Attached files
file | filename |
---|---|
EX-32.1 - EX-32.1 - Teledyne Bolt, Inc. | v210252_ex32-1.htm |
EX-31.1 - EX-31.1 - Teledyne Bolt, Inc. | v210252_ex31-1.htm |
EX-31.2 - EX-31.2 - Teledyne Bolt, Inc. | v210252_ex31-2.htm |
EX-32.2 - EX-32.2 - Teledyne Bolt, Inc. | v210252_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended: December 31, 2010
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: 001-12075
BOLT
TECHNOLOGY CORPORATION
(Exact
name of registrant as specified in its charter)
Connecticut
|
06-0773922
|
(State
or other jurisdiction of
|
(I.R.S. Employer
|
incorporation
or organization)
|
Identification
No.)
|
Four
Duke Place, Norwalk, Connecticut
|
06854
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (203) 853-0700
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
¨
Indicate
by check mark 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 (§232.405 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 ¨
No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
(Do not check if a smaller reporting company)
|
Smaller
reporting company ¨
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Securities
Exchange Act of 1934). Yes ¨ No
x
At
February 7, 2011, there were 8,619,722 shares of Common Stock, without par
value, outstanding.
BOLT TECHNOLOGY
CORPORATION
INDEX
Page
Number
|
|||
Part
I -
|
Financial
Information:
|
||
Item
1.
|
Financial
Statements
|
||
Consolidated
Statements of Income (Unaudited) - Three months and six months
ended December 31, 2010 and 2009
|
3
|
||
Consolidated
Balance Sheets - December 31, 2010 (Unaudited) and June 30,
2010
|
4
|
||
Consolidated
Statements of Cash Flows (Unaudited) - Six months ended December 31, 2010
and 2009
|
5
|
||
Notes
to Consolidated Financial Statements (Unaudited)
|
6-18
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19-27
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
28
|
|
Item
4.
|
Controls
and Procedures
|
28
|
|
Part
II -
|
Other
Information
|
||
Item
6.
|
Exhibits
|
29-31
|
|
Signatures
|
32
|
||
Exhibit
Index
|
33-35
|
2
PART I – FINANCIAL
INFORMATION
Item 1 – Financial
Statements
BOLT
TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Sales
|
$ | 10,124,000 | $ | 8,675,000 | $ | 18,658,000 | $ | 15,708,000 | ||||||||
Costs
and Expenses:
|
||||||||||||||||
Cost
of sales
|
5,482,000 | 4,271,000 | 9,528,000 | 7,737,000 | ||||||||||||
Research
and development
|
87,000 | 132,000 | 181,000 | 205,000 | ||||||||||||
Selling,
general and administrative
|
2,229,000 | 2,193,000 | 4,551,000 | 4,091,000 | ||||||||||||
Interest
income
|
(80,000 | ) | (100,000 | ) | (166,000 | ) | (206,000 | ) | ||||||||
7,718,000 | 6,496,000 | 14,094,000 | 11,827,000 | |||||||||||||
Income
before income taxes
|
2,406,000 | 2,179,000 | 4,564,000 | 3,881,000 | ||||||||||||
Provision
for income taxes
|
725,000 | 718,000 | 1,450,000 | 1,242,000 | ||||||||||||
Net
income
|
$ | 1,681,000 | $ | 1,461,000 | $ | 3,114,000 | $ | 2,639,000 | ||||||||
Earnings
per share:
|
||||||||||||||||
Basic
|
$ | 0.20 | $ | 0.17 | $ | 0.37 | $ | 0.31 | ||||||||
Diluted
|
$ | 0.20 | $ | 0.17 | $ | 0.37 | $ | 0.31 | ||||||||
Average
number of common shares outstanding:
|
||||||||||||||||
Basic
|
8,506,517 | 8,592,695 | 8,506,385 | 8,591,399 | ||||||||||||
Diluted
|
8,529,018 | 8,626,233 | 8,521,635 | 8,624,286 |
See Notes
to Consolidated Financial Statements (Unaudited).
3
BOLT
TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December
31,
|
||||||||
2010
|
June
30,
|
|||||||
(unaudited)
|
2010
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 40,875,000 | $ | 39,468,000 | ||||
Accounts
receivable, less allowance for uncollectible accounts of $472,000 at
December 31, 2010 and $400,000 at June 30, 2010
|
6,742,000 | 6,210,000 | ||||||
Inventories,
net
|
11,901,000 | 12,390,000 | ||||||
Deferred
income taxes
|
410,000 | 348,000 | ||||||
Other
current assets
|
287,000 | 252,000 | ||||||
Total
current assets
|
60,215,000 | 58,668,000 | ||||||
Property,
Plant and Equipment, net
|
3,949,000 | 3,957,000 | ||||||
Goodwill,
net
|
10,957,000 | 10,957,000 | ||||||
Other
Intangible Assets, net
|
904,000 | 992,000 | ||||||
Other
Assets
|
225,000 | 247,000 | ||||||
Total
assets
|
|
$ | 76,250,000 | $ | 74,821,000 | |||
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 533,000 | $ | 631,000 | ||||
Accrued
expenses
|
1,109,000 | 1,787,000 | ||||||
Income
taxes payable
|
43,000 | 448,000 | ||||||
Total
current liabilities
|
1,685,000 | 2,866,000 | ||||||
Stockholders’
Equity:
|
||||||||
Common
stock
|
30,036,000 | 29,663,000 | ||||||
Retained
earnings
|
45,489,000 | 42,375,000 | ||||||
Treasury
stock, at cost
|
(960,000 | ) | (83,000 | ) | ||||
Total
stockholders’ equity
|
74,565,000 | 71,955,000 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 76,250,000 | $ | 74,821,000 |
See Notes
to Consolidated Financial Statements (Unaudited).
4
BOLT
TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six
Months Ended
December 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
Flows From Operating Activities:
|
||||||||
Net
income
|
$ | 3,114,000 | $ | 2,639,000 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
378,000 | 343,000 | ||||||
Deferred
income taxes
|
(41,000 | ) | (130,000 | ) | ||||
Stock-based
compensation expense
|
396,000 | 298,000 | ||||||
Change
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(532,000 | ) | 4,552,000 | |||||
Inventories
|
489,000 | 961,000 | ||||||
Other
assets
|
(34,000 | ) | 12,000 | |||||
Accounts
payable
|
(98,000 | ) | (239,000 | ) | ||||
Accrued
expenses
|
(678,000 | ) | (650,000 | ) | ||||
Income
taxes payable
|
(405,000 | ) | - | |||||
Net
cash provided by operating activities
|
2,589,000 | 7,786,000 | ||||||
Cash
Flows From Investing Activities:
|
||||||||
Proceeds
from short-term investments
|
- | 2,041,000 | ||||||
Acquisition
of RTS
|
- | (627,000 | ) | |||||
Capital
expenditures
|
(282,000 | ) | (86,000 | ) | ||||
Net
cash (used) provided by investing activities
|
(282,000 | ) | 1,328,000 | |||||
Cash
Flows From Financing Activities:
|
||||||||
Purchase
of treasury stock
|
(877,000 | ) | - | |||||
Tax
liability from vested restricted stock
|
(23,000 | ) | (7,000 | ) | ||||
Net
cash (used) by financing activities
|
(900,000 | ) | (7,000 | ) | ||||
Net
increase in cash and cash equivalents
|
1,407,000 | 9,107,000 | ||||||
Cash
and cash equivalents at beginning of period
|
39,468,000 | 25,696,000 | ||||||
Cash
and cash equivalents at end of period
|
$ | 40,875,000 | $ | 34,803,000 | ||||
Supplemental
Disclosure of Cash Flow Information:
|
||||||||
Cash
transactions:
|
||||||||
Income
taxes paid
|
$ | 1,918,000 | $ | 1,379,000 |
See Notes
to Consolidated Financial Statements (Unaudited).
5
BOLT
TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 – Basis of
Presentation
The
Consolidated Balance Sheet as of December 31, 2010, the Consolidated Statements
of Income for the three month and six month periods ended December 31, 2010 and
2009 and the Consolidated Statements of Cash Flows for the six month periods
ended December 31, 2010 and 2009 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of
normal, recurring items. Interim results are not necessarily
indicative of results for a full year. These Consolidated Financial
Statements (Unaudited) should be read in conjunction with the Consolidated
Financial Statements and notes included in the Company’s Annual Report on Form
10-K for the fiscal year ended June 30, 2010.
Note 2 – Description of
Business and Significant Accounting Policies
The
Company manufactures and sells marine seismic data acquisition equipment and
consists of three operating units (segments): Bolt Technology Corporation
(“Bolt”), A-G Geophysical Products, Inc. (“A-G”) and Real Time Systems Inc.
(“RTS”). As of June 30, 2009, each of these operating units is reported as a
separate reportable segment for all periods presented in the Consolidated
Financial Statements. The seismic energy sources segment (“Bolt”) develops,
manufactures and sells marine seismic energy sources (air guns) and replacement
parts. The underwater cables and connectors segment (“A-G”) develops,
manufactures and sells underwater cables, connectors, hydrophones, depth and
pressure transducers and seismic source monitoring systems. The seismic energy
source controllers segment (“RTS”) develops, manufactures and sells air gun
controllers/synchronizers, data loggers and auxiliary equipment. See Note 11 to
Consolidated Financial Statements (Unaudited) for additional information
concerning reportable segments.
Principles
of Consolidation:
The
Consolidated Financial Statements (Unaudited) include the accounts of Bolt
Technology Corporation and its subsidiary companies. All significant
intercompany balances and transactions have been eliminated.
Cash
and Cash Equivalents:
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. See Note 10 to
Consolidated Financial Statements (Unaudited) for additional information
regarding cash and cash equivalent balances.
6
Allowance
for Uncollectible Accounts:
The
allowance for uncollectible accounts is established through a provision for bad
debts charged to expense. Accounts receivable are charged against the allowance
for uncollectible accounts when the Company believes that collection of the
principal is unlikely. The allowance is an amount that the Company believes will
be adequate to absorb estimated losses on existing accounts receivable balances
based on the evaluation of their collectability and prior bad debt experience.
This evaluation also takes into consideration such factors as changes in the
nature and volume of the accounts receivable, overall quality of accounts
receivable, review of specific problem accounts receivable, and current economic
and industry conditions that may affect customers’ ability to pay. While the
Company uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic and industry conditions or any other factors considered in the
Company’s evaluation.
Inventories:
Inventories
are valued at the lower of cost or market, with cost principally determined on
an average cost method that approximates the first-in, first-out method. The
Company maintains an inventory valuation reserve to provide for slow moving and
obsolete inventory. Amounts are charged to the reserve when the Company scraps
or disposes of inventory. See Note 3 to Consolidated Financial Statements
(Unaudited) for additional information concerning inventories.
Property,
Plant and Equipment:
Property,
plant and equipment are stated at cost. Depreciation for financial accounting
purposes is computed using the straight-line method over the estimated useful
lives of 40 years for buildings, over the shorter of the term of the lease or
the estimated useful life for leasehold improvements, and 5 to 10 years for
machinery and equipment. Major improvements which add to the productive capacity
or extend the life of an asset are capitalized, while repairs and maintenance
are charged to expense as incurred. See Note 4 to Consolidated Financial
Statements (Unaudited) for additional information concerning property, plant and
equipment.
Goodwill
and Other Long-Lived Assets:
Goodwill
represents the unamortized excess cost over the value of net assets acquired in
business combinations. The Company tests goodwill for impairment annually or
more frequently if impairment indicators arise. Step one of the goodwill
impairment test is to compare the “fair value” of the reporting unit with its
“carrying amount.” The fair value of a reporting unit is the amount that a
willing party would pay to buy or sell the unit other than in a forced
liquidation sale. The carrying amount of a reporting unit is total assets,
including goodwill, minus total liabilities. If the fair value of a reporting
unit is greater than the carrying amount, the Company considers goodwill not to
be impaired. If the fair value is below the carrying amount, the Company would
proceed to the next step, which is to measure the impairment
loss. Any such impairment loss would be recognized in the Company’s
results of operations in the period in which the impairment loss
arose. Goodwill was tested for impairment at June 30, 2010, and the
tests indicated no impairment of the goodwill balances.
7
The
estimated fair value of the A-G reporting unit was determined solely by
utilizing the capitalized cash flow method. The estimated fair value
of the RTS reporting unit was determined utilizing the capitalized cash flow and
the market price methods. The capitalized cash flow method relies on
historical financial performance, an estimate of the long-term growth rate in
free cash flows and a determination of the weighted average cost of capital for
the unit. The market price method gives consideration to the prices
paid for publicly traded stocks of comparable companies.
The
Company reviewed goodwill at December 31, 2010, and such review did not result
in any indicators of impairment.
The
Company’s other long-lived assets consist of property, plant and equipment,
other intangible assets and other non-current assets. The Company
reviews for the impairment of these assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount is considered impaired when
anticipated undiscounted cash flows expected to result from the use of the asset
and its eventual disposition is less than its carrying amount. The
Company’s reviews as of December 31, 2010 and June 30, 2010 did not result in
any indicators of impairment, and therefore no impairment tests were performed
on these other long-lived assets.
See Notes
5 and 6 to Consolidated Financial Statements (Unaudited) for additional
information concerning goodwill and other intangible assets,
respectively.
Revenue
Recognition and Warranty Costs:
The
Company recognizes sales revenue when it is realized and earned. The
Company’s reported sales revenue is based on meeting the following criteria:
(1) manufacturing products based on customer specifications;
(2) delivering product to the customer before the close of the reporting
period, whereby delivery results in the transfer of ownership risk to the
customer; (3) establishing a set sales price with the customer;
(4) collecting the sales revenue from the customer is reasonably assured;
and (5) no contingencies exist.
Warranty
costs and product returns incurred by the Company have not been
significant.
8
Income
Taxes:
The
provision for income taxes is determined under the liability
method. Deferred tax assets and liabilities are recognized based on
differences between the book and tax bases of assets and liabilities using
currently enacted tax rates. The provision for income taxes is the
sum of the amount of income tax paid or payable for the period determined by
applying the provisions of enacted tax laws to the taxable income for that
period and the net change during the period in the Company’s deferred tax assets
and liabilities. See Note 7 to Consolidated Financial Statements
(Unaudited) for additional information concerning the provision for income taxes
and deferred tax accounts.
Use
of Estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements, and the reported amounts of revenues and expenses during the
reporting period. The most critical estimates made by the Company are
those relating to inventory valuation reserves, goodwill impairment, long-lived
assets and realization of deferred tax assets. Actual results could
differ from those estimates.
Computation
of Earnings Per Share:
Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding including
common share equivalents (which includes stock option grants and restricted
stock awards) assuming dilution. The following is a reconciliation of
basic earnings per share to diluted earnings per share for the three month and
six month periods ended December 31, 2010 and 2009:
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
income available to common stockholders
|
$ | 1,681,000 | $ | 1,461,000 | $ | 3,114,000 | $ | 2,639,000 | ||||||||
Divided
by:
|
||||||||||||||||
Weighted
average common shares
|
8,506,517 | 8,592,695 | 8,506,385 | 8,591,399 | ||||||||||||
Weighted
average common share equivalents
|
22,501 | 33,538 | 15,250 | 32,887 | ||||||||||||
Total
weighted average common shares and common share
equivalents
|
8,529,018 | 8,626,233 | 8,521,635 | 8,624,286 | ||||||||||||
Basic
earnings per share
|
$ | 0.20 | $ | 0.17 | $ | 0.37 | $ | 0.31 | ||||||||
Diluted
earnings per share
|
$ | 0.20 | $ | 0.17 | $ | 0.37 | $ | 0.31 |
9
For the
three month periods ended December 31, 2010 and 2009, the calculations do not
include options to acquire 128,000 shares and 158,000 shares, respectively,
since the inclusion of these shares would have been anti-dilutive.
Inventories
consist of the following:
December 31,
2010
|
June 30,
2010
|
|||||||
Raw
materials and sub-assemblies
|
$ | 11,396,000 | $ | 11,788,000 | ||||
Work-in-process
|
1,085,000 | 1,094,000 | ||||||
12,481,000 | 12,882,000 | |||||||
Less
– Reserve for inventory valuation
|
(580,000 | ) | (492,000 | ) | ||||
$ | 11,901,000 | $ | 12,390,000 |
A
significant source of the Company’s revenue arises from the sale of replacement
parts required by customers who have previously purchased
products. As a result, the Company maintains a large quantity of
parts on hand that may not be sold or used in final assemblies for an extended
period of time. In order to recognize that certain inventory may
become obsolete or that the Company may have supplies in excess of reasonably
supportable sales forecasts, an inventory valuation reserve has been
established. The inventory valuation reserve is a significant
estimate made by management based on experience and the exercise of professional
judgment. Actual results may differ from this estimate, and the
difference could be material.
Management
establishes the inventory valuation reserve by reviewing the inventory for items
that should be reserved in full based on a lack of usage for a specified period
of time and for which future demand is not forecasted and establishes an
additional reserve for slow moving inventory based on varying percentages of the
cost of the items. The reserve for inventory valuation at December
31, 2010 and June 30, 2010 was $580,000 and $492,000,
respectively. At December 31, 2010 and June 30, 2010,
approximately $814,000 and $778,000, respectively, of the raw materials and
sub-assemblies inventory were considered slow moving and subject to a reserve
provision equal to all or a portion of the cost, less an estimate for scrap
value. In certain instances, this inventory has been unsold for more
than five years from the date of manufacture or purchase, and in other instances
the Company has more than a five-year supply of inventory on hand based on
recent sales volume. Management believes that this inventory is properly
valued and appropriately reserved. Even if management’s estimate was
incorrect, that would not result in a cash outlay since the cash required to
manufacture or purchase the older inventory was expended in prior
years.
10
The
inventory valuation reserve is adjusted at the close of each accounting period,
as necessary, based on management’s estimate of the valuation reserve
required. This estimate is calculated on a consistent basis as
determined by the Company’s inventory valuation policy. Increases to
the inventory valuation reserve result in a charge to cost of sales, and
decreases to the reserve result in a credit to cost of sales. The
inventory valuation reserve is also decreased when items are scrapped or
disposed of. During the six month period ended December 31, 2010, the
inventory valuation reserve was increased by $153,000, and the Company scrapped
$65,000 of inventory.
Note 4 – Property, Plant and
Equipment
Property,
plant and equipment consist of the following:
December 31,
2010
|
June 30,
2010
|
|||||||
Land
|
$ | 253,000 | $ | 253,000 | ||||
Buildings
|
1,130,000 | 1,130,000 | ||||||
Leasehold
improvements
|
742,000 | 742,000 | ||||||
Machinery
and equipment
|
9,410,000 | 9,160,000 | ||||||
11,535,000 | 11,285,000 | |||||||
Less
- accumulated depreciation
|
(7,586,000 | ) | (7,328,000 | ) | ||||
$ | 3,949,000 | $ | 3,957,000 |
Note 5 –
Goodwill
The
Company’s goodwill carrying amounts relate solely to the acquisitions of A-G and
RTS. A-G and RTS are two reporting units under ASC 350,
“Intangibles – Goodwill and Other.” Bolt, the parent of A-G and RTS,
is a third reporting unit and has no goodwill.
The
composition of the net goodwill balance at December 31, 2010 and
June 30, 2010 is as follows:
A-G
|
$
|
7,679,000
|
||
RTS
|
3,278,000
|
|||
$
|
10,957,000
|
Goodwill
represents approximately 14% of the Company’s total assets at December
31, 2010. The evaluation of goodwill impairment is thus a
significant estimate by management. Even if management’s estimate was
incorrect, it would not result in a cash outlay because the goodwill amounts
arose out of acquisition accounting.
11
Note 6 – Other Intangible
Assets
Other
intangible assets consist of the following:
December
31,
|
June
30,
|
|||||||
2010
|
2010
|
|||||||
Acquired
intangible assets
|
$ | 1,744,000 | $ | 1,712,000 | ||||
Less
accumulated amortization
|
(840,000 | ) | (720,000 | ) | ||||
$ | 904,000 | $ | 992,000 |
Other
intangible assets consist mainly of intangible assets acquired in the purchase
of RTS. The major portion of these assets ($1,487,000) is being amortized using
the straight-line method over a period of six to nine and one-half years.
Intangible asset amortization recorded in each of the six month periods ended
December 31, 2010 and 2009 amounted to $120,000. Intangible asset amortization
is estimated to be $240,000 in fiscal years 2011 and 2012, $188,000 in fiscal
year 2013 and $28,000 in fiscal years 2014, 2015 and 2016.
Note 7 – Income
Taxes
Income
tax expense consists of the following for the six month periods ended December
31:
2010
|
2009
|
|||||||
Current:
|
||||||||
Federal
|
$ | 1,480,000 | $ | 1,361,000 | ||||
State
|
11,000 | 11,000 | ||||||
Deferred:
|
||||||||
Federal
|
(41,000 | ) | (130,000 | ) | ||||
State
|
- | - | ||||||
Income
tax expense
|
$ | 1,450,000 | $ | 1,242,000 |
ASC 740,
“Income Taxes,” requires the Company to review all open tax years in all tax
jurisdictions to determine if there are any uncertain income tax positions that
require recognition in the Company’s financial statements, including any
penalties and interest, based on the “more-likely-than-not” criterion. Based on
its review, the Company has concluded that there were no significant income tax
positions that would require the recording of additional income taxes or the
recognition of any tax benefit in the Company’s financial statements at December
31, 2010. There were no unallocated tax reserves at December 31, 2010. The
Company’s policy is to record any interest and penalties as a component of
income tax expense. The Company’s federal income tax returns for fiscal years
prior to fiscal year 2007 are no longer subject to examination by the Internal
Revenue Service.
12
Note 8 – Stock Options and
Restricted Stock
The
Company recognizes compensation costs for all share-based payments granted based
on the grant date fair value estimated in accordance with the provisions of ASC
718, “Compensation – Stock Compensation.”
The Bolt
Technology Corporation Amended and Restated 2006 Stock Option and Restricted
Stock Plan (the “Plan”) provides that 750,000 shares of Common Stock may be used
for awards under the Plan, of which up to 225,000 shares of Common Stock may be
used for restricted stock awards. Options granted to employees can
become vested over, and can be exercisable for, a period of up to ten
years. The Plan also provides that each non-employee director is
granted options to purchase 7,500 shares of Common Stock on the date of his or
her election to the Board of Directors. Each such option granted to a
non-employee director has an option term of five years from the date of grant
and becomes exercisable with respect to 25% of the shares covered under the
option in each of the second through fifth years of its term. Under
the terms of the Plan, no options or restricted stock can be granted or awarded
subsequent to June 30, 2016.
Stock
option compensation expense, which is a non-cash item, was $173,000 and $153,000
for the six month periods ended December 31, 2010 and 2009,
respectively. Unrecognized compensation expense for stock options at
December 31, 2010 amounted to $807,000 and is expected to be recognized over the
next 5 years.
A summary
of changes in stock options during the six month period ended December 31, 2010
is as follows:
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average Fair
Value at Grant
Date
|
Weighted
Average
Remaining
Contractual
Life
|
|||||||||||||
Options
outstanding at June 30, 2010
|
188,000 | $ | 16.15 | $ | 9.20 |
2.9
years
|
||||||||||
Granted
|
7,500 | $ | 12.53 | $ | 4.03 |
4.9
years
|
||||||||||
Exercised
|
- | $ | - | $ | - | - | ||||||||||
Options
outstanding at December 31, 2010
|
195,500 | $ | 16.02 | $ | 9.00 |
2.5
years
|
During
the six month period ended December 31, 2010, stock option grants for 7,500
shares were awarded in November 2010. The fair value of options granted was
$4.03 as estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions:
Expected
dividend yield
|
0 | % | ||
Stock
price volatility
|
34 | % | ||
Expected
life (years)
|
5 |
13
At
December 31, 2010, there was no aggregate intrinsic value for outstanding
options because the market price of the Company’s Common Stock at December 31,
2010 was less than the weighted average exercise price of such
options.
The
expiration dates for the outstanding options at December 31, 2010 are as
follows:
Number of
|
||||
Expiration Date of Option
|
Shares
|
|||
November
2011
|
37,500
|
|||
April
2012
|
24,000
|
|||
November
2012
|
7,500
|
|||
January
2013
|
15,750
|
|||
June
2013
|
23,250
|
|||
November
2013
|
15,000
|
|||
August
2014
|
50,000
|
|||
November
2014
|
15,000
|
|||
November
2015
|
7,500
|
|||
Total
|
195,500
|
Exercisable
options outstanding at December 31, 2010, totaling 104,376 shares, consisted of
58,519 non-qualified and 45,857 qualified options.
The fair value of options vested during
the six months ended December 31, 2010 (31,250 shares) was $348,000. No options
were exercised during the six month periods ended December 31, 2010 and 2009.
The weighted average exercise price of exercisable options as of December 31,
2010 was $16.87. At December 31, 2010, there was no aggregate intrinsic value of
exercisable options because the market price of the Company’s Common Stock at
December 31, 2010 was less than the weighted average exercise price of
exercisable options. The weighted average remaining contractual life of
exercisable options at December 31, 2010 was 1.9 years.
During
the six month periods ended December 31, 2010 and 2009, 30,000 and 45,500
shares, respectively, of restricted stock were granted. These shares vest
over a five year period and the cost to recipients is zero. The
aggregate compensation cost for restricted stock granted during the six month
periods ended December 31, 2010 and 2009 was $298,000 and $580,000,
respectively, as of the grant dates. This compensation expense, which
is a non-cash item, is being recognized in the Company’s financial statements
over the five-year vesting period. Restricted stock compensation
expense was $223,000 and $145,000 for the six month periods ended December 31,
2010 and 2009, respectively. Unrecognized compensation expense for
restricted stock at December 31, 2010 amounted to $1,220,000.
14
A summary
of changes in restricted stock awards during the six month period ended December
31, 2010 is as follows:
Shares
|
Weighted
Average
Fair Value
|
|||||||
Unvested
restricted stock awards outstanding at June 30, 2010
|
93,400 | $ | 14.59 | |||||
Granted
|
30,000 | 9.92 | ||||||
Vested
|
(13,700 | ) | 9.51 | |||||
Unvested
restricted stock awards outstanding at December 31, 2010
|
109,700 | $ | 13.40 |
The
Company receives a tax deduction for certain stock option exercises when the
options are exercised, generally for the excess of the fair value over the
exercise price of the option. The Company also receives a tax
deduction and/or liability when restricted stock vests based on the difference
between the fair value at the grant date versus the vesting date. The
tax benefit and/or liability from the exercise of stock options and/or the
vesting of restricted stock are reported as cash flows from financing activities
in the Consolidated Statements of Cash Flows (Unaudited).
Note 9 - Stockholders’
Equity
Changes
in issued Common Stock and Stockholders’ Equity for the six month period ended
December 31, 2010 were as follows:
Common Stock
|
Retained
|
Treasury Stock
|
||||||||||||||||||||||
Shares
|
Amount
|
Earnings
|
Shares
|
Amount
|
Total
|
|||||||||||||||||||
Balance
June 30, 2010
|
8,694,843 | $ | 29,663,000 | $ | 42,375,000 | 9,492 | $ | (83,000 | ) | $ | 71,955,000 | |||||||||||||
Restricted
stock grants
|
30,000 | — | — | — | — | — | ||||||||||||||||||
Stock
based compensation expense
|
— | 396,000 | — | — | — | 396,000 | ||||||||||||||||||
Purchase
of treasury stock
|
— | — | — | 98,629 | (877,000 | ) | (877,000 | ) | ||||||||||||||||
Tax
liability from vested restricted stock
|
— | (23,000 | ) | — | — | — | (23,000 | ) | ||||||||||||||||
Net
Income
|
— | — | 3,114,000 | — | — | 3,114,000 | ||||||||||||||||||
Balance
December 31, 2010
|
8,724,843 | $ | 30,036,000 | $ | 45,489,000 | 108,121 | $ | (960,000 | ) | $ | 74,565,000 |
15
Note 10 – Concentrations and
Contingencies
Financial
instruments that potentially subject the Company to concentrations of credit
risk are primarily cash, cash equivalents, and trade accounts
receivable. The Company maintains substantial cash and cash
equivalent balances with various financial institutions in amounts that exceed
the limit of FDIC insurance. The Company believes that the risk of
loss associated with cash and cash equivalents is remote. The Company
believes that the concentration of credit risk in its trade accounts receivable
is substantially mitigated by the Company’s ongoing credit evaluation and its
short collection terms. The Company does not generally require
collateral from its customers but, in certain cases, the Company does require
customers to provide a letter of credit or an advance payment. In
limited cases, the Company will grant customers extended payment terms of up to
12 months. The Company establishes an allowance for uncollectible
accounts based upon factors surrounding the credit risk of specific
customers. Historically, the Company has not incurred significant
credit related losses.
From time
to time, the Company is a party to routine litigation and proceedings that are
considered part of the ordinary course of business. The Company is
not aware of any material current or pending litigation.
Note 11 – Segment
Information
The
Company has three reportable segments aligned with each of the Company’s product
lines in accordance with ASC 280, “Segment Reporting.” The seismic energy
sources segment develops, manufactures and sells marine seismic energy sources
(air guns) and replacement parts. The underwater cables and connectors segment
develops, manufactures and sells underwater cables, connectors, hydrophones,
depth and pressure transducers and seismic source monitoring systems. The
seismic energy source controllers segment develops, manufactures and sells air
gun controllers/synchronizers, data loggers and auxiliary
equipment.
Sales of
the Company’s products in each reportable segment are generally related to the
level of worldwide marine oil and gas exploration and development activity,
which is dependent, primarily, on oil and gas prices.
The
following table provides selected financial information for each reportable
segment for the three month and six month periods ended December 31, 2010 and
2009:
16
Seismic Energy
Sources
|
Underwater
Cables &
Connectors
|
Seismic Energy
Source
Controllers
|
Corporate
Headquarters
and
Eliminations
|
Consolidated
|
||||||||||||||||
Six
Months Ended December 31, 2010
|
||||||||||||||||||||
Sales
to external customers
|
$
|
9,403,000
|
$
|
7,576,000
|
$
|
1,679,000
|
$
|
—
|
$
|
18,658,000
|
||||||||||
Intersegment
sales
|
—
|
68,000
|
213,000
|
(281,000
|
)
|
—
|
||||||||||||||
Depreciation
and amortization
|
97,000
|
129,000
|
143,000
|
9,000
|
378,000
|
|||||||||||||||
Income
before income taxes
|
2,324,000
|
2,899,000
|
783,000
|
(1,442,000
|
)
|
4,564,000
|
||||||||||||||
Fixed
asset additions
|
212,000
|
36,000
|
2,000
|
—
|
250,000
|
|||||||||||||||
Three
Months Ended December 31, 2010
|
||||||||||||||||||||
Sales
to external customers
|
$
|
5,354,000
|
$
|
3,787,000
|
$
|
983,000
|
$
|
—
|
$
|
10,124,000
|
||||||||||
Intersegment
sales
|
—
|
44,000
|
135,000
|
(179,000
|
)
|
—
|
||||||||||||||
Depreciation
and amortization
|
54,000
|
64,000
|
72,000
|
4,000
|
194,000
|
|||||||||||||||
Income
before income taxes
|
1,312,000
|
1,373,000
|
414,000
|
(693,000
|
)
|
2,406,000
|
||||||||||||||
Fixed
asset additions
|
7,000
|
13,000
|
2,000
|
—
|
22,000
|
|||||||||||||||
Balance
Sheet Data at December 31, 2010
|
||||||||||||||||||||
Segment
assets
|
$
|
20,348,000
|
$
|
14,131,000
|
$
|
6,363,000
|
$
|
35,408,000
|
$
|
76,250,000
|
||||||||||
Goodwill
|
—
|
7,679,000
|
3,278,000
|
—
|
10,957,000
|
|||||||||||||||
Six
Months Ended December 31, 2009
|
||||||||||||||||||||
Sales
to external customers
|
$
|
7,845,000
|
$
|
5,531,000
|
$
|
2,332,000
|
$
|
—
|
$
|
15,708,000
|
||||||||||
Intersegment
sales
|
—
|
535,000
|
—
|
(535,000
|
)
|
—
|
||||||||||||||
Depreciation
and amortization
|
76,000
|
115,000
|
143,000
|
9,000
|
343,000
|
|||||||||||||||
Income
before income taxes
|
2,083,000
|
1,989,000
|
1,079,000
|
(1,270,000
|
)
|
3,881,000
|
||||||||||||||
Fixed
asset additions
|
74,000
|
9,000
|
3,000
|
—
|
86,000
|
|||||||||||||||
Three
Months Ended December 31, 2009
|
||||||||||||||||||||
Sales
to external customers
|
$
|
4,478,000
|
$
|
2,840,000
|
$
|
1,357,000
|
$
|
—
|
$
|
8,675,000
|
||||||||||
Intersegment
sales
|
—
|
399,000
|
—
|
(399,000
|
)
|
—
|
||||||||||||||
Depreciation
and amortization
|
38,000
|
62,000
|
72,000
|
4,000
|
176,000
|
|||||||||||||||
Income
before income taxes
|
1,143,000
|
1,049,000
|
651,000
|
(664,000
|
)
|
2,179,000
|
||||||||||||||
Fixed
asset additions
|
61,000
|
3,000
|
3,000
|
—
|
67,000
|
|||||||||||||||
Balance
Sheet Data at June 30, 2010
|
||||||||||||||||||||
Segment
assets
|
$
|
19,955,000
|
$
|
13,928,000
|
$
|
6,218,000
|
$
|
34,720,000
|
$
|
74,821,000
|
||||||||||
Goodwill
|
—
|
7,679,000
|
3,278,000
|
—
|
10,957,000
|
The
Company does not allocate income taxes to the segments.
17
Note 12 — Subsequent
Events
On January 6, 2011, the Company
acquired all of the outstanding common stock of SeaBotix Inc. (“SeaBotix”)
effective as of January 1, 2011, for $10,000,000 in cash (paid at
closing). Based on the completion of SeaBotix’s December 31, 2010
financial statements’ audit and the achievement of certain revenue levels in the
next four years, further payments anticipated
not to exceed $20,000,000
could be payable. The fair value of the purchase price and the
allocation thereof have not yet been determined. Approximately
$113,000 of SeaBotix acquisition costs, which are included in selling, general
and administrative expenses, have been recorded in the Company’s results of
operations for the six month period ending December 31,
2010. SeaBotix designs, manufactures and sells underwater remotely
operated vehicle systems. SeaBotix was established in 2001 and is
located in San Diego, California. SeaBotix will continue to operate in San Diego
as a wholly-owned subsidiary of the Company. The results of
operations for SeaBotix will be consolidated with the Company effective January
1, 2011 and will constitute a fourth reporting segment.
The
Company has determined that there were no other events or transactions occurring
subsequent to December 31, 2010 that would have a material impact on the
Company’s results of operations or financial condition as of December 31,
2010.
18
Item 2 – Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following management’s discussion and analysis should be read together with the
Consolidated Financial Statements (Unaudited) and accompanying notes and other
detailed information appearing elsewhere in this Quarterly Report on Form
10-Q. This discussion and certain other information in this Quarterly
Report on Form 10-Q includes forward-looking statements, including statements
about the demand for the Company’s products and future
results. Please refer to the “Cautionary Statement for Purposes of
Forward-Looking Statements” set forth below.
In this
Quarterly Report on Form 10-Q, we refer to Bolt Technology Corporation and
its subsidiaries as “we,” “the registrant” or “the Company,” unless the context
clearly indicates otherwise.
Cautionary
Statement for Purposes of Forward-Looking Statements
Forward-looking
statements in this Quarterly Report on Form 10-Q, future filings by the Company
with the Securities and Exchange Commission, the Company’s press releases and
oral statements by authorized officers of the Company are intended to be subject
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These include statements about anticipated financial
performance, future revenues or earnings, business prospects, new products,
anticipated energy industry activity, anticipated market performance, planned
production and shipping of products, expected cash needs and similar
matters. Investors are cautioned that all forward-looking statements
involve risks and uncertainty, including without limitation (i) the risk of
technological change relating to the Company’s products and the risk of the
Company’s inability to develop new competitive products in a timely manner,
(ii) the risk of changes in demand for the Company’s products due to
fluctuations in energy industry activity, (iii) the Company’s reliance on
certain significant customers, (iv) risks associated with a significant
amount of foreign sales, (v) the risk of fluctuations in future operating
results, (vi) risks associated with global economic conditions, (vii) risks of
changes in environmental or regulatory matters and (viii) other risks
detailed in the Company’s filings with the Securities and Exchange
Commission. The Company believes that forward-looking statements made
by it are based on reasonable expectations. However, no assurances
can be given that actual results will not differ materially from those contained
in such forward-looking statements. The words “estimate,” “project,”
“anticipate,” “expect,” “predict,” “believe,” “may,” “could,” “should” and
similar expressions are intended to identify forward-looking
statements.
19
Overview
The
Company manufactures and sells marine seismic data acquisition equipment and has
three operating units, each of which is considered to be a separate reportable
segment: seismic energy sources, underwater cables and connectors and
seismic energy source controllers. Refer to Note 11 to Consolidated Financial
Statements (Unaudited) for further information on reportable
segments.
The
Company’s products in all three segments share a common economic characteristic:
sales are generally related to the level of worldwide oil and gas exploration
and development activity. During the last half of calendar year 2008 (the first
six months of the Company’s fiscal year 2009), the price of oil significantly
decreased and worldwide energy demand decreased due to the global economic
slowdown. These factors lowered the demand for marine seismic exploration
surveys and as a result, the demand for the Company’s products decreased. Sales
decreased 21% in the fiscal year ended June 30, 2009 compared to the fiscal year
ended June 30, 2008 and 36% in the fiscal year ended June 30, 2010 compared to
the fiscal year ended June 30, 2009. However, during the fourth quarter of
fiscal year 2010 there were indications that this downward trend had
stabilized, as the Company’s sales and net income were the highest quarterly
results in fiscal year 2010. During the six month period ended December 31,
2010, sales and net income improved over the six month period ended December 31,
2009, with sales and net income increasing by 19% and 18%,
respectively.
Based on
current activity, including discussions with customers, requests for quotations
and incoming orders, the Company is hopeful that the improvement in
profitability during the first half of fiscal year 2011, the six month period
ending December 31, 2010, will continue in the remaining two quarters
of this year. There can be no assurance, however, that improved sales and
earnings will continue, due to the industry dependency on continued global
economic growth. In addition, the Company cannot predict with any certainty any
long term impact that the Deepwater Horizon incident in the Gulf of Mexico
during 2010 may have on the marine seismic exploration industry.
The
Company’s balance sheet continued to strengthen during the six month period
ended December 31, 2010. Working capital increased from $55,802,000 at June 30,
2010 to $58,530,000 at December 31, 2010. In addition, the Company remained debt
free at December 31, 2010. The Company’s cash position increased from
$39,468,000 at June 30, 2010 to $40,875,000 at December 31, 2010. The increase
in cash was accomplished despite the repurchase of 98,629 shares of the
Company’s Common Stock at an aggregate cost of $877,000. (Refer to “Liquidity
and Capital Resources” for further information on the Company’s stock repurchase
program.)
20
On January 6,
2011, the Company acquired all of the outstanding common stock of SeaBotix Inc.
(“SeaBotix”) effective as of January 1, 2011, for $10,000,000 in cash (paid at
closing). Based on the completion of SeaBotix’s December 31, 2010
financial statements’ audit and the achievement of certain revenue levels in the
next four years, further payments anticipated
not to exceed $20,000,000
could be payable. The fair value of the purchase price and the
allocation thereof have not yet been determined. Approximately
$113,000 of SeaBotix acquisition costs, which are included in selling, general
and administrative expenses, have been recorded in the Company’s results of
operations for the six month period ending December 31,
2010. SeaBotix designs, manufactures and sells underwater remotely
operated vehicle systems. SeaBotix was established in 2001 and is
located in San Diego, California. SeaBotix will continue to operate in San Diego
as a wholly-owned subsidiary of the Company. The results of
operations for SeaBotix will be consolidated with the Company effective January
1, 2011 and will constitute a fourth reporting segment.
Liquidity
and Capital Resources
As of
December 31, 2010, the Company believes that current cash and cash
equivalent balances and projected cash flow from operations will
be adequate to meet foreseeable operating needs in fiscal
year 2011.
In the
fourth quarter of fiscal year 2010, the Company’s Board of Directors
authorized and approved a program to repurchase up to $10,000,000 of its Common
Stock through open market and privately negotiated transactions. Pursuant to the
terms of the repurchase program, management will determine the timing and amount
of any stock repurchase transactions depending on market conditions, share
prices, capital availability and other factors. The Company is not obligated to
purchase any shares under the repurchase program. The repurchase program does
not have an expiration date and repurchases may be commenced or suspended at any
time or from time to time without prior notice. The repurchase program is
structured to conform to the safe harbor provisions of Securities and Exchange
Commission Rule 10b-18. As of December 31, 2010, the Company repurchased 108,121
of its shares under the repurchase program at an aggregate cost of
$960,000.
The
Securities and Exchange Commission declared the Company’s shelf registration
statement on Form S-3, relating to the sale of up to $50,000,000 of equity,
debt or other types of securities described in the shelf registration statement,
effective on January 29, 2010. The proceeds of the securities may be used for
acquisitions, capital expenditures, repayment of debt the Company may incur in
the future, working capital and other general corporate purposes. The specifics
of any potential future offering, along with the prices, terms and use of
proceeds of any securities offered by the Company, will be determined at the
time of any applicable offering and will be described in a prospectus supplement
at the time of such applicable offering. The Company has no current plans to
offer securities under the shelf registration statement.
21
Six Months Ended December
31, 2010
At
December 31, 2010, the Company had $40,875,000 in cash and cash
equivalents. This
amount is $1,407,000 or 4% higher than the amount of cash and cash equivalents
at June 30, 2010.
For the
six month period ended December 31, 2010, cash flow from operating activities
after changes in working capital items was $2,589,000, primarily due to net
income adjusted for non-cash items and lower inventories, partially offset by
higher accounts receivable and lower current liabilities.
For the
six month period ended December 31, 2010, cash used in investing activities was
$282,000 due to capital expenditures for new and replacement equipment
($250,000) and intangible assets ($32,000).
For the
six month period ended December 31, 2010, cash used in financing activities was
$900,000 due to repurchases of the Company’s Common Stock ($877,000) and tax
liability from vested restricted stock ($23,000).
The
Company anticipates that capital expenditures for the remainder of
fiscal year 2011 will not exceed $350,000 and will be funded from
operating cash flow.
Since a
relatively small number of customers account for the majority of the Company’s
sales, the consolidated accounts receivable balance at the end of any period
tends to be concentrated in a small number of customers. At December
31, 2010 and June 30, 2010, the five customers with the highest
accounts receivable balances represented 60% and 59% of the consolidated
accounts receivable balances on those dates, respectively.
Six Months Ended December
31, 2009
At
December 31, 2009, the Company had $34,803,000 in cash and cash
equivalents. This amount is $9,107,000 or 35% higher than
the amount of cash and cash equivalents at June 30, 2009.
For the
six month period ended December 31, 2009, cash flow from operating
activities after changes in working capital items was $7,786,000, primarily
due to net income adjusted for non-cash items and lower accounts receivable and
inventories, partially offset by lower current liabilities.
For the
six month period ended December 31, 2009, cash flow from investing
activities was $1,328,000 due to proceeds received from matured short-term
investments of $2,041,000, partially offset by a final RTS earn-out payment
of $627,000 and capital expenditures of $86,000 for new and replacement
equipment.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet financing arrangements.
22
Contractual
Obligations
During
the six month period ended December 31, 2010, there were no changes in the
operating leases described in the Company’s Annual Report on Form 10-K for the
Fiscal Year ended June 30, 2010. The Company had no long-term
borrowings, capital leases, purchase obligations or other long term liabilities
at December 31, 2010.
Results
of Operations
Six Months Ended December
31, 2010 Compared to Six Months Ended December 31, 2009
Consolidated
sales for the six month period ended December 31, 2010 totaled $18,658,000, an
increase of $2,950,000 or 19% from the six month period ended December 31,
2009. The change in sales by reportable segment was as
follows: seismic energy sources increased by $1,558,000 (20%), underwater
cables and connectors increased by $2,045,000 (37%), and seismic energy source
controllers decreased by $653,000 (28%). The increase in net sales reflects
an increase in marine seismic exploration activity due to an improving global
economy.
Consolidated
gross profit as a percentage of consolidated sales was 49% for the six month
period ended December 31, 2010 versus 51% for the six month period ended
December 31, 2009. The net decrease in the gross profit percentage
was caused primarily by sales mix, partially offset by manufacturing
efficiencies associated with the 19% sales increase.
Research
and development costs for the six month period ended December 31, 2010 decreased
by $24,000 or 12% from the six month period ended December 31,
2009.
Selling,
general and administrative expenses increased by $460,000 or 11% in the six
month period ended December 31, 2010 from the six month period ended December
31, 2009, primarily due to higher compensation costs ($333,000) and
SeaBotix acquisition costs ($113,000).
Interest
income decreased by $40,000 or 19% in the six month period ended December
31, 2010 from the six month period ended December 31, 2009, primarily
due to lower interest rates, partially offset by increases in the Company’s cash
and cash equivalent balances.
The
provision for income taxes for the six month period ended December 31, 2010 was
$1,450,000, an effective tax rate of 32%. This rate was lower than
the federal statutory rate of 34%, primarily due to tax benefits associated with
the domestic manufacturer’s deduction, partially offset by state income
taxes. The provision for income taxes for the six month period ended
December 31, 2009 was $1,242,000, an effective tax rate of 32%. This
rate was lower than the federal statutory rate of 34%, primarily due to tax
benefits associated with the domestic manufacturer’s deduction, partially offset
by state income taxes.
23
The above
mentioned factors resulted in net income for the six month period ended December
31, 2010 of $3,114,000 compared to net income of $2,639,000 for the six
month period ended December 31, 2009.
Three Months Ended December
31, 2010 Compared to Three Months Ended December
31, 2009
Consolidated
sales for the three month period ended December 31, 2010 totaled $10,124,000, an
increase of $1,449,000 or 17% from the three month period ended December 31,
2009. The change in sales by reportable segment was as
follows: seismic energy sources increased by $876,000 (20%), underwater
cables and connectors increased by $947,000 (33%), and seismic energy source
controllers decreased by $374,000 (28%). The increase in net sales reflects
an increase in marine seismic exploration activity due to an improving global
economy.
Consolidated
gross profit as a percentage of consolidated sales was 46% for the three month
period ended December 31, 2010 versus 51% for the three month period ended
December 31, 2009. The net decrease in the gross profit percentage
was caused primarily by sales mix, partially offset by manufacturing
efficiencies associated with the 17% sales increase.
Research
and development costs for the three month period ended December 31, 2010
decreased by $45,000 or 34% from the three month period ended December 31,
2009.
Selling,
general and administrative expenses increased by $36,000 or 2% in the three
month period ended December 31, 2010 from the three month period ended December
31, 2009, primarily due to SeaBotix acquisition costs ($96,000) and higher
compensation expense ($28,000), partially offset by lower trade show expense
($34,000) and freight expense ($42,000).
Interest
income decreased by $20,000 or 20% in the three month period ended December
31, 2010 from the three month period ended December 31, 2009,
primarily due to lower interest rates, partially offset by increases in the
Company’s cash and cash equivalent balances.
The
provision for income taxes for the three month period ended December 31, 2010
was $725,000, an effective tax rate of 30%. This rate was lower than
the federal statutory rate of 34%, primarily due to tax benefits associated with
the domestic manufacturer’s deduction, partially offset by state income
taxes. The provision for income taxes for the three month period
ended December 31, 2009 was $718,000, an effective tax rate of
33%. This rate was lower than the federal statutory rate of 34%,
primarily due to tax benefits associated with the domestic manufacturer’s
deduction, partially offset by state income taxes.
24
The above
mentioned factors resulted in net income for the three month period ended
December 31, 2010 of $1,681,000 compared to net income of $1,461,000 for
the three month period ended December 31, 2009.
Critical
Accounting Policies
The
methods, estimates and judgments the Company uses in applying the accounting
policies most critical to its financial statements have a significant impact on
the results the Company reports in its financial statements. The
Securities and Exchange Commission has defined the most critical accounting
policies as the ones that are most important to the portrayal of the Company’s
financial condition and results, and require the Company to make its most
difficult and subjective judgments.
Based on
this definition, the Company’s most critical accounting policies include:
revenue recognition, recording of inventory reserves, deferred taxes, and the
potential impairment of goodwill. These policies are discussed
below. The Company also has other key accounting policies, including
the establishment of bad debt reserves. The Company believes that
these other policies either do not generally require it to make estimates and
judgments that are as difficult or as subjective, or are less likely to have a
material impact on the Company’s reported results of operations for a given
period.
Although
the Company believes that its estimates and assumptions are reasonable, they are
based upon information available at the end of each reporting period and involve
inherent risks and uncertainties. Actual results may differ
significantly from the Company’s estimates and its estimates could be different
using different assumptions or conditions.
See
Note 2 to Consolidated Financial Statements (Unaudited) for additional
information concerning significant accounting policies.
Revenue
Recognition
The
Company recognizes sales revenue when it is realized and earned. The
Company’s reported sales revenue is based on meeting the following criteria:
(1) manufacturing products based on customer specifications;
(2) delivering product to the customer before the close of the reporting
period, whereby delivery results in the transfer of ownership risk to the
customer; (3) establishing a set sales price with the customer;
(4) collecting the sales revenue from the customer is reasonably assured;
and (5) no contingencies exist.
25
Inventory
Reserves
A
significant source of the Company’s revenue arises from the sale of replacement
parts required by customers who have previously purchased
products. As a result, the Company maintains a large quantity of
parts on hand that may not be sold or used in final assemblies for an extended
period of time. In order to recognize that certain inventory may
become obsolete or that the Company may have supplies in excess of reasonably
supportable sales forecasts, an inventory valuation reserve has been
established. The inventory valuation reserve is a significant
estimate made by management based on experience and the exercise of professional
judgment. Actual results may differ from this estimate, and the
difference could be material.
Management
establishes the inventory valuation reserve by reviewing the inventory for items
that should be reserved in full based on a lack of usage for a specified period
of time and for which future demand is not forecasted and establishes an
additional reserve for slow moving inventory based on varying percentages of the
cost of the items. The reserve for inventory valuation at December
31, 2010 and June 30, 2010 was $580,000 and $492,000,
respectively. At December 31, 2010 and June 30, 2010,
approximately $814,000 and $778,000, respectively, of the raw materials and
sub-assemblies inventory were considered slow moving and subject to a reserve
provision equal to all or a portion of the cost, less an estimate for scrap
value. In certain instances, this inventory has been unsold for more
than five years from the date of manufacture or purchase, and in other instances
the Company has more than a five-year supply of inventory on hand based on
recent sales volume. Management believes that this inventory is properly valued
and appropriately reserved. Even if management’s estimate were
incorrect, that would not result in a cash outlay since the cash required to
manufacture or purchase the older inventory was expended in prior
years.
The
inventory valuation reserve is adjusted at the close of each accounting period,
as necessary, based on management’s estimate of the valuation reserve
required. This estimate is calculated on a consistent basis as
determined by the Company’s inventory valuation policy. Increases to
the inventory valuation reserve result in a charge to cost of sales, and
decreases to the reserve result in a credit to cost of sales. The
inventory valuation reserve is also decreased when items are scrapped or
disposed of. During the six month period ended December 31, 2010, the
inventory valuation reserve was increased by $153,000, and the Company scrapped
$65,000 of inventory.
26
Deferred
Taxes
The
Company applies an asset and liability approach to accounting for income
taxes. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and tax basis of assets and liabilities, using enacted tax rates in
effect for the years in which the differences are expected to
reverse. The recoverability of deferred tax assets is dependent upon
the Company’s assessment of whether it is more likely than not that sufficient
future taxable income will be generated in the relevant tax jurisdiction to
utilize the deferred tax asset. The Company reviews its internal
forecasted sales and pre-tax earnings estimates to make its assessment about the
utilization of deferred tax assets. In the event the Company
determines that future taxable income will not be sufficient to utilize the
deferred tax asset, a valuation allowance is recorded. If that
assessment changes, a charge or a benefit would be recorded in the consolidated
statement of income. The Company has concluded that no deferred tax
valuation allowance was necessary at December 31, 2010 and
June 30, 2010 because future taxable income is believed to be
sufficient to utilize any deferred tax asset.
Goodwill Impairment
Testing
As
required by ASC 350, “Intangibles – Goodwill and Other,” the Company reviews
goodwill for impairment annually or more frequently if impairment indicators
arise. Goodwill was tested for impairment at June 30, 2010, and the
tests indicated no impairment of the goodwill balances. The Company
reviewed goodwill at December 31, 2010, and such review did not result in
indicators of impairment.
Goodwill
represents approximately 14% of the Company’s total assets at December
31, 2010. The evaluation of goodwill impairment is thus a
significant estimate by management. Even if management’s estimate
were incorrect, it would not result in a cash outlay because the goodwill
amounts arose out of acquisition accounting. See Notes 2 and 5
to Consolidated Financial Statements (Unaudited) for additional information
concerning goodwill.
Recent
Accounting Developments
Accounting Standards Update
No. 2010-29--Business Combinations (Topic 805)
In
December 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update No. 2010-29 (“ASU 2010-29”), Business Combinations
(Topic 805), “Disclosure of Supplementary Pro Forma Information for Business
Combinations,” which is an amendment to Topic 805 of the FASB Accounting
Standards Codification. This amendment provides clarification regarding the
acquisition date that should be used for reporting required pro forma financial
information disclosures under Topic 805 when comparative financial statements
are presented. Under ASU 2010-29 if a public entity presents comparative
financial statements, the entity should disclose revenue and earnings of the
combined entity as though the business combination that occurred during the
current year had occurred as of the beginning of the comparable prior annual
reporting period only. If comparative financial statements are not presented,
the entity should disclose revenue and earnings of the combined entity for the
current reporting period as though the business combination had occurred at the
beginning of the current annual reporting period. In addition, ASU 2010-29
improves the usefulness of pro forma revenue and earnings disclosures by
requiring a description of the nature and amount of material, non-recurring pro
forma adjustments directly attributable to the business combination. ASU 2010-29
is effective prospectively for business combinations with an acquisition date on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2010. Early adoption of ASU 2010-29 is
allowed.
27
Item 3 – Quantitative
and Qualitative Disclosures About Market Risk
The
Company is not subject to any material market risks associated with activities
in derivative financial instruments, other financial instruments or derivative
commodity instruments.
Item 4 – Controls and
Procedures
The chief
executive officer and the chief financial officer, with the assistance of key
employees throughout the Company, including its subsidiaries, evaluated the
effectiveness of the Company’s disclosure controls and procedures as of December
31, 2010. Based upon the results of such evaluation, the chief
executive officer and the chief financial officer have concluded that such
disclosure controls and procedures are effective in providing reasonable
assurance that information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is accumulated and communicated to management,
including the principal executive and financial officers, as appropriate, to
allow timely decisions regarding required disclosure.
No
changes in the Company’s internal control over financial reporting occurred
during the quarter ended December 31, 2010 that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
28
PART II – OTHER
INFORMATION
Item 6 –
Exhibits
3.1
|
Restated
Certificate of Incorporation of the Registrant, as amended (incorporated
by reference to Exhibit 3.1 to Form 8-K Current Report, SEC File No.
001-12075, dated November 20, 2007 and filed with the Commission on
November 21, 2007).
|
|
3.2
|
Bylaws
of the Registrant, amended and restated effective as of January 23, 2008
(incorporated by reference to Exhibit 3.1 to Form 8-K Current Report, SEC
File No. 001-12075, dated January 23, 2008 and filed with the Commission
on January 25, 2008).
|
|
10.1
|
Bolt
Technology Corporation Amended and Restated 2006 Stock Option and
Restricted Stock Plan together with (i) Form of Incentive Stock Option
Agreement, (ii) Form of Nonqualified Stock Option Agreement, (iii) Form of
Non-Employee Director Nonqualified Stock Option Agreement, and (iv) Form
of Restricted Stock Award Agreement (incorporated by reference to Exhibit
10.1 to Form 8-K Current Report, SEC File No. 001-12075, dated November
20, 2007 and filed with the Commission on November 21,
2007).†
|
|
10.2
|
Bolt
Technology Corporation Amended and Restated Severance Compensation Plan
together with Form of Designation of Participation (incorporated by
reference to Exhibit 10.2 to Form 8-K Current Report, SEC File No.
001-12075, dated November 20, 2007 and filed with the Commission on
November 21, 2007).†
|
|
10.3
|
Lease
Agreement dated January 10, 2003 between 381 Connecticut Avenue
Corporation and Bolt Technology Corporation (incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended June 30, 2003, SEC File No.
001-12075).
|
|
10.4
|
Lease
Agreement dated January 10, 2003 between 381 Connecticut Avenue
Corporation and Bolt Technology Corporation (incorporated by reference to
Exhibit 10.7 to Form 10-K for the year ended June 30, 2003, SEC File No.
001-12075).
|
|
10.5
|
Employment
Agreement between Bolt Technology Corporation and Raymond M. Soto
effective as of June 10, 1996; Amendment to Employment Agreement between
Bolt Technology Corporation and Raymond M. Soto effective as of September
20, 2001 (incorporated by reference to Exhibit 10.3 to Form 10-Q
for the quarter ended September 30, 2006, SEC File No. 001-12075);
Amendment to Employment Agreement between Bolt Technology Corporation and
Raymond M. Soto effective as of November 20, 2007 (incorporated by
reference to Exhibit 10.3 to Form 8-K Current Report, SEC File No.
001-12075, dated November 20, 2007 and filed with the Commission on
November 21, 2007); Amendment to Employment Agreement between Bolt
Technology Corporation and Raymond M. Soto dated as of November 5, 2009
(incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarter
ended September 30, 2009, SEC File No.
001-12075).†
|
29
10.6
|
Form
of Restricted Stock Award Agreement by and between Bolt Technology
Corporation and Raymond M. Soto (incorporated by reference to
Exhibit 10.6 to Form 10-Q for the quarter ended September 30,
2008, SEC File No. 001-12075).†
|
|
10.7
|
Employment
Agreement between A-G Geophysical Products, Inc. and Michael C. Hedger,
dated May 13, 2005 (incorporated by reference to
Exhibit 10.10 to Form 10-Q for the quarter ended March
31, 2005, SEC File No. 001-12075); Amendment to Employment Agreement
between A-G Geophysical Products, Inc. and Michael C. Hedger effective as
of November 20, 2007 (incorporated by reference to Exhibit 10.4 to Form
8-K Current Report, SEC File No. 001-12075, dated November 20, 2007 and
filed with the Commission on November 21, 2007); Amendment to Employment
Agreement between A-G Geophysical Products, Inc. and Michael C. Hedger
dated November 5, 2010 (incorporated by reference to Exhibit 10.7 to
Form 10-Q for the quarter ended September 30, 2010, SEC File No.
001-12075).†
|
|
10.8
|
Asset
Purchase Agreement by and among Real Time Systems Inc., Embedded
Microsystems, Inc. dba Real Time Systems, W. Allen Nance and Molly L.
Nance dated July 10, 2007 (incorporated by reference to Exhibit 10.1 to
Form 8-K Current Report, SEC File No. 001-12075, dated July 10, 2007 and
filed with the Commission on July 12, 2007).
|
|
10.9
|
Non-Competition
Agreement by and among Real Time Systems Inc., Bolt Technology
Corporation, Embedded Microsystems, Inc. dba Real Time Systems and W.
Allen Nance dated July 10, 2007 (incorporated by reference to Exhibit 10.3
to Form 8-K Current Report, SEC File No. 001-12075, dated July 10, 2007
and filed with the Commission on July 12, 2007).
|
|
10.10
|
Asset
Purchase Agreement by and among Custom Products Corporation, Bolt
Technology Corporation and A&A Manufacturing Co., Inc. dated May 6,
2008 (incorporated by reference to Exhibit 10.12 to Form 10-K
for the year ended June 30, 2008, SEC File
No. 001-12075).
|
|
10.11
|
Stock
Purchase Agreement by and among Bolt Technology Corporation and the
holders of all of the outstanding shares of capital stock of SeaBotix Inc.
dated January 6, 2011 (incorporated by reference to Exhibit 10.1 to Form
8-K Current Report, SEC File No. 001-12075, dated January 6, 2011 and
filed with the Commission on January 11, 2011).
|
|
31.1
|
Certification
pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).*
|
|
31.2
|
Certification
pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).*
|
30
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).*
|
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).*
|
* Filed
herewith
† Management
contract or compensatory plan
31
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.
BOLT
TECHNOLOGY CORPORATION
|
||
Date:
February 9, 2011
|
/s/
Raymond M. Soto
|
|
Raymond
M. Soto
Chairman
of the Board, President
and Chief
Executive Officer
(Principal
Executive Officer)
|
||
Date:
February 9, 2011
|
/s/
Joseph Espeso
|
|
Joseph
Espeso
Senior
Vice President-Finance and
Chief
Financial Officer
(Principal
Financial and
Accounting
Officer) |
32
EXHIBIT
INDEX
No.
|
Description
|
|
|
||
3.1
|
Restated
Certificate of Incorporation of the Registrant, as amended (incorporated
by reference to Exhibit 3.1 to Form 8-K Current Report, SEC File No.
001-12075, dated November 20, 2007 and filed with the Commission on
November 21, 2007).
|
|
3.2
|
Bylaws
of the Registrant, amended and restated effective as of January 23, 2008
(incorporated by reference to Exhibit 3.1 to Form 8-K Current Report, SEC
File No. 001-12075, dated January 23, 2008 and filed with the Commission
on January 25, 2008).
|
|
10.1
|
Bolt
Technology Corporation Amended and Restated 2006 Stock Option and
Restricted Stock Plan together with (i) Form of Incentive Stock Option
Agreement, (ii) Form of Nonqualified Stock Option Agreement, (iii) Form of
Non-Employee Director Nonqualified Stock Option Agreement, and (iv) Form
of Restricted Stock Award Agreement (incorporated by reference to Exhibit
10.1 to Form 8-K Current Report, SEC File No. 001-12075, dated November
20, 2007 and filed with the Commission on November 21,
2007).†
|
|
10.2
|
Bolt
Technology Corporation Amended and Restated Severance Compensation Plan
together with Form of Designation of Participation (incorporated by
reference to Exhibit 10.2 to Form 8-K Current Report, SEC File No.
001-12075, dated November 20, 2007 and filed with the Commission on
November 21, 2007).†
|
|
10.3
|
Lease
Agreement dated January 10, 2003 between 381 Connecticut Avenue
Corporation and Bolt Technology Corporation (incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended June 30, 2003, SEC File No.
001-12075).
|
|
10.4
|
Lease
Agreement dated January 10, 2003 between 381 Connecticut Avenue
Corporation and Bolt Technology Corporation (incorporated by reference to
Exhibit 10.7 to Form 10-K for the year ended June 30, 2003, SEC File No.
001-12075).
|
|
10.5
|
Employment
Agreement between Bolt Technology Corporation and Raymond M. Soto
effective as of June 10, 1996; Amendment to Employment Agreement between
Bolt Technology Corporation and Raymond M. Soto effective as of September
20, 2001 (incorporated by reference to Exhibit 10.3 to Form 10-Q
for the quarter ended September 30, 2006, SEC File No. 001-12075);
Amendment to Employment Agreement between Bolt Technology Corporation and
Raymond M. Soto effective as of November 20, 2007 (incorporated by
reference to Exhibit 10.3 to Form 8-K Current Report, SEC File No.
001-12075, dated November 20, 2007 and filed with the Commission on
November 21, 2007); Amendment to Employment Agreement between Bolt
Technology Corporation and Raymond M. Soto dated as of
November 5, 2009 (incorporated by reference to Exhibit 10.5 to
Form 10-Q for the quarter ended September 30, 2009, SEC
File No.
001-12075).†
|
33
Form
of Restricted Stock Award Agreement by and between Bolt Technology
Corporation and Raymond M. Soto (incorporated by reference to
Exhibit 10.6 to Form 10-Q for the quarter ended September 30,
2008, SEC File No. 001-12075).†
|
||
10.7
|
Employment
Agreement between A-G Geophysical Products, Inc. and Michael C. Hedger,
dated May 13, 2005 (incorporated by reference to
Exhibit 10.10 to Form 10-Q for the quarter ended March
31, 2005, SEC File No. 001-12075); Amendment to Employment Agreement
between A-G Geophysical Products, Inc. and Michael C. Hedger effective as
of November 20, 2007 (incorporated by reference to Exhibit 10.4 to Form
8-K Current Report, SEC File No. 001-12075, dated November 20, 2007 and
filed with the Commission on November 21, 2007); Amendment to Employment
Agreement between A-G Geophysical Products, Inc. and Michael C. Hedger
dated November 5, 2010 (incorporated by reference to Exhibit 10.7 to
Form 10-Q for the quarter ended September 30, 2010, SEC File No.
001-12075).†
|
|
10.8
|
Asset
Purchase Agreement by and among Real Time Systems Inc., Embedded
Microsystems, Inc. dba Real Time Systems, W. Allen Nance and Molly L.
Nance dated July 10, 2007 (incorporated by reference to Exhibit 10.1 to
Form 8-K Current Report, SEC File No. 001-12075, dated July 10, 2007 and
filed with the Commission on July 12, 2007).
|
|
10.9
|
Non-Competition
Agreement by and among Real Time Systems Inc., Bolt Technology
Corporation, Embedded Microsystems, Inc. dba Real Time Systems and W.
Allen Nance dated July 10, 2007 (incorporated by reference to Exhibit 10.3
to Form 8-K Current Report, SEC File No. 001-12075, dated July 10, 2007
and filed with the Commission on July 12, 2007).
|
|
10.10
|
Asset
Purchase Agreement by and among Custom Products Corporation, Bolt
Technology Corporation and A&A Manufacturing Co., Inc. dated May 6,
2008 (incorporated by reference to Exhibit 10.12 to Form 10-K
for the year ended June 30, 2008, SEC File
No. 001-12075).
|
|
10.11
|
Stock
Purchase Agreement by and among Bolt Technology Corporation and the
holders of all of the outstanding shares of capital stock of SeaBotix Inc.
dated January 6, 2011 (incorporated by reference to Exhibit 10.1 to Form
8-K Current Report, SEC File No. 001-12075, dated January 6, 2011 and
filed with the Commission on January 11, 2011).
|
|
31.1
|
Certification
pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).*
|
|
31.2
|
Certification
pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).*
|
34
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).*
|
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).*
|
* Filed
herewith
† Management
contract or compensatory plan
35