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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 December 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
---------------------
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 February 2, 1999, the total number of outstanding
shares of registrant's one class of common stock was
6,248,253.
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TRANSTECHNOLOGY CORPORATION
INDEX
PART I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements.................................................... 2
Statements of Consolidated Operations--
Three and Nine Month Periods Ended December 27, 1998
and December 28, 1997................................................... 3
Consolidated Balance Sheets--
December 27, 1998 and March 31, 1998.................................... 4
Statements of Consolidated Cash Flows--
Nine Months Ended December 27, 1998 and
December 28, 1997....................................................... 5
Statements of Consolidated Stockholders' Equity--
Nine Months Ended December 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 6. Exhibits and Reports on Form 8-K........................................ 17
-------
SIGNATURES................................................................................ 17
EXHIBIT 10.18............................................................................. 18-19
EXHIBIT 10.19............................................................................. 20-21
EXHIBIT 10.20............................................................................. 22-23
EXHIBIT 10.21............................................................................. 24
EXHIBIT 27................................................................................ 25
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited Statements of Consolidated Operations, Consolidated
Balance Sheets, Statements of Consolidated Cash Flows and Statements of
Consolidated Stockholders' Equity 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 periods ended December 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 Annual Report on 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 NINE MONTHS ENDED
-------------------------------------- --------------------------------------
DECEMBER 27, 1998 DECEMBER 28, 1997 DECEMBER 27, 1998 DECEMBER 28, 1997
----------------- ----------------- ----------------- -----------------
Net sales $ 57,863 $ 48,452 $ 165,714 $ 148,388
Cost of sales 39,785 31,998 112,787 100,653
----------- ----------- ----------- -----------
Gross profit 18,078 16,454 52,927 47,735
----------- ----------- ----------- -----------
General, administrative
and selling expenses 10,922 9,438 32,599 29,287
Interest expense 2,011 1,810 5,272 5,970
Allowance for possible loss on notes receivable (300) -- 906 --
Interest income (137) (309) (335) (875)
Royalty and other income (413) (111) (603) (331)
----------- ----------- ----------- -----------
Income from continuing operations
before income taxes 5,995 5,626 15,088 13,684
Income taxes 2,352 2,312 6,035 5,616
----------- ----------- ----------- -----------
Income from continuing operations 3,643 3,314 9,053 8,068
Loss from discontinued operations (a) -- (161) -- (388)
----------- ----------- ----------- -----------
Income before extraordinary charge 3,643 3,153 9,053 7,680
Extraordinary charge for refinancing of debt (b) -- -- (781) --
----------- ----------- ----------- -----------
Net income $ 3,643 $ 3,153 $ 8,272 $ 7,680
=========== =========== =========== ===========
Basic Earnings per Share: (Note 1)
Income from continuing operations $ 0.58 $ 0.58 $ 1.44 $ 1.53
Loss from discontinued operations -- (0.03) -- (0.07)
Extraordinary charge for refinancing
of debt -- -- (0.12) --
----------- ----------- ----------- -----------
Net income $ 0.58 $ 0.55 $ 1.32 $ 1.46
=========== =========== =========== ===========
Diluted Earnings per Share:
Income from continuing operations $ 0.58 $ 0.57 $ 1.42 $ 1.48
Loss from discontinued operations -- (0.03) -- (0.07)
Extraordinary charge for refinancing
of debt -- -- (0.12) --
----------- ----------- ----------- -----------
Net income $ 0.58 $ 0.54 $ 1.30 $ 1.41
=========== =========== =========== ===========
Numbers of shares used in computation
of per share information:
Basic 6,248,000 5,682,000 6,278,000 5,260,000
Diluted 6,314,000 5,867,000 6,385,000 5,442,000
See accompanying notes to unaudited consolidated financial statements.
(a) Loss from discontinued operations is net of applicable tax benefits of $112
and $270 for the three month and nine month periods ended December 28,
1997, respectively.
(b) Extraordinary charge for refinancing of debt is net of applicable tax
benefits of $532 for the nine month period ended December 27, 1998.
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CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars Except Share Data)
UNAUDITED
DECEMBER 27, 1998 MARCH 31, 1998
----------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 811 $ 2,960
Accounts receivable (net of allowance for doubtful accounts
of $516 at December 27, 1998 and $556 at March 31, 1998) 33,294 33,244
Notes receivable 583 5,086
Inventories 64,241 53,985
Prepaid expenses and other current assets 1,663 1,022
Deferred income taxes 3,628 2,773
Assets held for sale -- 5,442
--------- ---------
Total current assets 104,220 104,512
--------- ---------
Property, Plant and Equipment 113,121 92,981
Less accumulated depreciation and amortization 35,383 29,295
--------- ---------
Property, Plant and Equipment - net 77,738 63,686
--------- ---------
Other assets:
Notes receivable 3,698 7,181
Costs in excess of net assets of acquired businesses (net of accumulated amortization:
December 27, 1998, $6,524; March 31, 1998, $5,115) 81,980 45,094
Other 24,243 15,600
--------- ---------
Total other assets 109,921 67,875
--------- ---------
Total $ 291,879 $ 236,073
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 45 $ 12,137
Accounts payable-trade 10,600 14,694
Accrued compensation 4,916 9,764
Accrued income taxes 2,362 332
Other current liabilities 19,412 11,154
--------- ---------
Total current liabilities 37,335 48,081
--------- ---------
Long-term debt payable to banks and others 110,780 51,350
--------- ---------
Other long-term liabilities 21,435 20,810
--------- ---------
Stockholders' equity:
Preferred stock-authorized, 300,000 shares; none issued -- --
Common stock-authorized, 14,700,000 shares of $.01 par value;
issued 6,636,152 at December 27, 1998, and 6,564,079 at March 31, 1998 66 66
Additional paid-in capital 76,992 75,959
Retained earnings 53,586 46,537
Other stockholders' equity (1,860) (2,731)
--------- ---------
128,784 119,831
Less treasury stock, at cost - (404,101 shares at December 27, 1998 and
292,054 at March 31, 1998) (6,455) (3,999)
--------- ---------
Total stockholders' equity 122,329 115,832
--------- ---------
Total $ 291,879 $ 236,073
========= =========
See accompanying notes to consolidated financial statements.
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STATEMENTS OF CONSOLIDATED CASH FLOWS
UNAUDITED
(In Thousands of Dollars)
NINE MONTHS ENDED
--------------------------------------
DECEMBER 27, 1998 DECEMBER 28, 1997
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,272 $ 7,680
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary charge for refinancing of debt 781 --
Depreciation and amortization 7,872 6,557
Provision for losses on notes and accounts receivable 1,094 457
(Gain) loss on sale or disposal of fixed assets (46) 282
Change in assets and liabilities net of acquisitions:
Decrease in accounts receivable 4,362 1,157
Increase in inventories (1,625) (371)
Decrease in assets held for sale -- 630
Increase in other assets (1,147) (325)
(Decrease) increase in accounts payable (7,970) 635
Decrease in accrued compensation (4,866) (2,497)
Increase in income tax payable 2,274 495
Decrease in other liabilities (6,387) (2,214)
--------- --------
Net cash provided by operating activities 2,614 12,486
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions net of cash acquired (43,860) (34,774)
Capital expenditures (8,955) (5,509)
Proceeds from sale of fixed assets 463 1,107
Decrease in notes receivable 3,323 1,362
--------- --------
Net cash used in investing activities (49,029) (37,814)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 145,773 59,300
Payments on long-term debt (98,933) (63,874)
Proceeds from forward exchange rate contracts -- 2,036
Proceeds from issuance of stock under stock option plan 916 1,871
Net proceeds from secondary stock offering -- 26,930
Dividends paid (1,223) (1,060)
Treasury stock purchases (2,317) --
--------- --------
Net cash provided by financing activities 44,216 25,203
--------- --------
Effect of exchange rate changes on cash 50 (63)
Decrease in cash and cash equivalents (2,149) (188)
Cash and cash equivalents at beginning of period 2,960 3,540
--------- --------
Cash and cash equivalents at end of period $ 811 $ 3,352
========= ========
Supplemental Information:
Interest payments $ 5,364 $ 5,111
Income tax payments $ 3,459 $ 3,389
Noncash investing activities:
Exchange of note receivable for equity investment $ 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
FOR THE NINE MONTHS -------------------- ----------------------- PAID-IN RETAINED
ENDED DECEMBER 27, 1998 SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
- ----------------------- --------- ------ -------- ------- -------- --------
Balance, March 31, 1998 6,564,079 $66 (292,054) $(3,999) $ 75,959 $ 46,537
Net Income -- -- -- -- -- 8,272
Expenses relating to public
sale of common stock -- -- -- -- (4) --
Cash dividends
($.195 per share) -- -- -- -- -- (1,223)
Purchase of Treasury Stock -- -- (106,600) (2,317) -- --
Unrealized investment
holding gain -- -- -- -- -- --
Issuance of stock under
stock option plan - net 67,011 -- -- -- 902 --
Effects of stock under
incentive bonus plan - net 5,062 -- (5,447) (139) 135 --
Foreign currency translation
adjustments -- -- -- -- -- --
--------- --- -------- ------- -------- --------
Balance, December 27, 1998 6,636,152 $66 (404,101) $(6,455) $ 76,992 $ 53,586
========= === ======== ======= ======== ========
OTHER
FOR THE NINE MONTHS STOCKHOLDERS'
ENDED DECEMBER 27, 1998 EQUITY TOTAL
- ----------------------- ------- ----------
Balance, March 31, 1998 $(2,731) $ 115,832
Net Income -- 8,272
Expenses relating to public
sale of common stock -- (4)
Cash dividends
($.195 per share) -- (1,223)
Purchase of Treasury Stock -- (2,317)
Unrealized investment
holding gain 340 340
Issuance of stock under
stock option plan - net -- 902
Effects of stock under
incentive bonus plan - net (30) (34)
Foreign currency translation
adjustments 561 561
------- ---------
Balance, December 27, 1998 $(1,860) $ 122,329
======= =========
See accompanying notes to consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 followed: (in thousands)
Three Months Ended Nine Months Ended
-------------------------------------- -------------------------------------
December 27, 1998 December 28, 1997 December 27, 1998 December 28, 1997
------------------ ----------------- ----------------- -----------------
Basic Earnings per Share:
Weighted average common
shares outstanding 6,248 5,682 6,278 5,260
===== ===== ===== =====
Diluted Earnings per Share:
Weighted average common
shares outstanding 6,248 5,682 6,278 5,260
Stock Options (dilutive*) 66 185 107 182
----- ----- ----- -----
Denominator for diluted
Earnings per Share 6,314 5,867 6,385 5,442
===== ===== ===== =====
* Not including anti-dilutive stock options which were 40 and 21 thousand,
respectively, for the three month and nine month periods in 1998, and
zero for both periods in 1997.
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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 nine
month periods ended December 27, 1998 and December 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 Nine Months Ended
-------------------------------------- ----------------------------------------
December 27, 1998 December 28, 1997 December 27, 1998 December 28, 1997
----------------- ----------------- ----------------- -----------------
Net income $ 3,643 $ 3,153 $8,272 $ 7,680
Other comprehensive
income (loss), net of tax:
Foreign currency
translation adjustment (32) 205 561 (161)
Unrealized investment
holding gain (loss) 349 (129) 340 (79)
------- ------- ------ -------
Total comprehensive
income $ 3,960 $ 3,229 $9,173 $ 7,440
======= ======= ====== =======
NOTE 3. Inventories:
Inventories are summarized as follows:
December 27, 1998 March 31, 1998
----------------- --------------
Finished goods $ 26,535 $ 22,515
Work-in-process 12,770 11,330
Purchased and
manufactured parts 24,936 20,140
-------- --------
Total inventories $ 64,241 $ 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.
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.
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NOTE 5. Long-Term Debt Payable to Banks and Others
Long-term debt payable, including current maturities, consisted of the
following:
December 27, 1998 March 31, 1998
Credit agreement - 7.04% $107,348 --
Credit agreement - 7.75% 2,800 $ 2,676
Term loan - 6.85% -- 36,099
Term loan - 9.79% -- 24,000
Other 677 712
-------- ------
110,825 63,487
Less current maturities 45 12,137
-------- ------
Total $110,780 $ 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 December 27, 1998 the Company's domestic debt consisted of $88.8
million of borrowings under the Revolver and $0.7 million of other
borrowings. Letters of credit outstanding under the line at December 27,
1998 were $0.1 million. Amounts outstanding under International Lines of
Credit were $21.3 million at December 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 nine months periods in this Management's Discussion
refer to the three and nine months periods ended December 27, 1998 for fiscal
year 1999 and the three and nine months periods ended December 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 for the nine months period in 1999 were $165.7 million, an increase of
$17.3 million or 12% from the comparable period in 1998. For the three month
period in 1999 sales were $57.9 million, a $9.4 million or 19% increase from the
comparable period in 1998. As further discussed below, the increased sales
performance for the nine 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 nine month period in 1999 increased $5.2 million or 11%
from the comparable period in 1998. For the three month period in 1999, gross
profit increased $1.6 million or 10%. Operating profit from continuing
operations for the nine month period in 1999 was $27.5 million, an increase $2.3
million or 9% from the comparable period in 1998. For the three month period in
1999 operating profit from continuing operations was $9.4 million, an increase
of $0.4 million or 5% 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 nine month period in 1999 was
$8.3 million or $1.30 per share on a diluted basis, compared to $7.7 million or
$1.41 per share, for the comparable period of 1998. The three month period in
1999 reported net income of $3.6 million or $0.58 per share compared to $3.2
million or $0.54 per share for the year earlier period. Net income for the nine
month period in 1999 included 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 in 1999 also included a provision for a possible loss on a note
receivable from the sale of a previously discontinued company. The amount of the
charge in the nine month period in 1999 was $0.9 million pre-tax which reflected
a change in the collectability estimate during the three month period in 1999
for $0.3 million pre-tax. The extraordinary charge for the refinancing of debt
of $0.8 million after tax is discussed in more detail in the discussion of
liquidity and capital resources section.
Interest expense decreased $0.7 million for the nine month period in 1999
primarily due to reduced bank debt following the November 1997 common stock
offering. For the three month period in 1999 interest expense increased by $0.2
million reflecting the increased bank debt which was used for acquisitions
during the second quarter of fiscal 1999 as discussed in Note 4. Interest
expense for both the nine month and three periods was favorably affected by
reduced LIBOR and Prime interest rates.
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New orders received during the nine month period in 1999 totaled $166.6 million,
an increase of $11.7 million or 8% from 1998's comparable period. For the three
month period, new orders totaled $54.2 million, an increase of $0.5 million or
1% from last year's comparable period. The increased new orders for both the
nine month and three month periods were primarily due to the acquisitions of ARM
and NORCO, Inc. partially offset by a slight reduction of new orders in the
Specialty Fastener segment. At December 27, 1998, total backlog of unfilled
orders was $98.0 million compared to $78.9 million at December 28, 1997,
primarily due to the acquisitions of ARM and NORCO, Inc.
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FINANCIAL SUMMARY BY PRODUCT SEGMENT
(In Thousands of Dollars)
NINE MONTHS ENDED NET CHANGE
------------------------------------------ ---------------------------
DECEMBER 27, 1998 DECEMBER 28, 1997 $ %
----------------- ----------------- -------- ---
Sales:
Specialty fastener products $ 130,720 $ 122,179 $ 8,541 7
Aerospace products 34,994 26,209 8,785 34
--------- --------- --------
Total $ 165,714 $ 148,388 $ 17,326 12
========= ========= ========
Operating profit:
Specialty fastener products $ 19,133 $ 19,159 $ (26) (0)
Aerospace products 8,372 6,049 2,323 38
--------- --------- --------
Total $ 27,505 $ 25,208 $ 2,297 9
Corporate expense (a) (7,478) (6,463) (1,015) (16)
Corporate interest and other income 333 909 (576) (63)
Interest expense (5,272) (5,970) 698 12
--------- --------- --------
Income from continuing
operations before
income taxes $ 15,088 $ 13,684 $ 1,404 10
========= ========= ========
(a) The corporate expense for the nine month period ended December 27, 1998,
includes an estimated $0.9 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
----------------------------------------- ----------------------------
DECEMBER 27, 1998 DECEMBER 28, 1997 $ %
----------------- ----------------- ------- ---
Sales:
Specialty fastener products $ 43,353 $ 39,481 $ 3,872 10
Aerospace products 14,510 8,971 5,539 62
-------- -------- -------
Total $ 57,863 $ 48,452 $ 9,411 19
======== ======== =======
Operating profit:
Specialty fastener products $ 5,750 $ 6,734 $ (984) (15)
Aerospace products 3,696 2,304 1,392 60
-------- -------- -------
Total $ 9,446 $ 9,038 $ 408 5
Corporate expense (a) (1,584) (1,867) 283 15
Corporate interest and other income 144 265 (121) (46)
Interest expense (2,011) (1,810) (201) (11)
-------- -------- -------
Income from continuing
operations before
income taxes $ 5,995 $ 5,626 $ 369 7
======== ======== =======
(a) The corporate expense for the three month period ended December 27, 1998,
includes an estimated $0.3 million reduction 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 $130.7 million for the
nine month period in 1999, an increase of $8.5 million or 7% from the comparable
period in 1998. Sales for the three month period in 1999 were up $3.9 million or
10% from the same period in 1998. The nine 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 $19.1 million for the nine month period in
1999, basically equal to the comparable period in 1998. The three month period
in 1999 reported an operating profit of $5.8 million, a decrease of $1.0 million
or 15% from the comparable period in 1998. The decreased operating profit was
primarily due to lower operating margins at the company's domestic and European
hose clamp operations and lower volume at the domestic retaining ring
operations, which were partially offset by the ARM acquisition in June 1998.
New orders were flat for the nine month period in 1999, as compared to the same
period in 1998. New orders for the three month period in 1999 decreased $3.7
million or 8% from the comparable period in 1998. The primary reasons for this
decrease were due to reduced new orders at the company's domestic and European
hose clamp operations, partially offset by the ARM acquisition in June 1998.
Backlog of unfilled orders at December 27, 1998 was $50.0 million compared to
$46.8 million at December 28, 1997, primarily due to the acquisition of ARM.
AEROSPACE PRODUCTS SEGMENT
Sales for the aerospace products segment were $35.0 million for the nine month
period in 1999, an increase of $8.8 million or 34% from the comparable period in
1998. Sales for the three month period in 1999 were $14.5 million, up $5.5
million or 62% from the comparable period in 1998. The increases were primarily
due to the acquisition of NORCO, Inc. on July 28, 1998.
Operating profit for the nine month period in 1999 was $8.4 million, an increase
of $2.3 million or 38% from the comparable period in 1998. The three month
period reflected an operating profit of $3.7 million, a increase of $1.4 million
or 60% from the comparable period in 1998. The increased operating profit for
both periods was also primarily due to the acquisition of NORCO, Inc.
New orders for the nine month period in 1999 increased $12.6 million or 49% from
the comparable period in 1998. New orders for the three month period in 1998
increased $ 4.2 million or 46% from the comparable period in 1998. The increases
in both 1999 periods were due to the NORCO, Inc. acquisition and increased
orders at the Breeze-Eastern division during the nine month period. Backlog of
unfilled orders at December 27, 1998 was $48.0 million compared to $32.1 million
at December 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 48% as of December 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 December 27, 1998, stood at 2.79 compared to 2.17 at
March 31, 1998. Working Capital was $66.9 million at December 27, 1998, up $10.5
million from March 31, 1998.
During the nine months ended December 27, 1998, the Company purchased 106,600
shares of treasury stock for $2.3 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 nine month period
in 1999 were $ 9.0 million as compared with $5.5 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. The unamortized costs associated with the old
credit agreement have been charged to earnings in fiscal year 1999 in the amount
of $1.3 million before tax. The after tax amount of $0.8 million is classified
as an extraordinary charge in the Statement of Consolidated Operations for the
nine month period ended December 27, 1998.
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
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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.
YEAR 2000 ISSUE
The Company is preparing for the impact of the Year 2000 issue, including the
impact that it may have on the Company's material third party vendors, suppliers
and customers. The Year 2000 issue 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 to identify the year must be
modified prior to the year 2000, otherwise the year 2000 may be confused with
year 1900. This confusion, if left unresolved, could potentially disrupt the
Company's internal business operations or the operations of third parties with
whom the Company does business.
The Company has taken steps to have all of its computer systems and facilities
in compliance with the Year 2000 date requirement before that date is reached.
Thus far the Company has reviewed its facilities and internal computer systems
at all locations for compliance. Identification and testing of all internal
systems has been underway for over a 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.
The total cost associated with Year 2000 remediation is not expected to be
material to the Company's financial condition or results of operations. 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. The expected completion date and costs for Year
2000 compliance are based on estimates and future assumptions which are subject
to uncertainty. Such forward-looking assessments may be adversely affected by
subsequent findings and test results which could have a material impact on the
Company's financial condition or results of operations.
Based on the information obtained to date, the Company does not believe that
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 or control all external Year 2000 issues, such as those
which may exist at the governmental, supplier and customer levels.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.18 Form of First Amendment to Executive Severance Agreement with
Officers of the Company*
10.19 Form of First Amendment to Executive Severance Agreement with Subsidiary
Presidents*
10.20 Form of First Amendment to Executive Severance Agreement with Division
Presidents*
10.21 Form of First Amendment to Executive Severance Agreement with Overseas
Subsidiary Managing Directors*
27 Financial Data Schedule
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* Forms of Initial Agreements were previously filed as exhibits to
Registrant's Form 10-K for the fiscal year ended March 31, 1997.
(b) No reports on Form 8-K were filed during the quarter ended December 27,
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: February 9, 1999 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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