1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-3905
TRANSMATION, INC.
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(Exact name of registrant as specified in its charter)
OHIO 16-0874418
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 VANTAGE POINT DRIVE, ROCHESTER, NY 14624
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 716-352-7777
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark [X] whether the registrant, (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS NUMBER OF SHARES OUTSTANDING DATE
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Common 2,649,322 November 5, 1996
TOTAL PAGES - 22
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PART I
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FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
Sept. 30, March 31,
ASSETS: 1996 1996
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Current Assets:
Cash $ 35,536 $ 204,046
Accounts Receivable, less allowance
for doubtful accounts of $529,000 at
September 30, 1996, and $436,000 at
March 31, 1996 5,528,678 5,320,996
Inventories 7,253,299 6,491,127
Prepaid Expenses and Deferred Charges 1,223,936 947,209
Deferred Tax Assets 416,200 310,294
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Current Assets 14,457,649 13,273,672
Properties, at cost, less accumulated
depreciation 2,124,021 1,976,679
Deferred Charges 223,139 172,713
Deferred Income Taxes 72,955 54,366
Other Assets 260,495 224,297
Goodwill 6,130,611
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$ 23,268,870 $ 15,701,727
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Notes Payable $ 1,700,000
Accounts Payable 2,824,942 $3,049,880
Accrued Payrolls, Commissions & Other 1,394,797 1,345,499
Income Taxes Payable 390,940 410,566
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Current Liabilities 6,310,679 4,805,945
Long-Term Debt 5,498,800 2,050,800
Deferred Compensation 637,344 682,593
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12,446,823 7,539,338
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Stockholders' Equity:
Common Stock, par value $.50 per share -
Authorized - 15,000,000 shares - issued
and outstanding - 2,649,322 at Sept. 30,
1996, and 2,451,946 at March 31, 1996 .. 1,324,661 1,225,973
Capital in Excess of Par Value 1,857,885 1,124,583
Stock payable former Altek Owners 1,225,000
Accumulated Translation Adjustment (110,807) (93,819)
Retained Earnings 6,525,308 5,905,652
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10,822,047 8,162,389
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$ 23,268,870 $ 15,701,727
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TRANSMATION, INC.
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CONSOLIDATED STATEMENT OF INCOME
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UNAUDITED
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Three Months Ended Six Months Ended
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Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
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Net Sales $11,211,991 $9,100,252 $22,259,608 $18,666,749
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Costs and Expenses:
Cost of Product Sold 6,804,455 5,726,831 13,537,911 11,760,795
Selling & Admin. Expenses 3,292,452 2,682,226 6,513,580 5,483,910
Research & Develop. Costs 391,592 261,187 786,990 529,112
Interest Expense 159,775 106,899 312,236 218,998
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10,648,274 8,777,143 21,150,717 17,992,815
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Income Before Taxes 563,717 323,109 1,108,891 637,934
Provision for Income Taxes
State and Federal 247,935 134,525 489,235 282,525
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Net Income 315,782 188,584 619,656 391,409
Retained Earnings at
Beginning of Period 6,209,526 4,873,754 5,905,652 4,670,929
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Retained Earnings at
End of Period $6,525,308 $5,062,338 $6,525,308 $5,062,338
============================= =============================
Net Income Per Share $.11 $.07 $.22 $.15
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
Three Months Ended Six Months Ended
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7/1/96 - 7/1/95 - 4/1/96 - 4/1/95 -
9/30/96 9/30/95 9/30/96 9/30/95
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Cash Flows from Operating Activities
Net Income $ 315,782 $ 188,584 $ 619,656 $ 391,409
Items Not Requiring (Providing) Cash
Included in Income
Depreciation and Amortization 252,778 108,024 489,064 207,748
Provision for Losses on Accounts Receivable .. 44,000 26,700 93,000 55,200
Other Assets 9,294 (8,577) 9,403 (8,577)
(Increase)Decrease in Accounts Receivable 664,701 (186,472) 343,964 510,837
Decrease(Increase) in Inventories (138,102) 240,355 79,397 238,565
Decrease(Increase) in Prepaid Expenses &
Deferred Charges (587,286) 130,825 (327,083) 8,199
Increase(Decrease) in Accounts Payable 54,109 (660,501) (650,422) (1,576,556)
Increase(Decrease) in Accrued Payrolls, Commiss
and Other Liabilities 36,648 (73,410) (276,851) (246,978)
Increase(Decrease) in Income Taxes Payable 62,143 162,560 (19,626) 262,339
(Decrease) in Deferred Compensation (22,327) (22,327) (45,249) (43,463)
Increase in Deferred Income Taxes 2,787 3,102
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Net Cash Provided(used) by Operating Activities 691,740 (91,452) 315,253 (198,175)
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Cash Flows from Investing Activities:
Purchase of Altek Industries Corp 4,405 (6,723,888)
Purchases of Properties (109,667) (191,969) (170,094) (285,051)
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Net Cash (used in) Investing Activities (105,262) (191,969) (6,893,982) (285,051)
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Cash Flows from Financing Activities:
Increase in Notes Payable 1,700,000
Exercise of Stock Options, Warrants & Stk Purchases 111,086 74,250 219,490 162,617
Stock Issued - Altek Purchase 612,500
Increase(Decrease) in Long-Term Debt (879,349) 119,100 2,669,459 (24,626)
Stock Payable - Former Altek Owners 1,225,000
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Net Cash Provided by(used in) Financing Activities (768,263) 193,350 6,426,449 137,991
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Effect of Exchange Rate Changes on Cash 379 26,383 (16,230) 32,020
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Net (Decrease) in Cash (181,406) (63,688) (168,510) (313,215)
Cash at Beginning of Period 216,942 358,236 204,046 607,763
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Cash at End of Period $ 35,536 $ 294,548 $ 35,536 $ 294,548
=========== =========== =========== ===========
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $ 63,679 $ 104,634 $ 231,022 $ 210,591
Taxes Paid $ 164,055 $ 35,922 $ 469,245 $ 167,865
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Number of
Shares of $.50
Par Value Common Stock Capital
Common Stock Issued and in Excess of Retained
Outstanding Outstanding Par Value Earnings
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Balance, March 31, 1994 2,374,240 $1,187,120 $ 835,029 $4,289,144
Issuance of Stock 6,400 3,200 14,800
Net Income 381,785
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Balance, March 31, 1995 2,380,640 1,190,320 849,829 4,670,929
Issuance of Stock 71,306 35,653 274,754
Net Income 1,234,723
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Balance, March 31, 1996 2,451,946 1,225,973 1,124,583 5,905,652
Issuance of Stock 197,376 98,688 733,302
Net Income 619,656
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Balance, Sept. 30, 1996 2,649,322 $1,324,661 $1,857,885 $6,525,308
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - REVOLVING CREDIT AGREEMENT
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Borrowings under a secured revolving credit agreement with a bank which extends
through July 31, 1998 total $4,098,800 at September 30, 1996.
Maximum funds available under this credit agreement total $7,000,000. The
interest rate is the bank's prime lending rate or may be fixed for up to a
90-day period.
The revolving credit agreement contains, among other provisions, restrictions on
the annual amount of capital expenditures, restrictions on the annual amount of
expenditures made for the purpose of printing and distributing catalogs and
requirements for minimum amounts of tangible net worth.
Additionally, the company has pledged its personal property and fixtures,
including inventory and equipment, and its accounts receivable as collateral
security for the loan. Further, the company has agreed to pay to the lender an
amount equal to 1/4% of the unused portion of the total credit available. The
fee is payable quarterly. Total commitment fees paid on any unused lines of
credit under revolving credit agreements were immaterial in 1996 and 1995.
The company is in compliance with provisions of its loan agreement at September
30, 1996.
NOTE 2 - INVENTORIES
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The major classifications of inventory are as follows:
Sept. 30, March 31,
1996 1996
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Raw Materials and Purchased Parts $1,578,318 $1,412,576
Work in Process 636,114 569,317
Finished Products 5,038,867 4,509,234
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$7,253,299 $6,491,127
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NOTE 3 - STOCKHOLDERS' EQUITY
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In August 1993, an incentive Stock Option plan was adopted; this plan was
amended in August 1995 and August 1996. Options are available to be granted to
employees under the 1993 Plan at prices not less than fair market value at the
date of grant and are exercisable in annual installments beginning at the date
of grant and expiring up to ten years later.
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The following table summarizes the transactions under the plans during 1996,
1995, and 1994:
Option Price
Shares Per Share Aggregate
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Balance, 3/31/94 97,300 $2.25-$4.00 236,425
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Options Granted During the Year . 163,600 4.25 695,300
Options Exercised During the Year (5,200) 2.25 (11,700)
Options Canceled During the Year (12,100) 2.25 (27,225)
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Balance, 3/31/95 243,600 2.25-4.25 892,800
Options Exercised During the Year (24,400) 2.25 (54,900)
Options Canceled During the Year (11,100) 2.25-6.25 (51,375)
Options Granted During the Year . 194,450 4.25-6.63 995,581
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Balance, 3/31/96 402,550 2.25-6.63 1,782,106
Options Exercised During the Year (43,125) 2.25-4.25 (98,281)
Options Canceled During the Year (16,700) 2.25-6.25 (134,200)
Options Granted During the Year . 60,280 6.50-8.375 401,195
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Balance, 9/30/96 403,005 $4.25-$8.375 $ 1,950,820
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100,157 shares are eligible to be exercised under the 1993 plan. The market
value of these shares at the date they first became eligible for exercise was
$7.00 per share and aggregated $701,099.
On August 21, 1984, shareholders approved the Directors' Warrant Plan. This plan
was amended by shareholders in August 1995 and August 1996. The Plan provides
that warrants may be granted thereunder to non-employee directors of Transmation
to purchase in the aggregate not more than 100,000 shares of the company's
Common Stock. The purchase price for shares issued under the Directors' Warrant
Plan shall be equal to the fair market value of the stock on the date of the
grant of the warrant. A summary of activity under the 1984 Directors' Warrant
Plan is as follows:
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Warrant
SHARES PRICE AGGREGATE
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Balance - 3/31/95 32,500 $3.00 -$3.875 110,625
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Exercised During the Year (14,500) 3.00 -3.875 (54,875)
Granted During the Year 14,000 6.500 91,000
Canceled During the Year (2,000) 3.875 (7,750)
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Balance - 3/31/96 30,000 3.00-6.50 139,000
Exercised During the Year (500) 3.00 (1,500)
Granted During the Year 12,000 8.375 100,500
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Balance - 9/30/96 41,500 $3.00-$8.375 $238,000
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On March 11, 1993, the Board of Directors granted the former President of the
company's Instrument Division a non-qualified stock option contract for the
purchase of 25,000 shares of the company's common stock at $3.00 per share, the
fair market value at the date of the grant. Upon his termination in January
1996, the former President of the company's Instrument Division exercised his
right to purchase 15,000 of such shares. The remainder of this grant was
canceled.
On August 15, 1995, the Board of Directors granted the then President of the
Company's Transcat division a non-qualified stock option contract for the
purchase of 23,950 shares of the Company's common stock at $6.25 per share, the
fair market value at the date of the grant. These shares are exercisable in
equal installments beginning at the date of the grant and expiring five years
later.
NOTE 4 - NET INCOME PER SHARE
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The net income per share amounts in 1996 and 1995 were computed by dividing the
net income by the average number of shares actually outstanding plus common
equivalent shares resulting from the assumed conversion of the dilutive stock
options and warrants. Common and common equivalent shares averaged 2,855,897 in
1996 and 2,524,377 in 1995.
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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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OPERATIONS
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Sales increases during the current fiscal year have resulted from the
acquisition of Altek in April 1996 and from sales increases for both product and
service through the Company's Transcat division. Sales in the Company's
Instrument division are below plan and organizational changes and aggressive new
product efforts have been implemented to correct that condition.
FINANCIAL CONDITION
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The Company's primary sources of liquidity and capital are funds provided
through its borrowing agreement with a bank and through management of its
balance sheet. During the quarter ended September 30, 1996 Accounts Receivable
were reduced by more than $650,000 as the result of continued emphasis on
collections. Inventories increased by approximately $138,000 and prepaid
expenses (principally catalog related costs) increased by approximately $587,000
in the second quarter largely the result of preparation for a significant
mailing of catalogs which occurred in September 1996. The Company's
profitability and cash flow from operations (including depreciation and
amortization) enabled a reduction in Long-Term Debt which totaled approximately
$879,000 in the quarter.
RESULTS OF OPERATIONS
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COMPARISON OF JULY 1, 1996 - SEPTEMBER 30, 1996
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to
JULY 1, 1995 - SEPTEMBER 30, 1995
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Sales increased to $11,211,991 from $9 100,252, an increase of 23% in the
quarter ended September 30, 1996 compared to September 30, 1995. This increase
resulted from the inclusion of Altek Industries Corp. in the Company's
operations, together with increases in sales and services in the Company's
Transcat division.
Cost of Products Sold in the quarter ended September 30, 1996 totaled 60.7% of
sales in 1996 versus 62.9% of sales in 1995. This improvement is the result of
proportionately more sales of high margin CalXpress services and from
manufactured product in 1996 resulting from the Company's acquisition of Altek
in 1996.
R & D costs in 1996 totaled 3.5% of sales compared to 3.9% of sales in 1995 and
1996, interest totaled 1.4% of sales compared to 1.2% of sales in 1995. These
changes result from Transmation's acquisition of Altek Industries Corp. in 1996.
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RESULTS OF OPERATIONS
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COMPARISON APRIL 1, 1996 - SEPTEMBER 30, 1996
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to
APRIL 1, 1995 - SEPTEMBER 30, 1995
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Sales increased 19% to $22,259,608 from $18,666,749 in the first six months
ended September 30, 1996 compared to the same period one year ago. This increase
resulted from the inclusion of Altek into the Company's operations in 1996,
together with increases in sales and services in the Company's Transcat
division.
Cost of Products Sold totaled 60.8% of sales in 1996 compared to 63% of sales in
1995. This improvement is the result of proportionately greater sales of higher
margin manufactured product sales in 1996 resulting from the Company's purchase
of Altek on April 3, 1996 and of increased sales of CalXpress services in 1996
which also command higher gross margins than do sale of products sold through
the Company's Transcat division.
R & D costs totaled 3.5% of sales in 1996 compared to 2.8% of sales in 1995, and
interest expense totaled 1.4% of sales in 1996 compared to 1.2% of sales in
1995. These changes result from Transmation's acquisition of Altek Industries
Corp. in 1996.
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PART II
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OTHER INFORMATION
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Item 2. CHANGES IN SECURITIES
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None
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.
TRANSMATION, INC.
Date NOVEMBER 7, 1996 /S/ ROBERT G. KLIMASEWSKI
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Robert G. Klimasewski
President
Date NOVEMBER 7, 1996 /S/ JOHN A. MISIASZEK
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John A. Misiaszek
Vice President, Finance
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INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
Not applicable.
(3) *(a) Articles of Incorporation
Articles of Incorporation, as amended, are incorporated herein by
reference to Exhibit 4(a) to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-61665) as filed on
August 8, 1995 and amended by Exhibit I attached hereto.
(b) By-laws
Code of Regulations, as amended, are incorporated herein by
reference to Exhibit 3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1988.
(4) Instruments defining the rights of security holders, including
indentures
(a) The documents listed under Item (3) of this Index are
incorporated herein by reference.
(b) Revolving Credit Agreement between the Registrant and
Manufacturers and Traders Trust Company is incorporated herein to
Exhibit 1 to the Registrant's Form 10-Q for the quarter ended
September 30, 1994.
(c) Agreement and Amendment No. 1 to an Existing Revolving Credit
Facility Agreement between the Registrant and Manufacturers and
Trades Trust Company dated September 8, 1995 is incorporated
herein by reference to Exhibit 1 to the Registrant's Form 10-Q
for the quarter ended September 30, 1995.
(d) Agreement and Amendment No. 2 to an Existing Revolving Credit
Facility Agreement between the Registrant and Manufacturers and
Traders Trust Company dated December 15, 1995, is incorporated
herein by reference to Exhibit 1 to Registrant's Form 10-Q for
the quarter ended December 31, 1995. Upon written request, the
Registrant will provide to security holders copies of any of the
referenced omitted exhibits.
(10) Material Contracts
(a) The documents listed under Item (4) of this Index are
incorporated herein by reference.
(b) Compensation agreements between the Registrant and William J.
Berk are incorporated herein by reference to Exhibit 10 to the
Registrant's Form 10-K for the fiscal year ended March 31, 1984,
and Exhibit 10(b) to the Registrant's Form 10-K for the fiscal
year ended March 31, 1991.
(c) Not used.
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(d) Transmation, Inc. Directors' Stock Plan is incorporated herein by
reference to Exhibit 10(i) to the Registrant's Form 10-K for the
fiscal year ended March 31, 1995 and as amended by reference to
Exhibit 10(a) of the Registrant's Form 10-K for the fiscal year
ended March 31, 1996.
(e) Employment Agreement dated as of April 1, 1995 between the
Registrant and Robert G. Klimasewski is incorporated herein by
reference to Exhibit 10(ii) to the Registrant's Form 10-K for the
fiscal year ended March 31,1995 and amended by reference to
Exhibit 10(d) of the Registrant's Form 10-K for the fiscal year
ended March 31, 1996.
*(f) Transmation, Inc. Amended and Restated Directors' Warrant Plan is
incorporated herein by reference to Exhibit 99(b) to the
Registrant's Registration Statement on Form S-8 (Registration No.
33-61665) as filed on August 8, 1995 and as amended by Exhibit II
attached hereto.
*(g) Transmation, Inc. Amended and Restated 1993 Stock Option Plan is
incorporated herein by reference to Exhibit 99(c) to the
Registrant's Registration Statement on Form S-8 (Registration No.
33-61665) as filed on August 8, 1995 and as amended by Exhibit
III and Exhibit IV attached hereto.
*(h) Transmation, Inc. Employees' Stock Purchase Plan is incorporated
herein by reference to Exhibit 99(e) to the Registrant's
Registration Statement on Form S-8 (Registration No. 33-61665)
as filed on August 8, 1995 and as amended by reference to Exhibit
10(b) of the Registrant's Form 10-K for the fiscal year ended
March 31, 1996 and as amended by Exhibit V attached hereto.
(i) Amendment No. 1 to Transmation, Inc. Directors' Stock Plan is
included herein by reference to Exhibit 10(i) to the Registrant's
Form 10-Q for the quarter ended September 30, 1995.
(j) Non-Statutory Stock Option Agreement dated August 15, 1995
between Transmation, Inc. and Eric W. McInroy is included by
reference to Exhibit 10(j) to the Registrant's Form 10- Q for the
quarter ended September 30, 1995 and as amended by reference to
Exhibit 10(c) of the Registrant's Form 10-K for the fiscal year
ended March 31, 1996.
(11) Statement re computation of per share earnings
Computation can be clearly determined from Note 4 to the financial
statements filed with Item 1.
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(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security
holders
Not applicable.
(23) Consents of experts and counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
Financial Data Schedule
(99) Additional Exhibits
Not applicable.
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* Exhibit filed with this Report
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