-----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, K6O/Rm8Eee5XWuiym7BrVq6vuFXP++EFLpXYia3NqEK8+MnZKv71kmIQzjnnrp/i FUL8bolUwaHLmkIG7QBicA== 0000950123-04-013620.txt : 20041115 0000950123-04-013620.hdr.sgml : 20041115 20041115143303 ACCESSION NUMBER: 0000950123-04-013620 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040926 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSTECHNOLOGY CORP CENTRAL INDEX KEY: 0000099359 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 954062211 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07872 FILM NUMBER: 041144126 BUSINESS ADDRESS: STREET 1: 700 LIBERTY AVENUE CITY: UNION STATE: NJ ZIP: 07083 BUSINESS PHONE: 908-688-2440 MAIL ADDRESS: STREET 1: 700 LIBERTY AVENUE CITY: UNION STATE: NJ ZIP: 07083 FORMER COMPANY: FORMER CONFORMED NAME: SPACE ORDNANCE SYSTEMS INC DATE OF NAME CHANGE: 19740717 10-Q 1 y68766e10vq.txt TRANSTECHNOLOGY CORPORATION FORM 10-Q -------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 26, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-7872 ------------------------- TRANSTECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 95-4062211 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 700 Liberty Avenue 07083 Union, New Jersey (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (908) 688-2440 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of November 11, 2004, the total number of outstanding shares of registrant's one class of common stock was 6,700,560. INDEX
PART I. Financial Information Page No. -------- Item 1. Financial Statements............................................. 3 Statements of Consolidated Operations Three and Six Month Periods Ended September 26, 2004 and September 28, 2003........................................... 4 Consolidated Balance Sheets September 26, 2004 and March 31, 2004............................ 5 Statements of Consolidated Cash Flows Six Month Periods Ended September 26, 2004 and September 28, 2003............................................... 6 Notes to Consolidated Financial Statements....................... 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 11-19 Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 19 Item 4. Controls and Procedures.......................................... 20 PART II. Other Information Item 1. Legal Proceedings................................................ 20 Item 4. Submission of Matters to a vote of Security Holders ............. 20-21 Item 6. Exhibits......................................................... 21 SIGNATURES ..................................................................... 22 EXHIBIT 10.3 ................................................................... 23-30 EXHIBIT 31.1.................................................................... 30 EXHIBIT 31.2.................................................................... 31 EXHIBIT 32 .................................................................... 32
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following unaudited Statements of Consolidated Operations, Consolidated Balance Sheets, and Consolidated Cash Flows are of TransTechnology Corporation and its consolidated subsidiaries (collectively, the "Company"). These reports reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods reflected therein. The results reflected in the unaudited Statement of Consolidated Operations for the period ended September 26, 2004, are not necessarily indicative of the results to be expected for the entire year. The following unaudited Consolidated Financial Statements should be read in conjunction with the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this report, as well as the audited financial statements and related notes thereto contained in the Company's Annual Report on Form 10-K filed for the fiscal year ended March 31, 2004. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 3 TRANSTECHNOLOGY CORPORATION STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED) (In Thousands of Dollars, Except Share Data)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------------- -------------------------------------- SEPTEMBER 26, 2004 SEPTEMBER 28, 2003 SEPTEMBER 26, 2004 SEPTEMBER 28, 2003 ------------------ ------------------ ------------------ ------------------ Net sales $ 15,249 $ 16,333 $ 29,797 $ 32,452 Cost of sales 9,050 9,575 17,761 18,347 --------------- --------------- --------------- --------------- Gross profit 6,199 6,758 12,036 14,105 General, administrative and selling expenses 4,201 3,531 8,224 7,302 Interest expense 2,885 2,568 5,681 5,071 Interest and other income-net (82) (159) (69) (206) --------------- --------------- --------------- --------------- (Loss) income before income taxes (805) 818 (1,800) 1,938 (Benefit) provision for income taxes (306) 310 (684) 736 --------------- --------------- --------------- --------------- Net (loss) income $ (499) $ 508 $ (1,116) $ 1,202 =============== =============== =============== =============== Basic (loss) earnings per share: Net (loss) income $ (0.07) $ 0.08 $ (0.17) $ 0.18 =============== =============== =============== =============== Diluted (loss) earnings per share: Net (loss) income $ (0.07) $ 0.08 $ (0.17) $ 0.18 =============== =============== =============== =============== Number of shares used in computation of per share information: (Note 1) Basic 6,682,000 6,647,000 6,676,000 6,647,000 Diluted 6,682,000 6,676,000 6,676,000 6,662,000
See accompanying notes to unaudited consolidated financial statements. 4 TRANSTECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Share Data)
(UNAUDITED) SEPTEMBER 26, 2004 MARCH 31, 2004 ------------------ -------------- ASSETS Current assets: Cash and cash equivalents $ 275 $ 960 Accounts receivable (net of allowance for doubtful accounts of $17 at September 26, 2004 and $10 at March 31, 2004) 11,067 8,720 Inventories-net 18,098 20,449 Prepaid expenses and other current assets 1,505 842 Income tax receivable 376 395 Deferred income taxes 3,334 3,334 Real estate held for sale - 1,432 ----------- -------------- Total current assets 34,655 36,132 ----------- -------------- Property, plant and equipment 14,388 13,222 Less accumulated depreciation 11,024 10,794 ----------- -------------- Property, plant and equipment - net 3,364 2,428 ----------- -------------- Other assets: Deferred income taxes 27,647 27,035 Other 10,740 11,614 ----------- -------------- Total other assets 38,387 38,649 ----------- -------------- Total $ 76,406 $ 77,209 =========== ============== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt and short term borrowings $ 4,683 $ 79 Accounts payable-trade 3,085 5,224 Accrued compensation 1,805 2,890 Accrued income taxes 1,466 1,566 Accrued interest 1,877 1,813 Other current liabilities 2,005 2,387 ----------- -------------- Total current liabilities 14,921 13,959 ----------- -------------- Long-term debt payable to banks and others 55,783 56,472 ----------- -------------- Other long-term liabilities 10,492 10,565 ----------- -------------- Stockholders' deficit: Preferred stock - authorized, 300,000 shares; none issued - - Common stock - authorized, 14,700,000 shares of $.01 par value; issued 7,090,695 and 7,059,107 at September 26, 2004 and March 31, 2004, respectively 71 71 Additional paid-in capital 76,980 76,728 Accumulated deficit (72,365) (71,249) Unearned compensation (236) (97) ----------- -------------- 4,450 5,453 Less treasury stock, at cost - 560,964 shares at September 26, 2004 and March 31, 2004 (9,240) (9,240) ----------- -------------- Total stockholders' deficit (4,790) (3,787) ----------- -------------- Total $ 76,406 $ 77,209 =========== ==============
See accompanying notes to unaudited consolidated financial statements. 5 TRANSTECHNOLOGY CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (In Thousands of Dollars)
SIX MONTHS ENDED -------------------------------------- SEPTEMBER 26, 2004 SEPTEMBER 28, 2003 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (1,116) $ 1,202 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 806 1,009 Noncash interest expense 1,905 1,537 Increase in provision for bad debt 7 6 Changes in assets and liabilities: Increase in accounts receivable and other receivables (2,325) (2,938) Decrease in inventories 2,351 351 (Increase) decrease in deferred taxes net (612) 659 (Increase) decrease in other assets (207) 428 Decrease in accounts payable (2,139) (326) Decrease in accrued compensation (1,085) (1,034) Decrease in income taxes payable (100) (2,020) Decrease in other liabilities (483) (5,100) --------------- --------------- Net cash used in operating activities (2,998) (6,226) --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (1,167) (159) Proceeds from sale of real estate 1,331 - Decrease in notes receivable 25 - --------------- --------------- Net cash provided by (used in) investing activities 189 (159) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt and other short term borrowings - net 2,103 - Exercise of stock options 21 38 --------------- --------------- Net cash provided by financing activities 2,124 38 --------------- --------------- Decrease in cash and cash equivalents (685) (6,347) Cash and cash equivalents at beginning of period 960 7,104 --------------- --------------- Cash and cash equivalents at end of period $ 275 $ 757 =============== =============== Supplemental information: Interest payments $ 3,221 $ 3,480 Income tax payments $ 28 $ 2,098 Increase in senior subordinated note for paid-in-kind interest expense $ 1,812 $ 1,443 Increase in additional paid-in-capital from warrant put expiration $ - $ 2,184
See accompanying notes to unaudited consolidated financial statements. 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) NOTE 1. Earnings (Loss) Per Share Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted-average number of shares outstanding. Diluted earnings (loss) per share is computed by dividing net income (loss) by the sum of the weighted-average number of shares outstanding plus the dilutive effect of shares issuable through the exercise of stock options and warrants. The components of the denominator for basic earnings (loss) per common share and diluted earnings (loss) per common share are reconciled as follows:
Three Months Ended Six Months Ended ------------------------------ ------------------------------ September 26, September 28, September 26, September 28, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Basic Earnings (Loss) per Common Share: Weighted-average common stock out- standing for basic earnings (loss) per share calculation 6,682 6,647 6,676 6,647 ============= ============= ============= ============= Diluted Earnings (Loss) per Common Share: Weighted-average common shares outstanding 6,682 6,647 6,676 6,647 Stock options and warrants* -- 29 -- 15 ------------- ------------- ------------- ------------- Weighted-average common stock outstanding for diluted earnings (loss) per share calculation 6,682 6,676 6,676 6,662 ============= ============= ============= =============
* Not including anti-dilutive stock options totaling 144 and 150 for the three and six month periods ended September 26, 2004 respectively, and 194 and 606 for the three and six month periods ended September 28, 2003, respectively. 7 NOTE 2. Stock-Based Compensation Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Accordingly, the Company records expense in an amount equal to the excess, if any, of the quoted market price on the grant date over the option price. The following table includes as reported and proforma information required by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure". Proforma information is based on the fair value method under SFAS No. 123.
Three Months Ended Six Months Ended ------------------------------- ------------------------------- September 26, September 28, September 26, September 28, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Net (loss) income as reported $ (499) $ 508 $ (1,116) $ 1,202 Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (41) (47) (63) (86) ------------- ------------- ------------- ------------- Proforma net (loss) income $ (540) $ 461 $ (1,179) $ 1,116 ============= ============= ============= ============= Net (loss) income per share: Basic and diluted - as reported (0.07) 0.08 (0.17) 0.18 Basic and diluted - proforma (0.08) 0.07 (0.18) 0.17
NOTE 3. Inventories Inventories, net of valuation allowances, are summarized as follows:
September 26, 2004 March 31, 2004 ------------------ -------------- Finished goods $ - $ 1 Work in process 5,774 7,037 Purchased and manufactured parts 12,324 13,411 ---------- ---------- Total $ 18,098 $ 20,449 ========== ==========
8 NOTE 4. Long-term Debt Payable to Banks and Others Long-term debt payable to banks and others, including current maturities as required under the new financing agreement, consisted of the following:
September 26, 2004 March 31, 2004 ------------------ -------------- Senior Credit Fidelity 5.75% $ 2,104 $ - Senior Subordinated Notes 19.5% 58,204 56,393 Other 158 158 ---------- --------- 60,466 56,551 Less current maturities 4,683 79 ---------- --------- Total long-term debt $ 55,783 $ 56,472 ========== =========
Former Senior Credit Facility - At September 26, 2004, the Company had a senior credit facility consisting of an $8.0 million asset-based revolving credit facility, which was established in August 2002 (the "Former Senior Credit Facility") to refinance all remaining obligations outstanding under the prior senior credit facility. The Former Senior Credit Facility was amended on August 5, 2003 and was subsequently amended on January 30, 2004 and July 30, 2004, and was repaid in full on November 10, 2004 (see "Refinancing" below). The maturity date of this facility, as amended, was January 31, 2005. At September 26, 2004, the current interest rate is approximately 5.75%. The Former Senior Credit Facility was secured by all of the Company's assets. At September 26, 2004 the Company was in compliance with the provisions of the facility and there was $2.1 million outstanding thereunder. Senior Subordinated Notes - On August 30, 2000, the Company completed a private placement of $75 million of senior subordinated notes (the "Notes") and warrants to purchase shares of the Company's common stock (the "Warrants") to a group of institutional investors (collectively, the "Purchasers"). The Company used the proceeds of the private placement to retire, in full, a $75 million bridge loan held by a group of lenders led by Fleet National Bank. The Notes, as amended in August 2002, were due on August 29, 2005 and bear interest at a rate of 18% per annum consisting of 13% cash interest on principal, payable quarterly, and 5% interest on principal, payable quarterly in "payment-in-kind" ("PIK") promissory notes. The PIK portion of the interest rate increases 0.25% each quarter, commencing December 31, 2002 until the Notes are retired. At September 26, 2004, the principal balance outstanding on the Notes amounted to $58.2 million, which included the original principal amount plus the PIK notes. The Company was not in compliance with certain of the financial covenants of the Notes at September 26, 2004 and received a waiver of this noncompliance from the Purchasers. On November 10, 2004, the Notes were paid in full (see "Refinancing," below). As a result of the refinancing described below and in accordance with SFAS No. 6, "Classification of Short-Term Obligations Expected to Be Refinanced," the Company has continued to classify the remaining $58.2 million outstanding under the Notes as long-term obligations at September 26, 2004. At September 26, 2004, there were 171,041 Warrants outstanding which are each convertible into common stock at the price of $.01 per warrant. These Warrants are considered to be common stock equivalents for the purpose of calculating basic earnings per share at September 26, 2004, and September 28, 2003. On November 5, 2004, the holder of the remaining 171,041 Warrants 9 outstanding delivered a Notice of Election to the Company with respect to the exercise of all of its Warrants. Refinancing - On November 10, 2004, the Company refinanced and repaid in full the Former Senior Credit Facility and the Notes with a $71.5 million, forty two month, senior credit facility (the "Senior Credit Facility"). The Senior Credit Facility consists of a $10.0 million asset-based revolving credit facility, and three tranches of term loans totaling $61.5 million. At closing, the Senior Credit Facility has an effective weighted interest rate of approximately 13.0% which is tied to the prime rate. The term loans require monthly principal payments of $250,000 over the term of the loan with the balance due at the end of the term. Accordingly, the balance sheet reflects $2.5 million of current maturities due under the Senior Credit Facility. The Senior Credit Facility also contains certain mandatory prepayment provisions which are linked to cash flow and customary financial covenants and events of default. The Senior Credit Facility is secured by all of the Company's assets. A non-recurring pre-tax charge of $2.2 million relating to the write-off of unamortized fees from prior financings and the payment of pre-payment premiums will be recognized in the third fiscal quarter. NOTE 5. New Accounting Standards In December 2003, the FASB issued Interpretation No. 46R, a revision to Interpretation No. 46, "Consolidation of Variable Interest Entities", which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. Interpretation No. 46R clarifies some of the provisions of Interpretation No. 46 and exempts certain entities from its requirements. Interpretation No. 46R was effective for the Company at the end of the first quarter ended June 27, 2004. The adoption of this statement did not have a material impact on the Company's financial position or results of operations. NOTE 6. Contingencies As previously reported, the Company is subject to an investigation being conducted by the Newark, New Jersey office of the United States Attorney with respect to Breeze-Eastern's overhaul and repair operations. The Company has, to date, cooperated fully and will continue to cooperate fully with the government's investigation. In addition, the Board of Directors retained a fact finding and forensic accounting firm, The Bradlau Group of Morristown, New Jersey, to perform an independent review of the overhaul and repair operations of the Company's Breeze-Eastern business. The Board of Directors has shared the preliminary and follow-on reports of the findings of this independent review with the United States Attorney's office. The investigation has had no direct impact, and the Company does not expect a direct impact, on the Company's ability to manufacture and ship products and meet customer delivery schedules. However, the Company has implemented changes in its operating procedures and added new personnel to its overhaul and repair operation which has had the effect of producing higher labor and material costs and lower gross profit and has impeded throughput in that operation. The Company has held initial discussions with the United States Attorney's office relative to the resolution of the issues associated with the investigation. As of this date, the United States Attorney's investigation is continuing and the Company has not been made aware of any specific statutory or regulatory violations resulting from that investigation. The Company sold the assets of its Breeze Industrial Products (BIP) division in July 2001. As part of that transaction, the Company sold the land and building occupied by the BIP operation to the Indiana County (PA) Development Corporation (ICDC) for $2,000,000. The ICDC, in turn, entered into a lease of the facility in September 2001 with BIP as lessee for an initial term of five years and up to four additional five-year terms. The lease contains an option for BIP to purchase the property from ICDC at the end of the first term for $1,500,000 (the appraised value of the property in July 2001). In the event that BIP does not exercise the purchase option or the renewal option at the end of the initial term, ICDC, upon proper notification, can require the Company to repurchase the property for $1,000,000, of which $500,000 is contractually required to be maintained on deposit with banks located in Indiana County, Pennsylvania. The Company considers a decision by BIP to vacate the location in Saltsburg, Pennsylvania to be unlikely as this is a manufacturing facility with sophisticated machinery, an established well-trained work force, dependable suppliers, and excellent distribution access. In the event that the facility is presented for repurchase, management is confident that the repurchase would not have a material effect on the Company's financial position or cash flows and the facility can be resold for at least the repurchase price. We are also engaged in various other legal proceedings incidental to our business. It is our opinion that, after taking into consideration information furnished by our counsel, the above matters will have no material effect on our consolidated financial position or the results of our operations in future periods. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL This Quarterly Report on Form 10-Q may contain forward-looking statements. See "Forward Looking Statements" on page 19 hereof for further information of the risks and uncertainties associated with forward-looking statements. We design, develop, and manufacture sophisticated lifting equipment for specialty aerospace and defense applications. With over 50% of the global market, we have long been recognized as the world's largest designer and leading supplier of performance-critical rescue hoists and cargo-hook systems. We also manufacture weapons-handling systems, cargo winches, tie-down equipment, and tow-hook assemblies. Marketed under the trade name "Breeze-Eastern", our products are designed to be efficient and reliable in extreme operating conditions. Our equipment is used to complete rescue operations and military insertion/extraction operations, move and transport cargo, and load weapons onto aircraft and ground-based launching systems. Beginning in fiscal 2001, we implemented a restructuring plan to focus our resources and capital on our specialty aerospace and defense products business and exit the specialty fastener segment. On February 24, 2003, we completed our divestiture program. All references to fiscal 2005 and beyond in this Management's Discussion and Analysis of Financial Condition and Results of Operations refer to the fiscal year ending March 31, 2005 and beyond, and all references to all other fiscal years refer to the fiscal years ended March 31. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 26, 2004 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 28, 2003 Net sales. Our sales decreased to $15.2 million for the second quarter of fiscal 2005, a 7% decrease from sales of $16.3 million for the second quarter of fiscal 2004. Almost all of the decrease in our sales for the second quarter of fiscal 2005 was attributed to new equipment sales. Sales of new equipment were down $0.8 million from the prior year's second quarter, primarily due to the completion of shipments of the HLU-196 Bomb Hoist program. Sales in the overhaul and repair portion of our business increased 15% from the same period last year (See discussion of Gross profit). Gross profit. Gross profit decreased 8% to $6.2 million for the second quarter of fiscal 2005 from $6.8 million for the second quarter of fiscal 2004. Generally, repair and overhaul services and spare parts sales have higher gross margins than sales of new equipment or engineering services. We have implemented changes in our operating procedures and added new personnel to our overhaul and repair operation, all of which has had an impact on the results for the quarter. These changes were made as a result of the process and procedures review of that operation over the past twelve months. We have instituted additional levels of verification and are assuring that all personnel are appropriately trained. This situation produced higher labor and material costs than we had planned. As a result, our overhaul and repair throughput was impeded resulting in reduced gross margins in the second quarter. The inefficiencies experienced as we implement improvements in our overhaul 11 and repair operation accounted for approximately $0.3 million of the decrease in gross profit with the remaining $0.3 million being related to a higher percentage of aftermarket products with an above-normal margin in the same period last year. These inefficiencies are expected to continue through the remainder of fiscal 2005. General, administrative and selling expenses. General, administrative and selling expenses increased 19% to $4.2 million in the second quarter of fiscal 2005 from $3.5 million in the second quarter of fiscal 2004. The increase was due to approximately $0.3 million of legal and other costs associated with the ongoing investigation by the Newark, New Jersey office of the United States Attorney of our overhaul and repair operation. There was also an increase in product support and marketing costs of approximately$0.2 million and an increase in information technology costs of $0.1 million associated with the installation of the new enterprise resource planning system. Interest expense. Interest expense increased $0.3 million to $2.9 million in the second quarter of fiscal 2005 from $2.6 million in the second quarter of fiscal 2004 primarily as the result of the increased interest rate on our subordinated debt and the increased debt level due to payment-in-kind interest. Net income. We incurred a net loss of $0.5 million in the second quarter of fiscal 2005, versus net income of $0.5 million in the second quarter of fiscal 2004, which primarily resulted from the reasons discussed above. New orders. New orders received in the second quarter of fiscal 2005 totaled $17.3 million, which represents a 108% increase from new orders of $8.3 million in the second quarter of fiscal 2004. Orders on three specific programs during the first quarter of fiscal 2005 were delayed and received during the second quarter, thus accounting for a significant portion of the increase. Backlog. Backlog at September 26, 2004 was $37.7 million, down $3.3 million from $41.0 million at March 31, 2004. The reduction in the backlog is due to the order pattern in the first quarter of fiscal 2005 as well as completion of the HLU-196 Bomb Hoist program. We measure backlog by the amount of products or services that our customers have committed by contract to purchase from us as of a given date. Our book to bill ratio for the second quarter of fiscal 2005 was 1.14, compared to .51 for the second quarter of fiscal 2004. The increase in the book-to-bill ratio is directly related to the second quarter receipt of previously delayed orders on three specific programs discussed in "New Orders" above. Cancellations of purchase orders or reductions of product quantities in existing contracts, although seldom occurring, could substantially and materially reduce our backlog. Therefore, our backlog may not represent the actual amount of shipments or sales for any future period. SIX MONTHS ENDED SEPTEMBER 26, 2004 COMPARED WITH SIX MONTHS ENDED SEPTEMBER 28, 2003 Net sales. Our sales decreased to $29.8 million for the first six months of fiscal 2005, an 8% decrease from sales of $32.5 million for the fist six months fiscal 2004. This decrease in sales is the result of lower shipments of our weapons handling equipment primarily due to the completion of the HLU-196 Bomb Hoist program. Gross profit. Gross profit decreased 15% to $12.0 million for the first six months of fiscal 2005 from $14.1 million for the first six months of fiscal 2004. Generally, repair and overhaul services and spare parts sales have higher gross margins than sales of new equipment or engineering services. We have implemented changes in our operating procedures and added new personnel to our overhaul and 12 repair operation, all of which has had an impact on the results for the first six months of fiscal 2005. These changes were made as a result of the process and procedures review of that operation over the past twelve months. We have instituted additional levels of verification and are assuring that all personnel are appropriately trained. This situation produced higher labor and material costs than we had planned. As a result, our overhaul and repair throughput was impeded resulting in reduced gross margins in the first six months of fiscal 2005. The inefficiencies experienced as we implement improvements in our overhaul and repair operation accounted for approximately $1.3 million of the decrease in gross profit with the remaining $0.8 million being related to a higher percentage of aftermarket products with an above-normal margin in the same period last year. These inefficiencies are expected to continue through the remainder of fiscal 2005. General, administrative and selling expenses. General, administrative and selling expenses increased 13% to $8.2 million in the first six months of fiscal 2005 from $7.3 million in the first six months of fiscal 2004. The increase was due to approximately $0.8 million of legal and other costs associated with the ongoing investigation by the Newark, New Jersey office of the United States Attorney of our overhaul and repair operation. There was also an increase in product support and marketing costs of approximately $0.2 million and an increase of $0.1 million in information technology costs associated with the installation of the new enterprise resource planning system. This increase was offset by a reduction in our corporate office expense of $0.4 million which was principally the result of the recognition of a non-recurring settlement charge of the same amount in the first quarter of fiscal 2004. Interest expense. Interest expense increased $0.6 million to $5.7 million in the first six months of fiscal 2005 from $5.1 million in the first six months of fiscal 2004 primarily as the result of the increased interest rate on our subordinated debt and the increased debt level due to payment-in-kind interest. Net income. We incurred a net loss of $1.1 million in the first six months of fiscal 2005, versus net income of $1.2 million in the first six months of fiscal 2004, which primarily resulted from the reasons discussed above. New orders. New orders received in the first six months of fiscal 2005 totaled $26.5 million, which represents a 12% decrease from new orders received of $30.0 million in the first six months of fiscal 2004. An order for the HLU-196 Bomb Hoist program was received in the fist six months of fiscal 2004, with no new orders being received in the first six months of fiscal 2005. Backlog. Backlog at September 26, 2004 was $37.7 million, down $3.3 million from $41.0 million at March 31, 2004. The reduction in the backlog is due to the order pattern mentioned above as well as completion of the HLU-196 Bomb Hoist program. We measure backlog by the amount of products or services that our customers have committed by contract to purchase from us as of a given date. Our book to bill ratio for the first six months of fiscal 2005 was .89, compared to ..93 for the first six months of fiscal 2004. Cancellations of purchase orders or reductions of product quantities in existing contracts, although seldom occurring, could substantially and materially reduce our backlog. Therefore, our backlog may not represent the actual amount of shipments or sales for any future period. 13 LIQUIDITY AND CAPITAL RESOURCES Our liquidity requirements depend on a number of factors, many of which are beyond our control, including the timing of production under our long-term contracts with the U.S. Government. Although we have infrequently received payments on these government contracts based on performance milestones, as was the case with our contract with the U.S. Navy for the HLU-196 Bomb Hoist, our working capital needs fluctuate between periods as a result of changes in program status and the timing of payments by program. Additionally, as our sales are generally made on the basis of individual purchase orders, our liquidity requirements vary based on the timing and volume of these orders. As previously reported, the New York Stock Exchange (NYSE) notified us on or about April 7, 2003, that we had fallen below the NYSE continued listing standards requiring total market capitalization of not less than $50 million over a 30-day trading period and total stockholders' equity of not less than $50 million. We submitted to the NYSE an 18-month plan to comply with the listing standards, which was accepted by the NYSE on July 7, 2003. The conclusion of the plan implementation period was October 7, 2004. We received a letter from the NYSE dated October 8, 2004, informing us of the determination of the NYSE to delist our common stock from the NYSE. We have filed a notice of appeal with the NYSE requesting a subsequent review of this determination of delisting by a committee of the NYSE Board of Directors. We have been informed that a hearing before the NYSE Board's Regulation, Enforcement and Lisiting Standards Committee with respect to the review of the delisting determination is scheduled to take place in January 2005. It is our understanding that a suspension date will be announced if the subsequent review of the delisting determination finds that our common stock should be delisted. It is also our understanding that our common stock will continue to be listed on the NYSE pending the announcement of a suspension date, subject to certain conditions. The NYSE has indicated that it may, at any time, suspend a security if it believes that continued dealings in the security on the NYSE are not advisable. In the event of delisting from the NYSE, we believe an alternate trading venue would be available. WORKING CAPITAL Our working capital at September 26, 2004, was $19.7 million, compared to $22.2 million at March 31, 2004. The ratio of current assets to current liabilities was 2.3 to 1.0 and 2.6 to 1.0 at September 26, 2004, and March 31, 2004 respectively. Changes in working capital during the first six months of fiscal 2005 resulted from a decrease in cash of $0.7 million, an increase in accounts receivable of $ 2.4 million, a decrease in inventories of $ 2.4 million, an increase in prepaid and other current assets of $0.6 million, a decrease in real estate held for sale of $1.4 million and a decrease in accounts payable of $ 2.1 million and a decrease in accrued compensation of $1.1 million. In addition, the current portion of long-term debt and short term borrowings increased by $4.6 million due to working capital needs and the refinancing as described in Note 4. The increase in accounts receivable was due to strong sales at the end of the second quarter fiscal 2005 and the decrease in accrued compensation was due to the payment of bonuses earned in fiscal 2004. The decrease in inventory was largely due to increased sales, and the increase in prepaid and other current assets was mainly due to the prepayment fees associated with the refinancing of our senior credit facility and subordinated notes, and the prepayment of insurance premiums. The decrease in real estate held for sale was due to the sale of land and building retained from a previous divestiture. The decrease in accounts payable was mainly due to the payments 14 coming due for purchases made in the fourth quarter of fiscal 2004. The number of days that sales were in accounts receivable increased to 46.7 days at September 26, 2004 from 35.2 days at March 31, 2004. The increase in days was attributable to September sales representing 49% of fiscal 2005 second quarter sales. Inventory turnover increased to 2.0 turns for the second quarter of fiscal 2005 versus 1.79 turns for fiscal 2004. The increase in inventory turns is reflective of normal inventory and production patterns. CAPITAL EXPENDITURES Our additions to property, plant and equipment were $1.2 million for the six months of fiscal 2005, compared to $159 thousand for the first six months of fiscal 2004. Projects budgeted in fiscal 2005, are expected to be in a range of $2.6-$3.3 million and include the installation of a new enterprise resource planning (ERP) system. FORMER SENIOR CREDIT FACILITY At September 26, 2004, we had a senior credit facility consisting of an $8.0 million asset-based revolving credit facility, which was established in August 2002 (the "Former Senior Credit Facility") to refinance all remaining obligations outstanding under our prior senior credit facility. The Former Senior Credit Facility was amended on August 5, 2003 and was subsequently amended on January 30, 2004 and July 30, 2004 and repaid in full on November 10, 2004 (see "Refinancing" below). The maturity date of this facility, as amended, was January 31, 2005. At September 26, 2004, the current interest rate was approximately 5.75%. The Former Senior Credit Facility was secured by all of our assets. At September 26, 2004 we were in compliance with the provisions of the facility and there was $2.1 million outstanding thereunder. SENIOR SUBORDINATED NOTES On August 30, 2000, we completed a private placement of $75 million of senior subordinated notes (the "Notes") and warrants to purchase shares of our common stock (the "Warrants") to a group of institutional investors (collectively, the "Purchasers"). We 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, as amended in August 2002, are due on August 29, 2005 and bear interest at a rate of 18% per annum consisting of 13% cash interest on principal, payable quarterly, and 5% interest on principal, payable quarterly in "payment-in-kind" ("PIK") promissory notes. The PIK portion of the interest rate increases 0.25% each quarter, commencing December 31, 2002 until the Notes are retired. At September 26, 2004, the principal balance outstanding on the Notes amounted to $58.2 million, which included the original principal amount plus the PIK notes. We were not in compliance with certain of the financial covenants of the Notes at September 26, 2004 and received a waiver of this noncompliance from the Purchasers. On November 10, 2004 the Notes were paid in full (see "Refinancing," below). As a result the refinancing described below and in accordance with SFAS No. 6, "Classification of Short-Term Obligations Expected to Be Refinanced," we have continued to classify the remaining $58.2 million outstanding under the Notes as long-term obligations at September 26, 2004. At September 26, 2004, there were 171,041 Warrants outstanding which are each convertible into common stock at the price of $.01 per warrant. These Warrants are considered to be common stock equivalents for the purpose of calculating basic earnings per share at September 26, 2004, and September 28, 2003. On November 5, 2004, the holder of the remain 171,041 Warrants outstanding delivered a Notice of Election to the Company with respect to the exercise of all of its Warrants. 15 REFINANCING On November 10, 2004, we refinanced and repaid in full the Former Senior Credit Facility and the Notes with a $71.5 million 42-month senior credit facility (the "Senior Credit Facility"). The Senior Credit Facility consists of a $10.0 million asset-based revolving credit facility, and three tranches of term loans totaling $61.5 million. At closing, the Senior Credit Facility has an effective weighted interest rate of approximately 13.0% which is tied to the prime rate. The term loans require monthly principal payments of $250,000 over the term of the loan with the balance due at the end of the term. Accordingly, the balance sheet reflects $2.5 million of current maturities due under the Senior Credit Facility. The Senior Credit Facility also contains certain mandatory prepayment provisions which are linked to cash flow and customary financial covenants and events of default. The Senior Credit Facility is secured by all of our assets. A non-recurring pre-tax charge of $2.2 million relating to the write-off of unamortized fees from prior financings and the payment of pre-payment premiums will be recognized in the third fiscal quarter. TAX BENEFITS FROM NET OPERATING LOSSES At September 26, 2004, we had federal and state net operating loss carryforwards, or NOLs, of approximately $57.8 million and $77.7 million, respectively, which are due to expire in fiscal 2006 through fiscal 2024. These NOLs may be used to offset future taxable income through their respective expiration dates and thereby reduce or eliminate our federal and state income taxes otherwise payable. The Internal Revenue Code of 1986, as amended (the "Code") imposes significant limitations on the utilization of NOLs in the event of an "ownership change" as defined under section 382 of the Code (the "Section 382 Limitation"). The Section 382 Limitation is an annual limitation on the amount of pre-ownership NOLs that a corporation may use to offset its post-ownership change income. The Section 382 Limitation is calculated by multiplying the value of a corporation's stock immediately before an ownership change by the long-term tax-exempt rate (as published by the Internal Revenue Service). Generally, an ownership change occurs with respect to a corporation if the aggregate increase in the percentage of stock ownership by value of that corporation by one or more 5% shareholders (including specified groups of shareholders who in the aggregate own at least 5% of that corporation's stock) exceeds 50 percentage points over a three-year testing period. We believe that we have not gone through an ownership change that would cause our NOLs to be subject to the Section 382 Limitation. SUMMARY DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table reflects a summary of our contractual cash obligations for the next several fiscal years: (DOLLARS IN THOUSANDS)
2005 2006 2007 2008 2009 TOTAL ---------- ---------- ---------- ---------- ---------- ---------- Long-term debt $ 3,183 $ 3,079 $ 3,000 $ 51,204 $ - $ 60,466 Operating leases 148 271 174 65 - 658 ---------- ---------- ---------- ---------- ---------- ---------- Total $ 2,331 $ 58,554 $ 174 $ 65 $ - $ 61,124 ========== ========== ========== ========== ========== ==========
16 In addition, we have divested ten businesses since March 31, 2001. Under the terms of the agreements associated with the sales of those businesses, we have agreed to indemnify the purchasers for certain damages that might arise in the event that a representation we made with respect to the divested business is found to have contained a material misstatement, subject in each case to a customary cap on the indemnification amount and customary limitations on the survivability of the representations made. As of the date of this report, we have unresolved claims for indemnification with respect to these divested businesses that aggregate less than $0.1 million. Additionally, the terms of these 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. In the case of each divestiture completed as of the filing date purchase price adjustments have been agreed and paid. INFLATION While neither inflation nor deflation has had, and we do not expect it to have, a material impact upon operating results, we cannot assure you that our business will not be affected by inflation or deflation in the future. ENVIRONMENTAL MATTERS We evaluate our exposure to environmental liabilities using a financial risk assessment methodology, including a system of internal environmental audits and tests and outside consultants. This risk assessment includes the identification of risk events/issues, including potential environmental contamination at company and off-site facilities; characterizes risk issues in terms of likelihood, consequences and costs, including the year(s) when these costs could be incurred; analyses risks using statistical techniques; and, constructs risk cost profiles for each site. Remediation cost estimates are prepared from this analysis and are taken into consideration in developing project budgets from third party contractors. Although we take great care in the development of these risk assessments and future cost estimates, the actual amount of the remediation costs may be different from those estimated as a result of a number of factors including, changes to government regulations or laws; changes in local construction costs and the availability of personnel and materials; unforeseen remediation requirements that are not apparent until the work actually commences; and other similar uncertainties. We do not include any unasserted claims we might have against others in determining our liability for such costs, and, except as noted with regard to specific cost sharing arrangements, have no such arrangements, nor have we taken into consideration any future claims against insurance carriers we might have in determining our environmental liabilities . In those situations where we are considered a de minimus participant in a remediation claim, the failure of the larger participants to meet their obligations could result in an increase in our liability with regard to such a site. We continue to participate in environmental assessments and remediation work at eleven locations, including our former facilities. Due to the nature of environmental remediation and monitoring work, such activities can extend for up to thirty years, depending upon the nature of the work, the substances involved, and the regulatory requirements associated with each site. In calculating the net present value (where appropriate) of those costs expected to be incurred in the future, we use a discount rate of 7.5%. Based on the above, we estimate the current range of undiscounted cost for remediation and monitoring to be between $7.1 million and $9.7 million with an undiscounted amount of $8.0 million to be most probable. Estimates for expenditures for each of the five succeeding fiscal years will be $1.1 million, $0.8 million, $0.3 million, $0.3 million, and $0.3 million respectively, with $5.2 million payable thereafter. Of the total undiscounted costs, we estimate that 17 approximately 30% will relate to remediation activities and that 70% will be associated with monitoring activities. We estimate that our potential cost for implementing corrective action at nine of these sites will not exceed $0.5 million in the aggregate, payable over the next several years, and have provided for the estimated costs, without discounting for present value, in our accrual for environmental liabilities. In the first quarter of fiscal 2003, we entered into a consent order for a former facility in New York, which is currently subject to a contract for sale, pursuant to which we are developing a remediation plan for review and approval by the New York Department of Environmental Conservation. Based upon the characterization work performed to date, we have accrued estimated costs of approximately $2.4 million. The amounts and timing of such payments are subject to an approved remediation plan. The environmental cleanup plan we presented during the fourth quarter of fiscal 2000 for a portion of a site in Pennsylvania which continues to be owned although the related business has been sold was approved during the third quarter of fiscal 2004. 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 we 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 was concluded in the third quarter of fiscal 2003. An environmental cleanup plan for the portion of the site covered by the 2003 Consent Order was presented during the second quarter of fiscal 2004. We are also administering an agreed settlement with the Federal government under which the government pays 50% of the direct and indirect environmental response costs associated with a portion of the site. We have also reached an agreement in principle with the Federal government and are in the process of finalizing the necessary documentation under which the Federal government will pay 45% of the direct and indirect environmental response costs associated with another portion of the site. At September 26, 2004, our cleanup reserve was $1.9 million based on the net present value of future expected cleanup and monitoring costs. We expect that remediation at this site, which is subject to the oversight of the Pennsylvania authorities, will not be completed for several years, and that monitoring costs could extend for up to thirty years. In addition, we have been named as a potentially responsible party in five environmental proceedings pending in several states in which it is alleged that we were a generator of waste that was sent to landfills and other treatment facilities and, as to one site, it is alleged that we were an owner or operator. Such properties generally relate to businesses which have been sold or discontinued. We estimate that our expected future costs, and our estimated proportional share of remedial work to be performed, associated with these proceedings will not exceed $0.2 million and have provided for these estimated costs in our accrual for environmental liabilities. LITIGATION We are also engaged in various other legal proceedings incidental to our business. It is our opinion that, after taking into consideration information furnished by our counsel, the above matters will have no material effect on our consolidated financial position or the results of our operations in future periods. 18 FORWARD LOOKING STATEMENTS Certain statements in this Quarterly Report constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Acts"). Any statements contained herein that are not statements of historical fact are deemed to be forward-looking statements. The forward-looking statements in this Quarterly Report are based on current beliefs, estimates and assumptions concerning the operations, future results and prospects of the Company. As actual operations and results may materially differ from those assumed in forward-looking statements, there is no assurance that forward-looking statements will prove to be accurate. Forward-looking statements are subject to the safe harbors created in the Acts. Any number of factors could affect future operations and results, including, without limitation, the results of audits and inquiries into the Company's business practices; the Company's ability to satisfy the listing requirements of the NYSE or any other national exchange on which its shares are or will be listed or otherwise provide a trading venue for its shares; the value of replacement operations, if any; determination by the Company to dispose of or acquire additional assets; general industry and economic conditions; events impacting the U.S. and world financial markets and economies; interest rate trends; capital requirements; competition from other companies; changes in applicable laws, rules and regulations affecting the Company in the locations in which it conducts its business; the availability of equity and/or debt financing in the amounts and on the terms necessary to support the Company's future business and those specific risks that are discussed in this Quarterly Report. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements is available in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004, and subsequent filings with the United States Securities and Exchange Commission (SEC). Copies of these filings are available at no cost on the SEC's website at www.sec.gov or on the Company's website at www.transtechnology.com. Management may elect to update forward-looking statements at some future point; however, it specifically disclaims any obligation to do so. RECENTLY ISSUED ACCOUNTING STANDARDS In December 2003, the FASB issued Interpretation No. 46R, a revision to Interpretation No. 46, "Consolidation of Variable Interest Entities", which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. Interpretation No. 46R clarifies some of the provisions of Interpretation No. 46 and exempts certain entities from its requirements. Interpretation No. 46R was effective at the end of the first quarter ended June 27, 2004. The adoption of this statement did not have a material impact on our financial position or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have been and are exposed to various market risks, primarily changes in interest rates associated with the Former Senior Credit Facility under which there were borrowings of $2.1 million at September 26, 2004, which were repaid and changes in interest rates under the Senior Credit Facility, under which there were borrowings of $2.0 at November 10, 2004. 19 ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Within 90 days prior to the date of this report, the Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the forgoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are engaged in various legal proceedings incidental to our business. It is the opinion of management that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on our consolidated financial position or the results of our operations in future periods. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At our annual stockholders' meeting, held on September 2, 2004, all seven of our directors nominated for reelection were reelected for a term of one year and the TransTechnology Corporation 2004 Long Term Incentive Plan was approved. The results of the voting on the election of directors were as follows:
FOR WITHHELD --------- -------- Gideon Argov 5,823,817 442,295 Michael J. Berthelot 5,728,066 538,046 Thomas V. Chema 5,763,815 502,297 Jan Naylor Cope 5,774,776 491,336 John H. Dalton 5,763,915 502,197 William J. Recker 5,823,767 442,345 Robert L.G. White 5,821,906 444,206
20 The results of the voting on the approval of the TransTechnology Corporation 2004 Long Term Incentive Plan were as follows: FOR: 3,591,757 AGAINST: 870,246 ABSTAIN: 14,813 NO-VOTE: 1,789,296
ITEM 6. EXHIBITS Exhibits 10.1 Amendment dated as of July 30, 2004 by and among TransTechnology Corporation, NORCO, Inc. (n/k/a TransTechnology Connecticut Corporation) and The CIT Group/Business Credit, Inc. (Filed as Exhibit 10.29 to TransTechnology Corporation's Current Report on Form 8-K dated as of August 4, 2004 and incorporated herein by reference). 10.2 TransTechnology Corporation 2004 Long Term Incentive Plan (filed as Annex A to TransTechnology's Proxy Statement for its 2004 Annual Meeting of Stockholders dated September 2, 2004, and incorporated herein by reference). 10.3 Waiver dated October 1, 2004 of certain financial covenants of the Securities Purchase Agreement between the Company and the Purchasers named therein, dated as of August 29, 2000, as amended by the First Amendment Agreement dated as of August 7, 2002, and the Second Amendment Agreement dated as of August 26, 2003. 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANSTECHNOLOGY CORPORATION (Registrant) Dated: November 15, 2004 By: /s/ Joseph F. Spanier ---------------------------------------- Joseph F. Spanier, Vice President, Chief Financial Officer and Treasurer* *On behalf of the Registrant and as Principal Financial and Accounting Officer. 22 EX-10.3 2 y68766exv10w3.txt WAIVER EXHIBIT 10.3 MCSW: 10/1/04 WAIVER WAIVER (the "WAIVER"), dated as of October 1, 2004, by and among J. H. WHITNEY MEZZANINE FUND, L.P. ("WMF"), a Delaware limited partnership, ALBION ALLIANCE MEZZANINE FUND I, L.P. ("ALBION I"), a Delaware limited partnership, ALBION ALLIANCE MEZZANINE FUND II, L.P. ("ALBION II"), a Delaware limited partnership, THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES ("EQUITABLE"), a New York corporation, FLEET CORPORATE FINANCE, INC. ("FLEET"), a Massachusetts corporation, and CITIZENS CAPITAL, INC. ("CITIZENS"; and together with WMF, Albion I, Albion II, Equitable and Fleet, the "PURCHASERS" and, individually, a "PURCHASER"), a Massachusetts corporation, and TRANSTECHNOLOGY CORPORATION (the "COMPANY"), a Delaware corporation W I T N E S S E T H: WHEREAS, the Purchasers and the Company are parties to the Securities Purchase Agreement, dated as of August 29, 2000, as amended by the First Amendment Agreement dated as of August 7, 2002, and Second Amendment Agreement dated as of August 26, 2003 (as so amended, the "AGREEMENT"); and WHEREAS, the Company has advised the Purchasers that it may not be in compliance with certain financial covenants as of and for the period ended September 26, 2004 and has requested that in such event the Purchasers waive any such non-compliance; and WHEREAS, the Purchasers are willing to provide such waiver, subject to the terms and conditions set forth in this Waiver. NOW THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the Purchasers and the Company agree as follows: 23 ARTICLE 1 DEFINITIONS 1.1 ORIGINAL AGREEMENT DEFINITIONS. All capitalized terms used in this Waiver but not defined shall have the meanings given to them in the Agreement. ARTICLE 2 WAIVER If the Company and its Subsidiaries fail to comply with the covenants set forth in Sections 9.8(a), 9.8(c), and 9.8(d) of the Agreement as of and for the period ended September 30, 2004, the Purchasers waive such non-compliance. ARTICLE 3 GUARANTY Each Wholly-Owned Subsidiary Guarantor, by its signature below, hereby consents and agrees to the entering into of this Waiver and acknowledges and confirms that the Subsidiary Guaranty remains in full force and effect in accordance with its terms on the date hereof and after giving effect to this Waiver. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Purchaser as follows: 4.1 AUTHORITY, ETC. The execution and delivery by the Company of this Waiver (i) are within the corporate authority of the Company, (ii) have been duly authorized by all necessary corporate proceedings by the Company, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Company is subject or any judgment, order, writ, injunction, license or permit applicable to the Company, except in each case for the conflicts, breaches or contraventions that would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Condition of the Company (as defined in the Agreement) and (iv) do not conflict with any provision of the corporate charter or by-laws of, or any agreement or other instrument binding upon, the Company. 24 4.2 NO DEFAULT. After giving effect to this Waiver, no default or Event of Default exists or will exist under the Notes and no event has occurred and no condition exists which with the giving of ..notice, or the passage of time or both would create or become a default or an Event of Default. ARTICLE 5 CONDITIONS TO EFFECTIVENESS The effectiveness of this Waiver is conditioned upon the following receipt by the Purchasers of an original counterpart signature to this Waiver, duly executed and delivered by the Company and each Subsidiary Guarantor. ARTICLE 6 MISCELLANEOUS 6.1 CONTINUED EFFECTIVENESS. The Agreement shall remain unchanged and in full force and effect, and is hereby ratified in all respects. 6.2 NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery at the address specified in Section 11.2 of the Agreement, or to such other address or addresses for a party as shall have been furnished in writing by such party to the other parties hereto. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; if mailed, five Business Days after being deposited in the mail, postage prepaid; and if telecopied, when receipt is acknowledged. 6.3 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Waiver shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. 6.4 SIGNATURES; COUNTERPARTS. Telefacsimile transmissions of any executed original document and/or retransmission of any executed telefacsimile transmission shall be deemed to be the same as the delivery of an executed original. At the request of any party hereto, the other parties hereto shall confirm telefacsimile transmissions by executing duplicate original documents and delivering the same to the requesting party or parties. This Waiver may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 6.6 HEADINGS. The headings in this Waiver are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 6.7 GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE. 6.8 SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof 25 shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 6.9 CERTAIN EXPENSES. The Company will pay all reasonable out-of-pocket expenses of the Purchasers (including without limitation reasonable fees, charges and disbursements of counsel) in connection with this Waiver, any other amendment, supplement, modification or waiver of or to any provision of the Agreement, the Notes, the Warrants, or any consent to any departure by the Company from the terms of any provision of the Agreement, the Notes, or the Warrants. 26 IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written. TRANSTECHNOLOGY CORPORATION By: ________________________________________ Name: Title: J.H. WHITNEY MEZZANINE FUND, L.P. By: Whitney GP, L.L.C. By: ________________________________________ Name: A Managing Member ALBION ALLIANCE MEZZANINE FUND I, L.P. By: Albion Alliance, LLC Its General Partner By: ________________________________________ Name: Title: ALBION ALLIANCE MEZZANINE FUND II, L.P. By: AA MEZZ II GP, Its General Partner By: Albion Alliance, LLC Its Sole Member By: ________________________________________ Name: Title: 27 [FIRST SIGNATURE PAGE TO WAIVER] AXA EQUITABLE LIFE INSURANCE COMPANY By: ________________________________________ Name: Title: FLEET CORPORATE FINANCE, INC. By: ________________________________________ Name: Title: CITIZENS CAPITAL, INC. By: ________________________________________ Name: Title: [SECOND SIGNATURE PAGE TO WAIVER] 28 Each of the undersigned Wholly Owned Subsidiary Guarantors agrees to the provisions of Article 4. TT CONNECTICUT CORPORATION (F/K/A NORCO, INC.) By: ________________________________________ Name: Title: RANCHO TRANSTECHNOLOGY CORPORATION By: ________________________________________ Name: Title: RETAINERS, INC. By: ________________________________________ Name: Title: SSP INDUSTRIES By: ________________________________________ Name: Title: SSP INTERNATIONAL SALES, INC. By: ________________________________________ Name: Title: [THIRD SIGNATURE PAGE TO WAIVER] 29 TTER USA, INC. (F/K/A TRANSTECHNOLOGY ENGINEERED RINGS USA, INC.) By: ________________________________________ Name: Title: TRANSTECHNOLOGY INTERNATIONAL CORPORATION (F/K/A TRANSTECHNOLOGY SEEGER, INC.) By: ________________________________________ Name: Title: TT MINNESOTA CORPORATION (F/K/A TCR CORPORATION) By: ________________________________________ Name: Title: [FOURTH SIGNATURE PAGE TO WAIVER] 30 EX-31.1 3 y68766exv31w1.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATIONS I, Robert L.G. White, certify that: 1. I have reviewed this quarterly report on Form 10-Q of TransTechnology Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 15, 2004 /s/ Robert L. G. White ---------------------------------------- Robert L. G. White President & Chief Executive Officer 31 EX-31.2 4 y68766exv31w2.txt CERTIFICATION EXHIBIT 31.2 I, Joseph F. Spanier, certify that: 1. I have reviewed this quarterly report on Form 10-Q of TransTechnology Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 15, 2004 /s/ Joseph F. Spanier ---------------------------------------- Joseph F. Spanier Chief Financial Officer 32 EX-32 5 y68766exv32.txt CERTIFICATIONS EXHIBIT 32 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of TransTechnology Corporation (the "Company") on Form 10-Q for the quarterly period ended September 26, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and on the date indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 15, 2004 /s/ Robert L. G. White ---------------------------------------- Robert L.G. White, President & Chief Executive Officer Date: November 15, 2004 /s/ Joseph F. Spanier ---------------------------------------- Joseph F. Spanier, Chief Financial Officer 33 -----END PRIVACY-ENHANCED MESSAGE-----