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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002 Commission File Number 0-4539
TRANS-INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2598139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2637 S. Adams Road, Rochester Hills, MI 48309
(Address of principal executive offices) (Zip Code)
(248) 852-1990
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
---
As of February 28, 2003, 3,139,737 shares of Common Stock were
outstanding and the aggregate market value of the Common Stock held by
non-affiliates of the registrant (based upon the last sale price on the NASDAQ
National Market) was approximately $8,295,832.
DOCUMENTS INCORPORATED BY REFERENCE
Information called for by Part III (Items 10, 11, 12, and 13) is
incorporated by reference from the Registrant's definitive proxy statement in
connection with its Annual Meeting of Shareholders to be held on May 21, 2003,
which Proxy Statement will be filed pursuant to Regulation 14A.
PART I
Item 1 Business.
Introduction
Trans-Industries, Inc. (the "Company") was incorporated in
Delaware in 1967 to acquire the business of Transign, Inc., a company founded in
1952 to manufacture mechanical bus signs. Initially, the Company produced
mechanical signage for the mass transit market, but its current efforts are
concentrated on electronic systems for the display of information, bus lighting
products, and source extraction systems for the environmental market. These
products are sold to virtually all aspects of the transportation industry and to
a broad range of commercial and industrial markets. The Company has two major
customers - Gillig Corporation and New Flyer Industries - which each accounted
for over 10 percent of consolidated annual sales. Although Gillig Corp. and New
Flyer Industries are highly valued customers, the Company does not consider
itself dependent upon them for continued ongoing sales. Sales volume is
significantly affected by state and municipal government spending for mass
transit, highway systems, and airports. As of February 28, 2003, the Company's
backlog, after excluding foreign operations for all years, was $12,447,000
compared with $11,680,000 and approximately $12,408,000 for the same dates in
2002 and 2001, respectively. Of the current backlog, it is anticipated that 90
percent will be completed within one year.
Operations
A. Industry Segment.
By nature, all products supplied by Trans-Industries and its
subsidiary Companies are designed to provide comfort, convenience and safety to
passengers and properties in the mass transit market. The signage is used as a
means of communication with vehicle passengers. The signs provide a system to
send messages to vehicle operators and passengers alike, whether the message is
of alternate routes in heavy traffic or to warn of an impending hazard. The
interior bus lighting systems not only provide comfort but illuminate the
vehicle's interior which in
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effect improves passenger safety. The "source extraction system" is provided to
transportation groups who use the system to clean their vehicles. This system
provides a convenient method of maintaining a cleaner, healthier, and more
comfortable atmosphere for the passengers. The production process for all but a
small percentage of production is assembly work. The "source extraction system"
is an engineering design, assembly and installation operation.
The customer base for most of Trans-Industries products include:
1. State departments of transportation;
2. Bus builders;
3. City and local governments and;
4. Private commercial enterprises.
B. Foreign and Domestic Operations and Export Sales.
Through a subsidiary, the Company operates a manufacturing,
assembly, sales, and service facility in the United Kingdom. This operation
sells 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 N to the
Consolidated Financial Statements. This business was sold affective March 7,
2003. See Notes K and L to the 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.
3
Approximately $949,000, $816,000 and $966,000 was spent on
research and development during the years-ended December 31, 2002, 2001 and
2000, 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,
aluminum, 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 258 people, supplemented by
temporary workers, with a minimum of these employees covered by a union contract
that expires August 10, 2003. 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 I to
the financial statements)
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G. Environmental Considerations.
The Company believes it is in compliance with all state and
federal regulations for environmental control and safety, and the related
expenditures are generally not significant.
H. Directors and Officers of the Registrant.
See Part III, Item 10 for certain information regarding officers
and directors.
Item 2. Properties.
Domestic operations are conducted at eight principal facilities.
Four are owned, of which two are located in Waterford, Michigan, one in
Rochester Hills, Michigan and one in Bad Axe, Michigan. Four locations are
leased. One of the leased facilities is an administrative office located in
Rochester Hills, Michigan under a month to month lease agreement. Two leased
facilities are in Wilmington, North Carolina. One facility is leased through
January 2006 and the other is leased through June 2003.
International operations are conducted in England at a leased
facility located in Leeds. This plant is currently on the market for lease to a
third party. The lease agreement expires in December 2009.
The plants, all of which are well maintained and in good operating
condition, contain an aggregate of approximately 280,000 square feet of floor
space. Generally, the plants have been operating on a five day a week basis with
occasional overtime.
Item 3. Legal Proceedings.
No material legal proceedings other than ordinary routine
litigation incidental to the business are pending to which the registrant or any
of its subsidiaries is a party of.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through solicitations
of proxies or otherwise.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock is traded on the Over-the-Counter Market and is
included in the National Association of Securities Dealers Automated Quotation
System under the symbol TRNI. The following table sets forth the range of trade
prices as reported by the National Securities Dealers Association, Inc. for the
preceding two years:
Trade Prices
------------
High Low
---- ---
2002
First Quarter 3.50 .90
Second Quarter 4.00 2.40
Third Quarter 4.00 2.50
Fourth Quarter 4.00 3.00
2001
First Quarter 3.44 1.13
Second Quarter 4.00 2.00
Third Quarter 3.05 1.26
Fourth Quarter 1.60 .87
These quotations reflect actual transactions without retail markup, markdown, or
commission.
As of December 31, 2002, there were 225 registered holders of the
Common Stock of the Registrant.
6
Item 6. Selected Financial Data.
The following selected consolidated financial data relating to the
Company and its subsidiaries has been taken from the consolidated financial
statements. Such selected consolidated financial data should be read in
conjunction with the consolidated financial statements of the Company.
OPERATIONS 2002 2001 2000 1999 1998
Net Sales $ 34,567,382 $ 36,135,578 $ 44,687,028 $ 39,544,177 $ 35,795,386
Cost of Sales 25,165,989 28,013,444 35,219,941 28,167,787 22,296,059
Interest Expense 664,727 1,191,470 1,444,864 955,953 565,889
Income Tax Exp. (benefit) (165,000) (1,944,000) (305,000) 392,000 2,287,000
Net Earnings (loss) (1,343,644) (3,079,378) (2,303,258) 225,643 4,071,729
FINANCIAL CONDITION
Current Assets 21,551,418 22,478,496 25,834,537 24,664,953 20,793,971
Current Liabilities 13,065,056 13,803,098 17,652,186 15,669,461 9,895,773
Working Capital 8,486,362 8,675,398 8,182,351 8,995,492 10,898,198
Current Ratio 1.65 1.63 1.46 1.57 2.10
Net Property, Plant
and Equipment 4,116,723 4,738,521 7,292,013 7,318,657 5,731,698
Long Term Debt 3,185,252 4,044,584 5,263,236 3,923,634 3,175,917
Stockholders' Equity 8,908,125 10,184,408 11,307,577 13,630,120 13,349,629
Total Assets 25,903,162 28,281,338 34,763,470 33,833,827 27,086,459
Tangible Net Worth
and Subordinated Debt 8,673,104 9,120,087 9,670,657 11,779,903 12,788,839
COMMON SHARE DATA
Net Earnings (loss) (a)
Basic $ (.43) $ (.98) $ (.73) $ .07 $ 1.30
Diluted $ (.43) $ (.98) $ (.73) $ .07 $ 1.28
Book Value (b) $ 2.84 $ 3.24 $ 3.60 $ 4.34 $ 4.25
Average Shares Outstanding
Basic 3,140,000 3,140,000 3,140,000 3,140,000 3,138,000
Diluted 3,140,000 3,140,000 3,140,000 3,140,000 3,185,000
(a) Based on weighted average number of common shares and
equivalents outstanding.
(b) Based on shares outstanding at year end.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements:
This discussion highlights significant factors influencing the
financial condition and results of operations of Trans-Industries, Inc. It
should be read in conjunction with the financial statements and related notes.
This discussion includes certain forward-looking statements based on
management's 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
2002 Compared with 2001
Sales for 2002 were $34.6 million compared to $36.1 million for the
previous year. This sales decrease of $1.5 million or 4.3 percent, from 2001
sales levels, was attributable to the closing of two subsidiaries in 2001. Sales
of the Company's electronic variable message signs showed an increase of almost
15 percent compared to a year ago. Although this increase was more than offset
by the decrease caused by the closing of two subsidiaries, the Company believes
this trend of increased demand for its information systems will continue as the
markets for this product continue to recover from the 9/11/01 disaster.
Additionally, the company is extending its customer base in the commercial
market place to include such things as the sale of electronic kiosks.
Inflationary impact on sales for 2002 and 2001 was minimal.
For the first quarter of 2003, it is anticipated that sales will be at
approximately at the same level as they were for the first quarter of 2002. At
this anticipated sales level, the Company expects to post a slight loss from
operations for the first quarter of 2003.
8
The Company's pretax loss for 2002 amounted to $1,508,643 compared to a
pretax loss of $5,022,961 for the 2001 fiscal year. Included in the pretax loss
for 2002 is a $450,000 impairment loss. The Company's wholly owned foreign
subsidiary had mounting losses during 2002 and the outlook for 2003 and beyond
was bleak. Consequently, in March of 2003, the Company sold all of the assets of
this English based Company to its managing director, thus giving rise to the
impairment loss recorded in 2002. It is anticipated this transaction will
generate an income tax benefit of approximately $1.5 million. Since this benefit
is in the form of a tax loss carry-forward, the Company will recognize this
benefit as taxable income is generated. Additionally the Company noticed a
slight drop in its profit margin on its Bus Lighting product due to competitive
pressures and efforts employed to successfully maintain its market share.
Included in the pretax loss for 2001 is $2.1 million of restructuring costs
associated with the closing of two subsidiaries as well as $2.7 million of
operating loss from the closed operations.
Cost of sales for 2002 was $25,165,989 compared to $28,013,444 for the
previous year. As a percentage of sales, this amounted to 72.8 percent in 2002
and 77.5 percent in 2001. This improvement of 4.7 percent was the result of
closing the two subsidiaries in 2001.
Selling, general, and administrative expenses remained at approximately
the same level for 2002 and 2001. Total administrative expenses for 2002 dropped
to $9,829,489 from $9,915,491 in 2001.
Interest expense in 2002 decreased to $664,727 from $ 1,191,470 in 2001.
This decrease of $526,743 reflects lower borrowings and lower interest rates for
the 2002 year.
OPERATIONS
2001 compared with 2000
Sales for 2001 were $36.1 million compared to $44.7 million for the
previous year. This sales decrease of $8.6 million, or 19.1 percent, from 2000
sales levels, was attributable to the closing of two subsidiaries, Transmatic
Europe and Transmatic Window Systems, and to a decline in sales of the Company's
electronic information signs. Transmatic Europe produced transit lighting
products for sale abroad as well as the vacuum forming of bus interior parts
sold
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in the United States. Transmatic Window Systems fabricated bus window systems
for use in transit buses and was located in California. During 2001, it became
evident that neither company would achieve its profit targets. This, coupled
with recent fiscal year losses at each company, prompted the decision to close
both operations for the good of the company as a whole. The negative impact on
sales for 2001 compared with 2000 was approximately $2.7 million. Inflationary
impact on sales for 2001 and 2000 was minimal.
The Company's pretax loss for 2001 amounted to $5,023,378 compared to a
pretax loss of $2,608,258 for the 2000 fiscal year. Included in the pretax loss
for 2001 is $2,116,000 of restructuring costs associated with the closing of two
subsidiaries. These restructuring costs and lower sales volumes for 2001 are
primarily responsible for the increased loss.
Cost of sales for 2001 was $28,013,444 compared to $35,219,941 for the
previous year. As a percentage of sales, this amounted to 77.5 percent in 2001
compared to 78.8 percent in 2000. This slight decrease of 1.3 percent was
primarily attributable to product mix.
Selling, general, and administrative expenses showed a decrease in 2001
to $9,915,491 from $10,775,130 in 2000. This decrease of $859,639 or 8.0 percent
was primarily due to the closing of two subsidiaries and attendant employee
reductions.
Interest expense in 2001 decreased to $1,191,470 from $1,444,864 in
2000. The decrease of $253,394 reflects lower borrowings and lower interest
rates for the 2001 year.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Our significant accounting policies
are discussed in note B of the notes to the consolidated financial statements
included herein. Our critical accounting policies are subject to judgments and
uncertainties which affect the application of these policies. The Company bases
its estimates on historical experience and on
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various other assumptions that are believed to be reasonable under the
circumstances. On an on-going basis, the Company evaluates its estimates,
including those related to the valuation of accounts receivable, inventory,
deferred tax assets, and property and equipment. In the event estimates or
assumption prove to be different from actual amounts, adjustments are made in
the subsequent period to reflect more current information. The material
accounting policies that the Company believes are most critical to the
understanding of the Company's financial position and results of operation are
discussed below.
ACCOUNTS RECEIVABLE VALUATION:
The Company monitors its accounts receivable and charges to expense an amount
equal to its estimate of uncollectible accounts. The Company considers a number
of factors in determining its estimates, including, the length of time trade
accounts receivable are past due, the Company's previous loss history, the
customer's current ability to pay its obligation and the condition of the
general economy and the industry as a whole. The use of different estimates for
future uncollectible accounts would result in different charges to selling,
general and administrative expenses in each period presented.
INVENTORY VALUATION:
Inventories are valued at the lower of cost or market; cost being determined
under the first in, first out method. Provision is made to reduce inventories to
net realizable value for excess and/or obsolete inventory. The Company
periodically reviews its inventory levels in order to identify obsolete and
slow-moving inventory. The use of different assumptions in determining
slow-moving and obsolete inventories would result in different charges to cost
of sales in each period presented.
11
DEFERRED INCOME TAXES AND VALUATION ALLOWANCE:
Deferred income tax assets and liabilities represent the future income tax
effect of temporary differences between the book and tax bases of the Company's
assets and liabilities, assuming they will be realized and settled at the
amounts reported in the Company's financial statements. The Company records a
valuation allowance to reduce its deferred tax assets to the amount that it
believes is more likely than not to be realized. This assessment includes
consideration for the scheduled reversal of temporary taxable differences,
projected future taxable income and tax planning strategies.
PROPERTY, PLANT AND EQUIPMENT:
The Company depreciates its property and equipment over estimated useful lives
established by management. Management has determined that useful lives of three
to ten years for machinery and equipment and ten to forty years for buildings
and improvements are appropriate lives. The use of shorter or longer lives would
result in different depreciation amounts being charged to operations during the
periods presented. The Company has also elected to depreciate its property using
the straight-line and accelerated methods. The use of different methods would
result in different depreciation charges in each of the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
As of year-end 2002, the Company had $8.5 million of working capital
compared with $8.7 million at year-end 2001 and $8.2 million at year-end 2000.
This decrease in working capital of $.2 million in 2002 from 2001 was primarily
due to the decrease of refundable and deferred federal income tax in 2002. The
Company showed a net generation of cash from operating activities of $1,879,000
for the year ended December 31, 2002. Net cash generated by operations was
primarily the result of an income tax refund received in 2002 and non-cash
12
expenses, primarily depreciation of property, plant, and equipment. The Company
utilized cash from investing activities of $480,039 which is the net of sales
and purchases of property and equipment. Financing activities utilized
$1,603,080, which represents the net reduction of bank debt for the current
year. The increase in working capital of $.5 million in 2001 from 2000 was
primarily due to the increase in refundable income taxes.
Anticipated increases in required working capital are expected to be
met from the cash flow from operations and credit line borrowings. At December
31, 2002, there were no material commitments for capital expenditures for the
ensuing year, beyond tooling and maintenance requirements. In November 2002, the
Company was notified by its primary lender to seek alternate financing. In March
2003, the Company signed a letter of intent from another bank. Under the terms
of the letter and subject to the bank's final approval, the Company will replace
the existing line of credit facility and the term notes with a three year line
of credit facility allowing the Company to borrow up to $10,000,000 bearing
interest at 1.25% above the bank's prime rate, and a $5,000,000 term note, which
would bear interest at 2% over the bank's prime rate. The term note would be
repaid in equal installments over ten years.
DIVIDENDS
Typically, the Company does not pay cash dividends on its common stock.
See Note F regarding dividends on preferred stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which is effective for exit or
disposal activities that are initiated after December 31, 2002. This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
13
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. Under
Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was recognized
at the date of an entity's commitment to an exit plan. Management believes that
the adoption of this pronouncement will not have a material impact on the
Company's financial position or results of operations.
In November 2002, the Emerging Issues Task Force reached a consensus
opinion on EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The
consensus provides that revenue arrangements with multiple deliverables should
be divided into separate units of accounting if certain criteria are met. The
consideration for the arrangement should be allocated to the separate units of
accounting based on their relative fair values, with different provisions if the
fair value of all deliverables are not known or if the fair value is contingent
on delivery of specified items or performance conditions. Applicable revenue
recognition criteria should be considered separately for each separate unit of
accounting. EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. Entities may elect to report the
changes as a cumulative effect adjustment in accordance with APB Opinion 20,
Accounting Changes. The Company has not determined the effect of adoption EITF
00-21 on its financial statements or the method of adoption it will use.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123", which is effective for years ending after December 15, 2002. This
Statement amends FASB SFAS 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement 123
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to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company does not plan to
change to the fair value based method of accounting for stock-based employee
compensation and has included the disclosure requirements of SFAS 148 in the
accompanying financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to interest rate risk is limited to fluctuations
in the banks prime lending rate which may increase or decrease the effective
interest rate on the Company's revolving credit facility. The Company is exposed
to the impact of foreign currency fluctuations. International revenues from the
foreign subsidiary were approximately 5% of total revenues for the twelve months
ended December 31, 2002. The Company's primary foreign currency exposure is the
British Pound. The Company manages its exposure to foreign currency denominated
assets with liabilities in the same currency and, as such, certain exposures are
naturally offset. The Company's foreign currency loss is immaterial and as such
the exposure has been omitted. The bulk of the items purchased by the Company
are electronic components not considered commodities, as such there is no real
commodity price risk. The Company does not hold any derivative instruments or
engage in any hedging activities. Therefore SFAS 133 is not applicable.
Item 8. Financial Statements.
The following pages contain the Consolidated Balance Sheets as of
December 31, 2002 and 2001 and the related Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for each of the years in the
three-year period ended December 31, 2002, including the report of the Company's
independent certified public accountants.
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CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
CONTENTS
PAGE
Report of Independent Certified Public Accountants.................................................. 18
FINANCIAL STATEMENTS
Consolidated Balance Sheets..................................................................... 19
Consolidated Statements of Operations........................................................... 21
Consolidated Statements of Comprehensive Loss................................................... 22
Consolidated Statements of Stockholders' Equity................................................. 23
Consolidated Statements of Cash Flows........................................................... 24
Notes to Consolidated Financial Statements...................................................... 25
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Trans-Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Trans-Industries, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 2002 and 2001 and the related consolidated statements of operations,
comprehensive loss, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. 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, 2002 and 2001, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.
/s/Grant Thornton
Southfield, Michigan
February 24, 2003 (except for Note E, as to
which the date is March 18, 2003 and
Note L, as to which the date is March 7, 2003)
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS 2002 2001
----------- -----------
CURRENT ASSETS
Cash $ 24,996 $ 161,782
Accounts receivable, less allowance for doubtful
accounts of $428,000 in 2002 and $481,000
in 2001 9,049,864 8,856,017
Inventories 11,069,129 11,306,388
Refundable income taxes 146,000 764,606
Deferred income taxes 968,000 997,000
Prepaid expenses and other current assets 293,429 392,703
----------- -----------
Total Current Assets 21,551,418 22,478,496
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 220,564 306,881
Land improvements 126,660 126,660
Buildings 5,825,461 6,019,461
Machinery and equipment 10,388,961 10,441,646
----------- -----------
16,561,646 16,894,648
Less accumulated depreciation and amortization 12,444,923 12,156,127
----------- -----------
Net property, plant and equipment 4,116,723 4,738,521
Goodwill, less accumulated amortization of
$74,999 in 2002 and 2001 150,369 150,369
Deferred income taxes - 824,000
Other assets 84,652 89,952
----------- -----------
$25,903,162 $28,281,338
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
----------- -----------
CURRENT LIABILITIES
Note payable to bank $ 7,072,265 $ 7,669,746
Current maturities of long-term debt 930,845 1,077,112
Accounts payable 3,441,720 3,526,513
Accrued liabilities 1,620,226 1,529,727
----------- -----------
Total Current Liabilities 13,065,056 13,803,098
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 3,185,252 4,044,584
DEFERRED INCOME TAXES 483,000 -
OTHER LIABILITIES 261,729 249,248
COMMITMENTS AND CONTINGENCIES (NOTE G) - -
STOCKHOLDERS' EQUITY
Preferred stock of $1 par value per share, authorized
500,000 shares; 19,000 issued and outstanding 19,000 19,000
Common stock of $0.10 par value per share, authorized
10,000,000 shares; 3,139,737 issued and outstanding 313,974 313,974
Additional paid-in capital 5,953,081 5,953,081
Retained earnings 2,531,469 3,875,113
Accumulated other comprehensive income 90,601 23,240
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,908,125 10,184,408
----------- -----------
$25,903,162 $28,281,338
=========== ===========
20
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2002 2001 2000
------------ ------------ ------------
Net sales $ 34,567,382 $ 36,135,578 $ 44,687,028
Cost of goods sold 25,165,989 28,013,444 35,219,941
------------ ------------ ------------
Gross profit 9,401,393 8,122,134 9,467,087
Selling, general and administrative expenses 9,829,489 9,915,491 10,775,130
Restructuring costs - 2,116,153 -
Impairment loss 450,000 - -
------------ ------------ ------------
Operating loss (878,096) (3,909,510) (1,308,043)
Other expense (income), net
Interest expense 664,727 1,191,470 1,444,864
Other (34,179) (77,602) (144,649)
------------ ------------ ------------
630,548 1,113,868 1,300,215
------------ ------------ ------------
Loss before income taxes (1,508,644) (5,023,378) (2,608,258)
Income tax benefit (165,000) (1,944,000) (305,000)
------------ ------------ ------------
Net loss $ (1,343,644) $ (3,079,378) $ (2,303,258)
============ ============ ============
Loss per share:
Basic $ (.43) $ (.98) $ (.73)
============ ============ ============
Diluted $ (.43) $ (.98) $ (.73)
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31,
2002 2001 2000
----------- ----------- -----------
Net loss $(1,343,644) $(3,079,378) $(2,303,258)
Other comprehensive income (loss)
Equity adjustment from foreign
currency translation 67,361 56,209 (19,285)
----------- ----------- -----------
Comprehensive loss $(1,276,283) $(3,023,169) $(2,322,543)
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
------------ ------------ ------------ ------------ ------------ ------------
Balance at January 1, 2000 $ - $ 313,974 $ 4,072,081 $ 9,257,749 $ (13,684) $ 13,630,120
Net loss - - - (2,303,258) - (2,303,258)
Other comprehensive loss - - - - (19,285) (19,285)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 - 313,974 4,072,081 6,954,491 (32,969) 11,307,577
Issuance of 19,000 shares of
preferred stock 19,000 - 1,881,000 - - 1,900,000
Net loss - - - (3,079,378) - (3,079,378)
Other comprehensive income - - - - 56,209 56,209
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 19,000 313,974 5,953,081 3,875,113 23,240 10,184,408
Net loss - - - (1,343,644) - (1,343,644)
Other comprehensive income - - - - 67,361 67,361
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 $ 19,000 $ 313,974 $ 5,953,081 $ 2,531,469 $ 90,601 $ 8,908,125
============ ============ ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
23
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2002 2001 2000
----------- ----------- -----------
OPERATING ACTIVITIES
Net loss $(1,343,644) $(3,079,378) $(2,303,258)
Adjustments to reconcile net loss to net
cash provided by (used in) operations:
Depreciation of property, plant and equipment 939,344 1,055,681 1,247,147
Bad debt expense 378,921 397,598 375,220
Amortization and write-off of goodwill - 1,337,616 166,389
Impairment loss 450,000 - -
(Gain) loss on sale of property and equipment (21,384) 820,238 -
Deferred income tax expense (benefit) 1,336,000 (1,205,000) (55,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (572,768) 1,671,920 (811,568)
(Increase) decrease in inventories (28,864) 1,749,713 (256,580)
(Decrease) increase in accounts payable (84,793) (3,408,684) 2,568,074
Increase (decrease) in other 826,160 (404,890) (1,063,151)
----------- ----------- -----------
Net cash provided by (used in) operating activities 1,878,972 (1,065,186) (132,727)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (589,663) (444,785) (1,220,503)
Proceeds from sale of property and equipment 109,624 1,122,358 -
----------- ----------- -----------
Net cash (used in) provided by investing activities (480,039) 677,573 (1,220,503)
FINANCING ACTIVITIES
Borrowings from long-term debt 27,576 - 2,765,318
Repayments of long-term debt (1,033,175) (954,565) (1,078,735)
Net repayments of note payable to bank (597,481) (770,003) (160,267)
Proceeds from issuance of preferred stock - 1,900,000 -
----------- ----------- -----------
Net cash (used in) provided by financing activities (1,603,080) 175,432 1,526,316
Effect of foreign currency exchange rate changes 67,361 56,209 (19,285)
----------- ----------- -----------
Net (decrease) increase in cash (136,786) (155,972) 153,801
Cash at beginning of year 161,782 317,754 163,953
----------- ----------- -----------
Cash at end of year $ 24,996 $ 161,782 $ 317,754
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 760,988 $ 1,160,956 $ 1,413,202
=========== =========== ===========
Income taxes paid $ - $ - $ -
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
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.
The Company has sustained losses from operations in each of the three years
ended December 31, 2002. During 2002, the Company was in default of the covenant
contained in its credit facility and in November 2002, the Company's primary
lender requested that the Company seek alternate financing. As discussed in Note
E, in March 2003, the Company signed a letter of intent from another bank, which
will provide it with the ability to obtain financing in excess of its current
facility. In addition, management has taken a number of steps, including ceasing
operations at TWS and TMEL (See Note J), selling VIL in March 2003 (See Note L),
building an experienced management team at Vultron and increased sales and cost
containment efforts at Vultron, which it believes are sufficient to provide the
Company with the ability to continue its operations in the near term.
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. The financial
statements as of December 31, 2001 and for the years ended December 31, 2001 and
2000 include the accounts of the Company's wholly-owned subsidiaries,
Transmatic, Inc., Transign, Inc., Vultron, Inc., The Lobb Company, Vultron
International, Ltd., Transmatic Window Systems, Inc. (TWS) and Transmatic
Europe, Ltd. (TMEL). As discussed in Note J, during 2001, the Company completed
a restructuring plan, which included the ceasing of operations at TWS and TMEL.
As such, these companies are excluded from the consolidated financial statements
as of and for the year ended December 31, 2002.
ACCOUNTS RECEIVABLE
Accounts receivable consist solely of amounts billed to customers. The majority
of the Company's accounts receivable are due from state and local governments
and companies in the transportation industry. Credit is extended based on
evaluation of a customers' financial condition, and generally, collateral is not
required. Accounts receivable are generally due within 30 days and are stated at
amounts due from customers net of an allowance for doubtful accounts. Accounts
outstanding longer than the contractual payment terms are considered past due.
The Company determines its allowance by considering a number of factors,
including the length of time trade accounts receivable are past due, the
Company's previous loss history, the customer's current ability to pay its
obligation to the Company, and the condition of the general economy and the
industry as a whole. The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
25
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Changes in the Company's allowance for doubtful accounts are as follows:
2002 2001 2000
--------- --------- ---------
Balance at January 1, $ 481,000 $ 656,000 $ 363,000
Bad debt expense 379,000 398,000 375,000
Accounts written off (432,000) (573,000) (82,000)
--------- --------- ---------
Balance at December 31, $ 428,000 $ 481,000 $ 656,000
========= ========= =========
REVENUE RECOGNITION
Revenue from product sales is recorded when delivery has occurred or title has
passed, persuasive evidence of an arrangement exists, the price is fixed and
determinable and collectibility is reasonably assured.
Under arrangements containing multiple elements, revenue is allocated to each
element based upon its relative fair value. Revenue from each element is
recognized when delivery occurs or title has passed and collectibility is
reasonably assured.
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 was recorded in connection with the Company's acquisitions of Transign,
Inc., the Lobb Company and Transmatic Window Systems, Inc. (f/k/a Plastech
Transparencies, Inc.). Through December 31, 2001, the Company was amortizing
goodwill over a 10 to 30 year period, using the straight-line method. Effective
January 1, 2002, the Company adopted the provisions of Statement No. 142,
"Goodwill and Other Intangible Assets", ("SFAS 142") that was issued by the
Financial Accounting Standards Board in July 2001. SFAS 142, which is effective
for years beginning after December 15, 2001, addresses how intangible assets,
including goodwill, that are acquired individually or with a group of other
assets should be accounted for in financial statements upon their acquisition.
SFAS 142 also specifies that goodwill is no longer subject to amortization, but
must be measured for impairment annually or when an impairment indicator exists.
A fair value approach is used to test for impairment. An impairment charge is
recognized for the amount, if any, by which the carrying amount of the
intangible assets exceeds its fair value. The Company completed its annual
impairment test as of December 31, 2002 and determined that no impairment loss
should be recognized. Fair values were established using estimated future cash
flows.
26
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of the net loss and loss per share reported in the statements
of operations to the net loss and loss per share adjusted for the effect of
goodwill amortization is as follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
2002 2001 2000
------------- ------------- -------------
Net loss:
Reported net loss $ (1,343,644) $ (3,079,378) $ (2,303,258)
Amortization of goodwill - 148,487 166,389
------------- ------------- -------------
Adjusted net loss $ (1,343,644) $ (2,930,891) $ (2,136,869)
============= ============= =============
Loss per share:
Reported loss per share $ (.43) $ (.98) $ (.73)
Amortization of goodwill - .05 .05
------------- ------------- -------------
Adjusted loss per share $ (.43) $ (.93) $ (.68)
============= ============= =============
STOCK BASED COMPENSATION
At December 31, 2002, the Company has a stock-based employee compensation plan,
which is described more fully in Note I. The Company accounts for this plan
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. No
stock-based employee compensation cost is reflected in net loss, as all options
granted under this plan had an exercise price greater than or equal to the
market value of the underlying common stock on the date of grant. The following
table illustrates the effect on net loss and loss per share if the company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
27
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
2002 2001 2000
------------- ------------- -------------
Net loss, as reported $ (1,343,644) $ (3,079,378) $ (2,303,258)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax (36,115) (75,620) (117,744)
------------- ------------- -------------
Pro forma net loss $ (1,379,759) $ (3,154,998) $ (2,421,002)
============= ============= =============
Loss per share:
Basic - as reported $ (.43) $ (.98) $ (.73)
Basic - pro forma $ (.44) $ (1.00) $ (.77)
Diluted - as reported $ (.43) $ (.98) $ (.73)
Diluted - pro forma $ (.44) $ (1.00) $ (.77)
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 2001 and 2000, respectively:
risk-free interest rates of 5.4% and 6.7%; expected volatility of 71.42% and
61.41%; expected lives of 10 years for options and four years for SAR's for all
years; and no dividend yield for all years.
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 $949,000, $816,000 and $966,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.
WARRANTIES
The Company records a liability for an estimate of costs that it expects to
incur under its limited warranty when product revenue is recognized. Factors
affecting the Company's warranty liability include the number of units sold and
historical and anticipated rates of claims and costs per claim. The Company
periodically assesses the adequacy of its warranty liability based on changes in
these factors. Historically, the Company's warranty costs have been
insignificant.
28
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
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 the 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.
SELF INSURANCE
The Company maintains a Voluntary Employee Benefit Trust (the Trust), to cover
all or a portion of certain medical and dental expenses to eligible
participants. Participants are required to contribute a portion of their
compensation to the Trust. The Trust has insurance to cover catastrophic claims.
The Trust accrues for known claims plus an estimate of claims incurred but not
reported. The Company contributes to the Trust amounts sufficient to fund any
shortfall in Trust assets. Contributions are recorded as a component of cost of
goods sold and selling, general and administrative expenses.
NOTE C - LOSS PER SHARE
For all years presented, all options outstanding have been excluded from the
computation of diluted loss per share as the effect would be antidilutive. The
weighted average common shares outstanding for 2000, 2001 and 2002 were
3,139,737.
NOTE D - INVENTORIES
The major components of inventories at December 31 are:
2002 2001
----------- -----------
Raw materials and purchased parts $ 6,810,004 $ 5,283,603
Work in process 3,731,319 4,444,531
Finished goods 527,806 1,578,254
----------- -----------
$11,069,129 $11,306,388
=========== ===========
29
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE E - NOTE PAYABLE AND LONG-TERM DEBT
The Company has a secured line of credit facility with a bank collateralized by
substantially all assets of the Company. The facility allows the Company to
borrow up to $10,000,000. The facility bears interest at the bank's prime
lending rate plus 1.75% (effective rate of 6.0% at December 31, 2002). Interest
is payable monthly.
The line of credit agreement requires the Company to earn $1 on a pretax basis
each month. The agreement also restricts the payment of dividends, repurchase of
common stock, and acquisition of property and equipment. At December 31, 2002,
the Company was in default under the agreement, but obtained a waiver from the
bank.
Long-term debt at December 31 consisted of the following:
2002 2001
---------- ----------
Term note, payable in monthly installments of $35,607, including
interest at the bank's prime lending rate plus 1.75% (effective rate
of 6.0% at December 31, 2002) with a balloon payment of
$1,679,986 on January 1, 2005. The note is secured by
substantially all the assets of the Company $2,293,853 $2,601,519
Term note payable in monthly installments $50,965 plus interest at
the bank's prime lending rate plus 1.75% (effective rate of 6.0% at
December 31, 2002) with a balloon payment of $509,652 on
January 1, 2005. The note is secured by substantially all the assets
of the Company 1,732,816 2,344,398
Other notes payable 89,428 175,779
---------- ----------
4,116,097 5,121,696
Less current maturities 930,845 1,077,112
---------- ----------
$3,185,252 $4,044,584
========== ==========
The aggregate maturities of long-term debt by year are as follows:
2003 $ 930,845
2004 952,273
2005 2,205,054
2006 13,145
2007 14,780
----------
$4,116,097
==========
In November 2002, the Company was notified by its primary lender to seek
alternate financing. In March 2003, the Company signed a letter of intent from
another bank. Under the terms of the letter and subject to the bank's final
approval, the Company will replace the existing line of credit facility and the
term notes with a three year line of credit facility allowing the Company to
borrow up to $10,000,000 bearing interest at 1.25% above the bank's prime rate,
and a $5,000,000 term note, which would bear interest at 2% over the bank's
prime rate. The term note would be repaid in equal installments over ten years.
30
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE F - PREFERRED STOCK
During June 2001, the Company issued 19,000 shares of 8.25% cumulative preferred
stock with a par value of $1 to the Trans-Industries, Inc. Employees 401(k) and
Profit Sharing Plan for $1,900,000. Dividends in arrears at December 31, 2002
are $235,125 or $12.38 per preferred share.
NOTE G - LEASES
The Company leases facilities and equipment under operating leases with terms
ranging from a month to month basis to five years. Rent expense for all
operating leases approximated $504,000, $803,000, and $801,000 for 2002, 2001
and 2000, respectively. Future minimum rentals required under noncancelable
lease agreements are immaterial.
NOTE H - INCOME TAXES
The components of loss before income taxes were as follows:
2002 2001 2000
----------- ----------- -----------
Domestic $ (545,374) $(3,811,605) $(1,037,394)
Foreign (963,270) (1,211,773) (1,570,864)
----------- ----------- -----------
$(1,508,644) $(5,023,378) $(2,608,258)
=========== =========== ===========
Income taxes have been charged to operations as follows:
2002 2001 2000
----------- ----------- -----------
Current $(1,501,000) $ (739,000) $ (250,000)
Deferred 1,336,000 (1,205,000) (55,000)
----------- ----------- -----------
Total income tax benefit $ (165,000) $(1,944,000) $ (305,000)
=========== =========== ===========
A reconciliation of actual income tax benefit to the expected amounts computed
by applying the effective U.S. federal income tax rate of 34 percent to losses
before income taxes is as follows:
2002 2001 2000
----------- ----------- -----------
Expected income tax benefit $ (513,000) $(1,708,000) $ (887,000)
Amortization and write-off of goodwill
not deductible for income tax purposes - 455,000 57,000
Losses of foreign subsidiaries without tax effect 175,000 412,000 534,000
Expiration of foreign tax loss carryforwards 297,000 - -
Loss on disposal of subsidiaries - (1,334,000) -
Change in valuation allowance (124,000) 386,000 -
Income tax credits - (238,000) -
Other items, net - 83,000 (9,000)
----------- ----------- -----------
Actual income tax benefit $ (165,000) $(1,944,000) $ (305,000)
=========== =========== ===========
31
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE H - INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant deferred
tax assets and liabilities at December 31, 2002 and 2001 are as follows:
DEFERRED DEFERRED
TAX TAX
YEAR ENDED DECEMBER 31, 2002 ASSETS LIABILITIES
- ------------------------------------- ----------- -----------
Property, plant and equipment, principally depreciation $ - $ 234,000
Inventory valuation 792,000 -
Accrued expenses, deductible when paid 355,000 -
Foreign tax loss carryforwards 960,000 -
US tax credit carryforwards 50,000 -
----------- -----------
2,157,000 234,000
Less valuation allowance on deferred tax assets (1,438,000) -
----------- -----------
$ 719,000 $ 234,000
=========== ===========
DEFERRED DEFERRED
TAX TAX
YEAR ENDED DECEMBER 31, 2001 ASSETS LIABILITIES
- ------------------------------------- ----------- -----------
Property, plant and equipment, principally depreciation $ - $ 336,000
Inventory valuation 692,000 -
Accrued expenses, deductible when paid 392,000 -
US net operating loss carryforwards 1,309,000 -
Foreign tax loss carryforwards 1,176,000 -
US tax credit carryforwards 150,000
----------- -----------
3,719,000 336,000
Less valuation allowance on deferred tax assets (1,562,000) -
----------- -----------
$ 2,157,000 $ 336,000
=========== ===========
The Company has foreign tax net operating loss carryforwards of approximately
$3,204,000 at December 31, 2002. These net operating losses carryforward
indefinitely. However with the sale of VIL (See Note L) it is questionable they
will be utilized. A valuation allowance of $1,438,000 has been recognized to
reduce the deferred tax assets principally due to the uncertainty of realizing
the benefit of the foreign tax loss carryforward. The valuation allowance
increased by $386,000 in 2001 and decreased by $124,000 in 2002.
NOTE I - 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
$1,128,000, $657,000 and $467,000 for the years ended December 31, 2002, 2001
and 2000, respectively.
The Company has a deferred compensation plan (Trans-Industries, Inc. Employees
401(k) and Profit Sharing 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 $43,000, $45,000 and $45,000 for
2002, 2001 and 2000, respectively.
32
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE I - EMPLOYEE BENEFIT PLANS (CONTINUED)
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 (the 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.
A summary of the status of the Plan as of December 31, 2002, 2001 and 2000 and
changes during the years then ended is as follows:
2002 2001 2000
-------------------------- ---------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
STOCK EXERCISE STOCK EXERCISE STOCK EXERCISE
OPTIONS SAR'S PRICE OPTIONS SAR'S PRICE OPTIONS SAR'S PRICE
------- ------- -------- -------- ------- -------- -------- ------- --------
Outstanding at
beginning of year 152,000 24,000 $6.49 149,200 15,000 $7.08 134,200 78,000 $ 7.18
Granted - - - 15,000 9,000 2.66 20,000 12,000 6.03
Forfeited - (3,000) 13.50 (12,200) - 6.88 (5,000) (75,000) 6.94
------- ------- ------- ------ ------- ------
Outstanding at
end of year 152,000 21,000 $6.37 152,000 24,000 $6.49 149,200 15,000 $ 7.08
======= ======= ====== ======= ====== ====== ======= ====== =======
2002 2001 2000
------------------ ------------------- -----------------
STOCK STOCK STOCK
OPTIONS SAR'S OPTIONS SAR'S OPTIONS SAR'S
-------- ------- -------- ------- -------- -------
Exercisable at year end 125,000 10,890 116,000 6,960 99,360 2,000
Weighted average fair value of
grants during the year N/A N/A $2.17 $1.47 $4.77 $2.94
33
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE I - EMPLOYEE BENEFIT PLANS (CONTINUED)
The options have a ten year life with twenty percent vesting in each of the
first five years. The SAR's are for a four year duration with one-third vesting
in each of the first three years. Holders of SAR's will upon exercise, receive
in cash or other property at the sole discretion of the option committee, the
difference between the base price and the market price of the Company's stock on
the date of exercise. Since the SAR's were issued in tandem with stock options,
upon exercise of an SAR the holder must surrender an equivalent number of stock
options.
NOTE J - RESTRUCTURING CHARGES
During the year ended December 31, 2001, the Company commenced and completed a
restructuring plan which resulted in the consolidation of its operations in
England and the ceasing of the operations of TWS, its bus window manufacturer.
In connection with the restructuring, the Company recorded restructuring costs
as follows:
Write-off of TWS Goodwill $ 1,198,129
Loss on disposal of property and equipment 810,956
Severance and other costs 107,068
-----------
$ 2,116,153
===========
In addition to the restructuring costs discussed above, the Company recorded a
loss on disposal of TWS inventory totaling $169,855, which is included in cost
of goods sold.
NOTE K - IMPAIRMENT LOSS
In November 2002, the Company's Board of Directors approved a plan to wind down
the operations of VIL. The assets and liabilities of VIL were treated as an
asset group and tested for impairment, resulting in a $450,000 impairment loss.
The loss equals the amount by which the carrying value of the asset group
exceeded its estimated fair value. The estimated fair value of $160,000 equals
the selling price of the asset group in March 2003 (See Note L). The assets and
liabilities of VIL are presented on a held and used basis, as the criteria to be
classified as held for sale were not met at December 31,2002.
NOTE L - SUBSEQUENT EVENT
In March 2003, the Company entered into an asset sale agreement to sell VIL to
its managing director for approximately $160,000.
34
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE M - SIGNIFICANT CUSTOMERS
The Company conducts its business through distributors, end users and other
entities under purchase orders, supply contracts and other agreements.
Information with respect to significant customers is as follows:
ACCOUNTS
REVENUES RECEIVABLE
FROM FROM
NUMBER OF CUSTOMER(S) CUSTOMER(S)
SIGNIFICANT DURING THE AT END OF
YEAR ENDED CUSTOMERS YEAR YEAR
- ---------------------- ---------- ----------- ----------
December 31, 2002 Two $ 9,022,000 $1,493,000
December 31, 2001 Two 10,285,000 1,781,000
December 31, 2000 One 4,871,000 1,174,000
NOTE N - SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one market segment, the transportation industry.
Financial information summarized by geographic location is as follows:
2002 2001 2000
--------------------------- ---------------------------- ----------------------------
LONG- LONG- LONG-
LIVED LIVED LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
----------- ----------- ----------- ----------- ----------- -----------
United States $26,906,498 $ 4,351,744 $25,518,733 $ 5,584,995 $36,188,459 $ 6,965,812
United Kingdom 1,492,352 - 2,634,450 217,847 1,849,351 1,963,121
Canada 5,958,468 - 7,701,805 - 5,975,397 -
Other 210,064 - 280,590 - 673,821 -
----------- ----------- ----------- ----------- ----------- -----------
Total $34,567,382 $ 4,351,744 $36,135,578 $ 5,802,842 $44,687,028 $ 8,928,933
=========== =========== =========== =========== =========== ===========
35
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE O - UNAUDITED QUARTERLY RESULTS OF OPERATIONS
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 2002 2002 2002 2002
- ----------------------- ----------- ----------- ----------- -----------
Net sales $ 9,909,181 $ 7,603,082 $ 8,256,438 $ 8,798,681
Cost of sales 7,713,388 5,592,213 6,050,842 5,809,546
----------- ----------- ----------- -----------
Gross profit $ 2,195,793 $ 2,010,869 $ 2,205,596 $ 2,989,135
=========== =========== =========== ===========
(Loss) earnings applicable to common stock $(1,204,020) $ (491,992) $ 42,953 $ 309,415
=========== =========== =========== ===========
Basic and diluted (loss) earnings per
common share $ (.38) $ (.16) $ .01 $ .10
=========== =========== =========== ===========
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 2001 2001 2001 2001
- ----------------------- ------------ ------------ ------------ ------------
Net sales $ 8,764,699 $ 8,317,115 $ 8,306,103 $ 10,747,661
Cost of sales 7,139,228 6,293,859 6,690,831 7,889,526
------------ ------------ ------------ ------------
Gross profit $ 1,625,471 $ 2,023,256 $ 1,615,272 $ 2,858,135
============ ============ ============ ============
Loss applicable to common stock $ (964,109) $ (538,478) $ (1,512,235) $ (64,556)
============ ============ ============ ============
Basic and diluted loss per common share $ (.31) $ (.17) $ (.48) $ (.02)
============ ============ ============ ============
36
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2002, 2001 AND 2000
NOTE P - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities", which is effective for exit or disposal activities
that are initiated after December 31, 2002. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost as defined in Issue 94-3 was recognized at the date
of an entity's commitment to an exit plan. Management believes that the adoption
of this pronouncement will not have a material impact on the Company's financial
position or results of operations.
In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The consensus
provides that revenue arrangements with multiple deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the arrangement should be allocated to the separate units of accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance conditions. Applicable revenue recognition
criteria should be considered separately for each separate unit of accounting.
EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. Entities may elect to report the changes as a
cumulative effect adjustment in accordance with APB Opinion 20, Accounting
Changes. The Company has not determined the effect of adoption EITF 00-21 on its
financial statements or the method of adoption it will use.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123", which is effective for years ending after December 15, 2002. This
Statement amends FASB SFAS 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company does not plan to
change to the fair value based method of accounting for stock-based employee
compensation and has included the disclosure requirements of SFAS 148 in the
accompanying financial statements.
37
PART III
Item 10. Directors and Executive Officers of the Registrant.
Name of Director (a)
or Officer (b) Age Office Held and/or Principal Occupation Term Expires
------------------------ --- --------------------------------------- ------------
Dale S. Coenen (a) 74 Chairman of the Board and President May 2003
and (b) since 1972.
Duncan Miller (a) 78 Director since 1967, Investment May 2003
Counselor.
Harry E. Figgie, Jr. (a) 79 Director since 2000. May 2003
Robert J. Ruben (a) 79 Secretary since 1967, Director since 2001. May 2003
Kai R. Kosanke (b) 52 Vice-President, Controller & Treasurer May 2003
since January, 1987
Keith LaCombe (b) 43 Assistant Secretary since May 2002. May 2003
Assistant Treasurer since May 2002.
Robert Anderson (b) 43 Secretary since 2002. May 2003
O.K. Dealey, Jr. (a) 62 President - Transmatic, Inc. May 2003
and (b) Director since 1998.
Jessie D. Swinea, Jr. (a) 67 President - Vultron, Inc. May 2003
and (b) Director since 1998.
The Company's directors and executive committee's fees for 2002 were as
follows: Dale S. Coenen $25,000.00; Duncan Miller, $25,000.00; Harry E. Figgie,
Jr., $25,000.00; O.K. Dealey, Jr., $25,000.00; Robert J. Ruben, $25,000.00; and
Jessie D. Swinea, Jr., $25,000.00.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
38
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 21, 2003, which Proxy Statement will be filed
pursuant to Regulation 14A.
PART IV
Item 14. Controls and Procedures:
Disclosures Controls and Procedures
The Company maintains controls and procedures designed to ensure that
it is able to collect the information that is required to be disclosed in the
reports it files with the SEC, and to process, summarize and disclose this
information within the time period specified in the rules of the SEC. The
Company's Chief Executive and Chief Financial Officers are responsible for
establishing, maintaining and enhancing these procedures. They are also
responsible, as required by the rules established by the SEC, for the evaluation
of the effectiveness of these procedures.
Based on their evaluation of the Company's disclosure controls and
procedures which took place as of a date within 90 days of the filing of this
report, the Chief Executive Officer and the Chief Financial Officer believe that
these procedures are effective to ensure that the Company is able to collect,
process and disclose the information it is required to disclose in the reports
it files with the SEC within the required time period.
39
Internal Controls
The Company maintains a system of internal controls designed to provide
reasonable assurance that transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary to (1) permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) maintain accountability for
assets. Access to assets is permitted only in accordance with management's
general or specific authorization.
Since the date of the most recent evaluation of the Company's internal
controls by the Chief Executive and Chief Financial Officers, there have been no
significant changes in such controls or in other factors that could have
significantly affected those controls, including any corrective action with
regard to significant deficiencies and material weaknesses.
Item 15. 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, 2002, 2001,
and 2000 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, 2002, filed
with the Securities and Exchange Commission on
November 13, 2002 incorporated herein by reference.
Exhibit 21 List of Subsidiaries (see page 42).
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) No reports on Form 8-K for the three months ended December 31,
2002 were required to be filed.
40
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: 3/25/03 /s/ Dale S. Coenen
-------------- -----------------------------
Dale S. Coenen
Chairman of the Board of
Directors and Chief
Executive Officer
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 3/25/03
- ---------------------------------- ----------------------------
(Dale S. Coenen)
/s/ Kai Kosanke Vice-President 3/25/03
- ---------------------------------- and Chief Financial Officer ----------------------------
(Kai Kosanke)
/s/ Keith LaCombe Assistant Treasurer 3/25/03
- ----------------------------------- ----------------------------
(Keith LaCombe)
/s/ Jessie D. Swinea, Jr. Director 3/25/03
- ----------------------------------- ----------------------------
(Jessie D. Swinea, Jr.)
/s/ O.K. Dealey, Jr. Director 3/25/03
- ------------------------------------ ----------------------------
(O.K. Dealey, Jr.)
/s/ Robert J. Ruben Director 3/25/03
- ------------------------------------ ----------------------------
(Robert J. Ruben)
41
TRANS-INDUSTRIES, INC.
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dale S. Coenen certify that:
1. I have reviewed this annual report on Form 10-K of Trans-Industries,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I (herein the
"Certifying Officer") are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules
13a and 14 and 15d-14) for the registrant and we have;
a) designed such internal controls to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, (collectively the "Company") is made
known to the Certifying Officers by others within the Company,
particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's internal controls
as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report the conclusions of the Certifying
Officers about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's Certifying Officers have disclosed, based on our most
recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies (if any) in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's Certifying Officers have indicated in this annual
report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 25, 2003
/s/ Dale S. Coenen
- --------------------------------------------------------------------------------
Dale S. Coenen
Chief Executive Officer
See also the certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which is also attached to this report.
- --------------------------------------------------------------------------------
TRANS-INDUSTRIES, INC.
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kai Kosanke certify that:
1. I have reviewed this annual report on Form 10-K of Trans-Industries,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I (herein the
"Certifying Officer") are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules
13a and 14 and 15d-14) for the registrant and we have;
a) designed such internal controls to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, (collectively the "Company") is made
known to the Certifying Officers by others within the Company,
particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's internal controls
as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report the conclusions of the Certifying
Officers about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's Certifying Officers have disclosed, based on our most
recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies (if any) in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's Certifying Officers have indicated in this annual
report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 25, 2003
/s/ Kai Kosanke
- --------------------------------------------------------------------------------
Kai Kosanke
Chief Financial Officer
See also the certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which is also attached to this report.
- --------------------------------------------------------------------------------
10-K EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX - 21 List of Subsidiaries
EX - 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002