Net Earnings As Reported .05 1.03 Pro forma .03 1.02
Since SFAS 123 does not apply to options granted prior to January 1, 1995, the pro forma disclosure is not likely to be indicative of pro forma results which may be expected in future years. The fair values of the option grants are estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1997 and 1996, respectively: risk- free interest rates of 5.7% and 6.5%; dividend yields of 2.1% and 3.2%; volatility of 40.1% and 46.0%; and an average expected life of 5 years for both 1997 and 1996. The options vest ratably over 4 years. The fair value of options granted during 1997 and 1996 were calculated to be $3.29 and $2.83, respectively. In 1991, the stockholders approved a stock option plan for members of the Board of Directors who are not employees of the company, covering a maximum of 72,000 shares. In 1997, this plan was amended to increase the reserve of common stock available for issuance upon the exercise of options to 150,000 shares and to remove the termination date of the plan, among other changes. Under the terms of this plan, options to purchase an aggregate of 75,000 shares have been granted. The average exercise price for these options is $7.74 per share. At December 31, 1997, 75,000 shares were available for future grant. Note 9. Related Party -------------------------------- The company holds an 18% equity interest in Thixomat, Inc., a company formed to promote and commercialize ThixomoldingTM technology. The Chairman of Thixomat serves on the Board of Directors of Lindberg, and is also the President and Chief Executive Officer of University Science Partners, Inc., which holds a 40% equity interest in Thixomat. In addition, Lindberg holds a seat on Thixomat's Board of Directors. At December 31, 1997, the company held a $434,000 equity investment in Thixomat. Note 10. Commitments and Contingencies -------------------------------------- The company is a party to various lawsuits and claims arising in the ordinary course of business. Management, after review and consultation with legal counsel, considers that any liability resulting from these matters would not materially affect the financial condition or results of operations of the company. The company employs some environmentally hazardous materials. The company has made expenditures to comply with laws and regulations relating to the protection of the environment, including studies, investigations and remediation of ground contamination, and expects to make such expenditures in the future in its efforts to comply with existing and future requirements. While such expenditures to date have not materially affected the company's capital expenditures, competitive position, financial condition, or results of operations, there can be no assurance that more stringent regulation or enforcement in the future will not have such effects. -21- 12 In some cases, the company has notified state authorities of a possible need for remediation at sites it previously operated, or currently operates. At all such sites, costs which may be incurred are difficult to accurately predict until the level of contamination is determined, and would be subject to increase if more contamination is discovered during investigation or remediation or if state authorities require more remediation than anticipated. Such costs may be less if the contamination proves to be less than currently expected and to the extent costs are covered by insurance or are allocable to others. The company has also been notified by various state and federal governmental authorities that they believe it may be a "potentially responsible party" or otherwise have responsibility with respect to clean-up obligations at three waste disposal sites which were never owned or operated by the company. The company is participating in negotiations for settlement with the relevant authorities or other parties believed by the company to be responsible for clean-up obligations and further believes its responsibility to be of a minor nature. Management believes that the ultimate outcome will not have a material effect on the company's financial condition or results of operations. At December 31, 1997, the company had reserves of approximately $900,000 to cover future anticipated costs. The company has estimated a range of costs in establishing these reserves. Such reserves give no effect to possible recoveries from insurers or other potentially responsible parties nor do they reflect any discount for the several years over which investigation or remediation amounts may be paid out. Note 11. Quarterly Financial Data (Unaudited) Summarized quarterly financial data for 1997 and 1996 are shown in Table 2.
Table 2: Quarterly Financial Data (Unaudited) -------------------------------------------------------------------------------------------------------- (in thousands except for per share amounts) Quarter Ended -------------------------------------------------------------------------------------------------------- 1997 March 31 June 30 September 30 December 31 -------------------------------------------------------------------------------------------------------- Net Sales $20,646 $20,750 $20,955 $26,433 Gross Profit 6,121 5,128 5,381 8,462 Earnings From Continuing Operations 1,311 1,822 1,547 2,281 Loss From Discontinued Operations (206) (15) (200) (6,277) 1 -------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ 1,105 $ 1,807 $ 1,347 $(3,996) -------------------------------------------------------------------------------------------------------- Basic Earnings Per Share: Earnings From Continuing Operations $ .27 $ .38 $ .32 $ .47 Loss From Discontinued Operations (.04) -- (.04) (1.30) -------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ .23 $ .38 $ .28 $ (.83) -------------------------------------------------------------------------------------------------------- Diluted Earnings Per Share: Earnings From Continuing Operations $ .27 $ .37 $ .31 $ .46 Loss From Discontinued Operations (.04) -- (.04) (1.25) -------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ .23 $ .37 $ .27 $ (.79) -------------------------------------------------------------------------------------------------------- 1996 -------------------------------------------------------------------------------------------------------- Net Sales $17,742 $18,374 $18,262 $18,398 Gross Profit 4,664 5,209 4,903 5,481 Earnings From Continuing Operations 925 1,185 1,050 1,678 Earnings (Loss) From Discontinued Operations 318 285 19 (444) -------------------------------------------------------------------------------------------------------- Net Earnings $ 1,243 $ 1,470 $ 1,069 $ 1,234 -------------------------------------------------------------------------------------------------------- Basic Earnings Per Share: Earnings From Continuing Operations $ .20 $ .25 $ .22 $ .35 Earnings (Loss) From Discontinued Operations .07 .06 -- (.09) -------------------------------------------------------------------------------------------------------- Net Earnings $ .27 $ .31 $ .22 $ .26 -------------------------------------------------------------------------------------------------------- Diluted Earnings Per Share: Earnings From Continuing Operations $ .19 $ .24 $ .22 $ .34 Earnings (Loss) From Discontinued Operations .07 .06 -- (.09) -------------------------------------------------------------------------------------------------------- Net Earnings $ .26 $ .30 $ .22 $ .25 -------------------------------------------------------------------------------------------------------- 1 The quarter ended December 31, 1997 includes a net charge of $5,944,000 related to the discontinuance of the company's Precision Products segment.
Note 12. Stockholder Rights Plan -------------------------------- In 1996, the company declared a dividend distribution of one common share purchase right on each outstanding share of common stock. The rights become exercisable after a person or group acquires beneficial ownership of 20% or more of the common stock of the company or -22- 13 publicly announces a tender offer or exchange offer for 20% or more of the common stock. Initially, each right will entitle its holder to buy one share of common stock of the company at an exercise price of $40 per share. If a person or group acquires beneficial ownership of 20% or more of the outstanding common stock of the company: 1.) each right will entitle its holder to purchase shares of common stock of the company at one-half their market price, or, in certain circumstances, at their par value (currently $2.50 per share) and 2.) if the company or its assets are acquired in certain merger or other transactions, holders of rights may acquire common stock of the acquiring company having a market value of twice the exercise price of the right. Rights held by the 20% holder will become void and will not be exercisable to purchase shares at the reduced purchase price. The rights, which do not have voting rights, will expire on November 21, 2006 and may be redeemed by the company's board of directors at a price of $.01 per right prior to their expiration or the accumulation of 20% or more of the company's common stock. Note 13. Subsequent Event -------------------------------- On January 16, 1998, the company acquired all of the outstanding shares of both Industrial Steel Treating Company and Fabriform Metal Brazing, Inc., heat treating companies in the Los Angeles area, for $11 million. The acquisitions were funded with borrowings under the revolving credit agreement.
Five-Year Financial Review For the Years Ended December 31, 1997 1996 1995 1994 1993 ----------------------------------------------------------------------------------------------------------------- Operations (in thousands) Net Sales $ 88,784 $ 72,776 $ 67,967 $ 59,380 $ 55,609 Gross Profit 25,092 20,257 19,265 15,028 12,905 Selling and Administrative Expenses (13,211) (11,507) (11,530) (10,217) (10,386) Equity in Earnings of Partnership 1,436 893 301 54 -- Interest Expense, Net of Interest Income (1,681) (1,512) (1,638) (789) (331) Other Income (Expense) -- -- 615 -- (8,261) Earnings (Loss) Before Income Taxes 11,636 8,131 7,013 4,076 (6,073) Provision (Benefit) for Income Taxes 4,675 3,293 2,840 1,633 (2,307) ----------------------------------------------------------------------------------------------------------------- Earnings (Loss) From Continuing Operations 6,961 4,838 4,173 2,443 (2,266) 1 ----------------------------------------------------------------------------------------------------------------- Earnings (Loss) From Discontinued Operations (net) (6,698) 2 178 1,462 1,931 948 ----------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ 263 $ 5,016 $ 5,635 $ 4,374 $ (1,318) ================================================================================================================= Diluted Earnings Per Share: Earnings (Loss) From Continuing Operations $ 1.41 $ .99 $ .88 $ .51 $ (.48) Earnings (Loss) From Discontinued Operations (1.36) .04 .30 .41 .20 ----------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ .05 $ 1.03 $ 1.18 $ .92 $ (.28) ================================================================================================================= Financial Position (in thousands) Working Capital $ 16,147 $ 30,100 $ 29,237 $ 23,726 $ 8,616 Property and Equipment (net) 39,097 30,879 27,332 26,224 25,142 Total Assets 89,563 74,888 68,639 65,878 48,223 Long-Term Debt 25,863 20,700 18,900 16,500 7,700 Total Debt 36,166 21,601 18,900 17,900 7,780 Stockholders' Equity 32,091 33,047 29,182 24,669 21,155 ================================================================================================================= Other Financial Information Cash Dividends Declared and Paid (in thousands) $ 1,538 $ 1,379 $ 1,181 $ 989 $ 941 Cash Dividends Per Share .32 .29 .25 .21 .20 Return on Average Stockholders' Equity 1% 16% 21% 19% (6%) Book Value Per Share of Stockholders' Equity $ 6.65 $ 6.91 $ 6.17 $ 5.23 $ 4.50 Debt/Capitalization Ratio 53% 40% 39% 42% 27% Shares Outstanding at Year-End 4,828,381 4,779,141 4,727,391 4,717,016 4,702,541 Capital Expenditures (in thousands) $ 7,336 $ 5,365 $ 4,029 $ 4,396 $ 2,565 Depreciation (in thousands) 4,084 3,690 3,459 3,258 3,457 Number of Employees at Year-End 975 667 642 633 562 ================================================================================================================= 1 1993 includes a provision of $8,261,000 ($5,122,000 after-tax) for the restructuring of the company's heat treat operations and a gain of $1,500,000 representing the cumulative effect of adopting SFAS 109, Accounting for Income Taxes. 2 1997 includes a net charge of $5,944,000 related to the discontinuance of the company's Precision Products segment.
-23- 14 Report of Independent Public Accountants To the Stockholders of Lindberg Corporation We have audited the accompanying consolidated balance sheets of Lindberg Corporation (a Delaware Corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years ended December 31, 1997, 1996 and 1995. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lindberg Corporation and subsidiaries as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois January 22, 1998 -24- 15 Stock Market Information The company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol LIND. Stock price quotations can be found in national listings in many daily newspapers. High and low market prices and dividend payments during the past two years are as follows:
1997 Market Price Dividend Quarter High Low Per Share ----------------------------------------------------- 1st $ 10.000 $ 8.500 $ .08 2nd 9.250 8.500 .08 3rd 12.500 9.000 .08 4th 16.000 11.750 .08 ----------------------------------------------------- $ .32 1996 Market Price Dividend Quarter High Low Per Share ----------------------------------------------------- 1st $ 10.250 $ 6.375 $ .07 2nd 11.000 8.250 .07 3rd 11.125 8.750 .07 4th 11.000 9.250 .08 ----------------------------------------------------- $ .29
Stockholder Information Stock Transfer Agent and Registrar Harris Trust & Savings Bank Chicago, Illinois Independent Public Accountants Arthur Andersen LLP Chicago, Illinois General Counsel Bell, Boyd & Lloyd Chicago, Illinois Corporate Offices Lindberg Corporation 6133 North River Road, Suite 700, Rosemont, Illinois, 60018 847 823-2021. Annual Meeting The annual stockholders' meeting will be held on Friday, April 24, 1998, at 9 a.m., in the auditorium at Riverway, 6133 North River Road, Rosemont, Illinois. A formal notice of the meeting will be mailed to stockholders on or about April 1, 1998. Form 10-K A copy of the company's Annual Report to the Securities and Exchange Commission (Form 10-K), for the year ended December 31, 1997, is available to any stockholder upon written request to the Secretary of the Company, 6133 North River Road, Suite 700, Rosemont, Illinois, 60018. Directors George H. Bodeen 2,3 Chairman of the Board Dr. Raymond F. Decker 1,2 President and Chief Executive Officer University Science Partners, Inc. Chairman, Thixomat, Inc. Raymond A. Jean 1,3 President and Chief Operating Officer Varlen Corporation John W. Puth 1,3 President J.W. Puth Associates J. Thomas Schanck 1,2 Retired Vice Chairman Illinois Tool Works Inc. Leo G. Thompson 3 President and Chief Executive Officer Committees of the Board: 1 Audit 2 Executive Compensation 3 Finance Officers George H. Bodeen Chairman of the Board Leo G. Thompson President and Chief Executive Officer Michael W. Nelson Senior Group Vice President Stephen S. Penley Senior Vice President and Chief Financial Officer Secretary Terrence D. Brown Vice President Geoffrey S. Calhoun Vice President Roger J. Fabian Vice President Paul J. McCarren Group Vice President Jerome R. Sullivan Vice President Brian J. McInerney Treasurer Assistant Secretary -25- EX-21 5 1
Exhibit 21 SUBSIDIARIES OF REGISTRANT Name Where Incorporated - ---- ------------------ Alumatherm Heat Treating Company, L.L.C. Delaware Fabriform Metal Brazing, Inc. California Industrial Steel Treating Co. California Ticorm, Inc. California Impact Industries, Inc. (1) Delaware - --------------------- (1) This subsidiary is part of the discontinued Precision Products segment.
EX-23 6 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC AUDITORS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K into the Company's previously filed Registration Statement File Nos. 33-47323 and 33-60361. Arthur Andersen LLP Chicago, Illinois March 31, 1998 EX-27 7
5 0000059593 LINDBERG CORPORATION 1 U.S. DOLLARS 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1 283,270 0 14,875,005 304,000 0 36,264,529 91,602,405 52,505,822 89,563,431 20,117,401 0 0 0 14,183,493 1,526,192 89,563,431 88,783,577 88,783,577 63,691,330 63,691,330 13,211,421 0 1,681,103 11,636,051 4,674,961 6,961,090 (6,698,240) 0 0 262,850 .05 .05
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