<PAGE> 1
FORM 10-Q
--------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2000
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 1-7872
-------------------------
TRANSTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-4062211
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
150 Allen Road 07938
Liberty Corner, New Jersey (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (908) 903-1600
Indicate by check mark 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
----- -----
As of November 9, 2000, the total number of outstanding shares of
registrant's one class of common stock was 6,172,186.
<PAGE> 2
TRANSTECHNOLOGY CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements............................................................................. 2
-------
Statements of Consolidated Operations--
Three and Six Month Periods Ended October 1, 2000
and September 26, 1999........................................................................... 3
Consolidated Balance Sheets--
October 1, 2000 and March 31, 2000............................................................... 4
Statements of Consolidated Cash Flows--
Six Month Periods Ended October 1, 2000 and
September 26, 1999............................................................................... 5
Notes to Consolidated Financial Statements....................................................... 6-13
Item 2. Management's Discussion and Analysis of Financial
------ Condition and Results of Operations.............................................................. 14-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 18
-------
PART II. Other Information
-----------------
Item 1. Legal Proceedings................................................................................ 19
-------
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 19
-------
Item 6. Exhibits and Reports on Form 8-K................................................................. 19
-------
SIGNATURES......................................................................................................... 20
EXHIBIT 3.2........................................................................................................ 21-30
EXHIBIT 27......................................................................................................... 31
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited Statements of Consolidated Operations, Consolidated
Balance Sheets, and Consolidated Cash Flows are of TransTechnology Corporation
and its consolidated subsidiaries (collectively, "the Company"). These reports
reflect all adjustments of a normal recurring nature, which are, in the opinion
of management, necessary for a fair presentation of the results of operations
for the interim periods reflected therein. The results reflected in the
unaudited Statement of Consolidated Operations for the period ended October 1,
2000, are not necessarily indicative of the results to be expected for the
entire year. The following unaudited Consolidated Financial Statements should be
read in conjunction with the notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations set forth in Item 2 of
Part I of this report, as well as the audited financial statements and related
notes thereto contained in the Company's Annual Report on Form 10-K filed for
the fiscal year ended March 31, 2000.
This Form 10-Q contains forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected in such statements. Such risks and uncertainties include,
but are not limited to, unanticipated slowdowns in the Company's major markets,
the impact of competition, the effectiveness of operational changes expected to
increase efficiency and productivity, and worldwide economic and political
conditions and foreign currency fluctuations that may affect worldwide results
of operations.
[THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 4
STATEMENTS OF CONSOLIDATED OPERATIONS
UNAUDITED
(In Thousands of Dollars, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
October 1, 2000 September 26, 1999
----------------- ----------------------
<S> <C> <C>
Net sales $ 79,136 $ 62,903
Cost of sales 58,913 44,040
Plant consolidation charge 783 --
----------------- ----------------------
Gross profit 19,440 18,863
----------------- ----------------------
General, administrative
and selling expenses 13,577 11,739
Interest expense (a) 8,852 3,466
Interest income (26) (73)
Other income - net (133) (131)
Provision for plant consolidation -- 4,490
----------------- ----------------------
Income (loss) before income taxes
and extraordinary charge (2,830) (628)
Income taxes (benefit) (1,075) (298)
----------------- ----------------------
Income (loss) before extraordinary charge (1,755) (330)
Extraordinary charge for refinancing of debt (b) -- (541)
----------------- ----------------------
Net income (loss) $ (1,755) $ (871)
================= ======================
Basic earnings per share:
Income (loss) before extraordinary charge $ (0.28) $ (0.05)
Extraordinary charge for refinancing
of debt -- (0.09)
----------------- ----------------------
Net income (loss) $ (0.28) $ (0.14)
================= ======================
Diluted earnings per share:
Income (loss) before extraordinary charge $ (0.28) $ (0.05)
Extraordinary charge for refinancing
of debt -- (0.09)
----------------- ----------------------
Net income (loss) $ (0.28) $ (0.14)
================= ======================
Numbers of shares used in computation
of per share information:
Basic 6,171,000 6,138,000
Diluted 6,171,000 6,138,000
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------------
October 1, 2000 September 26, 1999
------------------ ----------------------
<S> <C> <C>
Net sales $ 163,501 $ 118,271
Cost of sales 120,099 83,291
Plant consolidation charge 2,113 --
------------------ ----------------------
Gross profit 41,289 34,980
------------------ ----------------------
General, administrative
and selling expenses 28,286 22,924
Interest expense (a) 17,784 5,096
Interest income (79) (136)
Other income - net (659) (363)
Provision for plant consolidation -- 4,490
------------------ ----------------------
Income (loss) before income taxes
and extraordinary charge (4,043) 2,969
Income taxes (benefit) (1,536) 1,141
------------------ ----------------------
Income (loss) before extraordinary charge (2,507) 1,828
Extraordinary charge for refinancing of debt (b) -- (541)
------------------ ----------------------
Net income (loss) $ (2,507) $ 1,287
================== ======================
Basic earnings per share:
Income (loss) before extraordinary charge $ (0.41) $ 0.30
Extraordinary charge for refinancing
of debt -- (0.09)
------------------ ----------------------
Net income (loss) $ (0.41) $ 0.21
================== ======================
Diluted earnings per share:
Income (loss) before extraordinary charge $ (0.41) $ 0.30
Extraordinary charge for refinancing
of debt -- (0.09)
------------------ ----------------------
Net income (loss) $ (0.41) $ 0.21
================== ======================
Numbers of shares used in computation
of per share information:
Basic 6,162,000 6,131,000
Diluted 6,162,000 6,154,000
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(a) The interest expense for the six month period ended October 1, 2000,
includes a $2.3 million charge related to loan fees associated with the
refinancing of the Company's bridge debt. Interest expense for the three
month period ended October 1, 2000, includes a $1.2 million charge
related to this refinancing.
(b) Extraordinary charge for refinancing of debt is net of applicable tax
benefit of $339 for the three and six month period ended September 26,
1999.
3
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Data)
<TABLE>
<CAPTION>
(Unaudited)
October 1, 2000 March 31, 2000
--------------------- ----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,406 $ 3,350
Accounts receivable (net of allowance for doubtful accounts
of $1,385 at October 1, 2000 and $1,129 at March 31, 2000) 59,253 61,819
Inventories 64,768 65,744
Prepaid expenses and other current assets 4,004 1,942
Deferred income taxes 625 1,872
--------------------- ----------------------
Total current assets 130,056 134,727
--------------------- ----------------------
Property, plant and equipment 150,766 153,068
Less accumulated depreciation and amortization 51,272 47,048
--------------------- ----------------------
Property, plant and equipment - net 99,494 106,020
--------------------- ----------------------
Other assets:
Notes receivable 3,523 3,455
Costs in excess of net assets of acquired businesses (net of accumulated
amortization: October 1, 2000, $13,479; March 31, 2000, $10,933) 189,464 192,115
Patents and trademarks (net of accumulated amortization:
October 1, 2000, $1,796; March 31, 2000, $1,334) 20,063 20,809
Deferred income taxes 11,120 9,987
Other 16,069 15,642
--------------------- ----------------------
Total other assets 240,239 242,008
--------------------- ----------------------
Total $ 469,789 $ 482,755
===================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,586 $ 82,585
Accounts payable-trade 19,802 25,550
Accrued compensation 8,250 10,359
Accrued income taxes 2,672 5,799
Other current liabilities 9,669 8,672
--------------------- ----------------------
Total current liabilities 47,979 132,965
--------------------- ----------------------
Long-term debt payable to banks and others 273,800 194,759
--------------------- ----------------------
Deferred income taxes 11,628 11,873
--------------------- ----------------------
Other long-term liabilities 11,846 14,275
--------------------- ----------------------
Stockholders' equity:
Preferred stock-authorized, 300,000 shares; none issued -- --
Common stock-authorized, 14,700,000 shares of $.01 par value;
issued 6,718,614 at October 1, 2000, and 6,691,232 at March 31, 2000 67 67
Additional paid-in capital 78,091 77,587
Retained earnings 59,767 63,722
Accumulated other comprehensive loss (3,999) (3,157)
Unearned compensation (320) (267)
--------------------- ----------------------
133,606 137,952
Less treasury stock, at cost - (546,428 shares at October 1, 2000 and
546,394 at March 31, 2000) (9,070) (9,069)
--------------------- ----------------------
Total stockholders' equity 124,536 128,883
--------------------- ----------------------
Total $ 469,789 $ 482,755
===================== ======================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
STATEMENTS OF CONSOLIDATED CASH FLOWS
UNAUDITED
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------------------
October 1, 2000 September 26, 1999
-------------------------- ----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,507) $ 1,287
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Extraordinary charge for refinancing of debt -- 541
Depreciation and amortization 10,858 6,662
Non-cash interest expense 200 --
Provision for losses on notes and accounts receivable 39 90
Loss on sale or disposal of fixed assets 9 5
Gain on sale of marketable securities (7) --
Change in assets and liabilities net of acquisitions:
Decrease (increase) in accounts receivable 1,718 (2,450)
(Increase) decrease in inventories (619) 981
(Increase) in other assets (4,968) (5,947)
(Decrease) in accounts payable (3,170) (1,127)
(Decrease) increase in accrued compensation (1,966) 1,730
(Decrease) in income tax payable (3,127) (270)
(Decrease) increase in other liabilities (900) 3,378
-------------------------- ----------------------------
Net cash (used in) provided by operating activities (4,440) 4,880
-------------------------- ----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions net of cash acquired -- (186,757)
Capital expenditures (3,503) (3,578)
Proceeds from sale of fixed assets 903 119
Proceeds from sale of marketable securities 11 3
Decrease in notes receivable 100 167
-------------------------- ----------------------------
Net cash used in investing activities (2,489) (190,046)
-------------------------- ----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 123,245 307,077
Payments on long-term debt (117,292) (121,982)
Proceeds from issuance of stock under stock option plan -- 240
Dividends paid (799) (795)
-------------------------- ----------------------------
Net cash provided by financing activities 5,154 184,540
-------------------------- ----------------------------
Effect of exchange rate changes on cash (169) (25)
Decrease in cash and cash equivalents (1,944) (651)
Cash and cash equivalents at beginning of period 3,350 2,255
-------------------------- ----------------------------
Cash and cash equivalents at end of period $ $ 1,406 $ 1,604
========================== ============================
Supplemental Information:
Interest payments $ 14,359 $ 3,195
Income tax payments $ 1,717 $ 892
Non-cash interest expense $ 200 $ --
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
NOTE 1. Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding. Diluted earnings per share
is computed by dividing net income by the sum of the weighted-average
number of shares outstanding plus the dilutive effect of shares issuable
through the exercise of stock options.
The components of the denominator for basic earnings per share and
diluted earnings per share are reconciled as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------- --------------------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
---------------- ------------------ --------------- -------------------
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Weighted-average common
shares outstanding 6,171 6,138 6,162 6,131
================ ================== =============== ===================
Diluted Earnings per Share:
Weighted-average common
shares outstanding 6,171 6,138 6,162 6,131
Stock options (a) -- -- -- 23
---------------- ------------------ --------------- -------------------
Denominator for Diluted
Earnings per Share 6,171 6,138 6,162 6,154
================ ================== =============== ===================
</TABLE>
(a) Excludes anti-dilutive stock options which were 537 and 466 for the three
and six month periods ended October 1, 2000, and 153 and 116 for the
three and six month periods ended September 26, 1999. Also excludes
anti-dilutive warrants for the three and six month periods ended October
1, 2000 of 428.
6
<PAGE> 8
NOTE 2. Comprehensive Income
Comprehensive income for the three and six month periods ended October 1,
2000 is summarized below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------- --------------------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Net (loss) income $ (1,755) $ (871) $ (2,507) $1,287
Other comprehensive income
(loss), net of tax:
Foreign currency translation
adjustment (668) (114) (1,486) (372)
Unrealized investment
holding loss (1) (2) (6) --
--------------- ------------------ --------------- -------------------
Total comprehensive (loss)
income $ (2,424) $ (987) $ (3,999) $ 915
=============== ================== =============== ===================
</TABLE>
NOTE 3. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
October 1, 2000 March 31, 2000
------------------------ -----------------------
<S> <C> <C>
Finished goods $22,472 $24,012
Work in process 19,473 18,367
Purchased and
manufactured parts 22,823 23,365
------------------- -------------------
Total inventories $64,768 $65,744
=================== ===================
</TABLE>
7
<PAGE> 9
NOTE 4. Long-term Debt Payable to Banks and Others
Long-term debt payable, including current maturities, consisted of the
following:
<TABLE>
<CAPTION>
October 1, 2000 March 31, 2000
--------------------- -----------------------
<S> <C> <C>
Revolver - 8.67% - $154,723
Revolver - 9.20% $162,565 -
Term loan - 8.69% - 46,250
Term loan - 9.88% 42,500 -
Bridge loan - 15.44% - 75,000
Senior Subordinated Notes - 16.00% 75,200 -
Other 1,331 1,371
--------------------- -----------------------
281,596 277,344
Less current maturities 7,586 82,585
Less unamortized discount 210
--------------------- -----------------------
Total $273,800 $194,759
===================== =======================
</TABLE>
Credit Facilities
On August 30, 2000, the Company completed a private placement of $75
million in senior subordinated notes (the "Notes") and certain warrants
to purchase shares of the Company's common stock (the "Warrants") to a
group of institutional investors (collectively, the "Purchasers"). The
Company used the proceeds of the private placement to retire, in full, a
$75 million Bridge Loan held by a group of lenders led by Fleet National
Bank.
The Notes are due on August 29, 2005 and bear interest at a rate of 16%
per annum, consisting of 13% cash interest on principal, payable
quarterly, and 3% interest on principal, payable quarterly in
"payment-in-kind" promissory notes. Prepayment of the Notes is permitted
after August 29, 2001 at a premium initially of 9% declining to 5%, 3%,
and 1% annually, respectively, thereafter. The Notes contain customary
financial covenants and events of default, including a cross-default
provision to the Company's senior credit facility.
The Warrants entitle the Purchasers to acquire in the aggregate 427,602
shares, or 6.5%, of the common stock of the Company at an exercise price
of $9.93 a share, which represents the average daily closing price of the
Company's common stock on the New York Stock Exchange for the thirty (30)
days preceding the completion of the private placement, and which may be
subject to a price adjustment on the first anniversary of the issuance of
the Warrants. The Warrants must be exercised by August 29, 2010. These
Warrants have been valued at an appraised amount of $0.2 million and have
been recorded in paid in capital.
In connection with the transaction, the Company and certain of its
subsidiaries signed a Consent and Amendment Agreement with its current
lenders (the "Lenders") under the Company's existing $250 million senior
credit facility (the "Credit Facility"), in which the Lenders consented
to the private placement and amended certain financial covenants
associated with the Credit Facility.
8
<PAGE> 10
The Credit Facility was previously amended on August 31, 1999, to
increase the Revolver from $145 million to $200 million, provide for term
debt (the "Term Loan") of $50 million, and provide for the Bridge Loan of
$75 million in order to provide the necessary funds for the Tinnerman
acquisition on that date. The terms of the Bridge Loan required the net
payment of an exit fee of $1.0 million on retirement of the Bridge Loan.
The Company has unused borrowing capacity for both domestic and
international operations of $37.4 million as of October 1, 2000,
including letters of credit of $5.0 million. The Revolver and Term Loan
are secured by the Company's assets. As of October 1, 2000, the Company
had total borrowings of $280.1 million under the agreements which have a
weighted-average interest rate of 11.1%. The Company had $1.3 million of
other borrowings, consisting of collateralized borrowing arrangements
with fixed interest rates of 3% and 3.75%, and loans on life insurance
policies owned by the Company with a fixed interest rate of 5%.
Borrowings under the Revolver as of October 1, 2000, were $162.6 million.
Interest on the Revolver is tied to the primary bank's prime rate, or at
the Company's option, the London Interbank Offered Rate ("LIBOR"), plus a
margin that varies depending upon the Company's achievement of certain
operating results. As of October 1, 2000, $159.6 million of the Company's
outstanding borrowings utilized LIBOR, of which $132.9 million were
payable in U.S. Dollars and $6.7 million and $20.0 million were payable
in Deutsche marks and Pounds sterling, respectively.
Borrowings under the Term Loan as of October 1, 2000, were $42.5 million
of which $7.5 million is due within one year, $10.0 million is due in
year two, $10.0 million is due in year three, and $15.0 million is due
upon maturity in year four.
The Credit Facility requires the Company to maintain interest rate
protection on a minimum of 50% of its variable rate debt. The Company
has, accordingly, provided sufficiently for this protection by means of
interest rate swap agreements which have fixed the rate of interest on
$50.0 million of debt at a base rate of 5.48% through May 4, 2002, and
$75.0 million of debt at a base rate of 6.58% through March 3, 2003.
Under the agreement, the base interest rate is added to the applicable
interest rate margin to determine the total interest rate in effect. The
Credit Facility also limits the Company's ability to pay dividends to a
maximum of $2.0 million annually and restricts annual capital
expenditures to $12.0 million through 2001, $13.0 million in 2002, and
$15.0 million thereafter, and contains other customary financial
covenants, including the requirement to maintain certain financial ratios
relating to performance, interest expense and debt levels. Due to changes
in business conditions, business performance, and economic activity in
the domestic and international regions, the Company cannot be certain
that such covenant ratios will continue to be maintained in the future.
9
<PAGE> 11
NOTE 5. Acquisitions
On August 31, 1999, the Company acquired substantially all of the assets
and assumed certain liabilities, consisting primarily of trade debts and
accrued expenses of the Engineered Fasteners Division and its Tinnerman
product line (collectively referred to as "Tinnerman") of Eaton
Corporation for a total purchase price of $173.3 million in cash.
Tinnerman has 650 employees and manufactures a wide variety of fastening
devices for the automotive, business equipment, consumer electronics and
home appliance markets. Tinnerman has manufacturing facilities in
Brunswick and Massillon, Ohio and Hamilton, Ontario, Canada.
On July 19, 1999, the Company acquired all the outstanding capital stock
of Ellison Holdings PLC, a privately held company, and its German
affiliate Ellison, Rotettges & Co. GmbH (collectively referred to as
"Ellison") for $13.8 million in cash, a $0.4 million note payable 24
months from the date of acquisition and other contingent consideration.
Ellison, headquartered in Glusburn, West Yorkshire, England, manufactures
retaining and snap rings as well as lockwashers for the automotive, heavy
vehicle and industrial markets. As part of the acquisition plan, the
Company closed its existing Anderton facility in Bingley, U.K. and
consolidated that operation with the Ellison facility. In the quarter
ended September 26, 1999, the Company recorded a $4.5 million charge for
the consolidation. The charge consisted of $3.8 million, principally
related to the write-down of Anderton's assets no longer being used to
estimated realizable values and other costs directly related to the exit
of the facility, and approximately $0.7 million for severance and related
benefit payments to approximately 100 Anderton employees. At October 1,
2000, all cash costs associated with this charge have been incurred. In
the quarter ended March 31, 2000, $1.0 million was charged to cost of
sales primarily due to excess overtime incurred to produce parts pending
customer approval on first part production lots. For the quarter ended
July 2, 2000, the Company recorded a $1.3 million charge to cost of
sales, primarily related to excess overtime to produce parts and premium
freight charges. In the quarter ended October 1, 2000, the Company
recorded a similar charge of $0.8 million to cost of sales.
On July 28, 1998, the Company acquired all of the outstanding stock of
NORCO, Inc. ("NORCO") for $17.7 million in cash, including direct
acquisition costs, and other contingent consideration. NORCO, located in
Ridgefield, Connecticut, produces aircraft engine compartment hold open
rods, actuators and other motion control devices for the aerospace
industry.
On June 29, 1998, the Company acquired all of the outstanding stock of
Aerospace Rivet Manufacturers Corporation ("ARM") for $26.2 million in
cash, including direct acquisition costs, and other contingent
consideration. ARM, located in City of Industry, California, produces
rivets and externally threaded fasteners for the aerospace industry.
The Company has accounted for the above-mentioned acquisitions under the
purchase method of accounting and each acquisition has been consolidated
with the Company, beginning on the effective date of each acquisition.
The excess of the purchase price over the fair value of the net assets
acquired is included in the accompanying Consolidated Balance Sheets
under the caption "Costs in excess of net assets of acquired businesses"
and is being amortized over 40 years.
10
<PAGE> 12
The following summarizes the Company's unaudited pro forma information as
if the Ellison and Tinnerman acquisitions had occurred on April 1, 1999.
The pro forma information is based on historical results of operations,
adjusted for acquisition costs, additional interest expense, amortization
of goodwill, additional depreciation and income taxes. It is not
necessarily indicative of what the results would have been had the
Company operated the acquired entities since April 1, 1999.
<TABLE>
<CAPTION>
Six Months Ended
September 26, 1999
-------------------------
<S> <C>
Net sales $ 156,852
-------------------------
Income before extraordinary charge $ 620
-------------------------
Net income $ 79
-------------------------
Basic earnings per share $ 0.01
-------------------------
Diluted earnings per share $ 0.01
-------------------------
Basic Shares 6,131
Diluted Shares 6,154
</TABLE>
NOTE 6. New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued in June
1998 and, as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
SFAS Statement No. 133" in June 1999, is effective for the Company for
its fiscal year ending March 31, 2002. SFAS No. 133 requires that all
derivative instruments be measured at fair value and recognized in the
balance sheet as either assets or liabilities.
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements" was issued in December 1999. SAB 101b, "Second
Amendment: Revenue Recognition in Financial Statements", defers
implementation of SAB 101 until no later than the fourth quarter of
fiscal 2001.
The Company is currently evaluating the impact that the foregoing two
pronouncements will have on its consolidated financial statements.
11
<PAGE> 13
NOTE 7. Disclosures about Segments and Related Information
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------------------------------
October 1, 2000 September 26, 1999
------------------------ -------------------------
<S> <C> <C>
Sales:
Specialty fastener products $ 132,530 $ 91,519
Aerospace products 30,971 26,752
------------------------ -------------------------
Total $ 163,501 $ 118,271
======================== =========================
Operating profit
Specialty fastener products (a) $ 12,175 $ 5,694
Aerospace products 6,838 6,205
------------------------ -------------------------
Total $ 19,013 $ 11,899
Corporate expense (5,504) (4,026)
Corporate interest and
other income 232 192
Interest expense (b) (17,784) (5,096)
------------------------ -------------------------
Income (loss) before income taxes
and extraordinary charge $ (4,043) $ 2,969
======================== =========================
</TABLE>
(a) The results of operations of the Specialty Fasteners Products segment for
the six month period ended October 1, 2000 and September 26, 1999
includes a charge of $2.1 million and $4.5 million, respectively, related
to the consolidation of its two U.K. plants.
(b) Interest expense for the six month period ended October 1, 2000 includes
a $2.3 million charge related to loan fees associated with the
refinancing of the Company's bridge debt.
12
<PAGE> 14
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
October 1, 2000 September 26, 1999
------------------------ -------------------------
<S> <C> <C>
Sales:
Specialty fastener products $ 63,592 $ 50,335
Aerospace products 15,544 12,568
------------------------ -------------------------
Total $ 79,136 $ 62,903
======================== =========================
Operating profit
Specialty fastener products (a) $ 4,995 $ 1,467
Aerospace products 3,285 2,982
------------------------ -------------------------
Total $ 8,280 $ 4,449
Corporate expense (2,375) (1,632)
Corporate interest and
other income 117 21
Interest expense (b) (8,852) (3,466)
------------------------ -------------------------
Loss before income taxes $ (2,830) $ (628)
======================== =========================
</TABLE>
(a) The results of operations of the Specialty Fasteners Products segment for
the three month period ended October 1, 2000 and September 26, 1999
includes a charge of $0.8 million and $4.5 million, respectively, related
to the consolidation of its two U.K. plants.
(b) Interest expense for the three month period ended October 1, 2000
includes a $1.2 million charge related to loan fees associated with the
refinancing of the Company's bridge debt.
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All references to three and six month periods in this Management's Discussion
refer to the three and six month periods ended October 1, 2000 for fiscal year
2001 and the three and six month periods ended September 26, 1999 for fiscal
year 2000. Also, when referred to herein, operating profit means net sales less
operating expenses, without deduction for general corporate expenses, interest
and income taxes. Unless otherwise indicated, amounts per share refer to diluted
amounts per share.
Sales for the six month period in 2001 were $163.5 million, a 38% increase from
the comparable period in 2000. For the three month period in 2001, sales were
$79.1 million, a 26%, increase from the comparable period in 2000. Gross profit
for the six month period in 2001 was $41.3 million, an 18% increase from the
comparable period in 2000. For the three month period in 2001 gross profit
increased 3%. Operating profit for the six month period in 2001 was $19.0
million, a 60% increase from the comparable period in 2000. Operating profit for
the three month period in 2001 was $8.3 million, an increase of 86%, from the
comparable period in 2000. Operating profit in the six month period in 2001 and
2000 includes a charge of $2.1 million and $4.5 million, respectively, related
to the consolidation of its two U.K. plants. Operating profit for the three
month periods in 2001 and 2000 includes a charge of $0.8 million and $4.5
million, respectively, related to the consolidation of its two U.K. plants.
Operating profit in the 2000 periods only includes the results of Ellison and
Tinnerman from the dates of each respective acquisition. Operating profit for
the six month period in 2001, includes a net $0.4 million charge from unrealized
mark-to-market valuation on outstanding forward currency hedges of forecasted
future currency exposures at its European retaining ring businesses. Operating
profit for the three month period in 2001, reflects a $0.1 million
mark-to-market unrealized gain on currency hedges. Changes in sales, operating
profit and new orders from continuing operations are discussed below by segment.
The Company reported a net loss for the six month period in 2001 of $2.5
million, or ($0.41) per share, compared to net income of $1.3 million, or $0.21
per share, for the comparable period in 2000. The Company reported a net loss
for the three month period in 2001 of $1.8 million, or ($0.28) per share,
compared to a net loss of $0.9 million, or ($0.14) per share, for the comparable
period in 2000. Interest expense increased $12.7 million for the six month
period in 2001, primarily as a result of additional borrowings to fund the
Ellison and Tinnerman acquisitions which occurred in the second fiscal quarter
of 2000. Interest expense for the three month period increased $5.4 million on
increased borrowings to fund these acquisitions and included a $1.1 million
charge related to the refinancing of the Bridge Loan. Interest expense in the
three and six month period in 2001 included a charge of $2.3 million related to
refinancing of the Bridge Loan.
New orders received during the six month period in 2001 totaled $168.7 million,
an increase of 34% from the comparable period in 2000. For the three month
period, new orders totaled $83.2 million, an increase of 22% from the
comparable period in 2000. The increase in orders for both the three and six
month periods is primarily the result of the acquisitions of Tinnerman and
Ellison which were not included for the full period of 2000. At October 1, 2000,
total backlog of unfilled orders was $111.9 million, compared to $109.9 million
at September 26, 1999.
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SPECIALTY FASTENER PRODUCTS SEGMENT
Sales for the Specialty Fastener Products segment were $132.5 million for the
six month period ended October 1, 2000, an increase of 45% from the comparable
period in 2000. The predominant reason for this sales increase was due to the
acquisitions of Tinnerman, which included only one month of sales in 2000, and
Ellison, which included just over one month of sales in the period. Sales at the
Germany, Brazil and U.S. retaining ring operations were 23% higher than last
year, reflecting strong product demand. The hose clamp business, with
significant exposure to heavy-duty truck manufacturing and after-market, has
seen sales remain essentially flat from last year. Aerospace Rivet has shown 8%
lower sales than in 2000, reflecting a loss of a major customer and an
industry-wide slowdown in the aerospace components market. Sales at TCR were
down slightly over last year.
Sales for the Specialty Fastener Products segment were $63.6 million for the
three month period ended October 1, 2000, a 26% increase over the comparable
period in 2000. The increase is primarily due to the acquisitions of Tinnerman
and Ellison as explained above. Sales were 23% higher at the Company's German,
Brazilian and U.S. retaining ring operations over the comparable period in 2000
resulting from higher product demand and volume. Sales in 2001 were down 8% at
its hose clamp business over the comparable period in 2000 due to weaker product
demand. Sales at TCR were also down slightly over last year.
Operating profit for the six month period in 2001 was $12.2 million, an increase
of 114% from the comparable period in 2000. Much of this increase is
attributable to the acquisition of Tinnerman where only one month of operating
profit was reported in 2000. In 2001 operating profit included additional plant
consolidation charges for excess overtime, staffing and premium freight of $2.1
million. The six month period of 2000 included a $4.5 million charge to
consolidate the Ellison and Anderton retaining ring businesses in the U.K. The
physical consolidation of the two U.K. facilities is now complete and the old
facility has been sold. Operating profit at the Company's German, Brazilian and
U.S. retaining rings businesses is above that of last year. Operating profit at
the hose clamp business, ARM, and TCR is below last year.
Operating profit for the three month period ended October 1, 2000 was $5.0
million versus $1.5 million for the comparable period in 2000. The three month
period in 2000 included only one month of Tinnerman's results. The operating
profit in the three month period in 2001 includes a plant consolidation charge
for excess overtime, staffing and premium freight of $0.8 million compared to a
one-time charge of $4.5 million in the 2000 period to consolidate the Anderton
and newly acquired Ellison facilities. Operating profit at the hose clamp
business, ARM, and TCR business is below the comparable period in 2000.
New orders for the six month period were $134.4 million, versus $94.0 million in
2000, primarily reflecting the incremental bookings resulting from acquisitions
of Tinnerman and Ellison for the full six month period in 2001.
New orders for the three month period in 2001 were $62.4 million, versus $53.4
million in the comparable period in 2000, reflecting primarily the Tinnerman
acquisition which was not included for the full period in 2000. Backlog of
unfilled orders at October 1, 2000 was $64.3 million, compared to $61.0 million
at September 26, 1999.
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<PAGE> 17
Recent trends in the economy in the United States indicate a softening in
automotive and heavy truck manufacturing which are major markets for the
Company. This development, coupled with expected losses at the Company's UK
facility, could have a negative effect on the Company's operating performance
over the next several quarters.
AEROSPACE PRODUCTS SEGMENT
Sales for the Aerospace Products segment were $31.0 million for the six month
period in 2001 compared to $26.8 million for the comparable period in 2000.
Sales during 2001 at Breeze-Eastern were 19% ahead of 2000. Sales at Norco were
9% ahead of 2000.
Sales for the Aerospace products segment were $15.5 million for the three month
period in 2001, an increase of $3.0 million, or 24%, from the comparable period
in 2000. For the three month period in 2001, sales at Breeze-Eastern were 36%
ahead of 2000 and sales at Norco were 6% ahead of 2000.
Operating profit for the six month period in 2001 was $6.8 million, a 10%
increase over the six month period in 2000. This increase in operating profit
was spread between Breeze-Eastern and Norco and was the direct result of sales
volume increases.
Operating profit for the three month period in 2001 was $3.3 million, an
increase of 10% from the comparable period in 2000. Most of this increase
occurred at Breeze-Eastern as a result of its higher sales volume.
New orders for the six month period in 2001 were $34.3 million versus $31.6
million in 2000. Bookings at Breeze-Eastern were up $0.1 million from 2000.
Bookings at Norco were $2.6 million ahead of 2000.
New orders for the three month period in 2001 were $20.8 million, a 39% increase
over the comparable period in 2000. Bookings for the quarter ended October 1,
2000 at Breeze-Eastern were $4.2 million higher than the comparable period ended
in 2000. Bookings at Norco were $1.6 million higher than 2000. Backlog of
unfilled orders at October 1, 2000, was $47.5 million, compared to $48.2 million
at September 26, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's debt-to-capitalization ratio was 69% as of October 1, 2000,
compared to 68% as of March 31, 2000. The current ratio at October 1, 2000 was
2.7, compared to 1.0 at March 31, 2000. Working capital was $82.1 million as of
October 1, 2000, up $80.3 million from March 31, 2000. Both the increase in the
current ratio and the increase in working capital reflect the replacement of the
short term Bridge Loan with the Senior Subordinated Notes as discussed in the
Notes to Unaudited Consolidated Financial Statements.
Capital expenditures were $3.5 million for the six month period and $1.7 million
in the three month period ended October 1, 2000. There were approximately $3.0
million of capital expenditure commitments outstanding at October 1, 2000.
The Company's cash flow from operations and available credit facilities are
considered adequate to fund both the short-term and long-term capital needs of
the Company subject to the covenant requirements as discussed in the Notes to
Unaudited Consolidated Financial Statements.
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<PAGE> 18
The Company's credit facility contains customary financial covenants, including
requirement to maintain certain financial ratios relating to performance,
interest expense and debt levels. For the fiscal quarter ended October 1, 2000,
the Company is in compliance with those covenants. Due to several factors,
including the changes in business conditions and the Company's performance
referenced above in the discussion of the results of operations for the
Company's business segments, as well as external economic conditions in the
domestic and international markets in which the Company competes, the Company
may be unable to maintain some or all of the foregoing financial ratios in the
quarterly period ending December 31, 2000 or during future periods. In the event
that such ratios are not maintained and the Company does not obtain the
agreement of the lenders under the senior credit facility to waive compliance
with or modify such covenants, the Company would be in default of such covenants
under the senior credit facility.
In August 2000, the Company received $1.0 million for the sale of the Anderton
facility located in Bingley, England.
EURO CURRENCY
Effective January 1, 1999, eleven countries comprising the European Union
established fixed foreign currency exchange rates and adopted a common currency
unit designated as the "Euro." The Euro has since become publicly traded and is
currently used in commerce during the present transition period which is
scheduled to end January 1, 2002, at which time a Euro denominated currency is
scheduled to be issued and is intended to replace those currencies of the eleven
member countries. The transition to the Euro has not resulted in problems for
the Company to date, and is not expected to have any material adverse impact on
the Company's future operations.
IMPACT OF INFLATION
The Company's primary costs, inventory and labor, increase with inflation.
Recovery of the costs has to come from improved operating efficiencies and, to
the extent permitted by our competition, through improved gross profit margins.
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<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company enters into financial instruments to manage and reduce the impact of
changes in foreign currency exchange rates and interest rates. The counter
parties are major financial institutions.
The Company uses forward exchange contracts principally to hedge foreign
currency intercompany loans made between its corporate headquarters and its
foreign subsidiaries and between various foreign subsidiaries. As part of its
overall strategy to manage the level of exposure to the risk of foreign currency
exchange rate fluctuations, the Company hedges a portion of anticipated net
sales that are expected to be denominated in foreign currency. In addition, the
Company hedges a portion of exported future intercompany purchases denominated
in foreign currency anticipated over the ensuing twelve month period. At October
1, 2000, the Company had contracts for the sale of $14.6 million and the
purchase of $6.6 million of foreign currencies at fixed rates. Based on the
foreign exchange contracts outstanding at October 1, 2000, each 10% devaluation
of the U.S. dollar compared to the level of foreign exchange rates for
currencies under contact at October 1, 2000, would result in approximately $1.1
million of unrealized losses on foreign exchange contacts involving foreign
currency sales and purchases. Conversely, a 10% appreciation of the U.S. dollar
would result in $1.1 million of unrealized gains. Consistent with the nature of
the economic hedge provided by such foreign exchange contracts, such unrealized
gains and losses would be offset by corresponding decreases and increases,
respectively, in the dollar value of future foreign currency underlying
transactions.
The Company enters into interest rate swap agreements to manage its exposure to
interest rate changes. The swaps involve the exchange of fixed and variable
interest rate payments without exchanging the notional principal amount.
Payments or receipts on the swap agreements are recorded as adjustments to
interest expense. At October 1, 2000, the Company had interest rate swap
agreements to convert $125.0 million of notional amount of floating interest
rate debt to fixed rate. At October 1, 2000, the fair value of these swap
agreements was approximately $0.8 million. In the event of a 25 basis point
(one-quarter percent) increase in interest rates, the fair value of these swap
agreements would have increased by approximately $0.5 million as of October 1,
2000.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged in various legal proceedings incidental to its
business. It is the opinion of management that, after taking into
consideration information furnished by its counsel, these matters will
not have a material effect on the Company's consolidated financial
position or the results of the Company's operations in future periods.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the Company, held on July 13, 2000, all eight
directors of the Company nominated for reelection and the one new
director of the Company, Daniel Abramowitz, nominated for election, were
elected for a term of one year.
The results of the voting on the election of directors were as follows:
<TABLE>
<CAPTION>
VOTES VOTES
FOR WITHHELD
----------- ---------
<S> <C> <C>
Daniel Abramowitz 5,120,532 34,940
Gideon Argov 4,797,528 357,944
Walter Belleville 4,794,928 360,544
Michael J. Berthelot 4,685,602 469,870
Thomas V. Chema 4,796,928 358,544
John Dalton 4,797,328 358,144
Michel Glouchevitch 4,797,425 358,047
James A. Lawrence 4,795,420 360,052
William Recker 4,797,401 358,071
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3.2 Bylaws of the Company amended and restated as of July 13, 2000
27 Financial Data Schedule
(b) A report on Form 8-K was filed on September 14, 2000 to report the August
29, 2000 sale by the Company of subordinated promissory notes due August
29, 2005, in the aggregate principal amount of $75,000,000 and of
warrants to purchase an aggregate of 427,602 shares of common stock, $.01
par value per share, to J.H. Whitney Mezzanine Fund L.P.; Albion Alliance
Mezzanine Fund I, L.P.; Albion Alliance Mezzanine Fund II, L.P.; The
Equitable Life Assurance Society of the United States; Fleet Corporate
Finance, Inc. and Citizens Capital, Inc.
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SIGNATURES
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.
TRANSTECHNOLOGY CORPORATION
(Registrant)
Dated: November 13, 2000 By: /s/Joseph F. Spanier
-----------------------------------------
JOSEPH F. SPANIER, Vice President
Treasurer and Chief Financial Officer*
*On behalf of the Registrant and as Principal Financial and Accounting
Officer.
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