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SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
Washington, DC 20549
____________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended June 30, 2000
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 0-10723
BOLT TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-0773922
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Four Duke Place, Norwalk, Connecticut 06854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 853-0700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Each Exchange
-------------- on Which Registered
-------------------
Common Stock, without par value American Stock Exchange
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. [X]
The aggregate market value of Common Stock, without par value, held by non-
affiliates on August 20, 2000: $19,920,656
As of August 20, 2000, there were 5,408,733 shares of Common Stock, without par
value, outstanding.
Documents Incorporated By Reference
Definitive Proxy Statement for 2000 Annual Meeting, which will be filed no later
than 120 days after June 30, 2000, is incorporated by reference in Part III to
the extent stated in this report.
1
Note Regarding Forward-Looking Statements
Forward-looking statements in this Form 10-K, future filings by the Company with
the Securities and Exchange Commission, the Company's press releases and oral
statements by authorized officers of the Company are intended to be subject to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that all forward-looking statements involve risks
and uncertainty, including without limitation (i) the risk of technological
change relating to the Company's products and the risk of the Company's
inability to develop new competitive products in a timely manner, (ii) the risk
of decreased demand for the Company's products due to fluctuations in energy
industry activity, (iii) the Company's reliance on certain significant
customers, (iv) risks associated with a significant amount of foreign sales, and
(v) risk of fluctuations in future operating results. The Company believes that
forward-looking statements made by it are based on reasonable expectations.
However, no assurances can be given that actual results will not differ
materially from those contained in such forward-looking statements. The words
"estimate," "project," "anticipate," "expect," "predict," "believe" and similar
expressions are intended to identify forward looking statements.
PART I
Preliminary Note: In this annual report on Form 10-K, we refer to Bolt
Technology Corporation and its subsidiaries as "we", "our", "us", or "the
company" unless the context clearly indicates otherwise.
ITEM 1. Business
We operate in two business segments: geophysical equipment and industrial
products. Geophysical equipment includes the development, manufacture and sale
of marine seismic energy sources and through our subsidiary A-G Geophysical
Products, Inc. ("A-G") we manufacture and sell underwater electrical connectors
and cables, air gun signature hydrophones and pressure transducers used by the
marine seismic industry. A-G was acquired on April 20, 1999. Our industrial
products segment manufactures and sells miniature industrial clutches, brakes
and sub-fractional horsepower electric motors through our subsidiary, Custom
Products Corporation ("Custom Products"). Custom Products was acquired on
January 6, 1998. See Note 2 to the consolidated financial statements for
information related to these acquisitions. Also see Note 10 for information
regarding industry segments and sales by geographic areas. The seismic industry
suffered a substantial downturn during fiscal 2000 which adversely impacted our
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." A description of the Company's products follows.
Geophysical Equipment
Marine Air Guns
An energy source, such as our air gun, used in seismic exploration creates
elastic waves at frequencies that readily travel to great depths in the earth.
As elastic waves travel through the earth, portions are reflected by variations
in the underlying rock layers and the reflected energy is received as signals by
devices known as hydrophones. A shipboard unit containing electronic recording
equipment converts the signals to digital form. By using computer programs with
complex calculations to manipulate the processed seismic data, geoscientists can
model and visualize the subsurface through the creation and analysis of spatial
representations. The analysis of seismic and other geological data forms the
basis of decisions to drill exploratory and development wells. Because of the
significant expense associated with drilling oil and gas wells, decisions on
whether or where to drill are critical to the overall process. A seismic
exploration vessel may tow 60 to 70 air guns along with multiple hydrophone
streamers of up to 6,000 meters in length. The air guns are fired
simultaneously every 75-150 feet along the survey line. Over the past ten
years, improvements in drilling success rates through the use of advanced
seismic survey techniques, particularly 3-D techniques, substantially increased
the demand for seismic data. As a result, 3-D surveys utilizing these advanced
technologies have gained increasing acceptance in the oil and gas industry as an
exploration risk management tool. Moreover, 3-D surveys are increasingly
employed in field development and reservoir management activities.
2
ITEM I. Business (cont'd.)
The precise shot to shot repeatability of our marine air guns and their
reliability of operation make them especially beneficial for use in 3-D surveys.
Our long-life marine air guns extend the period between routine air gun
maintenance cycles. These guns also provide improved high peak sound pressure
levels and improved frequency spectrum as compared with older models. These
improved characteristics are advantageous to geoscientists in designing 3-D
surveys. A retro-fit kit, which incorporates the improvements of the long-life
guns, allows users to easily upgrade existing air gun models to the long-life
standard.
In fiscal 2000 we completed the development of our Annular Port Air Gun. This
new design provides significant improvements in both operating efficiency and
acoustic output. The principal feature of the Annular Port Air Gun is an
annulus containing the air chamber and shuttle valve surrounding a hollow
passage through which air supply hoses and electrical control cables are routed.
This new configuration permits the implementation of simplified multi-gun arrays
that produce less towing drag while being easier to deploy and retrieve than
conventional air gun arrays. Significant improvements in operating efficiency
are also acheived by shielding fragile hoses and cables from the effects of the
high pressure air blast released from the air gun.
We sell various models of air guns that range in price from $3,000 to $76,000.
A majority of the air guns sold are priced in the $10,000 range. A significant
source of our revenue comes from the sale of replacement parts.
Underwater Connectors, Cables and Hydrophones
Our marine cables and connectors are injection molded of thermoplastic
polyurethane designed for marine air gun firing lines, bulkhead connectors and
other connectors which are needed from the rear of the seismic vessel to the
marine air gun. The cables and connectors are primarily for use with marine air
guns and firing control systems where the connector is operating in close
proximity to the high pressure release of air from marine air guns. We
manufacture cables and connectors that can be used with marine air guns
manufactured by us as well as air guns manufactured by others.
Our signature hydrophones and pressure transducers are designed for marine
applications in a high shock environment. Their primary use is with marine air
gun firing and control systems. The purpose of the hydrophone or pressure
transducer is for near field measurements of the outgoing energy waveforms from
marine air guns.
Industrial Products
Our Industrial Products segment spans two basic disciplines: power transmission
(miniature industrial clutches and brakes) and motion control ( sub-fractional
horsepower electric motors). Our clutch and brake products include a complete
line of mechanical and pneumatic precision miniature slip clutches, one-way
clutches, toothed jaw clutches and torque limiters. A slip clutch will start to
slip once its torque setting is exceeded. This feature is useful as overload
protection, constant tensioning or functional torque, in different industrial
applications. Among other applications, our clutches and brakes are used in
airplane video systems, hospital beds, barcode labelers and banking machines.
Prices range from $7 to $400.
3
ITEM 1. Business (cont'd.)
Industrial Products (cont'd.)
In addition, we offer an electromagnetic clutch and brake product line which
includes high performance engage/disengage clutches and brakes, power off
brakes, magnetic particle clutches and brakes and multiple plate slip clutches.
Applications include high speed mailing machines, packaging machines, elevators,
machine tools and robotics. Prices range from $50 to $1,500.
Our motor line is comprised of A.C. and D.C. sub-fractional horsepower motors
and gear motors. These are avaliable in various shapes and offer several design
options (speed, voltage, etc.). Applications include air conditioning systems,
valve timers, vending machines, point of purchase displays and business
machines. Capacity ranges from 3 to 10 watts. Prices range from $4 to $20.
Foreign Sales
During fiscal 2000, 1999 and 1998, approximately 41%, 63% and 60%, respectively,
of the Company's revenue was derived from sales to customers outside the United
States. See Note 10 to the consolidated financial statements for the geographic
distribution of sales. In addition, sales are made to domestic customers who
frequently use the Company's equipment internationally.
Backlog
Geophysical Equipment
Because of the short period between order and shipment dates for the principal
portion of geophysical equipment sales, the dollar amount of current backlog is
not considered to be a reliable indication of future sales.
Industrial Products
As of June 30, 2000, we had an order backlog of $1,028,000 as compared to
$1,035,000 at June 30, 1999. It is estimated that substantially all of the
backlog as of June 30, 2000 will be shipped during the fiscal year ending June
30, 2001.
Competition
Geophysical Equipment
Our marine air guns compete primarily with marine air guns manufactured by
Input/Output, Inc. and Seismic Systems, Inc. Our principal competitor for
connectors and cables is Input/Output, Inc. We believe that technology, product
reliability and durability are the primary basis of competition in the market
for geophysical equipment and that the remaining competitive factors in the
industry are field product support and price. We believe that we compete
effectively with respect to each of these factors, although there can be no
assurance that the sales of our geophysical equipment will not be adversely
affected if current competitors or others introduce equipment with better
performance or lower price.
4
ITEM 1. Business (cont'd.)
Competition (cont'd.)
Industrial Products
It is not possible to determine with accuracy our relative competitive position
in the market for industrial products. The industry in which we operate is
characterized by active and substantial competition. No single company dominates
the market for the types of products we manufacture. Our competitors include
both larger and smaller manufacturers and divisions of larger diversified
companies with substantial financial resources. Principal competitive factors in
the market for our industrial products include quality, service, reliability and
price. Our products also compete with other torque control devices to solve
design problems.
Marketing
Geophysical Equipment
Our principal customers for geophysical equipment are seismic contractors, which
operate seismic vessels for collection of seismic data in accordance with their
customers specifications or for their own seismic data libraries, and foreign
national oil and gas companies.
Marketing of our geophysical equipment is principally performed by salaried
sales personnel, all of whom are based in the United States. We also use sales
agents for individual sales in certain foreign countries. In general, we market
our products and services through our sales force, together with our technical
services and engineering staffs, primarily to representatives of major
geophysical contractors. The principal marketing techniques used are direct
sales visits to current and potential customers, product demonstrations and
participation at industry trade shows and meetings.
In general, products are sold on standard 30-day credit terms. In certain
instances, we require our customers to furnish letters of credit, payable upon
shipment.
Industrial Products
Our industrial products are sold primarily to original equipment manufacturers
("OEMs"). OEMs use our products to solve torque related problems which will
provide lower installed cost and high reliability, thereby lowering production
and service costs. Our engineering staff and independent sales representatives
continually work in close collaboration with OEMs to determine the appropriate
product for the specific application. Sales are made on standard 30-day credit
terms. We sell our industrial products primarily in the United States, Canada
and Europe.
Research and Development
Our ability to compete successfully depends upon, among other things, the
development of new products as well as the improvement of the technical
capabilities of our existing products. We spent, during the fiscal years 2000,
1999, and 1998, $348,000, $386,000, and $216,000, respectively, to develop new
products and to upgrade existing products.
5
ITEM 1. Business (cont'd.)
Employees
As of June 30, 2000, we employed approximately 94 people on a full-time basis,
all of whom are employed in the United States. We are not a party to any
collective bargaining agreement and have had no work stoppages. We believe that
our employee relations are good.
Manufacturing and Raw Materials
We manufacture and assemble our geophysical equipment in Norwalk, Connecticut
and Cypress, Texas and manufacture our industrial products in North Haven,
Connecticut. Our manufacturing and assembly operations consist of machining or
molding the necessary components and assembling and testing the final product.
We maintain adequate levels of inventory to enable us to satisfy customer
requirements within the shortest amount of time. The raw materials used in our
products are generally in adequate supply. For some marine air gun orders, we
occasionally supply auxiliary equipment such as compressors, air gun controllers
or towing equipment manufactured by others. We have not experienced any supply
problems with respect to these auxiliary items. Because we manufacture based on
customer orders, no inventory of fully assembled finished goods is maintained.
Regulatory Matters
We believe that we are currently in compliance with the requirements of
environmental and occupational health and safety laws and regulations.
Compliance with such laws and regulations has not resulted in a significant
expense in the past and we do not foresee the need for material expenditures to
ensure compliance with such laws and regulations as they currently exist.
Intellectual Property
We seek to protect our intellectual property by means of patents, trademark and
other measures. We currently own more than 20 United States patents and 30
patents in foreign countries relating to the manufacture of our products. These
patents have been of value in the growth of our business and may continue to be
of value in the future. However, our business is generally not dependent upon
the protection of any patent and would not be materially affected by the
expiration thereof.
Major Customers
Geophysical Equipment
Historically a significant portion of our revenues have been attributable to a
few large customers. In 2000, sales to Schlumberger, Ltd., Baker Hughes
Incorporated and Veritas DGC accounted for 16%, 14% and 11%, respectively, of
consolidated revenue. In 1999, sales to Schlumberger, Petroleum Geo-Services
(PGS) and Eagle Geophysical, Inc. accounted for 19%, 14% and 10%, respectively,
of consolidated revenue. In 1998, sales to Schlumberger, PGS and Veritas DGC
accounted for 22%, 10%, and 10%, respectively, of consolidated revenue.
The loss of Schlumberger, Baker Huges, PGS or Veritas as a customer or a
significant decrease in the amount of their purchases could have a material
adverse effect on the Company.
Industrial Clutches
No customer accounted for 10% of consolidated revenue.
6
ITEM 2. Properties
The following table sets forth certain information with respect to the Company's
principal properties:
Approximate
Area Expiration
Location Nature of Property (Sq. Feet) Date of Lease
- -------------------------- -------------------------- ---------- ---------------
Norwalk, Connecticut Manufacturing 22,300 month-to-month
Norwalk, Connecticut Administration/Engineering 6,600 month-to-month
Houston, Texas Sales Office 3,000 2001
North Haven, Connecticut Manufacturing 6,500 2004
Cypress, Texas Manufacturing 30,000 2002
In the opinion of the Company's management, the properties described above are
in good condition and repair and are suitable and adequate for the Company's
purposes. The properties are currently fully utilized on a one shift basis which
provides sufficient productive capacity. The building located in Cypress, Texas
is leased from the former shareholder of A-G which was acquired by the Company
in April 1999. Monthly rental payments are $10,000. We do not anticipate any
problem in entering into a new lease for the Norwalk properties.
ITEM 3. Legal Proceedings
We are not aware of any current or pending litigation or proceedings that could
have a material adverse effect on our results of operations, cash flows or
financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
7
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is listed on the American Stock Exchange ("AMEX") under the
symbol "BTJ". The following table sets forth the high and low sales prices for
our common stock for the quarters indicated:
Fiscal 2000 High Low
----------- ------- ------
First Quarter 6 3/16 5 1/8
Second Quarter 5 7/8 3 3/8
Third Quarter 4 11/16 3 3/16
Fourth Quarter 4 7/8 3 1/8
Fiscal 1999 High Low
----------- ------- ------
First Quarter 9 7/16 5 1/16
Second Quarter 8 1/8 5 1/2
Third Quarter 8 3/4 6 1/8
Fourth Quarter 8 15/16 5
The number of stockholders of record at July 6, 2000 was 331 and does not
include those stockholders who had shares in broker nominee accounts. We
believe that the number of beneficial owners is substantially greater than the
number of record holders, because a large portion of our Common Stock is held
of record in broker "street names".
We have not paid a dividend since 1985. Under our credit agreement,
approximately $1,017,000 is available for the payment of dividends. We do not
intend to pay cash dividends on our common stock in the foreseeable future. Any
future decision to pay cash dividends will depend upon our growth,
profitability, financial condition and other factors that the Board of Directors
may deem relevant.
8
ITEM 6. Selected Financial Data
The following table has been derived form the Company's audited financial
statements and sets forth selected consolidated financial data with respect to
the Company. This information should be read in conjunction with the
consolidated financial statements provided elsewhere in this Form 10-K.
Year Ended June 30,
-------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- ------
(In thousands, except per share amounts)
Income Statement Data:
Sales............................................. $14,748 $19,591 $18,053 $10,531 $8,631
------- ------- ------- ------- ------
Costs and expenses:
Cost of sales and service.................... 7,968 10,091 9,745 5,788 5,220
Research and development..................... 348 386 216 204 161
Selling, general and administrative.......... 4,257 3,804 3,300 2,485 2,034
Amortization of intangibles.................. 660 335 114 - -
Interest (income) expense, net............... 425 (34) (98) (67) 6
------- ------- ------- ------- ------
13,658 14,582 13,277 8,410 7,421
------- ------- ------- ------- ------
Income before income taxes........................ 1,090 5,009 4,776 2,121 1,210
Provision (benefit) for income taxes (1).......... 557 728 (358) - -
------- ------- ------- ------- ------
Net income........................................ $ 533 $ 4,281 $ 5,134 $ 2,121 $1,210
======= ======= ======= ======= ======
Per Share Data:
Earnings per common share:
Net income:
Basic..................................... $ 0.10 $ 0.81 $ 1.00 $ 0.43 $ 0.24
Diluted................................... $ 0.10 $ 0.80 $ 0.97 $ 0.41 $ 0.24
Average number of common shares outstanding:
Basic..................................... 5,387 5,293 5,146 4,989 4,971
Diluted................................... 5,408 5,379 5,287 5,178 5,010
Financial Position Data:
Working capital.............................. $ 7,791 $ 7,651 $ 6,500 $ 6,182 $4,122
Total assets................................. 25,038 27,887 16,462 8,321 6,462
Long-term debt............................... 3,600 5,300 - - -
Stockholders' equity......................... 18,433 17,865 13,043 7,011 4,872
Cash dividends paid.......................... None None None None None
======= ======= ======= ======= ======
(1) Reflects recognition of previously reserved tax benefits in 1998.
9
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following management's discussion and analysis should be read together with
our consolidated financial statements and accompanying notes and other detailed
information appearing elsewhere in this Form 10-K. This discussion includes
forward looking statements about the demand for our products and future results.
Please refer to "Forward Looking Statements" section of this Form 10-K.
Overview
Demand for our geophysical products is dependent upon the level of world wide
oil and gas exploration and development activity which is dependent, primarily,
on oil and gas prices. Oil and gas prices have been subject to wide
fluctuations in recent years in response to changes in supply and demand.
Despite the recovery in oil commodity prices in late 1999 and early 2000,
producers' concern over the sustainability of these higher prices had the effect
of lower exploration budgets by oil producers which resulted in weak demand for
our geophysical equipment. Other factors that negatively impacted our fiscal
2000 sales have been mergers among oil producers, weakened financial condition
of some of our customers and oversupply of seismic data and seismic equipment on
the market. Despite the higher oil and gas prices it is expected that the
return to normal levels of purchases of geophysical equipment by seismic
contractors might occur later than for other parts of the oil service industry.
Acquisitions
In January 1998, we completed the acquisition of Custom Products. Custom
Products is a manufacturer of miniature industrial clutches, brakes and sub-
fractional horsepower electric motors sold under the "Polyclutch" and "Polyvolt"
tradenames. The purchase price of the assets acquired totaled $6,060,000 and
consisted of $4,971,000 in cash; 135,000 shares of common stock valued at
$881,000; acquisition costs of $208,000 and contingent cash payments. Such
contingent cash payments could total $4,000,000 and are dependent on annual
increases in the net sales of Custom Products for the period January 1, 1998 to
December 31, 2002. Any contingent cash payments will be capitalized and
amortized over the remaining life of the goodwill.
In April 1999, we acquired all of the outstanding common stock of A-G
Geophysical Products, Inc. A-G manufactures underwater electrical connectors and
cables, air gun signature hydrophones and pressure transducers used in the
marine seismic industry. The purchase price totaled $13,783,000 and consisted
of $6,100,000 in cash; a note to the selling shareholder for $7,000,000; 63,492
shares of common stock valued at $500,000 and acquisition costs of $183,000.
Liquidity and Capital Resources
At June 30, 2000 we had $2,527,000 in cash and cash equivalents. For the year
ended June 30, 2000, we generated $836,000 of cash from operating activities
principally resulting from net income adjusted for depreciation and
amortization. These sources of cash were partially offset by decreases in
accounts payable, accrued liabilities and income taxes payable.
For the year ended June 30, 2000, we used $144,000 of cash for capital
expenditures. We estimate that our capital expenditures for fiscal 2001 will be
$200,000, which we expect to fund through operating cash flow.
We used $1,665,000 for financing activities for the year ended June 30, 2000
principally for the repayment of $1,700,000 of the debt issued for the A-G
acquisition. We will use $1,700,000 in fiscal 2001 for debt repayment which we
expect to fund from operating cash flow.
10
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont'd.)
Liquidity and Capital Resources (cont'd.)
At June 30, 1999 we had $3,500,000 of cash and cash equivalents. For the year
ended June 30, 1999 cash generated from operating activities was $6,817,000
principally resulting from net income of $4,281,000 and a $4,083,000 decrease in
accounts receivable. For the year ended June 30, 1999 we used $4,598,000 of net
cash for the A-G acquisition and $77,000 for capital expenditures.
At June 30, 1998 we had $1,317,000 of cash and cash equivalents. For the year
ended June 30, 1998 cash provided by operating activities was $3,946,000
principally from net income of $5,134,000 and an increase in accounts payable of
$1,217,000. The cash provided by operating activities was partially offset by a
$2,515,000 increase in accounts receivable. For the year ended June 30, 1998 we
used $4,974,000 of net cash for the Custom Products acquisition and $24,000 for
capital expenditures.
In 1998 we used $259,000 for financing activities which consisted of $1,076,000
repayment of long-term debt offset by $800,000 of borrowings under our line of
credit.
We have a $2,500,000 unsecured bank credit facility which matures in 2003.
Available borrowings under the terms of the agreement decrease by $500,000 each
year. Any borrowings under the agreement bear interest at the prime rate.
There are no borrowings outstanding under this agreement at June 30, 2000.
As discussed above, as part of the consideration for the acquisition of A-G
Geophysical, we issued a $7,000,000 note. The note bears interest at 8.25%
payable monthly and requires quarterly principal payments of $425,000. The note
has a final maturity in April 2002. We have pledged the assets and common stock
of A-G as collateral for the note.
Under the terms of the January 1998 asset purchase agreement for Custom
Products, we may be required to make maximum additional payments to its former
owners of $ 4,000,000 if net sales of Custom Products increase to certain levels
by December 31, 2002. We were not required to make any additional payments at
December 31, 1998 or 1999 because Custom Products' sales did not reach the
agreed upon amounts.
We own a one-half interest in our administrative and engineering building
located in Norwalk, Connecticut through a joint venture agreement. The
agreement expired in July 1999. Under the terms of the agreement, we can
purchase the one-half interest owned by its joint venture partner, estimated at
approximately $300,000. We are currently exploring various alternatives with
our joint venture partner.
In October 1998, the board of directors approved a stock repurchase program
under which we were authorized to buy up to 500,000 shares of common stock in
open market or private transactions. We will use our cash flow from operations
and existing cash balances for the repurchase of any shares. To date, we have
not repurchased any shares under the program.
Current cash and cash equivalent balances, existing borrowing capacity and
projected cash flow from operations are currently considered adequate to meet
foreseeable operating needs.
We believe that inflation and changing prices have not had a material effect on
our revenues and profitability.
11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont'd.)
Results of Operations
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
The consolidated statement of income includes the results of operations for A-G
for all of fiscal 2000 and the fourth quarter of fiscal 1999.
Sales for the year ended June 30, 2000 decreased $4,843,000 or 25% from the year
ended June 30, 1999. Sales of marine air guns and replacement parts decreased
$8,750,000 primarily as a result of the sharp decline in seismic vessel
construction and the oversupply of equipment in the market place. This decrease
was partially offset by the inclusion of A-G for all of 2000 which increased
sales by $3,323,000 and a $584,000 increase in sales by Custom Products.
Cost of sales as a percentage of sales was 54% for fiscal 2000 and 52% for
fiscal 1999. The effect of lower operating efficiencies from the decreased
demand for marine air guns and replacement parts was the primary cause for the
increase in the cost of sales percentage.
Research and development costs remained essentially unchanged from last year. We
completed the final development and testing of our new marine air gun in the
last quarter of fiscal 2000.
Selling, general and administrative expense increased $453,000 from fiscal 1999
to fiscal 2000. The inclusion of A-G for all of 2000 added $879,000 to expense
and additional marketing costs at Custom Products for new product introductions
increased expenses $174,000. Partially offsetting the added selling, general and
administrative expense from A-G and Custom Products was a $554,000 decrease in
incentive compensation expense.
Amortization of intangibles increased $325,000 because A-G was included for all
of 2000. We are amortizing the goodwill relating to our acquisitions over
twenty years.
Interest expense for fiscal 2000 increased $395,000 over fiscal 1999 because the
note issued for the A-G acquisition was outstanding for the entire fiscal year.
Interest income decreased $64,000 in 2000 as compared to 1999 because we used
our short-term investments in late 1999 to finance a portion of the A-G
acquisition.
The provision for income taxes for fiscal 2000 was $557,000, an effective tax
rate of 51%. This amount is higher than the federal statutory rate of 34%
principally because the amortization of the goodwill from the A-G acquisition is
not deductible for tax purposes and the effect of state income taxes. The
provision for income taxes for fiscal 1999 was $728,000, an effective tax rate
of 15%. This was lower than the federal statutory rate because of the
utilization of previously reserved net operating loss carry-forwards.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
The results of operations of Custom Products are included in the consolidated
statement of income from January 6, 1998. The results of A-G are included in
the consolidated statement of income from April 1999.
Sales for the year ended June 30, 1999 were $19,591,000 an increase of
$1,538,000 or 9% from $18,053,000 for the year ended June 30, 1998. The increase
in sales was primarily attributable to the inclusion of Custom Products in the
results of operations for all of fiscal 1999 which increased sales by $1,277,000
and the inclusion of A-G for the fourth quarter of 1999 which increased sales by
$1,468,000. Partially offsetting these increases was a $1,207,000 decrease in
sales of marine air guns and replacement parts. Factors that caused this
decrease were the deterioration in late 1998
12
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont'd.)
Results of Operations (cont'd.)
and the first part of 1999 of oil and gas prices which resulted in significant
reductions in exploration spending. In addition, the consolidation in the oil
and gas industry delayed a number of exploration projects decreasing the demand
for the Company's geophysical products.
Cost of sales as a percentage of sales decreased from 54% in 1998 to 52% in
1999. Reduced purchases of auxiliary equipment required for marine air gun
systems caused the reduction in the cost of sales percentage. Auxiliary
equipment has lower margins than our proprietary marine air guns and
replacement parts.
Research and development costs increased $170,000 as we increased our efforts to
develop a new marine energy source.
Selling, general and administrative expenses increased $504,000. The inclusion
of Custom Products for all of 1999 caused $330,000 of the increase and the
inclusion of A-G from April 1999 represented a $313,000 increase. Partially
offsetting these increases was a $118,000 decrease in incentive compensation
expense.
Amortization of intangible assets (primarily goodwill) associated with the
acquisition of Custom Products and A-G amounted to $335,000 in fiscal 1999
compared to $114,000 in fiscal 1998. We are amortizing the goodwill related to
these acquisitions over 20 years.
Interest expense increased from $6,000 in 1998 to $115,000 in 1999. The 1999
increase in interest expense represents amounts paid in connection with the
$7,000,000 note issued for the acquisition of AG.
Interest income increased from $104,000 in 1998 to $149,000 in 1999 because of
higher average balances of short-term investments during 1999.
The provision for income taxes for 1999 was $728,000, an effective tax rate of
15%. This provision reflects the benefit of $1,197,000 of previously reserved
deferred tax assets realized during the year. The provision for income taxes in
1998 includes a $642,000 benefit from the reduction in the valuation allowance
for deferred tax assets.
ITEM 7. a. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
ITEM 8. Financial Statements and Supplementary Data
See Item 14 for an Index to Financial Statements and Financial Statement
Schedule. Such Financial Statements and Schedule are incorporated herein by
reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
13
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information as to Directors required by Item 401 and 405 of Regulation S-K
is incorporated by reference to the Company's definitive proxy statement (the
"Definitive Proxy Statement") which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Form 10-K.
ITEM 11. Executive Compensation
The information required by Item 402 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 403 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions
The information required by Item 404 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Consolidated Financial Statements Page Number
-----------
Independent Auditors' Report 16
Consolidated Balance Sheets as of June 30, 2000 and 1999 17
Consolidated Statements of Income for the
Years Ended June 30, 2000, 1999, and 1998 18
Consolidated Statements of Cash Flows for the
Years Ended June 30, 2000, 1999, and 1998 19
Notes to Consolidated Financial Statements 20-32
Financial Statement Schedule for the Years Ended
June 30, 2000, 1999 and 1998
II - Valuation and Qualifying Accounts 33
Schedules other than that listed above are omitted because they are not
applicable, or the required information is shown in the financial statements or
the notes thereto.
14
Exhibit Index
Exhibit
No.
-----
2.1 Asset Purchase Agreement dated as of November 14, 1997, by and among Bolt
Technology Corporation and Gerald Shaff and Carole Shaff (incorporated by
reference to Exhibit 2.1 to Form 8-K dated January 14, 1998).
2.2 Stock Purchase Agreement for the acquisition at A-G Geophysical Products,
Inc. by Bolt Technology Corporation from Albert H. Gerrans, Jr., Stephen Clay
and Robert Bernard dated as of April 20, 1999 (incorporated by reference to
Exhibit 2.1 to form 8-K dated April 30, 1999).
3.1 Restated Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to Registration Statement No. 2-73456 on Form S-1).
3.2 Amendment of Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to Registration Statement No. 2-85529 on Form S-1).
3.3 Amendment of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.3 to the August 15, 1996 Form 8-A).
3.4 Amendment of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.4 to the August 15, 1996 Form 8-A).
3.5 By-laws of the Registrant, as amended (incorporated by reference to Exhibit
3 to the September 30, 1983 Form l0-Q).
4.1 Promissory Note dated April 20, 1999 between Bolt Technology Corporation
and Albert H. Gerrans, Jr. (incorporated by reference to Exhibit 4.1 to Form 8-K
dated April 30, 1999).
4.2 Pledge agreement dated April 20, 1999 between Bolt Technology Corporation
and Albert H. Gerrans, Jr. (incorporated by reference to Exhibit 4.2 to Form 8-K
dated April 30, 1999).
4.3 Security Agreement dated April 20, 1999 between A-G Geophysical Products,
Inc., Albert H. Gerrans, Jr. and Bolt Technology Corporation (incorporated by
reference to Exhibit 4.3 to Form 8-K dated April 30, 1999).
10.1 Bolt Technology Corporation Amended and Restated 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to Form 10-K for the for the year
ended June 30, 1998).
10.2 Commercial Revolving Loan and Security Agreement dated January 5, 1998 by
and between Bolt Technology Corporation and Fleet National Bank (incorporated by
reference to Exhibit 4.1 to Form 8-K dated January 14, 1999).
10.3 Modification to Commercial Revolving Loan and Security Agreement dated
April 20, 1999 between Bolt Technology Corporation and Fleet National Bank
(incorporated by reference to Exhibit 10.1 to Form 8-K dated April 30, 1999).
10.4 Lease Agreement dated April 20, 1999 between Albert H. Gerrans, Jr. and
Bolt Technology Corporation (incorporated by reference to Exhibit 10.2 to Form
8-K dated April 30, 1999).
21. Subsidiaries of the Registrant.*
27. Financial Data Schedule.
Reports on Form 8-K
None
15
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Bolt Technology Corporation
Norwalk, Connecticut
We have audited the accompanying consolidated balance sheets of Bolt Technology
Corporation and subsidiaries as of June 30, 2000, and 1999, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended June 30, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated 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 consolidated financial position of Bolt Technology
Corporation and subsidiaries as of June 30, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also, 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
Stamford, Connecticut
August 4, 2000
16
Bolt Technology Corporation and Subsidiaries
Consolidated Balance Sheets
June 30,
----------------------------
Assets 2000 1999
----------- -----------
Current Assets:
Cash and cash equivalents....................... $ 2,527,000 $ 3,500,000
Accounts receivable, less allowance for
uncollectible accounts of $474,000 in
2000 and $360,000 in 1999...................... 2,088,000 2,208,000
Inventories..................................... 4,791,000 5,413,000
Deferred income taxes........................... 1,181,000 1,091,000
Other current assets............................ 209,000 161,000
----------- -----------
Total current assets......................... 10,796,000 12,373,000
----------- -----------
Plant and Equipment:
Building and leasehold improvements............. 555,000 534,000
Geophysical equipment........................... 460,000 460,000
Machinery and equipment......................... 5,649,000 5,573,000
Equipment held for rental....................... 480,000 480,000
----------- -----------
7,144,000 7,047,000
Less accumulated depreciation................. (5,844,000) (5,614,000)
----------- -----------
1,300,000 1,433,000
Goodwill, net.................................... 12,005,000 12,610,000
Deferred Income Taxes............................ 886,000 1,403,000
Other Assets..................................... 51,000 68,000
----------- -----------
Total assets................................ $25,038,000 $27,887,000
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt............ $ 1,700,000 $ 1,700,000
Accounts payable................................ 420,000 549,000
Accrued expenses................................ 885,000 1,748,000
Income taxes payable............................ - 725,000
----------- -----------
Total current liabilities................... 3,005,000 4,722,000
Long-term Debt................................... 3,600,000 5,300,000
----------- -----------
Total liabilities........................... 6,605,000 10,022,000
----------- -----------
Stockholders' Equity:
Common stock, no par value, authorized
9,000,000 shares; issued and outstanding
5,408,733 shares in 2000 and 5,370,378
in 1999....................................... 26,152,000 26,117,000
Accumulated deficit............................. (7,719,000) (8,252,000)
----------- -----------
Total Stockholders' Equity.................... 18,433,000 17,865,000
----------- -----------
Total liabilities and stockholders' equity.. $25,038,000 $27,887,000
=========== ===========
See Notes to Consolidated Financial Statements.
17
Bolt Technology Corporation and Subsidiaries
Consolidated Statements of Income
For the Year Ended June 30,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues:
Sales....................................... $14,748,000 $19,591,000 $18,053,000
Costs and Expenses:
Cost of sales............................... 7,968,000 10,091,000 9,745,000
Research and development.................... 348,000 386,000 216,000
Selling, general and administrative......... 4,257,000 3,804,000 3,300,000
Amortization of intangibles................. 660,000 335,000 114,000
Interest expense............................ 510,000 115,000 6,000
Interest (income)........................... (85,000) (149,000) (104,000)
----------- ----------- -----------
13,658,000 14,582,000 13,277,000
----------- ----------- -----------
Income before income taxes.................... 1,090,000 5,009,000 4,776,000
Provision (benefit) for income taxes.......... 557,000 728,000 (358,000)
----------- ----------- -----------
Net income................................. $ 533,000 $ 4,281,000 $ 5,134,000
=========== =========== ===========
Earnings per share:
Basic....................................... $0.10 $0.81 $1.00
Diluted..................................... $0.10 $0.80 $0.97
Average number of common shares outstanding:
Basic....................................... 5,386,824 5,293,156 5,146,185
Diluted..................................... 5,408,486 5,378,724 5,287,355
See Notes to Consolidated Financial Statements.
18
Bolt Technology Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended June 30,
---------------------------------------
2000 1999 1998
----------- ----------- ------------
Cash Flows From Operating Activities:
Net income............................................ $ 533,000 $ 4,281,000 $ 5,134,000
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization....................... 940,000 448,000 163,000
Deferred income taxes............................... 426,000 322,000 (736,000)
----------- ----------- -----------
1,899,000 5,051,000 4,561,000
Change in operating assets and liabilities:
Accounts receivable................................. 120,000 4,083,000 (2,515,000)
Inventories......................................... 622,000 (418,000) (26,000)
Other assets........................................ (70,000) (134,000) (60,000)
Accounts payable.................................... (129,000) (1,248,000) 1,217,000
Accrued liabilities................................. (913,000) (321,000) 675,000
Income taxes payable................................ (693,000) (196,000) 94,000
----------- ----------- -----------
Net cash provided by operating activities.......... 836,000 6,817,000 3,946,000
----------- ----------- -----------
Cash Flows From Investing Activities:
Payments for acquisitions, net of cash acquired....... - (4,598,000) (4,974,000)
Purchase of property and equipment.................... (144,000) (77,000) (24,000)
----------- ----------- -----------
Net cash used in investing activities.............. (144,000) (4,675,000) (4,998,000)
----------- ----------- -----------
Cash Flows From Financing Activities:
Exercise of stock options............................. 35,000 41,000 17,000
Borrowings from bank.................................. - - 800,000
Repayment of long-term debt........................... (1,700,000) - (1,076,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities.. (1,665,000) 41,000 (259,000)
----------- ----------- -----------
Net (decrease) increase in cash........................ (973,000) 2,183,000 (1,311,000)
Cash and cash equivalents at beginning of year......... 3,500,000 1,317,000 2,628,000
----------- ----------- -----------
Cash and cash equivalents at end of year............... $ 2,527,000 $ 3,500,000 $ 1,317,000
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash transactions:
Interest paid.......................................... $ 510,000 $ 115,000 $ 6,000
Income taxes paid...................................... $ 873,000 $ 673,000 $ 278,000
Non-cash transactions:
Common stock issued for businesses acquired............ - $ 500,000 $ 881,000
Debt issued for business acquired...................... - $ 7,000,000 -
See Notes to Consolidated Financial Statements.
19
Bolt Technology Corporation
Notes To Consolidated Financial Statements
Note 1 - Description of Business and Significant Accounting Policies
Bolt Technology Corporation operates in two business segments: geophysical
equipment and industrial products. Geophysical equipment includes the
development, manufacture and sale of marine seismic energy sources and through
its subsidiary A-G Geophysical Products, Inc., the manufacture of underwater
electrical connectors and cables, air gun signature hydrophones and pressure
transducers. The industrial products segment manufactures and sells miniature
industrial clutches, brakes and sub-fractional horsepower electric motors
through the Company's subsidiary, Custom Products Corporation. A-G was
acquired on April 20, 1999 and Custom Products was acquired on January 6, 1998.
See Note 2 to the consolidated financial statements for information related to
these acquisitions. See Note 10 for information regarding industry segments.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiary companies. All significant intercompany balances and
transactions have been eliminated.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost or market, with cost principally
determined on an average cost method which approximates the first-in, first-out
method. The Company reserves for all slow moving inventory. Amounts are
charged to the reserve when the Company scraps or disposes of inventory.
Plant and Equipment:
Plant and equipment are carried at cost. Depreciation for financial accounting
purposes is computed using the straight-line method over the estimated useful
lives of 5 to l0 years for machinery and equipment and rental assets, 1 to l0
years for geophysical equipment, 15 to 30 years for buildings, and over the
terms of the lease for leasehold improvements.
Goodwill:
Goodwill represents the excess of the purchase price of acquisitions over the
estimated fair value of the net assets at the date of acquisition. Goodwill is
being amortized over a 20 year period on a straight-line basis. Accumulated
amortization at June 30, 2000 was $1,095,000 ($441,000-1999).
Revenue Recognition and Warranty Costs:
The Company recognizes revenue from equipment sales upon shipment. Warranty
costs and product returns incurred by the Company have been insignificant.
20
Bolt Technology Corporation
Notes To Consolidated Financial Statements
Note 1 - Description of Business and Significant Accounting Policies ( cont'd.)
Income Taxes:
Income taxes are provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for
Income Taxes". Deferred tax assets and liabilities are recognized based upon
differences between book and tax basis of assets and liabilities, using
presently enacted tax rates. The provision for income taxes is the sum of the
amount of income taxes paid or payable for the year as determined by applying
the provisions of enacted tax laws to taxable income for that year and the net
changes during the year in the Company's deferred tax assets and liabilities.
Stock-Based Compensation:
The Company accounts for its stock based compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Since stock options are granted by the Company with
exercise prices at fair market value of the shares at date of grant, no
compensation expense is recognized.
Long-Lived Assets:
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The carrying
amount of a long-lived asset is considered impaired when anticipated
nondiscounted cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount. The Company believes
that no material impairment existed at June 30, 2000.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Recent Accounting Pronouncements:
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101("SAB 101"), Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC issued SAB 101B to defer the effective date of
implementation of SAB 101 until no later than the fourth quarter of fiscal years
beginning after December 15, 1999, with earlier application encouraged. The
Company does not expect the adoption of SAB 101 to have a material effect on its
financial position or results of operations.
21
Bolt Technology Corporation
Notes To Consolidated Financial Statements
Note 1 - Description of Business and Significant Accounting Policies (cont'd.)
Computation of Earnings Per Share:
Basic earnings per share is computed by dividing net income by the average
number of common shares outstanding during the year. Diluted earnings per share
is computed by dividing net income by the average number of common shares
outstanding assuming dilution, the calculation of which assumes that all stock
options are exercised at the beginning of the period and the proceeds used to
purchase shares at the average market price for the period. The following is a
reconciliation from basic earnings per share to diluted earnings per share for
each of the last three years:
Year Ended June 30,
-------------------
2000 1999 1998
---- ---- ----
Net income available to
common stockholders $ 533,000 $4,281,000 $5,134,000
========== ========== ==========
Divided by weighted common shares
and common share equivalents
Weighted average common shares 5,386,824 5,293,156 5,146,185
Weighted average common share equivalents 21,662 85,568 141,170
---------- ---------- ----------
Total weighted average common
shares and common share equivalents 5,408,486 5,378,724 5,287,355
========== ========== ==========
Basic earnings per share $ 0.10 $ 0.81 $ 1.00
========== ========== ==========
Diluted earnings per share $ 0.10 $ 0.80 $ 0.97
========== ========== ==========
22
Bolt Technology Corporation
Notes to Consolidated Financial Statements
Note 2 - Acquisitions
In January 1998, the Company completed the acquisition of Custom Products
Corporation. The purchase price of the assets acquired totaled $6,060,000 and
consisted of $4,971,000 in cash; 135,000 shares of common stock valued at
$881,000; acquisition costs of $208,000 and contingent cash payments. Such
contingent cash payments could total $4,000,000 and are dependent on annual
increases in the net sales of Custom Products for the period January 1, 1998 to
December 31, 2002. Any contingent purchase price paid will be capitalized and
amortized over the remaining life of the goodwill.
In April 1999, the Company acquired all of the outstanding common stock of A-G
Geophysical Products. The purchase price totaled $13,783,000 and consisted of
$6,100,000 in cash; a note to the selling shareholder for $7,000,000; 63,492
shares of common stock valued at $500,000 and acquisition costs of $183,000.
The allocation of the purchase price, including related expenses and a
reconciliation of the purchase price to cash used for acquisitions follows:
A-G Geophysical Custom Products
--------------- ---------------
Net current assets $ 4,094,000 $ 749,000
Property and equipment 1,263,000 97,000
Other assets 11,000 40,000
Goodwill 8,600,000 4,450,000
Deferred income taxes (185,000) 1,000,000
Long-term debt - (276,000)
----------- ----------
Total purchase price allocation 13,783,000 6,060,000
Consideration:
Cash of acquired company (1,685,000) (205,000)
Common stock issued (500,000) (881,000)
Note payable (7,000,000) -
----------- ----------
Cash used for acquisition $ 4,598,000 $4,974,000
=========== ==========
Both transactions were accounted for by the purchase method of accounting with
the goodwill being amortized over 20 years on the straight line basis. The
consolidated results of operations of the Company include the results of
operations of the acquired companies from the date of their respective
acquisition.
The following table summarizes, on an unaudited pro forma basis, the
consolidated results of operations of the Company for the year ended June 30,
1999 as though the A-G acquisition described above was made on July 1, 1998.
23
Bolt Technology Corporation
Notes To Consolidated Financial Statements
Note 2 - Acquisitions (cont'd.)
1999
----
Sales $26,824,000
Net income $ 5,716,000
Basic earnings per share $ 1.07
Diluted earnings per share $ 1.05
These results are not necessarily indicative of the actual results of operations
that might have occurred, nor are they necessarily indicative of results in the
future.
Note 3- Debt
Credit Facility
The Company has a $2,500,000 unsecured credit facility which expires in January
2003. Maximum borrowings under the facility decrease $500,000 each January and
bear interest at the prime rate. The credit facility contains covenants which
include: (i) prohibition of additional indebtedness; (ii) minimum tangible net
worth of $5,398,000 at June 30, 2000 to increase by 75% of net income each year
and; (iii) a ratio of total liabilities to tangible net worth of not more than 2
to 1 through December 31, 2000. This ratio decreases to 1.25 to 1 after December
31, 2000. Also, the Company cannot have two consecutive quarterly losses and
subsequent to September 30, 2000 must maintain a minimum debt service coverage
of at least 1.25 to 1. The Company is in compliance with these covenants at June
30, 2000
8.25% Non-Negotiable Promissory Note
In connection with the acquisition of A-G, the Company issued a $7,000,000 note
to the selling shareholder for a portion of the purchase price. The note has a
final maturity of April 2002 and requires minimum principal payments of $425,000
per quarter. The Company has pledged the assets and common stock of A-G as
collateral for the note. Also under the terms of the note the Company must have
A-G maintain a current ratio of no less than 3 to 1 and maintain minimum
tangible net worth of $4,000,000. The Company is in compliance with these
covenants at June 30, 2000
Maturities of the Company's debt for each of the years at June 30, are as
follows:
2001 $1,700,000
2002 $3,600,000
24
Bolt Technology Corporation
Notes To Consolidated Financial Statements
Note 4 - Inventories
Inventories, net of reserves, at June 30 consist of the following:
2000 1999
---- ----
Raw materials and sub-assemblies $4,307,000 $4,947,000
Work-in-process 484,000 466,000
---------- ----------
$4,791,000 $5,413,000
========== ==========
Note 5 - Income Taxes
Income tax expense (benefit) consists of the following for the three
years ended June 30:
2000 1999 1998
---- ---- ----
Current:
Federal $ 32,000 $ 99,000 $ 94,000
State 99,000 307,000 284,000
Deferred:
Federal 426,000 322,000 (736,000)
-------- -------- ---------
Income tax expense (benefit) $557,000 $728,000 $(358,000)
======== ======== =========
The differences between the effective tax rate reflected in the total provision
for income taxes and the statutory federal rate of 34% follows:
Year Ended June 30,
-------------------
2000 1999 1998
---- ---- ----
Federal income taxes at the statutory rate 34% 34% 34%
State income taxes, net of federal tax benefit 6 4 4
Nondeductible expenses, principally goodwill 11 1 1
Utilization of net operating loss carry-forwards - (24) (33)
Reduction in deferred tax valuation allowance - - (13)
---- ---- ----
Effective tax rate 51% 15% (7%)
==== ==== ====
Deferred income taxes under the liability method reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred income tax asset were as
follows:
25
Bolt Technology Corporation
Notes to Consolidated Financial Statements
Note 5 - Income Taxes (cont'd.)
2000 1999
---- ----
Deferred tax assets:
Tax loss carry-forward $1,161,000 $1,780,000
Investment tax credit carry-forward 200,000 200,000
Inventory reserves 309,000 179,000
Allowance for doubtful accounts 175,000 132,000
Alternative minimum tax credit carry-forward 297,000 266,000
---------- ----------
Gross deferred tax asset 2,142,000 2,557,000
Deferred tax liability:
Plant and equipment (7,000) (22,000)
Amortization of intangibles (68,000) (41,000)
---------- ----------
Gross deferred tax liability (75,000) (63,000)
---------- ----------
Net deferred tax asset $2,067,000 $2,494,000
========== ==========
The company has net operating loss carry-forwards totaling $3,414,000 which
expire as follows: 2005-$3,106,000; 2006 - $63,000 and 2007 - $245,000. In
addition, the Company has $200,000 of investment tax credits which expire in
2001 and 2002.
Under the liability method, a valuation allowance is provided when it is more
likely than not that some portion of the deferred tax assets will not be
realized. Based primarily upon the Company's recent earnings history and
expected future levels of taxable income, management believes that it is more
likely than not that it will realize the benefit of its net deferred tax asset.
The amount of the net deferred tax asset recorded could be reduced if estimates
of future taxable income during the carry-forward period are reduced.
Note 6 - Stock Options
The 1993 Stock Option Plan provides for the granting of options to purchase up
to 550,000 shares of common stock of the Company at a price not less than fair
market value at date of grant. Options granted to employees are exercisable for
a period of up to ten years. The plan also provides for the granting to non-
employee directors options to purchase 3,000 shares of common stock each time
they are elected directors.
A summary of the status of the Company's Stock Option Plan as of June 30, 2000,
1999, and 1998, and the changes during the years ended on those dates is
presented below.
2000 1999 1998
---------------- ----------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding at beginning of year 236,750 $5.20 285,500 $3.88 191,250 $1.80
Granted 9,000 $4.38 35,000 $6.46 117,500 $6.65
Exercised (41,000) $1.15 (81,000) $1.05 (22,500) $0.78
Canceled (1,750) $6.63 (2,750) $6.63 (750) $1.00
------- ----- ------- ----- ------- -----
Outstanding at end of year 203,000 $5.97 236,750 $5.20 285,500 $3.88
======= ===== ======= ===== ======= =====
There were 151,190 options available for future grants under the plan at June
30, 2000.
26
Bolt Technology Corporation
Notes to Consolidated Financial Statements
Note 6 - Stock Options (cont'd.)
The following table summarizes information concerning outstanding and
exercisable stock options by two ranges of exercise prices at June 30, 2000:
Options Outstanding Options Exercisable
----------------------------------------------------- ---------------------------------
Range of Number Outstanding Weighted Average Weighted Number Weighted
Exercise at Remaining Average Exercisable Average
Prices June 30, 2000 Contractual Life Exercise Price At June 30, 2000 Exercise Price
- -------- ------------------ ---------------- -------------- ----------------- --------------
$4.12 - $4.94 55,000 1.9 years $ 4.25 44,500 $ 4.21
$6.25 - $7.75 148,000 2.8 years $ 6.60 148,000 $ 6.60
------------------ ---------------- -------------- ---------------- -------------
203,000 2.6 years $ 5.97 192,500 $ 6.05
================== ================ ============== ================ =============
The estimated fair value of options granted during 2000, 1999, and 1998 were
$2.12, $3.27, and $3.97 per share, respectively. The Company applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its stock option plan. Accordingly, no compensation cost has been recognized for
its stock option plan. Had compensation cost for the Company's stock option plan
been determined based on the fair value at option grant dates for awards in
accordance with accounting provisions of FAS 123, the Company's net income and
earnings per share for the years ended June 30, 2000, 1999, and 1998 would have
been reduced to the pro forma amounts indicated below:
Net Income: 2000 1999 1998
- ----------- ---- ---- ----
As reported $533,000 $4,281,000 $5,134,000
Pro forma $448,000 $4,000,000 $4,839,000
Basic earnings per share:
- -------------------------
As reported $ 0.10 $ 0.81 $ 1.00
Pro forma $ 0.08 $ 0.76 $ 0.94
Diluted earnings per share:
- ---------------------------
As reported $ 0.10 $ 0.80 $ 0.97
Pro forma $ 0.08 $ 0.75 $ 0.92
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
---- ---- ----
Expected dividend yield 0% 0% 0%
Expected stock price volatility 46% 56% 65%
Risk-free interest rate 6.10% 4.10% 5.75%
Expected life (years) 5 5 5
27
Bolt Technology Corporation
Notes to Consolidated Financial Statements
Note 7 - Benefit Plans
The Company maintains defined contribution retirement plans covering
substantially all employees who satisfy the age and service requirements of the
plans. The Company's contributions to the plans for the years ended June 30,
2000, 1999, and 1998 amounted to $150,000, $155,000, and $102,000,
respectively.
Note 8 - Stockholders' Equity
Changes in issued common stock and stockholders' equity for the three years
ended June 30, 2000 were as follows:
Common Stock
-------------------------- Accumulated
Shares Amount Deficit Total
------------ ------------ ------------- ------------
Balance June 30, 1997...................... 5,074,978 $24,678,000 $(17,667,000) $ 7,011,000
Exercise of stock options............ 22,500 17,000 - 17,000
Common stock issued for acquisition.. 135,000 881,000 - 881,000
Net income........................... - - 5,134,000 5,134,000
--------- ----------- ------------ -----------
Balance June 30,1998....................... 5,232,478 25,576,000 (12,533,000) 13,043,000
Exercise of stock options.............. 74,408 41,000 - 41,000
Common stock issued for acquisition.... 63,492 500,000 - 500,000
Net income............................. - - 4,281,000 4,281,000
--------- ----------- ------------ -----------
Balance June 30, 1999 5,370,378 26,117,000 (8,252,000) 17,865,000
Exercise of stock options.............. 38,355 35,000 - 35,000
Net income............................. - - 533,000 533,000
--------- ----------- ------------ -----------
Balance June 30, 2000...................... 5,408,733 $26,152,000 $ (7,719,000) $18,433,000
========= =========== ============ ===========
Note 9 - Commitments and Contingencies
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and cash equivalents and trade accounts
receivable. The Company believes that the concentration of credit risk in its
trade receivables is substantially mitigated by the Company's ongoing credit
evaluation and its short collection terms. The Company does not generally
require collateral from its customers but, in certain cases, the Company does
require the customer to provide a letter of credit or an advance payment. In
limited cases the Company will grant customers extended payment terms of up to
12 months. The Company establishes an allowance for uncollectible accounts
based upon factors surrounding the credit risk of specific customers.
Historically, the Company has not incurred significant credit related losses.
The Company invests its excess cash in certificates of deposit with maturities
of usually less than one month in an effort to maintain safety and liquidity.
Financial Instruments:
The Company does not hold or issue financial instruments for trading or hedging
purposes, nor does it hold interest rate, leveraged, or other types of
derivative financial instruments. Fair values of cash and cash equivalents,
receivables, accounts payable, accrued liabilities and long-term debt reflected
in the June 30, 2000 and 1999 balance sheets approximate carrying values at
those dates.
28
Bolt Technology Corporation
Notes to Consolidated Financial Statements
Note 9 - Commitments and Contingencies (cont'd.)
Lease Commitments:
Rent expense amounted to $455,000, $348,000, and $349,000 for the years ended
June 30, 2000, 1999, and 1998, respectively.
Minimum annual rental commitments under operating leases with terms in excess of
one year are as follows: 2001 - $173,000; 2002 - $131,000; 2003 - $31,000 and
2004 - $26,000.
The Company leases a building from the former shareholder of A-G for $10,000 per
month. The lease has an initial term through April 2002.
Employment Agreements:
The Company has a severance compensation plan for certain executive officers
and key employees of the Company which becomes operative upon their termination
if such termination occurs within 24 months subsequent to a change in ownership
of the Company, as defined in the plan. The Company also has an employment
agreement with its president and chief executive officer which provides for
severance in the case of voluntary or involuntary termination or change in
control. The employment agreement has a term through June 30, 2003, subject to
extension as set forth in the agreement. The aggregate commitment for these
employment agreements approximates $3,156,000 as of June 30, 2000. The Company
also has employment contracts with two other key executives. Minimum annual
salaries due under the agreements amount to $370,000 per year. These agreements
expire in January and February 2003, respectively.
Litigation:
From time to time, the Company is a party to what it believes is routine
litigation and proceedings that may be considered as part of the ordinary course
of its business. The Company is not aware of any current or pending litigation
or proceedings that could have a material adverse effect on the Company's
financial position, results of operations or cash flow.
29
Bolt Technology Corporation
Notes to Consolidated Financial Statements
Note 10 - Segment and Customer Information:
The Company's reportable segments are: (1) geophysical equipment and (2)
industrial products. The following table provides selected financial information
for each segment for the years ended June 30, 2000, 1999 and 1998.
Geophysical Industrial
Fiscal Year ended June 30, 2000 Equipment Products Total
- --------------------------------- ----------- ---------- -----------
Sales $11,252,000 $3,496,000 $14,748,000
Interest income 85,000 - 85,000
Interest expense 510,000 - 510,000
Depreciation and amortization 684,000 256,000 940,000
Income before income taxes 283,000 807,000 1,090,000
Segment assets 18,820,000 6,218,000 25,038,000
Fixed asset additions 84,000 60,000 144,000
Geophysical Industrial
Fiscal Year ended June 30, 1999 Equipment Products Total
- --------------------------------- ----------- ---------- -----------
Sales $16,678,000 $2,913,000 $19,591,000
Interest income 149,000 - 149,000
Interest expense 115,000 - 115,000
Depreciation and amortization 198,000 250,000 448,000
Income before income taxes 4,456,000 553,000 5,009,000
Segment assets 21,723,000 6,164,000 27,887,000
Fixed asset additions 62,000 15,000 77,000
Geophysical Industrial
Fiscal Year ended June 30, 1998 Equipment Products Total
- --------------------------------- ----------- ---------- -----------
Sales $16,417,000 $1,636,000 $18,053,000
Interest income 104,000 - 104,000
Interest expense 5,000 1,000 6,000
Depreciation and amortization 39,000 124,000 163,000
Income before income taxes 4,394,000 382,000 4,776,000
Segment assets 9,987,000 6,475,000 16,462,000
Fixed asset additions 24,000 - 24,000
The Company does not allocate income taxes to segments.
30
Bolt Technology Corporation
Notes to Consolidated Financial Statements
Note 10 - Segment and Customer Information (cont'd.)
The following table reports sales by country for the years ended June 30, 2000,
1999, and 1998. Sales are attributed to each country based on the location of
the customer.
2000 1999 1998
----------- ----------- -----------
United States.............. $ 8,703,000 $ 7,161,000 $ 7,215,000
Norway..................... 2,025,000 4,378,000 3,458,000
Peoples Republic of China.. 866,000 349,000 2,014,000
United Kingdom............. 602,000 3,180,000 1,930,000
Former Soviet Union........ 81,000 612,000 1,269,000
Singapore.................. 1,385,000 940,000 671,000
Japan...................... 279,000 1,650,000 384,000
France..................... 484,000 235,000 9,000
Other...................... 323,000 1,086,000 1,103,000
----------- ----------- -----------
$14,748,000 $19,591,000 $18,053,000
=========== =========== ===========
A relatively small number of customers has accounted for the Company's
geophysical equipment segment sales. The segment's three largest customers in
2000, 1999, and 1998 accounted for 41%, 43%, and 42% of total consolidated
sales, respectively. Customers accounting for 10% or more of consolidated sales
for 2000, 1999, and 1998 are as follows:
2000 1999 1998
---------- -------- -------
Customer A................................... 16% 19% 22%
Customer B................................... - 14 10
Customer C................................... 14 - 10
Customer D................................... - 10 -
Customer E................................... 11 - -
Note 11 - Supplementary Information
Accrued liabilities at June 30 consist of the following:
2000 1999
---------- ----------
Compensation and related taxes........................... $ 225,000 $806,000
Compensated absences..................................... 284,000 286,000
Commissions payable...................................... 142,000 403,000
Professional fees........................................ 67,000 125,000
Advanced payments........................................ 48,000 -
Other.................................................... 119,000 128,000
-------- ----------
$885,000 $1,748,000
======== ==========
31
Bolt Technology Corporation
Notes to Consolidated Financial Statements
Note 12 - Quarterly Results (unaudited)
The following table summarizes results for each of the four quarters for the
years ended June 30, 2000 and 1999.
Three Months Ended
---------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
2000
- ----
Sales $4,058,000 $3,233,000 $3,984,000 $3,473,000
Cost of sales 2,032,000 1,720,000 2,212,000 2,004,000
Income before taxes 567,000 80,000 278,000 165,000
Net income 305,000 40,000 138,000 50,000
Earnings per share:
Basic $ 0.06 $ 0.01 $ 0.03 $ 0.01
Diluted $ 0.06 $ 0.01 $ 0.03 $ 0.01
Three Months Ended
--------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
1999
- ----
Sales $5,360,000 $5,849,000 $4,618,000 $3,764,000
Cost of sales 2,803,000 2,886,000 2,460,000 1,942,000
Income before taxes 1,535,000 1,928,000 1,127,000 419,000
Net income 1,535,000 1,781,000 708,000 257,000
Earnings per share:
Basic $ 0.29 $ 0.34 $ 0.13 $ 0.05
Diluted $ 0.29 $ 0.33 $ 0.13 $ 0.05
32
Bolt Technology Corporation
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended June 30, 2000
Additions Charged
Balance At (Credited) To
Beginning Of Costs And Balance At
Description Year Expenses Deductions Other End of Year
- ----------- ------------- --------- ---------- ------- -----------
Allowance for uncollectible
accounts:
1998 $ 96,000 79,000 (39,000) - $ 136,000
1999 136,000 154,000 - 70,000 (3) 360,000
2000 360,000 147,000 (33,000) - 474,000
Reserve for inventory
valuation:
1998 $ 799,000 82,000 (40,000) (1) $ 841,000
1999 841,000 69,000 (50,000) (1) 860,000
2000 860,000 13,000 - 873,000
Valuation allowance
for deferred
tax assets:
1998 $4,370,000 (642,000) (2,531,000) (2) $1,197,000
1999 1,197,000 - (1,197,000) -
(1) Inventory scrapped.
(2) Includes $1,000,000 allocated to the purchase price of Custom Products
Corporation.
(3) Represents allowance for uncollectible accounts assumed through acquisition.
33
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 on the 22nd day
of September 2000.
BOLT TECHNOLOGY CORPORATION
By /s/ Raymond M. Soto
--------------------------
Raymond M. Soto
(Chairman of the Board, President
and Chief Executive Officer)
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/ Raymond M. Soto Chairman of the Board, September 22, 2000
- ----------------------------
(Raymond M. Soto) President and Chief Executive
Officer (Principal Executive
Officer and Principal
Financial Officer)
/s/ Alan Levy Vice President - Finance, September 22, 2000
- ----------------------------
(Alan Levy) Secretary and Treasurer
(Principal Accounting
Officer)
/s/ Kevin M. Conlisk Director September 22, 2000
- ----------------------------
(Kevin M. Conlisk)
/s/ Stephen Chelminski Director September 22, 2000
- ----------------------------
(Stephen Chelminski)
/s/ John H. Larson Director September 22, 2000
- ----------------------------
(John H. Larson)
/s/ Joseph Espeso Director September 22, 2000
- ----------------------------
(Joseph Espeso)
/s/ Joseph Mayerick, Jr. Director September 22, 2000
- ----------------------------
(Joseph Mayerick, Jr.)
/s/ Gerald H. Shaff Director September 22, 2000
- ----------------------------
(Gerald H. Shaff)
/s/ Gerald A. Smith Director September 22, 2000
- ----------------------------
(Gerald A. Smith)
34