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 SEPTEMBER 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: 8,248,040 shares of common
stock, no par, at November 3, 2000.
<PAGE>
PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . .3
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets, September 30, 2000
(Unaudited) and March 31, 2000 . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income (Unaudited), Six
Months Ended September 30, 2000 and 1999 . . . . . . . . . . . 5
Consolidated Statements of Shareholders' Equity, Six
Months Ended September 30, 2000 (Unaudited) and Year
Ended March 31, 2000 . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows (Unaudited), Six
Months Ended September 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 . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .18
Exhibit 27 Financial Data Schedule . . . . . . . . . . . . . . .19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
------
(DOLLARS IN THOUSANDS)
SEPT. 30, 2000 MARCH 31, 2000
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,496 $ 1,882
Accounts receivable, trade, net of allowance for doubtful accounts
of $382 and $313 19,706 8,181
Inventories 19,179 9,136
Prepaid expenses and other current assets 4,234 1,731
---------------- ---------------
Total current assets 44,615 20,930
---------------- ---------------
PROPERTY AND EQUIPMENT 25,277 15,884
Less accumulated depreciation and amortization 11,668 6,516
---------------- ---------------
13,609 9,368
---------------- ---------------
OTHER ASSETS:
Goodwill and other intangible assets, net of accumulated
amortization of $608 and $309 12,210 5,553
Other assets 5,583 3,796
---------------- ---------------
17,793 9,349
---------------- ---------------
$ 76,017 $ 39,647
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------
(DOLLARS IN THOUSANDS)
SEPT. 30, 2000 MARCH 31, 2000
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt $ 4,000 $ 1,000
Accounts payable 13,634 6,827
Accrued expenses and other current liabilities 7,757 7,080
---------------- ----------------
Total current liabilities 25,391 14,907
---------------- ----------------
OTHER LIABILITIES:
Long term debt, net of current portion 20,000 9,000
Borrowings under bank line of credit agreement 10,068
Other liabilities, including deferred income taxes 1,061 933
---------------- ----------------
31,129 9,933
---------------- ----------------
Total liabilities 56,520 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 8,063,840 (Sept.2000) and
7,979,840 (March 2000) 5,502 5,502
Additional paid-in capital 2,723 2,042
Retained earnings 11,273 7,264
Accumulated other comprehensive loss (1) (1)
---------------- ----------------
Total shareholders' equity 19,497 14,807
---------------- ----------------
$ 76,017 $ 39,647
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPT 30, ENDED SEPT 30,
--------------------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $28,237 $15,445 $44,539 $27,466
Cost of goods sold 16,238 8,748 25,029 15,359
-------- -------- -------- --------
Gross profit 11,999 6,697 19,510 12,107
-------- -------- -------- --------
Other expenses (income):
Selling, general and administrative 8,059 3,915 13,339 7,525
Research and development 1,035 854 2,233 1,613
Customer funding of research and development (1,023) (477) (1,798) (830)
Interest expense (net) and other income 265 111 478 161
-------- -------- -------- --------
8,336 4,403 14,252 8,469
-------- -------- -------- --------
Income before income taxes 3,663 2,294 5,258 3,638
Income tax provision 847 574 1,246 910
-------- -------- -------- --------
Net income $ 2,816 $ 1,720 $ 4,012 $ 2,728
======== ======== ======== ========
Earnings per common share
Basic $ 0.35 $ 0.23 $ 0.50 $ 0.37
======== ======== ======== ========
Diluted $ 0.32 $ 0.20 $ 0.45 $ 0.32
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2000 AND THE SIX MONTHS ENDED SEPT 30, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN RETAINED CURRENCY
STOCK CAPITAL EARNINGS TRANSLATION TOTAL
------ ---------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1999 5,502 308 1,730 (1) 7,539
326,133 common shares issued upon exercise of options - 1,124 - - 1,124
Tax benefit on 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 7,261 (1) 14,804
82,000 common shares issued upon exercise of options - 681 - - 681
Net income for the six months ended Sept. 30, 2000 - - 4,012 - 4,012
------ ---------- -------- ------------ ------
BALANCE, SEPT 30, 2000 5,502 2,723 11,273 (1) 19,497
====== ========== ======== ============ ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
<TABLE>
<CAPTION>
MEASUREMENT SPECIALTIES, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS
ENDED SEPT 30,
===================
2000 1999
========= ========
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,012 $ 2,728
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and Amortization 1,777 794
Net changes in operating assets and liabilities:
Accounts receivable, trade (7,680) (4,251)
Inventories (5,793) (649)
Prepaid expenses and other current assets (2,468) (258)
Other assets 463 (380)
Accounts payable 3,678 3,107
Accrued expenses and other liabilities 1,142 212
--------- --------
Net cash provided by (used in) operating activities,
net of acquisition (4,869) 1,303
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,407) (1,197)
Acquisition:
Fair value of assets acquired (20,989) -
Liabilities assumed or incurred 3,129 -
--------- --------
Acquistion (17,860) -
--------- --------
Net cash used in investing activities (20,267) (1,197)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit agreement 21,593 -
Repayments under bank line of credit agreement (11,525) -
Procceds of long term debt 25,000 -
Repayments of long term debt (11,000) (200)
Proceeds from exercise of options and warrants 682 514
--------- --------
Net cash provided by financing activities 24,750 314
--------- --------
Net change in cash and cash equivalents (386) 420
Cash and cash equivalents, beginning of year 1,882 2,711
--------- --------
Cash and cash equivalents, end of period $ 1,496 $ 3,131
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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 six months ended September 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 required for Fiscal 2001 and 2000.
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, 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.
ACQUISITIONS:
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 a syndicate of lending
institutions lead 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. 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>
UNAUDITED
SIX MONTHS ENDED
SEPT. 30,
----------------
2000 1999
------- -------
<S> <C> <C>
Net Sales $44,539 $33,801
Net Income 4,012 509
Earnings per common
share
BASIC $ 0.50 $ 0.07
DILUTED $ 0.45 $ 0.06
</TABLE>
9
<PAGE>
On August 4, 2000, the Company acquired Schaevitz Sensors division Hampton,
Virginia, USA and Schaevitz Sensors division Slough, United Kingdom from TRW
Components Inc. Schaevitz Sensors designs, manufacturers in the United States
and Europe, and sells worldwide a variety of tilt, displacement and pressure
transducers and transmitters. The acquisition is being accounted for as a
purchase, and accordingly, the consolidated financial statements include
operations of Schaevitz Sensor from the date of acquisition. The aggregate cash
paid was $17,860 (including payment to TRW Components Inc. of $16,775 and
closing costs of $1,085). The excess purchase price over assets acquired
(principally goodwill) of $6,998 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 $10,862 consisting of the fair value of assets
acquired of $13,990 less liabilities assumed of $3,129.
The following unaudited pro forma consolidated results of operations for the
period assuming the Schaevitz Sensors and IC Sensors acquisitions 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 Schaevitz Sensors been operated as part of the
Company since April 1, 1999.
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS ENDED
SEPT. 30,
----------------
2000 1999
------- -------
<S> <C> <C>
Net Sales $53,497 $38,389
Net Income 3,290 2,038
Earnings per common share
BASIC $ 0.41 $ 0.27
DILUTED $ 0.37 $ 0.24
</TABLE>
3. INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPT 30, 2000 March 31, 2000
-------------- ---------------
<S> <C> <C>
Raw Materials $ 6,287 $ 2,895
Work-in-process 4,945 2,033
Finished goods 7,947 4,208
-------------- ---------------
$ 19,179 $ 9,136
-------------- ---------------
</TABLE>
4. LONG TERM DEBT:
At September 30, 2000, there was an outstanding balance of $10,068 under the
Company's bank line of credit agreement. The agreement provides for a maximum
amount available of $15.0 million until the agreement's expiration on August,
2002. 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. 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. 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 0.5% 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.
10
<PAGE>
In connection with the acquisition of Schaevitz Sensors, the Company entered
into a $25,000 term loan agreement with the Company's principal bank. As of
September 30, 2000, $24,000 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>
Principal
Fiscal Year Repayments
------------ -----------
<S> <C>
2001 $ 2,000
2002 4,000
2003 4,000
2004 4,000
2005 4,000
2006 4,000
2007 2,000
-----------
24,000
-----------
</TABLE>
Additional principal payments are required from a portion of the net proceeds of
any issuance of additional equity sales. 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 June 1,
2004. The swap has an initial notional amount of $9.8 million with an effective
fixed rate of 10.2%. The notional amount of the Swap decreases as follows:
<TABLE>
<CAPTION>
Principal
Fiscal Year Repayments
----------- ----------
<S> <C>
2002 4,900
2003 1,400
2004 1,400
2005 2,100
</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 September 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
September 30, 2000, this subsidiary's restricted net assets approximated $5,410.
11
<PAGE>
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.
On September 18, 2000 the Company declared a two-for-one split of its Common
Stock. Shareholders of record as of the close of business on October 3, 2000
were issued a certificate representing one additional share for each share held
on the record date, payable on October 20, 2000 (the issues date). Prior
periods have been restated to reflect the split.
The following is a reconciliation of the numerators and denominators of basic
and diluted EPS computations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEP 30, 2000 For the Three months ended Sept 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 $ 2,816 8,034 $ 0.35 $ 1,720 7,536 $ 0.23
Effect of dilutive securities 898 1,130
---------- ----------- ---------- ---------- ----------- ----------
Diluted per share information $ 2,816 8,932 $ 0.32 $ 1,720 8,666 $ 0.20
---------- ----------- ---------- ---------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEP 30, 2000 For the Six months ended Sept 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 $ 4,012 8,010 $ 0.50 $ 2,728 7,468 $ 0.37
Effect of dilutive securities 905 1,098
---------- ----------- ---------- ---------- ----------- ----------
Diluted per share information $ 4,012 8,915 $ 0.45 $ 2,728 8,566 $ 0.32
---------- ----------- ---------- ---------- ----------- ----------
</TABLE>
7. SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
For the six months ended September 30, 2000, payments of interest expense
approximated $637 and payments of income tax approximated $153.
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.
12
<PAGE>
The Company has no material intersegment sales.
The following is information related to industry segments:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPT 30:
-------------------------
2000 1999
-------- --------
<S> <C> <C>
Net Sales
Consumer Products $24,498 $21,538
Sensors 20,041 5,928
-------- --------
Total $44,539 $27,446
-------- --------
Segment Profitability
Consumer Products $ 6,351 $ 5,709
Sensors 3,011 1,315
Unallocated expenses (3,626) (3,225)
Interest expense (637) (201)
Other (expenses) income 159 40
-------- --------
Income before taxes $ 5,258 $ 3,638
======== ========
</TABLE>
<TABLE>
<CAPTION>
AT SEPT 30 At March 31
2000 2000
----------- ------------
<S> <C> <C>
Segment Assets
Consumer products $ 17,633 $ 12,505
Sensors 50,026 23,672
Unallocated 8,358 3,470
----------- ------------
Total $ 76,017 $ 39,647
=========== ============
</TABLE>
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 are subject to 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; 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 has undertaken 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 September 30, 2000 increased by $12,792 or
83 percent to a record second quarter level of $28,237 compared with $15,445 for
the second quarter of Fiscal 2000. The net income for the second quarter was
$2,816 in Fiscal 2001 compared to $1,720 for Fiscal 2000. The current Fiscal
2001 quarter includes Park Zone product line which was acquired on January 5,
2000, IC Sensors which was acquired on February 11, 2000, and Schaevitz Sensors
which was acquired on August 4, 2000.
For the second quarter ended September 30, 2000, sales of the Consumer Products
segment increased by $3,305 or 27 percent, to $15,5861 in Fiscal 2001 from
$12,422 in the prior year. Sales of the Sensors segment for the quarter
increased to $12,377 in second quarter of Fiscal 2001 from $3,023 in the prior
fiscal year, primarily due to the acquisition of IC Sensors in February, 2000
and Schaevitz Sensors in August, 2000, and higher sales in our Piezo and
Microfused product lines.
Due to the higher sales volume, product mix, and ongoing cost reduction efforts,
gross profit for the second quarter increased by $5,302 to $11,999 in Fiscal
2001 from $6,697 in Fiscal 2000, with the gross profit percentage marginally
declining to 42 percent compared to 43 percent in the prior year. For the
quarter, higher margins resulted from favorable product mix in Consumer
Products, the higher margins from PiezoSensors sales, which were partially
offset by lower margins at IC Sensors as the restructuring program is
implemented. The Company expects that it may 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.
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Selling, general and administrative ("SG&A") expenses for the second quarter
increased by $4,144 or 105 percent to $8,059 in Fiscal 2001 compared to $3,915
in Fiscal 2000. The change results in part from the impact of the IC Sensors
and Schaevitz acquisitions and variable expenses associated with the higher
sales volume.
The Company continues to actively invest in research and development projects in
support of new products and product line extensions. For the second quarter of
Fiscal 2001, research and development expenses were $1,035 versus $854 in Fiscal
2000. The increase for the quarter was due to the impact of the IC Sensors and
Schaevitz Sensors acquisitions. However, net research & development expenses
for the second quarter of Fiscal 2001 were significantly lower at $12 compared
to $377 in the prior year's second quarter. The Company received significant
funding of development costs from customers amounting to $1,023 for the second
quarter of Fiscal 2001 versus $477 in the prior year's second 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 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 six month period of Fiscal 2001 and Fiscal 2000, the Company recognized
a tax provision of $1,246 and $910 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 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).
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. The acquisition is being accounted
for as a purchase, and accordingly, the consolidated financial statements
include operations of Schaevitz Sensors from the date of acquisition. The
aggregate cash paid was $17,860 (including payment to TRW Components Inc. of
$16,775 and closing costs of $1,085). The excess purchase price over assets
acquired (principally goodwill) of $6,998 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 $10,862 consisting of the fair value of assets
acquired of $13,990 less liabilities assumed of $3,129.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes it continues to have adequate resources for its financing
requirements. Net working capital was $19,224 at September 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 third quarter. At September 30, 2000, the Company's current ratio
was 1.76 times. Cash decreased to $1,496 at September 30, 2000 compared to
$1,882 at March 31, 2000. Operating activities used $4,869, primarily to
finance increased Accounts Receivable and Inventory. Investing activities used
$20,267 to fund capital expenditures and Schaevitz Sensors acquisition.
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Fixed asset purchases for the first six months of Fiscal 2001 of $2,407, 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 September 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 September 30, 2000, there was an outstanding balance of $10,068 under the
Company's bank line of credit agreement. The agreement provides for a maximum
amount available of $15.0 million until the agreement's expiration on August 4,
2002. 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. Under the new agreement $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 0.5% 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.
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 with $24 million outstanding as of September 30, 2000. 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 Year Principal Repayments
---------------------
<S> <C>
2001 $ 2,000
2002 4,000
2003 4,000
2004 4,000
2005 4,000
2006 4,000
2007 2,000
---------------------
Total $ 24,000
---------------------
</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.
16
<PAGE>
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 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 September 30, 2000, this subsidiary's restricted net assets
approximated $5,410.
17
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The company filed the following reports on Form 8-K during the
three months ended September 30, 2000:
- September 28 and 21, 2000 - Change in Auditors
- September 19, 2000 - Two for one split of Common Stock
- September 22, 2000 - Acquisition of Schaevitz Sensors.
The following exhibits are included herein:
(27) Financial Data Schedule
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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: November 14, 2000 Joseph R. Mallon Jr.
Chief Executive Officer, and
Chairman of the Board of Directors
/s/ Kirk J. Dischino
-----------------------------
Date: November 14, 2000 Kirk J Dischino
Chief Financial Officer
19
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