FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-14617
RHEOMETRIC SCIENTIFIC, INC.
_______________________________________________________
(Exact name of registrant as specified in its charter)
New Jersey 61-0708419
______________ ____________
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication Number)
One Possumtown Road, Piscataway, NJ 08854-2103
_______________________________________ ____________
(Address of principal executive offices) (Zip Code)
(732) 560-8550
________________________
(Registrant's telephone number, including area code)
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
_____ ____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding at November 1, 1997
___________________________ _______________________________
Common Stock, no par value 13,161,739
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RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) (Unaudited)
ASSETS
<CAPTION>
September December
30, 1997 31, 1996
________ ________
<S> <C> <C>
Current Assets
Cash $ 319 $ 486
Accounts receivable, net 14,217 15,823
Inventories, net
Finished goods 2,962 2,372
Work in process 1,902 2,006
Assembled components, materials, and parts 6,384 5,040
_______ _______
11,248 9,418
Prepaid expenses and other assets 622 764
_______ _______
Total current assets 26,406 26,491
_______ _______
Property, plant, and equipment 15,899 15,947
Less accumulated depreciation and
amortization 9,310 8,844
_______ _______
Property, plant, and equipment, net 6,589 7,103
Goodwill, net 23 100
Other assets 1,267 2,351
_______ _______
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY $34,285 $36,045
======= =======
Current Liabilities
Short-term bank borrowings $ 8,400 $ 7,896
Current maturities of long-term debt 187 110
Accounts payable 3,152 3,750
Borrowings against accounts receivable 1,035 --
Payable to affiliate 927 794
Accrued liabilities 6,706 5,239
_______ _______
Total current liabilities 20,407 17,789
_______ _______
Long-term note payable 108 246
Long-term debt lease obligation 4,782 4,857
Long-term debt - affiliate 6,258 6,258
Other long-term liabilities 1,247 1,519
_______ _______
Total liabilities 32,802 30,669
_______ _______
Commitments and Contingencies
Shareholders' Equity
Common stock, stated value of $.001,
authorized 20,000 shares; issued and
outstanding 13,162 shares 13 13
Additional paid-in capital 25,492 25,492
Accumulated deficit (23,995) (20,218)
Cumulative translation adjustment (27) 89
_______ _______
Total shareholders' equity 1,483 5,376
_______ _______
Total Liabilities & Shareholders' Equity $34,285 $36,045
======= =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
_____ _____ _____ _____
<S> <C> <C> <C> <C>
Sales $ 8,008 $10,438 $26,716 $29,260
Cost of sales 5,396 5,723 15,474 15,664
______ ______ ______ ______
Gross profit 2,612 4,715 11,242 13,596
______ ______ ______ ______
General and administrative expenses 708 859 2,267 2,200
Marketing and selling expenses 2,154 2,506 6,697 7,657
Research and development expenses 706 875 2,183 2,338
Restructuring expense 1,624 -- 1,624 --
Goodwill and intangible amortization 103 163 237 488
Loss on sale/leaseback -- -- -- 2,368
______ ______ ______ ______
Total Operating Expenses 5,295 4,403 13,008 15,051
______ ______ ______ ______
Operating (loss)/income (2,683) 312 (1,766) (1,455)
Interest expense (357) (394) (1,119) (974)
Interest expense - Affiliate (211) (189) (621) (565)
Interest income 1 9 21 15
Foreign currency loss (136) (38) (244) (115)
______ ______ ______ ______
Loss before income taxes (3,386) (300) (3,729) (3,094)
Income tax expense (40) (8) (48) (15)
______ ______ ______ ______
Net loss $(3,426) $ (308) $(3,777) $(3,109)
====== ====== ====== ======
Net loss per share $ (0.26) $(0.02) $(0.29) $(0.24)
====== ====== ====== ======
Average number of shares
Outstanding 13,162 13,162 13,162 13,162
====== ====== ====== =====
</TABLE>
See Notes to Consolidated Financial Statements.
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RHEOMETRIC SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(In thousands) (Unaudited) Nine Months Ended
September 30,
1997 1996
_____ _______
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (3,777) $ (3,109)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization of plant and
Equipment 585 643
Amortization of goodwill and intangibles 238 488
Provision for inventory reserves 1,089 122
Loss on sale/leaseback financing -- 2,301
Loss on sale/retirement of property, plant and
equipment -- 6
Unrealized currency loss 20 77
Changes in assets and liabilities:
Accounts receivable 793 (207)
Inventories (3,277) (2,386)
Prepaid expenses and other current Assets 111 843
Restructuring reserve 1,624 --
Accounts payable and accrued liabilities (317) 1,178
Other assets 44 (194)
Other non-current liabilities 31 (96)
______ ______
Net cash used in operating activities (2,836) (334)
______ ______
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment (109) (373)
______ ______
Net cash used in investing activities (109) (373)
______ ______
Cash Flows from Financing Activities:
Net borrowings under line of credit agreements 689 935
Borrowing against accounts receivables 1,048 --
Repayment of long-term debt/lease obligation (137) (5,751)
Repayment of short-term debt to affiliate -- (375)
Net proceeds from sale/leaseback arrangement -- 5,734
Mortgage participation 861 (861)
______ ______
Net cash provided by (used in) financing
activities 2,461 (318)
______ ______
Effect of exchange rate changes on cash 317 31
______ ______
Net decrease in cash (167) (994)
Cash at beginning of period 486 1,364
______ ______
Cash at end of period $ 319 $ 370
====== ======
Cash payments for interest $1,701 $1,597
====== ======
Cash payments for income taxes $ 35 $ 24
====== =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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RHEOMETRIC SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
The information included in the foregoing interim financial
statements is unaudited. In the opinion of management, all
adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of financial position and
results of operations for the interim periods presented have
been reflected herein. The results of operations for the
interim periods are not necessarily indicative of the results
to be expected for the entire year.
2. Loss Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"), designed to improve the
earnings per share ("EPS") information provided in the
financial statement by simplifying the existing computational
guidelines, revising disclosure requirements, and increasing
comparability of EPS data on an international basis. The
statement requires dual presentation of basic and diluted EPS
on the face of the income statement and a reconciliation of
the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
The adoption of this standard is required for the fiscal year
ending December 31, 1997. Management believes that the future
adoption of SFAS No. 128 will not have a material impact on
the Company's results of operation.
3. Long-term Debt and Short-term Borrowings
Long-term debt consists of the following:
September 30, 1997 December 31, 1996
Obligation under sale/leaseback
payable through February 2011,
with interest imputed at a weighted-
average rate of 13.9% and 22.8%
for 1997 and 1996, respectively $4,890,000 $4,967,000
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3. Long-term Debt and Short-term Borrowings (continued)
Long-term debt consists of the following:
September 30, 1997 December 31, 1996
Note payable through November
1999 with interest at 9.54% 187,000 246,000
__________ __________
5,077,000 5,213,000
Less current maturities 187,000 110,000
__________ __________
$4,890,000 $5,103,000
========== ==========
The Company purchased a participating interest in the
Landlord's mortgage loan (the "Mortgage Loan") in the
amount of $861,000 in connection with the 1996
sale/leaseback arrangement. On February 20, 1997 the
Landlord refinanced the Mortgage Loan and the Company's
participation in the Mortgage Loan of $861,000 plus
interest of $71,000 was repaid.
On February 20, 1997, as a result of the Landlord
refinancing the mortgage on the property, the Company's
annual lease payment was significantly reduced for the
remaining life of the lease. This resulted in the
reduction of the imputed interest rate to 13.9% from
22.8% in the original lease.
The Company has working capital lines of credit with
certain domestic and foreign banks. The foreign working
capital lines of credit are supported by letters of
credit issued under its credit facility. Total
borrowings were $8,400,000 with remaining availability of
approximately $1,192,000 at September 30, 1997.
At September 30, 1997 the Company's bank and lessor
waived violations of covenants regarding minimum tangible
net worth, working capital, consolidated cash, and
domestic cash flow.
The Company's lines and letters of credit are subject to
acceleration in the event that there is a material and
adverse change in the condition or affairs, financial or
otherwise, of the Company which in the reasonable opinion
of the lender impairs the lender's collateral or
increases its risk so as to jeopardize the repayment of
the obligations.
4. 1997 Restructuring
During the third quarter 1997, the Company has undertaken
several strategic initiatives designed to improve
operational efficiencies and cash management, as well as
to enhance its market position and customer support.
These initiatives include a restructuring of
manufacturing operations, a restructuring of
international sales and marketing activities,
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and an introduction of new products targeted to broaden
markets for rheology and process control instrumentation.
The restructuring and consolidation efforts will result
in a one-time write-off of $2,224,000 reflected in the
Company's third quarter 1997 financial results.
Approximately $1,700,000 relates to lease and inventory
write-offs, which will not require an incremental cash
outlay.
The Company's restructuring plan centers on its European
operations. The Company will change the focus of Europe
to be centralized in Germany, while maintaining a strong
presence in both the U.K. and France. It expects this
plan to be in full effect sometime in the second half of
1998.
Of the $1,100,000 lease obligations write-off, $1,000,000
relates to the Company's UK facility, which expires in
2014. With the movement of manufacturing and Far East
sales to the United States, the Company no longer
requires such a large facility. The Company plans on
subleasing the building and moving into a smaller
facility.
The $600,000 inventory write-off relates to the
redesigned thermal products. This redesign was completed
in the third quarter of 1997. This decision is
consistent with the Company's policy to monitor its
exposure to obsolescent inventory.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Sales for the three- and nine-month periods ended September
30, 1997 decreased $2,430,000 and $2,544,000 (or 23.3% and
8.7%), respectively, as compared to the corresponding
periods in 1996. These figures include a negative impact of
$302,000 and $1,079,000 on sales for the three and nine
months ended September 30, 1997 due to unfavorable currency
rates in effect for 1997. The decline in revenues for the
nine-month period resulted from a decrease in Europe and the
Americas of $1,464,000 and $1,258,000, respectively, offset
by an increase of $178,000 in Japan. The decline in revenues
for the three-month period represents a decrease in Europe,
the Americas, and Japan of $1,177,000, $980,000, and
$273,000, respectively. For the nine-month period, total
international sales of $15,353,000 represented 58% of total
sales compared to 1996 international sales of $17,981,000,
which amounted to 62% of total sales. For the third quarter
international sales equaled $4,218,000 or 53% of total sales
compared to last year's third quarter sales of $6,249,000 or
60%. The decline in sales revenue for the third quarter is a
direct result of the Company's new backlog policy. In order
to even out production and to expedite installations of
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instruments, the Company has incremented its backlog going
into the fourth quarter. The increment to backlog was
$2,300,000 giving the Company a backlog of $4,200,000 going
into the fourth quarter. The Company plans to maintain this
level of backlog, providing the order rate in the future
meets projections. The gross profit percentages for the
three- and nine-months ended September 30, 1997 were 32.6%
and 42.1%, respectively. This compares to 45.2% and 46.5%
for the same periods in the prior year. The gross profit
was adversely affected by a one-time charge of $600,000 the
Company took against inventory reserve. Excluding the one-
time charge relating to the restructuring, the gross profit
percentages would have been 40.1% and 44.3%, respectively.
Operating expenses for the three- and nine-months ended
September 30, 1997 were down $732,000 and $1,299,000 compared
to the corresponding periods in the prior year, excluding the
$2,368,000 loss on the leaseback in 1996 and the
restructuring charge of $1,624,000 recorded in 1997. For both
the three- and nine-month periods, operating expenses were
favorably affected by foreign currency trends, and the cost
reduction measures the company has taken. The one-time
charge of $1,624,000 relates to the announced restructuring
of international sales and marketing. $1,100,000 of the
write-off relates to leases.
Net interest expense for the three- and nine-months ended
September 30, 1997 decreased by $7,000 and increased by
$195,000, respectively, compared to the corresponding
periods in the prior year. The changes can be attributed to
approximately $85,000 of additional interest on the facility
obligation in the first quarter of 1997 and carrying higher
loan balances throughout the year with slightly higher
interest rates. This increase in interest expense has been
offset in the second quarter by savings from the refinanced
facility lease obligation.
The Company is exposed to foreign currency gains and losses
related to its intercompany payables and another payable to
Mettler Toledo AG, pursuant to the exclusive world-wide
property rights agreement between the Company and Mettler
previously disclosed, which is due in Swiss Francs. The
Company's foreign currency exposure policy is to not enter
into foreign currency derivative instruments.
The foreign currency adjustments for the three- and nine-
months ended September 30, 1997 were a loss of $136,000 and
a loss of $244,000, respectively. The year-to-date
adjustment was primarily due to transaction losses of
$553,000 resulting from the German Mark, French Franc,
Japanese Yen, and British Pound against the U.S. Dollar,
which were offset by an unrealized gain of $309,000
resulting from the Mettler payable.
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Inherent in the Company's business is the potential for
inventory obsolescence for older products as the Company
develops new products. Obsolescence has historically
related to parts inventory. The Company continuously
monitors its exposure relating to excess and obsolete
inventory and establishes what in management's judgment at
the time are appropriate valuation reserves.
Liquidity and Capital Resources
Management believes that cash generated from operations and
funds available under lines of credit should be sufficient
to meet the Company's working capital needs for the next
year. Adequacy of cash flows beyond that period will depend upon
the Company's ability to achieve expected sales volumes to
support profitable operations.
Cash Flows from Operations. Net cash used in operating
activities during the nine months ended September 30, 1997
was $2,836,000, an increase of $2,502,000 over the same
period last year. Net loss for the nine months ended
September 30, 1997 was $3,777,000 compared to $3,109,000
during the same period last year. The 1996 loss includes a
one-time charge of $2,368,000 resulting from the sale of the
Piscataway facility, while the 1997 loss includes a
restructuring charge of $2,224,000. During the nine months
ended September 30, 1997, accounts receivable decreased by
$793,000 reflecting lower third quarter 1997 sales as
compared to the fourth quarter 1996 sales. Inventories
increased by $3,277,000. This increase is related to the
inventory build-up due to the backlog policy changes and the
inventory requirements to meet the historical fourth quarter
sales demands. Management continuously monitors inventory
levels on a worldwide basis. Inventory reserves were
increased $1,087,000 in 1997. A large portion of this
increase is to address obsolescence resulting from product
redesign. In addition, accounts payable and accrued
liabilities decreased $317,000 due to a reduction of
commissions payable and other payables.
Cash Flows From Investing. Net cash used in investing
activities during the nine-months ended September 30, 1997
was $109,000 as compared to $373,000 during the same period
in 1996. During 1996, the company made capital expenditures
of $270,000 related to the purchase of computer equipment.
Cash Flows From Financing. Net cash provided by financing
activities during the nine-month period ended September 30,
1997 was $2,461,000. The Company borrowed $1,048,000
against its accounts receivable during the nine-month period
ended September 30, 1997. On February 20, 1997 the Landlord
refinanced the Mortgage Loan and the Company's participation
in the Mortgage Loan of $861,000 was repaid. The proceeds
from the Company's interest in the Mortgage Loan were
applied to its revolving credit line.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on July 17, 1997,
the following items were called and received the following
vote:
The shareholders nominated and elected the directors to hold
office until the next annual meeting of shareholders and
until their respective successors have been elected and
qualified with the following results: The vote for director
nominee Robert E. Davis, For 12,214,464; Withheld 756,587;
not voted 190,688. The vote for director nominee Leonard
Bogner, For 12,214,664; Withheld 756,387; not voted 190,688.
The vote for director nominee Alexander F. Giacco, For
12,213,464; Withheld 757,587; not voted 190,688. The vote
for director nominee Richard J. Giacco, For 12,213,664;
Withheld 757,387; not voted 190,688. The vote for director
nominee R. Michael Hendricks, For 12,214,464; Withheld
756,587; not voted 190,688. The vote for director nominee
Robert K. Prud'homme, For 12,214,114; Withheld 756,937; not
voted 190,688.
The shareholders also ratified the appointment of Coopers &
Lybrand L.L.P. as the independent auditors of the Company
for the fiscal year ending December 31, 1997 with the
following results: For 12,960,550; Abstain 3,000; Against
7,501; not voted 190,688.
Item 5. Other Information
Effective August 31, 1997, Robert E. Davis retired as
chairman, president and chief executive officer of the
company. Alexander F. Giacco became chairman of the board
of directors and Alan R. Eschbach was appointed president
and chief executive officer.
At a meeting of the board of directors on September 26,
1997, the Board of Directors amended the 1996 Employee
Stock Option Plan to include outside directors as eligible
for option grants. Dr. Robert K. Prud'homme and Mr.
Leonard Bogner, each were granted options for 25,000 shares
of common stock to become exercisable once the plan
amendment is approved by shareholders at the next annual
shareholders' meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
RHEOMETRIC SCIENTIFIC, INC.
(Registrant)
November 14, 1997 By /s/ Joseph Musanti
____________________________
Joseph Musanti, Vice President,
Finance & Materials and
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000779164
<NAME> RHEOMETRIC SCIENTIFIC
<S> <C>
<PERIOD-TYPE> 9-MOS
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<PERIOD-END> SEP-30-1997
<CASH> 319
<SECURITIES> 0
<RECEIVABLES> 14,217
<ALLOWANCES> 0
<INVENTORY> 11,248
<CURRENT-ASSETS> 26,406
<PP&E> 15,899
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</TABLE>
