UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-16085
MEASUREMENT SPECIALTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2378738
---------------------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
80 LITTLE FALLS ROAD, FAIRFIELD, NEW JERSEY 07004
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(973) 808-1819
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,633,388 shares of common
stock, no par, at February 3, 1999.
1
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets, . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 4
December 31, 1998 (Unaudited) and March 31, 1998
Consolidated Statements of Operations (Unaudited),. . . . . . . . . . . . . . . . . 5
Nine Months Ended December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity,. . . . . . . . . . . . . . . . . . 6
Nine Months Ended December 31, 1998 (Unaudited) and Year Ended March 31, 1998
Consolidated Statements of Cash Flows (Unaudited),. . . . . . . . . . . . . . . . . 7
Nine Months Ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . 8 - 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND. . . . . . . 13 - 16
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 17
The following exhibits are included herein:
Exhibit 27 Financial Data Schedule
Other items are omitted because they are not required or are not applicable.
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
------
DECEMBER 31, MARCH 31,
(DOLLARS IN THOUSANDS) 1998 1998
------------- ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 1,227 $ 303
Accounts receivable, trade, net of allowance for doubtful. 5,535 3,124
accounts of $142 (Dec) and $130 (March)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 5,042 3,815
Deferred income taxes. . . . . . . . . . . . . . . . . . . 204 213
Prepaid expenses and other current assets. . . . . . . . . 250 173
------------- ----------
Total current assets . . . . . . . . . . . . . . . . . . 12,258 7,628
------------- ----------
Property and equipment . . . . . . . . . . . . . . . . . . . 6,057 2,898
Less accumulated depreciation and amortization . . . . . . 2,956 1,135
------------- ----------
3,101 1,763
------------- ----------
Other assets:
Goodwill and other intangible assets, net of accumulated . 1,770 155
amortization of $233 (Dec.) and $165 (March)
Deferred income taxes. . . . . . . . . . . . . . . . . . . 372 372
Other assets . . . . . . . . . . . . . . . . . . . . . . . 334 299
------------- ----------
2,476 826
------------- ----------
$ 17,835 $ 10,217
============= ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
DECEMBER 31, MARCH 31,
(DOLLARS IN THOUSANDS) 1998 1998
-------------- -----------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable, trade . . . . . . . . . . . . . . . . . . . $ 3,964 $ 3,113
Accrued expenses and other current liabilities. . . . . . . . 2,546 1,180
Current portion of long term debt. . . . . . . . . . . . . . 450 0
-------------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . 6,960 4,293
-------------- -----------
Other liabilities:
Borrowings under bank line of credit agreement. . . . . . . . 0 21
Long term debt, net of current portion. . . . . . . . . . . . 3,450 0
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 481 324
-------------- -----------
3,931 345
-------------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 10,891 4,638
-------------- -----------
Shareholders' equity
Common stock, no par; 20,000,000 shares authorized; . . . . . 5,502 5,502
issued and outstanding 3,610,887 (Dec) and3,582,687 (March)
Additional paid-in capital. . . . . . . . . . . . . . . . . . 151 75
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 1,300 3
Currency translation and other adjustments. . . . . . . . . . (9) (1)
-------------- -----------
Total shareholders' equity. . . . . . . . . . . . . . . . . 6,944 5,579
-------------- -----------
$ 17,835 $ 10,217
============== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
---------------- ------------------
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . $13,928 $9,235 $28,265 $23,180
Cost of goods sold . . . . . . . . . . . . . . 7,978 5,978 16,975 14,998
-------- ------ -------- --------
Gross profit . . . . . . . . . . . . . . . . 5,950 3,257 11,290 8,182
-------- ------ -------- --------
Other expenses (income):
Selling, general and administrative. . . . . 3,460 1,960 7,788 5,582
Research and development . . . . . . . . . . 916 499 2,112 1,517
Customer funding of research and development (319) 0 (604) (15)
Interest (net) and other income. . . . . . . 236 12 291 34
-------- ------ -------- --------
4,293 2,471 9,587 7,118
-------- ------ -------- --------
Income before income taxes. . . . . . . . . . 1,657 786 1,703 1,064
Provision for income taxes. . . . . . . . . . 397 158 406 213
-------- ------ -------- --------
Net income . . . . . . . . . . . . . . . . . . $ 1,260 $ 628 $ 1,297 $ 851
-------- ------ -------- --------
Earnings per common share
Basic. . . . . . . . . . . . . . . . . . . . $ 0.35 $ 0.18 $ 0.36 $ 0.24
======== ====== ======== ========
Diluted. . . . . . . . . . . . . . . . . . . $ 0.34 $ 0.17 $ 0.36 $ 0.23
======== ====== ======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1998
AND THE NINE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
COMMON STOCK
-------------------
NUMBER ADDITIONAL RETAINED
OF SHARES PAID-IN EARNINGS CURRENCY
(DOLLARS IN THOUSANDS) (000'S) DOLLARS CAPITAL (DEFICIT) TRANSLATION TOTAL
---------- ------- ---------- --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1997. . . . . . . . . . . . . . . . . 3,532 5,385 47 (773) (15) 4,644
Common shares issued upon exercise of options . . . . . 51 117 28 145
Net income for the year ended March 31, 1998 776 776
Currency translation adjustment 14 14
---------- ------- ---------- --------- ------------ ------
Balance, March 31, 1998 . . . . . . . . . . . . . . . . 3,583 5,502 75 3 (1) 5,579
Net income for the nine months ended December 31, 1998 1,297 1,297
Common shares issued upon exercise of options . . . . . 28 76 76
Currency translation adjustment (8) (8)
---------- ------- ---------- --------- ------------ ------
Balance, December 31, 1998 . . . . . . . . . . . . . . 3,611 5,502 151 1,300 (9) 6,944
========== ======= ========== ========= ============ ======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS
(DOLLARS IN THOUSANDS) ENDED DECEMBER 31,
-------------------
1998 1997
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,297 $ 851
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . 895 457
Net changes in operating assets and liabilities,
excluding effects of acquisition:
Accounts receivable, trade . . . . . . . . . . . . . (1,606) (972)
Inventories. . . . . . . . . . . . . . . . . . . . . (134) (71)
Deferred income taxes. . . . . . . . . . . . . . . . 9 1
Prepaid expenses and other current assets. . . . . . (12) 7
Other assets . . . . . . . . . . . . . . . . . . . . (56) 4
Accounts payable, trade. . . . . . . . . . . . . . . 738 446
Accrued expenses and other current liabilities . . . 858 422
Other liabilities. . . . . . . . . . . . . . . . . . 157 (57)
-------- ---------
Net cash provided by (used in) operating activities. . . 2,146 1,088
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment. . . . . . . . . . . . (592) (795)
Acquisition:
Fair value of assets acquired. . . . . . . . . . . . . . (5,198) 0
Liabilities assumed or incurred. . . . . . . . . . . . . 621 0
-------- ---------
Acquisition . . . . . . . . . . . . . . . . . . . . . (4,577) 0
-------- ---------
Net cash used in investing activities. . . . . . . . . . (5,169) (795)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit agreement . . . . . . 7,435 11,167
Repayments under bank line of credit agreement . . . . . . (7,456) (11,426)
Proceeds from long term debt . . . . . . . . . . . . . . . 4,000 0
Repayments of long term debt . . . . . . . . . . . . . . . (100) 0
Proceeds from exercise of options and warrants . . . . . . 76 94
-------- ---------
Net cash provided by financing activities. . . . . . . . 3,955 (165)
-------- ---------
Effect of exchange rate changes on cash and cash equivalents (8) 12
-------- ---------
Net change in cash and cash equivalents. . . . . . . . . . . 924 140
Cash and cash equivalents, beginning of period . . . . . . . 303 239
-------- ---------
Cash and cash equivalents, end of period . . . . . . . . . . $ 1,227 $ 379
======== =========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS:
Basis of presentation:
These interim financial statements were prepared pursuant to generally accepted
accounting principles for interim financial information, the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, while they conform
with the measurement and classification provisions of generally accepted
accounting principles, they do not include the footnote information required by
generally accepted accounting principles for annual financial statements.
Preparation of these financial statements requires management to make estimates
and assumptions which affect the amounts reported. Actual results could differ
from those estimates. Additionally, these financial statements are subject to
adjustments that might result from the independent audit of the Company's
financial statements for the year ending March 31, 1999. In the opinion of
management, all adjustments and disclosures necessary to make these interim
financial statements not misleading have been included. Nevertheless, reference
is made to the annual financial statements included in the Company's Annual
Report on Form 10-K for the year ended March 31, 1998. Operating results for
the nine months ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1999.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Stock based compensation:
The Company accounts for employee stock option grants using the intrinsic value
based method.
Income taxes:
Income taxes are provided based on the estimated effective annual tax rate.
Comprehensive income:
On April 1, 1998 the Company adopted, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 130 (FAS 130),
"Comprehensive Income," which requires companies to present comprehensive
income. Comprehensive income consists of net income or loss for the current
period and other comprehensive income - income, expenses, gains, and losses that
bypass the income statement and are reported directly in a separate component of
equity. The Company does not have any material items that bypass the income
statement.
2. ACQUISITION:
On August 14, 1998, the Company acquired certain assets and assumed certain
liabilities of the Sensors Division of AMP Incorporated (PiezoSensors).
PiezoSensors designs, manufactures and markets piezoelectric polymer sensors for
industrial, consumer and instrumentation applications. The acquisition is being
accounted for as a purchase, and accordingly, the financial statements include
operations from the date of acquisition. The aggregate purchase price was $4,489
including closing and restructuring costs of $633. The excess purchase price
over assets acquired (goodwill) of $1,652 is being amortized over 15 years. The
transaction was financed with a term loan issued by the Company's principal
bank.
8
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MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
The following unaudited pro forma consolidated results of operations for the
periods ended December 31 assume the PiezoSensors acquisition had occurred as of
April 1, 1997, giving effect to purchase accounting adjustments. The proforma
data is for informational purposes only and may not necessarily reflect results
of operations had Sensors been operated as part of the Company since April 1,
1997.
(In thousands except per share)
<TABLE>
<CAPTION>
Three months ended Dec. 31: Nine months ended Dec. 31:
--------------------------- --------------------------
1998 1997 1998 1997
------- -------- ------- --------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . $13,928 $11,905 $30,687 $30,050
Net income (loss). . . . . 1,260 (859) 188 (2,113)
Earnings (loss) per share
Basic. . . . . . . . . $ 0.35 $ (0.24) $ 0.05 $ (0.59)
Diluted. . . . . . . . $ 0.34 $ (0.24) $ 0.05 $ (0.59)
</TABLE>
3. INVENTORIES:
<TABLE>
<CAPTION>
(Dollars in thousands) DEC. 31, 1998 MARCH 31, 1998
-------------- ---------------
<S> <C> <C>
Raw materials. . . $ 1,209 $ 731
Work-in-process. . 348 475
Finished goods . . 3,485 2,609
-------------- ---------------
$ 5,042 $ 3,815
-------------- ---------------
</TABLE>
4. LONG TERM DEBT:
At December 31, 1998, $0 was outstanding under the Company's bank line of credit
agreement. In August, 1998 the Company renegotiated it bank line of credit. The
new agreement increased the maximum amount available from $3.3 million to $5.0
million until October 30, 1999 and $4.0 million from November 1, 1999 until the
agreement's expiration on September 30, 2000. Borrowings bear interest at a
maximum of the lesser of the bank's prime rate plus 1.00% or a Eurodollar rate
plus 2.75%. The interest rate decreases should the Company achieve certain
financial ratios. Borrowings are collateralized by a senior security interest
in substantially all the Company's assets. Additionally, the Company is
required to maintain minimum levels of certain profitability ratios, limits
capital expenditures and advances to subsidiaries and requires the bank's
consent for the payment of dividends, acquisitions or divestitures. The
agreement requires payment of a commitment fee equal to 0.25 percent of the
unutilized available balance.
9
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MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
In connection with the acquisition of Sensors, the Company entered into a $4.0
million term loan agreement with the Company's principal bank. The term loan
bears interest at a Eurodollar rate plus 3.0%. The term loan requires quarterly
repayments in the following remaining annual amounts:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ----------- ----------
<S> <C>
1999. . . . 100
2000. . . . 550
2001. . . . 800
2002. . . . 950
2003. . . . 1,000
2004. . . . 500
</TABLE>
Additional principal payments are required if the Company's cashflow exceeds
certain levels. The term loan is collateralized by a senior security interest in
substantially all the Company's assets. Additionally, the Company is required
to maintain minimum levels of certain profitability ratios, limits capital
expenditures and advances to subsidiaries and requires the bank's consent for
the payment of dividends, acquisitions or divestitures
In connection with the term loan, the Company has entered a Rate Swap
Transaction (Swap) with the same bank through August 1, 2002. The swap has an
initial notional amount of $3.5 million with a fixed rate of 8.32%. The
amortization of the Swap is as follows:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ----------- ----------
<S> <C>
1999. . . . 0
2000. . . . 900
2001. . . . 700
2002. . . . 900
2003. . . . 1,000
</TABLE>
5. SHAREHOLDERS' EQUITY:
The Company is authorized to issue 21,200,000 shares of capital stock of which
221,756 shares have been designated as serial preferred stock and 20,000,000
shares have been designated as common stock. No serial preferred stock was
outstanding at December 31, 1998. The Board of Directors has not designated
978,244 authorized shares.
The Company's China subsidiary is subject to certain government regulations,
including currency exchange controls, which limit cash dividends and loans. At
December 31, 1998, this subsidiary's restricted net assets approximated $240.
10
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MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
On October 19, 1998 the Board of Directors approved, subject to shareholder
approval prior to October 19, 1999 the 1998 Stock Option Plan (the "1998 Plan").
The plan provides for granting of options to purchase up to 750,000 common
shares until its expiration on October 19, 2008. Shares issuable under 1998
Plan grants which expire or otherwise terminate without being exercised become
available for later issuance. Options are intended to generally vest over
service periods of up to five years and expire no later than ten years from the
date of grant. Options may, but need not, qualify as "incentive stock options"
under section 422 of the Internal Revenue Code.
6. PER SHARE INFORMATION:
Basic per share information is computed based on the weighted average common
shares outstanding during each period, after deducting preferred dividend
requirements from net income. Diluted per share information additionally
considers the shares that may be issued upon exercise or conversion of stock
options, warrants and convertible securities (less the shares that may be
repurchased with the funds received from their exercise), after adding preferred
dividend requirements back to net income available to common shareholders.
The following is a reconciliation of the numerators and denominators of basic
and diluted EPS computations:
<TABLE>
<CAPTION>
(Numbers in thousands
except per share amounts)
FOR THE THREE MONTHS ENDED DEC. 31, 1998 FOR THE THREE MONTHS ENDED DEC. 31, 1997
--------------------------------------- ---------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic per share information . $ 1,260 3,591 $ 0.35 $ 628 3,569 $ 0.18
Effect of dilutive securities 95 92
------------ -------------
Diluted per share information $ 1,260 3,686 $ 0.34 $ 628 3,661 $ 0.17
------------ ------------- ---------- ------------ ------------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED DEC. 31, 1998 FOR THE NINE MONTHS ENDED DEC. 31, 1997
--------------------------------------- ---------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic per share information . $ 1,297 3,587 $ 0.36 $ 851 3,554 $ 0.24
Effect of dilutive securities 51 94
------------ -------------
Diluted per share information $ 1,297 3,638 $ 0.36 $ 851 3,648 $ 0.23
------------ ------------- ---------- ------------ ------------- ----------
</TABLE>
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the nine months ended December 31, 1998, payments of interest expense
approximated $146.
8. CONTINGENCIES:
Products generally are marketed under warranties to end users of up to ten
years. The Company provides for estimated product warranty obligations at the
time of sale, based on its warranty claims experience. This estimate is
susceptible to changes in the near term based on introductions of new products,
product quality improvements and changes in end user behavior.
11
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MEASUREMENT SPECIALTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION ABOUT INTERIM PERIODS IS UNAUDITED)
9. SEGMENT INFORMATION:
On April 1, 1998 the Company adopted Statement of Financial Accounting Standards
No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and
Related Information." FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major operations. FAS 131 does not require disclosures for
interim periods in the year of adoption. The FAS is not expected to require the
Company to make additional material disclosures beyond those presented in the
annual financial statements.
10. LITIGATION:
In December 1998, KIH Kommunikations Industrie Holding AG and PAT Traffic
Control Corporation (together "KIH") filed a complaint in the United States
District Court for the Eastern District of Pennsylvania naming the Company as
defendant. The claim alleges, among other things, the Company infringes certain
patents owned by KIH in the production and sale of certain traffic sensors, a
product line acquired in connection with the PiezoSensors acquisition. The
complaint requests unspecified damages as well as an injunction. The Company's
potential liability from the action is limited to shipments of traffic sensor
products after the PiezoSensors acquisition, and under the terms of the
agreement under which that acquisition was made, the Company has obtained
specific indemnification for liability as a result of such action (including
costs) in an amount which management believes is adequate. At a pretrial
conference in February 1999 and the parties have agreed to enter into settlement
discussions. Management, after reviewing applicable information relating to the
claim and consulting with counsel, has determined that the ultimate resolution
of this matter is not expected to have a material adverse effect on the
Company's financial position or results of operations.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this report, concerning the Company's expectations,
intentions and strategies for the future, are "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements are based on
information available to the Company on the date of this report. The Company
assumes no obligation to update them. Actual results could differ materially
from these forward looking statements. Among the important factors that could
cause actual results to differ are the timely development, market acceptance and
warranty performance of new products, the impact of competitive products and
pricing, the continuity of bookings trends, customers' financial condition,
supply interruptions, uncertainties of doing business in China and Hong Kong and
such additional risks and uncertainties as are detailed from time to time in the
Company's reports and filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS (IN THOUSANDS)
Revenues for the three months ended December 31, 1998 increased by $4,693 or 51
percent to a record $13,928 for Fiscal 1999 from $9,235 for Fiscal 1998.
Revenues for the nine months ended December 31 increased by $5,085 or 22% to
$28,265 in Fiscal 1999 compared to $23,180 in the prior year. The net income
for the third quarter was $1,260 in Fiscal 1999 compared to $628 for Fiscal
1998. This quarterly income is the highest in the Company's history. Net
income for the nine month period ended December 31 was $1,297 in Fiscal 1999
versus $851 in Fiscal 1998. Results for Fiscal 1999 include the acquisition of
Sensors Division of AMP Incorporated (PiezoSensors), which was acquired on
August 14, 1998. PiezoSensors is the world leader in designing, manufacturing
and marketing piezoelectric polymer sensors for industrial, consumer and
instrumentation applications. The acquisition is accounted for as a purchase;
accordingly, the financial statements include operations from the date of
acquisition. Concurrent with the acquisition, the Company reorganized into two
divisions: the Sensor Products Division and the Consumer Products Division. The
Sensor Products Division includes industrial pressure and piezoelectric polymer
sensors. The Consumer Products Division includes bath, kitchen, and other
scales, tire pressure gauges and distance estimators.
For the third quarter, sales of the Consumer Division increased by $2,844 or 34
percent, to $11,208 for Fiscal 1999 from $8,364. The third quarter is
traditionally the strongest due to the seasonal nature of consumer products
sales. Bath scale sales to U.S. direct and OEM customers increased nearly 50
percent compared with the prior year's quarter. European scale sales also
increased for the quarter versus the prior year as a result of promotional
sales, partially offset the impact of changes in the buying pattern of the
Company's major European distributor, and increased competition in the European
market. The Company is expanding its European business with other distributors,
and expects sales to increase in Fiscal 2000. For the quarter, sales of tire
pressure gauges were somewhat lower due to lower promotional sales. Sales of the
Sensor Products Division, including PiezoSensors, for the quarter increased to
$2,720 in Fiscal 1999 from $871 in Fiscal 1998.
For the nine months ended December 31, sales of Consumer Products Division
increased by $2,424 or 12 percent, to $23,453 for Fiscal 1999 from $21,029 in
Fiscal 1998. Bath scales sold to U.S. direct and OEM customers increased as a
result of growth during the second and third quarters and European promotions.
The increase was partially offset by lower European sales, excluding promotions,
as a result of a change in the buying pattern of the Company's major European
distributor and increased competition in the European market. Expansion of the
Company's European sales is anticipated in Fiscal 2000. For the nine month
period, sales of tire pressure gauges increased by 5 percent due to higher
promotional activity. Sales of the Sensors Products Division for the period
increased to $4,812 in Fiscal 1999 from $2,151 in Fiscal 1998. Fiscal 1999
includes sales related to PiezoSensors subsequent to the August 14, 1998
acquisition.
13
<PAGE>
Based upon the PiezoSensors acquisition, the incoming order rate, Fiscal 1999
shippable backlog, and acceptance of new products, record sales for Fiscal 1999
are anticipated. A strong Fiscal 2000 is also anticipated.
Due to the higher sales volume and cost reduction efforts, gross profit for the
quarter increased by $2,693 to $5,950 in 1999 from $3,257 in 1998, with the
gross profit percentage increasing to 43 percent compared to 35 percent in the
prior year. Favorable product mix, the higher margins from PiezoSensors sales,
and lower manufacturing costs contributed to the higher margin percentage. The
Company is proceeding with the previously announced plan to lower costs by
shifting manufacturing to its lower cost Asian facility. After the program is
fully implemented, payroll and facility costs will be significantly reduced, and
after restructuring, margins in the Sensor Products Division will be
significantly higher than from the Consumer Products Division. For the nine
months ended December 31, gross profit increased by $3,738 to $11,290 in Fiscal
1999 versus $8,182 in Fiscal 1998. The gross margin percentage in the period
improved to 40 percent in Fiscal 1999 compared with 35 percent in Fiscal 1998.
The improvement in gross margin reflects changes in product mix and
manufacturing cost reductions, partially offset by competitive pricing
pressures. The Company expects that it may continue to experience price
pressures, because of the effect of the current strength of the United States
dollar on foreign sales and the introduction of competing consumer products.
The Company intends to maintain its competitiveness by continuing to expand its
product lines, with technological advances, innovative designs and broader price
ranges, while continuing efforts to reduce product costs.
Selling, general and administrative ("SG&A") expenses for the third quarter
increased by $1,500 or 77 percent to $3,460 in Fiscal 1999 compared to $1,960 in
Fiscal 1998. The change results from variable expenses associated with the
higher sales volume and the impact of the PiezoSensors acquisition. For the
nine months ended December 31, SG&A expenses increased by $2,206 or 40 percent
to $7,788 in Fiscal 1999 compared to $5,582 in Fiscal 1998. The increase is a
result of the PiezoSensors acquisition, variable expenses associated with the
higher volume, the expansion of the sales force, and additional foreign consumer
sales efforts.
Research and development expenses, net of customer funding , for the third
quarter increased to $597 for Fiscal 1999 compared to $499 in the prior year.
The Company received significant funding of development costs from customers,
amounting to $319 for the third quarter versus $0 in the prior year's quarter.
For the nine month period, research and development expenses were flat at $1,508
versus $1,502 in Fiscal 1998. Customer funding increased to $604 for the nine
month period of Fiscal 1999 versus $15 in the prior year's period. The third
quarter and nine months of Fiscal 1999 include the PiezoSensors acquisition.
Development funding is anticipated to continue, but will likely vary from
quarter to quarter. To support the continued revenue growth and to continue to
expand product lines research and development expenses will continue to be
significant. However, while the Company intends to continue to invest in
industrial pressure product development, and launch new consumer products and
line extensions, it is anticipated these expenses will be reduced as a percent
of revenue over the next several years. By utilizing its engineering talent in
the Shenzhen, PRC facility, the Company intends to complete projects at lower
costs.
For the nine month period of FY 1999 and FY 1998, the Company recognized a tax
provision of $406 and $213 respectively, at an estimated effective income tax
rate of approximately 24 percent for Fiscal 1999 and 20 percent for Fiscal 1998.
The estimated rate of tax is based on the current proportion of pretax profits
expected to be earned by the Company's foreign subsidiaries and favorable
overseas tax rates now in effect. Deferred income taxes are not provided on
these subsidiaries' earnings, which are expected to be reinvested.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have adequate resources for its financing requirements.
Net working capital was $5,298 at December 31, 1998, compared to $3,335 at March
31, 1998. At December 31, 1998, the Company's current ratio was 1.8. For the
nine months ended December 31, 1998, cash increased to $1,227 at December 31,
1998 compared to $303 at March 31, 1998. Operating activities provided $2,146,
primarily from net income and increases in accounts payable and accrued
liabilities, offset by increases in accounts receivable. Investing activities
used $5,169, to fund the acquisition of PiezoSensors and capital expenditures.
In August, 1998 the Company acquired certain assets and assumed selected
liabilities of Sensors. Sensors is the leader in designing, manufacturing and
marketing piezoelectric polymer sensors for industrial, consumer and
instrumentation applications. The aggregate purchase price was $4,489 including
closing and restructuring costs of $633. The acquisition is being accounted for
as a purchase, and accordingly, the financial statements include operations from
the date of acquisition. The excess purchase price over assets acquired
(goodwill) of $1,652 is being amortized over 15 years. The transaction was
financed with a term loan issued by the Company's principal bank.
Fixed asset purchases for 1999 of $592, mainly comprised production equipment
and tooling. The Company expects capital spending to continue, in line with
growth of its product lines. At December 31, 1998, there were no significant
commitments for capital expenditures.
The Company continues to finance its requirements with accounts payable and bank
borrowings. The Company's principal supplier, RDL, assembles substantially all
consumer products. While the Company furnishes RDL with the proprietary
subassemblies required in its products, RDL purchases other required components
from third parties, reducing the Company's need to finance certain raw materials
through their conversion to finished inventories.
At December 31, 1998, $0 was outstanding under the Company's bank line of credit
agreement. In August, 1998 the Company renegotiated it bank line of credit.
The new agreement increased the maximum amount available from $3.3 million to
$5.0 million until October 30, 1999 and $4.0 million from November 1, 1999 until
the agreement's expiration on September 30, 2000. Borrowings bear interest at a
maximum of the lesser of the bank's prime rate plus 1.00% or a Eurodollar rate
plus 2.75%. The interest rate decreases should the Company achieve certain
financial ratios. Borrowings are collateralized by a senior security interest
in substantially all the Company's assets. Additionally, the Company is
required to maintain minimum levels of certain profitability ratios, limits
capital expenditures and advances to subsidiaries and requires the bank's
consent for the payment of dividends, acquisitions or divestitures. The
agreement requires payment of a commitment fee equal to 0.25 percent of the
unutilized available balance.
In connection with the acquisition of PiezoSensors, the Company entered into a
$4.0 million term loan agreement with the Company's principal bank. The term
loan bears interest at a Eurodollar rate plus 3.0%. The term loan requires
quarterly repayments in the following remaining annual amounts:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ----------- ----------
<S> <C>
1999. . . . 100
2000. . . . 550
2001. . . . 800
2002. . . . 950
2003. . . . 1,000
2004. . . . 500
</TABLE>
15
<PAGE>
Additional principal payments are required if the Company's cashflow exceeds
certain levels. The term loan is collateralized by a senior security interest in
substantially all the Company's assets. Additionally, the Company is required
to maintain minimum levels of certain profitability ratios, limits capital
expenditures and advances to subsidiaries and requires the bank's consent for
the payment of dividends, acquisitions or divestitures
In connection with the term loan, the Company has entered a Rate Swap
Transaction (Swap) with the same bank through August 1, 2002. The swap has an
initial notional amount of $3.5 million with a fixed rate of 8.32%. The
amortization of the Swap is as follows:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
- ----------- ----------
<S> <C>
1999. . . . 0
2000. . . . 900
2001. . . . 700
2002. . . . 900
2003. . . . 1,000
</TABLE>
Further expansion of the Company's financing requirements are likely to require
additional resources. The Company believes that suitable resources for
expansion of its financing requirements will be available, though no assurance
can be given.
The Company has not declared cash dividends on its common equity. Management
expects that earnings which may be generated from the Company's near-term
operations will be reinvested and, accordingly, dividends will not be paid to
common shareholders in the near future. Additionally, the payment of dividends
is subject to the consent of the bank with which the Company has a revolving
credit agreement.
At present, there are no material restrictions on the ability of the Company's
Hong Kong subsidiary to transfer funds to the Company in the form of cash
dividends, loans, advances or purchases of materials, products or services.
Distribution and repatriation of dividends by the Company's China subsidiary are
restricted by Chinese laws and regulations, including currency exchange
controls. At December 31, 1998, this subsidiary's restricted net assets
approximated $240.
THE YEAR 2000 ISSUE
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has developed an
implementation plan to resolve the issue. The "Year 2000" problem is the result
of computer programs that use two digits rather than four digits to represent
the year. Such programs may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations.
The Company has converted its major business application software to programs
that are Year 2000 compliant. The cost of these new systems was not material.
The Company is currently reviewing other date sensitive computer applications.
It is not anticipated these issues will be significant. However, if such
conversions are not completed on time, the "Year 2000" problem may have a
material impact on the operations of the Company. Also, other companies systems
may not be timely converted and such failure to convert may have an adverse
effect on the Company's systems or operations.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1998, KIH Kommunikations Industrie Holding AG and PAT Traffic
Control Corporation (together "KIH") filed a complaint in the United States
District Court for the Eastern District of Pennsylvania naming the Company as
defendant. The claim alleges, among other things, the Company infringes certain
patents owned by KIH in the production and sale of certain traffic sensors, a
product line acquired in connection with the PiezoSensors acquisition. The
complaint requests unspecified damages as well as an injunction. The Company's
potential liability from the action is limited to shipments of traffic sensor
products after the PiezoSensors acquisition, and under the terms of the
agreement under which that acquisition was made, the Company has obtained
specific indemnification for liability as a result of such action (including
costs) in an amount which management believes is adequate. At a pretrial
conference in February 1999 and the parties agreed to enter into settlement
discussions. Management, after reviewing applicable information relating to the
claim and consulting with counsel, has determined that the ultimate resolution
of this matter is not expected to have a material adverse effect on the
Company's financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(27) Financial Data Schedule
During the three months ended December31, 1998, the company filed a report on
Form 8-K on October 28, 1998.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEASUREMENT SPECIALTIES, INC.
(Registrant)
/s/ Joseph R. Mallon Jr.
-----------------------------
Date: February 11, 1999 Joseph R. Mallon Jr.
Chief Executive Officer, and
Chairman of the Board of Directors
/s/ Kirk J. Dischino
------------------------
Date: February 11, 1999 Kirk J Dischino
Chief Financial Officer
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF MEASUREMENT SPECIALTIES, INC. AND SUBSIDIARIES AS
OF DECEMBER 31, 1998, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS,
SHAREHOLDERS EQUITY AND CASH FLOWS FOR THE NINE-MONTH PERIOD THEN ENDED, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1227
<SECURITIES> 0
<RECEIVABLES> 5677
<ALLOWANCES> (142)
<INVENTORY> 5042
<CURRENT-ASSETS> 12258
<PP&E> 6057
<DEPRECIATION> (2956)
<TOTAL-ASSETS> 17835
<CURRENT-LIABILITIES> 6960
<BONDS> 0
<COMMON> 5502
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17835
<SALES> 28265
<TOTAL-REVENUES> 28265
<CGS> 16975
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> 0
<INCOME-TAX> 406
<INCOME-CONTINUING> 1297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1297
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
