Transcat - 10-Q quarterly report FY

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2000

OR

For the transition period from __________________ to__________________

Commission file number 0-3905

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.

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TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET

See Notes to Consolidated Financial Statements

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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED

See Notes to Consolidated Financial Statements

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Transmation, Inc.
Consolidated Statement of Cash Flows
Unaudited

See Notes to Consolidated Financial Statements

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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

See Notes to Consolidated Financial Statements

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Note 1 — Borrowings

At September 30, 2000, the Company has a $32,450,000 Revolving Credit and Term Loan Agreement with banks dated August 8, 1998 and amended February 9, 1999, June 23, 2000, and August 24, 2000, and extending through June 1, 2007. At September 30, 2000, $17,450,000 was borrowed under term loans. The term loans require annual repayments of amounts outstanding, paid on a quarterly basis, as follows:

Interest is payable on a formula basis, at the Company’s option, at rates above prime or above LIBOR determined on the basis of Company performance as determined by its leverage ratio. On September 30, 2000, interest to be paid under Term Loans was 2.15% to 2.70% above LIBOR or .375% to .75% above the bank’s prime lending rate. At September 30, 2000, $9,452,500 was borrowed under the Revolving Credit portion of the Company’s credit facility. The term of the Revolving Credit Facility dated August 8, 1998 matures on July 1, 2001, and accordingly, the balance borrowed under the revolving credit facility has been classified as current. It is anticipated that the revolving credit facilities maturity will be re-negotiated prior to the date it becomes due. Interest is payable under the Revolving Credit Facility on a formula basis, at the Company’s option, at rates above prime or above LIBOR determined on the basis of the Company’s performance as determined by its leverage ratio. On September 30, 2000, interest to be paid under the Revolving Credit Agreement was 2.15% above LIBOR or .375% above the bank’s prime lending rate. At September 30, 2000, interest was payable on the above loans at rates ranging from 8.78% to 9.79%. The Company has entered into interest rate swaps resulting in a substantial portion of floating interest rate debt being swapped into fixed interest rate debt.

The revolving credit and term loan agreement contains, among other provisions, requirements to maintain minimum levels of net worth, to meet minimum fixed charge coverage ratios and leverage ratios throughout the term of the loans.

Additionally, the Company has pledged its personal property and fixtures, including inventory and equipment, and its accounts receivable as collateral security for the loan. Further, the Company has agreed to pay to its lenders an annual commitment fee from .125% to .25%, depending on performance of the Company, of the unused portion of the Lenders’ Revolving Credit committed amount. The fee is payable quarterly and total commitment fees paid under any unused lines of credit under Revolving Credit Agreements were immaterial in both 1999 and 2000. The Company agreed to pay a closing fee in the amount of $130,000 in conjunction with the Revolving Credit and Term Loan Facility and the amendment thereto; fees are being amortized over the term of the loans.

The Company is in compliance with provisions of its loan agreement as of September 30, 2000.

Note 2 — Inventories

The major classifications of inventory are as follows:

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Note 3 — Net (Loss) Income Per Share

Basic earnings per share are computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the assumed conversion of dilutive stock options and warrants. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options and warrants are considered to have been used to purchase common shares at average market prices for the period, and the resulting net additional common shares are included in the calculation of average common shares outstanding.

The table below summarizes the amounts used to calculate basic and diluted (loss) earnings per share:

Certain anti-dilutive outstanding stock options and warrants were excluded from the calculation of average shares outstanding since their exercise prices exceeded the average market price of common shares during the period. The anti-dilutive stock options and warrants so excluded at the end of each of the last two interim periods and their associated exercise prices are summarized below. The options and warrants expire at various times between 2000 and 2005.

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, 2000 and 1999 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.

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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 under its borrowing agreement with banks, its profitability and management of its Balance Sheet.

In the first six months of fiscal 2001, trade accounts receivable were reduced by $1,658,000 compared to the balance of such receivables which existed at March 31, 2000 and $1,966,000 compared to balances at September 30, 1999. Days sales outstanding totaled 50.2 at September 30, 2000, 52.3 at March 31, 2000 and 54.1 at September 30, 1999. This improvement has resulted from more aggressive management of this important asset.

Capital asset additions totaled approximately $395,000 in the first half of fiscal 2001. Depreciation during the period totaled in excess of $1,000,000. The cash flow thus provided, together with cash flow resulting from the amortization of Goodwill, prepaid expenses, the reduction of Accounts Receivable balances and cash balances provided the capital necessary to reduce trade accounts payable and accrued liabilities by $1,744,000 and bank debt by $2,490,000 in the six months ended September 30, 2000.

Results of Operations

Comparison of July 1, 2000 — September 30, 2000

                                            to

                       July 1, 1999 — September 30, 1999

Sales totaled $17,179,000 in the quarter ended September 30, 2000. This compares to sales of $19,556,000 reported in the same period one year ago. This reduction of 12.2% resulted from lower sales in the Company’s Transcat product sales division and from lower sales of modified meters through the Company’s MAC operation. Approximately one-third of the decline in product sales resulted from sales to foreign markets and are attributable to the strong U.S. dollar. In the U.S., the Company has strengthened its Customer Service department, improved its quote follow-up efforts and re-focused its efforts to achieve the best customer list possible to retain existing customers and win new ones. In the MAC operation, where customer service and on-time deliveries are imperatives, a new Production Manager has been hired to help enable the Company meet or exceed customer expectations with respect to on-time deliveries and service. Additionally, the Company has re-assigned a Sales Manager to drive MAC sales through the Company’s sales organization.

Cost of Product Sold totaled 70.1% of sales in 2000 compared to 68.3% of product in 1999. During the quarter, margins in the Company’s Cal Lab division were lower than desired. Efforts are underway to drive sales to higher levels so that the higher margins anticipated for this division, which will be achieved by spreading fixed costs over the higher sales volumes, will be achieved.

Selling, General and Administrative costs totaled 25.9% of sales in the quarter ended September 30, 2000 compared to 23.8% of sales in the same quarter one year ago. SG&A expenses were more than $200,000 lower in the 2000 quarter than in the same period one year ago, however, due to lower revenues, the percent relative to sales increased.

Research and Development costs totaled 1.7% of sales in the quarter ended September 30, 2000 compared to 2.1% of sales in the same quarter one year ago. Certain R&D employees have been temporarily transferred to other areas of the Company where their programming skills were required. The Company believes that the level of spending on R&D activities is adequate to maintain its existing, competitive position in the industry.

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Comparison of April 1, 2000 — September 30, 2000

                                            to

                       April 1, 1999 — September 30, 1999

Sales totaled $35,979,000 in the six months ended September 30, 2000 compared to $39,940,000 in the six months ended September 30, 1999, a reduction of 9.9%. This reduction resulted from lower sales to international markets, lower sales of distribution product through the Company’s Transcat product sales division, and lower sales of modified meters through the Company’s MAC operation. Steps have been taken to improve future sales in those units.

Cost of Goods Sold totaled 69.8% of sales in the six months ended September 30, 2000 compared to 68.4% in the same period ended September 30, 1999. Margins in the Company’s Cal Lab division were lower than desired in the period ended September 30, 2000 and efforts are underway to drive service sales up so that the fixed operating costs relating to the Cal Lab operation, which are proportionately significant, can be spread over higher sales volumes and margins increased to anticipated levels.

SG&A expenses totaled 25.3% of sales in the six months ended September 30, 2000 compared to 23.9% of sales in the same period one year ago. SG&A expenses decreased by approximately $444,000 in the most recent period, however, lower sales volumes achieved in 2000 caused SG&A costs to increase proportionate to sales.

Research and Developments Costs totaled 1.8% of sales in the six months ended September 30, 2000 compared to 2.0% of sales in the same period one year ago. The level of R&D spending within the Company is considered adequate to maintain our competitive position within the industry.

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PART II

OTHER INFORMATION

Item 4 — Submission of Matters to a Vote of Security Holders

At the Company’s Annual Meeting on August 15, 2000, shareholders of the Company approved Proposals 1 and 2. Results of the voting was as follows:

Proposal 1:

To elect Directors to serve until the 2003 Annual meeting:

Messrs. Chiarella, Garelick, Palmer, Klimasewski and Mrs. Hessler did not stand for re-election to Transmation’s Board of Directors in 2000.

Proposal 2:

To approve and ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors for the fiscal year ending March 31, 2001:

Item 6 — Exhibits and Reports on Form 8-K

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.

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INDEX TO EXHIBITS

(2)  Plan of acquisition, reorganization, arrangement, liquidation or succession.

          Not Applicable.

(3)  Articles of Incorporation and By-Laws.

(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.

         The documents listed under (4) are incorporated herein by reference.

(11)   Statement re Computation of Per Share Earnings.

         Computation can be clearly determined from Note 3 to the Financial
         Statements included herein as Item 1.

(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.

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(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.

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