-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JC+Ts+ipB24gWSqyavZPRz7lNlyt+CTSBw8SFocnXJsxl9LmS/mMh0R9PQ/0wt8A hd2oseoRdliLk++wtMsGuw== 0000950123-02-006573.txt : 20020627 0000950123-02-006573.hdr.sgml : 20020627 20020627160225 ACCESSION NUMBER: 0000950123-02-006573 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSTECHNOLOGY CORP CENTRAL INDEX KEY: 0000099359 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 954062211 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07872 FILM NUMBER: 02689368 BUSINESS ADDRESS: STREET 1: 150 ALLEN RD CITY: LIBERTY CORNER STATE: NJ ZIP: 07938 BUSINESS PHONE: 9089031600 MAIL ADDRESS: STREET 1: 150 ALLEN RD CITY: LIBERTY CORNER STATE: NJ ZIP: 07938 FORMER COMPANY: FORMER CONFORMED NAME: SPACE ORDNANCE SYSTEMS INC DATE OF NAME CHANGE: 19740717 10-K 1 y61813e10vk.txt TRANSTECHNOLOGY CORPORATION SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________ to ____________ Commission file number 1-7872 TRANSTECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) 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)
Registrant's telephone number, including area code: (908) 903-1600 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.01 (Title of class) New York Stock Exchange (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: NONE 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of June 20, 2002, the aggregate market value of voting stock held by non-affiliates of the registrant based on the last sales price as reported by the New York Stock Exchange on such date was $63,590,699. (See Item 12) As of June 20, 2002, the registrant had 6,190,866 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant's Annual Report for the fiscal year ended March 31, 2002 is incorporated by reference into Part I and II hereof. The registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders is incorporated by reference into Part III hereof. PART I ITEM 1. BUSINESS. GENERAL TransTechnology Corporation develops, manufactures and sells products primarily used in the aerospace industry. TransTechnology Corporation was originally organized in 1962 as a California corporation and reincorporated in Delaware in 1986. Unless the context otherwise requires, references to the "Company" or the "Registrant" refer to TransTechnology Corporation (including the California corporation prior to the reincorporation) and its consolidated subsidiaries. The Company's fiscal year ends on March 31. Accordingly, all references to years in this report refer to the fiscal year ended March 31 of the indicated year. RESTRUCTURING On January 19, 2001, the Company announced its intention to restructure and divest its cold-headed products (TCR), retaining ring (Seeger-Orbis, TransTechnology (GB), TT Brasil, and TransTechnology Engineered Rings USA), hose clamp (Breeze Industrial and Pebra) and aerospace rivet (Aerospace Rivet Manufacturers Corp.) operations. In addition, on April 12, 2001, the Company announced that it would divest TransTechnology Engineered Components (TTEC), a manufacturer of spring steel engineered fasteners and headlight adjusters. For business segment reporting purposes, these above-mentioned business units have previously been classified as the "Specialty Fasteners Segment." The Company has reclassified these business units as discontinued operations. On July 10, 2001, the Company sold its Breeze Industrial and Pebra hose clamp businesses to Industrial Growth Partners and members of Breeze Industrial's management for $46.2 million, which was paid in cash. In a related transaction, the Company sold the real estate occupied by Breeze Industrial to a quasi-governmental organization for $2.0 million. Proceeds from the sale were used to repay borrowings outstanding under the company's Second Amended and Restated Credit Agreement with Fleet National Bank and the other lenders therein (the "Credit Facility"). On December 5, 2001, the Company sold its TransTechnology Engineered Components ("TTEC") businesses to a company formed by affiliates of Kohlberg & Company, L.L.C. for $98.5 million, of which $96 million was cash and the balance the assumption of certain liabilities related to the purchased businesses. The cash proceeds of the sale were used to repay borrowings outstanding under the Credit Facility. In the fiscal quarter ended September 30, 2001, as part of its restructuring program, the Company reported a pre-tax asset impairment charge for TTEC in the amount of $85.8 million to reduce the carrying value of these businesses to estimated fair market value. This non-cash charge was specifically related to the write-down of goodwill. The sale proceeds of TTEC approximated its adjusted carrying value. On February 21, 2002, the Company sold its Seeger-Orbis retaining ring business in Germany to Barnes Group Inc. for $20.0 million cash. The net proceeds of the sale were used to repay borrowings outstanding under the Credit Facility. The balance sheet of the Company contains a non-current asset and a non-current liability in the amount of $3.1 million relating to the pension plan of Seeger-Orbis. These amounts represent the legal liability of the Company under German law and the indemnification received from the buyer of the business for that liability. 1 On April 16, 2002, the Company sold its Aerospace Rivet Manufacturers Corporation subsidiary to Allfast Fastening Systems, Inc. for $3.2 million cash. The net proceeds of the sale were used to repay borrowings outstanding under the Credit Facility. On May 30, 2002, the Company sold substantially all of the assets and business of its domestic retaining ring business, TransTechnology Engineered Rings Inc. (USA), to a newly formed entity controlled by SeaView Capital LLC for $3.7 million, of which $2.9 million was cash and $.8 million was a promissory note. The company also received warrants to purchase 5% of the purchaser's equity. As of June 21, 2002, the Company continues to own and operate TCR Inc., its cold-heading and screw machine operation, TransTechnology (GB) Ltd., its UK retaining ring business, and TransTechnology Brasil Ltda., its Brazilian retaining ring operation. Each of these companies is held for sale and their operations are included in discontinued operations for all of the periods included in this report. CORE BUSINESS As a result of the above referenced restructuring program, TransTechnology Corporation's core business area is aerospace products. The company conducts its aerospace business through its Breeze-Eastern division and its Norco, Inc. (Norco) subsidiary. Breeze-Eastern and Norco are the world's leading designers and manufacturers of sophisticated helicopter rescue hoists, cargo winches, cargo hook systems, mechanical components such as hold open rods, and application-specific mechanical and linear motion systems. These products are sold primarily to military and civilian agencies and aerospace contractors. PRODUCTS The Company's aerospace products are designed, developed and manufactured by Breeze-Eastern and Norco. Breeze-Eastern specializes in the design, development and manufacture of sophisticated lifting and restraining products, principally helicopter rescue hoists, reeling machines and external hook systems. In addition, Breeze-Eastern designs, develops and manufactures winches and hoists for aircraft cargo and weapon-handling systems with applications ranging from cargo handling on fixed-wing aircraft to hoisting weapons into position on carrier based aircraft. Management believes that Breeze-Eastern is the industry market share leader in sales of personnel-rescue hoists and cargo hook equipment. As a pioneer of helicopter hoist technology, Breeze-Eastern continues to develop sophisticated helicopter hoist systems, including systems for the current generation of Seahawk, Chinook, Dolphin, Merlin and Super Stallion helicopters. Breeze-Eastern also supplies equipment for the United States, Japanese and European Multiple-Launch Rocket Systems which use two specialized hoists to load and unload rocket pod containers. Breeze-Eastern's external cargo-lift hook systems are original equipment on most helicopters manufactured today. These hook systems range from small 1,000-pound capacity models up to the largest 36,000-pound capacity hooks employed on the Super Stallion helicopter. Breeze-Eastern also manufactures aircraft and cargo tie-downs. Norco designs, develops and manufactures mechanical components and systems such as hold open rods, quick connect/disconnect locking systems, helicopter blade restraint systems, latch assemblies, safety locks and application-specific mechanical systems. Its power transmission line of products includes rollnuts, rollnut longspan assemblies, ball reversers, ball oscillators, Flennor assemblies and other application-specific linear motion assemblies. Power transmission products are used in a wide range of commercial and industrial applications, including medical testing equipment and manufacturing equipment for use in the paper, pulp, and textile industries. 2 Breeze-Eastern and Norco sell their products through internal marketing representatives and several independent sales representatives and distributors. The Aerospace Product backlog varies substantially from time to time due to the size and timing of orders. At March 31, 2002, the backlog of unfilled orders was $43.7 million, compared to $40.2 million at March 31, 2001. The majority of the March 31, 2002 backlog is expected to be shipped during fiscal 2003. DEFENSE INDUSTRY SALES Approximately 43% of the Company's consolidated net sales in 2002, as compared to 40% and 37% in 2001 and 2000, respectively, were derived from sales to the United States Government, principally the military services of the Department of Defense and its prime contractors. These contracts typically contain precise performance specifications and are subject to customary provisions which give the United States Government the contractual right of termination for convenience. In the event of termination for convenience, however, the Company is typically protected by provisions allowing reimbursement for costs incurred as well as payment of any applicable fees or profits. ENVIRONMENTAL MATTERS Due primarily to Federal and State legislation which imposes liability, regardless of fault, upon commercial product manufacturers for environmental harm caused by chemicals, processes and practices that were commonly and lawfully used prior to the enactment of such legislation, the Company may be liable for all or a portion of the environmental clean-up costs at sites previously owned or leased by the Company (or corporations acquired by the Company). The Company's contingencies associated with environmental matters are described in Note 12 of "Notes to Consolidated Financial Statements" included in the Company's 2002 Annual Report on page 20 which is incorporated herein by reference. COMPETITION The Company's businesses compete in some markets with entities that are larger and have substantially greater financial and technical resources than the Company. Generally, competitive factors include design capabilities, product performance, delivery and price. The Company's ability to compete successfully in such markets will depend on its ability to develop and apply technological innovations and to expand its customer base and product lines. The Company is successfully doing so both internally and through acquisitions. There can be no assurance that the Company will continue to successfully compete in any or all of the businesses discussed above. The failure of the Company to compete in more than one of these businesses could have a materially adverse effect on the Company's profitability. 3 RAW MATERIALS The various components and raw materials used by the Company to produce its products are generally available from more than one source. In those instances where only a single source for any material is available, such items can generally be redesigned to accommodate materials made by other suppliers. In some cases, the Company stocks an adequate supply of the single source materials for use until a new supplier can be approved. The Company's business is not dependent upon a single supplier or a few suppliers, the loss of which would have a materially adverse effect on the Company's consolidated financial position. EMPLOYEES As of June 17, 2002, the Company employed 841 people. There were 286 persons employed with the aerospace products operations, 9 with the corporate office, and 546 in businesses held for sale. FOREIGN OPERATIONS AND SALES The company has no foreign-based facilities used in its continuing operations. The Company had export sales of $26.9 million, $24.9 million and $24.0 million in fiscal 2002, 2001 and 2000, respectively, representing 37%, 35% and 39% of the Company's consolidated net sales in each of those years, respectively. The risk and profitability attendant to these sales is generally comparable to similar products sold in the United States. Net export sales by geographic area and domicile of customers are set forth in the 2002 Annual Report in Note 13 of "Notes to Consolidated Financial Statements" on page 20 and is incorporated herein by reference. 4 ITEM 2. PROPERTIES The following table sets forth certain information concerning the Company's principal facilities for its continuing operations:
Owned or Location Use of Premises Leased Sq. Ft -------- --------------- ---------- ------ Liberty Corner, New Jersey Executive Offices Leased 13,000 Union, New Jersey Breeze-Eastern offices Owned 188,000 and manufacturing plant Ridgefield, Connecticut Norco, Inc. offices and Owned 35,000 manufacturing plant
The Company believes that such facilities are suitable and adequate for the Company's foreseeable needs and that additional space, if necessary, will be available. The Company continues to own or lease property that it no longer needs in its operations. These properties are located in California, Pennsylvania, New York, and New Jersey. In some instances, the properties are leased or subleased and in nearly all instances these properties are for sale or are under contract for sale. In addition, the company owns or leases property that is used in businesses held for sale in Spain, France, England, Brazil and Minnesota. The lease on the Company's Executive Offices expires in August 2002 at which time the Executive Offices will be relocated into the Company's facility in Union, New Jersey. ITEM 3. LEGAL PROCEEDINGS The information required has been included in Note 12 of "Notes to Consolidated Financial Statements" included in the Company's 2002 Annual Report on page 20 and is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the three-month period ended March 31, 2002. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock, par value $0.01, is traded on the New York Stock Exchange under the symbol TT. The following table sets forth the range of high and low closing sales prices of shares of the Company's Common Stock for the calendar quarters indicated, as reported by the New York Stock Exchange.
High Low Fiscal 2001 First Quarter $ 14.69 $ 8.44 Second Quarter 11.37 6.12 Third Quarter 7.31 2.87 Fourth Quarter 6.75 3.75 Fiscal 2002 First Quarter $ 9.02 $ 5.00 Second Quarter 14.79 8.60 Third Quarter 13.50 9.60 Fourth Quarter 10.20 8.90
As of June 20, 2002, the number of stockholders of record of the Common Stock was 1,731. On June 20, 2002, the closing sales price of the Common Stock was $11.20 per share. The Company paid a regular quarterly dividend of $0.065 per share on June 1, September 1 and December 1, 2000. On January 19, 2001, the Company announced the suspension of its regular quarterly dividend. ITEM 6. SELECTED FINANCIAL DATA The information required has been included in the Company's 2002 Annual Report on page 1 and is incorporated herein by reference. 6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required has been included in the Company's 2002 Annual Report on pages 22-28 and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required has been included in the Company's 2002 Annual Report on page 28 and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements: The information required has been included in the Company's 2002 Annual Report on pages 7-21 and is incorporated herein by reference. Quarterly Financial Data: The information required has been included in Note 15 of Notes to Consolidated Financial Statements in the Company's 2002 Annual Report on page 21 and is incorporated herein by reference. Financial Statement Schedules: Schedule II -- Consolidated Valuation and Qualifying Accounts for years ended March 31, 2002, 2001 and 2000. Schedules referenced in Article 5 of Regulation S-X, other than that listed above, are not required and have been omitted. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is contained in the Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained in the Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Certain of the information required by this item is contained in the Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders and is incorporated herein by reference. For purposes of the calculation of the aggregate market value of voting stock held by non-affiliates, the Company has assumed that the shares of Common Stock beneficially owned by Dr. Arch C. Scurlock are not held by an affiliate of the Company. SECURITIES AUTHORIZED/ISSUED UNDER EQUITY COMPENSATION PLANS:
Number of Securities to Weighted Average Exercise be Issued Upon Exercise Price of Outstanding Number of Securities of Outstanding Options, Options, Warrants and Remaining Available Plan Category Warrants and Rights Rights for Future Issuance ------------- ----------------------- ------------------------- -------------------- Equity Compensation Plans Approved by Security Holders 540,547 $16.30 809,453 Equity Compensation Plans Not Approved by Security Holders (1) 0 -- -- ------------- ------------- ------------- Total 540,547 $16.30 809,453 ============= ============= =============
(1) Each of the Company's compensation plans have been previously approved by security holders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained in the Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders and is incorporated herein by reference. 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Schedules and Exhibits: 1. Financial Statements: Consolidated Balance Sheets at March 31, 2002 and 2001 Statements of Consolidated Operations for the years ended March 31, 2002, 2001 and 2000 Statements of Consolidated Cash Flows for the years ended March 31, 2002, 2001 and 2000 Statements of Consolidated Stockholders' Equity (Deficit) for the years ended March 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements Independent Auditors' Report 2. Financial Statement Schedules Schedule II - Consolidated Valuation and Qualifying Accounts for the years ended March 31, 2002, 2001 and 2000 3. Exhibits: The exhibits listed on the accompanying Index to Exhibits are filed as part of this report. (b) Reports on Form 8-K: 1. On February 19, 2002 the Registrant filed an amended 8-K including the Pro Forma Financial Statements regarding the disposition of its Engineered Components division. 2. On March 8, 2002 the Registrant filed an 8-K to report the closing of the disposition of its wholly-owned subsidiary, Seeger-Orbis GmbH & Co., OHG. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: June 21, 2002 TRANSTECHNOLOGY CORPORATION By: /s/Michael J. Berthelot ------------------------------------- Michael J. Berthelot, Chairman of the Board, President and Chief Executive Officer 10 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/Michael J. Berthelot Chairman of the Board, President June 21, 2002 - ---------------------------- and Chief Executive Officer MICHAEL J. BERTHELOT (Principal Executive Officer) /s/Joseph F. Spanier Vice President, Chief Financial Officer June 21, 2002 - ---------------------------- and Treasurer JOSEPH F. SPANIER (Principal Financial and Accounting Officer) /s/Daniel Abramowitz Director June 21, 2002 - ---------------------------- DANIEL ABRAMOWITZ /s/Gideon Argov Director June 21, 2002 - ---------------------------- GIDEON ARGOV /s/Walter Belleville Director June 21, 2002 - ---------------------------- WALTER BELLEVILLE /s/Thomas V. Chema Director June 21, 2002 - ---------------------------- THOMAS V. CHEMA /s/John H. Dalton Director June 21, 2002 - ---------------------------- JOHN H. DALTON /s/Michel Glouchevitch Director June 21, 2002 - ---------------------------- MICHEL GLOUCHEVITCH /s/James A. Lawrence Director June 21, 2002 - ---------------------------- JAMES A. LAWRENCE /s/Jan Naylor Cope Director June 21, 2002 - ---------------------------- JAN NAYLOR COPE /s/William J. Recker Director June 21, 2002 - ---------------------------- WILLIAM J. RECKER
11 INDEPENDENT AUDITORS' REPORT To the Stockholders and the Board of Directors of TransTechnology Corporation: We have audited the consolidated financial statements of TransTechnology Corporation and subsidiaries as of March 31, 2002 and 2001, and for each of the three years in the period ended March 31, 2002, and have issued our report thereon dated June 14, 2002; such consolidated financial statements and report are included in your 2002 Annual Report and are incorporated herein by reference. Our audits also included the financial statement schedule of TransTechnology Corporation, listed in Item 14. This financial statement schedule is the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP Parsippany, New Jersey June 14, 2002 12 TRANSTECHNOLOGY CORPORATION SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR YEARS ENDED MARCH 31, 2002, 2001 AND 2000 (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING OF COSTS AND OTHER AT END DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD ------------------------- ----------------- --------------- --------------- ----------------- ----------- 2002 ---- Allowances for doubtful accounts and sales returns $ 30 $ 369 $ - $ 8 $ 391 400 Inventory reserves $ 2,044 $ 716 $ - $ $ 2,360 Environmental 355 reserves $ 2,440 $ 163 $ - $ $ 2,248 Allowance for tax loss valuation $ 9,646 $ 4,857 $ - $ - $ 14,503 2001 ---- Allowances for doubtful accounts and sales returns $ 86 $ 27 $ - $ 83 $ 30 Inventory reserves $ 1,740 $ 541 $ - $ 237 237 237 $ 2,044 Environmental reserves $ 1,914 $ 1,158 $ - $ 632 $ 2,440 Allowance for tax loss valuation $ - $ 9,646 $ - $ - $ 9,646 2000 ---- Allowances for doubtful accounts and sales returns $ 26 $ 83 $ - $ 23 $ 86 Inventory reserves $ 1,857 $ 211 $ - $ 328 $ 1,740 Environmental reserves $ 2,140 $ 201 $ - $ 427 $ 1,914 Allowance for tax loss valuation $ - $ - $ - $ - $ -
13 INDEX TO EXHIBITS 3.1 Certificate of Incorporation of the Company. (1) 3.2 Bylaws of the Company Amended and Restated as of June 4, 2001. (18) 10.1 1996 - 1998 Incentive Compensation Plan of the Company. (10) 10.2 Amended and Restated 1992 Long Term Incentive Plan of the Company. (2) 10.3 Form of Incentive Stock Option Agreement. (2) 10.4 Form of Director Stock Option Agreement. (3) 10.5 Form of Restricted Stock Award Agreement used under the Company's Amended and Restated 1992 Long Term Incentive Plan. (4) 10.6 Indemnification Agreement dated February 11, 1987 between the Company and each of its officers and directors. (5) 10.7 Executive Life Insurance Plan. (6) 10.8 Amended and Restated Credit Agreement dated as of June 30, 1995 and amended and restated as of July 24, 1998 between the Company and BankBoston, N.A. (13) 10.9 Amendment Agreement No. 1 to the Amended and Restated Credit Agreement dated as of August 21, 1998 between the Company and BankBoston, N.A. (13) 10.10 Amendment Agreement No. 2 to the Amended and Restated Credit Agreement dated as of November 27, 1998 between the Company and BankBoston, N.A. (13) 10.11 Amendment Agreement No. 3 to the Amended and Restated Credit Agreement dated as of December 23, 1998 between the Company and BankBoston, N.A. (13) 10.14 Form of Executive Severance Agreement with Officers of the Company. (10) 10.15 Form of Executive Severance Agreement with Subsidiary Presidents. (10) 10.16 Form of Executive Severance Agreement with Division Presidents. (10) 10.17 Form of Executive Severance Agreement with Overseas Subsidiary Managing Directors. (10) 10.18 Form of First Amendment to Executive Severance Agreement with Officers of the Company. (11) 10.19 Form of First Amendment to Executive Severance Agreement with Subsidiary Presidents. (11) 10.20 Form of First Amendment to Executive Severance Agreement with Division Presidents. (11) 10.21 Form of First Amendment to Executive Severance Agreement with Overseas Subsidiary Managing Directors. (11) 10.22 Form of Second Amendment to Executive Severance Agreement with Officers of the Company. (18) 10.23 Form of Second Amendment to Executive Severance Agreement with Subsidiary Presidents. (18) 10.24 Form of Second Amendment to Executive Severance Agreement with Division Presidents. (18) 10.25 Form of Second Amendment to Executive Severance Agreement with Overseas Subsidiary Managing Directors. (18) 14 10.26 Consulting Agreement with John Dalton. (13) 10.27 1999-2001 Incentive Compensation Plan of the Company. (13) 10.28 1998 Non-Employee Directors' Stock Option Plan of the Company. (12) 10.29 Form of Stock Option Agreement used under the Company's 1998 Non-Employee Directors' Stock Option Plan. (13) 10.30 1999 Long Term Incentive Plan of the Company. (13) 10.31 Form of Stock Option Agreement used under the Company's 1999 Long Term Incentive Plan. (15) 10.32 Form of Restricted Stock Award Agreement used under the Company's 1999 Long Term Incentive Plan. (15) 10.33 Second Amended and Restated Credit Agreement dated as of June 30, 1995, amended and restated as of July 24, 1998 and further amended and restated as of as of August 31, 1999 among TransTechnology Corporation, TransTechnology Seeger-Orbis GmbH, TransTechnology (GB) Limited, The Lenders referred to therein, BankBoston, N.A., acting through its London Branch, as Sterling Fronting Bank, BHF-Bank Aktiengesellschaft, as DM Fronting Bank, ABN AMRO Bank, N.V., as Syndication Agent, The First National Bank of Chicago, as Documentation Agent and BankBoston, N.A. as Administrative Agent and Issuing Bank. (14) 10.34 Securities Purchase Agreement dated as of August 29, 2000 by and among TransTechnology Corporation; 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. (16) 10.35 (i) Warrant dated as of August 29, 2000 issued by TransTechnology Corporation to J.H. Whitney Mezzanine Fund, L.P. for 171,041 shares of TransTechnology common stock. (16) 10.35 (ii) Schedule of other substantially similar warrants issued by TransTechnology Corporation to other Purchasers under the Securities Purchase Agreement. (16) 10.36 Registration Rights Agreement dated as of August 29, 2000 by and among TransTechnology Corporation and the Purchasers referred to therein. (16) 10.37 Subordinated Indebtedness Intercreditor Agreement dated as of August 29, 2000 among TransTechnology Corporation, the Existing Guarantors named therein, and the Purchasers referred to therein. (16) 10.38 Consent and Amendment Agreement No. 1 dated as of August 21, 2000 to that certain Second Amended and Restated Credit Agreement dated as June 30, 1995, and amended and restated as of July 24, 1998, and as further amended and restated as of August 31, 1999, by and among TransTechnology Corporation, TransTechnology Seeger-Orbis GmbH and TransTechnology (GB) Limited; Fleet National Bank and other Lenders referred to within; Fleet National Bank, acting through its London Branch as Sterling Fronting Bank; BHF-BANK Aktiengesellschaft, as DM Fronting Bank; ABN AMRO Bank N.V., as Syndication Agent; Bank One, NA (formerly known as the First National Bank of Chicago), as Documentation Agent and Fleet National Bank as Issuing Bank and Administrative Agent. (16) 10.39 Intercreditor and Subordination Agreement dated as of August 29, 2000 among Fleet National Bank, as administrative agent for the Lenders as defined therein, TransTechnology Corporation, and the Purchasers referred to therein. (16) 10.40 Indemnification Agreement dated January 13, 2000 between the Company and each of its officers and directors. (15) 15 10.41 Amendment Agreement No. 2 to the Second Amended and Restated Credit Agreement dated as of December 29, 2000 between the Company and Fleet National Bank and the other Lenders referred to therein. (17) 10.42 Amendment Agreement No. 3 to the Second Amended and Restated Credit Agreement dated as of January 31, 2001 between the Company and Fleet National Bank and the other Lenders referred to therein. (17) 10.43 Forbearance and Waiver Agreement dated as of March 29, 2001 between the Company, Fleet National Bank and the other Lenders referred to therein. (18) 10.44 Consent and Amendment to Forbearance Agreement of Fleet National Bank and the other Lenders referred to therein dated June 25, 2001. (18) 10.45 Consent and Amendment No. 2 to Forbearance Agreement of Fleet National Bank and the other Lenders referred to therein dated September 27, 2001. (19) 10.46 Amended and Restated Share and Limited Liability Company Membership Interest Purchase Agreement, dated as of August 23,2001, between Registrant and KTIN Acquisition, LLC (20) 10.47 Consent, Amendment Agreement No. 4 to Credit Agreement and Amendment No. 3 to Forbearance Agreement dated as of December 4, 2001 among the Company, its Senior Lenders and Fleet National Bank, as Administrative Agent. (21) 10.48 Consent, Amendment Agreement No. 5 to Credit Agreement and Amendment No. 4 to Forbearance Agreement dated as of January 31, 2002 among the Company, its Senior Lenders and Fleet National Bank, as Administrative Agent. (21) 10.49 Amendment No. 5 to Forbearance Agreement dated as of March 27, 2002 among the Registrant, its Senior Lenders and Fleet National Bank, as Administrative Agent. 10.50 Consent, Amendment Agreement No. 6 to Credit Agreement and Amendment No. 6 to Forbearance Agreement dated as of April 3, 2002 among the Registrant, its Senior Lenders and Fleet National bank, as Administrative Agent. 13 Annual Report to Security Holders for the Fiscal Year ended March 31, 2002 21 List of Subsidiaries of the Company. - --------------------- (1) Incorporated by reference from the Company's Form 8-A Registration Statement No. 2-85599 dated February 9, 1987. (2) Incorporated by reference from the Company's Registration Statement on Form S-8 No. 333-45059 dated January 28, 1998. (3) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 1995. (4) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 1994. (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 1987. (6) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 1989. (7) Incorporated by reference from the Company's Report on Form 8-K filed on July 14, 1995. 16 (8) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 1996. (9) Incorporated by reference from the Company's Report on Form 8-K filed on April 29, 1997. (10) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 1997. (11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the Quarter ended December 27, 1998. (12) Incorporated by reference from the Company's Registration Statement on Form S-8 No. 333-70877 dated January 20, 1999. (13) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 1999. (14) Incorporated by reference from the Company's Report on Form 8-K filed on November 12, 1999. (15) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 2000. (16) Incorporated by reference from the Company's Report on Form 8-K filed on September 14, 2000. (17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the Quarter ended December 31, 2000. (18) Incorporated by reference from the Company's Annual Report on Form 10-K for the Fiscal Year ended March 31, 2001. (19) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2001. (20) Incorporated by reference from the Company's Current Report on Form 8-K filed on December 21, 2001. (21) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the Quarter ended December 31, 2001. 17 EX-10.49 3 y61813exv10w49.txt AMENDMENT NO. 5 TO FORBEARANCE AGREEMENT EXHIBIT 10.49 AMENDMENT NO. 5 TO FORBEARANCE AGREEMENT This AMENDMENT NO. 5 TO FORBEARANCE AGREEMENT, dated as of March 27, 2002 (this "Agreement"), is by and among (a) TransTechnology Corporation ("TransTechnology"), TransTechnology Seeger-Orbis GmbH ("GmbH") and TransTechnology (GB) Limited ("Limited", together with TransTechnology and GmbH, the "Borrowers"), (b) Fleet National Bank ("FNB") and the other lending institutions listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (collectively, the "Lenders"), (c) FNB, acting through its London Branch, as Sterling Fronting Bank (the "Sterling Fronting Bank"), (d) FNB, as issuing bank for Letters of Credit (in such capacity, the "Issuing Bank"), and (e) FNB as Administrative Agent for the Lenders, the Sterling Fronting Bank and the Issuing Bank (in such capacity, the "Administrative Agent"). WHEREAS, the Borrowers, the Lenders, the Sterling Fronting Bank, the Issuing Bank, ABN AMRO Bank N.V., as Syndication Agent, Bank One, NA, as Documentation Agent, and the Administrative Agent are parties to that certain Second Amended and Restated Credit Agreement dated as of June 30, 1995, and amended and restated as of July 24, 1998, as further amended and restated as of August 31, 1999, as amended by that certain Consent and Amendment Agreement No. 1 dated as of August 21, 2000, as further amended by that certain Amendment Agreement No. 2 dated as of December 29, 2000, as further amended by that certain Amendment Agreement No. 3 dated as of January 31, 2001, as further amended by that certain Consent, Amendment Agreement No. 4 to Credit Agreement and Amendment No. 3 to Forbearance Agreement dated as of December 4, 2001 (the "December 2001 Amendment"), and as further amended by that certain Consent, Amendment Agreement No. 5 to Credit Agreement and Amendment No. 4 to Forbearance Agreement dated as of January 31, 2002 (the "January 2002 Amendment") (as so amended and restated, the "Credit Agreement"). Capitalized terms used herein unless otherwise defined shall have the respective meanings set forth in the Credit Agreement; WHEREAS, pursuant to that certain Forbearance and Waiver Agreement dated as of March 29, 2001, as amended by that certain Consent and Amendment to Forbearance Agreement dated as of June 25, 2001, as further amended by that certain Consent and Amendment No. 2 to Forbearance Agreement dated as of September 27, 2001, as further amended by the December 2001 Amendment, and as further amended by the January 2002 Amendment (as so amended, the "Forbearance Agreement"), by and among the Borrowers, the Lenders, the Sterling Fronting Bank, and the Administrative Agent, the Lenders and the Administrative Agent agreed to forbear from (a) exercising their rights and remedies under the Credit Agreement and the other Loan Documents to collect the indebtedness of the Borrowers to the Administrative Agent and the Lenders under the Credit Agreement and the other Loan Documents and (b) ceasing to make Revolving Credit Loans or International Facility Loans or to issue, extend or renew Letters of Credit; WHEREAS; pursuant to the terms of the Forbearance Agreement the forbearance period will end on March 27, 2002; WHEREAS, the Borrowers have requested that the Lenders and the Administrative Agent extend such forbearance period; WHEREAS, the Lenders and the Administrative Agent are willing to extend the forbearance period, but only on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing premises, the parties hereto hereby agree as follows: SECTION 1. EXTENSION OF FORBEARANCE PERIOD. Section 1 of the Forbearance Agreement is amended by deleting the date "March 27, 2002" in the two (2) places where such date is contained therein and substituting the date "April 3, 2002". SECTION 2. CONDITIONS TO EFFECTIVENESS. The effectiveness of the amendment to the Forbearance Agreement contained in Section 1 of this Agreement shall be conditioned upon the satisfaction of the following conditions precedent: SECTION 2.1. DELIVERY OF DOCUMENTS. This Agreement shall have been executed and delivered to the Administrative Agent by each of the Borrowers, each of the Guarantors, and the requisite number of the Lenders. SECTION 2.2. LEGALITY OF TRANSACTION. No change in applicable law shall have occurred as a consequence of which it shall have become and continue to be unlawful on the date this Agreement is to become effective (a) for the Administrative Agent or any Lender to perform any of its obligations under any of the Loan Documents or (b) for any of the Borrowers to perform any of its agreements or obligations under any of the Loan Documents. SECTION 2.3. PERFORMANCE. Each of the Borrowers shall have duly and properly performed, complied with and observed in all material respects its covenants, agreements and obligations contained in the Loan Documents required to be performed, complied with or observed by it on or prior to the date this Agreement is to become effective. Except for the Specified Defaults (as defined in the Forbearance Agreement), no event shall have occurred on or prior to the Effective Date, and be continuing, and no condition shall exist on the Effective Date, which constitutes a Default or Event of Default. SECTION 2.4. PROCEEDINGS AND DOCUMENTS. All corporate, governmental and other proceedings in connection with the transactions contemplated by this Agreement and all instruments and documents incidental thereto shall be in form and substance reasonably satisfactory to the Administrative Agent and the Administrative Agent shall have received all such counterpart originals or certified or other copies of all such instruments and documents as the Administrative Agent shall have reasonably requested. SECTION 2.5. EXTENSION OF SUBDEBT FORBEARANCE. The holders of the Senior Subordinated Loans shall have agreed, on terms and conditions satisfactory to -3- the Administrative Agent and the Lenders, to extend the term of the current forbearance under the Senior Subordinated Loan Agreement through April 5, 2002. SECTION 2.6. PAYMENT OF LEGAL EXPENSES. The Administrative Agent shall have received the payment in cash of all outstanding legal fees incurred by the Administrative Agent. SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby represents and warrants to the Lenders as follows: (a) Except as set forth on Schedule 6(a) to the Forbearance Agreement, the representations and warranties of such Borrower and of each Guarantor contained in the Credit Agreement, the Forbearance Agreement and the other Loan Documents to which such Borrower or Guarantor, as the case may be, is a party were true and correct in all material respects when made and continue to be true and correct in all material respects on the date hereof, except that the financial statements and projections referred to in the representations and warranties contained in the Credit Agreement shall be the financial statements and projections of TransTechnology and its Subsidiaries most recently delivered to the Administrative Agent, and except as such representations and warranties are affected by the transactions contemplated hereby; (b) The execution, delivery and performance by such Borrower of this Agreement and the consummation of the transactions contemplated hereby: (i) are within the corporate powers of such Borrower and have been duly authorized by all necessary corporate action on the part of such Borrower, (ii) do not require any approval or consent of, or filing with, any governmental agency or authority, or any other person, association or entity, which bears on the validity or enforceability of this Agreement and which is required by law or any regulation or rule of any agency or authority, or other person, association or entity, (iii) do not violate any provisions of any order, writ, judgment, injunction, decree, determination or award presently in effect in which such Borrower is named, any law, regulation or rule binding on or applicable to such Borrower or any provision of the charter documents or by-laws of such Borrower, (iv) do not result in any breach of or constitute a default under any agreement or instrument to which such Borrower is a party or to which it or any of its properties are bound, including without limitation any indenture, credit or loan agreement, lease, debt instrument or mortgage, except for such breaches and defaults which would not have a material adverse effect on such Borrower and its Subsidiaries taken as a whole, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge or encumbrance of any nature upon any of the assets or properties of such Borrower; (c) This Agreement, the Credit Agreement and the Forbearance Agreement (as amended hereby) constitute the legal, valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, provided that (i) enforcement may be limited by -4- applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, and (ii) enforcement may be subject to general principles of equity, and the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceeding for such remedies may be brought; and (d) As of the date hereof, no "Event of Default" under and as defined in any instrument evidencing any Subordinated Debt has occurred. SECTION 4. PAYMENT OF INTEREST UNDER SUBORDINATED LOAN AGREEMENT. The Borrowers hereby agree that they will not make any payments to the holders of the Senior Subordinated Loans prior to April 5, 2002 and any payments made on or after such date will be made in accordance with the provisions of the Intercreditor and Subordination Agreement dated as of August 29, 2000 related thereto. SECTION 5. REAFFIRMATION. Except as modified hereby, the Borrowers hereby reaffirm in all respects all the covenants, agreements, terms and conditions of the Credit Agreement, the Forbearance Agreement and the other Loan Documents which are incorporated in full herein by reference, and all terms, conditions and provisions thereof shall remain in full force and effect. SECTION 6. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. SECTION 7. RELEASE. In order to induce the Administrative Agent and the Lenders to enter into this Agreement, each Borrower acknowledges and agrees that: (i) no Borrower has any claim or cause of action against the Administrative Agent or any Lender (or any of its respective directors, officers, employees or agents); (ii) no Borrower has any offset right, counterclaim or defense of any kind against any of their respective obligations, indebtedness or liabilities to the Administrative Agent or any Lender; and (iii) each of the Administrative Agent and the Lenders has heretofore properly performed and satisfied in a timely manner all of its obligations to each Borrower. The Borrowers wish to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the Administrative Agent's and the Lenders' rights, interests, contracts, collateral security or remedies. Therefore, each Borrower unconditionally releases, waives and forever discharges (A) any and all liabilities, obligations, duties, promises or indebtedness of any kind of the Administrative Agent or any Lender to any Borrower, except the obligations to be performed by the Administrative Agent or any Lender on or after the date hereof as expressly stated in this Agreement, the Credit Agreement, the Forbearance Agreement (as amended hereby) and the other Loan Documents, and (B) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether arising at law or in equity, -5- whether known or unknown, which any Borrower might otherwise have against the Administrative Agent, any Lender or any of its directors, officers, employees or agents, in either case (A) or (B), on account of any condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind existing as of the date hereof, or occurring prior to the date hereof. SECTION 8. EFFECTIVE DATE. This Agreement shall be deemed to be effective as of the date set forth above upon the satisfaction of the conditions precedent set forth in Section 2 hereof (the "Effective Date"). [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the undersigned have duly executed this Amendment No. 5 to Forbearance Agreement as a sealed instrument as of the date first set forth above. TRANSTECHNOLOGY CORPORATION By: /s/Joseph F. Spanier ------------------------------------- Name: Joseph F. Spanier Title: Vice President, Chief Financial Officer and Treasurer TRANSTECHNOLOGY SEEGER-ORBIS GmbH By: /s/Michael J. Berthelot ------------------------------------- Name: Michael J. Berthelot Title: Managing Director TRANSTECHNOLOGY (GB) LIMITED By: /s/Michael J. Berthelot ------------------------------------- Name: Michael J. Berthelot Title: Director By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Director S-1 FLEET NATIONAL BANK, individually, as Administrative Agent and as Sterling Fronting Bank By: /s/Peggy Peckham ------------------------------------- Name: Peggy Peckham Title: Senior Workout Officer ABN AMRO BANK N.V., individually and as Syndication Agent By: /s/Steven C. Wimpenny ------------------------------------- Name: Steven C. Wimpenny Title: Group Senior Vice President By: /s/Parker H. Douglas ------------------------------------- Name: Parker H. Douglas Title: Group Vice President BANK ONE, NA, individually and as Documentation Agent By: /s/Phillip D. Martin ------------------------------------- Name: Phillip D. Martin Title: Senior Vice President THE BANK OF NEW YORK By: /s/Richard J. Baldwin ------------------------------------- Name: Richard J. Baldwin Title: Vice President S-2 KEY CORPORATE CAPITAL INC. By: ------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By: /s/John W. Campbell ------------------------------------- Name: John W. Campbell Title: Managing Director COMERICA BANK By: /s/Jennifer J. Langan ------------------------------------- Name: Jennifer J. Langan Title: Assistant Vice President DRESDNER BANK, AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/Richard J. Sweeney ------------------------------------- Name: Richard J. Sweeney Title: Vice President By: /s/Thomas R. Brady ------------------------------------- Name: Thomas R. Brady Title: Vice President S-3 The Guarantors under (and as defined in) the Subsidiary Guaranty hereby acknowledge that they have read and are aware of the provisions of this Agreement and hereby reaffirm their absolute and unconditional guaranty of the Borrowers' payment and performance of their obligations to the Lenders and the Administrative Agent under the Credit Agreement as affected hereby. TRANSTECHNOLOGY ENGINEERED RINGS USA, INC. By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary RETAINERS, INC. By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary RANCHO TRANSTECHNOLOGY CORPORATION By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary TRANSTECHNOLOGY SYSTEMS & SERVICES, INC. By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary S-4 SSP INDUSTRIES By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary SSP INTERNATIONAL SALES, INC. By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary TRANSTECHNOLOGY INTERNATIONAL INC. (F/K/A TRANSTECHNOLOGY SEEGER INC.) By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary SEEGER INC. By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary TCR CORPORATION By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary S-5 AEROSPACE RIVET MANUFACTURERS CORPORATION By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary NORCO, INC. By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary ELLISON RING & WASHER INC. By: /s/Gerald C. Harvey ------------------------------------- Name: Gerald C. Harvey Title: Vice President & Secretary S-6 EX-10.50 4 y61813exv10w50.txt CONSENT, AMENDMENT NO.6 TO CREDIT/FORBEARANCE AGMT EXHIBIT 10.50 AMENDMENT AGREEMENT NO. 6 TO CREDIT AGREEMENT AND AMENDMENT NO. 6 TO FORBEARANCE AGREEMENT This AMENDMENT AGREEMENT NO. 6 TO CREDIT AGREEMENT AND AMENDMENT NO. 6 TO FORBEARANCE AGREEMENT, dated as of April 3, 2002 (this "Agreement"), is by and among (a) TransTechnology Corporation ("TransTechnology"), TransTechnology Seeger-Orbis GmbH ("GmbH") and TransTechnology (GB) Limited ("Limited", together with TransTechnology and GmbH, the "Borrowers"), (b) Fleet National Bank ("FNB") and the other lending institutions listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (collectively, the "Lenders"), (c) FNB, acting through its London Branch, as Sterling Fronting Bank (the "Sterling Fronting Bank"), (d) FNB, as issuing bank for Letters of Credit (in such capacity, the "Issuing Bank"), and (e) FNB as Administrative Agent for the Lenders, the Sterling Fronting Bank and the Issuing Bank (in such capacity, the "Administrative Agent"). WHEREAS, the Borrowers, the Lenders, the Sterling Fronting Bank, the Issuing Bank, ABN AMRO Bank N.V., as Syndication Agent, Bank One, NA, as Documentation Agent, and the Administrative Agent are parties to that certain Second Amended and Restated Credit Agreement dated as of June 30, 1995, and amended and restated as of July 24, 1998, as further amended and restated as of August 31, 1999, as amended by that certain Consent and Amendment Agreement No. 1 dated as of August 21, 2000, as further amended by that certain Amendment Agreement No. 2 dated as of December 29, 2000, as further amended by that certain Amendment Agreement No. 3 dated as of January 31, 2001, as further amended by that certain Consent, Amendment Agreement No. 4 to Credit Agreement and Amendment No. 3 to Forbearance Agreement dated as of December 4, 2001 (the "December 2001 Amendment"), and as further amended by that certain Consent, Amendment Agreement No. 5 to Credit Agreement and Amendment No. 4 to Forbearance Agreement dated as of January 31, 2002 (the "January 2002 Amendment") (as so amended and restated, the "Credit Agreement"). Capitalized terms used herein unless otherwise defined shall have the respective meanings set forth in the Credit Agreement; WHEREAS, pursuant to that certain Forbearance and Waiver Agreement dated as of March 29, 2001, as amended by that certain Consent and Amendment to Forbearance Agreement dated as of June 25, 2001, as further amended by that certain Consent and Amendment No. 2 to Forbearance Agreement dated as of September 27, 2001, as further amended by the December 2001 Amendment, as further amended by the January 2002 Amendment, and as further amended by that certain Amendment No. 5 to Forbearance Agreement dated as of March 27, 2002 (as so amended, the "Forbearance Agreement"), by and among the Borrowers, the Lenders, the Sterling Fronting Bank, and the Administrative Agent, the Lenders and the Administrative Agent agreed to forbear from (a) exercising their rights and remedies under the Credit Agreement and the other Loan Documents to collect the indebtedness of the Borrowers to the Administrative Agent and the Lenders under the Credit Agreement and the other Loan Documents and (b) ceasing to make Revolving Credit Loans or International Facility Loans or to issue, extend or renew Letters of Credit; WHEREAS; pursuant to the terms of the Forbearance Agreement the forbearance period will end on April 3, 2002; WHEREAS, the Borrowers have requested that the Lenders and the Administrative Agent extend such forbearance period; WHEREAS, the Lenders and the Administrative Agent are willing to extend the forbearance period, but only on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing premises, the parties hereto hereby agree as follows: SECTION 1. AMENDMENT TO CREDIT AGREEMENT. Section 2.10 of the Credit Agreement is hereby amended by replacing the last sentence thereof with the following: "As of April 1, 2002 the Total Revolving Credit Commitment is Thirty-Six Million Two Hundred Fifty-Seven Thousand Dollars ($36,257,000) and if it has not already been reduced to such amount or a lower amount, the Total Revolving Credit Commitment shall be reduced to Twenty-Eight Million Dollars ($28,000,000) on June 25, 2002." SECTION 2. AMENDMENT TO FORBEARANCE AGREEMENT. (a) Section 1 of the Forbearance Agreement is amended by replacing such section in its entirety with the following: "SECTION 1. FORBEARANCE AGREEMENT. Subject to the terms and conditions set forth herein, each of the Administrative Agent and the Lenders agrees to forbear from (a) exercising their rights and remedies under the Credit Agreement and the other Loan Documents to collect the indebtedness of the Borrowers to the Administrative Agent and the Lenders under the Credit Agreement and the other Loan Documents, and (b) ceasing to make Revolving Credit Loans or International Facility Loans or to issue, extend or renew Letters of Credit until that date (the "Forbearance Termination Date") which is the earliest to occur of (i) the failure after the date hereof of the Borrowers and their Subsidiaries to comply with any of the terms or conditions set forth in the Credit Agreement and/or the other Loan Documents, other than the failure to comply with the provisions of Sections 11.1 - 11.5 of the Credit Agreement for the period commencing on January 1, 2001 and ending on September 25, 2002 (the "Specified Defaults"), (ii) the occurrence after the date hereof of any Default or Event of Default, other than a Specified Default, (iii) maximum amount outstanding under the Credit Agreement any time during the last week of June, 2002 exceeding an amount equal to (a) the lesser of (1) Twenty Eight Million Dollars ($28,000,000) and (2) the then -3- existing Total Revolving Credit Commitment minus (b) Three Million Five Hundred Thousand Dollars ($3,500,000), (iv) the failure of the Borrowers after the date hereof to comply with the financial covenants set forth in Section 3(a) hereof, (v) the failure of the Borrowers and the holders of the Senior Subordinated Loans to have entered into an agreement by June 25, 2002 whereby the holders of the Senior Subordinated Loans consent to a refinancing of the Obligations and effective with a refinancing of the Obligations the parties otherwise agree to modify the terms of the Senior Subordinated Loans in a manner which the Administrative Agent reasonably believes will allow the Borrowers to refinance the Obligations, (vi) the failure of the Borrowers or their Subsidiaries to comply with any term set forth in this Agreement, (vii) the date on which the Administrative Agent determines that a material adverse change in the business, assets, financial condition or prospects of the Borrowers and their Subsidiaries, taken as a whole, has occurred, (viii) the date that the Borrowers, any of their Subsidiaries or any Affiliate of the Borrowers shall commence any litigation or other proceeding against the Administrative Agent or any Lender or any Affiliate of the Administrative Agent or any Lender in connection with or related to any of the transactions contemplated by the Credit Agreement, the other Loan Documents, this Agreement or any documents, agreements or instruments executed in connection with any of the foregoing, (ix) the date that any holder of Subordinated Debt takes any action in enforcement of its rights under such Subordinated Debt, or any "Event of Default" under and as defined in any instrument evidencing any such Subordinated Debt shall have occurred, the effect of which would be to permit the holder of such Subordinated Debt to accelerate such Subordinated Debt, and (x) September 25, 2002. On and after the Forbearance Termination Date, each of the Administrative Agent and the Lenders shall be free in its sole and absolute discretion to proceed to enforce any or all of its rights under or in respect of the Credit Agreement, the other Loan Documents and applicable law, including, without limitation, (x) the right to require the immediate repayment of the Loans and the other Obligations in full, (y) the right to require deposit of cash collateral or the delivery of a letter of credit reasonably satisfactory to the Administrative Agent in an amount equal to the then Maximum Drawing Amount of all Letters of Credit in accordance with Section 5.2(c) of the Credit Agreement, and (z) the right to cease making Revolving Credit Loans or International Facility Loans, or issuing, extending or renewing Letters of Credit." (b) The Forbearance Agreement is hereby amended by replacing Section 3(a) with the following: "(a) Financial Covenants. During the period beginning on April 30, 2002 and ending on the Forbearance Termination Date, at no time shall Modified Consolidated EBITDA as of the last day of each month be less than the amount set forth on Schedule 3(a)(1) attached hereto for such period. As used herein "Modified Consolidated EBITDA" shall mean Consolidated EBITDA (excluding the operations of all entities other than -4- Breeze Eastern, NORCO, and TCR Corporation), with "Reference Periods" beginning on April 1, 2002 and ending on the last day of each month, plus the forbearance fees paid to the Lenders pursuant to Section 10 hereof during such period plus the expenses incurred in accordance with Sections 3(g) and (i) hereof during such period. During the period beginning on April 1, 2002 and ending on the Forbearance Termination Date, TransTechnology will not make, or permit any Subsidiary of TransTechnology to make Capital Expenditures during the period from April 1, 2002 and through the end of each month that exceed the amount set forth on Schedule 3(a)(2) attached hereto. The Borrowers shall deliver to the Administrative Agent and the Lenders evidence of compliance with this paragraph (a) simultaneously with the delivery of the monthly financial statements required by Section 9.4(d) of the Credit Agreement." (c) Schedule 3(a) of the Forbearance Agreement is deleted in its entirety and replaced with Schedule 3(a)(1) attached hereto. (d) Schedule 3(a)(2) attached hereto is hereby added to the Forbearance Agreement as Schedule 3(a)(2). (e) Schedule 6(a) of the Forbearance Agreement is deleted in its entirety and replaced with Schedule 6(a) attached hereto. (f) Section 10 of the Forbearance Agreement is amended by adding at the end thereof the following new sub paragraphs: "(g) An additional forbearance fee on April 3, 2002, equal to one percent (1%) of the Total Revolving Credit Commitment; (h) An additional forbearance fee on June 26, 2002, equal to one percent (1%) of the Total Revolving Credit Commitment; and (i) An additional forbearance fee on September 25, 2002, equal to two percent (2%) of the Total Revolving Credit Commitment." (g) The Forbearance Agreement is amended by replacing Section 10.A with the following: "SECTION 10.A. BORROWING TO PAY SUBDEBT INTEREST. TransTechnology hereby agrees to pay to the Administrative Agent, for the pro-rata benefit of each Lender: (a) A fee equal to One Hundred Thousand Dollars ($100,000) (representing four percent (4%) of Two Million Five Hundred Thousand Dollars ($2,500,000) (the "October 2001 Subdebt Interest Payment Amount") which is the amount equal to the interest payment due on the Senior Subordinated Loans on October 1, 2001 rounded to the nearest $100,000). At all times after October 1, 2001, a portion of the Loans equal -5- to the October 2001 Subdebt Interest Payment Amount shall bear interest (payable monthly in arrears on each Interest Payment Date) at an annual rate equal to twenty five percent (25%). (b) On April 3, 2002, a fee equal to One Hundred Thousand Dollars ($100,000) (representing four percent (4%) of Two Million Five Hundred Thousand Dollars ($2,500,000) (the "April 2002 Subdebt Interest Payment Amount") which is the amount equal to the interest payment due on the Senior Subordinated Loans on April 1, 2002 rounded to the nearest $100,000). At all times after April 1, 2002, a portion of the Loans equal to the sum of (1) the October 2001 Subdebt Interest Payment Amount, and (2) the April 2002 Subdebt Interest Payment Amount shall bear interest (payable monthly in arrears on each Interest Payment Date) at an annual rate equal to twenty five percent (25%). (c) On July 1, 2002, a fee equal to One Hundred Four Thousand Dollars ($104,000) (representing four percent (4%) of Two Million Six Hundred Thousand Dollars ($2,600,000) (the "July 2002 Subdebt Interest Payment Amount") which is the amount equal to the interest payment due on the Senior Subordinated Loans on July 1, 2002 rounded to the nearest $100,000). At all times after July 1, 2002, a portion of the Loans equal to the sum of (1) the October 2001 Subdebt Interest Payment Amount, (2) the April 2002 Subdebt Interest Payment Amount, and (3) the July 2002 Subdebt Interest Payment Amount shall bear interest (payable monthly in arrears on each Interest Payment Date) at an annual rate equal to twenty five percent (25%)." (h) The Forbearance Agreement shall be deemed amended to include capitalized defined terms used in this Agreement to the extent not defined in the Forbearance Agreement. SECTION 3. CONDITIONS TO EFFECTIVENESS. The effectiveness of the amendments to the Credit Agreement and the Forbearance Agreement contained in Section 1 and Section 2 of this Agreement shall be conditioned upon the satisfaction of the following conditions precedent: SECTION 3.1. DELIVERY OF DOCUMENTS. (a) This Agreement shall have been executed and delivered to the Administrative Agent by each of the Borrowers, each of the Guarantors, and the requisite number of the Lenders. (b) The Borrowers and the holders of the Senior Subordinated Loans shall have executed and delivered to the Administrative Agent an agreement in the form of Exhibit A hereto. -6- Section 3.2. Legality of Transaction. No change in applicable law shall have occurred as a consequence of which it shall have become and continue to be unlawful on the date this Agreement is to become effective (a) for the Administrative Agent or any Lender to perform any of its obligations under any of the Loan Documents or (b) for any of the Borrowers to perform any of its agreements or obligations under any of the Loan Documents. Section 3.3. Performance. Each of the Borrowers shall have duly and properly performed, complied with and observed in all material respects its covenants, agreements and obligations contained in the Loan Documents required to be performed, complied with or observed by it on or prior to the date this Agreement is to become effective. Except for the Specified Defaults (as defined in the Forbearance Agreement), no event shall have occurred on or prior to the Effective Date, and be continuing, and no condition shall exist on the Effective Date, which constitutes a Default or Event of Default. Section 3.4. Proceedings and Documents. All corporate, governmental and other proceedings in connection with the transactions contemplated by this Agreement and all instruments and documents incidental thereto shall be in form and substance reasonably satisfactory to the Administrative Agent and the Administrative Agent shall have received all such counterpart originals or certified or other copies of all such instruments and documents as the Administrative Agent shall have reasonably requested. Section 3.5. Payment of Legal Expenses. The Administrative Agent shall have received the payment in cash of all outstanding legal fees incurred by the Administrative Agent. Section 4. Representations and Warranties. Each of the Borrowers hereby represents and warrants to the Lenders as follows: (a) Except as set forth on Schedule 6(a) to the Forbearance Agreement, the representations and warranties of such Borrower and of each Guarantor contained in the Credit Agreement, the Forbearance Agreement and the other Loan Documents to which such Borrower or Guarantor, as the case may be, is a party were true and correct in all material respects when made and continue to be true and correct in all material respects on the date hereof, except that the financial statements and projections referred to in the representations and warranties contained in the Credit Agreement shall be the financial statements and projections of TransTechnology and its Subsidiaries most recently delivered to the Administrative Agent, and except as such representations and warranties are affected by the transactions contemplated hereby; (b) The execution, delivery and performance by such Borrower of this Agreement and the consummation of the transactions contemplated hereby: (i) are within the corporate powers of such Borrower and have been duly authorized by all necessary corporate action on the part of such Borrower, (ii) do not require any approval or consent of, or filing with, any governmental agency or authority, or any other person, association or entity, which bears on -7- the validity or enforceability of this Agreement and which is required by law or any regulation or rule of any agency or authority, or other person, association or entity, (iii) do not violate any provisions of any order, writ, judgment, injunction, decree, determination or award presently in effect in which such Borrower is named, any law, regulation or rule binding on or applicable to such Borrower or any provision of the charter documents or by-laws of such Borrower, (iv) do not result in any breach of or constitute a default under any agreement or instrument to which such Borrower is a party or to which it or any of its properties are bound, including without limitation any indenture, credit or loan agreement, lease, debt instrument or mortgage, except for such breaches and defaults which would not have a material adverse effect on such Borrower and its Subsidiaries taken as a whole, and (v) do not result in or require the creation or imposition of any mortgage, deed of trust, pledge or encumbrance of any nature upon any of the assets or properties of such Borrower; (c) This Agreement, the Credit Agreement and the Forbearance Agreement (as amended hereby) constitute the legal, valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, provided that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors, and (ii) enforcement may be subject to general principles of equity, and the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceeding for such remedies may be brought; and (d) As of the date hereof, no "Event of Default" under and as defined in any instrument evidencing any Subordinated Debt has occurred. Section 5. Payment of Interest Under Subordinated Loan Agreement. The Borrowers hereby agree that before paying the July 2002 Subdebt Interest Payment Amount to the holders of the Senior Subordinated Loans, the Revolving Credit Availability shall be at least Three Million Five Hundred Thousand Dollars ($3,500,000). Section 6. Reaffirmation. Except as modified hereby, the Borrowers hereby reaffirm in all respects all the covenants, agreements, terms and conditions of the Credit Agreement, the Forbearance Agreement and the other Loan Documents which are incorporated in full herein by reference, and all terms, conditions and provisions thereof shall remain in full force and effect. Section 7. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. -8- Section 8. Release. In order to induce the Administrative Agent and the Lenders to enter into this Agreement, each Borrower acknowledges and agrees that: (i) no Borrower has any claim or cause of action against the Administrative Agent or any Lender (or any of its respective directors, officers, employees or agents); (ii) no Borrower has any offset right, counterclaim or defense of any kind against any of their respective obligations, indebtedness or liabilities to the Administrative Agent or any Lender; and (iii) each of the Administrative Agent and the Lenders has heretofore properly performed and satisfied in a timely manner all of its obligations to each Borrower. The Borrowers wish to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the Administrative Agent's and the Lenders' rights, interests, contracts, collateral security or remedies. Therefore, each Borrower unconditionally releases, waives and forever discharges (A) any and all liabilities, obligations, duties, promises or indebtedness of any kind of the Administrative Agent or any Lender to any Borrower, except the obligations to be performed by the Administrative Agent or any Lender on or after the date hereof as expressly stated in this Agreement, the Credit Agreement, the Forbearance Agreement (as amended hereby) and the other Loan Documents, and (B) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether arising at law or in equity, whether known or unknown, which any Borrower might otherwise have against the Administrative Agent, any Lender or any of its directors, officers, employees or agents, in either case (A) or (B), on account of any condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind existing as of the date hereof, or occurring prior to the date hereof. Section 9. Effective Date. This Agreement shall be deemed to be effective as of the date set forth above upon the satisfaction of the conditions precedent set forth in Section 3 hereof (the "Effective Date"). [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the undersigned have duly executed this Amendment Agreement No. 6 to Credit Agreement and Amendment No. 6 to Forbearance Agreement as a sealed instrument as of the date first set forth above. TRANSTECHNOLOGY CORPORATION By: /s/Joseph F. Spanier ------------------------------------ Name: Joseph F. Spanier Title: Vice President, CFO & Treasurer TRANSTECHNOLOGY SEEGER-ORBIS GmbH By: /s/Michael J. Berthelot ------------------------------------ Name: Michael J. Berthelot Title: Managing Director TRANSTECHNOLOGY (GB) LIMITED By: /s/Michael J. Berthelot ------------------------------------ Name: Michael J. Berthelot Title: Director By: /s/Gerald C. Harvey ------------------------------------ Name: Gerald C. Harvey Title: Director S-1 -2- FLEET NATIONAL BANK, individually, as Administrative Agent and as Sterling Fronting Bank By: /s/Peggy Peckham ------------------------------------ Name: Peggy Peckham Title: Senior Workout Officer ABN AMRO BANK N.V., individually and as Syndication Agent By: /s/Steven C. Wimpenny ------------------------------------ Name: Steven C. Wimpenny Title: Group Senior Vice President By: /s/Parker H. Douglas ------------------------------------ Name: Parker H. Douglas Title: Group Vice President BANK ONE, NA, individually and as Documentation Agent By: /s/Phillip D. Martin ------------------------------------ Name: Phillip D. Martin Title: Senior Vice President THE BANK OF NEW YORK By: /s/Richard J. Baldwin ------------------------------------ Name: Richard J. Baldwin Title: Vice President S-2 -3- KEY CORPORATE CAPITAL INC. By: /s/Mike Kleinhaut ------------------------------------ Name: Mike Kleinhaut Title: Vice President THE BANK OF NOVA SCOTIA By: /s/John W. Campbell ------------------------------------ Name: John W. Campbell Title: Managing Director COMERICA BANK By: /s/Jennifer J. Langan ------------------------------------ Name: Jennifer J. Langan Title: Assistant Vice President DRESDNER BANK, AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/Richard J. Sweeney ------------------------------------ Name: Richard J. Sweeney Title: Vice President By: /s/Thomas R. Brady ------------------------------------ Name: Thomas R. Brady Title: Director S-3 -4- The Guarantors under (and as defined in) the Subsidiary Guaranty hereby acknowledge that they have read and are aware of the provisions of this Agreement and hereby reaffirm their absolute and unconditional guaranty of the Borrowers' payment and performance of their obligations to the Lenders and the Administrative Agent under the Credit Agreement as affected hereby. TRANSTECHNOLOGY ENGINEERED RINGS USA, INC. By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President & Treasurer RETAINERS, INC. By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President & Treasurer RANCHO TRANSTECHNOLOGY CORPORATION By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President & Treasurer TRANSTECHNOLOGY SYSTEMS & SERVICES, INC. By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President & Treasurer S-4 -5- SSP INDUSTRIES By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President, CFO & Treasurer SSP INTERNATIONAL SALES, INC. By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President, CFO & Treasurer TRANSTECHNOLOGY INTERNATIONAL INC. (F/K/A TRANSTECHNOLOGY SEEGER INC.) By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President & Treasurer SEEGER INC. By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President & Treasurer TCR CORPORATION By: /s/Michael J. Berthelot -------------------------------------- Name: Michael J. Berthelot Title: Chairman of the Board S-5 -6- AEROSPACE RIVET MANUFACTURERS CORPORATION By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Vice President, CFO & Treasurer NORCO, INC. By: /s/Michael J. Berthelot -------------------------------------- Name: Michael J. Berthelot Title: Chairman of the Board ELLISON RING & WASHER INC. By: /s/Joseph F. Spanier -------------------------------------- Name: Joseph F. Spanier Title: Treasurer S-6 EX-13 5 y61813exv13.txt ANNUAL REPORT TO SECURITY HOLDERS Exhibit 13 ARGENTINA AUSTRALIA AUSTRIA BAHRAIN BANGLADESH BELGIUM BRASIL BRUNEI CANADA CHILE CHINA COLOMBIA CYPRUS DENMARK DUBAI EGYPT ENGLAND [TransTechnology ECUADOR Corporation Logo] ESTONIA ETHIOPIA FAROE ISLANDS FIJI FINLAND FRANCE GERMANY GREAT BRITAIN GREECE GREENLAND HOLLAND HONG KONG ICELAND INDIA INDONESIA IRELAND g l o b a l p a r t n e r s ISRAEL ITALY JAMAICA JAPAN JORDAN KUWAIT KOREA LITHUANIA LUXEMBOURG MALAYSIA MEXICO NETHERLANDS NEW ZEALAND NORWAY PAKISTAN PERU POLAND PORTUGAL QATAR REPUBLIC OF SOUTH AFRICA REPUBLIC OF KOREA SINGAPORE SAUDI ARABIA SCOTLAND SLOVENIA SOUTH AFRICA SPAIN SWEDEN SWITZERLAND TAIWAN THAILAND TUNISIA TURKEY UNITED ARAB EMIRATES UNITED STATES URUGUAY ANNUAL REPORT FISCAL YEAR ENDED MARCH 31, 2002 DILUTED INCOME PER SHARE FROM CONTINUING OPERATIONS (IN DOLLARS) [BAR CHART] 98 = -0.01 99 = 0.66 00 = 0.40 01 = -0.98 [TransTechnology 02 = 0.12 Corporation Logo] AFTER TAX INCOME FROM CONTINUING OPERATIONS ($ IN MILLIONS) [BAR CHART] 2002 NET TOTAL SALES 98 = -0.8 BY MARKET TYPE 99 = 4.2 [PIE CHART] 00 = 2.5 01 = -6.0 02 = 0.8 Industrial/Medical..............4% Commercial Aircraft/Airline....18% Military/Government............78%
CAPITAL EXPENDITURES ($ IN MILLIONS) [BAR CHART] 98 = 0.8 99 = 1.1 00 = 0.4 2002 NET SALES 01 = 0.3 DOMESTIC VS. EXPORT 02 = 0.3 [PIE CHART] Domestic..................63% Export....................37%
NET SALES ($ IN MILLIONS) [BAR CHART] 98 = 35.5 99 = 50.2 00 = 60.8 01 = 70.5 02 = 72.3 SELECTED FINANCIAL DATA The following table provides selected financial data with respect to the consolidated statements of operations of the Company for the fiscal five years ended March 31, 2002, and the consolidated balance sheets of the Company at the end of each such year.
SELECTED FINANCIAL DATA YEARS ENDED MARCH 31, (In thousands, except per share amounts) 2002 2001 2000 1999 1998 Net sales $ 72,285 $ 70,481 $ 60,836 $ 50,169 $ 35,459 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 1,633 (9,630) 4,010 7,026 (122) Provision (benefit) for income taxes 860 (3,584) 1,524 2,807 (47) - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 773 (6,046) 2,486 4,219 (75) (Loss) income from discontinued operations (72,554) (66,924) 4,649 10,370 11,142 - ----------------------------------------------------------------------------------------------------------------------------------- (Loss) income before extraordinary charge (71,781) (72,970) 7,135 14,589 11,067 Extraordinary charge for refinancing of debt -- -- (541) (780) -- - ----------------------------------------------------------------------------------------------------------------------------------- Net (loss) income $ (71,781) $ (72,970) $ 6,594 $ 13,809 $ 11,067 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share: Basic: Income (loss) from continuing operations $ 0.13 $ (0.98) $ 0.40 $ 0.67 (0.01) (Loss) income from discontinued operations (11.74) (10.85) 0.76 1.66 2.01 Extraordinary charge for refinancing of debt -- -- (0.09) (0.12) -- - ----------------------------------------------------------------------------------------------------------------------------------- Net (loss) income per share $ (11.61) $ (11.83) $ 1.07 $ 2.21 $ 2.00 - ----------------------------------------------------------------------------------------------------------------------------------- Diluted: Income (loss) from continuing operations $ 0.12 $ (0.98) $ 0.40 $ 0.66 $ (0.01) (Loss) income from discontinued operations (11.64) (10.85) 0.76 1.64 2.01 Extraordinary charge for refinancing of debt -- -- (0.09) (0.12) -- - ----------------------------------------------------------------------------------------------------------------------------------- Net (loss) income per share $ (11.52) $ (11.83) $ 1.07 $ 2.18 $ 2.00 - ----------------------------------------------------------------------------------------------------------------------------------- Dividends declared and paid per share $ -- $ 0.195 $ 0.26 $ 0.26 $ 0.26 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $ 142,142 $ 393,249 $ 482,752 $ 279,720 $ 236,073 Long-term debt $ 107,564 $ 658(a) $ 194,759 $ 102,463 $ 51,350 Stockholders' equity (deficit) $ (16,207) $ 51,875 $ 128,883 $ 123,710 $ 115,832 Book value per share $ (2.62) $ 8.40 $ 20.97 $ 20.25 $ 18.47 Shares outstanding at year-end 6,191 6,172 6,145 6,108 6,272 - -----------------------------------------------------------------------------------------------------------------------------------
(a) Excluding callable debt of $271,307. MARKET AND DIVIDEND DATA
MARKET PRICE QUARTER ENDED HIGH LOW DIVIDENDS - -------------------------------------------------------------------------------- July 2, 2000 14.69 8.44 .065 October 1, 2000 11.37 6.12 .065 December 31, 2000 7.31 2.87 .065 March 31, 2001 6.75 3.75 -- - -------------------------------------------------------------------------------- June 30, 2001 9.02 5.00 -- September 29, 2001 14.79 8.60 -- December 29, 2001 13.50 9.60 -- March 31, 2002 10.20 8.90 -- - --------------------------------------------------------------------------------
1 2002 ANNUAL REPORT FELLOW SHAREHOLDERS [PHOTO OF MICHAEL J. BERTHELOT] At the beginning of fiscal 2002, our Board of Directors adopted a plan of restructuring that would significantly alter our company. We determined that we would exit the specialty fasteners business and concentrate all of our resources into a smaller, less leveraged company that was involved solely in the design, manufacture, and servicing of aerospace equipment and components. In a very difficult environment, we completed the sale of our Breeze and Pebra hose clamp businesses in July 2001; in December 2001, we sold our TransTechnology Engineered Components business; in February 2002 we sold our Seeger-Orbis retaining ring business; in April 2002, we sold our Aerospace Rivet Manufacturers Inc. subsidiary; and, in May 2002, we sold our TransTechnology Engineered Rings USA business. While we were divesting these businesses, the economy continued to weaken and, combined with the shocks to financial markets due to the events of September 11th, put further downward pressure on the valua- tions of our business units held for sale and on the buyers' ability to finance them. We persevered, and through May 2002, we have realized over $168 million of proceeds from these divestitures, all of which have been applied to reduce our outstanding debt to $107.6 million at the fiscal year end from $272.5 million one year earlier, cutting our senior debt by almost 85%. We remain committed to completing our restructuring program, which involves the sale of two more retaining ring businesses, our TCR cold heading business, and some surplus real estate. By the end of the first quarter of fiscal 2003, we expect to have a new senior credit facility in place, eliminating the forbearance agreements under which we have operated in fiscal 2002. At the end of July we will relocate our corporate staff, reduced from 24 people to just nine, into our Breeze-Eastern facility in Union, New Jersey. Fiscal 2002 was a year of many successes. Our continuing operations, made up of Breeze-Eastern and Norco, each had record levels of new orders, sales, backlog, and operating profit during fiscal 2002. As a result of this strong showing, and significant reductions in corporate office expenses, our continuing operations returned to profitability in fiscal 2002, with income from continuing operations of $.8 million, or $.12 per diluted share. Our operating income, exclusive of non-recurring, non-operating gains and losses, was up 97% and EBITDA was up 46%. Our share price improved 68% during the fiscal year, and, in share price improvement, TT was the 25th best performing company on the NYSE for calendar year 2001. Several new programs were won in the weapons system, helicopter rescue hoist, cargo hook, and regional jet component industries. Because of this continuing string of new program wins, we believe that each of these units is poised for further growth in revenue and profitability in the future. Our strategy for the short-term is simple. As a company now solely focused on aerospace products and components, we will focus on developing new products for new customers and existing customers. We will concentrate on lowering our costs through 2 TRANSTECHNOLOGY CORPORATION productivity and efficiency improvements. We will work harder to develop our people and improve the depth of our management and front line team members. We will strive for more sales, lower costs, quicker cash flow cycles, and lower debt. Our target is to grow both sales and operating income at least ten percent in fiscal 2003. Fiscal 2003 will be the year we work to strengthen our balance sheet and shareholder value. As we enter the new fiscal year, we must now work on restructuring our balance sheet to provide the capital structure necessary to support our company with the resources it needs to move forward and to yield our shareholders an immediate and long-term increase in value. At the same time, we must be attentive to other opportunities that present themselves to enhance shareholder value. As fiscal 2002 was the year we worked to strengthen our operations, so fiscal 2003 will be the year we work to strengthen our balance sheet and shareholder value. Fiscal 2002 brought much more attention to the importance of corporate governance. I am pleased to report that for the past ten years our company's Incentive and Compensation and Audit Committees have both been made up entirely of outside directors. Our Audit Committee, comprised of individuals with substantial experience in public and private company finance, is actively involved in the review of our financial affairs and meets quarterly with management, our internal audit staff, and, without management present, our outside auditors. Our Board of Directors has been, and remains, committed to the concepts of transparent financial reporting, openness, and independence in fact and perception. Our outside auditors do no strategic, information technology or other consulting for the company, limiting their work to our annual audit, quarterly reviews, the statutory audits required for our operations around the world, and advising us in the preparation of our income tax returns. While our workforce is much smaller now than at the beginning of the year, the work-load really has grown rather than diminished. I would like to express my appreciation and gratitude to each member of the TransTechnology team for their professionalism and support, which have proven invaluable to our company this past year. I would also like to thank our Board of Directors, which has remained deeply involved throughout the year. As we see three of our long-serving directors retire at this year's shareholders' meeting, I would like to especially thank James A. Lawrence and Walter H. Belleville for their ten years of counsel, and Michel Glouchevitch for his six years of service to our company. We wish them each well as they move on to another chapter of their lives. Most importantly, I thank you, the shareholders, who have placed your trust, confidence, and resources in our hands. We appreciate your support and look forward to seeing TransTechnology continue as a provider of value to its owners. Michael J. Berthelot /s/ Michael J. Berthelot Chairman, President and Chief Executive Officer 3 2002 ANNUAL REPORT [PHOTO OF HELICOPTER UTILIZING RESCUE HOIST] U.S. Coast Guard HH-65 Dauphin, manufactured by Eurocopter, equipped with a Breeze-Eastern HS-10300 rescue hoist. SINCE 1926, BREEZE-EASTERN HAS PROVIDED THE DEFENSE AND AEROSPACE MARKETS WITH SOPHISTICATED, HIGHLY ENGINEERED, PROPRIETARY SYSTEMS. AEROSPACE PRODUCTS BREEZE-EASTERN is the world's leading designer and manufacturer of sophisticated helicopter rescue hoists, cargo winches, and cargo hooks for the aerospace, defense and space markets. Breeze-Eastern is also an acknowledged leader in the design, development, and manufacture of weapons handling systems, motion controls actuation systems and materiel restraint systems for the aerospace and defense markets. During fiscal year 2002, Breeze-Eastern was selected to design, develop and manufacture specialized applications for major rescue hoist, cargo winch, cargo hook, and weapons handling systems. Rescue hoists for the Eurocopter Super Puma, the Spanish Air Force CH-47, and for two Israeli Air Force upgrade programs are examples of new programs that have been achieved by the business. During the year Breeze-Eastern was also selected to provide the weapons loading hoist for Lockheed's High Mobility Artillery Rocket System (HIMARS) and the Line of Sight Anti-Tank (LOSAT) programs, demonstrating Breeze-Eastern's strength in the weapons handling defense market. Since 1926, Breeze-Eastern has provided the defense and aerospace markets with sophisticated, highly engineered, proprietary systems. A unique relationship with prime contractors such as AugustaWestland, Alenia, Bell, Boeing, CASA, Eurocopter, Lockheed Martin, MD Helicopters and Sikorsky has provided Breeze-Eastern a continuous stream of opportunities over the years. 4 TRANSTECHNOLOGY CORPORATION NORCO, INC. is the global leader in the design, manufacture, and support of aircraft engine nacelle hold-open rods. Specializing in high performance mechanical components and systems for the aerospace and defense markets, Norco is also a recognized leader in the design, manufacture and support of helicopter blade restraint systems, safety locks, and application specific mechanical systems. Norco's power transmission product line, Flennor, is one of the most highly regarded manufacturers of miniature rollnuts, rollnuts, ball and diamond reversers, and oscillators for the aerospace, defense, power transmission, paper and pulp, and medical diagnostic equipment industries. During fiscal 2002, Norco won custom designed applications for major regional jet engine nacelle, military and medical diagnostic equipment programs. Hold open rods for the Canadair CRJ700/900, the Dornier 728, the Embraer 170, the Bombardier AS907, and the British Aerospace RJX AS977 are examples of new programs for regional jets, the fastest growing segment of the commercial airline industry. Specialized assemblies for the Virginia Class submarine, the Landing Platform Deck (LPD-17), and the Advanced Amphibious Assault Vehicle (AAAV) illustrate Norco's strength in the defense and military markets. Newly designed precision motion control devices for Luminex, Packard Instrument and Dade Behring present an opportunity for expansion of Norco's engineering and manufacturing prowess into new markets. Over the more than forty years it has been in business, Norco has forged special relationships with many of its largest customers, including airframe manufacturers such as AugustaWestland, Airbus, Boeing, Northrop Grumman, and Sikorsky. Norco also works closely with suppliers of aircraft engine nacelles and cowlings such as Goodrich Aerospace, GKN-Westland Aerospace, Aermacchi and Bombardier. [PICTURE OF AIRCRAFT ENGINE] Norco hold-open rods on Boeing 777 Engine Nacelle. NORCO, INC. IS THE GLOBAL LEADER IN THE DESIGN, MANUFACTURE, AND SUPPORT OF AIRCRAFT ENGINE NACELLE HOLD-OPEN RODS. 5 2002 ANNUAL REPORT INDEPENDENT AUDITORS' REPORT To the Stockholders and the Board of Directors of TransTechnology Corporation: We have audited the accompanying consolidated balance sheets of TransTechnology Corporation and subsidiaries as of March 31, 2002 and 2001, and the related statements of consolidated operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended March 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of TransTechnology Corporation and subsidiaries at March 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2002 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Parsippany, New Jersey June 14, 2002 6 TRANSTECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
MARCH 31, ASSETS 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT ASSETS: Cash and cash equivalents $ 97 $ 2,337 Accounts receivable (net of allowance for doubtful accounts of $391 and $30 in 2002 and 2001, respectively) 11,654 13,015 Inventories 23,695 19,957 Prepaid expenses and other current assets 1,111 891 Income tax receivable 7,600 5,600 Deferred income taxes 1,538 1,512 Assets held for sale 38,486 307,014 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 84,181 350,326 - ------------------------------------------------------------------------------------------------------------------------------------ PROPERTY: Land 2,879 3,566 Buildings 5,438 5,425 Machinery and equipment 7,185 7,077 Furniture and fixtures 3,685 3,619 Leasehold improvements 195 196 - ------------------------------------------------------------------------------------------------------------------------------------ Total 19,382 19,883 Less accumulated depreciation and amortization 11,572 10,581 - ------------------------------------------------------------------------------------------------------------------------------------ Property - net 7,810 9,302 - ------------------------------------------------------------------------------------------------------------------------------------ OTHER ASSETS: Costs in excess of net assets of acquired businesses (net of accumulated amortization of $1,171 and $953 in 2002 and 2001, respectively) 10,584 10,805 Deferred income taxes 29,266 11,360 Other 10,301 11,456 - ------------------------------------------------------------------------------------------------------------------------------------ Total other assets 50,151 33,621 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $ 142,142 $ 393,249 ==================================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT LIABILITIES: Callable long-term debt $ -- $ 271,307 Current portion of long-term debt -- 88 Accounts payable - trade 6,433 5,858 Accrued compensation 2,989 3,479 Accrued income taxes 449 3,194 Liabilities of discontinued businesses 18,011 38,932 Other current liabilities 14,539 8,364 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 42,421 331,222 - ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS 107,564 658 - ------------------------------------------------------------------------------------------------------------------------------------ DEFERRED INCOME TAXES 1,188 5,298 - ------------------------------------------------------------------------------------------------------------------------------------ OTHER LONG-TERM LIABILITIES 7,176 4,196 - ------------------------------------------------------------------------------------------------------------------------------------ COMMITMENTS AND CONTINGENCIES (Notes 11 and 12) - ------------------------------------------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock - authorized, 300,000 shares; none issued Common stock - authorized, 14,700,000 shares of $.01 par value, issued, 6,739,264 and 6,718,614 shares in 2002 and 2001, respectively 67 67 Additional paid-in capital 78,286 78,091 Notes receivable from officers (123) (191) Accumulated deficit (82,227) (10,446) Accumulated other comprehensive (loss) (2,888) (6,323) Unearned compensation (236) (253) - ------------------------------------------------------------------------------------------------------------------------------------ (7,121) 60,945 Less treasury stock, at cost - 548,186 and 546,428 shares in 2002 and 2001, respectively (9,086) (9,070) - ------------------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity (deficit) (16,207) 51,875 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $ 142,142 $ 393,249 ====================================================================================================================================
See notes to consolidated financial statements. 7 2002 ANNUAL REPORT STATEMENTS OF CONSOLIDATED OPERATIONS (In thousands, except share data)
YEARS ENDED MARCH 31, 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 72,285 $ 70,481 $ 60,836 Cost of sales 39,893 40,554 35,743 - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 32,392 29,927 25,093 General, administrative and selling expenses 20,030 23,679 19,126 Interest expense 8,055 4,869 2,947 Interest income (69) (95) (339) Other income - net (1,537) (61) (651) Forbearance fees 2,651 -- -- Corporate office restructuring charge 1,629 11,165 -- - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before income taxes 1,633 (9,630) 4,010 Provision (benefit) for income taxes 860 (3,584) 1,524 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations 773 (6,046) 2,486 Discontinued operations: Income from sale of businesses and income (loss) from operations of discontinued businesses (less applicable income taxes (benefits) of $8,012, ($7,268), and $2,849 for 2002, 2001 and 2000 respectively.) 16,414 (66,924) 4,649 Loss on disposal of discontinued businesses including provision of $5,945 for operating losses during phase out periods (less applicable income tax (benefits) of ($42,497) (88,968) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ (Loss) income before extraordinary charge (71,781) (72,970) 7,135 Extraordinary charge for refinancing of debt (net of applicable tax benefits of $339 for 2000) -- -- (541) - ------------------------------------------------------------------------------------------------------------------------------------ Net (loss) income $ (71,781) $ (72,970) $ 6,594 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) per share: Basic: Income (Ioss) from continuing operations $ 0.13 $ (0.98) $ 0.40 (Loss) income from discontinued operations (11.74) (10.85) 0.76 Extraordinary charge for refinancing of debt -- -- (0.09) - ------------------------------------------------------------------------------------------------------------------------------------ Net (loss) income per share $ (11.61) $ (11.83) $ 1.07 - ------------------------------------------------------------------------------------------------------------------------------------ Diluted: Income (loss) from continuing operations $ 0.12 $ (0.98) $ 0.40 (Loss) income from discontinued operations (11.64) $ (10.85) $ 0.76 Extraordinary charge for refinancing of debt -- -- (0.09) - ------------------------------------------------------------------------------------------------------------------------------------ Net (loss) income per share $ (11.52) $ (11.83) $ 1.07 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted - average basic shares outstanding 6,181,000 6,167,000 6,139,000 Weighted - average diluted shares outstanding 6,233,000 6,167,000 6,150,000
See notes to consolidated financial statements. 8 TRANSTECHNOLOGY CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (In thousands)
YEARS ENDED MARCH 31, --------------------------------------- 2002 2001 2000 --------- --------- --------- Cash flows from operating activities: Net (loss) income $ (71,781) $ (72,970) $ 6,594 Adjustments to reconcile (net loss) net income to net cash provided by operating activities: Net loss (income) from discontinued operations, including asset impairments 89,153 66,924 (6,035) Gain on sale of discontinued businesses, net of tax (16,599) -- -- Depreciation and amortization 3,169 4,143 3,134 Decrease in net assets of discontinued companies 16,196 20,447 13,936 Extraordinary charge for refinancing of debt -- -- 541 Gain on sale of marketable securities -- (13) -- Non-cash interest expense 2,528 1,484 -- Provision for losses on accounts and notes receivable, and cost investments 366 9,286 82 Gain on sale or disposal of fixed assets (1,352) 5 -- Changes in assets and liabilities - excluding the effects of acquisitions and dispositions: Increase in accounts receivable and other receivables (1,002) (8,050) (351) (Increase) decrease in inventories (3,738) 47 (747) Increase in deferred taxes, net (22,041) (7,587) (3,724) Increase in other assets (897) (616) (338) Increase in accounts payable 575 623 1,099 (Decrease) increase in accrued compensation (490) 1,348 (348) (Decrease) increase in income taxes payable (2,745) (2,604) 5,372 Increase in other liabilities 8,942 2,572 590 --------- --------- --------- Net cash provided by operating activities of continuing operations 284 15,039 19,805 --------- --------- --------- Cash flows from investing activities: Business acquisitions -- -- (187,086) Capital expenditures (264) (289) (449) Proceeds from sale of businesses 162,200 -- -- Proceeds from sale of fixed assets 2,233 6 -- Proceeds from sale of marketable securities -- 56 3 Decrease in notes and other receivables 75 196 144 --------- --------- --------- Net cash provided by (used in) investing activities 164,244 (31) (187,388) --------- --------- --------- Cash flows from financing activities: Payments on long-term debt (38,750) (82,500) (3,750) Proceeds from long-term debt borrowings and bridge loan -- 75,000 125,000 Repayments on proceeds from other debt, net (128,280) 4,071 55,987 Effect of exchange rates on debt 183 (2,611) (2,408) Debt issue costs -- (6,276) (5,679) Exercise of stock options and other 79 -- 310 Dividends paid -- (1,198) (1,593) --------- --------- --------- Net cash (used in) provided by financing activities of continuing operations (166,768) (13,514) 167,867 --------- --------- --------- (Decrease) increase in cash and cash equivalents (2,240) 1,494 284 Cash and cash equivalents at beginning of year 2,337 843 559 --------- --------- --------- Cash and cash equivalents at end of year $ 97 $ 2,337 $ 843 --------- --------- --------- Supplemental information: Interest payments $ 24,573 $ 29,475 $ 17,959 Income tax payments $ 919 $ 2,658 $ 2,218 Increase in senior subordinated note for paid-in-kind interest expense $ 2,316 $ 1,332 $ -- Warrants issued $ -- $ 214 $ -- --------- --------- ---------
See notes to consolidated financial statements 9 2002 ANNUAL REPORT STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT) (In thousands, except share data)
YEARS ENDED COMMON STOCK TREASURY STOCK MARCH 31, 2002, ----------------------- ----------------------- 2001 AND 2000 SHARES AMOUNT SHARES AMOUNT -------------- --------- --------- -------- --------- BALANCE, MARCH 31, 1999 6,653,855 $ 67 (546,213) $ (9,064) Net income -- -- -- -- Other comprehensive income: Currency translation adjustment (net of taxes of $80) -- -- -- -- Unrealized investment holding losses (net of taxes of $3) -- -- -- -- Cash dividends ($.26 per share) -- -- -- -- Issuance of stock under stock option plan 29,200 -- -- -- Issuance of stock under bonus plan 8,177 -- (181) (5) --------- --------- -------- --------- BALANCE, MARCH 31, 2000 6,691,232 67 (546,394) (9,069) Net loss -- -- -- -- Other comprehensive loss: Minimum pension liability adjustment (net of taxes of $685) -- -- -- -- Currency translation adjustment (net of taxes of $1,093) -- -- -- -- Unrealized investment holding loss -- -- -- -- Less: reclassification adjustment for gains included in net loss -- -- -- -- Cash dividends ($.195 per share) -- -- -- -- Issuance of warrants under mezzanine debt -- -- -- -- Issuance of stock under stock option plan/other 15,000 -- -- -- Issuance of stock under bonus plan 12,382 -- (34) (1) --------- --------- -------- --------- BALANCE, MARCH 31, 2001 6,718,614 67 (546,428) (9,070) Net loss -- -- -- -- Other comprehensive loss: Reclassification adjustment for minimum pension liability from sale of business -- -- -- -- Currency translation adjustment (net of taxes of $349) -- -- -- -- Less: reclassification adjustment for sale of foreign subsidiaries -- -- -- -- Issuance of stock under stock option plan/other 10,356 -- -- -- Issuance of stock under bonus plan 10,294 -- (1,758) (16) --------- --------- -------- --------- BALANCE, MARCH 31, 2002 6,739,264 $ 67 (548,186) $ (9,086) ========= ========= ======== =========
RETAINED NOTES ACCUMULATED YEARS ENDED ADDITIONAL EARNINGS RECEIVABLE OTHER TOTAL MARCH 31, 2002, PAID-IN (ACCUMULATED FROM COMPREHENSIVE UNEARNED COMPREHENSIVE 2001 AND 2000 CAPITAL DEFICIT) OFFICERS INCOME (LOSS) COMPENSATION INCOME (LOSS) -------------- --------- ----------- ----------- ------------- ------------ ------------- BALANCE, MARCH 31, 1999 $ 77,246 $ 58,721 -- $ (3,021) $ (239) Net income -- 6,594 -- -- -- $ 6,594 Other comprehensive income: Currency translation adjustment (net of taxes of $80) -- -- -- (131) -- (131) Unrealized investment holding losses (net of taxes of $3) -- -- -- (5) -- (5) Cash dividends ($.26 per share) -- (1,593) -- -- -- -- Issuance of stock under stock option plan 189 -- -- -- -- -- Issuance of stock under bonus plan 152 -- -- -- (28) -- --------- --------- --------- --------- --------- --------- BALANCE, MARCH 31, 2000 77,587 63,722 -- (3,157) (267) $ 6,458 ========= Net loss -- (72,970) -- -- -- $ (72,970) Other comprehensive loss: Minimum pension liability adjustment (net of taxes of $685) -- -- -- (1,141) -- (1,141) Currency translation adjustment (net of taxes of $1,093) -- -- -- (2,029) -- (2,029) Unrealized investment holding loss -- -- -- (6) -- (6) Less: reclassification adjustment for gains included in net loss -- -- -- 10 -- 10 Cash dividends ($.195 per share) -- (1,198) -- -- -- -- Issuance of warrants under mezzanine debt 214 -- -- -- -- -- Issuance of stock under stock option plan/other 171 -- (191) -- -- -- Issuance of stock under bonus plan 119 -- -- -- 14 -- --------- --------- --------- --------- --------- --------- BALANCE, MARCH 31, 2001 78,091 (10,446) (191) (6,323) (253) $ (76,136) ========= Net loss -- (71,781) -- -- -- $ (71,781) Other comprehensive loss: Reclassification adjustment for minimum pension liability from sale of business -- -- -- 1,141 -- 1,141 Currency translation adjustment (net of taxes of $349) -- -- -- (647) -- (647) Less: reclassification adjustment for sale of foreign subsidiaries -- -- -- 2,941 -- 2,941 Issuance of stock under stock option plan/other 92 -- 68 -- -- -- Issuance of stock under bonus plan 103 -- -- -- 17 -- --------- --------- --------- --------- --------- --------- BALANCE, MARCH 31, 2002 $ 78,286 $ (82,227) $ (123) $ (2,888) $ (236) $ (68,346) ========= ========= ========= ========= ========= =========
See notes to consolidated financial statements. 10 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING PRINCIPLES BUSINESS - The fiscal year for TransTechnology Corporation (the "Company") ends on March 31. Accordingly, all references to years in the Notes to Consolidated Financial Statements refer to the fiscal year ended March 31 of the indicated year unless otherwise specified. As a result of a restructuring program adopted by the Company during 2002, the Company has classified all of the business units that made up its Specialty Fastener segment in prior years and its Aerospace Rivet Manufacturers business, which had been included in its Aerospace Products segment for the first three quarters of 2002, as discontinued operations. All references related to ongoing operations, or the Company, refer only to continuing operations, which consist of the Breeze-Eastern division and the Norco Inc. subsidiary. The Company develops, manufactures, sells and services a complete line of sophisticated lifting and restraining products, principally performance critical helicopter rescue hoist and cargo hook systems, winches and hoists for aircraft and weapons systems and aircraft engine compartment hold open rods, actuators and other motion control devices. The Company has two manufacturing facilities in the United States. USE OF ESTIMATES - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in its consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Estimates used for asset impairment are based upon future cash flow projections or, in the case of assets to be sold, appraisals and fair market value estimates obtained from investment bankers. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, which include assets held for sale and liabilities of discontinued businesses. Intercompany balances and transactions are eliminated in consolidation. REVENUE RECOGNITION - Revenue is recognized at the later of 1) when products are shipped to customers, or 2) when title passes to customers. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments with a maturity at date of acquisition of three months or less to be cash equivalents. INVENTORIES - Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Cost includes material, labor and manufacturing overhead costs. PROPERTY AND RELATED DEPRECIATION AND AMORTIZATION - Property is recorded at cost. Provisions for depreciation are made on a straight-line basis over the estimated useful lives of depreciable assets ranging from three to thirty years. The Company reviews property and equipment and assets held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation expense for the years ended March 31, 2002, 2001 and 2000 was $1.1 million, $1.2 million and $1.1 million, respectively. COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES - The difference between the purchase price and the fair value of the net assets of acquired businesses 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. The Company periodically reviews the recoverability of such assets to ensure that the carrying value of such goodwill has not been impaired. EARNINGS PER SHARE ("EPS") - The computation of basic earnings per share is based on the weighted-average number of common shares outstanding. The computation of diluted earnings per share assumes the foregoing and, in addition, the exercise of all dilutive stock options using the treasury stock method. The components of the denominator for basic earnings per common share and diluted earnings per common share are reconciled as follows:
2002 2001 2000 --------- --------- --------- Basic earnings per common share: Weighted-average common shares outstanding 6,181,000 6,167,000 6,139,000 ========= ========= ========= Diluted earnings per common share: Weighted-average common shares outstanding 6,181,000 6,167,000 6,139,000 Stock options 52,000 -- 11,000 --------- --------- --------- Denominator for diluted earnings per common share 6,233,000 6,167,000 6,150,000 ========= ========= =========
Options to purchase 450,183 shares of common stock at prices between $8.84 and $27.88 were outstanding during 2002 but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares. Similarly, during 2001, options to purchase 505,971 shares of common stock at prices between $8.84 and $27.88 were outstanding but were not included in the computation of diluted EPS. During 2000, options to purchase 288,759 shares of common stock at prices between 11 2002 ANNUAL REPORT $15.13 and $30.13 were outstanding but were not included in the computation of diluted EPS. RESEARCH, DEVELOPMENT AND ENGINEERING COSTS - Research and development costs and engineering costs, which are charged to expense when incurred, amounted to $2.4 million, $2.4 million and $1.8 million in 2002, 2001 and 2000, respectively. Included in these amounts were expenditures of $1.2 million, $1.2 million and $1.3 million in 2002, 2001 and 2000, respectively, which represent costs related to research and development activities. FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the Company's international operations have been translated into U.S. dollars at year-end exchange rates, with resulting translation gains and losses accumulated as a separate component of Accumulated other comprehensive loss. Income and expense items are converted into U.S. dollars at average rates of exchange prevailing during the year. Cumulative translation adjustments related to companies which have been sold have been reflected in the operating results from discontinued operations. INCOME TAXES - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. The Company periodically assesses recoverability of deferred tax assets and provisions for valuation allowances are made as required. INVESTMENTS - In 2001, the Company wrote off its investment in an investee in the amount of $3.2 million, together with a note receivable in the amount of $3.7 million, as a result of a foreclosure on the investee's outstanding loans by its senior lenders. FINANCIAL INSTRUMENTS - The Company does not hold or issue financial instruments for trading purposes. The estimated liability relating to interest rate swap agreements has been accrued during 2002. See Note 9 for further discussion. NEW ACCOUNTING STANDARDS - In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 138, "Accounting for Certain Derivative Financial Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133". This statement amends the accounting and reporting standards of SFAS 133 for certain derivative instruments and for certain hedging activities. The Company adopted SFAS 133 and SFAS 138 on April 1, 2001. The effect of the adoption of these pronouncements was a charge of approximately $3.6 million ($2.0 million after tax) to other comprehensive income attributable to the net liability to be recorded which was subsequently included as a component of loss on disposal of discontinued businesses. In July 2001, the FASB issued SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead will be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The provisions of each statement, which apply to good-will and intangible assets acquired prior to June 30, 2001, will be adopted by the Company on April 1, 2002. The Company expects the adoption of these accounting standards will have the impact of reducing amortization of goodwill and intangibles commencing April 1, 2002; however, impairment reviews may result in future periodic write-downs. Goodwill amortization for the years ended March 31, 2002, 2001 and 2000 was $0.2 million in each of the three years. In July 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations", which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and the associated asset retirement to be capitalized as part of the carrying amount of the long-lived asset. SFAS 143 is effective for years beginning after June 15, 2002. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", which requires all long-lived assets classified as held for sale to be valued at the lower of their carrying amount or fair value less cost to sell and which broadens the presentation of discontinued operations to include more disposal transactions. SFAS 144 is effective for years beginning after December 15, 2001. The Company is currently evaluating the effect, if any, that the adoption of SFAS 143 will have on the Company's consolidated financial position, results of operations and cash flows. The Company has adopted SFAS 144 in connection with the sale of Aerospace Rivet Manufacturers Corporation, which has been recorded as part of discontinued operations in the accompanying financial statements. IMPAIRMENT OF LONG-LIVED ASSETS - The Company, in the event that circumstances arise that indicate that its long-lived assets may be impaired, performs evaluations of asset impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The assets' carrying values are compared to the estimated future undiscounted cash flows of the assets, or expected sale proceeds for assets anticipated to be sold, to determine if a write-down is required. The Company reported an impairment of long-lived assets in 2001, as discussed in Note 2. SEGMENT INFORMATION - The Company operates in only one business segment, the design, manufacture and sale of equipment for use in the aerospace industry. 12 TRANSTECHNOLOGY CORPORATION 2. DISCONTINUED OPERATIONS AND RESTRUCTURING On January 19, 2001, the Company announced its intention to restructure and divest its cold-headed products (TCR), retaining ring (Seeger-Orbis, TransTechnology (GB), TT Brasil, and TransTechnology Engineered Rings USA), hose clamp (Breeze Industrial and Pebra) and aerospace rivet (Aerospace Rivet Manufacturers Corp.) operations. In addition, on April 12, 2001, the Company announced that it would divest TransTechnology Engineered Components (TTEC), a manufacturer of spring steel engineered fasteners and headlight adjusters. For business segment reporting purposes, these above-mentioned business units, excluding ARM for 2002, have previously been classified as the "Specialty Fasteners Segment." The Company has reclassified these business units as discontinued operations for all periods presented. A portion of the Company's interest expense has been allocated to discontinued operations based upon the net asset balances attributable to those operations. Interest expense allocated to discontinued operations was $17.0 million, $29.6 million and $17.0 million, in 2002, 2001 and 2000, respectively. Income taxes have been allocated to discontinued operations based on the estimated tax attributes of the income and assets of the underlying discontinued businesses. On July 10, 2001, the Company sold its Breeze Industrial and Pebra hose clamp businesses to Industrial Growth Partners and members of Breeze Industrial's management for $46.2 million, which was paid in cash. In a related transaction, the Company sold the real estate occupied by Breeze Industrial to a quasi-governmental organization for $2.0 million. Proceeds from the sales were used to repay borrowings outstanding under the Credit Facility. On December 5, 2001, the Company sold its TransTechnology Engineered Components ("TTEC") businesses to a company formed by affiliates of Kohlberg & Company, L.L.C. for $98.5 million, of which $96.0 million was cash and the balance the assumption of certain liabilities related to the purchased businesses. The cash proceeds of the sale were used to repay borrowings outstanding under the Credit Facility. In the fiscal quarter ended September 30, 2001, as part of its restructuring program, the Company reported a pre-tax asset impairment charge for TTEC in the amount of $85.8 million to reduce the carrying value of these businesses to estimated fair market value. This non-cash charge was specifically related to the write-down of goodwill. The sale proceeds of TTEC approximated its adjusted carrying value. On February 21, 2002, the Company sold its Seeger-Orbis retaining ring business in Germany to Barnes Group Inc. for $20.0 million cash. The net proceeds of the sale were used to repay borrowings outstanding under the Credit Facility. The balance sheet of the Company contains a non-current asset and a non-current liability in the amount of $3.1 million relating to the pension plan of Seeger-Orbis. These amounts represent the legal liability of the Company under German law and the indemnification received from the buyer of the business for that liability. On April 16, 2002, the Company sold its Aerospace Rivet Manufacturers Corporation subsidiary to Allfast Fastening Systems, Inc. for $3.2 million cash. The net proceeds of the sale were used to repay borrowings outstanding under the Credit Facility. On May 30, 2002, the Company completed the sale of substantially all of the net assets of its U.S. retaining ring business for $2.9 million of cash, a promissory note of $0.8 million and warrants for 5% of the equity of the purchaser. Net sales and losses from the discontinued operations were as follows (in thousands):
2002 2001 2000 --------- --------- --------- Net sales $ 161,389 $ 257,590 $ 238,416 --------- --------- --------- Loss on disposal of discontinued businesses including provision for operating losses during phase out period $(131,465) $ -- $ -- Income from sale of businesses and income (loss) from operations of discontinued businesses prior to phase out period 24,426 (74,192) 7,498 Income tax (benefit) provision (34,485) (7,268) 2,849 --------- --------- --------- Net (loss) income from discontinued operations $ (72,554) $ (66,924) $ 4,649 ========= ========= =========
The 2002 loss was comprised of $110.3 million of impairment charges related to reducing the carrying values of the discontinued businesses to their estimated net realizable values; $3.7 million of actual operating income of the discontinued businesses through their expected divestiture dates; $17.0 million of allocated interest expense; $8.4 million from the write-off of capitalized loan fees and the mark to market of interest rate swaps required under the terms of the Company's credit agreements; $24.7 million of gains recognized on the sale of certain business units; and, $0.2 million of other income or credits associated with the discontinued operations. These gains and losses, which aggregated $107.1 million, were reduced by a tax benefit of $34.5 million. The fiscal 2001 loss from discontinued operations consisted of $67.9 million of impairment charges; $23.2 million of operating income of the discontinued businesses; and $29.6 million of allocated interest expense. These fiscal 2001 losses, which aggregated $74.2 million, were reduced by a tax benefit of $7.3 million. The fiscal 2000 income from discontinued operations included $24.5 million of operating income from the discontinued businesses and $17.0 million of allocated interest expense, the net of which was reduced by an income tax provision of $2.8 million. 13 2002 ANNUAL REPORT Assets and liabilities of the discontinued businesses were as follows (in thousands):
2002 2001 -------- -------- Current assets $ 23,458 $ 87,533 Property, plant and equipment 6,904 71,952 Other assets 8,124 147,529 -------- -------- Assets held for sale $ 38,486 $307,014 ======== ======== Current liabilities $ 16,752 $ 29,396 Long-term liabilities 1,259 9,536 -------- -------- Liabilities of discontinued businesses $ 18,011 $ 38,932 ======== ========
3. INVENTORIES Inventories at March 31, consisted of the following (in thousands):
2002 2001 ------- ------- Finished goods $ 209 $ 5 Work in process 5,034 6,155 Purchased and manufactured parts 18,452 13,797 ------- ------- Total $23,695 $19,957 ======= =======
4. OTHER CURRENT LIABILITIES Other current liabilities at March 31, consisted of the following (in thousands):
2002 2001 ------- ------- Interest rate swap obligation $ 3,827 $ 90 Accrued interest 2,606 3,293 Other 8,106 4,981 ------- ------- Total $14,539 $ 8,364 ======= =======
5. INCOME TAXES The components of total income (loss) from operations (including continuing and discontinued operations and extraordinary items) before income taxes were (in thousands):
2002 2001 2000 --------- --------- --------- Domestic $ (86,453) $ (51,288) $ 16,008 Foreign (18,952) (32,534) (5,378) --------- --------- --------- Total $(105,405) $ 83,822 $ 10,630 ========= ========= =========
The (benefit) provision for income taxes is summarized below (in thousands):
2002 2001 2000 -------- -------- --------- Currently (receivable) payable: Federal $ (9,372) $ (5,600) $ 3,285 Foreign 46 105 1,318 State 400 452 419 -------- -------- --------- (8,926) (5,043) 5,022 -------- -------- --------- Deferred (29,556) (15,455) (988) Valuation allowance 4,857 9,646 -- -------- -------- --------- (24,699) (5,809) (988) -------- -------- --------- Total $(33,625) $(10,852) $ 4,034 ======== ======== =========
The provision (benefit) for income taxes is allocated between continuing and discontinued operations and extraordinary items as summarized below (in thousands):
2002 2001 2000 -------- -------- -------- Continuing $ 860 $ (3,584) $ 1,524 Extraordinary -- -- (339) Discontinued (34,485) (7,268) 2,849 -------- -------- -------- Total $(33,625) $(10,852) $ 4,034 ======== ======== ========
The consolidated effective tax rates for continuing operations differ from the federal statutory rates as follows:
2002 2001 2000 ---- ----- ---- Statutory federal rate 35.0% (35.0%) 35.0% State income taxes after federal income tax 15.9 (4.6) 3.1 Earnings of the foreign sales corporation -- -- (14.5) Amortization of purchase price of businesses not deductible for tax purposes 0.9 1.8 10.0 AMT credit -- (0.5) -- Other 0.6 1.1 (4.4) ---- ----- ---- Consolidated effective tax rate 52.4% (37.2%) 38.0% ==== ===== ====
The following is an analysis of accumulated deferred income taxes (in thousands):
2002 2001 -------- -------- Assets: Current: Bad debts $ 243 $ 408 Employee benefit accruals 638 884 Inventory 1,111 680 Net operating loss carryforward -- 100 Other (454) (560) -------- -------- Total current 1,538 1,512 -------- -------- Noncurrent: Employee benefit accruals (795) 754 Environmental 1,329 389 Accrued liabilities 1,836 984 AMT credit -- 453 Net operating loss carryforward 43,101 16,818 Other (1,702) 1,608 Valuation allowance (14,503) (9,646) -------- -------- Total noncurrent 29,266 11,360 -------- -------- Total assets $ 30,804 $ 12,872 ======== ======== Liabilities: Property $ 1,188 $ 5,298 ======== ======== Total liabilities $ 1,188 $ 5,298 ======== ========
The cumulative amount of undistributed earnings of international subsidiaries for which U.S. income taxes have not been provided was approximately $2.2 million at March 31, 2002. It is not practical to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings. The valuation allowance required under Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income 14 TRANSTECHNOLOGY CORPORATION Taxes," has been established for deferred income tax benefits related to certain foreign subsidiary loss carryforwards that may not be realized. The Company has federal, state and foreign net operating loss carryforwards of $53.8 million, $75.0 million and $40.0 million, respectively, which will be available to offset taxable income during the carryforward period. The tax benefits of these items are reflected in the above analysis of deferred tax assets and liabilities. If not used, some of these carryforwards begin to expire in 2004 through 2022. 6. LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS Long-term debt payable to banks and others, including current maturities, at March 31 consisted of the following (in thousands): 2002 2001 -------- -------- Credit agreement - 7.25% $ 17,000 $ -- Credit agreement - 8.0% 9,562 -- Credit agreement - 25.0% 2,500 -- Credit agreement - 10.5% -- 2,900 Credit agreement - 9.95% -- 153,368 Term loan - 9.06% -- 38,750 Senior Subordinated Notes - 16% 78,648 76,332 Other -- 892 -------- -------- 107,710 272,242 Less current maturities and amounts callable by lenders -- 271,395 Less unamortized discount 146 189 -------- -------- Total long-term debt $107,564 $ 658 ======== ======== CREDIT FACILITIES - Effective December 31, 2000, the Company was not able to meet certain financial ratio requirements of the senior credit facility (the "Credit Facility") as amended. Pursuant to discussions with the senior debt lenders (the "Lenders"), the Company and the Lenders agreed to an amendment to the Credit Facility to include a forbearance agreement as well as certain other fees and conditions, including the suspension of dividend payments. During the forbearance period the Lenders agreed not to exercise certain of their rights and remedies under the Credit Facility. The Company, accordingly, classified its bank debt as "current" at March 31, 2001, to reflect the fact that the forbearance period was less than one year. The term of the forbearance period, initially scheduled to expire on January 31, 2001, was subsequently extended by an additional amendment to March 29, 2001. This additional amendment also reduced the Revolver from $200 million to $175 million with an additional sub-limit on usage at $162 million. Prior to the March 29, 2001 expiration date, the Lenders agreed to extend the termination date until June 27, 2001, provided that certain performance and debt reduction requirements occurred in which case the forbearance termination date could be further extended under similar terms and conditions until September 27, 2001. The debt reduction requirements of the forbearance agreement stipulated that $50 million was to be repaid prior to June 27, 2001, which was deemed satisfied by the Lenders, because of the impending sale of the Company's Breeze Industrial and Pebra divisions in July 2001. Effective as of September 27, 2001, a further extension to the forbearance termination date was granted until December 21, 2001, provided that certain performance conditions were met and certain fees and increased interest charges were paid. Effective December 5, 2001, the Company sold its Engineered Components division for $98.5 million including cash of $93.1 million, which was used to retire senior debt. An additional $2.9 million in cash was received on January 17, 2002. In anticipation of this debt reduction, a further extension to the forbearance termination date was granted effective December 4, 2001 until March 27, 2002 provided certain conditions were met. This forbearance agreement extension retained a provision that $2.5 million of the outstanding revolver bears an interest rate of 25% per annum. This amount relates to the subordinated debt interest payment made on its scheduled due date of October 1, 2001. Under the forbearance agreement, the $2.5 million will be the last piece of the revolver paid. This agreement was further amended on January 31, 2002, to modify certain provisions with respect to borrowing limits and on March 27, 2002, was extended until April 4, 2002. On April 3, 2002, a further extension to the forbearance termination date was granted until September 25, 2002, provided certain conditions are met. The current forbearance agreement retains a provision that an additional $2.5 million of the outstanding revolver bears an interest rate of 25% per annum. This amount relates to the subordinated debt interest payment made on April 4, 2002. This current forbearance agreement also requires the achievement of minimum levels of EBITDA (earnings before interest, taxes, depreciation and amortization), adherence to borrowing limits as adjusted based on anticipated debt reduction, restrictions on the level of spending for capital expenditures as well as an agreement with the subordinated debt holders to refinance the obligation to the senior debt holders. Other terms of the forbearance agreement include certain fees, reporting and consulting requirements. The Company has taken action to reduce its debt by selling its Breeze-Industrial, Pebra, Engineered Components, Seeger-Orbis and Aerospace Rivet Manufacturers business as well as taking action to arrange for the sale of the other businesses in its discontinued Specialty Fastener Segment so as to be in an improved financial position to negotiate further amendments or borrowing alternatives. The Company has made all of its scheduled interest and principal payments on a timely basis. 15 2002 ANNUAL REPORT The Company has unused borrowing capacity for both domestic and international operations of $7.2 million as of March 31, 2002, including letters of credit. The Credit Facility is secured by all of the Company's assets. As of March 31, 2002, the Company had total borrowings of $107.6 million, which have a current weighted-average interest rate of 14.1% excluding the impact of interest rate swaps. The impact of interest rate swaps as further discussed below was provided for as a charge to discontinued operations in the three month period ended September 30, 2001. The interest rate swap contracts provide for a fixed rate of interest on $125 million notional amount of debt, which currently exceeds the Company's outstanding variable rate based debt by approximately $96 million. Borrowings under the Credit Facility as of March 31, 2002, were $29.1 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 March 31, 2002, $9.6 million of the Company's outstanding borrowings utilized LIBOR, all of which were payable in Pounds sterling. The remainder of the Company's outstanding borrowings under the Credit Facility utilized the prime rate. Effective July 10, 2001, the Term Loan of $38.8 million was repaid in full from the proceeds of the sale of Breeze Industrial and Pebra. 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 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. Due to a decline in interest rates since the inception of these swap agreements, the fair value of the agreements has become unfavorable to the Company. At September 30, 2001, the Company recorded a charge and a liability in the amount of $5.1 million before tax to recognize the liability based on the expected retirement of the associated Credit Facility with the proceeds from the sale of the discontinued business units this fiscal year. The Company increased this charge by $0.6 million at December 30, 2001. This pre-tax charge to terminate these interest rate swap agreements is accordingly included with the loss on disposal of the discontinued businesses. Under the Credit Facility agreement, the base interest rate is added to the applicable interest rate margin to determine the total interest rate in effect. The Credit Facility contains other customary financial covenants, including the requirement to maintain certain financial ratios relating to performance, interest expense and debt levels. On June 13, 2002, the Company received a commitment to refinance its senior debt for a period of three years and a commitment from the note holders to amend the financial covenants to bring the company into compliance. Management expects to complete the proposed refinancing by the end of June 2002 and has, accordingly, classified its senior debt, as well as its senior subordinated notes, as long term. Under the commitment, $8.4 million is due in 2004, $3.4 million is due in 2005 and the remainder, including all subordinated debt is due in 2006. SENIOR SUBORDINATED NOTES - 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 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 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. 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 the Lenders under the Company's $250 million Credit Facility existing at that time, in which the Lenders consented to the private placement and amended certain financial covenants associated with the Credit Facility. 7. STOCKHOLDERS' EQUITY AND EMPLOYEE/DIRECTOR STOCK OPTIONS The Company maintains the amended and restated 1992 long-term incentive plan (the "1992 Plan"), the 1998 non-employee directors stock option plan (the "1998 Plan") and the 1999 long-term incentive plan (the "1999 Plan"). Under the terms of the 1992 Plan, 800,000 of the Company's common shares may be granted as stock options or awarded as restricted stock to officers, directors and certain employees of the Company through September 2002. Under the terms of the 1999 plan, 300,000 of the Company's common shares may 16 TRANSTECHNOLOGY CORPORATION be granted as stock options or awarded as restricted stock to officers, directors and certain employees of the Company through July 2009. Under both plans, option exercise prices equal the fair market value of the common shares at their grant dates. For grants made prior to May 1999, options expire not later than five years after the date of the grant. Options granted beginning in May 1999 to officers and employees expire not later than 10 years after the date of the grant. Options granted to directors and to officers and employees with the annual cash bonus vest ratably over three years beginning one year after the date of the grant. Restricted stock is payable in equivalent number of common shares. The shares are distributable in a single installment and, with respect to officers and employees, restrictions lapse ratably over a three-year period from the date of the award, and with respect to directors, the restrictions lapse after one year. Under the terms of the 1998 Plan, non-employee directors are entitled to receive matching options for a) each share of the Company's common stock which they hold at the end of a 60-day period following initial election as a director, but not to exceed 25,000 shares, with the strike price of the option being the fair market value of the shares at their grant dates, and b) thereafter, for each share of the Company's common stock that they purchase on the open market, with the strike price of the option being the purchase price of the share, up to a maximum of 5,000 options in any twelve month period or 15,000 options over a three-year period. Options granted under the 1998 Plan vest on the first anniversary of the grant. Options expire not later than five years after the date of the grant. The Company continues to apply the accounting standards set forth in APB No. 25. However, disclosures are required of pro forma net income and earnings per share as if the Company had adopted the accounting provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Based on Black-Scholes values, pro forma net income for 2002, 2001 and 2000 would be $(72.4) million, $(73.3) million and $6.2 million, respectively; pro forma earnings per common share for 2002, 2001 and 2000 would be $(11.62), $(11.89) and $1.00, respectively. The following table summarizes stock option activity over the past three years under the plan: WEIGHTED AVERAGE NUMBER EXERCISE OF SHARES PRICE --------- -------- Outstanding at March 31, 1999 438,046 17.66 Granted 155,715 18.90 Exercised (29,200) 14.53 Canceled or expired (75,521) 15.47 ------- Outstanding at March 31, 2000 489,040 19.56 Granted 151,737 9.74 Exercised (15,000) 11.38 Canceled or expired (83,606) 20.19 ------- Outstanding at March 31, 2001 542,171 18.25 Granted 159,000 7.63 Exercised (10,356) 8.84 Canceled or expired (150,268) 18.86 ------- Outstanding at March 31, 2002 540,547 16.30 ======= Options exercisable at March 31, 2000 183,829 19.13 Options exercisable at March 31, 2001 247,119 20.92 Options exercisable at March 31, 2002 318,189 19.00 In 2002, 2001 and 2000 the Company awarded restricted stock totaling 10,294 shares, 12,382 shares and 8,177 shares, respectively. The weighted-average fair value of this restricted stock was $10.12, $9.63 and $18.60 in 2002, 2001 and 2000, respectively. The expense recorded in 2002, 2001 and 2000 for restricted stock was $25,000, $133,000 and $124,000, respectively. The weighted-average Black-Scholes value per option granted in 2002, 2001 and 2000 was $4.22, $3.00 and $4.74, respectively. The following weighted-average assumptions were used in the Black-Scholes option pricing model for options granted in 2002, 2001 and 2000: 2002 2001 2000 ---- ---- ---- Dividend yield 0.0% 0.9% 1.3% Volatility 75.6% 38.4% 25.0% Risk-free interest rate 3.3% 6.3% 5.5% Expected term of options (in years) 4.0 4.0 4.0 17 2002 ANNUAL REPORT For options outstanding and exercisable at March 31, 2002, the exercise price ranges and average remaining lives were:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------------------- -------------------------------------- RANGE OF NUMBER OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER EXERCISABLE WEIGHTED AVERAGE EXERCISE PRICES AT MARCH 31, 2002 REMAINING LIFE EXERCISE PRICE AT MARCH 31, 2002 EXERCISE PRICE - --------------- ----------------- -------------- -------------- ----------------- -------------- $ 3-10 242,995 4 $ 7.61 62,185 $ 6.53 10-15 8,285 3 $ 11.43 2,857 $ 11.52 15-21 186,499 2 $ 18.97 144,740 $ 19.07 21-28 102,768 1 $ 27.11 102,768 $ 27.11 ------- -------- ------- ------- 540,547 2 $ 15.30 312,550 $ 19.15 ======= ======== ======= =======
NOTES RECEIVABLE FROM OFFICERS - Notes receivable from an officer result from the exercise of stock options in exchange for notes. The notes are full recourse promissory notes bearing interest at 5% and are collateralized by the stock issued upon exercise of the stock options. Principal and interest are due in May 2003. 8. EMPLOYEE BENEFIT PLANS The Company has a defined contribution plan covering all eligible employees. Contributions are based on certain percentages of an employee's eligible compensation. Expenses related to this plan were $1.0 million, $0.9 million and $0.9 million in 2002, 2001 and 2000, respectively. The Company provides postretirement benefits to union employees at one of the Company's divisions. The Company funds these benefits on a pay-as-you-go basis.
(In thousands) POSTRETIREMENT BENEFITS ----------------------- YEAR ENDED MARCH 31, -------------------- 2002 2001 2000 ---- ---- ---- COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ -- $ -- $ -- Interest cost 86 88 87 Amortization of net loss 53 19 28 ---- ---- ---- Net periodic benefit cost $139 $107 $115 ==== ==== ==== WEIGHTED-AVERAGE ASSUMPTION AS OF MARCH 31: Discount rate 7.25% 7.25% 7.75%
POSTRETIREMENT BENEFITS ----------------------- YEAR ENDED MARCH 31, -------------------- 2002 2001 ------- ------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 1,258 $ 1,204 Service cost -- -- Interest cost 86 88 Actuarial gain -- 88 Benefits paid (139) (122) ------- ------- Benefit obligation at end of year $ 1,205 $ 1,258 ======= =======
POSTRETIREMENT BENEFITS ----------------------- YEAR ENDED MARCH 31, -------------------- 2002 2001 ------- ------- RECONCILIATION OF FUNDED STATUS: Funded status $(1,205) $(1,258) Unrecognized actuarial loss 259 312 ------- ------- Accrued liability $ (946) $ (946) ======= =======
18 TRANSTECHNOLOGY CORPORATION For measurement purposes, a 9.5% and 10.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002 and 2001, respectively. The rate was assumed to decrease gradually to 5.0% by 2011 and remain at that level thereafter. Under the Plan, the actuarially determined effect of a one-percentage point change in the assumed health case cost trend would have the following effects. ONE ONE PERCENTAGE PERCENTAGE POINT POINT INCREASE DECREASE Effect on total of service -------- --------- and interest cost components $ 6 $ (6) Effect on accumulated postretirement benefit obligation 87 (76) The balance sheet of the Company contains a non-current asset and a non-current liability in the amount of $3.1 million relating to the pension plan of a divested company. These amounts represent the legal liability of the company under German law and the indemnification received from the buyer of the business for that liability. 9. FINANCIAL INSTRUMENTS INTEREST RATE SWAP AGREEMENTS - Under the terms of its Credit Facility, the Company is required to maintain certain levels of interest rate protection through interest rate swap agreements. As a result, the Company has entered into interest rate swap agreements to effectively convert all or a portion of its floating-rate debt to fixed-rate debt in order to reduce the Company's risk to movements in interest rates. Such agreements involve the exchange of fixed and floating interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. Accordingly, the impact of fluc- tuations in interest rates on these interest rate swap agreements is fully offset by the opposite impact on the related debt. Swap agreements are only entered into with strong creditworthy counterparties. The swap agreements in effect were as follows: NOTIONAL AMOUNT RECEIVE PAY (IN THOUSANDS) MATURITIES RATE(1) RATE ------------- ---------- -------- ---- March 31, 2002 $25,000 5/02 1.88% 5.48% 25,000 5/02 1.88 5.48 37,500 3/03 1.90 6.58 37,500 3/03 1.90 6.58 (1) Based on three-month LIBOR FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instruments: CASH AND CASH EQUIVALENTS - The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. ACCOUNTS RECEIVABLE, DEBT, ACCOUNTS PAYABLE AND OTHER LIABILITIES - The carrying amounts of these items approximates their fair value. CONCENTRATION OF CREDIT RISK - The Company is subject to a concentration of credit risk primarily with its trade and notes receivable. The Company grants credit to certain customers who meet pre-established credit requirements, and generally requires no collateral from its customers. Estimates of potential credit losses are provided for in the Company's consolidated financial statements and are within management's expectations and industry averages. As of March 31, 2002, the Company had no other significant concentrations of credit risk. INTEREST RATE SWAPS - The fair value of the Company's interest rate swaps are the estimated amounts the Company would pay or receive to terminate the agreements at March 31, 2002 and 2001 based upon quoted market prices as provided by financial institutions which are counterparties to the agreements and were as follows (in thousands): 2002 2001 (PAY) (PAY) -------- -------- Interest rate swap agreements $(3,353) $(3,207) The impact of interest rate swaps as discussed above was provided for as a charge to discontinued operations in the three-month period ended September 30, 2001. The interest rate swap contracts provide for a fixed rate of interest on $125 million notional amount of debt, which currently exceeds the Company's outstanding variable rate based debt by approximately $98 million. 10. EXTRAORDINARY ITEM In 2000, the Company refinanced its credit facilities. Due to the termination of the prior credit agreement, the Company recognized an extraordinary charge of $0.5 million, net of tax, to write-off the unamortized portion of loan origination fees associated with the prior agreement. 11. COMMITMENTS Rent expense under operating leases for the years ended March 31, 2002, 2001, and 2000 was $1.1 million, $0.6 million and $0.6 million, respectively. 19 2002 ANNUAL REPORT The Company and its subsidiaries have minimum rental commitments under noncancelable operating leases, primarily leased buildings, as follows (in thousands): 2003 $901 2004 403 2005 96 2006 50 2007 25 Beyond 2007 - ------- Total $ 1,475 ------- 12. CONTINGENCIES ENVIRONMENTAL MATTERS. During the fourth quarter of fiscal 2000, the Company presented an environmental cleanup plan for a portion of a site in Pennsylvania which continues to be owned although the related business has been sold. This plan was submitted pursuant to the Consent Order and Agreement with the Pennsylvania Department of Environmental Protection ("PaDEP") concluded in fiscal 1999. Pursuant to the Consent Order, upon its execution the Company paid $0.2 million for past costs, future oversight expenses and in full settlement of claims made by PaDEP related to the environmental remediation of the site with an additional $0.2 million paid in fiscal 2001. A second Consent Order was concluded with PaDEP in the third quarter of fiscal 2001 for another portion of the site, and a third Consent Order for the remainder of the site is contemplated by October 1, 2002. The Company is also administering an agreed settlement with the Federal government under which the government pays 50% of the direct and internal environmental response costs associated with a portion of the site. The Company has also reached an agreement in principle with the Federal government and is in the process of finalizing the necessary documentation under which the Federal government will pay 45% of the direct and internal environmental response costs associated with another portion of the site. At March 31, 2002, the Company's cleanup reserve was $1.8 million based on the net present value of future expected cleanup costs. The Company expects that remediation at the Pennsylvania site will not be completed for several years. The Company also continues to participate in environmental assessments and remediation work at nine other locations, which include operating facilities, facilities for sale, and previously owned facilities. The Company estimates that its potential cost for implementing corrective action at these sites will not exceed $0.4 million payable over the next several years, and has provided for the estimated costs in its accrual for environmental liabilities. In addition, the Company has been named as a potentially responsible party in eight environmental proceedings pending in several other states in which it is alleged that the Company was a generator of waste that was sent to landfills and other treatment facilities and, as to several sites, it is alleged that the Company was an owner or operator. Such properties generally relate to businesses which have been sold or discontinued. The Company estimates that its expected future costs, and its estimated proportional share of remedial work to be performed, associated with these proceedings will not exceed $0.1 million and has provided for these estimated costs in its accrual for environmental liabilities. LITIGATION. The Company is also engaged in various other legal proceedings incidental to its business. It is the opinion of management that, after taking into consideration information furnished by its counsel, the above matters will have no material effect on the Company's consolidated financial position or the results of the Company's operations in future periods. 13. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in only one business segment, the design, manufacture and sale of equipment for use in the aerospace industry. Approximately 43%, 40% and 37% of sales in 2002, 2001 and 2000 were derived from sales to the United States Government and its prime contractors. Net sales below show the geographic location of customers (in thousands): LOCATION 2002 2001 2000 ------- ------- ------- United States $45,426 $45,576 $36,874 Europe 16,619 17,888 12,680 Other non-U.S. 10,240 7,017 11,282 ------- ------- ------- Total $72,285 $70,481 $60,836 ------- ------- ------- 14. SUBSEQUENT EVENT On April 16, 2002, the Company completed the sale of all of the shares of its Aerospace Rivet Manufacturers Corporation Inc. subsidiary for $3.2 million of cash consideration plus the assumption of certain liabilities. On May 30, 2002, the Company completed the sale of substantially all of the net assets of its U.S. retaining ring business for $2.9 million of cash, a promissory note of $0.8 million and warrants for 5% of the equity of the purchaser. 20 2002 ANNUAL REPORT 15. UNAUDITED QUARTERLY FINANCIAL DATA (In thousands except per share amounts)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL 2002 Net sales $18,602 $ 16,293 $ 18,895 $ 18,495 $ 72,285 Gross profit 7,446 6,535 8,325 10,086(1) 32,392 Income (loss) from continuing operations 28 (1,266) 575 1,436 773 Income (loss) from discontinued operations 778 (53,340) (6,790) (13,202) (72,554) ------- ----------- ----------- ----------- ----------- Net income (loss) $ 806 $ (54,606) $ (6,215) $ (11,766) $ (71,781) ------- ----------- ----------- ----------- ----------- Basic (loss) earnings per share: (Loss) earnings from continuing operations -- $ (0.21) $ 0.09 $ 0.23 $ 0.13 Earnings (loss) from discontinued operations $ 0.13 (8.63) (1.10) (2.13) (11.74) ------- ----------- ----------- ----------- ----------- Basic earnings (loss) per share $ 0.13 $ (8.84) $ (1.01) $ (1.90) $ (11.61) ------- ----------- ----------- ----------- ----------- Diluted (loss) earnings per share: (Loss) income from continuing operations -- $ (0.21) $ 0.09 $ 0.23 $ 0.12 Income (loss) from discontinued operations $ 0.13 (8.63) (1.09) (2.12) (11.64) ------- ----------- ----------- ----------- ----------- Diluted income (loss) per share $ 0.13 $ (8.84) $ (1.00) $ (1.89) $ (11.52) ------- ----------- ----------- ----------- -----------
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL 2001 Net sales $ 15,428 $ 15,544 $ 18,650 $ 20,859 $ 70,481 Gross profit 6,135 5,970 7,491 10,331 29,927 (Loss) income from continuing operations (732) 423 455 (6,192) (6,046) Loss from discontinued operations (20) (2,178) (1,705) (63,021) (66,924) ------- ----------- ----------- ----------- ----------- Net loss $ (752) $ (1,755) $ (1,250) $ (69,213) $ (72,970) ------- ----------- ----------- ----------- ----------- Basic (loss) earnings per share: (Loss) earnings from continuing operations $ (0.12) $ 0.07 $ 0.07 $ (1.00) $ (0.98) Loss from discontinued operations -- (0.35) (0.27) (10.21) (10.85) ------- ----------- ----------- ----------- ----------- Basic loss per share $ (0.12) $ (0.28) $ (0.20) $ (11.21) $ (11.83) ------- ----------- ----------- ----------- ----------- Diluted (loss) earnings per share: (Loss) earnings from continuing operations $ (0.12) $ 0.07 $ 0.07 $ (1.00) $ (0.98) Loss from discontinued operations -- (0.35) (0.27) (10.21) (10.85) ------- ----------- ----------- ----------- ----------- Diluted loss per share $ (0.12) $ (0.28) $ (0.20) $ (11.21) $ (11.83) ------- ----------- ----------- ----------- -----------
(1) The fourth quarter gross margin of 54.5% includes 6.9% relating to adjustments to product costing allowances and the year-end reconciliation of fixed cost absorption rates, as well as a favorable mix of higher margin products. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS As a result of a restructuring program undertaken by the Corporation during fiscal 2002, the Corporation has classified all of the business units that made up its Specialty Fastener segment in prior years and its Aerospace Rivet Manufacturers business, which had been included in its Aerospace Products segment in fiscal 2002 quarterly reports but in the Specialty Fasteners segment in prior fiscal years' annual reports, as discontinued operations. All discussions related to ongoing operations, or the Corporation, refer only to continuing operations, which consist of the Breeze-Eastern division and the Norco Inc. subsidiary. Discontinued operations are discussed separately in this report. TransTechnology Corporation reported consolidated net sales of $72.3 million and income from continuing operations of $0.8 million, or $0.12 per diluted share, for the year ended March 31, 2002. Sales for the current fiscal year increased 3% from fiscal year 2001 sales of $70.5 million and 18.9% over fiscal 2000 sales of $60.8 million. During fiscal 2002 the Corporation reported a loss from discontinued operations of $72.6 million, or $11.64 per diluted share compared to a loss from discontinued operations of $66.9 million in the 2001 fiscal year and income from discontinued operations of $4.6 million in fiscal 2000. The net loss reported for fiscal 2002 decreased to $71.8 million from a net loss of $73.0 million in 2001 but was worse than the net income of $6.6 million reported in fiscal 2000. The net losses for fiscal 2002 and 2001 include several nonrecurring items, which impact a year-to-year comparison. The following table depicts the Corporation's "normalized" results, which should present a clearer picture of after-tax performance: Normalized Net Earnings (In thousands, except per share amounts):
2002 2001 2000 Income (loss) from continuing operations $ 773 $(6,046) $ 2,486 Gain on sale of real property (660) -- -- Corporate office restructuring 782 7,034 -- Forbearance fees 1,272 -- -- ------- ------- ------- Normalized net earnings $ 2,167 $ 988 $ 2,486 ------- ------- ------- Normalized net earnings per diluted share $ 0.35 $ 0.16 $ 0.40 ------- ------- -------
SALE OF REAL PROPERTY - In March 2002, the Corporation sold approximately ten acres of unused land located at its Breeze-Eastern facility in Union, New Jersey, for $2.3 million, which resulted in an after tax gain of $0.7 million. CORPORATE OFFICE RESTRUCTURING COSTS - As part of its restructuring plan, in fiscal 2002 the Corporation began a program of reducing the size of its corporate office staff. In fiscal 2002 the Corporation recognized severance and other costs associated with its corporate office downsizing of $1.6 million and in fiscal 2001 $11.2 million before taxes, which included the write-down of the value of certain real estate and the write-off of a note receivable and equity relative to a business divested in a prior fiscal year. FORBEARANCE FEES AND COSTS - During fiscal 2002 the Corporation incurred $2.7 million of costs related to forbearance fees paid to its banks in association with their agreement not to pursue any actions against the Corporation for its violation of certain financial covenants in the Corporation's senior credit agreement. There were no such fees recognized in fiscal 2001 or 2000. Further information on the status of the Corporation's credit agreements is included later in this discussion under Liquidity and Capital Resources. Excluding these nonrecurring items, "normalized" income from continuing operations for fiscal 2002 of $2.2 million, or $0.35 per diluted share, was a substantial improvement from the "normalized" earnings from continuing operations of $1.0 million, or $0.16 per diluted share, for fiscal 2001 although down 13% from normalized net earnings of $2.5 million or $.40 per diluted share for fiscal 2000. Excluding the above mentioned non-operating and non-recurring items, "normalized" operating income, before interest and taxes, from the Corporation's continuing operations totaled $12.6 million for fiscal 2002, a 103% improvement over "normalized" operating income of $6.2 million in fiscal 2001 and 110% above fiscal 2000's $6.0 million. The improvement in financial results comparing fiscal 2002 to fiscal 2001 largely reflects higher sales of aerospace OEM products, weapons system products, repair, overhaul and spare parts products provided to military and search and rescue agencies, and motion control devices. These increases were offset by a decrease in sales of new equipment to large airframe manufacturers and of repairs and spare parts to airlines. New orders received in fiscal 2002 totaled $77.8 million which represents a 17.0% increase over fiscal 2001 new orders of $66.5 million and a 25.9% increase over $61.8 million of new orders received in fiscal 2000. Backlog at March 31, 2002 stands at $43.7 million compared with $40.2 million at March 31, 2001 and $44.2 million at March 31, 2000. Both Breeze-Eastern and Norco saw increases in new orders and backlog in fiscal 2002 compared to fiscal 2001. A significant portion of fiscal 2002 sales is derived from long-term contracts. Generally, new equip- 22 ment sales are the subject of long-term contracts while repair, overhaul and spare parts sales have much shorter lead times. Sales for the Corporation increased to $72.3 million for fiscal 2002, a 3% increase over fiscal 2001 sales of $70.5 million. Both Breeze-Eastern and Norco saw fiscal 2002 revenues increase over fiscal 2001. The Corporation's Norco subsidiary saw a drop in orders received and sales of products to airframe manufacturers as a result of an expected reduction in the build rate of large commercial airliners in fiscal 2002. The anticipated decline in aircraft build rates was accelerated and exacerbated by the impact of the events of September 11th. Lower utilization rates of the existing commercial airline fleet as a result of the slowing economy and the post-September 11th reduction in travel resulted in lower order rates and sales of hold-open rod spare parts and replacement parts which are sold directly to the airlines as maintenance items. This decline was offset by increased sales of Norco's developing product line of motion control products for use in medical testing equipment and increased sales of new equipment and spare parts to military agencies. Higher orders and shipments of Breeze-Eastern rescue hoists and cargo hooks for military and civilian rescue agencies as well as increases in spare parts, repair and overhaul of equipment already in the field provided further sales increases. Operating income, before corporate office expenses, increased 11.1% in fiscal 2002 to $21.1 million over the prior year's $18.9 million. This increase was due mainly to a favorable mix of repair, overhaul and spare parts business and the realization of the benefit of spreading a fixed cost base over a larger sales volume. Generally, repair and overhaul services and spare parts sales have higher gross margins than sales of new equipment or engineering services. These improvements in product mix and fixed cost absorption led to an increase in gross margin to 44.8% in fiscal 2002 from 42.5% in fiscal 2001. Both Breeze- Eastern and Norco realized improvements in gross margin during fiscal 2002. Sales for fiscal 2001 of $70.5 million were 16% above fiscal 2000 sales of $60.8 million. This sales increase was due primarily to strong product demand across all Breeze-Eastern and Norco product lines and increased sales of repair and overhaul services and spare parts, and, to a lesser degree, improved product pricing. The Corporation's Norco division also saw increased revenues from its developing product line of motion control products for use in medical testing equipment. Fiscal 2001 operating income of $18.9 million, before corporate expenses, showed a 22.7% improvement over fiscal 2000's operating income of $15.4 million. CORPORATE AND OTHER EXPENSES -Corporate office expenses, exclusive of restructuring charges, amounted to $8.5 million in fiscal 2002, a decrease of 32.5% from the $12.6 million of such expenses in fiscal 2001. Restructuring charges of $1.6 million and $11.2 million were also recognized in fiscal 2002 and 2001, respectively, and included in corporate office expenses. Restructuring charges in fiscal 2002 included the costs of severance and other items associated with the 50% reduction in headcount included in the restructuring plan. Restructuring charges in fiscal 2001 included costs associated with the elimination of certain positions as well as write-offs associated with notes receivable and investments in companies that had been divested in previous fiscal years and the write-down to net realizable value of certain parcels of real estate. OTHER INCOME/EXPENSE -The Corporation recorded other non-operating income for fiscal 2002 aggregating $1.6 million compared with $0.2 million in fiscal 2001 and $0.7 million in fiscal 2000. Of the $1.6 million generated in fiscal 2002, $1.4 million relates to the pre-tax gain resulting from the sale of ten acres of unused land at the Corporation's Union, New Jersey facility for $2.3 million in March 2002. Interest income of $0.1 million was essentially unchanged from the prior year's level. In fiscal 2000 the Corporation recognized an extraordinary expense of $0.5 million as the result of the write-off of capitalized financing costs when the Corporation's debt was refinanced in August 1999. DISCONTINUED OPERATIONS -During fiscal 2002, the Corporation determined that it would enter into a plan of restructuring so as to focus its resources and capital on its aerospace products business and exit the Specialty Fastener segment. As a result, this report includes in discontinued operations all of the operations that formerly made up the Specialty Fastener segment of the Corporation, which included TransTechnology Engineered Components (sold in December 2001), Breeze Industrial Products and Pebra (sold in July 2001), TransTechnology Engineered Rings (of which Seeger Orbis was sold in February 2002 and TTERUSA was sold in May 2002), Aerospace Rivet Manufacturers' Corporation Inc. (sold in April 2002) and TCR Corporation. Of the operations included in fiscal 2002 discontinued operations, only the US, UK and Brazilian retaining ring operations, the aerospace rivet business, and TCR were carried into fiscal 2003. As noted, the aerospace rivet and U.S. retaining ring businesses were sold early in fiscal 2003. The Corporation expects that the divestitures of the remaining retaining ring operations will be concluded during its first fiscal quarter and that TCR will be divested during its second fiscal quarter. The Corporation reported losses from discontinued operations of $72.6 million in fiscal 2002 and $66.9 million in fiscal 2001, compared to income from discontinued operations of $4.6 million in fiscal 2000. The fiscal 2002 loss was composed of $110.3 million of impairment charges related to reducing the carrying values of the discontinued businesses to their 23 2002 Annual Report estimated net realizable values; $3.7 million of actual operating income of the discontinued businesses through their expected divestiture dates; $17.0 million of allocated interest expense; $8.4 million from the write-off of capitalized loan fees and the mark to market of interest rate swaps required under the terms of the Corporation's credit agreements; $24.7 million of gains recognized on the sale of certain business units; and, $0.2 million of other income or credits associated with the discontinued operations. These gains and losses, which aggregated $107.1 million, were reduced by a tax benefit of $34.5 million. The fiscal 2001 loss from discontinued operations consisted of $67.9 million of impairment charges; $23.3 million of actual operating income of the discontinued businesses; and $29.6 million of allocated interest expense. This fiscal 2001 loss, which aggregated $74.2 million, was reduced by a tax benefit of $7.3 million. The fiscal 2000 income from discontinued operations included $24.5 million of operating income from the discontinued businesses and $17.0 million of allocated interest expense, the net of which was reduced by an income tax provision of $2.9 million. CHANGES IN FINANCIAL POSITION LIQUIDITY AND CAPITAL RESOURCES -The restructuring and divestiture program of the Corporation has had a substantial impact upon its financial condition at March 31, 2002. During the fiscal year, the Corporation sold its hose clamp operations in Germany and the US, its engineered components businesses, and its German retaining ring operation for aggregate cash proceeds of $162 million. All of these proceeds, after payment of transaction fees and expenses, were used to reduce the Corporation's senior credit facility. At March 31, 2002 the senior facility was $29.1 million compared to $195.0 million at the end of the prior fiscal year. In addition to the cash generated from the divestiture program, the Corporation realized $2.2 million of net proceeds from the sale of unused real estate in New Jersey and $5.5 million through federal income tax refunds obtained by carrying back the fiscal 2001 operating loss to prior years. The Corporation is in the process of divesting its US, UK and Brazilian retaining ring operations and its TCR Corporation subsidiary in separate transactions expected to aggregate $22 million. The Corporation hopes to complete these transactions during the first and second quarters of fiscal year 2003 and anticipates applying all of the proceeds to the reduction of its credit facilities. The assets and liabilities of these business units are presented on the March 31, 2002 balance sheet in Assets Held for Sale and Liabilities of Discontinued Businesses at their estimated net realizable values. WORKING CAPITAL- The Corporation's working capital at the end of fiscal 2002 was $41.8 million compared to $19.1 million at the end of the prior fiscal year. Excluding the effect of the classification of assets held for sale and liabilities of discontinued businesses, and, with respect to March 31, 2001 only, all callable debt as current assets and liabilities, respectively, work- ing capital at March 31, 2002 was $25.3 million as compared to $22.3 million at the end of fiscal 2001. The ratio of current assets to current liabilities improved to 1.98 to 1 at March 31, 2002 compared with 1.06 to 1 at the end of fiscal 2001. Excluding the impact of the reclassification of all callable debt and liabilities of discontinued businesses as current liabilities and assets held for sale as current assets, the current ratio would have been 2.04 at March 31, 2002 compared to 1.94 at March 31, 2001. Working capital changes, exclusive of changes in callable debt, liabilities of discontinued businesses, and assets held for sale, were generated by a decrease in accounts receivable of $1.4 million and an increase in inventories of $3.7 million.The decrease in accounts receivable was due to the improvement in collections during the fiscal year and the increase in inventory was largely due to the advance purchase of long lead-time materials needed to fulfill customers' long-term purchase orders. Days sales outstanding in accounts receivable at March 31, 2002 decreased to 58 days from 66 days at March 31, 2001 while inventory turnover decreased to 1.7 turns versus 2.0 turns at March 31, 2001. Current liabilities, without regard to changes in callable debt and liabilities of discontinued businesses increased $3.4 million, primarily the result of the receipt of a $1.8 million advance payment by a customer in January, 2002 which has been included in current liabilities as a customer deposit at March 31, 2002 and $3.8 million of liabilities associated with the cost of closing out certain interest rate swap obligations which are discussed further elsewhere in this report. These increases offset reductions in accounts payable and other accrued expenses. Callable long-term debt decreased to zero during 2002 because it was reclassified to long term effective March 31, 2002 due to the receipt of a commitment to refinance the existing debt for a three-year period. Assets held for sale and liabilities of discontinued businesses were reduced during 2002 primarily as a result of the sale of some of the businesses treated as discontinued, changes in the estimate of net realizable value in others, and operating profits, losses and allocated expenses recognized during the year. CREDIT FACILITIES - At March 31, 2002, the Corporation had two credit agreements in effect aggregating $107.6 million. The first, a Revolving Credit Agreement (the "Credit Agreement") with a group of eight banks (the "Lenders"), commits a maximum of $36.3 million to the Corporation for 24 TransTechnology Corporation cash borrowings and letters of credit. The second credit facility consists of Senior Subordinated Notes in the amount of $78.6 million. Effective December 31, 2000, the Corporation was not able to meet certain financial ratio requirements of the Credit Agreement, as amended. Pursuant to discussions with the Lenders, the Corporation and the Lenders agreed to an amendment to the Credit Agreement to include a forbearance agreement, the payment of certain other fees by the Corporation and imposition of certain conditions on the Corporation including the suspension of dividend payments. During the forbearance period the Lenders agree not to exercise certain of their rights and remedies under the Credit Agreement. The Corporation accordingly classified its bank debt as "current" to reflect the fact that the forbearance period is less than one year. The term of the forbearance period, initially scheduled to expire on January 31, 2001, was subsequently extended through addi- tional amendments to September 25, 2002. These additional amendments also reduced the amount of the Revolving Credit facility of the Credit Agreement (the "Revolver") from $200 million to $36.3 million at March 31, 2002. The extension of the forbearance through September 25, 2002 is conditioned on certain performance and debt reduction requirements, including a reduction in the Revolver commitment to $28 million and the borrowing sub-limit to $24.5 million by June 25, 2002. The forbearance agreement also requires the achievement of minimum levels of EBITDA (earnings before interest, taxes, depreciation, and amortization), and the adherence to borrowing limits as adjusted based on the scheduled debt reduction. Other terms of the forbearance agreement include the payment of certain fees, reporting and consulting requirements. The Corporation has made all of its scheduled interest and principal payments on a timely basis and, as previously noted, during fiscal 2002 the Corporation paid $165.1 million towards its outstanding debt under the Credit Agreement, which included the retirement of a $38.8 million term loan outstanding to the same group of Lenders. The Corporation has unused borrowing capacity for both domestic and international operations of $7.2 million as of March 31, 2002, including letters of credit of $5.0 million. Borrowings under the Revolver as of March 31, 2002, were $29.1 million. Interest on the Revolver is tied to the primary bank's prime rate, or at the Corporation's option, the London Interbank Offered Rate ("LIBOR"), plus a margin that varies depending upon the Corporation's achievement of certain operating results. As of March 31, 2002, $9.6 million of the Corporation's outstanding borrowings utilized LIBOR, all of which were payable in Pounds sterling. One $2.5 million tranche of the Revolver, the proceeds of which were used to pay interest on the Corporation's Senior Subordinated Notes during fiscal 2002, carries an interest rate of 25% and cannot be repaid until all other amounts outstanding under the Revolver have been repaid. The weighted average interest rate on all outstanding borrowings under the revolver at March 31, 2002 was 14.1%. The Credit Agreement requires the Corporation to maintain interest rate protection on a minimum of 50% of its variable rate debt. The Corporation 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 Credit Agreement, the base interest rate is added to the applicable interest rate margin to determine the total interest rate in effect. The Revolver, as amended by the forbearance agreements, restricts annual capital expenditures to $2.0 million in fiscal 2003 and contains other customary financial covenants, including the requirement to maintain certain financial ratios relating to performance, interest expense and debt levels. As noted above, the Corporation is currently operating under a forbearance arrangement and is in the process of reducing its debt through the sale of certain of its businesses in order to either comply with the requirements of the existing agreement or to be in an improved financial position to negotiate further amendments or borrowing alternatives. On August 30, 2000, the Corporation completed a private placement of $75 million in senior subordinated notes (the "Notes") and certain warrants to purchase shares of the Corporation's common stock (the "Warrants") to a group of institutional investors (collectively, the "Purchasers"). The Corporation 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 Corporation's Credit Agreement. At March 31, 2002 the principal balance outstanding on the notes amounted to $78.6 million, which includes the original principal amount plus the "payment-in-kind" notes. The Warrants entitle the Purchasers to acquire, in the aggregate, 427,602 shares, or 6.5%, of the common stock of the Corporation at an exercise price of $9.93 a share, which represents the average daily closing price of the Corporation's 25 2002 Annual Report common stock on the New York Stock Exchange for the thirty (30) days preceding the completion of the private placement. 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 Corporation and certain of its subsidiaries signed a Consent and Amendment Agreement with its senior debt lenders (the "Lenders") under the Corporation's $250 million Credit Facility existing at that time, in which the Lenders consented to the private placement and amended certain financial covenants associated with the Credit Facility. As a result of the violation of certain financial covenants under the Credit Agreement, the Corporation is also in violation of the covenants of the Notes. The Purchasers of the Notes have entered into a letter agreement with the Corporation under which they agree to forbear from taking any action relative to such violations. This forbearance extends through September 29, 2002 and is conditioned upon the Corporation's continued compliance with the terms of its forbearance agreement with the Lenders under the Credit Agreement. On June 13, 2002, the Company received a commitment to refinance its senior debt for a period of three years and a commitment from the note holders to amend the financial covenants to bring the company into compliance. Management expects to complete the proposed refinancing by the end of June 2002 and has, accordingly, classified its senior debt, as well as its subordinated notes, as long term. CAPITAL EXPENDITURES - Capital expenditures were $0.3 million in fiscal 2002, as compared to $0.3 million spent in fiscal 2001 and $0.5 million in fiscal 2000. Principal expenditures were for the modernization of facilities and new machinery, equipment and information systems equipment. Capital expenditures in fiscal 2001 included the purchase and installation of a company-wide virtual private network and modernization of facilities and new production machinery and equipment. Capital expenditures in fiscal 2000 included the replacement of the roof and windows at the Breeze Eastern facility. In fiscal 2003, capital expenditures are expected to be in a range of $1.0 - 1.5 million. Projects budgeted in fiscal 2003 include refurbishment of the Breeze Eastern offices, the purchase of new production machinery at the Norco facility, and the initial phase of installing a new ERP system at Breeze Eastern. The Corporation has divested or made plans to divest nine businesses since March 31, 2001. Under the terms of the agreements associated with the sales of those businesses, the Corporation has agreed to indemnify the purchasers for certain damages that might arise in the event a representation of the Corporation has been materially misstated. Additionally, the terms of such divestiture agreements generally require the calculation of purchase price adjustments based upon the amount of working capital or net assets transferred at the closing date. INFLATION - While neither inflation nor deflation has had, and the Corporation does not expect it to have, a material impact upon operating results, there can be no assurance that its business will not be affected by inflation or deflation in the future. ENVIRONMENTAL MATTERS - During the fourth quarter of fiscal 2000, the Corporation presented an environmental cleanup plan for a portion of a site in Pennsylvania which the Corporation continues to own although the related business has been sold. This plan was submitted pursuant to the Consent Order and Agreement with the Pennsylvania Department of Environmental Protection ("PaDEP") concluded in fiscal 1999. Pursuant to the Consent Order, upon its execution the Corporation paid $0.2 million for past costs, future oversight expenses and in full settlement of claims made by PaDEP related to the environmental remediation of the site with an additional $0.2 million paid in fiscal 2001. A second Consent Order was concluded with PaDEP in the third quarter of fiscal 2001 for another portion of the site, and a third Consent Order for the remainder of the site is contemplated by October 1, 2002. The Corporation is also administering an agreed settlement with the Federal government under which the government pays 50% of the environmental response costs associated with a portion of the site. The Corporation has also reached an agreement in principle with the Federal government and is in the process of finalizing the necessary documentation under which the Federal government will pay 45% of the environmental response costs associated with another portion of the site. At March 31, 2002, the Corporation's cleanup reserve was $1.8 million based on the net present value of future expected cleanup costs. The Corporation expects that remediation at the Pennsylvania site will not be completed for several years. The Corporation also continues to participate in environmental assessments and remediation work at nine other locations, which include operating facilities, facilities for sale, and previously owned facilities. The Corporation estimates that its potential cost for implementing corrective action at these sites will not exceed $0.4 million payable over the next several years, and has provided for the estimated costs in its accrual for environ- mental liabilities. In addition, the Corporation has been named as a potentially responsible party in eight environmental proceedings pending in several other states in which it is alleged that the Corporation was a generator of waste that was sent to landfills and other 26 treatment facilities and, as to several sites, it is alleged that the Corporation was an owner or operator. Such properties generally relate to businesses which have been sold or discontinued. The Corporation estimates that its expected future costs, and its estimated proportional share of remedial work to be performed, associated with these proceedings will not exceed $0.1 million and has provided for these estimated costs in its accrual for environmental liabilities. LITIGATION - The Corporation is also engaged in various other legal proceedings incidental to its business. It is the opinion of management that, after taking into consideration information furnished by its counsel, the above matters will have no material effect on the Corporation's consolidated financial position or the results of the Corporation's operations in future periods. CRITICAL ACCOUNTING POLICIES REVENUE RECOGNITION - The Corporation uses the completed contract method for recognizing revenue. This method recognizes revenue when the contract is completed, i.e., the later of when the products are shipped and accepted by the customer, if such acceptance is required under the contract, or when title passes to the purchaser. INVENTORY - The Corporation purchases materials for the manufacture of components for use in its products and for use by its engineering, repair and overhaul businesses. The decision to purchase a set quantity of a particular item is influenced by several factors including: current and projected cost; future estimated availability; lead time for production of the materials; existing and projected contracts to produce certain items; and the estimated needs for its repair and overhaul business. The Corporation values its inventories using the lower of cost or market on a first in first out basis (FIFO) and establishes reserves to reduce the carrying amount of these inventories as necessary to net realizable value. ENVIRONMENTAL RESERVES - The Corporation provides for environmental reserves when, in conjunction with its internal and external counsel, it determines that a liability is both probable and estimable. In many cases, the liability is not fixed or capped when the Corporation first records a liability for a particular site. Factors that affect the recorded amount of the liability in future years include: the Corporation's participation percentage due to a settlement by or bankruptcy of other Potentially Responsible Parties; a change in the environmental laws requiring more stringent requirements; a change in the estimate of future costs that will be incurred to remediate the site; and changes in technology related to environmental remediation. Current estimated exposure to environmental claims is discussed above in Liquidity and Capital Resources. GOODWILL AND OTHER INTANGIBLE ASSETS - At March 31, 2002, the Corporation has recorded $10.8 million in net goodwill and other intangible assets related to acquisitions made in prior years. The recoverability of these assets is subject to an impairment test based on the estimated fair value of the underlying businesses. Under SFAS 121 these estimated fair values are based on estimates of future cash flows of the businesses. Factors affecting these future cash flows include: the continued market acceptance of the products and services offered by the businesses; the development of new products and services by the businesses and the underlying cost of development; the future cost structure of the businesses; and future technological changes. Effective April 1, 2002, the Corporation implemented SFAS 142, as discussed below, relative to the non-recognition of goodwill amortization and will no longer reflect such charges in its results. FINANCIAL DERIVATIVES - As noted previously, the Corporation has outstanding interest rate swaps in association with its Credit Agreement. These swaps are valued using certain estimates and the amount the Corporation is required to pay is significantly impacted by changes in interest rates. The Corporation esti- mates that a .67% change in interest rates changes its exposure under these instruments by $.5 million. VALUATION OF ASSETS HELD FOR SALE - The Corporation reflects significant amounts of Assets held for sale and Liabilities of discontinued businesses on its balance sheet. In the event the net realizable values of the businesses being divested are less than that estimated, or the length of time required to complete the divestiture is longer than estimated, the amounts realized from these accounts may be impacted. DEFERRED TAX ASSETS - The Company maintains a significant asset on its balance which represents the value of income tax benefits expected to be realized in the future, primarily as a result of the use of a net operating loss carry-forward. In the event the company did not generate adequate amounts of taxable income prior to the expiry of the tax loss carry-forwards, the amount of this asset may not be realized. Additionally, changes to the federal and state income tax laws could also impact the Corporation's ability to utilize this asset. RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141, which requires all business combinations to be accounted for under the purchase method of accounting, was effective for business combinations initiated after June 30, 2001. Under the new rules of SFAS 27 No. 142, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the statement. Other intangible assets will continue to be amortized over their useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Accordingly, the Corporation will apply the new rules on accounting for goodwill and other intangible assets beginning in 2002. Application of the "no-amortization" provisions of the statement is expected to increase operating income in 2003 by approximately $0.2 million. In August, 2001, the Financial Accounting Standards Board issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement defines the accounting for long-lived assets to be held and used, assets held for sale, and assets to be disposed of by other than sale, and is effective for fiscal years beginning after December 15, 2001. The Corporation has adopted SFAS No. 144 in connection with the sale of Aerospace Rivet Manufacturers Corporation, which has been recorded as part of Discontinued Operations. RECENT DEVELOPMENTS On April 16, 2002 the Corporation completed the sale of all of the shares of its Aerospace Rivet Manufacturers Corporation Inc. subsidiary for $3.2 million of cash consideration. On May 30, 2002 the Corporation completed the sale of substantially all of the assets of its US retaining ring business for $3.7 million. The consideration was paid $2.9 million in cash and $0.8 million in the form of a promissory note. The Corporation also received warrants for 5% of the equity of the purchaser, a newly formed, privately held company controlled by SeaView Capital LLC of Providence, Rhode Island. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to various market risks, primarily changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates and interest rates. The Company enters into interest rate swap agreements to manage a portion of its exposure to interest rate changes as a result of requirements under its Credit Agreement. 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 March 31, 2002, the Company had outstanding interest rate swap agreements to convert $125 million of floating rate debt to fixed rate debt. The fair value of these swaps was approximately ($3.4) million at March 31, 2002.
NOTIONAL AMOUNT RECEIVE PAY (IN THOUSANDS) MATURITIES RATE(1) RATE March 31, 2002 $25,000 5/02 1.88% 5.48% 25,000 5/02 1.88 5.48 37,500 3/03 1.90 6.58 37,500 3/03 1.90 6.58
(1) Based on three-month LIBOR Financial instruments expose the Corporation to counter-party credit risk for nonperformance and to market risk for changes in interest and currency rates. The Corporation manages exposure to counter-party credit risk through specific minimum credit standards, diversification of counter-parties and procedures to monitor concentrations of credit risk. The Corporation monitors the impact of market risk on the fair value and cash flows of its investments by considering reasonably possible changes in interest rates and by limiting the amount of potential interest and currency rate exposures to amounts that are not material to the Corporation's consolidated results of operations and cash flows.
AEROSPACE PRODUCTS INVESTOR RELATIONS DIRECTORS Robert L. G. White, President INVESTOR RELATIONS CONTACT DANIEL H. ABRAMOWITZ BREEZE-EASTERN Michael J. Berthelot President, Hillson Financial Lifting and restraint products Chairman of the Board, President and Management, Inc. 700 Liberty Avenue Chief Executive Officer Union, NJ 07083-8198 TransTechnology Corporation * GIDEON ARGOV 908/686-4000 150 Allen Road Special Limited Partner 908/686-9292 Fax Liberty Corner, New Jersey 07938 Parthenon Capital Robert L. G. White - President 908/903-1600 908/903-1616 Fax o WALTER BELLEVILLE NORCO, INC. www.transtechology.com Chairman of the Board Hold open rods and mechanical systems ATI Machinery, Inc. 139 Ethan Allen Highway ANNUAL MEETING Ridgefield, CT 06877-6294 The Annual Shareholders' Meeting will be o MICHAEL J. BERTHELOT 203/544-8301 held on Thursday, July 18, 2002 at the Chairman of the Board, President 203/544-7121 Fax Somerset Hills Hotel, 200 Liberty Corner and Chief Executive Officer Surin M. Malhotra - President Road, Warren, New Jersey 07059. TransTechnology Corporation FORM 10-K AND ADDITIONAL INFORMATION + THOMAS V. CHEMA CORPORATE OFFICERS The Company, upon request to the Partner, Arter & Hadden, LLP Investor Relations department, will provide President, Gateway Consultants MICHAEL J. BERTHELOT to any shareholder a copy of the Form 10-K Group, Inc. Chairman of the Board, President required to be filed with the Securities and and Chief Executive Officer Exchange Commission and any other + JOHN H. DALTON available information. President, IPG Photonics JOSEPH F. SPANIER Former Secretary of the Navy Vice President, Chief Financial Officer and Treasurer * MICHEL GLOUCHEVITCH General Partner, Westar Capital LLC GERALD C. HARVEY Vice President, Secretary and JAMES A. LAWRENCE General Counsel Executive Vice President and Chief Executive Officer ROBERT L. G. WHITE General Mills, Inc. President Aerospace Products Group +o JAN NAYLOR COPE MONICA AGUIRRE President Assistant to the Chairman Jan Naylor Cope Company and Corporate Assistant Secretary * WILLIAM J. RECKER Chairman of the Board COUNSEL Gretag Imaging Holding AG Hahn, Loeser & Parks Cleveland, Ohio ----------------------- AUDITORS Deloitte & Touche LLP * Audit Committee Parsippany, New Jersey o Nominating Committee + Incentives & Compensation TRANSFER AGENT AND Committee REGISTRAR EquiServe Boston, EquiServe Division Canton, Massachusetts
ENGINEERED PRODUCTS FOR 150 Allen Road, Liberty Corner, New Jersey 07938 - Phone 908.903.1600 - Fax 908.903.1616 - www.transtechology.com EX-21 6 y61813exv21.txt SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF THE COMPANY LISTED BELOW ARE THE WHOLLY OWNED SUBSIDIARIES OF TRANSTECHNOLOGY CORPORATION
Jurisdiction of Incorporation --------------- Aerospace Rivet Manufacturers Corporation California Anderton (Predecessors) Limited England TTERUSA Inc. New Jersey NORCO, Inc. Connecticut Rancho TransTechnology Corporation California Retainers, Inc. New Jersey Seeger Inc. Delaware TransTechnology Germany Beteiligungsgesellschaft mbH Germany TTC Germany GmbH & Co. OHG Germany TransTechnology Brasil Ltda. Brazil SSP Industries California SSP International Sales, Inc. California TCR Corporation Minnesota TransTechnology (GB) Limited England TransTechnology Acquisition Corporation Delaware TransTechnology Aerospace, Inc. California TransTechnology Australasia Pty. Ltd. Australia TransTechnology International Corporation Virgin Islands TransTechnology International Corporation Delaware TransTechnology Germany GmbH Germany TransTechnology Systems & Services, Inc. Michigan
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