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FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7872
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TRANSTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4062211
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
150 Allen Road 07938
Liberty Corner, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (908) 903-1600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of August 6, 1998, the total number of outstanding
shares of registrant's one class of common stock was
6,317,826.
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TRANSTECHNOLOGY CORPORATION
INDEX
PART I. Financial Information Page No.
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Item 1. Financial Statements...................................... 2
Statements of Consolidated Operations--
Three Month Periods Ended June 28, 1998
and June 29, 1997......................................... 3
Consolidated Balance Sheets--
June 28, 1998 and March 31, 1998.......................... 4
Statements of Consolidated Cash Flows--
Three Month Periods Ended June 28, 1998 and
June 29, 1997............................................. 5
Statements of Consolidated Stockholders' Equity--
Three Month Period Ended June 28, 1998 ................... 6
Notes to Consolidated Financial Statements................ 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................11 - 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 15
SIGNATURES............................................................... 15
EXHIBIT 27............................................................... 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited Statements of Consolidated Operations, Consolidated
Balance Sheets and Statements of Consolidated Cash Flows are of TransTechnology
Corporation and its consolidated subsidiaries. These reports reflect all
adjustments of a normal recurring nature, which are, in the opinion of
management, necessary to a fair presentation of the results of operations for
the interim periods reflected therein. The results reflected in the unaudited
Statements of Consolidated Operations for the period ended June 28, 1998 are not
necessarily indicative of the results to be expected for the entire year. The
following unaudited Consolidated Financial Statements should be read in
conjunction with the notes thereto, and Management's Discussion and Analysis of
Financial Conditions and Results of Operations set forth in Item 2 of Part I of
this report, as well as the audited financial statements and related notes
thereto contained in the Form 10-K filed for the fiscal year ended March 31,
1998.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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STATEMENTS OF CONSOLIDATED OPERATIONS
UNAUDITED
(In Thousands of Dollars Except Share Data)
THREE MONTHS ENDED
------------------------------
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
Net sales $ 51,483 $ 49,923
Cost of sales 34,583 34,575
----------- -----------
Gross profit 16,900 15,348
----------- -----------
General, administrative
and selling expenses 10,336 9,571
Interest expense 1,351 1,976
Interest income (99) (243)
Other income (70) (3)
----------- -----------
Income from continuing operations
before income taxes 5,382 4,047
Income taxes 2,180 1,680
----------- -----------
Income from continuing operations 3,202 2,367
Discontinued operations:
Loss from disposal (net of applicable
tax benefit of $72) -- (102)
----------- -----------
Net income $ 3,202 $ 2,265
=========== ===========
Basic Earnings per Share: (Note 1)
Income from continuing operations $ 0.51 $ 0.47
Loss from discontinued operations -- (0.02)
----------- -----------
Net income $ 0.51 $ 0.45
=========== ===========
Diluted Earnings per Share:
Income from continuing operations $ 0.50 $ 0.46
Loss from discontinued operations -- (0.02)
----------- -----------
Net income $ 0.50 $ 0.44
=========== ===========
Number of shares used in computation
of per share information:
Basic 6,285,000 5,028,000
Diluted 6,439,000 5,186,000
See accompanying notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars Except Share Data)
UNAUDITED
JUNE 28, 1998 MARCH 31, 1998
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,297 $ 2,960
Accounts receivable (net of allowance for doubtful accounts
of $517 at June 28, 1998 and $556 at March 31, 1998) 34,288 33,244
Notes receivable 2,946 5,086
Inventories 55,673 53,985
Prepaid expenses and other current assets 1,264 1,022
Deferred income taxes 2,798 2,773
Assets held for sale -- 5,442
--------- ---------
Total current assets 101,266 104,512
--------- ---------
Property, Plant and Equipment 94,925 92,981
Less accumulated depreciation and amortization 31,168 29,295
--------- ---------
Property, Plant and Equipment - net 63,757 63,686
--------- ---------
Other assets:
Notes receivable 3,396 7,181
Costs in excess of net assets of acquired businesses (net of accumulated amortization:
June 28, 1998, $5,434; March 31, 1998, $5,115) 44,825 45,094
Other 23,864 15,600
--------- ---------
Total other assets 72,085 67,875
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Total $ 237,108 $ 236,073
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 12,398 $ 12,137
Accounts payable-trade 12,471 14,694
Accrued compensation 4,226 9,764
Accrued income taxes 2,457 332
Other current liabilities 10,531 11,154
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Total current liabilities 42,083 48,081
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Long-term debt payable to banks and others 55,389 51,350
--------- ---------
Other long-term liabilities 20,685 20,810
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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 6,599,872 at June 28, 1998, and 6,564,079 at March 31, 1998 66 66
Additional paid-in capital 76,317 75,959
Retained earnings 49,331 46,537
Other stockholders' equity (2,644) (2,731)
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123,070 119,831
Less treasury stock, at cost - (296,507 shares at June 28, 1998 and 292,054
at March 31, 1998) (4,119) (3,999)
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Total stockholders' equity 118,951 115,832
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Total $ 237,108 $ 236,073
========= =========
See accompanying notes to consolidated financial statements.
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STATEMENTS OF CONSOLIDATED CASH FLOWS
UNAUDITED
(In Thousands of Dollars)
THREE MONTHS ENDED
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JUNE 28, 1998 JUNE 29, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,202 $ 2,265
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization 2,426 2,152
Provision for losses on accounts receivable 20 23
Loss on sale or disposal of fixed assets and discontinued
businesses 12 5
Change in assets and liabilities net of acquisitions and dispositions:
Decrease (increase) in accounts receivable 1,432 (60)
(Increase) decrease in inventories (1,835) 1,475
Decrease in assets held for sale 5,442 412
Decrease (increase) in other assets (5,154) (325)
Decrease in accounts payable (2,223) (3,356)
Decrease in accrued compensation (5,538) (2,320)
Increase in income tax payable 2,125 701
(Decrease) increase in other liabilities (1,145) 1,324
-------- --------
Net cash (used in) provided by operating activities (1,236) 2,296
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions net of cash acquired -- (33,929)
Capital expenditures (1,790) (1,748)
Proceeds from sale of fixed assets and discontinued business 44 261
Decrease in notes receivable 225 226
-------- --------
Net cash used in investing activities (1,521) (35,190)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 18,041 45,500
Payments on long-term debt (13,741) (13,541)
Proceeds from issuance of stock under stock option plan 190 56
Dividends paid (408) (326)
-------- --------
Net cash provided by financing activities 4,082 31,689
-------- --------
Effect of exchange rate changes on cash 12 (37)
Increase (decrease) in cash and cash equivalents 1,337 (1,242)
Cash and cash equivalents at beginning of period 2,960 3,540
-------- --------
Cash and cash equivalents at end of period $ 4,297 $ 2,298
======== ========
Supplemental Information:
Interest payments $ 1,365 $ 1,145
Income tax payments $ 94 $ 115
Non cash investing activities:
Exchange of note receivable for equity interest $ 3,170 $ --
- -------------------------------
See accompanying notes to consolidated financial statements.
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STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
UNAUDITED
(In Thousands of Dollars Except Share Data)
COMMON STOCK TREASURY STOCK ADDITIONAL OTHER
FOR THE QUARTER -------------------- --------------------- PAID-IN RETAINED STOCKHOLDERS'
ENDED JUNE 28, 1998 SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY TOTAL
- ----------------------- --------- --------- --------- ---------- --------- --------- ------------- ---------
Balance, March 31, 1998 6,564,079 $ 66 (292,054) $ (3,999) $ 75,959 $ 46,537 $ (2,731) $ 115,832
Net Income -- -- -- -- -- 3,202 -- 3,202
Expenses relating to public
sale of common stock -- -- -- -- (4) -- -- (4)
Cash dividends
($.065 per share) -- -- -- -- -- (408) -- (408)
Unrealized investment
holding gain -- -- -- -- -- -- 35 35
Issuance of stock under
stock option plan - net 29,548 -- -- -- 284 -- -- 284
Effects of stock under
incentive bonus plan - net 6,245 -- (4,453) (120) 78 -- (46) (88)
Foreign translation
adjustments -- -- -- -- -- -- 98 98
--------- --------- --------- --------- --------- --------- --------- ---------
Balance, June 28, 1998 6,599,872 $ 66 (296,507) $ (4,119) $ 76,317 $ 49,331 $ (2,644) $ 118,951
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars)
NOTE 1. Earnings Per Share:
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding. Diluted earnings per share
is computed by dividing net income by the sum of the weighted-average
number of shares outstanding plus the dilutive effect of shares issuable
through the exercise of stock options.
The components of the denominator for basic earnings per share and diluted
earnings per share are reconciled as follows: (in thousands)
Three Months Ended
------------------------------
June 28, 1998 June 29, 1997
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Basic Earnings per Share:
Weighted average common
shares outstanding 6,285 5,028
===== =====
Diluted Earnings per Share:
Weighted average common
shares outstanding 6,285 5,028
Stock Options 154 158
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Denominator for diluted
Earnings per Share 6,439 5,186
===== =====
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NOTE 2. Comprehensive Income
Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires that the Company report the
change in its net assets during the period from nonowner sources. This
statement only requires additional disclosures, and does not impact the
Company's consolidated financial position or cash flows. For the three
month period ended June 28, 1998 and June 29, 1997, other comprehensive
income is comprised of foreign currency translation adjustments and
unrealized holding gains/(losses) on marketable securities.
Comprehensive income is summarized below on an after tax basis.
Three Months Ended
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June 28, 1998 June 29, 1997
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Net income $ 3,202 $ 2,265
Other comprehensive income (loss):
Foreign currency translation
adjustment 58 (113)
Unrealized investment holding
gain (loss) 21 (23)
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Total comprehensive income $ 3,281 $ 2,129
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NOTE 3. Inventories:
Inventories are summarized as follows:
June 28, 1998 March 31, 1998
------------- --------------
Finished goods $24,125 $22,515
Work-in-process 11,928 11,330
Purchased and
manufactured parts 19,620 20,140
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Total inventories $55,673 $53,985
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NOTE 4. Long-Term Debt Payable to Banks and Others
Long-term debt payable, including current maturities, consisted of the
following:
June 28, 1998 March 31, 1998
------------- --------------
Credit agreement - 8.13% $10,308 --
Credit agreement - 8.50% -- $ 2,676
Term loan - 6.64% 33,277 --
Term loan - 6.85% -- 36,099
Term loan - 9.79% 23,500 24,000
Other 702 712
------- -------
67,787 63,487
Less current maturities 12,398 12,137
------- -------
Total $55,389 $51,350
======= =======
Credit Agreement
On June 28, 1998 the Company's debt consisted of $10.3 million of
borrowings under a revolving credit line ("the Revolver"), a $33.3 million
term loan ("Term Loan A"), a $23.5 million term loan ("Term Loan B") and
$0.7 million of other borrowings. Letters of credit outstanding under the
line at June 28, 1998 were $0.3 million. Amounts outstanding under
International Lines of Credit were $7.6 million at June 28, 1998.
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%.
Effective July 24, 1998, the Company's Revolver was revised and amended to
increase the Revolver to $125 million and eliminate Term Loan A and Term
Loan B. The new credit agreement is substantially with the same group of
lenders and has similar collateral and customary financial covenants, but
is no longer asset based and does not require principal payments until
maturity on July 23, 2003.
NOTE 5. New Accounting Pronouncements Not Yet Adopted
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which will be effective for the
Company's current fiscal year. SFAS No. 131 redefines how operating
segments are determined and requires expanded quantitative and qualitative
disclosures relating to the Company's operating segments. The Company is
currently evaluating which operating segments, if any, it will disclose
differently than previously reported.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits - an amendment of FASB
Statements No. 87, 88 and 106." This statement, which will be effective
for the Company's current fiscal year, requires revised disclosures about
pension and other postretirement benefit plans. The adoption of this
statement will not have any impact on the Company's consolidated financial
position, results of operations or cash flows.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued and is effective for the Company for its
fiscal year ending March 31, 2001. SFAS No. 133 requires that all
derivative instruments be measured at fair value and recognized in the
balance sheet as either assets or liabilities. The Company is currently
evaluating the impact this pronouncement will have on its consolidated
financial statements.
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NOTE 6. Subsequent Events
On June 29, 1998, the Company acquired all of the outstanding stock of
Aerospace Rivet Manufacturers Corporation ("ARM") for $27 million in cash,
plus direct acquisition costs, and other contingent consideration. ARM,
located in Santa Fe Springs, California, produces rivets and externally
threaded fasteners for the aerospace market.
On July 28, 1998, the Company acquired all of the outstanding stock of
Norco, Inc. for $18 million in cash plus direct acquisition costs and
other contingent consideration. Norco, Inc., located in Ridgefield,
Connecticut, produces aircraft parts and motion control components for the
aerospace industry.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All references to three-month periods in this Management's Discussion refer to
the three-month period ended June 28, 1998 for fiscal year 1999 and the
three-month period ended June 29, 1997 for fiscal year 1998. 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 for the three-month period in 1999 were $51.5
million, a $1.6 million or 3% increase from the comparable period in 1998. Gross
profit was $16.9 million for the three-month period in 1999, up $1.6 million or
10% from the comparable period in 1998. Operating profit from continuing
operations for the three-month period in 1999 was $9.3 million, an increase of
$1.2 million or 15% from the comparable period in 1998. Changes in sales,
operating profit and new orders from continuing operations are discussed below
by segment.
Net income for the three-month period in 1999 was $3.2 million or $.50 per share
diluted, compared to $2.3 million or $.44 per share diluted for the comparable
period in 1998. As further discussed below, the increased earnings performance
in 1999 resulted primarily from the increased sales in both operating segments
as well as improved operating efficiencies in the Specialty Fastener Products
segment. Interest expense decreased $0.6 million for the three-month period in
1999, primarily as a result of decreased bank debt pursuant to the common stock
offering proceeds of $27 million which enabled debt retirement during November
1997. New orders received during the three-month period in 1999 totaled $50.5
million, a decrease of $1.3 million or 2% from 1998's comparable period. At June
28, 1998, total backlog of unfilled orders was $74.9 million compared to $73.7
million at June 29, 1997.
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FINANCIAL SUMMARY BY PRODUCT SEGMENT
(In Thousands of Dollars)
THREE MONTHS ENDED NET CHANGE
------------------------------ -------------------
JUNE 28, 1998 JUNE 29, 1997 $ %
------------- ------------- -------- ---
Sales:
Specialty fastener products $ 42,220 $ 41,155 $ 1,065 3
Rescue hoist and cargo hook products 9,263 8,768 495 6
-------- -------- --------
Total $ 51,483 $ 49,923 $ 1,560 3
======== ======== ========
Operating profit:
Specialty fastener products $ 6,879 $ 6,092 $ 787 13
Rescue hoist and cargo hook products 2,389 1,979 410 21
-------- -------- --------
Total $ 9,268 $ 8,071 $ 1,197 15
Corporate expense (2,635) (2,255) (380) (17)
Corporate interest and other income 100 207 (107) (52)
Interest expense (1,351) (1,976) 625 32
-------- -------- --------
Income from continuing
operations before
income taxes $ 5,382 $ 4,047 $ 1,335 33
======== ======== ========
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SPECIALTY FASTENER PRODUCTS SEGMENT
Sales for the specialty fastener products segment were $42.2 million for the
three-month period in 1999, an increase of $1.1 million, or 3% from the same
period in 1998. The increase was primarily due to the inclusion of TCR's sales
for the full period, whereas last year TCR was only included for the period
subsequent to the April 17, 1997 acquisition date.
Operating profit for the three-month period in 1999 was $6.9 million, an
increase of $0.8 million or 13% from the comparable period of 1998. The increase
was primarily due to the inclusion of TCR for the additional period of 17 days
during the current quarter. In addition, increased operating profit was due to
higher volume and overhead absorption in Europe where production improvement
projects have been completed.
New orders for the three-month period in 1999 increased $2.4 million or 6% from
the comparable period in 1998, primarily due to the inclusion of TCR orders for
the entire quarter as well as stronger demand for auto and truck related orders
in Germany. Lower domestic retaining ring orders partially offset the overall
increase and reflected the current plant consolidation program in New Jersey.
Backlog of unfilled orders at June 28, 1998 was $46.1 million, compared to $40.7
million at June 29, 1997.
RESCUE HOIST AND CARGO HOOK PRODUCTS SEGMENT
Sales of the rescue hoist and cargo hook products segment were $9.3 million for
the three-month period in 1999, an increase of $0.5 million or 6% from the
comparable period in 1998. The increase was primarily due to product mix.
Operating profit for the three-month period in 1999 was $2.4 million, an
increase of $0.4 million or 21% from the comparable period in 1998. The primary
factors contributing to the increase in the segment's operating profit in the
1999 three-month period were the increased sales volume and improved inventory
management and efficiency programs.
New orders decreased for the three-month period in 1999 by $3.6 million or 39%
from the comparable period in 1998 primarily due to customer timing and
placement of new orders, in particular some MLRS orders which were received in
July 1998. Backlog of unfilled orders at June 28, 1998 was $28.8 million,
compared to $33.0 million at June 29, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's debt-to-capitalization ratio was 36% as of June 28, 1998, compared
to 35% as of March 31, 1998. The current ratio at June 28, 1998, was 2.41
compared to 2.17 at March 31, 1998. Working Capital was $59.2 million at June
28, 1998, up $2.8 million from March 31, 1998.
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On June 28, 1998 the Company's debt consisted of $10.3 million of borrowings
under a revolving credit line ("the Revolver"), a $33.3 million term loan ("Term
Loan A"), a $23.5 million term loan ("Term Loan B") and $0.7 million of other
borrowings. Letters of credit outstanding under the line at June 28, 1998 were
$0.3 million. Amounts outstanding under International Lines of Credit were $7.6
million at June 28, 1998.
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%.
Effective July 24, 1998, the Company's Revolver was revised and amended to
increase the Revolver to $125 million and eliminate Term Loan A and Term Loan B
debt. The new credit agreement is substantially with the same group of lenders
and has similar collateral and customary financial covenants, but is no longer
asset based and does not require principal payments until maturity on July 23,
2003.
On June 30, 1998 the Company received $2.7 million principal payment on notes
receivable from the buyer of a previously sold business pursuant to an agreement
to accelerate the payment terms and convert a portion of the notes to equity.
Accordingly, as of June 28, 1998, an investment in ElecSys, Inc. of $3.2 million
was recorded on the Company's Balance Sheet. The investment represents
approximately a 19 % interest in ElecSys, Inc. The remainder of the original
notes receivable mature on March 31, 2008 in the amount of $3.3 million.
On June 28, 1998, the Company reclassified approximately $5.4 million of assets
held for sale, primarily land and buildings, to other long term assets due to
the termination of sales negotiations. There are no current substantive
negotiations which could result in liquidation within the next twelve months,
although the Company continues to actively seek to sell the properties.
Management believes that the Company's anticipated cash flow from operations,
combined with the bank credit lines available will be sufficient to support
working capital requirements, capital expenditures and dividend payments at
their current or expected levels for the next twelve months. Capital
expenditures in the three-month period in 1999 were $1.8 million as compared
with $1.7 million in the comparable period in 1998.
SUBSEQUENT EVENTS
On June 29, 1998, the Company acquired all of the outstanding stock of Aerospace
Rivet Manufacturers Corporation ("ARM") for $27 million in cash, plus direct
acquisition costs, and other contingent consideration. ARM, located in Santa Fe
Springs, California, produces rivets and externally threaded fasteners for the
aerospace market.
On July 28, 1998, the Company acquired all of the outstanding stock of Norco,
Inc. for $18 million in cash plus direct acquisition costs and other contingent
consideration. Norco, Inc., located in Ridgefield, Connecticut, produces
aircraft parts and motion control components for the aerospace industry.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 28, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSTECHNOLOGY CORPORATION
(Registrant)
Dated: August 11, 1998 By: /s/ Joseph F. Spanier
--------------------------------------
JOSEPH F. SPANIER, Vice President,
Treasurer and Chief Financial Officer*
* On behalf of the Registrant and as Principal Financial and Accounting Officer.
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