<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, 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
--------
TRANSMATION, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 16-0874418
- ------------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 6,016,792 December 31, 1999
TOTAL PAGES - 13
<PAGE> 2
Part I
FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
Unaudited
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS: 1999 1999
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 381,279 $ 282,625
Accounts Receivable, less allowance
for doubtful accounts of $312,000 at 12/31/99
and $549,000 at 3/31/99 11,312,154 13,301,156
Inventories 9,141,393 12,009,770
Income Taxes Receivable 1,011,055 371,673
Prepaid Expenses and Deferred Charges 1,640,572 1,905,008
Deferred Tax Assets 257,480 257,480
------------ ------------
Current Assets 23,743,933 28,127,712
Properties, at cost, less accumulated
depreciation 6,929,747 6,886,231
Goodwill, less accumulated amortization of $3,394,972
at 12/31/99 and $2,473,621 at 3/31/99 21,043,722 21,738,856
Deferred Charges 184,548 214,295
Deferred Income Taxes 65,692 65,692
Other Assets 283,394 262,798
------------ ------------
$ 52,251,036 $ 57,295,584
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Current Portion of Long Term Debt $ 29,346,400 $ 2,200,000
Accounts Payable 7,367,994 11,423,358
Accrued Payrolls, Commissions & Other 2,403,260 2,167,714
------------ ------------
Current Liabilities 39,117,654 15,791,072
Long-Term Debt 26,166,900
Deferred Compensation 381,936 431,609
------------ ------------
39,499,590 42,389,581
------------ ------------
Stockholders' Equity:
Common Stock, par value $.50 per share -
Authorized - 30,000,000 shares 3,008,396 2,966,371
Capital in Excess of Par Value 2,763,498 2,581,055
Accumulated Translation Adjustment (142,167) (200,568)
Retained Earnings 7,575,034 10,012,460
13,204,761 15,359,318
Treasury stock, at cost, 119,358 shares
at 12/31/99 and 3/31/99 (453,315) (453,315)
------------ ------------
12,751,446 14,906,003
------------ ------------
$ 52,521,036 $ 57,295,584
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF (LOSS) INCOME
UNAUDITED
<TABLE>
<CAPTION>
10/1 - 10/1 - 4/1 - 4/1 -
12/31/99 12/31/98 12/31/99 12/31/98
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $19,281,366 $16,830,499 $58,526,565 $51,128,617
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of Product Sold 16,169,699 11,265,774 42,796,393 33,882,494
Selling & Admin. Expenses 5,556,042 4,220,271 15,094,684 12,954,517
Research & Develop. Costs 352,786 429,370 1,156,069 1,285,326
Interest Expense 978,597 529,446 2,297,845 1,676,481
----------- ----------- ----------- -----------
23,057,124 16,444,861 61,344,991 49,798,818
----------- ----------- ----------- -----------
(3,775,758) 385,638 (2,818,426) 1,329,799
Other Income, Gain on Sale of Property 244,494 244,494
----------- ----------- ----------- -----------
(Loss) Income Before Taxes (3,775,758) 630,132 (2,818,426) 1,574,293
Provision (Benefit) for IncomeTaxes
State and Federal (764,700) 248,450 (381,000) 617,950
----------- ----------- ----------- -----------
Net (Loss) Income (3,011,058) 381,682 (2,437,426) 956,343
Retained Earnings at
Beginning of Period 10,586,092 9,538,020 10,012,460 8,963,359
----------- ----------- ----------- -----------
Retained Earnings at
End of Period $7,575,034 $9,919,702 $7,575,034 $9,919,702
=========== =========== =========== ===========
Net (Loss) Income Per Share
Basic ($.50) $.07 ($.41) $.16
====== ==== ====== ====
Diluted ($.50) $.06 ($.41) $.16
====== ==== ====== ====
Shares Used In Calculation
Basic 6,016,792 5,838,101 6,016,792 5,838,101
=========== =========== =========== ===========
Diluted 6,016,792 6,042,775 6,016,792 6,042,775
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net (Loss) Income ($ 3,011,058) $ 381,682 ($ 2,437,426) $ 956,343
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation and Amortization 1,184,480 1,056,073 3,510,382 3,242,407
Provision for Losses on Accounts Receivable (29,000) (17,000) (237,000) (82,000)
Life Insurance Policies (11,000) (20,596) (9,285)
Decrease (Increase) in Accounts Receivable 723,068 (62,411) 2,226,002 1,844,863
Decrease (Increase) in Inventories, Net 3,725,993 (170,556) 2,868,377 (102,493)
(Increase) in Prepaid Expenses and
Deferred Charges (264,518) (836,586) (659,571) (1,582,360)
Increase (Decrease) in Accounts Payable 265,727 1,584,748 (4,055,364) (740,858)
Increase (Decrease) in Accrued Payrolls, Commissions
& Other Liabilities 563,594 (203,928) 235,546 (532,240)
Increase (Decrease) in Income Taxes
Receivable/Payable (766,153) 147,350 (639,382) 125,484
Decrease in Deferred Compensation (16,412) (17,724) (49,673) (53,173)
------------ ------------ ------------ ------------
Net Cash Provided by Operating Activities 2,364,721 1,861,648 741,295 3,066,688
------------ ------------ ------------ ------------
Cash Flows from Investing Activities:
Disposition of Asset 175,996 175,996
Purchase of Metermaster (137,677) (226,217)
Purchase of Properties (128,808) (570,074) (1,678,793) (1,248,040)
------------ ------------ ------------ ------------
Net Cash used in Investing Activities (266,485) (394,078) (1,905,010) (1,072,044)
------------ ------------ ------------ ------------
Cash Flows from Financing Activities:
Increase (Decrease) in Notes Payable & Current
Portion of LTD 26,896,400 27,146,400 (3,356,000)
Issuance of Common Stock 58,339 94,768 224,468 328,253
(Decrease) Increase in Long-Term Debt (28,876,500) (1,234,900) (26,166,900) 1,444,378
Purchase of Treasury Stock (406,065) (406,065)
------------ ------------ ------------ ------------
Net Cash (used in) Provided by Financing Activities (1,921,761) (1,546,197) 1,203,968 (1,989,434)
------------ ------------ ------------ ------------
Effect of Exchange Rate Changes on Cash 26,350 (3,868) 58,401 (109,812)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Cash 202,825 (82,495) 98,654 (104,602)
Cash at Beginning of Period 178,454 630,557 282,625 652,664
------------ ------------ ------------ ------------
Cash at End of Period $ 381,279 $ 548,062 $ 381,279 $ 548,062
============ ============ ============ ============
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $ 682,916 $ 577,301 $ 1,946,174 $ 1,632,717
============ ============ ============ ============
Taxes Paid, Refunded $316 ($374) $202,526 $337,753
==== ===== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
<TABLE>
<CAPTION>
Number of Accum-
Shares of ulated
$.50 Par Common Other
Value Stock Capital Compre-
Common Issued in Excess hensive
Stock and of Par Retained (Loss) Treasury
Outstanding Outstanding Value Earnings Income Stock Total
----------- ----------- ----- -------- ------ ----- -----
<S> <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 Loss (2,437,426) (2,437,426)
Currency Translation
Adjustment 58,401 58,401
Total Comprehensive
Income ($2,379,025)
Issuance of Stock 84,050 42,025 182,443 224,468
--------- ---------- ---------- ---------- --------- --------- -----------
Balance, December 31,
1999 6,016,792 $3,008,396 $2,763,498 $7,575,034 ($142,167) ($453,315) $12,751,446
========= ========== ========== ========== ========= ========= ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
TRANSMATION, INC.
Notes to the Consolidated Financial Statements
Note 1 - Consolidated Financial Statements
- ------------------------------------------
The consolidated balance sheets, statements of income, cash flow and
stockholders' equity for the periods ended December 31, 1999 and December 31,
1998 have been prepared by the Company without audit. In the opinion of
Management, all adjustments necessary to present fairly the financial position,
results of operations, and changes in cash flows at December 31, 1999 have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's March 31, 1999, annual report to shareholders. The results of
operations for the nine months ended December 31, 1999 are not necessarily
indicative of the operating results for the full year.
Note 2 - (Loss) Earnings Per Share
- ----------------------------------
Net (loss) income per share - basic - excludes dilution and is computed by
dividing net (loss) income by the weighted average number of common shares
outstanding during the reporting period. Net loss per share - diluted - is
computed by dividing the net loss by the weighted average number of common
shares outstanding during the reporting period. Net income per share - diluted -
reflects the potential dilution that could occur if stock options and warrants
were exercised.
Note 3 - Long-Term Debt
- -----------------------
At December 31, 1999, the Company was in violation of certain covenants relating
to both the current portion of its long-term debt and to its long-term debt.
Negotiations are underway with lenders with respect to such violations, however,
as of the date of filing, no waivers of such violations had as yet been received
by the Company from the lenders.
6
<PAGE> 7
Item 2 - Management's Discussion and Analysis of Operations and Financial
- -------------------------------------------------------------------------
Condition
- ---------
The following discussion is based primarily on the consolidated financial
statements of Transmation, Inc. as of December 31, 1999 and 1998 and for the
nine and three month periods then ended. This information should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto.
Forward-Looking Statements
- --------------------------
This discussion contains forward-looking statements. Although the Company
believes expectations reflected in such forward-looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Factors that may cause actual results to differ include general
economic conditions and other conditions that might affect operating expenses.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1999, the Company was in violation of certain covenants of its
borrowing agreement with banks, and as of the date of this filing had not
received waivers with respect to those violations from the banks. The Company's
primary sources of liquidity and capital are funds provided under its borrowing
agreement with banks. If resolution with respect to such covenant violations
with its lenders cannot be reached, the Company's future ability to access
sufficient capital to sustain its needs would be jeopardized.
In the quarter ended December 31, 1999, the Company recognized one-time pre-tax
charges totaling $3,368,000 stemming principally from charges relating to
inventory write-downs which resulted from lower sales than were originally
anticipated, severance payments due to contractual obligations to the Company's
former CEO, bank charges relating to the Company's failure to meet certain
financial covenants of its bank loans, and a charge to the Company's reserve for
uncollectible accounts relating to currency devaluations which occurred in
Southeast Asia.
During the first nine months of fiscal 2000, the Company reduced the amount of
its trade accounts receivable by $1,989,000. This reduction resulted from
improved collection results during the period. Trade accounts payable decreased
by $4,055,000 during the same nine month period, primarily the result of the
liquidation of payables acquired in the February, 1999 Metermaster acquisition.
Bank debt increased by $979,500 during the period as the result of the
foregoing. It is the Company's intention to continue to manage its balance sheet
throughout the balance of the current fiscal year and to use cash generated to
further reduce bank debt. During the quarter ended December 31, 1999, Net Trade
Accounts Receivable were reduced by $694,000, Trade Payables increased by
$266,000 and accrued liabilities increased by $564,000. Bank debt was reduced by
$1,980,000 during the quarter as the result of the foregoing.
7
<PAGE> 8
Results of Operations
- ---------------------
Comparison of October 1, 1999 to December 31, 1999
- --------------------------------------------------
to
October 1, 1998 to December 31, 1998
------------------------------------
Sales totaled $19,281,366 in the quarter ended December 31, 1999 compared to
$16,830,499 in the quarter ended December 31, 1998. The increase in 1999 is
primarily the result of the Company's acquisition of Metermaster in February,
1999.
Cost of products sold totaled 83.9% of sales in the quarter ended December 31,
1999 compared to 66.9% of sales in the quarter ended December 31, 1998. The
increase in 1999 is primarily the result of an inventory charge the Company
recorded in 1999 to reflect potentially excess inventories it has on hand at
that date as the result of lower than anticipated sales during 1999. Sales and
administrative expenses totaled 28.8% of sales in the quarter ended December 31,
1999 compared to 25.1% of sales in the quarter ended December 31, 1998. The
increase in 1999 is primarily the result of severance charges relating to
contractual obligations to the Company's former CEO and to a write-off relating
to potential uncollectible accounts which resulted from currency devalutions in
the Far East. Interest expense totaled 5% of sales in the quarter ended December
31, 1999 compared to 3.1% of sales in 1998. The increase in 1999 is the result
of charges incurred as the result of the Company's failure to meet agreed-upon
covenants with its lenders and higher average borrowings in 1999 compared to
1998.
Comparison of April 1, 1999 - December 31, 1999
- -----------------------------------------------
to
April 1, 1998 - December 31, 1998
---------------------------------
Sales totaled $58,526,565 in the nine months ended December 31, 1999 compared to
$51,128,617 in the nine months ended December 31, 1998. The increase in 1999 is
primarily the result of the Company's acquisition of Metermaster in February,
1999.
Cost of products sold totaled 73% of sales in the nine month period ended
December 31, 1999 compared to 66% of sales in the same period ended December 31,
1998. The increase in 1999 is the result of an inventory charge in 1999 recorded
to reflect potentially excess inventory on hand at December 31, 1999 as the
result of lower than anticipated sales during 1999 together with the fact that
certain service locations and other operations acquired in the February, 1999
Metermaster acquisition had greater operating cost levels than have historically
existed within the Company. The Company has and will continue to take action to
reduce operating costs at all locations to appropriate levels. Selling and
Administrative expenses totaled 25.8% of sales in the nine-month period ended
December 31, 1999 and 25.3% of sales in 1998. The increase in 1999 compared to
1998 is primarily the result of severance charges and a write-off of a
potentially uncollectible account which resulted from currency devaluations in
the Far East. Interest expense totaled 3.9% of sales in the nine-month period
ended December 31, 1999 compared to 3.3% of sales in the same nine-month period
ended December 31, 1998. The increase in 1999 is the result of charges imposed
by lenders resulting from the failure of the Company to meet its required
financial covenants under terms of its loan agreement.
8
<PAGE> 9
PART II
OTHER INFORMATION
-----------------
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
See Part I, Note 3.
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 2/11/00 /s/ Robert G. Klimasewski
---------------------------------------------- ---------------------------
Robert G. Klimasewski
President and CEO
Date 2/11/00 /s/ John A. Misiaszek
---------------------------------------------- ---------------------------
John A. Misiaszek
Vice President, Finance
9
<PAGE> 10
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, and Exhibit 3(i) to the Registrant's
Form 10-Q for the quarter ended September 30, 1999.
(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 Key Bank 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 Consolidated Statement
of (Loss) Income included in the Financial Statements and in
conjunction with Note 2 to the Financial Statements both included
herein at Item 1.
10
<PAGE> 11
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in Accounting Principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security
holders
Not applicable.
(23) Consents of Experts and Counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27.
(99) Additional Exhibits
Not applicable.
- -----------------
* Exhibit filed with this Report
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S DECEMBER 31, 1999 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-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 381,279
<SECURITIES> 0
<RECEIVABLES> 11,624,154
<ALLOWANCES> 312,000
<INVENTORY> 9,141,393
<CURRENT-ASSETS> 23,743,933
<PP&E> 13,735,721
<DEPRECIATION> 6,805,974
<TOTAL-ASSETS> 52,251,036
<CURRENT-LIABILITIES> 12,346,254
<BONDS> 26,771,400
0
0
<COMMON> 3,008,396
<OTHER-SE> 9,743,050
<TOTAL-LIABILITY-AND-EQUITY> 52,521,036
<SALES> 45,997,440
<TOTAL-REVENUES> 58,526,565
<CGS> 33,915,134
<TOTAL-COSTS> 42,796,393
<OTHER-EXPENSES> 16,487,756
<LOSS-PROVISION> (237,000)
<INTEREST-EXPENSE> 2,297,845
<INCOME-PRETAX> (2,818,426)
<INCOME-TAX> 381,000
<INCOME-CONTINUING> (2,437,426)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,437,426)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
