Item 1 Business.
Introduction
Trans-Industries, Inc. (the "Company") was incorporated in Delaware in 1967 to acquire the business of Transign, Inc., a company founded in 1952 to manufacture mechanical bus signs. Initially, the Company produced mechanical signage for the mass transit market, but its current efforts are concentrated on electronic systems for the display of information, bus lighting products, bus glass products and source extraction systems for the environmental market. These products are sold to virtually all aspects of the transportation industry and to a broad range of commercial and industrial markets. The Company has one major customer - Gillig Corporation - which accounted for over 10 percent of consolidated annual sales. Although Gillig Corp. is a highly valued customer, the Company does not consider itself dependent upon it for continued ongoing sales. Sales volume is significantly affected by state and municipal government spending for mass transit, highway systems, and airports. As of February 29, 2000, the Company's backlog was $18,983,400 compared with $17,811,600 and approximately $13,232,400 for the same dates in 1999 and 1998, respectively. Of the current backlog, it is anticipated that 90 percent will be completed within one year.
Operations
A. Industry Segment.
Trans-Industries is a leading supplier of lighting and information display systems for mass transit operations. New and growing markets are already being developed for the electronic information display systems, the liquid crystal displays, and the Company's dust control product line. The Company is currently in the process of developing and expanding the market for its newly acquired glass product line. Based on the nature of the Company's products, production processes, types of customers, and marketing methods, management believes the Company operates in predominately one broad industry segment which is the transportation industry.
B. Foreign and Domestic Operations and Export Sales.
Through subsidiaries, the Company operates manufacturing, assembly, sales, and service facilities in the United Kingdom. These operations sell products purchased from the affiliated domestic companies, as well as products manufactured in the United Kingdom, to customers in Europe, Australia, and Asia. Additional foreign sales are made on an export basis from domestic offices as well as through certain agents abroad. Summarized financial information about foreign operations and exports is in Note L to the Consolidated Financial Statements.
C. Research and Quality Control.
The Company's principal research activities are conducted at its product development center in Rochester Hills, Michigan, where line maintenance and new product programs are carried out according to perceived market opportunities. Quality control, rather than being centralized, is a function performed at each manufacturing plant.
Approximately $1,143,000, $849,000, and $700,000 was spent on research and development during the years-ended December 31, 1999, 1998, and 1997, respectively.
D. Competition.
In each of the market niches where the Company competes, there are one or more competitors. Sizes of these concerns range from small to large integrated enterprises, both domestically and internationally, with no single company dominating the various markets. The Company owns and has licensed United States and foreign patents relating to the manufacture of most of its products, but these are not deemed sufficient to substantially minimize competition from other parties. It is felt that success in the marketplace is due to the ability to compete on the basis of price, service, and product performance.
E. Raw Materials.
The principal raw materials used by the Company include steel, glass, plastics, electronic components, and synthetic materials, all of which are presently available in adequate supply on the open market.
F. Employee Relations.
The Company employs approximately 385 people, supplemented by temporary workers, with a minority of these employees covered by a union contract that expires August 7, 2001. The Company considers its overall labor relations with employees to be good.
The Company maintains profit sharing and 401-K plans for all of its full-time employees who are not part of a bargaining unit.
In 1996, the Company adopted a stock option plan for officers, directors, and key employees of the Company and its subsidiaries. (See Note H to the financial statements)
G. Environmental Considerations.
The Company believes it is in compliance with all state and federal regulations for environmental control and safety, and the related expenditures are generally not significant.
H. Directors and Officers of the Registrant.
See Part III, Item 10 for certain information regarding officers and directors.
Item 2.
Item 2. Properties.
Domestic operations are conducted at eight principal facilities. Four are owned, of which two are located in Waterford, Michigan, one in Rochester Hills, Michigan and one in Bad Axe, Michigan. Four locations are leased. One of the leased facilities is located in Rochester Hills, Michigan under a lease agreement expiring in February 2002. Two leased facilities are in Wilmington, North Carolina. One facility is leased through January 2001 and the other is leased through August 2001. The fourth facility is in Irwindale, California and is leased through August 2004.
International operations are conducted in England at a leased facility located in Leeds, and an owned facility in Telford. The lease agreement for the facility in Leeds expires in December 2009.
The plants, all of which are well maintained and in good operating condition, contain an aggregate of approximately 340,000 square feet of floor space. Generally, the plants have been operating on a five day a week basis with frequent overtime.
Item 3.
Item 3. Legal Proceedings.
The Company was the plaintiff in a patent infringement lawsuit filed in the Federal District Court for the Eastern District of Michigan, Southern Division. On April 9, 1998, the District Court awarded the Company $3,023,773 in damages and $1,119,588 in interest. On May 1, 1998, the defendant paid the damages awarded to the Company and appealed the interest award. On April 29, 1999, the Court Of Appeals, consisting of a three judge panel, ruled in favor of the defendant, thus allowing the interest calculation to be computed using an interest rate of approximately 1/2 the original calculation. Because the decision was not unanimous, the Company appealed this decision. In June of 1999, the court again ruled in favor of the defendant. In August of 1999, a final interest award of $719,153 was paid to the Company, thereby bringing a conclusion to this suit.
Item 4.
Item 4. Submission of Matters to a Vote for Security Holders.
No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through solicitations of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Common Stock is traded on the Over-the-Counter Market and is included in the National Association of Securities Dealers Automated Quotation System under the symbol TRNI. The following table sets forth the range of trade prices as reported by the National Securities Dealers Association, Inc. for the preceding two years:
These quotations reflect actual transactions without retail markup, markdown, or commission.
As of December 31, 1999, there were 235 registered holders of the Common Stock of the Registrant.
Item 6.
Item 6. Selected Financial Data.
(a) Tangible net worth equals total assets less intangible assets, less total liabilities. Subordinated debt in the periods of 1995 and 1996 consisted of one convertible subordinated debenture which was retired in 1997.
(b) Based on weighted average number of common shares and equivalents outstanding.
(c) Based on shares outstanding at year end.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This discussion highlights significant factors influencing the financial condition and results of operations of Trans-Industries, Inc. It should be read in conjunction with the financial statements and related notes. This discussion includes certain forward-looking statements based on management's estimate of trends and economic factors in the markets in which the corporation is active, as well as the corporation's business plans. In light of recent securities law developments, including the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the corporation notes that such forward-looking statements are subject to risks and uncertainties. Accordingly, the corporation's actual results may differ from those set forth in such statements. Significant changes in economic conditions, regulatory or legislative changes affecting Trans-Industries, Inc., its competitors, or the markets in which it is active, or changes in other factors may cause future results to vary from those expected by the corporation.
OPERATIONS
1999 Compared With 1998
Sales for 1999 were $39.5 million compared to $35.8 million for the previous year. Of this sales increase of $3.7 million, or 10.3 percent, from 1998 sales levels, approximately $2.7 million is attributable to increased sales of the company's bus lighting equipment. This is primarily a result of increased bus production in the United States. The additional $1.0 million net increase is attributable to other domestic operations as sales in Europe were depressed. Inflationary impact on sales for 1999 and 1998 was minimal.
For the first quarter of 2000, the Company expects sales to be up from the levels achieved for the same period last year. This expected increase should be the result of increased sales in all domestic operations.
The Company's pretax income for 1999 amounted to $617,643 compared to $6,358,729 for the 1998 fiscal year. Pretax income for 1999 includes a gain, net of legal fees, of $599,294 from an interest judgement relating to the proceeds of a patent infringement lawsuit award received by the Company in 1998. Pretax income for 1998 includes, net of legal fees, a gain of $2,419,811 from
damage awards related to the same patent infringement lawsuit. The decline in the Company's 1999 pretax income from operations as compared to 1998 was primarily attributable to three factors:
1. Soft markets overseas resulting in a 42 percent decline in foreign sales revenue for 1999 which in turn, resulted in a decrease of pretax income of approximately $1,040,000 in 1999 as compared to 1998;
2. Costs associated with the acquisition and start up of TransGlass, the transit window glass company acquired in February of 1999;
3. Reorganization efforts, as noted below, at the Company's electronics operation.
Cost of sales for 1999 was $28,167,787 compared to $22,296,059 for the prior year. As a percentage of sales, this amounted to 71.2 percent in 1999 compared to 62.3 percent in 1998. This increase of 8.9 percent is primarily attributable to the Company's electronics operation which produces variable message displays. The factors that impacted gross margins at the electronics operations include:
1. The introduction of a new product which provides a completely integrated transit package;
2. The expansion and re-organization of the manufacturing facility in Bad Axe Michigan;
3. Competitive pricing pressures incurred on certain product lines to maintain market share.
The Company believes these issues have been addressed. Coupled with the realignment of personnel in production and purchasing together with the implementation of new manufacturing software, improved margins are expected for the year ended December 31, 2000.
Selling, general, and administrative expenses increased to $10,636,155 in 1999 from $9,754,750 in 1998. This increase of $881,405, or 9.0 percent, is due to the addition of the recently acquired subsidiaries, TransGlass and Lobb, and the addition of more marketing personnel.
Interest expense increased in 1999 to $955,953 from $565,889 in 1998. This increase of $390,064 reflects higher borrowings in 1999.
1998 Compared With 1997
Sales for 1998 were $35.8 million compared to $35.4 million for the previous year. Demand for the Company's lighting and environmental products remained strong during 1998 with revenues from such products increasing approximately 14%. Overall sales, however, remained essentially unchanged as this increase was essentially offset by a reduction in the sales level of the Company's variable message signs.
Several factors contributed to this reduction and management believes this was a transitional situation with significant growth of variable message revenues expected in the future due to recently enacted legislation. The Transportation Equity Act for the 21st Century, which was signed into law in June of 1998, has spawned a great deal of interest and demand for the Company's variable message signs, particularly the large overhead highway signs used to help control traffic patterns and communicate messages to the driving public. To accommodate the production and sale of these larger signs, the Company addressed several issues during the year, including software requirements, engineering design and documentation, reallocation of production space, and establishment of procedures for the scheduling and achievement of factory sign-offs of the completed product. Inflationary impact on sales for 1998 and 1997 was minimal.
The Company's pretax income for 1998 amounted to $6,358,729 compared to $4,209,560 for 1997. This increase of $2,149,169, or 51%, was attributable to proceeds received in settlement of a patent lawsuit which it filed against a competitor for infringing upon its patented lighting module. The amount of the judgement, net of legal fees, was approximately $2,420.000.
Cost of sales for 1998 was $22,296,059 compared to $22,824,939 for the prior year. As a percentage of sales, this amounted to a decrease to 62.3 percent in 1998, from 64.5 percent in 1997. This decrease of 2.2 percent was primarily the result of higher labor and overhead absorption in work-in-process and finished goods inventory.
Selling, general, and administrative expenses increased to $9,754,750 in 1998, from $7,917,545 in 1997. This increase of $1,837,205 was primarily the result of the following:
- Payroll and related costs were up approximately $215,000 - to accommodate pay adjustments and the addition of new personnel;
- Legal fees were up approximately $780,000 - primarily related to settlement of the patent infringement lawsuit;
- Professional fees were up approximately $100,000 - primarily attributable to tax accounting and investor relation fees;
- Advertising and sales promotion expenses were up approximately $185,000;
- Service costs were up approximately $206,000 - related to expansion of the Company's field service and customer support capabilities.
Interest expense decreased in 1998 to $565,889 from $637,401 in 1997 due primarily to more favorable borrowing rates.
LIQUIDITY AND CAPITAL RESOURCES
As of year-end 1999, the Company had $9.0 million of working capital compared with $10.9 million at year-end 1998 and $8.3 million at year-end 1997. The decrease in working capital of $1.9 million in 1999 from 1998 resulted primarily from the purchase of TransGlass for approximately $1.6 million. The Company showed a net utilization of cash from operating activities of $654,000 for the year ended December 31, 1999. Net cash used by operations was primarily the result of the increase in accounts receivables and inventories for the year. This was partially offset primarily by depreciation and an increase in accounts payable. The Company used cash in investing activities of $4,156,000 for the year ended December 31, 1999. Cash used in investing activities included $2,553,000 for the purchase of property and equipment and $1,605,000 for the purchase of TransGlass. The cash generated from financing activities of $4,725,000 for the current year was used primarily to fund the purchase of capital equipment and TransGlass. The increase in 1998 of $2.6 million from 1997 includes a damage award, net of legal fees, of $2,419,811 relating to a patent infringement lawsuit brought against a competitor.
Anticipated increases in required working capital are expected to be met from the cash flow from operations and credit line borrowings. At December 31, 1999, there were no material commitments for capital expenditures for the ensuing year.
YEAR 2000 DISCLOSURE
The Company has conducted an evaluation of the actions necessary to ensure that its business critical computer systems will be able to function without disruption with respect to the application of dating systems in the year 2000. As a result of this evaluation, in 1999 the Company completed the process of upgrading, replacing and testing certain of its information and other computer systems so as to be able to operate without disruption due to year 2000 issues. The Company has not experienced any significant disruption to it's computer system or to those of it's key customers or suppliers. The cost of its remedial actions were not material to its results of operations and financial condition and were expensed as incurred.
DIVIDENDS
Typically, the Company does not pay cash dividends on its common stock. However, due to the favorable settlement of the patent infringement lawsuit, a special one-time dividend of $.10 per share was declared and paid in 1998.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements.
The following pages contain the Consolidated Balance Sheets as of December 31, 1999 and 1998 and the related Consolidated Statement of Earnings, Stockholders' Equity and Cash Flows for each of the years in the three year period ended December 31, 1999, including the report of the Company's independent certified public accountants.
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
DECEMBER 31, 1999, 1998 AND 1997
CONTENTS
PAGE
Report of Independent Certified Public Accountants............... 15
FINANCIAL STATEMENTS
Consolidated Balance Sheets.................................. 16
Consolidated Statements of Earnings.......................... 18
Consolidated Statements of Comprehensive Income.............. 19
Consolidated Statement of Stockholders' Equity............... 20
Consolidated Statements of Cash Flows........................ 21
Notes to Consolidated Financial Statements................... 22
SUPPLEMENTAL INFORMATION
Schedule II - Valuation and Qualifying Accounts.......... 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors Trans-Industries, Inc.
We have audited the accompanying consolidated balance sheets of Trans-Industries, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Trans-Industries, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles.
We have also audited Schedule II for each of the three years in the period ended December 31, 1999. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.
Grant Thornton LLP
Detroit, Michigan February 14, 2000
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 - --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
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NOTE A - NATURE OF OPERATIONS
The Company is a multinational manufacturer of lighting and information display systems. The principal markets for its products are the United States, the United Kingdom and Canada. Sales volume is significantly affected by state and municipal government spending for mass transit, highway systems and airports.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent company and its wholly owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided using straight line and accelerated methods over the estimated useful lives of the assets which range from 10-40 years for buildings and 3-10 years for machinery and equipment.
GOODWILL
Goodwill is the excess of the cost over the fair value of net assets acquired and is amortized over a 10 to 30 year period using the straight-line method. On an ongoing basis, management reviews the valuation and amortization of goodwill. As part of the review, the Company estimates the value of and the estimated undiscounted future net income expected to be generated by the related subsidiary to determine that no impairment has occurred.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated principally at year-end exchange rates. Income and expense accounts are converted using the average exchange rate prevailing throughout the period. The gains and losses resulting from the translation of these accounts are reported as a separate component of stockholders' equity.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and development costs approximated $1,140,000, $849,000 and $700,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and the effects of operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes enactment date.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of the line of credit facility and long-term debt. The carrying value approximates the estimated fair value based upon rates and terms available for loans and notes with similar characteristics.
NOTE C - EARNINGS PER SHARE
For the year ended December 31, 1999, all options outstanding have been excluded from the computation of diluted earnings per share as the effect would be antidulitive. The weighted average shares outstanding for 1999 were 3,139,737.
The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations for the years ended December 31, 1998 and 1997.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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NOTE C - EARNINGS PER SHARE (CONTINUED)
NOTE D - INVENTORIES
The major components of inventories at December 31 are:
NOTE E - NOTE PAYABLE AND LONG-TERM DEBT
The Company has an unsecured line of credit facility with a bank. The facility allows the Company to borrow up to $12,000,000. The facility bears interest at the bank's prime lending rate minus 0.25% or the Eurodollar rate plus 2.25% (effective rate of 8.25% at December 31, 1999). Interest is payable monthly on prime rate based advances and no less frequently than quarterly on Eurodollar based rate advances.
Long-term debt at December 31 consisted of the following:
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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NOTE E - NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt by year are as follows:
The term note and line of credit agreements, require the Company to maintain certain financial ratios. The agreements also restrict the payment of dividends, repurchase of common stock, and acquisition of property and equipment.
NOTE F - LEASES
The Company leases facilities and equipment under operating leases with unexpired terms ranging from one to five years. Rent expense for all operating leases approximated $561,000, $419,000, and $321,000 for 1999, 1998 and 1997, respectively. Future minimum rentals required under noncancelable lease agreements are as follows:
NOTE G - INCOME TAXES
The components of earnings before income taxes were as follows:
Income taxes have been charged to operations as follows:
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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NOTE G - INCOME TAXES (CONTINUED)
A reconciliation of actual income tax expense to the expected amounts computed by applying the effective U.S. federal income tax rate of 34 percent to earnings or losses before income taxes is as follows:
The tax effects of temporary differences that give rise to significant deferred tax assets and liabilities at December 31, 1999 and 1998 are as follows:
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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NOTE G - INCOME TAXES (CONTINUED)
The Company has a foreign tax net operating loss carryforward of approximately $2,231,000 at December 31, 1999. A valuation allowance of $736,000 has been recognized to reduce the deferred tax assets principally due to the uncertainty of realizing the benefit of the tax loss carryforward. The valuation allowanced increased by $117,000 in 1999.
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a Voluntary Employee Benefit Trust (the Trust) designed to provide for the payment or reimbursement of all or a portion of certain medical and dental expenses to eligible participants. Eligible participants include active full-time employees of the Company and their dependents. Eligible terminated and retired employees may continue to participate in the Trust, on a contributory basis, for up to 18 months subsequent to the date of termination or retirement. The provision for Company contributions to the Trust approximated $467,000, $455,000 and $380,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company has a deferred compensation plan for all employees who are not part of a bargaining unit. Company contributions are voluntary and are established as a percentage of each participant's base salary. Company contributions to the deferred compensation plan were approximately $290,000, $270,000 and $260,000 for 1999, 1998 and 1997, respectively.
In 1996, shareholders approved the adoption of the 1996 Stock Option Plan (the Plan) for the officers, directors, and key employees of the Company.
The Plan is administered by an Option Committee (Committee) appointed by the Board of Directors. The Committee has the authority, subject to Board of Directors resolutions and the provisions of the Plan, to determine the persons to whom awards will be granted, the number, type and terms of the awards, including vesting and to interpret the Plan.
The Plan permits the granting of incentive stock options, non-qualified stock options and stock appreciation rights (SAR). The total number of shares of common stock with respect to which awards may be granted under the Plan is 200,000 shares. The option price of each option and the base for calculation of appreciation of each SAR will be no less than the fair market value at the date of grant. The term of each option will be fixed and may not exceed ten years from the date of grant. The Committee may make options exercisable in installments and may accelerate exercisability.
The Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123") for transactions entered into during 1996 and thereafter. The Statement established a fair value method of accounting for employee stock options and similar equity instruments, and encourages all companies to adopt that method of accounting for all of their employee stock compensation plans. However, the Statement allows companies to continue measuring compensation cost for such plans using accounting guidance in place prior to SFAS No. 123. Companies that elect to remain with the former method of accounting must make pro forma disclosures of net income and earnings per share as if the fair value method provided for in SFAS No. 123 had been adopted.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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NOTE H - EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company has not adopted the fair value accounting provisions of SFAS No. 123. Accordingly, SFAS No. 123 has no impact on the Company's consolidated financial position or results of operations.
The Company accounts for the Plan under APB Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation costs have been recognized for the Plan. Had compensation costs for the Plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions for the options and SAR's granted in 1999 and 1998, respectively: risk-free interest rates of 5.70% and 5.63%; expected volatility of 46.71% and 56.15%; expected lives of 10 years for options and four years for SAR's for all years; and no dividend yield for all years.
A summary of the status of the Plan as of December 31, 1999, 1998, and 1997 and changes during the years then ended is as follows:
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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NOTE H - EMPLOYEE BENEFIT PLANS (CONTINUED)
The options are for a ten year duration with twenty percent vesting in each of the first five years. The SAR's are for a four year duration with one-third vesting in each of the first three years. Holders of SAR's will upon exercise, receive in cash or other property at the sole discretion of the option committee, the difference between the base price and the market price of the Company's stock on the date of exercise. Since the SAR's were issued in tandem with stock options, upon exercise of a SAR the holder must surrender an equivalent number of stock options.
NOTE I - BUSINESS ACQUISITIONS
On September 1, 1998, the Company acquired all the issued and outstanding common and preferred stock of The Lobb Company (Lobb), in exchange for $286,200. The Lobb Company was owned by certain officers and directors of the Company and is in the residential humidifier business. Goodwill of $217,000 was recorded in connection with this acquisition, which has been accounted for under the purchase method of accounting and accordingly the accompanying consolidated financial statements include Lobb's results from the date of acquisition. Lobb's operating results for 1998 and 1997 were not significant, accordingly no pro forma information is presented.
On February 8, 1999, the Company acquired all the outstanding common stock of Plastech Transparencies, Inc. (Plastech), in exchange for $1,609,741. Plastech changed names to TransGlass, Inc. and is an early stage manufacturer of custom designed windows for the transportation industry. Goodwill of $1,447,000 was recorded in connection with this acquisition, which has been accounted for under the purchase method of accounting and accordingly the accompanying consolidated financial statements include TransGlass's results from the date of acquisition. TransGlass's operating results prior to the acquisition for 1999 and 1998 were not significant, accordingly, no pro forma information is presented.
NOTE J - SIGNIFICANT CUSTOMERS
The Company has one major customer which accounted for ten percent or more of consolidated net sales in 1999 and 1998. Sales to this customer amounted to $4,362,000 and $3,658,000, respectively. The Company had two major customers in 1997. Sales to these customers amounted to $8,538,000.
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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NOTE K - PATENT LITIGATION
The Company was the plaintiff in a patent infringement lawsuit filed in the Federal District Court for the Eastern District of Michigan, the Southern Division. On April 9, 1998, the District Court awarded the Company $3,023,773 in damages and $1,119,588 in interest. On May 1, 1998 the defendant paid the damages awarded to the Company and appealed the interest award. On January 3, 1999, the defendant's appeal was denied, and interest was paid to close the matter.
NOTE L - GEOGRAPHIC INFORMATION
Financial information summarized by geographic location is as follows:
SUPPLEMENTAL INFORMATION
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999, 1998, AND 1997
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PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The Company's directors and executive committee's fees for 1999 were as follows: Dale S. Coenen $25,000.00; Duncan Miller, $25,000.00; Matthew M. Wirgau, $25,000.00; O.K. Dealey, Jr., $25,000.00; and Jessie D. Swinea, Jr., $25,000.00
Item 11.
Item 11. Executive Compensation.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13.
Item 13. Certain Relationships and Related Transactions The information called for by Part III (Items 11, 12, and 13, and additional information regarding Item 10), is incorporated by reference from the Registrant's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 17, 2000, which Proxy Statement will be filed pursuant to Regulation 14A.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1, 2. Consolidated Financial Statements for Trans-Industries, Inc. and Subsidiaries for years ended December 31, 1999, 1998, and 1997 are filed under Part II, Item 8.
3. Exhibits: Exhibit 3 (a) Restated Certificate of Incorporation incorporated herein by reference to Form 8 filed May 17, 1982. Exhibit 3 (b) Bylaws incorporated herein by reference to Registration Statement No. 2-30317. Exhibit 13 (b) Form 10-Q for quarter ended September 30, 1999, filed with the Securities and Exchange Commission on November 12, 1999 incorporated herein by reference. Exhibit 21 List of Subsidiaries (see page 36).
(b) No reports on Form 8-K for the three months ended December 31, 1999 were required to be filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRANS-INDUSTRIES, INC.
Date: 3/23/00 /s/ Dale S. Coenen ------------------- ------------------------------- Dale S. Coenen Chairman of the Board of Directors and Chief Executive Office
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, which include the President, the Chief Financial Officer, the Assistant Treasurer, and a majority of the Board of Directors on behalf of the Registrant and in the capacities and on the dates indicated:
/s/ Dale S. Coenen President 3/23/00 - ---------------------------- --------------------- (Dale S. Coenen)
/s/ Kai Kosanke Vice-President 3/23/00 - ---------------------------- --------------------- (Kai Kosanke) and Chief Financial Officer
/s/ Paul Clemo Assistant Treasurer 3/23/00 - ---------------------------- --------------------- (Paul Clemo)
/s/ Jessie D. Swinea, Jr. Director 3/23/00 - ---------------------------- --------------------- (Jessie D. Swinea, Jr.)
/s/ O.K. Dealey, Jr. Director 3/23/00 - ---------------------------- --------------------- (O.K. Dealey, Jr.)
Exhibit Index -------------