Item 1. Business
General development of business
Lindberg Corporation (the "Company") was founded in 1922, and incorporated in Illinois in 1924. 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 22 domestic plants in operation at December 31, 1996.
The business of the Company, which operates in the field of metallurgical products, is comprised of heat treating plants and manufacturing facilities.
In April 1994, the Company purchased all of the outstanding shares of Rexcorp U.S. Inc. and its wholly-owned subsidiary, Impact Industries, Inc. (Impact). Impact is an aluminum die casting facility which produces finish machined aluminum die castings and assemblies mainly for the automotive market. This acquisition increased the proportion of total business from the Company's Precision Products segment from 20% in 1993 to 40% by year-end 1994.
In June 1994, the Company entered into an agreement to form a heat treating partnership with Aerospace Aluminum Heat Treating Inc. The partnership commenced operation on July 1, 1994. The partnership engages in heat treating and metal forming of aluminum and titanium parts in southern California.
In November 1994, the Company purchased all of the outstanding shares of H&H Heat Treating Inc. (H&H). H&H is a heat treating facility near Los Angeles.
In December 1994, the Company merged its wholly owned subsidiaries Rexcorp U.S. Inc. and H&H into Lindberg Corporation. As such, at year-end 1994 and at present, Impact is the Company's sole subsidiary.
In May 1996, the Company acquired the assets of Vac-Hyd. Vac-Hyd is a heat treating facility located in the Los Angeles area.
In December 1996, the Company sold the assets of its wire belting operation, which was located in Modesto, California. This product line was unrelated to the primary aluminum casting operations of the Company's Precision Products segment.
At December 31, 1996, the Company had 1,071 employees. Of these employees, 209 were covered by collective bargaining agreements. Three agreements will expire during 1997.
Financial Information about Industry Segments
The Company's operations may be divided into two industry segments: Heat Treating and Precision Products.
Financial information about the Company's two industry segments as of December 31, 1996, and for the three years ended on that date, is incorporated by reference to page 18 - Note 10 to the Consolidated Financial Statements in the Annual Report.
Narrative description of business
Heat Treating:
The Company's principal industry segment is Heat Treating. From 18 plants, this segment provides customers with heat treating of metal, a process which improves mechanical properties, durability and wear resistance. This product is provided to customers both with and without their own heat treating capabilities.
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.
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 by the Company's Heat Treating segment include agricultural and construction equipment, automotive/truck, aerospace, consumer products, defense, fabricated metal products, oilfield 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 this segment. No customer accounts for more than 10% of this segment's annual net sales.
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, in limited instances, from captive heat treating facilities of manufacturing concerns, although the Company also considers such concerns as potential customers.
In addition to providing heat treating from the 18 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 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's Heat Treating segment employs some environmentally hazardous materials, primarily quench oil, and has some underground storage tanks. 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. Based on existing regulations, the Company does not anticipate the requirement for material capital expenditures in its operations to maintain compliance. However, there can be no assurance that more stringent regulation or enforcement in the future will not materially affect the Company's capital expenditures.
In some cases, the Company has notified state authorities of a possible need for remediation at heat
treating 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, if remediation costs are reduced, and to the extent costs are covered by insurance or are allocable to others. During 1996, the Company transferred certain properties it previously operated to third parties in exchange for acceptance by said third parties of the liability for future remediation and related costs associated with those properties.
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 certain hazardous and other waste disposal sites which were never owned or operated by the Company. In some such cases, the Company has effected settlements with the relevant authorities for immaterial amounts. In other such cases, the Company is participating in negotiations for settlement with the relevant authorities or other parties believed by the Company to be responsible or has notified the authorities that it denies responsibility for clean-up obligations. 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, 1996, approximately $650,000 of the Company's total environmental reserves of $800,000 related to its heat treating segment. 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.
At December 31, 1996 this segment employed 649 employees as compared to 623 at the prior year-end.
The Company's Heat Treating segment operates with a limited backlog due to the nature of its businesses. Operations in this segment process customer produced parts on a very short turnaround basis; therefore, backlog in facilities within the segment is generally estimated to be less than one week.
Precision Products:
The Company's Precision Products segment consists of four plants, three of which produce specialized castings of aluminum and one which manufactures magnesium parts. Markets served by this segment include the automotive, agricultural and construction equipment, electronics, consumer products, defense and heavy-duty truck industries.
During 1996, activity with certain subsidiaries, divisions and affiliates of General Motors Corporation (GMC) represented 32% of this segment's total revenues. The loss of GMC as a customer or a significant reduction in the business generated by GMC would have a material adverse effect on the segment's results of operations. Sales to GMC are made through certain subsidiaries, divisions and affiliates that the Company believes act independently at present in their purchasing decisions. Accordingly, the Company believes that it is unlikely that it would lose all of the business generated by GMC. There can be no assurance, however, that the historic levels of business from GMC will be maintained. No other customer represents more than 10% of the segment's annual net sales.
The basic raw materials for the Company's manufactured products are aluminum, zinc and magnesium. The Company has experienced no significant difficulty in obtaining these materials.
Operations within this segment must also ensure that they comply with environmental protection laws and regulations. Expenditures for this purpose have not had, nor are they anticipated to have, a material effect upon the capital expenditures, results of operations or competitive position of this segment. At December 31, 1996, approximately $150,000 of the Company's total environmental reserves of $800,000 related to this segment.
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 Thixomolding(TM). 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 Thixomolding(TM) process at its THX Molding division, which is a start-up operation that produces magnesium parts.
The number of employees in the Precision Products segment was 406 at December 31, 1996 compared to 481 at December 31, 1995.
The backlog totals within the Precision Products segment as of December 31, 1996 and 1995 were estimated to be $14.7 million and $17.1 million, respectively. The Company expects all of the backlog at December 31, 1996 to be filled by December 31, 1997. The Company does not believe this backlog to be of a seasonal nature and considers the difference between the December 31 totals to be reflective of the lower sales levels in this segment in 1996 as compared to 1995.
Item 2.
Item 2. Properties
The principal facilities of the Company are set forth in the following table, which also indicates the principal product manufactured at each location:
Leased Location or Owned
Heat Treating Segment: - --------------------- Compton, CA Leased Los Angeles, CA Owned Santa Fe Springs, CA Leased 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 Charlotte, NC Leased Rochester, NY Leased Solon, OH Owned Tulsa, OK Owned Houston, TX Owned New Berlin, WI Owned Racine, WI Owned Westminster, CA Owned
Precision Products Segment: - --------------------------
Webster City, IA Owned Sandwich, IL Owned Cookeville, TN Owned Racine, WI Owned
Corporate Office: - ---------------- Rosemont, IL Leased
The Company also occupies building space at certain of its customers' locations related to the Company's SP 2000 program.
The Company's facilities are suitable for their respective uses and are, in general, adequate for the Company's current needs. All facilities, particularly in the Heat Treating segment, 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.
Item 3. Legal Proceedings
Incorporated by reference to page 19 of the Annual Report - Note 14 to the Consolidated Financial Statements.
Item 4.
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.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Incorporated by reference to page 21 of the Annual Report, section entitled "Stock Market Information" and to page 16 of the Annual Report - Note 5 to the Consolidated Financial Statements. As of March 10, 1997, the Company had 506 stockholders of record.
Item 6.
Item 6. Selected Financial Data
Incorporated by reference to page 20 of the Annual Report, section entitled "Five-Year Financial Review."
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Incorporated by reference to pages 10-11 of the Annual Report, section entitled "Management's Discussion and Analysis."
Item 8.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to pages 12-19 of the Annual Report, section entitled "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements."
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors Incorporated by reference to pages 1-2 of the Proxy Statement, section entitled "The Election of Directors."
(b) Identification of Executive Officers
Executive Officers of the Company are elected annually by the Board of Directors of the Company in April.
Item 11.
Item 11. Executive Compensation
Incorporated by reference to pages 3-8 of the Proxy Statement, section entitled "Executive Compensation."
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to pages 11-12 of the Proxy Statement, section entitled "Stock Ownership."
Item 13.
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.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as part of this report:
- -------------------- (1) Matters incorporated by reference from the Lindberg Corporation 1996 Annual Report.
/ Page ----- 2. Financial Statements Schedules (2)
VIII. Valuation and Qualifying Accounts and Reserves .............................................. 12
Report of Independent Public Accountants on Schedules ................................................. 13
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended December 31, 1996.
(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 15-18 and which is incorporated herein by reference.
- ---------------------
(2) Schedules other than those 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.
LINDBERG CORPORATION AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND
QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Allowance for Doubtful Accounts
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
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 20, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index above 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 20, 1997
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, thereunto duly authorized.
LINDBERG CORPORATION
BY -------------------------------------- Stephen S. Penley Senior Vice President and Chief Financial Officer; Principal Financial and Accounting Officer Dated March 21, 1997
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.
/s/ STEPHEN S. PENLEY ----------------------------------------- Stephen S. Penley Senior Vice President and Chief Financial Officer; Principal Financial and Accounting Officer
/s/ LEO G. THOMPSON ----------------------------------------- Leo G. Thompson President and Chief Executive Officer, and a Director
/s/ GEORGE H. BODEEN ----------------------------------------- George H. Bodeen Director
/s/ DR. RAYMOND F. DECKER ----------------------------------------- Dr. Raymond F. Decker Director
/s/ RAYMOND A. JEAN ----------------------------------------- Raymond A. Jean Director
/s/ JOHN W. PUTH ----------------------------------------- John W. Puth Director
/s/ J. THOMAS SCHANCK ----------------------------------------- J. Thomas Schanck Director March 21, 1997
LINDBERG CORPORATION Annual Report on Form 10-K for the Year Ended December 31, 1996 Exhibit Index
- ------------------ (1) Identifies management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c).
Exhibit No. Description of Exhibits - ------- ----------------------- (1) Shown only in manually signed original.
(2) Incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K, dated May 13, 1994, 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) 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.
(7) Incorporated by reference to Exhibit 4.2 of the Registrant's Report on Form 8-K dated May 13, 1994, Commission file no. 0-8287.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
Exhibit No. Description of Exhibits - ------- -----------------------
(15) Incorporated by reference to Appendix B 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.
(16) 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.
(17) 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.