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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 Commission File Number 0-4539
TRANS-INDUSTRIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2598139
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2637 S. Adams Road, Rochester Hills, MI 48309
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(Address) (Zip Code)
Registrant's Telephone Number, including Area Code (248) 852-1990
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 and Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
---
The number of shares outstanding of registrant's Common stock, par value $.10
per share, at September 30, 1998 was 3,076,789.
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TRANS-INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART I. Financial Information
Item 1. FINANCIAL STATEMENTS
A. Consolidated Statements of Earnings ---
Three months ended September 30, 1998 and 1997.
Nine months ended September 30, 1998 and 1997.
B. Consolidated Balance Sheets ---
September 30, 1998 and December 31, 1997.
C. Consolidated Statements of Cash Flows ---
Nine months ended September 30, 1998 and 1997.
D. Notes to Consolidated Financial Statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II. Other Information
Item 1. LEGAL PROCEEDINGS
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
A.
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
For 3 Months Ended: For 9 Months Ended:
------------------- -------------------
9/30/98 9/30/97 9/30/98 9/30/97
------- ------- ------- -------
1. Gross sales less discounts, returns and allowances $ 8,338,694 $ 9,357,536 $ 26,756,593 $ 26,637,033
2. Cost of goods sold 5,817,274 6,357,269 17,915,620 17,416,234
------------ ------------ ------------ ------------
3. Gross Profit 2,521,420 3,000,267 8,840,973 9,220,799
4. Selling, general and administrative exp. 2,357,778 1,923,691 6,723,130 6,037,411
------------ ------------ ------------ ------------
5. Operating income 163,642 1,076,576 2,117,843 3,183,388
6. Other (income)/ expense
Interest expense 145,781 150,461 421,292 483,635
Other Income - Net Lawsuit Proceeds 0 0 (1,596,811) 0
Other income (23,981) (15,295) (60,438) (198,347)
------------ ------------ ------------ ------------
Total other (income)/expense 121,800 135,166 (1,235,957) 285,288
------------ ------------ ------------ ------------
7. Earnings before income taxes 41,842 941,410 3,353,800 2,898,100
8. Income tax expense 26,000 322,000 515,000 994,000
------------ ------------ ------------ ------------
9. Net profit $ 15,842 $ 619,410 $ 2,838,800 $ 1,904,100
============ ============ ============ ============
10. Earnings per share:
Basic $ .01 $ .20 $ .92 $ .62
Diluted $ .01 $ .20 $ .90 $ .60
============ ============ ============ ============
11. Dividends per share $ -- -- $ .10 --
============ ============ ============ ============
See Notes to Financial Statements
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
B.
CONSOLIDATED BALANCE SHEETS
ASSETS
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Current Assets 9/30/98 12/31/97
(Unaudited) (Audited)
----------- ---------
Cash $ 294,451 $ 132,297
Accounts receivable 8,953,470 8,433,468
Inventories (Note 2) 8,693,813 6,824,438
Prepaid expenses 670,170 247,123
Deferred income taxes 444,000 444,000
----------- -----------
Total current assets 19,055,904 16,081,326
Property, Plant & Equipment, at Cost
Land 314,503 314,503
Land Improvements 126,660 126,660
Buildings 5,367,899 4,992,360
Machinery & equipment 8,861,174 7,848,472
----------- -----------
14,670,236 13,281,995
Less: accumulated
depreciation (9,131,955) (8,269,084)
----------- -----------
Net plant and equipment 5,538,281 5,012,911
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Other Assets
Investments in affiliates 10,000 10,000
Patents, licenses & trademarks,
net of accumulated amortization 206,075 231,937
Excess of cost of investment in
stock of subsidiary over equity in
underlying net assets of acquisition 368,456 178,283
Sundry 3,750 104,471
----------- -----------
Total assets $25,182,466 $21,618,928
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LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities 9/30/98 12/31/97
(Unaudited) (Audited)
----------- ---------
Notes Payable (Note 5) $3,982,445 $3,503,262
Current installments
- Long term debt (Note 5) 175,569 193,389
Accounts payable - trade 3,425,190 2,419,154
Accrued liabilities 1,481,243 1,703,684
Income taxes -- 88,000
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Total current liabilities 9,064,447 7,907,489
Deferred income taxes - Non-current 197,000 197,000
Long term debt
Current portion shown above (Note 5) 3,272,626 3,561,838
Other non-current liabilities 403,024 312,355
Stockholders' Equity
Preferred stock of $1.00 par value
per share - authorized 500,000
shared; none issued -- --
Common stock of $.10 par value per
share - authorized 10,000,000 shares;
3,076,789 shares issued and 3,076,789
outstanding at 9/30/98 307,679 307,320
Additional paid-in capital 4,078,376 4,062,116
Retained earnings 7,804,607 5,273,244
Foreign currency translation 54,707 (2,434)
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12,245,369 9,640,246
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Total liabilities and stockholders' equity $25,182,466 $21,618,928
=========== ===========
See Notes to Financial Statements.
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TRANS-INDUSTRIES, INC.
Consolidated Statements of Cash Flows
C. For the Nine Months Ended September 30, 1998 and 1997
Nine Months Ended September 30
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1998 1997
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(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,838,800 $ 1,904,100
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation/Amortization 714,391 588,419
Decrease (increase) in accts. receiv. ( 400,086) ( 1,000,764)
Decrease (increase) in inventory (1,738,384) ( 270,203)
Decrease (increase) in prepaid exp. ( 270,858) ( 202,936)
Increase (decrease) in accts. payable 867,926 ( 138,718)
Increase (decrease) in accr. liab. ( 233,085) 111,031
Increase (decrease) in income taxes ( 244,000) ( 291,000)
(Gain) loss on sale of fixed assets -0- ( 136,689)
Decrease (increase) in other assets 104,471 -0-
Dividends Paid ( 307,440) -0-
Other ( 286,200) -0-
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Net Cash Provided (Used) by Operations 1,045,535 563,240
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets ( 777,087) ( 905,872)
Proceeds from sale of property and equipment -0- 236,000
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Net Cash Provided (Used) by Investing ( 777,087) ( 669,872)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (repayment) of long-term
borrowings ( 543,690) ( 432,221)
Net proceeds (payment) of credit line 363,636 410,029
Common stock issued through ESOP 16,619 8,251
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Net Cash Provided (Used) by Financing ( 163,435) ( 13,941)
Foreign currency translation 57,141 ( 17,979)
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Net Increase in Cash 162,154 ( 138,552)
Cash at beginning of year 132,297 358,764
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Cash at end of quarter $ 294,451 $ 220,212
========== ===========
Supplemental Disclosures:
Interest paid $ 399,130 $ 468,229
Income taxes paid $1,572,000 $ 1,285,000
See Notes to Financial Statements
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D. TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial information presented as of any date other than December 31
has been prepared from the Company's books and records without audit.
Financial information as of December 31 has been derived from the audited
financial statements of the Company. In the opinion of management, all
adjustments consisting of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods indicated,
have been included. For further information regarding the Company's
accounting policies, refer to the consolidated financial statements and
related notes included in the Company's annual report on form 10-K for the
year ended December 31, 1997.
2. Inventories
The major components of inventories are:
9/30/98 12/31/97
------- --------
Raw Materials $4,478,085 $3,471,708
Work in Process 1,723,002 1,178,684
Finished Goods 2,492,726 2,174,046
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$8,693,813 $6,824,438
========== ==========
3. Principles of Consolidation
There have been no significant changes in the principles of consolidation
since our most recent audited financial statements.
4. Significant Accounting Policies
There have been no significant changes in the accounting policies since our
most recent audited financial statements.
On January 1, 1998, the Corporation adopted Financial Accounting
Standards Board (the "FASB") issued Statement No. 130, "Reporting of
Comprehensive Income" ("SFAS130"), which establishes standards for
reporting and display of comprehensive income and its
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D. TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
components (revenues, expenses, gains and losses) in a full set of
financial statements. This statement also requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. Consolidated
statements of comprehensive income for each of the three month periods
ended September 30, 1998 and 1997 have been omitted, as comprehensive
income for each of the periods does not materially differ from reported
earnings.
5. Long-Term Debt
Long-term debt at September 30, 1998 consisted of the following:
Trans-Industries, Inc., $3,840,000 term note, payable in $3,336,634
monthly installments of $39,036 which includes interest at
bank's prime lending rate, and a balloon payment of $3,137,124
in October 2004. The note is secured by substantially all the
assets of Trans-Industries, Inc. and subsidiaries.
Term note, payable in monthly installments of $896 111,561
including interest at a rate of 6%. The note is due January 21,
2002.
3,448,195
Less current installments ( 175,569)
----------
Long-term debt $3,272,626
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-Term Debt (continued)
The Trans-Industries, Inc. term loan agreement contains restrictive
provisions relating principally to the maintenance of working capital,
tangible net worth, and ratio of debt to earnings. At September 30, 1998
the Company was in compliance with all provisions.
The Company also has an unsecured $6,500,000 line of credit of which
$3,982,445 was utilized at September 30, 1998. Interest is charged at the
bank's prime lending rate, less 1/4 point. This line of credit expires on
July 1, 2000.
6. Earnings Per Share
The following is a reconciliation of the numerator and denominator of the
basic and diluted earnings per share computations.
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
Qtr. ended September 30, 1998
Basic earnings per share:
Earnings available to common
stockholders $15,842 3,074,396 .01
Effect of dilutive securities
Stock options -- 54,774 .00
-------------- --------------- ---------
Diluted earnings per share:
Earnings available to stockholders
plus assumed conversions $15,842 3,129,170 .01
============== =============== =========
EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
Qtr. ended September 30, 1997
Basic earnings per share:
Earnings available to common
stockholders $619,410 3,072,100 .20
Effect of dilutive securities
Convertible debt 8,250 111,421 .00
-------------- --------------- ---------
Diluted earnings per share:
Earnings available to stockholders
plus assumed conversions $627,660 3,183,521 .20
============== =============== =========
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Stock Changes
In February of 1998, the Company received a request from an employee to
exercise his stock option for 1200 shares of common stock at a price of
$6.875 per share. Accordingly, the Company issued a certificate for 1200
shares.
In June of 1998, the Company received a request from an employee to
exercise his stock option for 1189 shares of common stock at a price of
$6.875 per share. Accordingly, the Company issued a certificate for 1189
shares.
In July of 1998, the Company received a request from an employee to
exercise his stock option for 1200 shares of common stock at a price of
$6.875 per share. Accordingly, the Company issued a certificate for 1200
shares.
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For Nine Months Ended September 30, 1998
Sales and Earnings
Sales for the quarter ended September 30, 1998 were $8,338,694 compared to
$9,357,536 for the same period a year ago. This decrease of $1,018,842 was
primarily attributable to the Company's electronic display business where the
turnaround time for certain contracts for Intelligent Transportation System
(ITS) products, namely large overhead highway signs, extended beyond the
September 30 quarter end, thereby precluding shipment during the quarter.
Although labor and overhead costs were expensed during the third quarter,
shipments of these products were delayed pending customer engineering approval
and factory acceptance.
During the third quarter of 1998, the Company realized a net profit of
$15,842 on sales of $8,338,694. For the same period of the prior year, the
Company reported net profit of $619,410 on sales of $9,357,536. This decrease in
net profit of $603,568 can be attributed to a lower sales volume being achieved.
Net profit per share for the third quarter was $.01 and $.20 for 1998 and 1997,
respectively. Net profit per share was computed on the adjusted weighted average
number of shares outstanding during the third quarter for 1998 and 1997, which
were 3,074,396 and 3,072,100, respectively.
Inventories
Inventory valuation is based upon the lower of cost or market. At September
30, 1998, consolidated inventories were $8,693,813 compared to $6,432,795 a year
ago. This increase of $2,261,018 is to accommodate anticipated growth in sales
volume.
Interest
Interest expense amounted to approximately $146,000 and $150,000 for the
third quarter of 1998 and 1997, respectively. This decrease of $4,000 was the
result of average interest rates being less during the third quarter of 1998
compared to 1997.
Financial Condition
Current financial resources coupled with anticipated funds from operations
are expected to meet funding requirements for the remainder of the year, based
upon present needs.
As noted in Item 1, "Legal Proceedings", the Company was paid $3,023,773 on
May 1, 1998. This amount represents damages awarded by the Court in a patent
infringement case. After paying related fees and income taxes, the Company's net
proceeds amounted to approximately $1.6 million.
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During the third quarter, the Company finalized an agreement with its bank
which will lower its borrowing cost to a quarter point under prime on the
operating line and to prime on the term debt. The bank also released all
collateral requirements associated with the working capital line. This new
agreement was executed in August 1998.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDING
The Company is the plaintiff in a patent infringement lawsuit. During
November of 1993, an advisory jury recommended a decision in favor of the
Company. In April of 1994, the judge concurred with the advisory jury and
ordered that the defendant be enjoined from any further manufacture, use, or
sale of the accused patented device. It was also ordered that the defendant pay
approximately $3 million in damages. During 1994, the defendant appealed the
case based on the lower courts interpretation of the law. On May 2, 1995, the
Company was notified that the U.S. Circuit Court of Appeals changed the District
Courts ruling that the defendant literally infringed the patent instead of
infringement by equivalents. Further the Court of Appeals remanded the case back
to the Federal District Court for further determination of damages. 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. A final outcome on the interest
award is expected in 9 - 12 months.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Form 8K dated May 4, 1998; receipt of damage award and Declaration of
Special Dividend.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS-INDUSTRIES, INC.
Date: 11/12/98 /s/ Kai Kosanke
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Kai Kosanke, Treasurer
and Chief Financial Officer
Date: 11/12/98 /s/ Paul Clemo
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Paul Clemo
Assistant Treasurer
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Exhibit Index
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Exhibit No. Description
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27 Financial Data Schedule