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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, 1996
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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 0-3905
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TRANSMATION, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 16-0874418
- ---------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Vantage Point Drive, Rochester, NY 14624
- --------------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 716-352-7777
---------------------------
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------------- -----------------------------------------
None None
- ---------------------------------- -----------------------------------------
- ---------------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
- --------------------------------------------------------------------------------
(Title of Class)
Common Stock $0.50 Par Value
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark (X) 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
--- ---
TOTAL PAGES -
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Indicate by check mark (X) 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. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant is $16,657,686 as of the close of business June 10, 1996. Market
value is determined by reference to the final NASDAQ quotation of the price paid
for Transmation stock as of that date.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the close of business on May 30, 1996.
Class Number of Shares Outstanding
Common 2,552,945
------ ----------------------------
Documents incorporated by reference and the part of Form 10-K into which they
are incorporated are listed hereunder.
Part of Form 10-K Document Incorporated
----------------- ---------------------
Part III Registrant's definitive Proxy
Statement for Annual Meeting of
Shareholders to be held on August
20, 1996
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Part I
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Item 1. Business
--------
The registrant, Transmation, Inc. ("Transmation," or the Company),
which was organized in 1964 and incorporated in the State of Ohio, is primarily
engaged in a single industry: the sale and distribution, development,
manufacture and calibration of electronic monitoring instrumentation used
principally for measurement, indication and transmission of information to
automation control equipment or in conjunction with computers. The principal
products sold by Transmation fall within two general categories: a) test,
measurement and calibration equipment; b) process monitoring instrumentation.
(i) Test, measurement and calibration equipment - Instruments used for
calibrating, measuring and testing most physical parameters in industry
and science. These products are produced by Transmation and by other
manufacturers.
(ii) Process monitoring instrumentation - A line of instrumentation
which measures low energy signals, such as temperature, and then
amplifies the measurement to permit transmission to a receiving device
which may also actuate a relay at a pre-determined measurement value.
Certain of these products may be used to monitor one or more points of
a process by multiplexing information into one or more digital devices.
These products are manufactured by Transmation.
Transmation's products range in price from approximately $200 for a
single analog isolator, to more than $200,000 for a large multiplexing system.
The principal market for these products is within the process industry
and is primarily directed to the petroleum refining and chemical manufacturing
industries. Transmation's sales are accomplished through one catalog
distribution division, Transcat, and two sales divisions, the Instrument
Division and the International Sales Division.
Transmation operates sales offices for its products and services in
several states, Canada, and Australia. Transmation's Canadian office was
separately incorporated under the laws of the Province of Ontario and Canada
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during 1979. In 1990, Transmation, Inc. incorporated Transcat, F.S.C. (Foreign
Sales Corporation) under the laws of St. Thomas, the U.S. Virgin Islands. The
purpose of this corporation is to facilitate sales of U.S. manufactured products
in foreign countries. Transmation's Singapore operation was separately
incorporated under the laws of Singapore during fiscal 1991. Transmation closed
its office in Singapore during 1996; however, it continues to maintain one
regional sales manager in Singapore. Transmation's Australian office was
separately incorporated under the laws of Australia during fiscal 1994. The
results of their operations are disclosed in Notes 2 and 3 of the consolidated
financial statements of Transmation, Inc. which are included in this report. In
addition, the Company has arrangements with approximately 80 sales
representative organizations, each employing one or more sales engineers,
located in other areas of concentrated demand for these products in the U.S.,
Australia, the Far East, Europe and Canada to promote such products on a
commission basis.
Sales of test, measurement and calibration equipment are also made
through Transmation's Transcat division. This division sells through a catalog
which is distributed to present and prospective customers and through direct
salesmen in selected locations in the U.S. and Canada. Transcat sells
Transmation products and the products of approximately 150 other manufacturers
through the catalog. More than 1,000,000 catalogs have been distributed through
this part of Transmation's sales and marketing effort.
The Company's Transcat CalXPress operations provide periodic
calibration services for customers owning Transmation instrumentation and
instruments manufactured by others. Currently, there are Transcat CalXPress
offices in Rochester, New York, Bridgeport, New Jersey, Houston, Texas, Chicago,
Illinois, Baton Rouge, Louisiana, and Toronto, Canada.
After the close of fiscal 1996, the Company acquired the stock of Altek
Industries Corp., a manufacturer of calibration instrumentation. Note 14 to the
consolidated financial statements included in this report is included herein by
reference.
The following information is set forth as it is deemed material to an
understanding of the business of the registrant.
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Competition
-----------
Transmation sells products primarily to the process industries and
therefore, while there are several companies in its general line of business,
Transmation regards as its principal competition only those companies which
compete with it for the process industry instrumentation business. Within this
framework, the principal methods of competition are price, product performance,
inventory availability and the Company's record for post-sales follow-up with
its customers to assure proper performance and customer satisfaction.
Transmation believes that the negative elements of its competitive position are
price competition from other manufacturers in lower price range products, and
the fact that many of its competitors have greater financial and marketing
resources than Transmation.
Transmation believes that it has substantial competition in each
product category it manufactures or distributes.
Significant Customers
---------------------
There were no sales to any customer or controlled group which amounted
to 10 percent or more of the Company's consolidated net sales during the years
1996-1994, nor is the Company dependent on a single customer or a few customers,
the loss of any one or more of which would have a material adverse effect on the
Company.
Backlog
-------
At the close of the fiscal year ended March 31, 1996, Transmation had a
firm order backlog of approximately $1,347,000 as compared to $1,519,000 in 1995
and $1,000,000 in 1994.
It is anticipated that 100 percent of Transmation's backlog existing on
March 31, 1996 will be filled by shipments in fiscal year 1997. Transmation's
cycle of sales to delivery at the present time is 1-12 weeks on all product
categories except for process monitoring systems, where the cycle is 10-40
weeks. However, backlog has generally not been a significant factor in
Transmation's business.
Seasonality
-----------
Transmation does not believe that its line of business has any
significant seasonal factor.
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Raw Materials
-------------
The raw materials and components essential to Transmation's
manufacturing business are available from a number of sources of supply.
However, in certain instances, important parts and components are available
through fewer suppliers than Transmation deems suitable. If such suppliers
should fail in deliveries, delays in Transmation's production could result.
Additionally, finished products required for the Transcat division's catalog
sales are generally available from only one source per product. Periodically,
Transmation has experienced delays in obtaining certain parts and components or
finished products. Such delays are primarily attributable to demand for parts or
products and long lead times. In order to minimize such delays, Transmation has
placed scheduled blanket purchase orders, has sought out alternate sources of
supply, has provided vendors with greater lead time in filling such orders and
has placed certain finished product in its inventory. Transmation believes that
such delays have not had a material adverse effect on its business to date,
although it cannot predict what effect such delays may have in the future.
Patents
-------
It is the opinion of management that the obtaining of patent protection
is not essential to the conduct of Transmation's business. Transmation has,
however, sought patent protection in certain instances and presently holds
several United States patents, the most recent of which was granted in 1994;
patents expire at various dates through 2012. Transmation believes that the
patents obtained provide a short-term marketing benefit, particularly when
marketing products against similar products produced by competitors. However,
Transmation does not believe that the patents have a significant impact on its
business.
Transmation has registered numerous trademarks in the United States
Patent and Trademark Office, including Transcat(R), Quick-Cal(R) and
CalXpress(R).
Research and Development
------------------------
During the fiscal year ended March 31, 1996, Transmation expended
approximately $1,099,508 in research and development as compared with an
approximate expenditure of $1,209,156 in 1995 and $1,457,062 in 1994. The
research and development costs in fiscal 1996 reflected the Company's efforts in
all of its product lines in the Instrument Division. The reduction in Research
and Development was planned and brings Company spending on this effort in line
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with industry averages and should not significantly reduce the Company's ability
to introduce new products.
Research and Development is Company sponsored. Approximately 19 of its
employees and several consultants are engaged in product development. Sixteen
such employees hold technical degrees.
Employees
---------
Transmation employed 211 persons (including 3 part-time employees) as
of March 31, 1996 in all aspects of its business. The Altek acquisition on April
3, 1996 increased Transmation's number of employees to 256. At March 31, 1995,
Transmation employed 204 persons of which 5 were part-time and at March 31,
1994, 218 persons of which 3 were part-time.
Environmental Matters
---------------------
Registrant does not believe that compliance with Federal, State or
Local provisions relating to the protection of the environment have any material
effect on its capital expenditures, earnings or competitive position.
Information as to classes of similar products:
Percent of Net Sales
--------------------
1996 1995 1994
---- ---- ----
Test, Measurement & Calibration Equipment
and Service 93.3 91.7 88.8
Process Monitoring Instrumentation
and Service 6.7 8.3 11.2
The change in sales mix from 1995 to 1996 and from 1994 to 1995 is primarily the
result of increased sales of resale product and service of test, measurement and
calibration equipment to the U.S. marketplace resulting from significant catalog
mailings to customers and prospective customers during fiscal 1996, 1995 and
1994.
Approximately 20.7 percent of Transmation's sales in 1996 resulted from
sales in foreign countries. This compares with 22.7 percent of sales in 1995 and
23.3 percent of sales in 1994. This decrease is primarily the result of
increased sales in the domestic marketplace of products distributed through the
Company's Transcat division. Sales in foreign countries generate relatively the
same profit margins as domestic sales. Management believes that the relative
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lower value of the dollar compared to foreign currencies that has existed for
several years has a positive effect on international sales. All sales are
shipped F.O.B. Company locations. To the extent the export laws change or the
cost of doing business abroad increases, sales in foreign countries may be
curtailed or become less profitable.
The information contained in Notes 2 and 3 to the Financial Statements
of this report is incorporated herein by reference.
Item 2. Properties
----------
Transmation's manufacturing operation is housed in owned facilities
located at 977 Mt. Read Boulevard, Rochester, New York comprising 26,800 square
feet of plant, storage and office space.
In addition, Transmation has leased an additional 16,700 square feet of
space in Rochester. This space is being used for certain executive,
administrative, sales, service and manufacturing purposes. The lease for this
space will expire in February, 2000.
Effective April 3, 1996, Transmation leased an additional 9,500 square
feet which houses the operations of its new Altek subsidiary. This lease will
expire in fiscal 2000.
Various sales office space is leased by the Company and its
subsidiaries, Transmation (Canada), Inc., Transmation Singapore Pte., Ltd., and
Transmation Australia Pty. Ltd. and is considered adequate to meet both present
and future needs in those locations. (See Note 7 to the Financial Statements.)
Generally, Transmation's present facilities are being fully utilized
and are considered suitable for its current needs and there is no present
requirement for significant additional space. Any expansion of business
facilities as the result of a relocation of the entire business or a portion of
it from Mt. Read Boulevard will be made in the future if necessary.
Item 3. Legal Proceedings
-----------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
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Part II
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Item 5. Market for Registrant's Common Stock and Related Security Holder
----------------------------------------------------------------
Matters
-------
The Company's Common Stock is traded in the NASDAQ National Market System. A
record of actual transactions in Transmation's stock is reflected in the table
below:
Quarter First Second Third Fourth
1996 High 7.125 6.625 6.500 6.625
Low 5.000 6.000 5.875 5.750
1995 High 4.50 4.125 4.875 6.000
Low 2.75 3.000 3.250 4.250
At May 30, 1996 there were approximately 800 shareholders.
The Company has paid no cash dividends since its inception, and under terms of a
revolving credit agreement with a bank may not pay such dividends without prior
bank approval.
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Item 6.
TRANSMATION, INC.
----------------------------------------
SELECTED FINANCIAL DATA
----------------------------------------
Year Ended March 31,
----------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ------------ ----------- ------------
Net Sales $38,449,758 $37,293,872 $ 33,984,430 $28,867,974 $ 25,475,109
----------- ----------- ------------ ----------- ------------
Operating Income (Loss) $ 2,165,037 $ 915,481 ($ 523,129) $ 1,064,168 ($ 95,194)
----------- ----------- ------------ ----------- ------------
Net Income (Loss) $ 1,234,723 $ 381,785 ($ 586,234) $ 523,270 ($ 225,812)
----------- ----------- ------------ ----------- ------------
Income (Loss) Per Share $ .49 $ .16 ($ .25) $ .22 ($ .10)
----------- ----------- ------------ ----------- ------------
Total Assets $15,701,727 $16,293,407 $ 17,525,838 $16,226,457 $ 12,577,217
----------- ----------- ------------ ----------- ------------
Long-Term Debt $ 2,050,800 $ 4,064,426 $ 5,100,000 $ 3,800,000 $ 2,900,000
----------- ----------- ------------ ----------- ------------
The Company has paid no cash dividends since its inception.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Liquidity and Capital Resources
- -------------------------------
The Company's primary source of capital is its revolving credit
agreement with a bank. The adequacy of the revolving credit agreement is
augmented by the result of strong management of the Company's assets,
specifically inventories, trade accounts receivable, prepaid expenses and
deferred charges which are primarily comprised of catalog costs which have been
incurred and are written off over appropriate time periods to properly match
revenues and related expenses. As a result of asset management efforts in fiscal
1996, the Company reduced accounts receivable balances, inventories and bank
debt.
During fiscal 1996, the Company negotiated favorable amendments to its
bank revolving credit agreement which provided it with the ability to borrow up
to $7,000,000 at the prime rate of interest or 250 basis points over LIBOR, at
the Company's option.
Company management focused attention on generating favorable cash flow
in fiscal 1996 through continued efforts to maintain asset balances at optimal
levels, improved profitability and through improved effectiveness in the use of
its sales and marketing resources. In fiscal 1997, similar foci will be
maintained and additionally the important objectives of reducing time to market
for products under development and of integrating Altek Industries Corp., which
was acquired on April 3, 1996, into Transmation will be addressed.
Our acquisition of Altek Industries Corp. for a combination of cash and
notes payable to the former owners of Altek totaling $4,800,000 and 300,000
shares of Transmation common stock, adds significant product strength and,
through Altek's employees, market knowledge to Transmation's capabilities in the
calibration marketplace. We are optimistic that the combination of the
Transmation and Altek names and capabilities will enable Transmation to become
one of the undisputed leaders in the calibration industry.
A minimum of $1,835,000 in future taxable income will need to be
generated to realize total deferred tax assets included in the March 31, 1996
Balance
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Sheet. Pre-tax earnings for financial reporting purposes totaled $1,831,600
during fiscal 1996.
Historically, pre-tax earnings for financial statement purposes have
exceeded pre-tax earnings for income tax purposes. The differences relate
primarily to the Company's policy of accelerating write-offs of catalog-related
expenditures and depreciation for tax purposes compared to book write-offs.
Certain recorded expenses result in faster write-offs for book purposes than for
tax reporting purposes; primary among these are vacation pay accruals, deferred
compensation accruals, allowances for bad debts, inventory reserves, return and
warranty reserves and the effect of foreign net operating losses. A summary of
such amounts is as follows:
Prepaid Tax Temporary Differences March 31, 1996
--------------------------------- --------------
Deferred Compensation $ 683,000
Vacation Pay Accruals 341,000
Allowance for Bad Debts 322,000
Reserves for Inventory Obsolescence 134,000
Warranty and Return Allowances 30,000
Foreign Net Operating Losses 325,000
----------
$1,835,000
==========
Deferred Tax Temporary Differences
----------------------------------
Accelerated Depreciation $ 381,000
Accelerated Catalog and
Related Expenses 528,000
----------
$ 909,000
==========
Additionally, the Company owns approximately 26 acres of vacant land in
a Rochester, New York suburb which has a book value of approximately $49,000.
Company management believes the current market value for this property, for
which there is no currently anticipated need within the operations of the
Company, is approximately $750,000 and that this property is readily marketable
in the event taxable gains should become a necessity for the Company.
There were no material individual capital expenditures in fiscal 1996.
At March 31, 1996 the Company had committed to acquire Altek Industries Corp. as
previously described. There were no other commitments for significant capital
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expenditures as of the end of fiscal 1996. We anticipate that capital
expenditures in fiscal 1997 (apart from the Altek acquisition) will be similar
to the level of such expenditures incurred in fiscal 1996. This level of
expenditure is adequate to enable the Company to compete effectively in the
marketplace.
The Company believes present facilities are adequate and no immediate
significant expansions of facilities are contemplated.
Results of Operations
- ---------------------
Comparison of 1996 with 1995
- ----------------------------
In fiscal 1996, sales totaled $38,450,000, an increase of approximately
3% compared to 1995. Product sales through the Company's Instrument division in
1996 were approximately 8% below the level achieved in 1995 and were lower than
were anticipated. Management believes that this is attributable to delayed
customer acceptance of several products introduced by the Company during the
past two years. Recently, several organizational changes have been introduced to
attempt to correct this problem. Sales through the Company's Singapore office
were nearly 20% below that level which was achieved in 1995 and operational
changes have also recently been enacted in an effort to better utilize sales
resources previously employed in Singapore to achieve improved sales results.
The Company's Transcat division achieved sales increases of nearly 8% and
recorded significant improvement in its operating profitability in 1996 compared
to 1995.
Net profits totaling $1,234,700 were reported for fiscal 1996 compared
to a net profit of $381,800 which was reported for fiscal 1995. Cost of products
sold totaled 63.4% of sales in 1996 compared to 63.1% of sales in 1995. Selling
and Administrative expenses totaled 28.2% of sales in 1996 compared to 31.2% of
sales in 1995. This improvement reflects the improved productivity of our sales
resources, particularly in the Transcat division in 1996 compared to 1995.
Research and Development costs were intentionally reduced by approximately 9%
from 1995 and brings Transmation's spending on this effort in line with industry
averages for such spending and should not significantly reduce the Company's
ability to introduce the new products which will be required in the future to
enable it to remain competitive in the marketplace. Interest expense decreased
by 22% in 1996 compared to 1995 and is the result of significantly reduced
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borrowings throughout the year which were enabled by Transmation's improved
profitability and continued improved management of its Balance Sheet.
Results of Operations
- ---------------------
Comparison of 1995 with 1994
- ----------------------------
In fiscal 1995, sales totaled $37,294,000, an increase of 9.7% compared
to 1994. This increase resulted primarily from increases achieved in the
Company's Transcat division and from increased sales into Mainland China
achieved by personnel located in our Australian and Singaporean subsidiaries.
Product sales through the Company's Instrument division were approximately equal
to those achieved in 1994 and were lower than was anticipated. Management
believes that this is attributable to delayed customer acceptance of certain
newly released products utilizing innovative ideas introduced to the marketplace
for the first time and that markets for these products require additional
customer instruction and product development than has yet been possible to
achieve.
A net profit of $381,785 was reported for fiscal 1995 compared to a net
loss of $586,234 which was reported or fiscal 1994. Cost of products sold
totaled 63.1% of sales in fiscal 1995 compared to 63.7% of sales in 1994.
Selling and Administrative expenses totaled 31.2% of sales in 1995 compared to
33.6% of sales in 1994. This reduction resulted primarily from reductions in
catalog mailings which took place in 1995 compared to 1994 and from selective
reductions in staff which were implemented during 1995. Research and Development
costs were reduced by approximately 17% from 1994 to 3.2% of sales in 1995. This
reduction was implemented to bring Transmation's spending in its R&D effort more
in line with industry averages for such spending and should not significantly
reduce the Company's ability to introduce the new products which will be
required in the future to enable it to remain competitive in the marketplace.
Interest expense increased by 60% in 1995 compared to 1994. This increase was
the result of higher interest rates that existed throughout 1994 compared to
1995.
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Item 8.
TRANSMATION, INC.
INDEX TO FINANCIAL STATEMENTS
Document Page
- -------- ----
Report of Independent Accountants 16
Consolidated Balance Sheet - March 31, 1996, 1995, 1994 17
Consolidated Statement of Income (Loss) - March 31, 1996, 1995, 1994 18
Consolidated Statement of Cash Flows - March 31, 1996, 1995, 1994 19
Consolidated Statement of Stockholders' Equity -
March 31, 1996, 1995, 1994 20
Notes to Consolidated Financial Statements 21 - 35
Schedule VIII - Valuation and Qualifying Accounts -
March 31, 1996, 1995, 1994 36
All other schedules have been omitted because they are not applicable or the
required information is shown in the Financial Statements or notes thereto.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Transmation, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Transmation, Inc. and its subsidiaries at March 31, 1996, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1, in 1994 the Company adopted the provisions of SFAS
No. 109, "Accounting for Income Taxes."
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TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
March 31,
1996 1995 1994
--------------------------------------------------------
ASSETS:
Current Assets:
Cash $ 204,046 $ 607,763 $ 184,806
Accounts Receivable, less allowance
for doubtful accounts of $436,000 in 1996, and
$473,000 in 1995, and $435,000 in 1994 5,320,996 5,524,244 5,945,617
Inventories 6,491,127 6,747,036 6,912,909
Income Taxes Receivable 155,532
Prepaid Expenses and Deferred Charges 947,209 1,270,833 1,924,998
Deferred Tax Assets 310,294 132,026 1,694
--------------------------------------------------------
Current Assets 13,273,672 14,281,902 15,125,556
Properties, at cost, less accumulated
depreciation 1,976,679 1,500,498 1,469,510
Deferred Charges 172,713 146,161 373,500
Deferred Income Taxes 54,366 154,926 227,983
Other Assets 224,297 209,920 329,289
--------------------------------------------------------
$ 15,701,727 $ 16,293,407 $ 17,525,838
========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Accounts Payable $ 3,049,880 $ 3,655,934 $ 4,220,305
Accrued Payrolls, Commissions and Other 1,345,499 1,187,992 1,191,093
Income Taxes Payable 410,566 2,610
--------------------------------------------------------
Current Liabilities 4,805,945 4,846,536 5,411,398
Long-Term Debt 2,050,800 4,064,426 5,100,000
Deferred Compensation 682,593 780,880 799,087
--------------------------------------------------------
7,539,338 9,691,842 11,310,485
--------------------------------------------------------
Stockholders' Equity:
Common Stock, par value $.50 per
share - Authorized - 8,000,000 shares -
issued and outstanding - 2,451,946 in
1996, 2,380,640 in 1995, and 2,374,240 in
1994 1,225,973 1,190,320 1,187,120
Capital in Excess of Par Value 1,124,583 849,829 835,029
Accumulated Translation Adjustment (93,819) (109,513) (95,940)
Retained Earnings 5,905,652 4,670,929 4,289,144
--------------------------------------------------------
8,162,389 6,601,565 6,215,353
--------------------------------------------------------
$ 15,701,727 $ 16,293,407 $ 17,525,838
========================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS)
Year Ending March 31,
---------------------
1996 1995 1994
----------------------------------------
Net Sales $38,449,758 $37,293,872 $ 33,984,430
----------------------------------------
Costs and Expenses:
Cost of Products Sold 24,358,437 23,525,472 21,647,005
Selling and Administrative Expenses 10,826,776 11,643,763 11,403,492
Research & Development Costs 1,099,508 1,209,156 1,457,062
Interest Expense 333,414 429,946 268,505
----------------------------------------
36,618,135 36,808,337 34,776,064
----------------------------------------
Income (Loss) Before Income Taxes 1,831,623 485,535 (791,634)
Provision for (Recovery of) Income Taxes 596,900 103,750 (35,400)
----------------------------------------
Income (Loss) Before Cumulative
Effect of Accounting
Principle Change 1,234,723 381,785 (756,234)
Cumulative Effect on Prior Years of Change in
Accounting Principle for Income Taxes 170,000
----------------------------------------
Net Income (Loss) $ 1,234,723 $381,785 ($586,234)
========================================
Income (Loss) Per Share
Before Cumulative Effect of Change
in Accounting Principle $0.49 $0.16 ($ 0.32)
Cumulative Effect of Change in
Accounting Principle $0.07
----------------------------------------
Net Income (Loss) Per Share $0.49 $0.16 ($0.25)
========================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
March 31,
---------
1996 1995 1994
-----------------------------------------
Cash Flows from Operating Activities:
Net Income (Loss) $1,234,723 $381,785 ($586,234)
Items Not Requiring (Providing) Cash
Included in Income
Depreciation 489,462 415,425 369,717
Deferred Compensation 7,785
Cumulative Effect of Change in
Accounting Principle (170,000)
(Increase) Decrease in Cash Surrender
Value of Life Insurance Policies (14,377) 119,369 (25,318)
(Recovery of) Provision for Losses
on Accounts Receivable (37,000) 38,000 37,000
Decrease (Increase) in Accounts Receivable 240,248 383,373 (1,075,693)
Decrease in Inventories 255,909 165,873 538,573
Decrease (Increase) in Prepaid Expenses
and Deferred Charges 297,072 881,504 (994,835)
(Decrease) in Deferred Compensation (98,287) (18,207)
(Decrease) Increase in Accounts Payable (606,054) (564,371) 1,101,939
Increase (Decrease) in Accrued Payrolls,
Commissions and Other 157,507 (3,101) (88,545)
Increase (Decrease) in Income Taxes
Payable or Receivable 407,956 158,142 (117,958)
(Increase) Decrease in Deferred
Income Taxes (77,708) (57,275) 110,188
-----------------------------------------
Net Cash Provided by (Used in)
Operating Activities 2,249,451 1,900,517 (893,381)
-----------------------------------------
Cash Flows from Investing Activities:
Purchases of Properties (965,643) (446,413) (633,949)
-----------------------------------------
Net Cash Used in Investing Activities (965,643) (446,413) (633,949)
-----------------------------------------
Cash Flows from Financing Activities:
Issuance of Capital Stock 310,407 18,000 450
(Reductions in) Borrowings of Long-Term Debt (2,013,626) (1,035,574) 1,300,000
(Decrease) in Current Portion of Note Payable (8,502)
-----------------------------------------
Net Cash (Used in) Provided by Financing Activities (1,703,219) (1,017,574) 1,291,948
-----------------------------------------
Effect of Exchange Rate Changes on Cash 15,694 (13,573) (71,737)
-----------------------------------------
Net (Decrease) Increase in Cash (403,717) 422,957 (307,119)
Cash at Beginning of Year 607,763 184,806 491,925
-----------------------------------------
Cash at End of Year $204,046 $607,763 $184,806
=========================================
Cash Paid for Interest and Income Taxes was as follows:
1996 1995 1994
-----------------------------------------
Interest Paid $367,739 $419,278 $264,323
Taxes Paid $124,750 None $119,369
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
20
TRANSMATION, INC.
------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------
Number of Shares of
$.50 Par Value Common Stock Capital
Common Stock Issued and in Excess Retained
Outstanding Outstanding of Par Value Earnings
------------------- ------------ ------------ ----------
Balance, March 31, 1993 2,374,040 $1,187,020 $ 834,679 $4,875,378
Issuance of Stock 200 100 350
Net Loss (586,234)
---------- ---------- ---------- ----------
Balance, March 31, 1994 2,374,240 1,187,120 835,029 4,289,144
Issuance of Stock 6,400 3,200 14,800
Net Income 381,785
---------- ---------- ---------- ----------
Balance, March 31, 1995 2,380,640 1,190,320 849,829 4,670,929
Issuance of Stock 71,306 35,653 274,754
Net Income 1,234,723
---------- ---------- ---------- ----------
Balance, March 31, 1996 2,451,946 $1,225,973 $1,124,583 $5,905,652
========== ========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
21
TRANSMATION, INC.
-----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 1996, 1995 AND 1994
--------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles. 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
net assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Principles of Consolidation
- ---------------------------
The financial statements include the accounts of wholly-owned
subsidiaries. All intercompany transactions have been eliminated.
Foreign Operation
- -----------------
The accounts of Transmation's foreign subsidiaries are maintained in
the local currency of the countries in which they operate and have been
translated to U.S. dollars in accordance with the Statement of Financial
Accounting Standards No. 52. Accordingly, accounts representing assets and
liabilities, except for long-term intercompany and equity accounts, have been
translated at the year-end rates of exchange and related revenue and expense
accounts have been translated at average rates of exchange during the year.
Gains and losses arising from translation of subsidiaries' balance sheets into
U.S. dollars are recorded directly to the accumulated translation adjustment
component of stockholders' equity. Currency gains and losses on business
transactions are included in net income. In 1996, transaction gains totaled
$20,652, in 1995 and 1994, transaction losses totaled $169,611 and $80,691
respectively.
Inventories
- -----------
Inventories are valued at the lower of standard cost or market.
21
22
Depreciation and Amortization
- -----------------------------
The cost of properties is depreciated over the estimated useful lives
of the assets. Depreciation is determined on a straight-line basis. For income
tax purposes, depreciation is determined by accelerated methods as permitted
under tax regulations. Additions and betterments are capitalized; maintenance
and repairs are charged to income. The cost and accumulated depreciation of
assets retired or otherwise disposed of are eliminated from the accounts and any
resulting gain or loss is credited or charged to income. Leasehold improvements
and capital leases are amortized over the terms of the related leases.
Income Taxes
- ------------
The Company accounts for certain income and expense items differently
for financial reporting purposes than for income tax reporting purposes.
Deferred income taxes are provided in recognition of these temporary
differences.
In 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), and
adjusted previously recorded deferred taxes to reflect currently enacted tax
rates. The Company reflected the effect of adopting SFAS 109 as a change in
accounting principle at the beginning of fiscal 1994.
Deferred Catalog Costs
- ----------------------
Costs relating to mail order catalogs are amortized over a two-year
period beginning in the month of distribution. Prepaid expenses and deferred
charges at March 31, 1996, 1995 and 1994 consist principally of the unamortized
balance of costs associated with the catalogs. Catalog costs expensed in 1996,
1995 and 1994 were $1,240,752, $1,917,480, and $2,350,464 respectively.
Fiscal Year
- -----------
The Company operates within a conventional 52 week accounting fiscal
year ending on March 31 of each year.
Revenue Recognition
- -------------------
The Company recognizes revenue from product sales at the time of
shipment. The Company has established programs which, under specified
conditions, provide price protection rights and/or enable its customers to
return product. The effect of these programs is estimated and current period
sales and cost of sales are reduced accordingly.
22
23
Note 2 - Business Segments
- --------------------------
The Company and its subsidiaries sell in one basic industry, instrumentation
products for the process industry. Sales are made by the Company and its
subsidiaries to end users and engineering contractors in the United States and
other countries. The Company's domestic operations include manufacturing and
sales; the Company's foreign operations are limited to sales.
A summary of 1996, 1995 and 1994 operating data relating to the Company and its
subsidiaries is as follows:
Adjustments
Transcat and
1996 United States Canada Singapore Australia FSC Eliminations Consolidated
- ---------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Revenue from
Unaffiliated
Customers $ 32,071,157 $ 3,839,411 $ 1,922,883 $ 616,307 $ 38,449,758
Intercompany
Sales and
Credits 1,208,369 $ 544,321 ($ 1,752,690)
------------ ------------- ------------ ------------ ------------ ------------ ------------
Total Revenue $ 33,279,526 $ 3,839,411 $ 1,922,883 $ 616,307 $ 544,321 ($ 1,752,690) $ 38,449,758
- ---------------------- ============ ============= ============ ============ ============ ============ ============
Net Income (Loss) $ 1,063,362 $ 318,813 ($ 64,918) ($ 148,044) $ 44,858 $ 20,652 $ 1,234,723
- ---------------------- ============ ============= ============ ============ ============ ============ ============
Identifiable
Assets $ 14,483,246 $ 939,003 $ 196,299 $ 188,107 $ 464,068 ($ 568,996) $ 15,701,727
- ---------------------- ============ ============= ============ ============ ============ ============ ============
23
24
Adjustments
Transcat and
1995 United States Canada Singapore Australia FSC Eliminations Consolidated
- ---------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Revenue from
Unaffiliated
Customers $ 31,070,117 $ 3,441,978 $ 2,399,454 $ 382,323 $ 37,293,872
Intercompany
Sales and
Credits 2,885,473 $ 407,647 ($ 3,293,120)
------------ ------------- ------------ ------------ ------------ ------------ ------------
Total Revenue $ 33,955,590 $ 3,441,978 $ 2,399,454 $ 382,323 $ 407,647 ($ 3,293,120) $ 37,293,872
- ---------------------- ============ ============= ============ ============ ============ ============ ============
Net Income (Loss) $ 263,769 $ 59,122 ($ 66,283) ($ 121,540) $ 80,109 $ 166,608 $ 381,785
- ---------------------- ============ ============= ============ ============ ============ ============ ============
Identifiable
Assets $ 14,869,430 $ 1,077,377 $ 721,952 $ 164,355 $ 423,860 ($ 963,567) $ 16,293,407
- ---------------------- ============ ============= ============ ============ ============ ============ ============
Adjustments
Transcat and
1994 United States Canada Singapore Australia FSC Eliminations Consolidated
- ---------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Revenue from
Unaffiliated
Customers $ 28,490,159 $ 3,909,695 $ 1,577,757 $ 6,819 $ 33,984,430
Intercompany
Sales and
Credits 1,170,107 ($ 1,170,107)
------------ ------------- ------------ ------------ ------------ ------------ ------------
Total Revenue $ 29,660,266 $ 3,909,695 $ 1,577,757 $ 6,819 ($ 1,170,107) $ 33,984,430
- ---------------------- ============ ============= ============ ============ ============ ============ ============
Net (Loss) ($ 399,262) ($ 45,682) ($ 44,280) ($ 13,692) ($ 2,627) ($ 80,691) ($ 586,234)
- ---------------------- ============ ============= ============ ============ ============ ============ ============
Identifiable
Assets $ 16,446,947 $ 1,290,231 $ 488,561 $ 50,277 $ 333,001 ($ 1,083,179) $ 17,525,838
- ---------------------- ============ ============= ============ ============ ============ ============ ============
Sales and transfers among the United States, Canada, Singapore, Australia and
Transcat FSC are made on a formula basis. Net income is revenue less costs and
operating expenses.
Total consolidated sales to additional separate foreign geographic areas, as
defined by the Company, did not aggregate more than 10 percent of total
consolidated sales during any of the years 1996-1994. Sales in foreign
countries, including Canada, represented 20.7 percent of sales in 1996, 22.7
percent of sales in 1995, and 23.3 percent of sales in 1994.
24
25
Note 3 - Foreign Net Assets
- ---------------------------
The consolidated balance sheet includes net assets of Transmation's
foreign subsidiaries as follows:
March 31,
1996 1995 1994
---------- ---------- ----------
Current Assets $1,235,028 $1,784,038 $1,775,126
Current Liabilities, including
$570,994 in 1996, $1,278,133 in 1995,
and $821,318 in 1994 owed to the
parent company 622,532 1,376,069 1,105,894
---------- ---------- ----------
Net Current Assets 612,496 407,969 669,232
Fixed and Other Assets, Net 88,381 179,646 53,943
---------- ---------- ----------
Net Assets $ 700,877 $ 587,615 $ 723,175
========== ========== ==========
Note 4 - Inventories
--------------------
The major classifications of inventory are as follows:
March 31,
1996 1995 1994
---------- ---------- ----------
Raw Materials and Purchased Parts $1,412,576 $1,510,425 $1,646,150
Work in Process 569,317 767,522 680,873
Finished Products 4,509,234 4,469,089 4,585,886
---------- ---------- ----------
$6,491,127 $6,747,036 $6,912,909
========== ========== ==========
25
26
Note 5 - Properties
- -------------------
The major classifications of properties are as follows:
March 31,
1996 1995 1994
---------- ---------- ----------
Land and Improvements $ 167,380 $ 160,726 $ 160,726
Buildings 319,629 314,875 314,225
Machinery, Equipment & Software 4,164,312 3,431,679 3,371,046
Tools, Dies and Molds 405,048 328,118 323,954
Furniture and Fixtures 623,209 568,501 582,442
Vehicles 139,040 113,158 124,997
Leasehold Improvements 37,061 43,827 45,529
---------- ---------- ----------
5,855,679 4,960,884 4,922,919
LESS - Accumulated Depreciation and
Amortization 3,879,000 3,460,386 3,453,409
---------- ---------- ----------
$1,976,679 $1,500,498 $1,469,510
========== ========== ==========
Useful lives are estimated to be 15 to 30 years for buildings, 5 to 10
years for machinery, equipment and software, 3 years for tools, dies and molds,
5 to 10 years for furniture and fixtures, and 3 years for vehicles. Leasehold
improvements are amortized over the terms of the related leases.
Note 6 - Revolving Credit Agreement
- -----------------------------------
Borrowings under a secured revolving credit agreement with a bank which
extends through July 31, 1998 total $2,050,800 at March 31, 1996.
Maximum funds available under this credit agreement total $7,000,000
and are based on a formula. The interest rate is, at the Company's option, at
the bank's prime lending rate or 250 basis points over LIBOR.
The revolving credit agreement contains, among other provisions,
restrictions on the annual amount of capital expenditures, restrictions on the
annual amount of expenditures made for the purpose of printing and distributing
catalogs and requirements for minimum amounts of tangible net worth.
Additionally, the Company has pledged its personal property and
fixtures, including inventory and equipment, and its accounts receivable as
collateral security for the loan. Further, the Company has agreed to pay to the
lender an
26
27
amount equal to 1/4% of the unused portion of the total credit
available. The fee is payable quarterly. Total commitment fees paid on any
unused lines of credit under revolving credit agreements were immaterial in all
years 1996-1994.
The Company is in compliance with provisions of its loan agreements or
has received a waiver as of March 31, 1996.
Note 7 - Leases
- ---------------
The Company has leases under renewable agreements covering sales office
and manufacturing space. At March 31, 1996, minimum future rental payments due
under operating leases for such space that had an initial non-cancelable term in
excess of one year were $657,169 due in monthly installments. Amounts due under
these leases are as follows:
1997 - $246,693
1998 - $163,708
1999 - $134,727
2000 - $112,041
Total rental expense under these leases was $325,857 in 1996, $294,378
in 1995, and $216,902 in 1994.
Note 8 - Stockholders' Equity
- -----------------------------
In August 1993, an incentive Stock Option plan was adopted. This plan
was amended and restated in August 1995. Options are available to be granted to
key employees under the 1993 Plan at prices not less than fair market value at
the date of grant and are exercisable in annual installments beginning at the
date of grant and expiring up to ten years later. A plan adopted in August 1981
has now expired; however, certain options remain exercisable under that plan.
27
28
The following table summarizes the transactions under the plans during
1996, 1995, and 1994:
Option Price
------------
Shares Per Share Aggregate
------ --------- ---------
Options Outstanding - 3/31/93 88,500 $ 2.25 $ 199,125
------- ---------- --------
Options Granted During the Year 10,000 4.00 40,000
Options Canceled During the Year ( 1,000) 2.25 (2,250)
Options Exercised During the Year ( 200) 2.25 ( 450)
------- ---------- --------
Balance, 3/31/94 97,300 2.25-4.00 236,425
------- ---------- --------
Options Granted During the Year 163,600 4.25 695,300
Options Exercised During the Year (5,200) 2.25 (11,700)
Options Canceled During the Year (12,100) 2.25 (27,225)
------- ---------- --------
Balance, 3/31/95 243,600 2.25-4.25 892,800
Options Exercised During the Year (24,400) 2.25 (54,900)
Options Canceled During the Year (11,100) 2.25-6.25 (51,375)
Options Granted During the Year 194,450 4.25-6.63 995,581
------- ---------- --------
Balance, 3/31/96 402,550 $2.25-$6.63 $1,782,106
======= ========== ==========
53,100 shares are eligible to be exercised under the 1981 and 1993
plans. The market value of these shares at the date they first became eligible
for exercise ranged from $2.00 to $6.38 per share and aggregated $135,830. There
are 48,750 shares available for grant under the 1993 plan at March 31, 1996.
On August 21, 1984, shareholders approved the Directors' Warrant Plan.
This Plan was amended and restated in August 1995. The Plan provides that
warrants may be granted thereunder to non-employee directors of Transmation to
purchase in the aggregate not more than 100,000 shares of the Company's Common
Stock. The purchase price for shares issued under the Directors' Warrant Plan
shall be equal to the fair market value of the stock on the date of the grant of
the warrant. A summary of activity under the 1984 Directors' Warrant Plan is as
follows:
28
29
Shares Warrant Price Aggregate
------ ------------- ---------
Balance - 3/31/94 32,500 $3.00 - $3.875 $110,625
-----------------------------------
Balance - 3/31/95 32,500 3.00 - 3.875 110,625
-----------------------------------
Exercised During 1996 (14,500) 3.00 - 3.875 (54,875)
Expired During 1996 (2,000) 3.875 (7,750)
Granted During 1996 14,000 6.50 91,000
-----------------------------------
Balance, 3/31/96 30,000 $3.875 - $6.50 $139,000
===================================
On March 11, 1993, the Board of Directors granted the former President
of the Company's Instrument Division a non-qualified stock option to purchase
25,000 shares of the Company's common stock at $3.00 per share, the fair market
value at the date of the grant. Upon his termination in January 1996, the former
President of the Company's Instrument Division exercised his right to purchase
15,000 of such shares. The remainder of this grant was canceled.
On August 15, 1995, the Board of Directors granted the then President
of the Company's Transcat Division a non-qualified stock option to purchase
23,950 shares of the Company's common stock at $6.25 per share, the fair market
value at the date of the grant. These shares are exercisable in equal annual
installments beginning at the date of the grant and expiring five years later.
The Company is required to adopt SFAS No. 123 "Accounting for
Stock-Based Compensation" in fiscal 1997. The Company will elect to continue
using the intrinsic value method of accounting, Pro forma disclosures of net
income and earnings per share, as if the fair value based method of accounting
has been applied, will need to be disclosed in notes to financial statements
beginning in fiscal 1997.
29
30
Note 9 - Net Income (Loss) Per Share
- ------------------------------------
The net income per share amounts in 1996 and 1995 were computed by
dividing the net income by the average number of shares actually outstanding
plus common equivalent shares resulting from the assumed conversion of the
dilutive stock options and warrants. The net loss per share amount in 1994 was
computed by dividing the net loss by the number of shares actually outstanding.
Common and common equivalent shares averaged 2,534,674 in 1996, 2,430,329 in
1995, and 2,374,240 in 1994.
Note 10 - Income Taxes
- ----------------------
The provisions for income tax for the years ended March 31, 1996, 1995
and 1994 are comprised of:
1996 Current Deferred Total
- ---- --------- --------- ---------
Federal $ 405,100 $ 112,000 $ 517,100
State 24,000 (4,000) 20,000
Foreign 245,508 (185,708) 59,800
--------- --------- ---------
$ 674,608 $ (77,708) $ 596,900
========= ========= =========
1995 Current Deferred Total
- ---- --------- --------- ---------
Federal $ 60,935 ($ 15,185) $ 45,750
State 10,900 (5,900) 5,000
Foreign 89,190 (36,190) 53,000
--------- --------- ---------
$ 161,025 ($ 57,275) $ 103,750
========= ========= =========
1994 Current Deferred Total
- ---- --------- --------- ---------
Federal ($ 74,450) $ 45,100 ($ 29,350)
State 250 6,600 6,850
Foreign (71,388) 58,488 (12,900)
--------- --------- ---------
($145,588) $ 110,188 ($ 35,400)
========= ========= =========
30
31
The following is a reconciliation of the "expected" federal income tax
provision computed by applying the statutory U.S. federal income tax rate and
the income tax provision reflected in the statement of income.
1996 1995 1994
---- ---- ----
Computed "Expected" Federal
Income Tax $ 622,750 $ 165,100 ($269,100)
State Income Taxes 13,200 5,000 4,500
Foreign Sales Corporation (11,225) (20,100)
Effect of Graduated U.S. Tax
Rates on Carryback Loss 26,700
Book Expense not
Deductible for taxes 43,500
Foreign Taxes 23,000 14,900 (8,500)
Valuation Allowance, Domestic (144,500) (144,500)
Valuation Allowance, Foreign (45,100) 67,700 22,400
R&D Credit (12,300) (42,900)
Other, Net 6,575 15,050 44,100
--------- --------- ---------
$ 596,900 $ 103,750 ($ 35,400)
========= ========= =========
The domestic valuation allowance established in 1994 relating to
domestic net operating loss carryforwards reversed in 1995 due to the
utilization of such credits. During 1996, $45,100 of the foreign valuation
allowance was recognized due to the increase in the likelihood benefits will be
recognized. Management believes net deferred tax assets after valuation
allowance are more likely than not to be recognized.
31
32
The components of net deferred tax assets are as follows:
Deferred Tax Assets: 1996 1995 1994
--------- --------- ---------
Net Operating Loss Carryforward $ 171,620 $ 90,100 $ 166,900
Deferred Compensation 265,938 304,543 311,983
Accrued Vacation Pay 132,805 150,190 135,200
Allowance for Doubtful Accounts 125,474 139,366 140,900
Reserves for Inventory Obsolescence 52,015 52,069 52,100
Warranty Reserves 11,716 23,400 25,400
Valuation Allowance (45,000) (90,100) (166,900)
--------- --------- ---------
Gross Deferred Tax Assets 714,568 669,568 665,583
--------- --------- ---------
Deferred Tax Liabilities:
Depreciation 146,561 111,685 84,006
Accelerated Catalog & Postage Write-offs 203,347 270,931 351,900
--------- --------- ---------
Gross Deferred Tax Liabilities 349,908 382,616 435,906
--------- --------- ---------
Net Deferred Tax Assets $ 364,660 $ 286,952 $ 229,677
========= ========= =========
In 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
the provisions of SFAS 109, the Company adjusted previously recorded deferred
taxes to reflect currently enacted statutory rates. The Company has reflected
the cumulative effect of adopting SFAS 109 as a change in accounting principle
at the beginning of 1994. This adjustment was recorded as a non-cash credit to
earnings of $170,000 or $.07 per share. Prior years' financial statements were
not restated. The adoption of SFAS 109 had no effect on the provision for income
taxes for 1994.
The Company has available foreign net operating loss carryforwards
totaling approximately $440,000. These carryforwards have an unlimited
expiration period and their use is limited to the Company's future taxable
income.
32
33
Note 11 - Employment Agreement
- ------------------------------
On February 28, 1995, William J. Berk, former President of Transmation,
Inc. retired. In accordance with terms of a retirement agreement between the
Company and Mr. Berk, payments due under this agreement commenced on March 1,
1995. Mr. Berk is entitled to annual payments amounting to $96,456 for life. The
former President's wife will receive 60% of the annual benefit for her lifetime
should she survive him. This pension was not funded and the estimated present
value of the future benefits was recorded as an expense and a liability over the
term of the former President's actual employment. There were no charges to
expense for retirement benefits to be paid to the former President under the now
expired employment contract during 1994-1996.
Upon the death of the former President, and at the request of his legal
representative, the Company will redeem at market price from his estate a
certain number of shares of Transmation common stock as is permitted by Section
303 of the Internal Revenue Code.
Note 12 - Deferred Profit Sharing
- ---------------------------------
Effective April 1, 1981, the Transmation, Inc. Deferred Profit Sharing
Plan was adopted. Effective April 1, 1987, this plan was amended from a
non-contributing to a contributing defined contribution plan and renamed the
Transmation, Inc. Long-Term Savings and Deferred Profit Sharing Plan. All United
States employees of Transmation, Inc. are eligible to participate in the plan
providing certain qualifications are met. Employer contributions are made to the
plan at the discretion of the Board of Directors of the Company. Payments of
benefits accrued for plan participants will be made upon retirement or upon
termination of employment prior to retirement providing certain conditions have
been met by the employee prior to termination. There were no charges under this
plan in any of the periods 1994-1996.
Note 13 - Postemployment Benefits
- ---------------------------------
In 1992, the Financial Accounting Standards Board released Statement
No. 112, "Employers' Accounting for Postemployment Benefits" (FAS 112), which is
required to be implemented by April 1, 1994. FAS 112 requires that projected
future costs of providing postemployment, but pre-retirement benefits, such as
disability and severance pay, be recognized as an expense as employees render
service rather than when the benefits are paid.
33
34
The Company adopted the provisions of FAS 112 effective April 1, 1994
which resulted in an immaterial effect on the financial statements. The adoption
of FAS 112 did not have a material impact on the current year results and is not
expected to significantly impact future operating expense or the Company's cash
flow.
Note 14 - Subsequent Event - Acquisition of Altek Industries Corp.
- ------------------------------------------------------------------
On April 3, 1996, the Company completed the acquisition of the shares
of Altek Industries Corp. for a total of $4,800,000 of cash and notes to the
former owners plus 300,000 shares of Transmation Inc. common stock. Cash
required for the transaction was provided under the Company's revolving credit
agreement. (See Note 6). Altek is a manufacturer of electronic calibration
equipment. The acquisition will be accounted for by the purchase method of
accounting. Accordingly, the operating results of this acquisition will be
included in the Company's financial statements from the date of acquisition
forward. The Company is in the process of allocating the purchase price to the
fair value of the assets acquired. Unaudited pro forma results of operations as
if the acquisition had occurred on April 1, 1995 are as follows:
Unaudited
---------
Net Sales $42,487,000
Income before provision
for Income Taxes $ 1,759,500
-----------
Net Income $ 1,144,000
-----------
Net Income Per Share $.40
-----
Note 15 - Fair Value of Financial Instruments
- ---------------------------------------------
The Company has determined the fair value of its debt and other
financial instruments using available market information and appropriate
valuation methodologies as follows:
Cash and accounts receivable: The carrying amounts reported in the
balance sheet for cash and receivables approximate their fair value.
Long-term debt: The carrying amount of debt under the Company's
floating rate revolving credit agreement with a bank approximates its fair
value.
34
35
Note 16 - Quarterly Financial Information (Unaudited)
- -----------------------------------------------------
Net Income Income (Loss)
1996 Net Sales Gross Profit (Loss) Per Share
---------- ------------ -------- ---------
Fourth Quarter $ 9,864,945 $3,551,972 $366,678 $.14
Third Quarter $ 9,918,064 $3,633,395 $476,636 $.19
Second Quarter $ 9,100,252 $3,373,421 $188,584 $.07
First Quarter $ 9,566,497 $3,532,533 $202,825 $.08
Net Income Income (Loss)
1995 Net Sales Gross Profit (Loss) Per Share
--------- ------------ -------- ---------
Fourth Quarter $10,044,518 $3,824,090 $301,378 $.13
Third Quarter $10,293,625 $3,736,252 $460,177 $.19
Second Quarter $ 8,478,390 $3,163,458 $ 17,347 $.01
First Quarter $ 8,477,339 $3,044,600 ($397,117) ($.17)
NOTE: 1996 Quarterly EPS amounts do not total to the annual EPS amount due to rounding.
35
36
TRANSMATION, INC.
-----------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
-------------------------------------------------
YEAR ENDED MARCH 31,
--------------------
Additions
Balance at Charged to Write-Off Balance at
Beginning of Profit and Charged To End of
Year Loss Reserve Year
---- ---- ------- ----
1996
----
Allowance for
Doubtful Accounts $473,000 ($37,000) $436,000
======== ------- ========
1995
----
Allowance for
Doubtful Accounts $435,000 $38,000 $473,000
======== ======= ========
1994
----
Allowance for
Doubtful Accounts $398,000 $37,000 $435,000
======== ======= ========
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None
36
37
Part III
--------
The information required by each of the following items is presented in
the definitive proxy statement to be filed pursuant to Regulation 14A which
Transmation will file within the period prescribed in connection with the annual
meeting of shareholders to be held on August 20, 1996 and which is incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Item 11. Executive Compensation
----------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) 1. Financial Statements
Report of Independent Accountants
Consolidated Balance Sheet - March 31, 1996, 1995, 1994
Consolidated Statement of Income - March 31, 1996, 1995, 1994
Consolidated Statement of Cash Flows - March 31, 1996, 1995, 1994
Consolidated Statement of Stockholders' Equity -
March 31, 1996, 1995, 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts
March 31, 1996, 1995, 1994
All other schedules have been omitted because they are not applicable
or the required information is shown in the Financial Statements or
notes thereto.
3. Index to Exhibits
(2) Plan of acquisition, reorganization, arrangement, liquidation
or succession.
NOT APPLICABLE
(3) Articles of Incorporation and By-Laws
(i) The Articles of Incorporation, as amended, are
incorporated herein by reference to Exhibit 4(a) to
the Registrant's Registration Statement on Form S-8
(Registration No. 33-61665) filed on August 8, 1995.
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(ii) Bylaws, as amended through August 18, 1987, are
incorporated herein by reference to Exhibit (3) to the
Registrant's Form 10-K for the year ended March 31, 1988.
(4) Instruments defining the rights of security holders, including
indentures.
Revolving Credit Agreement Between the Registrant and
Manufacturers and Traders Trust Company is incorporated herein
by reference to Exhibit 1 to the Registrant's Form 10-Q for the
fiscal quarter ended September 30, 1994. Agreement and Amendment
No. 1 thereto is incorporated herein by reference to Exhibit
4(c) to the Registrant's Form 10Q for the fiscal quarter ended
September 30, 1995. Agreement and Amendment No. 2 thereto is
incorporated herein by reference to Exhibit 4(d) to the
Registrant's Form 10Q-A for the fiscal quarter ended December
31, 1995.
The documents listed under (3) are incorporated herein
by reference.
(9) Voting Trust Agreements
NOT APPLICABLE
(10) Material Contracts
The documents listed under (4) are incorporated herein by
reference.
Compensation agreements between the Registrant and William J.
Berk are incorporated by reference to Exhibit (10) to the
Registrant's Form 10-K for the fiscal year ended March 31,
1984, and Exhibit (10)(b) to the Registrant's Form 10-K for
the fiscal year ended March 31, 1991.
Non-Statutory Stock Option Agreement dated August 15, 1995
between Registrant and Eric W. McInroy is incorporated herein
by reference to Exhibit 10(j) to the Registrant's Form 10-Q
for the fiscal quarter ended September 30, 1995.
Transmation, Inc. Directors' Stock Plan is incorporated herein
by reference to Exhibit 10(i) to the Registrant's Form 10-K
for the fiscal year ended March 31, 1995.
Transmation, Inc. Employees' Incentive Stock Option Plan is
incorporated herein by reference to Exhibit 99(a) to the
Registrant's Registration Statement on Form S-8 (Registration
No. 33-61665) filed on August 8, 1995.
Transmation, Inc. Amended and Restated Directors' Warrant Plan
is incorporated herein by reference to Exhibit 99(b) to the
Registrant's Registration Statement on Form S-8 (Registration
No. 33-61665) filed on August 8, 1995.
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Transmation, Inc. Amended and Restated 1993 Stock Option Plan
is incorporated herein by reference to Exhibit 99(c) to the
Registrant's Registration Statement on Form S-8 (Registration
No. 33-61665) filed on August 8, 1995.
Transmation, Inc. Employees' Stock Purchase Plan is
incorporated herein by reference to Exhibit 99(e) to the
Registrant's Registration Statement on Form S-8 (Registration
No. 33-61665) filed on August 8, 1995.
Amendment No. 1 to Transmation, Inc. Directors' Stock Plan is
incorporated herein by reference to Exhibit 10(i) to the
Registrant's Form 10-Q for the quarter ended September 30,
1995.
Stock Purchase Agreement dated March 28, 1996 among the
Registrant, E. Lee Garelick and James N. Wurtz is incorporated
herein by reference to Exhibit 2(a) to the Registrant's Form
8-K dated April 3, 1996.
(a) Amendment No. 2 to Transmation, Inc. Directors' Stock
Plan is included herein as Exhibit 10(a).
(b) Amendment No. 1 to Transmation, Inc. Employees' Stock
Purchase Plan is included herein as Exhibit 10(b).
(c) Amendment No. 1 to Non-Statutory Stock Option
Agreement dated March 11, 1996 between the Registrant
and Eric W. McInroy is included herein as Exhibit
10(c).
(d) Extended and Amended Employment Agreement dated as of
April 1, 1996 between the Registrant and Robert G.
Klimasewski is included herein as Exhibit 10(d).
(11) Statement re Computation of Per Share Earnings
Computation can be clearly determined from Note 9 to the
Financial Statements to be filed with Item 8.
(12) Statements re Computation of Ratios
NOT APPLICABLE
(13) Annual Report to Security Holders
NOT APPLICABLE
(16) Letter re Change in Certifying Accountant
NOT APPLICABLE
(18) Letter re Change in Accounting Principles
NOT APPLICABLE
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(21) Subsidiaries of Registrant
Subsidiaries of the Registrant are included herein as Exhibit
21.
(22) Published Report Regarding Matters Submitted to Vote of
Security Holders
NOT APPLICABLE
(23) Consents of Experts and Counsel
Consent of Price Waterhouse LLP is included herein as Exhibit
23.
(24) Power of Attorney
NOT APPLICABLE
(27) Financial Data Schedule
Financial Data Schedule is included herein as Exhibit 27.
(28) Information from reports furnished to State Insurance
Regulatory Authorities
NOT APPLICABLE
(99) Additional Exhibits
NOT APPLICABLE
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) See (a) 3. above.
(d) (1) NOT APPLICABLE
(2) NOT APPLICABLE
(3) NOT APPLICABLE
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TRANSMATION, INC.
By: /s/ Robert G. Klimasewski By:
- ------------------------------------ --------------------------------
Robert G. Klimasewski Cornelius J. Murphy
President & Chief Executive Officer Chairman of the Board of Directors
(Principal Executive Officer)
Date: 6/24/96 Date:
- ------------------------------------ --------------------------------
By: /s/ Philip P. Schulp By: /s/ Arthur M. Richardson
- ------------------------------------ --------------------------------
Philip P. Schulp, Director Arthur M. Richardson, Director
Date: 6/24/96 Date: 6/24/96
- ------------------------------------ --------------------------------
By: By:
- ------------------------------------ --------------------------------
Angelo J. Chiarella, Director E. Lee Garelick, Director
Date: Date:
- ------------------------------------ --------------------------------
By: /s/ Gerald R. Katz By:
- ------------------------------------ --------------------------------
Gerald R. Katz, Director Dr. Harvey J. Palmer, Director
Date: 6/24/96 Date:
- ------------------------------------ --------------------------------
By: /s/ John W. Oberlies By: /s/ John A. Misiaszek
- ------------------------------------ --------------------------------
John W. Oberlies, Director John A. Misiaszek
Vice President, Finance
(Principal Financial Officer and
Principal Accounting Officer)
Date: 6/27/96 Date: 6/26/96
- ------------------------------------ --------------------------------
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