1
Exhibit 13
[GRAPHIC OMITTED]
Annual Report
Fiscal Year Ended March 31, 1999
[LOGO]TransTechnology
corporation
engineered products for global partners(TM)
2
TABLE OF CONTENTS:
1 Selected Financial Data
2 Letter to Shareholders
4 Domestic and International Industrial Products
6 Aerospace Products
8 Financial Information
[The following tables were depicted as bar graphs in the printed material.]
Net Sales
($ in Millions)
-----------------------------------------------------
1995 1996 1997 1998 1999
101.1 158.0 178.7 204.0 228.0
Income From Continuing Operations
($ in Millions)
-----------------------------------------------------
1995 1996 1997 1998 1999
7.4 8.5 9.7 12.0 14.6
Diluted Income Per Share From Continuing Operations
(in Dollars)
-----------------------------------------------------
1995 1996 1997 1998 1999
1.44 1.66 1.87 2.11 2.30
Capital Expenditures
($ in Millions)
-----------------------------------------------------
1995 1996 1997 1998 1999
5.0 6.5 5.5 8.7 14.8
[The following tables were depicted as pie charts in the printed material.]
1999 Net Fastener Sales Allocation by Market Type
-------------------------------------------------
Aerospace 2%
Consumer/Durables 3%
Industrial Machinery 11%
Heavy Truck OEM 24%
Automotive OEM 26%
Distribution 34%
1999 Net Sales Allocation by Market Type
----------------------------------------
Aerospace 22%
Consumer/Durables 3%
Industrial Machinery 9%
Heavy Truck OEM 19%
Automotive OEM 20%
Distribution 27%
On cover: Retaining rings as they enter plating process.
3
Selected Financial Data
The following table provides selected financial data with respect to the
consolidated statements of operations of the Company for the five fiscal years
ended March 31, 1999, and the consolidated balance sheets of the Company at the
end of each such year.
SELECTED FINANCIAL DATA Years ended March 31,
(In thousands, except per share amounts 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 228,006 $ 203,928 $ 178,684 $ 158,024 $ 101,122
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 24,294 20,153 16,620 14,300 10,842
Provision for income taxes 9,704 8,162 6,898 5,792 3,457
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations 14,590 11,991 9,722 8,508 7,385
Loss from discontinued operations -- (924) (934) (1,134) (4,852)
- -------------------------------------------------------------------------------------------------------------------
Income before extraordinary charge 14,590 11,067 8,788 7,374 2,533
Extraordinary charge for refinancing of debt (781) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income $ 13,809 $ 11,067 $ 8,788 $ 7,374 $ 2,533
- -------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic:
Income from continuing operations $ 2.33 $ 2.17 $ 1.92 $ 1.67 $ 1.45
Loss from discontinued operations -- (0.17) (0.18) (0.22) (0.95)
Extraordinary charge for refinancing
of debt (0.12) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income per share $ 2.21 $ 2.00 $ 1.74 $ 1.45 $ 0.50
- -------------------------------------------------------------------------------------------------------------------
Diluted:
Income from continuing operations $ 2.30 $ 2.11 $ 1.87 $ 1.66 $ 1.44
Loss from discontinued operations -- (0.16) (0.18) (0.22) (0.95)
Extraordinary charge for refinancing
of debt (0.12) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income per share $ 2.18 $ 1.95 $ 1.69 $ 1.44 $ 0.49
- -------------------------------------------------------------------------------------------------------------------
Dividends declared and paid per share $ 0.26 $ 0.26 $ 0.26 $ 0.26 $ 0.255
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 279,720 $ 236,073 $ 199,136 $ 199,367 $ 129,396
Long-term debt $ 102,463 $ 51,350 $ 67,516 $ 72,565 $ 37,021
Stockholders' equity $ 123,710 $ 115,832 $ 77,444 $ 72,470 $ 64,502
Book value per share $ 20.25 $ 18.47 $ 15.40 $ 14.21 $ 12.72
Shares outstanding at year-end 6,108 6,272 5,028 5,099 5,070
- -------------------------------------------------------------------------------------------------------------------
MARKET AND DIVIDEND DATA
Market Price
---------------------------------------------------
Quarter Ended High Low Dividends
- -------------------------------------------------------------------------------------------------------------------
June 30, 1997 $ 22-7/8 $ 19-7/8 $ .065
September 30, 1997 26-11/16 22-3/4 .065
December 31, 1997 28-5/16 26 .065
March 31, 1998 30-5/16 25-1/2 .065
- -------------------------------------------------------------------------------------------------------------------
June 30, 1998 30-5/8 25-9/16 .065
September 30, 1998 27-1/8 20-1/4 .065
December 31, 1998 23-11/16 18-9/16 .065
March 31, 1999 20-3/4 16-1/2 .065
- -------------------------------------------------------------------------------------------------------------------
1999 ANNUAL REPORT 1
4
Fellow Shareholders:
[PHOTO OMITTED]
Michael J. Berthelot
We are pleased to report that the fiscal year ended March 31, 1999, was the
seventh consecutive year of growth for our company, with sales up 12% and income
and earnings per share before an extraordinary item up 32% and 18% respectively.
The year began with a flurry of activity. In June we added a new product
to our line of specialty fasteners with the acquisition of Aerospace Rivet
Manufacturers Corporation, a Los Angeles- based manufacturer of rivets and bolts
for use in the aerospace industry. In July, we acquired NORCO Inc. of
Ridgefield, Connecticut, the world's leading maker of rods used to hold open
aircraft engine nacelles during inspection and maintenance. Each of these
acquisitions made a contribution to 1999's results, and we expect them to grow
and prosper even more in the future.
At the end of the second quarter, uncertainty in the economic cycle led us
to cut back employment levels, eliminate non-essential spending, and reduce
inventory and working capital. Those programs continued through the fourth
quarter. Since the beginning of the third quarter our headcount is down 10% and,
since the beginning of the fourth quarter, we have lowered our inventory $5.6
million. We believe the continuance of these measures will help prepare us for
any further downside changes in the economy and will increase cash generation.
Our focus on lower operating costs and higher operating efficiencies makes our
fastener segment one of the most profitable in the field, with fiscal 1999
operating and EBITDA (earnings before interest, taxes, depreciation and
amortization) margins of 14.8% and 19.7%, respectively. In a field of eight
publicly traded companies reporting segment results for fasteners for calendar
1998, our fiscal 1999 EBITDA margin ranked second.
The 1999 fiscal year was a challenging one. On the downside, the U.S.
manufacturing economy was weak for the first three quarters of our fiscal year,
and economic chaos reigned in Brazil for most of the year. England slid into
recession for the better part of the year and Germany's growth slowed to a crawl
as the year drew to an end. On the upside, three more of our facilities became
QS 9000 quality certified, and two achieved ISO14001 environmental
certification. We placed new presidents at four of our divisions. We completed
the largest capital spending program in the company's history. We surveyed every
one of our over 1,750 employees as to their quality of work life, and sampled
the top 20 customers at each of our divisions as to customer satisfaction.
Programs to capitalize on opportunities were implemented following each survey.
At year end, our financial results, while satisfying in one regard, left us with
the knowledge that we can do much better.
Our charge for fiscal 2000 is to capitalize on the opportunities in those
divisions which are improving efficiencies and gaining market share while
driving out costs. Our primary objective is to improve the operating results of
our domestic retaining ring division, which has been a drag on our results for
the past two fiscal years. Combined with uncertainty as to the economies of
Germany and Great Britain, the domestic retaining ring business is our biggest
risk for fiscal 2000.
2 TRANSTECHNOLOGY CORPORATION
5
Our commitment to achieving our stated goals by the year 2001 remains
strong. Progress was made toward our goals of $500 million in revenues (up 12%
in fiscal 1999); number one or two market positions in our product lines
(NORCO's addition gave us another number one market share position); a 7% net
income margin (up to 6.4% before an extraordinary item in 1999 from 1998's
5.4%); 15% annual increases in EPS (up 18% on 11% more shares in 1999); 35% debt
to total capitalization (at 45% on March 31, 1999, from a 49% peak following the
acquisitions); and a dividend not higher than 25% of income (at $.26, 12%). As
we get nearer to fiscal 2001, it is clear that some of these may truly be
stretch goals. We believe, however, that they remain achievable.
We are, of course, disappointed by the disconnect between the price of our
company's shares and the intrinsic value of our company. Value is related to the
fundamental, long-term cash- generation capacity of a business. The price of a
share, however, is dependent upon many things, including net inflows of funds
into mutual funds and alternative investments. As painful as we find the decline
in our share price to be, we in management cannot obsess with the day-to-day
price of our shares; to a large degree, it is out of our control. We can,
however, focus our efforts on increasing the value of our business, by
increasing sales, by increasing profitability, and by increasing the return on
our invested capital. Increasing shareholder value is our main endeavor, and it
is value which is our driver, not the daily price quote. We are firm in our
belief that the market price of our shares and the value of our business will
realign themselves.
We are pleased to welcome John H. Dalton, former Secretary of the Navy, to
our Board of Directors. He will be a valuable source of guidance and support to
us in the future.
I cannot quantify the pride and gratitude I feel in being permitted to
lead this company. Every one of our 1,750 employees around the world contributes
every day to our results. As I travel and meet them, and see what they do, I
cannot help but be impressed with their knowledge, commitment, and desire to do
their best. I thank each of them for their support and hard work this past year.
Our Board of Directors continues to provide the best possible counsel and
guidance, and I find it an irreplaceable source of advice and information. I
thank the members of our Board for their commitment this past year. And most
importantly, I thank you, the shareholders, who have placed your trust,
confidence, and resources in our hands. We appreciate your support, and look
forward to continued growth in the future.
/s/ Michael J. Berthelot
Michael J. Berthelot
Chairman, President and
Chief Executive Officer
[The following table was depicted as a pie chart in the printed material.]
1999 Net Sales
Domestic vs. International Operations
-------------------------------------
International 25%
Domestic 75%
1999 ANNUAL REPORT 3
6
Domestic and International
Industrial Products
TransTechnology Corporation derives almost 80% of its revenues from the
manufacture and sale of specialty fasteners, and is the seventh largest fastener
manufacturer in the United States. Operating in small niches, the company has
some of the most well known brand names in the world and is an acknowledged
market leader in each of its product lines. The company's specialty fastener
products are used in various industries, ranging from automotive and heavy truck
manufacturing to computer disk drives, toys, cameras, appliances and plumbing
applications. Specialty fastener products are distributed through in-house sales
forces, distributors, and manufacturers' representatives around the world.
Through increased engineering and marketing resources, the company continues to
search for unique applications for its products in new industries around the
globe.
The Palnut Company Single and
multi-thread fasteners for
automotive and industrial
applications
[GRAPHIC OMITTED]
RETAINING RINGS
TransTechnology is the world's largest manufacturer of retaining rings, with
operations in the United States, Germany, England, and Brazil selling products
under the brand names "Seeger" (Germany and Brazil), "Anderton" (United
Kingdom), and "Waldes/IRR" (United States). Retaining rings are highly
engineered, usually to a customer's exacting specifications, and are used in
transmissions, drive trains, steering and braking systems on automobiles,
trucks, and off-road equipment. They also find application in industrial
equipment, computers, photographic equipment, marine applications, and almost
any situation where axial retention of mechanical parts on shafts or in bores is
required.
Breeze Industrial Products
V-Band clamp for OEM
applications
[GRAPHIC OMITTED]
STAINLESS STEEL HOSE CLAMPS
TransTechnology, through its Breeze Industrial Products and Pebra divisions,
manufactures the most comprehensive line of worm-drive and T-Bolt/V-Band clamps
in the world. Breeze(R) and Pebra stainless steel clamps are well known for
their quality and engineering. Breeze(R) T-Bolt and Constant-Torque(R) clamp
products are used in diesel engine, heavy truck, marine and off-road equipment
applications throughout the world. Breeze(R) is a certified supplier to
Caterpillar, Paccar, and many other heavy equipment manufacturers. Breeze(R)
"Aero-Seal(R)", "Euro-Seal(R)" and "Power-Seal(R)" clamps are supplied through
major distributors to the industrial, hardware, automotive, marine and retail
markets for use in repair, maintenance and overhaul applications, and are used
by many manufacturers of industrial and consumer products. Pebra brand clamps
are supplied to both the European heavy truck and equipment markets and to
industrial product manufacturers.
4 TRANSTECHNOLOGY CORPORATION
7
[GRAPHIC OMITTED]
TCR
Shift rail for manual
transmissions
[GRAPHIC OMITTED]
ASSEMBLY FASTENERS
TransTechnology's Palnut division is one of the leading manufacturers of
assembly fasteners in the United States, supplying Palnut(R) highly engineered
fastening devices to the automotive, toy, appliance and electronics industries.
Products include lock nuts, push-nuts, u-nuts, and a variety of single and
multi-threaded stainless and high-carbon steel fasteners. Palnut products are
sold worldwide directly to original equipment manufacturers (OEM) as well as
through industrial distributors.
EXTERNALLY THREADED AND SPECIALTY MACHINED PRODUCTS
TCR Corporation, designs and manufactures sophisticated externally threaded
fastening devices and custom industrial components, combining its expertise in
cold forging and machining technologies. TCR products are used by industrial
customers worldwide, with key market groups including the automotive, hydraulic
and recreational product industries.
TransTechnology's Aerospace Rivet Manufacturers Corporation (ARM), acquired in
1998, produces premium solid rivets and threaded fasteners for the aerospace
industry. Materials used in these fasteners include aluminum alloys, monel,
titanium, A-286, stainless steel, and other specialty alloys. All of ARM's
products are manufactured for the aerospace industry and meet quality approvals
for Boeing D1-9000 and Mil-I-45208.
ARM
Solid rivets and threaded fasteners
for aerospace applications
[GRAPHIC OMITTED]
1999 ANNUAL REPORT 5
8
[PHOTO OMITTED]
Norco hold open rods
on Boeing-B777
9
Aerospace Products
TransTechnology's Breeze-Eastern division is the world's leading designer and
manufacturer of sophisticated helicopter rescue hoists, cargo winches and cargo
hook systems. These complex, highly engineered systems add significantly to the
versatility of an aircraft for a relatively small cost. The equipment is used
the world over by military and civilian agencies to save lives, complete
missions, and transport cargo. Most helicopter manufacturers today, including
Agusta, Bell, Boeing, Eurocopter, MD Helicopters, Sikorsky and GKN-Westland
specify Breeze-Eastern's systems as standard equipment on their aircraft because
of Breeze-Eastern's record for performance, safety, reliability, durability, and
service. Innovation and new product development remain an important focus at
Breeze-Eastern, one reason why its products will be found on the new V-22 Osprey
tiltrotor vertical take-off and landing aircraft due into full production in
1999 for the U.S. Marine Corps, the Sikorsky UH-60Q Blackhawk MEDEVAC helicopter
for the U.S. Army, the EHI Cormorant Search and Rescue helicopter for the
Canadian National Defense Forces and the Agusta A-109 (Power) utility
helicopter. Breeze-Eastern also designs and manufactures handling systems for
weapons platforms and motion control actuation systems for civilian and military
aircraft.
Norco Inc., acquired in 1998, is the global leader in the design and manufacture
of mechanical components and systems such as hold open rods, quick
connect/disconnect locking systems, helicopter blade restraint systems, latch
assemblies, safety locks, and application-specific mechanical systems. Its power
transmission line of products include rollnuts, rollnut longspan assemblies,
ball reversers, ball oscillators, FlenNut assemblies and other
application-specific linear motion assemblies.
During the company's successful history of servicing the commercial and
defense aviation industry, Norco has forged special relationships with several
original equipment manufacturers. These relationships enable Norco to work in
collaboration with its customers not only during the early design stage, but
also throughout the life-cycle of each manufacturing program.
The Company's aircraft building customers, include Airbus, Boeing,
McDonnell Douglas (now Boeing), Lockheed Martin and Northrop Grumman. Norco also
sells to aircraft system suppliers such as BF Goodrich Aerospace Structures
(cowlings), Short Brothers plc. (nacelles), and GKN-Westland Aerospace
Structures (composite doors on the Airbus A-340, CRJ700 and C27J).
1999 ANNUAL REPORT 7
10
Consolidated Balance Sheets
(In thousands, except share data)
March 31,
ASSETS 1999 1998
=======================================================================================================================
CURRENT ASSETS:
Cash and cash equivalents $ 2,255 $ 2,960
Accounts receivable (net of allowance for doubtful accounts of
$240 and $556 in 1999 and 1998, respectively) 36,323 33,244
Notes and other receivables 658 5,086
Inventories 58,668 53,985
Prepaid expenses and other current assets 1,702 1,022
Deferred income taxes 1,295 2,773
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 100,901 99,070
- -----------------------------------------------------------------------------------------------------------------------
PROPERTY:
Land 12,564 11,002
Buildings 21,654 19,747
Machinery and equipment 67,381 54,315
Furniture and fixtures 9,075 7,381
Leasehold improvements 727 536
- -----------------------------------------------------------------------------------------------------------------------
Total 111,401 92,981
Less accumulated depreciation and amortization 35,017 29,295
- -----------------------------------------------------------------------------------------------------------------------
Property - net 76,384 63,686
- -----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Notes receivable 3,694 7,181
Costs in excess of net assets of acquired businesses (net of
accumulated amortization of $7,002 and $5,115 in 1999 and
1998, respectively) 76,731 45,094
Other 22,010 21,042
- -----------------------------------------------------------------------------------------------------------------------
Total other assets 102,435 73,317
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $ 279,720 $ 236,073
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
=======================================================================================================================
CURRENT LIABILITIES:
Current portion of long-term debt $ 46 $ 12,137
Accounts payable - trade 14,247 14,694
Accrued compensation 6,161 9,764
Accrued income taxes 765 332
Other current liabilities 8,588 11,154
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 29,807 48,081
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS 102,463 51,350
- -----------------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 23,740 20,810
- -----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
- -----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock - authorized, 300,000 shares; none issued
Common stock - authorized, 14,700,000 shares of $.01 par value; issued,
6,653,855 and 6,564,079 shares in 1999 and 1998, respectively 67 66
Additional paid-in capital 77,246 75,959
Retained earnings 58,721 46,537
Accumulated other comprehensive loss (3,021) (2,495)
Unearned compensation (239) (236)
- ----------------------------------------------------------------------------------------------------------------------
132,774 119,831
Less treasury stock, at cost - 546,213 and 292,054 shares in 1999 and 1998, respectively (9,064) (3,999)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 123,710 115,832
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $ 279,720 $ 236,073
=======================================================================================================================
See notes to consolidated financial statements.
8 TransTechnology Corporation
11
Statements of Consolidated Operations
(In thousands, except share data)
Years ended March 31,
1999 1998 1997
=====================================================================================================
Net sales $ 228,006 $ 203,928 $ 178,684
Cost of sales 156,090 137,820 122,480
- -----------------------------------------------------------------------------------------------------
Gross profit 71,916 66,108 56,204
General, administrative and selling expenses 46,552 40,187 35,309
Interest expense 6,938 7,228 6,797
Interest income (412) (1,020) (1,202)
Other income - net (6,362) (440) (1,320)
Allowance for possible loss on notes receivable 906 -- --
- -----------------------------------------------------------------------------------------------------
Income from continuing operations before
income taxes 24,294 20,153 16,620
Provision for income taxes 9,704 8,162 6,898
- -----------------------------------------------------------------------------------------------------
Income from continuing operations 14,590 11,991 9,722
Loss from disposal of discontinued operations
(net of applicable tax benefits of $1,301
and $663 for 1998 and 1997, respectively) -- (924) (934)
- -----------------------------------------------------------------------------------------------------
Income before extraordinary charge 14,590 11,067 8,788
Extraordinary charge for refinancing of debt (net of
applicable tax benefit of $532) (781) -- --
- -----------------------------------------------------------------------------------------------------
Net income $ 13,809 $ 11,067 $ 8,788
- -----------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic:
Income from continuing operations $ 2.33 $ 2.17 $ 1.92
Loss from disposal of discontinued operations -- (0.17) (0.18)
Extraordinary charge for refinancing of debt (0.12) -- --
- -----------------------------------------------------------------------------------------------------
Net income per share $ 2.21 $ 2.00 $ 1.74
- -----------------------------------------------------------------------------------------------------
Diluted:
Income from continuing operations $ 2.30 $ 2.11 $ 1.87
Loss from disposal of discontinued operations -- (0.16) (0.18)
Extraordinary charge for refinancing of debt (0.12) -- --
- -----------------------------------------------------------------------------------------------------
Net income per share $ 2.18 $ 1.95 $ 1.69
- -----------------------------------------------------------------------------------------------------
Weighted - average basic shares outstanding 6,249,000 5,520,000 5,064,000
Weighted - average diluted shares outstanding 6,341,000 5,689,000 5,196,000
See notes to consolidated financial statements.
1999 ANNUAL REPORT 9
12
Statements of Consolidated Cash Flows
(In thousands)
Years ended March 31,
1999 1998 1997
=============================================================================================================
Cash flows from operating activities:
Net income $ 13,809 $ 11,067 $ 8,788
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary charge for refinancing of debt 781 -- --
Gain on sale of marketable securities (1,082) -- --
Depreciation and amortization 10,802 9,054 7,406
Provision for losses on accounts and notes receivable 803 537 139
(Gain) loss on sale or disposal of fixed assets and discontinued
businesses (28) 1,087 64
Changes in assets and liabilities - excluding the effects of
acquisitions and dispositions:
Decrease (increase) in accounts receivable 1,073 (2,732) (620)
Decrease (increase) in inventories 2,266 (2,685) 191
Decrease (increase) in other assets 1,888 (3,330) (191)
(Decrease) increase in accounts payable (2,604) 1,770 (3,650)
(Decrease) increase in accrued compensation (3,603) 2,989 553
Increase (decrease) in income taxes payable 686 (1,300) 242
(Decrease) increase in other liabilities (6,115) 2,751) 1,385
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,676 19,208 14,307
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business acquisitions (43,901) (34,774) (3,602)
Capital expenditures (14,759) (8,745) (5,477)
Proceeds from sale of fixed assets and discontinued businesses 502 2,144 2,705
Proceeds from sale of marketable securities 2,024 -- --
Decrease in notes and other receivables 3,128 1,954 1,119
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (53,006) (39,421) (5,255)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 159,089 68,400 40,105
Payments on long-term debt (119,942) (78,336) (45,273)
Proceeds from issuance of stock under stock option plan 1,157 2,213 365
Stock offering proceeds -- 26,908 --
Proceeds from foreign exchange contracts -- 2,036 --
Treasury stock purchases (4,926) -- (1,625)
Dividends paid (1,625) (1,467) (1,318)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 33,753 19,754 (7,746)
- -------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (128) (121) (128)
(Decrease) increase in cash and cash equivalents (705) (580) 1,178
Cash and cash equivalents at beginning of year 2,960 3,540 2,362
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,255 $ 2,960 $ 3,540
- -------------------------------------------------------------------------------------------------------------
Supplemental information:
Interest payments $ 7,130 $ 7,647 $ 6,708
Income tax payments $ 5,177 $ 5,988 $ 3,810
- -----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
10 TRANSTECHNOLOGY CORPORATION
13
Statements of Consolidated Stockholders' Equity
(In thousands, except share data)
Accumulated
Years ended Common Stock Treasury Stock Additional Other Total
March 31, 1999, --------------- --------------- Paid-In Retained Comprehensive Unearned Comprehensive
1998 and 1997 Shares Amount Shares Amount Capital Earnings Income (loss) Compensation Income
- ---------------------------------------------------------------------------------------------------------------------- -------------
BALANCE, MARCH 31, 1996 5,276,463 $53 (177,500) $(2,155) $46,188 $ 29,467 $ (774) $(309)
Net income -- -- -- -- -- 8,788 -- -- $ 8,788
Other comprehensive income:
Currency translation
adjustment (net of taxes
of $753) -- -- -- -- -- -- (1,061) -- (1,061)
Unrealized investment
holding losses (net of
taxes of $201) -- -- -- -- -- -- (283) -- (283)
Cash dividends ($.26 per
share) -- -- -- -- -- (1,318) -- -- --
Purchase of treasury stock -- -- (100,000) (1,625) -- -- -- -- --
Issuance of stock under
stock option plan 30,381 -- -- -- 365 -- -- -- --
Issuance of stock under
bonus plan 10,127 -- (11,737) (159) 192 -- -- 75 --
- ---------------------------------------------------------------------------------------------------------------------- -------------
BALANCE, MARCH 31, 1997 5,316,971 53 (289,237) (3,939) 46,745 36,937 (2,118) (234) $ 7,444
========
Net income -- -- -- -- -- 11,067 -- $ 11,067
Other comprehensive income:
Currency translation
adjustment (net of taxes
of $331) -- -- -- -- -- -- (487) -- (487)
Unrealized investment
holding gains (net of
taxes of $75) -- -- -- -- -- -- 110 -- 110
Cash dividends ($.26 per
share) -- -- -- -- -- (1,467) -- -- --
Public sale of common stock,
net of expenses 1,063,900 11 -- -- 26,897 -- -- -- --
Issuance of stock under
stock option plan 178,416 2 -- -- 2,211 -- -- -- --
Issuance of stock under
bonus plan 4,792 -- (2,817) (60) 106 -- -- (2) --
- ---------------------------------------------------------------------------------------------------------------------- -------------
BALANCE, MARCH 31, 1998 6,564,079 66 (292,054) (3,999) 75,959 46,537 (2,495) (236) $ 10,690
=============
Net income -- -- -- -- -- 13,809 -- -- $ 13,809
Other comprehensive income:
Currency translation
adjustment (net of taxes
of $467) -- -- -- -- -- -- (701) -- (701)
Unrealized investment
holding gains (net of
taxes of $117) -- -- -- -- -- -- 175 -- 175
Cash dividends ($.26 per
share) -- -- -- -- -- (1,625) -- -- --
Purchase of treasury stock -- -- (248,700) (4,926) -- -- -- -- --
Issuance of stock under
stock option plan 84,714 1 -- -- 1,156 -- -- -- --
Issuance of stock under
bonus plan 5,062 -- (5,459) (139) 131 -- -- (3) --
- ---------------------------------------------------------------------------------------------------------------------- -------------
BALANCE, MARCH 31, 1999 6,653,855 $ 67 (546,213) $(9,064) $77,246 $ 58,721 $(3,021) $ (239) $ 13,283
====================================================================================================================== =============
See notes to consolidated financial statements.
1999 ANNUAL REPORT 11
14
Notes to Consolidated Financial Statements.
1. SUMMARY OF ACCOUNTING PRINCIPLES
Business - TransTechnology Corporation (the "Company") develops, manufactures
and sells a wide range of products in two industry segments, Specialty Fastener
Products and Aerospace Products. The Company has manufacturing facilities
located in the United States, Germany, the United Kingdom and Brazil. The
Specialty Fastener Products Segment produces highly engineered precision metal
retaining rings, gear driven band fasteners, circlips, custom cold-formed parts,
rivets and other threaded and non-threaded assembly fasteners primarily for the
automotive, heavy truck, industrial, aerospace and consumer/durables markets and
accounted for approximately 78% of the Company's consolidated 1999 net sales.
Through its Aerospace Products Segment, the Company develops, manufactures,
sells and services a complete line of sophisticated lifting and restraining
products--principally performance critical helicopter rescue hoist and cargo
hook systems, winches and hoists for aircraft and weapons systems and aircraft
engine compartment hold open rods, actuators and other motion control devices.
This segment accounted for approximately 22% of the Company's consolidated 1999
net sales.
Use of Estimates - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in its
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of TransTechnology Corporation and its subsidiaries, all of
which are wholly owned. Intercompany balances and transactions are eliminated in
consolidation. Investments in less than 20% owned companies are accounted for by
the cost method.
Accounting for Contracts - All of the Company's contracts are firm fixed-price.
Sales and cost of sales on such contracts are recorded as deliveries are made.
Accounts receivable from the United States Government represent billed
receivables and substantially all amounts are expected to be collected within
one year. Losses on contracts are recorded as they are identified.
Cash and Cash Equivalents - The Company considers all highly liquid investments
with a maturity at date of acquisition of three months or less to be cash
equivalents.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Cost includes material, labor
and manufacturing overhead costs.
Property and Related Depreciation and Amortization - Property is recorded at
cost. Provisions for depreciation are made on a straight-line basis over the
estimated useful lives of depreciable assets ranging from three to thirty years.
Amortization of leasehold improvements is computed on a straight-line basis over
the shorter of the estimated useful lives of the improvements or the terms of
the leases. The Company reviews property and equipment and assets held for sale
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. It has been determined that
no impairment loss needs to be recognized for such assets.
Costs in Excess of Net Assets of Acquired Businesses - The difference between
the purchase price and the fair value of the net assets of acquired businesses
is included in the accompanying Consolidated Balance Sheets under the caption
"Costs in excess of net assets of acquired businesses" and is being amortized
over 40 years. The Company has determined that there is no impairment in value,
since projected future operating results on an undiscounted basis, through the
period such costs in excess of net assets of acquired businesses are being
amortized, are in excess of the recorded asset amount.
12 TRANSTECHNOLOGY CORPORATION
15
Earnings per Share ("EPS") - The computation of basic EPS is based on the
weighted-average number of common shares outstanding. The computation of diluted
EPS assumes the foregoing and, in addition, the exercise of all stock options
using the treasury stock method.
The components of the denominator for basic earnings per common share and
diluted earnings per common share are reconciled as follows:
1999 1998 1997
Basic earnings per common share:
Weighted-average common
shares outstanding 6,249,000 5,520,000 5,064,000
================================
Diluted earnings per common share:
Weighted-average common
shares outstanding 6,249,000 5,520,000 5,064,000
Stock options 92,000 169,000 132,000
--------------------------------
Denominator for diluted
earnings per common share 6,341,000 5,689,000 5,196,000
================================
Options to purchase 169,774, shares of common stock at prices between $22.9375
and $27.8750 were outstanding during 1999 but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares. During 1998 and 1997, all
options to purchase common stock were included in the computation of diluted
EPS.
Research, Development and Engineering Costs - Research and development costs and
engineering costs in support of active products, which are charged to expense
when incurred, amounted to $2.4 million, $2.1 million and $2.0 million in 1999,
1998 and 1997, respectively. Included in these amounts were expenditures of $1.2
million, $1.1 million and $0.8 million in 1999, 1998 and 1997, respectively,
which represent costs related to research and development activities.
Foreign Currency Translation - The assets and liabilities of the Company's
international operations, have been translated into U.S. dollars at year-end
exchange rates, with resulting translation gains and losses accumulated as a
separate component of Accumulated Other Comprehensive Income (Loss). Income and
expense items are converted into U.S. dollars at average rates of exchange
prevailing during the year. The Company treated its operation in Brazil as
highly inflationary, where the functional currency was the U.S. dollar until the
end of the third quarter of fiscal 1999. Effective December 28, 1998, the
Brazilian operation ceased to be considered highly inflationary by the Company
and the Brazilian Real is now the functional currency.
Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Investments - On March 1, 1994, the Company received shares of Mace Security
International common stock, valued at $3.4 million, as partial consideration for
the sale of a division. In March 1997, the Company recorded a $2.6 million
pretax charge to continuing operations to write-down the carrying value of these
shares to their current market value as the decline in value of these shares was
determined to be other than temporary. During the fourth quarter of fiscal 1999,
the Company sold all of these shares for $2.0 million and realized a pretax gain
of $1.1 million.
Financial Instruments - The Company does not hold or issue financial instruments
for trading purposes. Amounts to be paid or received under interest rate swap
agreements are recognized as increases or reductions in interest expense in the
periods in which they accrue. The Company enters into off-balance-sheet forward
foreign exchange instruments in order to hedge certain financing and investment
transactions denominated in foreign currencies and purchase commitments and
certain foreign currency denominated long-term debt. Gains and losses on the
investing and financing transactions are included in other income - net. Gains
and losses on the foreign currency purchase commitment transactions are included
in the cost of the underlying purchases.
New Accounting Standards - In June 1998, Statement of Financial Accounting
Standards ("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, 2002. 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.
Reclassifications - Certain reclassifications have been made to prior years'
financial statements to conform to the 1999 presentation.
1999 ANNUAL REPORT 13
16
2. DISCONTINUED OPERATIONS
During fiscal 1998 and 1997, the Company recorded after tax costs of $0.9
million in both years for the disposal of previously discontinued and sold
operations. These costs represent adjustments to previous estimates related
primarily to legal and environmental matters.
Included in Other Assets at March 31, 1999 and 1998, were assets held for sale
related to discontinued operations of $5,224 and $5,442, respectively.
3. ACQUISITIONS
On July 28, 1998, the Company acquired all of the outstanding stock of NORCO,
Inc. ("NORCO") for $17.7 million in cash, including direct acquisition costs,
and other contingent consideration. NORCO, located in Ridgefield, Connecticut,
produces aircraft engine compartment hold open rods, actuators and other motion
control devices for the aerospace industry.
On June 29, 1998, the Company acquired all of the outstanding stock of Aerospace
Rivet Manufacturers Corporation ("ARM") for $26.2 million in cash, including
direct acquisition costs, and other contingent consideration. ARM, located in
Santa Fe Springs, California, produces rivets and externally threaded fasteners
for the aerospace industry.
On April 17, 1997, the Company acquired all of the outstanding stock of TCR
Corporation for $32.6 million in cash plus direct acquisition costs, and other
contingent consideration. TCR Corporation, located in Minneapolis, Minnesota,
produces cold forged and other externally threaded fasteners and related
products for the automotive, heavy vehicle, marine and industrial markets.
The following is a summary of the assets acquired and the liabilities assumed
(in thousands):
1999 1998
Current assets $ 12,723 $ 5,862
Long-term assets 37,944 34,449
Liabilities assumed (6,766) (5,537)
---------------------
Cash paid including acquisition costs $ 43,901 $ 34,774
=====================
The following summarizes the Company's pro forma information as if the
acquisitions of ARM and NORCO had occurred at the beginning of the periods
presented. The pro forma results give effect to the amortization of goodwill and
additional depreciation and the effects on interest expense and taxes (in
thousands):
1999 1998
Net sales $239,142 $236,684
===================
Income from continuing operations $ 14,617 $ 12,789
===================
Net income $ 13,836 $ 11,865
===================
Basic earnings per share $ 2.21 $ 2.15
===================
Diluted earnings per share $ 2.18 $ 2.09
===================
The above pro forma information does not purport to be indicative of the
financial results which actually would have occurred had the acquisitions been
made at the beginning of the period presented or subsequent to that date.
On June 18, 1996 the Company acquired the Pebra hose clamp business from Pebra
GmbH Paul Braun i.K. for approximately $3.6 million in cash including direct
acquisition costs. Pebra manufactures heavy duty hose clamps primarily for use
in the manufacture of heavy trucks in Europe.
4. INVENTORIES
Inventories at March 31, consisted of the following (in thousands):
1999 1998
Finished goods $ 23,592 $ 22,515
Work in process 11,403 11,330
Purchased and manufactured parts 23,673 20,140
--------------------
Total $ 58,668 $ 53,985
====================
14 TRANSTECHNOLOGY CORPORATION
17
5. INCOME TAXES
The components of total income (loss) from operations (including continuing and
discontinued operations and extraordinary items) before income taxes were (in
thousands):
1999 1998 1997
Domestic $ 23,689 $ 17,068 $ 12,167
Foreign (708) 860 2,856
-------------------------------------------
Total $ 22,981 $ 17,928 $ 15,023
===========================================
The provision for income taxes is summarized below (in thousands):
1999 1998 1997
Currently payable:
Federal $ 3,771 $ 4,325 $ 3,549
Foreign -- 77 42
State 587 808 975
-------------------------------------------
4,358 5,210 4,566
Deferred 4,814 1,651 1,669
-------------------------------------------
Total $ 9,172 $ 6,861 $ 6,235
===========================================
The provision (benefit) for income taxes is allocated between continuing and
discontinued operations and extraordinary items as summarized below (in
thousands):
1999 1998 1997
Continuing $ 9,704 $ 8,162 $ 6,898
Discontinued -- (1,301) (663)
Extraordinary (532) -- --
-------------------------------------------
Total $ 9,172 $ 6,861 $ 6,235
===========================================
The consolidated effective tax rates for continuing operations differ from the
federal statutory rates as follows (in thousands):
1999 1998 1997
Statutory federal rate 35.0% 35.0% 35.0%
State income taxes after
federal income tax 4.9 4.8 4.5
Earnings of the foreign
sales corporation (3.4) (2.4) (2.0)
Amortization of purchase
adjustments not deductible
for tax purposes 2.3 1.6 --
Foreign rate differential 1.0 -- 2.4
Other 0.2 1.5 1.6
-------------------------------------------
Consolidated effective tax rate 40.0% 40.5% 41.5%
===========================================
The following is an analysis of accumulated deferred income taxes (in
thousands):
1999 1998
Assets:
Current:
Inventory $ 309 $ 1,008
Net operating loss carryforward 328 681
Other 658 1,084
---------------------
Total current 1,295 2,773
=====================
Noncurrent:
Environmental 602 852
Accrued liabilities 2,412 1,572
Investment 617 1,062
Net operating loss carryforward 1,411 984
Other 1,715 1,623
---------------------
Total noncurrent 6,757 6,093
---------------------
Total assets $ 8,052 $ 8,866
=====================
Liabilities:
Property $ 11,217 $ 10,145
Other 732 578
---------------------
Total liabilities $ 11,949 $ 10,723
=====================
Summary of deferred income taxes (in thousands):
1999 1998
Net current assets $ 1,295 $ 2,773
Net noncurrent liabilities (5,192) (4,630)
---------------------
Total $ (3,897) $ (1,857)
=====================
1999 ANNUAL REPORT 15
18
6. LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS
Long-term debt payable to banks and others, including current maturities, at
March 31 consisted of the following (in thousands):
1999 1998
Credit agreement - 6.12% $101,440 $ --
Credit agreement - 7.75% 400 --
Credit agreement - 8.50% -- 2,676
Term loan - 6.85% -- 36,099
Term loan - 9.79% -- 24,000
Other 669 712
-------------------------
102,509 63,487
Less current maturities 46 12,137
-------------------------
Total $102,463 $ 51,350
=========================
Credit Agreement - Effective July 24, 1998, the Company's credit facility was
increased from $115.0 million to $125.0 million and was amended to eliminate the
Term A and Term B loans, as well as, the asset based lending requirement of the
prior loan agreement. The loan maturity date and all principal payments due were
extended until July 23, 2003, at which time the principal is due in full. The
primary purpose for the increase in the credit facility was to accommodate the
ARM and NORCO acquisitions on June 29, 1998 and July 28, 1998, respectively.
Effective November 27, 1998, the Company's credit facility was amended to
increase the amount available from $125.0 million to $145.0 million in order to
continue to have borrowing capacity for additional acquisition activity.
The credit agreement provides for revolving credit (the "Revolver") for both
domestic and international borrowings, as well as letters of credit. The credit
facility is provided by a group of commercial banks and is secured by all of the
Company's assets.
The amount of the revolving bank credit line commitment available for
international credit is $25.0 million and $5.0 million is available for letters
of credit. As of March 31, 1999, the Company's debt consisted of $80.4 million
of borrowings under the domestic revolving credit line, $21.4 million of
borrowings under the international credit line and $0.7 million of other
borrowings. Outstanding letters of credit under the credit line at March 31,
1999 were $0.1 million.
Interest on the Revolver is tied to the primary bank's prime rate, or at the
Company's option, the London Interbank Offered Rate ("LIBOR"), plus a margin
that varies depending upon the Company's achievement of certain operating and
financial goals. At March 31, 1999, $101.4 million of the Company's outstanding
borrowings utilized LIBOR, of which, $7.7 million and $13.7 million were payable
in Deutsche mark and Pound sterling, respectively. The credit facility requires
the Company to have interest rate protection on a minimum of $50.0 million of
its variable rate debt effective April 30, 1999. Interest rate protection is
generally arranged by means of interest rate swap agreements. The credit
agreement also limits the Company's ability to pay dividends to 25% of net
income and restricts capital expenditures to a range of $11.8 million to $15.8
million annually, and contains other customary financial covenants.
Other - Other long-term debt is comprised principally of an obligation due under
a collateralized borrowing arrangement with a fixed interest rate of 3% due
December 2004 and loans on life insurance policies owned by the Company with a
fixed interest rate of 5%.
Debt maturities (in thousands):
2000 $ 46
2001 47
2002 49
2003 50
2004 101,891
Thereafter 426
-----------
Total $ 102,509
===========
16 TRANSTECHNOLOGY CORPORATION
19
7. STOCKHOLDERS' EQUITY AND EMPLOYEE/DIRECTOR STOCK OPTIONS
The Company maintains the amended and restated 1992 long-term incentive plan
(the "1992 Plan") and the 1998 non-employee directors stock option plan (the
"1998 Plan").
Under the terms of the 1992 Plan, 800,000 of the Company's common shares may be
granted as stock options or awarded as restricted stock to officers, directors
and certain employees of the Company through September 2002. Option exercise
prices equal the fair market value of the common shares at their grant dates.
Options expire not later than five years after the date of grant. Options
granted to directors and to officers and employees with the annual yearly cash
bonus vest ratably over three years beginning one year after the date of the
grant; options granted to officers and employees awarded as part of a three-year
long-term bonus plan vest at the end of the three-year plan period. Restricted
stock is payable in equivalent number of common shares. The shares are
distributable in a single installment and, with respect to officers and
employees, restrictions lapse ratably over a three-year period from the date of
the award, and with respect to directors, the restrictions lapse after one year.
Under the terms of the 1998 Plan, non-employee directors are entitled to receive
a matching option for each share of the Company's common stock that they
purchase on the open market, with the strike price of the option being the
purchase price of the share, up to a maximum of 5,000 options in any twelve
month period or 15,000 options over a three-year period. Options granted under
the 1998 Plan vest on the first anniversary of the grant, provided that the
optionee may not acquire by exercise of the options more than 5,000 shares in
any one year. Options expire not later than five years after the date of the
grant.
The Company continues to apply the accounting standards set forth in APB No. 25.
However, disclosures are required of pro forma net income and earnings per share
as if the Company had adopted the accounting provisions of SFAS No. 123. Based
on Black-Scholes values, pro forma net income for 1999, 1998 and 1997 would be
$14.0 million, $11.0 million and $8.7 million, respectively; pro forma earnings
per common share for 1999, 1998 and 1997 would be $2.24, $1.93 and $1.73,
respectively.
The following table summarizes stock option activity over the past three years
under the plans:
Weighted-
Average
Number Exercise
of Shares Price
Outstanding at March 31, 1996 408,596 $ 12.62
Granted 97,000 16.85
Exercised (30,381) 12.04
Canceled or expired (11,001) 12.55
--------
Outstanding at March 31, 1997 464,214 13.54
Granted 96,000 21.07
Exercised (178,416) 12.41
Canceled or expired (8,000) 15.00
--------
Outstanding at March 31, 1998 373,798 15.63
Granted 181,156 26.92
Exercised (84,714) 13.03
Canceled or expired (32,194) 23.81
--------
Outstanding at March 31, 1999 438,046 17.66
========
Options exercisable at March 31, 1997 264,211 12.26
Options exercisable at March 31, 1998 201,130 13.87
Options exercisable at March 31, 1999 197,417 14.74
In 1999, 1998 and 1997 the Company awarded restricted stock totaling 5,062
shares, 4,792 shares and 10,127 shares, respectively. The weighted-average fair
value of this restricted stock was $25.33, $22.14 and $17.25 in 1999, 1998 and
1997, respectively. The expense recorded in 1999, 1998 and 1997 for restricted
stock was $107,000, $60,000 and $159,000, respectively.
The weighted-average Black-Scholes value per option granted in 1999, 1998 and
1997 was $21.59, $19.75 and $13.55, respectively. The following weighted-average
assumptions were used in the Black-Scholes option pricing model for options
granted in 1999, 1998 and 1997:
1999 1998 1997
Dividend yield 1.4% 1.0% 1.4%
Volatility 24.0% 25.0% 29.0%
Risk-free interest rate 5.5% 6.0% 6.2%
Expected term of options
(in years) 4.0 4.0 4.0
For options outstanding and exercisable at March 31, 1999, the weighted-average
exercise price ranges and remaining lives were:
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Number Weighted- Weighted- Number Weighted-
Range of Outstanding Average Average Exercisable Average
Exercise at Remaining Exercise at Exercise
Prices March 31, 1999 Life Price March 31, 1999 Price
$ 9-14 73,272 1 $ 11.70 66,084 $ 12.97
15-19 132,000 1 16.03 107,666 15.82
20-28 232,774 4 25.25 23,667 21.59
------- ------- ------- -------
438,046 2 $ 17.66 197,417 $ 14.74
======= ======= ======= =======
1999 ANNUAL REPORT 17
20
8. EMPLOYEE BENEFIT PLANS
The Company has three defined contribution plans covering substantially all
domestic employees. Contributions are based on certain percentages of an
employee's eligible compensation. Expenses related to these plans were $ 2.5
million, $2.8 million and $2.5 million in 1999, 1998 and 1997, respectively.
The Company provides postretirement benefits to union employees at one of the
Company's divisions. The Company continues to fund these benefits on a
pay-as-you-go basis. In addition, the Company maintains several defined benefit
retirement plans for certain non-U.S. employees. Funding policies are based upon
local statutes.
(In thousands)
Postretirement
Pension Benefits Benefits
------------------------------------------------
Year Ended March 31, Year Ended March 31,
------------------------------------------------
1999 1998 1997 1999 1998 1997
Components of net
periodic benefit cost:
Service cost $ 402 $ 409 $ 374 $ 2 $ 2 $ 3
Interest cost 835 841 868 69 72 79
Expected return on
plan assets (573) (439) (366) -- -- --
Amortization of net gain 43 43 -- -- -- --
------------------------------------------------
Net periodic benefit cost $ 707 $ 854 $ 876 $71 $74 $82
================================================
Weighted-average
assumptions as
of March 31:
Discount rate 6.00% 6.88% 7.63% 7.00% 7.00% 7.50%
Expected return
on plan assets 7.00% 8.00% 8.00% -- -- --
Rate of compensation
increase 3.25% 3.50% 4.25% 4.00% 4.00% 4.00%
Postretirement
Pension Benefits Benefits
-------------------------------------------------
Year Ended March 31, Year Ended March 31,
-------------------------------------------------
1999 1998 1999 1998
Change in benefit
obligation:
Benefit obligation at
beginning of year $ 12,191 $ 11,485 $ 1,054 $ 1,010
Service cost 402 409 2 2
Interest cost 835 841 69 72
Plan participants'
contributions 136 130 -- --
Amendments -- -- -- 67
Actuarial gain 1,169 413 2 --
Benefits paid (792) (719) (103) (97)
Effect of foreign
exchange (239) (368) -- --
-------------------------------------------------
Benefit obligation at
end of year $ 13,702 $ 12,191 $ 1,024 $ 1,054
=================================================
Postretirement
Pension Benefits Benefits
-------------------------------------------------
Year Ended March 31, Year Ended March 31,
-------------------------------------------------
1999 1998 1999 1998
Change in plan assets:
Fair value of plan assets
at beginning of year $ 7,116 $ 5,337 $ -- $ --
Actual return on
plan assets 591 1,396 -- --
Employer contribution 313 389 103 97
Plan participants'
contributions 136 130 -- --
Benefits paid (318) (268) (103) (97)
Effect of foreign
exchange (273) 132 -- --
-------------------------------------------------
Fair value of plan assets
at end of year $ 7,565 $ 7,116 $ -- $ --
=================================================
Postretirement
Pension Benefits Benefits
-------------------------------------------------
Year Ended March 31, Year Ended March 31,
-------------------------------------------------
1999 1998 1999 1998
Reconciliation of
funded status:
Funded status $ (6,137) $ (5,075) $(1,024) $(1,054)
Unrecognized actuarial
loss (gain) 502 (614) 63 63
Unrecognized prior
service cost 564 628 -- --
-------------------------------------------------
Accrued liability $ (5,071) $ (5,061) $ (961) $ (991)
=================================================
18 TRANSTECHNOLOGY CORPORATION
21
The assumed health care cost trend rates used for measurement purposes were
10.0% and 11.0% for 1999 and 1998, respectively, decreasing 0.5% each year to
6.0% in 2007 and beyond, for substantially all participants. Under the Plan the
actuarially determined effect of a one-percentage point change in the assumed
health care cost trend would have the following effects (in thousands):
One One
Percentage Percentage
Point Point
Increase Decrease
Effect on total of service and
interest cost components $10 $(13)
Effect on accumulated
postretirement benefit obligation 154 (185)
9. FINANCIAL INSTRUMENTS
Interest Rate Swap Agreements - The Company periodically enters into interest
rate swap agreements to effectively convert all or a portion of its
floating-rate debt to fixed-rate debt in order to reduce the Company's risk to
movements in interest rates. Such agreements involve the exchange of fixed and
floating interest rate payments over the life of the agreement without the
exchange of the underlying principal amounts. Accordingly, the impact of
fluctuations in interest rates on these interest rate swap agreements is fully
offset by the opposite impact on the related debt. Swap agreements are only
entered into with strong creditworthy counterparties. The swap agreements in
effect were as follows:
Notional
Amount Receive Pay
(in thousands) Maturities Rate(1) Rate
March 31, 1998 $25,000 8/98 5.65% 6.54%
DM9,981 12/98 3.53 4.57
(1) Based on three-month LIBOR
Foreign Currency Exchange Agreements - The Company enters into forward foreign
currency agreements to hedge foreign currency financing transactions. Realized
and unrealized gains and losses arising from forward currency contracts are
recognized as adjustments to the gains and losses resulting from the underlying
hedged transactions.
In addition, the Company enters into forward currency contracts to hedge certain
foreign currency purchase commitments. Gains and losses from these transactions
are included in the cost of the underlying purchases.
The table below summarizes by currency the contractual amounts of the Company's
foreign exchange contracts at March 31, 1999 and 1998. The "Buy" amounts
represent the U.S. dollar equivalent of commitments to purchase foreign
currencies, and the "Sell" amounts represent the U.S. dollar equivalent to sell
foreign currencies (in thousands):
1999 1998
---------------------------------------
Buy Sell Buy Sell
Currency
Deutsche mark $ 546 $12,439 $ -- $16,405
Pound sterling -- 2,556 3,677 8,507
---------------------------------------
$ 546 $14,995 $3,677 $24,912
=======================================
Fair Value of Financial Instruments - The fair values of cash and cash
equivalents, receivables and notes receivable approximate their carrying values
due to the short-term nature of the instruments.
The fair value of the Company's long-term notes receivable and debt approximates
their carrying values due to the variable interest-rate feature of the
instruments. The fair values of the Company's interest rate swaps and forward
foreign exchange agreements are the estimated amounts the Company would have to
(pay) or receive to terminate the agreements at March 31, based upon quoted
market prices as provided by financial institutions which are counterparties to
the agreements and were as follows (in thousands):
1999 1998
(Pay) receive (Pay) receive
Interest rate swap agreements $ -- $ (141)
Forward foreign
exchange agreements 626 20
10. EXTRAORDINARY ITEM
In fiscal 1999, the Company recognized an extraordinary charge of $0.8 million,
net of tax, to write off the remaining deferred loan fees associated with the
early extinguishment of the Company's indebtedness pursuant to its revised and
amended revolving credit facility. (See Note 6).
11. COMMITMENTS
Rent expense under operating leases for the years ended March 31, 1999, 1998,
and 1997 was $3.2 million, $2.3 million and $2.3 million, respectively.
1999 ANNUAL REPORT 19
22
The Company and its subsidiaries have minimum rental commitments under
noncancellable operating leases as follows (in thousands):
2000 $ 2,252
2001 1,638
2002 1,299
2003 529
2004 7
--------
Total $ 5,725
========
12. CONTINGENCIES
Environmental Matters- During the fourth quarter of fiscal 1999, the Company
reached an agreement with the Pennsylvania Department of Environmental
Protection ("PaDEP") under which the Company will pay $0.4 million for past
costs, future oversight expenses and in full settlement of claims made by PaDEP
related to the environmental remediation at a site in Pennsylvania which
continues to be owned although the related business has been sold. The Company
has provided for this amount in its accrual for environmental liabilities. The
Company must present an environmental cleanup plan for a portion of the site
following the execution of the PaDEP agreement, which is in the form of a
Consent Order, and agreement. A second Consent Order is contemplated by December
1, 2000 for another portion of the site, and a third Consent Order for the
remainder of the site is contemplated by October 1, 2002. The Company is also in
the process of finalizing the documentation of an agreed settlement with the
Federal government under which the government will pay 50% of the environmental
response costs associated with a portion of the site. At March 31, 1999, the
Company's cleanup reserve was $1.5 million based on the net present value of
future expected cleanup costs. In addition, the Company settled for a recovery
of a portion of cleanup costs with its insurance carriers for approximately $5.1
million (net) which is included in Other income-net. The Company expects that
remediation at the Pennsylvania site will not be completed for several years.
The Company also continues to participate in environmental assessments and
remediation work at ten other locations, which include operating facilities,
facilities for sale, and previously owned facilities. The Company estimates that
its potential cost for implementing corrective action at these sites will not
exceed $0.2 million payable over the next several years, and has provided for
the estimated costs in its accrual for environmental liabilities.
In addition, the Company has been named as a potentially responsible party in
seven environmental proceedings pending in several other states in which it is
alleged that the Company was a generator of waste that was sent to landfills and
other treatment facilities and, as to several sites, it is alleged that the
Company was an owner or operator. Such properties generally relate to
businesses, which have been sold or discontinued. It is not possible to reliably
estimate the costs associated with any remedial work to be performed until
studies at these sites have been completed, the scope of work defined and a
method of remediation selected and approved by the relevant state authorities,
and the costs allocated among the potentially responsible parties.
Litigation- The Company is also engaged in various other legal proceedings
incidental to its business. It is the opinion of management that, after taking
into consideration information furnished by its counsel, the above matters will
have no material effect on the Company's consolidated financial position or the
results of the Company's operations in future periods.
13. SEGMENT AND GEOGRAPHIC INFORMATION
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, in fiscal 1999, which resulted in no significant change
in the way the Company reports information about its operating segments. The
Company's two business segments have separate management teams that report
operating results regularly which are reviewed by the chief operating decision
makers of the Company. Certain businesses have been aggregated into the same
reportable segment because they have similar products and services, production
processes, types of customers and distribution methods and their long-term
financial performance is affected by similar economic conditions.
The Company has two reportable segments: Specialty Fastener Products and
Aerospace Products. The Specialty Fastener Products segment develops,
manufactures and sells primarily gear-driven band fasteners, circlips, threaded
and non-threaded assembly fasteners, rivets, retaining rings and custom cold
forged parts for the marine, auto, consumer/durables, aircraft, heavy equipment
and industrial machinery markets. The Aerospace Products segment develops,
manufactures and sells primarily lifting, control, and restraint
devices--principally helicopter rescue hoists and external hook systems, winches
and hoists for aircraft and weapons-handling systems, aircraft tie-downs, engine
compartment hold open rods, actuators and other motion control devices.
20 TRANSTECHNOLOGY CORPORATION
23
The accounting policies of the segments are the same as those described in the
summary of accounting principles. The Company evaluates performance based on
operating profit of the respective segments. Operating profit is net sales less
operating expenses. General corporate expenses, interest and income taxes have
not been deducted in determining operating profit. Assets, depreciation and
amortization and capital expenditures are those identifiable to a particular
segment by their use. Approximately 10%, 11% and 9% of net sales in 1999, 1998
and 1997, respectively, were derived from sales to the United States Government
and its prime contractors which are attributable primarily to Aerospace
Products.
Operating Depreciation/
Fiscal Net Profit Capital Amortization Identifiable
(In thousands) Year Sales (loss)(1) Expenditures Expense(2) Assets
- ----------------------------------------------------------------------------------------------------------------
Specialty Fastener 1999 $177,837 $ 26,284 $13,652 $ 8,812 $205,206
Products 1998 168,469 26,177 7,935 7,801 178,331
1997 144,197 24,040 4,715 5,881 140,960
- ----------------------------------------------------------------------------------------------------------------
Aerospace Products 1999 50,169 12,080 728 991 51,883
1998 35,459 9,285 469 544 25,540
1997 34,487 7,483 618 645 26,146
- ----------------------------------------------------------------------------------------------------------------
Total segments 1999 228,006 38,364 14,380 9,803 257,089
1998 203,928 35,462 8,404 8,345 203,871
1997 178,684 31,523 5,333 6,526 167,106
- ----------------------------------------------------------------------------------------------------------------
Corporate 1999 -- (13,243)(3) 379 999 22,631
1998 -- (9,119) 341 709 32,202
1997 -- (9,253) 144 825 32,030
- ----------------------------------------------------------------------------------------------------------------
Corporate interest and 1999 -- 6,111(4) -- -- --
other income-net 1998 -- 1,038 -- -- --
1997 -- 1,147 -- -- --
- ----------------------------------------------------------------------------------------------------------------
Interest expense 1999 -- (6,938) -- -- --
1998 -- (7,228) -- -- --
1997 -- (6,797) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Consolidated 1999 228,006 24,294 14,759 10,802 279,720
1998 203,928 20,153 8,745 9,054 236,073
1997 178,684 16,620 5,477 7,351 199,136
- ----------------------------------------------------------------------------------------------------------------
(1) Operating profit represents net sales less operating expenses which
include all costs and expenses related to the Company's operations in each
segment. General corporate expenses and investments and other income
earned at the corporate level are included in the corporate section.
Interest expense is also separately reported. The amount of the
"Consolidated" line represents "Income from Continuing Operations Before
Income Taxes." Loss from discontinued operations is not included.
(2) The depreciation/amortization expense from discontinued operations is
excluded from the above schedule.
(3) Corporate expense for 1999 includes a $0.9 million pretax charge to the
allowance for notes receivable, and a $1.5 million pretax incentive
compensation award.
(4) Corporate interest and other income for 1999 includes a pretax net gain of
$5.1 million for settlement of litigation claims against its insurance
carriers for environmental matters and a $1.1 million gain on sale of
marketable securities.
Export sales are defined as sales to customers in foreign countries by the
Company's domestic operations. Export sales amounted to the following (in
thousands):
Location 1999 1998 1997
Western Europe $15,680 $ 7,980 $ 8,349
Canada 9,170 7,095 6,316
Pacific and Far East 3,344 2,296 3,027
Mexico, Central and South America 2,267 2,556 1,751
Middle East 415 194 194
Other 275 158 156
-----------------------------------
Total $31,151 $20,279 $19,793
===================================
1999 ANNUAL REPORT 21
24
Results set forth below for international operations represent sales and
operating income of domestic and foreign based subsidiaries based on the
location the product was shipped from (in thousands):
1999 1998 1997
Net sales:
Domestic operations $ 171,302 $ 146,682 $ 120,655
International operations (1) 56,704 57,246 58,029
-------------------------------------------
Net sales $ 228,006 $ 203,928 $ 178,684
===========================================
Operating income:
Domestic operations $ 34,621 $ 30,808 $ 24,991
International operations (1) 3,743 4,654 6,532
-------------------------------------------
Operating income 38,364 35,462 31,523
Interest expense (6,938) (7,228) (6,797)
Corporate expense and other (7,132) (8,081) (8,106)
-------------------------------------------
Income from continuing operations before taxes $ 24,294 $ 20,153 $ 16,620
===========================================
Identifiable assets:
Domestic operations $ 193,690 $ 136,347 $ 94,794
International operations (1) 63,399 67,524 72,312
Corporate 22,631 32,202 32,030
-------------------------------------------
Total assets $ 279,720 $ 236,073 $ 199,136
===========================================
(1) International operations are primarily located in Europe and Brazil.
14. UNAUDITED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1999
Net sales $ 51,483 $ 56,368 $ 57,863 $ 62,292 $ 228,006
Gross profit 16,900 17,949 18,078 18,989 71,916
Income before extraordinary charge 3,202 2,208 3,643 5,537(1) 14,590
Extraordinary charge for refinancing
of debt -- (781) -- -- (781)
---------------------------------------------------------------------------------
Net income $ 3,202 $ 1,427 $ 3,643 $ 5,537 $ 13,809
=================================================================================
Basic earnings (loss) per share:
Income before extraordinary charge $ 0.51 $ 0.35 $ 0.58 $ 0.90 $ 2.33
Extraordinary charge for refinancing
of debt -- (0.12) -- -- (0.12)
---------------------------------------------------------------------------------
Net income $ 0.51 $ 0.23 $ 0.58 $ 0.90 $ 2.21
=================================================================================
Diluted earnings (loss) per share:
Income before extraordinary charge $ 0.50 $ 0.34 $ 0.58 $ 0.89 $ 2.30
Extraordinary charge for refinancing
of debt -- (0.12) -- -- (0.12)
---------------------------------------------------------------------------------
Net income $ 0.50 $ 0.22 $ 0.58 $ 0.89 $ 2.18
=================================================================================
1998
Net sales $ 49,923 $ 50,013 $ 48,452 $ 55,540 $ 203,928
Gross profit 15,348 15,933 16,454 18,373 66,108
Income from continuing operations 2,367 2,387 3,314 3,923 11,991
Loss from discontinued operations (102) (125) (161) (536) (924)
---------------------------------------------------------------------------------
Net income $ 2,265 $ 2,262 $ 3,153 $ 3,387 $ 11,067
=================================================================================
Basic earnings (loss) per share:
Income from continuing operations $ 0.47 $ 0.47 $ 0.58 $ 0.63 $ 2.17
Loss from discontinued operations (0.02) (0.02) (0.03) (0.09) (0.17)
---------------------------------------------------------------------------------
Net income $ 0.45 $ 0.45 $ 0.55 $ 0.54 $ 2.00
=================================================================================
Diluted earnings (loss) per share:
Income from continuing operations $ 0.46 $ 0.45 $ 0.57 $ 0.61 $ 2.11
Loss from discontinued operations (0.02) (0.02) (0.03) (0.08) (0.16)
---------------------------------------------------------------------------------
Net income $ 0.44 $ 0.43 $ 0.54 $ 0.53 $ 1.95
=================================================================================
(1) Income before extraordinary charge for the quarter ended March 31, 1999,
includes a pretax net gain of $5.1 million for an insurance settlement and
a $1.1 million pretax gain on sale of marketable securities.
22 TRANSTECHNOLOGY CORPORATION
25
Independent Auditors' Report
To the Stockholders and the Board of Directors of TransTechnology Corporation:
We have audited the accompanying consolidated balance sheets of TransTechnology
Corporation and subsidiaries as of March 31, 1999 and 1998, and the related
statements of consolidated operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TransTechnology Corporation and
subsidiaries at March 31, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 1999
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
May 12, 1999
1999 ANNUAL REPORT 23
26
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
The Company's fiscal year ends on March 31. Accordingly, all references to years
in this Management's Discussion refer to the fiscal year ended March 31 of the
indicated year. Also, when referred to herein, operating profit means net sales
less operating expenses, without deduction for general corporate expenses,
interest and income taxes.
Sales in 1999 were $228.0 million, an increase of $24.1 million or 12% from
1998, compared with a $25.2 million or a 14% increase from 1997 to 1998. Gross
profit in 1999 increased $5.8 million or 9% from 1998, compared with an increase
of $9.9 million or 18% from 1997 to 1998. Operating profit for 1999 was $38.4
million, an increase of $2.9 million or 8% from 1998, compared with an increase
of $3.9 million or 12% from 1997 to 1998. Income from continuing operations
before income taxes in 1999 was affected by a $5.1 million net gain from the
settlement of litigation relative to claims against its insurance carriers for
environmental matters and a $1.1 million gain from the sale of marketable
securities. Changes in sales, operating profit and new orders are discussed
below by segment, and additional information regarding industry segments is
contained in Note 13 of the Notes to Consolidated Financial Statements.
Net income, including an extraordinary charge in 1999, was $13.8 million or
$2.18 per diluted share compared to $11.1 million, including discontinued
operations, or $ 1.95 per diluted share in 1998. Changes in net income were
affected by operating profit, as discussed in the Business Segment sections
below, discontinued operations, and an extraordinary charge as discussed in the
sections below.
During the first half of 1999 the Company made two acquisitions. On June 29,
1998, the Company acquired all of the outstanding stock of Aerospace Rivet
Manufacturers Corporation ("ARM") for $26.2 million in cash including direct
acquisition costs, and other contingent consideration. ARM, located in Santa Fe
Springs, California, produces rivets and externally threaded fasteners. On July
28, 1998, the Company acquired all of the outstanding stock of NORCO, Inc.
("NORCO") for $17.7 million in cash including direct acquisition costs and other
contingent consideration. NORCO, located in Ridgefield, Connecticut, produces
engine compartment hold open rods, actuators and other motion control devices
for the aerospace industry.
During the first half of 1999, the Company incurred an extraordinary charge for
early extinguishment of debt in the amount of $0.8 million after tax. The early
debt extinguishment enabled the Company to expand its credit facility in order
to accommodate the ARM and NORCO acquisitions, as well as to simplify its debt
structure as more fully described in the discussion of Liquidity and Capital
Resources.
During 1999, the Company recorded a charge for the possible loss on notes
receivable in the amount of $0.9 million before tax. This provision related to
notes receivable due from the sale of a previously discontinued company.
During the fourth quarter of 1999, the Company realized a gain from the
disposition of its stock in Mace Security International Inc. in the amount of
$1.1 million, as well as an additional gain of $5.1 million relating to the
settlement of environmental claims with its insurance carriers. The Company's
loss from discontinued operations net of applicable tax benefits was $0.9
million in both 1998 and 1997.
24 TRANSTECHNOLOGY CORPORATION
27
Interest expense decreased by $0.3 million in 1999 from 1998 primarily due to
lower interest rates. Interest expense increased $0.4 million in 1998 from 1997
primarily as a result of increased bank borrowings related to the acquisition of
TCR Corporation in April, 1997.
New orders received during 1999 totaled $220.9 million, an increase of $14.0
million or 7% from 1998. New orders received during 1998 totaled $206.9 million,
an increase of $30.4 million or 17% from 1997. At March 31, 1999, total backlog
of unfilled orders was $89.7 million compared to $75.9 million and $66.5 million
at March 3l, 1998 and 1997, respectively. New orders and backlog by industry
segment are discussed below.
SPECIALTY FASTENER PRODUCTS SEGMENT 1999 COMPARED WITH 1998
Sales for the Specialty Fastener Products segment were $177.8 million in 1999,
an increase of $9.4 million or 6% from 1998. The increase in sales was primarily
due to the acquisition of ARM on June 29, 1998. Domestic fastener sales were
otherwise generally flat as compared to 1998 sales. Sales of the European hose
clamp division were lower reflecting mainly the loss of one major customer,
which had been anticipated. Sales from the Brazilian retaining ring operation
were also reduced compared to 1998 due to the currency devaluation as well as
economic difficulties experienced in Brazil during 1999. Domestic retaining ring
sales were also lower compared to 1998 due to a loss in market share suffered
during the consolidation of two plants in New Jersey earlier in the year.
Operating profit for the Specialty Fastener Products segment was $26.3 million
in 1999, an increase of $0.1 million compared to 1998. Increased operating
profit generated by the ARM acquisition was essentially offset by the lower
sales and resulting lower operating profit as discussed above from the domestic
and Brazilian retaining ring divisions as well as the European hose clamp
division. Lower operating profit also was experienced at the domestic hose clamp
division due to increased price competition and a change in product mix
resulting in lower absorption of overhead.
In 1999, new orders in the Specialty Fastener Products segment were $171.5
million, virtually the same as 1998. Increased orders stemming from the ARM
acquisition were offset as were sales for the period due to the reasons
discussed above. Backlog of unfilled orders was $45.9 million at March 31, 1999,
compared to $43.5 million at March 31, 1998.
SPECIALTY FASTENER PRODUCTS SEGMENT 1998 COMPARED WITH 1997
Sales for the Specialty Fastener Products segment were $168.5 million in 1998,
an increase of $24.3 million or 17% from 1997. The increase in sales was
primarily due to the inclusion of almost a full year of TCR Corporation
operations in 1998 and overall increased volume of domestic and European
gear-driven fasteners in 1998 as compared to 1997. Specialty Fastener sales were
negatively impacted in 1998 by unfavorable currency exchange rates affecting the
Company's European retaining ring businesses and price reductions due to the
continued consolidation of major European distributors. Domestic retaining ring
sales were down primarily as a result of operational problems associated with
the consolidation of the Company's domestic retaining ring businesses.
Operating profit for the Specialty Fastener Products segment was $26.2 million
in 1998, an increase of $2.1 million or 9% from 1997. The primary factor
contributing to the segment's increased operating profit in 1998 was the TCR
Corporation acquisition, as well as the domestic and European gear-driven
fasteners sales increases over the prior year as mentioned above. These
increases were partially offset by unfavorable, unhedged, intercompany foreign
exchange transactions, lower margins for European retaining rings due to the
distributor consolidation, inefficiencies resulting from work moved to the UK
from the closed German facility and the stronger dollar versus Deutsche mark
compared to 1997.
In 1998, new orders in the Specialty Fastener Products segment increased $30.4
million or 17% from 1997. The primary reasons for the increase were the same as
those noted in the paragraph above relative to the increase in sales. Backlog of
unfilled orders were $43.5 million at March 31, 1998, compared to $34.0 million
at March 31, 1997.
1999 ANNUAL REPORT 25
28
AEROSPACE PRODUCTS SEGMENT 1999 COMPARED WITH 1998
Sales for the Aerospace Products segment were $50.2 million in 1999, an increase
of $14.7 million or 41% from 1998. The increase was primarily due to the
acquisition of NORCO on July 28, 1998. Sales of rescue hoist and cargo hook
products were also higher for 1999 mainly due to the timing of program sales
such as the Boeing V-22 program which were developed in prior years from
continuing research and development efforts.
The Aerospace Products segment reported an operating profit of $12.1 million in
1999, an increase of $2.8 million or 30% from 1998. The increase was primarily
due to the increased sales and operating profit generated by the NORCO
acquisition.
In 1999 new orders in the Aerospace Products segment increased by $14.0 million
or 40% from 1998. This increase was again primarily due to the NORCO
acquisition. New orders for rescue hoist and cargo hooks were also up slightly.
At March 31, 1999, the backlog of unfilled orders was $43.8 million, compared to
$32.4 million at March 31, 1998.
AEROSPACE PRODUCTS SEGMENT 1998 COMPARED WITH 1997
Sales for the Aerospace Products segment were $35.5 million in 1998, an increase
of $l.0 million or 3% from 1997. The increase was primarily due to customer
timing and placement of new orders.
The Aerospace Products segment reported an operating profit of $9.3 million in
1998, an increase of $1.8 million or 24% from 1997. The increase was primarily
due to product mix, plant operating efficiency improvements, higher sales volume
and tight inventory management.
In 1998 new orders in the Aerospace Products segment decreased by $0.8 million
or 2% from 1997. This decrease was primarily due to customer orders. At March
31, 1998, the backlog of unfilled orders was $32.4 million, compared to $32.5
million at March 31, 1997.
YEAR 2000 READINESS
The Company has been addressing the Year 2000 issue since 1997 and has been
monitoring the progress made at each business unit. The Year 2000 problem
relates to the method that computer programs use to specify a date. In order to
save space in computer data storage, many programs in the past have been written
with two digits for the year specification instead of four digits. The two-digit
date field can make it difficult for computer programs to distinguish between
years such as 1900 and 2000, and therefore can cause malfunctions in computer
operations. Such malfunctions could interfere with any date sensitive processes,
which exist in most computer operations, as well as any equipment, which uses
semiconductor, or "embedded" chip technology. Similar system malfunctions could
also occur at third party supplier locations and consequently create delivery
and service problems for the Company.
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 and identified all critical systems in need of
correction. The correction and testing of all critical systems has progressed
substantially and is scheduled for completion by September 1999. The approximate
level of completion at each business unit presently varies between eighty and
ninety-five percent based on current information available. The Company
generally does not sell products that are Year 2000 affected, however, it does
sell test equipment, which is presently Year 2000 compliant, and is providing
retrofit compliant programs to customers with older equipment.
The Company has also taken steps to review Year 2000 compliance by its major
vendors and customers. Survey results have been received and are being reviewed
and updated on a continuing basis. Based on information received to date, there
are no expected interruptions from critical customers or vendors. The cost of
Year 2000 compliance is expected to be $0.5 million of which $0.3 million has
already been incurred and $0.2 million is anticipated to be incurred during
fiscal year 2000. The total cost capitalized for Year 2000 compliance is
expected to be less than $0.1 million.
26 TRANSTECHNOLOGY CORPORATION
29
As a precaution against unforeseen Year 2000 problems, the Company has
considered contingency plans including alternative automated and manual backup
methods. Other contingency plans which the Company is considering include the
outsourcing and sharing of computer processing requirements. Based on the
present and contingent planning assessment, the Company believes that the
"worst-case" scenario for the Year 2000 problem is in the category of outside
third party services and supplies. Certain government and utility provided
services are not generally available from alternative sources. Should such
services become unavailable there would be a likelihood of manufacturing
interruptions and resulting adverse financial consequences to the Company.
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, however,
able to identify or control all external Year 2000 issues which may exist at
third-party levels or provide contingency plans for all possible future events.
Assessments of future events and other forward-looking assessments may be
adversely affected by subsequent findings and test results that could have a
material impact on the Company's financial condition and results of operations.
EURO CURRENCY
Effective January 1, 1999, eleven countries comprising the European Union
established fixed foreign currency exchange rates and adopted a common currency
unit designated as the "Euro". The Euro has since become publicly traded and may
be used in commerce during the transition period which is scheduled to end
January 1, 2002, at which time a Euro denominated currency is scheduled to be
issued and is intended to replace those currencies of the eleven member
countries. The transition to the Euro has not resulted in problems for the
Company to date, and is not expected to have any material adverse impact on the
Company's future operations.
NEW ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards ("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, 2002. 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.
ACQUISITIONS
On July 28, 1998, the Company acquired all of the outstanding stock of NORCO,
Inc. for $17.7 million in cash, including direct acquisition costs, and other
contingent consideration. NORCO, Inc., located in Ridgefield, Connecticut,
produces aircraft engine compartment hold open rods, actuators and other motion
control devices.
On June 29, 1998, the Company acquired all of the outstanding stock of Aerospace
Rivet Manufacturers Corporation ("ARM") for $26.2 million in cash, including
direct acquisition costs, and other contingent consideration. ARM, located in
Santa Fe Springs, California, produces rivets and externally threaded fasteners.
On April 17, 1997, the Company acquired all of the outstanding stock of TCR
Corporation for $32.6 million in cash plus direct acquisition costs, and other
contingent consideration. TCR Corporation, located in Minneapolis, Minnesota,
produces cold forged and other externally threaded fasteners and related
products for the automotive, heavy vehicle, marine and industrial markets.
On June 18, 1996, the Company acquired the Pebra hose clamp business from Pebra
GmbH Paul Braun i.K. for approximately $3.6 million in cash including direct
acquisition costs. Pebra manufactures heavy duty hose clamps primarily for use
in the manufacture of heavy trucks in Europe.
DISCONTINUED OPERATIONS
During fiscal 1998 and 1997, the Company recorded after tax costs of $0.9
million in both years for the disposal of previously discontinued and sold
operations. These costs represent adjustments to previous estimates related
primarily to legal and environmental matters.
Liquidity and Capital Resources
The Company's debt-to-capitalization ratio was 45%, 35%, and 49% as of March 31,
1999, 1998 and 1997, respectively. The current ratio at March 31, 1999, was
3.39, compared to 2.06, and 2.35 at March 31, 1998 and 1997, respectively.
Working capital was $71.1 million at March 31, 1999, up $20.1 million from 1998
and $19.6 from 1997.
1999 ANNUAL REPORT 27
30
Effective July 24, 1998, the Company's credit facility was increased from $115.0
million to $125.0 million and was amended to eliminate the Term A and Term B
loans, as well as the asset based lending requirement of the prior loan
agreement. The loan maturity date and all principal payments due were extended
until July 23, 2003, at which time the principal is due in full. The primary
purpose for the increase in the credit facility was to accommodate the ARM and
NORCO acquisitions on June 29, 1998 and July 28, 1998, respectively. Effective
November 27, 1998, the Company's credit facility was amended to increase the
amount available from $125.0 million to $145.0 million in order to continue to
have borrowing capacity for additional acquisition activity.
The credit agreement provides for revolving credit (the "Revolver") for both
domestic and international borrowings, as well as, for letters of credit. The
credit facility is provided by a group of commercial banks and is secured by all
of the Company's assets.
The amount of the revolving bank credit line commitment available for
international credit is $25.0 million and $5.0 million is available for letters
of credit. As of March 31, 1999, the Company's debt consisted of $80.4 million
of borrowings under the domestic revolving credit line, $21.4 million of
borrowings under the international credit line and $0.7 million of other
borrowings. Outstanding letters of credit under the credit line at March 31,
1999 were $0.1 million.
Interest on the Revolver is tied to the primary bank's prime rate, or at the
Company's option, the London Interbank Offered Rate ("LIBOR"), plus a margin
that varies depending upon the Company's achievement of certain operating and
financial goals. At March 31, 1999, $101.4 million of the Company's outstanding
borrowings utilized LIBOR, of which, $7.7 million and $13.7 million were payable
in Deutsche marks and Pounds sterling, respectively. The credit facility
requires the Company to have interest rate protection on a minimum of $50.0
million of its variable rate debt effective April 30, 1999. Interest rate
protection is generally arranged by means of interest rate swap agreements. The
credit agreement limits the Company's ability to pay dividends to 25% of net
income and restricts capital expenditures to a range of $11.8 million to $15.8
million annually, and contains other customary financial covenants.
The Company purchased 249,000 shares of treasury stock during 1999 for $4.9
million. Treasury stock purchases are made in the open market or in negotiated
transactions when opportunities are deemed to arise. Purchases of treasury stock
are limited by the terms of the Company's credit agreement.
Management believes that the Company's anticipated cash flow from operations,
combined with the bank credit agreement described above, will be sufficient to
support working capital requirements, capital expenditures and dividend payments
at their current or expected levels. Capital expenditures in 1999 were $14.8
million compared with $8.7 million in 1998 and $5.5 million in 1997, with
capital expenditures for the Specialty Fastener Products Segment being much
larger than those required by the Aerospace Products Segment.
MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange rates and interest rates. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company enters into financial instruments to manage and reduce the impact of
changes in foreign currency exchange rates and interest rates. The
counterparties are major financial institutions.
The Company enters into forward exchange contracts principally to hedge the
currency fluctuations in transactions denominated in foreign currencies, thereby
limiting the Company's risk that would otherwise result from changes in exchange
rates. During 1999, the principal transactions hedged were intercompany loans,
intercompany purchases and trade flows. Gains and losses on forward foreign
exchange contracts and the offsetting gains and losses on hedged transactions
are reflected in the income statement.
28 TRANSTECHNOLOGY CORPORATION
31
At March 31, 1999, the Company had outstanding forward foreign exchange
contracts to purchase and sell $15.5 million of various currencies (principally
Deutsche marks and Pounds sterling). At March 31, 1999, if all forward contracts
were closed out, the Company would receive approximately $0.6 million (the
difference between the fair value of all outstanding contracts and the contract
amounts). A 10% fluctuation in exchange rates for these currencies would change
the fair value by $1.3 million. However, since these contracts hedge foreign
currency denominated transactions, any change in the fair value of the contracts
would be offset by changes in the underlying value of the transaction being
hedged.
The Company enters into interest rate swap agreements to manage its exposure to
interest rate changes. The swaps involve the exchange of fixed and variable
interest rate payments without exchanging the notional principal amount.
Payments or receipts on the swap agreements are recorded as adjustments to
interest expense. At March 31,1999 the Company had no outstanding interest rate
swap agreements.
CONTINGENCIES
Environmental Matters- During the fourth quarter of fiscal 1999 the Company
reached an agreement with the Pennsylvania Department of Environmental
Protection ("PaDEP") under which the Company will pay $0.4 million for past
costs, future oversight expenses and in full settlement of claims made by PaDEP
related to the environmental remediation at a site in Pennsylvania which
continues to be owned although the related business has been sold. The Company
has provided for this amount in its accrual for environmental liabilities. The
Company must present an environmental cleanup plan for a portion of the site
following the execution of the PaDEP agreement, which is in the form of a
Consent Order and agreement. A Second Consent Order is contemplated by December
1, 2000 for another portion of the site, and a third Consent Order for the
remainder of the site is contemplated by October 1, 2002. The Company is also in
the process of finalizing the documentation of an agreed settlement with the
Federal government under which the government will pay 50% of the environmental
response costs associated with a portion of the site. At March 31, 1999 the
Company's cleanup reserve was $ 1.5 million based on the net present value of
future expected cleanup costs. In addition, the Company settled for a recovery
of a portion of cleanup costs with its insurance carriers for approximately $5.1
million (net) which is included in Other income-net. The Company expects that
remediation at the Pennsylvania site will not be completed for several years.
The Company also continues to participate in environmental assessments and
remediation work at ten other locations, which include operating facilities,
facilities for sale, and previously owned facilities. The Company estimates that
its potential cost for implementing corrective action at these sites will not
exceed $0.2 million payable over the next several years, and has provided for
the estimated costs in its accrual for environmental liabilities.
In addition, the Company has been named as a potentially responsible party in
seven environmental proceedings pending in several other states in which it is
alleged that the Company was a generator of waste that was sent to landfills and
other treatment facilities and, as to several sites, it is alleged that the
Company was an owner or operator. Such properties generally relate to
businesses, which have been sold or discontinued. It is not possible to reliably
estimate the costs associated with any remedial work to be performed until
studies at these sites have been completed, the scope of work defined, a method
of remediation selected and approved by the relevant state authorities, and the
costs allocated among the potentially responsible parties.
Litigation- The Company is also engaged in various other legal proceedings
incidental to its business. It is the opinion of management that, after taking
into consideration information furnished by its counsel, the above matters will
have no material effect on the Company's consolidated financial position or the
results of the Company's operations in future periods.
1999 ANNUAL REPORT 29
32
Board of Directors and
Corporate Officers
[PHOTO OMITTED]
Board of Directors
From left to right:
James A. Lawrence, John H. Dalton, Walter Belleville, Michel Glouchevitch,
Thomas V. Chema, William J. Recker and Michael J. Berthelot
(not pictured, Gideon Argov)
[PHOTO OMITTED]
Corporate Officers
From left to right:
Robert L.G. White,
President Aerospace Products Group;
Gerald C. Harvey,
VP, Secretary and General Counsel;
Ulf Jemsby,
President International Industrial Products Group;
Joseph F. Spanier,
VP, CFO and Treasurer;
Monica Aguirre,
Assistant Secretary;
Michael J. Berthelot,
Chairman, President and CEO;
Robert Tunno,
President Domestic Industrial Products Group
30 TRANSTECHNOLOGY CORPORATION
33
DIRECTORS
* Gideon Argov
Chairman of the Board, President and Chief Executive Officer
Kollmorgen Corporation
*+ Walter Belleville
Chairman of the Board
ATI Machinery, Inc.
@ Michael J. Berthelot
Chairman of the Board, President and Chief Executive Officer
TransTechnology Corporation
@+ Thomas V. Chema
Partner
Arter & Hadden
John H. Dalton
Former Secretary of the Navy
+@ Michel Glouchevitch
Managing Director
Triumph Capital Group
*+ James A. Lawrence
Executive Vice President and Chief Financial Officer
General Mills, Inc.
William J. Recker
Chairman of the Board
Gretag Imaging Group Inc.
* Audit Committee
@ Nominating Committee
+ Incentives & Compensation Committee
CORPORATE OFFICERS
Michael J. Berthelot
Chairman of the Board, President and Chief Executive Officer
Joseph F. Spanier
Vice President, Chief Financial Officer and Treasurer
Gerald C. Harvey
Vice President, Secretary and General Counsel
Robert L. G. White
President Aerospace Products Group
Robert Tunno
President Domestic Industrial Products Group
Ulf Jemsby
President International Industrial Products Group
Monica Aguirre
Assistant Secretary
COUNSEL
Hahn, Loeser & Parks
Cleveland, Ohio
AUDITORS
Deloitte & Touche LLP
Parsippany, New Jersey
TRANSFER AGENT AND REGISTRAR
Boston EquiServe, L.P.
Canton, Massachusetts
OPERATIONAL GROUPS
Domestic Industrial Products Group
Aerospace Rivet Manufacturers Corporation (ARM)
Solid rivets and threaded fasteners
17425 Railroad Street
City of Industry, CA 91744-1026
626/646-2150
Fax 626/646-2166
www.aerospacefasteners.com
Michael Rott - President
Breeze Industrial Products
Gear-driven band fasteners
100 Aero-Seal Drive
Saltsburg, PA 15681-9594
724/639-3571
Fax 724/639-3020
www.breezeclamps.com
Thomas G. Watson - President
Pebra Products Division
Gear-driven band fasteners
Werk 4, Hauptstra(beta)e 2/1
78628 Frittlingen, Germany
49/7426 949 20
Fax 49/7426 949 224
The Palnut Company
Single and multi-thread fasteners
152 Glen Road
Mountainside, NJ 07092-2997
908/233-3300
Fax 908/233-6566
www.palnut.com
Stanley E. Erman - President
TCR Corporation
Cold forged and machined products
1600 67th Avenue North
Minneapolis, MN 55430-1755
612/560-2200
Fax 612/561-0949
John Funk - President
Waldes/Industrial Retaining Ring (IRR)
Multi-sized retaining rings and assembly tools
70 East Willow Street
Millburn, NJ 07041-9998
973/376-3892
Fax 973/926-4699
www.waldes.com
Peter J. Lowe - President
34
International Industrial Products Group
Seeger-Orbis GmbH
Retaining rings and circlips
Wiesbadener Stra(beta)e 243
D-61462 Konigstein, Germany
49/6174 2050
Fax 49/6174 205 100
www.smueller@seeger-orbis.de
Sven-Uwe Wolber - Managing Director
Anderton International Ltd.
Retaining rings and circlips
Ferncliffe Road
Bingley, West Yorkshire
England BD16 2PL
44/1274 782 200
Fax 44/1274 771 900
Daran Brown - Managing Director
TransTechnology Brasil Ltda.
Retaining rings and circlips
Av. Prestes Maia 230
Diadema, Sao Paulo
Brazil 09930-270
55/11 713 3133
Fax: 55/11 713 4412
www.seegerreno.com.br
Serge Zerey - Managing Director
Aerospace Products Group
Breeze-Eastern
Lifting and restraint products
700 Liberty Avenue
Union, NJ 07083-8198
908/686-4000
Fax 908/686-9292
www.breeze-eastern.com
Robert L. G. White - President
Norco, Inc.
Hold open rods and mechanical systems
139 Ethan Allen Highway
Ridgefield, CT 06877-6294
203/544-8301
Fax: 203/544-7121
www.norcoinc.com
Surin M. Malhotra - President
35
Investor Relations Contact
Michael J. Berthelot
Chairman of the Board, President
and Chief Executive Officer
TransTechnology Corporation
150 Allen Road
Liberty Corner, New Jersey 07938
908/903-1600
Fax 908/903-1616
www.transtechnology.com
Annual Meeting
The Annual Shareholders'
Meeting will be held on Thursday, July 15, 1999 at the Somerset Hills Hotel 200
Liberty Corner Road Warren, New Jersey 07059
Form 10-K and
Additional Information
The Company, upon request to the Investor Relations department, will provide to
any shareholder a copy of the Form 10-K required to be filed with the Securities
and Exchange Commission and any other available information.
36
[LOGO]TransTechnology
corporation
engineered products for global partners(TM)
150 Allen Road
Liberty Corner, New Jersey 07938
908 / 903-1600
Fax 908 / 903-1616
www.transtechnology.com