Teledyne Bolt, Inc. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Teledyne Bolt, Inc.	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - Teledyne Bolt, Inc.	v392388_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - Teledyne Bolt, Inc.	v392388_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - Teledyne Bolt, Inc.	v392388_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - Teledyne Bolt, Inc.	v392388_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2014

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 incorporation or organization)	(I.R.S. Employer 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 x No o

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 o	Accelerated filer x

Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

At November 6, 2014, there were 8,710,328 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 ended September 30, 2014 and 2013	3

	Consolidated Balance Sheets - September 30, 2014 (Unaudited) and June 30, 2014	4

	Consolidated Statements of Cash Flows (Unaudited) - Three months ended September 30, 2014 and 2013	5

	Notes to Consolidated Financial Statements (Unaudited)	6-18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	28

Part II - Other Information:

Item 1.	Legal Proceedings	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 6.	Exhibits	30

Signatures		31

Exhibit Index		32

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

BOLT TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended
	September 30,
	2014			2013

Sales	$	11,913,000		$	16,208,000

Costs and Expenses:
Cost of sales		6,134,000			7,957,000
Research and development		958,000			926,000
Selling, general and administrative		3,680,000			3,847,000
Merger expense		1,417,000			-
Interest income		(50,000	)		(50,000	)
		12,139,000			12,680,000

(Loss) Income before income taxes		(226,000	)		3,528,000
Provision for income taxes		344,000			1,165,000
Net (loss) income	$	(570,000	)	$	2,363,000

(Loss) Earnings per share:
Basic	$	(0.07	)	$	0.27
Diluted	$	(0.07	)	$	0.27

Average number of common shares outstanding:
Basic		8,694,083			8,643,400
Diluted		8,694,083			8,653,426

Refer to Notes to Consolidated Financial Statements (Unaudited).

BOLT TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		September 30,
		2014			June 30,
		(unaudited)			2014

ASSETS
Current Assets:
Cash and cash equivalents	$	21,830,000		$	24,245,000
Accounts receivable, less allowance for uncollectible accounts of $195,000 at September 30, 2014 and $129,000 at June 30, 2014		8,205,000			7,568,000
Inventories		21,839,000			20,812,000
Deferred income taxes		540,000			498,000
Other current assets		1,073,000			1,360,000
Total current assets		53,487,000			54,483,000
Property, Plant and Equipment, net		5,665,000			5,544,000
Goodwill, net		17,227,000			17,227,000
Other Intangible Assets, net		5,969,000			6,172,000
Other Assets		242,000			237,000
Total assets	$	82,590,000		$	83,663,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	2,238,000		$	1,645,000
Accrued expenses		3,285,000			3,861,000
Contingent earnout liability		2,810,000			2,810,000
Dividends payable		784,000			781,000
Total current liabilities		9,117,000			9,097,000
Deferred Income Taxes		2,219,000			2,171,000
Total liabilities		11,336,000			11,268,000

Stockholders’ Equity:
Common stock		33,420,000			33,207,000
Retained earnings		39,760,000			41,114,000
Treasury stock, at cost		(1,926,000	)		(1,926,000	)
Total stockholders’ equity		71,254,000			72,395,000
Total liabilities and stockholders’ equity	$	82,590,000		$	83,663,000

Refer to Notes to Consolidated Financial Statements (Unaudited).

BOLT TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended September 30,
	2014			2013
Cash Flows From Operating Activities:
Net (loss) income	$	(570,000	)	$	2,363,000
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Depreciation and amortization		419,000			400,000
Deferred income taxes		6,000			(129,000	)
Stock-based compensation expense		176,000			174,000
Change in operating assets and liabilities:
Accounts receivable		(637,000	)		1,315,000
Inventories		(1,191,000	)		(1,431,000	)
Other assets		287,000			74,000
Accounts payable		593,000			(477,000	)
Accrued expenses		(576,000	)		(227,000	)
Income taxes payable		-			995,000
Net cash (used) provided by operating activities		(1,493,000	)		3,057,000
Cash Flows From Investing Activities:
Capital expenditures and other non-current assets		(178,000	)		(181,000	)
Net cash used by investing activities		(178,000	)		(181,000	)
Cash Flows From Financing Activities:
Dividends paid		(781,000	)		(604,000	)
Exercise of stock options		-			24,000
Tax benefit from vested restricted stock		37,000			58,000
Net cash used by financing activities		(744,000	)		(522,000	)

Net (decrease) increase in cash and cash equivalents		(2,415,000	)		2,354,000
Cash and cash equivalents at beginning of period		24,245,000			22,816,000
Cash and cash equivalents at end of period	$	21,830,000		$	25,170,000

Supplemental Disclosure of Cash Flow Information:
Cash transactions:
Income taxes paid	$	250		$	241,000
Non Cash transactions:
Transfer of property and equipment to inventory	$	161,000		$	-
Transfer of inventory to property and equipment	$	325,000		$	-

Refer to Notes to Consolidated Financial Statements (Unaudited).

BOLT TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 – Basis of Presentation

The Consolidated Balance Sheet as of September 30, 2014, the Consolidated Statements of Income for the three month periods ended September 30, 2014 and 2013 and the Consolidated Statements of Cash Flows for the three month periods ended September 30, 2014 and 2013 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, 2014.

Note 2 – Description of Business and Significant Accounting Policies

The Company develops, manufactures and sells marine seismic data acquisition equipment and underwater remotely operated robotic vehicles, and consists of four operating units (each a separate reportable segment): Bolt Technology Corporation (“Bolt”), A-G Geophysical Products, Inc. (“A-G”), Real Time Systems Inc. (“RTS”) and SeaBotix Inc. (“SBX”). The Bolt seismic energy sources segment develops, manufactures and sells marine seismic energy sources (air guns) and replacement parts. The A-G underwater cables and connectors segment develops, manufactures and sells underwater cables, connectors, hydrophones, depth and pressure transducers and seismic source monitoring systems. The RTS seismic energy source controllers segment develops, manufactures and sells air gun controllers/synchronizers, data loggers and auxiliary equipment. The SBX underwater robotic vehicles segment develops, manufactures and sells underwater remotely operated robotic vehicles used for a variety of underwater tasks.

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.

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.

Goodwill, Intangible Assets with Indefinite Lives and Other Long-Lived Assets

Goodwill represents the unamortized excess cost over the value of net assets acquired in business combinations. The Financial Accounting Standards Board guidance for testing goodwill for impairment provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform a two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test.

The Company conducted an assessment of qualitative factors regarding the A-G reporting unit at June 30, 2014. The qualitative assessment indicated no impairment of the A-G goodwill balance at June 30, 2014.

For the RTS reporting unit, the Company performed the quantitative impairment test at June 30, 2014 using the capitalized cash flow method and the market price method. The impairment test for the RTS reporting unit indicated no impairment of the goodwill balance at June 30, 2014.

For the SBX reporting unit, the Company performed the quantitative test at December 31, 2013 using the capitalized cash flow method and the market price method, as well as the discounted cash flow method, and the test indicated no impairment of the goodwill balance. The Company’s review of the SBX goodwill balance at June 30, 2014 did not result in any indicators of impairment.

The Company reviewed A-G, RTS and SBX goodwill as of September 30, 2014 and no indicators of impairment were identified.

Intangible assets with indefinite lives must be tested annually or more frequently if there are indicators of impairment, to determine if events and circumstances still justify the carrying value of such asset. The test consists of a comparison of the fair value of the asset to its carrying amount. If the carrying amount exceeds the fair value, an impairment loss is recognized equal to the excess of the carrying amount over the fair value. Any such loss would be recognized in the period in which the impairment arose. The SBX intangible asset with an indefinite life was tested for impairment at December 31, 2013 and the test indicated no impairment.

The Company reviewed the RTS and SBX intangible assets with indefinite lives at September 30, 2014 and June 30, 2014 and no indicators of impairment were identified.

The Company’s other long-lived assets consist of property, plant and equipment, other intangible assets with definite lives and other non-current assets. The Company reviews these assets for impairment 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 June 30, 2014 and September 30, 2014 did not identify any indicators of impairment.

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 reserves, the potential impairment of goodwill and intangible assets with indefinite lives, other long-lived assets impairment, valuation of acquisitions, contingent earnout liability and realization of deferred tax assets. Actual results could differ from those estimates.

Valuation of Acquisitions

The Company allocates the amounts it pays for each acquisition to the assets it acquires and the liabilities it assumes based on estimated fair values at acquisition date. The Company determines the estimated fair values of identifiable intangible assets based on detailed valuations that use historical information and market assumptions. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill. The use of different valuation assumptions, including estimated cash flows and discount rates, or different estimated useful life assumptions could result in different purchase price allocations and intangible asset amortization expense in current and future periods.

Contingent Earnout Liability

In the SBX acquisition, the Company is obligated under an earnout arrangement to make cash payments to the former SBX stockholders if certain revenue and gross profit margin thresholds are achieved. The Company recorded a contingent earnout liability at the acquisition date at its estimated fair value, which takes into account the range and probability of projected future revenues of the acquired entity over the earnout period. The Company revalues the contingent earnout liability at the close of each accounting period and records any change in the estimated fair value in the Consolidated Statement of Income as adjustment of contingent earnout liability.

Increases or decreases in the fair value of the SBX contingent earnout liability can result from changes in assumed revenues, probabilities of achieving revenue and gross profit margin thresholds and discount rates. Significant judgment is used in determining the appropriateness of fair value assumptions at the acquisition date and in subsequent periods. As a result, actual contingent earnout payments can differ from estimates, and the differences could be material.

Computation of Earnings Per Share

Basic (loss) earnings per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss) earnings per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period including common share equivalents (which includes stock option grants and restricted stock awards) assuming dilution. Unvested shares of restricted stock are included in computing basic (loss) earnings per share because they contain rights to receive non-forfeitable dividends.

The following is a reconciliation of basic (loss) earnings per share to diluted (loss) earnings per share for the three month periods ended September 30, 2014 and 2013:

	Three Months Ended September 30,

		2014			2013

Net (loss) income available to common stockholders	$	(570,000	)	$	2,363,000

Divided by:
Weighted average common shares		8,694,083			8,643,400
Weighted average common share equivalents		-			10,026
Total weighted average common shares and common share equivalents		8,694,083			8,653,426

Basic (loss) earnings per share	$	(0.07	)	$	0.27
Diluted (loss) earnings per share	$	(0.07	)	$	0.27

For the three month period ended September 30, 2014, the calculations do not include options to acquire 70,876 shares, since the inclusion of these shares would have been anti-dilutive. For the three month period ended September 30, 2013, the calculation included all options to acquire shares because they were all dilutive.

Recent Accounting Developments

None.

Note 3 – Merger

On September 3, 2014, the Company entered into an agreement and plan of merger (the “Merger Agreement”), pursuant to which Teledyne Technologies Incorporated (“Teledyne”) will acquire the Company (the “Merger”). At the effective time of the Merger, if consummated, each outstanding share of the Company’s common stock (including shares of restricted stock which shall vest and become free of restrictions) will be converted automatically into the right to receive $22.00 in cash, without interest. Additionally, each outstanding option to purchase common stock of the Company (whether vested or unvested) will be converted into the right to receive an amount in cash equal to the excess, if any, of $22.00 over the exercise price of such option.

During the interim period from September 3, 2014 through the earlier of the consummation of the Merger or the termination of the Merger Agreement, the Company is subject to certain restrictions on its business activities and is required to conduct its business in the ordinary course. In addition, the Merger Agreement prohibits the Company from, among other things, declaring any further dividends, granting any stock options or restricted stock or repurchasing shares of the Company’s common stock pursuant to the existing repurchase authorization, in each case prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement.

The consummation of the Merger is subject to certain closing conditions, including approval of the Merger Agreement by the holders of the requisite number of shares of Company common stock under the Connecticut Business Corporation Act, and other conditions customary for a transaction of this type. A special meeting of the shareholders of the Company has been scheduled for November 17, 2014 to vote on the Merger.

The Merger Agreement provides that the Company may not solicit competing acquisition proposals, subject to certain exceptions designed to allow the Company’s Board of Directors to fulfill its fiduciary duties. In addition, the Merger Agreement contains certain termination rights and provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Teledyne a termination fee equal to $7,500,000 and to pay Teledyne’s expenses up to $1,000,000.

During the three month period ended September 30, 2014, the Company incurred $1,417,000 of expenses relating to the proposed merger, primarily for legal and investment banker fees. These expenses are non-deductible for income tax purposes.

Between September 10, 2014 and September 24, 2014, five substantially similar putative class action complaints were filed in the Superior Court of the State of Connecticut naming the Company, the members of the Company’s board of directors, Teledyne, and a Teledyne merger subsidiary (“Merger Sub”) as defendants. The complaints alleged that the members of the Company’s board of directors breached their fiduciary duties to Bolt’s shareholders by agreeing to sell Bolt for inadequate and unfair consideration and pursuant to an inadequate and unfair process, and that Teledyne and/or Merger Sub aided and abetted those alleged breaches. Teledyne and/or Merger Sub removed all five cases to Federal Court. On October 23, 2014, amended complaints were filed in four of the cases. On October 16, 2014, the court consolidated all of the cases identified above into Armin Walker v. Bolt Technology Corporation et al., C.A. No. 3:14-cv-01406, (the “Action”). On October 31, 2014, one of the five plaintiffs voluntarily dismissed her case, leaving four consolidated cases in the Action. On November 3, 2014, the Federal Court remanded the Action to state court in Connecticut, which also had the effect of returning the cases to four separate cases (the “Cases”). On November 10, 2014, one of the remaining four plaintiffs withdrew his case, leaving a total of three separate Cases.

On November 10, 2014, the Company, the members of the Company’s board of directors, Teledyne, and Merger Sub entered into a memorandum of understanding (“MOU”) with the plaintiffs in the three pending Cases providing for the settlement of all claims in the Cases. Under the MOU, and subject to conditions, including court approval and further definitive documentation, the plaintiffs on behalf of the putative class they represent have agreed to settle and release, against the defendants and their affiliates and agents, all claims in the Action and Cases and any potential claim related to (i) the Merger and/or the Merger Agreement, or any amendment thereto; (ii) the adequacy of the consideration to be paid to the Company’s shareholders in connection with the Merger; (iii) the fiduciary obligations of any of the defendants or other released parties in connection with the Merger and/or the Merger Agreement, or any amendment thereto; (iv) the negotiations in connection with and process leading to the Merger and/or the Merger Agreement, or any amendment thereto; and (v) the disclosures or disclosure obligations of any of the defendants or other released parties in connection with the Merger and/or the Merger Agreement.

The settlement provides for the Company to file additional disclosures supplementing its Definitive Proxy Statement, which disclosures will be filed as soon as the MOU is executed by all of the parties. The settlement will be subject to approval by the Connecticut Superior Court, after a hearing at which dissenting stockholders can object. The settlement application to the court will include an application for payment by defendants of plaintiffs’ legal fees. The amount of such legal fees is undetermined at this time. The Company anticipates that its D&O insurance will cover any such payments, subject to any applicable deductible.

Note 4 – SeaBotix Inc. Acquisition

The Company acquired all of the outstanding shares of capital stock of SeaBotix Inc. effective January 1, 2011. At closing, $9,500,000 was paid and a $500,000 purchase price holdback was accrued by the Company. Additional post-closing earnout payments are due if SBX achieves certain revenue and gross profit margin thresholds during the four-year period ending December 31, 2014.

The total purchase price paid or accrued consisted of the following:

Cash paid	$	9,500,000
Accrual for contingent earnout payments		5,000,000
Accrual for holdback and pro forma working capital adjustment		1,560,000
Total purchase price	$	16,060,000

The final purchase price allocation was as follows:

Net current assets, including cash acquired of $316,000 and accounts receivable of $1,342,000	$	4,963,000
Non-current assets (mainly property and equipment)		796,000
Goodwill		6,270,000
Other intangible assets		8,500,000
Accounts payable and accrued expenses		(1,010,000	)
Debt assumed		(539,000	)
Deferred tax liability (non-current)		(2,920,000	)
Total purchase price allocation	$	16,060,000

In fiscal years 2014, 2013 and 2012, the Company increased the contingent earnout liability by $2,500,000, $500,000, and $4,500,000, respectively, and the amounts were charged to the Consolidated Statement of Income. These charges are non-deductible for income tax purposes. These amounts are not included in the total purchase price of $16,060,000.

Set forth below is a summary of the activity in the contingent earnout liability (all amounts represent fair values) from the date of closing to September 30, 2014:

	Contingent
	Earnout
	Liability
Balance at closing	$	5,000,000
Earnout paid in fiscal year 2011		(2,000,000	)
Balance at June 30, 2011		3,000,000
Earnout paid in fiscal year 2012		(2,500,000	)
Increase to contingent earnout liability in June 2012		4,500,000
Balance at June 30, 2012		5,000,000
Earnout paid in fiscal year 2013		(2,185,000	)
Increase to contingent earnout liability in June 2013		500,000
Balance at June 30, 2013		3,315,000
Earnout paid in fiscal year 2014		(3,005,000	)
Increase to contingent earnout liability in December 2013		1,500,000
Increase to contingent earnout liability in June 2014		1,000,000
Balance at September 30, 2014 and June 30, 2014	$	2,810,000

An earnout payment equal to 15.5% of annual gross revenues is payable if SBX generates annual gross revenues in excess of $10,000,000 and achieves a certain gross profit percentage for calendar year 2014. If the Company estimates that it is more likely than not that the earnout payment for calendar year 2014 will exceed $2,810,000, the Company would have to increase the contingent earnout liability by the anticipated additional amount of the earnout payment. Such increase would result in a non-cash charge to the Consolidated Statement of Income.

The $2,810,000 contingent earnout liability at September 30, 2014 and June 30, 2014 was estimated by the Company based upon projected SBX revenues and gross profit percentages for calendar year 2014.

Note 5 – Inventories

Inventories consist of the following:

	September 30, 2014			June 30, 2014

Raw materials and sub-assemblies	$	19,022,000		$	18,077,000
Work-in-process		3,580,000			3,429,000
		22,602,000			21,506,000
Less – Reserve for inventory valuation		(763,000	)		(694,000	)
	$	21,839,000		$	20,812,000

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 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 three month period ended September 30, 2014, the inventory valuation reserve was increased by $69,000 and no items were scrapped or disposed.

Note 6 – Goodwill

The Company’s goodwill carrying amounts relate to the acquisitions of A-G, RTS and SBX. A-G, RTS and SBX are three reporting units under ASC 350, “Intangibles — Goodwill and Other.” Bolt, the parent of A-G, RTS and SBX, is a fourth reporting unit and has no goodwill.

The composition of the net goodwill balance at September 30, 2014 and June 30, 2014 is as follows:

A-G	$	7,679,000
RTS		3,278,000
SBX		6,270,000
	$	17,227,000

Goodwill represents approximately 21% of the Company’s total assets at September 30, 2014 and thus the evaluation of goodwill impairment is a significant estimate by management.

Note 7 – Income Taxes

A reconciliation of the federal statutory rate to the effective tax rate reflected in the total provision for income taxes for the three month periods ended September 30 is as follows:

	2014			2013

Federal statutory rate		(34	%)		34	%
Exempt income from domestic manufacturer’s deduction		(15	)		(3	)
Non-deductible expenses:
Merger expense		213			-
Other		6			1
State taxes		(13	)		1
All other, net		(5	)		-
Effective tax rate		152	%		33	%

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 September 30, 2014 and June 30, 2014. There were no unallocated tax reserves at September 30, 2014 and June 30, 2014. The Company’s federal income tax returns for fiscal years prior to fiscal year 2011 are no longer subject to examination by the Internal Revenue Service.

Note 8 — Fair Value Measurements

accounting guidance for fair value measurements, the Company uses a three-tier fair value hierarchy to prioritize the inputs for measuring fair value. The hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3).

Set forth below is a summary of liabilities that are measured at fair value on a recurring basis based on the three-level valuation hierarchy:

	Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Liabilities
At September 30, 2014 — Contingent earnout liability	$	—	$	—	$	2,810,000	$	2,810,000
At June 30, 2014 — Contingent earnout liability	$	—	$	—	$	2,810,000	$	2,810,000

This liability relates to the estimated fair value of the earnout payment to former SeaBotix Inc. stockholders for the earnout period ending December 31, 2014.

There have been no changes in the Level 3 liability from June 30, 2014 to September 30, 2014.

The Company determined the fair value of the contingent earnout liability at September 30, 2014 and June 30, 2014 using a probability weighted approach. The principal inputs to the approach include expectations of the specific business’s revenue and the probability of achieving required gross profit percentages for the remaining earnout period which ends on December 31, 2014. Given the use of significant inputs that are not observable in the market, the contingent earnout liability is classified within Level 3 of the fair value hierarchy. There were no significant changes to this methodology during the three month period ended September 30, 2014 and the year ended June 30, 2014.

Fair values of accounts receivable, other current assets, accounts payable, accrued expenses and dividends payable reflected in the September 30, 2014 (Unaudited) and June 30, 2014 Consolidated Balance Sheets approximate carrying values on those dates.

Note 9 – 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 2012 Stock Incentive Plan (the “2012 Plan”) was approved by the Company’s stockholders at the November 20, 2012 Annual Meeting of Stockholders. The 2012 Plan replaced the Company’s Amended and Restated 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”). No new grants may be made under the 2006 Plan, but stock option and restricted stock grants awarded prior to the effective date of the 2012 Plan continue in effect.

The 2012 Plan provides that 750,000 shares of Common Stock may be used for equity awards under the 2012 Plan of either stock options or restricted stock grants or any combination thereof. Stock options granted under the 2012 Plan can become vested over, and can be exercisable for, a period of up to ten years.

Under the 2012 Plan, non-qualified or compensatory stock options can be granted and awards of restricted stock can be made to non-employee directors at the discretion of the compensation committee, for up to a combined annual maximum of 3,000 shares of Common Stock per non-employee director. Under the terms of the 2012 Plan, no stock options or restricted stock can be granted subsequent to June 30, 2022.

The Merger Agreement with Teledyne prohibits the Company from granting any stock options or restricted stock prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement.

Stock Options

Stock option compensation expense was $45,000 and $47,000 for the three month periods ended September 30, 2014 and 2013, respectively.

A summary of changes in stock options during the three month period ended September 30, 2014 is as follows:

	2012 Plan				2006 Plan
			Weighted Average Exercise				Weighted Average Exercise
	Shares		Price		Shares		Price

Options outstanding at June 30, 2014		105,200	$	18.62		53,400	$	12.33
Granted		-	$	-		-	$	-
Exercised		-	$	-		-	$	-
Options outstanding at September 30, 2014		105,200	$	18.62		53,400	$	12.33

At the effective time of the Merger with Teledyne, if consummated, each outstanding stock option (whether vested or unvested) will be converted into the right to receive an amount in cash equal to the excess, if any, of $22.00 over the exercise price of such option.

At September 30, 2014, the aggregate intrinsic value for outstanding options was $862,000, because the market price of the Company’s Common Stock at September 30, 2014 was higher than the weighted average exercise price of such options.

Restricted Stock

During the three month period ended September 30, 2014, 34,000 shares of restricted stock were granted under the 2012 Plan. These shares vest over a five-year period and the cost to the recipients is zero. During the three month period ended September 30, 2013, 29,500 shares of restricted stock were granted under the 2012 Plan. Of these shares, 28,000 and 1,500 shares vest over a five-year period and one-year period, respectively, and the cost to the recipients is zero. The aggregate compensation cost for restricted stock granted during the three month periods ended September 30, 2014 and 2013 was $576,000 and $546,000, 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 vesting period of each restricted stock grant.

Restricted stock compensation expense was $131,000 and $127,000 for the three month periods ended September 30, 2014 and 2013, respectively.

A summary of changes in restricted stock awards during the three month period ended September 30, 2014 is as follows:

	2012 Plan					2006 Plan
				Weighted Average Grant Date					Weighted Average Grant Date
	Shares			Fair Value		Shares			Fair Value
Unvested restricted stock awards outstanding at June 30, 2014		33,950		$	18.51		60,800		$	12.47
Granted		34,000		$	16.94		-		$	-
Vested		(6,350	)	$	18.47		(22,520	)	$	12.34
Unvested restricted stock awards outstanding at September 30, 2014		61,600		$	17.65		38,280		$	12.55

At the effective time of the Merger with Teledyne, if consummated, each share of unvested restricted stock will vest and will automatically convert into the right to receive $22.00 in cash.

Note 10 - Stockholders’ Equity

Changes in issued Common Stock and Stockholders’ Equity for the three month period ended September 30, 2014 were as follows:

	Common Stock				Treasury Stock					Retained
	Shares		Amount		Shares		Amount			Earnings			Total
Balance June 30, 2014		8,878,049	$	33,207,000		202,075	$	(1,926,000	)	$	41,114,000		$	72,395,000
Restricted stock grants		34,000		—		—		—			—			—
Stock based compensation expense		—		176,000		—		—			—			176,000
Tax benefit from vested restricted stock		—		37,000		—		—			—			37,000
Net loss		—		—		—		—			(570,000	)		(570,000	)
Dividends ($0.09 per share)		—		—		—		—			(784,000	)		(784,000	)
Balance September 30, 2014		8,912,049	$	33,420,000		202,075	$	(1,926,000	)	$	39,760,000		$	71,254,000

At September 30, 2014 and June 30, 2014, 20,000,000 shares of Common Stock, no par value, were authorized. The Merger Agreement with Teledyne prohibits the Company from repurchasing any shares pursuant to the existing repurchase authorization prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement. The Company declared a dividend of $0.09 per common share on August 13, 2014, which was paid on October 2, 2014 to stockholders of record on September 3, 2014. The Merger Agreement with Teledyne prohibits the Company from declaring any further dividends prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement.

Note 11 – Concentrations and Contingencies

Concentration of Credit Risk:

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 and with several non-banking U.S. corporations that are not insured or guaranteed. 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 receivables 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.

Litigation:

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 except for four Connecticut class action suits, relating to the proposed Merger with Teledyne.

Note 12 – Segment Information

The Company has four reportable segments aligned with each of the Company’s product lines in accordance with ASC 280, “Segment Reporting.”

The following table provides selected financial information for each reportable segment for the three month periods ended September 30, 2014 and 2013:

	Seismic Energy Sources		Underwater Cables & Connectors		Seismic Energy Source Controllers			Underwater Robotic Vehicles		Corporate Headquarters & Eliminations			Consolidated

Three Months Ended September 30, 2014
Sales to external customers	$	3,670,000	$	2,456,000	$	313,000		$	5,474,000	$	—		$	11,913,000
Intersegment sales		149,000		97,000		170,000			—		(416,000	)		—
Depreciation and amortization		73,000		77,000		25,000			239,000		5,000			419,000
Income (loss) before income taxes		544,000		454,000		(201,000	)		1,285,000		(2,308,000	)		(226,000	)
Fixed asset additions		74,000		12,000		43,000			44,000		—			173,000

Three Months Ended September 30, 2013
Sales to external customers	$	6,278,000	$	5,146,000	$	1,662,000		$	3,122,000	$	—		$	16,208,000
Intersegment sales		380,000		177,000		291,000			—		(848,000	)		—
Depreciation and amortization		69,000		75,000		17,000			234,000		5,000			400,000
Income (loss) before income taxes		1,279,000		2,129,000		871,000			220,000		(971,000	)		3,528,000
Fixed asset additions		97,000		29,000		51,000			4,000		—			181,000

Balance Sheet Data at September 30, 2014
Segment assets	$	18,871,000	$	15,262,000	$	5,627,000		$	24,614,000	$	18,216,000		$	82,590,000
Goodwill		—		7,679,000		3,278,000			6,270,000		—			17,227,000
Other intangible assets		117,000		—		289,000			5,563,000		—			5,969,000

Balance Sheet Data at June 30, 2014
Segment assets	$	19,927,000	$	17,010,000	$	5,970,000		$	22,591,000	$	18,165,000		$	83,663,000
Goodwill		—		7,679,000		3,278,000			6,270,000		—			17,227,000
Other intangible assets		117,000		—		297,000			5,758,000		—			6,172,000

The Company does not allocate income taxes to the segments.

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, dividends, 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) the risk of changing budgetary levels for government and quasi-government units, (v) risks associated with a significant amount of foreign sales, (vi) the risk of fluctuations in future operating results, (vii) risks associated with global economic conditions and fluctuations in offshore energy activity, (viii) risks of changes in environmental or regulatory matters, (ix) the risk of the Company not being able to close the merger with Teledyne Technologies Incorporated on a timely basis, or at all, (x) the consequences if the merger does not close, including those described in the definitive proxy statement, and (xi) other risks detailed in the Company’s other 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.

Overview

The Company consists of four operating units: Bolt Technology Corporation (“Bolt”), A-G Geophysical Products, Inc. (“A-G”), Real Time Systems Inc. (“RTS”) and SeaBotix Inc. (“SBX”).

The Company develops, manufactures and sells marine seismic data acquisition equipment and underwater remotely operated robotic vehicles. The Company’s four operating units, each of which is considered to be a separate reportable segment, consist of: seismic energy sources, underwater cables and connectors, seismic energy source controllers, and underwater robotic vehicles. Refer to Note 12 to Consolidated Financial Statements (Unaudited) for further information on reportable segments.

Sales of the Company’s products in the three segments dedicated to marine seismic data acquisition equipment (seismic energy sources, underwater cables and connectors, and seismic energy source controllers) are generally related to the level of worldwide oil and gas exploration and development activity, which is typically based on current and projected crude oil and natural gas prices. Sales of the Company’s underwater robotic vehicles are generally related to the demand from government and quasi-government units.

Consolidated sales for the three month period ended September 30, 2014 decreased by $4,295,000 or 26% from the three month period ended September 30, 2013.

The combined sales for the three marine seismic data acquisition segments decreased from $13,086,000 for the three month period ended September 30, 2013 to $6,439,000 for the three month period ended September 30, 2014, a decrease of $6,647,000 or 51% due to a general slowdown in the marine seismic exploration industry. In addition, during the three month period ended September 30, 2014, the Company recorded $1,417,000 of non-tax deductible expenses relating to the proposed merger of the Company with Teledyne Technologies Incorporated. As a result, the Company recorded a net loss of $570,000 ($0.07 per share) for the three month period ended September 30, 2014. The sales outlook for the remainder of fiscal year 2015 for the three marine seismic data acquisition segments is subject to the marine seismic industry downturn, the duration of which is uncertain. In addition, the Company continues to incur significant expense relating to the proposed merger of the Company with Teledyne Technologies Incorporated.

Sales of underwater robotic vehicles increased from $3,122,000 for the three month period ended September 30, 2013 to $5,474,000 for the three month period ended September 30, 2014, an increase of $2,352,000 or 75% due primarily to higher shipments to the U.S. government. Based on sales, operating results for the three month period ended September 30, 2014 and current orders, the Company anticipates that fiscal year 2015 sales and operating results for this segment will be strong, absent any significant decreases in sales to the U.S. government.

At September 30, 2014, the Company conducted an assessment of the June 30, 2014 contingent earnout liability of $2,810,000 and determined that no adjustment was required.

During the three month period ended September 30, 2014, the Company continued its joint development effort with WesternGeco, a product line of Schlumberger, to develop an environmentally friendly energy source (the “eSource™”) for marine seismic exploration surveys. The Company has continued to incur costs, in support of this project, which are charged to research and development expense in the Consolidated Statement of Income. The Company anticipates receiving the first orders for the eSource™ by the end of fiscal year 2015.

The review period (the “HSR Waiting Period”) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, for the Merger, expired as of 11:59 p.m. on October 16, 2014. Expiration of the HSR Waiting Period satisfies one of the conditions to the closing of the Merger. Completion of the Merger remains subject to approval by the Company’s shareholders and satisfaction or waiver of certain other conditions. A special meeting of the shareholders of the Company has been scheduled for November 17, 2014 to vote on the Merger. In addition, the Merger Agreement contains certain termination rights and provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Teledyne a termination fee equal to $7,500,000 and to pay Teledyne’s expenses up to $1,000,000.

In connection with the proposed Merger, the Company filed a definitive proxy statement with the Securities and Exchange Commission (“SEC”) on October 7, 2014. The proxy statement contains additional important information about the proposed Merger and the parties thereto. A free copy of the proxy statement may be obtained at the SEC’s website at www.sec.gov or the Company’s website at www.bolt-technology.com. A free copy of the proxy statement may also be obtained from Bolt Technology Corporation at Four Duke Place, Norwalk, CT 06854, Attention: Investor Relations.

The Company’s balance sheet at September 30, 2014 remained strong with cash of $21,830,000, working capital of $44,370,000 and no debt.

Unless expressly noted to the contrary, all forward-looking statements in this discussion and analysis of financial condition and results of operations relate to the Company on a stand-alone basis and do not reflect any potential impact of the proposed Merger with Teledyne.

The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”), which are referred to as generally accepted accounting principles or “GAAP,” as contained in the FASB Accounting Standards Codification.

Liquidity and Capital Resources

The Company maintains its cash and cash equivalent balances primarily with several non-banking U.S. corporations as well as with certain U.S. based financial institutions. As of September 30, 2014, the Company believes that cash and cash equivalent balances and projected cash flow from operations will be adequate to meet foreseeable operating needs for the remainder of fiscal year 2015.

On August 13, 2014, the Company’s Board of Directors approved a dividend of $0.09 per common share payable on October 2, 2014 to stockholders of record on September 3, 2014. This dividend amounted to $784,000. Under the Merger Agreement with Teledyne, no further dividends may be declared prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement.

In 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 determines 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 Exchange Act Rule 10b-18. As of September 30, 2014, the Company had repurchased 202,075 of its shares under the repurchase program at an aggregate cost of $1,926,000. No shares were repurchased during the three month period ended September 30, 2014. Under the Merger Agreement with Teledyne, no further repurchases may be made prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement.

Three Months Ended September 30, 2014

At September 30, 2014, the Company had $21,830,000 in cash and cash equivalents, as compared to $25,170,000 at September 30, 2013. The decrease in cash and cash equivalents was primarily due to dividend payments.

For the three month period ended September 30, 2014, cash used from operating activities after changes in working capital items was $1,493,000, primarily due to higher accounts receivable and inventory.

For the three month period ended September 30, 2013, cash flow from operating activities after changes in working capital items was $3,057,000, primarily due to net income adjusted for non-cash items and lower accounts receivable, partially offset by higher inventory.

For the three month period ended September 30, 2014, cash used in investing activities was $178,000 due to capital expenditures for new and replacement equipment. For the three month period ended September 30, 2013, cash used in investing activities was $181,000 due to capital expenditures for new and replacement equipment.

For the three month period ended September 30, 2014, cash used in financing activities was $744,000 due primarily to cash dividends paid. For the three month period ended September 30, 2013, cash used in financing activities was $522,000 due primarily to cash dividends paid.

The Company anticipates that capital expenditures for the remainder of fiscal year 2015 will not exceed $800,000 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 September 30, 2014 and June 30, 2014, the five customers with the highest accounts receivable balances represented 72% and 64% of the consolidated accounts receivable balances on those dates, respectively.

Off-Balance Sheet Arrangements

The Company had no off-balance sheet financing arrangements at September 30, 2014.

Contractual Obligations

The Company had no long-term borrowings, capital leases, purchase obligations or other long-term liabilities at September 30, 2014.

Results of Operations

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Consolidated sales for the three month period ended September 30, 2014 totaled $11,913,000, a decrease of $4,295,000 or 26% from the three month period ended September 30, 2013. The change in net sales from the prior year period by reportable segment was as follows: seismic energy sources decreased by $2,608,000 (42%), underwater cables and connectors decreased by $2,690,000 (52%), seismic energy source controllers decreased by $1,349,000 (81%), and underwater robotic vehicles increased by $2,352,000 (75%).

Lower sales for the three marine seismic data acquisition segments were primarily due to the negative impact of the marine seismic industry slowdown. Higher sales for the underwater robotic vehicles segment was due primarily to increased shipments to the U.S. government.

Consolidated gross profit as a percentage of consolidated sales was 49% for the three month period ended September 30, 2014 versus 51% for the three month period ended September 30, 2013. The decrease in the gross profit percentage reflects lower manufacturing efficiencies associated with the 51% sales decrease for the marine seismic data acquisition segments.

Research and development (“R&D”) costs for the three month period ended September 30, 2014 increased to $958,000 from $926,000 for the three month period ended September 30, 2013. In both periods, R&D costs relate primarily to the joint development effort with WesternGeco to develop an environmentally friendly seismic energy source.

Selling, general and administrative expenses decreased by $167,000 or 4% in the three month period ended September 30, 2014 from the three month period ended September 30, 2013. The decrease was primarily due to lower advertising and trade show expense.

Expenses related to the proposed Merger with Teledyne for the three month period ended September 30, 2014 were $1,417,000, consisting primarily of legal and investment banker fees. These expenses are non-deductible for income tax purposes.

Interest income for the three month period ended September 30, 2014 remained the same as the three month period ended September 30, 2013 primarily due to unchanged interest rates.

The provision for income taxes for the three month period ended September 30, 2014 was $344,000, an effective tax rate of 152%. This rate was higher than the federal statutory rate of 34% primarily due to non-deductible merger expense associated with the proposed Merger with Teledyne, partially offset by benefits associated with state income taxes and the domestic manufacturer’s deduction. The provision for income taxes for the three month period ended September 30, 2013 was $1,165,000, an effective tax rate of 33%. This rate was lower than the federal statutory rate of 34% primarily due to benefits associated with the domestic manufacturer’s deduction, partially offset by state income taxes and non-deductible expenses.

The above mentioned factors resulted in a net loss for the three month period ended September 30, 2014 of $570,000, compared to net income of $2,363,000 for the three month period ended September 30, 2013. Excluding the expenses related to the proposed Merger with Teledyne, net income would have been $847,000 for the three month period ended September 30, 2014.

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, valuation of acquisitions, contingent earnout liability, deferred taxes, and the potential impairment of goodwill, intangible assets with indefinite lives and other long-lived assets. 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.

Refer to 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) establishing a set sales price with the customer; (3) delivering product to the customer before the close of the reporting period, whereby delivery results in the transfer of ownership risk to the customer; (4) collecting the sales revenue from the customer is reasonably assured; and (5) no contingencies exist.

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 inventory valuation reserve is adjusted at the close of each accounting period, as necessary, based on management’s estimate of the inventory 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. During the three month period ended September 30, 2014, the inventory valuation reserve was increased by $69,000 and no items were scrapped or disposed.

Valuation of Acquisitions

The Company allocates the amounts it pays for each acquisition to the assets it acquires and the liabilities it assumes, based on estimated fair values at acquisition date. The Company determines the estimated fair values of identifiable intangible assets based on detailed valuations that use historical information and market assumptions. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. The use of different valuation assumptions, including estimated cash flows and discount rates, or different estimated useful life assumptions, could result in different purchase price allocations and intangible asset amortization expense in current and future periods.

Contingent Earnout Liability

The Company is obligated under an earnout arrangement to make cash payments to the former SBX stockholders if certain revenue and gross profit margin targets are achieved. The Company recorded a contingent earnout liability at the acquisition date at its estimated fair value, which takes into account the range and probability of projected future revenues of the acquired entity over the earnout period. The Company revalues the contingent earnout liability at the close of each accounting period and records any change in the estimated fair value in the Consolidated Statement of Income as adjustment of contingent earnout liability.

Increases or decreases in the fair value of the SBX contingent earnout liability can result from changes in assumed revenues, probabilities of achieving revenue and gross profit margin targets and discount rates. Significant judgment is used in determining the appropriateness of fair value assumptions at the acquisition date and in subsequent periods. As a result, actual contingent earnout payments can differ from estimates, and the differences could be material.

At September 30, 2014, the Company conducted an assessment of the contingent earnout liability of $2,810,000 and determined that no adjustment was required.

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 September 30, 2014 and June 30, 2014 because future taxable income is believed to be sufficient to utilize any deferred tax asset.

Impairment Testing of Goodwill, Intangible Assets with Indefinite Lives and Other Long-Lived Assets

The Company reviews goodwill for impairment annually or more frequently if impairment indicators arise. The Company conducted an assessment of qualitative factors regarding the A-G reporting unit at June 30, 2014. The qualitative assessment indicated no impairment of the A-G goodwill balance at June 30, 2014.

For the RTS reporting unit, the Company performed a quantitative impairment test at June 30, 2014 using the capitalized cash flow method and the market price method. The impairment test for the RTS reporting unit indicated no impairment of the goodwill balance at June 30, 2014.

For the SBX reporting unit, the Company performed a quantitative impairment test at December 31, 2013 using the capitalized cash flow method and the market price method, as well as the discounted cash flow method, and the impairment test indicated no impairment of the goodwill balance. The Company’s review of the SBX goodwill balance at June 30, 2014 did not identify any indicators of impairment.

The Company reviewed A-G, RTS and SBX goodwill as of September 30, 2014 and no indicators of impairment were identified.

Goodwill represents approximately 21% of the Company’s total assets at September 30, 2014. The evaluation of goodwill 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.

The Company reviewed the SBX intangible asset with an indefinite life at September 30, 2014 and June 30, 2014 and no indicators of impairment were identified.

The Company reviewed the RTS intangible asset with an indefinite life at September 30, 2014 and June 30, 2014 and no indicators of impairment were identified.

The Company’s other long-lived assets consist of property, plant and equipment, other intangible assets with definite lives and other non-current assets.

The Company reviews these assets for impairment 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 September 30, 2014 and June 30, 2014 did not identify any indicators of impairment.

Recent Accounting Developments

None.

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 September 30, 2014. 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 September 30, 2014 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

Between September 10, 2014 and September 24, 2014, five substantially similar putative class action complaints were filed in the Superior Court of the State of Connecticut naming the Company, the members of the Company’s board of directors, Teledyne, and a Teledyne merger subsidiary (“Merger Sub”) as defendants. The complaints alleged that the members of the Company’s board of directors breached their fiduciary duties to Bolt’s shareholders by agreeing to sell Bolt for inadequate and unfair consideration and pursuant to an inadequate and unfair process, and that Teledyne and/or Merger Sub aided and abetted those alleged breaches. Teledyne and/or Merger Sub removed all five cases to Federal Court. On October 23, 2014, amended complaints were filed in four of the cases. In the amended complaints the claims, relief sought, and Defendants remained the same, but after having reviewed the preliminary proxy statement filed by the Company, the plaintiffs added details regarding information that they allege should be disclosed to Company shareholders for them to make a fully informed decision whether to vote in support of the proposed transaction. On October 16, 2014, the court consolidated all of the cases identified above into Armin Walker v. Bolt Technology Corporation et al., C.A. No. 3:14-cv-01406, (the “Action”). On October 31, 2014, one of the five plaintiffs voluntarily dismissed her case, leaving four consolidated cases in the Action. On November 3, 2014, the Federal Court remanded the Action to state court in Connecticut, which also had the effect of returning the cases to four separate cases (the “Cases”). On November 10, 2014, one of the remaining four plaintiffs withdrew his case, leaving a total of three separate Cases.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

In June 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. The Company did not repurchase any shares of its Common Stock during the three month period ended September 30, 2014. As of September 30, 2014, $8,074,000 remained available for repurchase under the existing repurchase authorization. However, under the Merger Agreement with Teledyne, no further repurchases may be made prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement.

Item 6 – Exhibits

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).*

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).**

101. INS		XBRL Instance Document.

101. SCH		XBRL Taxonomy Extension Schema Document.

101. CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101. DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101. LAB		XBRL Taxonomy Extension Label Linkbase Document.

101. PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

*	Filed with this Form 10-Q.
**	Furnished with this Form 10-Q.

SIGNATURES

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: November 10, 2014		/s/ Raymond M. Soto
		Raymond M. Soto Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Date: November 10, 2014		/s/ Joseph Espeso
		Joseph Espeso Senior Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description

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).*

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).**

101. INS		XBRL Instance Document.

101. SCH		XBRL Taxonomy Extension Schema Document.

101. CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101. DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101. LAB		XBRL Taxonomy Extension Label Linkbase Document.

101. PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

*	Filed with this Form 10-Q.
**	Furnished with this Form 10-Q.

Attached files

Stock widget

Investing forum

Teledyne Bolt, Inc. Reports