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EXHIBIT 13
[TRANSTECHNOLOGY CORP. LOGO]
[GRAPHIC]
Annual Report
Fiscal Year Ending
March 31, 1997
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CORPORATE OFFICE
150 Allen Road
Liberty Corner, NJ 07938
908/903-1600 Fax 908/903-1616
[PICTURE LOGO]
Photography by KAN
CONTENTS
1 Selected Financial Data
2 Letter to Shareholders
6 Specialty Fastener Products
7 Rescue Hoist and Cargo Hook Products
9 Financial Information
INVESTOR RELATIONS CONTACT
Michael J. Berthelot
Chairman of the Board and
Chief Executive Officer
TransTechnology Corporation
150 Allen Road
Liberty Corner, NJ 07938
908/903-1600
ANNUAL MEETING
The Annual Shareholders' Meeting will be held on Thursday, July 24, 1997 at the
Marriott Financial Center Hotel, 85 West Street, New York, NY 10006.
FORM 10-K AND ADDITIONAL INFORMATION
The Company, upon request to the Investor Relations department, will provide to
any shareholder a copy of the Form 10-K required to be filed with the Securities
and Exchange Commission and any other available information.
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Selected Financial Data
The following table provides selected financial data with respect to the
consolidated statements of operations of the Company for the fiscal years ended
March 31, 1997, 1996, 1995, 1994 and 1993 and the consolidated balance sheets of
the Company at the end of each such period.
SELECTED FINANCIAL DATA YEARS ENDED MARCH 31,
(In thousands except per share amounts) 1997 1996 1995 1994 1993
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Net sales $ 178,684 $ 158,024 $ 101,122 $ 81,873 $63,999
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Income from continuing operations
before income taxes 16,620 14,300 10,842 8,860 4,285
Provision for income taxes 6,898 5,792 3,457 3,060 962
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Income from continuing operations 9,722 8,508 7,385 5,800 3,323
Income (loss) from discontinued operations (934) (1,134) (4,852) 1,084 1,810
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Net income $ 8,788 $ 7,374 $ 2,533 $ 6,884 $ 5,133
Earnings (loss) per share:
Income from continuing operations $ 1.92 $ 1.67 $ 1.45 $ 1.13 $ 0.65
Income (loss) from discontinued
operations (0.18) (0.22) (0.95) 0.21 0.36
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Earnings per share $ 1.74 $ 1.45 $ 0.50 $ 1.34 $ 1.01
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Dividends declared and paid per share $ 0.26 $ 0.26 $ 0.255 $ 0.24 $ 1.56
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Total assets $ 199,136 $ 199,367 $ 129,396 $125,857 $97,763
Long-term debt $ 67,516 $ 72,565 $ 37,021 $ 33,168 $12,387
Stockholders' equity $ 77,444 $ 72,470 $ 64,502 $ 65,953 $61,214
Book value per share $ 15.40 $ 14.21 $ 12.72 $ 12.71 $ 11.95
Shares outstanding at year-end 5,028 5,099 5,070 5,189 5,122
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MARKET AND DIVIDEND DATA
MARKET PRICE
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QUARTER ENDED HIGH LOW DIVIDENDS
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June 30, 1995 $13-1/2 $10-3/4 $ .065
September 30, 1995 14-7/8 12 .065
December 31, 1995 15-1/8 11-7/8 .065
March 31, 1996 15 12-1/2 .065
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June 30, 1996 19-3/4 14-7/8 .065
September 30, 1996 18-5/8 17-3/8 .065
December 31, 1996 19-7/8 18 .065
March 31, 1997 22-7/8 19-5/8 .065
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TRANSTECHNOLOGY CORPORATION
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Fellow Shareholders:
[PHOTO OF MICHAEL J. BERTHELOT]
[BAR GRAPH]
NET SALES
($ IN MILLIONS)
1993 63,999
1994 81,873
1995 101,122
1996 158,024
1997 178,684
[BAR GRAPH]
INCOME PER SHARE
FROM CONTINUING OPERATIONS
(IN DOLLARS)
1993 0.65
1994 1.13
1995 1.45
1996 1.67
1997 1.92
On behalf of the entire management team of your company, I am pleased to report
to you that the fiscal year ended March 31, 1997 was the fifth consecutive year
of improved results, with sales up 13% to $178 million, income from continuing
operations rising 14% to $9.7 million, and earnings per share from continuing
operations achieving another 15% increase to $1.92 per share. Reaching these
financial and operational milestones required the hard work and effort of each
of the more than 1,400 persons who make up our company. From the Board of
Directors and my fellow shareholders, I extend our thanks and a "well done" to
each and every TransTechnology employee who helped us establish a new level of
performance this past fiscal year. In 1992, when our management team was charged
with the responsibility and opportunity to rebuild TransTechnology, we set out a
simple strategy which we continue to follow to this day. Our operational
strategy is to manufacture industrial components used by other manufacturers in
the production of their finished goods; to achieve economies of scale and market
leadership by being number one or two, on a global basis, in each product line
we manufacture, and to improve our operational efficiency, productivity, and
profitability by continuously improving our operations on every level. In 1992
we stated that our first five-year revenue and earnings goals were to achieve
$200 million in revenues and earn $2 per share. With $1.92 per share in income
from continuing operations for the 1997 fiscal year and the April acquisition of
TCR Corporation, which raised our annualized revenues to above $200 million, we
achieved 96% of our earnings goal and 100% of our revenue goal for this five
year period. Last year, in anticipation of reaching the 1997 goals, new revenue
and operating income goals were established for the five-year term ending on
March 31, 2001. Those goals include revenues of
TRANSTECHNOLOGY CORPORATION
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$500 million, a net income margin of 7%, continuing earnings per share growth of
15% per year, 15% return on equity, a debt to total capitalization ratio of 35%,
and productivity improvements of 6% per year. Our strategic and tactical plans
for the next four years are focused on these goals, and your management team is
committed to attaining them.
Fiscal 1997 was a challenging year in many respects. As the year began,
we expected the decline in the heavy truck production rate to lower the demand
for our specialty fasteners. The management team and employees at our Breeze
Industrial worm gear clamp business, the division most reliant upon the heavy
truck market, pulled together and redirected their efforts at new market
segments. As a result, Breeze Industrial posted its fifteenth consecutive year
of increased revenues and operating income despite a 20% decline in their
largest market! Every employee at Breeze Industrial should take great pride in
this accomplishment, from the management team that pointed the way to the shop
floor workers who unselfishly put in the effort to reach ever higher levels of
production. Their achievement is one replicated by few other specialty fastener
manufacturers this past year.
In fiscal 1997, as in fiscal 1996, our Breeze Eastern division, which
manufactures rescue hoists and cargo hooks for helicopters and weapon systems,
achieved higher sales and operating income, with a 13% increase in sales and a
52% increase in operating income. In addition to these outstanding financial
results, Breeze Eastern has regained its position as the leader in its market
and has established a new level of customer service based upon focused user
groups, advanced customer training, and fast repair and overhaul turnaround. The
division's success is both a compliment to and recognition of the hard work and
dedication of a workforce and management team that refused to give up when times
were bleak and financial results much poorer. We are very proud of the
accomplishments of the men and women of Breeze Eastern.
The weakest performing unit in the company was the retaining ring
business we acquired in fiscal 1996. The economy in Europe continued to be weak
through the year, and as a result, our German and UK fastener operations
struggled through de-stocking by their major distribution customers and lower
than anticipated automotive and truck OEM orders. This weakness was
[BAR GRAPH]
INCOME FROM CONTINUING
OPERATIONS ($ IN THOUSANDS)
1993 3,323
1994 5,800
1995 7,385
1996 8,508
1997 9,722
TRANSTECHNOLOGY CORPORATION
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exacerbated by the very strong dollar, which further penalized the weaker
results. If the exchange rate, Deutsche Mark to U.S. dollar, had remained
constant from June 1995 when we purchased the German business through the end of
fiscal 1997, the German unit would have realized sales 8% higher than actually
reported.
[PIE GRAPH]
1997 NET SALES
DOMESTIC VS. INTERNATIONAL OPERATIONS
International 32%
Domestic 68%
We have several projects underway at our European operations which are
expected to lower their operating and manufacturing costs and make them more
productive and competitive on a global basis. In fiscal 1997 new management
information systems were installed at our operations in the UK and Germany. The
closing of our factory in Eichen, Germany should be completed in October 1997,
with the work currently performed there being transferred to our UK and
Konigstein, Germany, facilities. These two projects are expected to increase
substantially the throughput and productivity at each location. We expect to
begin to see the financial benefits of these projects in the second half of
fiscal 1998.
In April 1997 we acquired Minneapolis-based TCR Corporation, a
manufacturer of specially designed externally threaded fastening devices and
other specialty machined products. With over $23 million of sales and a high
level of profitability in calendar 1996, the management team and employees of
TCR are expected to contribute to TransTechnology's earnings and cash flow in
fiscal 1998. We welcome the 175 hardworking and dedicated people at TCR to the
TransTechnology family.
Our main objectives for fiscal 1998 include the completion of the
internal projects noted above, as well as several others aimed at lowering our
manufacturing and operating costs, improving our efficiency and productivity,
and allowing us to grow revenues organically by increasing our market share for
existing and newly developed products. We expect to divest unused or
unproductive assets in fiscal 1998 and to use the proceeds, as well as
internally generated cash, to reduce our debt. We are increasing our resources
allocated to engineering new products for specific customers and for fiscal 1998
have approved one of our largest capital spending budgets, $11 million, in order
to provide our
TRANSTECHNOLOGY CORPORATION
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[BAR GRAPH]
CAPITAL EXPENDITURES
($ IN THOUSANDS)
1993 5,514
1994 4,973
1995 5,033
1996 6,471
1997 5,477
manufacturing facilities the resources and tools they need to implement these
projects. The fiscal 1998 training and education budget is the highest it has
been in the last five years, as we invest in the development of our people as
much as we improve our equipment. We will continue to pursue improving the
quality of our products and processes. Although two of our units have already
achieved ISO-9000 certification, we expect every unit to receive either QS-9000
or ISO-9000 during fiscal 1998.
We plan to continue to seek out highly focused acquisitions of
strategically complementary manufacturing operations. We anticipate that fiscal
1998 will be a year of further achievement toward each of our goals of 2001.
On behalf of the Board of Directors and the management team, I would
like to thank you, the owners of our company, for your support and confidence
these past five years. It is our overriding goal to increase shareholder value,
and our every action and decision is made in pursuit of that obligation. I
extend to each of you my personal thanks for allowing me the opportunity to
serve TransTechnology with a talented and dedicated management team and Board of
Directors. We will approach the new fiscal year, and the years beyond, with the
same determination and focus that have provided us the path to success over the
past five years.
/s/ Michael J. Berthelot
Michael J. Berthelot
Chairman and
Chief Executive Officer
TRANSTECHNOLOGY CORPORATION
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SPECIALTY FASTENER PRODUCTS
TransTechnology Corporation derives over 80% of its revenues from the
manufacture and sale of specialty fasteners, and is the seventh largest fastener
manufacturer in the United States. Operating in small niches within the $8
billion domestic and $30 billion global fastener markets, the company operates
under some of the most well known brand names in the world and is an
acknowledged market leader in each of its product lines. The company's specialty
fastener products are used in a myriad of industries, ranging from automotive
and heavy truck manufacturing to computer disk drives, toys, cameras, appliances
and plumbing applications. Specialty fastener products are distributed through
in-house sales forces, distributors, and manufacturers' representatives around
the world. Through increased engineering and marketing resources, the company
continues to search for new applications for its products in new industries
throughout the globe.
[PIE GRAPH]
1977 FASTENER SALES
ALLOCATION BY MARKET TYPE
DISTRIBUTION 44%
HEAVY TRUCK OEM 21%
AUTOMOTIVE OEM 21%
INDUSTRIAL MACHINERY 11%
CONSUMER/DURABLES 3%
[GRAPHIC]
Seeger Group's retaining ring.
RETAINING RINGS
TransTechnology is the world's largest manufacturer of retaining rings, with
operations in the United States, Germany, England, and Brazil selling products
under the brand names "SEEGER-ORBIS" (Germany), "SEEGER-RENO" (Brazil),
"ANDERTON" (United Kingdom), "WALDES/TRUARC" (United States) and "INDUSTRIAL
RETAINING RING" (United States). Retaining rings are highly engineered, usually
to a customer's exacting specifications, and are used in transmissions, drive
trains, and braking systems on automobiles, trucks, and off-road equipment. They
also find application in industrial equipment, computers, photographic
equipment, marine applications, and almost any situation where movement on a
shaft must be restricted.
GEAR DRIVEN BAND FASTENERS
TransTechnology's BREEZE INDUSTRIAL PRODUCTS division is the only full-line
manufacturer of gear driven band clamps in the world. Breeze(R) stainless steel
clamps are well known for their quality and engineering. Breeze(R) T-Bolt and
Constant Torque(R) clamp products are used in diesel engine, heavy truck, marine
and off-road equipment applications throughout the world. Breeze is a certified
supplier to Caterpillar, International Harvester, and many other heavy equipment
manufacturers. Breeze "Aero-Seal(R)", "Euro-Seal(R)" and "Power-Seal(R)" clamps
are found in hardware, automotive and retail stores for use in repair,
maintenance and overhaul applications, and are used by many manufacturers of
industrial and consumer products.
[GRAPHIC]
Breeze Industrial's Aero-Seal(R) Clamp
TRANSTECHNOLOGY CORPORATION
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[GRAPHIC]
The Palnut Company's U-nut.
ASSEMBLY FASTENERS
TransTechnology's Palnut division is one of the leading manufacturers of
assembly fasteners in the United States, supplying Palnut(R) highly engineered
custom fastening devices primarily to the automotive industry. Lock nuts,
push-nuts, u-nuts, and a variety of single and multi-threaded stainless and
high-carbon steel fasteners are provided to the toy, appliance, and lighting
industries for use in assembling products.
[GRAPHIC]
TCR's D-Module stud.
EXTERNALLY THREADED AND
SPECIALTY MACHINED PRODUCTS
TCR Corporation, acquired in April, 1997, designs and manufactures sophisticated
externally threaded fastening devices and custom industrial components,
combining its expertise in cold forging and machining technologies. TCR products
are used by industrial customers worldwide, with key market groups including the
automotive, hydraulic and recreational product industries.
RESCUE HOIST AND CARGO HOOK PRODUCTS
[GRAPHIC]
Breeze Eastern's rescue hoist.
TransTechnology's Breeze Eastern division is the world's leading designer and
manufacturer of sophisticated helicopter rescue hoists and cargo hook systems.
These complex, highly engineered systems add significantly to the versatility of
an aircraft for a relatively small cost. They are used around the world by
military and civilian agencies to save lives, complete missions, and transport
cargo. Most helicopter manufacturers today, including Sikorsky, Bell,
Aerospatiale, and Agusta specify Breeze Eastern's systems as standard equipment
on their aircraft because of Breeze Eastern's record for safety, reliability,
durability, and service. Innovation and new product development remain an
important focus at Breeze Eastern, one reason why its products will be found on
the new V-22 Osprey vertical take-off and landing aircraft due into production
in 1999 for the U.S. Marine Corps. Breeze Eastern also manufactures handling
systems for weapons platforms and motion control actuation devices for civilian
and military aircraft.
TRANSTECHNOLOGY CORPORATION
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Board of Directors and Corporate Officers
[PHOTO OF BOARD OF DIRECTORS]
BOARD OF DIRECTORS
Back row: Gideon Argov, James A. Lawrence, Michel Glouchevitch,
Walter Belleville
Center row: Thomas V. Chema, Patrick K. Bolger
Center front: Michael J. Berthelot
[PHOTO OF CORPORATE OFFICERS]
CORPORATE OFFICERS
From left to right: Joseph F. Spanier, VP and CFO; Gerald C. Harvey, VP,
Secretary and General Counsel; Michael J. Berthelot, Chairman and CEO; Chandler
J. Moisen, Executive VP; Monica Aguirre, Assistant Secretary; Patrick K. Bolger,
President and COO; Winston Lau, VP of Operations.
TRANSTECHNOLOGY CORPORATION
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Consolidated Balance Sheets
(In thousands, except share data)
MARCH 31,
ASSETS 1997 1996
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CURRENT ASSETS:
Cash and cash equivalents $ 3,540 $ 2,362
Accounts receivable (net of allowance for doubtful accounts of
$588 and $735 in 1997 and 1996, respectively) 28,392 28,368
Notes receivable 1,838 1,258
Inventories 50,677 50,551
Prepaid expenses and other current assets 1,028 1,726
Deferred income taxes 4,293 1,037
Assets held for sale 7,617 9,980
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Total current assets 97,385 95,282
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PROPERTY:
Land 12,272 12,616
Buildings 20,636 20,523
Machinery and equipment 42,760 39,600
Furniture and fixtures 6,349 5,398
Leasehold improvements 190 189
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Total 82,207 78,326
Less accumulated depreciation and amortization 23,594 17,749
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Property - net 58,613 60,577
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OTHER ASSETS:
Notes receivable 11,125 12,824
Costs in excess of net assets of acquired businesses (net of
accumulated amortization of $3,869 and $3,308 in 1997 and
1996, respectively) 18,878 16,411
Other 13,135 14,273
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Total other assets 43,138 43,508
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TOTAL $ 199,136 $ 199,367
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Current portion of long-term debt $ 5,907 $ 6,026
Accounts payable - trade 11,050 14,719
Accrued compensation 6,845 6,473
Accrued income taxes 1,632 1,415
Other current liabilities 12,844 9,301
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Total current liabilities 38,278 37,934
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LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS 67,516 72,565
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OTHER LONG-TERM LIABILITIES 15,898 16,398
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS' EQUITY:
Preferred stock - authorized, 300,000 shares; none issued
Common stock - authorized, 14,700,000 shares of $.01 par value; issued,
5,316,971 and 5,276,463 shares in 1997 and 1996, respectively 53 53
Additional paid-in capital 46,745 46,188
Retained earnings 36,937 29,467
Other stockholders' equity (2,352) (1,083)
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81,383 74,625
Less treasury stock, at cost - 289,237 and 177,500 shares
in 1997 and 1996, respectively (3,939) (2,155)
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Total stockholders' equity 77,444 72,470
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TOTAL $ 199,136 $ 199,367
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See notes to consolidated financial statements.
TRANSTECHNOLOGY CORPORATION
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Statements of Consolidated Operations
(In thousands, except share data)
YEARS ENDED MARCH 31,
1997 1996 1995
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Net sales $ 178,684 $ 158,024 $ 101,122
Cost of sales 122,480 107,426 71,968
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Gross profit 56,204 50,598 29,154
General, administrative and selling expenses 35,309 31,812 17,051
Interest expense 6,797 6,316 2,831
Interest income (1,202) (1,010) (760)
Royalty and other income (1,320) (820) (810)
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Income from continuing operations before
income taxes 16,620 14,300 10,842
Provision for income taxes 6,898 5,792 3,457
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Income from continuing operations 9,722 8,508 7,385
Discontinued operations:
Loss from operations (net of applicable
tax benefits of $323 and $1,619
for 1996 and 1995, respectively) -- (517) (2,602)
Loss from disposal (net of applicable tax
benefits of $663, $1,077 and $1,400
for 1997, 1996 and 1995, respectively) (934) (617) (2,250)
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Net income $ 8,788 $ 7,374 $ 2,533
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Earnings per share:
Income from continuing operations $ 1.92 $ 1.67 $ 1.45
Loss from discontinued operations (0.18) (0.22) (0.95)
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Income per share $ 1.74 $ 1.45 $ 0.50
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Number of shares used in computation of
per share information 5,064,000 5,093,000 5,109,000
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See notes to consolidated financial statements.
TRANSTECHNOLOGY CORPORATION
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Statements of Consolidated Cash Flows
(In thousands)
YEARS ENDED MARCH 31,
1997 1996 1995
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Cash flows from operating activities:
Net income $ 8,788 $ 7,374 $ 2,533
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss recognized on write down of marketable securities -- 2,613 --
Depreciation and amortization 7,406 6,027 5,349
Provision for losses on accounts receivable 139 468 65
Loss (gain) on sale or disposal of fixed assets and discontinued
businesses 64 (307) 704
Change in assets and liabilities - net of acquisitions and
dispositions:
(Increase) decrease in accounts receivable (620) 4,290 (2,672)
Decrease (increase) in inventories 191 (6,098) 5,595
Decrease (increase) in assets held for sale 262 (1,915) (3,672)
(Increase) decrease in other assets (453) 4,825 (2,521)
(Decrease) increase in accounts payable (3,650) 462 3,211
Increase in accrued compensation 553 2,226 1,041
Increase (decrease) in income tax payable 242 (676) (121)
Increase (decrease) in other liabilities 1,385 (8,577) (2,043)
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Net cash provided by operating activities 14,307 10,712 7,469
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Cash flows from investing activities:
Business acquisitions (3,602) (45,594) (15,952)
Capital expenditures (5,477) (6,471) (5,033)
Proceeds from sale of fixed assets and discontinued business 2,705 8,111 6,977
Decrease in notes receivable 1,119 1,055 2,515
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Net cash used in investing activities (5,255) (42,899) (11,493)
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Cash flows from financing activities:
Proceeds from long-term borrowings 40,105 107,363 42,019
Payments on long-term debt (45,273) (73,156) (36,289)
Proceeds from issuance of stock under stock option plan 365 188 202
Treasury stock purchases (1,625) (65) (2,090)
Dividends paid (1,318) (1,325) (1,301)
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Net cash (used in) provided by financing activities (7,746) 33,005 2,541
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Effect of exchange rate changes on cash (128) -- --
Increase (decrease) in cash and cash equivalents 1,178 818 (1,483)
Cash and cash equivalents at beginning of year 2,362 1,544 3,027
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Cash and cash equivalents at end of year $ 3,540 $ 2,362 $ 1,544
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Supplemental information:
Interest payments $ 6,606 $ 5,036 $ 3,054
Income tax payments $ 3,810 $ 1,989 $ 1,573
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See notes to consolidated financial statements.
TRANSTECHNOLOGY CORPORATION
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Statements of Consolidated Stockholders' Equity
(In thousands, except share data)
YEARS ENDED ADDITIONAL OTHER
MARCH 31, 1997, COMMON STOCK TREASURY STOCK PAID-IN RETAINED STOCKHOLDERS'
1996 AND 1995 SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY TOTAL
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BALANCE, MARCH 31, 1994 5,189,104 $52 -- $ -- $45,283 $ 22,186 $ (1,568) $ 65,953
Net income -- -- -- -- -- 2,533 -- 2,533
Cash dividends ($.255 per
share) -- -- -- -- -- (1,301) -- (1,301)
Purchase of treasury stock -- -- (172,500) (2,090) -- -- -- (2,090)
Issuance of stock under
stock option plan 24,789 -- -- -- 202 -- -- 202
Issuance of stock under
incentive bonus plan - net 28,423 -- -- -- 317 -- (122) 195
Foreign translation
adjustments -- -- -- -- -- -- 54 54
Unrealized investment
holding losses -- -- -- -- -- -- (1,044) (1,044)
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BALANCE, MARCH 31, 1995 5,242,316 52 (172,500) (2,090) 45,802 23,418 (2,680) 64,502
Net income -- -- -- -- -- 7,374 -- 7,374
Cash dividends ($.26 per
share) -- -- -- -- -- (1,325) -- (1,325)
Purchase of treasury stock -- -- (5,000) (65) -- -- -- (65)
Issuance of stock under
stock option plan 20,308 1 -- -- 187 -- -- 188
Issuance of stock under
incentive bonus plan - net 13,839 -- -- -- 199 -- (122) 77
Foreign translation
adjustments -- -- -- -- -- -- (894) (894)
Realized investment
holding losses -- -- -- -- -- -- 2,613 2,613
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BALANCE, MARCH 31, 1996 5,276,463 53 (177,500) (2,155) 46,188 29,467 (1,083) 72,470
Net income -- -- -- -- -- 8,788 -- 8,788
Cash dividends ($.26 per
share) -- -- -- -- -- (1,318) -- (1,318)
Purchase of treasury stock -- -- (100,000) (1,625) -- -- -- (1,625)
Issuance of stock under
stock option plan 30,381 -- -- -- 365 -- -- 365
Issuance of stock under
incentive bonus plan - net 10,127 -- (11,737) (159) 192 -- 75 108
Foreign translation
adjustments -- -- -- -- -- -- (1,061) (1,061)
Unrealized investment
holding losses -- -- -- -- -- -- (283) (283)
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BALANCE, MARCH 31, 1997 5,316,971 $53 (289,237) $ (3,939) $46,745 $ 36,937 $ (2,352) $ 77,444
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See notes to consolidated financial statements.
TRANSTECHNOLOGY CORPORATION
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Notes to Consolidated Financial Statements
1. SUMMARY OF ACCOUNTING
PRINCIPLES
TransTechnology Corporation (the "Company") develops, manufactures and sells a
wide range of products in two industry segments, Specialty Fastener Products and
Rescue Hoist and Cargo Hook Products. The Company has manufacturing facilities
located in the United States, Germany, the United Kingdom and Brazil. The
Specialty Fastener Products Segment produces highly engineered precision metal
retaining rings, clamps, circlips and other fasteners primarily for the
automotive, heavy truck, industrial and toy markets and accounted for
approximately 81% of the Company's consolidated 1997 net sales. Through its
Rescue Hoist and Cargo Hook Products Segment, the Company develops,
manufactures, sells and services a complete line of sophisticated lifting and
restraining products - principally helicopter rescue hoist and cargo hook
systems, and winches and hoists for aircraft and weapons systems, and accounted
for approximately 19% of the Company's consolidated 1997 net sales.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of TransTechnology Corporation and its subsidiaries, all of
which are wholly-owned. Intercompany balances and transactions are eliminated in
consolidation.
Related Party - Research Industries Incorporated owns approximately 22% of the
Company's outstanding common stock. Two former directors of the Company are the
only shareholders of Research Industries Incorporated and each of these
directors had a consulting contract with the Company that expired during fiscal
1995. During fiscal 1995, the Company expensed and paid $.7 million for these
contracts.
Accounting for Contracts - All of the Company's contracts are firm fixed-price.
Sales and cost of sales on such contracts are recorded as deliveries are made.
Losses on contracts are recorded as they are identified.
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.
Accounts Receivable - Accounts receivable from the United States Government
represent billed receivables and substantially all amounts are expected to be
collected within one year. The Company has no amounts billed under retainage
provisions of contracts.
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 - 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. In March
1995, Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," was issued. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used or disposed of by an entity be
reviewed for
TRANSTECHNOLOGY CORPORATION
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impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. During 1997 the Company
adopted this statement and determined that no impairment loss need be recognized
for applicable assets.
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, or shorter periods where deemed appropriate. The Company has
determined that there is no impairment in value since projected future operating
results on an undiscounted basis through the period such costs in excess of net
assets of acquired businesses are being amortized are expected to be sufficient
to absorb the amortization.
Earnings per Share - Earnings per share are based on the weighted average number
of common shares and, if dilutive, common stock equivalents (stock options)
outstanding during each year.
Research and Development and Engineering Costs - Research and development and
engineering costs in support of active products, which are charged to expense
when incurred, amounted to $2 million, $1.7 million and $1.4 million in 1997,
1996 and 1995, respectively. Included in these amounts were expenditures of $0.8
million, $0.9 million and $0.4 million in 1997, 1996 and 1995, respectively,
which represent costs related to research and development activities.
Foreign Currency Translation - Pursuant to Statement of Financial Accounting
Standards No. 52, the assets and liabilities of the Company's international
operations, other than the operations located in a highly inflationary country,
have been translated into U.S. dollars at year-end exchange rates, with
resulting translation gains and losses accumulated as a separate component of
other stockholders' equity. Income and expense items are converted into U.S.
dollars at average rates of exchange prevailing during the year. Translation
adjustments of the operation located in a country with a highly inflationary
economy, are included as a component of operating income.
Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
Investments - On March 1, 1994, the Company received 465,000 shares of Mace
Security International common stock, valued at $3.4 million, as partial
consideration for the sale of a division. In the fourth quarter of 1996, the
Company recorded a $2.6 million pretax charge to continuing operations to write
down the carrying value of these shares to their current market value as the
decline in value of these shares was determined to be other than temporary.
Gross unrealized holding losses of $0.3 million were reported as a reduction of
other stockholders' equity in the March 31, 1997 balance sheet.
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 purchase commitments and certain
foreign denominated long-term debt. Gains and losses on these instruments are
included in other income/expense.
New Accounting Standards - In February 1997, the Financial Accounting Standards
Board adopted Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," which establishes standards for computing and presenting earnings per
share. This statement is effective for the Company's fiscal year ending March
31, 1998. The Company believes that the effect of implementing this standard
will result in a basic earnings per share amount which will not be materially
different from primary earnings per share as currently reported.
Reclassifications - Certain reclassifications have been made to prior years to
conform to the 1997 presentation.
TRANSTECHNOLOGY CORPORATION
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2. DISCONTINUED OPERATIONS
In June 1995 and January 1996, the Company sold the domestic and European
portions of its computer graphics service operations, respectively, in two
separate transactions to two different buyers. These businesses operated under
the name TransTechnology Systems & Services and were classified as discontinued
operations in March 1995. The sale of the domestic portion for $0.7 million in
cash and $0.6 million in notes receivable was for book value, and the sale of
the European portion for $0.1 million in cash and $0.2 million in notes
receivable resulted in an after-tax gain on disposal of $0.1 million in 1996.
Additional after-tax disposal costs of $0.2 million were recorded in 1997 in
connection with these sales.
In August 1995, the Company sold its Electronics division for $4.4 million in
cash and $9.6 million in notes receivable. The sale of this operation resulted
in an after-tax gain on disposal of $0.2 million.
In March 1995, the Company sold substantially all of the assets and business of
its chaff products operation for $6.7 million in cash. The sale of this
operation resulted in an after-tax loss on disposal of $0.4 million. Additional
after-tax disposal costs of $0.2 million were recorded in 1996 in connection
with the sale. The Company retained the chaff avionics product line and
negotiated its sale separately in May 1995 for $0.3 million in cash and $0.7
million in notes receivable, resulting in an after-tax charge of $0.4 million.
In the fourth quarter of 1996, the Company recorded an after-tax charge of $0.4
million to record the anticipated loss on the sale of the facility that was
formerly used by this operation. Additional after-tax disposal costs of $0.1
million were recorded in 1997 related to the final sale of this facility.
Additional after-tax costs of $0.6 million, $0.7 million and $1.9 million were
recorded in 1997, 1996 and 1995, respectively, in connection with other
previously discontinued and sold operations. These additional costs represent
adjustments to previous estimates related primarily to legal and environmental
matters.
Operating results of the discontinued businesses were as follows (in thousands):
1996 1995
Total sales $ 7,951 $ 35,515
------- --------
Loss before income taxes $ (840) $ (4,221)
Income tax benefit 323 1,619
------- --------
Loss from operations $ (517) $ (2,602)
------- --------
The loss from operations includes interest expense of $0.2 million and $0.5
million in 1996 and 1995, respectively.
Assets held for sale at March 31, 1997 and 1996 were as follows (in thousands):
1997 1996
Inventory $ 429 $ 529
Property 6,577 8,039
Other assets 611 1,412
------ ------
Assets held for sale $7,617 $9,980
------ ------
3. ACQUISITIONS
On June 18, 1996, the Company acquired the Pebra hose clamp business from Pebra
GmbH Paul Braun i.K. for approximately $3 million in cash plus direct
acquisition costs. Pebra manufactures heavy duty hose clamps primarily for use
in the manufacture of heavy trucks in Europe.
On June 30, 1995, the Company acquired the Seeger Group of companies from a unit
of AB SKF of Goteborg, Sweden for approximately $43 million in cash plus direct
acquisition costs and the assumption of trade debts and accrued expenses. The
Seeger Group, headquartered in Konigstein, Germany, manufactures circlips, snap
rings and retaining rings.
Effective August 31, 1994, the Company acquired all of the outstanding capital
stock of Industrial Retaining Ring Company and its affiliated companies for a
total purchase price of $15.3 million in cash and the assumption of liabilities.
Industrial Retaining Ring Company manufactures retaining rings and clips used
primarily in the heavy equipment and industrial machinery industries.
TRANSTECHNOLOGY CORPORATION
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4. INVENTORIES
Inventories at March 31 consisted of the following (in thousands):
1997 1996
Finished goods $21,897 $22,645
Work in process 10,335 9,326
Purchased and manufactured
parts 18,445 18,580
------- -------
Total $50,677 $50,551
------- -------
5. INCOME TAXES
The components of total income (loss) from operations (including continuing and
discontinued operations) before income taxes were (in thousands):
1997 1996 1995
Domestic $12,167 $ 8,124 $ 3,694
Foreign 2,856 3,642 (723)
------- ------- -------
Total $15,023 $11,766 $ 2,971
------- ------- -------
The provision for income taxes is summarized below (in thousands):
1997 1996 1995
Currently
payable:
Domestic $3,549 $1,813 $140
Foreign 42 656 --
State 975 517 208
------ ------ ----
4,566 2,986 348
Deferred 1,669 1,406 90
------ ------ ----
Total $6,235 $4,392 $438
------ ------ ----
The provision (benefit) for income taxes is allocated between continuing and
discontinued operations as summarized below (in thousands):
1997 1996 1995
Continuing $ 6,898 $ 5,792 $ 3,457
Discontinued (663) (1,400) (3,019)
------- ------- -------
Total $ 6,235 $ 4,392 $ 438
------- ------- -------
The consolidated effective tax rates for continuing operations differ from the
federal statutory rates as follows:
1997 1996 1995
Statutory federal rate 35.0% 34.0% 34.0%
State income taxes
after federal income tax 4.5 3.6 4.6
Earnings of the foreign
sales corporation (2.0) (2.6) (2.6)
Amortization of purchase
adjustments not
deductible for tax
purposes -- 1.9 1.0
Revision of prior years'
tax accruals -- -- (5.1)
Foreign rate differential 2.4 2.6 --
Other 1.6 1.0 --
---- ---- ----
Consolidated effective
tax rate 41.5% 40.5% 31.9%
---- ---- ----
The following is an analysis of accumulated deferred income taxes (in
thousands):
1997 1996
Assets:
Current:
Inventory $ 2,025 $ 969
Net operating loss 650 --
Tax basis in excess of book
basis on disposal of subsidiary 640 --
Other 978 68
------- ------
Total current 4,293 1,037
------- ------
Noncurrent:
Environmental 917 1,067
Purchase accounting adjustments 2,068 3,820
Investment 1,128 1,049
Net operating loss 1,618 --
Other -- 737
------- ------
Total noncurrent 5,731 6,673
------- ------
Total assets $10,024 $7,710
------- ------
Liabilities:
Noncurrent:
Depreciation $ 3,765 $1,200
Purchase accounting adjustments 2,097 2,097
Other 938 605
------- ------
Total liabilities $ 6,800 $3,902
------- ------
Summary - accumulated deferred income taxes (in thousands):
1997 1996
Net current assets $ 4,293 $1,037
Net noncurrent (liabilities) assets (1,069) 2,771
------- ------
Total $ 3,224 $3,808
------- ------
TRANSTECHNOLOGY CORPORATION
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6.LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS
Long-term debt payable, including current
maturities, at March 31 consisted of the following (in thousands):
1997 1996
Credit agreement - 7.580% $22,825 $ --
Credit agreement - 7.965% -- 21,420
Term loan - 7.50% 25,289 --
Term loan - 7.804% -- 31,320
Term loan - 9.79% 24,500 25,000
Other 809 851
------- -------
73,423 78,591
Less current maturities 5,907 6,026
------- -------
Total $67,516 $72,565
------- -------
Credit Agreement - At March 31, 1997, the Company's debt consisted of $16.7
million of borrowings under a revolving credit line, $6.1 million of borrowings
under international lines of credit, a $25.3 million term loan, a $24.5 million
term loan and $0.8 million of other borrowings. The revolving bank credit line
commitment as amended on December 31, 1996 is $30 million, will be available to
the Company through December 31, 2000 and is subject to a borrowing base
formula. The agreement provides for borrowings and letters of credit based on
collateralized accounts receivable and inventory. In addition, all of the
remaining assets of the Company and its subsidiaries are included as collateral.
Letters of credit, which are included in the borrowing base formula, are limited
to $5 million. Letters of credit under the line at March 31, 1997 were $0.1
million. The total commitment from the international lines of credit as amended
on December 31, 1996 is $10 million and has the same availability and collateral
as the revolving credit line, but is not subject to a borrowing base formula.
Interest on the revolver and international lines of credit are 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 and financial goals.
The $25.3 million (which includes $7.6 million and $6.3 million payable in
Deutsche Mark and pound sterling, respectively) and $24.5 million term loans are
with the same lenders as the revolving and international lines of credit, are
secured by the same collateral, and are due and payable on March 31, and June
30, 2002, respectively. The $25.3 million term loan had an additional $15
million available through March 1997 for future acquisitions. Quarterly
principal payments on the $25.3 million term loan of $1.4 million, with
escalations to $1.8 million and $2.8 million in June 1999 and June 2000,
respectively, began on December 31, 1995, and are due and payable on the last
day of each quarter through December 31, 2000. Interest on the $25.3 million
term loan is tied to the lending bank's prime rate, or LIBOR, plus a margin that
varies, depending on the Company's achievement of certain operating and
financial goals. Principal payments on the $24.5 million term loan of $0.5
million are due and payable annually beginning on June 30, 1996 through June 30,
2000, with final balloon payments of $7.5 million and $15 million due and
payable on June 30, 2001 and June 30, 2002, respectively. Interest on the $24.5
million term loan accrues at the primary lending bank's prime rate plus two
percentage points. The agreement also gives the Company the option of using
LIBOR plus three and one-quarter percentage points. At March 31, 1997, the
Company had $49.9 million of borrowings utilizing LIBOR. The agreement as
amended March 31, 1997, provides for additional term loans of $20 million.
The credit facility limits the Company's ability to pay dividends to 25% of net
income and restricts capital expenditures to $9 million annually, as well as
containing other customary financial covenants.
Other - Other long-term debt is comprised principally of an obligation due under
a collateralized borrowing arrangement with a fixed interest rate of 3% due
December 2004 and loans on life insurance policies owned by the Company with a
fixed interest rate of 5%.
TRANSTECHNOLOGY CORPORATION
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Debt maturities (in thousands):
1998 (current) $ 5,907
1999 5,852
2000 7,180
2001 8,588
2002 30,373
Thereafter 15,523
-------
Total $73,423
-------
7. STOCKHOLDERS' EQUITY AND EMPLOYEE/DIRECTOR STOCK OPTIONS
Under the terms of the Company's amended and restated 1992 long-term incentive
plan, 570 thousand 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. Option exercise prices equal
the market price of the common shares at their grant dates. Options expire not
later than five years after the date of the grant. Options granted vest ratably
over three years beginning one year after the date of grant. Restricted stock is
payable in equivalent number of common shares; the shares are distributable in a
single installment and vest ratably over a three year period from the date of
the award.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
in October 1995. Under SFAS No. 123, companies can either continue to account
for stock compensation plans pursuant to existing accounting standards or elect
to expense the value derived from using an option pricing model such as
Black-Scholes. The Company will continue to apply existing accounting standards.
However, SFAS No. 123 requires disclosure of pro forma net income and earnings
per share as if the Company had adopted the expensing provisions of SFAS No.
123. Based on Black-Scholes values, pro forma net income for 1997 and 1996 would
be $8.7 million and $7.4 million, respectively; pro forma earnings per common
share for 1997 and 1996 would be $1.73 and $1.45, respectively.
The following table summarizes stock option activity over the past two years
under the plan:
WEIGHTED-
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
Outstanding at April 1, 1995 375,015 $12.37
Granted 109,000 12.40
Exercised (20,308) 9.22
Canceled or expired (55,111) 13.12
-------
Outstanding at March 31, 1996 408,596 12.62
Granted 97,000 16.85
Exercised (30,381) 12.04
Canceled or expired (11,001) 12.55
-------
Outstanding at March 31, 1997 464,214 13.54
-------
Options exercisable at
March 31, 1996 177,253 11.97
Options exercisable at
March 31, 1997 264,211 12.26
In 1997 and 1996, the Company awarded restricted stock totaling 6,435 and 18,267
shares, respectively. The weighted-average fair value of this restricted stock
was $17.25 and $13.33 in 1997 and 1996, respectively. The expense recorded in
1997 and 1996 for restricted stock awards was $159 thousand and $122 thousand,
respectively.
The weighted-average Black-Scholes value per option granted in 1997 and 1996 was
$13.55 and $10.28, respectively. The following weighted-average assumptions were
used in the Black-Scholes option pricing model for options granted in 1997 and
1996:
1997 1996
Dividend yield 1.4% 2.0%
Volatility 29.0% 25.0%
Risk-free interest rate 6.2% 5.7%
Expected term of options (in years) 4 4
TRANSTECHNOLOGY CORPORATION
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For options outstanding and exercisable at March 31, 1997, 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, 1997 LIFE PRICE MARCH 31, 1997 PRICE
$ 9 to $14 232,214 2 $11.24 174,213 $ 10.77
$15 to $19 232,000 3 15.85 89,998 15.13
------- -------- ------ ---------- ----------
464,214 3 $13.54 264,211 $ 12.26
------- ----------
8. EMPLOYEE BENEFIT PLANS
The Company has an incentive bonus plan which provides for cash payments to
selected employees based upon formulas approved by the Board of Directors.
Provisions for awards under the plan approximated $1.6 million, $1.7 million and
$1.2 million in 1997, 1996 and 1995, respectively. The Company has two 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 $2.5 million, $2.2 million and $1.6 million
in 1997, 1996 and 1995, respectively.
The Company provides postretirement benefits to union employees at one of the
Company's divisions. The Company continues to fund these benefits on a
pay-as-you-go basis.
The components of net postretirement benefit
cost for the years ended March 31 were as follows (in thousands):
1997 1996 1995
Service cost (benefits
earned during the year) $ 3 $ 88 $ 94
Interest cost on projected
postretirement
benefit obligation 79 168 168
Amortization of transition
obligation -- 101 101
Amortization of net gain -- (10) --
--- ----- ----
Total postretirement
benefit cost $82 $ 347 $363
--- ----- ----
The accumulated postretirement benefit obligation and funded status at March 31
were as follows (in thousands):
1997 1996
Accumulated postretirement benefit obligation:
Retirees $ (920) $ (774)
Fully eligible plan participants (20) (365)
Other active plan participants (70) (1,161)
------- -------
Accumulated postretirement benefit
obligation in excess of plan assets (1,010) (2,300)
Unrecognized net gain (6) (217)
Unrecognized transition obligation -- 1,724
------- -------
Accrued postretirement
benefit liability $(1,016) $ (793)
------- -------
As of March 31, 1997 the Plan was amended reducing the remaining service lives
of participants and limiting certain benefits provided by the Plan. The
curtailment resulted in an additional 1997 expense of approximately $530
thousand.
Accrued postretirement benefit cost is included in other liabilities on the
balance sheet.
The assumed health care cost trend rates used for measurement purposes was 12%
for 1997 and 1996, trending down 1% each year to 10% in 1999 and then decreasing
.5% each year to 6.0% in 2007 and beyond, for substantially all participants.
The weighted-average discount rate used was 7.5% at March 31, 1997 and 1996.
A 1% increase in health care trend rate would increase the annual expense by
approximately 12.2% for the year ended March 31, 1997 and accumulated
postretirement benefit obligation by approximately 13.6% at March 31, 1997.
TRANSTECHNOLOGY CORPORATION
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In addition, the Company maintains several defined benefit retirement plans for
certain non-U.S. employees. Funding policies are based on local statutes. Net
periodic pension cost for the plans for the years ended March 31 includes the
following (in thousands):
1997 1996
Service cost $ 49 $ 40
Interest cost 436 343
Net deferral and amortization 43 34
---- ----
Net periodic pension cost $528 $417
---- ----
The following table sets forth the funded status of the plans at March 31 (in
thousands):
1997 1996
Total accumulated benefit obligation $5,408 $ 6,370
------ -------
Projected benefit obligation $5,489 $ 6,615
Unrecognized net gain (loss) 75 (245)
------ -------
Unfunded accrued pension cost
(included in other long-term
liabilities) $5,564 $ 6,370
------ -------
In determining the projected benefit obligation, the discount rates were 7.25%
and 7.5% at March 31, 1997 and 1996, respectively, and the rates of salary
increases were 2.5% and 3% in 1997 and 1996, respectively.
9. 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, 1997 $25,000 8/98 5.56% 6.54%
DM12,648 12/98 3.31% 4.57%
March 31, 1996 $25,000 8/98 5.88% 6.54%
DM15,313 12/98 3.36% 4.57%
(1) Based on three-month LIBOR
Foreign Currency Exchange Agreements - The Company enters into forward foreign
currency agreements to hedge foreign currency denominated debt instruments.
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.
In addition, the Company enters into forward currency contracts to hedge certain
foreign currency purchase commitments. Gains and losses from these transactions
are included in the cost of the underlying purchases.
The table below summarizes by currency the contractual amounts of the Company's
foreign exchange contracts at March 31, 1997. 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):
1997 1996
------------------- ---------------
BUY SELL BUY SELL
Currency
Deutsche Mark $ 96 $11,992 $1,015 $--
Pound sterling -- 1,459 -- --
------- ------- ------ ----
$ 96 $13,451 $1,015 $--
------- ------- ------ ----
Fair Value of Financial Instruments - The fair values of cash and cash
equivalents, receivables and notes receivable approximate their carrying values
due to the short-term nature of the instruments.
The fair value of the Company's long-term notes receivable and debt approximates
their carrying values due to the variable interest-rate feature of the
instruments. The fair values of the Company's interest rate swaps and forward
foreign exchange agreements are the estimated amounts the Company would have to
(pay) or receive to terminate the agreements at March 31, 1997 based upon quoted
market prices as provided by financial institutions which are counterparties to
the agreements and were as follows (in thousands):
1997 1996
(PAY) RECEIVE (PAY) RECEIVE
Interest rate swap
agreements $ (240) $(1,397)
Forward foreign
exchange agreements 1,329 30
TRANSTECHNOLOGY CORPORATION
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10. COMMITMENTS
Rent expense under operating leases, net of subleases, for the years ended March
31, 1997, 1996, and 1995 was $2.3 million, $2.0 million and $1.8 million,
respectively. The Company has no material capital leases.
The Company and its subsidiaries have minimum rental commitments under
noncancellable operating leases (relating primarily to leased buildings) which
are as follows (in thousands):
YEAR ENDING
MARCH 31,
1998 $ 2,669
1999 2,117
2000 1,032
2001 604
2002 489
Thereafter 132
---------
Total $ 7,043
---------
Included in the above amounts is the aggregate lease commitment associated with
the Company's former corporate office which has been subleased. Future sublease
rentals receivable at March 31, 1997 totalled $0.6 million. Other long-term
liabilities at March 31, 1997 include a $0.1 million obligation associated with
the lease which expires in July 1998.
11. CONTINGENCIES
ENVIRONMENTAL MATTERS. The Company has commenced environmental site assessments
and cleanup feasibility studies to determine the presence, extent and sources of
any environmental contamination at a site in Pennsylvania which continues to be
owned although the related business has been sold. Although no governmental
action requiring remediation has been taken at this time, the Company is working
in cooperation with the relevant state authority and any remedial work required
to be performed would be subject to its approval. A design report for
implementation of a portion of a remedy at the Pennsylvania site has been
prepared and submitted to the state. At March 31, 1997, the balance of the
Company's cleanup reserve was $2.1 million payable over the next several years.
In addition, the Company is pursuing recovery of a portion of cleanup costs in
litigation with several of its insurance carriers. The Company expects that
remediation work at the Pennsylvania site will not be completed until fiscal
2000.
The Company also continues to participate in environmental assessments and
remediation work at twelve 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 $1.0 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
five 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. It is not possible to reliably estimate
the costs associated with any remedial work to be performed until studies at
these sites have been completed, the scope of work defined and a method of
remediation selected and approved by the relevant state authorities, and the
costs allocated among the potentially responsible parties.
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.
12. SUBSEQUENT EVENTS
On April 17, 1997, the Company acquired all of the outstanding stock of TCR
Corporation for $32.6 cash million plus other contingent consideration. TCR,
located in Minneapolis, produces externally threaded fasteners and related
products for the automotive, heavy vehicle, marine and industrial markets. TCR
sales were approximately $23 million for calendar year 1996.
The acquisition was financed by a term loan under the Company's credit agreement
resulting in increased annual principal payments of approximately $3.4 million
beginning June 1997.
TRANSTECHNOLOGY CORPORATION
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13. SEGMENT AND GEOGRAPHIC INFORMATION
The Company develops, manufactures and sells, primarily, specialty fastener
products and rescue hoist and cargo hook products. Specialty Fastener Products
include gear-driven band fasteners, threaded fasteners and retaining rings for
the marine, auto, toy, aircraft, heavy equipment and industrial machinery
industries. Rescue Hoist and Cargo Hook Products include lifting, control, and
restraint devices - principally helicopter rescue hoists and external hook
systems, winches and hoists for aircraft and weapon-handling systems, and
aircraft and cargo tie-downs.
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 18% of sales from continuing operations in 1997, 1996
and 1995, respectively, were derived from sales to the United States Government
and its prime contractors which are attributable primarily to the Rescue Hoist
and Cargo Hook Products Segment.
DEPRECIATION/
FISCAL OPERATING CAPITAL AMORTIZATION IDENTIFIABLE
(IN THOUSANDS) YEAR SALES PROFIT(1) EXPENDITURES(2) EXPENSE(2) ASSETS
- ------------------------------------------------------------------------------------------------------------------
Specialty fastener 1997 $ 144,197 $ 24,040 $4,715 $ 5,881 $140,960
products 1996 127,487 23,702 5,171 4,710 138,001
1995 71,103 16,500 3,193 1,906 60,986
- ------------------------------------------------------------------------------------------------------------------
Rescue hoist and 1997 34,487 7,483 618 645 26,146
cargo hook products 1996 30,537 4,928 901 756 26,334
1995 30,019 160 469 605 24,493
- ------------------------------------------------------------------------------------------------------------------
Total segments 1997 178,684 31,523 5,333 6,526 167,106
1996 158,024 28,630 6,072 5,466 164,335
1995 101,122 16,660 3,662 2,511 85,479
- ------------------------------------------------------------------------------------------------------------------
Corporate 1997 -- (9,253) 144 825 32,030
1996 -- (8,987) 399 438 35,032
1995 -- (3,882) 64 260 43,917
- ------------------------------------------------------------------------------------------------------------------
Corporate interest 1997 -- 1,147 -- -- --
and other income 1996 -- 973 -- -- --
1995 -- 895 -- -- --
- ------------------------------------------------------------------------------------------------------------------
Interest expense 1997 -- (6,797) -- -- --
1996 -- (6,316) -- -- --
1995 -- (2,831) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Consolidated 1997 $ 178,684 $ 16,620 $5,477 $ 7,351 $199,136
1996 158,024 14,300 6,471 5,904 199,367
1995 101,122 10,842 3,726 2,771 129,396
- ------------------------------------------------------------------------------------------------------------------
(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 interest and other income earned at the corporate
level are included in the corporate section. Interest expense is also separately
reported. The amount of the "Consolidated" line represents "Income from
Continuing Operations Before Income Taxes." Loss from discontinued operations is
not included.
(2) The capital expenditures and depreciation/amortization expense from
discontinued operations are excluded from the above schedule.
In 1997, 1996 and 1995, the Company had revenues from export sales as follows
(in thousands):
LOCATION 1997 1996 1995
Western Europe $ 8,349 $ 7,230 $ 6,641
Canada 6,316 6,323 5,896
Pacific and Far East 3,027 2,312 1,638
Mexico, Central and South America 1,751 851 1,015
Middle East 194 167 114
Other 156 22 136
---------------------------------
Total $19,793 $16,905 $15,440
---------------------------------
TRANSTECHNOLOGY CORPORATION
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Results set forth below for international operations represent sales and
operating income of foreign-based Company operations (in thousands):
1997 1996
Net sales:
Domestic operations $ 120,655 $ 112,860
International operations (1) 58,029 45,164
-------------------------
Net sales $ 178,684 $ 158,024
-------------------------
Operating income:
Domestic operations $ 24,991 $ 22,454
International operations (1) 6,532 6,176
-------------------------
Operating income 31,523 28,630
Interest expense (6,797) (6,316)
Corporate expense and other (8,106) (8,014)
-------------------------
Income from continuing operations before tax $ 16,620 $ 14,300
-------------------------
Identifiable assets:
Domestic operations $ 94,794 $ 96,944
International operations (1) 72,312 67,391
Corporate 32,030 35,032
-------------------------
Total assets $ 199,136 $ 199,367
-------------------------
(1) International operations are primarily located in Europe. Prior to 1996 the
Company had no significant international operations.
14. UNAUDITED QUARTERLY FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
1997
Net sales $ 44,640 $ 43,580 $ 42,851 $ 47,613 $ 178,684
Gross profit 13,701 12,496 13,990 16,017 56,204
Income from continuing operations 2,097 1,727 3,020 2,878 9,722
Loss from discontinued operations (269) (206) (199) (260) (934)
---------------------------------------------------------------------
Net income $ 1,828 $ 1,521 $ 2,821 $ 2,618 $ 8,788
---------------------------------------------------------------------
Earnings (loss) per share (a):
Income from continuing operations $ 0.41 $ 0.34 $ 0.60 $ 0.55 $ 1.92
Loss from discontinued operations (0.05) (0.04) (0.04) (0.05) (0.18)
---------------------------------------------------------------------
Net income $ 0.36 $ 0.30 $ 0.56 $ 0.50 $ 1.74
---------------------------------------------------------------------
1996
Net sales $ 26,207 $ 43,861 $ 41,087 $ 46,869 $ 158,024
Gross profit 8,268 11,889 13,818 16,623 50,598
Income from continuing operations 1,733 1,343 2,793 2,639 8,508
Loss from discontinued operations (172) (149) (447) (366) (1,134)
---------------------------------------------------------------------
Net income $ 1,561 $ 1,194 $ 2,346 $ 2,273 $ 7,374
---------------------------------------------------------------------
Earnings (loss) per share:
Income from continuing operations $ 0.34 $ 0.26 $ 0.55 $ 0.52 $ 1.67
Loss from discontinued operations (0.03) (0.03) (0.09) (0.07) (0.22)
---------------------------------------------------------------------
Net income $ 0.31 $ 0.23 $ 0.46 $ 0.45 $ 1.45
---------------------------------------------------------------------
(a) Calculation of earnings per share for the quarter ended March 31, 1997
includes common stock equivalents of approximately 170,000 shares relating to
stock options.
TRANSTECHNOLOGY CORPORATION
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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, 1997 and 1996, and the related
statements of consolidated operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of The New Seeger Group
(whose members are consolidated subsidiaries) for the period ended March 31,
1996, which statements reflect total assets and total revenues constituting 32%
and 28%, respectively, of the related consolidated totals for the year. These
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for The New
Seeger Group for the period ended March 31, 1996, is based solely on the report
of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of TransTechnology Corporation and subsidiaries at March 31,
1997 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
May 12, 1997
TRANSTECHNOLOGY CORPORATION
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The Company's fiscal year ends on March 31. Accordingly, all references to years
in this Management's Discussion 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.
Sales from continuing operations in 1997 were $178.7 million, an increase of
$20.7 million or 13% from 1996, compared with a $56.9 million or 56% increase
from 1995 to 1996. Gross profit in 1997 increased $5.6 million or 11% from 1996,
compared with an increase of $21.4 million or 74% from 1995 to 1996. Operating
profit from continuing operations for 1997 was $31.5 million, an increase of
$2.9 million or 10% from 1996, compared with an increase of $12 million or 72%
from 1995 to 1996. Changes in sales, operating profit and new orders from
continuing operations are discussed below by segment, and additional information
regarding industry segments is contained in Note 13 of the Notes to Consolidated
Financial Statements.
Net income, including discontinued operations, for 1997 was $8.8 million or
$1.74 per share compared to $7.4 million or $1.45 per share in 1996. These
changes in net income were affected both by operating profit, as discussed in
the Business Segment sections below, and by discontinued operations, as
discussed in the Discontinued Operations section below. Net losses from
discontinued operations, including disposal losses, were $0.9 million or $.18
per share in 1997 and $1.1 million or $.22 per share in 1996.
In the first quarter of 1997 the Company acquired the Pebra hose clamp business
as discussed below in the Acquisitions section and the Business Segment section.
Excluding corporate expense allocations of $0.3 million to a discontinued
operation in 1996 and a $2.6 million fourth quarter 1996 pre-tax charge to
continuing operations to write down the carrying value of equity securities
acquired from the sale of its tear gas division to their current market value
when the decline in value of those securities was determined to be other than
temporary, general corporate expense increased in 1997 by approximately $2.5
million or 38% over 1996. This increase was primarily due to the Company
accruing, as corporate expense, approximately $1 million in 1997 relating to the
long-term incentive plan which the Company expects to pay in early fiscal 1999,
increased business development costs, the relocation of the corporate office out
of an operating division's building, and increased staffing.
Interest expense increased $0.5 million in 1997 from 1996 and $3.5 million in
1996 from 1995 primarily as a result of increased bank borrowings related to the
acquisition of the Seeger Group of companies, as further discussed below in the
Liquidity and Capital Resources section.
TRANSTECHNOLOGY CORPORATION
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New orders received during 1997 totaled $192.1 million, an increase of $29.5
million or 18% from 1996. New orders received during 1996 totaled $162.6
million, an increase of $58.1 million or 56% from 1995. At March 31, 1997, total
backlog of unfilled orders was $66.5 million compared to $62.3 million and $34.4
million at March 31, 1996 and 1995, respectively. New orders and backlog by
industry segment are discussed below.
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," which the Company adopted during fiscal 1997 with no
material impact on the carrying values of the assets covered by this standard.
Also in 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires companies to measure employee stock compensation
plans based on the fair value method of accounting or to continue to apply APB
No. 25, "Accounting for Stock Issued to Employees," and provide pro forma
footnote disclosures under the fair value method in SFAS No. 123. The Company
will continue to apply the principles of APB No. 25 and has provided pro forma
fair value disclosures in Note 7 of the Notes to Consolidated Financial
Statements. In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share," which establishes standards for computing and presenting earnings per
share. This statement is effective for the Company's fiscal year ending March
31, 1998. The Company believes that the effect of implementing this standard
will result in a basic earnings per share amount which will not be materially
different from primary earnings per share as currently reported.
SPECIALTY FASTENER PRODUCTS SEGMENT 1997 COMPARED WITH 1996
Sales for the Specialty Fastener Products segment were $144.2 million in 1997,
an increase of $16.7 million or 13% from 1996. The increase in sales was
primarily due to the inclusion of twelve months of Seeger group operations in
1997 versus nine months of operations in 1996; the inclusion of nine months of
operations of the Pebra hose clamp business in 1997; and overall increased
volume of domestic gear-driven fasteners in 1997 as compared to 1996.
Additionally, specialty fastener sales were negatively impacted in 1997 by a
weakened economy in Europe and a stronger dollar versus Deutsche Mark as
compared to last year.
Operating profit for the Specialty Fastener Products segment was $24 million in
1997, an increase of $0.3 million or 1% from 1996. The primary factors
contributing to the segment's increased operating profit in 1997 were the sales
increases over the prior year as mentioned above, which were offset by lower
margins in Europe; the result of excess capacity which increased competition,
lowered sales, and resulted in lower factory operating efficiencies; and the
stronger dollar versus Deutsche Mark.
In 1997, new orders in the Specialty Fastener Products segment increased $33.1
million or 27% from 1996. The primary reasons for the increase were the same as
those noted in the paragraph above relative to the increase in sales. Backlog of
unfilled orders was $36.1 million at March 31, 1997 compared to $31.4 million at
March 31, 1996.
During 1997 the Company began the consolidation and standardization of its
overseas retaining ring manufacturing operations by completing the installation
of a new business information system and commencing the closing of one of its
two
TRANSTECHNOLOGY CORPORATION
26
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retaining ring factories in Germany. Production from this factory will be
transferred primarily to the Company's UK manufacturing facility. Additionally,
commencing in 1997 and continuing through 1998, the Company will pursue the
process of consolidating its domestic retaining ring manufacturing and
distribution facilities.
1996 COMPARED WITH 1995
Sales for the Specialty Fastener Products segment were $127.5 million in 1996,
an increase of $56.4 million or 79% from 1995. The increase in sales was
primarily due to the inclusion of nine months of Seeger Group operations in
1996, and to a lesser extent, the inclusion of twelve months of Industrial
Retaining Ring Company operations in 1996 versus eight months in 1995, and
increased industrial and heavy truck OEM demand for gear-driven band fasteners
in fiscal 1996.
Operating profit for the Specialty Fastener Products segment was $23.7 million
in 1996, an increase of $7.2 million, or 44%, from 1995. The primary factors
contributing to the segment's increased operating profit in 1996 were the same
as those noted in the preceding paragraph relative to the increase in sales.
In 1996, new orders in the Specialty Fastener Products segment increased $48.8
million or 66% from 1995. The primary reasons for the increase were the same as
those noted in the paragraph above relative to the increase in sales. Backlog of
unfilled orders was $31.4 million at March 31, 1996, compared to $12.7 million
at March 31, 1995.
RESCUE HOIST AND CARGO HOOK PRODUCTS SEGMENT 1997 COMPARED WITH 1996
Sales for the Rescue Hoist and Cargo Hook Products segment were $34.5 million in
1997, an increase of $4 million or 13% from 1996. This increase included both
the rescue hoist systems and related spare parts and tie-down product lines, and
was offset by lower cargo hook sales in 1997 as compared to 1996. These
increases and decreases in sales were primarily due to customer timing and
placement of new orders.
The Rescue Hoist and Cargo Hook Products segment reported an operating profit of
$7.5 million in 1997, an increase of $2.6 million or 52% from 1996. The increase
was primarily due to plant operating efficiency improvements, higher sales
volume and product mix, and inventory utilization improvements.
In 1997 new orders in the Rescue Hoist and Cargo Hook Products segment decreased
by $3.6 million or 9% from 1996. This decrease was primarily due to customer
timing of order placement and an unusually high level of orders in 1996. At
March 31, 1997, the backlog of unfilled orders was $32.5 million, compared to
$30.9 million at March 31, 1996.
1996 COMPARED WITH 1995
Sales for the Rescue Hoist and Cargo Hook Products segment were $30.5 million in
1996, an increase of $0.5 million or 2% from 1995. All three product lines in
this segment, rescue hoists and related spare parts, cargo hooks, and tie-downs,
had little change in sales from 1995 levels.
The Rescue Hoist and Cargo Hook Products segment reported an operating profit of
$4.9 million in 1996, compared to $0.2 million in 1995. This improvement was
accomplished primarily because of higher plant operating efficiencies, price
adjustments and better inventory utilization.
In 1996 new orders in the Rescue Hoist and Cargo Hook Products segment increased
by $9.3 million or 31% from 1995. This increase, led by the rescue hoist product
line, was primarily due to increased marketing efforts and customer timing of
order placement. At March 31, 1996, the backlog of unfilled orders was $30.9
million, compared to $21.8 million at March 31, 1995.
TRANSTECHNOLOGY CORPORATION
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ACQUISITIONS
In the first quarter of 1997 the Company acquired the Pebra hose clamp business
from Pebra GmbH Paul Braun i.K. for approximately $3 million in cash plus direct
acquisition costs. Pebra is located in Frittlingen, Germany and manufactures
heavy duty hose clamps primarily for use in the production of heavy trucks in
Europe. In 1996 the Company acquired the Seeger Group of companies from a unit
of AB SKF of Goteborg, Sweden for approximately $43 million in cash plus direct
acquisition costs and the assumption of trade debt and accrued expenses. The
Seeger Group, headquartered in Konigstein, Germany, manufactures circlips, snap
rings and retaining rings primarily used in the production of automobiles,
trucks, industrial equipment and appliances. The Seeger Group operated under the
trade names "Seeger", "Anderton", and "Waldes" at its manufacturing facilities
located in Germany, the UK, Brazil and the U.S.A.
In 1995 the Company acquired all of the outstanding capital stock of Industrial
Retaining Ring Company and its affiliated companies for a total purchase price
of $15.3 million in cash and the assumption of liabilities. Industrial Retaining
Ring Company manufactures retaining rings and clips used primarily in the heavy
equipment and industrial machinery industries.
On April 17, 1997, the Company acquired all of the outstanding stock of TCR
Corporation for $32.6 million in cash plus other contingent consideration.
Located in Minneapolis, TCR produces externally threaded fasteners and related
products for the automotive, heavy vehicle, marine and industrial markets. TCR's
sales for the year ended December 31, 1996, were approximately $23 million.
DISCONTINUED OPERATIONS
In 1996 the Company sold the domestic and European portions of its computer
graphics service operations, respectively, in two separate transactions to two
different buyers. These businesses operated under the name TransTechnology
Systems & Services and were classified as discontinued operations in 1995. The
sale of the domestic portion for $0.7 million in cash and $0.6 million in notes
receivable was for book value, and the sale of the European portion for $0.1
million in cash and $0.2 million in notes receivable resulted in an after-tax
gain on disposal of $0.1 million in 1996. Additional after-tax disposal costs of
$0.2 million were recorded in 1997 in connection with these sales.
Also in 1996, the Company sold its Electronics division for $4.4 million in cash
and $9.6 million in notes receivable. The sale of this operation resulted in an
after-tax gain on disposal of $0.2 million.
In 1995 the Company sold substantially all of the assets and business of its
chaff products operation for $6.7 million in cash. The sale of this operation
resulted in an after-tax loss on disposal of $0.4 million. Additional after-tax
disposal costs of $0.2 million were recorded in 1996 in connection with the
sale. The Company retained the chaff avionics product line and negotiated its
sale separately in 1996 for $0.3 million in cash and $0.7 million in notes
receivable, resulting in an after-tax gain on disposal of $0.4 million. In the
fourth quarter of 1996, the Company recorded an after-tax charge of $0.4 million
to record the anticipated loss on the sale of the facility that was formerly
used by this operation which was subsequently sold in the first quarter of 1997.
Additional after-tax disposal costs of $0.1 million were recorded in 1997
related to the final sale of this facility.
TRANSTECHNOLOGY CORPORATION
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Additional after-tax costs of $0.6 million, $0.7 million and $1.9 million were
recorded in 1997, 1996 and 1995, respectively, in connection with other
previously discontinued and sold operations. These additional costs represent
adjustments to previous estimates related primarily to environmental and legal
matters.
LIQUIDITY AND CAPITAL RESOURCES
The Company's debt-to-capitalization ratio was 49%, 52% and 38% as of March 31,
1997, 1996 and 1995, respectively. The current ratio at March 31, 1997, was
2.54, compared to 2.51 and 3.25 at March 31, 1996 and 1995, respectively.
Working capital was $59.1 million at March 31, 1997, up $1.8 million from 1996
and $6 million from 1995.
At March 31, 1997, the Company's debt consisted of $16.7 million of borrowings
under a revolving credit line ("the Revolver"), $6.1 million of borrowings under
international lines of credit ("the International Lines of Credit"), a $25.3
million term loan ("Term loan A"), a $24.5 million term loan ("Term Loan B") and
$0.8 million of other borrowings. The Revolver commitment, as amended on
December 31, 1996, of $30 million will be available to the Company through
December 31, 2000 and is subject to a borrowing base formula. The Company's
credit agreement with a group of commercial banks provides for borrowings and
letters of credit based on collateralized accounts receivable and inventory. In
addition, all of the remaining assets of the Company and its subsidiaries are
included as collateral. Letters of credit, which are included in the borrowing
base formula, are limited to $5 million. Letters of credit under the line at
March 31, 1997 were $0.1 million. The total commitment under the International
Lines of Credit, as amended on December 31, 1996, is $10 million and subject to
the same availability and collateral as the revolver, but is not subject to a
borrowing base formula. Interest on the Revolver and International Lines of
Credit 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 and financial goals.
As of March, 31, 1997, the availability under Term Loan A was increased by $20
million giving the Company a total of $35 million available for acquisitions.
$32.6 million of this amount was used by the Company on April 17, 1997 to
acquire all of the outstanding stock of TCR Corporation. Term Loans A and B are
with the same lenders and are secured by the same collateral as the Revolver and
International Lines of Credit and are due and payable on March 31 and June 30,
2002, respectively.
Subsequent to the acquisition of TCR Corporation and related debt increase of
$32.6 million on April 17, 1997, quarterly principal payments on Term Loan A are
$2.2 million and begin on June 30, 1997, with escalations to $3 million, $3.2
million and $4 million in June 1998, 1999 and 2000, respectively. Interest on
Term Loan A is tied to the lending bank's prime rate, or LIBOR, plus a margin
that varies depending on the Company's achievement of certain operating and
financial goals. Annual principal payments on Term Loan B of $0.5 million are
due through June 30, 2000, with final balloon payments of $7.5 million and $15
million due on June 30, 2001 and 2002, respectively. Interest on Term Loan B
accrues at the primary lending bank's prime rate plus two percentage points. The
credit agreement also gives the Company the option of using LIBOR plus three and
one-quarter percentage points. At March 31, 1997, $49.9 million of the Company's
outstanding borrowings utilized LIBOR.
TRANSTECHNOLOGY CORPORATION
29
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As of March 31, 1997, the Company's credit agreement was amended to increase the
capital expenditures limitation to $9 million annually. Additionally, the credit
agreement contains other customary financial covenants including a limit on the
Company's ability to pay dividends at 25% of net income.
Through March 31, 1996, the Company purchased 177,500 shares of the Company's
common stock under a 1994 authorization at an aggregate cost of $2.2 million. In
1997 the Company obtained a special authorization and purchased 100,000 shares
of the Company's common stock from a private estate at an aggregate price of
$1.6 million.
In 1997 the Company completed the sale of a facility formerly used by the chaff
products operation for $2.1 million, the proceeds of which were used to reduce
the Company's Revolver.
Management believes that the Company's anticipated cash flow from operations,
combined with the bank credit agreement described above, will be sufficient to
support working capital requirements, capital expenditures and dividend payments
at their current or expected levels. Capital expenditures in 1997 were $5.5
million as compared with $6.5 million in 1996, with capital expenditures for the
fastener segment being much larger than those required by the rescue hoist and
cargo hook segment.
The Company is subject to various contingencies related to land and groundwater
contamination at several facilities. Expenditures made pursuant to the
remediation and restoration of these sites approximated $1.1 million in 1997 and
$1.3 million in 1996. These expenditures are primarily of a non-recurring nature
and are not capitalized. These matters are described further in Note 11 of the
Notes to Consolidated Financial Statements. The Company expects similar
expenditures in 1998 to be in the same range. Management believes that, after
taking into consideration information provided by counsel, the resolution of
these matters will not have a material adverse effect on the Company's
liquidity. Additionally, management believes that the Company's cash flow from
operations, combined with the bank credit agreement described above, will be
sufficient to cover such future expenditures.
TRANSTECHNOLOGY CORPORATION
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33
DIRECTORS
* Gideon Argov
Chairman of the Board, President
and Chief Executive Officer
Kollmorgen Corporation
(High-performance motion control systems)
*+ Walter Belleville
Chairman and Chief Executive Officer
ATI Machinery, Inc.
(Heavy machinery)
# Michael J. Berthelot
Chairman of the Board and
Chief Executive Officer
TransTechnology Corporation
Patrick K. Bolger
President and Chief Operating Officer
TransTechnology Corporation
#+ Thomas V. Chema
Partner, Arter & Hadden
(Telecommunications consulting)
+ Michel Glouchevitch
Managing Director
Triumph Capital Group
*# James A. Lawrence
Executive Vice President and
Chief Financial Officer
Northwest Airlines
* Audit Committee
# Nominating Committee
+ Incentives & Compensation Committee
COUNSEL
Hahn, Loeser & Parks
Cleveland, Ohio
AUDITORS
Deloitte & Touche LLP
Parsippany, New Jersey
TRANSFER AGENT AND REGISTRAR
Wachovia Bank & Trust Co., N.A.
Winston-Salem, North Carolina
CORPORATE OFFICERS
Michael J. Berthelot
Chairman of the Board and
Chief Executive Officer
Patrick K. Bolger
President and Chief Operating Officer
Joseph F. Spanier
Vice President, Chief Financial Officer
and Treasurer
Chandler J. Moisen
Executive Vice President
Gerald C. Harvey
Vice President, Secretary and
General Counsel
Winston Lau
Vice President of Operations
Monica Aguirre
Assistant Secretary
OPERATIONAL GROUPS
SPECIALTY FASTENERS
BREEZE INDUSTRIAL PRODUCTS
Gear-driven band fasteners
100 Aero-Seal Drive
Saltsburg, PA 15681-9594
412/639-3571
Fax 412/639-3020
Robert Tunno - Division President
THE PALNUT COMPANY
Single and multi-thread fasteners
152 Glen Road
Mountainside, NJ 07092-2997
908/233-3300
Fax 908/233-6566
Winston Lau - Division President
INDUSTRIAL RETAINING RING (IRR)
Multi-sized retaining rings
57 Cordier Street
Irvington, NJ 07111-4035
201/926-5000
Fax 201/926-4699
SEEGER INC. (WALDES/TRUARC)
Retaining rings and assembly tools
500 Memorial Drive
Somerset, NJ 08875
908/469-7999
Fax 908/469-2413
THE SEEGER GROUP
Retaining rings and circlips
Wiesbadener Strasse 243
D-61462 Konigstein, Germany
49/6174 2050
Fax 49/6174 205 100
Ulf Jemsby - Managing Director
SEEGER-ORBIS GmbH
Konigstein, Germany
Ulf Jemsby - Managing Director
PEBRA GmbH BRAUN
Frittlingen, Germany
ANDERTON INTERNATIONAL LTD.
Bingley, West Yorkshire, England
SEEGER-RENO
INDUSTRIA E COMERCIO LTD.
Sao Paulo, Brazil
Joan Scivoletto - Managing Director
TCR CORPORATION
Cold forged and machined products
1600 67th Avenue North
Minneapolis, MN 55430
612/560-2200
Fax 612/561-0949
John Funk - Division President
RESCUE HOISTS AND CARGO HOOKS
BREEZE-EASTERN
Lifting and restraint products
700 Liberty Avenue
Union, NJ 07083-4115
908/686-4000
Fax 908/686-9292
Robert White - Division President
34
150 Allen Road
Liberty Corner, New Jersey 07938
908/903-1600
fax 908/903-1616