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: January 31, 1997
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 February 24, 1997, was 2,798,052.
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
January 31, 1997
(unaudited) April 30, 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $458,961 $532,721
Accounts receivable, net of allowance for
doubtful accounts of $69,856 at
January 31, 1997 and $75,687 at
April 30, 1996 1,397,365 1,313,033
Short-term investments 1,007,260 708,042
Inventories 1,450,933 1,574,547
Prepaid expenses 80,705 75,892
Other receivables 36,238 50,141
Deferred income taxes 454,133 380,969
---------- ----------
Total current assets 4,885,595 4,635,345
---------- ----------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,619,595 1,589,118
Vehicles 22,197 16,791
Machinery and equipment 2,622,343 2,561,532
Office furniture and fixtures 1,147,617 1,209,306
---------- ----------
5,980,692 5,945,687
Less accumulated depreciation (3,905,062) (4,032,724)
---------- ----------
Net property and equipment 2,075,630 1,912,963
---------- ----------
Other 98,683 90,237
Investment in common stock of Marcum Natural
Gas Services, Inc. 154,000 197,312
---------- ----------
Total other assets 252,683 287,549
---------- ----------
TOTAL ASSETS: $7,213,908 $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
January 31, 1997
(unaudited) April 30, 1996
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 70,464 $137,558
Accounts payable 532,516 462,332
Accrued liabilities 640,488 593,524
--------- ---------
Total current liabilities 1,243,468 1,193,414
--------- ---------
Long-term liabilities:
Loans from stockholder less current maturities 365,534 418,382
Deferred income taxes 177,400 183,100
--------- ---------
Total long-term liabilities 542,934 601,482
--------- ---------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
2,988,452 shares issued at January 31, 1997,
2,943,452 shares issued at April 30, 1996,
2,798,052 shares outstanding at January 31, 1997,
2,753,052 shares outstanding at April 30, 1996, 29,885 29,435
Capital in excess of par value 2,047,877 1,988,327
Unrealized holding losses (66,682) (56,416)
Retained earnings 4,046,125 3,709,314
Treasury stock at cost; 190,400 shares at
January 31, 1997, 190,400 shares at
April 30, 1996 (629,699) (629,699)
--------- ---------
Total stockholders' equity 5,427,506 5,040,961
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $7,213,908 $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 Nine Months Ended
January 31, January 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $2,402,136 $2,179,253 $7,433,055 $6,458,074
Cost of sales 1,335,880 1,254,957 4,099,979 3,627,697
--------- --------- --------- ---------
Gross margin on sales 1,066,256 924,296 3,333,076 2,830,377
--------- --------- --------- ---------
Operating expenses:
Selling 620,754 464,130 1,784,805 1,476,617
General and administrative 196,431 207,448 646,765 603,893
Research and development 167,973 101,221 463,641 298,393
Provision for doubtful accounts 7,849 10,773 13,976 47,040
--------- --------- --------- ---------
Total operating expenses 993,007 783,572 2,909,187 2,425,943
--------- --------- --------- ---------
Income from operations 73,249 140,724 423,889 404,434
--------- --------- --------- ---------
Other income/(expense):
Gain/(loss) on sale of stock 7,812 877 13,800 23,546
Interest expense (9,381) (13,212) (30,281) (43,481)
Royalty and other income 63,292 31,172 135,313 118,123
--------- --------- --------- ---------
Total other income 61,723 18,837 118,832 98,188
Income/(loss) from operations
before income taxes 134,972 159,561 542,721 502,622
Income tax provision/(benefit) 47,461 10,351 205,910 132,160
--------- --------- --------- ---------
Net income/(loss) 87,511 149,210 336,811 370,462
========= ========= ========= =========
Net earnings/(loss) per share $0.03 $0.06 $0.12 $0.14
Net earnings/(loss) per share on
a fully diluted basis $0.03 $0.04 $0.11 $0.12
========= ========= ========= =========
Weighted average number of
shares outstanding 2,781,385 2,746,385 2,766,941 2,737,496
========= ========= ========= =========
</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
(Unaudited)
INCREASE/(DECREASE) IN CASH
<TABLE>
Nine Months Ended January 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $336,811 $370,462
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 245,398 236,302
Deferred tax provision/(benefit) (72,300) (27,085)
Provision for doubtful accounts (5,831) (4,966)
Gain on sales of investments (13,800) (23,546)
Loss on disposal of assets 2,352 ---
Changes in assets and liabilities-
Receivables (64,598) (1,491)
Inventories 123,614 (263,634)
Prepaid expenses (4,813) (39,470)
Accounts payable and accrued liabilities 117,148 18,980
Net cash provided by -------- --------
operating activities 663,981 265,552
-------- --------
Cash flows from investing activities:
Capital expenditures, net (396,666) (184,407)
Expenditures for intangible assets (22,197) (36,686)
Investment purchases (951,102) (128,130)
Proceeds from sale of investments 692,166 185,831
Net cash provided by/(used) in -------- --------
investing activities (677,799) (163,392)
-------- --------
Cash flows from financing activities:
Payments of long and short term debt (108,404) (152,848)
Proceeds from exercise of stock options 60,000 31,600
Principal payment under capital lease
obligations (11,538) (12,431)
-------- --------
Net cash used in financing activities (59,942) (133,679)
Net increase/(decrease) in cash and cash -------- --------
equivalents (73,760) (31,519)
Cash and cash equivalents at beginning of
period 532.721 312,183
-------- --------
Cash and cash equivalents at end of period $458,961 $280,664
======== ========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ 30,995 $44,499
Income taxes 303,932 24,188
</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
nine months ended January 31, 1997, 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>
January 31, 1997 April 30, 1996
<S> <C> <C>
Raw materials and work-in-process $1,254,896 $1,272,573
Finished goods 196,037 301,974
---------- ----------
$1,450,933 $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 195,775 shares subject to outstanding options under
the Company's stock option plans at January 31, 1997. The effect of the
outstanding options and conversion right to purchase the total of 541,041 shares
as of January 31, 1997, 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 $.11 at January 31, 1997. 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 $.12 at January 31, 1996.
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 $200,000 during the
nine months ended January 31, 1997, primarily because of increases in
investments, deferred income taxes, accounts receivable, and by decreases in the
current maturities of long term debt, offset by lower inventories, lower cash
and higher accounts payable and accrued liabilities. The current ratio remained
at 3.9 during the period.
Cash and cash equivalents decreased approximately $74,000 at January 31, 1997,
compared to April 30, 1996, due to investing excess cash in short term
investments, and increases in accounts receivable. 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 fluctuate and be weaker than the results shown for the third quarter ended
January 31, 1997, 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 increased by approximately $84,000 at January 31, 1997,
primarily due to higher sales volume. The Days Sales Outstanding (DSO) improved
to 53.5 days for the nine months ended January 31, 1997, compared to 59.3 days
for the same period last year, due to continued collection efforts by the
Company
Inventories decreased approximately $124,000 in the first nine months of the
fiscal year. The inventory turnover ratio for the nine months ended January 31,
1997, improved to 1.92 compared to 1.44 for the same period last year. The
decrease in inventories, and increase in inventory turns reflects management's
renewed emphasis on inventory management as well as increased sales levels.
The value of investments in common stock of Marcum Natural Gas Services, Inc.
decreased approximately $43,000 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 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
Nine months ended January 31, 1997 compared
to the nine months ended January 31, 1996
Sales were approximately $975,000 higher in 1997 compared to 1996, a 15.1%
increase, due to higher demand in the international market. The Company's order
backlog is higher at January 31, 1997, at approximately $987,000, compared to
$927,000 at January 31, 1996.
Gross margin increased by approximately $503,000. The gross margin as a percent
to sales is 44.8% in 1997, compared to 43.8% in 1996. The higher gross margin is
due primarily to lower warranty costs of 0.9% in the current year, compared to
2.1% last year. Warranty costs for the current year are lower, reflecting the
Company's continued commitment to produce quality products. Material costs are
approximately the same, 28.4% this year compared to 28.8% for the same period
last year.
Operating expenses are up approximately $483,000 from last year, including an
increase of approximately $119,000 in commissions expense, reflecting the higher
sales volume. The Company's expenses increased approximately $232,000 for the
nine months ended January 31, 1997, due to new product marketing and development
costs. The Company expects to continue the higher spending levels for new
products for several quarters. The Bad Debt Expense for the nine months ended
January 31, 1997, is approximately $61,000 less than for the same period last
year. The decrease reflects improved accounts receivable collection efforts,
and better analysis of customer credit status. Income from operations
increased slightly from the same period a year ago to approximately $424,000 or
5.7% of sales for the nine months ended January 31, 1997, versus 6.3% for the
same period in 1996.
Income from operations before income taxes for the nine months ended January 31,
1997, is approximately $40,000 greater than the same period last year, although
the income as a percent to sales is slightly lower at 7.4% compared to 7.8% for
the same period last year.
Income taxes for the nine month period ended January 31, 1997, are approximately
$74,000 higher than the same period last year. The impact of deferred tax items
resulted in a tax rate for the current year of 38%, compared to 26% for the
same period last year.
Net cash provided by operating activities was approximately $661,000, due
primarily to decreases in inventories, increases in accounts payable and
improved net income.
Three months ended January 31, 1997 compared
to the three months ended January 31, 1996
Sales were approximately $223,000 higher in 1997 compared to 1996, a 10.2%
increase, due to higher demand in the international market.
Gross margin increased by approximately $142,000 compared to the same period
last year. As a percentage of sales, gross margin was 44.4% in 1997, compared
to 42.4% in 1996. The increase in the gross margin percentage is due primarily
to lower material costs, 27.0% this quarter compared to 30.4% in the comparable
quarter last year. The lower material costs are a result of the Company's sales
of products with a lower material cost; a favorable product mix. Manufacturing
Overhead costs, in particular repair and maintenance of machines, offset the
material savings at 9.1% this quarter, compared to 8.3% for the same period last
year.
Operating expenses are up approximately $209,000 from last year including an
increase of approximately $16,000 in commissions expense, due to higher volume.
The Company's expenses increased approximately $123,000 for the three months
ended January 31, 1997, due to new product marketing and development costs. The
Company's commitment to improved customer service has resulted in an increase
of approximately $29,000 over the prior year.
Page 8 of 11
<PAGE>
The Company recognized a gain of approximately $8,000 from the sale of stock for
the three months ended January 31, 1997.
Royalty and other income increased approximately $32,000 to approximately
$63,000 due to higher interest and dividend income from high grade investment
securities for the three months ended January 31, 1997, compared to the same
period last year, and the recovery of an account written off of approximately
$24,000. The Company's interest expense has decreased approximately $4,000 for
the period ended January 31, 1997, compared to the same period ended in 1996,
due to the Company's lower outstanding debt.
The income tax provision for the three months ended January 31, 1997, increased
approximately $37,000 compared to the same period in 1996. The impact of
deferred tax items resulted in current tax rates of approximately 35% and 6% in
1997 and 1996, respectively.
Page 9 of 11
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None filed in the quarter ended January 31, 1997.
B. Reports on Form 8-K
None filed in the quarter ended January 31, 1997.
Page 10 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: February 28, 1997 By:
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting Officer)
Page 11 of 11
<PAGE>
PRESS RELEASE
February 28, 1997
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
Third Quarter Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today net income
of $87,511 ($.03 per share) for the third quarter ended January 31, 1997. Net
income for the nine-month period ended January 31, 1997 was $336,811 ($.12 per
share). This compares to net income for the three-month and nine-month periods
last year of $149,210 ($.06 per share) and $370,462 ($.14 per share),
respectively. Sales for the quarter were approximately $2.4 million, and for
the nine-month period approximately $7.43 million; a 10% and a 15% increase over
the comparable periods last year.
Income from operations for the three and nine month periods ended January 31,
1997, were approximately $73,000 and $424,000, as compared to approximately
$141,000 and $404,000 for the same periods last year. The lower income for the
most recent three month period is due to increases in new product marketing and
development costs.
The difference in tax rates between the two years are due to the impact of
deferred items.
Management expects to report lower earnings for the fourth 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
Third Quarter Ended January 31, 1997
<TABLE>
Three Months Ended Nine Months Ended
January 31, January 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $2,402,136 $2,179,253 $7,433,055 $6,458,074
Income from operations 73,249 140,724 423,889 404,434
Other income 61,723 18,837 118,832 98,188
Income taxes 47,461 10,351 205,910 132,160
Net income 87,511 149,210 336,811 370,462
Net earnings per share $.03 $.06 $.12 $.14
Number of shares
outstanding 2,781,385 2,746,385 2,766,941 2,737,496
</TABLE>
Page 12 of 12
<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> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 459
<SECURITIES> 1,007
<RECEIVABLES> 1,467
<ALLOWANCES> 70
<INVENTORY> 1,451
<CURRENT-ASSETS> 4,886
<PP&E> 5,981
<DEPRECIATION> 3,905
<TOTAL-ASSETS> 7,214
<CURRENT-LIABILITIES> 1,243
<BONDS> 366
<COMMON> 30
0
0
<OTHER-SE> 5,398
<TOTAL-LIABILITY-AND-EQUITY> 7,214
<SALES> 7,433
<TOTAL-REVENUES> 7,433
<CGS> 4,100
<TOTAL-COSTS> 4,100
<OTHER-EXPENSES> 2,895
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 543
<INCOME-TAX> 206
<INCOME-CONTINUING> 337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 337
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
