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 JUNE 30, 2000
[ ] 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 CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: August 11, 2000 shares of
common stock, no par, at 4,021,920.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PART I . FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
CONSOLIDATED BALANCE SHEETS, JUNE 30, 2000 (UNAUDITED) AND MARCH 31, 2000 3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED), THREE MONTHS ENDED JUNE 30, 2000 AND 1999 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, THREE MONTHS ENDED JUNE 30, 2000
(UNAUDITED) AND YEAR ENDED MARCH 31, 2000 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), THREE MONTHS ENDED JUNE 30, 2000 AND 1999 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENT 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
PART II. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K 19
EXHIBIT 27 FINANCIAL DATA SCHEDULE 20
SIGNATURES 21
</TABLE>
2
<PAGE>
PART I . FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS, JUNE 30, 2000 (UNAUDITED) AND MARCH 31, 2000
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
------
(DOLLARS IN THOUSANDS)
JUNE 30, MARCH 31,
2000 2000
--------- ----------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 622 $ 1,882
Accounts receivable, trade, net of allowance for doubtful
accounts of $381 (June 2000) and $318 (March 2000) 9,850 8,181
Inventories 11,357 9,136
Deferred income taxes 1,084 1,084
Prepaid expenses and other current assets 1,073 647
--------- ----------
Total current assets 23,986 20,930
--------- ----------
PROPERTY AND EQUIPMENT 16,677 15,884
Less accumulated depreciation and amortization 7,144 6,516
--------- ----------
9,533 9,368
--------- ----------
OTHER ASSETS:
Goodwill and other intangible assets, net of accumulated
amortization of $711 (June 2000) and $557 (March 2000) 5,440 5,553
Deferred income taxes 2,189 2,189
Other assets 1,624 1,607
--------- ----------
9,253 9,349
--------- ----------
$ 42,772 $ 39,647
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------
(DOLLARS IN THOUSANDS)
JUNE 30, MARCH 31,
2000 2000
---------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt $ 1,000 $ 1,000
Accounts payable 7,057 6,827
Accrued compensation 1,688 1,654
Income taxes payable 1,372 621
Accrued acquisition costs 731 1,205
Accrued expenses and other current liabilities 2,969 3,600
---------- -----------
Total current liabilities 14,817 14,907
---------- -----------
OTHER LIABILITIES:
Long term debt, net of current portion 8,750 9,000
Borrowings under bank line of credit agreement 2,225 -
Other liabilities, including deferred income taxes 876 933
---------- -----------
11,851 9,933
---------- -----------
Total liabilities 26,668 24,840
---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Serial preferred stock;
221,756 shares authorized; none outstanding - -
Common stock, no par; 20,000,000 shares authorized;
shares issued and outstanding 4,013,920 (June 2000) and
3,989,920 (March 2000) 5,502 5,502
Additional paid-in capital 2,143 2,042
Retained earnings 8,460 7,264
Currency translation and other adjustments (1) (1)
---------- -----------
Total shareholders' equity 16,104 14,807
---------- -----------
$ 42,772 $ 39,647
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED), THREE MONTHS ENDED JUNE 30,
2000 AND 1999
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
FOR THE THREE MONTHS ENDED JUNE 30,
-----------------------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales $16,302 $12,021
Cost of goods sold 8,791 6,611
-------- --------
Gross profit 7,511 5,410
-------- --------
Other expenses (income):
Selling, general and administrative 5,280 3,610
Research and development 1,198 759
Customer funding of research and development (775) (353)
Interest expense (net) and other income 213 50
-------- --------
5,916 4,066
-------- --------
Income before income taxes 1,595 1,344
Income tax provision 399 336
-------- --------
Net income $ 1,196 $ 1,008
======== ========
Earnings per common share
Basic $ 0.30 $ 0.27
======== ========
Diluted $ 0.27 $ 0.24
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, THREE MONTHS ENDED JUNE 30,
2000 (UNAUDITED) AND YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2000 AND THE THREE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
CURRENCY
ADDITIONAL TRANSLATION
COMMON PAID-IN RETAINED AND OTHER
STOCK CAPITAL EARNINGS ADJUSTMENTS TOTAL
---------- ----------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 5,502 308 1,733 (1) 7,542
Tax benefit on exercise of options 1,124 1,124
326,133 common shares issued upon exercise of options - 610 - - 610
Net income for the year ended March 31, 2000 - - 5,531 - 5,531
---------- ----------- -------- ------------ ------
Balance, March 31, 2000 5,502 2,042 7,264 (1) 14,807
24,000 common shares issued upon exercise of options 101 101
Net income for the period ended June 30, 2000 1,196 1,196
---------- ----------- -------- ------------ ------
BALANCE, JUNE 30, 2000 5,502 2,143 8,460 (1) 16,104
=======================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), THREE MONTHS ENDED JUNE 30,
2000 AND 1999
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUN 30,
----------------------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,196 $ 1,008
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and Amortization 637 355
Warranty expense 117 134
Deferred Income Taxes - 4
Net changes in operating assets and liabilities:
Accounts receivable, trade (1,669) (1,686)
Inventories (2,221) 341
Prepaid expenses and other current assets (426) (126)
Other assets (17) (46)
Accounts payable, trade 230 1,501
Accrued expenses and other liabilities (494) (153)
-------- --------
Net cash provided by (used in) operating activities (2,647) 1,332
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (689) (371)
-------- --------
Net cash used in investing activities (689) (371)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit agreement 6,700 -
Repayments under bank line of credit agreement (4,475) -
Repayments of long term debt (250) (100)
Proceeds from exercise of options and warrants 101 206
-------- --------
Net cash provided by (used in) financing activities 2,076 106
-------- --------
Effect of exchange rate changes on cash and cash equivalents - -
-------- --------
Net change in cash and cash equivalents (1,260) 1,067
Cash and cash equivalents, beginning of year 1,882 2,711
-------- --------
Cash and cash equivalents, end of period $ 622 $ 3,778
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
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 accounting principles
generally accepted in the United States of America, they do not include the
footnote information required by accounting principles generally accepted in the
United States of America 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, 2001. In the opinion of management, all adjustments and
disclosures necessary to make these interim financial statements not misleading
Consisting of normal recurring items have been included. 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, 2000. Operating results for the three
months ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2001.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Stock based compensation:
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees" and related interpretations
in accounting for its employee stock options. Under APB 25, because the
exercise price of the employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recorded. The
Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation."
Income taxes:
Income taxes are provided based on the estimated effective annual tax rate.
Intangible assets:
Goodwill representing the excess of the cost over the net tangible and
identifiable intangible assets of the acquired business is amortized on a
straight-line basis over 7 to 15 years. Other intangible assets are amortized
over a period of 3 to 5 years.
Whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable, management assesses the recoverability of the asset. It
is possible that the actual cash flows that result will be insufficient to
recover the carrying amount of certain of these intangibles. No impairment loss
was recorded for 2000 and 1999.
Revenue recognition:
Revenue is recorded when the products are shipped and the Company provides for
allowance for returns based upon historical and estimated return rates.
Research and development:
Research and development expenditures are expensed as incurred. Customer funding
is recognized as earned.
8
<PAGE>
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),
"Reporting Comprehensive Income." Comprehensive income consists of net earnings
or loss for the current period and other comprehensive income (income, expenses,
gains, and losses that currently 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.
Recent Accounting Pronouncements:
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments." The statement is effective for financial years beginning after
June 15, 2000. SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities and measure
those instruments at fair market value. Under certain circumstances, a portion
of the derivative's gain or loss is initially reported as a component of income
when the transaction affects earnings. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. The Company utilizes an interest rate swap intended to hedge its
interest rate risk associated with long term debt. The Company believes that
adoption of SFAS 133 will not have a material impact on its financial position
or results of operations.
2. ACQUISITION:
On January 5, 2000 the Company acquired, for cash, certain assets comprising the
ultrasonic garage parking system business of Exeter Technologies, Inc. Pursuant
to the acquisition agreement, the Company made an initial payment of $625 and is
required to pay additional consideration based upon future sales. The
additional consideration is equal to 15% of net sales in year one, 10% in year
two and 5% in year three. No payments are to be made after year 3. The
Company has estimated this consideration to be $800. The acquisition was
accounted for under the purchase method of accounting. Net assets acquired were
$469, consisting of the fair value of the assets acquired of $625 less
liabilities assumed of $156. Goodwill of $956 is being amortized over 7 years.
On February 14, 2000, the Company acquired IC Sensors, Inc. (IC Sensors) from
Perkin Elmer Inc. IC Sensors designs, manufactures and markets micromachined
silicon pressure sensors, accelerometers and microstructures. The acquisition is
being accounted for as a purchase, and accordingly, the consolidated financial
statements include operations of IC Sensors from the date of acquisition. The
aggregate cash paid was $12,368 (including payment to Perkin Elmer of $12,000
and closing costs of $368). The excess purchase price over assets acquired
(principally goodwill) of $3,538 is being amortized over 15 years. The
transaction was financed with a term loan issued by the Company's principal
bank. Net assets acquired were $8,830 consisting of the fair value of assets
acquired of $10,091 less liabilities assumed of $1,260.
9
<PAGE>
The following unaudited pro forma consolidated results of operations for the
period assuming the IC Sensors acquisition had occurred as of April 1, 1999,
giving effect to purchase accounting adjustments. The proforma data is for
informational purposes only and may not necessarily reflect results of
operations had IC Sensors been operated as part of the Company since April 1,
1999.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
-----------------
2000 1999
-----------------
<S> <C> <C>
Net Sales $16,302 $15,335
Net Income (loss) 1,196 (14)
Earnings (loss) per common share
BASIC $ 0.30 $ 0.00
DILUTED $ 0.27 $ 0.00
</TABLE>
3. INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 2000 March 31, 2000
-------------- ---------------
Raw Materials $ 3,714 $ 2,895
-------------- ---------------
Work-in-process 1,656 2,033
Finished goods 5,987 4,208
$ 11,357 $ 9,136
-------------- ---------------
</TABLE>
4. LONG TERM DEBT:
At June 30, 2000, there was an outstanding balance of $2,225 under the
Company's bank line of credit agreement. The agreement provides for a maximum
amount available of $10.0 million until the agreement's expiration on February
14, 2003. Borrowings are limited to the sum of eligible Accounts Receivable and
Inventory and are collateralized by a senior security interest in substantially
all the Company's assets. 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%. As a result
of achieving certain financial ratios in the current Fiscal 2000, the rate
decreases to the lesser of the bank's prime rate plus 0.125% or a Eurodollar
rate plus 2.0%. The agreement requires payment of a commitment fee equal to 0.25
percent of the unutilized available balance. 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 acquisition of IC Sensors, the Company entered into a
$10,000 term loan agreement with the Company's principal bank. As of June 30,
2000, $9,750 was outstanding under the term loan. The term loan bears interest
at a Eurodollar rate plus 3.25%. The term loan requires quarterly repayments in
the following remaining annual amounts:
<TABLE>
<CAPTION>
Fiscal Principal
Year Repayments
---- -----------
<S> <C>
2001 $ 750
2002 1,333
2003 1,667
2004 2,000
2005 2,000
2006 2,000
</TABLE>
10
<PAGE>
Additional principal payments are required if the Company's cashflow exceeds
certain levels and security for the loan falls below the sum of the outstanding
term loan and the total bank line. 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.
As a hedge of its interest rate risk associated with the term loan, the Company
has entered a Rate Swap Transaction (Swap) with the same bank through July 1,
2005. The swap has an initial notional amount of $9.0 million with an effective
fixed rate of 10.2%. The notional amount of the Swap decreases as follows:
<TABLE>
<CAPTION>
Fiscal Principal
Year Repayments
------ ----------
<S> <C>
2001 $ 2,000
2002 1,000
2003 2,000
2004 1,000
2005 2,000
2006 1,000
</TABLE>
The carrying amount of both the outstanding indebtedness and the Swap
approximate their fair value because, in the opinion of management, the
borrowing rates approximate market.
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 June 30, 2000. 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
June 30, 2000, this subsidiary's restricted net assets approximated $1,968.
On September 13, 1999 shareholders approved 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 if any 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 if any back to net income available to common
shareholders.
11
<PAGE>
The following is a reconciliation of the numerators and denominators of basic
and diluted EPS computations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUN 30, 2000 For the Three months ended Jun 30, 1999
--------------------------------------- ---------------------------------------
(Numbers in thousands INCOME SHARES PER SHARE Income Shares Per share
except per share amounts) NUMERATOR DENOMINATOR AMOUNT Numerator Denominator Amount
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic per share information $ 1,196 3,994 $ 0.30 $ 1,008 3,699 $ 0.27
---------- ----------- ---------- ---------- ----------- ----------
Effect of dilutive securities 435 492
Diluted per share information $ 1,196 4,429 $ 0.27 $ 1,008 4,191 $ 0.24
---------- ----------- ---------- ---------- ----------- ----------
</TABLE>
7. SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
For the three months ended June 30, 2000 and 1999 payments of interest
expense approximated $334 and $;80 payments of income taxes approximated $135
and $528.
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.
9. SEGMENT INFORMATION:
The Company's reportable segments are strategic business units that offer
different products. They are managed separately because each business requires
different technology and marketing strategies. The Company has two reportable
segments: Sensors and Consumer Products. The Sensor segment designs,
manufactures, markets and sells sensors for OEM (Original Equipment Manufacture)
applications and includes the Company's microfused pressure transducer, IC
Sensors, and Piezoelectric product lines. The Consumer Products segment
designs, manufactures, markets, and sells sensor based consumer products. The
basis of these segments is the same as prior periods.
The Company has no material intersegment sales. There has been no material
change in total assets or the assets held by each statement from the amounts
disclosed in the last annual report.
12
<PAGE>
The following is information related to industry segments:
<TABLE>
<CAPTION>
Three months ended June 30:
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Net Sales
Consumer Products $ 8,771 $ 9,116
Sensors 7,531 2,905
-------- --------
Total $16,302 $12,021
-------- --------
Segment Profitability
Consumer Products 2,270 2,216
Sensors 1,040 612
Unallocated expenses (1,502) (1,434)
Interest expense 378 (90)
Other (expenses) income (165) 40
-------- --------
Income before taxes 1,595 1,344
-------- --------
</TABLE>
11. SUBSEQUENT EVENT:
On August 4, 2000 the Company acquired, for cash, certain assets and assumed
certain liabilities of TRW Sensors & Components Division and Lucas Schaevitz
Limited (together "Schaevitz") from TRW Inc. Schaevitz manufacturers in the
United States and Europe, and sells worldwide a variety of tilt, displacement
and pressure transducers and transmitters. Schaevitz had unaudited calendar 1999
sales of approximately $28 million. The acquisition will be accounted for as a
purchase, and accordingly, the consolidated financial statements will include
operations of Schaevitz from the date of acquisition. The aggregate cash paid or
accrued was $19.6 million, (including payment to TRW of $17.7 million and
closing costs of $1.9 million. The company has not yet completed its allocation
of the purchase price to tangible and intangible assets but estimates that
intangible assets will aggregate approximately $ 8 million which will be
amortized over an average life of 15 years. Net assets acquired are
approximately $12 million consisting of the fair value of assets acquired ($15
million) less liabilities assumed ($3 million).
In connection with the acquisition of Schaevitz, the Company refinanced its
credit facility including its bank line of credit. The new agreement increased
the maximum amount available under the revolving credit facility from $10
million to $15 million, of which $10 million will be available for general
corporate purposes, and $ 5 million will be available for working capital only.
The agreement expires August 4, 2002. Borrowings bear interest at a maximum of
the lesser of the bank's prime rate plus 1.0% or the Eurodollar rate plus 2.75%.
Should the company achieve certain financial ratios, the lowest rate becomes the
lesser of the bank's prime rate plus 0.25% or a Eurodollar rate plus 2.25%. The
agreement requires annual payment of a commitment fee equal to 0.375% of the
unutilized available balance. Borrowings are limited to the sum of eligible
Accounts Receivable and Inventory and 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.
13
<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. Forward looking statements may be
identified by such words or phases as "will likely result," are expected to,"
"will continue," "is anticipated," "estimated," "projected," or similar
expressions. The forward-looking statements above involve a number of risks and
uncertainties. 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 materially include: conditions in the general economy and in the markets
served by the Company; competitive factors, such as price pressures and the
potential emergence of rival technologies; interruptions of suppliers'
operations affecting availability of component materials at reasonable prices;
timely development and market acceptance, and warranty performance of new
products; success in identifying, financing and integrating acquisition
candidates; changes in product mix, costs and yields, fluctuations in foreign
currency exchange rates; uncertainties related to doing business in Hong Kong
and China, and the risk factors listed from time to time in the Company's SEC
reports. The Company is involved in an active acquisition program. Forward
looking statements may not include the impact of acquisitions, which could
affect results in the near term.
RESULTS OF OPERATIONS (IN THOUSANDS)
Revenues for the three months ended June 30, 2000 increased by $4,281 or 36
percent to a record first quarter level of $16,302 compared with $12,021 for the
first quarter of Fiscal 2000. The net income for the first quarter was $1,196
in Fiscal 2001 compared to $1,008 for Fiscal 2000. The current Fiscal 2001
quarter includes Park Zone product line which was acquired on January 5, 2000,
and IC Sensors which was acquired on February 11, 2000.
For the first quarter ended June 30, 2000, sales of the Consumer Products
segment decreased by $353 or 4 percent, to $8,783 for this year from $9,136 in
the prior year. Sales of the Sensors segment for the quarter increased to $7,519
in first quarter of Fiscal 2001 from $2,885 in the prior fiscal year, primarily
due to the acquisition of IC Sensors on February 14, 2000, and higher volume
across all product lines.
Due to the higher sales volume, product mix, and ongoing cost reduction efforts,
gross profit for the first quarter increased by $2,101 to $7,511 in Fiscal 2001
from $5,410 in Fiscal 2000, with the gross profit percentage increasing to 46
percent compared to 45 percent in the prior year. For the quarter, higher
margins resulted from favorable product mix, the higher margins from
PiezoSensors sales, and lower manufacturing costs which were partially offset by
price reductions to expand market share and react to competitive pricing
pressures and lower margins at IC Sensors as the restructuring program is
implemented. 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 first quarter
increased by $1,670 or 46 percent to $5,280 of sales in Fiscal 2001
compared to $3,610 in Fiscal 2000. The change results in part from the impact
of the IC Sensors acquisition and variable expenses associated with the higher
sales volume.
14
<PAGE>
The Company continues to actively invest in Research and Development projects in
support of new products and product line extensions. For the first quarter of
Fiscal 2001, research and development expenses were $1,198 versus $759 in Fiscal
2000. The increase for the quarter was due to the impact of the PiezoSensors
and IC Sensors acquisition. However, net Research & Development expenses for
the first quarter of Fiscal 2001 were only slightly higher at $423 compared to
$406 in the prior year's first quarter. The Company received significant funding
of development costs from customers, amounting to $775 for the first quarter of
Fiscal 2001 versus $353 in the prior year's first quarter. Development funding
is anticipated to continue, but will likely vary from quarter to quarter.
To support revenue growth and to continue to expand product lines research and
development expenses will continue to be significant. The Company intends to
continue to invest in pressure sensor product development, and launch new
consumer products and line extensions. Utilizing its engineering talent in the
Shenzhen, PRC facility, to perform detail design efforts, the Company is able to
invest in a greater number of cost effective projects.
For the three month period of FY 2001 and FY 2000, the Company recognized a tax
provision of $399 and $336 respectively, at an estimated effective annual income
tax rate of approximately 25 percent for Fiscal 2001. The estimated rate of tax
is based on the proportion of pretax profits expected to be earned during
fiscal year 2001 in each of the countries in which the Company operates. The
foreign tax rates in effect during fiscal year 2001 are lower than the U.S.
rates. Deferred income taxes are not provided on these subsidiaries' earnings,
which are expected to be reinvested.
On August 4, 2000 the Company acquired, for cash, certain assets and assumed
certain liabilities of TRW Sensors & Components Division and Lucas Schaevitz
Limited (together "Schaevitz") from TRW Inc. Schaevitz manufacturers in the
United States and Europe, and sells worldwide a variety of tilt, displacement
and pressure transducers and transmitters. Schaevitz had unaudited calendar
1999 sales of approximately $28 million. The acquisition will be accounted for
as a purchase, and accordingly, the consolidated financial statements will
include operations of Schaevitz from the date of acquisition. The aggregate
cash paid was $19.7 million (including payment to TRW of $17.8 million and
closing costs of $1.9 million. The company has not yet completed its allocation
of the purchase price to tangible and intangible assets but estimates that
intangible assets will aggregate approximately $ 8 million which will be
amortized over an average life of 15 years. Net assets acquired are
approximately $12 million consisting of the fair value of assets acquired ($15
million) less liabilities assumed ($3 million).
In connection with the acquisition of Schaevitz, the Company refinanced its
credit facility including its bank line of credit. The new agreement increased
the maximum amount available under the revolving credit facility from $10
million to $15 million, of which $10 million will be available for general
corporate purposes and $5 million will be available for working capital only.
The agreement expires August 4, 2002. Borrowings bear interest at a maximum of
the lesser of the bank's prime rate plus 1.0% or the Eurodollar rate plus 2.75%.
Should the company achieve certain financial ratios , the lowest rate becomes
the lesser of the bank's prime rate plus 0.25% or a Eurodollar rate plus 2.25%.
The agreement requires annual payment of a commitment fee equal to 0.375% of the
unutilized available balance. Borrowings are limited to the sum of eligible
Accounts Receivable and Inventory and 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.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company believes it continues to have adequate resources for its financing
requirements. Net working capital was $9,169 at June 30, 2000, compared to
$6,023 at March 31, 2000, reflecting the increase in Accounts Receivable due to
higher revenues and inventory build-up in anticipation of seasonal consumer
business in second quarter. At June 30, 2000, the Company's current ratio was
1.6 times. Cash decreased to $622 at June 30, 2000 compared to $1,882 at March
31, 2000. Operating activities used $2,646, primarily to finance increased
Inventory. Investing activities used $689 to fund capital expenditures.
On February 14, 2000, the Company acquired IC Sensors, Inc from Perkin Elmer
Inc. (IC Sensors). IC Sensors designs, manufactures and markets micromachined
silicon pressure sensors, accelerometers and microstructures. The acquisition is
being accounted for as a purchase, and accordingly, the consolidated financial
statements include operations of IC Sensors from the date of acquisition. The
aggregate cash paid was $12,368 (including payment to Perkin Elmer of $12,000
and closing costs of $368). The excess purchase price over assets acquired
(principally goodwill) of $3,538 is being amortized over 15 years. The
transaction was financed with a term loan issued by the Company's principal
bank. Net assets acquired were $8,830 consisting of the fair value of assets
acquired ($10,091) less liabilities assumed ($1,260).
Fixed asset purchases for the first three months of Fiscal 2001 of $689, were
mainly comprised of computer equipment and related software, production
equipment, and tooling. The Company expects capital spending to expand as a
result of growth of its product lines. At June 30, 2000, there were no
significant commitments for capital expenditures.
The Company continues to finance its requirements with internally generated
working capital and utilization of its revolving credit facility. The Company's
principal supplier, assembles substantially all consumer products. While the
Company furnishes the supplier with the proprietary subassemblies required in
its products, the supplier purchases other required components from third
parties, reducing the Company's need to finance certain raw materials through
their conversion to finished inventories.
At June 30, 2000, the Company utilized $2,225 from the bank line of credit
agreement. The agreement provided for a maximum amount available of $10.0
million until the agreement's expiration on September 30, 2001. Borrowings bore
interest at a maximum of the lesser of the bank's prime rate plus 1.00% or a
Eurodollar rate plus 2.75%. The agreement requires payment of a commitment fee
equal to 0.25 percent of the unutilized available balance. Borrowings are
limited to the sum of eligible Accounts Receivable and Inventory and are
collateralized by a senior security interest in substantially all the Company's
assets. Additionally, the Company was 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 acquisition of IC Sensors, the Company entered into a
$10.0 million term loan agreement with the Company's principal bank. As of June
30, 2000, $9,750 was outstanding under the term loan. The term loan bears
interest at a Eurodollar rate plus 3.25%. The term loan requires quarterly
repayments in the following remaining annual amounts:
Fiscal Principal
Year Repayments
------ ----------
2001 $ 750
2002 1,333
2003 1,667
2004 2,000
2005 2,000
2006 2,000
16
<PAGE>
Additional principal payments are required if the Company's cashflow exceeds
certain levels and security for the loan falls below the sum of the outstanding
term loan and the total bank line. 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.
As a hedge of its interest rate risk associated with the term loan, the Company
has entered a Rate Swap Transaction (Swap) with the same bank through July 1,
2005. The swap had an initial notional amount of $9.0 million with a fixed rate
of 10.2%. The notional amount of the Swap decreases as follows:
Fiscal Principal
Year Repayments
------ ----------
2001 $ 2,000
2002 1,000
2003 2,000
2004 1,000
2005 2,000
2006 1,000
The carrying amount of both the outstanding indebtedness and the Swap
approximate their fair value because, in the opinion of management, the
borrowing rates approximate market.
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.
In connection with the acquisition of Schaevitz, the Company refinanced its
credit facility including its bank line of credit. The new agreement increased
the maximum amount available under the revolving credit facility from $10
million to $15 million. Of which $10 million will be available for general
corporate purposes and $5 million will be available for working capital only.
The agreement expires August 4, 2002.
In connection with the acquisition of Schaevitz the Company repaid the then
outstanding balance of a previous term loan and entered into a $25 million term
loan agreement. The term loan bears interest at Eurodollar rate plus 3.25%. The
term loan requires quarterly repayments in the following remaining annual
amounts:
<TABLE>
<CAPTION>
Fiscal Principal
Year Repayments
------ ----------
<S> <C>
2001 $ 750
2002 1,333
2003 1,667
2004 2,000
2005 2,000
2006 2,000
</TABLE>
17
<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.
The Company has not declared cash dividends on its common equity. Management
expects that earnings that may be generated from the Company's near-term
operations will be substantially reinvested and, accordingly, dividends will not
be paid to common shareholders in the short term. 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 June 30, 2000, this subsidiary's restricted net assets
approximated $1,968.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the three months
ended June 30, 2000.
The following exhibits are included herein:
(27) Financial Data Schedule
19
<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: August 14, 2000 Joseph R. Mallon Jr.
Chief Executive Officer, and
Chairman of the Board of Directors
/s/ Kirk J. Dischino
------------------------
Date: August 14, 2000 Kirk J Dischino
Chief Financial Officer
