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, 1996
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 November 25, 1996, was 2,773,052.
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, 1996
(unaudited) April 30, 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $740,688 $532,721
Accounts receivable, net of allowance for
doubtful accounts of $61,429 at October 31,
1996 and $75,687 at April 30, 1996 1,161,034 1,313,033
Short-term investments 972,825 708,042
Inventories 1,383,841 1,574,547
Prepaid expenses 120,536 75,892
Other receivables 24,662 50,141
Deferred income taxes 442,381 380,969
--------- ---------
Total current assets 4,845,967 4,635,345
--------- ---------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,637,657 1,589,118
Vehicles 22,197 16,791
Machinery and equipment 2,657,406 2,561,532
Office furniture and fixtures 1,305,725 1,209,306
--------- ---------
6,191,925 5,945,687
Less accumulated depreciation (4,181,029) (4,032,724)
--------- ---------
Net property and equipment 2,010,896 1,912,963
--------- ---------
Other 96,286 90,237
Investment in common stock of
Marcum Natural Gas Services, Inc. 163,625 197,312
--------- ---------
Total other assets 259,911 287,549
--------- ---------
TOTAL ASSETS: $7,116,774 $6,835,857
========== ==========
</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 31,1996
(unaudited) April 30, 1996
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $73,410 $137,558
Accounts payable 534,247 462,332
Accrued liabilities 632,118 593,524
--------- ---------
Total current liabilities 1,239,775 1,193,414
--------- ---------
Long-term liabilities:
Loans from stockholder less current maturities 383,150 418,382
Deferred income taxes 179,400 183,100
--------- ---------
Total long-term liabilities 562,550 601,482
--------- ---------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
2,963,452 shares issued at October 31, 1996,
2,943,452 shares issued at April 30, 1996,
2,773,052 shares outstanding at
October 31, 1996, 2,753,052 shares
outstanding at April 30, 1996, 29,635 29,435
Capital in excess of par value 2,023,127 1,988,327
Unrealized holding losses (67,228) (56,416)
Retained earnings 3,958,614 3,709,314
Treasury stock at cost; 190,400 shares at
October 31, 1996, 190,400 shares at
April 30, 1996 (629,699) (629,699)
--------- ---------
Total stockholders' equity 5,314,449 5,040,961
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $7,116,774 $6,835,857
========== ==========
</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,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $2,578,617 $2,186,132 $5,030,919 $4,278,821
Cost of sales 1,432,508 1,172,207 2,764,099 2,372,740
--------- --------- --------- ---------
Gross margin on sales 1,146,109 1,013,925 2,266,820 1,906,081
--------- --------- --------- ---------
Operating expenses:
Selling 602,112 513,276 1,164,051 1,012,487
General and administrative 222,966 196,754 450,334 384,445
Research and development 157,209 103,581 295,668 197,172
Provision for doubtful
accounts (1,716) 25,876 6,127 36,267
--------- --------- --------- ---------
Total operating expenses 980,571 839,487 1,916,180 1,630,371
--------- --------- --------- ---------
Income from operations 165,538 174,438 350,640 275,710
--------- --------- --------- ---------
Other income/(expense):
Gain/(loss) on sale of stock 7,061 10,321 5,988 22,669
Interest expense (9,981) (14,218) (20,900) (30,269)
Royalty and other income 39,011 43,146 72,021 74,951
--------- --------- --------- ---------
Total other income 36,091 39,249 57,109 67,351
Income/(loss) from operations
before income taxes 201,629 213,687 407,749 343,061
Income tax provision/(benefit) 76,256 74,392 158,449 121,809
--------- --------- --------- ---------
Net income/(loss) 125,373 139,295 249,300 221,252
========= ========= ========= =========
Net earnings/(loss) per share $0.04 $0.05 $0.09 $0.08
Net earnings/(loss) per share
on a fully diluted basis $0.04 $0.05 $0.08 $0.08
========= ========= ========= =========
Weighted average number of
shares outstanding 2,766,385 2,733,052 2,759,719 2,733,052
========= ========= ========= =========
</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>
Six Months Ended October 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 249,300 $ 221,252
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 157,158 161,013
Deferred tax provision/(benefit) (58,200) (7,040)
Provision for doubtful accounts (14,258) 14,442
Gain on sales of investments (7,037) (22,669)
Changes in assets and liabilities-
Receivables 191,736 50,048
Inventories 190,706 (364,405)
Prepaid expenses (44,644) (59,240)
Accounts payable and accrued liabilities 110,509 92,896
--------- ----------
Net cash provided by operating activities 775,270 86,297
--------- ----------
Cash flows from investing activities
Capital expenditures, net (246,238) (111,943)
Expenditures for intangible assets (14,902) (19,309)
Investment purchases (766,819) (62,852)
Proceeds from sale of investments 525,036 143,561
Net cash provided by/(used) in --------- ----------
investing activities (502,923) (50,543)
--------- ----------
Cash flows from financing activities:
Payments of long and short term debt (90,788) (101,897)
Proceeds from exercise of stock options 35,000 0
Principle payment under capital lease
obligations (8,592) (8,163)
--------- ----------
Net cash used in financing activities (64,380) (110,060)
Net increase/(decrease) in cash and --------- ----------
cash equivalents 207,967 (74,306)
Cash and cash equivalents at
beginning of period 532,721 312,183
--------- ----------
Cash and cash equivalents at end of period $ 740,688 $ 237,877
of period ========= =========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ 20,900 $ 39,789
Income taxes 169,000 24,080
</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, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending April 30, 1997. 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, 1996.
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, 1996 April 30, 1996
<S> <C> <C>
Raw materials and work-in-process $1,150,689 $1,272,573
Finished goods 233,152 301,974
---------- ----------
$1,383,841 $1,574,547
========== ==========
</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 220,775 shares subject to outstanding options under
the Company's stock option plans at October 31, 1996. The effect of the
outstanding options and conversion right to purchase the total of 565,541 shares
as of July 31, 1996 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, 1996. In the previous fiscal year 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
$.08 at October 31, 1995.
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 $164,000 during the
six months ended October 31, 1996, primarily because of increases in cash,
investments, prepaid expenses and deferred income taxes and decreases in
accounts receivable, inventories, and the current maturities of long term debt
offset by higher accounts payable and accrued liabilities. The current ratio
remained at 3.9 during the period.
Cash and cash equivalents increased approximately $208,000 at October 31, 1996
compared to April 30, 1996, due to the reduction of accounts receivable and
inventory and the increase in accounts payable and accrued liabilities during
the period. The Company intends to continue investing excess cash in high grade
investment securities until the cash is needed for operations.
Management expects cash flow and earnings for the remainder of the fiscal year
will flucuate and be weaker than the results shown for the second quarter ended
October 31, 1996, due to increases in new product marketing and development
costs. No assurance can be given that the Company's investment of resources in
new products will produce additional revenues for the Company.
Accounts receivable decreased by approximately $152,000 at October 31, 1996,
primarily due to improved collections. The Days Sales Outstanding (DSO)
improved to 52.6 days for the six months ended October 31, 1996 compared to 62.0
days for the same period last year.
Inventories decreased approximately $191,000 in the first six months of the
fiscal year. The inventory turnover ratio for the three months ended July 31,
improved to 1.97 compared to 1.30 in fiscal 1996. The decrease in inventories
reflects management's renewed emphasis on inventory management as well as
increased sales levels.
Investments in common stock of Marcum Natural Gas Services, Inc. decreased
approximately $34,000 in the period when valued at market.
The Company has been making monthly payments of principal and interest, of
approximately $21,000 to pay off the loans from shareholder. This amount
decreased to approximately $9,000 per month in October as one of the notes was
paid in full. The company does not expect any material 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.
B. Results of Operations
Six months ended October 31, 1996 compared
to the six months ended October 31, 1995
Sales were approximately $752,000 higher in 1996 compared to 1995, a 17.6%
increase, due to higher demand in the international market. The Company's order
backlog is higher at October 31, 1996 at approximately $1,560,000, compared to
$1,325,000 at October 31, 1996.
Gross margin increased by approximately $361,000 to 45.1% of sales in 1996
compared to 44.5% in 1995. The higher gross margin is due to lower warranty
costs 0.6% current year, compared to 2.3% last year, offset by higher material
costs 29.0% this year compared to 26.7% for the same period last year. The
higher material costs are due to a larger percentage of the Company's sales are
of products with a higher material cost, an unfavorable product mix. Warranty
costs for the current year are approximately $70,000 lower compared to the same
period last year, reflecting the Company's continued commitment to produce
quality products.
Page 7 of 11
<PAGE>
Operating expenses were up approximately $286,000 from last year including a
$102,000 increase in commissions expense, reflecting the higher sales level
attained to date and higher commissions on Danfoss products than was offered a
year ago. The Company's expenses increased approximately $125,000 for the six
months ended October 31, 1996, due to new product marketing and development
costs. The Company expects to continue the higher spending levels for new
products for several quarters.
Income from operations improved to 7.4% for the six months ended October 31,
1996 versus 6.7% for the same period a year ago.
Net cash provided by operating activities was $775,270, due primarily to
decreases in receivables and inventories, increases in accounts payable and
improved net income.
Three months ended October 31, 1996 compared
to the three months ended October 31, 1995
Sales were approximately $392,000 higher in 1996 compared to 1995, a 17.9%
increase, due to higher demand in the international market.
Gross margin increased by approximately $132,000 compared to the same quarter in
1995. As a percentage of sales, gross margin was 44.4% in 1996 compared to
46.4% in 1995. The decrease in the margin percentage is due primarily to higher
material costs 28.8% this quarter compared to 24.7% last year. The higher
material costs are due to a larger percentage of the Company's sales are of
products with a higher material cost, an unfavorable product mix. Manufacturing
Overhead costs, in particular repair and maintenance of machines, are also
higher 9.3% this quarter, compared to 8.2% for the same period last year.
Operating expenses are up approximately $141,000 from last year including a
increase of approximately $37,000 in commissions expense. New product marketing
and development costs for the quarter were approximately $80,000 higher than for
the same period last year. The Bad Debt Expense for the six months ended
October 31, 1996 is approximately $27,000 less than for the same period last
year. The decrease reflects improved accounts receivable collection efforts,
and a better job of analyzing customer credit status.
Income from operations decreased slightly from the same period a year ago to
$165,538 or 6.4% of sales for the three months ended October 31, 1996 versus
8.0% for the same period in 1995.
The Company recognized a gain of approximately $7,000 from the sale of stock for
the three months ended October 31, 1996. The Company recognized a gain of
approximately $10,000 for the three months ended October 31, 1995.
Royalty and other income decreased approximately $4,000 to approximately $39,000
due to lower interest and dividend income from high grade investment securities
for the three months ended October 31, 1996 compared the same period last year.
The Company's interest expense has decreased approximately $4,000 for the period
ended October 31, 1996 compared to the same period ended in 1995, due to the
Company's lower outstanding debt.
The income tax provision for the three months ended October 31, 1996 increased
approximately $2,000 compared to the same period in 1995. The impact of
deferred tax items resulted in current tax rates of approximately 37.8% and
34.8% in 1996 and 1995, respectively.
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, 1996.
B. Reports on Form 8-K
None filed in the quarter ended October 31, 1996.
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: November 27, 1996 By: Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting Officer)
Page 10 of 11
<PAGE>
PRESS RELEASE
November 27, 1996
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
Second Quarter Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today a net
income of $125,373 ($.04 per share) for the second quarter ended October 31,
1996. Net income for the six-month period ended October 31, 1996 was $249,300
($.09 per share). This compares to net income for the three-month and six-month
periods last year of $139,295 ($.05 per share) and $173,749 ($.08 per share),
respectively. Sales for the quarter were approximately $2.58 million, and for
the six-month period approximately $5.03 million; an 18% increase over the
comparable periods last year.
Income from operations for the three and six month periods ended October 31,
1996, were approximately $166,000 and $351,000, as compared to approximately
$174,000 and $276,000 for the same periods last year.
Management expects to report lower earnings for the third quarter due to
increases in new product marketing and development costs.
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, 1996
<TABLE>
Three Months Ended Six Months Ended
October 31, October 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $2,578,617 $2,186,132 $5,030,919 $4,278,821
Income from operations 165,538 174,438 350,640 275,710
Other income 36,091 39,249 57,109 67,351
Income taxes 76,256 74,392 158,449 121,809
Net income 125,373 139,295 249,300 221,252
Net earnings per share $.04 $.05 $.09 $.08
Number of shares outstanding 2,766,385 2,733,052 2,759,719 2,733,052
</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-31-1996
<CASH> 741
<SECURITIES> 973
<RECEIVABLES> 1,222
<ALLOWANCES> 61
<INVENTORY> 1,384
<CURRENT-ASSETS> 4,846
<PP&E> 6,192
<DEPRECIATION> 4,181
<TOTAL-ASSETS> 7,117
<CURRENT-LIABILITIES> 1,240
<BONDS> 383
<COMMON> 30
0
0
<OTHER-SE> 5,284
<TOTAL-LIABILITY-AND-EQUITY> 7,117
<SALES> 5,031
<TOTAL-REVENUES> 5,031
<CGS> 2,764
<TOTAL-COSTS> 2,764
<OTHER-EXPENSES> 1,910
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 408
<INCOME-TAX> 158
<INCOME-CONTINUING> 249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
