-----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, TofMGol4ZWK5CgfXDXrNLSJegGwIsi28lcgXa4eTmuT6oNGU0Hi96jg1OR5DWS4m C1qLRLBbmOVuxOZVevvIlA== 0000950123-98-006132.txt : 19980623 0000950123-98-006132.hdr.sgml : 19980623 ACCESSION NUMBER: 0000950123-98-006132 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980622 SROS: NYSE 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: SEC FILE NUMBER: 001-07872 FILM NUMBER: 98651627 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 TRANSTECHNOLOGY CORPORATION 1 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, 1998 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 Liberty Corner, New Jersey 07938 (Address of principal executive offices) (Zip Code) 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 May 29, 1998, 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 $160,179,930.00. (See Item 12) As of May 29, 1998, the registrant had 6,298,180 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant's Annual Report for the fiscal year ended March 31, 1998 is incorporated by reference into Part I and II hereof. The registrant's Proxy Statement for the fiscal year ended March 31, 1998 is incorporated by reference into Part III hereof. 2 PART I ITEM 1. BUSINESS. GENERAL TransTechnology Corporation develops, manufactures and sells a wide range of products in two industry segments, as described below. 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. TransTechnology Corporation's core business areas are specialty fastener products and rescue hoist and cargo hook systems. During 1998, the Company continued its program to improve its position as one of the world's major suppliers of specialty fasteners to the transportation and industrial markets. Key aspects of this program include growth through acquisitions and the consolidation and rationalization of its overseas and domestic retaining ring manufacturing operations. Actions taken during 1998 to accomplish these goals included the acquisition of all of the outstanding stock of TCR Corporation. For a more detailed description of this transaction, see "Note 3" of the "Notes to Consolidated Financial Statements" included in the Company's 1998 Annual Report on pages 15-16 which is incorporated herein by reference. Additionally, the necessary training and understanding of the new business information system installed at the Company's European retaining ring facilities was substantially completed in 1998, as well as the closing of one of the Company's two retaining ring factories in Germany. Production from this factory was transferred primarily to the Company's U.K. manufacturing facility and the other German retaining ring manufacturing facility. Domestically, the Company has started the process of consolidating its United States retaining ring manufacturing and distribution facilities. These actions, together with additional strategic acquisition activities during and subsequent to the close of the fiscal year, further strengthen the Company's position as one of the world's major suppliers of specialty fastener products to the transportation and industrial markets. The Breeze-Eastern division makes up the rescue hoist and cargo hook products segment, and is the world's leader in these systems which are sold primarily to military and civilian agencies. DISCONTINUED OPERATIONS The following entities, discontinued in the years indicated, have been classified as discontinued operations in the Company's financial statements: Lundy Technical Center (chaff) (1995), TransTechnology Electronics (1995), and TransTechnology Systems & Services (computer maintenance and service) (1995). For a more detailed description of these transactions, see "Note 2" of the "Notes to Consolidated Financial Statements" included in the Company's 1998 Annual Report on page 15 which is incorporated herein by reference. SPECIALTY FASTENER PRODUCTS The Company's specialty fastener products are manufactured by its Seeger Group of companies ("Seeger-Orbis", "Anderton", and "Seeger Reno"), its Breeze Industrial Products division ("Breeze Industrial"), its Palnut Company division ("Palnut"), TCR Corporation ("TCR"), Seeger, Inc. and Industrial Retaining Ring 1 3 Company ("Waldes/IRR") and its Pebra hose clamp business ("Pebra"). The Seeger Group of companies and Waldes/IRR design and manufacture highly engineered retaining rings for both the domestic and international transportation and industrial markets. Breeze Industrial designs and manufactures a diverse line of high-quality stainless steel hose clamps including worm drive hose clamps, T-Bolt and V-Band clamps, and light duty clamps for use in the heavy truck and industrial equipment industries by both original equipment manufacturers and replacement suppliers. Pebra designs and manufactures hose clamps primarily for heavy truck manufacturers in Europe. The Palnut Company manufactures single and multi-thread metal fasteners for the automotive and industrial products markets. These include lock nuts used for load carrying in light duty assemblies or as a supplement to ordinary nuts to assure tightness; the On-Sert(R) fastener, which is pressed onto hollow plastic bosses to increase torque and minimize stripping; push-nuts used as temporary fasteners that hold pre-inserted bolts in place for final assembly or in ratchet plates which fasten onto a shaft or stud; self-threaders used in the installation of automotive trim; U-Nuts that provide one-sided screw assembly and are used to fasten bumpers, fenders and grills to vehicles; and various single-threaded parts designed for insertion into metal or plastic panels. TCR Corporation designs and manufactures sophisticated externally threaded fastening devices and custom industrial components by combining its expertise in cold forging and machining technologies. TCR products are used by industrial customers worldwide, with key market groups including the automotive, hydraulic and recreational product industries. Specialty fasteners are marketed through a combination of a direct sales force, distributors and manufacturing representatives. Such products contributed 83%, 81% and 81% of the Company's consolidated sales in 1998, 1997 and 1996, respectively. At March 31, 1998, the Company's Specialty Fastener Products segment backlog was $43.5 million, compared to $34 million at March 31, 1997. The increase is primarily the result of the acquisition of TCR Corporation and increased backlog at the Company's Breeze Industrial Products division. Substantially all of the March 31, 1998 backlog is scheduled to be shipped during fiscal 1999. RESCUE HOIST AND CARGO HOOK PRODUCTS The Company's Breeze-Eastern division ("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 positioning television cameras on blimps, antenna and gear drives. 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. Breeze-Eastern sells its products through internal marketing representatives and several independent sales representatives and distributors. Breeze-Eastern's product lines contributed 17%, 19% and 19% to the 2 4 Company's consolidated sales in 1998, 1997 and 1996, respectively. The reduced percentage in fiscal 1998 is attributable primarily to the acquisition of TCR Corporation. The Rescue Hoist and Cargo Hook Product segment backlog varies substantially from time to time due to the size and timing of orders. At March 31, 1998, the backlog of unfilled orders was $32.4 million, compared to $32.5 million at March 31, 1997. The majority of the March 31, 1998 backlog is anticipated to be shipped during fiscal 1999. DEFENSE INDUSTRY SALES Approximately 11% of the Company's consolidated sales in 1998, as compared to 9% and 8% in 1997 and 1996, 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 11 of Notes to Consolidated Financial Statements included in the Company's 1998 Annual Report on page 21 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 and 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 material and adverse effect on the Company's profitability. 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 3 5 cases, the Company stocks an adequate supply of the single source materials for use until a new supplier can be approved. No material part of the Company's business is 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 May 29, 1998, the Company employed 1,614 persons. There were 1,416 employees associated with the Specialty Fastener Products segment, 175 with the Rescue Hoist and Cargo Hook Products segment and 23 with the corporate office. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Financial information relating to each of the Company's segments has been included in Note 12 of Notes to Consolidated Financial Statements included in the Company's 1998 Annual Report on pages 21-23 and is incorporated herein by reference. FOREIGN OPERATIONS AND SALES The Company's foreign-based facilities during fiscal 1998 consisted of the Seeger-Orbis and Pebra facilities located in Germany, the Anderton facility located in the U.K., a sales office in Paris, France and the Seeger Reno facility located in Brazil. The Company acquired all of these businesses on June 30, 1995, except for Pebra which was acquired on June 18, 1996. Additionally, the Company had foreign-based facilities during fiscal 1996 that are treated as discontinued operations as of March 31, 1996. The Company had foreign sales of $57.2 million and $58 million in fiscal 1998 and 1997, respectively, representing 28% and 32% of the Company's consolidated sales in each of those years, respectively. The Company had export sales of $20.3 million, $19.8 million and $16.9 million in fiscal 1998, 1997 and 1996, respectively, representing 10%, 11% and 11% of the Company's consolidated 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. Sales, profits and identifiable assets attributable to the Company's foreign and domestic operations, and the identification of export sales by geographic area, are set forth in Note 12 of Notes to Consolidated Financial Statements in the Company's 1998 Annual Report on pages 21-23 and is incorporated herein by reference. 4 6 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 SPECIALTY FASTENER PRODUCTS SEGMENT Saltsburg, Pennsylvania Breeze Industrial offices and Owned 105,000 manufacturing plant Mountainside, New Jersey Palnut offices and manufacturing Owned 142,000 plant Irvington, New Jersey Industrial Retaining Ring Owned 37,000 manufacturing plant Somerset, New Jersey Seeger, Inc. offices Leased 104,000 and manufacturing plant (Closure expected June 1998) Southfield, Michigan Specialty Fastener Sales Office Leased 1,000 Konigstein, Germany Seeger Group offices and Owned 149,000 Seeger-Orbis manufacturing plant Minneapolis, Minnesota TCR Corporation offices Leased 137,000 and plant Bingley, England Anderton offices and Owned 124,000 manufacturing plant Sao Paulo, Brazil Seeger Reno offices and Owned 85,000 manufacturing plant Paris, France Retaining Ring Sales Office Leased 500 Frittlingen, Germany Pebra offices and Owned 30,000 manufacturing plant
5 7 RESCUE HOIST AND CARGO HOOK PRODUCTS SEGMENT Union, New Jersey Breeze-Eastern offices Owned 188,000 and 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 Illinois. In some instances, the properties are leased or subleased and in nearly all instances these properties are for sale. ITEM 3. LEGAL PROCEEDINGS The information required has been included in Note 11 Notes to Consolidated Financial Statements included in the Company's 1998 Annual Report on page 21 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, 1998. 6 8 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 on the New York Stock Exchange for the Common Stock for the calendar quarters indicated, as reported by the New York Stock Exchange.
High Low Fiscal 1997 First Quarter $ 19-3/4 $ 14-7/8 Second Quarter 18-5/8 17-3/8 Third Quarter 19-7/8 18 Fourth Quarter 22-7/8 19-5/8 Fiscal 1998 First Quarter $ 22-7/8 $ 19-3/8 Second Quarter 26-11/16 22-3/4 Third Quarter 28-5/16 26 Fourth Quarter 30-5/16 25-1/2 Fiscal 1999 First Quarter $ 30-5/8 $ 26-1/2 (through May 29, 1998)
As of May 29, 1998, the number of stockholders of record of the Common Stock was 2,062. On May 29, 1998 the closing sales price of the Common Stock was $27.00. The Company's bank indebtedness permits quarterly dividend payments which cannot exceed 25% of the Company's cumulative net income in each year. The Company paid a regular quarterly dividend of $0.065 per share on June 1, September 1 and December 1, 1996, March 1, June 2, September 1 and December 1, 1997 and March 2, 1998. 7 9 ITEM 6. SELECTED FINANCIAL DATA The information required has been included in the Company's 1998 Annual Report on page 1 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required has been included in the Company's 1998 Annual Report on pages 25-30 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 1998 Annual Report on pages 9-30 and is incorporated herein by reference. Quarterly Financial Data: The information required has been included in Note 13 of Notes to Consolidated Financial Statements in the Company's 1998 Annual Report on page 23 and is incorporated herein by reference. Financial Statement Schedules: Schedule II -- Consolidated Valuation and Qualifying Accounts for years ended March 31, 1998, 1997 and 1996. Schedules required by Article 5 of Regulation S-X, other than those listed above, are omitted because of the absence of the conditions under which they are required. 8 10 INDEPENDENT AUDITORS' REPORT To the Stockholders and the Board of Directors of TransTechnology Corporation: We have audited the financial statements of TransTechnology Corporation as of March 31, 1998 and 1997, and for each of the three years in the period ended March 31, 1998, and have issued our report thereon dated May 12, 1998; such financial statements and report are included in your 1998 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 financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP Parsippany, New Jersey May 12, 1998 9 11 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of The New Seeger Group: We have audited the accompanying combined balance sheet in U.S. dollars of The New Seeger Group (as defined in Notes 1 and 3) as of March 31, 1996, and the related combined statements of income, shareholders' equity and cash flows for the period July 1, 1995 through March 31, 1996 which, as described in Note 3, have been prepared on the basis of accounting principles generally accepted in the United States. These financial statements are the responsibility of The New Seeger Group's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements in U.S. dollars referred to above present fairly, in all material respects, the financial position of The New Seeger Group as of March 31, 1996, and the results of their operations and their cash flows for the period July 1, 1995 through March 31, 1996, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH /s/ Laupenmuhlen /s/ Kugler Laupenmuhlen Kugler Wirtschaftsprufer Wirtschaftsprufer (certified auditor) (certified auditor) Eschborn/Frankfurt/M. May 28, 1996 10 12 TRANSTECHNOLOGY CORPORATION SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR YEARS ENDED MARCH 31, 1998, 1997 AND 1996 (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING OF COSTS AND OTHER AT END DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD 1998 Allowances for doubtful accounts and sales returns $ 588 $ 537 $ 20(A) $ 589 $ 556 1997 Allowances for doubtful accounts and sales returns $ 735 $ 139 $ 246 $ 532 $ 588 1996 Allowances for doubtful accounts and sales returns $ 103 $ 468 $ 382(B) $ 218 (B) $ 735
(A) Amount represents balance acquired from TCR Corporation acquisition. (B) Amount represents balance acquired from Seeger acquisition. 11 13 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is contained in the Company's Proxy Statement for the year ended March 31, 1998 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained in the Company's Proxy Statement for the year ended March 31, 1998 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained in the Company's Proxy Statement for the year ended March 31, 1998 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. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained in the Company's Proxy Statement for the year ended March 31, 1998 and is incorporated herein by reference. 12 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of documents filed as part of the Annual Report: 1. Financial Statements: Consolidated Balance Sheets at March 31, 1998 and 1997 Statements of Consolidated Operations for the years ended March 31, 1998, 1997 and 1996 Statements of Consolidated Cash Flows for the years ended March 31, 1998, 1997 and 1996 Statements of Consolidated Stockholders' Equity for the years ended March 31, 1998, 1997 and 1996 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, 1998, 1997 and 1996 3. Exhibits: The exhibits listed on the accompanying Index to Exhibits are filed as part of this report. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the three-month period ended March 31, 1998. 13 15 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 15, 1998 TRANSTECHNOLOGY CORPORATION By: /s/Michael J. Berthelot Michael J. Berthelot, Chairman of the Board and Chief Executive Officer 14 16 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 June 15, 1998 MICHAEL J. BERTHELOT and Chief Executive Officer (Principal Executive Officer) /s/Patrick K. Bolger President, Chief Operating Officer June 15, 1998 PATRICK K. BOLGER and Director /s/Joseph F. Spanier Vice President, Chief Financial Officer June 15, 1998 JOSEPH F. SPANIER and Treasurer (Principal Financial and Accounting Officer) /s/Walter Belleville Director June 15, 1998 WALTER BELLEVILLE /s/Gideon Argov Director June 15, 1998 GIDEON ARGOV /s/Thomas V. Chema Director June 15, 1998 THOMAS V. CHEMA /s/James A. Lawrence Director June 15, 1998 JAMES A. LAWRENCE /s/Michel Glouchevitch Director June 15, 1998 MICHEL GLOUCHEVITCH /s/William J. Recker Director June 15, 1998 WILLIAM J. RECKER
15 17 INDEX TO EXHIBITS
Page Sequentially Numbered 3.1 Certificate of Incorporation of the Company.(1) -- 3.2 Bylaws of the Company Amended and Restated as of October 17, 1997.(11) -- 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 Revolving Credit and Loan Agreement dated as of June 30, 1995 between the Company and the First National Bank of Boston.(7) -- 10.9 First Amendment to the Revolving Credit and Loan Agreement dated as of August 29, 1995 between the Company and the First National Bank of Boston.(8) -- 10.10 Second Amendment to the Revolving Credit and Loan Agreement dated as of October 27, 1995 between the Company and the First National Bank of Boston.(8) -- 10.11 Third Amendment to the Revolving Credit and Loan Agreement dated as of March 29, 1996 between the Company and the First National Bank of Boston.(8) -- 10.12 Fourth Amendment to the Revolving Credit and Loan Agreement dated as of December 31, 1996 between the Company and the First National Bank of Boston.(10) -- 10.13 Fifth Amendment to the Revolving Credit and Loan Agreement dated as of March 31, 1997 between the Company and the First National Bank of Boston.(9) -- 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) -- 13 The Company's 1998 Annual Report. -- 21 List of Subsidiaries of the Company. -- 27 Financial Data Schedule. -- - ---------------------- (1) Incorporated by reference from the Company's Form 8-A Registration Statement No. 2-85599 dated February 9, 1987. --
16 18 (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. -- (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 28, 1997. --
17 EX-13 2 ANNUAL REPORT 1 [LOGO] TRANSTECHNOLOGY CORPORATION engineered products for global partners (TM) [PHOTO] ANNUAL REPORT Fiscal Year Ended March 31, 1998 2 TABLE OF CONTENTS: 1 SELECTED FINANCIAL DATA 2 LETTER TO SHAREHOLDERS 4 DOMESTIC AND INTERNATIONAL INDUSTRIAL PRODUCTS 6 AEROSPACE PRODUCTS 9 FINANCIAL INFORMATION [4 BAR GRAPHS] NET SALES ($ in Millions) 1994 81.9 1995 101.1 1996 158.0 1997 178.7 1998 204.0 INCOME FROM CONTINUING OPERATIONS ($ in Millions) 1994 5.8 1995 7.4 1996 8.5 1997 9.7 1998 12.0 DILUTED INCOME PER SHARE FROM CONTINUING OPERATIONS (in Dollars) 1994 1.12 1995 1.44 1996 1.66 1997 1.87 1998 2.11 CAPITAL EXPENDITURES ($ in Millions) 1994 5.0 1995 5.0 1996 6.5 1997 5.5 1998 8.7 INVESTOR RELATIONS CONTACT Michael J. Berthelot Chairman of the Board and Chief Executive Officer TransTechnology Corporation 150 Allen Road Liberty Corner, New Jersey 07938 908/903-1600 ANNUAL MEETING The Annual Shareholders' Meeting will be held on Thursday, July 23, 1998 at the Somerset Hills Hotel, 200 Liberty Corner, Warren, New Jersey 07059. FORM 10-K AND ADDITIONAL INFORMATION The Company, upon request to the Investor Relations department, will provide to any shareholder a copy of the Form 10-K required to be filed with the Securities and Exchange Commission and any other available information. 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 years ended March 31, 1998, 1997, 1996, 1995 and 1994 and the consolidated balance sheets of the Company at the end of each such period.
SELECTED FINANCIAL DATA YEARS ENDED MARCH 31, (In thousands, except per share amounts) 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------- Net sales $ 203,928 $ 178,684 $ 158,024 $ 101,122 $ 81,873 - --------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 20,153 16,620 14,300 10,842 8,860 Provision for income taxes 8,162 6,898 5,792 3,457 3,060 - --------------------------------------------------------------------------------------------------------- Income from continuing operations 11,991 9,722 8,508 7,385 5,800 Income (loss) from discontinued operations (924) (934) (1,134) (4,852) 1,084 - --------------------------------------------------------------------------------------------------------- Net income $ 11,067 $ 8,788 $ 7,374 $ 2,533 $ 6,884 - --------------------------------------------------------------------------------------------------------- Earnings (loss) per share: Basic: Income from continuing operations $ 2.17 $ 1.92 $ 1.67 $ 1.45 $ 1.13 Income (loss) from discontinued operations (0.17) (0.18) (0.22) (0.95) 0.21 - --------------------------------------------------------------------------------------------------------- Net income per share $ 2.00 $ 1.74 $ 1.45 $ 0.50 $ 1.34 - --------------------------------------------------------------------------------------------------------- Diluted: Income from continuing operations $ 2.11 $ 1.87 $ 1.66 $ 1.44 $ 1.12 Income (loss) from discontinued operations (0.16) (0.18) (0.22) (0.95) 0.21 - --------------------------------------------------------------------------------------------------------- Net income per share $ 1.95 $ 1.69 $ 1.44 $ 0.49 $ 1.33 - --------------------------------------------------------------------------------------------------------- Dividends declared and paid per share $ 0.26 $ 0.26 $ 0.26 $ 0.255 $ 0.24 - --------------------------------------------------------------------------------------------------------- Total assets $ 236,073 $ 199,136 $ 199,367 $ 129,396 $125,857 Long-term debt $ 51,350 $ 67,516 $ 72,565 $ 37,021 $ 33,168 Stockholders' equity $ 115,832 $ 77,444 $ 72,470 $ 64,502 $ 65,953 Book value per share $ 18.47 $ 15.40 $ 14.21 $ 12.72 $ 12.71 Shares outstanding at year-end 6,272 5,028 5,099 5,070 5,189 - ---------------------------------------------------------------------------------------------------------
MARKET AND DIVIDEND DATA
MARKET PRICE ------------------------------------------------------ QUARTER ENDED HIGH LOW DIVIDENDS - --------------------------------------------------------------------------------------------------------- June 30, 1996 $ 19-3/4 $ 14-7/8 $ .065 September 30, 1996 18-5/8 17-3/8 .065 December 31, 1996 19-7/8 18 .065 March 31, 1997 22-7/8 19-5/8 .065 - --------------------------------------------------------------------------------------------------------- June 30, 1997 22-7/8 19-7/8 .065 September 30, 1997 26-11/16 22-3/4 .065 December 31, 1997 28-5/16 26 .065 March 31, 1998 30-5/16 25-1/2 .065 - ---------------------------------------------------------------------------------------------------------
TRANSTECHNOLOGY CORPORATION 1 4 [PHOTO] MICHAEL J. BERTHELOT FELLOW SHAREHOLDERS: We are pleased to report that the fiscal year ended March 31, 1998 was the sixth consecutive year of growth for our Company, with revenues up 14%, income from continuing operations up 23%, and earnings per share up 13%. During fiscal 1998, our share price reached a ten year high and approached its all-time peak as we made significant progress toward achieving our financial and operating goals. We improved the profitability of our enterprises, completed an acquisition, strengthened our balance sheet and management structure, and planned for the future. It was, quite simply, a rewarding and successful year. The April 1997 acquisition of TCR Corporation, which manufactures specialty cold headed and screw machined products in Minneapolis, added another product line to our range of industrial component parts as well as a highly profitable and rapidly growing business. TCR made a solid contribution to fiscal 1998's results, and is poised to be a source of continued growth and contribution in the future. We also paid close attention to the operations already within our fold during fiscal 1998. We completed the closing of our Eichen, Germany, retaining ring facility, moving most of the work to our UK operation. We commenced the closure of our Somerset, New Jersey, retaining ring factory, with all of its manufacturing operations relocating to our Irvington, New Jersey, location, a process we anticipate completing in June, 1998. New division management teams were installed at several manufacturing facilities where results in the previous years failed to meet our expectations. Substantial capital expenditure projects, to reduce operating costs, improve productivity, and expand capacity, were begun at several of our divisions. Our philosophy towards our business is that if we do not take good care of those enterprises we already have in hand, it makes little sense to acquire more. We believe that the changes we have made in fiscal 1998 will give us the efficiency to improve operating income in fiscal 1999, and the capacity to produce solid revenue gains in fiscal 2000. One of the highlights of the past fiscal year was the successful sale of 1,154,000 shares of stock in November, 1997, at a price $1 per share higher than its price on the date the offering was announced. During fiscal 1998 we achieved a major internal goal when our Breeze Industrial, Breeze Eastern, and Seeger Orbis divisions each received ISO-9000 certification, joining Anderton and Seeger Reno which already held that certification. During the past year, our Seeger Reno and Palnut divisions have also received the coveted, and difficult to obtain, QS9000 certification which is mandatory in order to supply the domestic automotive industry. In the fourth quarter of fiscal 1998, we also bolstered the base for the future management of the company by reorganizing to more accurately reflect our approach to the markets served and to narrow the range of management responsibility. We believe the new structure will enable a clearer focus on current operations while simultaneously providing a management framework designed to allow a more aggressive acquisition pace in the future. With the appointment of Robert Tunno as President of Domestic Industrial Products, UIf Jemsby as President of International Industrial Products, and Robert White as President of Aerospace Products, our management team is set to continue growth through acquisitions in all of our geographic and product-line markets. An enhanced executive development and succession planning program, which began in fiscal 1998, is designed to provide the company with the management depth it will need in the future while broadening the career and personal growth opportunities for our best people. We enter fiscal 1999 with many projects on our plate, each closely linked to our financial and operating goals of $500 million in revenues, a 7% net income margin, 15% return on equity, 15% annual EPS growth, 35% debt to total capitalization, and a number one or two TRANSTECHNOLOGY CORPORATION 2 5 global market share position in each of our product lines. Our primary fiscal 1999 operating objective is to successfully complete the consolidation of our domestic retaining ring operation in New Jersey. Close behind, however, are the rejuvenation of our assembly fastener business and our UK retaining ring business, as well as the implementation of major capital projects in our hose clamp and German retaining ring operations. The economies of our geographic markets are strong today and are expected to continue to strengthen in fiscal 1999, especially Germany. Our end user markets, although growing slowly, also remain strong. By maximizing the efficiency of our existing operations, we are trying to position ourselves not only to minimize our downside in the event of a slowdown, but to gain market share in strengthening markets. We expect fiscal 1999 to be a year of "project completions" in our various operations, with substantial improvement to the bottom line anticipated. As the results of these projects fall into place, we look for increasing growth in fiscal 2000. In the first quarter of fiscal 1999, TransTechnology developed and put forward to the commercial marketplace a unified image. Our newly designed logo and modernized typeface, a companywide style manual, a multi-divisional trade show booth, and a first ever corporate advertising campaign, are all designed to put the energy and resources of the world-wide TransTechnology organization before our customers. In conjunction with this project, we have undertaken a global survey of our customers and employees, in order to determine our current perception and to learn how we can better serve both groups. Our over-riding goal is to be known by our current and future customers as the company that is dedicated to engineered products for global partners. We also expect to pick up the pace of our acquisition program in fiscal 1999. In fiscal 1998, we felt it did not make sense to aggressively pursue acquisitions while addressing so many internal challenges. In fiscal 1999, however, with the solutions to those problems believed to be in place, we expect to return to the focused acquisition mode from which much of our previous growth has come. We believe that, with the restructuring of our management team, we are now positioned to be able to integrate at least one acquisition in each of our three Groups in fiscal 1999. With our March 31, 1998 debt level at our 35% goal, we have the balance sheet to finance these acquisitions, and the management team and disciplined process in place to properly integrate them. Fiscal 1999 will begin a new chapter in the management of the company, as we say thank you and Godspeed to three valued members of our management team who will retire. On June 30, Pat Bolger, a director and our President and Chief Operating Officer, and a man who has taught me much, will retire after more than eight years with the Company. In September we will bid a fond farewell to Chandler Moisen, who has served as our Chief Financial Officer and Executive Vice President (and troubleshooter) for seven years. And, in December 1998, Joao Scivoletto, President of our Seeger Reno operation in Brazil, will retire, concluding a 35-year career that began with SKF, the previous owner of Seeger Reno. We thank each of these gentlemen for their years of service to our Company, and wish them long and happy retirements. We will miss them. We look to fiscal 1999 with a continuing sense of hope, excitement, and challenge. There is much to do, and many obstacles, opportunities, and risks lie before us. I believe that our people, at every level, are up to the challenge of continuing to transform TransTechnology into a premier organization for our customers, employees, and shareholders. It is truly an honor for me to serve as the leader of an organization as fine as TransTechnology. I appreciate the dedication and hard work of each of our over 1,600 employees worldwide. I am thankful to have a strong and involved Board of Directors, who are a never-ending resource of advice and counsel. I am committed, along with the entire management team, to meeting the obligations to and expectations of our shareholders, who have placed their trust, confidence, and financial resources with us. We thank each of you for your support this past year, and look forward to continuing growth in the future. /s/MICHAEL J. BERTHELOT - ----------------------- MICHAEL J. BERTHELOT Chairman and Chief Executive Officer TRANSTECHNOLOGY CORPORATION 3 6 [PHOTO] SEEGER BORE USED IN GEARBOXES [PHOTO] BREEZE INDUSTRIAL V-BAND DOMESTIC AND INTERNATIONAL INDUSTRIAL PRODUCTS TransTechnology Corporation derives over 80% of its revenues from the manufacture and sale of specialty fasteners, and is the seventh largest fastener manufacturer in the United States. Operating in small niches within the $8 billion domestic and $30 billion global fastener markets, the company operates under some of the most well known brand names in the world and is an acknowledged market leader in each of its product lines. The company's specialty fastener products are used in a myriad of industries, ranging from automotive and heavy truck manufacturing to computer disk drives, toys, cameras, appliances and plumbing applications. Specialty fastener products are distributed through in-house sales forces, distributors, and manufacturers' representatives around the world. Through increased engineering and marketing resources, the company continues to search for new applications for its products in new industries throughout the globe. [PIE CHART] 1998 Consolidated Sales Allocation by Market Type Consumer/Durables 3% Industrial/Machinery 9% Aerospace 17% Heavy Truck OEM 21% Automotive OEM 22% Distribution 28% RETAINING RINGS TransTechnology is the world's largest manufacturer of retaining rings, with operations in the United States, Germany, England, and Brazil selling products under the brand names "SEEGER-ORBIS" (Germany), "SEEGER-RENO" (Brazil), "ANDERTON" (United Kingdom), and "WALDES/TRUARC/IRR" (United States). Retaining rings are highly engineered, usually to a customer's exacting specifications, and are used in transmissions, drive trains, and braking systems on automobiles, trucks, and off-road equipment. They also find application in industrial equipment, computers, photographic equipment, marine applications, and almost any situation where movement on a shaft must be restricted. GEAR DRIVEN BAND FASTENERS TransTechnology, through its BREEZE INDUSTRIAL PRODUCTS and PEBRA divisions, is the only full-line manufacturer of gear driven band clamps in the world. Breeze(R) and Pebra stainless steel clamps are well known for their quality and engineering. Breeze(R) T-Bolt and Constant Torque(R) clamp products are used in diesel engine, heavy truck, marine and off-road equipment applications throughout the world. Breeze is a certified supplier to Caterpillar, Paccar, and many other heavy equipment manufacturers. Breeze "Aero-Seal(R)", "Euro-Seal(R)" and "Power-Seal(R)" clamps are found in hardware, automotive and retail stores for use in repair, maintenance and overhaul applications, and are used by many manufacturers of industrial and consumer products. Pebra brand clamps are used primarily by European heavy truck and industrial product manufacturers. TRANSTECHNOLOGY CORPORATION 4 7 ASSEMBLY FASTENERS TransTechnology's PALNUT division is one of the leading manufacturers of assembly fasteners in the United States, supplying Palnut(R) highly engineered custom fastening devices primarily to the automotive industry. Lock nuts, push-nuts, u-nuts, and a variety of single and multi-threaded stainless and high-carbon steel fasteners are provided to the toy, appliance, and lighting industries for use in assembling products. EXTERNALLY THREADED AND SPECIALTY MACHINED PRODUCTS TCR CORPORATION, acquired in April 1997, designs and manufactures sophisticated externally threaded fastening devices and custom industrial components, combining its expertise in cold forging and machining technologies. TCR products are used by industrial customers worldwide, with key market groups including the automotive, hydraulic and recreational product industries. [PIE CHART] 1998 FASTENER SALES ALLOCATION BY MARKET TYPE Consumer/Durables 4% Industrial Machinery 11% Heavy Truck OEM 26% Automotive OEM 26% Distribution 33% [PHOTO] THE PALNUT COMPANY NICKEL PLATED PUSHNUT AND COPPER COVERED LOCKNUT [PHOTO] TCR FLUID POWER HYDRAULIC SPOOL VALVE TRANSTECHNOLOGY CORPORATION 5 8 BREEZE-EASTERN MISSION EQUIPMENT FOR THE BELL BOEING V-22 OSPREY TILT-ROTOR AIRCRAFT: [PHOTO] CARGO HOOK (TWO PER AIRCRAFT) [PHOTO] CARGO WINCH [PHOTO] RESCUE HOIST Aerospace Products TransTechnology's BREEZE-EASTERN division is the world's leading designer and manufacturer of sophisticated helicopter rescue hoists and cargo hook systems. These complex, highly engineered systems add significantly to the versatility of an aircraft for a relatively small cost. The equipment is used around the world by military and civilian agencies to save lives, complete missions, and transport cargo. Most helicopter manufacturers today, including Agusta, Bell, Boeing, Eurocopter, Sikorsky, and Westland specify Breeze-Eastern's systems as standard equipment on their aircraft because of Breeze-Eastern's record for safety, reliability, durability, and service. Innovation and new product development remain an important focus at Breeze-Eastern, one reason why its products will be found on the new V-22 Osprey vertical take-off and landing aircraft due into production in 1999 for the U.S. Marine Corps and the U.S. Army UH-60Q Blackhawk MEDEVAC Helicopter. Breeze-Eastern also designs and manufactures handling systems for weapons platforms and motion control actuation devices for civilian and military aircraft. [PIE CHART] 1998 Consolidated Sales Domestic vs. International Operations International 28% Domestic 72% TRANSTECHNOLOGY CORPORATION 6 9 [PHOTO] BELL BOEING V-22 OSPREY TILT-ROTOR AIRCRAFT [PHOTO] [PHOTO] [PHOTO] [PHOTO] 7 10 Board of Directors and Corporate Officers [PHOTO] BOARD OF DIRECTORS Back row, from left to right: James A. Lawrence, Gideon Argov, Michel Glouchevitch, Walter Belleville Front row: Patrick K. Bolger, Thomas V. Chema, Michael J. Berthelot, William J. Recker [PHOTO] CORPORATE OFFICERS Back row, from left to right: Robert L.G. White, President Aerospace Products Group; Robert Tunno, President Domestic Industrial Products Group; Monica Aguirre, Assistant Secretary; Ulf Jemsby, President International Industrial Products Group; Gerald C. Harvey, VP, Secretary and General Counsel Front row: Chandler J. Moisen, Executive VP; Patrick K. Bolger, President and COO; Michael J. Berthelot, Chairman and CEO; Joseph F. Spanier, VP, CFO and Treasurer TRANSTECHNOLOGY CORPORATION 8 11 Consolidated Balance Sheets (In thousands, except share data)
MARCH 31, ASSETS 1998 1997 --------- --------- CURRENT ASSETS: Cash and cash equivalents $ 2,960 $ 3,540 Accounts receivable (net of allowance for doubtful accounts of $556 and $588 in 1998 and 1997, respectively) 33,244 28,392 Notes and other receivables 5,086 1,838 Inventories 53,985 50,677 Prepaid expenses and other current assets 1,022 1,028 Deferred income taxes 2,773 4,293 Assets held for sale 5,442 7,617 --------- --------- Total current assets 104,512 97,385 --------- --------- PROPERTY: Land 11,002 12,272 Buildings 19,747 20,636 Machinery and equipment 54,315 42,760 Furniture and fixtures 7,381 6,349 Leasehold improvements 536 190 --------- --------- Total 92,981 82,207 Less accumulated depreciation and amortization 29,295 23,594 --------- --------- Property - net 63,686 58,613 --------- --------- OTHER ASSETS: Notes receivable 7,181 11,125 Costs in excess of net assets of acquired businesses (net of accumulated amortization of $5,115 and $3,869 in 1998 and 1997, respectively) 45,094 18,878 Other 15,600 13,135 --------- --------- Total other assets 67,875 43,138 --------- --------- TOTAL $ 236,073 $ 199,136 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY --------- --------- CURRENT LIABILITIES: Current portion of long-term debt $ 12,137 $ 5,907 Accounts payable - trade 14,694 11,050 Accrued compensation 9,764 6,845 Accrued income taxes 332 1,632 Other current liabilities 11,154 12,844 --------- --------- Total current liabilities 48,081 38,278 --------- --------- LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS 51,350 67,516 --------- --------- OTHER LONG-TERM LIABILITIES 20,810 15,898 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock - authorized, 300,000 shares; none issued Common stock - authorized, 14,700,000 shares of $.01 par value; issued, 6,564,079 and 5,316,971 shares in 1998 and 1997, respectively 66 53 Additional paid-in capital 75,959 46,745 Retained earnings 46,537 36,937 Other stockholders' equity (2,731) (2,352) --------- --------- 119,831 81,383 Less treasury stock, at cost - 292,054 and 289,237 shares in 1998 and 1997, respectively (3,999) (3,939) --------- --------- Total stockholders' equity 115,832 77,444 --------- --------- TOTAL $ 236,073 $ 199,136 --------- ---------
See notes to consolidated financial statements. TRANSTECHNOLOGY CORPORATION 9 12 Statements of Consolidated Operations (In thousands, except share data)
YEARS ENDED MARCH 31, 1998 1997 1996 ----------- ----------- ----------- Net sales $ 203,928 $ 178,684 $ 158,024 Cost of sales 137,820 122,480 107,426 ----------- ----------- ----------- Gross profit 66,108 56,204 50,598 General, administrative and selling expenses 40,187 35,309 31,812 Interest expense 7,228 6,797 6,316 Interest income (1,020) (1,202) (1,010) Royalty and other income (440) (1,320) (820) ----------- ----------- ----------- Income from continuing operations before income taxes 20,153 16,620 14,300 Provision for income taxes 8,162 6,898 5,792 ----------- ----------- ----------- Income from continuing operations 11,991 9,722 8,508 Discontinued operations: Loss from operations (net of applicable tax benefit of $323 for 1996) -- -- (517) Loss from disposal (net of applicable tax benefits of $1,301, $663 and $1,077 for 1998, 1997 and 1996, respectively) (924) (934) (617) ----------- ----------- ----------- Net income $ 11,067 $ 8,788 $ 7,374 ----------- ----------- ----------- Earnings (loss) per share: Basic: Income from continuing operations $ 2.17 $ 1.92 $ 1.67 Loss from discontinued operations (0.17) (0.18) (0.22) ----------- ----------- ----------- Net income per share $ 2.00 $ 1.74 $ 1.45 ----------- ----------- ----------- Diluted: Income from continuing operations $ 2.11 $ 1.87 $ 1.66 Loss from discontinued operations (0.16) (0.18) (0.22) ----------- ----------- ----------- Net income per share $ 1.95 $ 1.69 $ 1.44 ----------- ----------- ----------- Weighted-average basic shares outstanding 5,520,000 5,064,000 5,093,000 Weighted-average diluted shares outstanding 5,689,000 5,196,000 5,134,000
See notes to consolidated financial statements. TRANSTECHNOLOGY CORPORATION 10 13 Statements of Consolidated Cash Flows (In thousands)
YEARS ENDED MARCH 31, 1998 1997 1996 --------- --------- --------- Cash flows from operating activities: Net income $ 11,067 $ 8,788 $ 7,374 Adjustments to reconcile net income to net cash provided by operating activities: Loss recognized on write-down of marketable securities -- -- 2,613 Depreciation and amortization 9,054 7,406 6,027 Provision for losses on accounts receivable 537 139 468 Loss (gain) on sale or disposal of fixed assets and discontinued businesses 1,087 64 (307) Changes in assets and liabilities - excluding the effects of acquisitions and dispositions: (Increase) decrease in accounts receivable (2,732) (620) 4,290 (Increase) decrease in inventories (2,685) 191 (6,098) Decrease (increase) in assets held for sale 836 262 (1,915) (Increase) decrease in other assets (4,166) (453) 4,825 Increase (decrease) in accounts payable 1,770 (3,650) 462 Increase in accrued compensation 2,989 553 2,226 (Decrease) increase in income taxes payable (1,300) 242 (676) Increase (decrease) in other liabilities 2,751 1,385 (8,577) --------- --------- --------- Net cash provided by operating activities 19,208 14,307 10,712 --------- --------- --------- Cash flows from investing activities: Business acquisitions (34,774) (3,602) (45,594) Capital expenditures (8,745) (5,477) (6,471) Proceeds from sale of fixed assets and discontinued businesses 2,144 2,705 8,111 Decrease in notes and other receivables 1,954 1,119 1,055 --------- --------- --------- Net cash used in investing activities (39,421) (5,255) (42,899) --------- --------- --------- Cash flows from financing activities: Proceeds from long-term borrowings 68,400 40,105 107,363 Payments on long-term debt (78,336) (45,273) (73,156) Proceeds from issuance of stock under stock option plan 2,213 365 188 Stock offering proceeds 26,908 -- -- Proceeds from foreign exchange contracts 2,036 -- -- Treasury stock purchases -- (1,625) (65) Dividends paid (1,467) (1,318) (1,325) --------- --------- --------- Net cash provided by (used in) financing activities 19,754 (7,746) 33,005 --------- --------- --------- Effect of exchange rate changes on cash (121) (128) -- (Decrease) increase in cash and cash equivalents (580) 1,178 818 Cash and cash equivalents at beginning of year 3,540 2,362 1,544 --------- --------- --------- Cash and cash equivalents at end of year $ 2,960 $ 3,540 $ 2,362 --------- --------- --------- Supplemental information: Interest payments $ 7,647 $ 6,708 $ 6,529 Income tax payments $ 5,988 $ 3,810 $ 2,703 --------- --------- ---------
See notes to consolidated financial statements. TRANSTECHNOLOGY CORPORATION 11 14 Statements of Consolidated Stockholders' Equity (In thousands, except share data)
YEARS ENDED COMMON STOCK TREASURY STOCK ADDITIONAL OTHER MARCH 31, 1998, --------------------- ---------------------- PAID-IN RETAINED STOCKHOLDERS' 1997 AND 1996 SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY TOTAL --------------- --------- --------- --------- --------- --------- --------- --------- --------- BALANCE, MARCH 31, 1995 5,242,316 $ 52 (172,500) $ (2,090) $ 45,802 $ 23,418 $ (2,680) $ 64,502 Net income -- -- -- -- -- 7,374 -- 7,374 Cash dividends ($.26 per share) -- -- -- -- -- (1,325) -- (1,325) Purchase of treasury stock -- -- (5,000) (65) -- -- -- (65) Issuance of stock under stock option plan 20,308 1 -- -- 187 -- -- 188 Issuance of stock under incentive bonus plan - net 13,839 -- -- -- 199 -- (122) 77 Foreign currency translation adjustments -- -- -- -- -- -- (894) (894) Realized investment holding losses -- -- -- -- -- -- 2,613 2,613 --------- --------- --------- --------- --------- --------- --------- --------- BALANCE, MARCH 31, 1996 5,276,463 53 (177,500) (2,155) 46,188 29,467 (1,083) 72,470 ========= ========= ========= ========= ========= ========= ========= ========= Net income -- -- -- -- -- 8,788 -- 8,788 Cash dividends ($.26 per share) -- -- -- -- -- (1,318) -- (1,318) Purchase of treasury stock -- -- (100,000) (1,625) -- -- -- (1,625) Issuance of stock under stock option plan 30,381 -- -- -- 365 -- -- 365 Issuance of stock under incentive bonus plan - net 10,127 -- (11,737) (159) 192 -- 75 108 Foreign currency translation adjustments -- -- -- -- -- -- (1,061) (1,061) Unrealized investment holding losses -- -- -- -- -- -- (283) (283) --------- --------- --------- --------- --------- --------- --------- --------- BALANCE, MARCH 31, 1997 5,316,971 53 (289,237) (3,939) 46,745 36,937 (2,352) 77,444 ========= ========= ========= ========= ========= ========= ========= ========= Net income -- -- -- -- -- 11,067 -- 11,067 Cash dividends ($.26 per share) -- -- -- -- -- (1,467) -- (1,467) Public sale of common stock, net of expenses 1,063,900 11 -- -- 26,897 -- -- 26,908 Issuance of stock under stock option plan 178,416 2 -- -- 2,211 -- -- 2,213 Issuance of stock under incentive bonus plan - net 4,792 -- (2,817) (60) 106 -- (2) 44 Foreign currency translation adjustments -- -- -- -- -- -- (487) (487) Unrealized investment holding gains -- -- -- -- -- -- 110 110 --------- --------- --------- --------- --------- --------- --------- --------- BALANCE, MARCH 31, 1998 6,564,079 $ 66 (292,054) $ (3,999) $ 75,959 $ 46,537 $ (2,731) $ 115,832 ========= ========= ========= ========= ========= ========= ========= =========
See notes to consolidated financial statements. TRANSTECHNOLOGY CORPORATION 12 15 Notes to Consolidated Financial Statements 1. SUMMARY OF ACCOUNTING PRINCIPLES BUSINESS - TransTechnology Corporation (the "Company") develops, manufactures and sells a wide range of products in two industry segments, Specialty Fastener Products and Rescue Hoist and Cargo Hook Products. The Company has manufacturing facilities located in the United States, Germany, the United Kingdom and Brazil. The Specialty Fastener Products Segment produces highly engineered precision metal retaining rings, gear driven band fasteners, circlips, custom cold forged parts and other threaded and non-threaded assembly fasteners primarily for the automotive, heavy truck, industrial and consumer/durables markets. This segment accounted for approximately 83% of the Company's consolidated 1998 net sales. Through its Rescue Hoist and Cargo Hook Products Segment, 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, and winches and hoists for aircraft and weapons systems. This segment accounted for approximately 17% of the Company's consolidated 1998 net sales. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles 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. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of TransTechnology Corporation and its subsidiaries, all of which are wholly-owned. Intercompany balances and transactions are eliminated in consolidation. ACCOUNTING FOR CONTRACTS - All of the Company's contracts are firm fixed-price. Sales and cost of sales on such contracts are recorded as deliveries are made. Accounts receivable from the United States Government represent billed receivables and substantially all amounts are expected to be collected within one year. Losses on contracts are recorded as they are identified. 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. Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the estimated useful lives of the improvements or the terms of the leases. 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. It has been determined that no impairment loss needs to be recognized for such assets. 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 being amortized over 40 years, or shorter periods where deemed appropriate. The Company has determined that there is no impairment in value since projected future operating results on an undiscounted basis, through the period such costs in excess of net assets of acquired businesses are being amortized, are expected to be sufficient to absorb the amortization. TRANSTECHNOLOGY CORPORATION 13 16 EARNINGS PER SHARE - 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 stock options using the treasury stock method. All period earnings per share figures presented herein have been calculated in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. The components of the denominator for basic earnings per common share and diluted earnings per common share are reconciled as follows:
1998 1997 1996 Basic earnings per common share: Weighted-average common shares outstanding 5,520,000 5,064,000 5,093,000 ========= ========= ========= Diluted earnings per common share: Weighted-average common shares outstanding 5,520,000 5,064,000 5,093,000 Stock options 169,000 132,000 41,000 --------- --------- --------- Denominator for diluted earnings per common share 5,689,000 5,196,000 5,134,000 ========= ========= =========
RESEARCH, DEVELOPMENT AND ENGINEERING COSTS - Research and development costs and engineering costs in support of active products, which are charged to expense when incurred, amounted to $2.1 million, $2.0 million and $1.7 million in 1998, 1997 and 1996, respectively. Included in these amounts were expenditures of $1.1 million, $0.8 million and $0.9 million in 1998, 1997 and 1996, respectively, which represent costs related to research and development activities. FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the Company's international operations, other than the operations located in a highly inflationary country, have been translated into U.S. dollars at year-end exchange rates, with resulting translation gains and losses accumulated as a separate component of other stockholders' equity. Income and expense items are converted into U.S. dollars at average rates of exchange prevailing during the year. Translation adjustments of the operation located in a country with a highly inflationary economy, which are immaterial, are included as a component of operating income. INCOME TAXES - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. INVESTMENTS - On March 1, 1994, the Company received 465,000 shares of Mace Security International common stock, valued at $3.4 million, as partial consideration for the sale of a division. In March 1996, the Company recorded a $2.6 million pretax charge to continuing operations to write down the carrying value of these shares to their current market value as the decline in value of these shares was determined to be other than temporary. Unrealized holding losses of $0.2 million were reported as a reduction of other stockholders' equity at March 31, 1998. FINANCIAL INSTRUMENTS - The Company does not hold or issue financial instruments for trading purposes. Amounts to be paid or received under interest rate swap agreements are recognized as increases or reductions in interest expense in the periods in which they accrue. The Company enters into off-balance sheet forward foreign exchange instruments in order to hedge certain financing and investment transactions denominated in foreign currencies, purchase commitments and certain foreign currency denominated long-term debt. Gains and losses on the investing and financing transactions are included in other income/expense. Gains and losses on the foreign currency purchase commitment transactions are included in the cost of the underlying purchases. NEW ACCOUNTING STANDARDS - In 1997, SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information were issued. The Company is required to adopt these standards for its fiscal year beginning April 1, 1998. The Company has not yet completed its analysis of which operating segments, if any, will be disclosed differently than previously reported. TRANSTECHNOLOGY CORPORATION 14 17 2. DISCONTINUED OPERATIONS In October 1997, the Company sold the facility that was formerly used by its Financial Systems division for $1.1 million in cash. This sale resulted in an after-tax disposal loss of $0.1 million. In June 1995, January 1996 and November 1997, the Company sold the domestic, European and Australian portions of its computer graphics service operations, respectively, in three separate transactions to three different buyers. These businesses were classified as discontinued operations in March 1995. The sale of the domestic portion for $0.7 million in cash and $0.6 million in notes receivable was for book value. The sale of the European and Australian portions was for $0.1 million in cash and $0.2 million in notes receivable and resulted in an after-tax gain on disposal of $0.1 million in 1996. Additional after-tax disposal costs of $0.2 million were recorded in 1997 in connection with these sales. In August 1995, the Company sold its electronics division for $4.4 million in cash and $9.6 million in notes receivable. The sale of this operation resulted in an after-tax gain on disposal of $0.2 million. In March 1995, the Company sold substantially all of the assets and business of its chaff products operation for $6.7 million in cash. The sale of this operation resulted in an after-tax loss on disposal of $0.4 million. An additional after-tax loss on disposal costs of $0.2 million was recorded in 1996 in connection with the sale. The Company retained the chaff avionics product line and negotiated its sale separately in May 1995 for $0.3 million in cash and $0.7 million in notes receivable, resulting in an after-tax charge of $0.4 million. In the fourth quarter of fiscal 1996, the Company recorded an after-tax charge of $0.4 million to record the anticipated loss on the sale of the facility that was formerly used by this operation. Additional after-tax disposal costs of $0.1 million were recorded in both 1998 and 1997 related to the final sale of this facility. Additional after-tax costs of $0.8 million, $0.6 million and $0.7 million were recorded in 1998, 1997 and 1996, respectively, in connection with other previously discontinued and sold operations. These additional costs represent adjustments to previous estimates related primarily to legal and environmental matters. Operating results of the discontinued businesses were as follows (in thousands):
1996 Total sales $ 7,951 ======= Loss before income taxes $ (840) Income tax benefit 323 ------- Loss from operations $ (517) =======
The loss from operations includes interest expense of $0.2 million in 1996. Assets held for sale at March 31, 1998 and 1997 were as follows (in thousands):
1998 1997 Inventory $ 197 $ 429 Property 5,157 6,577 Other assets 88 611 ------ ------ Assets held for sale $5,442 $7,617 ====== ======
3. ACQUISITIONS On April 17, 1997, the Company acquired all of the outstanding stock of TCR Corporation for $32.6 million in cash plus direct acquisition costs and other contingent consideration. TCR Corporation, located in Minneapolis, Minnesota, produces cold forged and other externally threaded fasteners and related products for the automotive, heavy vehicle, marine and industrial markets. The following summarizes the Company's pro forma information as if the acquisition of TCR Corporation had occurred at the beginning of the period presented. The pro forma results give effect to the amortization of goodwill and additional depreciation and the effects on interest expense and taxes. TRANSTECHNOLOGY CORPORATION 15 18
1997 Net sales $202,026 ======== Income from continuing operations $ 10,071 ======== Net income $ 9,137 ======== Basic earnings per share $ 1.80 ======== Diluted earnings per share $ 1.76 ========
The above pro forma information does not purport to be indicative of the financial results which actually would have occurred had the acquisition been made at the beginning of the period presented or subsequent to that date. On June 18, 1996, the Company acquired the Pebra hose clamp business from Pebra GmbH Paul Braun i.K. for approximately $3 million in cash plus direct acquisition costs. Pebra manufactures heavy duty hose clamps primarily for use in the manufacture of heavy trucks in Europe. On June 30, 1995, the Company acquired the Seeger Group of companies from a unit of AB SKF of Goteborg, Sweden for approximately $43 million in cash plus direct acquisition costs and the assumption of trade debts and accrued expenses. The Seeger Group, headquartered in Konigstein, Germany, manufactures circlips, snap rings and retaining rings, primarily for use in the manufacture of automotive, heavy trucks and other industrial and commercial applications. 4. INVENTORIES Inventories at March 31 consisted of the following (in thousands):
1998 1997 Finished goods $22,515 $21,897 Work in process 11,330 10,335 Purchased and manufactured parts 20,140 18,445 ------- ------- Total $53,985 $50,677 ======= =======
5. INCOME TAXES The components of total income (loss) from operations (including continuing and discontinued operations) before income taxes were (in thousands):
1998 1997 1996 Domestic $17,068 $12,167 $ 8,124 Foreign 860 2,856 3,642 ------- ------- ------- Total $17,928 $15,023 $11,766 ======= ======= =======
The provision for income taxes is summarized below (in thousands):
1998 1997 1996 Currently payable: Federal $4,325 $3,549 $1,813 Foreign 77 42 656 State 808 975 517 ------ ------ ------ 5,210 4,566 2,986 Deferred 1,651 1,669 1,406 ------ ------ ------ Total $6,861 $6,235 $4,392 ====== ====== ======
The provision (benefit) for income taxes is allocated between continuing and discontinued operations as summarized below (in thousands):
1998 1997 1996 Continuing $ 8,162 $ 6,898 $ 5,792 Discontinued (1,301) (663) (1,400) ------- ------- ------- Total $ 6,861 $ 6,235 $ 4,392 ======= ======= =======
The consolidated effective tax rates for continuing operations differ from the federal statutory rates as follows:
1998 1997 1996 Statutory federal rate 35.0% 35.0% 34.0% State income taxes after federal income tax 4.8 4.5 3.6 Earnings of the foreign sales corporation (2.4) (2.0) (2.6) Amortization of purchase adjustments not deductible for tax purposes 1.6 -- 1.9 Foreign rate differential -- 2.4 2.6 Other 1.5 1.6 1.0 ------ ------ ------ Consolidated effective tax rate 40.5% 41.5% 40.5% ====== ====== ======
TRANSTECHNOLOGY CORPORATION 16 19 The following is an analysis of deferred income taxes (in thousands):
1998 1997 Assets: Current: Inventory $ 1,008 $ 2,025 Net operating loss carryforward 681 650 Tax basis in excess of book basis on disposal of subsidiary -- 640 Other 1,084 978 ------- ------- Total current 2,773 4,293 ------- ------- Noncurrent: Environmental 852 917 Accrued liabilities 1,572 2,068 Investment 1,062 1,128 Net operating loss carryforward 984 1,618 Other 1,623 -- ------- ------- Total noncurrent 6,093 5,731 ------- ------- Total assets $ 8,866 $10,024 ======= ======= Liabilities: Noncurrent: Property $10,145 $ 5,862 Other 578 938 ------- ------- Total liabilities $10,723 $ 6,800 ======= =======
Summary of deferred income taxes (in thousands):
1998 1997 Net current assets $ 2,773 $ 4,293 Net noncurrent liabilities (4,630) (1,069) ------- ------- Total $(1,857) $ 3,224 ======= =======
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):
1998 1997 Credit agreement - 7.58% $ -- $22,825 Credit agreement - 8.50% 2,676 -- Term loan - 7.50% -- 25,289 Term loan - 6.85% 36,099 -- Term loan - 9.79% 24,000 24,500 Other 712 809 ------- ------- 63,487 73,423 Less current maturities 12,137 5,907 ------- ------- Total $51,350 $67,516 ======= =======
CREDIT AGREEMENT - At March 31, 1998, the Company's debt consisted of $1.3 million of borrowings under a revolving credit line, $1.4 million of borrowings under international lines of credit, a $36.1 million term loan, a $24 million term loan and $0.7 million of other borrowings. The revolving bank credit line commitment is $30 million, will be available to the Company through March 31, 2002 and is subject to a borrowing base formula. The agreement provides for borrowings and letters of credit based on collateralized accounts receivable and inventory. In addition, all of the remaining assets of the Company and its subsidiaries are included as collateral. Letters of credit under the line, which are included in the borrowing base formula, are limited to $5 million. Letters of credit outstanding under the line at March 31, 1998 were $0.1 million. The total commitment from the international lines of credit is $10 million and has the same availability and collateral as the revolving credit line, but is not subject to a borrowing base formula. Interest on the revolver and international lines of credit 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 and financial goals. The outstanding $36.1 million (which includes $5.4 million and $5.1 million payable in DM and pound sterling, respectively) and $24 million term loans are with the same lenders as the revolving and international lines of credit, are secured by the same collateral and are due and payable on March 31, 2001 and June 30, 2002, respectively. Quarterly principal payments on the $36.1 million term loan of $3 million, with escalations to $3.3 million and $4.2 million in June 1999 and June 2000, respectively, began on December 31, 1995, and are due and payable on the last day of each quarter through March 31, 2001. Interest on the $36.1 million term loan is tied to the lending bank's prime rate, or LIBOR, plus a margin that varies, depending on the Company's achievement of certain operating and financial goals. Principal payments on the $24 million term loan of $0.5 million are due and payable annually beginning on June 30, 1996 through June 30, 2000, with final balloon payments of $7.5 million and $15 million due and payable on June 30, 2001 and June 30, 2002, respectively. Interest on the $24 million term loan accrues at the primary lending bank's prime rate plus two percentage points. The agreement also gives the Company the option of using LIBOR plus three and one-quarter percentage points. At March 31, 1998, the Company had $60.1 million of borrowings utilizing LIBOR as the base rate. TRANSTECHNOLOGY CORPORATION 17 20 The credit facility limits the Company's ability to pay dividends to 25% of net income and restricts capital expenditures to $9 million annually, as well as containing other customary financial covenants. In November 1997, the Company completed a public stock offering which yielded net cash proceeds of $28.1 million, including proceeds from stock options exercised as part of the transaction, which were used to repay the Company's Revolver, International Lines of Credit and Term Loan A, as stipulated in the Company's credit agreement. On March 31, 1997, the Company amended its Term Loan A bank debt to increase the availability by $20 million, giving the Company a total of $35 million available for acquisitions. On April 17, 1997, $32.6 million of this amount was used by the Company to acquire TCR Corporation. OTHER - Other long-term debt is comprised principally of an obligation due under a collateralized borrowing arrangement with a fixed interest rate of 3% due December 2004 and loans on life insurance policies owned by the Company with a fixed interest rate of 5%. Debt maturities (in thousands): 1999 $12,137 2000 13,063 2001 12,537 2002 10,224 2003 15,050 Thereafter 476 ------- Total $63,487 =======
7. STOCKHOLDERS' EQUITY AND EMPLOYEE/DIRECTOR STOCK OPTIONS Under the terms of the Company's amended and restated 1992 long-term incentive 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. Option exercise prices equal the market price of the common shares at their grant dates. Options expire not later than five years after the date of the grant. Options granted vest ratably over three years beginning one year after the date of grant. Restricted stock is payable in equivalent number of common shares; the shares are distributable in a single installment and vest ratably over a three year period from the date of the award. The Company continues to apply the accounting standards set forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. 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 1998, 1997 and 1996 would be $11.0 million, $8.7 million and $7.4 million, respectively; pro forma diluted earnings per common share for 1998, 1997 and 1996 would be $1.93, $1.73 and $1.45, 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 April 1, 1995 375,015 $12.37 Granted 109,000 12.40 Exercised (20,308) 9.22 Canceled or expired (55,111) 13.12 -------- Outstanding at March 31, 1996 408,596 12.62 Granted 97,000) 16.85 Exercised (30,381) 12.04 Canceled or expired (11,001) 12.55 -------- Outstanding at March 31, 1997 464,214 13.54 Granted 96,000 21.07 Exercised (178,416) 12.41 Canceled or expired (8,000) 15.00 -------- Outstanding at March 31, 1998 373,798 15.63 ======== Options exercisable at March 31, 1996 177,253 11.97 Options exercisable at March 31, 1997 264,211 12.26 Options exercisable at March 31, 1998 201,130 13.87
In 1998, 1997 and 1996, the Company awarded restricted stock totaling 4,792 shares, 6,435 shares and 18,267 shares, respectively. The weighted-average fair value of this restricted stock was $22.14, $17.25 and $13.33 in 1998, 1997 and 1996, respectively. The expense recorded in 1998, 1997 and 1996 for restricted stock awards was $60,000, $159,000 and $122,000, respectively. The weighted-average Black-Scholes value per option granted in 1998, 1997 and 1996 was $19.75, $13.55 and $10.28, respectively. The following weighted-average assumptions were used in the Black-Scholes option pricing model for options granted in 1998, 1997 and 1996:
1998 1997 1996 Dividend yield 1.0% 1.4% 2.0% Volatility 25.0% 29.0% 25.0% Risk-free interest rate 6.0% 6.2% 5.7% Expected term of options (in years) 4.0 4.0 4.0
TRANSTECHNOLOGY CORPORATION 18 21 For options outstanding and exercisable at March 31, 1998, the exercise price ranges and average remaining lives were:
Options Outstanding Options Exercisable ----------------------------------------------- ------------------------------------ Number Weighted- Weighted- Number Weighted- Range of Outstanding Average Average Exercisable Average Exercise at Remaining Exercise at Exercise Prices March 31, 1998 Life Price March 31, 1998 Price $ 9-14 110,643 2 $ 11.91 84,642 $ 11.70 15-19 173,155 2 15.93 116,488 15.45 20-27 90,000 4 21.11 -- -- ------- ------- ------- ------- 373,798 3 $ 15.63 201,130 $ 13.87 ------- ------- ------- -------
8. EMPLOYEE BENEFIT PLANS The Company has an incentive bonus plan which provides for cash payments to selected employees based upon formulas approved by the Board of Directors. Provisions for awards under the plan approximated $2.0 million, $1.6 million and $1.7 million in 1998, 1997 and 1996, respectively. The Company has three defined contribution plans covering substantially all domestic employees. Contributions are based on certain percentages of an employee's eligible compensation. Expenses related to these plans were $2.8 million, $2.5 million and $2.2 million in 1998, 1997 and 1996, respectively. The Company provides postretirement benefits to union employees at one of the Company's divisions. The Company continues to fund these benefits on a pay-as-you-go basis. The components of net postretirement benefit cost for the years ended March 31 were as follows (in thousands):
1998 1997 1996 Service cost (benefits earned during the year) $ 2 $ 3 $ 88 Interest cost on projected postretirement benefit obligation 72 79 168 Amortization of transition obligation -- -- 101 Amortization of net gain -- -- (10) --- --- ----- Total postretirement benefit cost $74 $82 $ 347 --- --- -----
The accumulated postretirement benefit obligation and funded status at March 31 were as follows (in thousands):
1998 1997 Accumulated postretirement benefit obligation: Retirees $ (950) $ (920) Fully eligible plan participants (22) (20) Other active plan participants (82) (70) ------- ------- Accumulated postretirement benefit obligation (1,054) (1,010) Unrecognized net loss (gain) 63 (6) ------- ------- Accrued postretirement benefit liability $ (991) $(1,016) ------- -------
During fiscal year 1997, the Plan was amended reducing the remaining service lives of participants and limiting certain benefits provided by the Plan. The curtailment resulted in an additional 1997 expense of approximately $530,000. Accrued postretirement benefit cost is included in other liabilities on the balance sheet. The assumed health care cost trend rates used for measurement purposes were 11.0% and 12.0% for 1998 and 1997, respectively, trending down 1.0% each year to 10.0% in 1999 and then decreasing 0.5% each year to 6.0% in 2007 and beyond, for substantially all participants. The weighted-average discount rate used was 7.0% and 7.5% at March 31, 1998 and 1997, respectively. A 1.0% increase in the health care trend rate would increase the annual expense by approximately 14.9% for the year ended March 31, 1998 and the accumulated postretirement benefit obligation by approximately 14.6% at March 31, 1998. TRANSTECHNOLOGY CORPORATION 19 22 In addition, the Company maintains several defined benefit retirement plans for certain non-U.S. employees. Funding policies are based on local statutes. Net periodic pension cost for the plans includes the following (in thousands):
1998 1997 1996 Service cost $ 42 $ 49 $ 40 Interest cost 346 436 343 Net deferral and amortization 121 43 34 ---- ---- ---- Net periodic pension cost $509 $528 $417 ---- ---- ----
The following table sets forth the funded status of the plan at March 31, 1998 and 1997 (in thousands):
1998 1997 Total accumulated benefit obligation $(4,921) $(5,408) ------- ------- Projected benefit obligation $(4,999) $(5,489) Unrecognized net (gain) (213) (75) ------- ------- Unfunded accrued pension cost (included in other long-term liabilities) $(5,212) $(5,564) ------- -------
In determining the projected benefit obligation, the discount rate was 7.25% for both 1998 and 1997 and the rate of salary increases was 2.5% in both 1998 and 1997. 9. FINANCIAL INSTRUMENTS INTEREST RATE SWAP AGREEMENTS - The Company periodically enters 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 fluctuations 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, 1998 $ 25,000 8/98 5.65% 6.54% DM9,981 12/98 3.53% 4.57% March 31, 1997 $ 25,000 8/98 5.56% 6.54% DM12,648 12/98 3.31% 4.57%
(1) Based on three-month LIBOR Foreign Currency Exchange Agreements - The Company enters into forward foreign currency agreements to hedge foreign currency financing transactions. Realized and unrealized gains and losses arising from forward currency contracts are recognized as adjustments to the gains and losses resulting from the underlying hedged transactions. In addition, the Company enters into forward currency contracts to hedge certain foreign currency purchase commitments. Gains and losses from these transactions are included in the cost of the underlying purchases. The table below summarizes by currency the contractual amounts of the Company's foreign exchange contracts. The "Buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar equivalent to sell foreign currencies (in thousands):
1998 1997 ----------------------- ----------------------- Buy Sell Buy Sell Currency Deutsche mark $ -- $16,405 $ 96 $11,992 Pound sterling 3,677 8,507 -- 1,459 ------- ------- ------- ------- $ 3,677 $24,912 $ 96 $13,451 ------- ------- ------- -------
Fair Value of Financial Instruments - The fair values of cash and cash equivalents, receivables and notes receivable approximate their carrying values due to the short-term nature of the instruments. The fair value of the Company's long-term notes receivable and debt approximates their carrying values due to the variable interest-rate feature of the instruments. The fair values of the Company's interest rate swaps and forward foreign exchange agreements are the estimated amounts the Company would have to (pay) or receive to terminate the agreements based upon quoted market prices as provided by financial institutions which are counterparties to the agreements and were as follows (in thousands):
1998 1997 (Pay) receive (Pay) receive Interest rate swap agreements $ (141) $ (240) Forward foreign exchange agreements $ 20 $ 1,329
TRANSTECHNOLOGY CORPORATION 20 23 10. COMMITMENTS Rent expense under operating leases net of sublease income, for the years ended March 31, 1998, 1997 and 1996 was $2.3 million, $2.3 million and $2.0 million, respectively. The Company and its subsidiaries have minimum rental commitments under noncancellable operating leases (relating primarily to leased buildings) which are as follows (in thousands):
YEAR ENDING MARCH 31, 1999 $ 2,689 2000 1,597 2001 1,076 2002 705 2003 101 -------- Total $ 6,168 ========
11. CONTINGENCIES ENVIRONMENTAL MATTERS - The Company has commenced environmental site assessments and cleanup feasibility studies to determine the presence, extent and sources of any environmental contamination at a site in Pennsylvania which continues to be owned although the related business has been sold. Although no governmental action requiring remediation has been taken at this time, the Company is working in cooperation with the relevant state authority and any remedial work required to be performed would be subject to its approval. A design report for implementation of a portion of a remedy at the Pennsylvania site has been prepared and submitted to the state. At March 31, 1998, the balance of the Company's cleanup reserve was $1.9 million payable over the next several years. In addition, the Company is pursuing recovery of a portion of cleanup costs in litigation with several of its insurance carriers. The Company has also entered into preliminary discussions with the Federal government for recovery of cleanup costs. The Company expects that remediation work at the Pennsylvania site will not be completed before fiscal 2000. The Company also continues to participate in environmental assessments and remediation work at ten 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 $1.3 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 six 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. It is not possible to reliably estimate the costs associated with any remedial work to be performed until studies at these sites have been completed, the scope of work defined and a method of remediation selected and approved by the relevant state authorities, and the costs allocated among the potentially responsible parties. 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. 12. SEGMENT AND GEOGRAPHIC INFORMATION The Company develops, manufactures and sells, primarily, specialty fastener products and rescue hoist and cargo hook products. Specialty Fastener Products include gear-driven band fasteners, circlips, threaded and non-threaded assembly fasteners, retaining rings and custom cold forged parts for the auto, heavy equipment, industrial machinery, consumer/durables, aircraft and marine industries. Rescue Hoist and Cargo Hook Products include lifting, control and restraint devices - principally helicopter rescue hoists and external hook systems, winches and hoists for aircraft and weapons-handling systems and aircraft and cargo tie-downs. Operating profit is net sales less operating expenses. General corporate expenses, interest and income taxes have not been deducted in determining operating profit. Assets, depreciation and amortization, and capital expenditures are those identifiable to a particular segment by their use. Approximately 11.0%, 9.0% and 8.0% of sales from continuing operations in 1998, 1997 and 1996, respectively, were derived from sales to the United States Government and its prime contractors and are attributable primarily to the Rescue Hoist and Cargo Hook Products Segment. TRANSTECHNOLOGY CORPORATION 21 24
OPERATING DEPRECIATION/ FISCAL PROFIT CAPITAL AMORTIZATION IDENTIFIABLE (In thousands) YEAR SALES (LOSS)(1) EXPENDITURES EXPENSE(2) ASSETS ---- ----- --------- ------------ ---------- ------------ Specialty fastener 1998 $168,469 $ 26,177 $7,935 $7,801 $178,331 products 1997 144,197 24,040 4,715 5,881 140,960 1996 127,487 23,702 5,171 4,710 138,001 ---- -------- -------- ------ ------ -------- Rescue hoist and 1998 35,459 9,285 469 544 25,540 cargo hook products 1997 34,487 7,483 618 645 26,146 1996 30,537 4,928 901 756 26,334 ---- -------- -------- ------ ------ -------- Total segments 1998 203,928 35,462 8,404 8,345 203,871 1997 178,684 31,523 5,333 6,526 167,106 1996 158,024 28,630 6,072 5,466 164,335 ---- -------- -------- ------ ------ -------- Corporate 1998 -- (9,119) 341 709 32,202 1997 -- (9,253) 144 825 32,030 1996 -- (8,987) 399 438 35,032 ---- -------- -------- ------ ------ -------- Corporate interest 1998 -- 1,038 -- -- -- and other income 1997 -- 1,147 -- -- -- 1996 -- 973 -- -- -- ---- -------- -------- ------ ------ -------- Interest expense 1998 -- (7,228) -- -- -- 1997 -- (6,797) -- -- -- 1996 -- (6,316) -- -- -- ---- -------- -------- ------ ------ -------- Consolidated 1998 $203,928 $ 20,153 $8,745 $9,054 $236,073 1997 178,684 16,620 5,477 7,351 199,136 1996 158,024 14,300 6,471 5,904 199,367
(1) Operating profit represents net sales less operating expenses which include all costs and expenses related to the Company's operations in each segment. General corporate expenses and investments and other income earned at the corporate level are included in the corporate section. Interest expense is also separately reported. The amount of the "Consolidated" line represents "Income from Continuing Operations Before Income Taxes." Loss from discontinued operations is not included. (2) The depreciation/amortization expense from discontinued operations is excluded from the above schedule. In 1998, 1997 and 1996, the Company had revenues from export sales as follows (in thousands):
Location 1998 1997 1996 Western Europe $ 7,980 $ 8,349 $ 7,230 Canada 7,095 6,316 6,323 Pacific and Far East 2,296 3,027 2,312 Mexico, Central and South America 2,556 1,751 851 Middle East 194 194 167 Other 158 156 22 ------- ------- ------- Total $20,279 $19,793 $16,905 ======= ======= =======
TRANSTECHNOLOGY CORPORATION 22 25 Results set forth below for international operations represent sales and operating income of foreign based subsidiaries (in thousands):
1998 1997 1996 Net sales: Domestic operations $ 146,682 $ 120,655 $ 112,860 International operations (1) 57,246 58,029 45,164 --------- --------- --------- Net sales $ 203,928 $ 178,684 $ 158,024 ========= ========= ========= Operating income: Domestic operations $ 30,808 $ 24,991 $ 22,454 International operations (1) 4,654 6,532 6,176 --------- --------- --------- Operating income 35,462 31,523 28,630 Interest expense (7,228) (6,797) (6,316) Corporate expense and other (8,081) (8,106) (8,014) --------- --------- --------- Income from continuing operations before taxes $ 20,153 $ 16,620 $ 14,300 ========= ========= ========= Identifiable assets: Domestic operations $ 136,347 $ 94,794 $ 96,944 International operations (1) 67,524 72,312 67,391 Corporate 32,202 32,030 35,032 --------- --------- --------- Total assets $ 236,073 $ 199,136 $ 199,367 ========= ========= =========
(1) International operations are primarily located in Europe. 13. UNAUDITED QUARTERLY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL 1998 Net sales $ 49,923 $50,013 $48,452 $55,540 $203,928 Gross profit 15,348 15,933 16,454 18,373 66,108 Income from continuing operations 2,367 2,387 3,314 3,923 11,991 Loss from discontinued operations (102) (125) (161) (536) (924) -------- ------- ------- ------- -------- Net income $ 2,265 $ 2,262 $ 3,153 $ 3,387 $ 11,067 ======== ======= ======= ======= ======== Basic earnings (loss) per share: Income from continuing operations $ 0.47 $ 0.47 $ 0.58 $ 0.63 $ 2.17 Loss from discontinued operations (0.02) (0.02) (0.03) (0.09) (0.17) -------- ------- ------- ------- -------- Net income $ 0.45 $ 0.45 $ 0.55 $ 0.54 $ 2.00 ======== ======= ======= ======= ======== Diluted earnings (loss) per share: Income from continuing operations $ 0.46 $ 0.45 $ 0.57 $ 0.61 $ 2.11 Loss from discontinued operations (0.02) (0.02) (0.03) (0.08) (0.16) -------- ------- ------- ------- -------- Net income $ 0.44 $ 0.43 $ 0.54 $ 0.53 $ 1.95 ======== ======= ======= ======= ======== 1997 Net sales $ 44,640 $43,580 $42,851 $47,613 $178,684 Gross profit 13,701 12,496 13,990 16,017 56,204 Income from continuing operations 2,097 1,727 3,020 2,878 9,722 Loss from discontinued operations (269) (206) (199) (260) (934) -------- ------- ------- ------- -------- Net income $ 1,828 $ 1,521 $ 2,821 $ 2,618 $ 8,788 ======== ======= ======= ======= ======== Basic earnings (loss) per share: Income from continuing operations $ 0.41 $ 0.34 $ 0.60 $ 0.55 $ 1.92 Loss from discontinued operations (0.05) (0.04) (0.04) (0.05) (0.18) -------- ------- ------- ------- -------- Net income $ 0.36 $ 0.30 $ 0.56 $ 0.50 $ 1.74 ======== ======= ======= ======= ======== Diluted earnings (loss) per share: Income from continuing operations $ 0.40 $ 0.33 $ 0.59 $ 0.55 $ 1.87 Loss from discontinued operations (0.05) (0.04) (0.04) (0.05) (0.18) -------- ------- ------- ------- -------- Net income $ 0.35 $ 0.29 $ 0.55 $ 0.50 $ 1.69 ======== ======= ======= ======= ========
Earnings (loss) per share information has been calculated in accordance with the provisions of SFAS No. 128. TRANSTECHNOLOGY CORPORATION 23 26 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, 1998 and 1997, and the related statements of consolidated operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1998. 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 did not audit the financial statements of The New Seeger Group (whose members are consolidated subsidiaries) for the period ended March 31, 1996, which statements reflect total revenues constituting 28% of the related consolidated total for 1996. These statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for The New Seeger Group for the period ended March 31, 1996, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of TransTechnology Corporation and subsidiaries at March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche, LLP Parsippany, New Jersey May 12, 1998 TRANSTECHNOLOGY CORPORATION 24 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company's fiscal year ends on March 31. Accordingly, all references to years in this Management's Discussion refer to the fiscal year ended March 31 of the indicated year. Also, when referred to herein, operating profit means net sales less operating expenses, without deduction for general corporate expenses, interest and income taxes. Sales from continuing operations in 1998 were $203.9 million, an increase of $25.2 million or 14% from 1997, compared with a $20.7 million or a 13% increase from 1996 to 1997. Gross profit in 1998 increased $9.9 million or 18% from 1997, compared with an increase of $5.6 million or 11% from 1996 to 1997. Operating profit from continuing operations for 1998 was $35.5 million, an increase of $3.9 million or 12% from 1997, compared with an increase of $2.9 million or 10% from 1996 to 1997. Changes in sales, operating profit and new orders from continuing operations are discussed below by segment, and additional information regarding industry segments is contained in Note 12 of the Notes to Financial Statements. Net income, including discontinued operations, for 1998 was $11.1 million or $1.95 per diluted share compared to $8.8 million or $1.69 per diluted share in 1997. These changes in net income were affected both by operating profit, as discussed in the Business Segment sections below, and by discontinued operations, as discussed in the Discontinued Operations section below. Net losses from discontinued operations, including disposal losses, were $0.9 million or $0.16 per diluted share in 1998 and $0.9 million or $0.18 per diluted share in 1997. Additionally, earnings per share was affected by the completion of the Company's 1.154 million share stock offering in the third quarter of 1998, as discussed below in the Liquidity and Capital Resources section. In the first quarter of 1998 the Company acquired all of the outstanding shares of TCR Corporation, and, in the first quarter of 1997 the Company acquired the Pebra hose clamp business, as discussed below in the Acquisitions section and the Business Segment section. Excluding expense allocations of $0.3 million to a discontinued operation in 1996 and a $2.6 million fourth quarter 1996 pre-tax charge to continuing operations to write down to market value the carrying value of equity securities acquired from the sale of a former division when the decline in value of those securities was determined to be other than temporary, general corporate expense increased in 1997 by approximately $2.5 million or 38% over 1996. This increase was primarily due to the Company accruing, as a corporate expense, approximately $1 million in 1997 relating to the long-term incentive plan. An additional $0.9 million was accrued in 1998 relating to this plan which the Company expects to pay early in 1999. Increased business development costs, the relocation of the corporate office out of an operating division's building in 1997 and increased staffing in both years also contributed to the overall corporate expense increase in 1998 and 1997 as compared to 1996. Interest expense increased $0.4 million in 1998 from 1997 and $0.5 million in 1997 from 1996 primarily as a result of increased bank borrowings related to the acquisition of TCR Corporation in 1998 and the acquisition of the Seeger Group of companies in 1996, as further discussed below in the Acquisitions section and Liquidity and Capital Resources section. TRANSTECHNOLOGY CORPORATION 25 28 New orders received during 1998 totaled $206.9 million, an increase of $30.4 million or 17% from 1997. New orders received during 1997 totaled $176.5 million, an increase of $13.9 million or 9% from 1996. At March 31, 1998, total backlog of unfilled orders was $75.9 million compared to $66.5 million and $62.3 million at March 31, 1997 and 1996, respectively. New orders and backlog by industry segment are discussed below. SPECIALTY FASTENER PRODUCTS SEGMENT 1998 COMPARED WITH 1997 Sales for the Specialty Fastener Products Segment were $168.5 million in l998, an increase of $24.3 million or 17% from 1997. The increase in sales was primarily due to the inclusion of almost a full year of TCR Corporation operations in l998 and overall increased volume of domestic and European gear-driven fasteners in l998 as compared to 1997. Specialty Fastener sales were negatively impacted in l998 by unfavorable currency exchange rates affecting the Company's European retaining ring businesses and price reductions due to the continued consolidation of major European distributors. Domestic retaining ring sales were down primarily as a result of operational problems associated with the consolidation of the Company's domestic retaining ring businesses. Operating profit for the Specialty Fastener Products Segment was $26.2 million in 1998, an increase of $2.1 million or 9% from 1997. The primary factor contributing to the segment's increased operating profit in l998 was the TCR Corporation acquisition as well as the domestic and European gear-driven fasteners sales increases over the prior year as mentioned above. These increases were partially offset by unfavorable unhedged intercompany foreign exchange transactions, lower margins for European retaining rings due to the distributor consolidation, inefficiencies during the absorption of work moved to the UK from the closed German facility and the stronger dollar versus Deutsche mark compared to 1997. In 1998, new orders in the Specialty Fastener Products Segment increased $30.4 million or 17% from 1997. The primary reasons for the increase were the same as those noted in the paragraph above relative to the increase in sales. Backlog of unfilled orders were $43.5 million at March 31, 1998 compared to $34 million at March 31, 1997. Commencing in 1997 and continuing through 1998, the Company began and has essentially completed the process of consolidating its domestic retaining ring manufacturing and distribution facilities, implementing new integrated manufacturing software and consolidating the marketing, credit, and customer service staff to a single new location. During this same period, the Company began the consolidation and standardization of its overseas retaining ring manufacturing operations by completing both the installation of a new business information system and the closing of one of its two retaining ring factories in Germany. Production from this factory was transferred primarily to the Company's UK manufacturing facility. SPECIALTY FASTENER PRODUCTS SEGMENT 1997 COMPARED WITH 1996 Sales for the Specialty Fastener Products Segment were $144.2 million in 1997, an increase of $16.7 million or 13% from 1996. The increase in sales was primarily due to the inclusion of twelve months of Seeger group operations in 1997 versus nine months of operations in 1996, the inclusion of nine months of operations of the Pebra hose clamp business in 1997, and overall increased volume of domestic gear-driven fasteners in 1997 as compared to 1996. Additionally, Specialty Fastener sales were negatively impacted in 1997 by a weakened economy in Europe and a stronger dollar versus Deutsche mark as compared to 1996. TRANSTECHNOLOGY CORPORATION 26 29 Operating profit for the Specialty Fastener Products Segment was $24 million in 1997, an increase of $0.3 million or 1% from 1996. The primary factors contributing to the segment's increased operating profit in 1997 were the sales increases over the prior year as mentioned above, which were offset by lower margins in Europe, the result of excess capacity which increased competition, lowered sales, and resulted in lower factory operating efficiencies, and the stronger dollar versus Deutsche mark compared to 1996. In 1997, new orders in the Specialty Fastener Products Segment increased $13.9 million or 9% from 1996. The primary reasons for the increases were the same as those noted in the paragraph above relative to the increase in sales. Backlog of unfilled orders was $34 million at March 31, 1997 compared to $31.4 million at March 31, 1996. RESCUE HOIST AND CARGO HOOK PRODUCTS SEGMENT 1998 COMPARED WITH 1997 Sales for the Rescue Hoist and Cargo Hook Products Segment were $35.5 million in 1998, an increase of $1 million or 3% from 1997. The increase was primarily due to timing and placement of customer orders. The Rescue Hoist and Cargo Hook Products Segment reported an operating profit of $9.3 million in 1998, an increase of $1.8 million or 24% from 1997. The increase was primarily due to product mix, plant operating efficiency improvements, higher sales volume and tight inventory management. In 1998, new orders in the Rescue Hoist and Cargo Hook Products Segment decreased by $0.8 million or 2% from 1997. This decrease was primarily due to timing of customer orders. At March 31, 1998, the backlog of unfilled orders was $32.4 million, compared to $32.5 million at March 31, 1997. RESCUE HOIST AND CARGO HOOK PRODUCTS SEGMENT 1997 COMPARED WITH 1996 Sales for the Rescue Hoist and Cargo Hook Products Segment were $34.5 million in 1997, an increase of $4 million or 13% from 1996. The increase in sales was primarily due to timing and placement of customer orders. The Rescue Hoist and Cargo Hook Products Segment reported an operating profit of $7.5 million in 1997, an increase of $2.6 million or 52% from 1996. The increase was primarily due to plant operating efficiency improvements, higher sales volume, product mix and inventory utilization improvements. In 1997, new orders in the Rescue Hoist and Cargo Hook Products Segment decreased by $3.6 million or 9% from 1996. This decrease was primarily due to customer timing of order placement and an unusually high level of orders in 1996. At March 31, 1997, the backlog of unfilled orders was $32.5 million, compared to $30.9 million at March 31, 1996. ACQUISITIONS On April 17, 1997, the Company acquired all of the outstanding stock of TCR Corporation for $32.6 million in cash plus other contingent consideration. Located in Minneapolis, Minnesota, TCR produces externally threaded fasteners and related products for the automotive, heavy vehicle, marine and industrial markets. In the first quarter of 1997, the Company acquired the Pebra hose clamp business from Pebra GmbH Paul Braun i.K. for approximately $3 million in cash plus direct acquisition costs. Pebra is located in Frittlingen, Germany and manufactures heavy duty hose clamps primarily for use in the production of heavy trucks in Europe. TRANSTECHNOLOGY CORPORATION 27 30 In 1996, the Company acquired the Seeger Group of companies from a unit of AB SKF of Goteborg, Sweden for approximately $43 million in cash plus direct acquisition costs and the assumption of trade debt and accrued expenses. The Seeger Group, headquartered in Konigstein, Germany, manufactures circlips, snap rings and retaining rings primarily used in the production of automobiles, trucks, industrial equipment and appliances. The Seeger Group operated under the trade names "Seeger", "Anderton" and "Waldes" at its manufacturing facilities located in Germany, the UK, Brazil and the U.S. DISCONTINUED OPERATIONS In 1996, 1997 and 1998, the Company sold the domestic, European and Australian portions of its computer graphics service operations, respectively, in three separate transactions to three different buyers. These businesses were classified as discontinued operations in 1995. The sale of the domestic portion for $0.7 million in cash and $0.6 million in notes receivable was for book value in June 1995; the sale of the European and Australian portions was for $0.1 million in cash and $0.2 million in notes receivable and resulted in an after-tax gain on disposal of $0.1 million in January 1996. Additional after-tax disposal costs of $0.2 million were recorded in 1997 in connection with these sales. In 1996, the Company sold its electronics division for $4.4 million in cash and $9.6 million in notes receivable. The sale of this operation resulted in an after-tax gain on disposal of $0.2 million. In 1995, the Company sold substantially all of the assets and business of its chaff products operation for $6.7 million in cash. The sale of this operation resulted in an after-tax loss on disposal of $0.4 million. Additional after-tax disposal costs of $0.2 million were recorded in 1996 in connection with the sale. The Company retained the chaff avionics product line and negotiated its sale separately in fiscal 1996 for $0.3 million in cash and $0.7 million in notes receivable, resulting in an after-tax gain on disposal of $0.4 million. In the fourth quarter of 1996, the Company recorded an after-tax charge of $0.4 million to record the anticipated loss on the sale of the facility that was formerly used by this operation. The facility was subsequently sold in the first quarter of 1997. Additional after-tax disposal costs of $0.1 million were recorded in both 1998 and 1997 related to the final sale of this facility. Additional after-tax costs of $0.8 million, $0.6 million and $0.7 million were recorded in 1998, 1997 and 1996, respectively, in connection with other previously discontinued and sold operations. These additional costs represent adjustments to previous estimates related primarily to environmental and legal matters. OTHER MATTERS The Company is aware of the issues associated with the programming codes in existing computer and other systems as the millennium ("Year 2000") approaches. The Company is utilizing both internal and external resources to correct or reprogram those existing systems that are not already Year 2000 compliant. The Company believes that the cost of Year 2000 compliance will not have a material effect on the Company's results of operations, financial condition and cash flows. The Company cannot evaluate with accuracy the impact on the Company's business of customers', suppliers' and vendors' non-compliance with the Year 2000. During 1998, the Company adopted SFAS No. 128, Earnings Per Share. The Company is required to adopt SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, for its fiscal year beginning April 1, 1998. The Company has not yet completed its analysis of which operating segments, if any, will be disclosed differently than previously reported. TRANSTECHNOLOGY CORPORATION 28 31 LIQUIDITY AND CAPITAL RESOURCES The Company's debt-to-capitalization ratio was 35%, 49% and 52% as of March 31, 1998, 1997 and 1996, respectively. The current ratio at March 31, 1998, was 2.17, compared to 2.54 and 2.51 at March 31, 1997 and 1996, respectively. Working capital was $56.4 million at March 31, 1998, down $2.7 million from 1997 and $0.9 million from 1996. At March 31, 1998, the Company's debt consisted of $1.3 million of borrowings under a revolving credit line ("the Revolver"), $1.4 million of borrowings under international lines of credit ("the International Lines of Credit"), a $36.1 million term loan ("Term Loan A"), a $24 million term loan ("Term Loan B") and $0.7 million of other borrowings. The Revolver commitment of $30 million will be available to the Company through March 31, 2002 and is subject to a borrowing base formula. The Company's credit agreement with a group of commercial banks provides for borrowings and letters or credit based on collateralized accounts receivable and inventory. In addition, all of the remaining assets of the Company and its subsidiaries are included as collateral. Letters of credit under the line at March 31, 1998 were $0.1 million. The total commitment under the International Lines of Credit is $10 million and subject to the same availability and collateral as the revolver, but is not subject to a borrowing base formula. Term Loans A and B are with the same lenders, are secured by the same collateral as the Revolver and International Lines of Credit and are due and payable on March 31, 2001, and June 30, 2002, respectively. Interest on Term Loan A, the Revolver and the International Lines of Credit 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 and financial goals. Interest on Term Loan B accrues at the primary lending bank's prime rate plus two percentage points. The credit agreement also gives the Company the option of using LIBOR plus three and one-quarter percentage points. At March 31, 1998, $60.1 million of the Company's outstanding borrowings utilized LIBOR. The Company has an interest rate swap agreement with the same lender in order to effectively convert a portion of the floating-rate debt to fixed-rate debt. As of March 31, 1998, the Company has effectively fixed $24.0 million of floating debt to a fixed rate of 9.79% through July 31, 1998. As of March 31, 1997, the availability under Term Loan A was increased by $20 million giving the Company a total of $35 million available for acquisitions. Of this amount, $32.6 million was used by the Company on April 17, 1997 to acquire all of the outstanding stock of TCR Corporation. In November 1997, the Company completed a public stock offering which yielded net cash proceeds of $28.1 million from the issuance of 1.154 million shares of common stock. The proceeds from the offering were used to repay a portion of the Company's Revolving Debt and Term Debt in accordance with the Credit Agreement. Principal payments on the $36.1 million Term Loan A debt are due quarterly in the amount of $3.0 million effective June 30, 1998, with escalations to $3.3 million effective June 30, 1999 and $4.2 million effective June 30, 2000. Principal payments on the $24 million Term Loan B are payable annually in the amount of $0.5 million through June 30, 2000, with final balloon payments of $7.5 million and $15 million due on June 30, 2001 and 2002, respectively. TRANSTECHNOLOGY CORPORATION 29 32 The credit agreement limits the Company's ability to pay dividends to 25% of net income and restricts capital expenditures to $9 million annually, as well as containing other customary financial covenants. In 1998, the Company completed the sale of the facility that was formerly used by its Financial Systems division for $1.1 million in cash. The Company also completed the sale of the former Seeger-Orbis Eichen, Germany retaining ring facility for $0.9 million in cash. The proceeds from both sales were used to reduce the Company's Revolver and International Lines of Credit, respectively. In 1997, the Company completed the sale of a facility formerly used by the chaff products operation for $2.1 million, the proceeds of which were used to reduce the Company's Revolver. Management believes that the Company's anticipated cash flow from operations, combined with the bank credit agreement described above, will be sufficient to support working capital requirements, capital expenditures and dividend payments at their current or expected levels. Capital expenditures in 1998 were $8.7 million compared with $5.5 million in 1997 and $6.5 million in 1996, with capital expenditures for the Fastener Segment being much larger than those required by the Rescue Hoist and Cargo Hook Segment. The Company is subject to various contingencies related to soil and groundwater contamination at several facilities. Expenditures made pursuant to the remediation and restoration of these sites approximated $0.6 million in 1998, $1.1 million in 1997 and $1.3 million in 1996. These expenditures are primarily of a non-recurring nature and are not capitalized. The Company expects similar expenditures in 1999 to be in the same range. Management believes that, after taking into consideration information provided by counsel, the resolution of these matters will not have a material adverse effect on the Company's liquidity. Additionally, management believes that the Company's cash flow from operations, combined with the bank credit agreement described above, will be sufficient to cover such future expenditures. TRANSTECHNOLOGY CORPORATION 30 33 DIRECTORS *Gideon Argov Chairman of the Board, President and Chief Executive Officer Kollmorgen Corporation (High-performance motion control systems) *+Walter Belleville Chairman and Chief Executive Officer ATI Machinery, Inc. (Heavy machinery) #Michael J. Berthelot Chairman of the Board and Chief Executive Officer TransTechnology Corporation Patrick K. Bolger President and Chief Operating Officer TransTechnology Corporation #+Thomas V. Chema Partner, Arter & Hadden (Telecommunications consulting) Michel Glouchevitch Managing Director Triumph Capital Group *#James A. Lawrence Executive Vice President and Chief Financial Officer Northwest Airlines William J. Recker President Gretag Imaging Group Inc. * Audit Committee # Nominating Committee + Incentives & Compensation Committee COUNSEL Hahn, Loeser & Parks Cleveland, Ohio AUDITORS Deloitte & Touche LLP Parsippany, New Jersey TRANSFER AGENT AND REGISTRAR Wachovia Bank, N.A. Winston-Salem, North Carolina CORPORATE OFFICERS Michael J. Berthelot Chairman of the Board and Chief Executive Officer Patrick K. Bolger President and Chief Operating Officer Joseph F. Spanier Vice President, Chief Financial Officer and Treasurer Chandler J. Moisen Executive Vice President Gerald C. Harvey Vice President, Secretary and General Counsel Robert L. G. White President Aerospace Products Group Robert Tunno President Domestic Industrial Products Group Ulf Jemsby President International Industrial Products Group Monica Aguirre Assistant Secretary OPERATIONAL GROUPS DOMESTIC INDUSTRIAL PRODUCTS GROUP BREEZE INDUSTRIAL PRODUCTS Gear-driven band fasteners 100 Aero-Seal Drive Saltsburg, PA 15681-9594 724/639-3571 Fax 724/639-3020 www.breezeclamps.com Robert Tunno - Division President THE PALNUT COMPANY Single and multi-thread fasteners 152 Glen Road Mountainside, NJ 07092-2997 908/233-3300 Fax 908/233-6566 www.palnut.com Stanley E. Erman - Division President WALDES/INDUSTRIAL RETAINING RING (IRR) Multi-sized retaining rings and assembly tools 57 Cordier Street Irvington, NJ 07111-4035 973/926-5000 Fax 973/926-4699 www.waldes.com Eugene Landis - Division President TCR CORPORATION Cold forged and machined products 1600 67th Avenue North Minneapolis, MN 55430 612/560-2200 Fax 612/561-0949 John Funk - Division President INTERNATIONAL INDUSTRIAL PRODUCTS GROUP THE SEEGER GROUP SEEGER-ORBIS GMBH Retaining rings and circlips Wiesbadener Strasse 243 D-61462 Konigstein, Germany 49/6174 2050 Fax 49/6174 205 100 www.smueller@seeger-orbis.de Ulf Jemsby - Managing Director PEBRA PRODUCTS DIVISION Gear driven band fasteners Werk 4, Hauptsrasse 2/1 78628 Frittlingen, Germany 49/7426 949 20 Fax 49/7426 949 224 ANDERTON INTERNATIONAL LTD. Retaining rings and circlips Ferncliff Road Bingley, West Yorkshire England BD16 2PL 44/1274 782 200 Fax 44/1274 771 900 Daran Brown - Managing Director SEEGER-RENO INDUSTRIA E COMERCIO LTD. Retaining rings and circlips Av. Prestes Maia 230 Diaderna, Sao Paulo, Brazil 55/11 713 3133 Fax: 55/11 713 4412 www.seegerreno.com.br Joao Scivoletto - Managing Director AEROSPACE PRODUCTS GROUP BREEZE-EASTERN Lifting and restraint products 700 Liberty Avenue Union, NJ 07083-4115 908/686-4000 Fax 908/686-9292 www.breeze-eastern.com Robert White - Division President 34 [TRANSTECHNOLOGY CORPORATION LOGO] 150 Allen Road Liberty Corner, New Jersey 07938 908 / 903-1600 fax 908 / 903-1616 www.transtechnology.com EX-21 3 LIST OF SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY LISTED BELOW ARE THE WHOLLY OWNED SUBSIDIARIES OF TRANSTECHNOLOGY CORPORATION Jurisdiction of Incorporation Anderton (Predecessors) Limited England Anderton International Limited England Electronic Connections and Assemblies, Inc. Delaware Industrial Retaining Ring Company New Jersey Palnut Fasteners, Inc. Delaware Rancho TransTechnology Corporation California Retainers, Inc. New Jersey Seeger Inc. Delaware Seeger-Orbis Beteiligungsgesellschaft GmbH Germany Seeger-Orbis GmbH & Co. OHG Germany Seeger Reno Industria e Comercio Ltd. Brazil SSP Industries California SSP International Sales, Inc. California TCR Corporation Minnesota TranTechnology Acquisition Corporation Delaware TransTechnology Aerospace, Inc. California TransTechnology Australasia Pty, Ltd. Australia TransTechnology (Europe) Ltd. England TransTechnology International Corporation Virgin Islands TransTechnology Seeger Inc. Delaware TransTechnology Seeger-Orbis GmbH Germany TransTechnology Systems & Services, Inc. Michigan EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS MAR-31-1998 MAR-31-1998 2,960 0 33,244 556 53,985 104,512 92,981 29,295 236,073 48,081 63,487 0 0 66 6,730 236,073 203,928 205,388 137,820 47,415 0 537 7,228 20,153 8,162 11,991 (924) 0 0 11,067 2.00 1.95
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