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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-7872
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TRANSTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4062211
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
150 Allen Road 07938
Liberty Corner, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (908) 903-1600
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01
(Title of class)
New York Stock Exchange
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of July 6, 2001, the aggregate market value of voting stock held by
non-affiliates of the registrant based on the last sales price as reported by
the New York Stock Exchange on such date was $55,301,810. (See Item 12)
As of July 6, 2001, the registrant had 6,172,077 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for the 2001 Annual Meeting of
Shareholders is incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS.
General
TransTechnology Corporation develops, manufactures and sells a wide
range of products in two industry segments, as described below. TransTechnology
Corporation was originally organized in 1962 as a California corporation and was
reincorporated in Delaware in 1986. Unless the context otherwise requires,
references to the "Company" or the "Registrant" refer to TransTechnology
Corporation (including the California corporation prior to the reincorporation)
and its consolidated subsidiaries. The Company's fiscal year ends on March 31.
Accordingly, all references to years in this report refer to the fiscal year
ended March 31 of the indicated year.
TransTechnology Corporation's core business areas are specialty
fastener products and aerospace products.
Specialty Fastener Products
The Company's specialty fastener products are manufactured by its
Engineered Components Group (Palnut and the Tinnerman companies acquired in
2000), its Engineered Products Group (Breeze Industrial, Pebra, TCR and
Aerospace Rivet Manufacturers (ARM)) and its Engineered Rings Group
(Seeger-Orbis, TransTechnology Brasil, Waldes/IRR, TransTechnology (GB)).
TransTechnology (GB) represents the consolidation of the Anderton and the
recently acquired Ellison plants into a single manufacturing facility in Great
Britain.
The Engineered Components Group includes single and multi-thread metal
fasteners, retaining rings and headlight adjusters for the automotive and
industrial markets. These fasteners include: lock nuts for load carrying in
light duty assemblies or as a supplement to ordinary nuts to assure tightness;
the On-Sert(R) fastener, which is pressed onto hollow plastic bosses to increase
torque and minimize stripping; push-nuts used as temporary fasteners that hold
pre-inserted bolts in place for final assembly or in ratchet plates which fasten
onto a shaft or stud; self-threaders used in the installation of automotive
trim; U-nuts that provide one-sided screw assembly and are used to fasten
bumpers, fenders and grills to vehicles; various single-threaded parts designed
for insertion into metal or plastic panels; and a variety of automotive
headlight adjusters.
Within the Engineered Products Group, Breeze Industrial designs and
manufactures a diverse line of high-quality stainless steel hose clamps,
including worm drive hose clamps, T-Bolt and V-Band clamps, and light duty
clamps for use in the heavy truck and industrial equipment industries by
original equipment manufacturers and replacement suppliers. Pebra designs and
manufactures hose clamps primarily for heavy truck manufacturers in Europe. TCR
designs and manufactures sophisticated externally threaded fastening devices and
custom industrial components by combining its expertise in cold forging and
machining technologies. TCR products are used by industrial customers worldwide,
with key market groups including automotive, hydraulic and recreational product
industries. ARM designs and manufactures rivets and externally threaded
fasteners primarily for the aerospace industry.
Within the Engineered Rings Group, Seeger-Orbis, TransTechnology
Brasil, Waldes/IRR and TransTechnology (GB) manufacture a large range of
retaining and snap rings used in automotive, marine, household and computer
applications that require retention of parts on shafts and axles.
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Specialty fasteners are marketed through a combination of a direct
sales force, distributors and manufacturer's representatives. Such products
comprised 79%, 80% and 78% of the Company's consolidated net sales in 2001, 2000
and 1999, respectively.
At March 31, 2001, the Company's Specialty Fastener Products segment
backlog was $59.2 million, compared to $65.4 million at March 31, 2000.
Substantially all of the March 31, 2001 backlog is scheduled to be shipped
during fiscal 2002.
Aerospace Products
The Company's aerospace products are designed, developed and
manufactured by Breeze-Eastern and Norco. Breeze-Eastern specializes in the
design, development and manufacture of sophisticated lifting and restraining
products, principally helicopter rescue hoists, reeling machines and external
hook systems. In addition, Breeze-Eastern designs, develops and manufactures
winches and hoists for aircraft cargo and weapon-handling systems with
applications ranging from cargo handling on fixed-wing aircraft to positioning
television cameras on blimps, antenna and gear drives. Management believes that
Breeze-Eastern is the industry market share leader in sales of personnel-rescue
hoists and cargo hook equipment. As a pioneer of helicopter hoist technology,
Breeze-Eastern continues to develop sophisticated helicopter hoist systems,
including systems for the current generation of Seahawk, Chinook, Dolphin,
Merlin and Super Stallion helicopters. Breeze-Eastern also supplies equipment
for the United States, Japanese and European Multiple-Launch Rocket Systems
which use two specialized hoists to load and unload rocket pod containers.
Breeze-Eastern's external cargo hook systems are original equipment on most
helicopters manufactured today. These hook systems range from small 1,000-pound
capacity models up to the largest 36,000-pound capacity hooks employed on the
Super Stallion helicopter. Breeze-Eastern also manufactures aircraft and cargo
tie-downs. Norco designs, develops and manufactures mechanical components and
systems such as hold open rods, quick connect/disconnect locking systems,
helicopter blade restraint systems, latch assemblies, safety locks and
application-specific mechanical systems. Its power transmission line of products
include rollnuts, rollnut longspan assemblies, ball reversers, ball oscillators,
FlenNut assemblies and other application-specific linear motion assemblies.
Breeze-Eastern and Norco sell their products through internal marketing
representatives and several independent sales representatives and distributors.
The Aerospace product lines contributed 21%, 20% and 22% of the Company's
consolidated net sales in 2001, 2000 and 1999, respectively.
The Aerospace Products segment backlog varies substantially from time
to time due to the size and timing of orders. At March 31, 2001, the backlog of
unfilled orders was $40.2 million, compared to $44.2 million at March 31, 2000.
The majority of the March 31, 2001 backlog is expected to be shipped during
fiscal 2002.
Management Initiatives and Restructuring
On January 19, 2001, the Company announced its intention to restructure
and divest its cold-headed products (TCR), aerospace rivet (Aerospace Rivets
Manufacturers Corp), retaining ring (Seeger-Orbis, TransTechnology (GB), TT
Brasil and Waldes/IRR) and hose clamp operations (Breeze Industrial and Pebra)
and that it had retained an investment banking firm to consider further
strategic and business initiatives following these actions. In association with
the restructuring, the Company suspended the payment of its quarterly dividend
and recognized a charge in the fourth fiscal quarter of 2001 related to
anticipated losses on the sale of several of these businesses as well as the
provision for severance and other costs associated with these divestitures.
Proceeds from the sales of the businesses will to be used to repay debt and to
refocus the Company's efforts on the design, manufacture and marketing of
specialized aerospace equipment.
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The Company entered into an amendment of its existing credit agreement
under which the Company's senior lenders agreed to forbearance with respect to
the Company's continuing violations of certain covenants in the senior credit
agreement through September 27, 2001, subject to the Company meeting certain
interim debt reduction and EBITDA targets. The Company's subordinated lenders
also entered into a forbearance agreement with respect to the Company's expected
violation of its net worth covenant as the result of write-offs to be incurred
in the fourth fiscal quarter of 2001 as part of its restructuring plan.
As discussed in Note 2 in the Notes to Consolidated Financial
Statements, the Company reported, on a pre-tax basis, asset impairment charges
in the fourth fiscal quarter of 2001 of $67.9 million related to estimated
losses on businesses to be sold, primarily related to the write-off of
intangible assets and property. In addition, in the fourth fiscal quarter of
2001 the Company reported a pre-tax charge of $10.2 million associated with the
write-down of real estate held for sale and equity investments and notes
receivable from a 1995 divestiture. The Company expects additional net non-cash
write-offs of goodwill in fiscal 2002 resulting from the divestiture process,
including a gain on the July 10, 2001 sale of its Breeze Industrial Products
and Pebra hose clamp businesses and an anticipated non-cash loss resulting from
the planned sale of the TransTechnology Engineered Components business.
On April 12, 2001, the Company announced that, following a review of
alternative strategic initiatives, it would become solely a manufacturer of
niche aerospace products. As a result, the Company said it would divest
TransTechnology Engineered Components (TTEC), a manufacturer of spring steel
engineered fasteners and headlight adjusters. The Company will seek to have all
the divestitures, including TTEC, completed by September 2001.
Following the divestiture of the fastener business units, the Company
expects to have retired substantially all of its debt and expects to reduce its
corporate overhead by more than $4 million from its present $8.7 million level.
Additionally, for tax purposes, the Company expects to have significant
operating loss carry-forwards which will shelter future earnings from taxes for
several years. The Company expects that, when repositioned as an aerospace
products manufacturer with revenues from new equipment sales, maintenance and
service of existing equipment, and spare parts sales, it will be a significantly
more profitable and less leveraged entity, with substantial growth
opportunities. Management believes that the Company will present substantially
more value to its shareholders after the restructuring than in its present form.
On July 10, consistent with the aforementioned actions, the Company
completed the previously announced sale of its Breeze Industrial and Pebra hose
clamp businesses in the U.S. and Germany, respectively, to Industrial Growth
Partners and the current management team of these divested companies for $46.2
million in cash. Proceeds were used to repay debt. The Company is involved in
ongoing discussions with potential buyers for the sales of the businesses
previously reported as being held for sale. While there can be no assurances
that these transactions will be consummated, management believes that they are
continuing to make progress toward the execution of its previously announced
strategies.
Defense Industry Sales
Approximately 9% of the Company's consolidated net sales in 2001, as
compared to 8% and 10% in 2000 and 1999, respectively, were derived from sales
to the United States Government, principally the military services of the
Department of Defense and its prime contractors. These contracts typically
contain precise performance specifications and are subject to customary
provisions which give the United States Government the contractual right of
termination for convenience. In the event of termination for convenience,
however, the Company is typically protected by provisions allowing reimbursement
for costs incurred as well as payment of any applicable fees or profits.
No single customer accounted for 10% or more of the Company's net sales
in 2001 or 2000.
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Environmental Matters
Due primarily to Federal and State legislation which imposes liability,
regardless of fault, upon commercial product manufacturers for environmental
harm caused by chemicals, processes and practices that were commonly and
lawfully used prior to the enactment of such legislation, the Company may be
liable for all or a portion of the environmental clean-up costs at sites
previously owned or leased by the Company (or corporations acquired by the
Company). The Company's contingencies associated with environmental matters are
described in Note 13 of "Notes to Consolidated Financial Statements" and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Competition
The Company's businesses compete in some markets with entities that are
larger and have substantially greater financial and technical resources than the
Company. Generally, competitive factors include design capabilities, product
performance, delivery and price. The Company's ability to compete successfully
in such markets will depend on its ability to develop and apply technological
innovations and to expand its customer base and product lines. There can be no
assurance that the Company will continue to compete successfully in any or all
of the businesses discussed above. The failure of the Company to compete in more
than one of these businesses could have a materially adverse effect on the
Company's profitability.
Raw Materials
The various components and raw materials used by the Company to produce
its products are generally available from more than one source. In those
instances where only a single source for any material is available, such items
can generally be redesigned to accommodate materials made by other suppliers. In
some cases, the Company stocks an adequate supply of the single source materials
for use until a new supplier can be approved. The Company's business is not
dependent upon a single supplier or a few suppliers, the loss of which would
have a materially adverse effect on the Company's consolidated financial
position.
Employees
As of July 1, 2001, the Company employed 2,331 people. There were 2,025
employees associated with the Specialty Fastener Products segment, 288 with the
Aerospace Products segment and 18 with the corporate office.
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Financial Information About Industry Segments
Financial information relating to each of the Company's segments has
been included in Note 14 of "Notes to Consolidated Financial Statements".
Foreign Operations and Sales
The Company's foreign-based facilities during fiscal 2001 consisted of
the Seeger-Orbis and Pebra facilities located in Koenigstein and Frittlingen,
Germany, TransTechnology (GB) Limited's facility located in Glusburn, England,
sales offices in Paris, France, Barcelona, Spain and Surrey, England,
TransTechnology Brasil's facility located in Sao Paulo, Brazil and
TransTechnology Canada Corporation's facility located in Hamilton, Ontario. The
Company acquired the Seeger-Orbis and TransTechnology Brazil businesses on June
30, 1995. Pebra was acquired on June 18, 1996. TransTechnology (GB) resulted
from the consolidation on December 1, 1999, of Anderton International Limited,
acquired on June 30, 1995, and Ellison Holdings PLC, acquired on July 19, 1999.
TransTechnology Canada Corporation was incorporated on August 12, 1999 to hold
the Canadian based assets of Eaton's Engineered Fasteners Division acquired on
August 31, 1999. The Company had sales from its non-U.S. operations of $99.4
million, $66.2 million and $56.7 million in fiscal 2001, 2000 and 1999,
respectively, representing 30%, 22% and 25% of the Company's consolidated net
sales in each of those years, respectively. The Company had export sales of
$41.2 million, $43.3 million and $31.2 million in fiscal 2001, 2000 and 1999,
respectively, representing 13%, 15% and 14% of the Company's consolidated net
sales in each of those years, respectively. The risk and profitability attendant
to these sales is generally comparable to similar products sold in the United
States. Net sales, profits and identifiable assets attributable to the Company's
foreign and domestic operations, and the identification of export sales by
geographic area and domicile of customers, are set forth in Note 14 of "Notes to
Consolidated Financial Statements".
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ITEM 2. PROPERTIES
The following table sets forth certain information concerning the
Company's principal facilities for its continuing operations:
Owned or
Location Use of Premises Leased Sq. Ft
-------- --------------- -------- ------
Liberty Corner, New Jersey Executive Offices Leased 13,000
SPECIALTY FASTENER
PRODUCTS SEGMENT
Saltsburg, Pennsylvania Breeze Industrial offices and Owned 137,000
manufacturing plant
Mountainside, New Jersey Palnut offices and manufacturing Owned 142,000
plant
Irvington, New Jersey Waldes/IRR - Industrial Division Owned 37,000
manufacturing plant
Millburn, New Jersey Waldes/IRR - Industrial Division Leased 53,100
offices and distribution center
City of Industry, California Aerospace Rivet Manufacturers Leased 60,500
Corporation offices and
manufacturing plant
Southfield, Michigan Engineered Components sales Leased 6,000
office
Brunswick, Ohio TT Engineered Components Leased 44,500
group offices and manufacturing
plant
Massillon, Ohio TT Engineered Components Owned 190,580
offices and manufacturing plant
Hamilton, Ontario, Canada TT Engineered Components Owned 127,913
offices and manufacturing plant
Konigstein, Germany Seeger Group offices and Owned 149,000
Seeger-Orbis manufacturing
plant
Minneapolis, Minnesota TCR Corporation offices Leased 137,000
and manufacturing plant
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SPECIALTY FASTENER
PRODUCTS SEGMENT
- ----------------
(Continued)
Glusburn, England TransTechnology (GB) offices Owned 263,000
and manufacturing plant
Surrey, England TransTechnology Engineered Leased 109
Components sales office
Sao Paulo, Brazil TransTechnology Brasil offices Owned 85,000
and manufacturing plant
Paris, France TransTechnology Engineered Leased 500
Rings sales office
Frittlingen, Germany Pebra offices and Owned 30,000
manufacturing plant
Barcelona, Spain TransTechnology Engineered Leased 500
Rings sales office
AEROSPACE PRODUCTS SEGMENT
Union, New Jersey Breeze-Eastern offices Owned 188,000
and manufacturing plant
Ridgefield, Connecticut Norco, Inc. offices and Owned 35,000
manufacturing plant
The Company believes that such facilities are suitable and adequate for
the Company's foreseeable needs and that additional space, if necessary, will be
available. The Company continues to own or lease property that it no longer
needs in its operations. These properties are located in California,
Pennsylvania, New York and Illinois. In some instances, the properties are
leased or subleased and in nearly all instances these properties are for sale.
ITEM 3. LEGAL PROCEEDINGS
The information required has been included in Note 13 of "Notes to
Consolidated Financial Statements".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the three month period ended March 31, 2001.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $0.01, is traded on the New York
Stock Exchange under the symbol TT. The following table sets forth the range of
high and low closing sales prices of shares of the Company's Common Stock for
the calendar quarters indicated, as reported by the New York Stock Exchange.
High Low
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Fiscal 2000
First Quarter $20.44 $16.94
Second Quarter 19.75 11.63
Third Quarter 12.31 8.13
Fourth Quarter 15.19 10.50
Fiscal 2001
First Quarter $14.69 $ 8.44
Second Quarter 11.38 6.13
Third Quarter 7.31 2.88
Fourth Quarter 6.75 3.75
As of July 6, 2001, the number of stockholders of record of the Common
Stock was 1,788. On July 6, 2001, the closing sales price of the Common Stock
was $8.96 per share.
The Company paid a regular quarterly dividend of $0.065 per share on
June 1, September 1 and December 1, 1999, March 1, June 1, September 1 and
December 1, 2000. On January 19, 2001, the Company announced the suspension of
its regular quarterly dividend.
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ITEM 6. SELECTED FINANCIAL DATA
The following table provides selected financial data with respect to
the consolidated statements of operations of the Company for the fiscal five
years ended March 31, 2001, and the consolidated balance sheets of the Company
at the end of each such year.
YEARS ENDED MARCH 31,
2001 2000 1999 1998 1997
(In thousands, except per share amounts)
Net sales(a) $328,071 $299,252 $228,006 $203,928 $178,684
- -------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations
before income taxes (83,822) 11,508 24,294 20,153 16,620
(Benefit) provision for income taxes (10,852) 4,373 9,704 8,162 6,898
- -------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations (72,970) 7,135 14,590 11,991 9,722
Loss from discontinued operations -- -- -- (924) (934)
- -------------------------------------------------------------------------------------------------------------------
(Loss) income before extraordinary charge (72,970) 7,135 14,590 11,067 8,788
Extraordinary charge for refinancing of debt -- (541) (781) -- --
- -------------------------------------------------------------------------------------------------------------------
Net (loss) income $(72,970) $ 6,594 $ 13,809 $ 11,067 $ 8,788
- -------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic:
(Loss) income from continuing operations $ (11.83) $ 1.16 $ 2.33 $ 2.17 $ 1.92
Loss from discontinued operations -- -- -- (0.17) (0.18)
Extraordinary charge for refinancing of debt -- (0.09) (0.12) -- --
- -------------------------------------------------------------------------------------------------------------------
Net (loss) income per share $ (11.83) $ 1.07 $ 2.21 $ 2.00 $ 1.74
- -------------------------------------------------------------------------------------------------------------------
Diluted:
(Loss) income from continuing operations $ (11.83) $ 1.16 $ 2.30 $ 2.11 $ 1.87
Loss from discontinued operations -- -- -- (0.16) (0.18)
Extraordinary charge for refinancing of debt -- (0.09) (0.12) -- --
- -------------------------------------------------------------------------------------------------------------------
Net (loss) income per share $ (11.83) $ 1.07 $ 2.18 $ 1.95 $ 1.69
- -------------------------------------------------------------------------------------------------------------------
Dividends declared and paid per share $ 0.195 $ 0.26 $ 0.26 $ 0.26 $ 0.26
- -------------------------------------------------------------------------------------------------------------------
Total assets $393,249 $482,755 $279,720 $236,073 $199,136
Long-term debt $ 1,055(b) $194,759 $102,463 $ 51,350 $ 67,516
Stockholders' equity $ 51,875 $128,883 $123,710 $115,832 $ 77,444
Book value per share $ 8.40 $ 20.97 $ 20.25 $ 18.47 $ 15.40
Shares outstanding at year-end 6,172 6,145 6,108 6,272 5,028
- -------------------------------------------------------------------------------------------------------------------
(a) In 2000, the Company acquired the Engineered Fasteners Division of Eaton
Corporation, Ellison Holdings PLC and Ellison, Roettges & Co. GmbH. In
1999, the Company acquired Aerospace Rivet Manufacturers Corporation and
NORCO. In 1998, the Company acquired TCR Corporation. In 1997, the Company
acquired the Pebra hose clamp business.
(b) Excluding callable debt of $271,307.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's fiscal year ends on March 31. Accordingly, all references to years
in this Management's Discussion and Analysis refer to the fiscal year ended
March 31 of the indicated year. Also, when referred to herein, operating profit
means net sales less operating expenses, without deduction for general corporate
expenses, interest and income taxes.
MANAGEMENT INITIATIVES AND RESTRUCTURING
On January 19, 2001, the Company announced its intention to restructure and
divest its cold-headed products (TCR), aerospace rivet (Aerospace Rivet
Manufacturers Corp), retaining ring (Seeger-Orbis, TransTechnology (GB), TT
Brasil, and Waldes/IRR) and hose clamp operations (Breeze Industrial and Pebra).
The Company also announced that it had retained an investment banking firm to
consider further strategic and business initiatives following these actions. In
association with the restructuring, the Company stated it would suspend the
payment of its quarterly dividend and recognize a non-recurring charge in the
fourth fiscal quarter of 2001 related to anticipated losses on the sale of
several of these businesses as well as the provision for severance and other
costs associated with these divestitures. Proceeds from the sales of the
businesses will be used to repay debt and to refocus the Company's efforts on
the design, manufacture and marketing of specialized aerospace equipment.
The Company entered into an amendment of its existing credit agreement under
which the Company's senior lenders agreed to forbearance with respect to the
Company's continuing violations of certain covenants in the senior agreement
through September 27, 2001, subject to the Company meeting certain interim debt
reduction and EBITDA targets. The Company's subordinated lenders also entered
into a letter forbearance agreement with respect to the Company's expected
violation of its net worth covenant as the result of write-offs to be incurred
in the fourth fiscal quarter of 2001 as part of its restructuring plan.
As discussed in Note 2 in the "Notes to Consolidated Financial Statements", the
Company reported, on a pre-tax basis, asset impairment charges in the fourth
fiscal quarter of 2001 of $67.9 million related to estimated losses on
businesses to be sold, primarily related to the write-off of intangible assets
and property. In addition, in the fourth fiscal quarter of 2001 the Company
reported a pre-tax charge of $10.2 million associated with the write-down of
real estate held for sale and equity investments and notes receivable from a
1995 divestiture. The Company expects additional net non-cash write-offs of
goodwill in fiscal 2002 resulting from the divestiture process, including a gain
on the July 10, 2001 sale of its Breeze Industrial Products and Pebra hose
clamp businesses and an anticipated non-cash loss resulting from the planned
sale of the TransTechnology Engineered Components business.
On April 12, 2001, the Company announced that, following a review of alternative
strategic initiatives, it would become solely a manufacturer of niche aerospace
products. As a result, the Company will divest TransTechnology Engineered
Components (TTEC), a manufacturer of spring steel engineered fasteners and
headlight adjusters. The Company will seek to have all the divestitures,
including TTEC completed by September 2001.
Following the divestiture of the fastener business units, the Company expects to
have retired substantially all of its debt and expects to reduce its corporate
overhead by more than $4 million from its present $8.7 million level.
Additionally, for tax purposes, the Company expects to have significant
operating loss carry-forwards which will shelter future earnings from taxes for
several years. The Company expects, when repositioned as an aerospace products
manufacturer with revenues from new equipment sales, maintenance and service of
existing equipment, and spare parts sales, to be significantly more profitable
and less leveraged, with substantial growth opportunities. Management believes
that the Company will present substantially more value to its shareholders after
the restructuring than in its present form.
On July 10, consistent with the aforementioned actions, the Company completed
the previously announced sale of its Breeze Industrial and Pebra hose clamp
businesses in the U.S. and Germany, respectively, to Industrial Growth Partners
and the current management team of these divested companies for $46.0 million in
cash. Proceeds were used to repay debt. The Company is involved in ongoing
discussions with potential buyers for the
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sales of the businesses previously reported as being held for sale. While there
can be no assurances that these transactions will be consummated, management
believes that they are continuing to make progress toward the execution of its
previously announced strategies.
RESULTS OF OPERATIONS
Net sales increased 9.6% to $328.1 million for 2001 compared to $299.3 million
in 2000. Sales in the Specialty Fasteners Products segment increased 8.0% to
$257.6 million in 2001 from $238.4 million in 2000. This increase was primarily
the result of the Tinnerman acquisition in 2000 where 7 months of operations
were reported in 2000 versus a full year in 2001. Sales in the Aerospace
Products segment were up 15.9% in 2001 versus 2000 based on strong product
demand at both Breeze-Eastern and Norco.
Consolidated gross margins were $86.4 million in 2001 versus $88.3 million in
2000.
The Company reported an Operating Loss in 2001 of $27.2 million compared to
Operating Profit of $40.0 million in 2000. In 2001, the Company reported an
asset impairment charge of $67.9 million related to the announced intention to
sell its TCR, ARM, and Rings business units. This impairment loss relates
primarily to the write-down of goodwill, patents, trademarks and net property.
In addition, in 2001 the Company incurred additional costs in the U.K.
associated with its consolidation of the Ellison and Anderton retaining ring
plants of $2.1 million. Reduced product demand and lower gross margins
contributed to this reported Operating Loss in 2001. Specific segment results
are discussed below.
Net interest expense increased $14.5 million due to higher debt levels in 2001
versus 2000 to fund the Tinnerman and Ellison acquisitions which occurred in
2000. Also contributing to increased interest expense were higher interest rates
in 2001 versus 2000 and a charge of $2.3 million in 2001 related to loan fees
associated with the refinancing of the Company's bridge loan, which occurred on
September 1, 2000.
The Company reported a tax benefit of $10.9 million in 2001 which included the
estimated tax effects of the sale of the TCR, ARM, and Rings businesses and a
valuation allowance for deferred tax assets related to the future sales of these
business units.
New orders received during 2001 totaled $320.1 million versus $305.2 million in
2000. This increase reflected the inclusion of 12 months of orders in 2001
versus seven months of orders in 2000 for the Tinnerman businesses. This was
offset somewhat by lower bookings in several of the Specialty Fasteners Products
business units reflecting lower product demand. At March 31, 2001, total backlog
of unfilled orders was $99.4 million versus $109.6 million at March 31, 2000.
New orders and backlog by segment are discussed below.
SPECIALTY FASTENER PRODUCTS SEGMENT 2001 COMPARED TO 2000
Sales for the Specialty Fastener Products segment were $257.6 million in 2001
versus $238.4 million in 2000. $23.4 million of this increase occurred in the
Engineered Components businesses, primarily the result of the acquisition of
Tinnerman in 2000. Sales at the Hose Clamp businesses (Breeze Industrial and
Pebra) were down $4.6 million from 2000 primarily due to weak demand in the
heavy truck markets. Sales at the Engineered Rings businesses were up $4.8
million from 2000 in both European and U.S. markets. $4.9 million of this
increase resulted from the acquisition of Ellison in 2000; weak local currency
exchange rates erased strong increases in unit sales in the U.K., Germany and
Brazil. Sales at TCR were $2.6 million below 2000 due to weak product demand for
cold-headed products and production problems associated with specific product
orders.
Operating losses were $45.4 million in 2001 versus operating profit of $24.6
million in 2000. In 2001, the Company reported an asset impairment charge of
$67.9 million primarily related to the write-down of goodwill, patents,
trademarks, and property. On January 19, 2001, the Company announced that it had
intended to sell the TCR, ARM, Rings, and Hose Clamp businesses. This impairment
charge was required to write the net assets of certain of these businesses down
to estimated net realizable values associated with future dispositions.
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Before the impairment charge, operating profit was $22.4 million. Operating
profit was down $2.1 million from 2000 in the Hose Clamp businesses reflecting
weak heavy truck production in the last half of fiscal 2001. Operating profit in
the Rings businesses was up in 2001 in the U.S., Germany, and Brazil but these
improvements were more than offset by additional losses in the U.K. resulting
from the consolidation of the Ellison and Anderton plants and associated
production and delivery problems. The Company reported additional
consolidation-related costs in 2001 of $2.1 million. Operating profit at the
Engineered Components businesses was up $2.4 million primarily due to the
inclusion of Tinnerman's results for the full year in 2001. Operating profit at
TCR was down by 34% from 2000 resulting from weak sales and lower gross margin
percentages due to product pricing pressures and production problems. In 2001,
$1.3 million was received in an arbitration award at ARM from its largest
customer due to a breach of contract to purchase a minimum amount of ARM's
products. This amount was included in operating profit in 2001.
Gross margin earned at the Engineered Rings businesses in 2001 was $5.2 million
below that of 2000 primarily due to additional production costs associated with
the U.K. plant consolidation. Gross margin in 2001 at the hose clamp businesses
was $2.7 million below 2000 due to lower sales levels and lower gross margin
percentages attributable to the slow-down in the heavy truck industry. Gross
margin earned at the Engineered Component businesses in 2001 was $5.1 million
above 2000 due to a full 12 months reported in 2001 versus 7 months in 2000.
New orders during 2001 were $253.5 million versus $243.4 million in 2000. This
increase reflects the inclusion of Tinnerman for the full year in 2001. New
orders were up 46% in 2001 over 2000 at ARM reflecting stabilization in that
business, down 3.1% at the hose clamps businesses, up 1.6% at the Engineered
Rings businesses, and down 22.1% at TCR. The backlog at March 31, 2001 was $59.2
million versus $65.4 million at March 31, 2000. Backlog declined over this
period in the Engineered Components businesses due to weakened automotive
production in the last quarter of 2001. In the Rings businesses, backlog
declined as past due unfilled orders related to U.K. production problems became
less significant.
SPECIALTY FASTENER PRODUCTS SEGMENT 2000 COMPARED WITH 1999
Sales for the Specialty Fastener Products segment were $238.4 million in 2000,
an increase of $60.6 million, or 34%, from 1999. The increase in sales was
primarily due to the acquisition of Ellison on July 19, 1999 and Tinnerman on
August 31, 1999. Increases in domestic hose clamps and assembly fasteners and
cold-headed parts sales were offset by decreases in European hose clamps and
both domestic and international retaining rings. Sales at ARM continued to
decline due to a loss of a substantial portion of business from its largest
customer and the down cycle of the airframe industry. The Company filed an
arbitration demand against this customer and the former owner seeking damages
for fraud and breach of contract, punitive damages and rescission, which was
settled in 2001.
Operating profit for the Specialty Fastener Products segment was $24.6 million
in 2000, a decrease of $1.7 million, or 6%, compared to 1999. Excluding $5.5
million of expenses relating to the consolidation of two retaining ring
factories in England as part of the Ellison acquisition program, operating
profit increased 15%. This increase was primarily driven by the Tinnerman
acquisition. Operating profits at the European operation were lower due to
reduced market and economic factors, as well as currency factors, especially the
exchange rates between the Pound sterling and the Euro. Domestic retaining ring
operating profit was lower due to lower sales volume. Operating profit in
assembly fasteners increased in 2000 mainly due to increased sales volume,
primarily in the U.S. automotive market.
New orders during 2000 for the Specialty Fastener Products segment were $243.4
million, an increase of $71.9 million, or 42%, mainly due to the Tinnerman and
Ellison acquisitions which were not owned in 1999. Backlog of unfilled orders as
of March 31, 2000 increased to $65.4 million, compared to $45.9 million at March
31, 1999, mainly due to these acquisitions.
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AEROSPACE PRODUCTS SEGMENT 2001 COMPARED WITH 2000
Sales in 2001 were $70.5 million versus $60.8 million in 2000. Sales at
Breeze-Eastern were $7.0 million above 2000 primarily due to strong product
demand across all product lines and to a lesser degree because of improved
product pricing. Sales at Norco were $2.7 million above 2000, attributable to
strong demand in the commercial aviation OEM and spare parts business as well as
new product introductions.
Gross margin earned at Breeze-Eastern increased by $3.4 million in 2001 over
2000 which was the result of greater sales levels over the period as well as a
higher gross margin rate. Norco's gross margin increased by $0.8 million
primarily due to higher sales levels.
Operating income was $18.2 million in 2001 compared to $15.4 million in 2000.
The majority of the operating income increase over 2000 occurred at
Breeze-Eastern.
New orders during 2001 were $66.5 million versus $61.8 million in 2000. In 2001,
order intake was up $0.7 million at Breeze Eastern and $4.0 million at Norco
compared to 2000. This reflects strong unit demand for these products. Backlog
was $40.2 million at March 31, 2001 versus $44.2 million at March 31, 2000. The
decline from the past year occurred primarily at Breeze-Eastern and is the
result of the timing of large orders received.
AEROSPACE PRODUCTS SEGMENT 2000 COMPARED WITH 1999
Sales for the Aerospace Products segment were $60.8 million in 2000, an increase
of $10.7 million, or 21%, from 1999. Approximately 9% of the increase came from
increased rescue hoist and engineering development programs and 12% due to the
inclusion of twelve months of sales from Norco this year compared to eight
months in 1999.
Operating profit for the Aerospace Products segment was $15.4 million, an
increase of $3.3 million, or 27%. This increase was due to the inclusion of
Norco for the full year in 2000, as well as increased sales of rescue hoists.
New orders during 2000 for the Aerospace Products segment were $61.8 million, an
increase of $12.4 million, or 25%, mainly due to the Norco acquisition.
Increased orders also included increased engineering program orders and
increased orders for spare parts. Backlog of unfilled orders as of March 31,
2000 was $44.2 million, compared to $43.8 million at March 31, 1999.
EURO CURRENCY
Effective January 1, 1999, eleven countries comprising the European Union
established fixed foreign currency exchange rates and adopted a common currency
unit designated as the "Euro". The Euro has since become publicly traded and is
currently used in commerce during the present transition period which is
scheduled to end January 1, 2002, at which time a Euro denominated currency is
scheduled to be issued and is intended to replace those currencies of the eleven
member countries. The transition to the Euro has not resulted in problems for
the Company to date, and is not expected to have any material adverse impact on
the Company's future operations.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138,
which amends certain provisions of SFAS No. 133. The Company has appointed a
team to implement SFAS No.133 and the Company has adopted SFAS No. 133 and the
corresponding amendments under SFAS No. 138 on April 1, 2001. The impact on the
Company of SFAS Nos. 133 and 138, adopted as of April 1, 2001, would result in a
charge to other comprehensive income of $3.2 million and an offsetting liability
of $3.2 million at that date.
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Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" was issued in December 1999. SAB No. 101b, "Second Amendment:
Revenue Recognition in Financial Statements", defers implementation of SAB No.
101 until no later than the fourth quarter of fiscal 2001. These SAB's were
implemented effective January 1, 2001, and did not have a material impact on the
Company's revenue recognition policies.
ACQUISITIONS
On August 31, 1999, the Company acquired all of the assets and assumed certain
liabilities, consisting primarily of trade debts and accrued expenses, of the
Engineered Fasteners Division of Eaton Corporation and its Tinnerman product
line (collectively referred to as "Tinnerman") for a total purchase price of
$173.3 million in cash. Tinnerman had 650 employees and manufactures a wide
variety of fastening devices for the automotive, business equipment, consumer
electronics and home appliance markets. Tinnerman has manufacturing facilities
in Brunswick and Massillon, Ohio and Hamilton, Ontario, Canada.
On July 19, 1999, the Company acquired all the outstanding capital stock of
Ellison Holdings PLC, a privately held company, and its German affiliate
Ellison, Roettges & Co. GmbH (collectively referred to as "Ellison") for $13.8
million in cash, a $0.4 million note payable 24 months from the date of
acquisition and other contingent consideration. Ellison, headquartered in
Glusburn, West Yorkshire, England, manufactures retaining and snap rings as well
as lockwashers for the automotive, heavy vehicle and industrial markets.
On June 29, 1998, the Company acquired all of the outstanding stock of Aerospace
Rivet Manufacturers Corporation ("ARM") for $26.2 million in cash, including
direct acquisition costs, and other contingent consideration. ARM, located in
City of Industry, California, produces rivets and externally threaded fasteners
for the aerospace industry.
On July 28, 1998, the Company acquired all of the outstanding stock of Norco,
Inc. ("Norco") for $17.7 million in cash, including direct acquisition costs,
and other contingent consideration. Norco, located in Ridgefield, Connecticut,
produces aircraft engine compartment hold open rods, actuators and other motion
control devices for the aerospace industry.
ASSETS HELD FOR SALE
Included in Other Assets at March 31, 2001 and 2000, were assets held for sale
related to businesses previously reported as discontinued operations of $2.9
million and $5.2 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's credit facilities are considered short term and reflect the terms
of the forbearance agreement with its lenders (the "Lenders"). The Company plans
to reduce debt as previously announced by selling several of its fastener
business units, and has taken action and initiated discussions with interested
parties. The terms of sale of each business unit are subject to the approval of
the Lenders. The Company's debt-to capitalization ratio was 84%, 68%, and 45% as
of March 31, 2001, 2000 and 1999, respectively. The higher
debt-to-capitalization ratio for 2001 reflects reduced equity due to impairment
charges of $78 million recorded in connection with the Company's restructuring
and divestiture plan to reduce debt. Higher debt ratios for 2000 reflect the
additional bank borrowings necessary for the Tinnerman and Ellison acquisitions
in that year.
The current ratio as of March 31, 2001 was 0.41, compared to 1.01 and 3.39 at
March 31, 2000 and 1999, respectively. Working capital was ($190.8) million at
March 31, 2001, down $192.6 million from 2000 and down $261.9 million from 1999.
The reduction in working capital in 2001 was due to the reclassification of long
term bank debt to short term debt reflecting the terms of the current
forbearance agreement, which has expiration dates less than one year. Total debt
as of March 31, 2001 was $272.5 million or $4.9 million less than the March 31,
2000 amount.
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Effective December 31, 2000, the Company was not able to meet certain financial
ratio requirements of the credit facility (the "Credit Facility"), as amended.
Pursuant to discussions with the Lenders, the Company and the Lenders agreed to
an amendment to the Credit Facility to include a forbearance agreement, the
payment of certain other fees by the Company and imposition of certain
conditions on the Company, including the suspension of dividend payments. During
the forbearance period the Lenders agree not to exercise certain of their rights
and remedies under the Credit Agreement. The Company has, accordingly,
classified its bank debt as "current" to reflect the fact that the forbearance
period is less than one year. The term of the forbearance period, initially
scheduled to expire on January 31, 2001, was subsequently extended by an
additional amendment to March 29, 2001. This additional amendment also reduced
the Revolver from $200 million to $175 million with an additional sub-limit on
usage at $162 million. Prior to the March 29, 2001 expiration date, an extension
was agreed to extend the termination date until June 27, 2001, provided that
certain performance and debt reduction requirements were achieved, in which case
the forbearance termination date may be further extended under similar terms and
conditions until September 27, 2001. The debt reduction requirements of the
forbearance agreement stipulated that $50 million be repaid prior to June 27,
2001, which was deemed satisfied, with the consent of the Lenders, by the sale
of the Company's Breeze Industrial and Pebra divisions in July 2001, and the
remainder to be repaid prior to the September 27, 2001 termination date. Funds
for such debt repayments are expected to be realized from the sale of business
assets with the prior consent of the lending group. The forbearance agreement
also requires the achievement of minimum levels of EBITDA (earnings before
interest, taxes, depreciation, and amortization), and the adherence to borrowing
limits as adjusted based on the scheduled debt reduction. Other terms of the
forbearance agreement include the payment of certain fees, reporting and
consulting requirements. The Company has taken action to reduce its debt by
preparing to sell certain of its businesses in order to either comply with the
requirements of the existing Credit Facility as amended or to be in an improved
financial position to negotiate further amendments or borrowing alternatives.
The Company has made all of its scheduled interest and principal payments on a
timely basis. Various factors, including changes in business conditions,
anticipated proceeds from the sale of operations and economic conditions in
domestic and international markets in which the Company competes, will impact
the restructuring results and may affect the ability of the Company to restore
compliance with the financial ratios specified in the existing Credit Facility.
The Company has unused borrowing capacity for both domestic and international
operations of $6.2 million as of March 31, 2001, including letters of credit of
$5.0 million. The Revolver and Term Loan are secured by substantially all of the
Company's assets. As of March 31, 2001, the Company had total borrowings of
$271.2 million which have a current weighted-average interest rate of 11.5%.
Borrowings under the Revolver as of March 31, 2001, were $156.3 million.
Interest on the Revolver is tied to the primary bank's prime rate, or at the
Company's option, the London Interbank Offered Rate ("LIBOR"), plus a margin
that varies depending upon the Company's achievement of certain operating
results. As of March 31, 2001, $192.1 million of the Company's outstanding
borrowings utilized LIBOR, of which $165.7 million were payable in U.S. Dollars
and $7.3 million and $19.1 million were payable in Deutsche marks and Pounds
sterling, respectively. The terms of the forbearance agreement provide that the
Company's option to borrow at LIBOR is conditional upon the achievement of the
debt reduction targets of $50 million by June 27, 2001, and the remainder by
September 27, 2001. LIBOR borrowings, expiring prior to these dates, may not be
renewed unless such debt reduction has occurred. Effective June 7, 2001, LIBOR
borrowings consequently were converted to base rate borrowings at prime rate of
7% plus a margin of 2.5% to equal a borrowing rate of 9.5%.
Borrowings under the Term Loan as of March 31, 2001, were $38.8 million. As
discussed above, the Term Debt, as well as all other debt under the Credit
Facility, has been classified as currently payable to reflect the forbearance
agreement in place.
The Credit Facility requires the Company to maintain interest rate protection on
a minimum of 50% of its variable rate debt. The Company has, accordingly,
provided sufficiently for this protection by means of interest
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rate swap agreements which have fixed the rate of interest on $50.0 million of
debt at a base rate of 5.48% through May 4, 2002, and $75.0 million of debt at a
base rate of 6.58% through March 3, 2003. Under the Credit Facility, the base
interest rate is added to the applicable interest rate margin to determine the
total interest rate in effect. The Credit Facility restricts annual capital
expenditures to $12.0 million through 2001, $13.0 million in 2002, and $15.0
million thereafter, and contains other customary financial covenants, including
the requirement to maintain certain financial ratios relating to performance,
interest expense and debt levels. As noted above, the Company is currently
operating under a forbearance arrangement and is in the process of reducing its
debt through the sale of certain of its businesses in order to either comply
with the requirements of the existing agreement or to be in an improved
financial position to negotiate further amendments or borrowing alternatives.
On August 30, 2000, the Company completed a private placement of $75 million in
senior subordinated notes (the "Notes") and certain warrants to purchase shares
of the Company's common stock (the "Warrants") to a group of institutional
investors (collectively, the "Purchasers"). The Company used the proceeds of the
private placement to retire, in full, a $75 million Bridge Loan held by a group
of lenders led by Fleet National Bank. The Notes are due on August 29, 2005 and
bear interest at a rate of 16% per annum, consisting of 13% cash interest on
principal, payable quarterly, and 3% interest on principal, payable quarterly in
"payment-in-kind" promissory notes. Prepayment of the Notes is permitted after
August 29, 2001 at a premium initially of 9% declining to 5%, 3%, and 1%
annually, respectively, thereafter. The Notes contain customary financial
covenants and events of default, including a cross-default provision to the
Company's Credit Facility.
The Warrants entitle the Purchasers to acquire in the aggregate 427,602 shares,
or 6.5%, of the common stock of the Company at an exercise price of $9.93 a
share, which represents the average daily closing price of the Company's common
stock on the New York Stock Exchange for the thirty (30) days preceding the
completion of the private placement, and which may be subject to a price
adjustment on the first anniversary of the issuance of the Warrants. The
Warrants must be exercised by August 29, 2010. These Warrants have been valued
at an appraised amount of $0.2 million and have been recorded in paid in
capital. In connection with the transaction, the Company and certain of its
subsidiaries signed a Consent and Amendment Agreement with its senior debt
lenders (the "Lenders") under the Company's $250 million Credit Facility
existing at that time, in which the Lenders consented to the private placement
and amended certain financial covenants associated with the Credit Facility.
As of March 31, 2001, the Company had $1.3 million of other long-term debt
consisting of collateralized borrowing arrangements with fixed interest rates of
3% and 3.75% and loans on life insurance policies owned by the Company with a
fixed interest rate of 5%.
The Company did not purchase any treasury stock in 2001 or 2000 in contrast to
1999 during which the Company purchased 249,000 shares for $4.9 million.
Treasury stock purchases are made in the open market or in negotiated
transactions when opportunities are deemed to arise. Purchases of treasury stock
are limited by the terms of the Company's Credit Facility.
Management believes that the Company's plan to divest several of its business
units in order to reduce debt, along with the anticipated cash flow from its
retained business operations, will be sufficient to support working capital,
capital expenditure, and debt service costs. The amount and timing of proceeds
from such sales is subject to market and other conditions which the Company
cannot control. Capital expenditures in 2001 were $5.7 million compared to $10.0
million in 2000 and $14.8 million in 1999, with capital expenditures for the
Fastener Segment being much larger than those required by the Aerospace Products
Segment. The Company expects capital expenditures in 2002 to be lower than the
2001 amount mainly due to the planned business unit dispositions.
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INFLATION: While neither inflation nor deflation has had, and the Company does
not expect it to have, a material impact upon operating results, there can be no
assurance that its business will not be affected by inflation or deflation in
the future.
CONTINGENCIES
ENVIRONMENTAL MATTERS: During the fourth quarter of fiscal 2000, the Company
presented an environmental cleanup plan for a portion of a site in Pennsylvania
which continues to be owned although the related business has been sold. This
plan was submitted pursuant to the Consent Order and Agreement with the
Pennsylvania Department of Environmental Protection ("PaDEP") concluded in
fiscal 1999. Pursuant to the Consent Order, upon its execution the Company paid
$0.2 million for past costs, future oversight expenses and in full settlement of
claims made by PaDEP related to the environmental remediation of the site with
an additional $0.2 million paid in fiscal 2001. A second Consent Order was
concluded with PaDEP in the third quarter of fiscal 2001 for another portion of
the site, and a third Consent Order for the remainder of the site is
contemplated by October 1, 2002. The Company is also administering an agreed
settlement with the Federal government under which the government pays 50% of
the environmental response costs associated with a portion of the site. The
Company is also in the process of finalizing the documentation of an agreed
settlement under which the Federal government will pay 45% of the environmental
response costs associated with another portion of the site. At March 31, 2000,
the Company's cleanup reserve was $1.7 million based on the net present value of
future expected cleanup costs. In fiscal 1999, the Company settled for a
recovery of a portion of cleanup costs with its insurance carriers for
approximately $5.1 million (net) which was included in Other income-net. The
Company expects that remediation at the Pennsylvania site will not be completed
for several years.
The Company also continues to participate in environmental assessments and
remediation work at ten other locations, which include operating facilities,
facilities for sale, and previously owned facilities. The Company estimates that
its potential cost for implementing corrective action at these sites will not
exceed $0.2 million payable over the next several years, and has provided for
the estimated costs in its accrual for environmental liabilities.
In addition, the Company has been named as a potentially responsible party in
seven environmental proceedings pending in several other states in which it is
alleged that the Company was a generator of waste that was sent to landfills and
other treatment facilities and, as to several sites, it is alleged that the
Company was an owner or operator. Such properties generally relate to businesses
which have been sold or discontinued. The Company estimates that its expected
future costs, and its estimated proportional share of remedial work to be
performed, associated with these proceedings will not exceed $0.1 million and
has provided for these estimated costs in its accrual for environmental
liabilities.
LITIGATION: The Company is also engaged in various other legal proceedings
incidental to its business. It is the opinion of management that, after taking
into consideration information furnished by its counsel, the above matters will
have no material effect on the Company's consolidated financial position or the
results of the Company's operations in future periods.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS: Certain statements in this
document constitute "forward-looking statements" within the meaning of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended (the "Acts"). Any statements contained herein that are not statements of
historical fact are deemed to be forward-looking statements.
The forward-looking statements in this document are based on current beliefs,
estimates and assumptions concerning the operations, future results, and
prospects of the Company. As actual operations and results may materially differ
from those assumed in forward-looking statements, there is no assurance that
forward-looking statements will prove to be accurate. Forward-looking statements
are subject to the safe harbors created in the Acts.
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Any number of factors could affect future operations and results, including,
without limitation, the Company's ability to dispose of some or all of the
business operations proposed for divestiture for the consideration currently
estimated to be received by the Company or within the timeframe anticipated by
the Company; the Company's ability to arrive at a mutually satisfactory
amendment of its credit facilities with its lenders, if required; in the event
of divestiture, the Company's ability to be profitable with a smaller and less
diverse base of operations that will generate less revenue; the value of
replacement operations, if any; general industry and economic conditions;
interest rate trends; capital requirements; competition from other companies;
changes in applicable laws, rules and regulations affecting the Company in the
locations in which it conducts its business; the availability of equity and/or
debt financing in the amounts and on the terms necessary to support the
Company's future business and/or to provide adequate financing for parties
interested in purchasing operations identified for divestiture; and those
specific risks that are discussed in the Company's previously filed Annual
Report on Form 10-K for the fiscal year ended March 31, 2000.
The Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information or future events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange rates and interest rates. The Company enters into
off-balance-sheet forward foreign exchange instruments in order to hedge certain
intercompany financing denominated in foreign currencies, accounts receivable
denominated in foreign currencies, a percentage of projected sales denominated
in foreign currencies, and projected foreign currency intercompany purchases.
Gains and losses on forward foreign exchange instruments that hedge specific
third party transactions are included in the cost of carrying value of the
underlying transaction. Gains and losses on instruments that are hedges of
projected third party transactions are included in current period income. The
Company recognized $0.5 million of unrealized gains on forward exchange
contracts in 2000 that were hedges of forecasted future transactions. In 2001,
the Company reversed $0.5 million of these gains as the hedges matured, which
reduced income in 2001.
At March 31, 2001, the Company had outstanding forward foreign exchange
contracts to purchase and sell $10.8 million of various currencies (principally
Deutsche marks and Pounds sterling). At March 31, 2001, if all forward contracts
were closed out there would be no cash received or paid (the fair value of all
outstanding contracts is $0.0 million). A 10% fluctuation in the exchange rates
for the currencies hedged would have a $0.9 million effect on fair values of
these instruments.
The table below summarizes, by currency, the contractual amounts of the
Company's foreign exchange contracts at March 31, 2001 and 2000. The "Buy"
amounts represent the U.S. dollar equivalent of commitments to purchase foreign
currencies, and the "Sell" amounts represent the U.S. dollar equivalent to sell
foreign currencies (in thousands):
2001 2000
---------------------------------------------
BUY SELL BUY SELL
Currency
Deutsche mark -- $ 9,977 -- $10,589
Pound sterling $ 779 -- $17,501 1,667
---------------------------------------------
$ 779 $ 9,977 $17,501 $12,256
---------------------------------------------
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The Company enters into interest rate swap agreements to manage a portion of its
exposure to interest rate changes. The swaps involve the exchange of fixed and
variable interest rate payments without exchanging the notional principal
amount. Payments or receipts on the swap agreements are recorded as adjustments
to interest expense. At March 31, 2001 the Company had outstanding interest rate
swap agreements to convert $125 million of floating rate debt to fixed rate
debt. The fair value of these swaps was approximately ($3.2) million at March
31, 2001.
NOTIONAL
AMOUNT RECEIVE PAY
(IN THOUSANDS) MATURITIES RATE(1) RATE
March 31, 2001 $25,000 5/02 4.88% 5.48%
25,000 5/02 4.88 5.48
37,500 3/03 4.88 6.58
37,500 3/03 4.88 6.58
(1) Based on three-month LIBOR
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Financial Statements:
Independent Auditors' Report ................................... 20
Statements of Consolidated Operations .......................... 21
Consolidated Balance Sheets .................................... 22
Statements of Consolidated Cash Flows .......................... 23
Statements of Consolidated Shareholders' Equity ................ 24
Notes to Consolidated Financial Statements ..................... 25
Financial Statement Schedules:
Schedule II - Consolidated Valuation and Qualifying Accounts for
years ended March 31, 2001, 2000 and 1999.
Schedules referenced in Article 5 of Regulation S-X, other than
that listed above, are not required and have been omitted.
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INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
TransTechnology Corporation:
We have audited the accompanying consolidated balance sheets of TransTechnology
Corporation and subsidiaries as of March 31, 2001 and 2000, and the related
statements of consolidated operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 2001. Our audits also
included the financial statement schedules listed in the Index at Item 14. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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 that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TransTechnology Corporation and
subsidiaries at March 31, 2001 and 2000, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 2001
in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth herein.
Parsippany, New Jersey
July 13, 2001
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TRANSTECHNOLOGY CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands, except share data)
Years ended March 31,
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------
Net sales $ 328,071 $ 299,252 $ 228,006
Cost of sales 239,517 209,949 156,090
Plant consolidation charge 2,113 991 --
- ------------------------------------------------------------------------------------------------------------------
Gross profit 86,441 88,312 71,916
General, administrative and selling expenses 59,617 53,447 46,552
Interest expense 34,420 19,945 6,938
Interest income (114) (518) (412)
Other income - net (1,747) (624) (6,362)
Allowance on notes receivable -- -- 906
Provision for plant consolidation -- 4,554 --
Provision for impairment of business unit assets 67,879 -- --
Provision for impairment of corporate assets 10,208 -- --
- ------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes and extraordinary charge (83,822) 11,508 24,294
(Benefit) provision for income taxes (10,852) 4,373 9,704
- ------------------------------------------------------------------------------------------------------------------
(Loss) income before extraordinary charge (72,970) 7,135 14,590
Extraordinary charge for refinancing of debt (net of applicable
tax benefits of $339 and $532 for 2000 and 1999, respectively) -- (541) (781)
- ------------------------------------------------------------------------------------------------------------------
Net (loss) income $ (72,970) $ 6,594 $ 13,809
- ------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic:
(Loss) income before extraordinary charge $ (11.83) $ 1.16 $ 2.33
Extraordinary charge for refinancing of debt -- (0.09) (0.12)
- ------------------------------------------------------------------------------------------------------------------
Net (loss) income per share $ (11.83) $ 1.07 $ 2.21
- ------------------------------------------------------------------------------------------------------------------
Diluted:
(Loss) income before extraordinary charge $ (11.83) $ 1.16 $ 2.30
Extraordinary charge for refinancing of debt -- (0.09) (0.12)
- ------------------------------------------------------------------------------------------------------------------
Net (loss) income per share $ (11.83) $ 1.07 $ 2.18
- ------------------------------------------------------------------------------------------------------------------
Weighted - average basic shares outstanding 6,167,000 6,139,000 6,249,000
Weighted - average diluted shares outstanding 6,167,000 6,150,000 6,341,000
See notes to consolidated financial statements
21
23
TRANSTECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
MARCH 31,
ASSETS 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,964 $ 3,350
Accounts receivable (net of allowance for doubtful accounts of
$1,529 and $1,129 in 2001 and 2000, respectively) 58,581 61,819
Inventories 61,346 65,744
Prepaid expenses and other current assets 1,839 1,902
Income tax receivable 5,600 40
Deferred income taxes 1,512 1,872
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 130,842 134,727
- -----------------------------------------------------------------------------------------------------------------------
PROPERTY:
Land 13,210 14,320
Buildings 28,412 29,933
Machinery and equipment 93,654 93,725
Furniture and fixtures 10,963 11,587
Leasehold improvements 3,587 3,503
- -----------------------------------------------------------------------------------------------------------------------
Total 149,826 153,068
Less accumulated depreciation and amortization 68,572 47,048
- -----------------------------------------------------------------------------------------------------------------------
Property - net 81,254 106,020
- -----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Notes receivable 61 3,455
Costs in excess of net assets of acquired businesses (net of accumulated
amortization of $15,589 and $10,933 in 2001 and 2000, respectively) 139,793 192,115
Patents and trademarks (net of accumulated amortization of $2,310 and $1,334
in 2001 and 2000, respectively) 16,902 20,809
Deferred income taxes 11,360 9,987
Other 13,037 15,642
- -----------------------------------------------------------------------------------------------------------------------
Total other assets 181,153 242,008
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $ 393,249 $ 482,755
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Callable long-term debt $ 271,307 $ --
Current portion of long-term debt 88 82,585
Accounts payable - trade 20,067 25,550
Accrued compensation 10,295 10,359
Accrued income taxes 3,194 5,799
Other current liabilities 16,734 8,672
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 321,685 132,965
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS 1,055 194,759
- -----------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 5,298 11,873
- -----------------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 13,336 14,275
- -----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)
- -----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock - authorized, 300,000 shares; none issued
Common stock - authorized, 14,700,000 shares of $.01 par value, issued,
6,718,614 and 6,691,232 shares in 2001 and 2000, respectively 67 67
Additional paid-in capital 78,091 77,587
Notes receivable from officers (191) --
(Accumulated deficit) retained earnings (10,446) 63,722
Accumulated other comprehensive loss (6,323) (3,157)
Unearned compensation (253) (267)
- -----------------------------------------------------------------------------------------------------------------------
60,945 137,952
Less treasury stock, at cost - 546,428 and 546,394 shares in 2001 and 2000, respectively (9,070) (9,069)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 51,875 128,883
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $ 393,249 $ 482,755
- -----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
22
24
TRANSTECHNOLOGY CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
YEARS ENDED MARCH 31,
2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income $(72,970) $ 6,594 $ 13,809
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary charge for refinancing of debt -- 541 781
Gain on sale of marketable securities (13) -- (1,082)
Impairment of assets 66,052 -- --
Depreciation and amortization 19,632 17,617 10,802
Non-cash interest expense 1,484 -- --
Write-down of assets - plant consolidation -- 1,762 --
Provision for losses on accounts and notes receivable, and
cost investments 7,479 199 803
Loss (gain) on sale or disposal of fixed assets and
discontinued businesses 64 10 (28)
Changes in assets and liabilities - excluding the effects
of acquisitions:
Decrease (increase) in accounts receivable 1,839 (9,923) 1,073
Decrease in inventories 1,983 4,089 2,266
(Increase) decrease in other assets (2,258) (1,472) 1,888
(Decrease) increase in accounts payable (2,094) 7,369 (2,604)
Increase (decrease) in accrued compensation 161 2,548 (3,603)
(Decrease) increase in income taxes payable (8,165) 3,924 686
Increase (decrease) in other liabilities 681 (6,550) (6,115)
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,875 26,708 18,676
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business acquisitions -- (187,086) (43,901)
Capital expenditures (5,671) (10,037) (14,759)
Proceeds from sale of fixed assets and discontinued businesses 1,231 534 502
Proceeds from sale of marketable securities 56 3 2,024
Decrease in notes and other receivables 233 782 3,128
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,151) (195,804) (53,006)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments on long-term debt (82,500) (3,750) (60,099)
Proceeds from long-term borrowings and bridge loan 75,000 125,000 --
Issuance (repayment) of other debt, net 4,074 55,993 99,246
Debt issue costs (6,276) (5,679) --
Exercise of stock options and other -- 310 1,157
Treasury stock purchases -- -- (4,926)
Dividends paid (1,198) (1,593) (1,625)
- -------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (10,900) 170,281 33,753
- -------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (210) (90) (128)
(Decrease) increase in cash and cash equivalents (1,386) 1,095 (705)
Cash and cash equivalents at beginning of year 3,350 2,255 2,960
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,964 $ 3,350 $ 2,255
- -------------------------------------------------------------------------------------------------------
Supplemental information:
Interest payments $ 29,475 $ 17,959 $ 7,130
Income tax payments 2,658 2,218 5,177
Increase in senior subordinated note for paid-in-kind
interest expense 1,332 -- --
Warrants issued 214 -- --
- -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
23
25
TRANSTECHNOLOGY CORPORATION
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED ADDITIONAL
MARCH 31, 2001, COMMON STOCK TREASURY STOCK PAID-IN
2000 AND 1999 SHARES AMOUNT SHARES AMOUNT CAPITAL
- -------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 6,564,079 $ 66 (292,054) $(3,999) $75,959
Net income -- -- -- -- --
Other comprehensive income:
Currency translation
adjustment (net of taxes
of $467) -- -- -- -- --
Unrealized investment
holding gains (net of taxes
of $117) -- -- -- -- --
Cash dividends ($.26 per share) -- -- -- -- --
Purchase of treasury stock (248,700) (4,926) --
Issuance of stock under
stock option plan 84,714 1 -- -- 1,156
Issuance of stock under
bonus plan 5,062 -- (5,459) (139) 131
- -------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 6,653,855 67 (546,213) (9,064) 77,246
Net income -- -- -- -- --
Other comprehensive income:
Currency translation
adjustment (net of taxes
of $80) -- -- -- -- --
Unrealized investment
holding losses (net of taxes
of $3) -- -- -- -- --
Cash dividends ($.26 per share) -- -- -- -- --
Issuance of stock under
stock option plan 29,200 -- -- -- 189
Issuance of stock under
bonus plan 8,177 -- (181) (5) 152
- -------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 6,691,232 67 (546,394) (9,069) 77,587
Net loss -- -- -- -- --
Other comprehensive loss:
Minimum pension liability
adjustment (net of taxes
of $685) -- -- -- -- --
Currency translation
adjustment (net of taxes
of $1,093) -- -- -- -- --
Unrealized investment
holding loss -- -- -- -- --
Less: reclassification adjust-
ment for gains included in
net loss -- -- -- -- --
Cash dividends -- -- -- -- --
Issuance of warrants under
mezzanine debt -- -- -- -- 214
Issuance of stock under
stock option plan/other 15,000 -- -- -- 171
Issuance of stock under
bonus plan 12,382 -- (34) (1) 119
- -------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2001 6,718,614 $ 67 (546,428) $(9,070) $78,091
=================================================================================================
RETAINED NOTES ACCUMULATED
YEARS ENDED EARNINGS RECEIVABLE OTHER TOTAL
MARCH 31, 2001, (ACCUMULATED FROM COMPREHENSIVE UNEARNED COMPREHENSIVE
2000 AND 1999 DEFICIT) OFFICERS LOSS COMPENSATION INCOME (LOSS)
- ------------------------------------------------------------------------------------------------ -------------
BALANCE, MARCH 31, 1998 $ 46,537 -- $ (2,495) $ (236)
Net income 13,809 -- -- -- $13,809.00
Other comprehensive income:
Currency translation
adjustment (net of taxes
of $467) -- -- (701) -- (701)
Unrealized investment
holding gains (net of taxes
of $117) -- -- 175 -- 175
Cash dividends ($.26 per share) (1,625) -- -- -- --
Purchase of treasury stock -- -- -- -- --
Issuance of stock under
stock option plan -- -- -- -- --
Issuance of stock under
bonus plan -- -- -- (3) --
- ------------------------------------------------------------------------------------------------ -------------
BALANCE, MARCH 31, 1999 58,721 -- (3,021) (239) $ 13,283
=============
Net income 6,594 -- -- -- $ 6,594.00
Other comprehensive income:
Currency translation
adjustment (net of taxes
of $80) -- -- (131) -- (131)
Unrealized investment
holding losses (net of taxes
of $3) -- -- (5) -- (5)
Cash dividends ($.26 per share) (1,593) -- -- -- --
Issuance of stock under
stock option plan -- -- -- -- --
Issuance of stock under
bonus plan -- -- -- (28) --
- ------------------------------------------------------------------------------------------------ -------------
BALANCE, MARCH 31, 2000 63,722 -- (3,157) (267) $ 6,458
=============
Net loss (72,970) -- -- $ (72,970)
Other comprehensive loss:
Minimum pension liability
adjustment (net of taxes
of $685) -- -- (1,141) -- (1,141)
Currency translation
adjustment (net of taxes
of $1,093) -- -- (2,029) -- (2,029)
Unrealized investment
holding loss -- -- (6) -- (6)
Less: reclassification adjust-
ment for gains included in
net loss -- -- 10 -- 10
Cash dividends (1,198) -- -- -- --
Issuance of warrants under
mezzanine debt -- -- -- -- --
Issuance of stock under
stock option plan/other -- (191) -- -- --
Issuance of stock under
bonus plan -- -- -- 14 --
- ------------------------------------------------------------------------------------------------ -------------
BALANCE, MARCH 31, 2001 $(10,446) $ (191) $ (6,323) $ (253) $ (76,136)
================================================================================================ =============
See notes to consolidated financial statements.
24
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
NOTE 1 Summary of Accounting Principles
BUSINESS - The fiscal year for TransTechnology Corporation (the
"Company") ends on March 31. Accordingly, all references to years in the Notes
to Consolidated Financial Statements refer to the fiscal year ended March 31 of
the indicated year unless otherwise specified.
The Company develops, manufactures and sells a wide range of products
in two industry segments, Specialty Fastener Products and Aerospace Products.
The Company has manufacturing facilities located in the United States, Canada,
Germany, the United Kingdom and Brazil. The Specialty Fastener Products Segment
produces highly engineered precision metal retaining rings, gear driven band
fasteners, circlips, custom cold-formed parts, head light adjusters, rivets and
other threaded and non-threaded assembly fasteners primarily for the automotive,
heavy truck, industrial, aerospace and consumer/durables markets and accounted
for approximately 79% of the Company's consolidated 2001 net sales. Through its
Aerospace Products Segment, the Company develops, manufactures, sells and
services a complete line of sophisticated lifting and restraining products,
principally performance critical helicopter rescue hoist and cargo hook systems,
winches and hoists for aircraft and weapons systems and aircraft engine
compartment hold open rods, actuators and other motion control devices. This
segment accounted for approximately 21% of the Company's consolidated 2001 net
sales.
USE OF ESTIMATES - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in its
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates. Estimates used for asset impairment are based upon
future cash flow projections or, in the case of assets to be sold, appraisals
and fair market value estimates obtained from investment bankers.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries, all of
which, except one subsidiary in Spain, are wholly-owned. Intercompany balances
and transactions are eliminated in consolidation. Investments in less than 20%
owned companies are accounted for by the cost method.
REVENUE RECOGNITION - Revenue is recognized at the later of 1) when
products are shipped to customers, or 2) when title passes to customers.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity at date of acquisition of three months or less to be
cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method. Cost includes material,
labor and manufacturing overhead costs.
PROPERTY AND RELATED DEPRECIATION AND AMORTIZATION - Property is
recorded at cost. Provisions for depreciation are made on a straight-line basis
over the estimated useful lives of depreciable assets ranging from three to
thirty years. Amortization of leasehold improvements is computed on a
straight-line basis over the shorter of the estimated useful lives of the
improvements or the terms of the leases. The Company reviews property and
equipment and assets held for sale for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Depreciation expense for the years ended March 31, 2001, 2000 and
1999 was $11.1 million, $11.2 million and $8.6 million, respectively.
25
27
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES - The difference
between the purchase price and the fair value of the net assets of acquired
businesses is included in the accompanying Consolidated Balance Sheets under the
caption "Costs in excess of net assets of acquired businesses" and is being
amortized over 40 years. The Company periodically estimates the future
undiscounted cash flows of the businesses to which goodwill relates to ensure
that the carrying value of such goodwill has not been impaired.
PATENTS AND TRADEMARKS - Patents are amortized on a straight-line basis
over their remaining lives not to exceed 20 years. Trademarks are amortized on a
straight-line basis over 40 years.
EARNINGS PER SHARE ("EPS") - The computation of basic earnings per
share is based on the weighted-average number of common shares outstanding. The
computation of diluted earnings per share assumes the foregoing and, in
addition, the exercise of all dilutive stock options using the treasury stock
method.
The components of the denominator for basic earnings per common share
and diluted earnings per common share are reconciled as follows:
2001 2000 1999
Basic earnings per common share:
Weighted-average common shares outstanding 6,167,000 6,139,000 6,249,000
-----------------------------------
Diluted earnings per common share:
Weighted-average common share outstanding 6,167,000 6,139,000 6,249,000
Stock options -- 11,000 92,000
-----------------------------------
Denominator for diluted earnings per
common share 6,167,000 6,150,000 6,341,000
-----------------------------------
Options to purchase 505,971 shares of common stock at prices between
$8.84 and $27.88 were outstanding during 2001 but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares. Similarly, during 2000
options to purchase 288,759 shares of common stock at prices between $15.13 and
$30.13 were outstanding but were not included in the computation of diluted EPS.
During 1999, options to purchase 169,774 shares of common stock at prices
between $22.94 and $27.88 were outstanding but were not included in the
computation of diluted EPS.
RESEARCH, DEVELOPMENT AND ENGINEERING COSTS - Research and development
costs and engineering costs, which are charged to expense when incurred,
amounted to $2.4 million, $2.0 million and $2.4 million in 2001, 2000 and 1999,
respectively. Included in these amounts were expenditures of $1.2 million, $1.3
million and $1.2 million in 2001, 2000 and 1999, respectively, which represent
costs related to research and development activities.
FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the
Company's international operations have been translated into U.S. dollars at
year-end exchange rates, with resulting translation gains and losses accumulated
as a separate component of accumulated other comprehensive loss. Income and
expense items are converted into U.S. dollars at average rates of exchange
prevailing during the year.
26
28
INCOME TAXES - Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. The Company periodically assesses recoverability of deferred tax assets
and provisions for valuation allowances are made as required.
INVESTMENTS - During 1999, the Company sold 465,000 shares of Mace
Security International common stock, received in a prior transaction, for $2.0
million in cash and realized a pretax gain of $1.1 million.
In 2001, the Company wrote off its investment in an investee in the
amount of $3.2 million together with a note receivable in the amount of $3.7
million as a result of a foreclosure on the investee's outstanding loans by its
senior lenders.
FINANCIAL INSTRUMENTS - The Company does not hold or issue financial
instruments for trading purposes. Amounts to be paid or received under interest
rate swap agreements are recognized as increases or reductions in interest
expense in the periods in which they accrue. The Company enters into
off-balance-sheet forward foreign exchange instruments in order to hedge certain
intercompany loans denominated in foreign currencies, accounts receivable
denominated in foreign currencies, a percentage of projected sales denominated
in foreign currencies, and projected foreign currency intercompany purchases.
Gains and losses on the financing transactions are included in other income -
net. Gains and losses on forward foreign exchange instruments that hedge
specific third party transactions are included in the cost or carrying value of
the underlying transaction. Gains and losses on instruments that are hedges of
projected third party transactions are included in current period income.
NEW ACCOUNTING STANDARDS - In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities". In June 2000, the FASB issued SFAS No. 138, which amends certain
provisions of SFAS No. 133. The Company has appointed a team to implement SFAS
No.133 and the Company has adopted SFAS No. 133 and the corresponding amendments
under SFAS No. 138 on April 1, 2001. The impact on the Company of SFAS Nos. 133
and 138, adopted as of April 1, 2001, would result in a charge to other
comprehensive income of $3.2 million and an offsetting liability of $3.2 million
at that date.
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements" was issued in December 1999. SAB No. 101b, "Second
Amendment: Revenue Recognition in Financial Statements", defers implementation
of SAB No. 101 until no later than the fourth quarter of fiscal 2001. These
SAB's were implemented effective January 1, 2001, and did not have any material
impact on the Company's revenue recognition policies.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company, in the event that
circumstances arise that indicate that it's long-lived assets may be impaired,
performs evaluations of asset impairment in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The assets' carrying values are compared to the estimated
future undiscounted cash flows of the assets, or expected sale proceeds for
assets expected to be sold, to determine if a write-down is required. The
Company reported an impairment of long-lived assets in 2001 as discussed below.
SEGMENT INFORMATION - The Company has reported segment information in
accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 requires disclosure of financial data based
on the "management approach" to business decision-making. The management
approach is based on internal information used for making operating decisions
and assessing the performance of the Company's reportable segments. SFAS No. 131
also requires disclosures regarding products and services. Segment information
is reported separately in Note 14 to the consolidated financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to prior
years' financial statements to conform to the 2001 presentation.
27
29
NOTE 2 Management Initiatives and Restructuring
On January 19, 2001, the Company announced its intention to restructure
and divest its cold - headed products (TCR), aerospace rivet (Aerospace Rivet
Manufacturers Corp), retaining ring (Seeger-Orbis, TransTechnology (GB), TT
Brasil and TT Engineered Rings USA) and hose clamp operations (Breeze Industrial
and Pebra). The Company stated that it had retained an investment banking firm
to consider further strategic and business initiatives following these actions.
In association with the restructuring, the Company stated it would suspend the
payment of its quarterly dividend and recognize a charge in the fourth fiscal
quarter of 2001 related to anticipated losses on the sale of several of these
businesses as well as the provision for severance and other costs associated
with these divestitures. Proceeds from the sales of the businesses will be used
to repay debt and to refocus the Company's efforts on the design, manufacture
and marketing of specialized aerospace equipment.
The Company entered into an amendment of its existing credit agreement
under which the Company's senior lenders agreed to forbearance with respect to
the Company's continuing violations of certain covenants in the senior agreement
through September 27, 2001, subject to the Company meeting certain interim debt
reduction and EBITDA targets. The Company's subordinated lenders also entered
into a forbearance agreement with respect to the Company's expected violation of
its net worth covenant as the result of write-offs to be incurred in the fourth
fiscal quarter of 2001 as part of its restructuring plan.
In connection with this restructuring in the fourth quarter of 2001, the
Company recognized an impairment charge of $67.9 million relating to a writedown
of assets to expected realizable values of the Aerospace Rivet Manufacturers,
TCR and the Engineered Rings businesses. Net realizable value is fair value less
cost to sell. The Company has ceased depreciating/amortizing these assets
effective January 19, 2001. The resultant carrying value of these businesses to
be sold at March 31, 2001 was $85.3 million, which is the Company's combined
estimate of realizable value. This impairment charge is summarized as follows:
Impairment Charge
Writedown of Property, net $13,462
Writedown of Goodwill 47,659
Writedown of Patents and Trademarks 2,631
Establishment of liabilities for transaction costs 1,750
Establishment of liabilities, other 2,377
-------
$67,879
=======
The Company expects additional net non-cash write-offs of goodwill in
fiscal 2002 resulting from the divestiture process, including a gain on the July
10, 2001 sale of its Breeze Industrial Products and Pebra hose clamp businesses
and an anticipated non-cash loss resulting from the planned sale of the
TransTechnology Engineered Components business.
The results of operations in 2001 for businesses to be sold, before the
impairment charge, were as follows:
Sales $152,098
Operating Income 5,293
28
30
In addition, the Company reported a provision for impairment of corporate
assets in the fourth quarter of 2001. These assets, which are related to sold
businesses, are summarized as follows:
Writedown of note receivable due from and
equity investment of investee, net $ 7,688
Writedown of real estate held for sale 2,300
Other 220
-------
Total impairment - corporate assets $10,208
=======
The reduced carrying value of these assets, after the impairment charge, was
$1.7 million at March 31, 2001.
NOTE 3 Assets Held for Sale
Included in Other Assets at both March 31, 2001 and 2000 were assets held
for sale related to businesses previously reported as discontinued operations of
$2.9 million and $5.2 million, respectively.
NOTE 4 Acquisitions
On August 31, 1999, the Company acquired all of the assets and assumed
certain liabilities, consisting primarily of trade debts and accrued expenses,
of the Engineered Fasteners Division of Eaton Corporation and its Tinnerman
product line (collectively referred to as "Tinnerman") for a total purchase
price of $173.3 million in cash. Tinnerman had 650 employees and manufactures a
wide variety of fastening devices for the automotive, business equipment,
consumer electronics and home appliance markets. Tinnerman has manufacturing
facilities in Brunswick and Massillon, Ohio and Hamilton, Ontario, Canada.
On July 19, 1999, the Company acquired all the outstanding capital stock
of Ellison Holdings PLC, a privately held company, and its German affiliate
Ellison, Roettges & Co. GmbH (collectively referred to as "Ellison") for $13.8
million in cash, a $0.4 million note payable 24 months from the date of
acquisition and other contingent consideration. Ellison, headquartered in
Glusburn, West Yorkshire, England, manufactures retaining and snap rings as well
as lockwashers for the automotive, heavy vehicle and industrial markets. As part
of the acquisition plan, the Company closed its existing facility in Bingley, UK
and consolidated that operation with the Ellison facility.
On June 29, 1998, the Company acquired all of the outstanding stock of
Aerospace Rivet Manufacturers Corporation ("ARM") for $26.2 million in cash.
ARM, located in City of Industry, California, produces rivets and externally
threaded fasteners for the aerospace industry. The Company recorded $21.7
million of goodwill associated with this acquisition. As discussed below, the
Company announced the intention to sell ARM on January 19, 2001. A valuation
allowance for the unamortized balance of goodwill was established in 2001.
On July 28, 1998, the Company acquired all of the outstanding stock of
Norco, Inc. ("Norco") for $17.7 million in cash, including direct acquisition
costs, and other contingent consideration. Norco, located in Ridgefield,
Connecticut, produces aircraft engine compartment hold open rods, actuators and
other motion control devices for the aerospace industry. The Company recorded
$7.1 million of goodwill associated with this acquisition which is being
amortized over 40 years.
29
31
The following table presents the allocation of purchase price of the 2000
acquisitions:
TINNERMAN ELLISON
Purchase Price $ 173,329 $ 14,172
Tangible Net Assets 37,637 12,865
Goodwill 117,692 892
Patents 4,850 --
Trademarks 13,150 --
The following table presents the allocation of purchase price of the 1999
acquisitions:
NORCO ARM
Purchase Price $ 17,705 $ 26,195
Tangible Net Assets 10,587 4,460
Goodwill 7,118 21,735
The following summarizes the Company's pro forma information as if the
acquisitions of Tinnerman, Ellison, ARM and Norco had occurred at the beginning
of the period presented. The pro forma results give effect to the amortization
of goodwill and additional depreciation and the effects on interest expense and
taxes.
2000 1999
Net sales $338,747 $345,768
-------- --------
Income from continuing operations $ 7,378 $ 13,064
-------- --------
Net income $ 6,837 $ 12,283
-------- --------
Basic earnings per share $ 1.11 $ 1.97
-------- --------
Diluted earnings per share $ 1.11 $ 1.94
-------- --------
The above pro forma information does not purport to be indicative of the
financial results which actually would have occurred had the acquisitions been
made at the beginning of the period presented or subsequent to that date.
30
32
NOTE 5 Inventories
Inventories at March 31, consisted of the following:
2001 2000
Finished goods $21,114 $24,012
Work in process 18,075 18,367
Purchased and manufactured parts 22,157 23,365
------- -------
Total $61,346 $65,744
======= =======
NOTE 6 Income Taxes
The components of total income (loss) from operations (including
continuing extraordinary items) before income taxes were:
2001 2000 1999
Domestic ($51,288) $ 16,008 $ 23,689
Foreign (32,534) (5,378) (708)
-------- -------- --------
Total (83,822) $ 10,630 $ 22,981
======== ======== ========
The provision (benefit) for income taxes is summarized below:
2001 2000 1999
Currently payable (receivable):
Federal ($ 5,600) $ 3,285 $ 3,771
Foreign 105 1,318 --
State 452 419 587
-------- -------- --------
(5,043) 5,022 4,358
-------- -------- --------
Deferred (15,455) (988) 4,814
Valuation allowance 9,646 -- --
-------- -------- --------
(5,809) (988) 4,814
-------- -------- --------
Total ($10,852) $ 4,034 $ 9,172
======== ======== ========
The provision (benefit) for income taxes is allocated between continuing
operations and extraordinary items as summarized below:
2001 2000 1999
Continuing ($10,852) $ 4,373 $ 9,704
Extraordinary -- (339) (532)
-------- --------
Total ($10,852) $ 4,034 $ 9,172
======== ======== ========
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33
The consolidated effective tax rates for continuing operations differ from
the federal statutory rates as follows:
2001 2000 1999
Statutory federal rate (35.0%) 35.0% 35.0%
State income taxes after federal income
tax (2.0) 5.2 4.9
Earnings of the foreign sales corporation -- (9.1) (3.4)
Amortization of purchase price of
businesses not deductible for tax purposes 14.0 5.2 2.3
Foreign rate differential 4.7 3.2 1.0
Valuation allowance 11.5 -- --
Investment write-offs (9.5) -- --
AMT credit (.5) -- --
Other 3.9 (1.5) 0.2
------ ------ ------
Consolidated effective tax rate (12.9%) 38.0% 40.0%
====== ====== ======
The following is an analysis of accumulated deferred income taxes:
2001 2000
Assets:
Current:
Bad debts $ 408 $ --
Employee benefit accruals 884 829
Inventory 680 56
Net operating loss carry-forward 100 796
Other (560) 191
-------- --------
Total current 1,512 1,872
-------- --------
Noncurrent:
Employee benefit accruals 754 666
Environmental 389 583
Accrued liabilities 984 2,046
AMT credit 453 --
Net operating loss carry-forward 16,818 4,531
Other 1,608 2,161
Valuation allowance (9,646) --
-------- --------
Total noncurrent 11,360 9,987
-------- --------
Total assets $ 12,872 $ 11,859
======== ========
Liabilities:
Property $ 5,298 $ 9,858
Other -- 2,015
-------- --------
Total liabilities $ 5,298 $ 11,873
======== ========
The cumulative amount of undistributed earnings of international
subsidiaries for which U.S. income taxes have not been provided was
approximately $4.9 million at March 31, 2001. It is not practical to estimate
the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
32
34
The valuation allowance required under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," has been established
for deferred income tax benefits related to certain foreign subsidiary loss
carry-forwards that may not be realized.
The Company has federal, state and foreign net operating loss carry-forwards
of $12.0 million, $26.0 million and $32.0 million, respectively, which will be
available to offset taxable income during the carry-forward period (through
2021). The tax benefits of these items are reflected in the above analysis of
deferred tax assets and liabilities. If not used, some of these carry-forwards
begin to expire in 2004.
The Company also has an alternative minimum tax credit carry-forward of
approximately $0.5 million which can be carried forward indefinitely.
NOTE 7 Long-term Debt Payable to Banks and Others
Long-term debt payable to banks and others, including current maturities,
at March 31 consisted of the following:
2001 2000
Credit agreement - 10.5% $ 2,900 $ --
Credit agreement - 9.95% 153,368 --
Credit agreement - 8.67% -- 154,723
Term loan - 8.69% -- 46,250
Term loan - 9.06% 38,750 --
Bridge loan - 15.44% -- 75,000
Senior Subordinated Notes - 16% 76,332 --
Other 1,289 1,371
-------- --------
272,639 277,344
Less current maturities and amounts callable
by lenders 271,395 82,585
Less unamortized discount 189 --
-------- --------
Total long-term debt $ 1,055 $194,759
======== ========
CREDIT FACILITIES - Effective December 31, 2000, the Company was not able
to meet certain financial ratio requirements of the credit facility (the "Credit
Facility") as amended. Pursuant to discussions with the senior debt lenders (the
"Lenders"), the Company and the Lenders agreed to an amendment to the Credit
Facility to include a forbearance agreement as well as certain other fees and
conditions, including the suspension of dividend payments. During the
forbearance period the Lenders agree not to exercise certain of their rights and
remedies under the Credit Agreement. The Company has, accordingly, classified
its bank debt as "current" to reflect the fact that the forbearance period is
less than one year. The term of the forbearance period, initially scheduled to
expire on January 31, 2001, was subsequently extended by an additional amendment
to March 29, 2001. This additional amendment also reduced the Revolver from $200
million to $175 million with an additional sub-limit on usage at $162 million.
Prior to the March 29, 2001 expiration date, an extension was agreed to extend
the termination date until June 27, 2001, provided that certain performance and
debt reduction requirements are achieved in which case the forbearance
termination date may be further extended under similar terms and conditions
until September 27, 2001. The debt reduction requirements of the forbearance
agreement stipulated that $50 million was to be repaid prior to the June 27,
2001 date, which was deemed satisfied, with the consent of the Lenders, by the
sale of the Company's Breeze Industrial and Pebra divisions in July 2001, and
the remainder to be repaid prior to the September 27, 2001 termination date.
Funds for such debt repayments are expected to be realized from the sale of
business assets with the prior consent of the Lenders. The forbearance agreement
also requires the achievement of minimum levels of EBITDA (earnings before
interest, taxes,
33
35
depreciation, and amortization), and the adherence to borrowing limits as
adjusted based on the scheduled debt reduction. Other terms of the forbearance
agreement include certain fees, reporting and consulting requirements. The
Company has taken action to reduce its debt by preparing to sell certain of its
businesses in order to either comply with the requirements of the existing
agreement as amended or to be in an improved financial position to negotiate
further amendments or borrowing alternatives. The Company has made all of its
scheduled interest and principal payments on a timely basis. Various factors,
including changes in business conditions, anticipated proceeds from the sale of
operations and economic conditions in domestic and international markets in
which the Company competes, will impact the restructuring results and may affect
the ability of the Company to restore compliance with the financial ratios
specified in the existing Credit Facility.
The Company has unused borrowing capacity for both domestic and
international operations of $6.2 million as of March 31, 2001, including letters
of credit of $5.0 million. The Revolver and Term Loan are secured by the
Company's assets. As of March 31, 2001, the Company had total borrowings of
$271.2 million which have a current weighted-average interest rate of 11.5%.
Borrowings under the Revolver as of March 31, 2001, were $156.3 million.
Interest on the Revolver is tied to the primary bank's prime rate, or at the
Company's option, the London Interbank Offered Rate ("LIBOR"), plus a margin
that varies depending upon the Company's achievement of certain operating
results. As of March 31, 2001, $192.1 million of the Company's outstanding
borrowings utilized LIBOR, of which $165.7 million were payable in U.S. Dollars
and $7.3 million and $19.1 million were payable in Deutsche marks and Pounds
sterling, respectively. The terms of the forbearance agreement provide that the
Company's option to borrow at LIBOR is conditional upon the achievement of the
debt reduction targets of $50 million by June 27, 2001, and the remainder by
September 27, 2001. LIBOR borrowings, expiring prior to these dates, may not be
renewed unless such debt reduction has occurred. Effective June 7, 2001, LIBOR
borrowings consequently were converted to base rate borrowings at prime rate of
7% plus a margin of 2.5% to equal a borrowing rate of 9.5%.
Borrowings under the Term Loan as of March 31, 2001, were $38.8 million.
As discussed above, the Term Debt, as well as all other debt under the Credit
Facility, has been classified as currently payable to reflect the forbearance
agreement in place.
The Credit Facility requires the Company to maintain interest rate
protection on a minimum of 50% of its variable rate debt. The Company has,
accordingly, provided sufficiently for this protection by means of interest rate
swap agreements which have fixed the rate of interest on $50.0 million of debt
at a base rate of 5.48% through May 4, 2002, and $75.0 million of debt at a base
rate of 6.58% through March 3, 2003. Under the agreement, the base interest rate
is added to the applicable interest rate margin to determine the total interest
rate in effect. The Credit Facility restricts annual capital expenditures to
$13.0 million in 2002 and $15.0 million thereafter, and contains other customary
financial covenants, including the requirement to maintain certain financial
ratios relating to performance, interest expense and debt levels.
SENIOR SUBORDINATED NOTES - On August 30, 2000, the Company completed a
private placement of $75 million in senior subordinated notes (the "Notes") and
certain warrants to purchase shares of the Company's common stock (the
"Warrants") to a group of institutional investors (collectively, the
"Purchasers"). The Company used the proceeds of the private placement to retire,
in full, a $75 million Bridge Loan held by a group of lenders led by Fleet
National Bank. The Notes are due on August 29, 2005 and bear interest at a rate
of 16% per annum, consisting of 13% cash interest on principal, payable
quarterly, and 3% interest on principal, payable quarterly in "payment-in-kind"
promissory notes. Prepayment of the Notes is permitted after August 29, 2001 at
a premium initially of 9% declining to 5%, 3%, and 1% annually, respectively,
thereafter. The Notes contain customary financial covenants and events of
default, including a cross-default provision to the Company's senior credit
facility.
The Warrants entitle the Purchasers to acquire in the aggregate 427,602
shares, or 6.5%, of the common stock of the Company at an exercise price of
$9.93 a share, which represents the average daily closing price of the Company's
common stock on the New York Stock Exchange for the thirty (30) days preceding
the
34
36
completion of the private placement, and which may be subject to a price
adjustment on the first anniversary of the issuance of the Warrants. The
Warrants must be exercised by August 29, 2010. These Warrants have been valued
at an appraised amount of $0.2 million and have been recorded in paid in
capital. In connection with the transaction, the Company and certain of its
subsidiaries signed a Consent and Amendment Agreement with the Lenders under the
Company's $250 million Credit Facility existing at that time, in which the
Lenders consented to the private placement and amended certain financial
covenants associated with the Credit Facility.
OTHER - As of March 31, 2001, the Company had $1.3 million of other
long-term debt consisting of collateralized borrowing arrangements with fixed
interest rates of 3% and 3.75% and loans on life insurance policies owned by the
Company with a fixed interest rate of 5%.
Debt maturities
2002 $ 88
2003 91
2004 94
2005 79
2006 45
Thereafter 892
------
Total $1,289
------
NOTE 8 Stockholders' Equity and Employee/Director Stock Options
The Company maintains the amended and restated 1992 long-term incentive
plan (the "1992 Plan"), the 1998 non-employee directors stock option plan (the
"1998 Plan") and the 1999 long-term incentive plan (the "1999 Plan").
Under the terms of the 1992 Plan, 800,000 of the Company's common shares
may be granted as stock options or awarded as restricted stock to officers,
directors and certain employees of the Company through September 2002. Under the
terms of the 1999 plan, 300,000 of the Company's common shares may be granted as
stock options or awarded as restricted stock to officers, directors and certain
employees of the Company through July 2009. Under both plans, option exercise
prices equal the fair market value of the common shares at their grant dates.
For grants made prior to May 1999, options expire not later than five years
after the date of the grant. Options granted beginning in May 1999 expire not
later than 10 years after the date of the grant; options granted to officers and
employees, awarded as part of a three-year bonus plan, expire not later than 5
years after the date of the grant. Options granted to directors and to officers
and employees with the annual yearly cash bonus vest ratably over three years
beginning one year after the date of the grant; options granted to officers and
employees awarded as part of a three-year long term bonus plan vest at the end
of the three-year plan period. Restricted stock is payable in equivalent number
of common shares. The shares are distributable in a single installment and, with
respect to officers and employees, restrictions lapse ratably over a three-year
period from the date of the award, and with respect to directors, the
restrictions lapse after one year.
Under the terms of the 1998 Plan, non-employee directors are entitled to
receive matching options for each share of the Company's common stock which they
hold at the end of a 60-day period following initial election as a director, but
not to exceed 25,000 shares with the strike price of the option being the fair
market value of the shares at their grant dates, and thereafter, for each share
of the Company's common stock that they purchase on the open market, with the
strike price of the option being the purchase price of the share, up to a
maximum of 5,000 options in any twelve month period or 15,000 options over a
three-year period. Options granted under the 1998 Plan vest on the first
anniversary of the grant, provided that, exclusive of the options granted to
match shares held at the end of the 60-day period, the optionee may not acquire
by exercise of the options more than 5,000 shares in any one year. Options
expire not later than five years after the date of the grant.
35
37
The Company continues to apply the accounting standards set forth in APB
No. 25. However, disclosures are required of pro forma net income and earnings
per share as if the Company had adopted the accounting provisions of SFAS No.
123, "Accounting for Stock-Based Compensation". Based on Black-Scholes values,
pro forma net income for 2001, 2000 and 1999 would be ($73.3) million, $6.2
million and $13.4 million, respectively; pro forma earnings per common share for
2001, 2000 and 1999 would be ($11.89), $1.00 and $2.11, respectively.
The following table summarizes stock option activity over the past three
years under the plan:
WEIGHTED-
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
Outstanding at March 31, 1998 373,798 $15.63
Granted 181,156 26.92
Exercised (84,714) 13.03
Canceled or expired (32,194) 23.81
--------
Outstanding at March 31, 1999 438,046 17.66
Granted 155,715 18.90
Exercised (29,200) 14.53
Canceled or expired (75,521) 15.47
--------
Outstanding at March 31, 2000 489,040 19.56
Granted 151,737 9.74
Exercised (15,000) 11.38
Canceled or expired (83,606) 20.19
--------
Outstanding at March 31, 2001 542,171 18.25
--------
Options exercisable at March 31, 1999 197,417 14.74
Options exercisable at March 31, 2000 183,829 19.13
Options exercisable at March 31, 2001 247,119 20.92
In 2001, 2000 and 1999 the Company awarded restricted stock totaling
12,382 shares, 8,177 shares and 5,062 shares, respectively. The weighted-average
fair value of this restricted stock was $9.63, $18.60 and $25.33 in 2001, 2000
and 1999, respectively. The expense recorded in 2001, 2000 and 1999 for
restricted stock was $133,000, $124,000 and $107,000, respectively.
The weighted-average Black-Scholes value per option granted in 2001, 2000
and 1999 was $3.00, $4.74 and $6.62, respectively. The following
weighted-average assumptions were used in the Black-Scholes option pricing model
for options granted in 2001, 2000 and 1999:
2001 2000 1999
Dividend yield 0.9% 1.3% 1.4%
Volatility 38.4% 25.0% 24.0%
Risk-free interest rate 6.3% 5.5% 5.5%
Expected term of options (in years) 4.0 4.0 4.0
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38
For options outstanding and exercisable at March 31, 2001, the exercise
price ranges and average remaining lives were:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ---------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE AT REMAINING EXERCISE AT EXERCISE
PRICES MARCH 31, 2001 LIFE PRICE MARCH 31, 2001 PRICE
$3-10 119,960 4 $ 7.87 -- --
10-15 9,905 4 11.87 -- --
15-21 274,015 2 18.57 175,632 $18.47
21-28 138,291 2 27.07 71,487 26.91
------- ------ ------- ------
542,171 2 $18.25 247,119 $20.92
------- ------ ------- ------
NOTES RECEIVABLE FROM OFFICERS - Notes receivable from officers result
from the exercise of stock options in exchange for notes. The notes are full
recourse promissory notes bearing interest at 5% and are collateralized by the
stock issued upon exercise of the stock options. Principal and interest are due
in May 2002.
NOTE 9 Employee Benefit Plans
The Company has three defined contribution plans covering substantially
all domestic employees. Contributions are based on certain percentages of an
employee's eligible compensation. Expenses related to these plans were $2.8
million, $3.0 million and $2.5 million in 2001, 2000 and 1999, respectively.
The Company provides postretirement benefits to union employees at two of
the Company's divisions. The Company funds these benefits on a pay-as-you-go
basis.
In addition, the Company maintains three defined benefit retirement plans
for certain employees. Funding policies are based upon local statutes. Each of
the three defined benefit retirement plans at March 31, 2001, had benefit
obligations in excess of plan assets as shown below. At March 31, 2000, one
defined benefit retirement plan had a benefit obligation of $5.2 million and no
plan assets. The other two defined benefit plans had a combined benefit
obligation of $16.9 million and plan assets of $19.8 million.
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------------------------------------------------
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
---------------------------------------------------------
2001 2000 1999 2001 2000 1999
COMPONENTS OF NET
PERIODIC BENEFIT COST:
Service cost $ 462 $ 444 $402 $45 $15 $2
Interest cost 1,577 1,211 835 176 119 69
Expected return on
plan assets (108) (1,611) (573) -- -- --
Amortization of
net (gain) loss (1,359) 505 43 19 28 --
Amortization of prior
service cost 38 -- -- -- -- --
----- ----- ---- ---- ---- ---
Net periodic
benefit cost $ 610 $ 549 $707 $240 $162 $71
----- ----- ---- ---- ---- ---
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WEIGHTED-AVERAGE
ASSUMPTIONS AS OF
MARCH 31:
Discount rate 6.58% 6.67% 6.00% 7.13% 7.88% 7.00%
Expected return on
plan assets 7.87% 7.59% 7.00% -- -- --
Rate of compensation
increase 2.68% 3.13% 3.25% -- -- --
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- --------------------
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
------------------- --------------------
2001 2000 2001 2000
CHANGE IN BENEFIT
OBLIGATION:
Benefit obligation at
beginning of year $ 22,098 $ 13,702 $ 2,365 $ 1,024
Service cost 462 444 45 15
Interest cost 1,577 1,211 175 119
Plan participants'
contributions 114 131 -- --
Effect of acquisitions -- 9,108 -- 1,122
Amendments 825 -- -- --
Actuarial gain (loss) 1,271 (341) 88 223
Benefits paid (2,082) (1,402) (152) (138)
Effect of foreign
exchange (1,284) (755) -- --
-------- -------- -------- --------
Benefit obligation at
end of year $ 22,981 $ 22,098 $ 2,521 $ 2,365
======== ======== ======== ========
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- --------------------
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
------------------- --------------------
2001 2000 2001 2000
CHANGE IN PLAN ASSETS:
Fair value of plan
assets at beginning of
year $ 19,752 $ 7,565 $ -- $ --
Effect of acquisitions -- 11,725 -- --
Actual return on
plan assets (1,298) 1,069 -- --
Employer contribution 275 352 152 138
Plan participants'
contributions 114 131 -- --
Benefits paid (1,705) (978) (152) (138)
Effect of foreign
exchange (915) (112) -- --
-------- -------- -------- --------
Fair value of plan
assets at end of year $ 16,223 $ 19,752 $ -- $ --
======== ======== ======== ========
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40
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- -----------------------
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
-------------------- -----------------------
2001 2000 2001 2000
RECONCILIATION OF
FUNDED STATUS:
Funded status $(6,758) $(2,346) $(2,521) $(2,365)
Unrecognized actuarial
loss (gain) 1,868 (2,440) 326 258
Unrecognized prior
service cost 1,037 516 -- --
------- ------- ------- -------
Accrued liability $(3,853) $(4,270) $(2,195) $(2,107)
======= ======= ======= =======
For measurement purposes, a 7.53% and 9.57% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2001 and 2000,
respectively. The rate was assumed to decrease gradually to 4.61% by 2009 and
remain at that level thereafter. Under the Plan, the actuarially determined
effect of a one-percentage point change in the assumed health case cost trend
would have the following effects.
ONE ONE
PERCENTAGE PERCENTAGE
POINT POINT
INCREASE DECREASE
Effect on total of service and interest cost
components $ 31 $ (25)
Effect on accumulated postretirement benefit
obligation 241 (252)
NOTE 10 Financial Instruments
INTEREST RATE SWAP AGREEMENTS - The Company periodically enters into
interest rate swap agreements to effectively convert all or a portion of its
floating-rate debt to fixed-rate debt in order to reduce the Company's risk to
movements in interest rates. Such agreements involve the exchange of fixed and
floating interest rate payments over the life of the agreement without the
exchange of the underlying principal amounts. Accordingly, the impact of
fluctuations in interest rates on these interest rate swap agreements is fully
offset by the opposite impact on the related debt. Swap agreements are only
entered into with strong creditworthy counterparties. The swap agreements in
effect were as follows:
NOTIONAL
AMOUNT RECEIVE PAY
(IN THOUSANDS) MATURITIES RATE(1) RATE
March 31, 2001 $25,000 5/02 4.88% 5.48%
25,000 5/02 4.88 5.48
37,500 3/03 4.88 6.58
37,500 3/03 4.88 6.58
(1) Based on three-month LIBOR
39
41
FOREIGN CURRENCY EXCHANGE AGREEMENTS - The Company enters into forward
foreign currency agreements to hedge foreign currency financing transactions.
Realized and unrealized gains and losses arising from forward currency contracts
are recognized as adjustments to the gains and losses resulting from the
underlying hedged transactions.
The Company enters into off-balance-sheet forward foreign exchange
instruments in order to hedge certain intercompany financing denominated in
foreign currencies, accounts receivable denominated in foreign currencies, a
percentage of projected sales denominated in foreign currencies, and projected
foreign currency intercompany purchases. The Company only hedges projected
transactions that are expected to materialize within 12 months. Gains and losses
on forward foreign exchange instruments that hedge specific identifiable third
party transactions are deferred and ultimately included in the cost of the
underlying transaction. Gains and losses on instruments that are hedges of
projected third party transactions are not deferred and are included in current
period income as "other income-net". The Company recognized $0.5 million of
unrealized losses on forward exchange contracts in 2001 related to hedges of
projected third party transactions. Deferred hedge gains or losses at March 31,
2001 were negligible.
The table below summarizes, by currency, the contractual amounts of the
Company's foreign exchange contracts at March 31, 2001 and 2000. The "Buy"
amounts represent the U.S. dollar equivalent of commitments to purchase foreign
currencies, and the "Sell" amounts represent the U.S. dollar equivalent to sell
foreign currencies (in thousands):
2001 2000
------------------------------------------------
BUY SELL BUY SELL
Currency
Deutsche mark -- $9,977 -- $10,589
Pound sterling $779 -- $17,501 1,667
------------------------------------------------
$779 $9,977 $17,501 $12,256
------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments" and No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," are part of a
continuing process by the Financial Accounting Standards Board to improve
information regarding financial instruments. The following methods and
assumptions were used by the Company in estimating the fair value of each class
of financial instruments:
CASH AND CASH EQUIVALENTS - The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
DEBT - The carrying amounts of the Company's debt approximates its fair
value.
CONCENTRATION OF CREDIT RISK - The Company is subject to a concentration
of credit risk primarily with its trade and notes receivable. The Company grants
credit to certain customers who meet pre-established credit requirements, and
generally requires no collateral from its customers. Estimates of potential
credit losses are provided for in the Company's consolidated financial
statements and are within management's expectations and industry averages. As of
March 31, 2001, the Company had no other significant concentrations of credit
risk.
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42
INTEREST RATE SWAPS AND FORWARD FOREIGN EXCHANGE AGREEMENTS - The fair
values of the Company's interest rate swaps and forward foreign exchange
agreements are the estimated amounts the Company would pay or receive to
terminate the agreements at March 31, 2001 and 2000 based upon quoted market
prices as provided by financial institutions which are counterparties to the
agreements and were as follows (in thousands):
2001 2000
(PAY) RECEIVE
Interest rate swap agreements $(3,207) $2,405
Forward foreign exchange agreements (9) 1,537
NOTE 11 Extraordinary Item
In 2000, the Company refinanced its credit facilities. Due to the
termination of the prior credit agreement, the Company recognized an
extraordinary charge of $0.5 million, net of tax, to write-off the unamortized
portion of loan origination fees associated with the prior agreement.
In fiscal 1999, the Company recognized an extraordinary charge of $0.8
million, net of tax, to write-off the remaining deferred loan fees associated
with the early extinguishment of the Company's indebtedness pursuant to its
revised and amended revolving credit facility.
NOTE 12 Commitments
Rent expense under operating leases for the years ended March 31, 2001,
2000, and 1999 was $3.0 million, $2.7 million and $3.2 million, respectively.
The Company and its subsidiaries have minimum rental commitments under
noncancelable operating leases, primarily leased buildings, as follows (in
thousands):
2002 $3,041
2003 2,184
2004 1,002
2005 593
2006 496
Beyond 2006 1,876
-----
Total 9,192
=====
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NOTE 13 Contingencies
ENVIRONMENTAL MATTERS. During the fourth quarter of fiscal 2000, the
Company presented an environmental cleanup plan for a portion of a site in
Pennsylvania which continues to be owned although the related business has been
sold. This plan was submitted pursuant to the Consent Order and Agreement with
the Pennsylvania Department of Environmental Protection ("PaDEP") concluded in
fiscal 1999. Pursuant to the Consent Order, upon its execution the Company paid
$0.2 million for past costs, future oversight expenses and in full settlement of
claims made by PaDEP related to the environmental remediation of the site with
an additional $0.2 million paid in fiscal 2001. A second Consent Order was
concluded with PaDEP in the third quarter of fiscal 2001 for another portion of
the site, and a third Consent Order for the remainder of the site is
contemplated by October 1, 2002. The Company is also administering an agreed
settlement with the Federal government under which the government pays 50% of
the environmental response costs associated with a portion of the site. The
Company is also in the process of finalizing the documentation of an agreed
settlement under which the Federal government will pay 45% of the environmental
response costs associated with another portion of the site. At March 31, 2000,
the Company's cleanup reserve was $1.7 million based on the net present value of
future expected cleanup costs. In fiscal 1999, the Company settled for a
recovery of a portion of cleanup costs with its insurance carriers for
approximately $5.1 million (net) which is included in Other income-net. The
Company expects that remediation at the Pennsylvania site will not be completed
for several years.
The Company also continues to participate in environmental assessments and
remediation work at ten other locations, which include operating facilities,
facilities for sale, and previously owned facilities. The Company estimates that
its potential cost for implementing corrective action at these sites will not
exceed $0.2 million payable over the next several years, and has provided for
the estimated costs in its accrual for environmental liabilities.
In addition, the Company has been named as a potentially responsible party in
seven environmental proceedings pending in several other states in which it is
alleged that the Company was a generator of waste that was sent to landfills and
other treatment facilities and, as to several sites, it is alleged that the
Company was an owner or operator. Such properties generally relate to businesses
which have been sold or discontinued. The Company estimates that its expected
future costs, and its estimated proportional share of remedial work to be
performed, associated with these proceedings will not exceed $0.1 million and
has provided for these estimated costs in its accrual for environmental
liabilities.
LITIGATION. The Company is also engaged in various other legal proceedings
incidental to its business. It is the opinion of management that, after taking
into consideration information furnished by its counsel, the above matters will
have no material effect on the Company's consolidated financial position or the
results of the Company's operations in future periods.
NOTE 14 Segment and Geographic Information
The Company has two business segments. Each segment has separate
management teams that report operating results regularly which are reviewed by
the chief executive officer of the Company. Certain businesses have been
aggregated into the same reportable segment because they have similar products
and services, production processes, types of customers and distribution methods
and their long-term financial performance is affected by similar economic
conditions.
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44
The Company develops, manufactures and sells a wide range of products in
two industry segments, Specialty Fastener Products and Aerospace Products. The
Company has manufacturing facilities located in the United States, Canada,
Germany, the United Kingdom and Brazil. The Specialty Fastener Products Segment
produces highly engineered precision metal retaining rings, gear driven band
fasteners, circlips, custom cold-formed parts, head light adjusters, rivets and
other threaded and non-threaded assembly fasteners primarily for the automotive,
heavy truck, industrial, aerospace and consumer/durables markets and accounted
for approximately 79% of the Company's consolidated 2001 net sales. Through its
Aerospace Products Segment, the Company develops, manufactures, sells and
services a complete line of sophisticated lifting and restraining products,
principally performance critical helicopter rescue hoist and cargo hook systems,
winches and hoists for aircraft and weapons systems and aircraft engine
compartment hold open rods, actuators and other motion control devices. This
segment accounted for approximately 21% of the Company's consolidated 2001 net
sales.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating profit of the respective segments. Operating
profit is net sales less operating expenses. General corporate expenses,
interest and income taxes have not been deducted in determining operating
profit. Assets, depreciation and amortization and capital expenditures are those
identifiable to a particular segment by their use. Approximately 9%, 8% and 10%
of sales from continuing operations in 2001, 2000 and 1999, respectively, were
derived from sales to the United States Government and its prime contractors
which are attributable primarily to Aerospace Products. No single customer
accounted for 10% or more of the Company's net sales in 2001 or 2000.
Long-lived assets, other than goodwill, trademarks, patents and
deferred taxes in the U.S. and foreign countries, are as follows:
March 31, 2001 March 31, 2000
-------------- --------------
United States $ 69,586 $ 81,649
Outside the United States 24,766 43,468
-------- --------
$ 94,352 $125,117
======== ========
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OPERATING DEPRECIATION/
FISCAL NET PROFIT(1) CAPITAL AMORTIZATION IDENTIFIABLE
(IN THOUSANDS) YEAR SALES (LOSS) EXPENDITURES EXPENSE ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Specialty Fastener 2001 $257,589 $(45,444)(2) $ 5,373 $15,004 $298,427
Products 2000 238,416 24,615(3) 9,589 14,310 406,476
1999 177,837 26,284 13,652 8,812 205,206
- -----------------------------------------------------------------------------------------------------------------------
Aerospace Products 2001 70,482 18,211 227 1,156 51,523
2000 60,836 15,377 435 1,062 49,163
1999 50,169 12,080 728 991 51,883
- -----------------------------------------------------------------------------------------------------------------------
Total segments 2001 328,071 (27,233) 5,600 16,160 349,950
2000 299,252 39,992 10,024 15,372 455,639
1999 228,006 38,364 14,380 9,803 257,089
- -----------------------------------------------------------------------------------------------------------------------
Corporate 2001 -- (22,479) 71 3,472 43,299
2000 -- (9,131) 13 2,245 27,116
1999 -- (13,243)(4) 379 999 22,631
- -----------------------------------------------------------------------------------------------------------------------
Corporate interest 2001 -- 310 -- -- --
and other income-net 2000 -- 592 -- -- --
1999 -- 6,111(5) -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Interest expense 2001 -- (34,420) -- -- --
2000 -- (19,945) -- -- --
1999 -- (6,938) -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Consolidated 2001 328,071 (83,822) 5,671 19,632 393,249
2000 299,252 11,508 10,037 17,617 482,755
1999 228,006 24,294 14,759 10,802 279,720
- -----------------------------------------------------------------------------------------------------------------------
(1) Operating profit represents net sales less operating expenses which include
all costs and expenses related to the Company's operations in each segment.
General corporate expenses and other income earned at the corporate level
are included in the corporate section. Interest expense is separately
reported. The amount of the "Consolidated" line represents "Income from
continuing operations before income taxes."
(2) Specialty fastener operating loss for 2001 includes an impairment charge or
$67.9 million related to the expected sale of Aerospace Rivet Manufacturers
Corp., TCR and the rings businesses.
(3) Specialty fastener operating income for 2000 includes charges of $5.5
million relating to the consolidation of two manufacturing facilities in
England.
(4) Corporate expense for 1999 includes a $0.9 million pretax charge to the
allowance for notes receivable, and a $1.5 million pretax incentive
compensation award.
(5) Corporate interest and other income for 1999 includes a pretax net gain of
$5.1 million for settlement of litigation claims against its insurance
carriers for environmental matters and a $1.1 million gain on sale of
marketable securities.
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Export sales are defined as sales to customers in foreign countries by
the Company's U.S. based operations. Export sales amounted to the following:
LOCATION 2001 2000 1999
Europe $23,097 $18,144 $15,680
Canada 8,377 10,788 9,170
Pacific and Far East 5,573 7,083 3,344
Mexico, Central and South America 3,559 4,348 2,267
Middle East 287 1,336 415
Other 304 1,627 275
------- ------- -------
Total $41,197 $43,326 $31,151
======= ======= =======
Net sales below show the geographic location of customers:
LOCATION 2001 2000 1999
United States $214,259 $191,206 $137,836
Germany 38,804 34,957 28,032
Other non-U.S 75,008 73,089 62,138
-------- -------- --------
Total $328,071 $299,252 $228,006
======== ======== ========
Results set forth below for international operations represent sales and
operating income of domestic and foreign based subsidiaries based on the
location the product was shipped from:
2001 2000 1999
Net sales:
Domestic operations $ 228,689 $ 233,038 $ 171,302
International operations (1) 99,382 66,214 56,704
--------- --------- ---------
Net sales $ 328,071 $ 299,252 $ 228,006
========= ========= =========
Operating (loss) income:
Domestic operations (10,886) $ 42,711 $ 34,621
International operations (1) (16,347) (2,719) 3,743
--------- --------- ---------
Operating (loss) income (27,233) 39,992 38,364
Interest expense (34,420) (19,945) (6,938)
Corporate expense and other (22,169) (8,539) (7,132)
--------- --------- ---------
(Loss) income before taxes $ (83,822) $ 11,508 $ 24,294
--------- --------- ---------
Identifiable assets:
Domestic operations $ 288,009 $ 358,218 $ 193,690
International operations (1) 60,635 97,421 63,399
Corporate 44,605 27,116 22,631
--------- --------- ---------
Total assets $ 393,249 $ 482,755 $ 279,720
========= ========= =========
(1) International operations are primarily in Germany, Great Britain, Canada
and Brazil.
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NOTE 15 Subsequent Event
On July 10, the Company completed the sale of its Breeze Industrial Products and
Pebra hose clamp businesses in the U.S. and Germany, respectively, to Industrial
Growth Partners and the current management team of Breeze/Pebra for $46.2
million. The proceeds of the sale were used to retire debt.
NOTE 16 Unaudited Quarterly Financial Data
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
2001
Net sales $ 84,365 $ 79,136 $ 78,297 $ 86,273 $ 328,071
Gross profit 21,849 19,440 19,132 26,020 86,441
Net loss (752) (1,755) (1,250) (69,213)(1) (72,970)
======== =========== ======== ======== ===========
Basic loss per share:
Net loss $ (0.12) $ (0.28) $ (0.20) $ (11.21) $ (11.83)
======== =========== ======== ======== ===========
Diluted loss per share:
Net loss $ (0.12) $ (0.28) $ (0.20) $ (11.21) $ (11.83)
======== =========== ======== ======== ===========
2000
Net sales $ 55,368 $ 62,903 $ 85,872 $ 95,109 $ 299,252
Gross profit 16,117 18,863 25,626 27,706 88,312
Income (loss) before extraordinary charge 2,158 (330)(2) 2,865 2,442(2) 7,135
Extraordinary charge for refinancing of debt -- (541) -- -- (541)
Net income (loss) $ 2,158 $ (871) $ 2,865 $ 2,442 $ 6,594
======== =========== ======== ======== ===========
Basic earnings (loss) per share:
Income (loss) before extraordinary charge $ 0.35 $ (0.05) $ 0.47 $ 0.40 $ 1.16
Extraordinary charge for refinancing of debt -- (0.09) -- -- (0.09)
-------- ----------- -------- -------- -----------
Net income (loss) $ 0.35 $ (0.14) $ 0.47 $ 0.40 $ 1.07
======== =========== ======== ======== ===========
Diluted earnings (loss) per share:
Income (loss) before extraordinary charge $ 0.35 $ (0.05) $ 0.47 $ 0.40 $ 1.16
Extraordinary charge for refinancing of debt -- (0.09) -- -- (0.09)
-------- ----------- -------- -------- -----------
Net income (loss) $ 0.35 $ (0.14) $ 0.47 $ 0.40 $ 1.07
======== =========== ======== ======== ===========
(1) Includes an impairment charge of $67.9 million related to a write-down
of net carrying values of ARM, TCR and the rings businesses that are to
be sold. It also includes a provision for impairment of corporate
assets in the amount of $10.2 million for the write-off of a note
receivable and equity ownership in an investee and write-down of
certain assets expected to be liquidated.
(2) The second and fourth quarters of 2000 include charges of $4.5 million
and $1.1 million, respectively, relating to the consolidation of two
manufacturing facilities in England.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in the Registrant's
Proxy Statement for the 2001 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in the Registrant's
Proxy Statement for the 2001 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the Registrant's
Proxy Statement for the 2001 Annual Meeting of Shareholders and is incorporated
herein by reference.
For purposes of the calculation of the aggregate market value of voting
stock held by non-affiliates, the Company has assumed that the shares of Common
Stock beneficially owned by Dr. Arch C. Scurlock are not held by an affiliate of
the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the Registrant's
Proxy Statement for the 2001 Annual Meeting of Shareholders and is incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits:
1. Financial Statements:
Consolidated Balance Sheets at March 31, 2001 and 2000
Statements of Consolidated Operations for the years ended March 31,
2001, 2000 and 1999
Statements of Consolidated Cash Flows for the years ended March 31,
2001, 2000 and 1999
Statements of Consolidated Stockholders' Equity for the years ended
March 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedules
Schedule II - Consolidated Valuation and Qualifying Accounts for the
years ended March 31, 2001, 2000 and 1999
3. Exhibits:
The exhibits listed on the accompanying Index to Exhibits are filed
as part of this report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three-month period
ended March 31, 2001.
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50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: July 13, 2001
TRANSTECHNOLOGY CORPORATION
By: /s/ Michael J. Berthelot
--------------------------------
Michael J. Berthelot,
Chairman of the Board, President
and Chief Executive Officer
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51
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Michael J. Berthelot Chairman of the Board, President July 13, 2001
- -------------------------- and Chief Executive Officer
MICHAEL J. BERTHELOT (Principal Executive Officer)
/s/Joseph F. Spanier Vice President, Chief Financial Officer July 13, 2001
- -------------------------- and Treasurer
JOSEPH F. SPANIER (Principal Financial and Accounting Officer)
/s/Daniel Abramowitz Director July 13, 2001
- --------------------------
DANIEL ABRAMOWITZ
/s/Gideon Argov Director July 13, 2001
- --------------------------
GIDEON ARGOV
/s/Walter Belleville Director July 13, 2001
- --------------------------
WALTER BELLEVILLE
/s/Thomas V. Chema Director July 13, 2001
- --------------------------
THOMAS V. CHEMA
/s/John H. Dalton Director July 13, 2001
- --------------------------
JOHN H. DALTON
/s/Michel Glouchevitch Director July 13, 2001
- --------------------------
MICHEL GLOUCHEVITCH
/s/James A. Lawrence Director July 13, 2001
- --------------------------
JAMES A. LAWRENCE
/s/William J. Recker Director July 13, 2001
- --------------------------
WILLIAM J. RECKER
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TRANSTECHNOLOGY CORPORATION
SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ------------ ---------- ---------- ---------- ---------
2001
Allowances for
doubtful accounts
and sales returns $1,129 $1,165 $ -- $ 765 $1,529
Inventory reserves $5,781 $2,065 $ -- $2,082 $5,764
Environmental
reserves $1,914 $1,158 $ -- $ 632 $2,440
Allowance for tax
loss valuation $ -- $9,646 $ -- $ -- $9,646
2000
Allowances for
doubtful accounts
and sales returns $ 240 $ 778 $ 488 (A) $ 377 $1,129
Inventory reserves $4,715 $3,305 $ 466 $2,705 $5,781
Environmental
reserves $2,140 $ 201 $ -- $ 427 $1,914
Allowance for tax
loss valuation $ -- $ -- $ -- $ -- $ --
1999
Allowances for
doubtful accounts
and sales returns $ 556 $ 230 $ 40 (B) $ 586 $ 240
Inventory reserves $6,382 $1,432 $ -- $3,099 $4,715
Environmental
reserves $3,141 $ 479 $ -- $1,480 $2,140
Allowance for tax
loss valuation $ -- $ -- $ -- $ -- $ --
(A) Amount represents balance acquired from Tinnerman and Ellison acquisitions.
(B) Amount represents balances acquired from ARM and Norco, Inc. acquisitions.
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INDEX TO EXHIBITS
3.1 Certificate of Incorporation of the Company. (1)
3.2 Bylaws of the Company Amended and Restated as of June 4, 2001.
10.1 1996 - 1998 Incentive Compensation Plan of the Company. (10)
10.2 Amended and Restated 1992 Long Term Incentive Plan of the Company.
(2)
10.3 Form of Incentive Stock Option Agreement. (2)
10.4 Form of Director Stock Option Agreement. (3)
10.5 Form of Restricted Stock Award Agreement used under the Company's
Amended and Restated 1992 Long Term Incentive Plan. (4)
10.6 Indemnification Agreement dated February 11, 1987 between the
Company and each of its officers and directors. (5)
10.7 Executive Life Insurance Plan. (6)
10.8 Amended and Restated Credit Agreement dated as of June 30, 1995 and
amended and restated as of July 24, 1998 between the Company and
BankBoston, N.A. (13)
10.9 Amendment Agreement No. 1 to the Amended and Restated Credit
Agreement dated as of August 21, 1998 between the Company and
BankBoston, N.A. (13)
10.10 Amendment Agreement No. 2 to the Amended and Restated Credit
Agreement dated as of November 27, 1998 between the Company and
BankBoston, N.A. (13)
10.11 Amendment Agreement No. 3 to the Amended and Restated Credit
Agreement dated as of December 23, 1998 between the Company and
BankBoston, N.A. (13)
10.14 Form of Executive Severance Agreement with Officers of the Company.
(10)
10.15 Form of Executive Severance Agreement with Subsidiary Presidents.
(10)
10.16 Form of Executive Severance Agreement with Division Presidents. (10)
10.17 Form of Executive Severance Agreement with Overseas Subsidiary
Managing Directors. (10)
10.18 Form of First Amendment to Executive Severance Agreement with
Officers of the Company. (11)
10.19 Form of First Amendment to Executive Severance Agreement with
Subsidiary Presidents. (11)
10.20 Form of First Amendment to Executive Severance Agreement with
Division Presidents. (11)
10.21 Form of First Amendment to Executive Severance Agreement with
Overseas Subsidiary Managing Directors. (11)
10.22 Form of Second Amendment to Executive Severance Agreement with
Officers of the Company.
10.23 Form of Second Amendment to Executive Severance Agreement with
Subsidiary Presidents.
10.24 Form of Second Amendment to Executive Severance Agreement with
Division Presidents.
10.25 Form of Second Amendment to Executive Severance Agreement with
Overseas Subsidiary Managing Directors.
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54
10.26 Consulting Agreement with John Dalton. (13)
10.27 1999-2001 Incentive Compensation Plan of the Company. (13)
10.28 1998 Non-Employee Directors' Stock Option Plan of the Company. (12)
10.29 Form of Stock Option Agreement used under the Company's 1998
Non-Employee Directors' Stock Option Plan. (13)
10.30 1999 Long Term Incentive Plan of the Company. (13)
10.31 Form of Stock Option Agreement used under the Company's 1999 Long
Term Incentive Plan. (15)
10.32 Form of Restricted Stock Award Agreement used under the Company's
1999 Long Term Incentive Plan. (15)
10.33 Second Amended and Restated Credit Agreement dated as of June 30,
1995, amended and restated as of July 24, 1998 and further amended
and restated as of as of August 31, 1999 among TransTechnology
Corporation, TransTechnology Seeger-Orbis GmbH, TransTechnology (GB)
Limited, The Lenders referred to therein, BankBoston, N.A., acting
through its London Branch, as Sterling Fronting Bank, BHF-Bank
Aktiengesellschaft, as DM Fronting Bank, ABN AMRO Bank, N.V., as
Syndication Agent, The First National Bank of Chicago, as
Documentation Agent and BankBoston, N.A. as Administrative Agent and
Issuing Bank. (14)
10.34 Securities Purchase Agreement dated as of August 29, 2000 by and
among TransTechnology Corporation; J.H. Whitney Mezzanine Fund,
L.P.; Albion Alliance Mezzanine Fund I, L.P.; Albion Alliance
Mezzanine Fund II, L.P.; the Equitable Life Assurance Society of the
United States; Fleet Corporate Finance, Inc.; and Citizens Capital,
Inc. (16)
10.35(i) Warrant dated as of August 29, 2000 issued by TransTechnology
Corporation to J.H. Whitney Mezzanine Fund, L.P. for 171,041 shares
of TransTechnology common stock. (16)
10.35(ii) Schedule of other substantially similar warrants issued by
TransTechnology Corporation to other Purchasers under the Securities
Purchase Agreement. (16)
10.36 Registration Rights Agreement dated as of August 29, 2000 by and
among TransTechnology Corporation and the Purchasers referred to
therein. (16)
10.37 Subordinated Indebtedness Intercreditor Agreement dated as of August
29, 2000 among TransTechnology Corporation, the Existing Guarantors
named therein, and the Purchasers referred to therein. (16)
10.38 Consent and Amendment Agreement No. 1 dated as of August 21, 2000 to
that certain Second Amended and Restated Credit Agreement dated as
June 30, 1995, and amended and restated as of July 24, 1998, and as
further amended and restated as of August 31, 1999, by and among
TransTechnology Corporation, TransTechnology Seeger-Orbis GmbH and
TransTechnology (GB) Limited; Fleet National Bank and other Lenders
referred to within; Fleet National Bank, acting through its London
Branch as Sterling Fronting Bank; BHF-BANK Aktiengesellschaft, as DM
Fronting Bank; ABN AMRO Bank N.V., as Syndication Agent; Bank One,
NA (formerly known as the First National Bank of Chicago), as
Documentation Agent and Fleet National Bank as Issuing Bank and
Administrative Agent. (16)
10.39 Intercreditor and Subordination Agreement dated as of August 29,
2000 among Fleet National Bank, as administrative agent for the
Lenders as defined therein, TransTechnology Corporation, and the
Purchasers referred to therein. (16)
10.40 Indemnification Agreement dated January 13, 2000 between the Company
and each of its officers and directors. (15)
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55
10.41 Amendment Agreement No. 2 to the Second Amended and Restated Credit
Agreement dated as of December 29, 2000 between the Company and
Fleet National Bank and the other Lenders referred to therein. (17)
10.42 Amendment Agreement No. 3 to the Second Amended and Restated Credit
Agreement dated as of January 31, 2001 between the Company and Fleet
National Bank and the other Lenders referred to therein. (17)
10.43 Forbearance and Waiver Agreement dated as of March 29, 2001 between
the Company, Fleet National Bank and the other Lenders referred to
therein.
10.44 Consent and Amendment to Forbearance Agreement of Fleet National
Bank and the other Lenders referred to therein dated June 25, 2001.
21 List of Subsidiaries of the Company.
- ---------------------
(1) Incorporated by reference from the Company's Form 8-A Registration
Statement No. 2-85599 dated February 9, 1987.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-8 No. 333-45059 dated January 28, 1998.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 31, 1995.
(4) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 31, 1994.
(5) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 31, 1987.
(6) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 31, 1989.
(7) Incorporated by reference from the Company's Report on Form 8-K filed on
July 14, 1995.
(8) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 31, 1996.
(9) Incorporated by reference from the Company's Report on Form 8-K filed on
April 29, 1997.
(10) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 31, 1997.
(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the Quarter ended December 27, 1998.
(12) Incorporated by reference from the Company's Registration Statement on Form
S-8 No. 333-70877 dated January 20, 1999.
(13) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 31, 1999.
(14) Incorporated by reference from the Company's Report on Form 8-K filed on
November 12, 1999.
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56
(15) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 31, 2000.
(16) Incorporated by reference from the Company's Report on Form 8-K filed on
September 14, 2000.
(17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the Quarter ended December 31, 2000.
55