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FORM 10-Q
---------------
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 September 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-7872
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TRANSTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4062211
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
150 Allen Road 07938
Liberty Corner, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (908) 903-1600
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 November 5, 1998, the total number
of outstanding shares of registrant's one
class of common stock was 6,318,347.
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TRANSTECHNOLOGY CORPORATION
INDEX
PART I. Financial Information Page No.
--------
Item 1. Financial Statements........................................... 2
Statements of Consolidated Operations--
Three and Six Month Periods Ended September 27, 1998
and September 28, 1997......................................... 3
Consolidated Balance Sheets--
September 27, 1998 and March 31, 1998.......................... 4
Statements of Consolidated Cash Flows--
Six Month Periods Ended September 27, 1998 and
September 28, 1997............................................. 5
Statements of Consolidated Stockholders' Equity--
Six Month Period Ended September 27, 1998...................... 6
Notes to Consolidated Financial Statements..................... 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...........................10-16
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K...............................17
SIGNATURES.................................................................18
EXHIBIT 3.2 ...............................................................19-29
EXHIBIT 27.................................................................30
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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 for 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 September 27, 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 SIX MONTHS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997 SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
------------------ ------------------ ------------------ ------------------
Net sales $ 56,368 $ 50,013 $ 107,851 $ 99,936
Cost of sales 38,419 34,080 73,002 68,655
----------- ----------- ----------- -----------
Gross profit 17,949 15,933 34,849 31,281
----------- ----------- ----------- -----------
General, administrative
and selling expenses 11,341 10,278 21,677 19,849
Interest expense 1,910 2,184 3,261 4,160
Increase in allowance on notes receivable 1,206 -- 1,206 --
Interest income (99) (323) (198) (566)
Royalty and other income (120) (217) (190) (220)
----------- ----------- ----------- -----------
Income from continuing operations
before income taxes 3,711 4,011 9,093 8,058
Income taxes 1,503 1,624 3,683 3,304
----------- ----------- ----------- -----------
Income from continuing operations 2,208 2,387 5,410 4,754
Loss from discontinued operations (a) -- (125) -- (227)
----------- ----------- ----------- -----------
Income before extradordinary charge 2,208 2,262 5,410 4,527
Extraordinary charge for refinancing of debt (b) (781) -- (781) --
----------- ----------- ----------- -----------
Net income $ 1,427 $ 2,262 $ 4,629 $ 4,527
=========== =========== =========== ===========
Basic Earnings per Share: (Note 1)
Income from continuing operations $ 0.35 $ 0.47 $ 0.86 $ 0.94
Loss from discontinued operations -- (0.02) -- (0.04)
Extraordinary charge for refinancing
of debt (0.12) -- (0.12) --
----------- ----------- ----------- -----------
Net income $ 0.23 $ 0.45 $ 0.74 $ 0.90
=========== =========== =========== ===========
Diluted Earnings per Share:
Income from continuing operations $ 0.34 $ 0.45 $ 0.84 $ 0.91
Loss from discontinued operations -- (0.02) -- (0.04)
Extraordinary charge for refinancing
of debt (0.12) -- (0.12) --
----------- ----------- ----------- -----------
Net income $ 0.22 $ 0.43 $ 0.72 $ 0.87
=========== =========== =========== ===========
Numbers of shares used in computation of
per share information:
Basic 6,302,000 5,083,000 6,293,000 5,048,000
Diluted 6,402,000 5,289,000 6,420,000 5,231,000
See accompanying notes to unaudited consolidated financial statements.
(a) Loss from discontinued operations are net of applicable tax benefits of
$93 and $165 for the three and six month periods ended September 28,
1997, respectively.
(b) Extraordinary charge for refinancing of debt is net of applicable tax
benefits of $532 for the three and six month periods ended September
28, 1998, respectively.
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CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars Except Share Data)
UNAUDITED
SEPTEMBER 27, 1998 MARCH 31, 1998
------------------ --------------
ASSETS
Current assets:
Cash and cash equivalents $ 266 $ 2,960
Accounts receivable (net of allowance for doubtful accounts
of $532 at September 27, 1998 and $556 at March 31, 1998) 36,137 33,244
Notes receivable 1,269 5,086
Inventories 64,469 53,985
Prepaid expenses and other current assets 1,342 1,022
Deferred income taxes 3,471 2,773
Assets held for sale -- 5,442
--------- ---------
Total current assets 106,954 104,512
--------- ---------
Property, Plant and Equipment 109,922 92,981
Less accumulated depreciation and amortization 33,452 29,295
--------- ---------
Property, Plant and Equipment - net 76,470 63,686
--------- ---------
Other assets:
Notes receivable 3,525 7,181
Costs in excess of net assets of acquired businesses
(net of accumulated amortization:
September 27, 1998, $5,939; March 31, 1998, $5,115) 82,050 45,094
Other 23,657 15,600
--------- ---------
Total other assets 109,232 67,875
--------- ---------
Total $ 292,656 $ 236,073
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 45 $ 12,137
Accounts payable-trade 11,276 14,694
Accrued compensation 5,985 9,764
Accrued income taxes 969 332
Other current liabilities 19,694 11,154
--------- ---------
Total current liabilities 37,969 48,081
--------- ---------
Long-term debt payable to banks and others 112,983 51,350
--------- ---------
Other long-term liabilities 21,999 20,810
--------- ---------
Stockholders' equity:
Preferred stock-authorized, 300,000 shares;
none issued -- --
Common stock-authorized, 14,700,000 shares
of $.01 par value; issued 6,634,855 at September
27, 1998, and 6,564,079 at March 31, 1998 66 66
Additional paid-in capital 76,979 75,959
Retained earnings 50,348 46,537
Other stockholders' equity (2,206) (2,731)
--------- ---------
125,187 119,831
Less treasury stock, at cost - (356,507 shares at
September 27, 1998 and 292,054 at March 31, 1998) (5,482) (3,999)
--------- ---------
Total stockholders' equity 119,705 115,832
--------- ---------
Total $ 292,656 $ 236,073
========= =========
See accompanying notes to consolidated financial statements.
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STATEMENTS OF CONSOLIDATED CASH FLOWS
UNAUDITED
(In Thousands of Dollars)
SIX MONTHS ENDED
--------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,629 $ 4,527
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Extraordinary charge for refinancing of debt 781 --
Depreciation and amortization 5,191 4,359
Provision for losses on notes and accounts receivable 1,283 317
(Gain) loss on sale or disposal of fixed assets (6) 77
Change in assets and liabilities net of acquisitions:
Decrease (increase) in accounts receivable 1,933 (837)
(Increase) decrease in inventories (1,506) 2,369
Decrease in assets held for sale -- 565
(Increase) decrease in other assets (290) 86
Decrease in accounts payable (5,791) (603)
Decrease in accrued compensation (3,823) (1,179)
Increase (decrease) in income tax payable 884 (225)
Decrease in other liabilities (5,415) (434)
--------- ---------
Net cash (used in) provided by operating activities (2,130) 9,022
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions net of cash acquired (44,160) (33,929)
Capital expenditures (5,114) (3,247)
Proceeds from sale of fixed assets 248 283
Decrease in notes receivable 2,901 828
--------- ---------
Net cash used in investing activities (46,125) (36,065)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 133,627 53,033
Payments on long-term debt (86,408) (29,543)
Proceeds from forward exchange rate contracts -- 2,036
Proceeds from issuance of stock under stock option plan 466 889
Dividends paid (818) (658)
Treasury stock purchases (1,363) --
--------- ---------
Net cash provided by (used in) financing activities 45,504 25,757
--------- ---------
Effect of exchange rate changes on cash 57 (63)
Decrease in cash and cash equivalents (2,694) (1,349)
Cash and cash equivalents at beginning of period 2,960 3,540
--------- ---------
Cash and cash equivalents at end of period $ 266 $ 2,191
========= =========
Supplemental Information:
Interest payments $ 2,994 $ 3,060
Income tax payments $ 2,501 $ 2,227
Noncash investing activities:
Exchange of note receivable for equity interest $ 3,170 $ --
- ----------
See accompanying notes to unaudited 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 SIX MONTHS --------------------- ---------------------- PAID-IN RETAINED STOCKHOLDERS'
ENDED SEPTEMBER 27, 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 -- -- -- -- -- 4,629 -- 4,629
Expenses relating to public
sale of common stock -- -- -- -- (4) -- -- (4)
Cash dividends
($.13 per share) -- -- -- -- -- (818) -- (818)
Purchase of Treasury Stock -- -- (60,000) (1,363) -- -- -- (1,363)
Unrealized investment
holding loss -- -- -- -- -- -- (9) (9)
Issuance of stock under
stock option plan - net 65,714 -- -- -- 887 -- -- 887
Effects of stock under
incentive bonus plan - net 5,062 -- (4,453) (120) 137 -- (59) (42)
Foreign translation
adjustments -- -- -- -- -- -- 593 593
--------- --------- --------- --------- --------- --------- --------- ---------
Balance, September 27, 1998 6,634,855 $ 66 (356,507) $ (5,482) $ 76,979 $ 50,348 $ (2,206) $ 119,705
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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NOTES TO UNAUDITED 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 Six Months Ended
-------------------------------------- --------------------------------------
September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
------------------ ------------------ ------------------ ------------------
Basic Earnings per Share:
Weighted average common
shares outstanding 6,302 5,083 6,293 5,048
===== ===== ===== =====
Diluted Earnings per Share:
Weighted average common
shares outstanding 6,302 5,083 6,293 5,048
Stock Options 100 206 127 183
----- ----- ----- -----
Denominator for Diluted
Earnings per Share 6,402 5,289 6,420 5,231
===== ===== ===== =====
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NOTE 2. Comprehensive Income
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards (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 and six
month periods ended September 27, 1998 and September 28, 1997, other
comprehensive income is comprised of foreign currency translation
adjustments and unrealized holding gains/(losses) on marketable
securities. Comprehensive income is summarized below.
Three Months Ended Six Months Ended
----------------------------------------- -----------------------------------------
September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
------------------ ------------------ ------------------ ------------------
Net income $ 1,427 $ 2,262 $ 4,629 $ 4,527
Other comprehensive
income (loss), net of tax:
Foreign currency
translation adjustment 495 (173) 593 (366)
Unrealized investment
holding gain (loss) (44) 90 (9) 50
------- ------- ------- -------
Total comprehensive
income $ 1,878 $ 2,179 $ 5,213 $ 4,211
======= ======= ======= =======
NOTE 3. Inventories:
Inventories are summarized as follows:
September 27, 1998 March 31, 1998
------------------ --------------
Finished goods $26,219 $22,515
Work-in-process 12,996 11,330
Purchased and
manufactured parts 25,254 20,140
------- -------
Total inventories $64,469 $53,985
======= =======
NOTE 4. Acquisitions
On June 29, 1998, the Company acquired all of the outstanding common
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 industry.
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On July 28, 1998, the Company acquired all of the outstanding common
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.
NOTE 5. Long-Term Debt Payable to Banks and Others
Long-term debt payable, including current maturities, consisted of the
following:
September 27, 1998 March 31, 1998
------------------ --------------
Credit agreement - 7.20% $ 109,725 -
Credit agreement - 8.50% 2,600 $ 2,676
Term loan - 6.85% - 36,099
Term loan - 9.79% - 24,000
Other 703 712
--------- --------
113,028 63,487
Less current maturities 45 12,137
--------- --------
Total $ 112,983 $ 51,350
========= ========
Credit Agreement
Effective July 24, 1998, the Company's revolving credit line ("the
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.
On September 27, 1998 the Company's domestic debt consisted of $90.6
million of borrowings under the Revolver and $0.7 million of other
borrowings. Letters of credit outstanding under the line at September
27, 1998 were $0.1 million. Amounts outstanding under International
Lines of Credit were $21.7 million at September 27, 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%.
NOTE 6. 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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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All references to three and six month periods in this Management's Discussion
refer to the three and six month periods ended September 27, 1998 for fiscal
year 1999 and the three and six month periods ended September 28, 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. Unless otherwise indicated, amount per share refers
to diluted amounts per share.
Sales from continuing operations for the six month period in 1999 were $107.9
million, an increase of $7.9 million or 8% from the comparable period in 1998.
For the three month period in 1999 sales were $56.4 million, a $6.4 million or
13% increase from the comparable period in 1998. As further discussed below, the
increased sales performance for the six and three month periods in 1999 resulted
primarily from the acquisitions of ARM on June 29, 1998 and NORCO, Inc. on July
28, 1998.
Gross profit for the six month period in 1999 increased $3.6 million or 11% from
the comparable period in 1998. For the three month period in 1999, gross profit
increased $2.0 million or 13%. Operating profit from continuing operations for
the six month period in 1999 was $18.1 million, an increase of $1.9 million or
12% from the comparable period in 1998. For the three month period in 1999
operating profit from continuing operations was $8.8 million, an increase of
$0.7 million or 9% from the comparable period in 1998. Changes in sales,
operating profit and new orders from continuing operations are discussed below
by segment.
Net income, after an extraordinary item for the six month period in 1999 was
$4.6 million or $0.72 per share, compared to $4.5 million or $0.87 per share,
for the comparable period of 1998. The three month period in 1999 reported net
income of $1.4 million or $0.22 per share after the extraordinary item, compared
to $2.3 million or $0.43 per share for the year earlier period. Net income for
both the six month and three month periods in 1999 includes an extraordinary
charge in the amount of $0.8 million or $0.12 per share after tax for the
refinancing of debt. Net income for both periods also includes the establishment
of a $1.2 million pretax allowance for a possible loss on a note receivable from
the sale of a previously discontinued company. The extraordinary charge for the
refinancing of debt is discussed in more detail in the discussion of liquidity
and capital resources section.
Interest expense decreased $0.9 million and $0.3 million for the six month and
three month periods in 1999, respectively. The decreases were primarily the
result of reduced bank debt following the November 1997 common stock offering.
These proceeds were subsequently used for acquisitions during the second quarter
of fiscal 1999 as discussed in Note 4.
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New orders received during the six month period in 1999 totaled $112.4 million,
an increase of $11.2 million or 11% from 1998's comparable period. For the three
month period, new orders totaled $61.9 million, an increase of $12.5 million or
25% from last year's comparable period. The increased new orders for both the
six month and three month periods were primarily due to the acquisitions of ARM
and NORCO, Inc. as well as increased new orders at Breeze-Eastern and our
European operations. At September 27, 1998, total backlog of unfilled orders was
$101.6 million compared to $73.2 million at September 28, 1997, primarily due to
the acquisition of ARM and NORCO, Inc., as well as increased backlog at
Breeze-Eastern, Breeze Industrial, TCR and our European operations.
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FINANCIAL SUMMARY BY PRODUCT SEGMENT
(In Thousands of Dollars)
SIX MONTHS ENDED NET CHANGE
---------------------------------------- -------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997 $ %
------------------ ------------------ ---------- ---
Sales:
Specialty fastener products $ 87,367 $ 82,698 $ 4,669 6
Aerospace products 20,484 17,238 3,246 19
--------- --------- ----------
Total $ 107,851 $ 99,936 $ 7,915 8
========= ========= ==========
Operating profit:
Specialty fastener products $ 13,383 $ 12,425 $ 958 8
Aerospace products 4,676 3,745 931 25
--------- --------- ----------
Total $ 18,059 $ 16,170 $ 1,889 12
Corporate expense (a) (5,894) (4,596) (1,298) (28)
Corporate interest and other income 189 644 (455) (71)
Interest expense (3,261) (4,160) 899 22
--------- --------- ----------
Income from continuing
operations before
income taxes $ 9,093 $ 8,058 $ 1,035 13
========= ========= ==========
(a) The corporate expense for the six month period ended September 27,
1998, includes a $1.2 million increase to the allowance to offset a
possible loss on notes receivable.
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FINANCIAL SUMMARY BY PRODUCT SEGMENT
(In Thousands of Dollars)
THREE MONTHS ENDED NET CHANGE
----------------------------------------- -----------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997 $ %
------------------ ------------------ ------- ---
Sales:
Specialty fastener products $ 45,147 $ 41,543 $ 3,604 9
Aerospace products 11,221 8,470 2,751 32
-------- --------- -------
Total $ 56,368 $ 50,013 $ 6,355 13
======== ========= ======
Operating profit:
Specialty fastener products $ 6,504 $ 6,333 $ 171 3
Aerospace products 2,287 1,766 521 30
-------- --------- -------
Total $ 8,791 $ 8,099 $ 692 9
Corporate expense (a) (3,259) (2,341) (918) (39)
Corporate interest and other income 89 437 (348) (80)
Interest expense (1,910) (2,184) 274 13
-------- --------- -------
Income from continuing
operations before
income taxes $ 3,711 $ 4,011 $ (300) (7)
======== ========= ======
(a) The corporate expense for the three month period ended September 27,
1998, includes a $1.2 million increase to the allowance to offset a
possible loss on notes receivable.
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SPECIALTY FASTENER PRODUCTS SEGMENT
Sales for the specialty fastener products segment were $87.4 million for the six
month period in 1999, an increase of $4.7 million or 6% from the comparable
period in 1998. Sales for the three month period in 1999 were up $3.6 million or
9% from the same period in 1998. The six and three month increases in 1999 were
primarily due to the inclusion of ARM's operations in the current year periods.
The increased sales from the ARM acquisition were partially offset in both
periods by lower domestic retaining ring sales relating to the consolidation of
our two North American retaining ring factories. International fastener sales
for both periods were slightly higher with an increase in European sales
partially offset by a decrease in Brazilian sales.
Operating profit for the segment was $13.4 million for the six month period in
1999, an increase of $1.0 million or 8% from the comparable period in 1998. The
three month period in 1999 reported an operating profit of $6.5 million, an
increase of $0.2 million or 3% from the comparable period in 1998. The increased
operating profit was mainly due to the ARM acquisition partially offset by
decreased operating profit due primarily to overhead absorption issues arising
from the consolidation of our North American retaining ring factories.
New orders increased by $2.8 million or 3% for the six month period in 1999, as
compared to the six month period in 1998. New orders for the three month period
in 1999 increased $0.5 million or 1% from the comparable period in 1998. The
primary reason for these increases was the acquisition of ARM and increased new
orders at our European operations. Backlog of unfilled orders at September 27,
1998 was $52.6 million compared to $41.5 million at September 28, 1997,
primarily due to the acquisition of ARM and increased backlog at Breeze
Industrial, TCR and our European operations.
AEROSPACE PRODUCTS SEGMENT
Sales for the aerospace products segment were $20.5 million for the six month
period in 1999, an increase of $3.2 million or 19% from the comparable period in
1998. Sales for the three month period in 1999 were $11.2 million, up $2.8
million or 32% from the comparable period in 1998. The increases were primarily
due to the acquisition of NORCO, Inc.
Operating profit for the six month period in 1999 was $4.7 million, an increase
of $0.9 million or 25% from the comparable period in 1998. The three month
period had an operating profit of $2.3 million, an increase of $0.5 million or
30% from the comparable period in 1998. The increased operating profit for both
periods was primarily due to the acquisition of NORCO, Inc.
New orders for the six month period in 1999 increased $8.4 million or 51% from
the comparable period in 1998. New orders for the three month period in 1998
increased $12.0 million or 167% from the comparable period in 1998. The
increases in both 1999 periods were due to the NORCO, Inc. acquisition as well
as a large increase at Breeze-Eastern, primarily due to customer timing and
placement of new orders. Backlog of unfilled orders at September 27, 1998 was
$49.0 million compared to $31.8 million at September 28, 1997, primarily due to
the NORCO, Inc. acquisition and higher backlog at Breeze-Eastern.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's debt-to-capitalization ratio was 49% as of September 27, 1998,
compared to 35% as of March 31, 1998, primarily due to increased bank borrowings
for the acquisitions of ARM and NORCO, Inc. in the second quarter of fiscal
1999. The current ratio at September 27, 1998, stood at 2.82 compared to 2.17 at
March 31, 1998. Working Capital was $69.0 million at September 27, 1998, up
$12.6 million from March 31, 1998.
During the six months ended September 27, 1998 the Company purchased 60,000
shares of treasury stock for $1.4 million. Treasury stock purchases are made in
the open market or in negotiated transactions when opportunities arise. Plans to
purchase Treasury stock are subject to the terms of the Company's credit
agreement and may be discontinued by the Company at any time.
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 described above, will be sufficient to support
working capital requirements, capital expenditures and dividend payments at
their current or expected levels. Capital expenditures in the six month period
in 1999 were $5.1 million as compared with $3.2 million in the comparable period
in 1998.
EXTRAORDINARY CHARGE FOR REFINANCING OF DEBT
On July 24, 1998 the Company refinanced its long term debt. The new financing
agreement increased the Company's revolving credit limit to $125 million and
eliminated the Term A loan and the Term B loan. The new agreement is with
substantially the same group of lenders and has similar collateral and customary
covenants, but is no longer asset based and does not require principal payments
until maturity on July 23, 2003. Due to the termination of the old credit
agreement, the Company took a charge to earnings in the current period to write
off the unamortized portion of the loan origination costs associated with the
old agreement in the amount of $1.2 million before tax or $0.8 million after
tax. The after tax amount of $0.8 million is classified as an extraordinary
charge in the Statement of Consolidated Operations for the three month and six
month periods ended September 27, 1998.
YEAR 2000 ISSUE
The Company has recognized the year 2000 issue which relates to the computer
storage of dates with the format of the year as either a two digit or a four
digit data field. Computer programs which have only a two digit field for the
year must be modified prior to the year 2000 otherwise the year 2000 may be
confused with year 1900.
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The Company has taken steps to have all of its computer systems in compliance
with the year 2000 date requirement before that date is reached. Thus far the
Company has reviewed its internal computer systems at all locations for
compliance. Identification and testing of all internal systems has been underway
for the past year and is in the later stages of completion. Progress is
currently being monitored on a monthly basis at all business units. Some surveys
of key customers and suppliers have been obtained and are being updated on an
on-going basis. Based on the information obtained to date, the Company does not
believe there will be any significant interruptions in systems that will
adversely affect the company relative to the year 2000 issue. The Company is not
able however to identify all external year 2000 issues such as those which may
exist at the governmental, supplier and customer levels.
The Company's planned expenditure for year 2000 compliance is $0.5 million, most
of which has been or is expected to be spent during the current fiscal year. The
Company has addressed contingency planning for the year 2000 issue and has
outlined various plans for further development based upon additional test
results and survey findings. The anticipated completion date for all Year 2000
compliance is September 1999.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the Registrant, held on July 23, 1998, all seven
directors of the Company nominated for reelection were reelected for a term of
one year, and shareholders approved the 1998 Non-Employee Directors' Stock
Option Plan. The results of the voting on the election of directors were as
follows:
VOTES VOTES
FOR WITHHELD
--- --------
Gideon Argov 4,332,043 1,222,579
Walter Belleville 4,333,099 1,221,523
Michael J. Berthelot 4,333,099 1,221,523
Thomas V. Chema 4,332,071 1,222,551
Michael Glouchevitch 4,333,071 1,221,551
James A. Lawrence 4,333,099 1,221,523
William Recker 4,332,553 1,222,069
The results of the voting on the proposal to approve the 1998 Non-Employee
Directors' Stock Option Plan were as follows:
FOR - 4,216,510 AGAINST - 1,278,519 ABSTAIN - 59,592
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 Bylaws of the Company amended and restated as of July 23, 1998
27 Financial Data Schedule
(b) A report on Form 8-K was filed on July 13, 1998 to report the June 29,
1998 acquisition by the Company of all of the outstanding stock of
Aerospace Rivet Manufacturers Corporation. This report on Form 8-K was
amended by the filing on August 27, 1998 of a report on Form 8-K/A.
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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: November 10, 1998 By: /s/ JOSEPH F. SPANIER
-------------------------------------
Joseph F. Spanier, Vice President
and Chief Financial Officer*
* On behalf of the Registrant and as Principal Financial Officer.
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.2 Bylaws of the Company amended and restated
as of July 23, 1998
27 Financial Data Schedule