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Article by DailyStocks_admin    (04-02-08 07:31 AM)

The Daily Magic Formula Stock for 04/02/2008 is Bolt Technology Corp. According to the Magic Formula Investing Web Site, the ebit yield is 13% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

The Company was organized as a corporation in 1962. We operate in two business segments: geophysical equipment and industrial products. Our geophysical equipment segment develops, manufactures and sells marine seismic energy sources and underwater electrical connectors and cables, seismic source monitoring systems, air gun signature hydrophones and pressure transducers used by the marine seismic industry. Our industrial products segment develops, manufactures and sells miniature industrial clutches, brakes and sub-fractional horsepower electric motors. See Notes 2 and 9 to the Consolidated Financial Statements for information regarding industry segments and sales by geographic areas.

The Company consists of three operating units: Bolt Technology Corporation (“Bolt”), A-G Geophysical Products, Inc. (“A-G”) and Custom Products Corporation (“Custom Products”). Bolt and A-G are in the “geophysical equipment” segment. Bolt manufactures and sells air guns and replacement parts, and A-G manufactures and sells underwater electrical connectors and cables, seismic source monitoring systems and hydrophones. Custom Products, which is in the “industrial products” segment, manufactures and sells miniature industrial clutches and brakes and sells sub-fractional horsepower electrical motors.

For the fiscal years ended June 30, 2007, 2006 and 2005, sales attributable to the Company’s geophysical equipment segment were $46,929,000, $29,393,000 and $15,551,000, respectively, and sales attributable to the Company’s industrial products segment were $3,535,000, $3,198,000 and $3,245,000, respectively. See Note 9 to the Consolidated Financial Statements for further information regarding industry segments.

Geophysical Equipment

Marine Air Guns

Energy sources, such as our air guns, used in seismic exploration create elastic waves at frequencies that readily travel to great depths in the earth. As elastic waves travel through the earth, portions are reflected by variations in the underlying rock layers and the reflected energy is received as signals by devices known as hydrophones. A shipboard unit containing electronic recording equipment converts the signals to digital form. By using computer programs with complex calculations to manipulate the processed seismic data, geoscientists can model and visualize the subsurface through the creation and analysis of spatial representations. The analysis of seismic and other geological data is an important factor in decisions to drill exploratory and development wells. Because of the significant expense associated with drilling oil and gas wells, decisions on whether or where to drill are critical to the overall process. A seismic exploration vessel may tow 60 to 70 air guns along with multiple hydrophone streamers of 6,000 to 10,000 meters in length. The air guns are fired simultaneously every 75 to 150 feet along the survey line. Over the past several years, improvements in drilling success rates through the use of advanced seismic survey techniques, particularly 3-D techniques, have substantially increased the demand for seismic data. As a result, 3-D surveys utilizing these advanced technologies have gained increasing acceptance in the oil and gas industry as an exploration risk management tool and in field development and reservoir management activities. The precise shot to shot repeatability of our marine air guns and their reliability of operation make them especially beneficial for use in 3-D surveys.

The Company’s “long-life” marine air guns, introduced in the 1990s, extend the period between routine air gun maintenance cycles. These guns also provide improved high peak sound pressure levels and improved frequency spectrum as compared with older models. These improved characteristics are advantageous to geoscientists in designing 3-D surveys. The Company’s various long-life air guns typically range in price from $10,000 to $20,000. A majority of the air guns sold are in the $12,000 range.

The Company’s Annular Port Air Gun (“APG gun”) provides significant improvements in both operating efficiency and acoustic output. The principal feature of the APG gun is an annulus containing the air chamber and shuttle valve surrounding a hollow passage through which air supply hoses and electrical control cables are routed. This configuration permits the implementation of simplified multi-gun arrays that produce less towing drag while being easier to deploy and retrieve than conventional air gun arrays. Significant improvements in operating efficiency are also achieved by shielding fragile hoses and cables from the effects of the high pressure air blast released from the air gun. The Company shipped the first order for APG guns in the first quarter of fiscal 2004. The Company’s second order for APG guns was received in fiscal 2005 and shipped in fiscal 2006. During fiscal 2006 and 2007, several APG gun orders were received and shipped. The Company’s various APG guns typically range in price from $26,000 to $32,000. A majority of the APG guns sold are in the $28,000 price range.

A significant source of the Company’s revenue comes from the sale of replacement parts for the Company’s long-life air guns and APG guns.

Marine Air Gun Controllers and Synchronizers

In July 2007, the Company acquired substantially all of the net assets of Real Time Systems (“RTS”). RTS develops, manufactures and sells controllers and synchronizers for marine seismic energy sources (air guns). RTS products are designed to control and synchronize up to 96 air guns in a single seismic exploration vessel. Effective July 1, 2007, the results of operations of RTS will be included in the geophysical equipment segment of our business. See Note 13 to Consolidated Financial Statements for further information concerning the RTS acquisition.

Underwater Cables, Connectors and Hydrophones

The Company’s marine cables and connectors are injection molded of thermoplastic polyurethane designed for use with marine air gun firing lines, bulkhead connectors and other underwater connectors required in seismic vessel operations.

The Company’s signature hydrophones and pressure transducers are designed for use with marine air guns in a high shock environment. The purpose of the hydrophone and pressure transducer is for “near field” measurements of the outgoing energy waveforms from air guns and pressure monitoring.

The Company’s cables and connectors, hydrophones and pressure transducers are used with marine air guns manufactured by the Company as well as air guns manufactured by others.

In fiscal 2004, the Company completed development of stage one of its digital Seismic Source Monitoring System (“SSMS”). SSMS is utilized by marine seismic contractors to measure air gun depth, air pressure, and “near field” energy output for each gun array to enhance the accuracy and therefore the usefulness of 3-D seismic survey data. Subsequently, the Company developed stage two of SSMS to provide high pressure air flow control to air guns. The first sales of SSMS were made in fiscal 2005 and amounted to approximately $300,000. SSMS sales increased to over $2,000,000 in fiscal 2007.

Industrial Products

The Company’s industrial products segment spans two basic disciplines: power transmission (miniature industrial clutches and brakes) and motion control (sub-fractional horsepower electric motors). The Company’s clutch and brake products include a complete line of mechanical and pneumatic precision miniature slip clutches, one-way clutches, toothed jaw clutches and torque limiters. A slip clutch will start to slip once its torque setting is exceeded. This feature is useful as overload protection, constant tensioning or functional torque, in many different industrial applications. Among other applications, our clutches and brakes are used in airplane video systems, hospital beds, barcode labelers and banking machines. Unit prices range from $7 to $400.

The Company’s motor line is comprised of A.C. and D.C. sub-fractional horsepower motors and gear motors. These are available in various shapes and offer several design options (speed, voltage, etc.). Applications include air conditioning systems, valve timers, vending machines, point of purchase displays and business machines. Capacity ranges from 3 to 10 watts. Unit prices range from $4 to $20.

Long-Lived Assets

Long-lived assets consist of: property, plant and equipment; goodwill; and other non-current assets. All of the Company’s long-lived assets are located in the U.S. As of June 30, 2007, 2006 and 2005, the Company’s long-lived assets totaled $14,283,000, $13,713,000 and $12,962,000, respectively.

Foreign Sales

During fiscal 2007, 2006 and 2005, approximately 72%, 71% and 48%, respectively, of the Company’s sales were from shipments to customers outside the United States or to foreign locations of United States customers. See Note 9 to the Consolidated Financial Statements for information regarding the geographic distribution of sales.

Backlog

Geophysical Equipment

Because of the relatively short period (generally less than 60 days) between order and shipment dates for the principal portion of geophysical equipment sales, the dollar amount of current backlog is not considered to be a reliable indicator of future sales.

Industrial Products

As of June 30, 2007, we had an order backlog of $1,062,000 as compared to $1,058,000 at June 30, 2006. We estimate that substantially all of the backlog as of June 30, 2007 will be shipped during the fiscal year ending June 30, 2008.

Competition

Geophysical Equipment

Our marine air guns compete primarily with marine air guns manufactured by Input/Output, Inc. and Sercel Inc., a subsidiary of Compagnie Generale de Geophysique-Veritas. The Company’s principal competitor for connectors and cables is Input/Output, Inc. We believe that technology, product reliability and durability are the primary bases of competition in the market for our geophysical equipment and that the remaining competitive factors in the industry are field product support and price. The Company also believes that it can compete effectively with respect to each of these factors, although there can be no assurance that the sales of our geophysical equipment will not be adversely affected if current competitors or others introduce equipment with better performance or lower price.

Industrial Products

The Company cannot determine with accuracy its relative competitive position in the market for industrial products. This market is characterized by active and substantial competition. No single company dominates the market for the types of products we manufacture. Our competitors include both larger and smaller manufacturers and divisions of larger diversified companies with substantial financial resources. Principal competitive factors in the market for our industrial products include quality, service, reliability and price. Our products also compete with other torque control devices to solve design problems.

Marketing

Geophysical Equipment

The Company’s principal customers for geophysical equipment are worldwide marine seismic exploration contractors, who operate seismic vessels for collection of seismic data in accordance with their customers’ specifications or for their own seismic data libraries, and foreign national oil and gas companies.

Marketing of our geophysical equipment is principally performed by salaried sales personnel, all of whom are based in the United States. We also use sales agents for individual sales in certain foreign countries. In general, we market our products and services through our sales force, together with our technical services and engineering staffs, primarily to representatives of major geophysical contractors. The principal marketing techniques used are direct sales visits to current and potential customers, product demonstrations and participation at industry trade shows and meetings.

In general, products are sold on standard 30-day credit terms. In certain instances, we require our customers to furnish letters of credit payable upon shipment or provide advance payments. In limited cases, the Company allows customers extended payment terms of up to 12 months. We consider these practices to be consistent with industry practice.

Industrial Products

The Company’s industrial products are sold primarily to original equipment manufacturers (“OEMs”). OEMs use our products to solve torque related problems which will provide lower installed cost and high reliability, thereby lowering production and service costs. Our engineering staff and independent sales representatives continually work in close collaboration with OEMs to determine the appropriate product for the specific application. Sales are made on standard 30-day credit terms. We sell our industrial products primarily in the United States.

Research and Development

Our ability to compete successfully depends upon, among other things, the development of new products as well as the improvement of our existing products. During the fiscal years 2007, 2006 and 2005, we spent $270,000, $289,000 and $271,000, respectively, to develop new products and to improve existing products. The Company’s primary research and development efforts over the last three years have been focused on increasing the usefulness and efficiency of SSMS and the APG gun.

Employees

As of June 30, 2007, we employed 113 people on a full-time basis, all of whom are employed in the United States. The Company is not a party to any collective bargaining agreement and has had no work stoppages. The Company believes that relations with employees are good.

Manufacturing and Raw Materials

The Company manufactures and assembles its geophysical equipment in Norwalk, Connecticut and Cypress, Texas and manufactures its industrial products in North Haven, Connecticut. Our manufacturing and assembly operations consist of machining or molding the necessary components and assembling and testing the final product. We maintain adequate levels of inventory to enable us to satisfy customer requirements within a short period of time. The raw materials used in our products, sourced from multiple suppliers, are generally in adequate supply. For some marine air gun orders, we occasionally supply auxiliary equipment such as compressors, air gun controllers or towing equipment manufactured by others. We have not experienced any supply problems with respect to these auxiliary items. Because we manufacture based on customer orders, we do not generally maintain inventory of fully assembled finished products. We consider our practices to be consistent with industry practice.

Regulatory Matters

We believe that we are currently in compliance with the requirements of environmental and occupational health and safety laws and regulations. Compliance with such laws and regulations has not resulted in significant expense in the past, and we do not foresee the need for substantial expenditures to ensure compliance with such laws and regulations as they currently exist.

Intellectual Property

We seek to protect our intellectual property by means of patents, trademarks and other measures. We currently own 12 patents relating to the manufacture of our products, with expiration dates from 2007 to 2020. Most of these patents are United States patents. Patents have been of value in the growth of our business and may continue to be of value in the future. However, we believe that our business is not primarily dependent upon patent protection, and therefore that the expiration of our patents would not have a material adverse effect on our business.

Major Customers

Geophysical Equipment

The loss of any of the above customers or a significant decrease in the amount of their purchases could have a material adverse effect on the Company.

Industrial Products

No customer accounted for more than 10% of consolidated sales in fiscal years 2006 and 2007.

Available Information

The Company maintains an internet website at the following address: www.bolt-technology.com. We make available, free of charge, through our website our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). These reports and amendments to such reports and our other SEC filings are also available on the website maintained by the SEC at www.sec.gov. Alternatively, you may read and copy any materials we file with the SEC at the SEC’s Public Reference Room in Washington, D.C.

CEO BACKGROUND

Joseph Espeso, 65, Senior Vice President—Finance, Chief Financial Officer and Director. Senior Vice President—Finance and Chief Financial Officer of the Company since 2001.

Michael C. Hedger, 52, Nominee President, A-G Geophysical Products, Inc., a wholly-owned subsidiary of the Company, since 2002. Mr. Hedger has been employed by A-G since 1988 and served in various capacities prior to becoming President, including Vice President-Sales.

Stephen F. Ryan, 72, Director Retired in 2001 from Selas Corporation of America (now known as IntriCon Corporation), a diversified international firm engaged in the design, development, engineering and manufacturing of industrial products, where he served as Chairman for three years and President, Chief Executive Officer and Director for 13 years.

COMPENSATION

(1) Represents annual director’s fees and fees earned for meeting attendance in fiscal year 2007.
(2) Represents the grant date fair value of each stock option award computed in accordance with FAS 123R. The fair value of stock options is estimated using the Black-Scholes option pricing model. For a discussion of the assumptions made in these valuations, refer to “Note 6—Stock Options” to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007.
(3) As of June 30, 2007, the following directors had outstanding options in these amounts: Mr. Conlisk, 3,000; Mr. Flynn, 8,000; Mr. Kabureck, 8,000; Mr. Ryan, 3,000; and Mr. Smith, 3,000. These options were granted on November 21, 2006, pursuant to the Company’s 2006 Stock Option Plan, and vest in four equal annual installments beginning on November 21, 2007.
(4) Mr. Shaff is President and Chief Executive Officer of the Company’s wholly-owned subsidiary, Custom Products Corporation. As an employee of the Company’s subsidiary, Mr. Shaff does not receive any additional compensation for his service as a director of the Company.



In fiscal year 2007, non-employee directors received the following fees: $4,000 for director’s fees for the last six months of calendar year 2006 ($7,500 for the Chairman of the Audit Committee) and $5,000 for director’s fees for the first six months of calendar year 2007 ($9,000 for the Chairman of the Audit Committee); a fee of $1,500 for attendance at a meeting of the Board of Directors in July 2006 and $1,800 for attendance at each meeting of the Board of Directors thereafter; and a fee of $900 for each committee meeting attended. Directors who are also employees of the Company or any of its subsidiaries receive no additional compensation for their service as a director.



Under the Bolt Technology Corporation 2006 Stock Option Plan:


•

each non-employee director elected by the stockholders at the Company’s Annual Meeting of Stockholders held in years from and including 2006 through and including 2015 received or will receive an option to purchase 5,000 shares of the Company’s Common Stock each time the director is elected; and


•

the non-employee directors who were elected by the stockholders at the Company’s Annual Meeting of Stockholders held in 2003, 2004 and 2005 were granted an aggregate of options for 15,000 shares, comprised of 3,000 shares to each of Messrs. Flynn and Kabureck (elected in 2003), Mr. Ryan (elected in 2004), and Messrs. Conlisk and Smith (elected in 2005).



Each option granted to a non-employee director has an option term of five years from the date it is granted and is first exercisable with respect to 25% of the shares covered under the grant in each of the second through fifth year of its term and is otherwise subject to the terms and conditions of the 2006 Stock Option Plan.

MANAGEMENT DISCUSSION FROM LATEST 10K

Results of Operations

Year Ended June 30, 2007 Compared to Year Ended June 30, 2006

Consolidated sales for the year ended June 30, 2007 totaled $50,464,000, an increase of $17,873,000 or 55% from the fiscal year ended June 30, 2006. Sales of geophysical equipment increased by $17,536,000 or 60% from the fiscal year ended June 30, 2006, due to higher volume of sales of complete energy source systems ($9,448,000), air gun replacement parts ($2,925,000) and underwater electrical connectors and cables and SSMS ($5,163,000). Higher sales in the geophysical equipment business reflect the continuing strength in marine seismic activity.

Industrial products sales for the year ended June 30, 2007 increased by $337,000 or 11% compared to the year ended June 30, 2006. The increase principally reflects higher slip clutch sales.

Consolidated gross profit as a percentage of consolidated sales (“gross margin”) was 46% for the year ended June 30, 2007 versus 42% for the year ended June 30, 2006. Gross margin for the geophysical equipment segment was 46% for the year ended June 30, 2007 versus 41% for the year ended June 30, 2006. The geophysical equipment segment gross margin improvement was due to higher manufacturing efficiencies associated with the 60% increase in sales of geophysical equipment and higher pricing, partially offset by higher material and labor costs. In addition, the gross margin for the year ended June 30, 2006 was adversely affected by sales of auxiliary equipment purchased from third party suppliers. Third party auxiliary equipment has significantly lower gross profit margins than the Company’s proprietary products. Gross margin for the industrial products segment increased from 43% for the year ended June 30, 2006 to 45% for the year ended June 30, 2007, primarily due to higher manufacturing efficiencies associated with the 11% sales increase.

Research and development costs for the year ended June 30, 2007 decreased by $19,000 or 7% from the year ended June 30, 2006. These expenditures are associated with work being done to improve the Company’s APG guns and SSMS. The decrease is due primarily to lower spending for improvements to SSMS. SSMS is utilized to measure air gun depth, air pressure, and “near field” energy output for each gun array and to provide high pressure air flow control, thereby enhancing the accuracy and therefore the usefulness of marine seismic survey data. The Company continues to work on more advanced stages of SSMS which will deliver further benefits to customers.

Selling, general and administrative expenses increased by $1,507,000 for the year ended June 30, 2007 from the year ended June 30, 2006 due primarily to higher compensation expense ($633,000), professional fees ($713,000) and freight out ($119,000). The increase in compensation expense primarily reflects higher incentive compensation, salaries for staff additions and salary increases; higher professional fees are primarily due to incremental expenses incurred to become compliant with Section 404 of the Sarbanes-Oxley Act of 2002; and higher freight out is attributable to the 55% sales increase.

The Company conducted an annual impairment test of goodwill balances as of July 1, 2007 and 2006. The results of these tests indicated that there was no impairment of the June 30, 2007 and 2006 goodwill balances.

The provision for income taxes for the year ended June 30, 2007 was $5,047,000, an effective tax rate of 32%. This rate was lower than the federal statutory rate of 35% primarily due to tax benefits for export sales and the manufacturer’s deduction, partially offset by state income taxes and income taxes attributable to goodwill amortization for tax purposes. The provision for income taxes for year ended June 30, 2006 was $2,585,000, an effective tax rate of 35%. This rate was higher than the federal statutory rate of 34%, primarily due to state income taxes and income taxes attributable to goodwill amortization for tax purposes, partially offset by the tax benefit for export sales and the manufacturer’s deduction.

The above mentioned factors resulted in net income for the year ended June 30, 2007 of $10,607,000 compared to net income of $4,845,000 for the year ended June 30, 2006.

MANAGEMENT DISCUSSION FOR LATEST QUARTER
Six Months Ended December 31, 2007

At December 31, 2007, the Company had $5,516,000 in cash and cash equivalents. This amount is $4,472,000 or 45% lower than the amount of cash and cash equivalents at June 30, 2007 primarily due to the RTS acquisition. For the six month period ended December 31, 2007, cash flow from operating activities after changes in working capital items was $936,000, primarily due to net income adjusted for depreciation and amortization substantially offset by increases in accounts receivable and inventories. At December 31, 2007, the Company’s accounts receivable totaled $15,563,000 reflecting a high level of geophysical equipment sales in the latter part of the fiscal 2008 second quarter.

For the six month period ended December 31, 2007, the Company used $4,675,000, net of $147,000 of cash acquired, for the acquisition of RTS and $779,000 for capital expenditures. These capital expenditures related to new and replacement equipment and a small expansion of the Cypress, Texas manufacturing facility.

The Company estimates that capital expenditures for the last half of fiscal 2008 will approximate $400,000, which will be funded from operating cash flow.

Since a relatively small number of customers account for the majority of the Company’s geophysical equipment segment 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, 2007 and June 30, 2007, the five customers with the highest balances due represented 66% and 67%, respectively, of the consolidated accounts receivable balances on those dates.

In October 1998, the Company’s Board of Directors approved a stock repurchase program under which the Company was authorized to buy up to 500,000 shares of its Common Stock in open market or private transactions. Although the program remains authorized, the Company has not repurchased any shares and currently has no plan to make repurchases.

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