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 SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from _____________________to _________________________
Commission file number 0-3905
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TRANSMATION, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 16-0874418
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Vantage Point Drive, Rochester, NY 14624
- ----------------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 716-352-7777
-----------------------------
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
- ----- ---------------------------- ----
Common 5,885,402 September 30, 1998
TOTAL PAGES - ____
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Part I
FINANCIAL INFORMATION
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Item 1. Financial Statements
- ------- --------------------
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
Unaudited
Sept. 30, March 31,
ASSETS: 1998 1998
----------------- -----------------
Current Assets:
Cash $630,557 $652,664
Accounts Receivable, less allowance
for doubtful accounts of $527,000 at 9/30/98
and $592,000 at 3/31/98 10,698,073 12,540,347
Inventories 10,607,766 10,675,829
Prepaid Expenses and Deferred Charges 1,342,668 1,344,799
Deferred Tax Assets 544,338 540,172
----------------- -----------------
Current Assets 23,823,402 25,753,811
Properties, at cost, less accumulated
Depreciation 6,177,780 6,405,053
Goodwill, less accum. Amortization of $1,853,366 at
9/30/98 and $1,320,500 at 3/31/98 18,667,082 19,199,947
Deferred Charges 203,984 204,308
Deferred Income Taxes 59,034 58,582
Other Assets 262,798 253,513
----------------- -----------------
$49,194,080 $51,875,214
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Notes Payable $2,500,000
Current Portion of Long Term Debt $2,000,000 2,856,000
Accounts Payable 5,536,173 7,861,779
Accrued Payrolls, Commissions & Other 1,846,077 2,174,389
Income Taxes Payable 217,735 234,984
----------------- -----------------
Current Liabilities 9,599,985 15,627,152
Long-Term Debt 24,432,200 21,752,922
Deferred Compensation 474,532 509,981
----------------- -----------------
34,506,717 37,890,055
----------------- -----------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common Stock, par value $.50 per share
Authorized - 15,000,000 shares - issued
and outstanding - 5,885,402 at 9/30/98,
5,830,942 at 3/31/98 (including 2,853,692
shares issued on 7/22/97) 2,942,701 2,915,471
Capital in Excess of Par Value 2,433,372 2,227,117
Accumulated Translation Adjustment (226,730) (120,788)
Retained Earnings 9,538,020 8,963,359
----------------- -----------------
14,687,363 13,985,159
----------------- -----------------
$49,194,080 $51,875,214
================= =================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
7/1 - 7/1 - 4/1 - 4/1 -
9/30/98 9/30/97 9/30/98 9/30/97
-------------------------------- -------------------------------
Net Sales $16,338,809 $19,612,705 $34,298,118 $38,725,787
-------------------------------- -------------------------------
Costs and Expenses:
Cost of Product Sold 10,789,275 13,380,360 22,616,720 26,456,181
Selling & Admin. Expenses 4,105,171 4,686,378 8,734,246 9,352,112
Research & Develop. Costs 421,635 416,958 855,956 816,365
Interest Expense 556,625 703,506 1,147,035 1,291,804
-------------------------------- -------------------------------
15,872,706 19,187,202 33,353,957 37,916,462
-------------------------------- -------------------------------
Income Before Taxes 466,103 425,503 944,161 809,325
Provision for Income Taxes
State and Federal 181,000 160,750 369,500 302,950
-------------------------------- -------------------------------
Net Income 285,103 264,753 574,661 506,375
Retained Earnings at
Beginning of Period 9,252,917 8,207,010 8,963,359 7,965,388
-------------------------------- -------------------------------
Retained Earnings at
End of Period $9,538,020 $8,471,763 $9,538,020 $8,471,763
================================ ===============================
Net Income Per Share-Basic $0.05 $0.05 $0.10 $0.09
================================ ===============================
Net Income Per Share-Diluted $0.05 $0.04 $0.09 $0.08
================================ ===============================
See Notes to Consolidated Financial Statements
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
Three Months Ended Six Months Ended
-------------------------- ------------------------------
7/1/98 - 7/1/97 - 4/1/98 - 4/1/97 -
9/30/98 9/30/97 9/30/98 9/30/97
-------------------------- ------------------------------
Cash Flows from Operating Activities
Net Income $285,103 $264,753 $574,661 $506,375
Items Not Requiring (Providing) Cash
Included in Income
Depreciation and Amortization 704,272 710,674 1,438,105 1,386,479
Provision for Losses on Accounts Receivable (14,000) 26,000 (65,000) (40,900)
Other Assets (9,285) (9,067) (9,285) 289,877
(Increase)Decrease in Accounts Receivable 235,701 (541,679) 1,907,274 (881,235)
Decrease(Increase) in Inventories 353,003 (7,405) 68,063 (1,009,940)
Decrease(Increase) in Prepaid Expenses
& Deferred Charges 20,994 (792,952) 2,455 (838,474)
(Decrease)Increase in Accounts Payable (1,066,876) (619,511) (2,325,606) (1,543,289)
Increase(Decrease) in Accrued Payrolls, Commissions
and Other Liabilities 47,261 56,351 (328,312) 67,013
Increase(Decrease) in Income Taxes Payable 52,375 162,404 (21,866) (365,085)
(Decrease) in Deferred Compensation (17,725) (19,142) (35,449) (38,285)
-------------------------- ------------------------------
Net Cash Provided(used) by Operating Activities 590,823 (769,574) 1,205,040 (2,467,464)
-------------------------- ------------------------------
Cash Flows from Investing Activities:
Purchase of EIL Instruments, Inc. (22,000,000)
Purchases of Properties (314,774) (148,401) (677,966) (1,351,788)
-------------------------- ------------------------------
Net Cash (used in) Investing Activities (314,774) (148,401) (677,966) (23,351,788)
-------------------------- ------------------------------
Cash Flows from Financing Activities:
(Dec)Inc. in Noties Payable & Current Portion of LTD (856,000) 699,216 (3,356,000) 3,400,000
Issuance of Common Stock 122,367 98,311 233,485 325,466
Increase in Long-Term Debt 693,564 50,000 2,679,278 21,537,493
-------------------------- ------------------------------
Net Cash Provided by(used in) Financing Activities (40,069) 847,527 (443,237) 25,262,959
-------------------------- ------------------------------
Effect of Exchange Rate Changes on Cash (67,627) 21,959 (105,944) 25,254
-------------------------- ------------------------------
Net Increase(Decrease) in Cash 168,353 (48,489) (22,107) (531,039)
Cash at Beginning of Period 462,204 275,665 652,664 758,215
-------------------------- ------------------------------
Cash at End of Period $630,557 $227,176 $630,557 $227,176
========================== ==============================
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $417,713 $631,594 $1,055,416 $775,573
Taxes Paid $147,830 None $338,127 $682,715
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
Number of
Shares of $.50
Par Value Common Stock Capital Accumulated
Common Stock Issued and in Excess of Retained Translation
Outstanding Outstanding Par Value Earnings Adjustment
----------------- ----------------- ----------------- ----------------- --------------
Balance, March 31, 1996 2,451,946 $1,225,973 $1,124,583 $5,905,652 ($93,819)
Issuance of Stock 374,466 187,233 1,997,163
Currency Translation Activity (36,713)
Net Income 2,059,736
----------------- ----------------- ----------------- ----------------- --------------
Balance, March 31, 1997 2,826,412 1,413,206 3,121,746 7,965,388 (130,532)
Two for One Stock Split
On 7/22/97 2,853,692 1,426,846 (1,426,846)
Issuance of Stock 150,838 75,419 532,217
Currency Translation Activity 9,744
Net Income 997,971
----------------- ----------------- ----------------- ----------------- --------------
Balance, March 31,1998 5,830,942 2,915,471 2,227,117 8,963,359 (120,788)
Issuance of Stock 54,460 27,230 206,255
Currency Translation Activity (105,942)
Net Income 574,661
----------------- ----------------- ----------------- ----------------- --------------
Balance, Sept. 30, 1998 5,885,402 $2,942,701 $2,433,372 $9,538,020 ($226,730)
================= ================= ================= ================= ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 1 - Borrowings
----------
On August 7, 1998, the Company refinanced its existing bank debt and entered
into a new $32,000,000 Credit and Loan Agreement. This agreement is comprised of
a $15,000,000 revolving credit agreement which matures on July 1, 2001, and two
term loans. Term Loan A, in the amount of $9,000,000, requires quarterly
repayments of $500,000 commencing November 1998 and extending through the Term
Loan A maturity date of January 1, 2003. Term Loan B, in the amount of
$8,000,000, with a maturity date of June 1, 2007, requires interest only
payments through April 1, 2001. Thereafter, aggregate quarterly payments
sufficient to fully amortize the outstanding balance of Term Loan B at its
maturity date of June 1, 2007 are required. Interest is payable on all Loans on
a formula basis, at the Company's option, at rates related to prime or above
LIBOR determined on the basis of Company performance as determined by its
leverage ratio. At September 30, 1998, interest paid on Term Loan A was at 1.60%
above LIBOR or at prime; on Term Loan B, interest was paid at 2.15% above LIBOR
or at 37.5% above prime. At September 30, 1998, $9,432,200 was borrowed under
the Revolving Credit Facility; interest is determined on the revolving credit
borrowings on the same basis that it is determined under Term Loan A. At
September 30, 1998, interest was payable on the above loans at rates ranging
from 7.29% to 8.50%.
Required payments under Term Loan A and Term Loan B are as follows:
Term Loan A Term Loan B
----------- -----------
Oct. 1, 1998 - Sept. 30, 1999 $2,000,000
Oct. 1, 1999 - Sept. 30, 2000 $2,000,000
Oct. 1, 2000 - Sept. 30, 2001 $2,000,000
Oct. 1, 2001 - Sept. 30, 2002 $2,000,000 $ 666,667
Oct. 1. 2002 - Sept. 30, 2003 $1,000,000 $1,333,333
Oct. 1, 2003 - Sept. 30, 2004 $1,333,334
Oct. 1, 2004 - Sept. 30, 2005 $1,333,333
Oct. 1, 2005 - Sept. 30, 2006 $1,333,334
Oct. 1, 2006 - Sept. 30, 2007 $ 666,667
The Company has entered into a contract whereby the base rate it will pay on
$10,000,000 of its debt equals LIBOR of 6.20% plus the appropriate markup over
LIBOR as indicated above. This contract extends for 5 years from the date of the
loan.
The Company is in compliance with all provisions of its loan agreement as of
September 30, 1998.
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Note 2 - Inventories
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The major classifications of inventory are as follows:
Sept. 30, March 31,
1998 1998
---- ----
Raw Materials and Purchased Parts $ 4,229,662 $ 4,221,730
Work in Process 630,728 629,545
Finished Products 6,541,833 6,529,564
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11,402,223 11,380,839
Less Inventory Reserves (794,457) (705,010)
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$10,607,766 $10,675,829
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Note 3 - Net Income Per Share
- -----------------------------
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which requires
disclosure of basic and diluted earnings per share. Basic earnings per share is
computed based on the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the assumed conversion of
dilutive stock options and warrants. In computing the per share effect of
assumed conversion, funds which would have been received from the exercise of
options and warrants are considered to have been used to purchase common shares
at average market prices for the period, and the resulting net additional common
shares are included in the calculation of average common shares outstanding. All
previously reported earnings per share amounts were restated upon adoption of
SFAS No. 128.
The table below summarizes the amounts used to calculate basic and diluted
earnings per share:
SIX MONTHS ENDED SEPT. 30, 1998 SIX MONTHS ENDED SEPT. 30, 1997
------------------------------- -------------------------------
AVERAGE AVERAGE
NET OUTSTANDING PER NET OUTSTANDING PER
EARNINGS SHARES SHARE EARNINGS SHARES SHARE
-------------- --------------- ------------ -------------- --------------- ------------
Basic Earnings
Per Share $574,661 5,808,712 $0.10 $506,375 5,678,543 $0.09
Effect of Dilutive
Options & Warrants 240,670 840,876
-------------- --------------- ------------ -------------- --------------- ------------
Diluted Earnings
Per Share $574,661 6,049,382 $0.09 $506,375 6,519,419 $0.08
============== =============== ============ ============== =============== ============
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Certain anti-dilutive outstanding stock options and warrants were excluded from
the calculation of average shares outstanding since their exercise prices
exceeded the average market price of common shares during the period. The
anti-dilutive stock options and warrants so excluded at the end of each of the
last two interim periods and their associated exercise prices are summarized
below. The options expire at various times between 1999 and 2002.
Number of Exercise
Options and Warrants Price
-------------------- -----
1998 1,110,960 $4.1875 - $9.25
1997 None None
Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
Financial Condition
- -------------------
The Company's primary sources of liquidity and capital are funds provided
through its borrowing agreement with banks, its profitability and management of
its Balance Sheet.
During the quarter ended September 30, 1998, the Company refinanced its bank
debt and entered into a new $32,000,000 agreement with a lender. That
relationship is described in Note 1. Additionally, during the quarter, accounts
receivable balances owing to the Company were reduced by $235,700 and
Inventories owned by the Company were reduced by $353,000. Trade accounts
payable were reduced by $1,066,900 during the quarter. This reduction resulted
from payment of amounts due others in accordance with our normal payment terms.
The Company will strive to improve its cash flows and reduce bank borrowings
from current levels during the balance of the current fiscal year through
increased profitability, by reducing both accounts receivable and inventory
balances, and by increasing its trade payables.
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Results of Operations
- ---------------------
Comparison of July 1, 1998 - September 30, 1998
- -----------------------------------------------
to
July 1, 1997 - September 30, 1997
---------------------------------
Sales totaled $16,338,800 in the quarter ended September 30, 1998. This compares
to sales of $19,612,700 last year and represents a 16.7% reduction from 1997 to
1998. The reduced level of sales in 1998 results from uncertain economic
conditions which exist in Southeast Asia, an historically strong market for the
Company, uncertainty which resulted in the U.S. market as the result of Asian
uncertainty, and from adverse weather conditions which existed in the Texas gulf
region of the U.S. which also adversely affected the Company's sales effort.
Cost of Product Sold totaled 66.0% of sales in 1998 versus 68.2% of sales in
1997. This improvement is the result of cost improvements made primarily in the
Company's calibration services operation. Selling and Administrative expenses
were reduced by 12.4% in 1998 compared to 1997. These reductions were the result
of cost savings programs implemented by the Company. Interest Expense was 20.8%
lower in 1998 than in 1997. This reduction is the result of lower average debt
in 1998 compared to 1997.
Comparison of April 1, 1998 - September 30, 1998
- ------------------------------------------------
To
--
April 1, 1997 - September 30, 1997
----------------------------------
Sales totaled $34,298,100 in the six-month period ended September 30, 1998. This
is a reduction of 11.4% from the same period one year ago. Sales results in 1998
were reduced as the result of economic uncertainties in Southeast Asia which
caused uncertainties throughout the rest of the world. Additionally, adverse
weather conditions in parts of the U.S. negatively impacted sales in the most
recent six-month period.
Cost of Product Sold in the six months ended September 30, 1998 totaled 65.9% of
sales compared to 68.3% of sales in the same six-month period last year. The
improvement in 1998 is primarily the result of cost improvements made in the
Company's cal-lab operation.
Sales and Administrative expenses were reduced by 6.6% in the first half of 1998
compared to the same costs in 1997. These reductions were the result of cost
savings programs implemented by the Company. Interest expense was 11.2% lower in
1998 than in 1997. This reduction was the result of reduced borrowing in 1998
compared to 1997.
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PART II
-------
OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
On August 18, 1998, shareholders of the Company approved the following proposals
at the Company's Annual Meeting.
Proposal 1: To elect Directors to serve until the 2001 Annual Meeting:
Authority
For Withheld
--- --------
Nancy D. Hessler 4,920,687 58,320
Robert G. Klimasewski 4,921,087 57,920
Eric W. McInroy 4,920,487 58,520
Messrs. Chiarella, Oberlies, Garelick, Murphy, Palmer and Richardson
did not stand for re-election to Transmation's Board of Directors in
1998.
Proposal 2: To approve and ratify an amendment to the Transmation, Inc. Amended
and Restated Directors' Warrant Plan which provides for an acceleration of
vesting of warrants granted thereunder upon a change of control of the Company.
For Against Abstain
--- ------- -------
4,423,245 502,975 49,787
Proposal 3: To approve and ratify a further amendment to the Transmation, Inc.
Amended and Restated Directors' Warrant Plan which provides for automatic annual
warrant grants under that Plan in 1998 and thereafter until all shares available
under that Plan are exhausted.
For Against Abstain
--- ------- -------
4,396,607 533,360 49,040
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Proposal 4: To approve and ratify the selection of Pricewaterhouse Coopers LLP
as independent auditors for the year ending March 31, 1999.
For Against Abstain
--- ------- -------
4,967,2261 4,014 7,732
Item 6. Exhibits and Reports on Form 8-K
a. See Index to Exhibits.
b. Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter
for which this report is filed.
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 13 , 1998 /s/ Eric W. McInroy
-------------------------------- ----------------------------------
Eric W. McInroy
President and CEO
Date November 13 , 1998 /s/ John A. Misiaszek
-------------------------------- ----------------------------------
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) Articles of Incorporation and By Laws
(i) The 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)
filed on August 8, 1995. Certificate of Amendment thereto is
incorporated herein by reference to Exhibit I to the
Registrant's Form 10-Q for the quarter ended September 30,
1996.
(ii) By-laws, as amended through August 18, 1987, are incorporated
herein by reference to Exhibit (3) to the Registrant's Form
10-K for the year ended March 31, 1988.
(4) Instruments defining the rights of security holders, including
indentures
(a) Credit and Loan Agreement dated August 7, 1998 between Transmation,
Inc. and KeyBank National Association is included herein as Exhibit
4(a).
(10) Material Contracts
The documents listed under (4) are incorporated herein by reference.
* (a) Amendments No. 3 and 4 to the Transmation, Inc. Amended and
Restated Directors' Warrant Plan are incorporated herein by reference
to the Registrant's definitive proxy material filed on July 7, 1998 in
connection with the 1998 Annual Meeting of Shareholders.
(11) Statement re Computation of Per Share Earnings
Computation can be clearly determined from Note 3 to the Financial
Statements included herein at Item 1.
(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.
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(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27.
(99) Additional Exhibits
Not applicable.
- -----------------
* Exhibit filed with this Report
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