The fiscal year ended March 31,
2001 was without a doubt one of
the most difficult and unpredictable
in the last twenty years for our
company. As we worked our way
through a troubled integration of
two factories in the UK, we were
also besieged with an unprecedented
slowdown in U.S. auto and heavy
truck production, a collapse of the
equity markets, and the closing of
the debt markets to all but the
most highly rated companies. As
a result, for fiscal 2001 we posted
our first operating loss in ten years,
violated some of the technical
covenants in our credit agreements,
and saw our share price drop to its
lowest level in over twenty years.
As the world changed so rapidly
around us, our management team
and Board of Directors took bold
and dramatic action to change our
course and follow a path that
would lead to more predictability in
our business, less leverage, higher
growth, and greater profitability.
In January, the Board approved a
restructuring leading to the
divestiture of our engineered
products group of small business
units that we had built up or
acquired to be platforms for future
growth. In April, we decided to
divest all of our remaining fastener
businesses. When this restructuring
is completed, TransTechnology will
be substantially debt-free and
involved solely in the design,
manufacture, and servicing of aerospace equipment and components.
The fiscal 2001 operating loss was
primarily the result of the failure of
our integration of the Anderton and
Ellison retaining ring facilities in
the UK. While the consolidation is
now complete and operating at
close to breakeven cash flow, during fiscal 2001 the UK operation
lost more than $8 million, required
more cash than budgeted for capital investment, and consumed an
inordinate amount of management
resources as the company also
faced the challenges of a slowing
U.S. economy. On the other hand,
we posted a record year of performance at our German retaining
ring operation and an almost
$1 million swing in combined
profitability from the prior year
at the U.S. and Brazilian retaining
ring operations.
The 50% decline in heavy-duty
truck production in the second half
of fiscal 2001 heavily impacted our
hose clamp operations, leading to a
significant reduction in the U.S.
unit's profitability. Similarly, the
downturn in production rates
during the fiscal year's last three
quarters for the big three domestic
car-makers, our largest market
segment, resulted in weaker than
expected sales and operating profits at our Engineered Components
and cold-headed business units.
Our aerospace rivet unit showed
slight improvements from the prior
year as it stabilized following last
fiscal year's loss of a major customer
and declines in aircraft build, but
it continued to operate at a loss
during fiscal 2001.
Our Aerospace Products group,
however, once again posted record
results in both sales and operating
income, with 15.9% and 18.4%
increases, respectively. By continuously focusing on new product
introductions, cost reduction,
customer service and support, and
process and engineering improvements, our Aerospace Products
group reported its sixth consecutive
year of growth in sales and profits.
Our strategy for the TransTechnology
of the future is based on our
Aerospace Products group. While
the TransTechnology of 2002 will
be substantially smaller than it was
in fiscal 2001, we believe it will be
a much more valuable company.
We are the world's market leader in
our two main aerospace products.
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Our Aerospace Products
group once again posted
record results in both
sales and operating
income, with 15.9%
and 18.4% increases,
respectively.
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Our revenue stream, comprised of
sales of new equipment, spare
parts, and overhaul and repair services, will be more steady and predictable. Our profitability will be
substantially higher as the service
aspects of the aerospace business
provide better opportunities for
higher returns on engineered solutions. Our capital requirements for
new equipment and facilities will
be lower, because the core competency of Aerospace Products is
engineering rather than high volume manufacturing. Solid long-term growth opportunities lie in
new defense programs, such as the
V-22 Osprey, Joint Strike Fighter,
UCAV (Unmanned Combat Air
Vehicle), DD-21 destroyer, Virginia
class submarine, and HIMARS
rocket launcher, all of which will
include our products. Increased
military emphasis on training and
new equipment, along with
more frequent commercial
airline flights, will increase
the demand for our repairs
and spare part programs.
Our debt should be mostly paid off
by the end of fiscal 2002. As
we complete the restructuring
program, targeted for the end of
the second quarter of fiscal 2002,
TransTechnology will be poised to
regain much of the value it has
lost over the past two years.
I would like to express my
appreciation to each member of the
TransTechnology management team
and to every employee of the company throughout the world. Fiscal
2001 was indeed a difficult year.
Yet, none of our managers or key
employees gave up. Our workforce,
at every level, focused on improving
what they could control, and they
did a fine job. I am
proud of each and
every member of the
TransTechnology team.
To those who will be
leaving the company
through the divestiture
program, we wish each
of them continued
success.
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Our strategy for the TransTechnology of the future
is based on our Aerospace Products group.
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I would also like to
thank our Board of
Directors, which has
remained deeply
involved and participative throughout this ordeal. They have given
our company extra time and effort
during these difficulties. They have
addressed a troubled situation in an
uncertain environment, provided
advice, support and counsel, and
have made tremendously hard
decisions that will shape the future
of our company. I cannot adequately
express my appreciation and thanks
for their assistance this past year.
And, most important, I thank you,
the shareholders, who have placed
your trust, confidence, and resources
in our hands. We appreciate your
support and look forward to seeing
TransTechnology regain its position
as a provider of value to its owners.
Michael J. Berthelot
Chairman, President and Chief
Executive Officer
