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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, 2003 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.)
700 Liberty Avenue 07083
Union, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (908) 688-2440
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes ___ No X
As of June 20, 2003, 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 $34,882,706. (See Item 12)
As of June 20, 2003, the registrant had 6,465,429 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Annual Report for the fiscal year ended March 31, 2003
is incorporated by reference into Part I and II hereof.
1
The registrant's Proxy Statement for the 2003 Annual Meeting of
Shareholders is incorporated by reference into Part III hereof.
2
PART I
ITEM 1. BUSINESS.
GENERAL
TransTechnology Corporation designs, develops, manufactures and sells
sophisticated lifting equipment for specialty aerospace and defense
applications. 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.
DISCONTINUED OPERATIONS AND RESTRUCTURING
On January 19, 2001, the Company announced its intention to restructure
and divest its cold-headed products (TCR), retaining ring (Seeger-Orbis,
TransTechnology (GB), TT Brasil, and TransTechnology Engineered Rings USA), hose
clamp (Breeze Industrial and Pebra) and aerospace rivet (Aerospace Rivet
Manufacturers Corp.) operations. In addition, on April 12, 2001, the Company
announced that it would divest TransTechnology Engineered Components (TTEC), a
manufacturer of spring steel engineered fasteners and headlight adjusters. For
business segment reporting purposes, these above-mentioned business units have
previously been classified as the "Specialty Fasteners Segment." The Company has
reclassified these business units as discontinued operations.
On July 10, 2001, the Company sold its Breeze Industrial and Pebra hose
clamp businesses to Industrial Growth Partners and members of Breeze
Industrial's management for $46.2 million, which was paid in cash. In a related
transaction, the Company sold the real estate occupied by Breeze Industrial to a
quasi-governmental organization for $2.0 million which the Company may, under
certain circumstances, be required to repurchase for $1 million in fiscal 2006.
Proceeds from the sales were used to repay borrowings outstanding under the
Company's then current Credit Facility (the Fleet Credit Facility).
On December 5, 2001, the Company sold its TransTechnology Engineered
Components ("TTEC") businesses to a company formed by affiliates of Kohlberg &
Company, L.L.C. for $98.5 million, of which $96.0 million was cash and the
balance the assumption of certain liabilities related to the purchased
businesses. The cash proceeds of the sale were used to repay borrowings
outstanding under the Fleet Credit Facility. In the fiscal quarter ended
September 30, 2001, as part of its restructuring program, the Company reported a
pre-tax asset impairment charge for TTEC in the amount of $85.8 million to
reduce the carrying value of these businesses to estimated fair market value.
This noncash charge was specifically related to the write-down of goodwill. The
sale proceeds of TTEC approximated its adjusted carrying value.
On February 21, 2002, the Company sold its Seeger-Orbis retaining ring business
in Germany to Barnes Group Inc. for $20.0 million cash. The net proceeds of the
sale were used to repay borrowings outstanding under the Fleet Credit Facility.
The balance sheet of the Company contains a noncurrent asset and a non-current
liability in the amount of $3.7 million relating to the pension plan of
Seeger-Orbis. These amounts represent the legal liability of the Company under
German law and the indemnification received from the buyer of the business for
that liability.
3
On April 16, 2002, the Company sold its Aerospace Rivet Manufacturers
Corporation subsidiary to Allfast Fastening Systems, Inc. for $3.2 million cash.
The net proceeds of the sale were used to repay borrowings outstanding under the
Fleet Credit Facility.
On May 30, 2002, the Company completed the sale of substantially all of
the net assets of its U.S. retaining ring business to SeaView Capital LLC for
$2.9 million of cash, a promissory note of $0.8 million and warrants for 5% of
the equity of the purchaser. The net proceeds of the sale were used to repay
borrowings outstanding under the Fleet Credit Facility.
On January 3, 2003, the Company completed the sale of TCR Corporation
for cash consideration of $10.0 million, plus the assumption of certain
liabilities, to an affiliate of MidMark Capital LLC. The net proceeds of the
sale were used to repay borrowings outstanding under the Company's new $34.0
million senior credit facility which was established in August 2002 to refinance
all remaining obligations under the Fleet Credit Facility (the "New Senior
Credit Facility").
On February 24, 2003, the Company sold Norco Inc. for $51.0 million
cash and a $1.0 million reimbursement for certain income taxes payable as a
result of the transaction to a wholly-owned subsidiary of TransDigm Inc. The net
cash proceeds were used to retire senior debt under the New Senior Credit
Facility and partially repay subordinated debt.
In fiscal 2003 and 2002, the Company recognized charges of $2.7 million
and $1.6 million, respectively, for severance and other costs related to the
corporate office restructuring. In fiscal 2001, the charge of $11.2 million
included costs associated with the corporate office restructuring as well as
write offs of notes receivable and worthless investments in companies that had
been divested in prior fiscal years.
CORE BUSINESS
As a result of the above referenced restructuring program,
TransTechnology Corporation's core business is aerospace and defense products.
The company conducts its business through its Breeze-Eastern division.
Breeze-Eastern is the world's largest designer and leading supplier of
performance-critical rescue hoists and cargo-hook systems. Breeze-Eastern also
manufacturers weapons-handling systems, cargo winches, tie-down equipment and
tow-hook assemblies. These products are sold primarily to military and civilian
agencies and aerospace contractors.
PRODUCTS
The Company's products are designed, developed and manufactured by
Breeze-Eastern. Breeze-Eastern specializes in the design, development and
manufacture of sophisticated lifting and restraining products, principally
helicopter rescue hoists, reeling machines and external hook systems. In
addition, Breeze-Eastern designs, develops and manufactures winches and hoists
for aircraft cargo and weapon-handling systems with applications ranging from
cargo handling on fixed-wing aircraft to hoisting weapons
4
into position on carrier based aircraft. Management believes that Breeze-Eastern
is the industry market share leader in sales of personnel-rescue hoists and
cargo hook equipment. As a pioneer of helicopter hoist technology,
Breeze-Eastern continues to develop sophisticated helicopter hoist systems,
including systems for the current generation of Seahawk, Chinook, Dolphin,
Merlin and Super Stallion helicopters. Breeze-Eastern also supplies equipment
for the United States, Japanese and European Multiple-Launch Rocket Systems,
which use two specialized hoists to load and unload rocket pod containers.
Breeze-Eastern's external cargo-lift hook systems are original equipment on most
helicopters manufactured today. These hook systems range from small 1,000-pound
capacity models up to the largest 36,000-pound capacity hooks employed on the
Super Stallion helicopter. Breeze-Eastern also manufactures aircraft and cargo
tie-downs.
Breeze-Eastern sells its products through internal marketing
representatives and several independent sales representatives and distributors.
The Aerospace Product backlog varies substantially from time to time
due to the size and timing of orders. At March 31, 2003, the backlog of unfilled
orders was $46.2 million, compared to $33.8 million at March 31, 2002. The
majority of the March 31, 2003 backlog is expected to be shipped during fiscal
2004.
DEFENSE INDUSTRY SALES
Approximately 55% of the Company's consolidated net sales in 2003, as
compared to 47% and 45% in 2002 and 2001, 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
elsewhere in this Form 10-K.
COMPETITION
The Company's businesses compete in some markets with entities that are
larger and have substantially greater financial and technical resources than the
Company. Generally, competitive factors include design capabilities, product
performance, delivery and price. The Company's ability to compete successfully
in such markets will depend on its ability to develop and apply technological
innovations and to expand its customer base and product lines. The Company is
successfully doing so both internally and
5
through acquisitions. There can be no assurance that the Company will continue
to successfully compete in any or all of the businesses discussed above. The
failure of the Company to compete in more than one of these businesses could
have a materially adverse effect on the Company's profitability.
RAW MATERIALS
The various components and raw materials used by the Company to produce
its products are generally available from more than one source. In those
instances where only a single source for any material is available, such items
can generally be redesigned to accommodate materials made by other suppliers. In
some cases, the Company stocks an adequate supply of the single source materials
for use until a new supplier can be approved. The Company's business is not
dependent upon a single supplier or a few suppliers, the loss of which would
have a materially adverse effect on the Company's consolidated financial
position.
EMPLOYEES
As of June 1, 2003, the Company employed 194 people. There were 188
persons employed with the aerospace products operations and 6 with the corporate
office.
FOREIGN OPERATIONS AND SALES
The company has no foreign-based facilities. The Company had export
sales of $21.9 million, $21.5 million and $19.3 million in fiscal 2003, 2002 and
2001, respectively, representing 40%, 45% and 40% of the Company's consolidated
net sales in each of those years, respectively. The risk and profitability
attendant to these sales is generally comparable to similar products sold in the
United States. Net export sales by geographic area and domicile of customers are
set forth in Note 12 of "Notes to Consolidated Financial Statements" which is
included elsewhere in this Form 10-K.
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
-------- --------------- ---------- ------
Union, New Jersey Executive offices, Owned 188,000
Breeze-Eastern offices
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 Illinois, Pennsylvania,
New York, New Jersey and Connecticut. In some instances, the properties are
leased or subleased and in nearly all instances these properties are for sale or
are under contract for sale.
ITEM 3. LEGAL PROCEEDINGS
The information required has been included in Note 11 of "Notes to
Consolidated Financial Statements" included elsewhere in this Form 10-K.
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, 2003.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $0.01, is traded on the New York
Stock Exchange under the symbol TT. The following table sets forth the range of
high and low closing sales prices of shares of the Company's Common Stock for
the calendar quarters indicated, as reported by the New York Stock Exchange.
High Low
---- ---
Fiscal 2002
First Quarter $ 9.02 $5.00
Second Quarter 14.79 8.60
Third Quarter 13.50 9.60
Fourth Quarter 10.20 8.90
Fiscal 2003
First Quarter $11.39 $8.70
Second Quarter 13.59 9.98
Third Quarter 13.50 9.95
Fourth Quarter 10.48 5.30
As of June 20, 2003, the number of stockholders of record of the Common
Stock was 1,627. On June 20, 2003, the closing sales price of the Common Stock
was $5.79 per share.
On January 19, 2001, the Company announced the suspension of its
regular quarterly dividend.
ITEM 6. SELECTED FINANCIAL DATA
The information required has been included in the Company's 2003 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 2003 Annual
Report on pages 21-28 and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required has been included in the Company's 2003 Annual
Report on page 28 and is incorporated herein by reference.
8
ITEM 8. FINANCIAL STATEMENTS
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, 2003 and 2002, and the related
statements of consolidated operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended March 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TransTechnology Corporation and
subsidiaries at March 31, 2003 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2003 in conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Parsippany, New Jersey
May 1, 2003 (June 2, 2003 as to the second paragraph of Note 6)
9
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
MARCH 31,
ASSETS 2003 2002
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 7,104 $ 97
Accounts receivable (net of allowance for doubtful accounts of
$65 and $341 in 2003 and 2002, respectively) 6,701 7,840
Inventories 19,683 16,869
Prepaid expenses and other current assets 1,364 1,003
Income tax receivable 363 7,600
Deferred income taxes 1,289 1,538
Assets held for sale -- 64,977
--------- ---------
Total current assets 36,504 99,924
--------- ---------
PROPERTY:
Land 534 534
Buildings 4,004 3,919
Machinery and equipment 4,544 4,548
Furniture and fixtures 3,639 3,521
--------- ---------
Total 12,721 12,522
Less accumulated depreciation and amortization 10,372 10,215
--------- ---------
Property - net 2,349 2,307
--------- ---------
OTHER ASSETS:
Deferred income taxes 30,712 29,266
Other 15,558 13,249
--------- ---------
Total other assets 46,270 42,515
--------- ---------
TOTAL $ 85,123 $ 144,746
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 79 $ --
Accounts payable - trade 4,954 4,503
Accrued compensation 2,847 2,231
Accrued income taxes 2,460 449
Liabilities of discontinued businesses -- 21,142
Other current liabilities 15,003 14,096
--------- ---------
Total current liabilities 25,343 42,421
--------- ---------
LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS 53,487 107,564
--------- ---------
DEFERRED INCOME TAXES 1,332 1,188
--------- ---------
OTHER LONG-TERM LIABILITIES 11,601 9,780
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
--------- ---------
REDEEMABLE COMMON STOCK 1,283 --
--------- ---------
STOCKHOLDERS' DEFICIT:
Preferred stock - authorized, 300,000 shares; none issued -- --
Common stock - authorized, 14,700,000 shares of $.01 par value, issued,
7,018,299 and 6,739,264 shares in 2003 and 2002, respectively 70 67
Additional paid-in capital 74,283 78,286
Notes receivable from officer -- (123)
Accumulated deficit (72,993) (82,227)
Accumulated other comprehensive loss -- (2,888)
Unearned compensation (43) (236)
--------- ---------
1,317 (7,121)
Less treasury stock, at cost - 560,964 and 548,186 shares in 2003 and
2002, respectively (9,240) (9,086)
--------- ---------
Total stockholders' deficit (7,923) (16,207)
--------- ---------
TOTAL $ 85,123 $ 144,746
========= =========
See notes to consolidated financial statements
10
STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands, except share data)
YEARS ENDED MARCH 31,
2003 2002 2001
Net sales $ 54,996 $ 47,786 $ 47,775
Cost of sales 30,426 26,900 27,770
----------- ----------- -----------
Gross profit 24,570 20,886 20,005
General, administrative and selling expenses 17,605 16,807 20,154
Interest expense 9,158 4,931 2,789
Interest and other expense (income) - net 18 (1,536) (156)
Unrealized gain on warrants (1,967) -- --
Forbearance fees 764 2,651 --
Charges related to debt reduction 3,735 -- --
Corporate office restructuring charge 2,696 1,629 11,165
----------- ----------- -----------
Loss from continuing operations before income taxes (7,439) (3,596) (13,947)
Income tax benefit (3,574) (1,366) (5,191)
----------- ----------- -----------
Loss from continuing operations (3,865) (2,230) (8,756)
Discontinued operations:
Income from sale of businesses and income (loss) from operations of
discontinued businesses (less applicable income taxes (benefit) of $8,012
and ($5,661) for 2002 and 2001, respectively) -- 16,414 (64,214)
Income (loss) on disposal of discontinued businesses including
provision for operating losses during phase out periods (less
applicable income taxes (benefit) of $3,083 and ($40,271)
for 2003 and 2002, respectively) 13,099 (85,965) --
----------- ----------- -----------
Net income (loss) $ 9,234 $ (71,781) $ (72,970)
----------- ----------- -----------
Earnings (loss) per share:
Basic:
Loss from continuing operations $ (0.61) $ (0.36) $ (1.42)
Income (loss) from discontinued operations 2.08 (11.25) (10.41)
----------- ----------- -----------
Net income (loss) per share $ 1.47 $ (11.61) $ (11.83)
----------- ----------- -----------
Diluted:
Loss from continuing operations $ (0.61) $ (0.36) $ (1.42)
Income (loss) from discontinued operations 2.08 (11.25) (10.41)
----------- ----------- -----------
Net income (loss) per share $ 1.47 $ (11.61) $ (11.83)
----------- ----------- -----------
Weighted - average basic shares outstanding 6,303,000 6,181,000 6,167,000
Weighted - average diluted shares outstanding 6,303,000 6,181,000 6,167,000
See notes to consolidated financial statements.
11
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
YEARS ENDED MARCH 31,
2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 9,234 $ (71,781) $ (72,970)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Net (income) loss from discontinued operations, including
asset impairments (13,099) 85,965 64,214
Gain on sale of discontinued businesses, net of tax -- (16,414) --
Depreciation and amortization 2,367 2,546 3,533
Change in net assets of discontinued companies (5,857) 17,463 23,751
Write-off of unamortized loan fees 2,199 -- --
Warrant mark-to-market adjustment 1,967 -- --
Noncash interest expense 3,263 2,528 1,484
(Reduction of) provision for losses on accounts and notes
receivable, and cost investments (276) 321 9,271
Loss (gain) on sale or disposal of fixed assets 7 (1,352) 5
Changes in assets and liabilities - excluding the effects
of acquisitions and dispositions:
Decrease (increase) in accounts receivable
and other receivables 8,602 (816) (6,983)
(Increase) decrease in inventories (2,814) (1,923) 1
Increase in deferred taxes, net (2,608) (22,041) (7,602)
Increase in other assets (4,524) (849) (3,121)
Increase in accounts payable 451 463 159
Increase (decrease) in accrued compensation 616 (38) 663
Increase (decrease) in income taxes payable 2,011 (2,745) (2,604)
(Decrease) increase in other liabilities (2,263) 8,877 5,158
--------- --------- ---------
Net cash (used in) provided by operating activities (724) 204 14,959
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (588) (184) (203)
Proceeds from sale of businesses 67,425 162,200 --
Proceeds from sale of fixed assets 1 2,233 --
(Increase) decrease in notes and other receivables (980) 75 252
--------- --------- ---------
Net cash provided by investing activities 65,858 164,324 49
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt (49,729) (38,750) (82,500)
Proceeds from long-term debt and bridge loan 20,500 -- 75,000
Proceeds from (repayments on) other debt, net (28,819) (128,097) 1,460
Debt issue costs -- -- (6,276)
Exercise of stock options and other (79) 79 --
Dividends paid -- -- (1,198)
--------- --------- ---------
Net cash used in financing activities (58,127) (166,768) (13,514)
Increase (decrease) in cash and cash equivalents 7,007 (2,240) 1,494
Cash and cash equivalents at beginning of year 97 2,337 843
--------- --------- ---------
Cash and cash equivalents at end of year $ 7,104 $ 97 $ 2,337
--------- --------- ---------
Supplemental information:
Interest payments $ 16,975 $ 24,573 $ 29,475
Income tax payments $ 266 $ 919 $ 2,658
Increase in senior subordinated note for paid-in-kind
interest expense $ 2,672 $ 2,316 $ 1,332
Warrants issued $ -- $ -- $ 214
--------- --------- ---------
See notes to consolidated financial statements
12
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
ACCUMULATED
RETAINED NOTES OTHER TOTAL
YEARS ENDED ADDITIONAL EARNINGS RECEIVABLE COMPREHENSIVE UNEARNED COMPREHENSIVE
MARCH 31, 2003, COMMON STOCK TREASURY STOCK PAID-IN (ACCUMULATED FROM INCOME COMPEN- INCOME
2002 AND 2001 SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) OFFICERS (LOSS) SATION (LOSS)
------------- ------ ------ ------ ------ ------- -------- -------- ------ ------ ------
BALANCE, MARCH 31,
2000 6,691,232 $ 67 (546,394) $(9,069) $77,587 $ 63,722 -- $(3,157) $(267)
Net loss -- -- -- -- -- (72,970) -- -- -- $(72,970)
Other
comprehensive
loss:
Minimum pension
liability
adjustment
(net of taxes
of $685) -- -- -- -- -- -- -- (1,141) -- (1,141)
Currency
translation
adjustment
(net of taxes
of $1,093) -- -- -- -- -- -- -- (2,029) -- (2,029)
Unrealized
investment
holding loss -- -- -- -- -- -- -- (6) -- (6)
Less:
reclassification
adjustment
for gains
included in
net loss -- -- -- -- -- -- -- 10 -- 10
Cash dividends
($.195
per share) -- -- -- -- -- (1,198) -- -- -- --
Issuance of
warrants under
mezzanine debt -- -- -- -- 214 -- -- -- -- --
Issuance of
stock under
stock option
plan/other 15,000 -- -- -- 171 -- (191) -- -- --
Issuance of
stock under
bonus plan 12,382 -- (34) (1) 119 -- -- -- 14 --
--------- ---- -------- ------- ------- -------- ----- ------- ----- --------
BALANCE, MARCH 31,
2001 6,718,614 67 (546,428) (9,070) 78,091 (10,446) (191) (6,323) (253) $(76,136)
========
Net loss -- -- -- -- -- (71,781) -- -- -- $(71,781)
Other
comprehensive
loss:
Reclassification
adjustment
for minimum
pension
liability from
sale of
business -- -- -- -- -- -- -- 1,141 -- 1,141
Currency
translation
adjustment
(net of taxes
of $349) -- -- -- -- -- -- -- (647) -- (647)
Less:
reclassification
adjustment
for sale of
foreign
subsidiaries -- -- -- -- -- -- -- 2,941 -- 2,941
Issuance of
stock under
stock option
plan/other 10,356 -- -- -- 92 -- 68 -- -- --
Issuance of stock
under
bonus plan 10,294 -- (1,758) (16) 103 -- -- -- 17 --
--------- ---- -------- ------- ------- -------- ----- ------- ----- --------
BALANCE, MARCH 31,
2002 6,739,264 67 (548,186) (9,086) 78,286 (82,227) (123) (2,888) (236) $(68,346)
========
Net income -- -- -- -- -- 9,234 -- -- -- $ 9,234
Other
comprehensive
income:
Currency
translation
adjustment -- -- -- -- -- -- -- (86) -- (86)
Less:
reclassification
adjustment on
deferred tax
on currency
translation
adjustment -- -- -- -- -- -- -- (1,555) -- (1,555)
Less:
reclassification
adjustment for
sale of
foreign
subsidiaries -- -- -- -- -- -- -- 4,529 -- 4,529
Loan repayment
by officer -- -- -- -- -- -- 123 -- -- --
Warrant adjustment -- -- -- -- (4,547)
Issuance of
stock from
warrant exercise 256,561 3 -- -- 393 -- -- -- -- --
Issuance of stock
under
stock option
plan/other 14,066 -- (5,138) (56) 63 -- -- -- -- --
Issuance of
stock under
bonus plan 8,408 -- (7,640) (98) 88 -- -- -- 193 --
--------- ---- -------- ------- ------- -------- ----- ------- ----- --------
BALANCE, MARCH 31,
2003 7,018,299 $ 70 (560,964) $(9,240) $74,283 $(72,993) $ -- $ -- $ (43) $ 12,122
========= ==== ======== ======= ======= ======== ===== ======= ===== ========
See notes to consolidated financial statements
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING PRINCIPLES
BUSINESS - The fiscal year for TransTechnology Corporation (the "Company") ends
on March 31. Accordingly, all references to years in the Notes to Consolidated
Financial Statements refer to the fiscal year ended March 31 of the indicated
year unless otherwise specified.
As a result of a restructuring program completed by the Company during 2003, the
Company has reclassified all of the business units that made up its Specialty
Fastener segment in prior years and its Aerospace Rivet Manufacturers
Corporation and Norco Inc. businesses, which had been included in its Aerospace
Products segment, as discontinued operations. All references related to ongoing
operations, or the Company, refer only to continuing operations, which consists
of the Breeze-Eastern division.
The Company, which has one manufacturing facility in the United States,
develops, manufactures, sells and services a complete line of sophisticated
lifting and restraining products, principally performance critical helicopter
rescue hoist and cargo hook systems, winches and hoists for aircraft and weapons
systems.
USE OF ESTIMATES - The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
amounts reported in its consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany balances and transactions are eliminated in consolidation.
REVENUE RECOGNITION - Revenue is recognized at the later of 1) when products are
shipped to customers, or 2) when title passes to customers.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with a maturity at date of acquisition of three months or less to be cash
equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Cost includes material, labor
and manufacturing overhead costs.
PROPERTY AND RELATED DEPRECIATION AND AMORTIZATION - Property is recorded at
cost. Provisions for depreciation are made on a straight-line basis over the
estimated useful lives of depreciable assets ranging from three to thirty years.
Depreciation expense for the years ended March 31, 2003, 2002 and 2001 was $0.5
million, $0.6 million and $0.8 million, respectively. During 2002 the Company
sold excess real estate realizing a gain of $1.3 million that is included in
other income.
EARNINGS PER SHARE ("EPS") - The computation of basic earnings per
share is based on the weighted-average number of common shares outstanding. The
computation of diluted earnings per share assumes the foregoing and, in
addition, the exercise of all dilutive stock options using the treasury stock
method.
The components of the denominator for basic earnings per common share and
diluted earnings per common share are reconciled as follows:
2003 2002 2001
--------- --------- ---------
Basic earnings per common share:
Weighted-average common
shares outstanding 6,303,000 6,181,000 6,167,000
--------- --------- ---------
Diluted earnings per common share:
Weighted-average common
shares outstanding 6,303,000 6,181,000 6,167,000
Stock options -- -- --
--------- --------- ---------
Denominator for diluted
earnings per common share 6,303,000 6,181,000 6,167,000
--------- --------- ---------
Options to purchase 311,411 shares of common stock at prices between $8.84 and
$27.88 were outstanding during 2003 but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the average
market price of the common shares. Similarly, during 2002, options to purchase
450,183 shares of common stock at prices between $8.84 and $27.88 were
outstanding but were not included in the computation of diluted EPS. During
2001, options to purchase 505,971 shares of common stock at prices between $8.84
and $27.88 were outstanding but were not included in the computation of diluted
EPS.
RESEARCH, DEVELOPMENT AND ENGINEERING COSTS - Research and development costs and
engineering costs, which are charged to expense when incurred, amounted to $2.3
million, $1.7 million and $1.5 million in 2003, 2002 and 2001, respectively.
Included in these amounts were expenditures of $1.7 million, $1.2 million and
$1.2 million in 2003, 2002 and 2001, respectively, which represent costs related
to research and development activities.
FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the Company's
international operations have been translated into U.S. dollars at year-end
exchange rates, with resulting translation gains and losses accumulated as a
separate component of accumulated other comprehensive loss. Income and expense
items are converted into U.S. dollars at average rates of exchange prevailing
during the year. Cumulative translation adjustments related to businesses which
have been sold have been reflected in the operating results from discontinued
operations.
14
INCOME TAXES - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases. The
Company periodically assesses recoverability of deferred tax assets and
provisions for valuation allowances are made as required.
FINANCIAL INSTRUMENTS - The Company does not hold or issue financial instruments
for trading purposes. The estimated liability relating to interest rate swap
agreements was accrued during 2002. These agreements were terminated and settled
in 2003.
STOCK-BASED COMPENSATION - In December 2002, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS 148") which amends SFAS No. 123. This
statement provides alternative methods of transition for a voluntary change to
the fair value-based method of accounting for stock-based employee compensation
and amends the disclosure requirements of SFAS No. 123. The transition guidance
and disclosure requirements are effective for fiscal years ending after December
15, 2002. The adoption of this statement will not have a material effect on the
Company's financial position or results of operations.
Following is a summary of the proforma effect on earnings under SFAS 123 (in
thousands except per share amounts):
2003 2002 2001
-------- -------- ----------
Net income (loss) applicable
to common shares,
as reported $ 9,234 $(71,781) $ (72,970)
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects (224) (660) (351)
-------- -------- ----------
$ 9,010 $(72,441) $ (73,321)
======== ======== ==========
Net loss per share:
Basic and diluted -
as reported $ 1.47 $ (11.61) $ (11.83)
======== ======== ==========
Basic and diluted -
proforma $ 1.43 $ (11.72) $ (11.89)
======== ======== ==========
NEW ACCOUNTING STANDARDS - In May 2003 FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity," that improves the accounting for certain financial instruments that,
under previous guidance, issuers could account for as equity. SFAS 150 requires
that those instruments be classified as liabilities in statement of financial
position. This statement is effective for the Company's fiscal quarter beginning
June 30, 2003. Management does not believe adoption of this standard will have a
material impact on the Company's financial position or results of operations.
In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" that amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under Statement 133.
With certain exceptions, SFAS 149 is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designed after June
30, 2003. Management does not believe adoption of this standard will have a
material impact on the Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This interpretation defines when a business
enterprise must consolidate a variable interest entity. This interpretation
applies immediately to variable interest entities created after January 31,
2003. It applies in the first fiscal year or interim period beginning after June
15, 2003, to entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The adoption of this statement is not expected
to have a material effect on the Company's financial position or results of
operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation requires a guarantor to recognize,
at the inception of the guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. It also enhances guarantor's
disclosure requirements to be made in its interim and annual financial
statements about its obligations under certain guarantees it has issued. The
initial recognition and initial measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15, 2002. In the
normal course of business, the Company does not issue guarantees to third
parties; accordingly, this interpretation will not have an effect on the
Company's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities." SFAS 146 requires the recognition of a liability for costs
associated with an exit plan or disposal activity when incurred and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)," which allowed recognition at the
date of an entity's commitment to an exit plan. The provisions of this statement
are effective for exit or disposal activities that are initiated by the Company
after December 31, 2002. The adoption of this statement is not anticipated to
have a material effect on the Company's financial position or results of
operations.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," was approved by
the FASB. Among other things, this statement requires that gains or losses on
the extinguishment of debt will generally be required to be reported as a
component of income from continuing operations and will no longer be classified
as an
15
extraordinary item. The Company's financial statements for the periods prior to
March 31, 2001, have been reclassified to include losses previously recorded as
an extraordinary item as a component of income from continuing operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for fiscal years beginning after June 15, 2002. This
statement addresses the diverse accounting practices for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. The adoption of this statement will not have a material effect
on the Company's financial position or results of operations.
IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets (excluding financial
instruments and deferred tax assets) and certain identifiable intangibles to be
held and used are reviewed by the Company for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Such circumstances include, but are not limited to, a
significant decrease in the market value of an asset, a significant change in
the extent or manner in which an asset is used or a significant physical change
in an asset, a significant adverse change in legal factors or in the business
climate that could affect the value of an asset, or an adverse action or
assessment by a regulator. If a review for recoverability is necessary, the
Company estimates the future cash flows expected to result from the use of the
asset. In performing these estimates, the Company groups its assets at the
lowest level for which there are identifiable cash flows. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Any impairment loss recognized
is measured as the excess of the carrying amount of the asset over the fair
value of the asset.
2. DISCONTINUED OPERATIONS AND RESTRUCTURING
On January 19, 2001, the Company announced its intention to restructure and
divest its cold-headed products (TCR), retaining ring (Seeger-Orbis,
TransTechnology (GB), TT Brasil, and TransTechnology Engineered Rings USA), hose
clamp (Breeze Industrial and Pebra) and aerospace rivet (Aerospace Rivet
Manufacturers Corp.) operations. In addition, on April 12, 2001, the Company
announced that it would divest TransTechnology Engineered Components (TTEC), a
manufacturer of spring steel engineered fasteners and headlight adjusters. For
business segment reporting purposes, these above-mentioned business units,
excluding ARM for 2002, have previously been classified as the "Specialty
Fasteners Segment." The Company has reclassified these business units as
discontinued operations for all periods presented.
A portion of the Company's interest expense has been allocated to discontinued
operations based upon the net asset balances attributable to those operations.
Interest expense allocated to discontinued operations was $6.3 million, $20.1
million and $31.6 million, in 2003, 2002 and 2001, respectively. Income taxes
have been allocated to discontinued operations based on the estimated tax
attributes of the income and assets of the underlying discontinued businesses.
On July 10, 2001, the Company sold its Breeze Industrial and Pebra hose clamp
businesses to Industrial Growth Partners and members of Breeze Industrial's
management for $46.2 million, which was paid in cash. In a related transaction,
the Company sold the real estate occupied by Breeze Industrial to a
quasi-governmental organization for $2.0 million which the Company may, under
certain circumstances, be required to repurchase for $1 million in fiscal 2006.
Proceeds from the sales were used to repay borrowings outstanding under the
Company's then current Credit Facility (the Fleet Credit Facility).
On December 5, 2001, the Company sold its TransTechnology Engineered Components
("TTEC") businesses to a company formed by affiliates of Kohlberg & Company,
L.L.C. for $98.5 million, of which $96.0 million was cash and the balance the
assumption of certain liabilities related to the purchased businesses. The cash
proceeds of the sale were used to repay borrowings outstanding under the Fleet
Credit Facility. In the fiscal quarter ended September 30, 2001, as part of its
restructuring program, the Company reported a pre-tax asset impairment charge
for TTEC in the amount of $85.8 million to reduce the carrying value of these
businesses to estimated fair market value. This noncash charge was specifically
related to the write-down of goodwill. The sale proceeds of TTEC approximated
its adjusted carrying value.
On February 21, 2002, the Company sold its Seeger-Orbis retaining ring business
in Germany to Barnes Group Inc. for $20.0 million cash. The net proceeds of the
sale were used to repay borrowings outstanding under the Fleet Credit Facility.
On April 16, 2002, the Company sold its Aerospace Rivet Manufacturers
Corporation subsidiary to Allfast Fastening Systems, Inc. for $3.2 million cash.
The net proceeds of the sale were used to repay borrowings outstanding under the
Fleet Credit Facility.
On May 30, 2002, the Company completed the sale of substantially all of the net
assets of its U.S. retaining ring business to SeaView Capital LLC for $2.9
million of cash, a promissory note of $0.8 million and warrants for 5% of the
equity of the purchaser. The net proceeds of the sale were used to repay
borrowings outstanding under the Fleet Credit Facility.
On January 3, 2003, the Company completed the sale of TCR Corporation for cash
consideration of $10.0 million, plus the assumption of certain liabilities, to
an affiliate of MidMark Capital LLC. The net proceeds of the sale were used to
repay borrowings outstanding under the New Senior Credit Facility.
On February 24, 2003, the Company sold Norco Inc. for $51.0 million cash and a
$1.0 million reimbursement for certain income taxes payable as a result of the
transaction to a wholly-owned subsidiary of TransDigm Inc. The net cash proceeds
were used to retire senior debt under the New Senior Credit Facility and
partially repay subordinated debt.
16
Net sales and losses from the discontinued operations were as follows (in
thousands):
2003 2002 2001
--------- --------- ---------
Net sales $ 48,146 $ 185,888 $ 280,296
========= ========= =========
Loss on disposal of
discontinued businesses
including provision for
operating losses during
phase out period $ -- $(126,236) $ --
Income from sale of
businesses and income
(loss) from operations
of discontinued
businesses prior to
phase out period 16,182 24,426 (69,875)
Income tax provision
(benefit) 3,038 (32,259) (5,661)
--------- --------- ---------
Net income (loss) from
discontinued operations $ 13,099 $ (69,551) $ (64,214)
========= ========= =========
The 2003 gain was comprised of $8.2 million of charges to reflect the amounts
ultimately realized from the sales of discontinued businesses; $7.0 million of
actual operating income of the discontinued businesses; a gain of $28.5 million
from the sale of Norco, Inc.; $6.3 million of allocated interest expense; $0.2
million for the final settlement of interest rate swap contracts; and a noncash
charge of $4.6 million associated with the recognition of accumulated currency
translation losses from the sale of the Brazilian operation. These gains and
losses, which aggregated a net gain of $16.2 million, were reduced by a tax
provision of $3.1 million. The 2002 loss was comprised of $110.3 million of
impairment charges related to reducing the carrying values of the discontinued
businesses to their estimated net realizable values; $12.0 million of actual
operating income of the discontinued businesses through their expected
divestiture dates; $20.1 million of allocated interest expense; $8.4 million
from the write-off of capitalized loan fees and the mark-to-market of interest
rate swaps; $24.7 million of gains recognized on the sale of certain business
units; and, $0.2 million of other income or credits associated with the
discontinued operations. These gains and losses, which aggregated a net loss of
$101.9 million, were reduced by a tax benefit of $32.3 million. The fiscal 2001
loss from discontinued operations consisted of $67.9 million of impairment
charges; $29.6 million of operating income of the discontinued businesses; and
$31.6 million of allocated interest expense. These fiscal 2001 losses, which
aggregated $69.9 million, were reduced by a tax benefit of $5.7 million.
Assets and liabilities of discontinued businesses at March 2002 were comprised
of current assets of $34,206, property of $12,407 and other assets of $18,364,
offset by current liabilities of $19,883 and $1,259 of long-term liabilities.
In fiscal 2003 and 2002, the Company recognized charges of $2.7 million and $1.6
million, respectively, for severance and other costs related to the corporate
office restructuring. In fiscal 2001, the charge of $11.2 million included costs
associated with the corporate office restructuring as well as write offs of
notes receivable and worthless investments in companies that had been divested
in prior fiscal years.
3. INVENTORIES
Inventories at March 31, consisted of the following (in thousands):
2003 2002
------- -------
Finished goods $ 2 $ 4
Work in process 6,105 4,525
Purchased and manufactured parts 13,576 12,340
------- -------
Total $19,683 $16,869
======= =======
4. OTHER CURRENT LIABILITIES
Other current liabilities at March 31, consisted of the following (in
thousands):
2003 2002
------- -------
Interest rate swap obligation $ -- $ 3,827
Accrued interest 1,749 2,606
Customer Advances 1,741 1,884
Obligations from divestitures 3,644 1,705
Other 7,869 4,074
------- -------
Total $15,003 $14,096
======= =======
5. INCOME TAXES
The components of total income (loss) from operations (including continuing and
discontinued operations) before income taxes were (in thousands):
2003 2002 2001
--------- --------- ---------
Domestic $ 7,011 $ (86,453) $ (51,288)
Foreign 1,732 (18,952) (32,534)
--------- --------- ---------
Total $ 8,743 $(105,405) $ (83,822)
========= ========= =========
The (benefit) provision for income taxes is summarized below (in thousands):
2003 2002 2001
-------- -------- --------
Currently (receivable)
payable:
Federal $ (1,038) $ (9,372) $ (5,600)
Foreign -- 46 105
State 1,599 400 452
-------- -------- --------
561 (8,926) (5,043)
-------- -------- --------
Deferred (1,052) (29,556) (15,455)
Valuation allowance -- 4,857 9,646
-------- -------- --------
(1,052) (24,699) (5,809)
-------- -------- --------
Total $ (491) $(33,625) $(10,852)
======== ======== ========
17
The provision (benefit) for income taxes is allocated between continuing and
discontinued operations as summarized below (in thousands):
2003 2002 2001
-------- -------- --------
Continuing $ (3,574) $ (1,366) $ (5,191)
Discontinued 3,083 (32,259) (5,661)
-------- -------- --------
Total $ (491) $(33,625) $(10,852)
======== ======== ========
The consolidated effective tax rates for continuing operations differ from the
federal statutory rates as follows:
2003 2002 2001
----- ----- -----
Statutory federal rate (35.0%) (35.0%) (35.0%)
State income taxes after
federal income tax -- 0.6 (0.9)
Earnings of the foreign
sales corporation (0.9) -- --
Gain on warrants (9.4) -- --
Amortization of purchase
price and impairment not
deductible for tax purposes 3.0 (0.3) 1.8
AMT credit -- -- (3.3)
Other (5.7) (3.3) 0.2
----- ----- -----
Consolidated effective tax rate (48.0%) (38.0%) (37.2%)
===== ===== =====
The following is an analysis of accumulated deferred income taxes (in
thousands):
2003 2002
-------- --------
Assets:
Current:
Bad debts $ 25 $ 243
Employee benefit accruals 569 638
Inventory 524 1,111
Other 171 (454)
-------- --------
Total current 1,289 1,538
-------- --------
Noncurrent:
Employee benefit accruals (961) (795)
Environmental 1,363 1,329
Accrued liabilities (1,225) 1,836
Net operating loss carryforward 30,537 43,101
Other 998 (1,702)
Valuation allowance -- (14,503)
-------- --------
Total noncurrent 30,712 29,266
-------- --------
Total assets $ 32,001 $ 30,804
======== ========
Liabilities:
Property $ 1,332 $ 1,188
-------- --------
Total liabilities $ 1,332 $ 1,188
======== ========
Net deferred tax asset $ 30,669 $ 29,616
======== ========
The Company has federal and state net operating loss carry-forwards of $52.3
million and $73.9 million, respectively, which will be available to offset
taxable income during the carryforward period. The tax benefits of these items
are reflected in the above analysis of deferred tax assets and liabilities. If
not used, some of these carryforwards begin to expire in 2004 through 2023.
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):
2003 2002
-------- --------
Credit agreement - 7.25% $ -- $ 17,000
Credit agreement - 8.0% -- 9,562
Credit agreement - 25.0% -- 2,500
Senior Subordinated Notes - 18% 53,329 78,648
Other 237 --
-------- --------
53,566 107,710
Less current maturities 79 --
Less unamortized discount -- 146
======== ========
Total long-term debt $ 53,487 $107,564
======== ========
CREDIT FACILITIES - At March 31, 2003, the Company has a senior credit facility
consisting of a $13.5 million, asset based, revolving credit facility which was
established in August 2002 to refinance all remaining obligations outstanding
under the Fleet Credit Facility (the "New Senior Credit Facility"). The New
Senior Credit Facility, as amended June 2, 2003 and which matures August 7,
2005, is secured by all of the Company's assets, carries an interest rate of
5.25% and contains customary financial covenants and events of default. The
Company was in compliance with the provisions of the facility. Subject to
limitations relating to levels of certain assets and reserves for future
interest payments, the Company has unused borrowing capacity on the facility of
$13.5 million as there were no borrowings outstanding under the facility at
March 31, 2003.
SENIOR SUBORDINATED NOTES - On August 30, 2000, the Company completed a private
placement of $75 million of senior subordinated notes (the "Notes") and warrants
to purchase shares of the Company's common stock (the "Warrants") to a group of
institutional investors (collectively, the "Purchasers"). The Company used the
proceeds of the private placement to retire, in full, a $75 million bridge loan
held by a group of lenders led by Fleet National Bank. The Notes, as amended in
August 2002, are due on August 29, 2005 and bear interest at a rate of 18% per
annum subject to adjustments described below, consisting of 13% cash interest on
principal, payable quarterly, and 5% interest on principal, payable quarterly in
"payment-in-kind" ("PIK") promissory notes. The Company may prepay the Notes
after August 29, 2001, at a premium initially of 9%, declining to 5%, 3%, and 1%
on each of the next succeeding anniversaries of that date. The Notes contain
customary financial covenants and events of default, including a cross-default
provision to the
18
Company's senior debt obligations. At March 31, 2003, the principal balance
outstanding on the notes amounted to $53.3 million, which included the original
principal amount plus the "payment-in-kind" notes less approximately $28.6
million paid off at the time of the sale of Norco, Inc. At March 31, 2003, the
Company was in compliance with the provisions of the Notes.
At issuance, the Warrants entitled the Purchasers to acquire, in the aggregate,
427,602 shares, or approximately 7%, of the common stock of the Company at an
exercise price of $9.93 a share. This exercise price represents the average
daily closing price of the Company's common stock on the New York Stock Exchange
for the thirty (30) days preceding the completion of the private placement. The
Warrants must be exercised by August 29, 2010.
Effective with the refinancing of the Company's prior senior credit agreement
with the New Senior Credit Facility on August 7, 2002, the purchasers of the
senior subordinated notes agreed to amend the notes. Under the amended senior
subordinated notes, the Company paid an amendment fee equal to 1% of the
outstanding balance of the notes by issuing additional notes and agreed to
increase the PIK interest rate on the notes to 5% effective January 1, 2003,
with such rate increasing 0.25% each quarter until we retire the notes.
Additionally, the Company amended the terms of the warrants to reduce the
exercise price of each warrant to provide the holders with a minimum profit on
the exercise of the warrants equal to $5.00 per share if the warrants were
exercised and sold prior to December 31, 2002. Because the Company did not
redeem the warrants prior to December 31, 2002, their exercise price was reduced
to $0.01 per share as of that date. In addition, the amended warrants contain a
"put" right that allows the holders to cause the Company to purchase the
warrants at a price of $5.00 per underlying share up to 120 days following the
occurrence of certain "liquidity events." The sale of the Norco, Inc. subsidiary
constituted a liquidity event and, accordingly, under the terms of the warrants,
as amended, through June 24, 2003, the holders have the right to require the
Company to redeem the warrants or repurchase the stock acquired through the
exercise of the warrants at a price equal to $5.00 per share. The maximum cash
exposure related to these warrants and their put rights, if any, is the $2.1
million that would be required to redeem the unexercised warrants or the
underlying shares. The $1.3 million of redeemable common stock reflected on the
balance sheet, represents the $5.00 per share put price on that portion of the
warrants (approximately 257,000 shares of common stock) which have been
exercised by the holders of the warrants. Upon the expiration of the put right,
any amount of redeemable common stock for which the put right was not exercised
will be used to increase additional paid in capital.
At March 31, 2003, the Company recorded a $2.0 million noncash, non-taxable gain
relating to the mark-to-market accounting of the warrants as a derivative. Since
the put right attached to the warrants will expire during the first quarter of
fiscal 2004, no further gains or losses relating to the warrants will be
recorded.
The Company has maturities of long-term debt of $79 thousand, $53.4 million and
$79 thousand in 2004, 2005 and 2006, respectively.
7. STOCKHOLDERS' EQUITY AND EMPLOYEE/DIRECTOR STOCK OPTIONS
The Company maintains the amended and restated 1992 long-term incentive plan
(the "1992 Plan"), the 1998 non-employee directors stock option plan (the "1998
Plan") and the 1999 long-term incentive plan (the "1999 Plan").
Under the terms of the 1999 plan, 300,000 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 July 2009. Under both plans, option
exercise prices equal the fair market value of the common shares at their grant
dates. For grants made prior to May 1999, options expire not later than five
years after the date of the grant. Options granted beginning in May 1999 to
officers and employees expire not later than 10 years after the date of the
grant. Options granted to directors and to officers and employees with the
annual cash bonus vest ratably over three years beginning one year after the
date of the grant. Restricted stock is payable in equivalent number of common
shares. The shares are distributable in a single installment and, with respect
to officers and employees, restrictions lapse ratably over a three-year period
from the date of the award, and with respect to directors, the restrictions
lapse after one year.
Under the terms of the 1998 Plan, non-employee directors are entitled to receive
matching options for a) each share of the Company's common stock which they hold
at the end of a 60-day period following initial election as a director, but not
to exceed 25,000 shares, with the strike price of the option being the fair
market value of the shares at their grant dates, and b) thereafter, for each
share of the Company's common stock that they purchase on the open market, with
the strike price of the option being the purchase price of the share, up to a
maximum of 5,000 options in any twelve month period or 15,000 options over a
three-year period. Options granted under the 1998 Plan vest on the first
anniversary of the grant. Options expire not later than five years after the
date of the grant.
19
The following table summarizes stock option activity over the past three years
under the plans:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
-------- ------
Outstanding at March 31, 2000 489,040 $19.56
Granted 151,737 9.74
Exercised (15,000) 11.38
Canceled or expired (83,606) 20.19
--------
Outstanding at March 31, 2001 542,171 18.25
Granted 159,000 7.63
Exercised (10,356) 8.84
Canceled or expired (150,268) 18.86
--------
Outstanding at March 31, 2002 540,547 16.30
Granted -- --
Exercised (14,066) 4.45
Canceled or expired (130,540) 18.68
========
Outstanding at March 31, 2003 395,941 14.42
========
Options exercisable at March 31, 2001 247,119 20.92
Options exercisable at March 31, 2002 318,189 19.00
Options exercisable at March 31, 2003 286,446 16.88
In 2003, 2002 and 2001 the Company awarded restricted stock totaling 8,408
shares, 10,294 shares and 12,382 shares, respectively. The weighted-average fair
value of this restricted stock was $10.15, $10.12 and $9.63 in 2003, 2002 and
2001, respectively. The expense recorded in 2003, 2002 and 2001 for restricted
stock was $88,000, $98,000 and $120,000 respectively.
No options were granted in 2003.
The weighted-average Black-Scholes value per option granted in 2002 and 2001 was
$4.22 and $3.00, respectively. The following weighted-average assumptions were
used in the Black-Scholes option pricing model for options granted in 2002 and
2001:
2002 2001
---- ----
Dividend yield 0.0% 0.9%
Volatility 75.6% 38.4%
Risk-free interest rate 3.3% 6.3%
Expected term of options
(in years) 4.0 4.0
For options outstanding and exercisable at March 31, 2003, the exercise price
ranges and average remaining lives were:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- -------------------------------------
RANGE OF NUMBER OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES AT MARCH 31, 2003 REMAINING LIFE EXERCISE PRICE AT MARCH 31, 2003 EXERCISE PRICE
- --------------- ----------------- -------------- -------------- ----------------- --------------
$ 6-10 207,880 4 $ 7.93 98,708 $ 7.90
10-15 -- -- -- -- --
15-21 119,398 2 18.48 119,075 18.48
21-28 68,663 1 27.02 68,663 27.02
------- ------- ------- -------
395,941 2 $ 14.42 286,446 $ 16.88
======= ======= ======= =======
20
NOTES RECEIVABLE FROM OFFICER - Notes receivable from an officer resulted from
the exercise of stock options in exchange for notes. Principal and interest were
paid in full in February 2003.
8. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution plan covering all eligible employees.
Contributions are based on certain percentages of an employee's eligible
compensation. Expenses related to this plan were $0.6 million, $0.6 million and
$0.7 million in 2003, 2002 and 2001, respectively.
The Company provides postretirement benefits to certain union employees. The
Company funds these benefits on a pay-as-you-go basis.
(In thousands)
POSTRETIREMENT BENEFITS
YEAR ENDED MARCH 31,
----------------------------------
2003 2002 2001
---- ---- ----
COMPONENTS OF NET
PERIODIC BENEFIT COST:
Service cost $ -- $ -- $ --
Interest cost 114 86 88
Amortization of
net loss 51 53 19
---- ---- ----
Net periodic
benefit cost $165 $139 $107
==== ==== ====
WEIGHTED-AVERAGE
ASSUMPTION AS OF
MARCH 31:
Discount rate 5.75% 7.25% 7.25%
POSTRETIREMENT BENEFITS
YEAR ENDED MARCH 31,
-----------------------------------
2003 2002
------- -------
CHANGE IN BENEFIT
OBLIGATION:
Benefit obligation at
beginning of year $ 1,205 $ 1,258
Service cost -- --
Interest cost 114 86
Actuarial loss 440 --
Benefits paid (131) (139)
------- -------
Benefit obligation at
end of year $ 1,628 $ 1,205
======= =======
POSTRETIREMENT BENEFITS
YEAR ENDED MARCH 31,
-----------------------------------
2003 2002
------- -------
RECONCILIATION OF
FUNDED STATUS:
Funded status $(1,628) $(1,205)
Unrecognized actuarial
loss 648 259
------- -------
Accrued liability $ (980) $ (946)
======= =======
For measurement purposes, a 13.5% and 10.0% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2003 and 2002,
respectively. The rate was assumed to decrease gradually to 5.25% by 2011 and
remain at that level thereafter. Under the Plan, the actuarially determined
effect of a one-percentage point change in the assumed health care cost trend
would be as follows:
ONE ONE
PERCENTAGE PERCENTAGE
POINT POINT
INCREASE DECREASE
-------- --------
Effect on interest cost component $ 9 $ (8)
Effect on accumulated
postretirement benefit obligation 138 (121)
The balance sheet of the Company contains a non-current asset and a non-current
liability in the amount of $3.7 million relating to the pension plan of a
divested company. These amounts represent the legal liability of the company
under German law and the indemnification received from the buyer of the business
for that liability.
9. FINANCIAL INSTRUMENTS
INTEREST RATE SWAP AGREEMENTS - The Company had no swap agreements in effect at
March 31, 2003. The following agreements were in effect at March 31, 2002:
NOTIONAL
AMOUNT RECEIVE PAY
(IN THOUSANDS) MATURITIES RATE(1) RATE
-------------- ---------- ------- ----
March 31, 2002 $25,000 May 2002 1.88% 5.48%
25,000 May 2002 1.88% 5.48%
37,500 March 2003 1.90% 6.58%
37,500 March 2003 1.90% 6.58%
(1) Based on three-month LIBOR
The company recorded the fair value of these swaps in accrued liabilities at
March 31, 2002. During 2003, these agreements were terminated and settled as the
debt was repaid resulting in a charge of $0.2 million to discontinued
operations.
21
The following methods and assumptions were used by the Company in estimating the
fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS - The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
ACCOUNTS RECEIVABLE, DEBT, ACCOUNTS PAYABLE AND OTHER LIABILITIES - The carrying
amounts of these items approximates their fair value.
CONCENTRATION OF CREDIT RISK - The Company is subject to concentration of credit
risk primarily with its trade and notes receivable. The company grants credit to
certain customers who meet pre-established credit requirements, and generally
requires no collateral from its customers. Estimates of potential credit losses
are provided for in the Company's consolidated financial statements and are
within management's expectations and industry averages. As of March 31, 2003,
the Company had no other significant concentrations of risk.
10. COMMITMENTS
The Company and its subsidiaries have minimum rental commitments under
noncancelable operating leases, primarily leased equipment, as follows (in
thousands):
2004 $423
2005 116
2006 114
2007 61
2008 22
- ----- ----
Total $736
====
Rent expense under operating leases for the years ended March 31, 2003, 2002,
and 2001 was $419 thousand, $589 thousand and $515 thousand, respectively.
11. CONTINGENCIES
ENVIRONMENTAL MATTERS - During the fourth quarter of fiscal 2000, the Company
presented an environmental cleanup plan for a portion of a site in Pennsylvania
which continues to be owned although the related business has been sold. This
plan was submitted pursuant to the Consent Order and Agreement with the
Pennsylvania Department of Environmental Protection ("PaDEP") concluded in
fiscal 1999. Pursuant to the Consent Order, upon its execution the Company paid
$0.2 million for past costs, future oversight expenses and in full settlement of
claims made by PaDEP related to the environmental remediation of the site with
an additional $0.2 million paid in fiscal 2001. A second Consent Order was
concluded with PaDEP in the third quarter of fiscal 2001 for another portion of
the site, and a third Consent Order for the remainder of the site was concluded
in the third quarter of fiscal 2003. The Company is also administering an agreed
settlement with the Federal government under which the government pays 50% of
the direct and internal environmental response costs associated with a portion
of the site. The Company has also reached an agreement in principle with the
Federal government and is in the process of finalizing the necessary
documentation under which the Federal government will pay 45% of the direct and
internal environmental response costs associated with another portion of the
site. At March 31, 2003, the Company's cleanup reserve was $2.0 million based on
the net present value of future expected cleanup costs. The Company expects that
remediation at the Pennsylvania site will not be completed for several years.
The Company also continues to participate in environmental assessments and
remediation work at nine other locations, including former facilities of the
Company. The Company estimates that its potential cost for implementing
corrective action at these sites will not exceed $0.5 million payable over the
next several years, and has provided for the estimated costs in its accrual for
environmental liabilities. In addition, in the first quarter of fiscal 2003, the
Company entered into a consent order for a former facility in New York pursuant
to which it is developing a remediation plan for review and approval by the New
York Department of Environmental Conservation. The Company has established a
reserve of $2.5 million which it believes is adequate.
In addition, the Company has been named as a potentially responsible party in
eight environmental proceedings pending in several other states in which it is
alleged that the Company was a generator of waste that was sent to landfills and
other treatment facilities and, as to several sites, it is alleged that the
Company was an owner or operator. Such properties generally relate to businesses
which have been sold or discontinued. The Company estimates that its expected
future costs, and its estimated proportional share of remedial work to be
performed, associated with these proceedings will not exceed $0.2 million and
has provided for these estimated costs in its accrual for environmental
liabilities.
LITIGATION - The Company is also engaged in various other legal proceedings
incidental to its business. It is the opinion of management that, after taking
into consideration information furnished by its counsel, the above matters will
have no material effect on the Company's consolidated financial position or the
results of the Company's operations in future periods.
12. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in only one business segment, the design, manufacture and
sale of equipment for use in the aerospace industry. Approximately 55.1%, 47.3%
and 45.3% of sales in 2003, 2002 and 2001 were derived from sales to the United
States Government and its prime contractors.
Net sales below show the geographic location of customers (in thousands):
LOCATION 2003 2002 2001
------- ------- -------
United States $33,110 $26,264 $28,518
Europe 9,238 13,367 14,294
Pacific and Far East 8,406 5,523 2,950
Other non-United States 4,242 2,632 2,013
------- ------- -------
Total $54,996 $47,786 $47,775
======= ======= =======
22
13. UNAUDITED QUARTERLY FINANCIAL DATA
(In thousands except per share amounts)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ---------- ---------- ----------
2003
Net sales $ 13,887 $ 11,854 $ 15,562 $ 13,693 $ 54,996
Gross profit 6,211 5,474 7,486 5,399 24,570
(Loss) income from continuing operations (143) (1,710) 1,437 (3,449) (3,865)
Income (loss) from discontinued operations (607) (3,523) (3,126) 20,355 13,099
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (750) $ (5,233) $ (1,689) $ 16,906 $ 9,234
========== ========== ========== ========== ==========
Basic (loss) earnings per share:
(Loss) income from continuing operations $ (0.02) $ (0.28) $ 0.23 $ (0.52) $ (0.61)
Income (loss) from discontinued operations (0.10) (0.57) (0.51) 3.23 2.08
---------- ---------- ---------- ---------- ----------
Net income (loss) per share $ (0.12) $ (0.85) $ (0.28) $ 2.71 $ 1.47
========== ========== ========== ========== ==========
Diluted (loss) earnings per share:
(Loss) income from continuing operations $ (0.02) $ (0.28) $ 0.23 $ (0.52) $ (0.61)
Income (loss) from discontinued operations (0.10) (0.57) (0.50) 3.23 2.08
---------- ---------- ---------- ---------- ----------
Net income (loss) per share $ (0.12) $ (0.85) $ (0.27) $ 2.71 $ 1.47
========== ========== ========== ========== ==========
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ---------- ---------- ----------
2002
Net sales $ 12,672 $ 10,162 $ 12,686 $ 12,266 $ 47,786
Gross profit 4,900 3,764 5,502 6,720(1) 20,886
(Loss) income from continuing operations (601) (2,655) (677) 1,703 (2,230)
(Loss) income from discontinued operations 1,407 (51,951) (5,538) (13,469) (69,551)
---------- ---------- ---------- ---------- ----------
Net (loss) income $ 806 $ (54,606) $ (6,215) $ (11,766) $ (71,781)
========== ========== ========== ========== ==========
Basic (loss) earnings per share:
(Loss) income from continuing operations $ (0.10) $ (0.43) $ (0.11) $ 0.27 $ (0.36)
(Loss) income from discontinued operations 0.23 (8.41) (0.90) (2.17) (11.25)
---------- ---------- ---------- ---------- ----------
Net (loss) income per share $ 0.13 $ (8.84) $ (1.01) $ (1.90) $ (11.61)
========== ========== ========== ========== ==========
Diluted (loss) earnings per share:
(Loss) income from continuing operations $ (0.10) $ (0.43) $ (0.11) $ 0.27 $ (0.36)
(Loss) income from discontinued operations 0.23 (8.41) (0.90) (2.16) (11.25)
---------- ---------- ---------- ---------- ----------
Net (loss) income per share $ 0.13 $ (8.84) $ (1.01) $ (1.89) $ (11.61)
========== ========== ========== ========== ==========
(1) The fourth quarter gross profit of 54.8% includes 6.9% relating to
adjustments to product costing allowances and the year-end reconciliation of
fixed cost absorption rates, as well as a favorable mix of higher margin
products.
23
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 Registrant's
Proxy Statement for the 2003 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in the Registrant's
Proxy Statement for the 2003 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain of the information required by this item is contained in the
Registrant's Proxy Statement for the 2003 Annual Meeting of Shareholders and is
incorporated herein by reference.
SECURITIES AUTHORIZED/ISSUED UNDER EQUITY COMPENSATION PLANS:
Number of Securities to Weighted Average
be Issued Upon Exercise Exercise Price of Number of Securities
of Outstanding Options, Outstanding Options, Remaining Available
Plan Category Warrants and Rights Warrants and Rights for Future Issuance
- ------------- ------------------- ------------------- -------------------
Equity Compensation Plans
Approved by Security Holders 395,941 $14.42 216,742
Equity Compensation Plans Not
Approved by Security Holders (1) -- -- --
------- ------ -------
Total 395,941 $14.42 216,742
======= ====== =======
(1) Each of the Company's compensation plans has been previously approved by
security holders.
24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the Registrant's
Proxy Statement for the 2003 Annual Meeting of Shareholders and is incorporated
herein by reference.
25
PART IV
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Also, the Company has investments in certain
unconsolidated entities. As the Company does not control or manage these
entities, its disclosure controls and procedures with respect to such entities
are necessarily substantially more limited than those it maintains with respect
to its consolidated subsidiaries.
With 90 days prior to the date of this report, the Company carried out an
evaluation under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the forgoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits:
1. Financial Statements:
Consolidated Balance Sheets at March 31, 2003 and 2002
Statements of Consolidated Operations for the years ended March 31,
2003 2002 and 2001
Statements of Consolidated Cash Flows for the years ended March 31,
2003 2002 and 2001
Statements of Consolidated Stockholders' Equity (Deficit) for the
years ended March 31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
26
Independent Auditors' Report
2. Financial Statement Schedules
Schedule II - Consolidated Valuation and Qualifying Accounts
for the years ended March 31, 2003, 2002 and 2001
Independent Auditors' Report
3. Exhibits:
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this report.
(b) Reports on Form 8-K:
1. On March 11, 2003 the Registrant filed an 8-K including the
Pro Forma Financial Statements regarding the disposition of
its wholly-owned subsidiary Norco, Inc.
27
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 23, 2003
TRANSTECHNOLOGY CORPORATION
By: /s/ Michael J. Berthelot
-------------------------------------
Michael J. Berthelot,
Chairman of the Board of Directors
/s/ Robert L.G. White
-------------------------------------
Robert L.G. White
President and Chief Executive Officer
28
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 of Directors June 23, 2003
- ------------------------------------
MICHAEL J. BERTHELOT
/s/ JOSEPH F. SPANIER Vice President, Chief Financial Officer June 23, 2003
- ------------------------------------
JOSEPH F. SPANIER and Treasurer
(Principal Financial and Accounting Officer)
/s/ ROBERT L.G. WHITE President and Chief Executive Officer June 23, 2003
- ------------------------------------
ROBERT L.G. WHITE (Principal Executive Officer)
Director
/s/ DANIEL ABRAMOWITZ Director June 23, 2003
- ------------------------------------
DANIEL ABRAMOWITZ
/s/ GIDEON ARGOV Director June 23, 2003
- ------------------------------------
GIDEON ARGOV
/s/ THOMAS V. CHEMA Director June 23, 2003
- ------------------------------------
THOMAS V. CHEMA
/s/ JAN NAYLOR COPE Director June 23, 2003
- ------------------------------------
JAN NAYLOR COPE
/s/ JOHN H. DALTON Director June 23, 2003
- ------------------------------------
JOHN H. DALTON
/s/ WILLIAM J. RECKER Director June 23, 2003
- ------------------------------------
WILLIAM J. RECKER
29
CERTIFICATION
I, Robert L.G. White certify that:
1. I have reviewed this annual report on Form 10-K of TransTechnology
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 23, 2003 /s/ Robert L.G. White
-----------------------------------
Robert L.G. White
President & Chief Financial Officer
30
CERTIFICATION
I, Joseph F. Spanier, certify that:
1. I have reviewed this annual report on Form 10-K of TransTechnology
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 23, 2003 /s/ Joseph F. Spanier
----------------------------------
Joseph F. Spanier
Chief Financial Officer
31
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of TransTechnology Corporation:
We have audited the consolidated financial statements of TransTechnology
Corporation and subsidiaries as of March 31, 2003 and 2002, and for each of the
three years in the period ended March 31, 2003, and have issued our report
thereon dated May 1, 2003 (June 2, 2003 as to the second paragraph of Note 6);
such report is included elsewhere in this Form 10-K. Our audits also included
the financial statement schedule of TransTechnology Corporation, listed in Item
15. This financial statement schedule is the responsibility of the Corporation's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
May 1, 2003 (June 2, 2003 as to the second paragraph of Note 6)
32
TRANSTECHNOLOGY CORPORATION
SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR YEARS ENDED MARCH 31, 2003, 2002 AND 2001
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ------ -------- -------- ---------- ---------
2003
Allowances for
doubtful accounts
and sales returns $ 341 $ 53 $ -- $ 329 $ 65
Inventory reserves $ 1,759 $ 50 $ -- $ 319 $ 1,490
Environmental
reserves $ 4,547 $ 818 $ -- $ 321 $ 5,044
Allowance for tax
loss valuation $ 14,503 $ -- $ -- $ 14,503 $ --
2002
Allowances for
doubtful accounts
and sales returns $ 25 $ 322 $ -- $ 6 $ 341
Inventory reserves $ 1,744 $ 300 $ -- $ 285 $ 1,759
Environmental
reserves $ 4,680 $ 222 $ -- $ 355 $ 4,547
Allowance for tax
loss valuation $ 9,646 $ 4,857 $ -- $ -- $ 14,503
2001
Allowances for
doubtful accounts
and sales returns $ 81 $ 26 $ -- $ 81 $ 25
Inventory reserves $ 1,560 $ 421 $ -- $ 237 $ 1,744
Environmental
reserves $ 1,914 $ 3,398 $ -- $ 632 $ 4,680
Allowance for tax
loss valuation $ -- $ 9,646 $ -- $ -- $ 9,646
33
INDEX TO EXHIBITS
2.1 Asset Purchase Agreement dated as of January 24, 2003, among the
Company, NORCO, Inc. and Marathon Power Technologies Company. (15)
3.1 Certificate of Incorporation of the Company. (1)
3.2 Bylaws of the Company Amended and Restated as of June 4, 2001. (12)
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)
10.7 Executive Life Insurance Plan. (5)
10.14 Form of Executive Severance Agreement with Officers of the Company.
(6)
10.15 Form of Executive Severance Agreement with Subsidiary Presidents.
(6)
10.16 Form of Executive Severance Agreement with Division Presidents. (6)
10.17 Form of Executive Severance Agreement with Overseas Subsidiary
Managing Directors. (6)
10.18 Form of First Amendment to Executive Severance Agreement with
Officers of the Company. (7)
10.19 Form of First Amendment to Executive Severance Agreement with
Subsidiary Presidents. (7)
10.20 Form of First Amendment to Executive Severance Agreement with
Division Presidents. (7)
10.21 Form of First Amendment to Executive Severance Agreement with
Overseas Subsidiary Managing Directors. (7)
10.22 Form of Second Amendment to Executive Severance Agreement with
Officers of the Company. (12)
10.23 Form of Second Amendment to Executive Severance Agreement with
Subsidiary Presidents. (12)
10.24 Form of Second Amendment to Executive Severance Agreement with
Division Presidents. (12)
10.25 Form of Second Amendment to Executive Severance Agreement with
Overseas Subsidiary Managing Directors. (12)
10.26 Consulting Agreement with John Dalton. (9)
34
10.27 1999-2001 Incentive Compensation Plan of the Company. (9)
10.28 1998 Non-Employee Directors' Stock Option Plan of the Company. (8)
10.29 Form of Stock Option Agreement used under the Company's 1998
Non-Employee Directors' Stock Option Plan. (9)
10.30 1999 Long Term Incentive Plan of the Company. (9)
10.31 Form of Stock Option Agreement used under the Company's 1999 Long
Term Incentive Plan. (10)
10.32 Form of Restricted Stock Award Agreement used under the Company's
1999 Long Term Incentive Plan. (10)
10.34 Securities Purchase Agreement dated as of August 29, 2000 by and
among the Company; J.H. Whitney Mezzanine Fund, L.P.; Albion
Alliance Mezzanine Fund I, L.P.; Albion Alliance Mezzanine Fund II,
L.P.; the Equitable Life Assurance Society of the United States;
Fleet Corporate Finance, Inc.; and Citizens Capital, Inc. (11)
10.36 Registration Rights Agreement dated as of August 29, 2000 by and
among the Company and the Purchasers referred to therein. (11)
10.37 Subordinated Indebtedness Intercreditor Agreement dated as of August
29, 2000 among the Company, the Existing Guarantors named therein,
and the Purchasers referred to therein. (11)
10.40 Indemnification Agreement dated January 13, 2000 between the Company
and each of its officers and directors. (10)
10.46 Amended and Restated Share and Limited Liability Company Membership
Interest Purchase Agreement, dated as of August 23, 2001, between
the Company and KTIN Acquisition, LLC (13)
10.51 First Amendment Agreement dated as of August 7, 2002 by and among
the Company; J.H. Whitney Mezzanine Fund, L.P.; Albion Alliance
Mezzanine Fund I, L.P.; Albion Alliance Mezzanine Fund II, L.P.; the
Equitable Life Assurance Society of the United States; Fleet
Corporate Finance, Inc.; and Citizens Capital, Inc. (14)
10.52(i) Amended and Restated Warrant dated as of August 7, 2002 and issued
by the Company to J.H. Whitney Mezzanine Fund, L.P. for 171,041
shares of the Company's common stock. (14)
10.52(ii) Schedule of other substantially similar warrants amended and
restated by the Company and issued to other Purchasers pursuant to
the First Amendment Agreement. (14)
10.53 Intercreditor and Subordination Agreement dated as of August 7, 2002
by and among The CIT Group/Business Credit, Inc., Ableco Finance
LLC, as Lender and Agent for the Lenders as defined therein, the
Company, and the Purchasers referred to therein. (14)
35
10.54 Financing Agreement by and among the Company, NORCO, Inc., TCR
Corporation and The CIT Group/Business Credit, Inc., dated as of
August 7, 2002. (14)
10.56 Lease Agreement dated as of February 24, 2003 between Norco, Inc.
and Marathon Power Technologies Company. (15)
10.57 Letter Agreement, dated as of January 1, 2003, by and among the
Company, TT Connecticut Corporation (f/k/a NORCO, Inc.), TT
Minnesota Corporation (f/k/a TCR Corporation) and The CIT
Group/Business Credit, Inc.
10.58 Severance and Services Agreement dated as of February 4, 2003 by and
between Michael J. Berthelot and the Company.
10.59 Employment Agreement dated as of March 28, 2003 by and between
Joseph F. Spanier and the Company.
13 Annual Report to Security Holders for the Fiscal Year ended March
31, 2003.
21 List of Subsidiaries of the Company.
99.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
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(1) Incorporated by reference from the Company's Form 8-A Registration
Statement No. 2-85599 dated February 9, 1987.
(2) Incorporated by reference from the Company's Registration Statement on
Form S-8 No. 333-45059 dated January 28, 1998.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended March 31, 1995.
(4) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended March 31, 1994.
(5) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended March 31, 1989.
(6) Incorporated by reference from the Company's Annual Report on Form 10-K
for he Fiscal Year ended March 31, 1997.
(7) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the Quarter ended December 27, 1998.
36
(8) Incorporated by reference from the Company's Registration Statement on
Form S-8 No. 333-70877 dated January 20, 1999.
(9) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended March 31, 1999.
(10) Incorporated by reference from the Company's Annual Report on Form 10-K
for he Fiscal Year ended March 31, 2000.
(11) Incorporated by reference from the Company's Report on Form 8-K filed on
September 14, 2000.
(12) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended March 31, 2001.
(13) Incorporated by reference from the Company's Current Report on Form 8-K
filed on December 21, 2001.
(14) Incorporated by reference from the Company's Current Report on Form 8-K
filed on August 22, 2002.
(15) Incorporated by reference from the Company's Current Report on Form 8-K
filed on March 11, 2003.
37