1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended March 31, 1999
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
---------------------- -----------------
Commission file number 0-3905
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
------------------------
- -------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------- -------------------------------------------
None None
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
- -------------------------------------------------------------------------------
(Title of Class)
Common Stock $0.50 Par Value
- -------------------------------------------------------------------------------
(Title of Class)
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 [ ]
TOTAL PAGES - _____
1
2
Indicate by check mark [X] if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant is $17,941,736 as of the close of business June 16, 1999. Market
value is determined by reference to the final NASDAQ quotation of the price paid
for Transmation stock as of that date.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the close of business on June 16, 1999.
Class Number of Shares Outstanding
Common 5,945,129
------ ----------------------------
Documents incorporated by reference and the part of Form 10-K into which they
are incorporated are listed hereunder.
Part of Form 10-K Document Incorporated
----------------- ---------------------
Part III Registrant's definitive Proxy Statement
for Annual Meeting of Shareholders to
be held on August 17, 1999
2
3
Part I
------
Item 1. Business
- -----------------
Transmation, Inc., the "Company", an Ohio corporation organized in 1964, is
primarily engaged in the sale and distribution, development, manufacture and
service of electronic instrumentation which is used principally for measurement,
indication and transmission of information. The principal products sold and
serviced by Transmation fall within two main categories:
* Test, measurement and calibration equipment - Instruments used
for calibrating, measuring and testing many physical
parameters in industry and science. These products are
manufactured by Transmation or by other manufacturers and are
distributed and serviced by Transmation.
* Process monitoring instrumentation - A line of instrumentation
which measures low level signals, proportional to some
parameter such as temperature, and then amplifies the
measurement to permit transmission to a receiving device which
may be used to alter the process or trigger an alarm. Certain
of these products may be used to monitor one or more points of
a process by multiplexing information into one or more digital
devices. These products are manufactured, distributed and
serviced by Transmation.
Products and services sold range in price from $100 for a single calibration
service to more than $200,000 for a large multiplexing system.
The principal market for Transmation's products and services is within the
process industry and is primarily directed to the petroleum refining and
chemical manufacturing industries, and secondarily to the pulp and paper, gas
pipeline and primary metals industries. Transmation's sales are accomplished
through a catalog distribution division, the Transcat Division ("Transcat"), and
a manufacturing subsidiary, Altek Industries Corp. ("Altek"), and four foreign
sales subsidiaries.
Sales of test, measurement and calibration equipment and services are
principally made through Transcat, which sells through a catalog distributed to
existing and prospective customers, and through salespeople in selected
locations in the United States and Canada. Transcat sells
Transmation-manufactured products and re-sells the products of approximately 250
other manufacturers through an annual catalog, which is currently approximately
900 pages. To date, more than one million catalogs have been distributed through
this part of Transmation's sales and marketing effort. In addition to the annual
catalog, Transcat makes periodic mailings to existing and prospective customers
to spur additional sales as well as to generate names for future catalog or
product mailings. In 1999, Transcat introduced Transcat.com(R), an Internet site
containing much of Transcat's catalog "on-line," making on-line commerce
available for Transcat's customers.
In addition to catalog and Internet sales, Transmation engages in direct sales
of test, measurement and calibration equipment and services as well as process
monitoring instrumentation. The Company employs over 25 direct sales people and
sales managers in Transcat. The Company also maintains one regional sales
manager in Singapore. In addition, the Company has arrangements with over 60
sales representative and distributor organizations, each employing one or more
sales engineers, located in other areas of concentrated demand for Transmation's
products in the United States, Canada, the Far East, Central and South America,
Australia, the Middle East and Eastern and Western Europe. These sales
representatives and distributors either promote Transmation's products on a
commission basis or purchase them from Transmation at a discount and resell to
end users at a gross price.
3
4
The Company's Transcat CalLab operations, which are ISO 9002 registered, provide
periodic calibration and repair services for customers owning instrumentation
manufactured by others and by Transmation. At March 31, 1999, there were
Transcat CalLab facilities in 17 locations in the United States and Canada.
The Company's manufacturing operations, located in Rochester, New York,
primarily develop, manufacture and sell electronic and pneumatic instrumentation
used to calibrate and test instrumentation used primarily in the process
industries. The facility has ISO 9001 registration.
The Company's value added operations, which customize, modify and repair analog
gauges, are located in Baltimore, Maryland, Cleveland, Ohio, and Phoenix,
Arizona.
Since the beginning of fiscal 1997, Transmation has expanded its business
through three acquisitions:
Altek Acquisition. In April 1996, the Company acquired all of the stock
of Altek, a manufacturer of electronic calibration equipment, for cash and notes
aggregating $4.8 million, and 300,000 shares of Common Stock. As a result of
this acquisition, the Company's sales have increased by more than $5 million
annually.
EIL Acquisition. In April 1997, the Company acquired substantially all
of the assets of the Sales and Service Divisions of E.I.L. Instruments, Inc. a
distributor and servicer of electronic test, measurement and calibration
instrumentation, for $22 million in cash and the value of certain assumed
liabilities. As a result of this acquisition, the Company has added a
significant base of potential new customers, a value added meter modification
business and several new product lines, and has significantly increased its
overall capabilities to provide repair, calibration and certification services.
Metermaster Acquisition. In February 1999, the Company acquired the
capital stock of Metermaster Inc., a distributor of electronic test, measurement
and calibration instrumentation and value-added provider of analog gauges, for
approximately $1,500,000 plus the repayment of approximately $3,100,000 of bank
debt. As the result of this acquisition, the Company has added a significant
base of potential new customers, added significantly to its value-added
business, and acquired a presence in potentially significant new market
territories not formerly served by Transmation.
Transmation's future performance will depend substantially on its
ability to integrate and manage its acquired businesses and operations, to
respond to competitive developments, to further develop markets for its products
and services, and to anticipate future customer needs and to provide solutions
for customers in a timely, cost-effective manner.
The Company's principal executive offices are located at 10 Vantage
Point Drive, Rochester, New York 14624. Its telephone number is (716) 352-7777.
The following information is set forth as it is deemed material to an
understanding of the business of the registrant:
COMPETITION. The market to which the Company sells the products it
manufactures is highly competitive, and the Company expects that competition
will increase in the future. Failure to keep pace with rapid technological
advances, which characterize the industry, could adversely affect the Company's
competitive position with respect to the products it manufactures and the way it
distributes its products. In its manufacturing operation, the Company competes
on the basis of price, performance, inventory availability, quality, reliability
and customer service and support. To maintain its competitive position with
respect to manufactured product, the Company must continue to develop new
4
5
products, periodically enhance its existing products, reduce its cost of
manufacturing such products, maintain the quality of its products and compete
effectively in the areas described above. Although the Company believes that its
products are competitive in each of the above-described areas, there can be no
assurance that existing or future competitors, some of which have greater
financial resources than the Company, will not introduce comparable or superior
products incorporating more advanced technology at lower prices. The Company's
competitors are numerous, ranging from large corporations to many relatively
small and highly specialized firms. Although no single company competes in all
of the Company's product markets, some of the major competitors which compete in
the Company's individual product markets include Fluke Corporation, Beta (a
division of Hathaway Corporation) and certain divisions of Ametek Corporation.
Some of these competitors have more extensive sales, distribution, engineering,
manufacturing and/or marketing capabilities and substantially greater financial,
technological and personnel resources than does the Company.
The markets to which the Company, through Transcat, sells products and
related services is also highly competitive. Competition for sales in
distribution and service is quite fragmented and ranges from large, well
financed national distributors to small local distribution organizations and
service providers, as well as the manufacturers of the products themselves.
Transcat competes on the basis of price, inventory availability, service quality
and customer service and support. To maintain its competitive position with
respect to such products and services, the Company must continually demonstrate
to customers its commitment to achieving the highest level of performance
possible for a distributor and compete effectively in the areas described above.
Significant Customers
---------------------
There were no sales to any customer or controlled group which amounted
to 10 percent or more of the Company's consolidated net sales during the years
1999-1997, nor is the Company dependent on a single customer or a few customers,
the loss of any one or more of which would have a material adverse effect on the
Company.
Backlog
-------
At the close of the fiscal year ended March 31, 1999, Transmation had a
firm order backlog of approximately $2,483,000 as compared to $2,485,000 in 1998
and $1,460,000 in 1997.
It is anticipated that 100 percent of Transmation's backlog existing on
March 31, 1999 will be filled by shipments in fiscal year 2000. Transmation's
cycle of sales to delivery at the present time is 1 day to 12 weeks on all
product categories except for process monitoring systems, where the cycle is
10-40 weeks. However, backlog has generally not been a significant factor in
Transmation's business.
Seasonality
-----------
Transmation does not believe that its line of business has any
significant seasonal factor.
Raw Materials
-------------
Finished products required for the Transcat division's catalog sales
are generally available from only one source per product (the manufacturer)
although on occasion substitutions of product are possible. Additionally, while
the raw materials and components essential to Transmation's manufacturing
business are available from a number of sources of supply, a portion of the
Company's manufacturing operations is dependent on the ability to deliver
completed products, sub-assemblies or components in time to meet critical
distribution and manufacturing schedules. In certain instances, important parts
and components are available through fewer suppliers than Transmation deems
suitable. If such
5
6
suppliers should fail in deliveries, delays in Transmation's production could
result which in turn could have a material adverse effect on the Company's
business, prospects, results of operations and financial condition.
Periodically, Transmation has experienced delays in obtaining certain parts and
components or finished products. Such delays are primarily attributable to
demand for parts or products and long lead times. In order to minimize such
delays, Transmation has placed scheduled blanket purchase orders, has sought out
alternate sources of supply, has provided vendors with greater lead time in
filling such orders and has placed certain finished product in its inventory.
Transmation believes that such delays have not had a material adverse effect on
its business to date, although it cannot predict what effect such delays may
have in the future.
Patents
-------
The Company's success and ability to compete depends in part upon
protecting its proprietary rights in its products, its name and its trade names.
There can be no assurance that the measures taken by the Company will be
adequate to deter misappropriation of its products, its name and its trade names
or independent third-party development of its products, or that its intellectual
property rights can be successfully enforced or defended if challenged. Given
the continuing development of technology, there can be no assurance that certain
aspects of the Company's products do not or will not infringe upon the existing
or future proprietary rights of others or that, if licenses or rights are
required to avoid infringement, such licenses or rights could be obtained on
terms that would not have a material adverse effect on the Company, if at all.
It is the opinion of management that the obtaining of patent protection
is not essential to the conduct of Transmation's business. Transmation has,
however, sought patent protection for its manufactured products in certain
instances and presently holds several United States patents, the most recent of
which was granted in 1994; patents expire at various dates through 2012.
Transmation believes that the patents obtained provide a short-term marketing
benefit, particularly when marketing products against similar products produced
by competitors. However, Transmation does not believe that the patents have a
significant impact on its business.
Transmation has registered numerous trademarks in the United States
Patent and Trademark Office, including Transcat(R), Quick-Cal(R), CalXpress(R)
and Shop Access(R).
Research and Development
------------------------
During the fiscal year ended March 31, 1999, Transmation expended
approximately $1,616,747 in research and development as compared with an
approximate expenditure of $1,660,110 in 1998 and $1,560,974 in 1997. The
research and development costs in fiscal 1999 reflected the Company's efforts in
all of its product lines in its Altek subsidiary.
Research and Development is Company sponsored. Approximately 21 of its
employees and several consultants are engaged in product development. All such
employees hold technical degrees.
Many of the instruments which the Company designs and manufactures are
used in the petroleum refining and chemical manufacturing industries. The
tolerance for error in the design, manufacture or use of these products may be
small or non-existent. If an instrument designed or manufactured by the Company
is found to be defective, whether due to design or manufacturing defects,
improper use of the product or other reasons, the instrument may need to be
recalled, possibly at the Company's expense. Furthermore, the adverse effect of
a product recall on the Company might not be limited to the cost of the recall
to the Company. Recalls, especially if accompanied by unfavorable publicity or
termination of customer contracts, could result in substantial costs, loss of
6
7
revenues and diminution of the Company's reputation, each of which could have a
material adverse effect on the Company's business, prospects, results of
operations and financial condition. In addition, the manufacture and sale of the
instruments manufactured by the Company also involves the risk of product
liability claims. The Company evaluates its insurance coverage from time to time
in view of developments in its business and products currently under
development. Product liability insurance is expensive and, in the future, may
not be available on acceptable terms, in sufficient amounts, or at all. A
successful claim brought against the Company in excess of its insurance coverage
or any material claim for which insurance coverage is denied or limited could
have a material adverse effects on the Company's business, prospects, results of
operations and financial condition.
Employees
---------
Transmation employed 418 persons as of March 31, 1999 in all aspects of
its business. At March 31,1998, Transmation employed 407 persons (including 3
part-time employees). At March 31, 1997, Transmation employed 250 persons of
which 2 were part-time. The EIL acquisition on April 4, 1997 increased
Transmation's number of employees to 496. None of Transmation's employees is
subject to collective bargaining agreements.
Since April 1996, the Company has acquired one manufacturing business
and two businesses engaged in the distribution and service of products. This has
resulted in a 150% increase in the Company's work force, the addition of three
value added operations and the addition of 12 service facilities. The Company is
in the process of integrating the acquired operations and efforts are underway
to assimilate into Transmation the products and services formerly sold
independently by the acquired businesses, their operations, corporate cultures,
product lines, personnel, management information systems, financial control
systems, facilities infrastructure and customer relationships. There can be no
assurance that the Company will be successful in these efforts. If the Company
is unable to integrate and manage all of the elements of these acquisitions
effectively and efficiently, it could have a material adverse effect on the
Company's business, prospects, results of operations and financial condition.
In addition, if the Company continues to experience rapid growth, a
significant strain may be placed on its financial, management and other
resources. The Company's ability to manage growth effectively will require it to
continue to improve its operational and financial control systems,
infrastructure and management information systems, and to attract, train,
motivate, manage and retain key employees. There can be no assurance that the
Company will be successful in doing so. Failure to manage its growth effectively
could have a material adverse effect on the Company's business, prospects,
results of operations and financial condition.
Environmental Matters
---------------------
Registrant does not believe that compliance with Federal, State or
local provisions relating to the protection of the environment have any material
effect on its capital expenditures, earnings or competitive position.
Information as to classes of similar products:
----------------------------------------------
Percent of Net Sales
--------------------
1999 1998 1997
---- ---- ----
Test, Measurement & Calibration Equipment
and Service 97.7 97.9 94.2
Process Monitoring Instrumentation
and Service 2.3 2.1 5.8
There was no significant change in the mix of products sold in 1999
compared to 1998. The change in sales mix from 1997 to 1998 is primarily the
result of increased sales of resale product and service of test, measurement and
7
8
calibration equipment to the U.S. marketplace resulting from increases in the
number of company employed sales personnel in the Company's Transcat division
and from significant catalog mailings to customers and prospective customers
during fiscal 1998-1997 in the Company's Transcat division. Additionally, all
sales resulting from the Company's Altek Industries Corp. subsidiary, acquired
on April 3, 1996, were of calibration products and sales which resulted from the
Company's acquisition of the sales and service division of EIL Instruments in
April 1997 were of service and calibration products.
Information Regarding Export Sales
----------------------------------
Approximately 18.8 percent of Transmation's sales in 1999 resulted from
sales in foreign countries. This compares with 19.1 percent of sales in 1998 and
27.8 percent of sales in 1997. In 1999, the percentage of foreign sales
decreased compared to 1998 as the result of continuing unsettled economic
conditions which continued in the Far East, a major Transmation market. In 1998,
the percentage of foreign sales decreased as compared to 1997 as the result of
the Company's acquisition of the assets of EIL Instruments. The EIL business
acquired was and is primarily conducted in the U.S. Sales in foreign countries
generate relatively the same profit margins as domestic sales. Management
believes that the relative lower value of the dollar compared to foreign
currencies that existed for several years through 1997 had a positive effect on
international sales. During fiscal 1998, many Asian currencies weakened
significantly compared to the U.S. dollar and that weakness continued throughout
1999. The Company believes the stronger U.S. dollar contributed to reduced sales
in 1999 and 1998, below levels which would otherwise have been anticipated from
Asian markets. Those markets are areas of significant market potential for the
Company. Management believes that continued weakness in Asian currencies will
continue to have a negative influence on our future sales to Asia although it is
impossible to predict the magnitude of such impact. In addition, Transmation's
revenues are subject to the customary risks of operating in an international
environment, including the potential imposition of trade or foreign exchange
restrictions, tariff and other tax increases, fluctuations in exchange rates and
unstable political situations, any one or more of which could have a material
adverse effect on the Company's business, prospects, results of operations and
financial condition.
The information contained in Notes 2 and 3 to the Financial Statements
of this report is incorporated herein by reference.
Item 2. Properties
- -------------------
During 1999, Transmation sold its former facility at Mt. Read Boulevard in
Rochester, New York for net proceeds totaling approximately $423,000. The
operations of both its former Instrument Division manufacturing division and its
Altek subsidiary were consolidated into a facility of approximately 26,000 sq.
ft. at 35 Vantage Point Drive in Rochester, New York on April 1, 1999.
In addition, Transmation has leased an additional 24,000 square feet of space in
Rochester. This space is being used for certain executive, administrative,
sales, service and manufacturing purposes. The lease for this space will expire
in October, 2002.
Transmation also leases an additional 9,500 square feet presently vacant and
formerly used to house the operations of its Altek subsidiary. This lease will
expire in fiscal 2000.
Various sales office and CalLab space is leased by the Company and its
subsidiary, Transmation (Canada), Inc., and is considered adequate to meet both
present and future needs in those locations. (See Note 7 to the Financial
Statements.)
Generally, Transmation's present facilities are being fully utilized and are
considered suitable for its current needs and there is no present requirement
8
9
for significant additional space. Any expansion or change in business facilities
as the result of a consolidation of manufacturing operations will be made in the
future if necessary.
Item 3. Legal Proceedings
- --------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
Part II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder
- ----------------------------------------------------------------------
Matters
-------
The Company's Common Stock is traded in the NASDAQ National Market System. A
record of actual transactions in Transmation's stock is reflected in the table
below:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1999 High $8.50 $6.31 $4.75 $5.38
Low 6.00 3.00 2.88 2.63
1998 High $9.75 $9.88 $9.75 $9.00
Low 6.00 6.88 6.75 7.00
At June 8, 1999 there were approximately 936 shareholders. The Company has paid
no cash dividends since its inception, and under terms of a revolving credit
agreement with a bank may not pay such dividends without prior bank approval.
9
10
Item 6.
- -------
TRANSMATION, INC.
SELECTED FINANCIAL DATA
Y E A R E N D E D M A R C H 31,
------------------------------------------------------------------
1999 1998 1997
------------------- -------------------- -------------------
Net Sales $69,744,875 $78,483,565 $47,311,224
------------------- -------------------- -------------------
Operating Income $3,756,122 $4,187,289 $3,435,961
------------------- -------------------- -------------------
Net Income $1,049,101 $997,971 $2,059,736
------------------- -------------------- -------------------
Income Per Share
Basic $.18 $.17 $.37
------------------- -------------------- -------------------
Income Per Share
Diluted $.17 $.16 $.35
------------------- -------------------- -------------------
Total Assets $57,295,584 $51,875,214 $25,858,358
------------------- -------------------- -------------------
Long-Term Debt $26,166,900 $21,752,922 $6,000,000
------------------- -------------------- -------------------
1996 1995
------------------- --------------------
Net Sales $38,449,758 $37,293,872
------------------- --------------------
Operating Income $2,165,037 $915,481
------------------- --------------------
Net Income $1,234,723 $381,785
------------------- --------------------
Income Per Share
Basic $.26 $.08
------------------- --------------------
Income Per Share
Diluted $.24 $.08
------------------- --------------------
Total Assets $15,701,727 $16,293,407
------------------- --------------------
Long-Term Debt $2,050,800 $4,064,426
------------------- --------------------
The Company has paid no cash dividends since its inception.
10
11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
- ---------------------
Increases (Decreases) in Consolidated Operating Results Compared To Prior Year
$000
-----------------------------------------
1999 1998
-----------------------------------------
Change from Change from
Prior Year % Prior Year %
---------- --- ---------- ---
Net Sales ($8,739) (11) $31,172 66
Costs and Expenses:
Cost of Product Sold (6,906) (13) 24,707 86
Selling & Admin. Expenses (1,358) (7) 5,614 41
Research & Develop. Costs (44) (3) 99 6
Interest Expense (331) (13) 1,914 301
-----------------------------------------
Income from Operations (100) (6) (1,162) (41)
Other Income 246 (479)
-----------------------------------------
Income Before Income Taxes 146 9 (1,641) (50)
Provision for Income Taxes 95 15 (580) (47)
-----------------------------------------
Net Income $51 5 ($1,061) (52)
-----------------------------------------
Earnings Per Share -Diluted $.01 6 ($.19) (54)
-----------------------------------------
Net Sales
- ---------
The 11% decrease in net sales in 1999 compared to 1998 is attributable to lower
demand for Transmation's products and services as the result of continued
economic uncertainties in the Far East, a major market for the Company, and as
the result of low oil prices throughout much of fiscal 1999 which reduces
economic activity in major markets which the Company serves. The 66% sales
increase in 1998 was attributable to the Company's acquisition of the Sales and
Service divisions of E.I.L. Instruments Inc. in April 1997.
Cost of Product Sold
- --------------------
Cost of product sold decreased by 13% in 1999 compared to 1998. This decrease
resulted from lower sales volumes in 1999 vs. 1998 and from cost savings
initiatives in 1999 in both the Company's manufacturing and service
organizations. Cost of product sold increased by 86% in 1998 compared to 1997.
This increase resulted from proportionately greater sales through the Company's
Transcat division in 1998 compared to 1997. Gross margins on distribution and
service sales achieved through the Company's Transcat division are lower than in
the Company's manufacturing division.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses decreased by 7% in 1999 compared to 1998.
This decrease is the result of cost savings initiatives implemented in the
Company's Sales and Administrative departments throughout fiscal 1999. Selling
and administrative expenses in 1998 increased by 41% compared to 1997 but as a
percentage of sales fell to 24.4% from 28.7%. The increased spending was the
result of an increase in sales and marketing related costs which were added as a
result of the Company's April 1997 acquisition of the Sales and Service
divisions of E.I.L. Instruments Inc. Additionally, goodwill amortization
resulting from acquisitions totaled $1,007,000 in 1998 compared to $313,600 in
1997. Overall, economies of scale resulted in lower total sales and
administrative expenses as a percentage of sales in 1998 compared to 1997.
11
12
Research and Development
- ------------------------
Research and development costs decreased by 3% in 1999 compared to 1998.
Spending in the research and development effort is considered appropriate to
enable the Company to maintain its strong competitive position in the
marketplace. Research and development costs increased by 6% in 1998 compared to
1997. Spending in this area is considered appropriate to enable the Company to
maintain its strong competitive position in the marketplace.
Interest Expense
- ----------------
Interest expense decreased by 13% in 1999 compared to 1998. This decrease is the
result of a reduction in average borrowings outstanding during 1999 vs. 1998,
and as the result of a new borrowing agreement which the Company entered into in
August 1998 which called for the Company to pay lower rates than did the
Company's previous debt agreement. Interest expense increased by 301% in 1998
compared to 1997. This increase is the result of financing the Company's
acquisition of the Sales and Service divisions of E.I.L. Instruments in April
1997.
Other Income
- ------------
Other income in 1999 is comprised of the profit realized on the sale of the
Company's former manufacturing facility in Rochester, NY. The Company
consolidated both of its manufacturing operations into a single location on
April 1, 1999. It is anticipated that the combined manufacturing operation will
result in cost efficiencies being realized by the Company in the future.
Income Taxes
- ------------
The Company's effective tax rate was 41.3% of pretax profits in 1999 compared to
39.2% of profits in 1998. The higher tax rate in 1999 compared to 1998 is
primarily the result of an increase in income in the Company's Canadian
subsidiary, where higher tax rates exist. The Company's effective tax rate was
39.2% of pretax profits in 1998 compared to 37.2% of profits in 1997. The higher
tax rate in 1998 compared to 1997 is primarily the result of the necessity to
file returns in additional states as the result of the Company's acquisition of
the Sales and Service divisions of E.I.L. Instruments in April 1997.
Impact of Inflation
- -------------------
The effects of inflation have not been significant to Transmation during
1999-1997 because inflation rates have been relatively low.
Year 2000 Issue
- ---------------
The Company has reviewed all of its current computer applications with respect
to the Year 2000 issue. The Company believes all of its relevant applications
are Year 2000 compliant and that no material costs with respect to Year 2000
compliance will be incurred by the Company. The Company is unable to determine
the effects of the Year 2000 compliance issue, if any, by its suppliers and
customers.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
$000
-----------------------------
1999 1998 1997
---- ---- ----
Cash Flows
- ----------
Cash Provided (used) by:
Operating Activities $4,642 $2,852 $1,561
Investing Activities ($2,768) ($24,084) ($5,088)
Financing Activities ($2,165) $21,117 $4,118
12
13
Operating Activities
- --------------------
Net cash from operations totaled $4,642,000 in 1999, an increase of $1,790,000
from 1998. Trade accounts receivable were reduced by $1,667,000 from amounts
outstanding one year ago and trade accounts payable increased by $757,000
compared to last year (after giving consideration to such amounts as were
purchased in the Metermaster acquisition). Additionally, depreciation and
amortization increased by $346,000 in 1999 compared to 1998 providing additional
cash flow. Inventories increased by $500,000 in 1999 compared to 1998 partially
offsetting the favorable cash flow provided by the increased accounts payable.
Net cash from operations totaled $2,852,000 in 1998, an increase of $1,291,000
from 1997. Although net income decreased by $1,062,000 in 1998 compared to 1997,
depreciation and amortization increased by $1,701,000. In addition, trade
accounts receivable were reduced by $701,000 from amounts outstanding one year
ago (after giving consideration to receivables purchased in the E.I.L
acquisition). Inventories increased by $643,000 in 1998 and trade accounts
payable increased by $295,000 as an offset to the inventory increase. Other
liabilities, principally interest which resulted from additional borrowings in
1998 as the result of the E.I.L acquisition, increased by $793,000 compared to
1997. Income taxes payable were $454,000 lower in 1998 compared to 1997 due to
Transmation's lower profitability in 1998 vs 1997.
Investing Activities
- --------------------
Cash used in investing activities totaled $2,768,000 in 1999 compared to
$24,084,000 in 1998. The Company invested $1,489,000 in its purchase of
Metermaster Inc. in February 1999, $22,000,000 in its purchase of the Sales and
Service divisions of E.I.L. Instruments in April 1997, and $6,637,500 in its
purchase of Altek Industries Corp. in April 1996. Capital assets acquired
totaled $1,702,000 in 1999, $2,084,000 in 1998, and $815,000 in 1997.
Additionally in 1999, the Company sold its former manufacturing facility in
Rochester, NY for net proceeds totaling $423,000.
Financing Activities
- --------------------
In 1999, the Company used $2,165,000 to reduce debt. Proceeds from long-term
debt totaled $7,428,000 in 1999 and such proceeds were used to repay $2,500,000
of Notes Payable which existed at March 31, 1998. Additionally, the Company used
proceeds from long-term debt to reduce amounts due under its revolving credit by
$5,780,000, repay term debt of $1,264,000, and repurchase $453,000 of its common
stock (119,358 shares) in 1999. The Company received $405,000 from the issuance
of stock under its stock option program in 1999.
Financing activities generated $16,999,000 more cash in 1998 than in 1997.
$21,223,000 of additional bank debt was added in 1998 to finance the Company's
operations, acquire the assets of the former sales and service divisions of EIL
Instruments and to repay $600,000 of debt related to the Company's April 1996
acquisition of Altek Industries Corp. During 1998, employees and directors
exercised options and warrants which provided $261,000 more cash to the Company
as the result of such transactions in 1998 compared to 1997.
Forward-Looking Statements
- --------------------------
This Report may contain forward-looking statements based on current
expectations, estimates and projections about Transmation's industry,
management's beliefs and assumptions made by management. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to forecast. Therefore, actual results may differ materially from
those expressed or forecast in any such forward-looking statements. Transmation
13
14
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company's exposure to changes in interest rates results from investing and
borrowing activities. The Company has entered into interest rate swap agreements
to effectively limit its exposure to upward interest rate movements. These
financial instruments have the effect of changing the interest rate of the
original borrowing with the objective of minimizing the Company's risk relative
to potential increases in interest rates. The maturities of these instruments
are closely matched with maturities of the underlying debt. The notional
principal amount of these derivative instruments was $15,000,000 at March 31,
1999. Underlying base fixed interest rates on these instruments ranged from
5.82% to 6.20% and are periodically adjusted to reflect leverage ratios under
the loans. At March 31, 1999, rates ranged from 8.22% to 8.60%. (There were no
similar instruments at March 31, 1998.) This activity resulted in a substantial
portion of floating interest rate debt being swapped into fixed interest rate
debt as of March 31, 1999. Interest rate swaps effectively hedge interest rate
exposures, the net cash amounts paid or received on the agreements are
recognized as adjustments to interest expense. The estimated amount that the
Company would pay to terminate the agreements at March 31, 1999, taking into
account current interest rates and the current creditworthiness of
counterparties, is $298,279.
The counterparty to the financial instruments discussed above expose the Company
to credit risks to the extent of non-performance. The credit rating of the
counterparty, which is the Company's main lender, is regularly monitored and
thus credit loss arising from counterparty non-performance is not anticipated.
14
15
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
TRANSMATION, INC.
INDEX TO FINANCIAL STATEMENTS
Document Page
- -------- ----
Report of Independent Accountants 16
Consolidated Balance Sheet - March 31, 1999, 1998 17
Consolidated Statement of Income - March 31, 1999, 1998, 1997 18
Consolidated Statement of Cash Flows - March 31, 1999, 1998, 1997 19
Consolidated Statement of Stockholders' Equity -
March 31, 1999, 1998, 1997 20
Notes to Consolidated Financial Statements 21 - 32
Schedule VIII - Valuation and Qualifying Accounts -
March 31, 1999, 1998, 1997 33
All other schedules have been omitted because they are not applicable or the
required information is shown in the Financial Statements or notes thereto.
15
16
REPORT OF INDEPENDENT ACCOUNTANTS
May 14, 1999
To the Stockholders of
Transmation, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Transmation, Inc. and its 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. In addition, in our opinion, the financial statement
schedules listed in the accompanying index present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Rochester, New York
16
17
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
March 31, March 31,
ASSETS: 1999 1998
----------------- -----------------
Current Assets:
Cash $282,625 $652,664
Accounts Receivable, less allowance
for doubtful accounts of $549,000 in
1999, and $592,000 in 1998 13,301,156 12,540,347
Inventories 12,009,770 10,675,829
Income Taxes Receivable 371,673
Prepaid Expenses and Deferred Charges 1,905,008 1,344,799
Deferred Tax Assets 257,480 540,172
----------- -----------
Current Assets 28,127,712 25,753,811
Properties, at cost, less accumulated
Depreciation 6,886,231 6,405,053
Goodwill, less accumulated amortization of
$2,473,621 in 1999 & $1,320,500 in 1998 21,738,856 19,199,947
Deferred Charges 214,295 204,308
Deferred Income Taxes 65,692 58,582
Other Assets 262,798 253,513
----------- -----------
$57,295,584 $51,875,214
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Notes Payable $2,500,000
Current Portion of Long-Term Debt $2,200,000 2,856,000
Accounts Payable 11,423,358 7,861,779
Accrued Payrolls, Commissions & Other 2,167,714 2,174,389
Income Taxes Payable 234,984
----------- -----------
Current Liabilities 15,791,072 15,627,152
Long-Term Debt 26,166,900 21,752,922
Deferred Compensation 431,609 509,981
----------- -----------
42,389,581 37,890,055
----------- -----------
Stockholders' Equity:
Common Stock, par value $.50 per share -
Authorized - 15,000,000 shares 2,966,371 2,915,471
Capital in Excess of Par Value 2,581,055 2,227,117
Accumulated Other Comprehensive Income (200,568) (120,788)
Retained Earnings 10,012,460 8,963,359
----------- -----------
15,359,318 13,985,159
Treasury stock, at cost, 119,358 shares at 3/31/99 (453,315)
----------- -----------
14,906,003 13,985,159
----------- -----------
$57,295,584 $51,875,214
=========== ===========
See notes to consolidated financial statements
17
18
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
Year Ending March 31,
1999 1998 1997
----------------- ------------------ -----------------
Net Sales $69,744,875 $78,483,565 $47,311,224
----------- ----------- -----------
Costs and Expenses:
Cost of Product Sold 46,535,330 53,441,287 28,733,887
Selling & Administrative Expenses 17,836,676 19,194,879 13,580,402
Research & Development Costs 1,616,747 1,660,110 1,560,974
Interest Expense 2,216,262 2,547,218 633,638
----------- ----------- -----------
68,205,015 76,843,494 44,508,901
----------- ----------- -----------
1,539,860 1,640,071 2,802,323
Other Income, Gain on Sale of Land 246,341 479,013
----------- ----------- -----------
Income Before Income Taxes 1,786,201 1,640,071 3,281,336
Provision for Income Taxes 737,100 642,100 1,221,600
----------- ----------- -----------
Net Income $1,049,101 $997,971 $2,059,736
=========== =========== ===========
Earnings Per Share - Basic $.18 $.17 $.37
=========== =========== ===========
Earnings Per Share - Diluted $.17 $.16 $.35
=========== =========== ===========
See notes to consolidated financial statements
18
19
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ending March 31,
1999 1998 1997
----------------- ----------------- -----------------
Cash Flows from Operating Activities
Net Income $1,049,101 $997,971 $2,059,736
Adjustments to reconcile net income to
net cash provided from operating activities:
Depreciation and Amortization 3,057,424 2,711,779 1,010,656
(Increase)Decrease in CSV of
Life Insurance Policies (9,285) (2,196) 21,728
Provision for Losses on Accounts Receivable (108,000) 37,191 (32,000)
Deferred Income Taxes 782,982 22,000 (205,094)
Gain on Sale of Land, Net (246,341) (479,013)
Changes in Assets and Liabilities
Accounts Receivable 1,667,477 700,688 (776,027)
Inventories (500,454) (642,593) (457,470)
Prepaid Expenses & Deferred Charges (398,607) (219,878) 23,475
Other Assets 284,277 (286,473)
Accounts Payable 757,001 295,054 122,865
Other Liabilities (723,835) (793,304) 358,216
Income Taxes Receivable/Payable (606,657) (454,477) 288,895
Deferred Compensation (78,372) (84,045) (88,567)
----------------- ----------------- -----------------
Net Cash Provided by Operating Activities 4,642,434 2,852,467 1,560,927
----------------- ----------------- -----------------
Cash Flows from Investing Activities:
Purchase of EIL Instruments (22,000,000)
Proceeds from Sale of Land, Net 423,000 527,749
Purchase of Altek Industries Corp. (4,800,000)
Purchase of Metermaster Inc. (1,488,553)
Purchase of Properties (1,702,397) (2,084,320) (815,349)
----------------- ----------------- -----------------
Net Cash used in Investing Activities (2,767,950) (24,084,320) (5,087,600)
----------------- ----------------- -----------------
Cash Flows from Financing Activities:
Purchase of Treasury Shares (453,315)
(Decrease)Increase in Notes Payable (2,500,000) 1,900,000 600,000
Repayment of Long-Term Debt (1,264,000) (714,000)
Revolving Line of Credit, Net (5,780,266) 6,822,922 3,170,659
Issuance of Common Stock 404,838 607,636 346,896
Proceeds from Long-Term Debt 7,428,000 12,500,000
----------------- ----------------- -----------------
Net Cash (Used)Provided by Financing Activities (2,164,743) 21,116,558 4,117,555
----------------- ----------------- -----------------
Effect of Exchange Rates on Cash (79,780) 9,744 (36,713)
----------------- ----------------- -----------------
Net (Decrease)Increase in Cash (370,039) (105,551) 554,169
Cash at Beginning of Period 652,664 758,215 204,046
----------------- ----------------- -----------------
Cash at End of Period $282,625 $652,664 $758,215
================= ================= =================
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $2,269,866 $2,517,840 $555,069
Taxes Paid $642,094 $1,052,268 $1,043,883
See notes to consolidated financial statements
19
20
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Number of Accumu-
Shares of $.50 lated
Par Value Common Stock Capital Other Com-
Common Stock Issued and in Excess of Retained prehensive
Outstanding Outstanding Par Value Earnings (Loss)Income
--------------- --------------- ------------- ------------- -----------
Balance, March 31, 1996 2,451,946 $1,225,973 $1,124,583 $5,905,652 ($93,819)
Components of Comprehensive
Income:
Net Income 2,059,736
Currency Translation (36,713)
Total Comprehensive Income
Issuance of Stock 374,466 187,233 1,997,163
--------------- --------------- ------------- ------------- -----------
Balance March 31, 1997 2,826,412 1,413,206 3,121,746 7,965,388 (130,532)
Components of Comprehensive
Income:
Net Income 997,971
Currency Translation 9,744
Total Comprehensive Income
Issuance of Stock 150,838 75,419 532,217
Two for One Stock Split
on July 22, 1997 2,853,692 1,426,846 (1,426,846)
--------------- --------------- ------------- ------------- -----------
Balance, March 31, 1998 5,830,942 2,915,471 2,227,117 8,963,359 (120,788)
Components of Comprehensive
Income:
Net Income 1,049,101
Currency Translation (79,780)
Total Comprehensive Income
Issuance of Stock 101,800 50,900 353,938
Share Repurchase
--------------- --------------- ------------- ------------- -----------
Balance, March 31, 1999 5,932,742 $2,966,371 $2,581,055 $10,012,460 ($200,568)
=============== =============== ============= ============= ===========
Treasury
Stock Total
----------- ------------
Balance, March 31, 1996 $8,162,389
Components of Comprehensive
Income:
Net Income 2,059,736
Currency Translation (36,713)
------------
Total Comprehensive Income 2,023,023
Issuance of Stock 2,184,396
------------
Balance March 31, 1997 12,369,808
Components of Comprehensive
Income:
Net Income 997,971
Currency Translation 9,744
------------
Total Comprehensive Income 1,007,715
Issuance of Stock 607,636
Two for One Stock Split
on July 22, 1997
------------
Balance, March 31, 1998 13,985,159
Components of Comprehensive
Income:
Net Income 1,049,101
Currency Translation (79,780)
------------
Total Comprehensive Income 969,321
Issuance of Stock 404,838
Share Repurchase ($453,315) (453,315)
----------- ------------
Balance, March 31, 1999 ($453,315) $14,906,003
=========== ============
See notes to consolidated financial statements.
20
21
TRANSMATION, INC.
-----------------
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 1999, 1998, AND 1997
--------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Principles of Consolidation
The financial statements include the accounts of wholly-owned subsidiaries. All
intercompany transactions have been eliminated.
Foreign Operations
The accounts of Transmation's foreign subsidiaries are maintained in the local
currency of the countries in which they operate and have been translated to U.S.
dollars in accordance with the Statement of Financial Accounting Standards No.
52. Accordingly, accounts representing assets and liabilities, except for
long-term intercompany and equity accounts, have been translated at the year-end
rates of exchange and related revenue and expense accounts have been translated
at average rates of exchange during the year. Gains and losses arising from
translation of subsidiaries' balance sheets into U.S. dollars are recorded
directly to the accumulated comprehensive income component of stockholders'
equity. Currency gains and losses on business transactions are included in net
income. In 1999 and 1998 transaction losses totaled $53,965 and $59,303
respectively. In 1997 transaction gains totaled $1,336.
Inventories
Inventories are valued at the lower of standard cost or market. Standard costs
approximate the average cost method of inventory valuation.
Depreciation and Amortization
The cost of properties is depreciated over the estimated useful lives of the
assets. Depreciation is determined on a straight-line basis. For income tax
purposes, depreciation is determined by accelerated methods as permitted under
tax regulations. Additions and betterments are capitalized; maintenance and
repairs are charged to income. The cost and accumulated depreciation of assets
retired or otherwise disposed of are eliminated from the accounts and any
resulting gain or loss is credited or charged to income. Leasehold improvements
are amortized over the terms of the related leases.
Income Taxes
The Company accounts for certain income and expense items differently for
financial reporting purposes than for income tax reporting purposes. Deferred
income taxes are provided in recognition of these temporary differences.
21
22
Deferred Catalog Costs
Costs relating to mail order catalogs are amortized over a two-year period
beginning in the month of distribution. Such amortization periods approximate
the estimated productive life of a catalog. Prepaid expenses and deferred
charges at March 31, 1999, 1998, and 1997 consist principally of the unamortized
balance of costs associated with the catalogs. Catalog costs expensed in 1999,
1998, and 1997 were $1,369,224, $1,059,418, and $1,040,716, respectively.
Fiscal Year
The Company operates within a conventional 52 week accounting fiscal year ending
on March 31 of each year.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
Goodwill
Goodwill represents the excess of acquisition cost over fair value of assets
acquired at the time subsidiaries were purchased. The excess acquisition cost is
being amortized over 20 years on a straight-line basis. The Company evaluates
the carrying value of the excess acquisition costs of its subsidiaries whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The carrying value of excess acquisition costs is considered
impaired when the projected undiscounted future cash flows from the related
business unit is less than its carrying value. The Company measures impairment
based on the amount by which carrying value exceeds fair market value. Fair
market value is determined primarily using the projected future cash flows
discounted at a rate commensurate with the risk involved.
Stock Options
The Company follows the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," to account for its stock
option and warrant activity in the financial statements. The Company granted all
options currently outstanding at an exercise price equal to the market price at
the date of grant and, therefore, under APB 25, no compensation expense is
recorded. The Company follows the disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation."
Comprehensive Income
Effective March 31, 1998, the Company has adopted the disclosure requirements of
SFAS No. 130, "Reporting Comprehensive Income." SFAS 130 established standards
for the reporting of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is comprised of net
income (loss) and other comprehensive earnings such as currency translation
adjustments.
22
23
Note 2 - Business Segments
- --------------------------
In fiscal 1999, the Company adopted SFAS 131 "Disclosures about Segments of an
Enterprise and Related Information" and has determined that the Company and its
subsidiaries operate in one basic industry, instrumentation products for the
process industry. Sales are made by the Company and its subsidiaries to end
users and engineering contractors in the United States and other countries. The
Company's domestic operations include manufacturing, sales and service; the
Company's foreign operations are limited to sales and service. A summary of
1999, 1998, and 1997 geographic information relating to the Company and its
subsidiaries is as follows:
Adjustments
And Consoli-
1999 United States Canada Other Eliminations dated
- ------------------- --------------- --------------- --------------- --------------- ---------------
Revenue from
Unaffiliated
Customers $64,632,652 $5,112,223 $69,744,875
Intercompany
Sales and
Credits 635,125 $1,568,752 ($2,203,877)
--------------- --------------- --------------- --------------- ---------------
Total Revenue $65,267,777 $5,112,223 $1,568,752 ($2,203,877) $69,744,875
=============== =============== =============== =============== ===============
Net Income $385,187 $326,811 $327,350 $9,753 $1,049,101
=============== =============== =============== =============== ===============
Identifiable
Assets $53,433,685 $1,860,023 $1,719,809 $282,067 $57,295,584
=============== =============== =============== =============== ===============
Adjustments
and Consoli-
1998 United States Canada Other Eliminations dated
- ------------------- --------------- --------------- --------------- --------------- ---------------
Revenue from
Unaffiliated
Customers $73,317,493 $5,166,072 $78,483,565
Intercompany
Sales and
Credits 624,791 $1,489,598 ($2,114,389)
--------------- --------------- --------------- --------------- ---------------
Total Revenue $73,942,284 $5,166,072 $1,489,598 ($2,114,389) $78,483,565
=============== =============== =============== =============== ===============
Net Income $277,773 $222,371 $548,075 ($50,248) $997,971
=============== =============== =============== =============== ===============
Identifiable
Assets $49,240,409 $1,451,495 $1,388,336 ($205,026) $51,875,214
=============== =============== =============== =============== ===============
Adjustments
and Consoli-
1997 United States Canada Other Eliminations dated
- ------------------- --------------- --------------- --------------- --------------- ---------------
Revenue from
Unaffiliated
Customers $42,518,794 $4,792,430 $47,311,224
Intercompany
Sales and
Credits 622,954 $1,445,577 ($2,068,531)
--------------- --------------- --------------- --------------- ---------------
Total Revenue $43,141,748 $4,792,430 $1,445,577 ($2,068,531) $47,311,224
=============== =============== =============== =============== ===============
Net Income $1,473,236 $265,790 $323,526 ($2,816) $2,059,736
=============== =============== =============== =============== ===============
Identifiable
Assets $24,341,603 $1,338,863 $875,650 ($697,758) $25,858,358
=============== =============== =============== =============== ===============
23
24
Sales and transfers among the United States, Canada, and others are made on a
formula basis intended to reflect market value.
Total consolidated sales to additional separate foreign geographic areas except
Canada, as defined by the Company, did not aggregate more than 10 percent of
total consolidated sales during the years 1999-1997. Sales in foreign countries,
including Canada, represented 18.8 percent of sales in 1999, 19.1 percent of
sales in 1998, and 27.8 percent of sales in 1997.
Note 3 - Foreign Net Assets
- ---------------------------
The consolidated balance sheet includes net assets of Transmation's foreign
subsidiaries of $3,069,599 in 1999, and $1,262,323 in 1998.
Note 4 - Inventories
- --------------------
The major classifications of inventory are as follows:
March 31,
--------------------------------------
1999 1998
---- ----
Raw Materials and
Purchased Parts $ 5,195,188 $ 4,221,730
Work in Process 614,816 629,545
Finished Products 7,222,400 6,529,564
----------- ----------
13,032,404 11,380,839
Less - Inventory Reserve (1,022,634) (705,010)
----------- -----------
$12,009,770 $10,675,829
=========== ===========
Note 5 - Properties
- -------------------
The major classifications of properties are as follows:
March 31,
-------------------------------------
1999 1998
---- ----
Land and Improvements $ 118,445
Buildings 321,267
Machinery, Equipment &
Software $11,133,306 9,209,697
Tools, Dies and Molds 934,187 649,249
Furniture & Fixtures 1,454,402 1,532,980
Vehicles 51,995 81,951
Leasehold Improvements 140,311 153,553
---------- ----------
13,714,201 12,067,142
Less - Accumulated
Depreciation & Amort. (6,827,970) (5,662,089)
---------- ----------
$6,886,231 $6,405,053
========== ==========
Useful lives are estimated to be 15 to 30 years for buildings, 5 to 10 years for
machinery, equipment and software, 3 years for tools, dies and molds, 5 to 10
years for furniture and fixtures, and 3 years for vehicles. Leasehold
improvements are amortized over the terms of the related leases.
Note 6 - Borrowings
- -------------------
At March 31, 1999, the Company has a $35,450,000 Revolving Credit and Term Loan
Agreements with banks dated August 8, 1998 and amended February 8, 1999, and
extending through June 1, 2007. At March 31, 1999, $20,450,000 is borrowed under
term loans. The term loans require annual repayments of amounts outstanding,
paid on a quarterly basis, as follows:
24
25
April 1, 1999 - March 31, 2000 $2,200,000
April 1, 2000 - March 31, 2001 $2,700,000
April 1, 2001 - March 31, 2002 $3,980,000
April 1, 2002 - March 31, 2003 $3,980,000
April 1, 2003 - March 31, 2004 $3,430,000
Interest is payable on a formula basis, at the Company's option, at rates above
prime or above LIBOR determined on the basis of Company performance as
determined by its leverage ratio. On March 31, 1999, interest to be paid under
Term Loans was 1.85% to 2.40% above LIBOR or .25% to .625% to above the bank's
prime lending rate. At March 31, 1999, $7,916,900 was borrowed under the
Revolving Credit portion of the Company's credit facility. The term of the
Revolving Credit Facility dated August 8, 1998, matures on July 1, 2001.
Interest is payable under the Revolving Credit Facility on a formula basis, at
the Company's option, at rates above prime or above LIBOR determined on the
basis of the Company's performance as determined by its leverage ratio. On March
31, 1999, interest to be paid under the Revolving Credit Agreement was 1.85%
above LIBOR or .25% above the bank's prime lending rate. At March 31, 1999,
interest was payable on the above loans at rates ranging from 6.81% to 8.00%.
The Company has entered into interest rate swaps resulting in a substantial
portion of floating interest rate debt being swapped into fixed interest rate
debt. See Note 13.
The revolving credit and term loan agreement contains, among other provisions,
requirements to maintain minimum levels of net worth, to meet minimum fixed
charge coverage ratios and leverage ratios throughout the term of the loans.
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 its lenders an
annual commitment fee from .125% to .25%, depending on performance of the
Company, of the unused portion of the Lenders' Revolving Credit Committed
Amount. The fee is payable quarterly and total commitment fees paid under any
unused lines of credit under Revolving Credit Agreements were immaterial in all
years 1997-1999. The Company also agreed to pay a closing fee in the amount of
$130,000 in conjunction with the Revolving Credit and Term Loan Facility and the
amendment thereto; fees are being amortized over the term of the loans.
The Company is in compliance with provisions of its loan agreement as of March
31, 1999.
Note 7 - Leases
- ---------------
The Company has operating leases under renewable agreements covering sales
office and manufacturing space. At March 31, 1999, minimum future rental
payments due under such leases for space which had an initial non-cancelable
term in excess of one year were $4,843,162 due in monthly installments. Amounts
due under these leases are as follows:
2000 - $1,279,835
2001 - $965,177
2002 - $745,227
2003 - $574,383
2004 - $205,290
Thereafter $1,073,250
Total rental expense under these leases was $842,371 in 1999, $840,955 in 1998,
and $350,076 in 1997.
25
26
Note 8 - Stockholders' Equity
- -----------------------------
In August 1993, an incentive Stock Option plan was adopted. This plan was
amended and restated in August 1995, 1996 and 1997. 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. A plan adopted in
August 1981 has now expired; however, certain options under that plan were
exercised during 1997.
The following table summarizes the transactions under the plans during 1999,
1998, and 1997:
1999 1998 1997
------------------------------- ------------------------------- -------------------------------
Weighted Weighted Weighted
Average Average Average
No. of Exercise No. of Exercise No. of Exercise
Shares Price Shares Price Shares Price
------------------------------- ------------------------------- -------------------------------
Beginning of Year 1,620,990 $4.58 1,493,870 $3.70 805,100 $2.22
Add (Deduct)
Granted 300,711 4.57 539,520 7.10 878,520 4.65
Exercised (38,330) 2.45 (82,410) 2.66 (94,460) 1.24
Canceled (276,290) 6.72 (329,990) 5.22 (95,290) 2.29
-------------- -------------- --------------- -------------- -------------- ---------------
End of Year 1,607,081 $4.26 1,620,990 $4.58 1,493,870 $3.70
-------------- -------------- --------------- -------------- -------------- ---------------
Exercisable, End of Year 667,592 $3.21 648,435 $3.65 253,434 $3.28
============== ============== =============== ============== ============== ===============
Available, End of Year 163,519 187,940 176,630
============== =============== ==============
The following options were outstanding or exercisable as of March 31, 1999:
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------
Weighted
Average Weighted Weighted
Remain. Average Average
No. of Contractual Exercise No. of Exercise
Shares Life Price Shares Price
-------------- -------------- --------------- -------------- ---------------
Range of Exercise Prices:
$2.125 - $3.125 456,450 .90 yrs $2.28 438,412 $2.25
$3.25 - $3.3125 283,931 4.06 yrs $3.67 28,770 $3.27
$4.1875 - $4.75 487,360 2.90 yrs $4.62 122,500 $4.61
$5.25 - $9.25 379,340 3.16 yrs $6.62 77,910 $6.43
On August 21, 1984, shareholders approved the Directors' Warrant Plan. This Plan
was amended and restated in August 1995. The Plan provides that warrants may be
granted to non-employee directors of Transmation to purchase in the aggregate
not more than 200,000 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:
26
27
Shares Warrant Price
------ -------------
Balance, 3/31/96 60,000 $1.50 - $3.25
Granted During 1997 24,000 4.19
Exercised During 1997 (8,400) 1.50 - 4.19
Canceled During 1997 (9,600) 3.25 - 4.19
------ ------------
Balance, 3/31/97 66,000 1.50 - 4.19
Granted During 1998 24,000 7.88
Exercised During 1998 (26,000) 1.50
------ ------------
Balance 3/31/98 64,000 3.25 - 7.88
Granted During 1999 24,000 3.75
------ -------------
Balance 3/31/99 88,000 $3.25 - $7.88
====== =============
The Board of Directors of the Company has also granted the following
non-qualified stock options to certain officers of the Company. All of such
options were granted at the fair market value at the date of the grant, are
exercisable in equal annual installments beginning at the date of the grant, and
expire five years after issuance:
No. of Shares Grant Price Date of Grant
------------- ----------- -------------
47,900 $3.13 8/15/95
25,000 $7.25 4/21/98
25,000 $3.79 10/28/98
During 1997, the Company adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 introduced a fair value
method of accounting for stock-based compensation. To calculate the fair value
of the options and warrants awarded, the Company elected to use the
Black-Scholes pricing model which produced a weighted average fair value of
options granted of $2.33, $3.90, and $4.65 in 1999, 1998 and 1997 respectively.
The following assumptions were used in the pricing model: a weighted average
expected option life of five years; an annualized volatility rate of 51.1% for
1999, 54.4% for 1998, and 58.6% for 1997; a weighted average risk-free rate of
return of 5.35% in 1999, 6.64% in 1998, and 6.31% in 1997; and no dividends in
any year. The Company elected to account for terminations when they occur rather
than include an attrition factor into its model.
If compensation cost had been measured based on the fair-value based accounting
method under SFAS 123, the following would have been disclosed for March 31:
1999 1998 1997
---- ---- ----
Pro Forma
Net Income(Loss) $246,754 ($458,150) $746,932
Earnings Per Share
Basic $.04 ($.08) $.13
Diluted $.04 ($.08) $.13
The effect of applying SFAS 123 in the current year is not representative of the
effect on income for future years since each subsequent year will reflect
expense for additional year's vesting.
On June 23, 1997, the Company declared a two-for-one stock split effected in the
form of a 100% stock dividend to shareholders of record on July 22, 1997.
Accordingly, $1,426,846 was transferred from Capital in Excess of Par Value to
Common Stock, representing the par value of additional shares issued. All
references in the consolidated financial statements referring to shares, share
prices, per share amounts and stock plans have been adjusted retroactively for
the two-for-one stock split.
27
28
Note 9 - Net Earnings 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:
1 9 9 9 1 9 9 8 1 9 9 7
---------------------------------- ----------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE
NET OUTSTAND. PER NET OUTSTAND. PER NET OUTSTAND. PER
EARNINGS SHARES SHARE EARNINGS SHARES SHARE EARNINGS SHARES SHARE
------------ ----------- -------- ------------ ------------ --------- ------------ ----------- ---------
Basic Earnings
Per Share $1,049,101 5,847,077 $0.18 $997,971 5,729,599 $0.17 $2,059,736 2,803,376 $0.73
Stock Split 7/22/97 2,803,376 ($0.36)
Basic Earnings
After Stock Split 1,049,101 5,847,077 $0.18 997,971 5,729,599 $0.17 2,059,736 5,606,752 $0.37
Effect of Dilutive
Options & Warrants 284,135 545,039 335,658
Diluted Earnings
---------- --------- ----- -------- --------- ----- ---------- --------- -----
Per Share $1,049,101 6,131,212 $0.17 $997,971 6,274,638 $0.16 $2,059,736 5,942,410 $0.35
========== ========= ===== ======== ========= ===== ========== ========= =====
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 three years and their associated exercise prices are summarized below. The
options expire at various times between 2000 and 2004.
Number of Exercise
Options and Warrants Price
-------------------- -----
1999 905,700 $4.63 - $9.25
1998 70,520 $8.13 - $9.25
1997 None None
28
29
Note 10 - Income Taxes
- ----------------------
The provisions for income taxes determined in accordance with FAS 109 for the
years ended March 31, 1999, 1998, and 1997 are comprised of:
1999 Current Deferred Total
---- ------- -------- -----
Federal ($ 159,900) $542,900 $ 383,000
State (40,300) 68,100 27,800
Foreign 326,300 326,300
---------- -------- ----------
$ 126,100 $611,000 $ 737,100
========== ======== ==========
1998 Current Deferred Total
---- ------- -------- -----
Federal $ 312,800 $ 18,200 $ 331,000
State 77,500 3,800 81,300
Foreign 229,800 229,800
---------- -------- ----------
$ 620,100 $ 22,000 $ 642,100
========== ======== ==========
1997 Current Deferred Total
---- ------- -------- -----
Federal $1,085,400 ($201,400) $ 884,000
State 81,454 (3,694) 77,760
Foreign 259,840 259,840
---------- -------- ----------
$1,426,694 ($205,094) $1,221,600
========== ======== ==========
The following is a reconciliation of the "expected" federal income tax provision
computed by applying the statutory U.S. federal income tax rate and the income
tax provision reflected in the statement of income:
1999 1998 1997
---- ---- ----
Computed "Expected"
Federal Income Tax $607,300 $557,600 $1,115,650
State Income Taxes 32,900 38,300 56,100
Foreign Sales Corp. (78,800) (126,600) (69,400)
Book Expense not
Deductible for taxes 99,700 150,300 106,600
Foreign Taxes 64,300 44,000 50,800
Valuation Allowance,
Foreign (17,900) (14,200)
R&D Credit (30,800)
Other, Net 42,500 (3,600) (23,950)
-------- -------- ----------
$737,100 $642,100 $1,221,600
======== ======== ==========
29
30
The components of net deferred tax assets are as follows:
1999 1998 1997
---- ---- ----
Deferred Tax Assets:
Foreign Net Operating
Loss Carryforward $ 123,485 $ 133,235 $ 154,857
Domestic Net Operating
Loss Carryforward 620,000
Deferred Compensation 175,643 209,069 226,749
Accrued Vacation Pay 201,534 216,211 150,474
Allowance for Doubtful
Accounts and Warranties 194,160 221,474 134,865
Reserves for Inventory Obsolescence 426,345 289,023 201,737
Amortizations of Leaseholds 35,150 53,293
Adverse Lease Commitments 168,000
Valuation Allowance (620,000) (30,800)
----------- ----------- -----------
Gross Deferred Tax Assets 1,289,167 1,104,162 891,175
Deferred Tax Liabilities:
Goodwill 166,212 94,721
Depreciation 561,196 244,150 177,747
Accelerated Catalog & Postage
Write-Offs 238,587 186,537 92,674
----------- ----------- -----------
Gross Deferred Tax Liabilities 965,995 505,408 270,421
----------- ----------- -----------
Net Deferred Tax Assets $ 323,172 $ 598,754 $ 620,754
=========== =========== ===========
The valuation allowance required under Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes," has been established for
deferred income tax benefits related to certain loss carryforwards that may not
be realized. Included in the valuation allowance at March 31, 1999 is $620,000
which relates to the deferred tax assets recorded from the Metermaster
acquisition. Any tax benefits subsequently recognized for these deferred tax
assets will be allocated to goodwill.
The Company has available foreign net operating loss carryforwards totaling
approximately $333,000. These carryforwards have an unlimited expiration period
and their use is limited to the Company's future taxable income.
Note 11 - Consulting Agreement
- ------------------------------
On February 28, 1995, William J. Berk, former President of Transmation, Inc.
retired. In accordance with terms of a deferred compensation agreement between
the Company and Mr. Berk, payments due under such agreement commenced on March
1, 1995. Mr. Berk is entitled to annual payments amounting to $96,456 for life.
His wife will receive 60% of the annual benefit for her lifetime should she
survive him. This deferred compensation agreement was not funded and the
estimated present value of the future benefits was recorded as an expense and a
liability over the term of Mr. Berk's actual employment.
Note 12 - Deferred Profit Sharing
- ---------------------------------
Effective April 1, 1981, the Transmation, Inc. Deferred Profit Sharing Plan was
adopted. Effective April 1, 1987, this plan was amended from a non-contributory
to a contributory defined contribution plan and renamed the Transmation, Inc.
Long-Term Savings and Deferred Profit Sharing Plan. All United States employees
of Transmation, Inc. are eligible to participate in the plan providing certain
qualifications are met. Employer contributions are made to the plan at the
discretion of the Board of Directors of the Company. Payments of benefits
accrued for plan participants will be made upon retirement or upon termination
of employment prior to retirement providing certain conditions have been met by
the employee prior to termination. There were no company profit sharing
contributions made under this plan in any of the periods 1997-1999.
30
31
Note 13 - Fair Value of Financial Instruments
- ---------------------------------------------
The Company has determined the fair value of its debt and other financial
instruments using available market information and appropriate valuation
methodologies as follows:
Cash and accounts receivable:
The carrying amounts reported in the balance sheet for cash
and receivables approximate their fair value.
Long-term debt:
The carrying amount of debt under the Company's floating rate
revolving credit agreement with a bank approximates it fair
value.
Debt-related derivative instruments:
The Company has entered into interest rate swaps. These
financial instruments have the effect of changing the interest
rate of the original borrowing with the objective of
minimizing the Company's risk relative to potential increases
in interest rates. The maturities of these instruments are
closely matched with maturities of the underlying debt. The
notional principal amount of these derivative instruments was
$15,000,000 at March 31, 1999. Underlying base fixed interest
rates on these instruments ranged from 5.82% to 6.20% and are
periodically adjusted to reflect leverage ratios under the
loans. At March 31,1999, rates ranged from 8.22% to 8.60%.
(There were no similar instruments at March 31, 1998.) This
activity resulted in a substantial portion of floating
interest rate debt being swapped into fixed interest rate debt
as of March 31, 1999. Interest rate swaps effectively hedge
interest rate exposures, the net cash amounts paid or received
on the agreements are recognized as adjustments to interest
expense. The estimated amount that the Company would pay to
terminate the agreements at March 31, 1999, taking into
account current interest rates and the current
creditworthiness of counterparties, is $298,279.
Note 14 - Supplemental Information
- ----------------------------------
Supplemental cash flow information and non-cash investing and financing
activities are as follows:
Acquisitions: 1999 1998
---- ----
Fair value of assets acquired $4,647,343 $12,670,050
Liabilities assumed $6,895,398 $ 4,929,355
Fair value of assets exchanged $1,488,553 $22,000,000
Note 15 - Acquisitions
- ----------------------
On February 9, 1999, the Company acquired all of the outstanding shares of the
capital stock of Metermaster Inc. for $1,500,000 cash and the paying off of
Metermaster's long-term debt totaling approximately $3,100,000. The cash portion
of the purchase price is subject to post-closing adjustment based on an audited
balance sheet as of the closing date. The transaction was accounted for under
the purchase method of accounting and, accordingly, the results of operations of
Metermaster for the period February 9, 1999 through March 31, 1999 are included
in the accompanying consolidated financial statements. The purchase price has
been allocated to assets acquired and liabilities assumed based on fair market
value at the date of the acquisition.
31
32
The following unaudited proforma financial information for the Company gives
effect to the Metermaster acquisition had it occurred on January 1, 1998. 1998
and 1997 amounts include unaudited results for Transmation for the years ended
December 31, 1998 and 1997 added together with results for Metermaster for their
years ended December 31, 1998 and 1997, respectively. These proforma results
have been prepared for comparative purposes only and do not purport to be
indicative of results of operations which actually would have resulted if the
acquisition had occurred on the date indicated, or which may result in the
future.
Year Ending December 31,
------------------------
1998 1997
---- ----
Net Sales $92,102,609 $91,816,698
Income before provision for
Income Taxes $1,637,876 $2,128,501
Net Income $978,876 $1,278,996
Diluted Earnings Per Share $.16 $.20
On April 4, 1997, the Company acquired certain assets of E.I.L. Instruments,
Inc. for $22,000,000 cash and the value of certain defined assumed liabilities.
The transaction was accounted for under the purchase method of accounting and,
accordingly, the results of operations of E.I.L. for the period April 4, 1997
through March 31, 1998 are included in the accompanying consolidated financial
statements. The purchase price has been allocated to assets acquired and
liabilities assumed based on fair market value at the date of the acquisition.
Note 16 - Quarterly Financial Information (Unaudited)
- -----------------------------------------------------
DILUTED
EARNINGS
1999 NET SALES GROSS PROFIT NET INCOME PER SHARE
- ---------------------------- ---------------- ---------------- ---------------- ----------------
Fourth Quarter $18,616,258 $5,963,422 $92,758 $0.02
Third Quarter $16,830,499 $5,564,725 $381,682 $0.06
Second Quarter $16,338,809 $5,549,534 $285,103 $0.05
First Quarter $17,959,309 $6,131,864 $289,558 $0.05
NOTE: 1999 Quarterly Diluted EPS amounts do not total to the annual Diluted EPS
amount due to rounding.
DILUTED
EARNINGS
1998 NET SALES GROSS PROFIT NET INCOME PER SHARE
- ---------------------------- ---------------- ---------------- ---------------- ----------------
Fourth Quarter $19,982,735 $6,610,609 $332,896 $0.05
Third Quarter $19,775,043 $6,162,063 $158,700 $0.03
Second Quarter $19,612,705 $6,232,345 $264,753 $0.04
First Quarter $19,113,082 $6,037,261 $241,622 $0.04
32
33
TRANSMATION, INC.
-----------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
Y E A R E N D E D M A R C H 3 1,
--------------------------------------
Additions/
(Reductions)
Balance at Charged to Acquired Bal. at
Beginning of Profit and in End of
Year Loss Acquisition Year
---- ---- ----------- ----
1999
----
Allowance for
Doubtful Accounts $592,000 ($108,000) $65,000 $549,000
======== ========= ======= ========
1998
----
Allowance for
Doubtful Accounts $404,000 $37,000 $151,000 $592,000
======== ========= ======== ========
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
--------------------
None
33
34
Part III
--------
The information required by each of the following items is presented in
the definitive proxy statement to be filed pursuant to Regulation 14A which
Transmation will file within the period prescribed in connection with the annual
meeting of shareholders to be held on August 17, 1999 and which is incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Item 11. Executive Compensation
----------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) 1. Financial Statements
Report of Independent Accountants
Consolidated Balance Sheet - March 31, 1999, 1998
Consolidated Statement of Income - March 31, 1999, 1998, 1997
Consolidated Statement of Cash Flows - March 31, 1999, 1998, 1997
Consolidated Statement of Stockholders' Equity - March 31, 1999,
1998, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts -
March 31, 1999, 1998
All other schedules have been omitted because they are not
applicable or the required information is shown in the
Financial Statements or notes thereto.
3. 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
34
35
by reference to Exhibit I to the
Registrant's Form 10-Q for the quarter ended
September 30, 1996.
(ii) Bylaws, 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
Credit and Loan Agreement dated August 7, 1998
between Transmation, Inc. and KeyBank National
Association is incorporated herein by reference to
Exhibit 4(a) to the Registrant's Form 10-Q for the
quarter ended September 30, 1998.
(9) Voting Trust Agreement
NOT APPLICABLE
(10) Material Contracts
The documents listed under (4) are incorporated
herein by reference.
Amendment No. 1 to Transmation, Inc. Amended and
Restated Directors' Warrant Plan is incorporated
herein by reference to Exhibit II to the
Registrant's Form 10-Q for the quarter ended
September 30, 1996.
Amendments No. 1 and No. 2 to the Transmation, Inc.
Amended and Restated 1993 Stock Option Plan are
incorporated herein by reference to Exhibits III and
IV to the Registrant's Form 10-Q for the quarter
ended September 30, 1996.
Amendment No. 2 to the Transmation, Inc. Employee's
Stock Purchase Plan is incorporated herein by
reference to Exhibit V to the Registrant's Form 10-Q
for the quarter ended September 30, 1996.
Amendment No. 3 to the Transmation, Inc. Directors'
Stock Plan is incorporated herein by reference to
Exhibit 10(a) to the Registrant's Form 10-K for the
year ended March 31, 1997.
Amendment No. 4 to the Transmation, Inc. Directors'
Stock Plan is incorporated herein by reference to
Exhibit 10(h) to the Registrant's Form 10-Q for the
quarter ended June 30, 1997.
Amendment No. 2 to the Transmation, Inc. Amended and
Restated Directors' Warrant Plan is incorporated
herein by reference to Exhibit 10(i) to the
Registrant's Form 10-Q for the quarter ended June
30, 1997.
Amendments No. 3 and 4 to the Transmation, Inc.
Amended and Restated 1993 Stock Option Plan are
incorporated herein by
35
36
reference to Exhibit 10(j) to the Registrant's Form
10-Q for the quarter ended September 30, 1997.
Amendment No. 3 to the Transmation, Inc. Employees'
Stock Purchase Plan is incorporated herein by
reference to Exhibit 10(k) to the Registrant's Form
10-Q for the quarter ended September 30, 1997.
Second Amendment to the Stock Registration and
Repurchase Agreement dated December 12, 1997 between
the Registrant and William J. Berk is incorporated
herein by reference to the Registrant's Registration
Statement on Form S-3 (Registration No. 333-42345).
Amendment No. 5 to the Transmation, Inc. Directors'
Stock Plan is incorporated herein by reference to
Exhibit 10(a) to the Registrant's Form 10-K for the
year ended March 31, 1998.
Non-Statutory Stock Option Agreement dated as of
April 21, 1998 by and between Transmation, Inc. and
Barry F. Wharity is incorporated herein by reference
to Exhibit 10(d) to the Registrant's Form 10-K for
the year ended March 31, 1998.
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.
Amendment No. 4 to the Transmation, Inc. Directors'
Stock Plan is incorporated herein by reference to
Exhibit 10(a) to the Registrant's Form 10-Q for the
quarter ended December 31, 1998 and supercedes
Exhibit 10(h) to the Registrant's Form 10-Q for the
quarter ended June 30, 1997.
Non-Statutory Stock Option Agreement dated as of
October 28, 1998 by and between Transmation, Inc. and
John A. Misiaszek is incorporated herein by reference
to Exhibit 10(b) to the Registrant's Form 10-Q for
the quarter ended December 31, 1998.
(a) Amendment No. 5 to the Transmation, Inc. Amended
and Restated Stock Option Plan is included herein as
Exhibit 10(a).
(b) Employment Agreement dated as of April 1, 1999 by
and between Transmation, Inc. and Robert G.
Klimasewski is included herein as Exhibit 10(b).
(c) Employment Agreement dated as of April 1, 1999
by and between Transmation, Inc. and Eric W. McInroy
is included herein as Exhibit 10(c).
(11) Statement re Computation of Per Share Earnings
Computation can be clearly determined from Note 9
to the Financial Statements included herein at
Item 8.
(12) Statements re Computation of Ratios
NOT APPLICABLE
36
37
(13) Annual Report to Security Holders, Form 10-Q on
Quarterly Report to Security Holders
NOT APPLICABLE
(16) Letter re Change in Certifying Accountant
NOT APPLICABLE
(18) Letter re Change in Accounting Principles
NOT APPLICABLE
(21) Subsidiaries of Registrant
Subsidiaries of the Registrant are included herein
as Exhibit 21.
(22) Published Report Regarding Matters Submitted to
Vote of Security Holders
NOT APPLICABLE
(23) Consents of Experts and Counsel
Consent of PricewaterhouseCoopers LLP is included
herein as Exhibit 23.
(24) Power of Attorney
NOT APPLICABLE
(27) Financial Data Schedule
Financial Data Schedule is included herein as
Exhibit 27.
(99) Additional Exhibits
NOT APPLICABLE
(b) Report on Form 8-K dated February 9, 1999 was filed during the quarter
ended March 31, 1999 reporting on Item 2. Acquisition or Disposition of
Assets, and a Report on Form 8-K/A filing related financial statements
was filed on April 15, 1999.
(c) See (a) 3. above.
(d) (1) NOT APPLICABLE
(2) NOT APPLICABLE
(3) See Item 8
37
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TRANSMATION, INC.
By: /s/ Eric W. McInroy By: /s/ Robert G. Klimasewski
- ----------------------------------- ----------------------------------
Eric W. McInroy Robert G. Klimasewski
President & Chief Executive Officer Chairman of the Board of Directors
(Principal Executive Officer)
Date: 6/21/99 Date: 6/21/99
- ----------------------------------- ----------------------------------
By: /s/ Angelo J. Chiarella By: /s/ John W. Oberlies
- ----------------------------------- ----------------------------------
Angelo J. Chiarella, Director John W. Oberlies, Director
Date: 6/21/99 Date: 6/21/99
- ----------------------------------- ----------------------------------
By: /s/ E. Lee Garelick By: /s/ Harvey J. Palmer
- ----------------------------------- ----------------------------------
E. Lee Garelick, Director Dr. Harvey J. Palmer, Director
Date: 6/25/99 Date: 6/21/99
- ----------------------------------- ----------------------------------
By: /s/ Nancy D. Hessler By:
- ----------------------------------- ----------------------------------
Nancy D. Hessler, Director Arthur M. Richardson, Director
Date: 6/21/99 Date:
- ----------------------------------- ----------------------------------
By: /s/ Cornelius J. Murphy By: /s/ John A. Misiaszek
- ----------------------------------- ----------------------------------
Cornelius J. Murphy, Director John A. Misiaszek
Vice President, Finance
(Principal Financial Officer and
Principal Accounting Officer)
Date: 6/21/99 Date: 6/21/99
- ----------------------------------- ----------------------------------
38