FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: October 31, 1995
or
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No.: 0-9880
E N G I N E E R I N G M E A S U R E M E N T S C O M P A N Y
(Exact name of Registrant as specified in its charter)
Colorado 84-0572936
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
600 Diagonal Highway, Longmont, Colorado 80501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)651-0550
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ] .
The number of shares outstanding of Registrant's $.01 par value common stock,
as of October 31, 1995 was 2,733,052.
Transitional Small Business Disclosure Format.
Yes [ ] No [X] .
Page 1 of 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
ASSETS
October 31,1995
(unaudited) April 30,1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $237,877 $312,183
Accounts receivable, net of allowance for doubtful
accounts of $150,355 at October 31, 1995
and $135,913 at April 30, 1995 1,251,011 1,272,481
Short-term investments 674,897 744,672
Inventories 1,843,789 1,479,384
Prepaid expenses 93,536 34,296
Other receivables 24,000 67,020
Deferred income taxes 483,600 437,175
---------- ----------
Total current assets 4,608,710 4,347,211
---------- ----------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,562,109 1,534,811
Vehicles 16,791 16,791
Machinery and equipment 2,534,744 2,515,343
Office furniture and fixtures 1,069,529 1,004,285
---------- ----------
5,752,113 5,640,170
Less accumulated depreciation (3,889,457) (3,735,375)
---------- ----------
Net property and equipment 1,862,656 1,904,795
---------- ----------
Other assets:
Other 80,537 68,159
Investment in common stock of Marcum Natural
Gas Services, Inc. 267,750 357,001
---------- ----------
Total other assets 348,287 425,160
---------- ----------
TOTAL ASSETS: $6,819,653 $6,677,166
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
PAGE 2 OF 11
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
October 31, 1995
(unaudited) April 30, 1995
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $209,945 $220,556
Accounts payable 493,749 504,201
Accrued liabilities 685,574 582,226
--------- ---------
Total current liabilities 1,389,268 1,306,983
--------- ---------
Long-term liabilities:
Loans from stockholder less current maturities 453,615 544,402
Leases less current maturities 2,946 11,608
Deferred income taxes 167,000 167,000
--------- ---------
Total long-term liabilities 623,561 723,010
--------- ---------
Stockholders' equity:
Common stock, $.01 par value; 5,000,000 shares
authorized; 2,923,452 shares issued
at October 31, 1995, 2,923,452 shares issued
at April 30, 1995, 2,733,052 shares out-
standing at October 31, 1995, 2,733,052
shares outstanding at April 30, 1995 29,235 29,235
Capital in excess of par value 1,956,927 1,956,927
Deferred Compensation --- ---
Unrealized holding losses (80,156) (18,555)
Retained earnings 3,530,517 3,309,265
Treasury stock at cost; 190,400 shares at
October 31, 1995, 190,400 shares at
April 30, 1995 (629,699) (629,699)
--------- ---------
Total stockholders' equity 4,806,824 4,647,173
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $6,819,653 $6,677,166
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 3 OF 11
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
October 31, October 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $2,186,132 $2,544,959 $4,278,821 $5,056,562
Cost of sales 1,172,207 1,488,436 2,372,740 2,934,645
---------- ---------- ---------- ----------
Gross margin on sales 1,013,925 1,056,523 1,906,081 2,121,917
---------- ---------- ---------- ----------
Operating expenses:
Selling 513,276 648,759 1,012,487 1,298,534
General and administrative 196,754 176,763 384,445 324,770
Research and development 103,581 106,065 197,172 222,658
Provision for doubtful accounts 25,876 12,659 36,267 14,367
---------- ---------- ---------- ----------
Total operating expenses 839,487 944,246 1,630,371 1,860,329
---------- ---------- ---------- ----------
Income from operations 174,438 112,277 275,710 261,588
---------- ---------- ---------- ----------
Other income/(expense):
Gain/(loss) on sale of stock 10,321 (3,717) 22,669 (3,780)
Interest expense (14,218) (20,588) (30,269) (41,587)
Royalty and other income 43,146 33,655 74,951 68,703
---------- ---------- ---------- ----------
Total other income 39,249 9,350 67,351 23,336
---------- ---------- ---------- ----------
Income from operations before
income taxes 213,687 121,627 343,061 284,924
Income tax provision 74,392 51,726 121,809 111,175
---------- ---------- ---------- ----------
Net income 139,295 69,901 221,252 173,749
========== ========== ========== ==========
Earnings per share from operations 0.05 0.02 0.08 0.06
Net earnings per share on a fully
diluted basis $0.05 $0.02 $0.08 $0.05
========== ========== ========== ==========
Weighted average number of
shares outstanding 2,733,052 2,836,402 2,733,052 2,838,069
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 4 OF 11
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS: INCREASE/(DECREASE) IN CASH
(Unaudited)
<TABLE>
INCREASE/(DECREASE) IN CASH
Six Months
Ended October
31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $221,252 $173,749
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 161,013 194,056
Deferred tax provision/(benefit) (7,040) (38,052)
Provision for doubtful accounts 14,442 14,367
Gain on sales of investments (22,669) 3,717
Changes in assets and liabilities-
Receivables 50,048 197,202
Inventories (364,405) 20,265
Prepaid expenses (59,240) (31,836)
Accounts payable and accrued liabilities 92,896 (284,855)
Net cash provided by ---------- ----------
operating activities 86,297 248,613
---------- ----------
Cash flows from investing activities:
Capital expenditures, net (111,943) (166,406)
Expenditures for intangible assets (19,309) (4,215)
Investment purchases (62,852) (1,656,825)
Proceeds from sale of investments 143,561 1,679,424
Net cash provided by/(used) in ---------- ----------
investing activities (50,543) (148,022)
---------- ----------
Cash flows from financing activities:
Payments of long and short term debt (101,897) (101,899)
Purchase of treasury stock --- (84,650)
Proceeds from exercise of stock options 0 31,600
Principle payment under capital lease
obligations (8,163) (10,480)
---------- ----------
Net cash used in financing activities (110,060) (165,429)
Net increase/(decrease) in cash and cash ---------- ----------
equivalents (74,306) (64,838)
Cash and cash equivalents at beginning of
period 312,183 810,631
---------- ----------
Cash and cash equivalents at end of period $ 237,877 $ 745,793
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during period for--
Interest $39,789 $41,587
Income taxes 24,080 187,410
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 5 OF 11
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited, condensed financial statements have been prepared in
accordance with the instructions to the Form 10-QSB and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the
six months ended October 31, 1995 are not necessarily indicative of the results
that may be expected for the fiscal year ending April 30, 1996. These
statements should be read in conjunction with the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the fiscal year
ended April 30, 1995.
1. Principles of Consolidation
The consolidated financial statements include the accounts of Engineering
Measurements Company (the Company) and its subsidiary, General Metrology
Corporation. All significant intercompany accounts and transactions have been
eliminated in consolidation.
2. Inventories
Inventories, stated at the lower of cost (first-in, first-out method) or market,
are as follows:
<TABLE>
October 31, 1995 April 30, 1995
<S> <C> <C>
Raw materials and work-in-process $1,428,361 $1,259,015
Finished goods 415,428 220,369
---------- ----------
$1,843,789 $1,479,384
========== ==========
</TABLE>
3. Investments
Investments are carried at fair market value. The Company's investment
securities are classified as available for sale and recorded on the balance
sheet at fair market value with unrealized gains and losses on these investments
shown as a separate component of stockholder's equity, net of related taxes.
4. Income Taxes
Deferred income taxes are provided for items which are reported for tax purposes
in different periods than in the Statements of Operations.
5. Earnings Per Share
Earnings per share is computed by dividing net income by the weighted average
number of shares outstanding during the period. Pursuant to the terms of a loan
agreement, a stockholder may convert up to $353,790 in principal and accrued
interest into 345,766 shares of common stock at an average price of $1.02 per
share. There are a total of 219,775 shares subject to outstanding options under
the Company's stock option plans at October 31, 1995. The effect of the
outstanding options and conversion right to purchase the total of 565,541 shares
as of October 31, 1995 is dilutive and reflected in the financial statements.
Year to date earnings per share on a fully dilutive basis using the treasury
stock method was $.08 at October 31, 1995. In 1995 the shares issuable pursuant
to the terms of a stockholder loan agreement were dilutive. Earnings per share
on a fully dilutive basis using the treasury stock method was $.05 at October
31, 1994.
PAGE 6 OF 11
<PAGE>
6. Changes in Accounting Principles
There have been no changes in accounting principles during these reporting
periods.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
A. Financial Condition
The Company's net working capital increased approximately $179,000 during the
six months ended October 31, 1995, primarily because of increases in
inventories, prepaid expenses and deferred income taxes. The current ratio
remained at 3.3.
Cash and cash equivalents decreased approximately $74,000 at October 31, 1995
compared to April 30, 1995, due to the Company's investment in higher
inventories and prepaid expenses during the year. The Company intends on
investing excess cash in high grade investment securities until the cash is
needed for operations.
Accounts receivable decreased by approximately $21,000 at October 31, 1995,
primarily due to continued collection efforts and lower sales. The Days Sales
Outstanding (DSO) increased to 62.0 days for the six months ended October 31,
1995 compared to 55.4 days for the same period last year.
Inventories increased approximately $364,000 in the first six months of the
fiscal year. The inventory turnover ratio for the six months ended October 31,
decreased from 2.56 in 1995 to 1.30 in fiscal 1996. The increase in inventories
in part reflects management's decision to make more parts internally rather
than buying them from vendors. Recent internal reorganization will add
emphasis on inventory management.
Investments in common stock of Marcum Natural Gas Services, Inc. decreased
approximately $89,000 in accordance with FASB 115, in which available for trade
securities will be carried on the books at fair value and unrealized gains and
losses will be included in stockholders equity.
The Company is making monthly payments of principal and interest, of
approximately $22,000 to pay off the loans from shareholder. The company does
not expect any material capital expenditures in the next six months, and
anticipates all cash needs will be satisfied from operations. The Company
currently does not have any line of credit arrangements.
PAGE 7 OF 11
<PAGE>
B. Results of Operations
Six months ended October 31, 1995 compared
to the six months ended October 31, 1994
Sales were approximately $778,000 lower in 1995 compared to 1994, a 15.4%
decrease, due to lower demand in the domestic market. The Company's order
backlog is slightly higher at October 31, 1995 at approximately $1,325,000,
compared to $1,176,000 at October 31, 1994.
Gross profit increased to 44.5% in 1995 compared to 42.0% in 1994, due to
improved purchasing methods resulting in better material costs. Overhead was up
1.9% from last year to 10.7% of revenue. A significant factor in the
increase was attributable to writing off inventory shipped to customers for
repairs in prior years now deemed to be warranty. Operating expenses were down
approximately $231,000 from last year including a $131,000 reduction in
commissions expense, reflecting the lower sales level attained to date. Income
from operations improved to 6.4% for the six months ended October 31, 1995
versus 5.2% for the same period a year ago.
The company recognized gains on the sale of stock of approximately $23,000 in
the six months ended October 31, 1995, compared to a loss of approximately
$4,000 for the six months ended October 31, 1994.
Royalty and other income increased approximately $6,000 to approximately $75,000
due to higher interest and dividend income from high grade investment securities
for the six months ended October 31, 1995 compared the same period last year.
The Company's interest expense has decreased approximately $11,000 for the
period ended October 31, 1995 compared to the same period ended in 1994, due to
the Company's lower outstanding debt.
The income tax provision for the six months ended October 31, 1995 increased
approximately $11,000 compared to the same period in 1994. The impact of
deferred tax items resulted in current tax rates of approximately 35.5% and
39.0% in 1995 and 1994, respectively.
Three months ended October 31, 1995 compared
to the three months ended October 31, 1994
Sales were approximately $359,000 lower in 1995 compared to 1994, a 14%
decrease, due to lower demand in the domestic market.
Gross margin on sales has decreased approximately $43,000 on the lower sales
noted above but improved significantly as a percentage of sales from 41.5% in
1994 to 46.4% in the three months ended October 31, 1995. Reduced material
costs were a significant factor in this improvement. Operating expenses
decreased by approximately $105,000, but as a percent to sales for the quarter
ended October 31, increased from 37.1% in 1994 to 38.4% in 1995 due to higher
general and administrative expenses.
For the quarter ended October 31, 1995, the Company recognized gains of
approximately $10,000 on sales of available for sales securities. A loss of
approximately $4,000 was reported for the same period a year ago.
For the quarter ended October 31, Royalty and other income increased
approximately $10,000 in 1995 compared to 1994, due to higher interest and
dividend income from the Company's high grade investment securities.
The income tax provision for the three months ended October 31, decreased as a
percent of income from 42.5% in 1994 to 34.8% in 1995. This year's tax provision
is lower because of the effect of deferred tax items and the tax treatment of
interest income and dividends received.
PAGE 8 OF 11
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None filed in the quarter ended October 31, 1995.
B. Reports on Form 8-K
None filed in the quarter ended October 31, 1995.
PAGE 9 OF 11
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Engineering Measurements Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ENGINEERING MEASUREMENTS COMPANY
Registrant
Date: December 14, 1995 By: /s/ Charles E. Miller
________________________________________________________________
Charles E. Miller, Chairman
Principal Financial Officer
and Principal Accounting
Officer)
PAGE 10 OF 11
<PAGE>
December 14, 1995
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
Third Quarter Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today a net
income of $139,295 ($.05 per share) for the second quarter ended October 31,
1995. Net income for the six-month period ended October 31, 1995 was $221,252
($.08 per share). Sales for the quarter were approximately $2.2 million, and
for the six-month period approximately $4.3 million; a 14% and a 15% decrease
respectively over the comparable periods last year.
Income from operations for the three and six month periods ended October 31,
1995, were approximately $174,000 and $276,000, as compared to approximately
$112,000 and $262,000 for the same periods last year.
E N G I N E E R I N G M E A S U R E M E N T S C O M P A N Y
Operating Results
Second Quarter Ended October 31, 1995
<TABLE>
Three Months Ended Six Months Ended
October 31, October 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $2,186,132 $2,544,959 $4,278,821 $5,056,562
Income from operations 174,438 112,277 275,710 261,588
Other income 39,249 9,350 67,351 23,336
Income taxes 74,392 51,726 121,809 111,175
Net income 139,295 69,901 221,252 173,749
Net earnings per share $.05 $.02 $.08 $.06
Number of shares outstanding 2,733,052 2,836,402 2,733,052 2,838,069
</TABLE>
PAGE 11 OF 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Operations found on pages 2, 3 and 4 of the company's
form 10-QSB for the year-to-date, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> OCT-31-1995
<CASH> 238
<SECURITIES> 675
<RECEIVABLES> 1387
<ALLOWANCES> 136
<INVENTORY> 1844
<CURRENT-ASSETS> 4609
<PP&E> 5752
<DEPRECIATION> 3889
<TOTAL-ASSETS> 6820
<CURRENT-LIABILITIES> 1389
<BONDS> 454
<COMMON> 29
0
0
<OTHER-SE> 4778
<TOTAL-LIABILITY-AND-EQUITY> 6820
<SALES> 4279
<TOTAL-REVENUES> 4279
<CGS> 2373
<TOTAL-COSTS> 2373
<OTHER-EXPENSES> 1594
<LOSS-PROVISION> 36
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 343
<INCOME-TAX> 122
<INCOME-CONTINUING> 221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
