SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended March 31, 2011
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
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Commission file number 1-7872
BREEZE-EASTERN
CORPORATION
(Exact name of registrant as
specified in its charter)
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Delaware
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95-4062211
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. employer
identification no.)
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35 Melanie Lane
Whippany, New Jersey
(Address of principal
executive offices)
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07981
(Zip Code)
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Registrants telephone number, including area code:
(973) 602-1001
Securities registered pursuant to Section 12(b) of the
Act:
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Common Stock, par value $0.01
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NYSE Amex
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(Title of class)
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(Name of Exchange on Which Registered)
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Securities registered pursuant to Section 12(g) of the
Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 229.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer, or a smaller reporting company. See definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company þ
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting common equity held by
non-affiliates of the registrant on September 30, 2010 (the
last business day of the registrants most recently
completed second fiscal quarter), based on the closing price of
the registrants common stock on the NYSE Amex (formerly
American Stock Exchange) on such date, was $23,655,051. Shares
of common stock held by executive officers and directors have
been excluded since such persons may be deemed affiliates. This
determination of affiliate status is not a determination for any
other purpose.
As of May 1, 2011, the registrant had 9,441,536 shares
of common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The registrants Proxy Statement for the 2011 Annual
Meeting of Stockholders is incorporated by reference into
Part III of this Annual Report on
Form 10-K.
With the exception of those portions that are specifically
incorporated by reference in this Annual Report on
Form 10-K,
such Proxy Statement shall not be deemed filed as part of this
Report or incorporated by reference herein. Such proxy statement
will be filed with the Securities and Exchange Commission within
120 days of the registrants fiscal year ended
March 31, 2011.
BREEZE-EASTERN
CORPORATION
INDEX TO ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2011
2
PART I
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than
statements of historical facts included or incorporated by
reference in this report, including, without limitation,
statements regarding our future financial position, business
strategy, budgets, projected revenues, projected costs and plans
and objective of management for future operations, are
forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of
forward-looking terminology such as may,
will, expects, intends,
plans, projects, estimates,
anticipates, or believes or the negative
thereof or any variation there on or similar terminology or
expressions.
We have based these forward-looking statements on our current
expectations and projections about future events. These
forward-looking statements are not guarantees and are subject to
known and unknown risks, uncertainties and assumptions about us
that may cause our actual results, levels of activity,
performance or achievements to be materially different from any
future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements.
Important factors that could cause actual results to differ
materially from our expectations include, but are not limited
to: changes in business conditions, changes in applicable laws,
rules and regulations affecting us in locations in which we
conduct business, interest rate trends, a decline or redirection
of the U.S. defense budget, the termination of any
contracts with the U.S. Government, changes in our sales
strategy and product development plans, changes in the
marketplace, continued services of our executive management
team, competitive pricing pressures, market acceptance of our
products under development, delays in the development of
products, changes in spending allocation or the termination,
postponement, or failure to fund one or more significant
contracts by the United States Government or other customers,
determination by us to dispose of or acquire additional assets,
events impacting the U.S. and world financial markets and
economies, and statements of assumption underlying any of the
foregoing, as well as other factors set forth under
Item 1A. Risk Factors beginning on page 6
of this report and Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations below.
All subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are
expressly qualified in their entirety by the foregoing. Except
as required by law, we assume no duty to update or revise our
forward-looking statements based on changes in internal
estimates, expectations, or otherwise.
Breeze-Eastern Corporation, a Delaware corporation, designs,
develops, manufactures, sells and services sophisticated
engineered mission equipment for specialty aerospace and defense
applications. We were originally organized in 1962 as a
California corporation and reincorporated in Delaware in 1986.
Unless the context otherwise requires, references to the
Company, the Registrant,
Breeze-Eastern, we or us
refer to Breeze-Eastern Corporation and its consolidated
subsidiaries. All references to years in this report refer to
the fiscal year ended March 31 of the indicated year unless
otherwise specified. This report reflects all adjustments of a
normal recurring nature, which are, in the opinion of
management, necessary for fair presentation of the results of
operations for the periods reflected. Certain prior fiscal year
amounts may have been reclassified to conform to the current
fiscal year presentation.
CORE
BUSINESS
Our core business is aerospace and defense products. We believe
we are the worlds leading designer, manufacturer, service
provider, and supplier of mission-critical electric and
hydraulic rescue hoists and cargo hook systems. We also
manufacture weapons handling systems, cargo winches, and
tie-down equipment. These products are sold primarily to
military and civilian agencies and aerospace contractors. Our
emphasis is on the engineering, assembly, testing, service, and
support of our products.
3
PRODUCTS
AND SERVICES
Our products and related services aggregate into one reportable
segment. The nature of the production process (assemble,
inspect, and test), customers, and product distribution are
similar for all products. We sell our products through internal
marketing representatives and independent sales representatives
and distributors.
PRODUCTS
Products include new equipment and spare parts sales and
represented approximately 74%, 72%, and 71% of our total
revenues in Fiscal 2011, Fiscal 2010, and Fiscal 2009,
respectively.
As a pioneer of helicopter rescue hoist technology, we continue
to develop sophisticated helicopter hoist and winch systems,
including systems for the current generation of Blackhawk,
Seahawk, Osprey, Chinook, Ecureuil, Dolphin, Merlin/Cormorant,
Super Stallion, Changhe Z-11, Agusta A109, Agusta A119,
AgustaWestland AW139, and AgustaWestland Future Lynx
helicopters. We also design, market, sell and service a broad
line of hydraulic and electric aircraft cargo winch systems with
capacities from 900 pounds to over 7,000 pounds. Sales of hoist
and winch products accounted for approximately 57%, 51%, and 46%
of our total revenues in Fiscal 2011, Fiscal 2010, and Fiscal
2009, respectively.
Our external cargo hook systems are original equipment on
leading military medium and heavy lift helicopters. These hook
systems range from smaller 1,000-pound capacity models up to the
largest 36,000-pound capacity hooks employed on the Super
Stallion helicopter. Our latest designs incorporate load sensing
and display technology and automatic load release features. We
also manufacture cargo and aircraft tie-downs which are included
in this product line. Sales of cargo hook products accounted for
approximately 12%, 14%, and 16% of our total revenues in Fiscal
2011, Fiscal 2010, and Fiscal 2009, respectively.
We make static-line retrieval and cargo winches for military
cargo aircraft including the Boeing C-17, Alenia C-27J, and CASA
CN-235, and CASA C-295. In addition, we have a contract with
Airbus to develop and produce three products for the new cargo
positioning and restraint system for the A400M cargo aircraft
and will be the sole supplier of these products with anticipated
delivery beginning after Fiscal 2012.
Once our products are qualified and approved for use with a
particular aircraft model, sales of products and services
generally continue over the life of the aircraft model, which is
usually decades. It is expensive and difficult for a second
suppliers product to become qualified and approved on the
same aircraft.
Our weapons handling systems include weapons handling equipment
for land-based rocket launchers and munitions hoists for loading
missiles and other loads using electric power or exchangeable
battery packs. We supply this equipment for the United States,
Japanese, and European Multiple-Launch Rocket Systems (MLRS) and
the United States High Mobility Artillery Rocket System
(HIMARS). We also provide actuators and specialty gearboxes for
specialty weapons applications. Sales of weapons handling
products accounted for approximately 5%, 7%, and 9% of our total
revenues in Fiscal 2011, Fiscal 2010, and Fiscal 2009,
respectively.
SERVICES
Services include overhaul and repair and engineering sales and
represented 26%, 28%, and 29% of our total revenues in Fiscal
2011, Fiscal 2010, and Fiscal 2009, respectively.
We perform overhaul, repair, and maintenance services for all of
our products. Most of these services are performed at our
Whippany, New Jersey facility. We have also licensed third-party
vendors around the world to perform these services. Overhaul and
repair represented 22%, 24%, and 23% of our total revenues in
Fiscal 2011, Fiscal 2010, and Fiscal 2009, respectively.
In addition to performing research and development to design new
products, improve existing products, and add new features to our
product line, we also provide engineering services to adapt our
products to customer specific needs and aircraft models on a
fee-for-service
basis.
We discuss segment information in Note 14 of our
Notes to Consolidated Financial Statements contained
elsewhere in this report.
4
MAJOR
CUSTOMERS
We have three major customers: the U.S. Government, United
Technologies Corporation and Finmeccanica SpA, which accounted
for 28%, 21%, and 16%, respectively, of the total consolidated
net sales for Fiscal 2011.
GOVERNMENT
SALES
Our direct sales to the U.S. Government and sales for
U.S. Government and foreign government end use represented
69%, 67%, and 68% of consolidated revenue during Fiscal 2011,
Fiscal 2010, and Fiscal 2009, respectively. U.S. Government
sales, both direct and indirect, are generally made under
standard government contracts including fixed price and cost
plus. As a U.S. Government contractor, we are subject to
routine audits and investigations by U.S. Government
agencies.
In accordance with normal practice, contracts and orders with
the U.S. Government are subject to partial or complete
termination at any time, at the option of the customer. In the
event of a termination for convenience by the government, there
generally are provisions for recovery of our allowable incurred
costs and a proportionate share of the profit or fee on the work
completed, consistent with regulations of the
U.S. Government.
BACKLOG
We measure backlog by the amount of products or services that
customers committed by contract to purchase as of a given date.
Backlog at March 31, 2011 was $131,151 as compared with
$130,144 at March 31, 2010 as new orders exceeded shipments
in Fiscal 2011. Approximately $87,635 of our backlog at
March 31, 2011 is not scheduled for shipment during the
next twelve months. For additional discussion on our backlog,
see Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations.
COMPONENTS,
RAW MATERIALS, AND SEASONALITY
The various component parts and, to some extent, assembly of
components and subsystems by subcontractors used by us to
produce our products are generally available from more than one
source. In those instances where only a single source for any
material or part is available, such items can generally be
redesigned to accommodate materials or parts made by other
suppliers, although this may lead to delays in meeting customer
requirements. In some cases, we stock an adequate supply of the
single source materials or parts for use until a new supplier
can be approved.
In recent years, our revenues in the second half of our fiscal
year have generally exceeded revenues in the first half. The
timing of U.S. Government awards, availability of
U.S. Government funding, and product deliveries are among
the factors affecting the periods in which revenues are
recorded. Management expects this trend to continue in Fiscal
2012.
EMPLOYEES
As of March 31, 2011, we had 164 salaried and hourly
employees, and the United Auto Workers (UAW) represented
51 hourly employees at our facility. We reached a new
three-year collective bargaining agreement with the UAW in
November 2010 and consider our relations, with both our union
and non-union employees, to be generally satisfactory.
INTERNATIONAL
OPERATIONS AND SALES
We currently have no operations based outside of the United
States. We had export sales of $28,598, $27,912, and $32,688 in
Fiscal 2011, Fiscal 2010, and Fiscal 2009, respectively,
representing 37%, 40%, and 43% of our consolidated net sales in
each of those years. The risks and profitability of
international sales are generally comparable with similar
products sold by us in the United States. Net export sales by
geographic area and customer domicile are set forth in
Note 14 of our financial statements contained elsewhere in
this report.
5
COMPETITION
We compete in some markets with the hoist and winch business
unit of the Goodrich Corporation, which as a whole is a larger
corporation that has substantially greater financial and
technical resources than us. Generally, competitive factors
include design capabilities, product performance, delivery, and
price. Our ability to compete successfully in these markets
depends on our ability to develop and apply technological
innovations and to expand our customer base and product lines.
Technological innovation, development, and application requires
significant investment and capital expenditures. While we make
each investment with the intent of getting a good financial
return, in some cases we may not fully recover the full
investment through future sales of products or services.
RESEARCH
AND DEVELOPMENT
We conduct extensive research and development activities,
primarily for developing new or improved products, under
customer-sponsored contracts and with our own funding. Research
and development costs, which are charged to selling, general,
and administrative expense when incurred, amounted to $1,347,
$1,848, and $1,689 for the years ended March 31, 2011,
2010, and 2009, respectively. Customer-sponsored research and
development costs are charged to cost of sales when the
associated revenue is recognized and were $2,323, $3,016, and
$5,194 in Fiscal 2011, Fiscal 2010, and Fiscal 2009,
respectively.
INTELLECTUAL
PROPERTY
We have been the market leader since the initial development of
rescue hoists for use on helicopters and have continually
designed and manufactured rescue hoists since the 1940s.
Our intellectual property product knowledge enables us to
continually evolve mission-critical products to meet our
customers evolving needs. We generally retain the
intellectual property rights to products we develop which
typically lasts for the life of the product.
REGULATORY
MATTERS
Aircraft
Regulation
In the United States, our aircraft products are required to
comply with Federal Aviation Administration regulations
governing production and quality systems, airworthiness and
installation approvals, repair procedures and continuing
operational safety. Internationally, similar requirements exist
for airworthiness, installation and operational approvals. These
requirements are generally administered by the national aviation
authorities of each country and, in the case of Europe,
coordinated by the European Aviation Safety Agency (EASA).
Environmental
Matters
We maintain compliance with federal, state, and local laws and
regulations relating to materials used in production and to the
discharge of wastes, and other laws and regulations relating to
the protection of the environment. The costs of such compliance
at our Whippany, New Jersey facility are not material to our
operations.
We are subject to federal and state requirements for protection
of the environment, including those for the remediation of
contaminated sites relating to predecessor entities and
previously-owned subsidiaries. At various times, we have been
identified as a potentially responsible party pursuant to the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA), and analogous state
environmental laws, for the cleanup of contamination resulting
from past disposals of hazardous wastes at certain former
facilities and at sites to which we, among others, sent wastes
in the past. CERCLA requires potentially responsible persons to
pay for cleanup of sites from which there has been a release or
threatened release of hazardous substances. Courts have
interpreted CERCLA to impose strict joint and several
liabilities on all persons liable for cleanup costs. As a
practical matter, however, at sites where there are multiple
potentially responsible persons, the costs of cleanup typically
are allocated among the parties according to a volumetric or
other standard.
Where appropriate, we have sought contribution to remediation
costs from other potentially responsible parties and made claims
under available insurance policies. We also periodically assess
the amount of reserves held for environmental liabilities for
these sites based upon current information. While there is an
inherent uncertainty in assessing the potential total cost to
investigate and remediate a given site, we make a determination
as to the reasonable
6
cost of investigation and remediation of each site based upon
the information available to us at that time. Furthermore, the
remediation efforts for a particular site may take place over a
number of years and therefore a significant portion of the
expenses represented by these reserves may not be incurred for
some time. Factors that affect the actual liability for these
sites include changes in federal and state environmental laws
resulting in more stringent remediation requirements and actual
operating results from remediation efforts which vary from
estimated results.
Information concerning our specific environmental liabilities
and reserves is contained in Note 13 of our Notes to
Consolidated Financial Statements contained elsewhere in
this report.
ADDITIONAL
INFORMATION
We maintain a website at
http://www.breeze-eastern.com.
Our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports, which we file with the
Securities and Exchange Commission (SEC) are available on our
web site, free of charge, as soon as reasonably practicable
after they are electronically filed with or furnished to the
SEC. Information that can be accessed through our website is not
incorporated by reference in this Report and, accordingly,
readers should not consider such information to be part of this
Report. The reports noted above may also be obtained at the
SECs public reference room at 100 F Street, NE,
Washington, DC 20549. The SEC also maintains a web site at
www.sec.gov that contains reports, proxy statements, and
information regarding SEC registrants, including Breeze-Eastern.
An investment in our common stock involves
risk. You should carefully consider the following
risk factors in addition to other information in this Annual
Report on
Form 10-K
before purchasing our common stock. The risks and uncertainties
described below are those that we currently deem to be material
and that we believe are specific to our company and our
industry. In addition to these risks, our business may be
subject to risks currently unknown to us. If any of these or
other risks actually occurs, our business may be adversely
affected, the trading price of our common stock may decline and
you may lose all or part of your investment.
Risks
Associated with our Business and/or Industry
A
substantial amount of our revenue is derived from the U.S.
Government, Finmeccanica SpA, and United Technologies
Corporation; a termination or reduction in the volume of
business with any of these customers would have a material
adverse effect on our revenue and profits.
Approximately 28%, 21%, and 16% of our consolidated net sales in
Fiscal 2011 were to the U.S. Government (direct), United
Technologies Corporation and Finmeccanica SpA, respectively.
These sales are made principally for the benefit of the military
services of the U.S. Department of Defense and defense
organizations of other countries and are affected by, among
other things, budget authorization and appropriation processes.
In the event that defense expenditures are reduced for products
we manufacture or services we provide and are not offset by
revenues from additional foreign sales, new programs, or
products or services that we currently manufacture or provide,
we may experience a reduction in our revenues and earnings and a
material adverse effect on our business, financial condition,
and results of operations. Further, there can be no assurance
that our significant customers will continue to buy our products
and services at current or increased levels.
We
depend heavily on government contracts that may not be fully
funded or may be terminated, and the failure to receive funding
or the termination of one or more of these contracts could
reduce our sales and increase our costs.
Sales to the U.S. Government and its prime contractors and
subcontractors represent a significant portion of our business.
In Fiscal 2011, sales under U.S. Government contracts
represented approximately 59% of our total sales. Sales to
foreign governments represented approximately 10% of our total
sales. We expect that the percentage of our revenues from
government contracts will continue to be substantial in the
future. Government programs can be structured into a series of
individual contracts. The funding of these programs is generally
subject to annual congressional appropriations, and
congressional priorities are subject to change. In addition,
government expenditures for defense programs may decline or
these defense programs may be terminated. A decline in
government
7
expenditures or redirection of government funding may result in
a reduction in the volume of contracts awarded to us. We have
resources applied to specific government contracts and if any of
those contracts were terminated, we may incur substantial costs
redeploying those resources.
As a
U.S. Government contractor, we are subject to a number of
procurement rules and regulations and any non-compliance could
subject us to fines, penalties or debarment.
We must comply with and are affected by laws and regulations
relating to the award, administration, and performance of
U.S. Government contracts. Government contract laws and
regulations affect how we conduct business with our customers
and, in some instances, impose added costs on our business. A
violation of specific laws and regulations could result in fines
and penalties, contract termination, or debarment from bidding
on future contracts. These fines and penalties could be imposed
for failing to follow procurement integrity and bidding rules,
employing improper billing practices or otherwise failing to
follow cost accounting standards, receiving or paying kickbacks,
or filing false claims. We have been, and expect to continue to
be, subjected to audits and investigations by government
agencies. The failure to comply with the terms of government
contracts could harm our business reputation and could also
result in progress payments being withheld.
Our
business could be adversely affected by a negative audit by the
U.S. Government.
As a U.S. Government contractor, we are subject to routine
audits and investigations by U.S. Government agencies such
as the Defense Contract Audit Agency (DCAA). These agencies
review a contractors performance under its contracts, cost
structure, and compliance with applicable laws, regulations, and
standards. The DCAA also reviews the adequacy of a
contractors compliance with its internal control systems
and policies, including the contractors purchasing,
property, estimating, compensation, and management information
systems. Any costs found to be improperly allocated to a
specific contract will not be reimbursed or must be refunded if
already reimbursed. If an audit uncovers improper or illegal
activities, we may be subject to civil and criminal penalties as
well as administrative sanctions, which may include termination
of contracts, forfeiture of profits, suspension of payments,
fines, and suspension or prohibition from doing business with
the U.S. Government. In addition, we could suffer serious
reputational harm if allegations of impropriety were made
against us.
The U.
S. Government has the right to terminate or not renew any
contract with us at any time and without notice. Any such action
would have a material adverse effect on our results of
operations.
In some instances, laws and regulations impose terms or rights
that are more favorable to the government than those typically
available to commercial parties in negotiated transactions. For
example, the U.S. Government may terminate any government
contract and, in general, subcontracts, at its convenience as
well as for default based on performance. Upon termination for
convenience of a fixed-price type contract, we normally are
entitled to receive the purchase price for delivered items,
reimbursement for allowable costs for
work-in-process,
and an allowance for profit on the contract or adjustment for
loss if contract completion would have resulted in a loss. Upon
termination for convenience of a cost-reimbursement contract, we
normally are entitled to reimbursement of allowable costs plus a
portion of the fee. Such allowable costs would normally include
the cost to terminate agreements with our suppliers and
subcontractors. The amount of the fee recovered, if any, is
related to the portion of the work accomplished prior to
termination and is determined by negotiation.
A termination arising from default could expose us to liability
and have a material adverse effect on our ability to compete for
future contracts and orders. In addition, on those contracts for
which we are teamed with others and are not the prime
contractor, the U.S. Government could terminate a prime
contract under which we are a subcontractor, irrespective of the
quality of our services as a subcontractor.
In addition, our U.S. Government contracts typically span
one or more base years and multiple option years. The
U.S. Government generally has the right to not exercise
option periods and may not exercise an option period if the
U.S. Government is not satisfied with our performance on
the contract.
8
The
aircraft manufacturing industry is heavily regulated, and if we
fail to comply with applicable requirements, our results of
operations could suffer.
Governmental agencies throughout the world, including the
U.S. Federal Aviation Administration, or the FAA, prescribe
standards and qualification requirements for aircraft
components, including virtually all aviation products. Specific
regulations vary from country to country, although compliance
with FAA requirements generally satisfies regulatory
requirements in other countries. We include, with some of the
products we sell to our aircraft manufacturing customers,
documentation certifying that each part complies with applicable
regulatory requirements and meets applicable standards of
airworthiness established by the FAA or the equivalent
regulatory agencies in other countries. In order to sell our
products, we and the products we manufacture must also be
certified by our individual OEM customers. If any of the
material authorizations or approvals qualifying us to supply our
products is revoked or suspended, then the sale of the subject
product would be prohibited by law, which would have an adverse
effect on our business, financial condition, and results of
operations.
From time to time, the FAA or equivalent regulatory agencies in
other countries propose new regulations or changes to existing
regulations, which are usually more stringent than existing
regulations. If these proposed regulations are adopted and
enacted, we may incur significant additional costs to achieve
compliance, which could have a material adverse effect on our
business, financial condition, and results of operations.
Cancellations,
reductions, or delays in customer orders may adversely affect
our results of operations.
Our overall operating results are affected by many factors,
including the timing of orders from large customers and the
timing of expenditures to manufacture parts and purchase
inventory in anticipation of future sales of products and
services. A large portion of our operating expenses are
relatively fixed. Cancellations, reductions, or delays in
customer orders could have a material adverse effect on our
business, financial condition, and results of operations.
Our
backlog is subject to reduction and cancellation at any time
without notice, which could negatively impact our future
revenues and results of operations.
Backlog represents products or services that our customers have
committed by contract to purchase from us. Backlog as of
March 31, 2011 was $131,151. Backlog is subject to
fluctuations and is not necessarily indicative of future sales.
The U.S. Government may unilaterally modify or cancel its
contracts with us. In addition, under certain of our commercial
contracts, our customers may unilaterally modify or terminate
their orders at any time for their convenience. Accordingly,
certain portions of our backlog can be cancelled or reduced at
the option of the U.S. Government and commercial customers.
Our failure to replace cancelled or reduced backlog could
negatively impact our revenues and results of operations.
We are
subject to competition from entities which could have a
substantial impact on our business.
We compete in some markets with entities that are larger and
have substantially greater financial and technical resources
than us. Generally, competitive factors include design
capabilities, product performance, delivery, and price. Our
ability to compete successfully in such markets will depend on
our ability to develop and apply technological innovations and
to expand our customer base and product lines. In addition, the
development and application of technological innovations may
mandate an expenditure of significant capital which may not be
recovered through future sales of products or services. There
can be no assurance that we will continue to successfully
compete in any or all of the businesses discussed above. Our
failure to compete successfully or to invest in technology where
there is no recovery through product sales could have a
materially adverse effect on our profitability.
Our
potential tax benefits from net operating loss carry forwards
are subject to a number of risks.
We have federal and state net operating loss carry forwards
(NOLs) of approximately $15,335 and $4,462,
respectively. Our NOLs may be used to offset future taxable
income through their respective expiration dates and thereby
reduce or eliminate our federal and state income taxes otherwise
payable. If we do not generate adequate taxable earnings, some
or all of our net operating loss carry forwards may not be
realized. Additionally, changes to the federal and state income
tax laws also could impact its ability to use the NOLs. In such
cases, we may need to
9
revise the valuation allowance established related to deferred
tax assets for state purposes. The risks to realizing the tax
benefit from NOLs are discussed in additional detail in
Note 5 of our financial statement contained elsewhere in
this report.
We are
subject to liability under environmental laws.
Our business and facilities are subject to numerous federal,
state, and local laws and regulations relating to the use,
manufacture, storage, handling, and disposal of hazardous
materials and other waste products. Environmental laws generally
impose liability for investigation, remediation, and removal of
hazardous materials and other waste products on property owners
and those who dispose of materials at waste sites whether or not
the waste was disposed of legally at the time in question. We
are currently addressing environmental remediation at certain
former facilities, and we have been named as a potentially
responsible party along with other organizations in a number of
environmental
clean-up
sites and may be named in connection with future sites. We are
required to contribute to the costs of the investigation and
remediation and have taken reserves in our financial statements
for future costs deemed probable and estimable for these costs.
Although we have estimated and reserved for future environmental
investigation and remediation costs, the final resolution of
these liabilities may significantly vary from our estimates and
could potentially have an adverse effect on our results of
operations and financial position. Our contingencies associated
with environmental matters are described in Note 13 of
Notes to Consolidated Financial Statements which is
included elsewhere in this Report.
Our
sales to foreign countries expose us to risks and adverse
changes in local legal, tax, and regulatory
schemes.
In Fiscal 2011, 37% of our consolidated sales were to customers
outside the United States. We expect international export sales
to continue to contribute to our earnings for the foreseeable
future. The export sales are subject in varying degrees to risks
inherent in doing business outside the United States. Such risks
include, without limitation:
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|
|
|
|
The possibility of unfavorable circumstances arising from host
country laws or regulations;
|
|
|
|
Potential negative consequences from changes to significant
taxation policies, laws, or regulations;
|
|
|
|
Changes in tariff and trade barriers and import or export
licensing requirements; and
|
|
|
|
Political or economic instability, insurrection, civil
disturbance, or war.
|
Government
regulations could limit our ability to sell our products outside
the United States and otherwise adversely affect our
business.
In Fiscal 2011, approximately 20% of our sales were subject to
compliance with the United States Export Administration
regulations. Our failure to obtain the requisite licenses, meet
registration standards or comply with other government export
regulations would hinder our ability to generate revenues from
the sale of our products outside the United States. Compliance
with these government regulations may also subject us to
additional fees and operating costs. The absence of comparable
restrictions on competitors in other countries may adversely
affect our competitive position. In order to sell our products
in European Union countries, we must satisfy certain technical
requirements. If we are unable to comply with those requirements
with respect to a significant quantity of our products, our
sales in Europe would be restricted. Doing business
internationally also subjects us to numerous U.S. and
foreign laws and regulations, including, without limitation,
regulations relating to import-export control, technology
transfer restrictions, foreign corrupt practices and
anti-boycott provisions. Failure by us or our sales
representatives or consultants to comply with these laws and
regulations could result in administrative, civil or criminal
liabilities and could, in the extreme case, result in suspension
or debarment from government contracts or suspension of our
export privileges, which would have a material adverse effect on
us.
While
we believe our control systems are effective, there are inherent
limitations in all control systems, and misstatements due to
error or fraud may occur and not be detected.
We continue to take action to assure compliance with the
internal controls, disclosure controls, and other requirements
of the Sarbanes-Oxley Act of 2002. Our management, including our
Chief Executive Officer and Chief
10
Financial Officer, cannot guarantee that our internal controls
and disclosure controls will prevent all possible errors or all
fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. In addition,
the design of a control system must reflect the fact that there
are resource constraints, and the benefit of controls must be
relative to their costs. Because of the inherent limitations in
all control systems, no system of controls can provide absolute
assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent
limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Further, controls can be
circumvented by individual acts of some persons, by collusion of
two or more persons, or by management override of the controls.
The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions. Over time, a control may become inadequate because
of changes in conditions or the degree of compliance with
policies or procedures may deteriorate. Because of inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and may not be detected.
The
terms of our credit agreement may restrict our current and
future operating and financial flexibility.
The credit agreement that is in effect with respect to our debt
includes covenants that, among other things, restrict our
ability to:
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|
engage in mergers, consolidations and asset dispositions
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|
redeem or repurchase stock;
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create, incur, assume or guarantee additional indebtedness;
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|
create, incur, assume or permit any liens on any asset;
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make loans and investments;
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engage in transactions with affiliates;
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enter into sale and leaseback transactions;
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issue additional shares of our capital stock;
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change our organizational documents; and
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change the nature of our business.
|
Our credit agreement also contains covenants that require us to:
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|
|
maintain a leverage ratio of consolidated total debt to
consolidated EBITDA not to exceed 2.50:1.00; and
|
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|
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maintain a fixed charge coverage ratio of at least 1.25:1.00.
|
We may be unable to comply with the covenants under our credit
agreement in the future. A failure to comply with the covenants
under our credit agreement could result in an event of default.
In the event of a default our lender could elect to declare all
borrowings, accrued and unpaid interest and other fees
outstanding, due and payable, and require us to apply all of our
available cash to repay these borrowings.
We are
subject to financing and interest rate exposure risks that could
adversely affect our business and operating
results.
Changes in the availability, terms and cost of capital,
increases in interest rates or a reduction in credit rating
could cause the cost of doing business to increase, limit the
ability to fund the development of products, and place us at a
competitive disadvantage. The current contraction in credit
markets could impact our ability to finance our operations.
11
Our
operations are conducted at a single location.
The risk that substantial impairment of our facility as a
consequence of a natural disaster or other event could have a
material adverse effect on operations.
We
depend on component availability, subcontractor performance, and
key suppliers to manufacture and deliver our products and
services.
We are dependent upon the delivery of component parts by
suppliers and, to some extent, the assembly of components and
subsystems used by us in manufacturing our products in a timely
and satisfactory manner and to remain in full compliance with
applicable terms and conditions. We are generally subject to
specific procurement requirements, which may, in effect, limit
the suppliers and subcontractors we may utilize. In some
instances, we are dependent on sole-source suppliers. If any of
these suppliers or subcontractors fails to meet our needs, the
development of alternatives could cause delays in meeting the
customer requirements. While we may enter into long-term or
volume purchase agreements with certain suppliers and take other
actions to ensure the availability of needed materials,
components and subsystems, we cannot be sure that such items
will be available in the quantities we require, if at all. If we
experience a material supplier or subcontractor problem, the
ability to satisfactorily and timely meet customer obligations
could be negatively impacted, which could result in reduced
sales, termination of contracts, and damage to our reputation
and customer relationships. We could also incur additional costs
in addressing such a problem. Any of these events could have a
negative impact on our results of operations and financial
condition.
Our
operating results and financial condition may be adversely
impacted by the current worldwide economic
conditions.
We currently generate operating cash flows, which combined with
access to the credit markets, provides discretionary funding
capacity. However, current uncertainty in the global economic
conditions resulting from the recent disruption in credit
markets poses a risk to the overall economy that could impact
consumer and customer demand for our products, as well as our
ability to manage normal commercial relationships with our
customers, suppliers, and creditors. If the current economic
situation deteriorates significantly, our business could be
negatively impacted, including such areas as reduced demand for
our products from a slow-down in the general economy, or
supplier or customer disruptions resulting from tighter credit
markets.
Our
future growth and continued success is dependent upon retaining
key employees.
Our success is dependent upon the efforts of our senior
management personnel and our ability to attract and retain other
highly qualified management personnel. We face competition for
management from other companies and organizations, and therefore
may not be able to retain our existing management personnel or
fill new management positions or vacancies created by expansion
or turnover at existing compensation levels. We have entered
into change of control agreements with some members of senior
management and have made efforts to reduce the effect of the
loss of senior management personnel through management
succession planning. The loss of senior managers could have a
material and adverse effect on our business. In addition,
competition for qualified technical personnel in our industry is
intense, and management believes that our future growth and
success will depend upon the ability to attract, train, and
retain such personnel.
Our
profitability could be negatively affected if we fail to
maintain satisfactory labor relations.
Approximately 30% of our workforce is employed under a
collective bargaining agreement with the United Auto Workers
(UAW), which from time to time is subject to renewal and
negotiation. Although we have historically enjoyed satisfactory
relations with both our unionized and non-unionized employees,
if we are subject to labor actions, we may experience an adverse
impact on our operating results.
Our
failure to adequately protect our intellectual property could
have an adverse effect on our business.
Intellectual property is important to our success. We rely upon
confidentiality procedures and contractual provisions to protect
our business and proprietary technology. Our general policy is
to enter into confidentiality agreements with our employees and
consultants, and nondisclosure agreements with all other parties
to whom we
12
disclose confidential information. We may apply for legal
protection for certain of our other intellectual property in the
future. These patents, trademarks and any additional legal
protection we may obtain in the future may be challenged by
others or invalidated through administrative process or
litigation. As a result, our means of protecting our proprietary
technology and brands may be inadequate. Furthermore, despite
our efforts, we may be unable to prevent third parties from
infringing upon or misappropriating our intellectual property.
Any such infringement or misappropriation could have a material
adverse effect on our business, financial condition and results
of operations.
We use
estimates when competing for contracts. Variances between actual
and estimates could affect our profitability and overall
financial position.
The competitive bidding process requires judgment relative to
assessing risks, estimating contract revenues and costs, and
making assumptions for schedule and technical issues. Due to the
size and nature of many of our contracts, the estimation of
total revenues and costs at completion is complicated and
subject to many variables. For example, assumptions have to be
made regarding the length of time to complete the contract
because costs also include expected increases in wages and
prices for materials. Similarly, assumptions have to be made
regarding the future impact of efficiency initiatives and cost
reduction efforts. Incentives, awards, price escalations, or
penalties related to performance on contracts are considered in
estimating revenue and profit rates and are recorded when there
is sufficient information to assess anticipated performance.
Because of the significance of the judgments and estimation
processes described above, it is possible that materially
different amounts could be obtained if different assumptions
were used or if the underlying circumstances were to change.
Changes in underlying assumptions, circumstances, or estimates
may have a material adverse effect upon future period financial
reporting and performance.
Risks
Related to our Common Stock
Our
common stock is thinly traded and subject to
volatility.
Although our common stock is traded on the NYSE Amex (formerly
American Stock Exchange), it may remain relatively illiquid, or
thinly traded, which can increase volatility in the
share price and make it difficult for investors to buy or sell
shares in the public market without materially affecting the
quoted share price. Further, investors seeking to buy or sell a
certain quantity of our shares in the public market may be
unable to do so within one or more trading days. If limited
trading in our stock continues, it may be difficult for holders
to sell their shares in the public market at any given time at
prevailing prices.
The prevailing market price of our common stock may fluctuate
significantly in response to a number of factors, some of which
are beyond our control, including the following:
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|
|
Actual or anticipated fluctuations in operating results;
|
|
|
|
Changes in market valuations of other similarly situated
companies;
|
|
|
|
Announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships,
joint ventures, or capital commitments;
|
|
|
|
Additions or departures of key personnel;
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|
|
|
Future sales of common stock;
|
|
|
|
Any deviations in net revenues or in losses from levels expected
by the investment community;
|
|
|
|
Trading volume fluctuations; and
|
|
|
|
Business pressures on any of our large shareholders resulting
from their holdings in other unrelated businesses.
|
Our
share ownership is highly concentrated.
Our directors, officers, and principal stockholders, and certain
of their affiliates, beneficially own approximately 64% of our
common stock and will continue to have significant influence
over the outcome of all matters submitted to the stockholders
for approval, including the election of our directors.
13
We do
not anticipate paying dividends in the foreseeable
future.
Any payment of cash dividends in the future will depend upon our
earnings (if any), financial condition and capital requirements.
We do not have any plans at this time to pay dividends in the
foreseeable future. Accordingly, any potential investor who
anticipates the need for current dividends from its investment
should not purchase any of our securities.
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|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
The following table sets forth certain information concerning
our sole operating principal facility as of March 31, 2011:
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Owned or
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Location
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Use of Premises
|
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Leased
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|
Sq. Ft
|
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Whippany, New Jersey
|
|
Executive offices and manufacturing plant
|
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Leased
|
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|
115,335
|
|
In February, 2008, we sold our headquarters and manufacturing
facility located in Union, New Jersey. The sale agreement and
amended lease agreement permitted us to lease the facility
through May 1, 2010, pending our relocation to a new site.
In May, 2009, we executed a
10-year
lease, at market terms, for a facility in Whippany, New Jersey,
which is better suited to our current and expected future needs.
We completed our relocation to the Whippany site in the first
quarter of Fiscal 2011 and no longer maintain a facility in
Union, New Jersey.
Our current business has only been conducted at our previous
Union, New Jersey and current Whippany, New Jersey facilities.
The properties in Pennsylvania, New York, and New Jersey were
operated by one or more of our predecessor affiliates or parent
company, TransTechnology Corporation. Our contingencies
associated with environmental liabilities are discussed in
Note 13 of Notes to Consolidated Financial
Statements contained elsewhere in this report.
We also own properties in Saltzberg, Pennsylvania and Irvington,
New Jersey that are carried on the books at zero value and are
not used in operations.
We also own a property in Glen Head, New York which is not used
in our operations and is subject to a sale agreement at a price
of $4,000. This property is carried on our books as an asset
held for sale for $3,800 which includes estimated disposal
costs. Closing on the property is subject to the buyer receiving
development approvals and us completing environmental
obligations and reviews. The buyer has indicated to us its
intent to build residential housing on the property and has been
engaged in the lengthy process of securing the municipal
approvals necessary to redevelop this industrial site for
residential purposes.
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ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are engaged in various other legal proceedings incidental to
our business. Our management believes that these matters will
have no material effect on the Companys consolidated
financial position or the results of operations or cash flows in
future periods.
We are subject to federal and state requirements for protection
of the environment, including those for discharge of hazardous
materials and remediation of contaminated sites. As a result, we
are a party to or have our former property subject to various
lawsuits or proceedings involving environmental protection
matters. Due in part to their complexity and pervasiveness, such
requirements have resulted in us being involved with related
legal proceedings, claims, and remediation obligations. The
extent of our financial exposure cannot in all cases be
reasonably estimated at this time. For information regarding
these matters, including current estimates of the amounts that
we believe are required for remediation or
clean-up to
the extent estimable, see Note 13 of our financial
statements contained elsewhere in this report.
|
|
ITEM 4.
|
(REMOVED
AND RESERVED)
|
14
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Our common stock, par value $0.01, is listed for trading on the
NYSE Amex (formerly American Stock Exchange) under the trading
symbol BZC. The following table sets forth the range of high and
low sale prices of our common stock for the periods indicated.
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High
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Low
|
|
|
Fiscal 2010
|
|
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|
|
|
First Quarter
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|
$
|
8.26
|
|
|
$
|
6.12
|
|
Second Quarter
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|
|
7.00
|
|
|
|
5.83
|
|
Third Quarter
|
|
|
6.76
|
|
|
|
5.60
|
|
Fourth Quarter
|
|
|
7.10
|
|
|
|
5.75
|
|
Fiscal 2011
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
6.88
|
|
|
$
|
5.82
|
|
Second Quarter
|
|
|
7.20
|
|
|
|
5.76
|
|
Third Quarter
|
|
|
7.25
|
|
|
|
6.58
|
|
Fourth Quarter
|
|
|
9.29
|
|
|
|
6.96
|
|
Holders
As of May 2, 2011, the number of stockholders of record of
the Companys common stock was 1,339. On May 2, 2011,
the closing sales price of a share of common stock was $8.45 per
share.
Dividends
We have not paid any cash dividends on our common stock since
Fiscal 2001. We currently intend to retain earnings, if any, to
fund our operations and reduce debt. The payment of future cash
dividends, if any, will be reviewed periodically by our Board of
Directors and will depend upon the results of operations,
financial condition, contractual and legal restrictions and
other factors the board of directors deem relevant.
15
Stock
Performance Graph
The following Performance Graph and related information shall
not be deemed soliciting material or to be
filed with the Securities and Exchange Commission,
nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that
the Company specifically incorporates such information by
reference into such filing.
This stock performance graph compares the Companys total
cumulative stockholder return on its common stock during the
period from April 1, 2006 through March 31, 2011, with
the cumulative return on a Peer Issuer Group Index. The peer
group consists of the companies identified below, which were
selected on the basis of the similar nature of their business.
The graph assumes that $100 was invested on April 1, 2006.
Comparison
of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
March 2011
Companies in our Peer Group include Curtiss-Wright Corp.,
Ducommun Inc., HEICO Corp., Ladish Co. Inc., Moog Inc., SIFCO
Industries Inc., and Triumph Group, Inc.
16
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ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following table sets forth selected financial data for each
of the five years in the period ended March 31, 2011
(amounts in thousands, except per share amounts). This financial
data should be read together with our consolidated financial
statements and related notes, Managements Discussion and
Analysis of Financial Condition and Results of Operations, and
other financial data appearing elsewhere in this report.
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|
|
|
|
|
|
|
|
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|
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Years Ended March 31,
|
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|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ In thousands except share amounts)
|
|
|
Results from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
78,200
|
|
|
$
|
69,027
|
|
|
$
|
75,427
|
|
|
$
|
75,974
|
|
|
$
|
73,339
|
|
Gross profit
|
|
|
30,952
|
|
|
|
20,651
|
|
|
|
30,090
|
|
|
|
32,517
|
|
|
|
32,486
|
|
Operating income (loss)
|
|
|
9,457
|
|
|
|
(6,723
|
)
|
|
|
11,353
|
|
|
|
13,027
|
|
|
|
12,712
|
|
Interest expense
|
|
|
694
|
|
|
|
891
|
|
|
|
1,462
|
|
|
|
3,395
|
|
|
|
4,347
|
|
Loss on debt extinguishment
|
|
|
|
|
|
|
|
|
|
|
551
|
|
|
|
|
|
|
|
1,331
|
|
Gain on sale of facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,811
|
|
|
|
|
|
Net income (loss)
|
|
|
5,026
|
|
|
|
(6,043
|
)
|
|
|
5,760
|
|
|
|
9,442
|
|
|
|
3,961
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.53
|
|
|
$
|
(0.64
|
)
|
|
$
|
0.62
|
|
|
$
|
1.01
|
|
|
$
|
0.43
|
|
Diluted
|
|
|
0.53
|
|
|
|
(0.64
|
)
|
|
|
0.61
|
|
|
|
1.00
|
|
|
|
0.42
|
|
Shares outstanding at year-end
|
|
|
9,429
|
|
|
|
9,397
|
|
|
|
9,365
|
|
|
|
9,339
|
|
|
|
9,275
|
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
78,148
|
|
|
$
|
76,108
|
|
|
$
|
76,705
|
|
|
$
|
76,190
|
|
|
$
|
80,471
|
|
Working capital
|
|
|
32,376
|
|
|
|
25,188
|
|
|
|
32,322
|
|
|
|
28,544
|
|
|
|
23,140
|
|
Long-term debt
|
|
|
11,500
|
|
|
|
14,786
|
|
|
|
18,071
|
|
|
|
19,849
|
|
|
|
32,750
|
|
Stockholders equity
|
|
|
33,433
|
|
|
|
27,820
|
|
|
|
33,327
|
|
|
|
26,892
|
|
|
|
16,899
|
|
Book value per share at year end
|
|
|
3.55
|
|
|
|
2.96
|
|
|
|
3.56
|
|
|
|
2.88
|
|
|
|
1.82
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio
|
|
|
3.11
|
|
|
|
2.72
|
|
|
|
2.84
|
|
|
|
2.48
|
|
|
|
2.06
|
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This Managements Discussion and Analysis of
Financial Condition And Results of Operation and other parts of
this Annual Report on
Form 10-K
contain forward-looking statements that involve risks and
uncertainties. All forward-looking statements included in this
Annual Report on
Form 10-K
are based on information available to us on the date hereof, and
except as required by law, we assume no obligation to update any
such forward-looking statements. Our actual results may differ
materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those
set forth under the caption Risk Factors beginning
on page 6 of this report and elsewhere herein. The
following should be read in conjunction with our annual
financial statements, including the notes thereto, contained
elsewhere in this report. All references to years in this
Managements Discussion and Analysis of Financial Condition
and Results of Operations refer to the fiscal year ended March
31 of the indicated year unless otherwise specified.
OVERVIEW
We design, develop, manufacture, sell, and service sophisticated
engineered mission equipment for specialty aerospace and defense
applications. With over 50% of the global market, we have long
been recognized as the worlds leading designer,
manufacturer, service provider, and supplier of mission-critical
rescue hoists and cargo hook systems. We also manufacture
weapons-handling systems, cargo winches, and tie-down equipment.
Our products are designed to be efficient and reliable in
extreme operating conditions and are used to complete rescue
17
operations and military insertion/extraction operations, move
and transport cargo, and load weapons onto aircraft and
ground-based launching systems.
Our primary strategy is to continue to expand our position as a
market leader in the design, development, and service of
sophisticated mission equipment for specialty aerospace and
defense applications. We intend to maintain our position by
continuing to focus on our principal customers and on geographic
areas where we have developed our reputation as a premier
provider of aircraft hoist and lift equipment, and by expanding
both our customer base and product lines. We believe that
continued spending on research and development to improve the
quality of our product offerings and remaining on the leading
edge of technological advances in our chosen markets is also
crucial to our business. In this regard, we will continue to
commit resources to product research and development. During
Fiscal 2010, we completed the move to our new manufacturing and
assembly facility in Whippany, New Jersey. Our new facility
consolidates all operations in one location, houses state of the
art assembly and manufacturing equipment, and has been designed
to provide greater efficiencies in the procurement, assembly and
distribution of finished products throughout the United States
and Europe.
Our business is affected by global economic and geo-political
conditions, particularly defense spending by the United States
Government. In particular, any decline in or a redirection of
the United States defense budget could have a material impact on
revenues and earnings in future periods. Although the United
States Defense spending levels are historically high, the
priority of the wars in Iraq and Afghanistan has resulted in
less procurement for replacement parts and service for our
products than in prior years.
As our OEM customers development timetables have been
extended, we have experienced corresponding product development
schedule slippage and increased investment. We have not seen,
nor do we currently anticipate, any program cancellations and
still expect all of our current product development projects to
lead to production and aftermarket services which support our
current and expected investments. As an example, the Airbus
A400M military transport aircraft is not expected to generate
material revenues until after Fiscal 2012.
CRITICAL
ACCOUNTING POLICIES
The preparation of our consolidated financial statements is in
conformity with accounting principles generally accepted in the
United States of America and requires us to make estimates,
judgments, and assumptions. We believe that the estimates,
judgments, and assumptions upon which we rely are reasonable
based upon information available at the time that these
estimates, judgments, and assumptions are made. These estimates,
judgments, and assumptions can affect the reported amounts of
assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the periods presented. To the extent that there
are material differences between these estimates, judgments, or
assumptions and actual results, our financial statements will be
affected. We believe the following critical accounting policies
are affected by significant estimates, assumptions, and
judgments used in the preparation of our consolidated financial
statements.
Inventory. We purchase parts and
materials to assemble and manufacture components for use in our
products and for use by our engineering and repair and overhaul
departments. The decision to purchase a set quantity of a
particular material is influenced by several factors including
current and projected cost, future estimated availability,
production lead time, existing and projected contracts to
produce certain items, and the estimated needs for our overhaul
and repair business.
We value inventories using the lower of cost or market on a
first-in,
first-out (FIFO) basis. We reduce the carrying amount of these
inventories to net realizable value based on our assessment of
inventory that is considered excess or obsolete based on the
backlog of sales orders and historical usage. Since all of our
products are produced to meet specific customer requirements,
the reserve focus is on purchased and manufactured parts.
Inventories are discussed further in Notes 1 and 2 of
Notes to Consolidated Financial Statements contained
elsewhere in this report.
Revenue Recognition. Revenue related to
equipment sales is recognized when title and risk of loss have
been transferred, collectability is reasonably assured, and
pricing is fixed or determinable. Revenue related to repair and
overhaul sales is recognized when the related repairs or
overhaul are complete and the unit is shipped to the
18
customer. Revenue related to contracts in which we are
reimbursed for costs incurred plus an agreed upon profit are
recorded as costs are incurred.
Environmental Reserves. We provide for
a best estimate of environmental liability reserves when, after
consultation with internal and external counsel and other
environmental consultants, we determine that a liability is both
probable and estimable. In many cases, we do not fix or cap the
liability for a particular site when first recorded. Factors
that affect the recorded amount of the liability in future years
include our participation percentage due to a settlement by, or
bankruptcy of, other potentially responsible parties, a change
in the environmental laws resulting in more stringent
requirements, a change in the estimate of future costs that will
be incurred to remediate the site, and changes in technology
related to environmental remediation. Current estimated
exposures related to environmental claims are discussed further
in Note 13 of our Notes to Consolidated Financial
Statements contained elsewhere in this report.
Deferred Tax Asset. See Note 5 of
Notes to Consolidated Financial Statements contained
elsewhere in this report.
Stock-Based Compensation. See
Note 9 of Notes to Consolidated Financial
Statements contained elsewhere in this report.
RESULTS
OF OPERATIONS
Fiscal
2011 Compared with Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Increase/
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
(Decrease)
|
|
|
|
2011
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
Products
|
|
$
|
58,086
|
|
|
$
|
49,619
|
|
|
$
|
8,467
|
|
|
|
17.1
|
%
|
Services
|
|
|
20,114
|
|
|
|
19,408
|
|
|
|
706
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
78,200
|
|
|
|
69,027
|
|
|
|
9,173
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
33,434
|
|
|
|
33,740
|
|
|
|
(306
|
)
|
|
|
(0.9
|
)
|
Services
|
|
|
13,814
|
|
|
|
14,636
|
|
|
|
(822
|
)
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
47,248
|
|
|
|
48,376
|
|
|
|
(1,128
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
30,952
|
|
|
|
20,651
|
|
|
|
10,301
|
|
|
|
49.9
|
|
As a % of net sales
|
|
|
39.6
|
%
|
|
|
29.9
|
%
|
|
|
N/A
|
|
|
|
9.7
|
%Pt.
|
Selling, general, and administrative expenses
|
|
|
14,361
|
|
|
|
20,554
|
|
|
|
(6,193
|
)
|
|
|
(30.1
|
)
|
Engineering expense
|
|
|
6,923
|
|
|
|
6,003
|
|
|
|
920
|
|
|
|
15.3
|
|
Relocation expense
|
|
|
211
|
|
|
|
817
|
|
|
|
(606
|
)
|
|
|
(74.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
9,457
|
|
|
|
(6,723
|
)
|
|
|
16,180
|
|
|
|
240.7
|
|
Interest expense
|
|
|
694
|
|
|
|
891
|
|
|
|
(197
|
)
|
|
|
(22.1
|
)
|
Net income (loss)
|
|
$
|
5,026
|
|
|
$
|
(6,043
|
)
|
|
$
|
11,069
|
|
|
|
183.2
|
%
|
Net Sales. Net sales of $78,200 in
Fiscal 2011 grew by $9,173, or 13.3%, from net sales of $69,027
in Fiscal 2010. Fiscal 2011 product sales of $58,086 were
$8,467, or 17.1%, above the prior year primarily due to
increased spare parts sales of $8,514 resulting primarily from
higher demand by the U.S. military and from increased sales
to a Canadian third-party overhaul and repair center. New
equipment volume was approximately equal to the prior year.
Fiscal 2011 services sales of $20,114 were $706, or 3.6%, above
the prior year primarily due to overhaul and repair services
increasing by $959, partly offset by lower engineering services.
The timing of U.S. Government awards, availability of
U.S. Government funding, and product delivery schedules are
among the factors that affect the period of recording revenues.
Fiscal 2010 was consistent with recent years with revenues in
the second half of the fiscal year exceeding revenues in the
first half of the fiscal year.
Cost of Sales. Cost of sales for
products of $33,434 was 0.9% lower than the prior year primarily
due to the prior-year increase in estimated inventory
obsolescence reserves of $3,311, partly offset by increased
volume in
19
Fiscal 2011. Cost of services provided of $13,814 was 5.6% lower
than the prior year because the prior-year amount included $784
to accrue for estimated losses on engineering contracts, partly
offset by increased volume in Fiscal 2011.
Our factory relocation in March 2010 resulted in a manufacturing
ramp-up
period early in the Fiscal 2011 first quarter. This resulted in
under-absorbed manufacturing overhead, which for the full year
was $1,039, with approximately 40% in products and 60% in
services.
Gross profit. Gross profit of $30,952
in Fiscal 2011 was 49.9% above $20,651 in Fiscal 2010. As a
percent of sales, gross profit was 39.6% for Fiscal 2011
compared with 29.9% for Fiscal 2010. The dollar increase is due
to higher sales volume as well as to $5,634 of cost adjustments
incurred in the prior year. The increase as a percent of sales
is due to a favorable mix of greater spare parts sales and to
the prior-year cost adjustments.
The prior-year cost adjustments consisted of $3,311 (non-cash)
for a change in estimate of the inventory obsolescence reserve,
$1,539 of under-absorbed manufacturing overhead related to the
relocation, and $784 (non-cash) to accrue for estimated losses
on engineering contracts. Excluding these adjustments, gross
profit as a percent of sales would have been 38.1% in Fiscal
2010.
In Fiscal 2011, the under-absorbed manufacturing overhead of
$1,039, related primarily to carryover effects of the
relocation, reduced gross profit as a percent of sales by 1.3%
points. Gross profit as a percent of sales in Fiscal 2011 would
have been 40.9% excluding under-absorbed manufacturing overhead.
Operating Expenses. Total operating
expenses were $21,495, or 27.5% of sales, in Fiscal 2011
compared with $27,374, or 39.7% of sales, in the prior year. The
decrease is primarily due to a non-cash charge for estimated
environmental liability reserves of $8,135 in Fiscal 2010,
partly offset by increases in selling, general, and
administrative (SG&A) expenses and engineering costs as
well as lower relocation costs. Excluding the environmental
charge in Fiscal 2010, operating expenses in Fiscal 2010 would
have been $19,239, or 27.9% of sales.
SG&A expenses were $14,361 in Fiscal 2011 versus $20,554 in
Fiscal 2010. Fiscal 2010 SG&A would have been $12,418
excluding the environmental charge, and the comparable increase
in Fiscal 2011 is due to higher incentive compensation accruals
based on the plan formula, outside consulting costs, and
amortization related to the relocation.
Engineering expenses were $6,923 in Fiscal 2011 compared with
$6,004 in Fiscal 2010. The increase is primarily due to product
development for the Airbus A400M and was reduced by $734 in
expense reimbursement from Airbus.
We relocated our headquarters and factory during the Fiscal 2010
fourth quarter and incurred $211 of expenses related to the move
in Fiscal 2011, compared with $817 in Fiscal 2010.
Interest Expense. Interest expense was
$694 in Fiscal 2011, versus $891 in Fiscal 2010. The decline in
interest expense is due to $6,572 lower total debt.
Net Income/(Loss). Net income in Fiscal
2011 was $5,026, or $0.53 per diluted share, an increase of
$11,069 versus a net loss of $6,043, or ($0.64) per diluted
share, in Fiscal 2010. In Fiscal 2010, excluding the adjustments
in gross profit of $5,634 and in SG&A of $8,135 discussed
above, net income would have been $2,324, or $0.25 per diluted
share, and the increase in Fiscal 2011 would have been $2,702,
or $0.28 per diluted share.
The net income increase to $5,026 in Fiscal 2011, compared with
the adjusted $2,324 in Fiscal 2010 is due to the increased sales
volume and favorable product mix which improved gross profit and
lower interest expenses, partly offset by higher operating
expenses.
New Orders. New product and services
orders received during Fiscal 2011 totaled $79,207, an increase
of $11,024 over $68,183 during Fiscal 2010. Most of this
increase was due to spare parts with increases also coming from
overhaul and repair and engineering. Orders for new equipment
decreased by $560. Significant orders in Fiscal 2011 included
$9,500 U.S. Military hoists and winches; $3,764 to upgrade
the reactive overload clutch for the U.S. Coast Guard,
$3,500 cargo hooks for Boeings Chinook helicopter, $2,280
for Lockheed Martins HIMARS or High Mobility Artillery
Rocket System and $1,940 for Alenias C-27J fixed wing
cargo aircraft.
20
New orders for services in overhaul and repair grew by $2,261
due to orders received from the U.S. Military. New orders
for engineering increased by $1,061 due to weapons handling.
Backlog. Backlog at March 31, 2010
was $131,151 compared with $130,144 at March 31, 2010 as
new orders exceeded shipments by $1,007. Significant new orders
are discussed in New Orders. The backlog at
March 31, 2011 and 2010 includes approximately $71,343 and
$69,463, respectively, for the Airbus A400M military transport
aircraft that was once scheduled to commence shipping in late
calendar 2009 and continue through 2020. Airbus now indicates
shipments are likely to commence in calendar 2012.
We measure backlog by the amount of products or services that
customers committed by contract to purchase as of a given date.
Backlog may vary substantially over time due to the size and
timing of orders. Backlog of approximately $43,516 at
March 31, 2011 is scheduled for shipment during Fiscal 2012.
The
book-to-bill
ratio is computed by dividing the new orders received during a
period by the sales for the same period. Although significant
cancellations of purchase orders or substantial reductions of
product quantities in existing contracts seldom occur, such
cancellations or reductions could substantially and materially
reduce backlog. Therefore, backlog information may not represent
the actual amount of shipments or sales for any future period.
A
book-to-bill
ratio in excess of 1.0 is potentially indicative of continued
overall growth in sales. The book to bill ratio was 1.0 for
Fiscal 2011 and Fiscal 2010.
Fiscal
2010 Compared with Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Increase/
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
(Decrease)
|
|
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
Products
|
|
$
|
49,619
|
|
|
$
|
53,907
|
|
|
$
|
(4,288
|
)
|
|
|
(8.0
|
)%
|
Services
|
|
|
19,408
|
|
|
|
21,520
|
|
|
|
(2,112
|
)
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
69,027
|
|
|
|
75,427
|
|
|
|
(6,400
|
)
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
33,740
|
|
|
|
30,784
|
|
|
|
2,956
|
|
|
|
9.6
|
|
Services
|
|
|
14,636
|
|
|
|
14,553
|
|
|
|
83
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
48,376
|
|
|
|
45,337
|
|
|
|
3,039
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,651
|
|
|
|
30,090
|
|
|
|
(9,439
|
)
|
|
|
(31.4
|
)
|
As a % of net sales
|
|
|
29.9
|
%
|
|
|
39.8
|
%
|
|
|
N/A
|
|
|
|
(9.9
|
)%Pt.
|
Selling, general, and administrative expenses
|
|
|
20,554
|
|
|
|
12,312
|
|
|
|
8,242
|
|
|
|
66.9
|
|
Engineering expense
|
|
|
6,003
|
|
|
|
6,425
|
|
|
|
(422
|
)
|
|
|
(6.5
|
)
|
Relocation expense
|
|
|
817
|
|
|
|
|
|
|
|
817
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(6,723
|
)
|
|
|
11,353
|
|
|
|
(18,076
|
)
|
|
|
(159.2
|
)
|
Interest expense
|
|
|
891
|
|
|
|
1,462
|
|
|
|
(571
|
)
|
|
|
(39.1
|
)
|
Loss on debt extinguishment
|
|
|
|
|
|
|
551
|
|
|
|
(551
|
)
|
|
|
N/A
|
|
Net income (loss)
|
|
$
|
(6,043
|
)
|
|
$
|
5,760
|
|
|
$
|
(11,803
|
)
|
|
|
(204.9
|
)%
|
Net Sales. Net sales of $69,027 in
Fiscal 2010 decreased by $6,400, or 8.5%, from net sales of
$75,427 in Fiscal 2009. Fiscal 2010 product sales of $49,619
were $4,288, or 8.0%, lower than the prior year primarily due to
lower spare parts sales of $3,415 resulting primarily from lower
demand by the U.S. military and also due to lower new
equipment volume of $873. Reduced spare parts demand from the
U.S. military continued during Fiscal 2010 because of
U.S. Government spending priorities of funding the war in
Iraq and Afghanistan.
Fiscal 2010 services sales of $19,408 were $2,112, or 9.8%,
lower than the prior year primarily due to engineering services.
Engineering services were lower by $1,582 because the prior year
contained a large contract to design and develop a recovery
winch for the U.S. Army under the Future Combat Systems
(FCS) program. The U.S. Army subsequently cancelled the FCS
program in the Fiscal 2010 second quarter. Overhaul and repair
sales were lower than last year by $530 due to reduced volume.
21
Our relocation in the Fiscal fourth quarter reduced new
equipment and overhaul and repair volume because the factory was
shut down during most of March 2010 for the relocation.
The timing of U.S. Government awards, availability of
U.S. Government funding, and product delivery schedules are
among the factors that affect the period of recording revenues.
Fiscal 2010 was consistent with recent years with revenues in
the second half of the fiscal year exceeding revenues in the
first half of the fiscal year.
Cost of Sales. Cost of sales for
products of $33,740 was 9.6% higher than the prior year
primarily due to the increase in estimated inventory
obsolescence reserves of $3,311, partly offset by lower volume
from the relocation. Cost of services provided of $14,636 was
0.6% higher than the prior year because the current-year amount
included $784 to accrue for estimated losses on engineering
contracts.
Gross profit. Gross profit of $20,651
in Fiscal 2010 was 31.4% lower than the $30,090 in Fiscal 2009.
As a percent of sales, gross profit was 29.9% for Fiscal 2010
compared with 39.9% for Fiscal 2009. The decrease is primarily
due to lower sales volume in spare parts and engineering as well
as the relocation (discussed in Net Sales above) and due to
$5,634 in adjustments consisting of $3,311 (non-cash) for a
change in estimate of the inventory obsolescence reserve, $1,539
of unabsorbed manufacturing overhead related to the relocation,
and $784 (non-cash) to accrue for estimated losses on
engineering contracts. Excluding these adjustments, gross profit
as a percent of sales would have been 38.1% which is lower than
the prior year due to lower new product profitability resulting
from an unfavorable shift in mix and lower profit on engineering
contracts, partly offset by higher margins on spare parts.
Operating Expenses. Total operating
expenses were $27,374, or 39.7% of sales, in Fiscal 2010
compared with $18,737, or 24.8% of sales, in the prior year. The
increase is primarily due to a non-cash charge for estimated
environmental liability reserves of $8,135. Excluding the
environmental charge, operating expenses Fiscal 2010 would have
been $19,239, or 27.9% of sales, and increased by $502.
SG&A expenses were $20,554 in Fiscal 2010 versus $12,312 in
Fiscal 2009. Fiscal 2010 SG&A would have been $12,418
excluding the environmental charge, an increase of $106. The
small increase in operating expenses and SG&A represents
cost-reduction initiatives taken in the second quarter of Fiscal
2010. Engineering expenses were $6,004 in Fiscal 2010 compared
with $6,425 in Fiscal 2009, and reflect new product development
for awarded aerospace platforms.
We relocated our headquarters and factory during the Fiscal 2010
fourth quarter and incurred $817 of expenses related to the move.
Interest Expense. Interest expense was
$891 in Fiscal 2010, versus $1,462 in Fiscal 2009. The decline
in interest expense is due to $3,285 lower total debt and to
lower interest rates.
Net Income/(Loss). We reported a net
loss of $6,043, or $0.64 per diluted share, in Fiscal 2010
compared with net income of $5,760, or $0.61 per diluted share
in Fiscal 2009. Fiscal 2009 included a pretax charge of $551
related to refinancing our debt. In Fiscal 2010 excluding the
adjustments in gross profit of $5,634 and in SG&A of $8,135
discussed above, net income would have been $2,324, or $0.25 per
diluted share. This decrease in net income resulted from the
lower sales volume and gross profit, partly offset by lower
SG&A expenses discussed above.
New Orders. New product and services
orders received during Fiscal 2010 totaled $68,183 compared with
$82,123 during Fiscal 2009. Most of this decrease was due to new
equipment, partly offset by growth in overhaul and repair.
Orders for new equipment decreased by $16,682, or 31.2%,
primarily due to the comparison with large orders booked in
Fiscal 2009 and to customers deferring expected releases
resulting from their difficulty in getting funding approved. New
equipment orders in Fiscal 2010 included $5,676 for
Agustas A109 and AW139 helicopters, $2,442 for
Alenias C-27J fixed wing cargo aircraft, and $3,883 for
Lockheed Martins HIMARS or High Mobility Artillery Rocket
System. New orders for spare parts were even with the prior
year. Spare parts demand continued at a reduced level during
Fiscal 2010 due to U.S. military procurement prioritization
of funding the wars in Iraq and Afghanistan.
New orders for services in overhaul and repair grew by $2,762
due to orders received from the U.S. Navy. New orders for
engineering were also even with prior year.
22
Backlog. Backlog at March 31, 2010
was $130,144 compared with $130,988 at March 31, 2009 as
new orders and shipments remained relatively constant.
Significant new orders are discussed in New Orders.
The backlog at March 31, 2010 and 2009 includes
approximately $69,463 and $67,235, respectively, for the Airbus
A400M military transport aircraft that was once scheduled to
commence shipping in late calendar 2009 and continue through
2020. Airbus now indicates shipments are likely to commence in
calendar 2012.
We measure backlog by the amount of products or services that
customers committed by contract to purchase as of a given date.
Backlog may vary substantially over time due to the size and
timing of orders. Backlog of approximately $36,000 at
March 31, 2010 is scheduled for shipment during Fiscal 2011.
The
book-to-bill
ratio is computed by dividing the new orders received during a
period by the sales for the same period. Although significant
cancellations of purchase orders or substantial reductions of
product quantities in existing contracts seldom occur, such
cancellations or reductions could substantially and materially
reduce backlog. Therefore, backlog information may not represent
the actual amount of shipments or sales for any future period.
A
book-to-bill
ratio in excess of 1.0 is potentially indicative of continued
overall growth in sales. The book to bill ratio was 1.0 for
Fiscal 2010 and 1.1 for Fiscal 2009.
Liquidity
and Capital Resources
During Fiscal 2011, our operating cash flow was strong and we
were accumulating cash. With the current low interest rates
producing negligible interest income, we accelerated our
term-loan payments. We made four term-loan pre-payments totaling
$3,286; thus our next required term-loan payment is due
April 1, 2012. Accordingly, we show zero current debt on
our balance sheet.
Also, as a result of our strong cash generation, our net debt,
defined as total debt less cash, decreased by $9,582 to $5,119
at March 31, 2011 from $14,701 at March 31, 2010.
Our principal sources of liquidity are cash on hand, cash
generated from operations, and the Senior Credit Facility. Our
liquidity requirements depend on a number of factors, many of
which are beyond our control, including the timing of production
under contracts with the U.S. Government. Our working
capital needs fluctuate between periods as a result of changes
in program status and the timing of payments by program.
Additionally, because sales are generally made on the basis of
individual purchase orders, liquidity requirements vary based on
the timing and volume of orders. Based on cash on hand, future
cash expected to be generated from operations, and the Senior
Credit Facility, we expect to have sufficient cash to meet
liquidity requirements for the next twelve months.
During the second quarter of Fiscal 2009, we refinanced and paid
in full our Former Senior Credit Facility with a new
60-month,
$33,000 Senior Credit Facility consisting of a $10,000 revolving
line of credit (Revolver) and term loans totaling
$23,000. The Senior Credit Facility is secured by all of our
assets and accrues interest at either the Base Rate
(as defined) or the London Interbank Offered Rate
(LIBOR) plus applicable margins based on our
leverage ratio (as defined) for the most recent four quarters
and is calculated at each quarter end. At March 31, 2011,
the term loan balance was $11,500, there were no outstanding
Revolver borrowings, there were $452 in outstanding (standby)
letters of credit, and $9,548 of availability under the
Revolver. The Senior Credit Facility contains certain financial
covenants, including fixed charge coverage ratio and leverage
ratio. Unless waived, any failure to comply with such covenants
could constitute an event of default resulting in the
acceleration of all amounts due under the Senior Credit
Facility. A more complete description of these covenants is
contained in Note 6 of our financial statements included
elsewhere herein. At March 31, 2011, and throughout Fiscal
2011, we were in compliance with all covenant provisions of the
Senior Credit Facility.
Working
Capital
Working capital at March 31, 2011 was $32,376 an increase
of $7,188, versus $25,188 at March 31, 2010. Excluding
increased cash of $3,010, working capital increased by $4,178
while sales increased by 13.3%. The ratio of current assets to
current liabilities was 3.1:1.0 at March 31, 2011, compared
with 2.7:1.0 at the beginning of Fiscal 2011. The working
capital increase resulted primarily from a $3,010 increase in
cash, a $2,614 decrease in inventory, a $1,689 increase in
deferred income taxes, a $3,286 decrease in current portion of
long-term debt, a $2,463 increase in accounts payable, and a
$2,140 net decrease in other working capital items. Partly
offsetting
23
these amounts was a $6,420 increase in accounts receivable. Our
relocation and operations shutdown at the end of Fiscal 2010
resulted in a temporary dip in accounts receivable at
March 31, 2010.
The accounts receivable days outstanding decreased to
62.7 days at March 31, 2011, from 74.0 days at
March 31, 2010 as we collected over $3 million of past
due accounts. Inventory turnover increased to 3.6 turns in
Fiscal 2011 versus 3.1 turns in Fiscal 2010. The accounts
receivables and inventory figures are based on the Fiscal year
fourth quarter.
Capital
Expenditures
Fiscal 2011 and Fiscal 2010 capital expenditures-operations were
$787 and $438, respectively, and capitalized relocation
expenditures in Fiscal 2011 were ($72), which includes a
build-out credit of $233 received, and were $6,208, in Fiscal
2010. Fiscal 2011 and Fiscal 2010 capitalized project costs for
engineering were $807 and $1,043, respectively.
Senior
Credit Facility
The Senior Credit Facility is discussed in Note 6 of the
Notes to Consolidated Financial Statements contained
elsewhere in this report.
Interest
Rate Swap
The Interest Rate Swap is discussed in Note 6 of the
Notes to Consolidated Financial Statements contained
elsewhere in this report.
Former
Senior Credit Facility
The Former Senior Credit Facility is discussed in Note 6 of
the Notes to Consolidated Financial Statements
contained elsewhere in this report.
TAX
BENEFITS FROM NET OPERATING LOSSES
The Tax Benefits from Net Operating Losses is discussed in
Note 5 of the Notes to Consolidated Financial
Statements contained elsewhere in this report.
CONTRACTUAL
OBLIGATIONS
The following table summarizes our contractual obligations in
future fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 &
|
|
|
|
Total
|
|
|
2012
|
|
|
2013-2014
|
|
|
2015-2016
|
|
|
beyond
|
|
|
Debt principal repayments(a)
|
|
$
|
11,500
|
|
|
$
|
|
|
|
$
|
11,500
|
|
|
$
|
|
|
|
$
|
|
|
Estimated interest payments on long-term debt(b)
|
|
|
432
|
|
|
|
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
8,654
|
|
|
|
1,079
|
|
|
|
2,127
|
|
|
|
1,983
|
|
|
|
3,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,586
|
|
|
$
|
1,079
|
|
|
$
|
14,059
|
|
|
$
|
1,983
|
|
|
$
|
3,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Obligations for long-term debt reflect the requirements of the
term loan under the Senior Credit Facility. See Note 6 of
Notes to Consolidated Financial Statements contained
elsewhere in this report. |
|
(b) |
|
Estimated interest payments on long-term debt reflect the
scheduled interest payments of the term loan under the Senior
Credit Facility and assume an effective weighted average
interest rate of 3.5%, our blended interest rate at
March 31, 2011. |
Our supplier purchase orders contain provisions allowing vendors
to recover certain costs in the event of cancellation for
convenience by us. We believe that we do not have ongoing
purchase obligations with respect to our suppliers that are
material in amount or that would result, individually or
collectively, in a material loss exposure
24
to us if cancelled for convenience. Furthermore, purchase
obligations for capital assets and services historically have
not been material in amount.
INFLATION
Neither inflation nor deflation has had, and we do not expect it
to have, a material impact upon operating results. We cannot be
certain that our business will not be affected by inflation or
deflation in the future.
CONTINGENCIES
Environmental matters Environmental
matters are discussed in Note 13 of the Notes to
Consolidated Financial Statements contained elsewhere in
this report.
Litigation Litigation is discussed in
Note 13 of the Notes to Consolidated Financial
Statements contained elsewhere in this report.
RECENTLY
ISSUED ACCOUNTING STANDARDS
The recent accounting pronouncements are discussed in
Note 1 of the Notes to Consolidated Financial
Statements contained elsewhere in this report.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to various market risks, primarily changes in
interest rates associated with our Senior Credit Facility. The
Senior Credit Facility requires us to enter into an interest
rate swap for at least three years in an amount not less than
50% of the term loan for the first two years and 35% of the term
loan for the third year. An interest rate swap, a type of
derivative financial instrument, is used to minimize the effects
of interest rate fluctuations on cash flows. We do not use
derivatives for trading or speculative purposes. In September
2008, we entered into a three-year interest rate swap to
exchange floating rate for fixed rate interest payments on the
term loan as required by our Senior Credit Facility. The
swaps net effect of the spread between the floating rate
(30 day LIBOR) and the fixed rate (3.25%), is settled
monthly, and is reflected as an adjustment to interest expense
in the period incurred. An unrealized loss to adjust the
interest rate swap to its fair value was recorded net of tax, in
accumulated other comprehensive loss, in Fiscal 2010.
At March 31, 2011, $10,500 of our Senior Credit Facility
was tied to LIBOR, and a 1% increase or decrease in interest
rates would increase or decrease annual interest expense by
approximately $63 based on the debt outstanding under the
facility at March 31, 2011.
25
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Financial Statements:
|
|
|
|
|
|
|
|
27
|
|
|
|
|
30
|
|
|
|
|
31
|
|
|
|
|
32
|
|
|
|
|
33
|
|
26
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the Board of Directors and
Stockholders of
Breeze-Eastern Corporation
We have audited the accompanying consolidated balance sheets of
Breeze-Eastern Corporation and subsidiaries as of March 31,
2011 and 2010, and the related statements of consolidated
operations, stockholders equity and cash flows for the
years then ended. Our audits also included the financial
statement schedule as of and for the years ended March 31,
2011 and 2010 included on page 54. These consolidated
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 also
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, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Breeze-Eastern Corporation
and subsidiaries as of March 31, 2011 and 2010, and the
consolidated results of their operations and their cash flows
for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole presents fairly, in all material
aspects, the information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Breeze-Eastern Corporations internal control over
financial reporting as of March 31, 2011, based on the
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated, June 3, 2011,
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
Bala Cynwyd, Pennsylvania
June 3, 2011
27
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the Board of Directors and
Stockholders of
Breeze-Eastern Corporation
We have audited the accompanying statements of consolidated
operations, stockholders equity and cash flows of
Breeze-Eastern Corporation and subsidiaries for the year ended
March 31, 2009. Our audit also included the financial
statement schedule as of and for the year ended March 31,
2009 included on page 54. These consolidated financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 also
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, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated results of operations, stockholders equity
and cash flows of Breeze-Eastern Corporation and subsidiaries
for the year ended March 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole presents fairly, in all
material aspects, the information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Breeze-Eastern Corporations internal control over
financial reporting as of March 31, 2009, based on the
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated May 1, 2009
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
Bala Cynwyd, Pennsylvania
May 1, 2009
28
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Audit Committee of the Board of Directors and
Stockholders of
Breeze-Eastern Corporation
We have audited Breeze-Eastern Corporations (the
Company) internal control over financial reporting
as of March 31, 2011, based on criteria established in
Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that degree of
compliance with the policies or procedures may deteriorate.
In our opinion, Breeze-Eastern Corporation maintained, in all
material aspects, effective internal control over financial
reporting as of March 31, 2011, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of March 31, 2011 and 2010,
and the related statements of consolidated operations,
stockholders equity, and cash flows and the related
financial statement schedule for the years then ended of the
Company, and our report dated June 3, 2011 expressed an
unqualified opinion on those financial statements and the
related financial statement schedule.
Bala Cynwyd, Pennsylvania
June 3, 2011
29
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands, except share amounts)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,381
|
|
|
$
|
3,371
|
|
Accounts receivable (net of allowance for doubtful accounts of
$235 and $150 in 2011 and 2010, respectively)
|
|
|
18,522
|
|
|
|
12,102
|
|
Tax refund receivable
|
|
|
|
|
|
|
904
|
|
Inventories-net
|
|
|
14,751
|
|
|
|
17,365
|
|
Prepaid expenses and other current assets
|
|
|
727
|
|
|
|
423
|
|
Deferred income taxes
|
|
|
7,375
|
|
|
|
5,686
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
47,756
|
|
|
|
39,851
|
|
|
|
|
|
|
|
|
|
|
PROPERTY:
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
|
3,900
|
|
|
|
5,417
|
|
Furniture, fixtures and information systems
|
|
|
7,506
|
|
|
|
8,404
|
|
Leasehold improvements
|
|
|
5,590
|
|
|
|
2,560
|
|
Construction in progress
|
|
|
590
|
|
|
|
3,942
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,586
|
|
|
|
20,323
|
|
Less accumulated depreciation and amortization
|
|
|
9,235
|
|
|
|
10,748
|
|
|
|
|
|
|
|
|
|
|
Property net
|
|
|
8,351
|
|
|
|
9,575
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
8,750
|
|
|
|
13,718
|
|
Goodwill
|
|
|
402
|
|
|
|
402
|
|
Real estate held for sale
|
|
|
3,800
|
|
|
|
3,800
|
|
Qualification
units-net
|
|
|
3,179
|
|
|
|
2,731
|
|
Other
|
|
|
5,910
|
|
|
|
6,031
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
22,041
|
|
|
|
26,682
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
78,148
|
|
|
$
|
76,108
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
|
|
|
$
|
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
3,286
|
|
Accounts payable trade
|
|
|
8,041
|
|
|
|
5,578
|
|
Accrued compensation
|
|
|
3,010
|
|
|
|
2,286
|
|
Accrued income taxes
|
|
|
287
|
|
|
|
114
|
|
Other current liabilities
|
|
|
4,042
|
|
|
|
3,399
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
15,380
|
|
|
|
14,663
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT PAYABLE TO BANKS
|
|
|
11,500
|
|
|
|
14,786
|
|
|
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
17,835
|
|
|
|
18,839
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
44,715
|
|
|
|
48,288
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock authorized, 300,000 shares;
none issued
|
|
|
|
|
|
|
|
|
Common stock authorized, 14,700,000 shares of
$.01 par value; issued, 9,846,003 and 9,813,097 shares
in 2011 and 2010, respectively
|
|
|
98
|
|
|
|
98
|
|
Additional paid-in capital
|
|
|
95,068
|
|
|
|
94,612
|
|
Accumulated deficit
|
|
|
(54,837
|
)
|
|
|
(59,863
|
)
|
Accumulated other comprehensive loss
|
|
|
(147
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
40,182
|
|
|
|
34,562
|
|
Less treasury stock, at cost 416,967 and
416,147 shares in 2011 and 2010, respectively
|
|
|
(6,749
|
)
|
|
|
(6,742
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
33,433
|
|
|
|
27,820
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
78,148
|
|
|
$
|
76,108
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
30
Statements
of Consolidated Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share amounts)
|
|
|
Net sales
|
|
$
|
78,200
|
|
|
$
|
69,027
|
|
|
$
|
75,427
|
|
Cost of sales
|
|
|
47,248
|
|
|
|
48,376
|
|
|
|
45,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
30,952
|
|
|
|
20,651
|
|
|
|
30,090
|
|
Selling, general and administrative expenses
|
|
|
14,361
|
|
|
|
20,554
|
|
|
|
12,312
|
|
Engineering expense
|
|
|
6,923
|
|
|
|
6,003
|
|
|
|
6,425
|
|
Relocation expense
|
|
|
211
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
9,457
|
|
|
|
(6,723
|
)
|
|
|
11,353
|
|
Interest expense
|
|
|
694
|
|
|
|
891
|
|
|
|
1,462
|
|
Other expense net
|
|
|
213
|
|
|
|
458
|
|
|
|
231
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
8,550
|
|
|
|
(8,072
|
)
|
|
|
9,109
|
|
Income tax provision (benefit)
|
|
|
3,524
|
|
|
|
(2,029
|
)
|
|
|
3,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,026
|
|
|
$
|
(6,043
|
)
|
|
$
|
5,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share:
|
|
$
|
0.53
|
|
|
$
|
(0.64
|
)
|
|
$
|
0.62
|
|
Diluted net income (loss) per share:
|
|
$
|
0.53
|
|
|
$
|
(0.64
|
)
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
|
|
9,414,000
|
|
|
|
9,388,000
|
|
|
|
9,355,000
|
|
Weighted-average diluted shares outstanding
|
|
|
9,443,000
|
|
|
|
9,388,000
|
|
|
|
9,400,000
|
|
See notes to consolidated financial statements.
31
Statements
of Consolidated Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,026
|
|
|
$
|
(6,043
|
)
|
|
$
|
5,760
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off unamortized loan fees
|
|
|
|
|
|
|
|
|
|
|
223
|
|
Loss on disposal of property and equipment
|
|
|
29
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,271
|
|
|
|
1,587
|
|
|
|
1,359
|
|
Non-cash interest expense
|
|
|
435
|
|
|
|
129
|
|
|
|
179
|
|
Stock based compensation
|
|
|
454
|
|
|
|
796
|
|
|
|
676
|
|
Provision for losses on accounts receivable
|
|
|
85
|
|
|
|
122
|
|
|
|
7
|
|
Deferred
taxes-net
|
|
|
3,177
|
|
|
|
(1,302
|
)
|
|
|
3,262
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable and other receivables
|
|
|
(5,601
|
)
|
|
|
7,110
|
|
|
|
(443
|
)
|
Decrease (increase) in inventories
|
|
|
2,614
|
|
|
|
2,270
|
|
|
|
(1,408
|
)
|
(Increase) decrease in other assets
|
|
|
(185
|
)
|
|
|
(905
|
)
|
|
|
18
|
|
Increase (decrease) in accounts payable
|
|
|
2,463
|
|
|
|
(733
|
)
|
|
|
2,458
|
|
Increase (decrease) in other liabilities
|
|
|
336
|
|
|
|
8,647
|
|
|
|
(3,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
11,104
|
|
|
|
11,678
|
|
|
|
8,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital (expenditures) reimbursements relocation
|
|
|
72
|
|
|
|
(6,208
|
)
|
|
|
|
|
Capital expenditures operations
|
|
|
(787
|
)
|
|
|
(438
|
)
|
|
|
(1,475
|
)
|
Capitalized Qualification units
|
|
|
(807
|
)
|
|
|
(1,043
|
)
|
|
|
(918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,522
|
)
|
|
|
(7,689
|
)
|
|
|
(2,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(6,572
|
)
|
|
|
(3,285
|
)
|
|
|
(24,549
|
)
|
Proceeds from long-term debt and borrowings
|
|
|
|
|
|
|
|
|
|
|
23,000
|
|
(Repayments) of other debt
|
|
|
|
|
|
|
|
|
|
|
(2,920
|
)
|
Payment of debt issue costs
|
|
|
|
|
|
|
|
|
|
|
(513
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(6,572
|
)
|
|
|
(3,285
|
)
|
|
|
(4,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash
|
|
|
3,010
|
|
|
|
704
|
|
|
|
791
|
|
Cash at beginning of year
|
|
|
3,371
|
|
|
|
2,667
|
|
|
|
1,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
6,381
|
|
|
$
|
3,371
|
|
|
$
|
2,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
588
|
|
|
$
|
771
|
|
|
$
|
1,307
|
|
Income tax payments
|
|
$
|
87
|
|
|
$
|
127
|
|
|
$
|
538
|
|
See notes to consolidated financial statements.
32
Statements
of Consolidated Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
(Loss)
|
|
|
|
(In thousands, except share amounts)
|
|
|
BALANCE, MARCH 31, 2008
|
|
|
9,751,315
|
|
|
$
|
97
|
|
|
|
(412,323
|
)
|
|
$
|
(6,699
|
)
|
|
$
|
93,090
|
|
|
$
|
(59,580
|
)
|
|
$
|
(16
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,760
|
|
|
|
|
|
|
$
|
5,760
|
|
Issuance of stock under stock option Plan
|
|
|
1,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock under compensation and bonus plan
|
|
|
25,782
|
|
|
|
|
|
|
|
(408
|
)
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in funded status of the defined benefit post retirement
plan, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, MARCH 31, 2009
|
|
|
9,778,097
|
|
|
|
98
|
|
|
|
(412,731
|
)
|
|
|
(6,704
|
)
|
|
|
93,778
|
|
|
|
(53,820
|
)
|
|
|
(25
|
)
|
|
$
|
5,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,043
|
)
|
|
|
|
|
|
$
|
(6,043
|
)
|
Issuance of stock under compensation and bonus plan
|
|
|
35,000
|
|
|
|
|
|
|
|
(3,416
|
)
|
|
|
(38
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of interest rate swap, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126
|
)
|
|
|
(126
|
)
|
Change in funded status of the defined benefit post retirement
plan, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, MARCH 31, 2010
|
|
|
9,813,097
|
|
|
|
98
|
|
|
|
(416,147
|
)
|
|
|
(6,742
|
)
|
|
|
94,612
|
|
|
|
(59,863
|
)
|
|
|
(285
|
)
|
|
$
|
(6,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,026
|
|
|
|
|
|
|
$
|
5,026
|
|
Issuance of stock under compensation and bonus plan
|
|
|
32,906
|
|
|
|
|
|
|
|
(820
|
)
|
|
|
(7
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of interest rate swap, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
91
|
|
Change in funded status of the defined benefit post retirement
plan, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, MARCH 31, 2011
|
|
|
9,846,003
|
|
|
$
|
98
|
|
|
|
(416,967
|
)
|
|
$
|
(6,749
|
)
|
|
$
|
95,068
|
|
|
$
|
(54,837
|
)
|
|
$
|
(147
|
)
|
|
$
|
5,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
33
Notes To
Consolidated Financial Statements
|
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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Business Breeze-Eastern Corporation
(the Company) has one manufacturing facility located
in the United States, and it designs, develops, manufactures,
sells, and services a complete line of sophisticated lifting and
restraining products, principally mission-critical helicopter
rescue hoist and cargo hook systems, winches, and hoists for
aircraft and weapons systems.
The Company has a fiscal year ending March 31. Accordingly,
all references to years in the Notes to Consolidated Financial
Statements refer to the fiscal year ended March 31 of the
indicated year unless otherwise specified.
Reclassifications The classifications
of certain prior period items in the consolidated balance
sheets, statements of consolidated operations, and statements of
consolidated cash flows, have been changed to conform to the
classification used in the current period. These
reclassifications had no effect on total net income or retained
earnings as previously reported.
Use of Estimates The preparation of
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America
requires the Company to make estimates, judgments, and
assumptions. The Company believes that the estimates, judgments,
and assumptions upon which it relies are reasonable based upon
the information available to the Company at the time they are
made. These estimates, judgments, and assumptions are based on
historical experience and information that is available to
management about current events and actions the Company may take
in the future. These estimates, judgments, and assumptions can
affect the reported amounts of assets and liabilities as of the
date of the financial statements, as well as the reported
amounts of revenues and expenses during the periods presented.
Significant items subject to estimates and assumptions include
the carrying value of long-lived assets; valuation allowances
for receivables, inventories, and deferred tax assets;
environmental liabilities; litigation contingencies; and
obligations related to employee benefit plans. To the extent
there are material differences between these estimates,
judgments, and assumptions and actual results, the
Companys financial statements will be affected.
Principles of Consolidation The
accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.
Intercompany balances and transactions are eliminated in
consolidation. The consolidated financial statements include
seven inactive subsidiaries which include TTERUSA, Inc., TT
Connecticut Corporation, Rancho TransTechnology Corporation,
Retainers, Inc., SSP Industries, TransTechnology International
Corporation, and TransTechnology Germany GmbH.
Revenue Recognition Revenue related to
equipment sales is recognized when title and risk of loss have
been transferred, collectability is reasonably assured, and
pricing is fixed or determinable. Revenue related to repair and
overhaul sales is recognized when the related repairs or
overhaul are complete and the unit is shipped to the customer.
Revenue related to contracts in which the Company is reimbursed
for costs incurred plus an agreed upon profit are recorded as
costs are incurred.
Cash Cash includes all cash balances
and highly liquid short-term investments which mature within
three months of purchase. The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such
accounts, and believes it is not exposed to any significant
credit risk with cash.
Allowance for doubtful accounts The
allowance for doubtful accounts is based on our assessment of
the collectability of customer accounts. The allowance is
determined by considering factors such as historical experience,
credit quality, age of the accounts receivable balances and
current economic conditions that may affect a customers
ability to pay.
Inventories Inventories are stated at
the lower of cost or market. Cost is determined using the
first-in,
first-out method. Cost includes material, labor, and
manufacturing overhead costs.
34
Notes To
Consolidated Financial
Statements (Continued)
Capitalized Qualification units
Capitalized project costs are production prototypes that are
used for the aerospace qualification testing that is required
for the product to become certified for use on an aircraft.
These costs are charged to expense over the expected future
shipments of the qualified product.
Property and Related Depreciation
Property is recorded at cost. Provisions for depreciation are
made on a straight-line basis over the estimated useful lives of
depreciable assets. Depreciation expense for the years ended
March 31, 2011, 2010, and 2009 was $1,910, $1,587, and
$1,359, respectively.
Average useful lives for property are as follows:
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Machinery and equipment
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3 to 10 years
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Furniture and fixtures
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3 to 10 years
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Computer hardware and software
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3 to 5 years
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Leasehold improvements
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10 years
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The Company classified as real estate held for sale on the
consolidated balance sheets a property currently under sales
contract owned in Glen Head, New York. The sale of the property
is expected to be concluded upon completion of municipal
approvals and soil remediation pursuant to the remediation plan
approved by the New York Department of Environmental
Conservation. The net sale proceeds are expected to be $3,800
which the Company reduced by $200 in the fourth quarter of
Fiscal 2010. See Note 13 for a discussion of environmental
matters related to this site.
Environmental Reserve The Company
provides for a best estimate of environmental liability reserves
upon a determination that a liability is both probable and
estimable. In many cases, The Company does not fix or cap the
liability for a particular site when first recorded. Factors
that affect the recorded amount of the liability in future years
include our participation percentage due to a settlement by, or
bankruptcy of, other potentially responsible parties, a change
in the environmental laws, a change in the estimate of future
costs that will be incurred to remediate the site, and changes
in technology related to environmental remediation.
Earnings (Loss) Per Share
(EPS) The computation of basic
earnings (loss) per share is based on the weighted-average
number of common shares outstanding during the period. The
computation of diluted earnings per share assumes the foregoing
and, in addition, the exercise of all dilutive stock options
using the treasury stock method. The diluted loss per share is
computed using the same weighted-average number of shares as the
basic earnings (loss) per share computation.
The components of the denominator for basic earnings (loss) per
common share and diluted earnings (loss) per common share are
reconciled as follows:
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2011
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2010
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2009
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Basic earnings (loss) per common share:
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Weighted-average common shares outstanding
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9,414,000
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9,388,000
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9,355,000
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Diluted earnings (loss) per common share:
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Weighted-average common shares outstanding
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9,414,000
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9,388,000
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9,355,000
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Stock options
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29,000
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45,000
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Denominator for diluted earnings (loss) per common share
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9,443,000
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9,388,000
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9,400,000
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During the years ended March 31, 2011, 2010 and 2009,
options to purchase 320,620 shares, 443,465 shares and
237,333 shares of common stock, respectively, were not
included in the computation of diluted EPS because the options
exercise prices were greater than the average market price of
the common shares.
35
Notes To
Consolidated Financial
Statements (Continued)
Product Warranty Costs Equipment has a
one year warranty for which a reserve is established using
historical averages and specific program contingencies when
considered necessary. Changes in the carrying amount of accrued
product warranty costs for the years ended March 31, 2010
and 2011 are summarized as follows:
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Balance at March 31, 2009
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$
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238
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|
Warranty costs incurred
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(159
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)
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Change in estimate to pre-existing warranties
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5
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Product warranty accrual
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95
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Balance at March 31, 2010
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179
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|
Warranty costs incurred
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(134
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)
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Change in estimate to pre-existing warranties
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70
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Product warranty accrual
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|
|
140
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|
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Balance at March 31, 2011
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$
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255
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Research, Development, and Engineering
Costs Research and development costs, which
are charged to SG&A expense when incurred, amounted to
$1,347, $1,848, and $1,689 for the years ended March 31,
2011, 2010, and 2009, respectively.
Shipping and Handling Costs Costs for
shipping and handling incurred by the Company for third party
shippers are included in general, administrative and selling
expense. These expenses for the years ended March 31, 2011,
2010 and 2009 were $173, $145, and $156, respectively.
Income Taxes The Company applies
guidance issued by Financial Accounting Standards Board
(FASB), codified as Accounting Standards
Codification (ASC) 740, Income Taxes.
Under the asset and liability method of ASC 740, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their
respective tax bases. The Company periodically assesses
recoverability of deferred tax assets and provisions for
valuation allowances are made as required.
The Company adopted guidance issued by FASB, codified as
ASC 740, formerly FASB Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income
Taxes, on April 1, 2007, that required recognizing
the financial statement benefit of a tax position only after
determining that the relevant tax authority more-likely-than-not
would sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount
recognized in the financial statements is the largest benefit
that has a greater than 50 percent likelihood of being
realized upon ultimate settlement with the relevant tax
authority.
Financial Instruments The Company does
not hold or issue financial instruments for trading purposes.
Stock-Based Compensation See
Note 9.
Impairment of Goodwill and Other Long-Lived
Assets Long-lived assets and certain
identifiable intangibles to be held and used are reviewed by the
Company for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Impairment reviews for goodwill are
performed by comparing the fair value to the reported carrying
amount. If the carrying amount exceeds fair value, an impairment
loss is recognized. Fair value is determined using quoted market
prices when available or present value techniques. At
March 31, 2011, the Company tested its goodwill for
impairment and determined that it did not have an impairment.
New Accounting Standards In March
2010, the FASB issued ASU
No. 2010-17,
Revenue Recognition Milestone Method (Topic
605): Milestone Method of Revenue Recognition. This
standard provides that the milestone method is a valid
application of the proportional performance model for revenue
recognition if the milestones are substantive and there is
substantive uncertainty about whether the milestones will be
achieved. Determining whether a milestone is substantive
requires judgment that should be made at the inception of the
36
Notes To
Consolidated Financial
Statements (Continued)
arrangement. To meet the definition of a substantive milestone,
the consideration earned by achieving the milestone
(1) would have to be commensurate with either the level of
effort required to achieve the milestone or the enhancement in
the value of the item delivered, (2) would have to relate
solely to past performance, and (3) should be reasonable
relative to all deliverables and payment terms in the
arrangement. No bifurcation of an individual milestone is
allowed and there can be more than one milestone in an
arrangement. The new standard is effective for interim and
annual periods beginning on or after June 15, 2010. Early
adoption is permitted. The adoption of this guidance did not
have a material impact on the Companys financial position,
results of operations, or cash flows.
In July 2010, the FASB issued ASU
2010-20,
which amends ASC 310 by requiring more robust and
disaggregated disclosures about the credit quality of an
entitys financing receivables and its allowance for credit
losses. The objective of enhancing these disclosures is to
improve financial statement users understanding of
(1) the nature of an entitys credit risk associated
with its financing receivables and (2) the entitys
assessment of that risk in estimating its allowance for credit
losses as well as changes in the allowance and the reasons for
those changes. The guidance is effective for the first reporting
period beginning after December 15, 2010. The adoption of
this guidance did not have a material impact on the
Companys financial position, results of operations, or
cash flows.
Inventories at March 31 consisted of the following:
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2011
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2010
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Finished goods
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|
$
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895
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|
|
$
|
1,985
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|
Work in process
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6,007
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6,133
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|
Purchased and manufactured parts
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10,460
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|
11,785
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17,362
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|
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19,903
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|
Reserve for slow moving and obsolescence
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(2,611
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)
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(2,538
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)
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Total
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$
|
14,751
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$
|
17,365
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Inventory obsolescence is determined by identifying specific
items based on the age of inventory and by establishing a
general reserve based on annual purchases. Analyzing inventory
by age showed little movement once items have aged five years,
and historical trends showed that 1.1% of purchases would
eventually be scrapped. Accordingly, the Company used these two
factors in determining the amount of the reserve.
Schedule II, Consolidated Valuation and Qualifying
Accounts, shows changes in inventory reserves. In the fourth
quarter of Fiscal 2010, the Company reviewed its inventory and
identified approximately $2,198 of items that would cost more to
relocate and restock than their current or projected future
market value. These items were physically scrapped before the
end of Fiscal 2010. Because this amount was higher than
expected, the Company reassessed the methodology previously used
for estimating inventory obsolescence and determined that a
modification was warranted. The previous method for estimating
inventory obsolescence was based on estimates of future
potential usage. Including the $2,198 amount above, the change
in methodology resulted in a non-cash adjustment to increase the
inventory reserves by $3,311 during the fourth quarter of Fiscal
2010. The total amount of the inventory reserve change for
Fiscal 2010 was $3,533 which included increases to the inventory
reserve in earlier quarters.
37
Notes To
Consolidated Financial
Statements (Continued)
Other assets at March 31 consisted of the following:
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2011
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2010
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Obligation due from divestiture(a)
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$
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3,358
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$
|
3,376
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Environmental receivable
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1,442
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1,408
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Other
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1,110
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1,247
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Total
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$
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5,910
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$
|
6,031
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(a) |
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Obligation due from divestiture represents the indemnification
in favor of the Company relative to a pension plan for a
discontinued operation in Germany. (See Note 10). |
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4.
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OTHER
CURRENT LIABILITIES
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Other current liabilities at March 31 consisted of the following:
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2011
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2010
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|
|
Accrued medical benefits cost
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|
$
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694
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$
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968
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|
Environmental reserves
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1,565
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|
|
1,023
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Other
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1,783
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1,408
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Total
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$
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4,042
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$
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3,399
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The provision for income taxes is summarized below:
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2011
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2010
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2009
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|
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Current expense (benefit):
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Federal
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$
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153
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$
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(769
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)
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$
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(142
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)
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State
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91
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|
|
42
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229
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|
|
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|
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Total current income tax expense (benefit)
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244
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|
(727
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)
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87
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|
|
|
|
|
|
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Deferred
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|
|
3,280
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|
|
|
299
|
|
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|
6,990
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Change in valuation allowance
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|
|
|
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|
|
(1,601
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)
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|
(3,728
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)
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|
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Total deferred income tax expense
|
|
|
3,280
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|
|
|
(1,302
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)
|
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|
3,262
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|
|
|
|
|
|
|
|
|
|
|
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|
Total income tax expense
|
|
$
|
3,524
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|
|
$
|
(2,029
|
)
|
|
$
|
3,349
|
|
|
|
|
|
|
|
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|
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|
The consolidated effective tax rates differ from the federal
statutory rates as follows:
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|
|
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|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Statutory federal rate
|
|
|
35.0
|
%
|
|
|
(35.0
|
)%
|
|
|
35.0
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%
|
State income taxes after federal income tax
|
|
|
6.4
|
|
|
|
16.4
|
|
|
|
8.5
|
|
Valuation allowance
|
|
|
|
|
|
|
(12.9
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)
|
|
|
(4.3
|
)
|
General business credits
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
Other
|
|
|
(0.2
|
)
|
|
|
2.3
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated effective tax rate
|
|
|
41.2
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%
|
|
|
(25.1
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)%
|
|
|
36.8
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
38
Notes To
Consolidated Financial
Statements (Continued)
The following is an analysis of accumulated deferred income
taxes:
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2011
|
|
|
2010
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
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|
Bad debts
|
|
$
|
1,168
|
|
|
$
|
1,130
|
|
Employee benefit accruals
|
|
|
356
|
|
|
|
712
|
|
Inventory
|
|
|
1,193
|
|
|
|
735
|
|
Net operating loss carry forward
|
|
|
1,809
|
|
|
|
1,951
|
|
Other
|
|
|
2,849
|
|
|
|
1,158
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
7,375
|
|
|
|
5,686
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Employee benefit accruals
|
|
|
509
|
|
|
|
560
|
|
Environmental
|
|
|
2,633
|
|
|
|
2,632
|
|
Net operating loss carry forward
|
|
|
2,894
|
|
|
|
7,869
|
|
Other
|
|
|
771
|
|
|
|
618
|
|
Property
|
|
|
2,208
|
|
|
|
2,304
|
|
Valuation allowance
|
|
|
(265
|
)
|
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
Total noncurrent
|
|
|
8,750
|
|
|
|
13,718
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
$
|
16,125
|
|
|
$
|
19,404
|
|
|
|
|
|
|
|
|
|
|
The Company has federal and state net operating loss carry
forwards, or NOLs, of approximately $15,133 and $4,258,
respectively, which are due to expire in fiscal 2022 through
fiscal 2030 and fiscal 2012 through fiscal 2017, respectively.
The tax loss generated in fiscal 2010 increased the federal net
operating loss carry-forward by $5,226. In fiscal 2010,
approximately $26,950 of gross state NOLs expired, unused,
resulting in a decrease of approximately $1,602 of deferred tax
assets and corresponding valuation allowance. These NOLs may be
used to offset future taxable income through their respective
expiration dates and thereby reduce or eliminate the
Companys federal and state income taxes otherwise payable.
A valuation allowance of $265 has been established relating to
other items, as it is managements belief that it is more
likely than not that a portion of this deferred asset is not
realizable.
If the Company does not generate adequate taxable earnings, some
or all of our deferred tax assets may not be realized.
Additionally, changes to the federal and state income tax laws
also could impact its ability to use the NOLs. In such cases,
the Company may need to revise the valuation allowance
established related to deferred tax assets for state purposes.
The Internal Revenue Code of 1986, as amended (the
Code), imposes significant limitations on the
utilization of NOLs in the event of an ownership
change as defined under section 382 of the Code (the
Section 382 Limitation). The Section 382
Limitation is an annual limitation on the amount of
pre-ownership NOLs that a corporation may use to offset its
post-ownership change income. The Section 382 Limitation is
calculated by multiplying the value of a corporations
stock immediately before an ownership change by the long-term
tax-exempt rate (as published by the Internal Revenue Service).
Generally, an ownership change occurs with respect to a
corporation if the aggregate increase in the percentage of stock
ownership by value of that corporation by one or more 5%
shareholders (including specified groups of shareholders who, in
the aggregate, own at least 5% of that corporations stock)
exceeds 50 percentage points over a three-year testing
period. The Company believes that it has not gone through an
ownership change over the most recent three-year testing period
that would cause the Companys NOLs to be subject to the
Section 382 Limitation. However, given the Companys
current ownership structure, the creation of one or more new 5%
shareholders could result in the Companys NOLs being
subject to the Section 382 Limitation.
39
Notes To
Consolidated Financial
Statements (Continued)
At March 31, 2011, the Company had no unrecognized tax
benefits, and the Company does not expect the liability for
uncertain tax positions to increase during the next fiscal year.
The Company is subject to taxation in the United States and
various states and foreign jurisdictions. The Companys tax
years for fiscal 2007 through the present are subject to
examination by the tax authorities. With few exceptions, the
Company is no longer subject to United States federal, state,
local or foreign examinations by tax authorities for years
before fiscal 2006. In the second quarter of Fiscal 2011, the
Internal Revenue Service commenced an examination of the
Companys federal income tax return for Fiscal 2009. This
audit was concluded with no changes in the first quarter of
Fiscal 2012.
The Company recognizes interest and penalties, related to
unrecognized tax benefits within the income tax expense line in
the accompanying consolidated statement of operations. Accrued
interest and penalties, if incurred, are included within the
related tax liability line in the consolidated balance sheets.
|
|
6.
|
LONG-TERM
DEBT PAYABLE TO BANKS
|
Long-term debt payable to banks, including current maturities,
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Senior Credit Facility
|
|
$
|
11,500
|
|
|
$
|
18,072
|
|
Less current maturities
|
|
|
|
|
|
|
3,286
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
11,500
|
|
|
$
|
14,786
|
|
|
|
|
|
|
|
|
|
|
During Fiscal 2011, the Company accelerated term-loan payments
by making four quarterly term-loan pre-payments totaling $3,286.
Accordingly, the balance sheet reflects no current maturities
due under the term loan of the Senior Credit Facility as of
March 31, 2011.
During the Fiscal 2011 second quarter, the Company made two $822
term loan repayments by paying the required amount due on
July 1, 2010, and pre-paying the amount due October 1,
2010. During the Fiscal 2011 third quarter, the Company made
three $822 term loan repayments by pre-paying the amounts due in
January 2011, April 2011 and July 2011. During the Fiscal 2011
fourth quarter, the Company made two $822 term loan repayments
by pre-paying the amounts due in October 2011 and January 2012.
Senior Credit Facility On
August 28, 2008, the Company refinanced and paid in full
the Former Senior Credit Facility (as defined below) with a new
60-month,
$33,000 senior credit facility consisting of a $10,000 revolving
line of credit and a term loan totaling $23,000 (the
Senior Credit Facility). As a result of this
refinancing, in the second quarter of Fiscal 2009, the Company
recorded a pre-tax charge of $551 consisting of $231 for writing
off unamortized debt issue costs and $320 for a pre-payment
penalty. The term loan requires quarterly principal payments of
$822 over the life of the loan and $6,571 due at maturity in
August 2013.
The Senior Credit Facility bears interest at either the
Base Rate or the London Interbank Offered Rate
(LIBOR) plus applicable margins based on the
Companys leverage ratio. The leverage ratio is equal to
consolidated total debt divided by consolidated EBITDA (the sum
of net income, depreciation, amortization, other non-cash
charges and credits to net income, interest expense, and income
tax expense minus charges related to debt refinancing) for the
most recent four quarters and is calculated at each quarter end.
The Base Rate is the higher of the Prime Rate or the Federal
Funds Open Rate plus 0.50%. The applicable margins for the Base
Rate based borrowings are between 0% and 0.75%. The applicable
margins for LIBOR-based borrowings are between 1.25% and 2.25%.
At March 31, 2011, the Senior Credit Facility had a blended
interest rate of 3.5%, for debt of $10,500 tied to LIBOR and for
debt of $1,000 tied to the Prime Rate. The Company also pays a
commitment fee of 0.375% on the average daily unused portion of
the Revolver. The Senior Credit Facility requires the Company to
enter into an interest rate swap (discussed below).
The Senior Credit Facility is secured by all of the
Companys assets and allows the Company to issue letters of
credit against the total borrowing capacity of the facility. At
March 31, 2011, there were no outstanding borrowings
40
Notes To
Consolidated Financial
Statements (Continued)
under the Revolver, $452 in outstanding (standby) letters of
credit, and $9,548 in Revolver availability. The Senior Credit
Facility contains certain financial covenants which require a
minimum fixed charge coverage ratio that is not permitted to be
less than 1.25 : 1.0 and a leverage ratio (as defined above)
that is not permitted to be more than 2.5 : 1.0. The fixed
charge coverage ratio is equal to consolidated EBITDA (as
defined above) divided by fixed charges (the sum of cash
interest expense, cash income taxes, dividends, cash
environmental costs, scheduled principal installments on
indebtedness adjusted for prepayments, capital expenditures, and
payments under capitalized leases). The Company is permitted to
exclude from fixed charges certain one-time capital expenditures
of up to $5,500 related to the facility relocation. At
March 31, 2011, the Company was in compliance with the
covenant provisions of the Senior Credit Facility.
Amortization of loan origination fees on the Senior Credit
Facility and the Former Senior Credit Facility amounted to $116,
$112, and $95 for the Fiscal years ended March 31, 2011,
2010 and 2009, respectively, and is included in interest
expense. The Company has no long-term debt maturities in Fiscal
year 2012 due to the pre-payments discussed above, long-term
debt maturities of $3,286 in Fiscal year 2013, and $8,214 in
Fiscal 2014. These maturities reflect the payment terms of the
Senior Credit Facility.
Interest Rate Swap The Senior Credit
Facility requires the Company to enter into an interest rate
swap for at least three years in an amount not less than 50% of
the term loan for the first two years and 35% of the term loan
for the third year. An interest rate swap, a type of derivative
financial instrument, is used to minimize the effects of
interest rate fluctuations on cash flows. The Company does not
use derivatives for trading or speculative purposes. In
September 2008, the Company entered into a three year interest
rate swap to exchange floating rate for fixed rate interest
payments on the term loan as required by the Companys
Senior Credit Facility. The swaps net effect of the spread
between the floating rate (30 day LIBOR) and the fixed rate
(3.25%), is settled monthly, and is reflected as an adjustment
to interest expense in the period incurred. The adjustment to
record the swap at its fair value is included in accumulated
other comprehensive loss, net of tax. The Company reduced its
existing unrealized loss on the interest rate swap during Fiscal
year 2011.
Former Senior Credit Facility At the
time of the refinancing, the Company had a $50,000 senior credit
facility consisting of a $10,000 revolving credit facility, and
two term loans of $20,000 each, which had a blended interest
rate of 6.82% (the Former Senior Credit Facility).
The terms of this facility required monthly principal payments
of $238, an additional quarterly principal payment of $50, and
certain mandatory prepayment provisions linked to cash flow. The
remaining balance under this facility was due at maturity on
May 1, 2012. The Company did not have a mandatory
prepayment under the Former Senior Credit Facility for Fiscal
2008 due to the pay down of principal made from the net proceeds
received from the February 2008 sale of its headquarters
facility and plant in Union, New Jersey. The Former Senior
Credit Facility was secured by all of the Companys assets.
|
|
7.
|
FAIR
VALUE MEASUREMENTS
|
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
(i.e. an exit price). The accounting guidance includes a fair
value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The three levels of the
fair value hierarchy are as follows:
|
|
|
|
|
Level 1 Unadjusted quoted prices for identical
assets or liabilities in active markets;
|
|
|
|
Level 2 Inputs other than quoted prices in
active markets for identical assets or liabilities that are
observable whether directly or indirectly for substantially the
full term of the asset or liability; and
|
|
|
|
Level 3 Unobservable inputs for the asset or
liability, which include managements own assumptions about
what the assumptions market participants would use in pricing
the asset or liability, including assumptions about risk.
|
The carrying amount reported in the Consolidated Balance Sheets
for cash, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short-term
maturity of those instruments. The carrying amount for
borrowings under the revolving portion of the Senior Credit
Facility, if applicable, would
41
Notes To
Consolidated Financial
Statements (Continued)
approximate fair value because of the variable market interest
rate charged to the Company for these borrowings. The fair value
of the long-term debt was estimated using a discounted cash flow
analysis and a yield rate that was estimated using yield rates
for publicly traded debt instruments of comparable companies
with similar features.
The carrying amounts and fair value of the Companys
financial instruments are presented below as of March 31,
2011.
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Long-term debt
|
|
$
|
11,500
|
|
|
$
|
11,500
|
|
Interest rate swap liability included in other long term
liabilities (Level 2)
|
|
|
60
|
|
|
|
60
|
|
|
|
8.
|
OTHER
LONG-TERM LIABILITIES
|
Other liabilities at March 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Environmental reserves
|
|
$
|
12,728
|
|
|
$
|
13,473
|
|
Obligation from divestiture(a)
|
|
|
3,358
|
|
|
|
3,376
|
|
Other
|
|
|
1,749
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,835
|
|
|
$
|
18,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Obligation from divestiture represents the legal liability of
the Company relative to a pension plan for a discontinued
operation. (See Note 10). |
|
|
9.
|
STOCK-BASED
COMPENSATION
|
The Company follows guidance issued by ASC 718,
Accounting for Stock-Based Compensation.
Compensation cost is recognized for all awards granted and
modified based on the grant date fair value of the awards. Net
income (loss) for each of the periods ended March 31, 2011,
2010, and 2009, includes $263, $462, and $393, respectively, net
of tax, of stock-based compensation expense. Stock-based
compensation expense is recorded in selling, general and
administrative expense. Additional compensation cost will be
recognized as new options are awarded. The Company has not made
any material modifications to its stock-based compensation plans
as the result of the issuance of this guidance.
The Company maintains the Amended and Restated 1992 Long-Term
Incentive Plan (the 1992 Plan), the 1999 Long-Term
Incentive Plan (the 1999 Plan), the 2004 Long-Term
Incentive Plan (the 2004 Plan), and the 2006
Long-Term Incentive Plan (the 2006 Plan).
Under the terms of the 2006 Plan, 500,000 shares of the
Companys common stock may be granted as stock options or
awarded as restricted stock to officers, non-employee directors,
and certain employees of the Company through July 2016. Under
the terms of the 2004 Plan, 200,000 shares of the
Companys common stock may be granted as stock options or
awarded as restricted stock to officers, non-employee directors,
and certain employees of the Company through September 2014. The
1999 Plan expired in July 2009, and no further grants or awards
may be made under this plan. Under the 1999 Plan, there remain
outstanding unexercised options granted in Fiscal years 2001,
2004, 2006 and 2008. The 1992 Plan expired in September 2002,
and no further grants or awards may be made under this plan.
There remain outstanding unexercised options granted in Fiscal
2002 under the 1992 Plan.
Under each of the 1992, 1999, 2004, and 2006 Plans, option
exercise prices equal the fair market value of the common shares
at the respective grant dates. Prior to May 1999, options
granted to officers and employees and all options granted to
non-employee directors expired if not exercised on or before
five years after the date of the grant. Beginning in May 1999,
options granted to officers and employees expire no later than
10 years after the date of the grant. Options granted to
directors, officers, and employees vest ratably over three years
beginning one year after
42
Notes To
Consolidated Financial
Statements (Continued)
the date of the grant. In certain circumstances, including a
change of control of the Company as defined in the various
Plans, option vesting may be accelerated.
The Black-Scholes weighted-average value per option granted in
Fiscal 2011 was $2.21 and $2.41. The Black-Scholes
weighted-average value per option granted in Fiscal 2010 was
$2.52, $2.55, and $2.63, and in Fiscal 2009 the Black-Scholes
weighted-average value per option granted was $4.52. The
Black-Scholes option pricing model uses dividend yield,
volatility, risk-free rate, expected term, and forfeiture
assumptions to value options granted in Fiscal 2011, Fiscal
2010, and Fiscal 2009. Expected volatilities are based on
historical volatility of the Companys common stock and
other factors. The risk-free rate for periods within the
contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of the
grant. The Company uses historical data to estimate the expected
option term. The Company assumed no forfeitures because of the
limited number of employees at the executive and senior
management levels who receive stock options, past employment
history, and current stock price projections. The Company uses
the following assumptions to estimate the fair value of option
grants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 $2.21
|
|
2011 $2.41
|
|
2010 $2.52
|
|
2010 $2.55
|
|
2010 $2.63
|
|
|
|
|
Value per
|
|
Value per
|
|
Value per
|
|
Value per
|
|
Value per
|
|
|
|
|
Option
|
|
Option
|
|
Option
|
|
Option
|
|
Option
|
|
2009
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Volatility
|
|
|
25.7
|
%
|
|
|
30.2
|
%
|
|
|
32.6
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
33.5
|
%
|
Risk-free interest rate
|
|
|
2.1
|
%
|
|
|
3.2
|
%
|
|
|
3.1
|
%
|
|
|
3.2
|
%
|
|
|
3.4
|
%
|
|
|
3.6
|
%
|
Expected term of options (in years)
|
|
|
7.0
|
|
|
|
7.0
|
|
|
|
7.0
|
|
|
|
7.0
|
|
|
|
7.0
|
|
|
|
7.0
|
|
The following table summarizes stock option activity under all
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Aggregate
|
|
|
Remaining
|
|
|
Average
|
|
|
|
of
|
|
|
Intrinsic
|
|
|
Contractual
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Value
|
|
|
Term (Years)
|
|
|
Price
|
|
|
Outstanding at March 31, 2009
|
|
|
454,911
|
|
|
$
|
28
|
|
|
|
6
|
|
|
$
|
10.00
|
|
Granted
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
$
|
6.13
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Canceled or expired
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
|
$
|
17.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
624,911
|
|
|
$
|
198
|
|
|
|
7
|
|
|
$
|
8.38
|
|
Granted
|
|
|
117,000
|
|
|
|
|
|
|
|
|
|
|
$
|
6.74
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Canceled or expired
|
|
|
(67,000
|
)
|
|
|
|
|
|
|
|
|
|
$
|
9.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
674,911
|
|
|
$
|
934
|
|
|
|
6
|
|
|
$
|
8.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2011
|
|
|
433,911
|
|
|
$
|
442
|
|
|
|
5
|
|
|
$
|
8.80
|
|
Unvested options expected to become exercisable after
March 31, 2011
|
|
|
241,000
|
|
|
$
|
492
|
|
|
|
9
|
|
|
$
|
6.65
|
|
Shares available for future option grants at March 31,
2011(a)
|
|
|
80,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
May be decreased by restricted stock grants. |
There were 117,000 and 200,000 options granted during Fiscal
2011 and Fiscal 2010, respectively. The weighted average grant
date fair value of options issued during the year ended
March 31, 2011 and 2010 was equal to $6.74 and $6.13 per
share, respectively.
No options were exercised during Fiscal 2011 and Fiscal 2010.
The aggregate intrinsic value of options exercised during Fiscal
2009 was approximately $4. The intrinsic value of stock options
is the amount by which the market price of the stock on the date
of exercise exceeded the market price of stock on the date of
grant. Cash
43
Notes To
Consolidated Financial
Statements (Continued)
received from stock option exercises during Fiscal 2009 was $7.
There was no tax benefit generated to the Company from options
granted prior to April 1, 2006 and exercised during Fiscal
2009.
During Fiscal 2011, 2010, and 2009, compensation expense
associated with stock options was $265, $539, and $409,
respectively, before taxes of $111, $226 and $172, respectively,
and was recorded in selling, general, and administrative
expense. As of March 31, 2011, there was approximately $431
of unrecognized compensation cost related to stock options
granted but not yet vested that are expected to become
exercisable. This cost is expected to be recognized over a
weighted-average period of 1.8 years.
Except as otherwise authorized by the Board of Directors, it is
the general policy of the Company that the stock underlying the
option grants consists of authorized and unissued shares
available for distribution under the applicable Plan. Under the
1992, 1999, 2004, and 2006 Plans, the Incentive and Compensation
Committee of the Board of Directors (made up of independent
Directors) may at any time offer to repurchase a stock option
that is exercisable and has not expired.
A summary of restricted stock award activity under all plans is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Number of
|
|
|
Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Non-vested at March 31, 2009
|
|
|
31,904
|
|
|
$
|
10.80
|
|
Granted
|
|
|
35,000
|
|
|
$
|
6.00
|
|
Vested
|
|
|
(25,624
|
)
|
|
$
|
10.65
|
|
Cancelled
|
|
|
(3,296
|
)
|
|
$
|
6.43
|
|
|
|
|
|
|
|
|
|
|
Non-vested at March 31, 2010
|
|
|
37,984
|
|
|
$
|
10.80
|
|
Granted
|
|
|
32,906
|
|
|
$
|
6.85
|
|
Vested
|
|
|
(36,899
|
)
|
|
$
|
6.29
|
|
Cancelled
|
|
|
(239
|
)
|
|
$
|
11.07
|
|
|
|
|
|
|
|
|
|
|
Non-vested at March 31, 2011
|
|
|
33,752
|
|
|
$
|
6.95
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards are utilized both for director
compensation and awards to officers and employees. Restricted
stock awards are distributed in a single grant of shares, which
shares are subject to forfeiture prior to vesting and have
voting and dividend rights from the date of distribution. With
respect to restricted stock awards to officers and employees,
forfeiture and transfer restrictions lapse ratably over three
years beginning one year after the date of the award. With
respect to restricted stock awards granted to non-employee
directors, the possibility of forfeiture lapses after one year
and transfer restrictions lapse on the date which is six months
after the director ceases to be a member of the board of
directors. In the event of the occurrence of certain
circumstances, including a change of control of the Company as
defined in the various Plans, the lapse of restrictions on
restricted stock may be accelerated.
The fair value of restricted stock awards is based on the market
price of the stock at the grant date and compensation cost is
amortized to expense on a straight-line basis over the requisite
service period as stated above. The Company expects no
forfeitures during the vesting period with respect to unvested
restricted stock awards granted.
During Fiscal 2011, 2010, and 2009, compensation expense related
to restricted stock awards recorded in general, administrative,
and selling expenses was $188, $257, and $268, respectively,
before taxes of $79, 108, and $113, respectively. As of
March 31, 2011, there was approximately $119 of
unrecognized compensation cost related to non-vested restricted
stock awards. This cost is expected to be recognized over a
period of approximately one year.
44
Notes To
Consolidated Financial
Statements (Continued)
|
|
10.
|
EMPLOYEE
BENEFIT PLANS
|
The Company has a defined contribution plan covering all
eligible employees. Contributions are based on certain
percentages of an employees eligible compensation.
Expenses related to this plan were $682, $745, and $786 in 2011,
2010, and 2009, respectively.
The Company provides postretirement benefits to certain union
employees from a previous plan that existed a number of years
ago. The primary cost is for 11 people with medical
benefits. The Company funds these benefits on a pay-as-you-go
basis. The measurement date is March 31.
In February 2002, the Companys subsidiary, Seeger-Orbis
GmbH & Co. OHG now known as TransTechnology Germany
GmbH (the Selling Company) sold its retaining ring
business in Germany to Barnes Group Inc. (Barnes).
German law prohibits the transfer of unfunded Pension
obligations which have vested for retired and former employees,
so the legal responsibility for the pension plan that related to
the business (the Pension Plan) remained with the
Selling Company. At the time of the sale and subsequent to the
sale, that pension liability was recorded based on the projected
benefit obligation since future compensation levels will not
affect the level of pension benefits. The relevant information
for the Pension Plan is shown below under the caption Pension
Plan. The measurement date is December 31. Barnes has
entered into an agreement with the Company and its subsidiary,
the Selling Company, whereby Barnes is obligated to administer
and discharge the pension obligation as well as indemnify and
hold the Selling Company and the Company harmless from these
pension obligations. Accordingly, the Company has recorded an
asset equal to the benefit obligation for the Pension Plan of
$3,358 and $3,376 as of March 31, 2011 and 2010,
respectively. See Notes 3 and 8. This asset is included in
other long-term assets and it is restricted in use to satisfy
the legal liability associated with the Pension Plan.
The following table sets forth the Pension Plans funded
status and amounts recognized related to the Pension Plan and
the postretirement benefit plan in the consolidated financial
statements as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Benefits
|
|
|
Pension Plan
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
973
|
|
|
$
|
817
|
|
|
$
|
3,376
|
|
|
$
|
3,365
|
|
Service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
43
|
|
|
|
35
|
|
|
|
184
|
|
|
|
195
|
|
Actuarial (gain)/loss
|
|
|
(58
|
)
|
|
|
231
|
|
|
|
(146
|
)
|
|
|
51
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
174
|
|
|
|
66
|
|
Benefits paid
|
|
|
(101
|
)
|
|
|
(110
|
)
|
|
|
(230
|
)
|
|
|
(301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
857
|
|
|
|
973
|
|
|
|
3,358
|
|
|
|
3,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
101
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(101
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under funded status at end of year
|
|
$
|
(857
|
)
|
|
$
|
(973
|
)
|
|
$
|
(3,358
|
)
|
|
$
|
(3,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Notes To
Consolidated Financial
Statements (Continued)
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Benefits
|
|
|
Pension Plan
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Current liabilities
|
|
$
|
98
|
|
|
$
|
115
|
|
|
$
|
|
|
|
$
|
|
|
Noncurrent liabilities
|
|
|
759
|
|
|
|
858
|
|
|
|
3,358
|
|
|
|
3,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
857
|
|
|
$
|
973
|
|
|
$
|
3,358
|
|
|
$
|
3,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
Pension Plan
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Net loss
|
|
$
|
193
|
|
|
$
|
275
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for the postretirement
benefit plan was $857 and $973 at March 31, 2011 and 2010,
respectively.
The following table provides the components of the net periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
Pension Plan
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
43
|
|
|
$
|
35
|
|
|
$
|
184
|
|
|
$
|
195
|
|
Amortization of net (gain) loss
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
66
|
|
|
$
|
35
|
|
|
$
|
184
|
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net loss, prior service cost, and transition
obligation for the postretirement benefit plan that will be
amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year are $15, $0, and
$0, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
Pension Plan
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Increase in minimum liability included in other comprehensive
income
|
|
$
|
193
|
|
|
$
|
275
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit
obligations at March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
Pension Plan
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Discount rate
|
|
|
4.70
|
%
|
|
|
4.70
|
%
|
|
|
5.25
|
%
|
|
|
5.80
|
%
|
Assumed health care cost trend rates for the postretirement
benefit plan at March 31:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Health care cost trend rate assumed for next year
|
|
|
10.0
|
%
|
|
|
9.5
|
%
|
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2020
|
|
|
|
2018
|
|
46
Notes To
Consolidated Financial
Statements (Continued)
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend
rates would have the following effects on the postretirement
benefit plan:
|
|
|
|
|
|
|
|
|
|
|
1-Percentage-
|
|
|
1-Percentage-
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
Effect on total of service and interest cost
|
|
$
|
46
|
|
|
$
|
41
|
|
Effect on postretirement benefit obligation
|
|
$
|
922
|
|
|
$
|
799
|
|
The Company expects to contribute $53 to its postretirement
benefit plan in Fiscal 2012.
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
Benefits
|
|
Pension Plan
|
|
2012
|
|
$
|
98
|
|
|
$
|
303
|
|
2013
|
|
|
94
|
|
|
|
297
|
|
2014
|
|
|
89
|
|
|
|
291
|
|
2015
|
|
|
83
|
|
|
|
286
|
|
2016
|
|
|
78
|
|
|
|
265
|
|
Years
2017-2021
|
|
|
307
|
|
|
|
1,308
|
|
|
|
11.
|
CONCENTRATION
OF CREDIT RISK
|
The Company is subject to concentration of credit risk primarily
with its trade receivables. The Company grants credit to certain
customers who meet pre-established credit requirements, and
generally requires no collateral from its customers. Estimates
of potential credit losses are provided for in the
Companys consolidated financial statements and are within
managements expectations. As of March 31, 2011, the
Company had no other significant concentrations of credit risk.
|
|
12.
|
SALE AND
LEASEBACK TRANSACTION AND OTHER LEASES
|
On February 8, 2008, the Company completed the transaction
for the sale of its headquarters facility and plant in Union,
New Jersey, for $10,500 in cash, before selling expenses. The
net proceeds at closing from the sale of the facility of $9,800
were applied to reduce the Former Senior Credit Facility. The
sale agreement and amended lease agreement permitted the Company
to lease the facility through May 1, 2010, pending the
Companys relocation to a new site. The lease has been
accounted for as an operating lease. The transaction resulted in
a realized pre-tax gain, net of sale expenses, of approximately
$6,800, and a deferred gain of approximately $1,700. The
deferred gain represented the present value of the minimum lease
payments over the term of the lease.
The Company conducts all of its operations from a leased
facility which expires in Fiscal 2020. In addition, the Company
leases various office equipment under operating leases, which
expire at various dates through Fiscal 2016. All operating
leases may include renewals and escalations.
The following is a summary of net rent expense under operating
leases for the years ended March 31, 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
Net
|
|
|
Minimum
|
|
of Deferred
|
|
Rent
|
|
|
Rentals
|
|
Gain
|
|
Expense
|
|
2011
|
|
$
|
1,136
|
|
|
$
|
|
|
|
$
|
1,136
|
|
2010
|
|
$
|
1,895
|
|
|
$
|
(718
|
)
|
|
$
|
1,177
|
|
2009
|
|
$
|
1,121
|
|
|
$
|
(883
|
)
|
|
$
|
238
|
|
47
Notes To
Consolidated Financial
Statements (Continued)
The Company and its subsidiaries have minimum rental commitments
under non-cancelable operating leases as follows:
|
|
|
|
|
2012
|
|
$
|
1,079
|
|
2013
|
|
|
1,079
|
|
2014
|
|
|
1,048
|
|
2015
|
|
|
1,046
|
|
2016
|
|
|
937
|
|
Thereafter
|
|
|
3,465
|
|
|
|
|
|
|
Total
|
|
$
|
8,654
|
|
|
|
|
|
|
Environmental
Matters
We are involved in environmental proceedings and potential
proceedings relating to soil and groundwater contamination and
other environmental matters at several of our former facilities
that were never required for our current operations. These
facilities were part of businesses disposed of by
TransTechnology Corporation, our former parent Company.
Environmental cleanup activities usually span several years,
which make estimating liabilities a matter of judgment because
of such factors as changing remediation technologies,
assessments of the extent of contamination, and continually
evolving regulatory environmental standards. We consider these
and other factors in estimates of the timing and amount of any
future costs that may be required for remediation actions. We
record a liability for the amount that we determine to be our
best estimate of the cost of remediation. We do not discount the
recorded liabilities, as the amount and timing of future cash
payments are not fixed or cannot be reliably determined.
Schedule II, Consolidated Valuation and Qualifying
Accounts, shows changes in estimated environmental liability
reserves. In the fourth quarter of Fiscal 2010, the Company
reviewed and evaluated new information regarding several of its
environmental sites which triggered a reassessment of its
environmental liability estimates. To support this reassessment,
the Company retained the services of a nationally-recognized
environmental consulting firm. Based upon the new information
and the consultants analysis and recommendations, the
Company estimated its future environmental liabilities in the
fourth quarter of Fiscal 2010 at $14,496 before offsetting
cost-sharing of about $1,500 that is classified primarily as a
non-current asset.
At March 31, 2011 and 2010, the aggregate amount of
liabilities recorded relative to environmental matters was
$14,293 and $14,496, respectively. In Fiscal 2011 and Fiscal
2010, we spent $638 and $772, respectively, on environmental
costs, and in fiscal 2012, we anticipate spending $1,399. The
increased spending is primarily related to the Glen Head, New
York property. These costs will be charged against our
environmental liability reserve and will not impact income. We
perform quarterly reviews of the status of our environmental
sites and the related liabilities. There are a number of former
operating facilities that we are monitoring or investigating for
potential future remediation. In some cases, although a loss may
be probable, it is not possible at this time to reasonably
estimate the amount of any obligation for remediation activities
because of uncertainties with respect to assessing the extent of
the contamination or the applicable regulatory standard. We also
are pursuing claims for contribution to site investigation and
cleanup costs against other potentially responsible parties
(PRPs), including the U.S. Government.
Although we take great care in the development of these risk
assessments and future cost estimates, the actual amount of the
remediation costs may be different from those estimated as a
result of a number of factors including: changes to federal and
state environmental regulations or laws; changes in local
construction costs and the availability of personnel and
materials; unforeseen remediation requirements that are not
apparent until the work actually commences; and actual
remediation expenses that differ from those estimated. We do not
include any unasserted claims that we might have against others
in determining our potential liability for such costs, and,
except
48
Notes To
Consolidated Financial
Statements (Continued)
as noted with regard to specific cost sharing arrangements, have
no such arrangements, nor have we taken into consideration any
future claims against insurance carriers that we may have in
determining our environmental liabilities. In those situations
where we are considered a de minimis participant in a
remediation claim, the failure of the larger participants to
meet their obligations could result in an increase in our
liability with regard to such a site.
We continue to participate in environmental assessments and
remediation work at eleven locations, including certain former
facilities. Due to the nature of environmental remediation and
monitoring work, such activities can extend for up to
30 years, depending upon the nature of the work, the
substances involved, and the regulatory requirements associated
with each site. We do not discount the recorded liabilities.
In the first quarter of Fiscal 2003, we entered into a consent
order for a former facility in Glen Head, New York, which is
currently subject to a contract for sale, pursuant to which we
developed a remediation plan for review and approval by the New
York Department of Environmental Conservation. We were advised
in Fiscal 2010 that the Department of Environmental Conservation
was requiring additional offsite groundwater delineation studies
as part of its review. At the former facility in Glen Head, New
York, based upon the characterization work performed to date and
this latest request, the Company has accrued estimated costs of
approximately $4,132. The amounts and timing of payments are
subject to the approved remediation plan and additional
discussions with the Department on the scope of the additional
delineation study.
We sold the business previously operated at the property we own
in Saltzburg, PA (Federal Labs). We presented an
environmental cleanup plan during the fourth quarter of Fiscal
2000 for a portion of Federal Labs site, which was approved
during the third quarter of Fiscal 2004. This plan was submitted
pursuant to the Consent Order and Agreement with the
Pennsylvania Department of Environmental Protection
(PaDEP) concluded in fiscal 1999 (the 1999
Consent Order). Pursuant to the Consent Order, upon its
execution the Company paid $0.2 million for past costs,
future oversight expenses and in full settlement of claims made
by PaDEP related to the environmental remediation of the site
with an additional $0.2 million paid in Fiscal 2001. We
concluded a second Consent with PaDEP in the third quarter of
Fiscal 2001 for a second portion of the Federal Labs site (the
2001 Consent Order), and a third Consent Order for
the remainder of the Federal Labs site was concluded in the
third quarter of Fiscal 2003 (the 2003 Consent
Order). We submitted an environmental cleanup plan for the
portion of the Federal Labs site covered by the 2003 Consent
Order during the second quarter of Fiscal 2004. We are also
administering an agreed settlement with the Federal Government,
concluded in the first quarter of Fiscal 2000, under which the
Federal Government pays 50% of the direct and indirect
environmental response costs associated with a portion of the
Fed Labs site subject to the 1999 Consent Order. The Company
also concluded an agreement in the first quarter of Fiscal 2006,
under which the Federal Government paid an amount equal to 45%
of the estimated environmental response costs associated with a
second portion of the Federal Labs site subject to the 2001
Consent Order. No future payments are due under this second
agreement. The Company is currently under a tolling agreement
with the Federal Government with respect to the remainder of the
Federal Labs site while we negotiate a cost sharing arrangement
with respect to the final portion of the this site subject to
the 2003 Consent Order. However, there can be no assurance we
will be successful in these negotiations or any litigation
seeking to enforce our rights to contribution and or
indemnification from the Federal Government with respect to this
final portion of the Federal Labs site. Our reserves are shown
without giving effect to any cost sharing payments due from the
Federal Government. These amounts are shown as other assets on
our balance sheet.
At March 31, 2011, our reserve for environmental
liabilities at Federal Labs was $5,852. The Company expects that
remediation at this site, which is subject to the oversight of
the Pennsylvania authorities, will not be completed for several
years, and that monitoring costs, although expected to be
incurred over twenty years, could extend for up to thirty years.
There are other properties that have a combined environmental
liability of $4,253. In addition, the Company has been named as
a potentially responsible party in four environmental
proceedings pending in several states in which it is alleged
that the Company is a generator of waste that was sent to
landfills and other treatment facilities. Such properties
generally relate to businesses which have been sold or
discontinued. The Company estimates that expected future costs,
and the estimated proportional share of remedial work to be
performed associated with these
49
Notes To
Consolidated Financial
Statements (Continued)
proceedings, will not exceed $100 and has provided for these
estimated costs in the Companys accrual for environmental
liabilities.
We have entered into a sales contract for the Glen Head, New
York property for $4,000, and it is classified as held for sale
in the amount of $3,800 after allowing for certain costs. The
contract does not include a price adjustment clause and although
there are conditions precedent to the buyers obligations
to close, the contract does not allow for contract termination.
Thus, the buyer cannot unilaterally terminate the contract
without liability, a buy-out, or some other settlement that must
be negotiated with the Company. However, there is no outside
date for closing to occur and we must provide the buyer with a
funded remediation plan and environmental insurance prior to the
buyer being obligated to close. The buyer has indicated its
intent to build residential housing on the property and has been
engaged in the lengthy process of securing the municipal
approvals necessary to redevelop this former industrial site for
residential purposes. The property is the subject of a consent
order with the State of New York in which the Company has
developed a remediation plan for review and approval by the New
York Department of Environmental Conservation. We received a
request from the Department this past fiscal year to provide
delineation and testing with respect to offsite groundwater
contamination. Neither the consent order nor the remediation
plan affect the buyers obligation to close under the sales
contract. At the time the sales contract was entered into in
July 2001, the property had an appraised value of $3,300 without
adjusting for the Companys estimated cost of remediation,
which is separately reserved. In 2005, the property had an
appraised value of $4,200 without adjusting for the
Companys estimated cost of remediation. The property has
not been appraised since 2005.
Litigation
The Company is also engaged in various other legal proceedings
incidental to its business. It is the opinion of management
that, after taking into consideration information furnished by
its counsel, these matters will have no material effect on the
Companys consolidated financial position or the results of
operations or cash flows in future periods.
|
|
14.
|
SEGMENT
AND GEOGRAPHIC INFORMATION
|
Our products and related services aggregate into one reportable
segment sophisticated mission equipment for
specialty aerospace and defense applications. The nature of the
production process (assemble, inspect, and test) is similar for
all products, as are the customers and distribution methods.
Net sales greater than 10% of total revenues derived from one
customer are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Customer A
|
|
$
|
21,591
|
|
|
$
|
17,157
|
|
|
$
|
14,973
|
|
Customer B
|
|
$
|
16,238
|
|
|
$
|
13,091
|
|
|
$
|
12,230
|
|
Customer C
|
|
$
|
12,639
|
|
|
$
|
13,134
|
|
|
$
|
14,358
|
|
Net sales by geographic location of customers are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
$
|
49,622
|
|
|
$
|
41,115
|
|
|
$
|
42,739
|
|
Italy
|
|
|
8,123
|
|
|
|
9,506
|
|
|
|
7,753
|
|
England
|
|
|
3,499
|
|
|
|
2,510
|
|
|
|
2,909
|
|
Other European countries
|
|
|
4,588
|
|
|
|
3,359
|
|
|
|
8,022
|
|
Pacific and Far East
|
|
|
4,325
|
|
|
|
4,309
|
|
|
|
5,857
|
|
Other International
|
|
|
8,043
|
|
|
|
8,228
|
|
|
|
8,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
78,200
|
|
|
$
|
69,027
|
|
|
$
|
75,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Notes To
Consolidated Financial
Statements (Continued)
|
|
15.
|
UNAUDITED
QUARTERLY FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
16,540
|
|
|
$
|
15,106
|
|
|
$
|
19,614
|
|
|
$
|
26,940
|
|
|
$
|
78,200
|
|
Gross profit
|
|
|
6,133
|
|
|
|
6,176
|
|
|
|
7,275
|
|
|
|
11,368
|
|
|
|
30,952
|
|
Operating income
|
|
|
1,293
|
|
|
|
1,360
|
|
|
|
1,841
|
|
|
|
4,963
|
|
|
|
9,457
|
|
Net income
|
|
|
589
|
|
|
|
643
|
|
|
|
953
|
|
|
|
2,841
|
|
|
|
5,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.10
|
|
|
$
|
0.30
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.10
|
|
|
$
|
0.30
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
13,362
|
|
|
$
|
16,408
|
|
|
$
|
21,168
|
|
|
$
|
18,089
|
|
|
$
|
69,027
|
|
Gross profit
|
|
|
5,234
|
|
|
|
5,963
|
|
|
|
8,009
|
|
|
|
1,445
|
(a)
|
|
|
20,651
|
|
Operating income (loss)
|
|
|
912
|
|
|
|
1,422
|
|
|
|
3,475
|
|
|
|
(12,532
|
)(b)
|
|
|
(6,723
|
)
|
Net income (loss)
|
|
|
358
|
|
|
|
654
|
|
|
|
1,857
|
|
|
|
(8,912
|
)
|
|
|
(6,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
|
$
|
0.20
|
|
|
$
|
(0.95
|
)
|
|
$
|
(0.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
|
$
|
0.20
|
|
|
$
|
(0.95
|
)
|
|
$
|
(0.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes a pretax charge of $3,311 for a change in estimate of
the inventory obsolescence reserve, $1,539 of unabsorbed
manufacturing overhead related to the relocation, and $784 to
accrue for estimated losses on engineering contracts. |
|
(b) |
|
Includes a pretax charge for a change in estimate for
environmental liabilities of $8,135. |
51
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial
Officer, the effectiveness of our disclosure controls and
procedures (as defined in
Rules 13a-15(e)
or 15(d)-15(e)) as of the end of the period covered by this
report pursuant to
Rule 13a-15(b).
Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of March 31, 2011, our
disclosure controls and procedures were effective to ensure
(i) that information we are required to disclose in reports
that we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and
(ii) that such information is accumulated and communicated
to management, including our Chief Executive Officer and Chief
Financial Officer, in order to allow timely decisions regarding
required disclosure.
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Internal control over financial reporting
is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
Our internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect our transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the consolidated
financial statements in accordance with generally accepted
accounting principles and that our receipts and expenditures are
being made only in accordance with authorization of management
and our Board of Directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that
could have a material adverse effect on the consolidated
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Companys
internal control over financial reporting as of March 31,
2011 using criteria established by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Our management has concluded
that our internal control over financial reporting was effective
as of March 31, 2011. In addition, our independent
registered public accounting firm of Marcum LLP has issued an
attestation report on our internal control over financial
reporting, which is included herein.
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting (as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended) during
the fiscal quarter ended March 31, 2011 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
52
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
The information required by this item will be set forth in our
definitive proxy statement with respect to our 2011 annual
meeting of stockholders to be filed not later than 120 days
after March 31, 2011 and is incorporated herein by this
reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item will be set forth in our
definitive proxy statement with respect to our 2011 annual
meeting of stockholders to be filed not later than 120 days
after March 31, 2011 and is incorporated herein by this
reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item will be set forth in our
definitive proxy statement with respect to our 2011 annual
meeting of stockholders to be filed not later than 120 days
after March 31, 2011 and is incorporated herein by this
reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR
INDEPENDENCE
|
The information required by this item will be set forth in our
definitive proxy statement with respect to our 2011 annual
meeting of stockholders to be filed not later than 120 days
after March 31, 2011 and is incorporated herein by this
reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item will be set forth in our
definitive proxy statement with respect to our 2011 annual
meeting of stockholders to be filed not later than 120 days
after March 31, 2011 and is incorporated herein by this
reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements, Schedules, and Exhibits:
1. Financial Statements:
Consolidated Balance Sheets at March 31, 2011 and 2010
Statements of Consolidated Operations for the years ended
March 31, 2011, 2010, and 2009
Statements of Consolidated Cash Flows for the years ended
March 31, 2011, 2010, and 2009
Statements of Consolidated Stockholders Equity for the
years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms for
the years ended March 31, 2011, 2010 and 2009
2. Financial Statement Schedules
Schedule II Consolidated Valuation and
Qualifying Accounts for the years ended March 31, 2011,
2010, and 2009.
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
3. Exhibits:
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this report.
53
BREEZE-EASTERN
CORPORATION SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR YEARS ENDED MARCH 31, 2011, 2010 AND 2009
($ In Thousands Except Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
End of
|
|
Description
|
|
Period
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Period
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts and sales returns
|
|
$
|
150
|
|
|
$
|
85
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
235
|
|
Inventory reserves
|
|
|
2,538
|
|
|
|
569
|
|
|
|
|
|
|
|
496
|
|
|
|
2,611
|
|
Environmental reserves
|
|
|
14,496
|
|
|
|
435
|
|
|
|
|
|
|
|
638
|
|
|
|
14,293
|
|
Allowance for tax loss valuation
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts and sales returns
|
|
|
30
|
|
|
|
122
|
|
|
|
|
|
|
|
2
|
|
|
|
150
|
|
Inventory reserves
|
|
|
1,303
|
|
|
|
3,533
|
(a)
|
|
|
|
|
|
|
2,298
|
(a)
|
|
|
2,538
|
|
Environmental reserves
|
|
|
5,546
|
|
|
|
9,722
|
(b)
|
|
|
|
|
|
|
772
|
|
|
|
14,496
|
|
Allowance for tax loss valuation
|
|
|
1,867
|
|
|
|
|
|
|
|
|
|
|
|
1,602
|
|
|
|
265
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts and sales returns
|
|
|
101
|
|
|
|
7
|
|
|
|
|
|
|
|
78
|
|
|
|
30
|
|
Inventory reserves
|
|
|
1,688
|
|
|
|
84
|
|
|
|
|
|
|
|
469
|
|
|
|
1,303
|
|
Environmental reserves
|
|
|
5,819
|
|
|
|
356
|
|
|
|
|
|
|
|
629
|
|
|
|
5,546
|
|
Allowance for tax loss valuation
|
|
|
5,595
|
|
|
|
|
|
|
|
265
|
(c)
|
|
|
3,993
|
|
|
|
1,867
|
|
|
|
|
(a) |
|
In the process of moving from Union, NJ to Whippany, NJ, the
Company reviewed its inventory and identified $2,198 of items
which would cost more to move and restock than their current or
projected future market value; these items have been scrapped.
Normal scrap during the Fiscal year was $100. Since this amount
was more than was expected, the Companys management
reassessed the methodology used for estimating inventory
obsolescence and determined that a modification was warranted.
This change in methodology increased the Companys estimate
of inventory obsolescence to $2,538 at March 31, 2010. The
combination of these two events resulted in a non-cash pretax
charge of $3,311. There was $222 of normal inventory
obsolescence adjustments made during the Fiscal year bringing
the total to $3,533. |
|
(b) |
|
In the fourth quarter of Fiscal 2010, the Company received and
evaluated new information regarding several of its environmental
sites which triggered a reassessment of its environmental
liability estimates. |
|
(c) |
|
Increase is for a deferred tax asset related to a discontinued
operation. |
54
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1
|
|
Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended December 25, 2005)
|
|
3
|
.2
|
|
Certificate of Amendment to Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Companys current report on
Form 8-K
filed with the SEC on October 13, 2006)
|
|
3
|
.3
|
|
Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Companys annual
report on
Form 10-K
for the fiscal year ended March 31, 2008)
|
|
10
|
.1
|
|
Amended and Restated 1992 Long Term Incentive Plan (incorporated
by reference to Exhibit 10.2 to the Companys
registration statement on
Form S-2,
File
No. 333-37395,
filed with the SEC on October 8, 1997)
|
|
10
|
.2
|
|
1999 Long Term Incentive Plan (incorporated by reference to
Exhibit 10.23 to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 1999)
|
|
10
|
.3
|
|
Form of Stock Option Agreement under the Companys 1999
Long Term Incentive Plan (incorporated by reference to
Exhibit 10.27 to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2000)
|
|
10
|
.4
|
|
Form of Restricted Stock Award Agreement under the
Companys 1999 Long Term Incentive Plan (incorporated by
reference to Exhibit 10.28 to the Companys annual
report on
Form 10-K
for the fiscal year ended March 31, 2000)
|
|
10
|
.5
|
|
2004 Long Term Incentive Plan (incorporated by reference to
Annex A to the Companys definitive proxy statement
for its 2004 annual meeting of stockholders)
|
|
10
|
.6
|
|
Form of Stock Option Agreement used under the 2004 Long Term
Incentive Plan (incorporated by reference to Exhibit 10.17
to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2006)
|
|
10
|
.7
|
|
Form of Restricted Stock Award Agreement used under the 2004
Long Term Incentive Plan (incorporated by reference to
Exhibit 10.18 to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2006
|
|
10
|
.8
|
|
2006 Long Term Incentive Plan of the Company (incorporated by
reference to Annex A to the Companys definitive proxy
statement for its 2006 annual meeting of stockholders)
|
|
10
|
.9
|
|
Form of Stock Option Agreement under the 2006 Long Term
Incentive Plan (incorporated by reference to Exhibit 10.34
to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2007)
|
|
10
|
.10
|
|
Form of Restricted Stock Award Agreement under the 2006 Long
Term Incentive Plan (incorporated by reference to
Exhibit 10.35 to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2007)
|
|
10
|
.11
|
|
Credit Agreement by and among the Company, as Borrower, the
Guarantors that are signatories thereto, as the Guarantors, T.D.
Bank, N.A, as a Lender, PNC Bank, National Association, as a
Lender and the Administrative Agent for the Lenders, and PNC
Capital Markets, LLC, as Arranger, dated as of August 28,
2008 (incorporated by reference to Exhibit 10.1 to the
Companys current report on
Form 8-K,
filed with the SEC on August 29, 2008)
|
|
10
|
.12
|
|
Agreement of Sale between the Company and Bed Bath &
Beyond, Inc., dated as of November 28, 2007 (incorporated
by reference to Exhibit 10.1 to the Companys current
report on
Form 8-K,
filed with the SEC on November 30, 2007)
|
|
10
|
.13
|
|
Net Lease Agreement between the Company and Bed Bath &
Beyond, dated as of February 8, 2008 (incorporated by
reference to Exhibit 10.35 to the Companys annual
report on
Form 10-K
for the fiscal year ended March 31, 2008)
|
|
10
|
.14
|
|
Net Lease Agreement between the Company and 35 Melanie Lane,
L.L.C., dated as of May 13, 2009 (incorporated by reference
to Exhibit 10.34 to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2009)
|
|
10
|
.15
|
|
First Amendment to Credit Agreement by and among the Company, as
Borrower, the Guarantors that are parties thereto, the Lenders
that are Parties thereto, as the Lenders, and PNC Bank, National
Association, as Administrative Agent, dated as of August 5,
2009 (incorporated by reference to Exhibit 10.2 to the
Companys current report on
Form 8-K,
filed with the SEC on August 7, 2009)
|
55
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.16
|
|
Employment Agreement between the Company and Michael Harlan,
dated July 24, 2009 (incorporated by reference to
Exhibit 10.36 to the Companys current report on
Form 8-K,
filed with the SEC on January 7, 2010)
|
|
10
|
.17
|
|
Stock Option Agreement between the Company and Michael Harlan,
dated August 17, 2009 (incorporated by reference to
Exhibit 10.37 to the Companys current report on
Form 8-K,
filed with the SEC on January 7, 2010)
|
|
10
|
.18
|
|
Employment Agreement between the Company and Mark D. Mishler,
dated December 10, 2009 (incorporated by reference to
Exhibit 10.38 to the Companys current report on
Form 8-K,
filed with the SEC on January 7, 2010)
|
|
10
|
.19
|
|
Termination Agreement between the Company and Robert L.G. White
dated December 8, 2009 (incorporated by reference to
Exhibit 10.19 to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2010)
|
|
10
|
.20
|
|
Termination Agreement between the Company and Joseph F. Spanier
dated January 5, 2010 (incorporated by reference to
Exhibit 10.20 to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2010)
|
|
10
|
.21
|
|
Stock Option Agreement between the Company and Mark D. Mishler,
dated January 6, 2010 (incorporated by reference to
Exhibit 10.21 to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2010)
|
|
10
|
.22*
|
|
Form of Restricted Stock Award Agreement under the 2006 Long
Term Incentive Plan between the Company and the Board of
Directors
|
|
21
|
.1
|
|
Subsidiaries of the Company (incorporated by reference to
Exhibit 16.1to the Companys annual report on
Form 10-K
for the fiscal year ended March 31, 2010)
|
|
23
|
.1*
|
|
Consent of Independent Registered Public Accounting Firm
|
|
31
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
Sarbanes-Oxley Act of 2002 Section 302
|
|
31
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
Sarbanes-Oxley Act of 2002 Section 302
|
|
32
|
.1*
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Sarbanes Oxley Act of 2002 Section 906
|
56
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.
BREEZE-EASTERN CORPORATION
|
|
|
|
By:
|
/s/ D.
Michael Harlan, Jr.
|
D. Michael Harlan, Jr.
President and Chief Executive Officer
Mark D. Mishler.
Senior Vice President, Chief Financial Officer,
Treasurer, and Secretary
Date: June 3, 2011
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/ Charles
W. Grigg
Charles
W. Grigg
|
|
Chairman of the Board of Directors
|
|
June 3, 2011
|
|
|
|
|
|
/s/ Mark
D. Mishler
Mark
D. Mishler
|
|
Senior Vice President, Chief Financial Officer, Treasurer, and
Secretary
(Principal Financial and Accounting Officer)
|
|
June 3, 2011
|
|
|
|
|
|
/s/ D.
Michael Harlan, Jr.
D.
Michael Harlan, Jr.
|
|
President and Chief Executive Officer (Principal Executive
Officer)
Director
|
|
June 3 2011
|
|
|
|
|
|
/s/ William
H. Alderman
William
H. Alderman
|
|
Director
|
|
June 3, 2011
|
|
|
|
|
|
/s/ William
J. Recker
William
J. Recker
|
|
Director
|
|
June 3, 2011
|
|
|
|
|
|
/s/ Russell
M. Sarachek
Russell
M. Sarachek
|
|
Director
|
|
June 3, 2011
|
|
|
|
|
|
/s/ William
M. Shockley
William
M. Shockley
|
|
Director
|
|
June 3, 2011
|
|
|
|
|
|
/s/ Frederick
Wasserman
Frederick
Wasserman
|
|
Director
|
|
June 3, 2011
|
57