1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________________________to________________________ Commission file number 0-3905 -------- TRANSMATION, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) OHIO 16-0874418 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10 Vantage Point Drive, Rochester, NY 14624 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 716-352-7777 ------------------------------ - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark [X] whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Number of Shares Outstanding Date - ----- ---------------------------- ---- Common 5,871,230 September 30, 1999 TOTAL PAGES-16
2 Part I ------ FINANCIAL INFORMATION --------------------- Item 1. Financial Statements - ---------------------------- TRANSMATION, INC. CONSOLIDATED BALANCE SHEET Unaudited <TABLE> <CAPTION> September 30, March 31, ASSETS: 1999 1999 ------------ ------------ <S> <C> <C> Current Assets: Cash $ 178,454 $ 282,625 Accounts Receivable, less allowance for doubtful accounts of $341,000 at 9/30/99 and $549,000 at 3/31/99 12,006,222 13,301,156 Inventories 12,867,386 12,009,770 Income Taxes Receivable 244,902 371,673 Prepaid Expenses and Deferred Charges 1,679,717 1,905,008 Deferred Tax Assets 257,480 257,480 ------------ ------------ Current Assets 27,234,161 28,127,712 Properties, at cost, less accumulated depreciation 7,367,531 6,886,231 Goodwill, less accumulated amortization of $3,085,151 at 9/30/99 and $2,473,621 at 3/31/99 21,215,866 21,738,856 Deferred Charges 188,952 214,295 Deferred Income Taxes 65,692 65,692 Other Assets 272,394 262,798 ------------ ------------ $ 56,344,596 $ 57,295,584 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities Current Portion of Long Term Debt $ 2,450,000 $ 2,200,000 Accounts Payable 7,102,267 11,423,358 Accrued Payrolls, Commissions & Other 1,839,666 2,167,714 ------------ ------------ Current Liabilities 11,391,933 15,791,072 Long-Term Debt 28,876,500 26,166,900 Deferred Compensation 398,348 431,609 ------------ ------------ 40,666,781 42,389,581 ------------ ------------ Stockholders' Equity: Common Stock, par value $.50 per share - Authorized - 30,000,000 shares 2,995,294 2,966,371 Capital in Excess of Par Value 2,718,261 2,581,055 Accumulated Translation Adjustment (168,517) (200,568) Retained Earnings 10,586,092 10,012,460 ------------ ------------ 16,131,130 15,359,318 Treasury stock, at cost, 119,358 shares at 9/30/99 (453,315) (453,315) ------------ ------------ 15,677,815 14,906,003 ------------ ------------ $ 56,344,596 $ 57,295,584 ============ ============ </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2
3 TRANSMATION, INC. CONSOLIDATED STATEMENT OF INCOME UNAUDITED <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------ ---------------- 9/30/99 9/30/98 9/30/99 9/30/98 ------- ------- ------- ------- <S> <C> <C> <C> <C> Net Sales $19,210,385 $16,338,809 $39,245,199 $34,298,118 Costs and Expenses: Cost of Product Sold 13,003,119 10,789,275 26,626,694 22,616,720 Selling & Admin. Expenses 4,656,038 4,105,171 9,538,642 8,734,246 Research & Develop. Costs 419,923 421,635 803,283 855,956 Interest Expense 656,957 556,625 1,319,248 1,147,035 18,736,037 15,872,706 38,287,867 33,353,957 Income Before Taxes 474,348 466,103 957,332 944,161 Provision for Income Taxes State and Federal 190,900 181,000 383,700 369,500 Net Income 283,448 285,103 573,632 574,661 Retained Earnings at Beginning of Period 10,302,644 9,252,917 10,012,460 8,963,359 Retained Earnings at End of Period $10,586,092 $ 9,538,020 $10,586,092 $ 9,538,020 =========== =========== =========== =========== Earnings Per Share - Basic $ .05 $ .05 $ .10 $ .10 =========== =========== =========== =========== Earnings Per Share - Diluted $ .05 $ .05 $ .10 $ .09 =========== =========== =========== =========== Shares Used In Calculation Basic 5,843,996 5,808,712 5,843,996 5,808,712 =========== =========== =========== =========== Diluted 5,954,109 6,049,382 5,954,109 6,049,382 =========== =========== =========== =========== </TABLE> 3
4 TRANSMATION, INC. CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------ ---------------- 9/30/99 9/30/98 9/30/99 9/30/98 ------- ------- ------- ------- <S> <C> <C> <C> <C> Cash Flows from Operating Activities Net Income $ 283,448 $ 285,103 $ 573,632 $ 574,661 Adjustments to reconcile net income to net cash provided from operating activities Depreciation and Amortization 1,168,060 1,059,709 2,325,902 2,186,334 Provision for Losses on Accounts Receivable (134,000) (14,000) (208,000) (65,000) Life Insurance Policies (9,596) (9,285) (9,596) (9,285) Decrease in Accounts Receivable 1,678,146 235,701 1,502,934 1,907,274 Decrease (Increase) in Inventories 387,900 353,003 (857,616) 68,063 Increase in Prepaid Expenses and Deferred Charges (322,783) (334,443) (395,053) (745,774) (Decrease) Increase in Accounts Payable (1,920,883) (1,066,876) (4,321,091) (2,325,606) Decrease in Accrued Payrolls, Commissions & Other Liabilities (414,027) 47,261 (328,048) (328,312) Increase (Decrease) in Income Taxes Receivable/Payable 1,653 52,375 126,771 (21,866) Decrease in Deferred Compensation (16,411) (17,725) (33,261) (35,449) ----------- ----------- ----------- ----------- Net Cash Provided (used) by Operating Activities 701,507 590,823 (1,623,426) 1,205,040 ----------- ----------- ----------- ----------- Cash Flows from Investing Activities: Purchase of Metermaster 99,954 (88,540) Purchase of Properties (432,986) (314,774) (1,549,985) (677,966) ----------- ----------- ----------- ----------- Net Cash (used in) Investing Activities (333,032) (314,774) (1,638,525) (677,966) ----------- ----------- ----------- ----------- Cash Flows from Financing Activities: (Dec)Inc. in Notes Payable & Current Portion of LTD 125,000 (856,000) 250,000 (3,356,000) Issuance of Common Stock 94,678 122,367 166,129 233,485 (Decrease) Increase in Long-Term Debt (936,900) 693,564 2,709,600 2,679,278 ----------- ----------- ----------- ----------- Net Cash Provided by (used in) Financing Activities (717,222) (40,069) 3,125,729 (443,237) ----------- ----------- ----------- ----------- Effect of Exchange Rate Changes on Cash (5,010) (67,627) 32,051 (105,944) ----------- ----------- ----------- ----------- Net Increase (Decrease) in Cash (353,757) 168,353 (104,171) (22,107) Cash at Beginning of Period 532,211 462,204 282,625 652,664 ----------- ----------- ----------- ----------- Cash at End of Period $ 178,454 $ 630,557 $ 178,454 $ 630,557 =========== =========== =========== =========== Cash Paid for Interest and Income Taxes is as follows: Interest Paid $ 649,409 $ 417,713 $ 1,263,258 $ 1,055,416 Taxes Paid $ 202,210 $ 147,830 $ 269,507 $ 338,127 </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4
5 TRANSMATION, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY UNAUDITED <TABLE> <CAPTION> Number of Shares of $.50 Par Value Common Accumulated Common Stock Capital in Other Stock Issued and Excess of Retained Comprehensive Treasury Outstanding Outstanding Par Value Earnings (Loss) Income Stock Total ----------- ----------- --------- -------- ------------- ----- ----- <S> <C> <C> <C> <C> <C> <C> <C> Balance, March 31, 1996 2,451,946 $1,225,973 $1,124,583 $ 5,905,652 ($93,819) $8,162,389 Components of Comprehensive Income: Net Income 2,059,736 2,059,736 Currency Translation Adjustment (36,713) (36,713) ----------- Total Comprehensive Income 2,023,023 Issuance of Stock 374,466 187,233 1,997,163 2,184,396 --------- ---------- ---------- ----------- --------- ----------- Balance, March 31, 1997 2,826,412 1,413,206 3,121,746 7,965,388 (130,532) 12,369,808 Components of Comprehensive Income: Net Income 997,971 997,971 Currency Translation Adjustment 9,744 9,744 ----------- Total Comprehensive Income 1,007,715 Issuance of Stock 150,838 75,419 532,217 607,636 Two for One Stock Split on July 22, 1997 2,853,692 1,426,846 (1,426,846) --------- ---------- ---------- ----------- --------- ----------- Balance, March 31, 1998 5,830,942 2,915,471 2,227,117 8,963,359 (120,788) 13,985,159 Components of Comprehensive Income: Net Income 1,049,101 1,049,101 Currency Translation Adjustment (79,780) (79,780) ----------- Total Comprehensive Income 969,321 Issuance of Stock 101,800 50,900 353,938 404,838 Share Repurchase ($453,315) (453,315) --------- ---------- ---------- ----------- --------- --------- ----------- Balance, March 31, 1999 5,932,742 2,966,371 2,581,055 10,012,460 (200,568) (453,315) 14,906,003 Components of Comprehensive Income: Net Income 573,632 573,632 Currency Translation Adjustment 32,051 32,051 ----------- Total Comprehensive Income 605,683 Issuance of Stock 57,846 28,923 137,206 166,129 --------- ---------- ---------- ----------- --------- --------- ----------- Balance, September 30, 1999 5,990,588 $2,995,294 $2,718,261 $10,586,092 ($168,517) ($453,315) $15,677,815 ========= ========== ========== =========== ========= ========= =========== </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5
6 TRANSMATION, INC. Notes to the Consolidated Financial Statements Note 1 - Consolidated Financial Statements - ------------------------------------------ The consolidated balance sheets, statements of income, cash flow and stockholders' equity for the periods ended September 30, 1999 and September 30, 1998 have been prepared by the Company without audit. In the opinion of Management, all adjustments necessary to present fairly the financial position, results of operations, and changes in cash flows at September 30, 1999 (which include only normal recurring adjustments), have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's March 31, 1999, annual report to shareholders. The results of operations for the six months ended September 30, 1999, are not necessarily indicative of the operating results for the full year. Note 2 - Earnings Per Share - --------------------------- Net income per share - basic - excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Net income per share - diluted - reflects the potential dilution that could occur if stock options and warrants were exercised. 6
7 Item 2 - Management's Discussion and Analysis of Results of Operations and - -------------------------------------------------------------------------- Financial Condition ------------------- The following discussion is based primarily on the consolidated financial statements of Transmation, Inc. as of September 30, 1999 and 1998 and for the six and three month periods then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. Forward-Looking Statements - -------------------------- This discussion contains forward-looking statements. Although the Company believes expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that may cause actual results to differ include general economic conditions and other conditions that might affect operating expenses. Liquidity and Capital Resources - ------------------------------- The Company's primary sources of liquidity and capital are funds provided through its borrowing agreement with banks, its profitability and management of its Balance Sheet. In the first six months of fiscal 2000, the company reduced the amount of trade accounts receivable by $1,502,934. During the same period, inventories increased by $857,616 and accounts payable decreased by $4,321,091. The reduction in accounts payable resulted primarily from the liquidation of payables acquired in the February, 1999 Metermaster acquisition. Bank debt increased by $2,959,600 as the result of the foregoing. It is the Company's intention to reduce trade receivables and inventories during the balance of the current fiscal year and to use cash to reduce bank debt and otherwise fund ongoing business needs. During the quarter ended September 30, 1999, trade receivables were reduced by $1,678,146 and inventories were reduced by $387,900, trade payables were reduced $1,920,883 and accrued liabilities were reduced by $414,027. Considering the foregoing together with cash flow generated from operations, bank debt was reduced by $811,900 in the three month period ended September 30, 1999. 7
8 Results of Operations - --------------------- Comparison of July 1, 1999 - September 30, 1999 - ----------------------------------------------- to July 1, 1998 - September 30, 1998 --------------------------------- Sales totaled $19,210,385 in the quarter ended September 30, 1999. This compares to sales of $16,338,809 recorded in the same quarter in 1998. The increase in 1999 is primarily the result of the Company's acquisition of Metermaster in February, 1999. Cost of products sold totaled 67.7% of sales in 1999 compared to 66% of sales in 1998. Certain service locations and other operations acquired in the February, 1999 Metermaster acquisition have sustained greater operating cost levels than have historically existed within the Company. The Company has taken action and will continue to take required actions to reduce operating costs at all locations. Selling and administrative expenses totaled 24.2% of sales in the quarter ended September 30, 1999 compared to 25.1% of sales in the same period one year ago. This improvement is due largely to economies of scale which resulted from the higher sales levels that have been achieved. Interest expense increased by nearly $100,000 or 17.9% in the quarter ended September 30, 1999 compared to the same quarter in 1998. This increase resulted from additional borrowings undertaken due to the Metermaster acquisition in February, 1999. Comparison of April 1, 1999 - September 30, 1999 - ------------------------------------------------ to April 1, 1998 - September 30, 1998 ---------------------------------- Sales totaled $39,245,199 in the six months ended September 30, 1999. This compares to sales of $34,298,118 in the same six month period in 1998. The increase in 1999 is primarily the result of the Company's acquisition of Metermaster in February, 1999. Cost of products sold totaled 67.8% of sales in 1999 compared to 65.9% of sales in 1998. Certain service locations and other operations acquired in the February, 1999 Metermaster acquisition have greater operating cost levels than have historically existed within the Company. The Company has and will continue to take action to reduce operating costs at all locations to appropriate levels. Selling and administrative expenses in the six months ended September 30, 1999 totaled 24.3% of sales compared to 25.5% of sales in the same six months in 1998. Interest expense increased by 15% in the six months ended September 30, 1999 compared to the same period in 1998. This increase resulted from additional borrowings undertaken due to the Metermaster acquisition in February, 1999. 8
9 PART II ------- OTHER INFORMATION ----------------- Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- At the Company's Annual Meeting on August 17, 1999, shareholders of the Company approved Proposals 1, 2, 4, 5 and 6 below. Proposal 3 was defeated. Results of the voting are as follows: Proposal 1: - ----------- To elect Directors to serve until the 2001 Annual Meeting: Authority For Withheld --- -------- Angelo J. Chiarella 4,577,364 665,164 E. Lee Garelick 4,785,511 457,017 Dr. Harvey Palmer 4,637,838 604,690 Messrs. Oberlies, Murphy, Richardson, Klimasewski and McInroy and Mrs. Hessler did not stand for re-election to Transmation's Board of Directors in 1999. Proposal 2: - ----------- To approve and adopt an amendment to the Company's Articles of Incorporation which increases the number of shares of the Company's authorized common stock from 15,000,000 shares to 30,000,000 shares: For Against Abstain --- ------- ------- 4,885,135 337,913 19,480 Proposal 3: - ----------- To approve and adopt an amendment to the Company's Code of Regulations which permits the number of directors of the Company to be fixed or changed by the Board of Directors as well as by the shareholders: For Against Abstain --- ------- ------- 3,744,911 394,952 26,710 9
10 Proposal 4: - ----------- To approve and ratify an amendment to the Transmation, Inc. Amended and Restated 1993 Stock Option Plan which permits exercise of previously granted options by persons who are no longer employees of the Company but continue to serve as non-employee directors of the Company: For Against Abstain --- ------- ------- 4,258,064 932,683 51,680 Proposal 5: - ----------- To approve and ratify an amendment to the Transmation, Inc. Amended and Restated Directors' Warrant Plan which permits the exercise of the warrants for a period of 90 days after cessation of service as a director of the Company: For Against Abstain --- ------- ------- 4,768,999 437,038 36,491 Proposal 6: - ----------- To approve and ratify the selection of Pricewaterhouse Coopers LLP as the Company's independent auditors for the fiscal year ending March 31, 2000: For Against Abstain --- ------- ------- 5,225,116 9,412 8,000 10
11 Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- a) See Index to Exhibits. b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. Pursuant to the requirements 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. TRANSMATION, INC. Date November 8, 1999 /s/ Eric W. McInroy - --------------------------- ------------------------------ Eric W. McInroy President and CEO Date November 8, 1999 /s/ John A. Misiaszek - --------------------------- ------------------------------ John A. Misiaszek Vice President, Finance 11
12 INDEX TO EXHIBITS (2) Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable. (3) Articles of Incorporation and By Laws (i) The Articles of Incorporation, as amended, are incorporated herein by reference to Exhibit 4(a) to the Registrant's Registration Statement on Form S-8 (Registration No. 33-61665) filed on August 8, 1995 and Exhibit I to the Registrant's Form 10-Q for the quarter ended September 30, 1996. * Certificate of Amendment is included herein as Exhibit 3 (i). (ii) By-laws, as amended through August 18, 1987, are incorporated herein by reference to Exhibit (3) to the Registrant's Form 10-K for the year ended March 31, 1988. (4) Instruments defining the rights of security holders, including indentures Credit and Loan Agreement dated August 7, 1998 between Transmation, Inc. and KeyBank National Association is incorporated herein by reference to Exhibit 4(a) to the Registrant's Form 10-Q for the quarter ended September 30, 1998. (10) Material Contracts (a) The documents listed under (4) are incorporated herein by reference. (b) Amendment No. 6 to the Transmation, Inc. Amended and Restated 1993 Stock Option Plan is incorporated herein by reference to Appendix A to the Registrant's 1999 Preliminary Proxy Statement which was filed in electronic format on June 21, 1999. (c) Amendment No. 5 to the Transmation, Inc. Amended and Restated Directors' Warrant Plan is incorporated herein by reference to Appendix B to the Registrant's 1999 Preliminary Proxy Statement which was filed in electronic format on June 21, 1999. (11) Statement re computation of per share earnings Computation can be clearly determined from the Financial Statements included herein at Item 1. 12
13 (15) Letter re unaudited interim financial information Not applicable. (18) Letter re change in accounting principles Not applicable. (19) Report furnished to security holders Not applicable. (22) Published report regarding matters submitted to vote of security holders Not applicable. (23) Consents of experts and counsel Not applicable. (24) Power of attorney Not applicable. *(27) Financial Data Schedule The Financial Data Schedule is included herein as Exhibit 27. (99) Additional Exhibits Not applicable. - ----------------- * Exhibit filed with this Report 13