<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 June 30, 1999
------------------------------------
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to_________________
Commission file number 0-3905
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TRANSMATION, INC.
- --------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 16-0874418
- ------------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Vantage Point Drive, Rochester, NY 14624
- ------------------------------------------------ --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 716-352-7777
----------------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark (X) whether the registrant, (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Number of Shares Outstanding Date
- ----- ---------------------------- ----
Common 5,957,392 July 30, 1999
TOTAL PAGES - 15
<PAGE> 2
Part I
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FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
- ----------------------------
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
Unaudited
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS: 1999 1999
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 532,211 $ 282,625
Accounts Receivable, less allowance
for doubtful accounts of $475,000 at 6/30/99
and $549,000 at 3/31/99 13,550,368 13,301,156
Inventories 13,255,286 12,009,770
Income Taxes Receivable 246,555 371,673
Prepaid Expenses and Deferred Charges 1,668,571 1,905,008
Deferred Tax Assets 257,480 257,480
------------ ------------
Current Assets 29,510,471 28,127,712
Properties, at cost, less accumulated
Depreciation 7,484,823 6,886,231
Goodwill, less accum. Amortization of $2,777,753 at
6/30/99 and $2,473,621 at 3/31/99 21,623,218 21,738,856
Deferred Charges 187,699 214,295
Deferred Income Taxes 65,692 65,692
Other Assets 262,798 262,798
------------ ------------
$ 59,134,701 $ 57,295,584
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Current Portion of Long Term Debt $ 2,325,000 $ 2,200,000
Accounts Payable 9,023,150 11,423,358
Accrued Payrolls, Commissions & Other 2,253,693 2,167,714
------------ ------------
Current Liabilities 13,601,843 15,791,072
Long-Term Debt 29,813,400 26,166,900
Deferred Compensation 414,759 431,609
------------ ------------
43,830,002 42,389,581
------------ ------------
Stockholders' Equity:
Common Stock, par value $.50 per share -
Authorized - 15,000,000 shares 2,978,696 2,966,371
Capital in Excess of Par Value 2,640,181 2,581,055
Accumulated Translation Adjustment (163,507) (200,568)
Retained Earnings 10,302,644 10,012,460
------------ ------------
15,758,014 15,359,318
Treasury stock, at cost, 119,358 shares at 6/30/99 (453,315) (453,315)
------------ ------------
15,304,699 14,906,003
------------ ------------
$ 59,134,701 $ 57,295,584
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 3
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
April 1, 1999 - April 1, 1998 -
June 30, 1999 June 30, 1998
--------------- ---------------
<S> <C> <C>
Net Sales $20,034,814 $17,959,309
Costs and Expenses:
Cost of Product Sold 13,623,575 11,827,445
Selling & Admin. Expenses 4,882,604 4,629,075
Research & Develop. Costs 383,360 434,321
Interest Expense 662,291 590,410
----------- -----------
19,551,830 17,481,251
----------- -----------
Income Before Taxes 482,984 478,058
Provision for Income Taxes
State and Federal 192,800 188,500
----------- -----------
Net Income 290,184 289,558
Retained Earnings at
Beginning of Period 10,012,460 8,963,359
----------- -----------
Retained Earnings at
End of Period $10,302,644 $ 9,252,917
=========== ===========
Earnings Per Share - Basic $ .05 $ .05
Earnings Per Share - Diluted $ .05 $ .05
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 290,184 $ 289,558
Items Not Requiring (Providing) Cash
Included in Income
Depreciation and Amortization 822,539 733,833
Provision for Losses on Accounts Receivable (74,000) (51,000)
Decrease (Increase) in Accounts Receivable (175,212) 1,671,573
(Increase) in Inventories (1,245,516) (284,940)
Decrease (Increase) in Prepaid Expenses
& Deferred Charges 263,033 (18,539)
(Decrease) in Accounts Payable (2,400,208) (1,258,730)
Increase (Decrease) in Accrued Payrolls,
Commissions and Other Liabilities 85,979 (375,573)
Increase(Decrease) in Income Taxes Payable 125,118 (74,242)
(Decrease) in Deferred Compensation (16,850) (17,724)
----------- -----------
Net Cash Provided (used) by Operating Activities (2,324,933) 614,216
----------- -----------
Cash Flows from Investing Activities:
Purchase of Metermaster, Inc. (188,494)
Purchases of Properties (1,116,999) (363,193)
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Net Cash (used in) Investing Activities (1,305,493) (363,193)
----------- -----------
Cash Flows from Financing Activities:
(Decrease) Increase in Notes Payable &
Current Portion of LTD 125,000 (2,500,000)
Issuance of Stock 71,451 111,118
Increase in Long-Term Debt 3,646,500 1,985,714
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Net Cash (used) Provided by Financing Activities 3,842,951 (403,168)
----------- -----------
Effect of Exchange Rate Changes on Cash 37,061 (38,315)
----------- -----------
Net Increase(Decrease) in Cash 249,586 (190,460)
Cash at Beginning of Period 282,625 652,664
----------- -----------
Cash at End of Period $ 532,211 $ 462,204
=========== ===========
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $ 613,849 $ 637,703
Taxes Paid $ 67,297 $ 190,297
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
<TABLE>
<CAPTION>
Number of
Shares of
$.50 Par
Value Common Accumulated
Common Stock Capital in Other
Stock Issued and Excess of Retained Comprehensive Treasury
Outstanding Outstanding Par Value Earnings (Loss) Income Stock Total
----------- ----------- --------- -------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 2,451,946 $1,225,973 $1,124,583 $5,905,652 ($93,819) $ 8,162,389
Components of Comprehensive
Income:
Net Income 2,059,736 2,059,736
Currency Translation
Adjustment (36,713) (36,713)
------------
Total Comprehensive Income 2,023,023
Issuance of Stock 374,466 187,233 1,997,163 2,184,396
--------- ---------- ---------- ----------- --------- -----------
Balance, March 31, 1997 2,826,412 1,413,206 3,121,746 7,965,388 (130,532) 12,369,808
Components of Comprehensive
Income
Net Income 997,971 997,971
Currency Translation
Adjustment 9,744 9,744
-----------
Total Comprehensive Income 1,007,715
Issuance of Stock 150,838 75,419 532,217 607,636
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) 13,985,159
Components of Comprehensive
Income:
Net Income 1,049,101 1,049,101
Currency Translation
Adjustment (79,780) (79,780)
-----------
Total Comprehensive Income 969,321
Issuance of Stock 101,800 50,900 353,938 404,838
Share Repurchase ($453,315) (453,315)
--------- ---------- ---------- ----------- --------- --------- -----------
Balance, March 31, 1999 5,932,742 2,966,371 2,581,055 10,012,460 (200,568) (453,315) 14,906,003
Components of Comprehensive
Income:
Net Income 290,184 290,184
Currency Translation
Adjustment 37,061 37,061
-----------
Total Comprehensive Income 327,245
Issuance of Stock 24,650 12,325 59,126 71,451
--------- ---------- ---------- ----------- --------- --------- -----------
Balance, June 30, 1999 5,957,392 $2,978,696 $2,640,181 $10,302,644 ($163,507) ($453,315) $15,304,699
========= ========== ========== =========== ========= ========= ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
Note 1 - Borrowings
- -------------------
At June 30, 1999, the Company has a $34,900,000 Revolving Credit and Loan
Agreement with banks dated August 8, 1998 and amended February 8, 1999, and
extending through June 1, 2007. At June 30, 1999, $19,900,000 is borrowed under
term loans. The term loans require annual repayments of amounts outstanding,
paid on a quarterly basis, as follows:
July 1, 1999 - June 30, 2000 $2,325,000
July 1, 2000 - June 30, 2001 $3,020,000
July 1, 2001 - June 30, 2002 $3,980,000
July 1, 2002 - June 30, 2003 $3,980,000
July 1, 2003 - June 30, 2004 $2,755,000
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 June 30, 1999, interest to be paid under
Term Loans was 2.40% to 3.00% above LIBOR or .50% to above the bank's prime
lending rate. At June 30, 1999, $12,238,400 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"
option, at rates above prime or above LIBOR determined on the basis of the
Company" performance as determined by its leverage ratio. On June 30, 1999,
interest to be paid under the Revolving Credit Agreement was 2.40% above LIBOR
or .50% above the bank's prime lending rate. At June 30, 1999, interest was
payable on the above loans at rates ranging from 7.34% to 8.25%. 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.
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 agreed to pay a closing fee
6
<PAGE> 7
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 or has
received waivers as of June 30, 1999.
7
<PAGE> 8
Note 2 - Inventories
- --------------------
The major classifications of inventory are as follows:
June 30, 1999 March 31, 1999
------------- --------------
Raw Materials and Purchased Parts $ 5,685,597 $ 5,195,188
Work in Process 672,853 614,816
Finished Products 7,904,171 7,222,400
------------ ------------
14,262,621 13,032,404
Less Inventory Reserves (1,007,335) (1,022,634)
------------ ------------
$ 13,255,286 $ 12,009,770
============ ============
Note 3 - Net Income Per Share
- -----------------------------
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which requires
disclosure of basic and diluted earnings per share. Basic earnings per share is
computed based on the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the assumed conversion of
dilutive stock options and warrants. In computing the per share effect of
assumed conversion, funds which would have been received from the exercise of
options and warrants are considered to have been used to purchase common shares
at average market prices for the period, and the resulting net additional common
shares are included in the calculation of average common shares outstanding. All
previously reported earnings per share amounts were restated upon adoption of
SFAS No. 128.
The table below summarizes the amounts used to calculate basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 THREE MONTHS ENDED JUNE 30, 1999
-------------------------------- --------------------------------
AVERAGE AVERAGE
NET OUTSTANDING PER NET OUTSTANDING PER
EARNINGS SHARES SHARE EARNINGS SHARES SHARE
--------- --------- ------ --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings
Per Share $ 289,558 5,770,913 $ 0.05 $ 290,184 5,844,549 $ 0.05
Effect of Dilutive
Options & Warrants 584,998 170,539
--------- --------- ------ --------- --------- ------
Diluted Earnings
Per Share $ 289,558 6,355,911 $ 0.05 $ 290,184 6,015,088 $ 0.05
========= ========= ===== ========= ========= ======
</TABLE>
8
<PAGE> 9
Certain anti-dilutive outstanding stock options and warrants were excluded from
the calculation of average shares outstanding since their exercise prices
exceeded the average market price of common shares during the period. The
anti-dilutive stock options and warrants so excluded at the end of each of the
last two interim periods and their associated exercise prices are summarized
below. The options expire at various times between 1999 and 2002.
Number of Exercise
Options and Warrants Price
-------------------- -----
1998 539,320 $6.875 - $9.25
1999 1,211,091 $3.75 - $9.25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
Financial Condition
- -------------------
The Company's primary sources of liquidity and capital are funds provided
through its borrowing agreement with banks, its profitability and management of
its Balance Sheet.
During the quarter ended June 30, 1999, Accounts Receivable balances owing to
the Company increased by $175,212 compared to balances which existed at March
31, 1999. This increase is the result of the higher level of sales achieved in
the quarter ended June 30, 1999 compared to results in the quarter ended March
31, 1999. Inventories increased by $1,245,516 during the quarter ended June 30,
1999. The Company has determined that it is possible and preferable to operate
at lower levels of inventory than existed at June 30, 1999 and throughout the
balance of the current fiscal year, it is the Company's intention to reduce
inventory levels from that level which existed at June 30, 1999 to a level below
that which existed at March 31, 1999. Trade payables decreased by more than
$2,400,000 in the quarter ended June 30, 1999. This reduction resulted from the
liquidation of most payables acquired in the February, 1999 Metermaster
acquisition. Bank debt increased by $3,771,500 during the quarter as the result
of the foregoing actions. It is the Company's intention to reduce Trade
Receivables and inventories during the remainder of the current fiscal year and
to use proceeds which will result to reduce bank debt.
9
<PAGE> 10
Results of Operations
- ---------------------
Comparison of April 1, 1999 - June 30, 1999
- -------------------------------------------
to
April 1, 1998 - June 30, 1998
-----------------------------
Sales totaled $20,034,814 in the quarter ended June 30, 1999, an increase of
11.6% compared to sales of $17,959,309 recorded in the same quarter one year
ago. This increase in 1999 is primarily the result of the Company's acquisition
of Metermaster in February, 1999.
Cost of products sold totaled 68% of sales in 1999 compared to 65.9% of sales in
1998. Certain service locations and other operations acquired in our February,
1999 Metermaster acquisition sustained operating cost levels greater than cost
levels which have existed historically within the Company. The Company has taken
action and will continue to take required actions to reduce operating costs at
all locations to appropriate levels. Interest expense increased by 12% compared
to that which resulted one year ago. This increase is the result of additional
borrowings during 1999 which were required as the result of the Metermaster
acquisition.
10
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PART II
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OTHER INFORMATION
-----------------
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 8/10/99 /s/ Eric W. McInroy
--------------------- ---------------------------
Eric W. McInroy
President and CEO
Date 8/10/99 /s/ John A. Misiaszek
--------------------- ---------------------------
John A. Misiaszek
Vice President, Finance
11
<PAGE> 12
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 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.
(10) Material Contracts
The documents listed under (4) are incorporated herein by reference.
(11) Statement re Computation of Per Share Earnings
Computation can be clearly determined from Note 3 to the Financial
Statements included herein at Item 1.
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in Accounting Principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security holders
Not applicable.
(23) Consents of Experts and Counsel
Not applicable.
(24) Power of attorney
Not applicable.
12
<PAGE> 13
*(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27.
(99) Additional Exhibits
Not applicable.
- -----------------
* Exhibit filed with this Report
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's December 31, 1998 Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 532,211
<SECURITIES> 0
<RECEIVABLES> 14,025,368
<ALLOWANCES> 475,000
<INVENTORY> 13,550,368
<CURRENT-ASSETS> 29,510,471
<PP&E> 14,831,200
<DEPRECIATION> 7,346,377
<TOTAL-ASSETS> 59,134,701
<CURRENT-LIABILITIES> 13,601,843
<BONDS> 29,813,400
0
0
<COMMON> 2,978,696
<OTHER-SE> 12,326,003
<TOTAL-LIABILITY-AND-EQUITY> 59,134,701
<SALES> 15,697,602
<TOTAL-REVENUES> 20,034,814
<CGS> 10,497,363
<TOTAL-COSTS> 13,623,575
<OTHER-EXPENSES> 5,340,034
<LOSS-PROVISION> (74,000)
<INTEREST-EXPENSE> 662,221
<INCOME-PRETAX> 482,984
<INCOME-TAX> 192,800
<INCOME-CONTINUING> 290,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290,184
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
