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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 Or 15(d) of the Securities Exchange
Act Of 1934
[Fee Required] For the fiscal year ended March 31, 2001
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or
[ ] Transition Report Pursuant to Section 13 Or 15(d) of the Securities
Exchange Act Of 1934
[No Fee Required] For the transition period from to
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Commission file Number 1-11906
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 Identification No.)
incorporation or organization)
80 LITTLE FALLS ROAD, FAIRFIELD, NEW JERSEY 07004
- ------------------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 808-1819
----------------------
Securities registered under Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
COMMON STOCK, NO PAR VALUE AMERICAN STOCK EXCHANGE
Securities registered under Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At June 29, 2001, the average market value of the voting stock held by
non-affiliates was approximately $120,518,461
At June 29, 2001, 8,447,594 shares of common stock were outstanding.
Portions of the registrant's definitive Proxy Statement, which will be filed on
or before July 29, 2001 with the Securities and Exchange Commission in
connection with Registrant's 2001 annual meeting of stockholders, are
incorporated by reference into Part III of this Report.
MEASUREMENT SPECIALTIES, INC.
FORM 10-K
INDEX
MARCH 31, 2001
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . 14
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. . . . . . . . 16
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . . . . . . . . . . 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . . . . . . . . . 29
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . . . . . . . . . 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . . . . 30
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. . . . . . . . . . 30
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2
PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended. Forward looking statements may
be identified by such words or phases as "will likely result", "are expected
to", "will continue", "is anticipated", "estimated", "projected", "may", or
similar expressions. The forward-looking statements above involve a number of
risks and uncertainties. Factors that might cause actual results to differ
materially include: conditions in the general economy and in the markets served
by us; 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, successfully completing, financing, and integrating proposed
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 our SEC
reports. We are involved in an announced active acquisition program. Unless
specifically stated, forward looking statements do not include the impact of
other acquisitions, which could affect results in the near term. Actual results
may differ materially. We assume no obligation to update the information in
this report.
INTRODUCTION
We are a leading designer and manufacturer of sensors and sensor-based,
consumer products. We produce a wide variety of sensors that use advanced
technologies to measure precise ranges of physical characteristics, including
pressure, motion, force, displacement, angle, flow, and distance. We have two
businesses, a Sensor business and a Consumer Products business.
Our Sensor business designs, manufactures, and markets sensors for
original equipment manufacturer applications. These products include pressure
sensors, custom microstructures, accelerometers, tilt/angle sensors, and
displacement sensors for electronic, automotive, military, and industrial
applications. Our Sensor business customers include leading manufacturers such
as Alaris Medical, Allison Transmission, Badger Meter, Graco, and Texas
Instruments.
Our Consumer Products business manufactures and markets sensor-based,
consumer products. These products include bathroom and kitchen scales, tire
pressure gauges, and distance estimators. These products are typically based on
application specific integrated circuits, piezoresistive, and ultrasonic
technologies. Our Consumer Products customers include leading retailers such as
Bed Bath & Beyond, Linens 'n Things, Sam's Club, and Sears; European resellers
such as Korona and Laica; and Sunbeam, a consumer products manufacturer.
Each of our businesses benefits from the same core technology base. Our
advanced technologies include piezoresistive applications, application specific
integrated circuits, micro-electromechanical systems (MEMS), piezopolymers,
strain gages, force balance systems, fluid capacitive applications, linear
variable differential transformers, and ultrasonics. These technologies allow
our sensors to operate precisely and cost effectively. Over the past few years
we have built a global operation with advanced facilities located in North
America, Europe, and Asia. By functioning globally we have been able to enhance
our engineering capabilities and increase our geographic proximity to our
customers.
3
Our principal strategy is to utilize our expertise in sensor technologies
to develop new products and applications thereby increasing demand for our
sensors and sensor-based, consumer products. Our high quality design teams in
the United States and United Kingdom support our low cost, high volume
production facility and engineering resources in China. By combining our low
cost manufacturing expertise with our core technology, we are able to provide
our global customer base with an advantageous price-value relationship. Over the
past three years, to enhance our strategy we have acquired sensor businesses
from TRW, PerkinElmer, and AMP that have given us access to new sensor
technologies and customers.
On June 7, 2001, we entered into an agreement to purchase all the
outstanding shares of Terraillon, a European manufacturer of branded consumer
bathroom and kitchen scales.
THE ELECTRO-MECHANICAL SENSOR INDUSTRY
All of our sensors are devices that convert mechanical information into an
electronic signal for display, processing, interpretation, or control. Sensors
are essential to the accurate measurement, resolution, and display of pressure,
motion, force, displacement, angle, flow, and distance.
MARKETS
Sensor manufacturers are moving toward smart sensors, which use digital
intelligence to enhance measurement and control signals. The shift toward modern
technologies has enhanced applications in the automotive, medical, military, and
consumer industries. Examples of sensor applications include:
- automotive uses for such diverse applications as braking,
transmission, fuel pressure, diesel common rail pressure, security
sensing, and on board tire pressure monitoring;
- medical applications including blood pressure measurement, flow
monitoring, ultrasonic imaging, and focused therapeutic heating
applications;
- military applications, which continue to drive sensor development,
with new systems requiring small, high performance sensors for smart
systems such as navigation and weapons control systems and collision
avoidance systems; and
- consumer products applications including the measurement of weight,
distance, and movement, digitizing information for white boards and
laptops, and vibration and humidity sensors for major appliances.
In recent years, advances in microprocessor technology have fueled the
demand for sensors. As microprocessors become more powerful, yet smaller and
less expensive, they are incorporated in a greater number of products and
applications. The growth of sensors parallels the growth in microprocessors,
which require sensors to deliver critical information. A number of factors
affecting the growth in the sensor market include:
4
- a strong increase in customer demand for low-cost, highly accurate
measurement solutions;
- a proliferation of silicon micromachining technology in
micro-electromechanical systems (MEMS) devices as a low-cost
alternative to traditional technologies;
- merger and acquisition activity among manufacturers and an increase in
single source, high volume purchase orders relating to customer
preference for one-stop shopping;
- manufacturers' increased use of modern technology to customize
products with various features to meet customer demands; and
- investment in research and development spending in order to introduce
new products and expand applications for existing products.
TECHNOLOGY
In the rapidly evolving markets for sensors and sensor-based, consumer
products, there is an increasing demand for technologies such as:
Piezoresistive Technology. Piezoresistive materials, most often silicon,
respond to changes in applied mechanical variables such as stress, strain, or
pressure by changing electrical conductivity. Changes in electrical
conductivity can be readily detected in circuits by changes in current with a
constant applied voltage, or conversely by changes in voltage with a constant
supplied current. Piezoresistive technology is widely used for the measurement
of pressure and acceleration, and its use in these applications is expanding
significantly.
Application Specific Integrated Circuits (ASICs). These circuits convert
analog electrical signals into digital signals for measurement, computation, or
transmission. Application specific integrated circuits are well suited for use
in consumer products because they can be designed to operate from a relatively
small power source and are inexpensive.
Micro-Electromechanical Systems (MEMS). Micro-electromechanical systems
and related silicon micromachining technology are used to manufacture components
for physical measurement and control. Silicon micromachining is an ideal
technology to use in the construction of miniature systems involving electronic,
sensing, and mechanical components because it is inexpensive and has excellent
physical properties. Micro-electromechanical systems have several advantages
over their conventionally manufactured counterparts. For example, by leveraging
existing silicon manufacturing technology, micro-electromechanical systems allow
for the cost-effective manufacture of small devices with high reliability and
superior performance.
Piezopolymer Technology. Piezoelectric materials convert mechanical stress
or strain into proportionate electrical energy, and conversely, these materials
mechanically expand or contract when voltages of opposite polarities are
applied. Piezoelectric polymer films are also pyroelectric, converting heat into
electrical charge. Piezoelectric polymer films offer unique sensor design and
performance because they are flexible, inert, and relatively inexpensive. This
technology is ideal for applications where the use of rigid sensors would not be
possible or cost-effective.
5
Strain Gage Technology. A strain gage consists of metallic foil that is
impregnated into an insulating material and bonded to a sensing element. The
foil is etched to produce a grid pattern that is sensitive to changes in
geometry, usually length, along the sensitive axis producing a change in
resistance. The gage operates through a direct conversion of strain to a change
in gage resistance. This technology is useful for the construction of
inexpensive, reliable pressure sensors.
Force Balance Technology. A force balanced accelerator is a gravity
referenced device that under the application of tilt or linear acceleration,
detects the resulting change in position of the internal mass by a position
sensor and an error signal is produced. This error signal is passed to the
servo amplifier and a current developed that is fed back into the moving coil.
This current is proportional to the applied tilt angle or applied linear
acceleration and will balance the mass back to its original position. The
current is proportional to the acceleration or tilt. These devices are used in
military and industrial applications where high accuracy is required.
Fluid Capacitive Technology. This technology is also referred to as fluid
filed, variable capacitance. The output from the sensing element is two
variable capacitance signals per axis. Rotation of the sensor about its
sensitive axis produces a linear change in capacitance. This change in
capacitance is electronically converted into angular data, and provides the user
with a choice of ratiometric, analog, digital, or serial output signals. These
signals can be easily interfaced to a number of readout and/or data collection
systems.
Linear Variable Differential Transformers. A linear variable differential
transformer is an electromechanical sensor that produces an electrical signal
proportional to the displacement of a separate movable core. Linear variable
differential transformers are widely used as measurement and control sensors
wherever displacements of a few microinches to several feet can be measured
directly, or where mechanical input, such as force or pressure, can be converted
into linear displacement. Linear variable differential transformer sensors are
capable of extremely accurate and repeatable measurements in severe
environments.
Ultrasonic Technology. Ultrasonic sensors measure distance by calculating
the time it takes to send and receive an acoustic signal that is inaudible to
the human ear. This technology allows for the quick, easy, and accurate
measurement of distances between two points without physical contact.
OUR RECENTLY COMPLETED ACQUISITIONS
We expanded our distribution network, increased our manufacturing
capabilities, introduced new product lines, added to our core technologies, and
extended our global presence by completing a series of major acquisitions.
In August 2000, we acquired the Schaevitz Sensors (formerly known as TRW
Sensors & Components) business from TRW for approximately $17.9 million,
including closing and restructuring costs of $1.1 million. The Schaevitz Sensors
business consists of a division in the United States and an operating company in
the United Kingdom. This business designs and manufactures sensors in the
United States and Europe, and sells a variety of tilt, displacement, and
pressure sensors. The acquisition increased our base of core technologies and
expanded our production and distribution capabilities in the United States and
the United Kingdom.
6
In February 2000, we acquired IC Sensors from PerkinElmer for approximately
$12.4 million, including closing and restructuring costs of $0.4 million. IC
Sensors designs, manufactures, and markets micro-electromechanical systems based
silicon pressure sensors, accelerometers, and custom microstructures. This
acquisition expanded our micro-electromechanical systems (MEMS) capabilities and
increased our manufacturing capacity and design expertise in the United States.
In August 1998, we acquired PiezoSensors, formerly the Sensors Division of
AMP, for approximately $5.7 million, including closing and restructuring costs
of $1.7 million. PiezoSensors designs, manufactures, and markets piezoelectric
polymer sensors for industrial, consumer, and medical applications. This
acquisition expanded our product line to include piezopolymer sensors and
increased our production capabilities in the United States.
PRODUCTS
Sensors. We produce a wide variety of sensors that use advanced
technologies to measure precise ranges of physical characteristics, including
pressure, motion, force, displacement, angle, flow, and distance. Our sensors
are sold for original equipment manufacturer applications. A summary of our
Sensor business product offerings is provided in the following table:
Product Technology Brand Name Applications
- ---------------- ------------------ ------------ --------------------------------------
Pressure Sensors Micro- IC Sensors Disposable catheter blood pressure,
Electromechanical altimeter, dive tank pressure, process
Systems (MEMS) instrumentation, and intravenous drug
administration monitoring
- ---------------- ------------------ ------------ --------------------------------------
Piezoresistive Microfused Fertilizer and paint spraying, diesel
engine control, hydraulics, and
automotive powertrain
- ---------------- ------------------ ------------ --------------------------------------
Strain Gage Schaevitz Instrumentation grade aerospace and
weapon control systems, deep-sea
well-head pressure, ship cargo level,
and steel mills
- ---------------- ------------------ ------------ --------------------------------------
Accelerometers Piezopolymer PiezoSensors Transportation, shipment monitoring,
audio speaker feedback, and consumer
exercise monitoring
- ---------------- ------------------ ------------ --------------------------------------
Micro- IC Sensors Traffic alert and collision avoidance
Electromechanical systems, railroad, tilt, and
Systems (MEMS) instrumentation
- ---------------- ------------------ ------------ --------------------------------------
Force Balance Schaevitz Aerospace, weapon fire control,
inertial navigation, angle, and tilt
- ---------------- ------------------ ------------ --------------------------------------
Rotary Linear Variable Schaevitz Aerospace, machine control systems,
Displacement Displacement knitting machines, industrial process
Sensors Transducer control, and hydraulic actuators
- ---------------- ------------------ ------------ --------------------------------------
Tilt/Angle Fluid Capacitive Schaevitz Tire balancing, heavy equipment level
Sensors measurement, and consumer electronic
level measurement
- ---------------- ------------------ ------------ --------------------------------------
Traffic Sensors Piezopolymer PiezoSensors Traffic survey, speed and red light
enforcement, toll, and in-motion
vehicle weight measurement
- ---------------- ------------------ ------------ --------------------------------------
7
Custom Piezopolymer PiezoSensors Medical imaging, ultrasound,
Piezofilm consumer electronic, electronic
Sensors stethoscope, and sonar
- ---------------- ------------------ ------------ --------------------------------------
Custom Micro- IC Sensors Atomic force microscopes, flow
Microstructures Electromechanical measurement, optical switching, and
Systems (MEMS) inertial navigation
- ---------------- ------------------ ------------ --------------------------------------
Consumer Products. We design, manufacture, and market sensor-based,
consumer products such as bathroom and kitchen scales, tire pressure gauges, and
distance estimators. Our consumer products feature sleek, contemporary designs,
high-contrast liquid crystal displays, and factory-installed lithium batteries
that last for the life of the product. We sell to both retailers and
manufacturers of consumer products. A summary of our sensor-based, consumer
products is presented in the following table:
PRODUCT TECHNOLOGY BRAND NAMES* TYPES OF PRODUCTS PRICE RANGE
- ------------- -------------------- --------------------- ------------------ ------------
Scales Piezoresistive, Thinner, Health-o- Bathroom Scales $ 5.00-45.00
Application Specific meter, Laica, Salter,
Integrated Circuits and Korona
--------------------- ------------------ ------------
Thinner, Laica, Kitchen Scales $ 3.00-25.00
Salter, and Korona
--------------------- ------------------ ------------
Royal Postal Scales $ 8.00-11.00
- ------------- -------------------- --------------------- ------------------ ------------
Tire Pressure Piezoresistive Accutire Digital and $ 0.50-15.00
Gauges Mechanical Tire
Pressure Gauges
- ------------- -------------------- --------------------- ------------------ ------------
Distance Ultrasonic Accutape Interior Distance $13.00-22.00
Measurement Estimator
Products
- ------------- -------------------- --------------------- ------------------ ------------
Park-Zone Distance Estimator $10.00-25.00
for Parking
- ------------- -------------------- --------------------- ------------------ ------------
* Health-o-Meter, Laica, Korona, and Royal are trademarks, trade names,
or service marks of our customers and are not owned by us.
CUSTOMERS
We sell our sensor products throughout the world. Our Sensor business
designs, manufactures, and markets sensors for original equipment manufacturer
applications. Our extensive customer base consists of the manufacturers of
electronic, automotive, military, and industrial products. None of our Sensor
business customers accounted for more than 10% of our total net sales. Our key
Sensor customers include:
- - Alaris Medical - Allison Transmission - Badger Meter
- - Graco - Honeywell - Hunter Engineering
- - Lockheed Martin - Pacesetter - Texas Instruments
8
Our Consumer Products business customers are primarily retailers,
resellers, or manufacturers of consumer products in the United States and
Europe. Largely due to growth in our Consumer Products and Sensors businesses,
in fiscal year 2001, no Consumer Products customer accounted for more than 10%
of net sales. Previously, we had two Consumer Products customers who accounted
for more than 10% of net sales, Korona Haushaltswaren GmbH (Korona), a German
distributor of diversified housewares, and Sunbeam Corp. (Health and Safety
Division of Sunbeam Corp), a United States manufacturer and distributor of
electric housewares.
Korona, was acquired by an Asian manufacturer of scales and other
electronic products, and a competitor of ours. Although we expect to have
significant sales to Korona, it is possible a decline in sales could result from
this acquisition. Korona accounted for less than 10.0%, 14.0% and 20.0% of
total net sales for the years ended March 31, 2001, 2000 and 1999, respectively.
Sunbeam has filed for bankruptcy protection. Sales to Sunbeam accounted
for less than 10%, 19.9% and 17.0% of total net sales for the years ended March
31, 2001, 2000 and 1999, respectively.
Other key Consumer Products customers include:
- - Bed Bath & Beyond - BJ's Wholesale Club - Brookstone
- - Costco - Laica - Linens 'n Things
- - Sam's Club - Sears - Target
SALES AND DISTRIBUTION
We sell our products through a combination of an experienced in-house
technical sales force of over 40 employees and generally exclusive sales
relationships with outside sales representatives throughout the world. Our
experienced engineering teams work directly with our global customers to tailor
our sensors to meet the specific application requirements of our customers.
Our sensor-based, consumer products are sold and marketed under our own
brand names as well as private labels. We have the flexibility of selling our
sensor-based, consumer products directly to retailers, to resellers, and to
manufacturers of consumer products.
We sell our products primarily in North America and Western Europe.
International sales accounted for 35.1% of net sales for the fiscal year ended
March 31, 2001, and 28.4% of our net sales for the fiscal year ended March 31,
2000.
SUPPLIERS
We rely on contract manufacturers for a significant portion of our consumer
finished products. The majority of our sensor-based, consumer products are
assembled by a contract manufacturer located in China. We utilize alternative
assemblers located in China to assemble the majority of our other sensor-based,
consumer products. We procure components and finished products as needed,
through purchase orders, and do not have long-term contracts with any of our
suppliers. We believe that the components we utilize could be obtained from
alternative sources, or that our products could be redesigned to use alternative
suppliers' components, if necessary.
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RESEARCH AND DEVELOPMENT
Our position as a leading designer, developer, and manufacturer of sensors
and sensor-based, consumer products is largely the result of our history of
technological innovation. Our research and development efforts are focused on
expanding our core technologies, improving our existing products, developing new
products, and designing custom sensors for specific client applications. Our
gross research and development expenses, including customer funded projects,
were $5.1 million, or 4.9% of net sales for the fiscal year ended March 31,
2001, $3.4 million, or 5.7% of net sales, for the fiscal year ended March 31,
2000, and $2.9 million, or 7.8% of net sales, for the fiscal year ended March
31, 1999. This decrease in research and development expenses as a percentage of
net sales is attributable to the growth of our Consumer Products business, which
requires lower research and development expenses, and our acquisitions, which
have historically had lower research and development expenses than our core
businesses. Our strategy is to increase new product development over time for
those new acquisitions.
To maintain and improve our competitive position, our research, design, and
engineering teams work directly with customers to design custom sensors for
specific applications. We receive substantial funding from customers for new
product development including $4.1 million for the fiscal year ended March 31,
2001, $1.6 million for the fiscal year ended March 31, 2000, and $1.1 million
for the fiscal year ended March 31, 1999. We believe this funding reflects
customer confidence in our ability to convert our core technologies into
innovative new products.
COMPETITION
The market for sensors includes many diverse products and technologies and
is highly fragmented and increasingly subject to pricing pressures. Most of our
competitors are small companies or divisions of large corporations such as
Emerson, Motorola, Siemens, and Honeywell. The principal elements of
competition in the sensor market are production capabilities, price, quality,
and the ability to design unique applications to meet specific customer needs.
The market for sensor-based, consumer products is characterized by frequent
introductions of competitive products and pricing pressures. Some of our
largest Consumer Products customers are also our competitors, such as Sunbeam
and Bonso Electronics International (which recently acquired Korona). The
principal elements of competition in the sensor-based, consumer products market
are price, quality, and the ability to introduce new and innovative products.
Although we believe that we compete favorably in our Sensor and Consumer
Products businesses, new product introductions by our competitors could cause a
decline in sales or loss of market acceptance for our existing products. If
competitors introduce more technologically advanced products, the demand for our
products would likely be reduced.
INTELLECTUAL PROPERTY
We rely in part on patents to protect our intellectual property. We own 78
United States utility patents, 10 United States design patents, and numerous
foreign patents to protect our rights in certain applications of our core
technology. We have 51 United States patent applications pending. These patent
applications may never result in issued patents. Even if these applications
issue as patents, taken together with our existing patents, they may not be
sufficiently broad to protect our proprietary rights, or they may prove
unenforceable. We have not, however, obtained patents for all of our
innovations, nor do we plan to do so.
10
We also rely on a combination of copyrights, trademarks, service marks,
trade secret laws, confidentiality procedures, and licensing arrangements to
establish and protect our proprietary rights. In addition, we seek to protect
our proprietary information by using confidentiality agreements with certain
employees, consultants, advisors, and others. We cannot be certain that these
agreements will adequately protect our proprietary rights in the event of any
unauthorized use or disclosure, that our employees, consultants, advisors, or
others will maintain the confidentiality of such proprietary information, or
that our competitors will not otherwise learn about or independently develop
such proprietary information.
Despite our efforts to protect our intellectual property, unauthorized
third parties may copy aspects of our products, violate our patents, or use our
proprietary information. In addition, the laws of some foreign countries do not
protect our intellectual property to the same extent as the laws of the United
States. The loss of any material trademark, trade name, trade secret, patent
right, or copyright could hurt our business, results of operations, and
financial condition.
We believe that our products do not infringe on the rights of third
parties. However, we cannot be certain that third parties will not assert
infringement claims against us in the future or that any such assertion will not
result in costly litigation or require us to obtain a license to third party
intellectual property. In addition, we cannot be certain that such licenses will
be available on reasonable terms or at all, which could hurt our business,
results of operations, and financial condition.
FOREIGN OPERATIONS
We manufacture the substantial majority of our sensor products, and most of
our sensor subassemblies used in our consumer products, in leased premises
located in Shenzhen, China. Sensors are also manufactured at our domestic
facilities located in Virginia, California, Pennsylvania, and one foreign
facility located in Slough, United Kingdom. Additionally, control of our
primary subcontractor, certain key management, sales and support activities are
conducted at leased premises in Hong Kong. Substantially all our consumer
products are assembled in China, primarily by a single supplier, River Display,
Ltd. ("RDL"), although we are utilizing alternative Chinese assemblers. There
are no agreements which would require us to make minimum payments to RDL, nor is
RDL obligated to maintain capacity available for our benefit, though we account
for a significant portion of RDL's revenues. Additionally, most of our products
contain key components that are obtained from a limited number of sources.
These concentrations in external and foreign sources of supply present risks of
interruption for reasons beyond our control, including political and other
uncertainties regarding Hong Kong and China.
The Chinese government has continued to pursue economic reforms hospitable
to foreign investment and free enterprise, although, the continuation and
success of these efforts is not assured. Our operations could be adversely
affected by changes in Chinese laws and regulations, including those relating to
taxation and currency exchange controls, by the imposition of economic austerity
measures intended to reduce inflation, and by social and political unrest. The
United States has considered revoking China's most favored nation ("MFN") tariff
status in connection with controversies over the protection of human rights and
intellectual property rights, among other things. The loss of MFN could
adversely affect the cost of goods imported into the United States.
Additionally, if China does not join the World Trade Organization ("WTO"), we
may not benefit from the lower tariffs and other privileges enjoyed by
competitors located in countries that are members of the WTO.
11
Sovereignty over Hong Kong reverted to China on July 1, 1997. The 1984
Sino-British Joint Declaration, the 1990 Basic Law of Hong Kong, the 1992 United
States-Hong Kong Policy Act and other agreements provide some indication of the
business climate we believe will continue to exist in Hong Kong after this
change in sovereignty. Hong Kong remains a Special Administrative Region
("SAR") of China, with certain autonomies from the Chinese government. Hong
Kong is a full member of the WTO. It has separate customs territory from China,
with separate tariff rates and export control procedures. It has a separate
intellectual property registration system. The Hong Kong dollar is legal tender
in the SAR, freely convertible and not subject to foreign currency exchange
controls by China. The SAR government has sole responsibility for tax policies,
though the Chinese government must approve the SAR's budgets. Notwithstanding
the provisions of these international agreements, the continued stability of
political, legal, economic or other conditions in Hong Kong cannot be assured.
No treaty exists between Hong Kong and the United States providing for the
reciprocal enforcement of foreign judgments. Accordingly, Hong Kong courts
might not enforce judgments predicated on the federal securities laws of the
United States, whether arising from actions brought in the United States or, if
permitted, in Hong Kong.
Most of our revenues are priced in United States dollars. Our costs and
expenses are priced in United States dollars, Hong Kong dollars, British pounds,
and Chinese renminbi. Accordingly, the competitiveness of our products relative
to products produced locally may be affected by the performance of the United
States dollar compared with that of our foreign customers' currencies. Foreign
sales were 35.1%, 28.4%, and 38.2% of revenues for the years ended March 31,
2001, 2000, and 1999, respectively. Additionally, we are exposed to foreign
currency transaction and translation losses which might result from adverse
fluctuations in the values of the Hong Kong dollar, British pounds and the
renminbi.
At March 31, 2001, we had net liabilities of $4.4 million subject to
fluctuations in the value of the Hong Kong dollar, net assets of $8.4 million
subject to fluctuations of the British pound, and net assets of $12.6 million
subject to fluctuations in the value of the renminbi. Fluctuations in the value
of the Hong Kong dollar have not been significant since October 17, 1983, when
the Hong Kong government pegged the value of the Hong Kong dollar to that of the
United States dollar. However, there can be no assurance that the value of the
Hong Kong dollar will continue to be tied to that of the United States dollar.
China adopted a floating currency system on January 1, 1994, unifying the market
and official rates of foreign exchange. China approved current account
convertibility of the renminbi on July 1, 1996, followed by formal acceptance of
the International Monetary Fund's Articles of Agreement on December 1, 1996.
These regulations eliminated the requirement for prior government approval to
buy foreign exchange for ordinary trade transactions, though approval is still
required to repatriate equity or debt, including interest thereon. As a result
of these actions, the net inflow of capital into China and government steps to
restrict credit for the purpose of controlling inflation, the value of the
renminbi has been fairly stable, although inflation has persisted. However,
there can be no assurance that these currencies will remain stable or will
fluctuate to our benefit. To manage our exposure to these risks, we may, though
to date we have not, purchase currency exchange forward contracts, currency
options or other derivative instruments, provided such instruments can be
obtained at suitable prices.
12
EMPLOYEES
As of March 31, 2001, we employed 1,636 persons, including 347 employees in
the United States, 93 employees in the United Kingdom, 1,185 employees in
Shenzhen, China, and 11 employees in Hong Kong, China.
As of March 31, 2001, 1,119 employees were engaged in manufacturing, 220
were engaged in administration, 70 were engaged in sales and marketing and 227
were engaged in research and development.
Our employees are not covered by collective bargaining agreements. We
consider our global labor practices and employee relations to be good.
ENVIRONMENTAL MATTERS
We are subject to comprehensive and changing foreign, federal, state, and
local environmental requirements, including those governing discharges to the
air and water, the handling and disposal of solid and hazardous wastes, and the
remediation of contamination associated with releases of hazardous substances.
We believe that we are in compliance with current environmental requirements.
Nevertheless, we use hazardous substances in our operations and as is the case
with manufacturers in general, if a release of hazardous substances occurs on or
from our properties we may be held liable and may be required to pay the cost of
remedying the condition. The amount of any resulting liability could be
material.
BACKLOG
At March 31, 2001, our backlog of unfilled orders was approximately $29.0
million. At March 31, 2000, our backlog of unfilled orders was approximately
$17.0 million. We include in backlog orders that have been accepted from
customers that have not been filled or shipped. All orders are subject to
modification or cancellation by the customer with limited charges. We believe
that backlog may not be indicative of actual sales for the current fiscal year
or any succeeding period.
ITEM 2. PROPERTIES
We lease all our properties under operating leases as follows:
13
LOCATION PRIMARY USE BUSINESS SQ. FT. LEASE EXPIRATION
- -------------------- ----------------------- ---------- ------- -----------------
Fairfield, NJ USA Corporate headquarters Consumer 19,000 June, 2003
and Sensor
Valley Forge, PA USA Manufacturing, research Sensor 63,000 January, 2003
and development, sales
and marketing
Milpitas, CA USA Manufacturing, research Sensor 34,000 December, 2005
and development, sales
and marketing
Shenzhen, China Principle manufacturing Consumer 134,000 Between February,
facility, research and and Sensor 2002 and
development, September 2004
warehousing, and
distribution
Hampton, Virginia Manufacturing, research Sensor 120,000 July, 2011
and development, sales
and marketing
Slough, United Manufacturing, research Sensor 35,000 June, 2002
Kingdom and development, sales
and marketing
Hong Kong, China Manufacturing support Consumer 2,000 February, 2002
-------
407,000
Our facilities located in China, the United Kingdom, and Virginia are ISO 9001
certified. These premises are suitable and adequate for our present operations.
ITEM 3. LEGAL PROCEEDINGS
On March 10, 2000, we brought suit in the United States District Court for
the Northern District of Illinois against Taylor Precision Products, L.P.,
Kohl's Corporation, and Kohl's Department Stores, Inc. alleging, among other
things, patent infringement related to two of our electronic scales. On May 8,
2000, we voluntarily dismissed the complaint against Kohl's Corporation and
Kohl's Department Stores. We are seeking compensatory damages and injunctive
relief from Taylor Precision Products, L.P. On February 2, 2001, the court
denied defendant's motion for summary judgment. On February 16, 2001, Taylor
Precision Products, L.P. asserted a counterclaim against us seeking a
declaration from the court that the patents at issue are invalid, unenforceable,
and are not infringed upon by Taylor Precision Products, L.P. Taylor Precision
Products, L.P. seeks reasonable attorneys' fees, costs, and expenses in
connection with this litigation. The litigation is ongoing, and the eventual
outcome is uncertain.
From time to time, we are a party to other legal proceedings. We are not
currently involved in any proceeding the resolution of which could have a
material adverse effect on our financial conditions or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
14
No matters were submitted to a vote of security holders during the fiscal
quarter ended March 31, 2001.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock, no par value, is traded on the American Stock Exchange
(ticker symbol MSS). At June 29, 2001, our transfer agent reported that there
were 96 record holders of common shares, excluding beneficial owners whose
shares are held in the names of various dealers and clearing agencies. We do
not know the number of beneficial holders of our common shares.
High and low sales prices for the last two fiscal years were:
Fiscal Quarter Ended High Low
- -------------------- ---- ---
FISCAL YEAR 2000
June 30, 1999 6.25 3.50
September 30, 1999 11.88 5.94
December 31, 1999 11.31 8.31
March 31, 2000 14.75 10.03
FISCAL YEAR 2001
June 30, 2000 19.19 10.94
September 30, 2000 24.13 16.50
December 31, 2000 29.81 15.75
March 31, 2001 26.19 16.25
We have never declared cash dividends on our common equity. Management
expects that any earnings that may be generated from our operations will be
substantially reinvested in the business and, accordingly, dividends will not be
paid to common shareholders in the foreseeable future. Additionally, the
payment of dividends is subject to the consent of the bank with which we have a
revolving credit agreement.
At present, there are no material restrictions on the ability of our Hong
Kong subsidiary or English subsidiary to transfer funds in the form of cash
dividends, loans, advances, or purchases of materials, products, or services.
The distribution and repatriation of dividends by our China subsidiary is
restricted by Chinese laws and regulations, including currency exchange
controls.
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands, except per share amounts)
YEARS ENDED MARCH 31, 2001 2000 1999 1998 1997
-------- -------- ------- ------- -------
Results of Operations:
Net Sales $103,095 $59,997 $37,596 $29,278 $25,004
Net Income 8,961 5,531 1,729 777 1,175
16
Net cash provided by (used in):
Operating activities (4,825) 8,129 3,474 1,722 (531)
Investing activities (23,553) (15,999) (4,993) (1,036) (757)
Financing activities 27,089 7,041 3,927 (612) 768
Basic earnings per common share(1): 1.10 0.73 0.24 0.11 0.17
Diluted earnings per common share(1): 0.99 0.64 0.23 0.11 0.16
Cash dividends declared per common share None None None None None
As of March 31,
Total assets 86,337 39,611 18,535 10,217 9,234
Long term debt, net of 32,736 9,000 3,250 21 778
current maturities
Notes
(1) Amounts for the years ended March 31, 1998 and 1997 have been restated to conform
to SFAS 128
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our results of operations and financial
condition should be read together with the other financial information and
consolidated financial statements and related notes included in this Annual
Report on Form 10-K. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in the forward-looking statements as a result of a variety of
factors.
OVERVIEW
We are a leading designer and manufacturer of sensors and sensor-based,
consumer products. We produce a wide variety of sensors that use advanced
technologies to measure precise ranges of physical characteristics, including
pressure, motion, force, displacement, angle, flow, and distance. Our advanced
technologies include piezoresistive applications, application specific
integrated circuits, micro-electromechanical systems (MEMS), piezopolymers,
strain gages, force balance systems, fluid capacitive applications, linear
variable differential transformers, and ultrasonics. These technologies allow
our sensors to operate precisely and cost effectively. We have two businesses, a
Sensor business and a Consumer Products business. However, each of our
businesses benefits from the same core technology base. Our Sensor business
designs, manufactures, and markets sensors for original equipment manufacturer
applications. These products include pressure sensors, custom microstructures,
accelerometers, tilt/angle sensors, and displacement sensors for electronic,
automotive, medical, military, and industrial applications. Our Sensor business
customers include leading manufacturers such as Alaris Medical, Allison
Transmission, Badger Meter, Graco, and Texas Instruments. Our Consumer Products
business designs, manufactures, and markets sensor-based, consumer products.
These products include bathroom and kitchen scales, tire pressure gauges, and
distance estimators. These products are typically based on application specific
integrated circuits, piezoresistive, and ultrasonic technologies. Our Consumer
Products customers include leading retailers such as Bed Bath & Beyond, Linens
'n Things, Sam's Club, and Sears; European resellers such as Korona and Laica;
and Sunbeam, a consumer products manufacturer.
Acquisition Strategy. Over the last several years we have undertaken an
aggressive expansion strategy that has included the acquisitions of
complementary businesses intended to bring to us new technologies, diversify our
product mix, increase manufacturing capacity, and expand distribution channels.
For example, through our acquisition strategy, we have acquired new
technologies, such as piezoelectric polymer, micro-electromechanical systems
(MEMS), and linear variable differential transformers, added manufacturing
capacity in the United States and the United Kingdom, and expanded our Sensor
business distribution channels. In turn, the percentage of net sales in our
Sensor business increased to 47.6% for the year ended March 31, 2001 from 7.8%
for the year ended March 31, 1998. This change in the business segment mix is
primarily from the impact of our acquisition strategy, as well as organic
growth. After successfully integrating businesses that we acquire, we expect to
realize significant cost savings in the acquired business by moving selected
assembly and manufacturing operations to our low cost, high volume production
facility in China, which has been expanded to meet such demand.
In January 2001, we acquired the business of Silicon Valley Sensors for an
initial payment of $0.25 million cash with additional contingent payments of up
to $0.25 million. This business included intellectual property and management
expertise relating to pressure sensors.
18
In August 2000, we acquired the Schaevitz Sensors business from TRW for
approximately $17.9 million cash, including closing and restructuring costs of
$1.1 million. The Schaevitz Sensors business, formerly known as TRW Sensors and
Components, consists of a division in the United States and an operating company
in the United Kingdom. Schaevitz Sensors designs and manufactures sensors in the
United States and Europe, and sells a variety of tilt, displacement, and
pressure sensors. The excess of the purchase price over the net assets
acquired, accounted for principally as goodwill, was approximately $7.0 million
which is being amortized over 15 years.
In February 2000, we acquired IC Sensors from PerkinElmer for $12.4 million
in cash, including closing and restructuring costs of $0.4 million. IC Sensors
designs, manufactures, and markets micro-electromechanical (MEMS) pressure
sensors, accelerometers, and microstructures. The excess of the purchase price
over the net assets acquired, accounted for principally as goodwill, was
approximately $3.2 million, which is being amortized over 15 years.
In January 2000, we acquired the Park-Zone product line from Exeter for
$1.4 million, which included an initial payment of $0.6 million in cash with the
additional consideration based on future performance. Park-Zone produces a line
of ultrasonic parking devices. The excess of the purchase price over net assets
acquired, accounted for principally as goodwill, was approximately $1.0 million,
which is being amortized over 7 years.
In August 1998, we acquired PiezoSensors, formerly the Sensors Division of
AMP, for approximately $5.7 million, including closing and restructuring costs
of $1.7 million. PiezoSensors designs, manufactures, and markets piezoelectric
polymer sensors for industrial, consumer, and medical applications. The excess
of the purchase price over the net assets acquired, accounted for principally as
goodwill, was approximately $1.7 million, which is being amortized over 15
years.
Each of our acquisitions has been accounted for as a purchase, and our
results of operations include the financial impact from each acquired business
following the closing date of the acquisition. We financed our acquisitions
with a combination of cash and debt. Our goodwill as of March 31, 2001, net of
amortization, is approximately $12.6 million.
From time to time, we engage in discussions regarding certain acquisitions.
On June 7, 2001, we entered into an agreement to acquire Terraillon,
headquartered in France. The purchase price is approximately $17.0 million. In
addition, we will assume up to $4.0 million in debt. Terraillon is a leading
designer and manufacturer of branded consumer bathroom and kitchen scales (See
''Subsequent Events'' for more information regarding the Terraillon
acquisition).
Net Sales. Net sales of each of our business segments are generated
primarily through sales representatives located throughout the world. We
recognize sales when we ship our products, at which time title generally passes
to the customer. Our net sales include adjustments for estimated product
warranty and allowances for returns by our customers.
Historically, we have experienced price pressures because of the effect of
the strength of the United States dollar on foreign sales, the introduction of
competing products, and general pricing pressures from our customers. We expect
that we may continue to experience these price pressures. We intend to continue
to expand our product lines with technological advances, innovative designs, and
broader price ranges.
19
Costs of Sales. Our cost of sales consists primarily of our payments to
our suppliers, compensation, payroll taxes and employee benefits for
manufacturing personnel, and purchasing and manufacturing overhead costs. We
rely on contract manufacturers to manufacture and assemble a significant portion
of our consumer finished products.
Gross Profit. Gross profit is affected by many factors including sales
volume, pricing, product mix, and cost factors including component costs,
materials costs, and manufacturing and labor costs.
Research and Development. Research and development expenses consist
primarily of compensation, payroll taxes and employee benefits for engineering
and development personnel, consulting expenses, and project materials. The
majority of our research and development relates to our Sensor business, and is,
in part, funded by customers for customer-specific applications. Customer funded
development is anticipated to continue, but will likely vary from period to
period. To support our growth we expect to continue to invest significantly in
sensor product development and launch new consumer products and line extensions.
Accordingly, research and development expenses will continue to be significant.
Selling, General, and Administrative. Selling, general, and administrative
expenses consist of compensation, payroll taxes and employee benefits for
selling, general, and administrative personnel, freight, commissions, sales and
marketing efforts, promotional programs, amortization of goodwill, and
investment in our infrastructure in order to support our continued growth.
Interest Expense, Net. Net interest expense consists primarily of interest
expense on our term loans and line of credit.
Income Taxes. The income tax provision is based upon the proportion of
pretax profit in each jurisdiction in which we operate. The income tax rates in
Hong Kong and China are less than the United States. Deferred income taxes are
not provided on our subsidiaries' earnings, which are expected to be reinvested.
Distribution, in the form of dividends or otherwise, would subject our
subsidiaries' earnings to United States income taxes, subject to an adjustment
for foreign tax credits. Determination of the amount of unrecognized deferred
United States income tax liability is not practicable because of the
complexities associated with its hypothetical calculation. Pursuant to current
tax policies in China, our Chinese operations qualify for a special state
corporate tax rate of 15%, or 10% provided that they export a minimum of 70% of
production. However, because we have agreed to operate in China for a minimum of
ten years, a full tax holiday (which expired on March 31, 1998) was available
for two years, and a 50% tax rate reduction to 7.5% was available through March
31, 2001.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
our consolidated statements of income as a percentage of net sales:
20
2001 2000 1999
------ ------ ------
Net Sales
Sensors 47.6% 26.5% 18.9%
Consumer products 52.4 73.5 81.1
------ ------ ------
Total net sales 100.0 100.0 100.0
Cost of Sales 57.0 57.5 62.0
------ ------ ------
Gross profit 43.0 42.5 38.0
Operating expenses (income)
Selling, general, and administrative 28.4 26.9 26.2
Research and development 4.9 5.7 7.8
Customer funded development (4.0) (2.7) (2.9)
Interest expense, net 2.3 0.5 0.7
------ ------ ------
Income before income taxes 11.4 12.1 6.2
------ ------ ------
Income tax expense 2.7 2.9 1.6
------ ------ ------
Net Income 8.7 9.2 4.6
====== ====== ======
FISCAL YEAR ENDED MARCH 31, 2001 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2000
Net Sales. Net sales increased $43.1 million, or 71.8%, to $103.1 million
for the fiscal year ended March 31, 2001 from $60.0 million for the fiscal year
ended March 31, 2000. We attribute the increase primarily to the Schaevitz
Sensors and IC Sensors acquisitions, as well as higher United States sales from
strong consumer spending, and expansion of product offerings. Excluding the
impact of the Schaevitz Sensors and IC Sensors acquisitions, net sales increased
26.0% for the fiscal year ended March 31, 2001 as compared to the fiscal year
ended March 31, 2000.
Net sales of our Sensor business increased $33.2 million, or 209.0%, to
$49.1 million for the fiscal year ended March 31, 2001 from $15.9 million for
the fiscal year ended March 31, 2000. This is primarily a result of the
Schaevitz Sensors and IC Sensors acquisitions and increased sales from our
existing Sensor business.
Net sales in the Consumer Products business increased $9.9 million, or
22.4%, to $54.0 million for the fiscal year ended March 31, 2001 from $44.1
million for the fiscal year ended March 31, 2000. The increase resulted from
expansion of European sales, higher United States sales from strong consumer
spending, and expansion of product offerings.
Gross Profit. Gross profit increased $18.8 million, or 74.0 %, to $44.3
million for the fiscal year ended March 31, 2001 from $25.5 million for the
fiscal year ended March 31, 2000. Gross profit percentage increased to 43.0% for
the fiscal year ended March 31, 2000 from 42.5% for the fiscal year ended March
31, 2000. The increase in overall gross profit resulted from increased volume,
favorable product mix, and lower manufacturing costs, which were partially
offset by price reductions, and higher manufacturing costs associated with
recently acquired Schaevitz Sensors and IC Sensors products. We have recently
begun production of some of these products in our lower-cost facility in China.
21
Selling, General, and Administrative. Selling, general, and administrative
expenses increased $13.1 million, or 81.2%, to $29.2 million for the fiscal year
ended March 31, 2001 from $16.1 million for the fiscal year ended March 31,
2000. The increase resulted in part from the impact of the Schaevitz Sensors and
IC Sensors acquisitions and variable expenses associated with the higher sales
volume.
Research and Development. Research and development expenses increased $1.7
million, or 51.3%, to $5.1 million for the fiscal year ended March 31, 2001 from
$3.4 million for the fiscal year ended March 31, 2000. The increase resulted
primarily from the impact of acquisitions. During the fiscal year ended March
31, 2001, we received $4.1 million of customer funded development, as compared
to $1.6 million during the fiscal year ended March 31, 2000.
Interest Expense, Net. Net interest expense increased $2.3 million, or
766.6%, to $2.6 million during the fiscal year ended March 31, 2001 from $0.3
million for the fiscal year ended March 31, 2000. This increase is attributable
to debt incurred in connection with acquisitions and cash flow from operations.
Income Taxes. The income tax provision increased $1.1 million or 61.0%, to
$2.8 million for the fiscal year ended March 31, 2001 from $1.8 million for the
fiscal year ended March 31, 2000. For the fiscal year ended March 31, 2001, our
effective tax rate was 24.0% as compared to 24.1% for the fiscal year ended
March 31, 2000. The foreign tax rates in effect during fiscal years ended March
31, 2001 and 2000 are lower than the United States rates. Deferred income taxes
are not provided on our subsidiaries' undistributed earnings, which approximated
$13.0 million at March 31, 2001, because those earnings are expected to be
permanently reinvested.
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999
Net Sales. Net sales increased $22.4 million, or 59.6%, to $60.0 million
for the fiscal year ended March 31, 2000 from $37.6 million for the fiscal year
ended March 31, 1999. We attribute the increase in net sales primarily to
consumer products sales to United States direct and original equipment
manufacturer customers, new product introductions, and expanded European
distribution. Excluding the impact of the PiezoSensors and IC Sensors
acquisitions, net sales increased 50.2% for the year ended March 31, 2000 as
compared to the year ended March 31, 1999.
Net sales of our Sensor business increased $8.8 million, or 123.9%, to
$15.9 million for the fiscal year ended March 31, 2000 from $7.1 million for the
fiscal year ended March 31, 1999. We attribute the increase to the February 2000
acquisition of IC Sensors, which contributed $2.3 million, and growth of the
microfused product line.
Net sales in the Consumer Products business increased $13.6 million, or
44.6%, to $44.1 million for the fiscal year ended March 31, 2000 from $30.5
million for the fiscal year ended March 31, 1999. Bathroom scale sales to
United States direct and original equipment manufacturer customers increased
41.8%, as compared with the fiscal year ended March 31, 1999. The increase is
attributable to the expansion of products offered as well as strong consumer
spending. Other consumer product sales increased by 50.1% for the fiscal year
ended March 31, 2000. For the fiscal year ended March 31, 2000, European sales
were higher due to increased distribution and improved sales volumes to Korona,
a German reseller of diversified housewares.
22
Gross Profit. Gross profit increased $11.2 million, or 78.2%, to $25.5
million for the fiscal year ended March 31, 2000 from $14.3 million for the
fiscal year ended March 31, 1999. Gross profit percentage increased to 42.5% for
the fiscal year ended March 31, 2000 from 38.0% for the fiscal year ended March
31, 1999. This increase is the result primarily of increased volume, changes in
product mix toward higher margin Sensor products, and manufacturing cost
reductions.
Selling, General, and Administrative. Selling, general, and administrative
expenses increased $6.3 million, or 63.8%, to $16.1 million for the fiscal year
ended March 31, 2000 from $9.8 million for the fiscal year ended March 31, 1999.
Selling, general, and administrative expenses increased due to the PiezoSensors
acquisition, increased United States sales that carry higher freight and
commission costs, expansion of the sales and marketing group, and investments in
infrastructure (both personnel and information technology related) to support
the continued growth. The fiscal year ended March 31, 2000 selling, general, and
administrative expense includes the impact of the IC Sensors acquisition.
Research and Development. Research and development expenses increased $0.4
million, or 13.8%, to $3.4 million for the fiscal year ended March 31, 2000 from
$2.9 million for the fiscal year ended March 31, 1999. During the fiscal year
ended March 31, 2000, we received $1.6 million of customer funded development,
as compared to $1.1 million during the fiscal year ended March 31, 1999. The
increase in customer funded development for both the fiscal years ended March
31, 2000 and 1999 more than offset the additional expenses associated with the
IC Sensors and PiezoSensors acquisitions and automotive related development
projects.
Interest Expense, Net. Net interest expense remained substantially the
same during the fiscal years ended March 31, 2000 and 1999.
Income Taxes. The income tax provision increased $1.2 million, or 195.3%,
to $1.8 million for the fiscal year ended March 31, 2000 from $0.6 million for
the fiscal year ended March 31, 1999. For the fiscal year ended March 31, 2000,
our effective tax rate was 24.1% as compared to 25.6% for the fiscal year ended
March 31, 1999. The foreign tax rates in effect during fiscal years ended March
31, 2000 and 1999 are lower than the United States rates. Deferred income taxes
are not provided on our subsidiaries' undistributed earnings, which approximated
$6.6 million at March 31, 2000, because those earnings are expected to be
permanently reinvested.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
Net Sales. Net sales increased $8.3 million, or 28.3%, to $37.6 million for
the fiscal year ended March 31, 1999 from $29.3 million for the fiscal year
ended March 31, 1998. We primarily attribute the increase in net sales to the
PiezoSensors acquisition and expansion of consumer product offerings. Excluding
the PiezoSensors acquisition, net sales increased 11.6% for the fiscal year
ended March 31, 1999 as compared to the fiscal year ended March 31, 1998.
Net sales of our Sensor business increased $4.8 million or 208.7% to $7.1
million, for the fiscal year ended March 31, 1999 from $2.3 million for the
fiscal year ended March 31, 1998. We primarily attribute the increase in sales
to the acquisition of PiezoSensors in August 1998.
23
Net sales in the Consumer Products business increased $3.5 million, or
13.0%, for the fiscal year ended March 31, 1999 to $30.5 million from $27.0
million for the fiscal year ended March 31, 1998. The increase is attributable
to expansion of product offerings as well as strong consumer spending. Other
than bathroom scales, consumer product sales for the fiscal year ended March 31,
1999 increased 23.3% due in part to strong promotions in food scales and
large-scale distribution of low priced postal scales. European sales were flat
due to the impact of changes in the buying pattern of Korona, a German reseller
of diversified housewares, and increased competition in the European market.
However, these effects were partially offset by our expansion in other parts of
Europe.
Gross Profit. Gross profit increased $4.7 million, or 49.0%, to $14.3
million for the fiscal year ended March 31, 1999 from $9.6 million for the
fiscal year ended March 31, 1998. The gross profit percentage increased to 38.0%
for the fiscal year ended March 31, 1999 from 32.8% for the fiscal year ended
March 31, 1998. These changes in 1999 were effected primarily by increased
volume, changes in product mix toward higher margin Sensor business products,
and manufacturing cost reductions.
Selling, General, and Administrative. Selling, general, and administrative
expenses increased $3.1 million, or 46.3%, for the fiscal year ended March 31,
1999 to $9.8 million from $6.7 million for the fiscal year ended March 31, 1998.
The increase is due to the PiezoSensors acquisition, increased United States
sales that carry higher freight and commissions, expansion of the sales and
marketing group, and investments in infrastructure in order to support the
continued growth.
Research and Development. Research and development expenses increased $0.9
million, or 45.0%, to $2.9 million for the fiscal year ended March 31, 1999 from
$2.0 million for the fiscal year ended March 31, 1998. During the fiscal year
ended March 31, 1999, we received $1.1 million of customer funded development,
as compared to $15,000 during the fiscal year ended March 31, 1998. The
increase in expenses excluding customer funding is primarily due to the
PiezoSensors acquisition, partially offset by additional design work being
performed in our lower cost China facility. The increase in customer funding
for 1999 more than offset the additional expenses associated with the
PiezoSensors acquisition and automotive related development projects.
Interest Expense, Net. Net interest expense increased to $0.3 million for
the fiscal year ended March 31, 1999 from $80,000 for the fiscal year ended
March 31, 1998 due to interest costs on increased borrowing on our line of
credit.
Income Taxes. The income tax provision increased $0.5 million to $0.6
million for the fiscal year ended March 31, 1999 from $0.1 million for the
fiscal year ended March 31, 1998. For the fiscal year ended March 31, 1999, our
effective tax rate was 25.6%, which is lower than the federal and state
statutory rates of approximately 40% due primarily to lower tax rates on foreign
earnings. For the fiscal year ended March 31, 1998, our effective tax rate was
11.6%, primarily as a result of lower tax rates on foreign earnings as well as a
$0.1 million reduction in the valuation reserve related to the alternative
minimum tax credit carryforward. The effective tax rate increased for the fiscal
year ended March 31, 1999 as a result of higher domestic earnings.
24
LIQUIDITY AND CAPITAL RESOURCES
Our net working capital was approximately $23.6 million at March 31, 2001,
compared to approximately $6.0 million at March 31, 2000. Our net working
capital was higher primarily due to increases in our inventory resulting from
acquisitions, higher sales, increases to support moving selected manufacturing
to China, and lower than forecast sales of our Park-Zone product line. At March
31, 2001, our current ratio was 1.9 compared to 1.4 at March 31, 2000. Cash
decreased to $0.6 million at March 31, 2001, compared to $1.9 million at March
31, 2000. Operating activities for the year ended March 31, 2001 used $4.8
million of cash, primarily to finance increased accounts receivable and
inventory. Investing activities for the year ended March 31, 2001 used $23.6
million to fund capital expenditures and the Schaevitz Sensors acquisition.
Financing activities for the year ended March 31, 2001 provided $27.1 million,
primarily due to increased borrowings.
Capital expenditures for the year ended March 31, 2001 were $5.7 million,
consisting mainly of computer equipment and related software, production
equipment, and tooling. At March 31, 2001, there were no significant commitments
for capital expenditures. We continue to finance our capital expenditure
requirements with internally generated cash flow and our revolving credit
facility.
At March 31, 2001, there was an outstanding balance of approximately $14.7
million under our line of credit. Our line of credit provides for a maximum
amount available of $17.0 million, of which $10.0 million is available for
general corporate purposes and $7.0 million is available only for working
capital purposes. Up to $3.5 million of the credit facility may be denominated
in British pounds. As of March 31, 2001, the entire amount of this portion of
the facility was utilized. Borrowings are limited to the sum of eligible
accounts receivable and inventories and are collateralized by a senior security
interest in substantially all our assets. The line of credit expires August 7,
2002. Borrowings bear interest at a maximum of the lesser of the bank's prime
rate plus 1.0% or the LIBOR rate plus 2.75%. Should we achieve certain financial
ratios, the lowest rate becomes the lesser of the bank's prime rate plus 0.5% or
a LIBOR rate plus 2.25%. The line of credit requires annual payment of a
commitment fee equal to 0.375% of the unutilized available balance.
Additionally, we are required to maintain minimum profitability ratios, to limit
capital expenditures and advances to subsidiaries, and we must seek the consent
of the bank for the payment of dividends and to complete acquisitions or
divestitures.
In connection with the acquisition of Schaevitz Sensors, we repaid the
outstanding balance of a previous term loan and entered into a $25.0 million
term loan. As of March 31, 2001, there was $22.0 million outstanding under the
term loan. The term loan bears interest at the LIBOR rate plus 3.25%. The term
loan requires quarterly repayments of principal and interest of $4.0 million per
annum through 2006 and $2.0 million in 2007. Additional principal payments are
required if our cash flow exceeds certain levels. The term loan is
collateralized by a senior security interest in substantially all of our assets.
Additionally, we are required to maintain minimum profitability ratios, to limit
our capital expenditures and advances to subsidiaries, and we must seek the
consent of our bank for the payment of dividends and to complete acquisitions or
divestitures. Further expansion of our financing requirements is likely to
require additional resources. We believe that suitable resources for expansion
of our financing requirements will be available, though no assurance can be
given.
We have not declared cash dividends on our common equity. Management
expects that earnings that may be generated from our near-term operations will
be substantially reinvested and, accordingly, dividends will not be paid to
25
common shareholders in the short term. Additionally, the payment of dividends is
subject to the consent of the bank with which we have a revolving credit
agreement.
At present, there are no material restrictions on the ability of our Hong
Kong subsidiary or English subsidiary to transfer funds to us in the form of
cash dividends, loans, advances, or purchases of materials, products, or
services. Distribution and repatriation of dividends by our China subsidiary are
restricted by Chinese laws and regulations, including currency exchange
controls.
We believe that cash and cash equivalents, net proceeds from our pending
public offering of common stock, and anticipated cash flow from operations will
be sufficient to fund our working capital and capital expenditures requirements
for at least the next twelve months. Thereafter, if cash generated from
operations is insufficient to satisfy liquidity needs, we might need to raise
additional funds through a public or private financing, strategic relationship,
or other arrangements. We cannot assure you that additional funding, if needed,
will be available to us or will be available on terms that we believe are
attractive. If we fail to raise capital when needed, it could harm our business.
If we raise additional funds through the issuance of equity securities, the
percentage ownership of our shareholders would be reduced.
We believe that inflation has not had a material effect on our business.
We compete on the basis of product design, features, and value. Accordingly,
our revenues generally have kept pace with inflation, notwithstanding that
inflation in the countries where our subsidiaries are located has been
consistently higher than inflation in the United States. We have ongoing cost
reduction programs, resulting in improved competitiveness and gross margins.
Increases in labor costs have not had a significant impact on our business
because most of our employees are in China, where prevailing labor costs are
low. Additionally, we believe that while we have not experienced any
significant increases in materials costs such increases are likely to affect the
entire electronics industry and, accordingly, may not have a significant adverse
effect on our competitive position.
SUBSEQUENT EVENTS
On March 29, 2001, we filed a registration statement with the Securities
and Exchange Commission to issue 1,750,000 shares of common stock. We intend to
utilize a portion of the proceeds of the offering to fund the proposed
acquisition discussed below.
On June 7, 2001, we signed an agreement to purchase all of the outstanding
shares of Terraillon Holdings Limited, "Terraillon" a European manufacturer of
branded consumer bathroom and kitchen scales. We will pay a total of $17.0
million to acquire Terraillon. The purchase price will be paid as follows: (i)
$4.96 million in cash and (ii) 390,494 in shares of our common stock. In
addition, we will pay the majority stockholder of Terraillon $5.24 million to
forgive an equal amount of indebtedness owed to it by Terraillon. Additionally,
the Company will assume up to $4.0 million of Terraillon debt. The number of
shares of our common stock to be issued at the closing was calculated using 95%
of the average closing price of our common stock for the thirty trading dates
prior to and including April 30, 2001, for an agreed value of $6.8 million. The
closing of this acquisition is subject to the fulfillment of customary closing
conditions including: (i) receipt of regulatory approval from the Irish Minister
for Enterprise, Trade and Employment, (ii) receipt of approval by our bank
lenders, and (iii) our obtaining adequate financing. We intend to use a portion
of the proceeds of the public offering of common stock described above to fund
the cash payments described above. We cannot give you any assurance that the
26
contingencies related to our acquisition of Terraillon will be satisfied in a
timely manner, or at all. Any party may terminate the acquisition agreement if
the closing has not occurred on or before the close of business in Ireland on
July 5, 2001.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(''SFAS 133''). SFAS 133, as amended by SFAS No. 137 and SFAS No. 138, is
effective for fiscal years beginning after June 15, 2000. SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 requires that changes in a derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement.
We adopted SFAS 133 as of April 1, 2001. Accounting for interest rate swaps
held by us will be affected by implementation of this standard. The earnings
impact of the transition adjustments related to the initial adoption of the
standard will not be material.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin 101, ''Revenue Recognition,'' to provide
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. Our policies on revenue recognition are consistent with
this bulletin.
In March 2000, the Financial Accounting Standards Board issued Financial
Interpretation No. 44 (FIN 44), ''Accounting for Certain Transactions Involving
Stock Compensations - and Interpretation of APB No. 25.'' FIN 44 clarifies the
application of APB 25 for certain issues including: (a) the definition of an
employee for purposes of applying APB No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the definition of the
date of granting employee stock options, and (d) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award.
FIN 44 became effective July 1, 2000, except for the provisions that relate to
modifications that directly or indirectly reduce the exercise price of an award
and the definition of an employee, which became effective after December 15,
1998. We adopted in the accompanying financial statements the provisions for
the definition of the grant date for options whose grant was subject to
shareholder approval. The adoption of FIN 44 had no material impact on the
accompanying financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a certain level of foreign currency exchange risk and
interest rate risk.
27
FOREIGN CURRENCY RISK
The majority of our net sales are priced in United States dollars. Our
costs and expenses are priced in United States dollars, Hong Kong dollars,
Chinese renminbi, and British pounds. Accordingly, the competitiveness of our
products relative to products produced domestically (in foreign markets) may be
affected by the performance of the United States dollar compared with that of
its foreign customers' currencies. Additionally, we are exposed to the risk of
foreign currency transaction and translation losses which might result from
adverse fluctuations in the values of the Hong Kong dollar, the Chinese
renminbi, and the British pound. These factors will similarly apply following
our planned acquisition of Terraillon, which derives a significant portion of
its net sales in French francs. At March 31, 2001, we had net liabilities of
$4.4 million subject to fluctuations in the value of the Hong Kong dollar, and
net assets of $8.4 million subject to fluctuations in the value of the British
pound, and net assets of $12.6 million subject to fluctuations in the value of
the Chinese renminbi.
Fluctuations in the value of the Hong Kong dollar have not been significant
since October 17, 1983, when the Hong Kong government tied the value of the Hong
Kong dollar to that of the United States dollar. However, there can be no
assurance that the value of the Hong Kong dollar will continue to be tied to
that of the United States dollar. China adopted a floating currency system on
January 1, 1994, unifying the market and official rates of foreign exchange.
China approved current account convertibility of the Chinese renminbi on July 1,
1996, followed by formal acceptance of the International Monetary Fund's
Articles of Agreement on December 1, 1996. These regulations eliminated the
requirement for prior government approval to buy foreign exchange for ordinary
trade transactions, though approval is still required to repatriate equity or
debt, including interest thereon. There can be no assurance that these
currencies will remain stable or will fluctuate to our benefit.
To manage our exposure to foreign currency and translation risks, we may
purchase currency exchange forward contracts, currency options, or other
derivative instruments, provided such instruments may be obtained at suitable
prices. However, to date we have not done so.
INTEREST RATE RISK
We have entered into a $25.0 million term loan, which bears interest at the
LIBOR rate plus 3.25% (8.13% as of March 31, 2001). Such term loan requires
quarterly repayments of $1.0 million on an annual basis, through 2006.
As a hedge of our interest rate risk associated with the term loan, we
entered a rate swap transaction with our lender through June 1, 2004. Additional
payments required pursuant to the swap transaction were $0.2 million for fiscal
year ended March 31, 2001. The swap transaction has an initial notional amount
of $14.0 million with an effective fixed rate of 10.23%. As of March 31, 2001,
$22.0 million was outstanding under this term loan.
Our bank line of credit provides for a maximum amount available of $17.0
million until the agreement's expiration on August 7, 2002. Borrowings bear
interest at a maximum of the lesser of the bank's prime rate plus 1.0% or the
LIBOR rate plus 2.75% (7.33% as of March 31, 2001). Should we achieve certain
financial ratios, the lowest rate becomes the lesser of the bank's prime rate
plus 0.5% or the LIBOR rate plus 2.25%. At the March 31, 2001, $14.7 million was
outstanding under the bank line of credit. We have not entered into any interest
rate risk management agreements related to such bank line of credit.
28
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and long-term debt. For debt
obligations, the table presents principal cash flows and the related weighted
average interest rates (experienced during the year ended March 31, 2001) by
maturity date. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates at
March 31, 2001.
March 31,
----------------------------------------------------
Expected Maturity Date
2002 2003 2004 2005 2006 2007
------- ------- ------- ------- ------- -------
Long-term debt: $4,000 $4,000 $4,000 $4,000 $4,000 $2,000
Variable Rate 8.47% 7.24% 7.72% 8.05% 8.36% 8.56%
Average interest rate 9.00% 7.60% 7.56% 7.94% 8.27% 8.53%
Interest Rate Swaps:
Notional principal amount $7,000 $5,000 $3,000 $ 0
Variable Rate 10.23% 10.23% 10.23% 10.23%
Average Interest Rate 9.00% 7.60% 7.56% 7.94%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data, together with the report
thereon by our Independent Certified Public Accountants, are listed below in
Item 14. Exhibits, Financial Statement schedules and Reports on Form 8-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We engaged Arthur Andersen LLP as its new independent accountants effective
September 18, 2000. During the two most recent fiscal years and through
September 18, 2000, we have not consulted with Arthur Andersen LLP concerning
the our financial statements, including the application of accounting principles
to a specific transaction (proposed or completed) or the type of audit opinion
that might be rendered on our financial statements or any matter that was wither
the subject of a "disagreement" or "reportable event" (as such terms are defined
in Item 304 of Regulation S-K) with the previous independent accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
information under the caption "Management" contained in our definitive Proxy
Statement which will be filed on or before July 29, 2001 with the Securities and
Exchange Commission in connection with Registrant's 2001 annual meeting of
stockholders.
29
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in our
definitive Proxy Statement which will be filed on or before July 29, 2001 with
the Securities and Exchange Commission in connection with Registrant's 2001
annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" contained in our definitive Proxy Statement which will be filed
on or before July 29, 2001 with the Securities and Exchange Commission in
connection with Registrant's 2001 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
contained in our definitive Proxy Statement which will be filed on or before
August 17, 2001 with the Securities and Exchange Commission in connection with
Registrant's 2001 annual meeting of stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following financial statements and schedules are filed at the end of
this report, beginning on page F-l.
Other schedules are omitted because they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
Pages
-----
Report of Independent Certified Public Accountants F-1 to F-2
Consolidated Statements of Income for the Years Ended
March 31, 2001, 2000, and 1999 F-3
Consolidated Balance Sheets as of March 31, 2001 and 2000
F-4 to F-5
Consolidated Statements of Shareholders' Equity for the Years Ended
March 31, 2001, 2000 and 1999 F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2001, 2000 and 1999 F-7
Notes to Consolidated Financial Statements F-8 to F-24
Schedule II - Valuation and Qualifying Accounts, for the Years Ended
March 31, 2001, 2000 and 1999 S-1
30
Exhibits
Exhibit Number Description
- -------------- -----------
3.1 # Second Restated Certificate of Incorporation of Measurement
Specialties, Inc.
3.2 Bylaws of Measurement Specialties, Inc.
4.1 ## Specimen Certificate for shares of common stock of Measurement Specialties, Inc.
10.1 # Supply and Distribution Agreement dated September 26, 1997 between Korona
GmbH & Co. KG and Measurement Specialties, Inc.
10.2 ### Product Line Acquisition Agreement dated January 5, 2000 between Exeter
Technologies, Inc., Dr. Michael Yaron and Measurement Specialties, Inc.
10.3 * Stock Purchase Agreement dated February 11, 2000 between PerkinElmer, Inc. and
Measurement Specialties, Inc.
10.4 ** Purchase Agreement dated August 4, 2000 between TRW Sensors & Components,
Inc. and Measurement Specialties, Inc.
10.5 *** Asset Purchase Agreement dated August 14, 1998 between AMP Incorporated, The
Whitaker Corporation and Measurement Specialties, Inc.
10.6 ## Measurement Specialties, Inc. 1995 Stock Option Plan
10.7 + Measurement Specialties, Inc. 1998 Stock Option Plan
10.8 ## Lease dated December 30, 1999 between Hollywood Place Company Limited and
Measurement Limited for property in Kowloon, Hong Kong
10.9 ## Lease dated September 14, 1977 between Schaevitz E.M. Limited and Slough
Trading Estate Limited for property in Slough, England
10.10 ## Deed of Variation dated July 14, 1992 of Lease between Slough Trading Estate
Limited and Lucas Schaevitz Limited
10.11 ## Assignment dated August 4, 2000 of Lease from Lucas Schaevitz Limited to
Measurement Specialties (England) Limited
10.12 ## Licence to Assign dated August 4, 2000 between Slough Trading Estate Limited,
Lucas Schaevitz Limited, Measurement Specialties (England) Limited and
Measurement Specialties, Inc. for property in Slough, England
10.13 ## Lease dated May 5, 1994 between Transcube Associates and Measurement
Specialties, Inc. for property in Fairfield, New Jersey
10.14 ## First Amendment dated February 24, 1997 to Lease between Transcube Associates
and Measurement Specialties, Inc.
10.15 ## Second Amendment dated July 10, 2000 to Lease between Transcube Associates and
Measurement Specialties, Inc.
10.16 ## First Amendment dated February 1, 2001 to Lease between Kelsey-Hayes Company
and Measurement Specialties, Inc.
10.17 Lease Agreement and all amendments for property in Valley Forge, Pennsylvania
10.18 Lease Agreement and all amendments for property in Milpitas, California
10.19 Lease Agreements for property in Shenzhen, China
10.20 Lease dated August 4, 2000 between Kelsey-Hayes Company and Measurement
Specialties, Inc. for property in Hampton, Virginia
10.21 Letter of Intent dated March 23, 2001 between Terraillon Holdings Limited and
Measurement Specialties, Inc.
10.22 Amended and Restated Revolving Credit, Term Loan and Security Agreement dated
as of February 28, 2001 among Measurement Specialties, Inc., Measurement UK
Limited, Summit Bank, The Chase Manhattan Bank and First Union as agent and all
amendments.
10.23 Agreement for the Purchase of the Share Capital of Terraillon Holdings Limited,
31
dated 7 June 2001, among Hibernia Development Capital Partners I ilp, Hibernia
Development Capital Partners II ilp, Fergal Mulchrone and Chris Duggan and
Andrew Gleeson and Measurement Specialties, Inc.
21.1 ## Subsidiaries
_______________________
# Previously filed with the Securities and Exchange Commission as an Exhibit
to the Quarterly Report on Form 10-Q filed on February 3, 1998 and incorporated
herein by reference.
## Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement on Form S-1 on March 29, 2001 and
incorporated herein by reference.
### Previously filed with the Securities and Exchange Commission as an
Exhibit to the Quarterly Report on Form 10-Q on February 14, 2000 and
incorporated herein by reference.
* Previously filed with the Securities and Exchange Commission as an Exhibit
to the Current Report on Form 8-K filed on March 1, 2000.
** Previously filed with the Securities and Exchange Commission as an
Exhibit to the Current Report of Form 8-K on August 22, 2000.
*** Previously filed with the Securities and Exchange Commission as an
Exhibit to the Current Report on Form 8-K/A filed on August 27, 1998.
+ Previously filed with the Securities and Exchange Commission as an Exhibit
to the Proxy Statement for the Annual Meeting of Shareholders filed on August
18, 1998.
Reports on Form 8-K
During the three months ended March 31, 2001, we did not file reports on Form
8-K.
The SEC maintains a site on the world wide web, at , which
contains reports, proxy and information statements and other information
regarding registrants which file electronically with the SEC, pursuant to its
Electronic Data Gathering and Retrieval ("EDGAR") program. EDGAR filings
generally are made available within 24 hours of filing. Our electronic filings
may be found at .
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MEASUREMENT SPECIALTIES, INC.
By: /s/ Joseph R. Mallon, Jr. July , 2001
Joseph R. Mallon, Jr.
Chief Executive Officer and Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Joseph R. Mallon, Jr. July , 2001
Joseph R. Mallon, Jr., principal executive officer
/s/ Kirk J. Dischino July , 2001
Kirk J. Dischino, principal financial and accounting officer
A majority of the Board of Directors:
/s/ Joseph R. Mallon, Jr. July , 2001
Joseph R. Mallon, Jr., Chairman
/s/ John D. Arnold July , 2001
John D. Arnold, Director
/s/ Theodore J. Coburn July , 2001
Theodore J. Coburn, Director
/s/ Damon Germanton July , 2001
Damon Germanton, Director
/s/ Steven P. Petrucelli July , 2001
Steven P. Petrucelli, Director
/s/ Dan J. Samuel July , 2001
The Hon. Dan J. Samuel, Director
33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Measurement Specialties, Inc:
We have audited the accompanying consolidated balance sheet of Measurement
Specialties, Inc. (a New Jersey corporation) and subsidiaries as of March 31,
2001, and the related consolidated statements of income, shareholders' equity
and cash flows for the year then ended. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, appearing on pages
F-3 to F-24 of this Form 10-K, present fairly, in all material respects, the
financial position of Measurement Specialties, Inc. and subsidiaries as of March
31, 2001, and the results of their operations and their cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule appearing on page S-1 of this Form
10-K is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule, for the year ended March 31, 2001, has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states, in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
June 4, 2001
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Measurement Specialties, Inc:
We have audited the accompanying consolidated balance sheet of Measurement
Specialties, Inc. and subsidiaries as of March 31, 2000, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the two years in the period ended March 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Measurement Specialties, Inc. and subsidiaries as of March 31, 2000, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
We have also audited the schedule appearing on page S-1 for the two years in the
period ended March 31, 2000. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set forth therein.
GRANT THORNTON LLP
Edison, New Jersey
May 25, 2000
F-2
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED MARCH 31,
-----------------------------
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2001 2000 1999
- --------------------------------------------------------------- --------- -------- --------
Net sales $103,095 $59,997 $37,596
Cost of goods sold 58,782 34,524 23,304
--------- -------- --------
Gross profit 44,313 25,473 14,292
--------- -------- --------
Operating expenses (income):
Selling, general and administrative 29,232 16,132 9,846
Research and development 5,082 3,360 2,927
Customer funded development (4,132) (1,611) (1,105)
--------- -------- --------
Total operating expenses 30,182 17,881 11,668
--------- -------- --------
Operating income 14,131 7,592 2,624
Interest expense, net of interest income of $20, $99 and $25
in 2001, 2000, and 1999, respectively 2,634 287 251
Other (income) expense (293) 17 49
--------- -------- --------
Income before income taxes 11,790 7,288 2,324
Income tax expense 2,829 1,757 595
--------- -------- --------
Net income $ 8,961 $ 5,531 $ 1,729
========= ======== ========
Earnings per common share
Basic $ 1.10 $ 0.73 $ 0.24
========= ======== ========
Diluted $ 0.99 $ 0.64 $ 0.23
========= ======== ========
Weighted average number of common and common equivalent
shares outstanding:
Basic 8,144 7,612 7,202
========= ======== ========
Diluted 9,045 8,696 7,476
========= ======== ========
The accompanying notes are an integral part of these statements.
F-3
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, MARCH 31,
($ IN THOUSANDS EXCEPT SHARE AMOUNTS) 2001 2000
- ------------------------------------------------------------- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 593 $ 1,882
Accounts receivable, trade, net of allowance for doubtful
accounts of $833 in 2001 and $318 in 2000 14,935 8,181
Inventories 31,868 9,136
Deferred income taxes 2,180 1,084
Prepaid expenses and other current assets 1,137 647
---------- ----------
Total current assets 50,713 20,930
---------- ----------
PROPERTY AND EQUIPMENT, NET 17,069 9,755
---------- ----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of
$973 in 2001 and $265 in 2000 12,606 5,553
Other intangible assets, net of accumulated amortization of
$178 in 2001 and $36 in 2000 1,089 741
Deferred income taxes 2,055 2,153
Other assets 2,805 479
---------- ----------
18,555 8,926
---------- ----------
Total Assets $ 86,337 $ 39,611
========== ==========
The accompanying notes are an integral part of these balance sheets.
F-4
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, MARCH 31,
($ IN THOUSANDS EXCEPT SHARE AMOUNTS) 2001 2000
- ---------------------------------------------------------------------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,000 $ 1,000
Accounts payable 13,713 6,827
Income taxes payable 2,103 621
Accrued compensation 2,579 1,654
Accrued acquisition costs 604 1,205
Accrued expenses and other current liabilities 4,118 3,600
----------- -----------
Total current liabilities 27,117 14,907
----------- -----------
OTHER LIABILITIES:
Long-term debt, net of current portion 32,736 9,000
Other liabilities 1,003 897
----------- -----------
33,739 9,897
----------- -----------
Total liabilities 60,856 24,804
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Serial preferred stock; 221,756 shares authorized; none outstanding
Common stock, no par value; 20,000,000 shares authorized;
8,333,340 and 7,979,840 shares issued and outstanding in 2001
and 2000, respectively 5,502 5,502
Additional paid-in capital 3,769 2,042
Retained earnings 16,225 7,264
Accumulated other comprehensive loss (15) (1)
----------- -----------
Total shareholders' equity 25,481 14,807
----------- -----------
Total Liabilities and Shareholder's Equity $ 86,337 $ 39,611
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-5
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended March 31, 2001, 2000 and 1999
-------------------------------------------------
Accumulated
Additional Other
Common paid-in Retained Comprehensive Comprehensive
($IN THOUSANDS EXCEPT SHARE AMOUNTS) stock capital Earnings Loss Total Income
- ------------------------------------------------------ ------- ---------- --------- -------------- -------- --------------
Balance, March 31, 1998 $ 5,502 $ 75 $ 4 $ (1) $ 5,580
Comprehensive income, March 31, 1999:
Net income - - 1,729 - 1,729 1,729
--------------
Comprehensive income $ 1,729
==============
163,000 common shares issued upon exercise of options - 233 - - 233
------- ---------- --------- -------------- --------
Balance, March 31, 1999 5,502 308 1,733 (1) 7,542
Comprehensive income, March 31, 2000:
Net income - - 5,531 - 5,531 5,531
--------------
Comprehensive income $ 5,531
==============
Tax benefit on exercise of options - 610 - - 610
652,266 common shares issued upon exercise of options - 1,124 - - 1,124
------- ---------- --------- -------------- --------
Balance, March 31, 2000 5,502 2,042 7,264 (1) 14,807
Comprehensive income, March 31, 2001:
Net income - - 8,961 - 8,961 8,961
Currency translation adjustment - - - (14) (14) (14)
--------------
Comprehensive income $ 8,947
==============
Tax benefit on exercise of options - 924 - - 924
353,500 common shares issued upon exercise of options - 803 - - 803
------- ---------- --------- -------------- --------
BALANCE, MARCH 31, 2001 $ 5,502 $ 3,769 $ 16,225 $ (15) $25,481
====================================================== ======= ========== ========= ============== ========
The accompanying notes are an integral part of these statements.
F-6
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended March 31,
------------------------------
($ IN THOUSANDS) 2001 2000 1999
- ------------------------------------------------------------------------ --------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,961 $ 5,531 $ 1,729
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 2,803 2,083 1,118
Provision for doubtful accounts 617 (8) 199
Provision for warranty 380 (80) 403
Deferred income taxes (998) 8 (56)
Tax benefit on exercise of stock options 924 610 -
Net changes in operating assets and liabilities, excluding the
effect of acquisitions:
Accounts receivable, trade (3,179) (1,020) (1,193)
Inventories (18,828) (3,417) 275
Prepaid expenses and other current assets (455) (324) 9
Other assets (841) (151) 73
Accounts payable, trade 3,757 2,760 831
Accrued expenses and other liabilities 2,034 2,137 86
--------- --------- --------
Net cash (used in) provided by operating activities (4,825) 8,129 3,474
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,653) (2,510) (898)
Purchases of intangible assets (40) (1,121) (110)
Acquisition of businesses, net of cash acquired (17,860) (12,368) (3,985)
--------- --------- --------
Net cash used in investing activities (23,553) (15,999) (4,993)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under bank line of credit agreement, net 14,736 - (21)
Proceeds from long term debt 25,000 10,000 4,000
Repayments of long term debt (13,000) (3,800) (200)
Payment of deferred financing costs (450) (283) (85)
Proceeds from exercise of options and warrants 803 1,124 233
--------- --------- --------
Net cash provided by financing activities 27,089 7,041 3,927
--------- --------- --------
Net change in cash and cash equivalents (1,289) (829) 2,408
Cash and cash equivalents, beginning of year 1,882 2,711 303
--------- --------- --------
Cash and cash equivalents, end of year $ 593 $ 1,882 $ 2,711
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 2,409 $ 368 $ 249
Income taxes 817 681 102
The accompanying notes are an integral part of these statements.
F-7
Notes to Consolidated Financial Statements
MARCH 31, 2001
($ IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS:
Description of business:
Measurement Specialties, Inc., a New Jersey Corporation, ("MSI" or "the
Company") is a designer and manufacturer of sensors and sensor-based consumer
products. The Company produces a wide variety of sensors that use advanced
technologies to measure precise ranges of physical characteristics, including
pressure, motion, force, displacement, angle, flow and distance. The Company
has a Sensor segment and a Consumer Products segment. The Sensor segment
designs and manufacturers sensors for leading original equipment manufacturers
for electronic, automotive, medical, military and industrial applications. The
sensor products include pressure sensors, custom microstructures and
accelerometers. The Consumer Products segment designs and manufacturers sensor
based consumer products which are sold to leading retailers and distributors in
both the United States and Europe. The consumer products include bathroom and
kitchen scales, tire pressure gauges, and distance estimators.
Principles of consolidation:
The consolidated financial statements include the accounts of MSI and its wholly
owned subsidiaries (the "Subsidiaries"); Measurement Limited, organized in Hong
Kong ("ML"), Jingliang Electronics (Shenzhen) Co. Ltd. ("JL"), organized in the
People's Republic of China ("China"), IC Sensors Inc. ("IC Sensors") and
Measurement Specialties, UK Limited, organized in the United Kingdom, all
collectively referred to as the "Company." As discussed in Note 2, on February
14, 2000, the Company acquired the stock of IC Sensors from Perkin Elmer Inc.
and on August 4, 2000, acquired certain assets and assumed certain liabilities
of the Schaevitz Sensors business based in Virginia and the United Kingdom
(collectively "Schaevitz") from TRW Components, Inc. (TRW). Results of
operations of acquired subsidiaries are included in the consolidated results of
operations from their date of acquisition. All significant intercompany balances
and transactions have been eliminated.
Use of estimates:
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions which affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash equivalents:
The Company considers highly liquid investments with maturities of up to three
months, when purchased, to be cash equivalents.
F-8
Inventories:
Inventories are stated at the lower of cost or market. The FIFO (first-in,
first-out) method is utilized to determine cost for the Company's inventories.
Property and equipment:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets, generally three to ten years. Leasehold improvements are
amortized over the shorter of the lease terms or the estimated useful lives of
the assets. Normal maintenance and repairs of property and equipment are
expensed as incurred. Renewals, betterments and major repairs that materially
extend the useful life of property and equipment are capitalized.
Income taxes:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes
("SFAS 109"). SFAS 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences between the
financial reporting and tax bases of existing assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Tax benefits from early disposition of the stock by employees of incentive stock
options and from exercise of non-qualified stock options are credited to
additional paid-in capital.
Foreign currency translation and transactions:
The functional currency of the Company's foreign operations is the applicable
local currency. The foreign subsidiaries' assets and liabilities are translated
into United States dollars using exchange rates in effect at the balance sheet
date and their operations are translated using the average exchange rates
prevailing during the year. The resulting translation adjustments are recorded
as a component of other comprehensive income (loss). Foreign currency
transaction gains and losses are included in operations.
Intangible assets:
Intangible assets, consisting of patents and covenants not to compete, are being
amortized on a straight-line basis over their estimated useful life which ranges
from three to ten years. Goodwill, which represents the excess of cost over the
net identifiable assets of acquired businesses is being amortized on a
straight-line basis over its estimated useful life which ranges from seven to
fifteen years. The Company continually evaluates whether events and
circumstances indicate that the remaining estimated useful life of intangible
assets may warrant revisions or that the remaining balance of intangibles or
other long-lived assets may not be recoverable. To make this evaluation, the
Company will estimate the future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition. Future cash flows are the
future cash inflows expected to be generated by an asset less the future cash
outflows expected to be necessary to obtain those inflows. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, the Company would recognize an impairment
loss. Management does not believe any such events have occurred.
F-9
Revenue recognition:
Revenue is recorded when products are shipped, at which time title generally
passes to the customer. Certain consumer products may be sold with a provision
allowing the customer to return a portion of products not sold to third party
customers. Upon shipment, the Company provides for allowances for returns and
warranties based upon historical and estimated return rates.
The Company utilizes manufacturing representatives as sales agents for certain
of the Company's products. Such representatives do not receive orders directly
from customers, take title to or physical possession of products, or invoice
customers. Accordingly, revenue is recognized upon shipment to the customer.
Certain consumer products are sold under "private label" arrangements with
various distributors. Such products are manufactured to the distributor's
specifications. The Company is not responsible for the ultimate sale to third
party customers and therefore records revenue upon shipment.
Research and development:
Research and development expenditures are expensed as incurred. Customer funding
is recognized as a reduction in research and development expense when earned.
Warranty reserve:
Consumer 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 historical 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.
Comprehensive income (loss):
Comprehensive income (loss) consists of net income or loss for the current
period and foreign currency translation adjustments. Comprehensive income (loss)
does not differ materially from net income of the Company.
Stock based compensation:
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"), the Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations ("APB 25") in accounting for its employee stock options. Under
APB 25, when 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 presented the additional pro forma disclosures
required by SFAS 123, in Note 11.
F-10
Interest rate swaps:
The Company uses interest rate swaps to manage interest rate risk. It has
entered into interest rate swap agreements which are intended as a hedge of
interest rate risk against specifically identified variable rate debt. The
differentials to be received or paid are recognized over the life of the
contract as an adjustment to interest expense. See Note 5 for further
discussion.
New accounting pronouncements:
In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133, as amended by SFAS No. 137 and SFAS No. 138, is effective for
fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS 133 requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement.
The Company adopted SFAS 133 as of April 1, 2001. Accounting for interest rate
swaps held by the Company will be affected by implementation of this standard.
The earnings impact of the transition adjustments related to the initial
adoption of the standard will not be material.
Shipping and handling costs:
In September 2000, the Financial Accounting Standards Board issued Emerging
Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and
Costs," which provides for shipping and handling costs to be recorded in cost of
sales. The Company adopted EITF 00-10 in the current year and has reclassified
prior year financial statements to conform to this presentation.
Reclassifications:
Certain reclassifications have been made to the prior year financial statements
in order to conform to the current year presentation.
2. ACQUISITIONS:
On August 4, 2000, the Company acquired Schaevitz. Schaevitz designs and
manufacturers a variety of tilt, displacement and pressure transducers and
transmitters in the United States and Europe which are sold worldwide. The
acquisition was accounted for as a purchase, and accordingly, the consolidated
financial statements include the operations of Schaevitz from the date of
acquisition. The purchase price of assets purchased and liabilities assumed was
based on management's preliminary estimate of fair values at the date of
acquisition. Therefore, the purchase price allocation may be revised based on a
change in these estimates. The aggregate cash paid was $17,860 (including
payment to TRW of $16,775 and closing costs of $1,085). The excess of the
F-11
purchase price over the net assets acquired (principally goodwill) of $6,998 is
being amortized over 15 years. The transaction was financed with a term loan
issued by a syndicate of lending institutions led by the Company's principal
bank. Net assets acquired were $10,862 consisting of the fair value of assets
acquired of $13,991 less liabilities assumed of $3,129. In connection with the
acquisition of Schaevitz, the Company recorded a liability of approximately $400
for severance and related costs. As of March 31, 2001 these costs have not yet
been paid. The Company expects that the termination of employees related to the
Schaevitz acquisition will be substantially complete within one year from the
acquisition date.
The following unaudited pro forma consolidated results of operations for the
years ended March 31 assume the Schaevitz acquisition had occurred as of April
1, 1999, giving effect to purchase accounting adjustments. The pro forma data
is for informational purposes only and may not necessarily reflect the actual
results of operations had Schaevitz been operated as part of the Company since
April 1, 1999. Adjustments to interest expense, goodwill amortization and income
taxes related to the Schaevitz acquisition are reflected in the pro forma data.
Year Ended March 31,
--------------------------
2001 2000
------------ ------------
(unaudited)
Net sales $ 112,053 $ 83,801
Net income 8,243 4,855
Earnings per
common share
BASIC $ 1.01 $ 0.64
============ ============
DILUTED $ 0.91 $ 0.56
============ ============
On February 14, 2000, the Company acquired IC Sensors, Inc from PerkinElmer Inc.
IC Sensors designs, manufactures and markets micromachined silicon pressure
sensors, accelerometers and microstructures. The acquisition was accounted for
as a purchase, and accordingly, the consolidated financial statements include
the operations of IC Sensors from the date of acquisition. The aggregate cash
paid was $12,368 (including payment to PerkinElmer of $12,000 and closing costs
of $368). The excess of the purchase price over the net assets acquired
(principally goodwill) of $3,177 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 $9,191 consisting of the fair value of assets
acquired of $10,451 less liabilities assumed of $1,260. In connection with the
acquisition of IC Sensors Inc., the Company recorded a liability of
approximately $350 for severance and related costs. As of March 31, 2001 these
costs have been paid.
The following unaudited pro forma consolidated results of operations for the
year ended March 31, 2000 assumes the IC Sensors acquisition had occurred as of
April 1, 1999, giving effect to purchase accounting adjustments. The pro forma
data is for informational purposes only and may not necessarily reflect the
actual results of operations had IC Sensors been operated as part of the Company
since April 1, 1999. Adjustments to interest expense, goodwill amortization and
income taxes related to IC Sensors acquisition are reflected in the pro forma
data.
F-12
Year Ended
March 31, 2000
-----------------
(unaudited)
Net sales $ 70,727
Net income 1,320
Earnings per
common share
BASIC $ 0.17
=================
DILUTED $ 0.15
=================
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 three. 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 and liabilities assumed of $156. Goodwill of $956 is being amortized
over 7 years.
3. INVENTORIES:
Inventories are summarized as follows:
March 31,
---------------
2001 2000
------- ------
Raw materials $ 9,431 $2,895
Work in process 3,266 2,033
Finished goods 19,171 4,208
------- ------
$31,868 $9,136
======= ======
4. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
March 31,
-----------------------------------
2001 2000 Useful Life
--------- -------- --------------
Production machinery and equipment $ 19,582 $10,684 5-7 years
Tooling costs 2,022 994 5-7 years
Furniture and equipment 3,694 2,288 3-10 years
Remaining term
Leasehold Improvements 3,148 2,561 of the lease
Construction in Progress 1,152 - -
--------- --------
Total 29,598 16,527
Less: accumulated depreciation
and amortization (12,529) (6,772)
--------- --------
$ 17,069 $ 9,755
========= ========
Depreciation expense was $1,953, $1,744, and $973 for the years ended March 31,
2001, 2000, and 1999, respectively.
F-13
5. LONG-TERM DEBT:
Long-term debt is summarized as follows:
March 31,
----------------
2001 2000
------- -------
Borrowings under bank line of credit $14,736 $ -
Term loan 22,000 10,000
------- -------
Total long-term debt 36,736 10,000
Less: current portion 4,000 1,000
------- -------
$32,736 $ 9,000
======= =======
In August 2000, the Company renegotiated its bank line of credit (the terms of
which were modified in February 2001). The new agreement increased the maximum
amount available from $10,000 to $17,000 until the agreement's expiration in
August 2002. The Company may also borrow up to 3,500 in British Pounds.
Borrowings are limited to the sum of eligible Accounts Receivable and Inventory,
as defined, 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 LIBOR plus 2.75% (7.33% as
of March 31, 2001). Should the Company achieve certain financial ratios, the
lowest rate becomes the lesser of the bank's prime rate plus 0.50% or a LIBOR
rate plus 2.25%. The agreement requires annual payment of a commitment fee equal
to 0.375% of the unutilized available balance.
In connection with the acquisition of Schaevitz, the Company repaid the then
outstanding balance of a previous term loan and entered into a $25,000 term loan
agreement with the Company's principal bank. The term loan bears interest at a
LIBOR rate plus 3.25% (8.13% and 6.29% as of March 31, 2001 and 2000,
respectively). The term loan requires quarterly principal payments of $1,000
through 2007. The term loan is collateralized by a senior security interest in
substantially all of the Company's assets. Additional principal payments are
required from a portion of the net proceeds of any issuance of additional equity
securities.
Under the terms of both facilities, 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 was in compliance with these
requirements as of March 31, 2001.
The aggregate maturities of long-term debt as of March 31, 2001 are as follows:
F-14
Principal
Fiscal Year Repayments
----------- -----------
2002 $ 4,000
2003 18,736
2004 4,000
2005 4,000
2006 4,000
2007 2,000
-----------
Total $ 36,736
===========
As a hedge of its interest rate risk associated with the term loan, the Company
entered into two Interest Rate Swap Agreements (the "Swaps"). The Swaps have an
initial notional amount of $14,000 and mature June 2004. The Swaps require the
Company to pay a fixed rate of 6.98% (an effective rate of 10.23%) and receive a
floating rate of 6.75% (an effective weighted average floating rate of 10.0%).
The notional reduction of the Swaps are as follows:
Notional
Reduction
Fiscal Year (in millions)
----------- --------------
2002 $ 7.0
2003 2.0
2004 2.0
2005 3.6
The Company believes that the carrying amount of its outstanding indebtedness
approximates fair value because the interest rates on such indebtedness are at
floating short-term rates. Based on the fair value of the outstanding interest
rate swap agreements at March 31, 2001, the Company would have incurred a loss
of approximately $249, representing the amount that would be payable by the
Company if the interest rate swaps were terminated at such date.
6. 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. Each share of common stock has one
vote. The Board of Directors (the "Board") has not designated 978,244 authorized
shares.
JL is subject to certain Chinese government regulations, including currency
exchange controls, which limit cash dividends and loans to ML and MSI. At March
31, 2001 and 2000, JL's restricted net assets approximated $6,281 and $3,983,
respectively.
7. BENEFIT PLANS:
Defined Contribution Plan:
MSI has a qualified defined contribution plan under section 401(k) of the
Internal Revenue Code. Substantially all its employees are eligible to
participate after completing three months of service. Participants may elect to
contribute a portion of their compensation to the plan. MSI matches a portion
F-15
of participants' contributions and, at the discretion of the Board, may make
profit sharing contributions. For the years ended March 31, 2001, 2000, and
1999, matching participants contributions were $463, $164, and $78,
respectively. No profit sharing contributions were made for 2001, 2000 or 1999.
Defined Benefit Plans:
MSI provides a contributory defined benefit retirement plan for certain
Schaevitz United Kingdom employees.
The following tables set forth reconciliations of the beginning and ending
balances of the benefit obligation, fair value of plan assets, funded status and
amounts recognized in the Consolidated Balance Sheets included in other assets
related to the defined benefit plans.
CHANGE IN BENEFIT OBLIGATION: MARCH 31, 2001
----------------
Benefit obligation at beginning of year $ -
Service cost 142
Interest cost 115
Plan participants' contributions 37
Acquisition 3,458
Actuarial (gain)/loss (890)
----------------
Benefit obligation at end of year $ 2,862
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ -
Actual return on plan assets (74)
Acquisition 5,774
Plan participants' contributions 37
----------------
Fair value of plan assets at end of year $ 5,737
----------------
RECONCILIATION OF FUNDED STATUS:
Funded status $ 2,678
Unrecognized net actuarial loss/(gain) (548)
----------------
Net amount recognized $ 2,130
================
In determining the projected benefit obligation, the weighted-average assumed
discount rate was 6.00%. The expected long-term rate of return on assets, used
in determining net periodic pension cost was 7.50% and the rate of compensation
increase used to measure the projected benefit obligation was 4.00%.
The net periodic pension cost included the following components:
YEAR ENDED
MARCH 31, 2001
----------------
Service cost $ 142
Interest cost 115
Expected return on plan assets (267)
----------------
Net periodic pension cost $ (10)
================
F-16
8. MAJOR CUSTOMERS:
A United States manufacturer and distributor of electric house-wares accounted
for 20 percent and 17 percent of net sales for 2000, and 1999, respectively. A
German distributor of diversified housewares accounted for 14 percent and 20
percent of net sales for 2000 and 1999, respectively, and 9 percent of total
accounts receivable at March 31, 2000. Both customers are in the Company's
Consumer Products segment.
9. INCOME TAXES:
Income before income taxes consists of the following:
2001 2000 1999
======= ====== ======
Domestic $ 5,403 $2,384 $1,117
Foreign 6,387 4,904 1,207
------- ------ ------
$11,790 $7,288 $2,324
======= ====== ======
The income tax provision (benefit) consists of the following:
2001 2000 1999
======= ======= ======
Current:
Federal $2,610 $ 939 $ 416
Foreign 820 670 214
State 397 140 21
------- ------- ------
Total current 3,827 1,749 651
------- ------- ------
Deferred:
Federal (812) 55 (30)
Foreign (65) (47) (34)
State (121) - 8
------- ------- ------
Total deferred (998) 8 (56)
------- ------- ------
$2,829 $1,757 $ 595
======= ======= ======
Differences between the federal statutory income tax rate and the effective tax
rates are as follows:
2001 2000 1999
====== ====== ======
Statutory tax rate 34.0% 34.0 % 34.0 %
Effect of foreign taxes (12.0) (14.3) (10.0)
State taxes and other 2.0 4.4 1.5
------ ------ ------
24.0% 24.1 % 25.5%
====== ====== ======
The Company's share of cumulative undistributed earnings of foreign subsidiaries
were approximately $13,022 and $6,635 at March 31, 2001 and 2000, respectively.
No provision has been made for U.S. or additional foreign taxes on the
undistributed earnings of foreign subsidiaries because such earnings are
expected to be reinvested indefinitely in the subsidiaries' operations. It is
not practical to estimate the amount of additional tax that might be payable on
these foreign earnings in the event of distribution or sale. However, under
existing law, foreign tax credits would be available to substantially reduce, or
in some cases, eliminate U.S taxes payable.
F-17
Pursuant to current Chinese tax policies, JL qualifies for a special state
corporate tax rate of 15 percent. Additionally, because JL has agreed to operate
in China for a minimum of ten years, a tax holiday (which expired on March 31,
1998) was available for two years, and a 50 percent tax rate reduction to 7.5
percent (which expired on March 31, 2001) was available for the three years
thereafter. After the expiration of the tax holiday, JL is expected to qualify
for a reduction of the tax rate to 10 percent, provided it exports a minimum of
70 percent of its production. Furthermore, if JL's profits are reinvested in
qualified activities in China for a minimum of five years, it may obtain a
rebate of 40 percent of the taxes paid on the reinvested profits. Although JL's
undistributed earn-ings are expected to be permanently reinvested, the Company
does not intend to recognize the potential rebate until it is real-ized. The
Hong Kong corporate tax rate, at which ML's earnings are taxed, is 16 percent.
The significant components of the net deferred tax assets consist of the
following:
Year ended March 31,
2001 2000
------- -------
Current deferred tax assets:
Accrued expenses $ 539 $ 343
Inventory 682 588
Accounts receivable allowance 785 129
Other 174 24
------- -------
Total $2,180 $1,084
------- -------
Long term deferred tax assets (liabilities):
Basis difference in acquired property and equipment $2,648 $2,676
Valuation allowance (500) (500)
Other (93) (23)
------- -------
Total $2,055 $2,153
------- -------
The deferred tax assets resulting from the basis difference in acquired property
and equipment is net of a valuation allowance of approximately $500,000, which
if realized, will further reduce goodwill relating to the IC Sensors
acquisition.
10. PER SHARE INFORMATION:
Basic per share information is computed based on the weighted average common
shares outstanding during each period. Diluted per share information
additionally considers the shares that may be issued upon exercise or conversion
of stock options, less the shares that may be repurchased with the funds
received from their exercise.
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 issue date). Prior periods
have been restated to reflect the split.
F-18
The following is a reconciliation of the numerators and denominators of basic
and diluted EPS computations:
Income Shares Per share
(Numerator) (Denominator) Amount
------------ ------------- ----------
March 31, 2001
Basic per share information $ 8,961 8,144 $ 1.10
Effect of dilutive securities 901
------------ ------------- ----------
Diluted per share information $ 8,961 9,045 $ 0.99
------------ ------------- ----------
March 31, 2000
Basic per share information $ 5,531 7,612 $ 0.73
Effect of dilutive securities 1,084
------------ ------------- ----------
Diluted per share information $ 5,531 8,696 $ 0.64
------------ ------------- ----------
March 31, 1999
Basic per share information $ 1,729 7,202 $ 0.24
Effect of dilutive securities 274
------------ ------------- ----------
Diluted per share information $ 1,729 7,476 $ 0.23
------------ ------------- ----------
11. STOCK OPTION PLANS:
Options to purchase up to 1,828,000 common shares may be granted under MSI's
1995 Stock Option Plan and its predecessor plan (together the "1995 Plan"),
until its expiration on September 8, 2005. Shares issuable under 1995 Plan
grants which expire or otherwise terminate without being exercised become
available for later issuance. All shares eligible for grant were issued prior
to March 31, 1999.
Options to purchase up to 1,500,000 shares may be granted under the Company's
1998 Stock Option Plan, (the "1998 Plan") 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. The
aggregate numbers of shares available for grants of options under the 1998 Plan
were 639,008 and 1,290,550 as of March 31, 2001 and March 31, 2000,
respectively. A total of 818,692 and 199,450 were outstanding at March 31, 2001
and March 31, 2000, respectively.
Options under all Plans 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. Tax benefits are recognized upon nonqualified exercises and
disqualifying dispositions of shares acquired by qualified exercises. There were
no changes in the exercise prices of outstanding options, through cancellation
and reissuance or otherwise, for 2001, 2000, or 1999.
A summary of the status of stock options as of March 31, 2001, 2000, and 1999
and changes during the years ended on those dates is presented below:
F-19
Number of shares
------------------------ Weighted average
Outstanding Exercisable exercise price
------------ ----------- --------------
March 31, 1998 1,697,200 1,054,200 1.99
Granted at market 314,000 1.42
Forfeited (170,000) 2.55
Exercised (163,000) 1.42
------------ -----------
March 31, 1999 1,678,200 988,532 1.88
Granted at market 130,450 6.28
Forfeited (52,000) 2.23
Exercised (652,266) 1.75
------------ -----------
March 31, 2000 1,104,384 601,400 2.46
Granted at market 633,542 15.14
Forfeited (13,800) 8.81
Exercised (353,500) 2.28
------------ -----------
MARCH 31, 2001 1,370,626 473,924 2.71
============ ===========
Summarized information about stock options outstanding at March 31, 2001
follows:
Number of Weighted average
underlying shares Exercise price Weighted average
======================== Exercise ========================== remaining
Outstanding Exercisable Price range Outstanding Exercisable contractual life
=========== =========== ================ ============ ============ =============
354,934 290,934 $ 1.75 - $2.44 $ 2.17 $ 2.24 3.59 years
214,392 96,390 2.50 - 12.63 7.15 5.29 5.04
468,800 - 14.19 - 14.19 14.19 - 7.18
83,500 - 17.50 - 20.69 20.05 - 7.74
10,000 - 21.63 - 21.63 21.63 - 7.76
12,000 - 24.88 - 24.88 24.88 - 7.57
227,000 86,600 1.38 - 1.38 1.38 1.38 5.48
=========== =========== ------------ ------------ -------------
1,370,626 473,924 $ 8.36 $ 2.71 $ 5.67
=========== =========== ------------ ------------ -------------
The Company accounts for transactions in which employees receive equity
instruments of the employer using the intrinsic value based method in accordance
with Accounting Principles Board Opinion ("APB") 25. Accordingly, no
compensation cost has been recognized for employee stock option grants. Had the
Company adopted the fair value based method for employee stock options at grant
dates, the Company's pro forma net income for 2001, 2000, and 1999 would have
been reduced to $7,951 ($0.98 per basic share and $0.88 per diluted share),
$5,257 ($0.69 per basic share and $0.60 per diluted share), and $1,562 ($0.22
per basic share and $0.21 per diluted share), respectively. Based on
calculations using the Black-Scholes option-pricing model, the weighted average
fair value of options granted in 2001, 2000, and 1999 for which the exercise
prices equaled the fair market value of such shares at the date of grant was
$7.93, $3.68 and $0.96 per share, respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model (single grant assumption with straight-line amortization) with the
following weighted-average assumptions:
2001 2000 1999
===== ===== =====
Expected volatility 53 % 63% 81%
Risk free interest rate 5.8 % 5.9% 4.7%
Dividend yield - - -
Expected life in years 5 5 5
F-20
12. COMMITMENTS AND CONTINGENCIES:
The Company leases certain property and equipment under noncancellable operating
leases expiring on various dates through July 2011. Rent expense, including real
estate taxes, insurance and maintenance expenses associated with net operating
leases approximated $1,864 for 2001, $1,050 for 2000, and $831 for 1999. At
March 31, 2001, total minimum rentals under operating leases with initial or
remaining noncancellable lease terms of more than one year were:
Year ending March 31,
---------------------
2002 $2,243
2003 1,573
2004 962
2005 928
2006 617
Thereafter 3,407
The Company is involved in various legal proceedings that are incidental to the
normal course of business. The Company does not expect that any of the
proceedings will have a material adverse effect on the Company's financial
position or results of operations.
13. SEGMENT INFORMATION:
The Company's reportable segments are strategic business units that operate in
different industries and are managed separately. Segment data have been
presented on a basis consistent with how business activities are reported
internally to management. For additional information, including a description
of the products and services included in each segment, see Note 1.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies.
The Company has no material intersegment sales.
At March 31, 2001 the foreign Subsidiaries' total assets aggregated $29,033 of
which $11,540 was in the United Kingdom, $12,763 were in Hong Kong and $4,730 in
China. At March 31, 2000, the foreign Subsidiaries' total assets aggregated
$10,650 of which $5,185 were in Hong Kong and $5,465 were in China. The Company
is potentially subject to the risks of foreign currency transaction and
translation losses which might result from fluctuations in the values of the
Hong Kong dollar and the Chinese renminbi. At March 31, 2001, the foreign
Subsidiaries had net liabilities of $4,449 subject to fluctuation in the value
of the Hong Kong dollar, net assets of $8,388 subject to fluctuation in the
value of the British Pound, and net assets of $12,620 subject to fluctuation in
the value of the Chinese renminbi. The foreign Subsidiaries' operations reflect
intercompany transfers of costs and expenses, including interest on intercompany
trade receivables, at amounts established by the Company.
The following is information related to industry segments:
F-21
2001 2000 1999
========= ======== ========
Net Sales:
Consumer Products $ 54,036 $44,123 $30,526
Sensors 49,059 15,874 7,070
--------- -------- --------
Total $103,095 $59,997 $37,596
--------- -------- --------
Operating Income:
Consumer Products $ 10,505 $ 9,302 $ 5,862
Sensors 9,900 3,275 437
--------- -------- --------
Total segment operating
Income 20,405 12,577 6,299
Unallocated expenses (6,274) (4,985) (3,675)
--------- -------- --------
Total operating income 14,131 7,592 2,624
--------- -------- --------
Interest expense, net of
interest income (2,634) (287) (251)
Other (expense) income 293 (17) (49)
--------- -------- --------
Income before taxes $ 11,790 $ 7,288 $ 2,324
--------- -------- --------
Depreciation and Amortization:
Consumer Products $ 821 $ 1,079 $ 719
Sensors 1,982 1,004 399
--------- -------- --------
Total $ 2,803 $ 2,083 $ 1,118
--------- -------- --------
Segment Assets:
Consumer Products $ 18,965 $12,505 $ 9,033
Sensors 62,247 23,672 6,191
Unallocated 5,125 3,434 3,311
--------- -------- --------
Total $ 86,337 $39,611 $18,535
--------- -------- --------
Capital expenditures:
Consumer Products $ 1,455 $ 841 $ 777
Sensors 4,198 1,669 121
--------- -------- --------
Total $ 5,653 $ 2,510 $ 898
--------- -------- --------
Unallocated amounts include general corporate expenses and assets, which consist
mainly of cash and other assets not attributable to any reportable segment.
The following represents information about the Company's foreign operations:
2001 2000 1999
======== ======= =======
Net Sales:
Germany $ 11,046 $ 9,835 $ 9,056
Other Europe 15,673 5,857 3,585
Other 9,155 1,351 1,705
United States 67,221 42,954 23,250
-------- ------- -------
Total $103,095 $59,997 $37,596
-------- ------- -------
F-22
Total Assets are as follows:
2001 2000 1999
======= ======= =======
Hong Kong $ 1,449 $ 707 $ 543
China 6,686 1,936 862
United Kingdom 5,706 - -
United States 72,496 36,968 17,130
------- ------- -------
Total $86,337 $39,611 $18,535
------- ------- -------
14. CONCENTRATIONS:
Financial instruments which potentially subject the Company to significant
concentrations of credit risk principally are cash investments and trade
accounts receivable.
The Company generally maintains its cash and cash equivalents at major financial
institutions in the United States, United Kingdom, Hong Kong and China. Cash
held in foreign institutions amounted to $487 and $887 at March 31, 2001 and
2000, respectively. The Company periodically evaluates the relative credit
standing of financial institutions considered in its cash investment strategy.
Accounts receivable are concentrated in the United States and European
distributors and retailers of consumer products. To limit credit risk, the
Company evaluates the financial condition and trade payment experience of
customers to whom credit is extended. The Company generally does not require
customers to furnish collateral, though certain foreign customers furnish
letters of credit.
The Company manufactures the substantial majority of its sensor products, and
most of its sensor subassemblies used in its consumer products, in leased
premises located in Shenzhen, China. Sensors are also manufactured at the
Company's United States facilities located in Virgina, California, and
Pennsylvania and its Slough, United Kingdom facility. Additionally, certain key
management, sales and support activities are conducted at leased premises in
Hong Kong. Substantially all of the Company's consumer products are assembled in
China, primarily by a single supplier, River Display, Ltd. ("RDL"), although the
Company is utilizing alternative Chinese assemblers. There are no agreements
which would require the Company to make minimum payments to RDL, nor is RDL
obligated to maintain capacity available for the Company's benefit, though the
Company accounts for a significant portion of RDL's revenues. Additionally, most
of the Company's products contain key components which are obtained from a
limited number of sources. These concentrations in external and foreign sources
of supply present risks of interruption for reasons beyond the Company's
control, including, with respect to China, political, economic and legal
uncertainties.
F-23
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
ENDED JUNE 30 ENDED SEPT. 30 ENDED DEC. 31 ENDED MARCH 31
============== =============== ============== ================
YEAR ENDED
MARCH 31, 2001
Net sales $ 16,302 $ 28,237 $ 34,330 $ 24,226
Gross profit 7,087 11,467 12,945 12,814
Net Income 1,196 2,816 3,148 1,805
EPS basic 0.15 0.35 0.38 0.22
EPS diluted 0.14 0.32 0.35 0.20
YEAR ENDED
MARCH 31, 2000
Net sales $ 12,021 $ 15,445 $ 15,960 $ 16,571
Gross profit 5,246 6,392 6,566 7,269
Net Income 1,008 1,720 1,868 935
EPS basic 0.14 0.23 0.25 0.12
EPS diluted 0.12 0.20 0.22 0.11
Earnings per share are computed independently for each of the quarters
presented, on the basis described in Note 1. The sum of the quarters may not be
equal to the full year earnings per share amounts.
16. SUBSEQUENT EVENTS:
On March 29, 2001, the Company filed a registration statement with the
Securities and Exchange Commission to issue 1,750,000 shares of common stock.
The Company intends to utilize a portion of the proceeds of the offering to fund
the proposed acquisition discussed below.
On June 7, 2001, the Company signed an agreement to purchase all of the
outstanding shares of Terraillon Holdings Limited, "Terraillon" a European
manufacturer of branded consumer bathroom and kitchen scales. The Company
expects to consummate this acquisition shortly after the closing date of the
offering. The Company will pay a total of approximately $17,000 to acquire
Terraillon. The purchase price will be paid as follows: (i) $4,960 in cash and
(ii) 390,494 in shares of our common stock. In addition, we will pay the
majority stockholder of Terraillon $5.24 million to forgive an equal amount of
indebtedness owed to it by Terraillon. Additionally, the Company will assume up
to $4,000 of Terraillon debt.
F-24
MEASUREMENT SPECIALTIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
March 31, 2001
- --------------------------------- ---------- ------------------------ ------------ ----------
Col. A Col. B Col. C Col. D Col. E
- --------------------------------- ---------- ------------------------ ------------ ----------
Description Balance at Additions Deductions Balance at
Beginning ------------------------ Describe End
Of Period of Period
(1) (2)
Charged to Charged to
Costs and Other
Expenses Accounts
Describe
- --------------------------------- ---------- ---------- ------------ ------------ ----------
Year ended March 31, 2001
Deducted from asset accounts:
Allowance for doubtful accounts $ 318 $ 617 $ - $ (102) (a) $ 833
Sales Return Reserve 80 443 - (186) (b) 337
Year ended March 31, 2000
Deducted from asset accounts:
Allowance for doubtful accounts $ 326 $ (8) $ - $ - $ 318
Sales Return Reserve 63 17 - - 80
Year ended March 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 363 $ 199 $ - $ (236) (a) $ 326
Sales Return Reserve 14 49 - - 63
(a) Bad debts written-off, net of recoveries
(b) Actual returns received
S-1