<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
--------------------- --------------------------
Commission file number 0-3905
-----------------
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
-----------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark (X) whether the registrant, (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Number of Shares Outstanding Date
- ----- ---------------------------- ----
Common 5,777,865 January 28, 1998
TOTAL PAGES - 14
<PAGE> 2
Part I
------
FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
- -----------------------------
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Dec. 31, March 31,
ASSETS: 1997 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 580,703 $ 758,215
Accounts Receivable, less allowance
for doubtful accounts of $340,300 at
Dec. 31, 1997, and $404,000 at
March 31, 1997 12,723,753 6,773,669
Inventories 11,715,392 7,790,166
Prepaid Expenses and Deferred Charges 1,872,362 956,235
Deferred Tax Assets 394,402 394,402
------------ ------------
Current Assets 27,286,612 16,672,687
Properties, at cost, less accumulated
Depreciation 6,482,041 2,355,757
Deferred Charges 231,469 118,214
Deferred Income Taxes 226,352 226,352
Other Assets 253,513 537,790
Goodwill, less accum. Amortization of $1,055,349
at 12/31/97 and $313,600 at 3/31/97 18,688,994 5,947,558
------------ ------------
$ 53,168,981 $ 25,858,358
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Notes Payable $ 2,500,000
Current Portion of Long Term Debt 2,860,000 $ 600,000
Accounts Payable 7,906,559 3,596,365
Accrued Payrolls, Commissions & Other 2,337,578 2,008,698
Income Taxes Payable 411,630 689,461
------------ ------------
Current Liabilities 16,015,767 6,894,524
Long-Term Debt 23,177,493 6,000,000
Deferred Compensation 536,599 594,026
------------ ------------
39,729,859 13,488,550
------------ ------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common Stock, par value $.50 per share -
Authorized - 15,000,000 shares - issued
and outstanding - 5,748,556 at Dec. 31,
1997, and 2,826,412 at March 31, 1997 2,874,278 1,413,206
Capital in Excess of Par Value 2,067,233 3,121,746
Accumulated Translation Adjustment (132,852) (130,532)
Retained Earnings 8,630,463 7,965,388
------------ ------------
13,439,122 12,369,808
------------ ------------
$ 53,168,981 $ 25,858,358
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
10/1 - 10/1 - 4/1 - 4/1 -
12/31/97 12/31/96 12/31/97 12/31/96
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Sales $19,775,043 $12,210,882 $58,500,830 $34,470,490
--------------------------- ---------------------------
Costs and Expenses:
Cost of Product Sold 13,612,980 7,377,367 40,069,161 20,915,278
Selling & Admin. Expenses 4,854,704 3,567,901 14,206,816 10,081,481
Research & Develop. Costs 419,943 399,802 1,236,308 1,186,792
Interest Expense 639,461 163,209 1,931,265 475,445
--------------------------- ---------------------------
19,527,088 11,508,279 57,443,550 32,658,996
--------------------------- ---------------------------
Income Before Taxes 247,955 702,603 1,057,280 1,811,494
Provision for Income Taxes
State and Federal 89,255 275,065 392,205 764,300
--------------------------- ---------------------------
Net Income 158,700 427,538 665,075 1,047,194
Retained Earnings at
Beginning of Period 8,471,763 6,525,308 7,965,388 5,905,652
--------------------------- ---------------------------
Retained Earnings at
End of Period $ 8,630,463 $ 6,952,846 $ 8,630,463 $ 6,952,846
=========================== ===========================
Net Income Per Share
Basic $ 0.03 $ 0.08 $ 0.12 $ 0.19
=========================== ===========================
Diluted $ 0.03 $ 0.07 $ 0.10 $ 0.18
=========================== ===========================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
12/31/97 12/31/96 12/31/97 12/31/96
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 158,700 $ 427,538 $ 665,075 $ 1,047,194
Items Not Requiring (Providing) Cash
Included in Income
Depreciation and Amortization 607,272 248,115 1,993,751 737,179
Provision for Losses on Accounts Receivable (54,800) (11,000) (95,700) 82,000
Other Assets (5,600) (5,600) 284,277 3,803
(Increase)Decrease in Accounts Receivable 1,872,151 (885,820) 990,916 (541,856)
Decrease(Increase) in Inventories (322,804) (38,451) (1,332,744) 40,946
(Increase)Decrease in Prepaid Expenses &
Deferred Charges (30,859) 168,204 (869,333) (158,879)
(Decrease)Increase in Accounts Payable 2,067,276 91,728 523,987 (558,694)
Increase(Decrease) in Accrued Payrolls, Commissions
and Other Liabilities (662,078) 216,974 (595,065) (59,877)
Increase(Decrease) in Income Taxes Payable 87,254 166,201 (277,831) 146,575
(Decrease) in Deferred Compensation (19,142) (22,328) (57,427) (67,577)
(Increase) in Deferred Income Taxes (130,099) (130,099)
------------------------------ ------------------------------
Net Cash Provided by Operating Activities 3,697,370 225,462 1,229,906 540,715
------------------------------ ------------------------------
Cash Flows from Investing Activities:
Purchase of EIL Instruments, Inc. (22,000,000)
Purchase of Altek Industries Corp (6,723,888)
Purchases of Properties (397,362) (292,718) (1,749,150) (462,812)
------------------------------ ------------------------------
Net Cash (used in) Investing Activities (397,362) (292,718) (23,749,150) (7,186,700)
------------------------------ ------------------------------
Cash Flows from Financing Activities:
Increase in Notes Payable & Current Portion of LTD 1,360,000 4,760,000 1,700,000
Exercise of Stock Options & Warrants 81,093 42,465 406,559 261,955
Stock Issued - Altek Purchase 612,500
Increase(Decrease) in Long-Term Debt (4,360,000) 324,000 17,177,493 2,993,459
Stock Payable - Former Altek Owners 1,225,000
------------------------------ ------------------------------
Net Cash Provided by(used in) Financing Activities (2,918,907) 366,465 22,344,052 6,792,914
------------------------------ ------------------------------
Effect of Exchange Rate Changes on Cash (27,574) (10,494) (2,320) (26,724)
------------------------------ ------------------------------
Net Increase(Decrease) in Cash 353,527 288,715 (177,512) 120,205
Cash at Beginning of Period 227,176 35,536 758,215 204,046
------------------------------ ------------------------------
Cash at End of Period $ 580,703 $ 324,251 $ 580,703 $ 324,251
============================== ==============================
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $ 688,456 $ 147,636 $ 1,464,029 $ 378,658
Taxes Paid None $ 108,420 $ 682,715 $ 577,665
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of
Shares of $.50
Par Value Common Stock Capital Accumulated
Common Stock Issued and in Excess of Retained Translation
Outstanding Outstanding Par Value Earnings Adjustment
--------------- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 2,380,640 $1,190,320 $849,829 $4,670,929 ($109,513)
Issuance of Stock 71,306 35,653 274,754
Currency Translation Activity 15,694
Net Income 1,234,723
--------- ---------- ---------- ---------- ---------
Balance, March 31, 1996 2,451,946 1,225,973 1,124,583 5,905,652 (93,819)
Issuance of Stock 374,466 187,233 1,997,163
Currency Translation Activity (36,713)
Net Income 2,059,736
--------- ---------- ---------- ---------- ---------
Balance, March 31, 1997 2,826,412 1,413,206 3,121,746 7,965,388 ($130,532)
Issuance of Stock 68,452 34,226 372,378
Two for One Stock Split 2,853,692 1,426,846 (1,426,846)
Currency Translation Activity (2,320)
Net Income 665,075
--------- ---------- ---------- ---------- ---------
Balance, Dec. 31, 1997 5,748,556 $2,874,278 $2,067,278 $8,630,463 ($132,852)
========= ========== ========== ========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
Note 1 - Borrowings
- -------------------
Notes payable consists of amounts payable to the former owners of Altek
Industries Corp. resulting from the purchase of Altek by the Company in April
1996. Interest on this note is payable at the rate of 8%.
The Company has a $32,000,000 Revolving Credit and Term Loan agreement with
banks. At December 31, 1997, $15,000,000 is borrowed under a term loan. The term
loan, dated April 4, 1997, extending through January 1, 2003, amortizes over 21
consecutive quarterly installments commencing January 1, 1998. 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 December 31, 1997 interest to be paid under the Term Loan was
at 2.50% above LIBOR or 1.00% above the bank's prime lending rate. At December
31, 1997 $11,037,493 was borrowed under the Revolving Credit portion of the
Company's credit facility. The term of the Revolving Credit facility, dated
April 4, 1997, extends through January 4, 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 company performance as
determined by its leverage ratio. On December 31, 1997 interest to be paid under
the Revolving Credit Agreement was at 2.25% above LIBOR or .75% above the bank's
prime lending rate.
The Revolving Credit and Term Loan agreement contains, among other provision,
restrictions on capital expenditures, cash catalog expenditures, prohibitions
against dividend payments and fiscal quarterly losses, and a requirement to
maintain adjusted leverage ratios as defined.
Additionally, the Company has pledged its personal property and fixtures,
including inventory and equipment, and its accounts receivable as collateral
security for the loan. Further, the Company has agreed to pay to the lenders a
fee in the amount equal to 1/4% of the unused portion of the total revolving
credit available. The fee is payable quarterly. The Company also agreed to pay a
closing fee in the amount of $80,000 and an agency fee in the amount of $45,000
in conjunction with the Revolving Credit and Term Loan facility.
The Company is in compliance with provisions of its loan agreement or has
received a waiver at December 31, 1997.
6
<PAGE> 7
Note 2 - Inventories
- --------------------
The major classifications of inventory are as follows:
<TABLE>
<CAPTION>
Dec. 31, Mar. 31,
1997 1997
---- ----
<S> <C> <C>
Raw Materials and Purchased Parts $ 2,021,000 $2,088,533
Work in Process 1,069,000 519,280
Finished Products 9,710,000 5,710,854
------------ ----------
12,800,000 8,318,667
Less Inventory Reserves (1,084,608) (528,501)
------------ ----------
$ 11,715,392 $7,790,166
============ ==========
</TABLE>
Note 3 - Net Income Per Share
- -----------------------------
The Company adopted provisions of Financial Accounting Standards ("FAS") 128,
"Earnings Per Share" in December 1997. FAS 128 requires dual presentation of
basic and diluted EPS on the face of the income statement and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS calculation. Basic EPS excludes
the effect of common stock equivalents and is computed by dividing income
available to common shareholders by the weighted average common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could result if securities or other instruments to issue common stock were
exercised or converted into common stock.
There were 5,698,107 shares included in the computation of basic EPS in 1997
compared to 5,514,886 shares included in the 1996 computation. There were
6,413,368 shares included in the computation of diluted EPS in 1997 compared to
5,827,692 shares included in the diluted computation in 1996. The difference
between the number of shares included in the diluted computation as compared to
the basic computation represents the effect of common stock equivalents in each
year.
The directors of the Corporation voted a 2 for 1 stock split in the form of a
stock dividend which was paid on July 22, 1997 to shareholders of record July 1,
1997. The above earnings per share amounts have been adjusted to reflect the
effect of such split.
7
<PAGE> 8
Item 2.
- -------
Management's Discussion and Analysis of Financial Condition and Results
- -----------------------------------------------------------------------
of Operations
- -------------
On April 4, 1997, Transmation, Inc. acquired certain assets and business of the
former E.I.L. Instruments, Inc. for $22,000,000 cash and the value of certain
defined assumed liabilities. The cash required for the transaction was obtained
from funds available under a $32,000,000 Revolving Credit and Term Loan
Agreement with banks.
Sales increases during the third quarter and first nine months resulted
primarily from the acquisition of E.I.L. Instruments, Inc. Sales in the
Company's Altek subsidiary were on plan for the quarter and through December 31,
1997. Sales in the Company's Instrument Division were below plan for the third
quarter. The Company has implemented management changes and is in the process of
restructuring the Instrument Division's sales and marketing organization to
enhance its ability to achieve future operating objectives.
Financial Condition
- -------------------
The Company's primary sources of liquidity and capital are funds provided
through its borrowing agreement with banks, its profitability and management of
its balance sheet.
The Company's net accounts receivable balance decreased by $1,817,500 in the
quarter. Additionally, the Company increased its balance of accounts payable to
vendors by $1,067,276, however accrued liabilities decreased by $662,100 in the
quarter. The Company was successful improving its cash flows and reducing bank
borrowings in the quarter as the result of reductions in accounts receivable and
as the result of increases in its trade payables. The Company will continue such
practices in the fourth quarter.
Results of Operations
- ---------------------
Comparison of October 1, 1997 - December 31, 1997
- -------------------------------------------------
to
October 1, 1996 - December 31, 1996
-----------------------------------
Sales increased to $19,775,043 from $12,210,882, an increase of 62% in the
quarter ended December 31,1997 compared to December 31, 1996. This increase
resulted from the acquisition of E.I.L. Instruments in April of 1997.
Cost of Product Sold in the quarter ended December 31, 1997 totaled 68.2% of
sales compared to 60.4% in the same quarter last year. The increased percentage
in 1997 is the result of proportionately
8
<PAGE> 9
more sales of lower margin distribution and service business in 1997 than in
1996 and resulted from Transmation's purchase of E.I.L. Instruments on April 4,
1997.
Interest expense totaled $639,406 in the quarter ended December 31, 1997
compared to $163,209 in the quarter ended December 31, 1996. The increase is the
result of additional borrowings in 1997 used to purchase E.I.L. Instruments.
Selling and administrative expenses increased by 36% in 1997 compared to 1996.
This increase is the result of an increase in the number of sales personnel in
1997 compared to 1996 as the result of the Company's E.I.L. Instruments'
acquisition.
Comparison of April 1, 1997 - December 31, 1997
- -----------------------------------------------
to
April 1, 1996 - December 31, 1996
---------------------------------
Sales increased to $58,500,830 from $34,470,490, an increase of 70% in the nine
months ended December 31, 1997 compared to the same period ended December 31,
1996. This increase resulted from the acquisition of E.I.L. Instruments in April
1997.
Cost of Product Sold in the nine months ended December 31, 1997 totaled 68.4%
compared to 60.6% in the same period last year. The increased percentage in 1997
is the result of proportionately more sales of lower margin distribution and
service business in 1997 than in 1996 and resulted from Transmation's purchase
of E.I.L. Instruments in April 1997.
Interest expense totaled $1,931,265 for the nine months ended December 31, 1997
compared to $475,445 for the same period in 1996. The increase is the result of
additional borrowings in 1997 used to purchase E.I.L. Instruments.
Selling and administrative expenses increased by 40.9% in 1997 compared to 1996.
This increase is the result of an increase in the number of sales personnel in
1997 compared to 1996 as the result of the Company's acquisition of E.I.L.
Instruments.
9
<PAGE> 10
PART II
-------
OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
a. See Index to Exhibits.
b. Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSMATION, INC.
Date February 9, 1998 /s/ Robert G. Klimasewski
----------------------------- ---------------------------
Robert G. Klimasewski
President
Date February 9, 1998 /s/ John A. Misiaszek
----------------------------- -----------------------
John A. Misiaszek
Vice President, Finance
10
<PAGE> 11
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
Not applicable.
(3) Articles of Incorporation and By Laws
(i) The Articles of Incorporation, as amended, are incorporated
herein by reference to Exhibit 4(a) to the Registrant's
Registration Statement on Form S-8 (Registration No. 33-61665)
filed on August 8, 1995. Certificate of Amendment thereto is
incorporated herein by reference to Exhibit I to the
Registrant's Form 10-Q for the quarter ended September 30,
1996.
(ii) By-laws, as amended through August 18, 1987, are incorporated
herein by reference to Exhibit (3) to the Registrant's Form
10-K for the year ended March 31, 1988.
(4) Instruments defining the rights of security holders, including
indentures
(a) Revolving Credit Agreement dated April 4, 1997 among
Transmation, Inc. and Manufacturers' and Traders Trust
Company and State Street Bank and Trust Company is
incorporated herein by reference to Exhibit 4(c) to the
Registrant's Form 8-K dated April 18, 1997.
(10) Material Contracts
The documents listed under (4) are incorporated herein by reference.
(a) Second Amendment to 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).
(11) Statement re Computation of Per Share Earnings Computation can be
clearly determined from Note 3 to the Financial Statements included
herein at Item 1.
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security
holders
Not applicable.
11
<PAGE> 12
(23) Consents of experts and counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27.
(99) Additional Exhibits
Not applicable.
- -----------------
* Exhibit filed with this Report
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S DECEMBER 31, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 580,703
<SECURITIES> 0
<RECEIVABLES> 13,063,053
<ALLOWANCES> 340,300
<INVENTORY> 11,715,392
<CURRENT-ASSETS> 27,286,612
<PP&E> 11,708,365
<DEPRECIATION> 5,226,324
<TOTAL-ASSETS> 53,168,981
<CURRENT-LIABILITIES> 16,015,767
<BONDS> 23,177,493
0
0
<COMMON> 2,874,278
<OTHER-SE> 10,564,844
<TOTAL-LIABILITY-AND-EQUITY> 53,168,981
<SALES> 43,565,612
<TOTAL-REVENUES> 58,500,830
<CGS> 28,629,888
<TOTAL-COSTS> 40,069,161
<OTHER-EXPENSES> 15,443,124
<LOSS-PROVISION> (95,700)
<INTEREST-EXPENSE> 1,931,265
<INCOME-PRETAX> 1,057,280
<INCOME-TAX> 392,205
<INCOME-CONTINUING> 665,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 665,075
<EPS-PRIMARY> .12
<EPS-DILUTED> .10
</TABLE>
