UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-10723
BOLT TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of 06-0773922
incorporation or organization) (I.R.S. Employer
Identification No.)
FOUR DUKE PLACE, NORWALK, CONNECTICUT 06854
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 853-0700
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At January 19, 1998 there were 5,214,478 shares of common stock, without par
value, outstanding.
(1)
BOLT TECHNOLOGY CORPORATION
---------------------------
INDEX
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Page Number
___________
Part I - Financial Information:
Consolidated statements of income - three and
six months ended December 31, 1997 and 1996 3
Consolidated balance sheets -
December 31, 1997 and June 30, 1997 4
Consolidated statements of cash flows -
six months ended December 31, 1997 and 1996 5
Notes to consolidated financial statements 6-8
Management's discussion and analysis of financial
condition and results of operations 9-11
Part II - Other Information:
Item 4 - Submission of Matters to a Vote of
Security Holders 11
Item 6 - Exhibits and reports on Form 8-K 11-12
Signatures 12
(2)
PART I - FINANCIAL INFORMATION
BOLT TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
_____________________________________
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -------------------
1997 1996 1997 1996
---------- ---------- ---------- --------
REVENUES:
Sales.................... 3,745,000 $2,220,000 $6,392,000 $4,378,000
Service.................. 5,000 133,000 15,000 293,000
--------- ---------- ---------- ----------
3,750,000 2,353,000 6,407,000 4,671,000
--------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales............ 2,106,000 1,125,000 3,410,000 2,251,000
Cost of service.......... 35,000 177,000 80,000 345,000
Research and development. 51,000 40,000 106,000 72,000
Selling, general and
administrative.......... 722,000 552,000 1,399,000 1,160,000
Interest income, net..... (48,000) (13,000) (82,000) (22,000)
--------- ---------- ---------- ----------
2,866,000 1,881,000 4,913,000 3,806,000
--------- ---------- ---------- ---------
Income before income taxes 884,000 472,000 1,494,000 865,000
Benefit for income taxes 100,000 - 358,000 -
--------- ---------- ---------- ----------
Net income.............. $ 984,000 $ 472,000 $1,852,000 $865,000
========== ========== ========== ========
Earnings per share:
Basic.................... $0.19 $0.09 $ 0.36 $0.17
Diluted.................. $0.19 $0.09 $ 0.36 $0.17
Shares Outstanding:
Basic.................... 5,077,920 4,972,066 5,076,853 4,971,748
Diluted.................. 5,219,603 5,180,678 5,213,150 5,165,392
See Notes to Consolidated Financial Statements.
(3)
BOLT TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
December 31, June 30,
1997 1997
(unaudited)
----------- ----------
Current Assets:
Cash and cash equivalents...... $4,883,000 $2,628,000
Accounts receivable, net....... 2,497,000 2,266,000
Inventories.................... 1,791,000 1,886,000
Other.......................... 1,148,000 712,000
---------- ----------
Total current assets............. 10,319,000 7,492,000
__________ __________
Property and Equipment, net...... 129,000 127,000
__________ __________
Deferred Income Taxes............ 722,000 680,000
Other Assets..................... 22,000 22,000
__________ __________
$11,192,000 $8,321,000
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable............... $1,094,000 $ 449,000
Accrued liabilities............ 1,231,000 861,000
---------- -----------
Total current liabilities..... 2,325,000 1,310,000
---------- -----------
Stockholders' Equity:
Common stock,without par value.. 24,682,000 24,678,000
Accumulated deficit............. (15,815,000) (17,667,000)
----------- -----------
Total stockholders' equity... 8,867,000 7,011,000
----------- -----------
$11,192,000 $8,321,000
=========== ===========
See Notes to Consolidated Financial Statements.
(4)
BOLT TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-------------------------------------
Six Months Ended
December 31,
--------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $1,852,000 $865,000
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation........................... 20,000 28,000
Deferred income taxes.................. (450,000) (50,000)
---------- ------
1,422,000 843,000
Change in Operating Assets and Liabilities
Accounts receivable.................... (231,000) 176,000
Inventories............................ 95,000 (312,000)
Other assets........................... (28,000) (8,000)
Accounts payable and accrued liabilities 1,015,000 (350,000)
---------- -------
Net cash provided by operating activities.. 2,273,000 349,000
---------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (22,000) (70,000)
---------- -------
Net cash used in investing activities.. (22,000) (70,000)
---------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options................ 4,000 3,000
---------- -----
Net cash provided by financing activities 4,000 3,000
---------- -----
Net increase in cash and cash equivalents.......... $2,255,000 $282,000
========== ========
Supplemental disclosure of cash flow information:
Interest paid...................................... $ - $ 12,000
Income taxes paid.................................. $ 128,000 $ 62,000
See Notes to Consolidated Financial Statements.
(5)
BOLT TECHNOLOGY CORPORATION
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
(UNAUDITED)
-----------
NOTE-1- BASIS OF PRESENTATION
- -----------------------------
The consolidated balance sheet as of December 31, 1997, the consolidated
statements of income for the three-month and six-month periods ended December
31, 1997 and 1996 and the consolidated statements of cash flows for the six-
month periods ended December 31, 1997 and 1996 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative of results for a
full year. It is suggested that the December 31, 1997 consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1997.
Effective for the period ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128," Earnings per Share". This
standard specifies, among other things, the presentation of basic and diluted
earnings per share data on the face of the income statement. As required by the
statement, prior period earnings per share data has been restated to conform
with the provisions of the statement. The effect of adoption of this standard
did not have a material effect.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (FAS 131), "Disclosures about Segments of
an Enterprise and Related Information", which will be effective July 1, 1998.
FAS 131 requires disclosure of certain financial and descriptive information
about operating segments. Based upon current circumstances, the Company
anticipates that upon adoption of FAS 131 and the acquisition of Custom Products
Corporation (See Note 2), it will now report two operating segments: (l)
geophysical equipment and (2) industrial products.
NOTE 2 - CUSTOM PRODUCTS CORPORATION ACQUISITION
- ------------------------------------------------
On January 6, 1998 the Company completed the acquisition of Custom Products
Corporation ("Custom") pursuant to the terms of an asset purchase agreement.
Custom is a manufacturer of miniature precision mechanical and pneumatic slip
clutches sold under the "Polyclutch" tradename.
The purchase price of the Custom's assets acquired included (i) $4,971,000
in cash; (ii) 135,000 shares of common stock valued at $881,000 and (iii)
contingent cash payments. Such payments could total $4,000,000 and are
dependent on the annual increases in the net sales of Custom for the period
January 1, 1998 to December 31, 2003.
(6)
BOLT TECHNOLOGY CORPORATION
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
-----------
NOTE 2 - CUSTOM PRODUCTS CORPORATION ACQUISITION (CONT'D.)
- -------------------------------------------------
The transaction will be accounted for by the purchase method of accounting
and, accordingly, the operations of Custom will be included in the consolidated
results of operations from the date of closing.
The principal tangible assets related to the operation of Custom include
(i) cash; (ii) accounts receivable; (iii) machinery and equipment and (iv) a
lease for property located in North Haven, Connecticut. The liabilities assumed
include (i) accounts payable; (ii) certain accrued liabilities and (iii) a note
payable.
NOTE 3 - LONG-TERM DEBT
- -----------------------
In connection with the Custom Products acquisition in January 1998, the
Company established a $3,500,000 unsecured credit facility. The purpose of the
credit facility is to fund the Custom Products acquisition and to support
working capital requirements. The loan matures in January 2003. Maximum
borrowings under the agreement decrease by $500,000 on each anniversary of the
agreement. Loans under the agreement bear interest at the prime rate.
The credit facility contains certain covenants which include: (i)
prohibition of additional indebtedness; (ii) minimum tangible net worth of
$3,000,000 which increases by 50% of the Company's net income each year; (iii) a
ratio of total liabilities to tangible net worth of no less than 1.25 to 1; (iv)
a ratio of minimum debt service of no less than 2 to 1 and (v) no two
consecutive quarterly losses.
On January 5, 1998, the Company borrowed $800,000 under the above agreement
in connection with the acquisition of Custom Products Corporation.
NOTE 4 - INCOME TAXES
- ---------------------
At December 31, 1997, the Company had net operating loss carry-forwards of
approximately $13,264,000 which expire in the years 2002 through 2007.
Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for
Income Taxes", requires that the tax benefit of net operating loss ("nol")
carry-forwards be recorded as an asset to the extent that management assesses
the utilization of such nol carry-forwards to be "more likely than not". During
fiscal 1998, the Company continued its quarterly assessment of the realization
of its deferred tax assets based on its past earnings history and trends,
current sales backlog, its dependence on a few customers for a significant
portion of revenue and the cyclical nature of the seismic exploration industry
and concluded that future taxable income would increase over amounts previously
estimated. Therefore, it was more likely than not that additional reserved tax
assets would be realized in the future. As a result of this assessment in the
first six months of fiscal 1998, the Company reduced the valuation allowance
related to these tax assets by $450,000.
The amount of the net deferred tax asset recorded could be reduced if
estimates of future taxable income during the carry-forward period are reduced.
At December 31, 1997 and June 30, 1997, current deferred tax assets of
$1,060,000 and $610,000, respectively, were included in the consolidated balance
sheets under the caption "Other current assets".
(7)
BOLT TECHNOLOGY CORPORATION
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(CONTINUED)
-----------
NOTE 4 - INCOME TAXES (CONT'D.)
- ---------------------
Components of income tax (benefit) expense for the six months ended
December 31, 1997 and 1996 follow:
December 31, December 31,
1997 1996
------------- -------------
Current:
State......................................................... $ 92,000 $ 50,000
---------- ------------
Deferred:
Federal....................................................... (450,000) (50,000)
---------- ------------
Income tax benefit............................................. $ (358,000) $ -
========== ============
NOTE 5 - INVENTORIES
- --------------------
Inventories, net of reserves, are comprised of the following:
December 31, June 30,
1997 1997
---------- -----------
Raw materials and sub-assemblies.............................. $1,553,000 $1,665,000
Work-in process............................................... 238,000 221,000
---------- ------------
$1,791,000 $1,886,000
========== ============
NOTE 6 - PROPERTY AND EQUIPMENT
- --------------------------------
Property and equipment are comprised of the following:
December 31, June 30,
1997 1997
------------- ------------
Building and leasehold improvements.................................. $ 534,000 $ 534,000
Geophysical equipment................................................ 2,490,000 2,566,000
Machinery and equipment.............................................. 4,135,000 4,113,000
Equipment held for rental............................................ 822,000 822,000
----------- -----------
7,981,000 8,035,000
Less accumulated depreciation................................ (7,852,000) (7,908,000)
----------- -----------
$129,000 $ 127,000
=========== ===========
(8)
BOLT TECHNOLOGY CORPORATION
---------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------------
Certain statements contained herein and elsewhere may be deemed to be
forward-looking within the meaning of The Private Securities Litigation Reform
Act of 1995 and are subject to the "safe harbor" provisions of that act,
including without limitation, statements concerning future sales, earnings,
costs, expenses, asset recoveries, working capital, capital expenditures,
financial condition, and other results of operations. Such statements involve
risks and uncertainties. Actual results could differ materially from the
expectations expressed in such forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Current cash and cash equivalents balances, existing borrowing capacity and
projected cash flow from operations are currently in excess of foreseeable
operating cash flow requirements. Cash flow from operating activities before
changes in working capital items amounted to $1,422,000 for the six months ended
December 31, 1997. Cash flow from operating activities after changes in working
capital was $2,273,000. The significant working capital changes over the six-
month period was a $645,000 increase in accounts payable because of purchases
incurred in the second quarter of fiscal 1998 for a large air gun system sale
which was delivered in December 1997 and a $370,000 increase in accrued
liabilities because of an advance payment received.
In connection with the Custom Products acquisition in January 1998 (See
Note 2), the Company established a $3,500,000 unsecured credit factility. The
purpose of the credit facility is to fund the Custom Products acquisition and to
support working capital requirements. The loan matures in January 2003. Maximum
borrowings under the agreement decrease by $500,000 on each anniversary of the
agreement. Loans under the agreement bear interest at the prime rate.
The credit facility contains certain covenants which include: (i)
prohibition of additional indebtedness; (ii) minimum tangible net worth of
$3,000,000 which increases by 50% of the Company's net income each year; (iii) a
ratio of total liabilities to tangible net worth of no less than 1.25 to 1; (iv)
a ratio of maximum debt service of no less than 2 to 1 and (v) no two
consecutive quarterly losses. On January 5, 1998, the Company borrowed $800,000
under the above agreement in connection with the acquisition of Custom Products
Corporation.
Net property and equipment additions totaled $22,000 for the six months
ended December 31, 1997. The Company does not anticipate capital expenditures
will exceed $125,000 for fiscal 1998. These expenditures will be funded from
operating cash flow.
The Company is the owner, through a joint venture, of a one-half interest
in its administrative and engineering building. The joint venture agreement
terminated in July 1997. Under the terms of the agreement, the Company has the
option to purchase the one-half interest owned by its joint venture partner for
$300,000. The Company is currently exploring various alternatives with its joint
venture partner including the exercise of the option.
(9)
BOLT TECHNOLOGY CORPORATION
---------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
---------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONT'D.)
- -------------------------------
Under the terms of the asset purchase agreement for the acquisition of
Custom Products Corporation, the Company is required to make additional payments
to the former owners of Custom Products in the amount of $800,000 each year
through January 2003 if net sales of Custom Products increase to certain
specified levels. The Company expects to be able to make these payments, if
required, from operating cash flow.
RESULTS OF OPERATIONS
- ---------------------
Total revenue increased 59% for the second quarter and 37% for the first
six months of fiscal 1998. The second quarter and six month period reflect
significant growth in marine equipment sales which increased 70% and 48%,
respectively. The Company's customers have continued to expand their fleets of
seismic vessels to meet the increased demand for seismic data for oilfield
exploration, development and reservoir production monitoring.
The Company has significantly reduced its Wellseis(R) service operations.
The Company expects to record little, if any, service revenue for the remainder
of the fiscal year. Since the fair value of the Company's geophysical equipment
is higher than the carrying value, no impairment loss is required nor is any
other provision necessary because of the reduced service operations.
Cost of sales as a percentage of sales increased from 51% to 56% for the
second quarter and from 51% to 53% for the six month period. The factors that
increased the cost of sales percentage for both periods was the favorable effect
of $70,000 of royalty income recorded in last year's second quarter which had no
cost and the higher cost associated with a large air gun system shipped in this
year's second quarter. This system required significant purchased items which
had lower margins.
Cost of service decreased $142,000 for the quarter and $265,000 for the six
month period due to the reduction in service operations discussed above. The
major expense components were salary, benefits and occupancy costs.
Research and development costs increased $11,000 for the quarter and
$34,000 for the six month period. The increase costs were the result of
continued efforts to develop new marine seismic energy sources.
Selling, general and administrative costs increased $170,000 for the
quarter and $239,000 for the first six months. The higher level of cost in the
second quarter was caused by $101,000 increase in incentive compensation and a
$39,000 increase in travel costs assocated with foreign sales. The increase in
costs for the six month period was due to a $165,000 increase in incentive
compensation and $52,000 in foreign travel expenses.
Interest income, net increased $35,000 for the second quarter and $60,000
for the six month period due to the higher level of short-term investments in
fiscal 1998.
(10)
BOLT TECHNOLOGY CORPORATION
---------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
RESULTS OF OPERATIONS (CONT'D.)
- ---------------------
Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting
for Income Taxes", requires that the tax benefit of net operating loss ("nol")
carry-forwards be recorded as an asset to the extent that management assesses
the utilization of such nol carry-forwards to be "more likely than not".
During fiscal 1998, the Company continued its quarterly assessment of the
realization of its deferred tax assets based on its past earnings history and
trends, current sales backlog, its dependence on a few customers for a
significant portion of revenue and the cyclical nature of the seismic
exploration industry and concluded that future taxable income would increase
over amounts previously estimated. Therefore, it was more likely than not that
additional reserved tax assets would be realized in the future. As a result, in
the first six months of fiscal 1998, the Company reduced the valuation allowance
related to these tax assets by $450,000. See Note 4 for additional information
regarding income taxes.
Effective for the period ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share". This
standard specifies, among other things, the presentation of basic and diluted
earnings per share data on the face of the income statement. As required by the
statement, prior period earnings per share data has been restated to conform
with the provisions of the statement. The effect of adoption of this standard
did not have a material effect.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (FAS 131), "Disclosures about Segments of
an Enterprise and Related Information", which will be effective July 1, 1998.
FAS 131 requires disclosure of certain financial and descriptive information
about operating segments. Based upon current circumstances, the Company
anticipates that upon adoption of FAS 131 and the acquisition of Custom Products
Corporation (See Note 2), it will now report two operating segments: (1)
geophysical equipment and (2) industrial products.
PART II - OTHER INFORMATION
---------------------------
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The 1997 Annual Meeting of Stockholders of the Company was held on November
25, 1997 for the following purposes: (i) the election of two directors, each for
a three year term expiring in 2000 and (ii) the approval of the Amended and
Restated 1993 Stock Option Plan.
The vote tabulation in the election of directors was as follows: Stephen
Chelminski received 3,933,935 affirmative votes with 7,970 votes withheld;
Raymond M. Soto received 3,933,935 affirmative votes with 7,970 withheld.
The vote tabulation regarding the proposed amendments to the 1993 Stock
Option Plan was 2,038,601 affirmative votes with 300,959 votes against.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits.
--------
(11) Statement re computation of earnings per share.
(27) Financial data schedule, which is submitted electronically to
the Securities and Exchange
Commission for information only and not filed.
(11)
PART II - OTHER INFORMATION (CONTINUED)
---------------------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (CONT'D.)
- -----------------------------------------
(b) Reports on Form 8-K.
-------------------
The Company filed a Current Report on Form 8-K dated January 14, 1998
with the Securities and Exchange Commission with respect to the
acquisition of Custom Products Corporation. Items reported were Item
2. - "Acquisition or Disposition of Assets" and Item 7. -"Financial
Statements and Exhibits".
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Raymond M. Soto
---------------------------
Chairman and President
(Principal Executive Officer and
Principal Financial Officer)
/s/ Alan Levy
----------------------------------
Vice President-Finance
Secretary and Treasurer
(Principal Accounting Officer)
January 29, 1998
(12)