UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(MARK
ONE)
x
QUARTERLY REPORT PURSUANT
TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR
THE FISCAL QUARTERLY PERIOD ENDED JUNE 30, 2009
OR
¨
TRANSITION REPORT
PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
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
INCORPORATION
OR ORGANIZATION)
|
|
(I.R.S.
EMPLOYER
IDENTIFICATION
NO. )
|
1000 LUCAS WAY, HAMPTON, VA
23666
(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)
(757)
766-1500
(REGISTRANT’S
TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x
No ¨ .
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
¨ No ¨.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check
one):
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of 1934). Yes ¨
No x
..
Indicate
the number of shares outstanding of each of the issuer’s classes of stock, as of
the latest practicable date: At July 31, 2009, the number of shares
outstanding of the Registrant’s common stock was 14,485,937.
MEASUREMENT
SPECIALTIES, INC.
FORM
10-Q
TABLE OF
CONTENTS
JUNE 30,
2009
PART
I.
|
FINANCIAL
INFORMATION
|
|
3
|
|
|
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
|
3
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
3
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
4
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
|
|
6
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
7
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
8
|
|
|
|
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
|
20
|
|
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
30
|
|
|
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
|
31
|
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
31
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
|
31
|
|
|
|
|
ITEM
1A.
|
RISK
FACTORS
|
|
31
|
|
|
|
|
ITEM
6.
|
EXHIBITS
|
|
32
|
|
|
|
|
SIGNATURES
|
|
33
|
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
MEASUREMENT
SPECIALTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
|
|
Three Months Ended June 30,
|
|
(Amounts in thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$ |
44,741 |
|
|
$ |
58,998 |
|
Cost
of goods sold
|
|
|
28,490 |
|
|
|
33,757 |
|
Gross
profit
|
|
|
16,251 |
|
|
|
25,241 |
|
Selling,
general, and administrative expenses
|
|
|
17,332 |
|
|
|
19,587 |
|
Operating
income (loss)
|
|
|
(1,081 |
) |
|
|
5,654 |
|
Interest
expense, net
|
|
|
1,168 |
|
|
|
706 |
|
Foreign
currency exchange gain
|
|
|
(536 |
) |
|
|
(63 |
) |
Other
expense (income)
|
|
|
19 |
|
|
|
(421 |
) |
Income
(loss) before income taxes
|
|
|
(1,732 |
) |
|
|
5,432 |
|
Provision
(benefit) for income taxes
|
|
|
(367 |
) |
|
|
1,500 |
|
Net
income (loss)
|
|
|
(1,365 |
) |
|
|
3,932 |
|
Less: Net
income attributable to noncontrolling interest
|
|
|
112 |
|
|
|
77 |
|
Net
income (loss) attributable to Measurement Specialties, Inc.
("MEAS")
|
|
$ |
(1,477 |
) |
|
$ |
3,855 |
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
Net
income (loss) - Basic
|
|
$ |
(0.10 |
) |
|
$ |
0.27 |
|
Net
income (loss) - Diluted
|
|
$ |
(0.10 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - Basic
|
|
|
14,486 |
|
|
|
14,448 |
|
Weighted
average shares outstanding - Diluted
|
|
|
14,486 |
|
|
|
14,529 |
|
See
accompanying notes to condensed consolidated financial statements.
MEASUREMENT
SPECIALTIES, INC. AND SUBSIDIARIES
CONSENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands)
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
23,444 |
|
|
$ |
23,483 |
|
Accounts
receivable trade, net of allowance for doubtful accounts of $885 and $898,
respectively
|
|
|
26,231 |
|
|
|
28,830 |
|
Inventories,
net
|
|
|
43,216 |
|
|
|
45,384 |
|
Deferred
income taxes, net
|
|
|
2,080 |
|
|
|
2,067 |
|
Prepaid
expenses and other current assets
|
|
|
3,493 |
|
|
|
3,968 |
|
Other
receivables
|
|
|
789 |
|
|
|
458 |
|
Due
from joint venture partner
|
|
|
1,669 |
|
|
|
1,824 |
|
Promissory
note receivable
|
|
|
283 |
|
|
|
283 |
|
Income
taxes receivable
|
|
|
799 |
|
|
|
- |
|
Total
current assets
|
|
|
102,004 |
|
|
|
106,297 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
46,446 |
|
|
|
46,875 |
|
Goodwill
|
|
|
99,849 |
|
|
|
99,176 |
|
Acquired
intangible assets, net
|
|
|
27,620 |
|
|
|
27,478 |
|
Deferred
income taxes, net
|
|
|
926 |
|
|
|
2,985 |
|
Other
assets
|
|
|
1,744 |
|
|
|
1,319 |
|
Total
assets
|
|
$ |
278,589 |
|
|
$ |
284,130 |
|
See
accompanying notes to condensed consolidated financial
statements.
MEASUREMENT
SPECIALTIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share amounts)
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Current
portion of promissory notes payable
|
|
$ |
2,303 |
|
|
$ |
2,176 |
|
Current
portion of long-term debt
|
|
|
2,329 |
|
|
|
2,356 |
|
Current
portion of capital lease obligations
|
|
|
679 |
|
|
|
797 |
|
Accounts
payable
|
|
|
12,051 |
|
|
|
15,381 |
|
Accrued
expenses
|
|
|
4,375 |
|
|
|
3,041 |
|
Accrued
compensation
|
|
|
6,343 |
|
|
|
5,656 |
|
Income
taxes payable
|
|
|
- |
|
|
|
1,838 |
|
Other
current liabilities
|
|
|
3,933 |
|
|
|
3,394 |
|
Total
current liabilities
|
|
|
32,013 |
|
|
|
34,639 |
|
|
|
|
|
|
|
|
|
|
Revolver
|
|
|
66,435 |
|
|
|
71,407 |
|
Promissory
notes payable, net of current portion
|
|
|
4,606 |
|
|
|
4,352 |
|
Long-term
debt, net of current portion
|
|
|
12,235 |
|
|
|
12,769 |
|
Capital
lease obligations, net of current portion
|
|
|
214 |
|
|
|
250 |
|
Other
liabilities
|
|
|
1,120 |
|
|
|
1,085 |
|
Total
liabilities
|
|
|
116,623 |
|
|
|
124,502 |
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Measurement
Specialties, Inc. ("MEAS") shareholders' equity:
|
|
|
|
|
|
|
|
|
Serial
preferred stock; 221,756 shares authorized; none
outstanding
|
|
|
- |
|
|
|
- |
|
Common
stock, no par; 25,000,000 shares authorized; 14,485,937 and 14,483,622
shares issued and outstanding, respectively
|
|
|
- |
|
|
|
- |
|
Additional
paid-in capital
|
|
|
82,550 |
|
|
|
81,948 |
|
Retained
earnings
|
|
|
65,741 |
|
|
|
67,218 |
|
Accumulated
other comprehensive income
|
|
|
11,162 |
|
|
|
8,110 |
|
Total
MEAS shareholders' equity
|
|
|
159,453 |
|
|
|
157,276 |
|
Noncontrolling
interest
|
|
|
2,513 |
|
|
|
2,352 |
|
Total
equity
|
|
|
161,966 |
|
|
|
159,628 |
|
Total
liabilities and shareholders' equity
|
|
$ |
278,589 |
|
|
$ |
284,130 |
|
See
accompanying notes to condensed consolidated financial statements.
MEASUREMENT
SPECIALTIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
AND
COMPREHENSIVE INCOME
FOR
THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
|
|
|
Comprehensive
|
|
(Dollars in thousands)
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Interest
|
|
|
Total
|
|
|
Income (Loss)
|
|
Balance, March
31, 2008
|
|
|
14,440,848 |
|
|
$ |
78,720 |
|
|
$ |
61,939 |
|
|
$ |
15,130 |
|
|
$ |
1,953 |
|
|
$ |
157,742 |
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
- |
|
|
|
3,855 |
|
|
|
- |
|
|
|
77 |
|
|
|
3,932 |
|
|
$ |
3,932 |
|
Currency
translation adjustment
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
(433 |
) |
|
|
(181 |
) |
|
|
(614 |
) |
|
|
(614 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,318 |
|
Non-cash
equity based compensation (SFAS 123R)
|
|
|
|
|
|
|
798 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
798 |
|
|
|
|
|
Amounts
from exercise of stock options
|
|
|
16,252 |
|
|
|
159 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
159 |
|
|
|
|
|
Balance, June
30, 2008
|
|
|
14,457,100 |
|
|
$ |
79,677 |
|
|
$ |
65,794 |
|
|
$ |
14,697 |
|
|
$ |
1,849 |
|
|
$ |
162,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March
31, 2009
|
|
|
14,483,622 |
|
|
$ |
81,948 |
|
|
$ |
67,218 |
|
|
$ |
8,110 |
|
|
$ |
2,352 |
|
|
$ |
159,628 |
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
|
|
|
|
- |
|
|
|
(1,477 |
) |
|
|
- |
|
|
|
112 |
|
|
|
(1,365 |
) |
|
$ |
(1,365 |
) |
Currency
translation adjustment
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
3,052 |
|
|
|
49 |
|
|
|
3,101 |
|
|
|
3,101 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,736 |
|
Non-cash
equity based compensation (SFAS 123R)
|
|
|
|
|
|
|
600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
600 |
|
|
|
|
|
Amounts
from exercise of stock options
|
|
|
2,315 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
|
|
Balance, June
30, 2009
|
|
|
14,485,937 |
|
|
$ |
82,550 |
|
|
$ |
65,741 |
|
|
$ |
11,162 |
|
|
$ |
2,513 |
|
|
$ |
161,966 |
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
MEASUREMENT
SPECIALTIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended June 30,
|
|
(Amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(1,365 |
) |
|
$ |
3,932 |
|
Adjustments
to reconcile net income to net cash provided by operating activities from
continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,730 |
|
|
|
3,337 |
|
Loss
on sale of assets
|
|
|
36 |
|
|
|
19 |
|
Non-cash
equity based compensation (SFAS 123R)
|
|
|
600 |
|
|
|
798 |
|
Deferred
income taxes
|
|
|
80 |
|
|
|
(67 |
) |
Net
change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, trade
|
|
|
3,162 |
|
|
|
4,089 |
|
Inventories
|
|
|
3,166 |
|
|
|
(2,589 |
) |
Prepaid
expenses, other current assets and other receivables
|
|
|
442 |
|
|
|
(104 |
) |
Other
assets
|
|
|
195 |
|
|
|
220 |
|
Accounts
payable
|
|
|
(4,195 |
) |
|
|
(901 |
) |
Accrued
expenses, accrued compensation, other current and other
liabilities
|
|
|
2,298 |
|
|
|
(239 |
) |
Income
taxes payable and income taxes receivable
|
|
|
(908 |
) |
|
|
827 |
|
Net
cash provided by operating activities from continuing
operations
|
|
|
7,241 |
|
|
|
9,322 |
|
Cash
flows from investing activities from continuing
operations:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(943 |
) |
|
|
(3,318 |
) |
Proceeds
from sale of assets
|
|
|
55 |
|
|
|
4 |
|
Acquisition
of business, net of cash acquired
|
|
|
(100 |
) |
|
|
- |
|
Net
cash used in investing activities from continuing
operations
|
|
|
(988 |
) |
|
|
(3,314 |
) |
Cash
flows from financing activities from continuing
operations:
|
|
|
|
|
|
|
|
|
Repayments
of long-term debt
|
|
|
(628 |
) |
|
|
(876 |
) |
Repayments
of short-term debt, revolver, capital leases and notes
payable
|
|
|
(5,187 |
) |
|
|
(223 |
) |
Payment
of deferred financing costs
|
|
|
(832 |
) |
|
|
- |
|
Proceeds
from exercise of options and employee stock purchase plan
|
|
|
2 |
|
|
|
159 |
|
Net
cash used in financing activities from continuing
operations
|
|
|
(6,645 |
) |
|
|
(940 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by investing activities of discontinued
operations
|
|
|
- |
|
|
|
271 |
|
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
271 |
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(392 |
) |
|
|
5,339 |
|
Effect
of exchange rate changes on cash
|
|
|
353 |
|
|
|
(122 |
) |
Cash,
beginning of year
|
|
|
23,483 |
|
|
|
21,565 |
|
Cash,
end of period
|
|
$ |
23,444 |
|
|
$ |
26,782 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid or received during the period for:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
502 |
|
|
$ |
904 |
|
Income
taxes paid
|
|
|
1,471 |
|
|
|
656 |
|
Income
taxes refunded
|
|
|
1,387 |
|
|
|
- |
|
See
accompanying notes to condensed consolidated financial statements.
MEASUREMENT
SPECIALTIES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
(Amounts
in thousands, except share and per share amounts)
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Interim Financial
Statements: The information presented as of June 30, 2009 and
for the three month periods ended June 30, 2009 and 2008 are unaudited, and
reflect all adjustments (consisting only of normal recurring adjustments) which
Measurement Specialties, Inc. (the “Company” or “MEAS”)) considers necessary for
the fair presentation of the Company’s financial position as of June 30, 2009,
the results of its operations for the three month periods ended June 30, 2009
and 2008, and cash flows for the three month periods ended June 30, 2009 and
2008. The Company’s March 31, 2009 balance sheet information was derived from
the audited consolidated financial statements for the year ended March 31, 2009,
which are included as part of the Company’s Annual Report on Form
10-K.
The
condensed consolidated financial statements included herein have been prepared
in accordance with U.S. generally accepted accounting principles and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have
been condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the Company’s audited consolidated financial
statements for the year ended March 31, 2009, which are included as part of the
Company’s Annual Report on Form 10-K.
The
Company has evaluated subsequent events for potential recognition and/or
disclosure through August 5, 2009, the date of the condensed consolidated
financial statements included in this Quarterly Report on Form 10-Q were
issued.
Description of
Business: Measurement Specialties, Inc. is a leader in the
design, development and manufacture of sensors and sensor-based systems for
original equipment manufacturers and end users, based on a broad portfolio of
proprietary technology. The Company is a multi-national corporation with twelve
primary manufacturing facilities strategically located in the United States,
China, France, Ireland, Germany and Switzerland, enabling the Company to produce
and market world-wide a broad range of sensors that use advanced technologies to
measure precise ranges of physical characteristics. These sensors are used for
automotive, medical, consumer, military/aerospace, and industrial applications.
The Company’s sensor products include pressure sensors and transducers,
linear/rotary position sensors, piezoelectric polymer film sensors, custom
microstructures, load cells, accelerometers, optical sensors, humidity and
temperature sensors. The Company's advanced technologies include
piezo-resistive silicon sensors, application-specific integrated circuits,
micro-electromechanical systems (“MEMS”), piezoelectric polymers, foil strain
gauges, force balance systems, fluid capacitive devices, linear and rotational
variable differential transformers, electromagnetic displacement sensors,
hygroscopic capacitive sensors, ultrasonic sensors, optical sensors, negative
thermal coefficient (“NTC”) ceramic sensors and mechanical
resonators.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of
Consolidation: The condensed consolidated financial statements
include the accounts of the Company, its wholly owned subsidiaries, and its
joint venture in Japan. All significant intercompany balances and transactions
have been eliminated in consolidation.
In
accordance with Financial Accounting Standards Board (“FASB”) Interpretation No.
46R (“FIN 46R”) (revised December 2003), Consolidation of Variable Interest
Entities, the Company consolidates its joint venture in Japan, its one
variable interest entity (“VIE”) for which the Company is the primary
beneficiary. With the purchase of YSI Temperature in April 2006, the Company
acquired a 50 percent ownership interest in Nikisso-THERM (“NT”), a joint
venture in Japan. This joint venture is included in the condensed consolidated
financial statements of the Company for the periods ended June 30, 2009 and
2008, and at June 30, 2009 and March 31, 2009. In accordance with the
disclosure requirements of Statement of Financial Accounting Standards (“SFAS”)
No. 160, Noncontrolling
Interests in Consolidated Financial Statements- an amendment to ARB No. 51
(“SFAS No. 160”), noncontrolling interest represents the ownership
interest in NT not owned by the Company. The presentation of certain
prior year information for minority interest in the condensed consolidated
statements of operations, condensed consolidated balance sheets, condensed
consolidated statements of shareholders’ equity and condensed consolidated
statements of cash flows have been reclassified to non-controlling
interests.
In
accordance with the disclosure requirements of FASB Staff Position (FSP) SFAS
No. 140-4 and FIN 46R-8, Disclosures by Public Entities about
Transfers of Financial Assets and Interest in Variable Interest Entities,
the nature of the Company’s involvement with NT is not as a sponsor of a
qualifying special purpose entity (SPE) for the transfer of financial
assets. NT is a self-sustaining manufacturer and distributor of
temperature based sensor systems in Asian markets. The assets of NT
are for the operations of the joint venture and the VIE relationship does not
expose the Company to risks not considered normal business risks. The
carrying amount and classification of the variable interest entity’s assets and
liabilities in the consolidated statement of financial position that are
consolidated in accordance with FIN 46R are as follows at June 30, 2009 and
March 31, 2009:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
Assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
1,383 |
|
|
$ |
1,206 |
|
Accounts
receivable
|
|
|
1,240 |
|
|
|
1,176 |
|
Inventory
|
|
|
660 |
|
|
|
660 |
|
Other
assets
|
|
|
429 |
|
|
|
456 |
|
Due
from joint venture partner
|
|
|
1,669 |
|
|
|
1,824 |
|
Property
and equipment
|
|
|
191 |
|
|
|
203 |
|
|
|
|
5,572 |
|
|
|
5,525 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
209 |
|
|
|
194 |
|
Accrued
expenses
|
|
|
95 |
|
|
|
195 |
|
Income
tax payable
|
|
|
106 |
|
|
|
276 |
|
Other
liabilities
|
|
|
137 |
|
|
|
156 |
|
|
|
$ |
547 |
|
|
$ |
821 |
|
Reclassifications: The
presentation of certain prior year information in the condensed consolidated
statement of cash flows for adjustments to reconcile net income to net cash
provided by operating activities previously presented for the provision for
doubtful accounts, provision for inventory reserve and provision for warranty
have been reclassified to trade accounts receivable, inventories and accrued
expenses, respectively, to conform with current year
presentation. The presentation of certain prior year information in
the condensed consolidated balance sheets previously presented in non-current
deferred income tax assets have been reclassified to income taxes receivable to
conform with current year presentation.
Use of Estimates: The
preparation of the condensed consolidated financial statements, in accordance
with U.S. generally accepted accounting principles, 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. Significant items subject to such estimates and assumptions include the
useful lives of fixed assets, carrying amount and analysis of recoverability of
property, plant and equipment, acquired intangibles, goodwill, deferred tax
assets, valuation allowances for receivables, inventories, income tax
uncertainties and other contingencies, and stock based compensation. Actual
results could differ from those estimates.
Recently Adopted Accounting
Standards: In December 2007, the FASB issued SFAS No. 141R,
Business Combinations
(“SFAS No. 141R”) and SFAS No. 160. SFAS No. 141R and SFAS No. 160
require most identifiable assets, liabilities, noncontrolling interests, and
goodwill acquired in a business combination to be recorded at “full fair value”
and require noncontrolling interests (previously referred to as minority
interests) to be reported as a component of equity, which changes the accounting
for transactions with noncontrolling interest holders. Both Statements are
effective April 1, 2009. The Company will apply SFAS No.141R to business
combinations occurring after March 31, 2009. The accounting for contingent
consideration under SFAS No. 141R requires the measurement of contingencies at
the fair value on the acquisition date. Contingent consideration can be either a
liability or equity based, and as such will be accounted for under SFAS No. 150,
SFAS No. 133, or EITF 00-19. Subsequent changes to the fair value of the
contingent consideration (liability) are recognized in earnings, not to
goodwill, and equity classified contingent consideration amounts are not
re-measured. The adoption of SFAS No. 141R and SFAS No. 160 did not
have a material impact on the Company’s results of operations and financial
position.
In
February 2008, the FASB issued FSP FAS No. 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measures for Purposes of Lease Classification or
Measurement under Statement 13 (“FSP 157-1”). FSP 157-1 removed leasing
transactions accounted for under SFAS No. 13, Accounting for Leases, and
related guidance from the scope of SFAS 157. On April 1, 2009,
the Company adopted the previously deferred provisions of SFAS No. 157, Fair Value Measurements,
(SFAS No. 157) for non-financial assets and liabilities. The adoption
of SFAS No. 157 did not have any impact on the Company’s results of operations
and financial position.
In April
2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets, (“FSP 142-3”). FSP 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and
Other Intangible Assets, (“SFAS 142”). The intent of FSP 142-3
is to improve the consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS No. 141R, and other U.S.
GAAP pronouncements. FSP 142-3 shall be applied prospectively to all
intangible assets acquired after its effective date. FSP 142-3 is effective for
our interim and annual financial statements beginning after March 31,
2009. The adoption of this statement did not have any impact on the
Company’s results of operations and financial condition.
Recently Issued Accounting
Pronouncements: In May 2008, the FASB issued SFAS
No. 162, The Hierarchy of
Generally Accepted Accounting Principles (“SFAS 162”), and in June 2009,
SFAS No. 162 was replaced by SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162. SFAS No. 168 identifies
the sources of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with U.S. GAAP. SFAS
No. 168 is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. There will be no impact on
our financial position, results of operations or cash flows upon the adoption of
this standard.
Financial
Accounting Standards Board Staff Position (“FSP”) No. 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets,” was issued on
December 30, 2008. The FSP, effective for fiscal years ending after
December 15, 2009, clarifies an employer’s disclosures about plan assets of a
defined benefit pension or other postretirement plan. The FSP prescribes
expanded disclosures regarding investment allocation decisions, categories of
plan assets, inputs, and valuation techniques used to measure fair value, the
effect of Level 3 inputs on changes in plan assets and significant
concentrations of risk. The Company will adopt the FSP at March 31, 2010
and does not expect the adoption of this FSP will have a material impact on the
Company’s results of operations and financial condition.
In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (“SFAS No. 167”). SFAS No. 167 improves financial
reporting by enterprises involved with variable interest entities and addresses
(1) the effects on certain provisions of FIN 46(R), as a result of the
elimination of the qualifying special-purpose entity concept in SFAS No. 166,
Accounting for Transfers of
Financial Assets, and (2) constituent concerns about the application of
certain key provisions of FIN 46(R), including those in which the accounting and
disclosures under SFAS No. 167 do not always provide timely and useful
information about an enterprise’s involvement in a variable interest
entity. SFAS No. 167 is effective as of the beginning of the
annual reporting period that begins after November 15, 2009, for interim periods
within that annual reporting period, and for interim and annual reporting
periods thereafter. Earlier application is prohibited. The
Company does not expect the adoption of SFAS No. 167 to have a material impact
on the Company’s results of operations and financial condition.
3. STOCK
BASED COMPENSATION AND PER SHARE INFORMATION
The
Company accounts for stock-based compensation under SFAS No. 123R (Revised
2004), Share-Based
Payment. Stock-based compensation expense for the three months ended June
30, 2009 and 2008 was $600
and $798, respectively. The estimated fair value of stock options granted during
the three months ended June 30, 2009 approximated $9, net of expected
forfeitures and is being recognized over their respective vesting periods.
During the three months ended June 30, 2009, the Company recognized $1 of
expense related to these options.
The
Company has four share-based compensation plans for which options are currently
outstanding. These plans are administered by the compensation
committee of the Board of Directors, which approves grants to individuals
eligible to receive awards and determines the number of shares and/or options
subject to each award, the terms, conditions, performance measures, and other
provisions of the award. The Chief Executive Officer can also grant individual
awards up to certain limits as approved by the compensation committee. Awards
are generally granted based on the individual’s performance. Terms for
stock-option awards include pricing based on the closing price of the Company’s
common stock on the award date, and generally vest over three to five year
requisite service periods using a graded vesting schedule or subject to
performance targets established by the compensation committee. Shares issued
under stock option plans are newly issued common stock. Readers should refer to
Note 14 of the consolidated financial statements in the Company’s Annual Report
on Form 10-K for the fiscal year ended March 31, 2009 for additional information
related to the four share-based compensation plans under which options are
currently outstanding.
During
the three months ended June 30, 2009, the Company granted a total of 5,001 stock
options from the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan
permits the granting of incentive stock options, non-qualified stock options,
and restricted stock units. Subject to certain adjustments, the
maximum number of shares of common stock that may be issued under the 2008 Plan
in connection with awards is 1,400,000 shares. With the adoption of
the 2008 Plan, no further options may be granted under the Company’s other
option plans.
The
Company uses the Black-Scholes-Merton option pricing model to estimate the fair
value of stock-based awards with the following assumptions for the indicated
period.
|
|
Three months ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Dividend
yield
|
|
|
- |
|
|
|
- |
|
Expected
Volatility
|
|
|
59.5 |
% |
|
|
39.1 |
% |
Risk-Free
Interest Rate
|
|
|
1.4 |
% |
|
|
2.1 |
% |
Expected
term after vesting (in years)
|
|
|
2.0 |
|
|
|
2.0 |
|
Weighted-average
grant-date fair value
|
|
$ |
1.74 |
|
|
$ |
5.68 |
|
The
assumptions above are based on multiple factors, including historical exercise
patterns of employees with respect to exercise and post-vesting employment
termination behaviors, expected future exercise patterns for these employees and
the historical volatility of our stock price and the stock prices of companies
in our peer group (Standard Industrial Classification or “SIC” Code 3823). The
expected term of options granted is derived using company-specific, historical
exercise information and represents the period of time that options granted are
expected to be outstanding. The risk-free interest rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
During
the three months ended June 30, 2009, 2,315 stock options were exercised
yielding $2 in cash proceeds and no tax benefit recognized as additional paid-in
capital. At June 30, 2009, there was $2,241 of unrecognized
compensation cost adjusted for estimated forfeitures related to share-based
payments, which is expected to be recognized over a weighted-average period of
approximately 1.8 years.
Per Share
Information: Basic
and diluted per share calculations are based on net income (loss)
attributable to MEAS. 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. Since the Company was in a loss position for
the three months ended June 30, 2009, all shares that may be issued upon
exercise or conversion of stock options were excluded from the calculation of
diluted shares since the impact would have an anti-dilutive
effect. Outstanding awards relating to approximately 1,858,559
weighted shares were excluded from the calculation for the three months ended
June 30, 2008, as the impact of including such awards in the calculation of
diluted earnings per share would have had an anti-dilutive effect.
The
computation of the basic and diluted net income per common share is as
follows:
|
|
Net income (Loss) (Numerator)
|
|
|
Weighted
Average Shares in thousands (Denominator)
|
|
|
Per-Share Amount
|
|
Three
months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
Basic
per share information
|
|
$ |
(1,477 |
) |
|
|
14,486 |
|
|
$ |
(0.10 |
) |
Effect
of dilutive securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Diluted
per-share information
|
|
$ |
(1,477 |
) |
|
|
14,486 |
|
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
per share information
|
|
$ |
3,855 |
|
|
|
14,448 |
|
|
$ |
0.27 |
|
Effect
of dilutive securities
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
Diluted
per-share information
|
|
$ |
3,855 |
|
|
|
14,529 |
|
|
$ |
0.27 |
|
4.
INVENTORIES
Inventories
and inventory reserves for slow-moving, obsolete and lower of cost or market
exposures at June 30, 2009 and March 31, 2009 are summarized as
follows:
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
Raw
Materials
|
|
$ |
24,355 |
|
|
$ |
22,270 |
|
Work-in-Process
|
|
|
5,053 |
|
|
|
4,622 |
|
Finished
Goods
|
|
|
17,439 |
|
|
|
21,981 |
|
|
|
|
46,847 |
|
|
|
48,873 |
|
Inventory
Reserves
|
|
|
(3,631 |
) |
|
|
(3,489 |
) |
|
|
$ |
43,216 |
|
|
$ |
45,384 |
|
5.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment are stated at cost. Equipment under capital leases is stated
at the present value of minimum lease payments. Property, plant and
equipment are summarized as follows:
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
Production
equipment & tooling
|
|
$ |
47,695 |
|
|
$ |
45,894 |
|
Building
and leasehold improvements
|
|
|
23,975 |
|
|
|
24,301 |
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment
|
|
|
13,903 |
|
|
|
13,663 |
|
Construction-in-progress
|
|
|
613 |
|
|
|
1,122 |
|
Total
|
|
|
86,186 |
|
|
|
84,980 |
|
Less:
accumulated depreciation and amortization
|
|
|
(39,740 |
) |
|
|
(38,105 |
) |
|
|
$ |
46,446 |
|
|
$ |
46,875 |
|
Total
depreciation was $2,008, and $1,973 for the three months ended June 30, 2009 and
2008, respectively. Property and equipment included $893
and $1,047 in capital leases at June 30, 2009 and March 31, 2009,
respectively.
6.
ACQUISITIONS AND ACQUIRED INTANGIBLES
Acquisitions: As
part of its growth strategy, the Company consummated fourteen acquisitions since
June 2004 with total purchase price exceeding $167,000, of which two
acquisitions were made during each fiscal year ended March 31, 2009 and
2008. All of these acquisitions have been accounted for as purchases
and have resulted in the recognition of goodwill in the Company’s consolidated
financial statements. This goodwill arises because the purchase prices for these
businesses reflect a number of factors, including the future earnings and cash
flow potential of these businesses, and other factors at which similar
businesses have been purchased by other acquirers, the competitive nature of the
process by which the Company acquired the business, and the complementary
strategic fit and resulting synergies these businesses bring to existing
operations.
Goodwill
balances presented in the condensed consolidated balance sheets of foreign
acquisitions are translated at the exchange rate in effect at each balance sheet
date; however, opening balance sheets used to calculate goodwill and acquired
intangible assets are based on purchase date exchange rates, except for earn-out
payments, which are recorded at the exchange rates in effect on the date the
earn-out is accrued. The following table shows the roll-forward of
goodwill reflected in the financial statements resulting from the Company’s
acquisition activities for the three months ended June 30, 2009:
Balance
March 31, 2009
|
|
$ |
99,176 |
|
Attributable
to 2009 acquisitions
|
|
|
(
5 |
) |
Effect
of foreign currency translation
|
|
|
678 |
|
Balance
June 30, 2009
|
|
$ |
99,849 |
|
The
following briefly describes the Company’s acquisitions from the beginning of
fiscal 2008 forward.
Visyx: Effective
November 20, 2007, the Company acquired certain assets of Visyx Technologies,
Inc. (Visyx”) based in Sunnyvale, California for $1,624 ($1,400 at close, $100
held-back to cover certain expenses, and $124 in acquisition costs). The Seller
has the potential to receive up to an additional $2,000 in the form of a
contingent payment based on successful commercialization of specified sensors
prior to December 31, 2011, and an additional $9,000 earn-out based on a
percentage of sales in calendar years 2009, 2010 and 2011. If these earn-out
contingencies are resolved and meet established conditions, these amounts will
be recorded as an additional element of the cost of the
acquisition. The resolution of these contingencies is not
determinable at this time, and accordingly, the Company’s purchase price
allocation for Visyx is subject to earn-out payments. Visyx has a
range of sensors that measure fluid properties, including density, viscosity and
dielectric constant, for use in heavy truck/off road engines and transmissions,
compressors/turbines, refrigeration and air conditioning. The
Company’s final purchase price allocation, except for earn-out contingencies,
related to the Visyx acquisition follows:
Assets:
|
|
|
|
Accounts
receivable
|
|
$
|
12
|
|
Inventory
|
|
|
10
|
|
Acquired
intangible assets
|
|
|
1,528
|
|
Goodwill
|
|
|
74
|
|
Total
Purchase Price
|
|
$
|
1,624
|
|
Intersema: Effective
December 28, 2007, the Company completed the acquisition of all of the capital
stock of Intersema Microsystems S.A. (“Intersema”), a sensor company
headquartered in Bevaix, Switzerland, for $40,160 ($31,249 in cash at closing,
$8,708 in unsecured Promissory Notes (“Intersema Notes”), and $203 in
acquisition costs). The Intersema Notes bear interest of 4.5% per annum and are
payable in four equal annual installments beginning December 28, 2008. The
selling shareholders have the potential to receive up to an additional $18,946
based on December 31, 2008 exchange rates or 20,000 Swiss francs tied to
calendar 2009 earnings growth objectives, and if the contingencies are resolved
and meet established conditions, these amounts will be recorded as an additional
element of the cost of the acquisition. The resolution of these contingencies is
not determinable at this time, and accordingly, the Company’s purchase price
allocation for Intersema is subject to earn-out payments. Intersema
is a designer and manufacturer of pressure sensors and modules with low
pressure, harsh media and ultra-small package configurations for use in
barometric and sub-sea depth measurement markets. The transaction was financed
with borrowings under the Company’s Amended Credit Facility (See Note
8). The Company’s final purchase price allocation, except for
earn-out contingencies, related to the Intersema acquisition is as
follows:
Assets:
|
|
|
|
Cash
|
|
$
|
10,542
|
|
Accounts
receivable
|
|
|
1,162
|
|
Inventory
|
|
|
3,770
|
|
Other
assets
|
|
|
619
|
|
Property
and equipment
|
|
|
1,811
|
|
Acquired
intangible assets
|
|
|
13,773
|
|
Goodwill
|
|
|
13,851
|
|
|
|
|
45,528
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
|
832
|
|
Accrued
expenses
|
|
|
1,119
|
|
Deferred
income taxes
|
|
|
3,417
|
|
|
|
|
5,368
|
|
Total
Purchase Price
|
|
$
|
40,160
|
|
Atexis: On
January 30, 2009, the Company consummated the acquisition of all of the capital
stock of RIT SARL (“Atexis”), a sensor company headquartered in Fontenay,
France, for €4,096. The total purchase price in U.S. dollars based on
the January 30, 2009 exchange rate was approximately $5,359 ($5,152 in cash at
close, and $207 in acquisition costs). The selling shareholders have the
potential to receive up to an additional €2,000 tied to 2009 and 2010 sales
growth objectives, and if the contingencies are resolved and established
conditions are met, these amounts will be recorded as an additional element of
the cost of the acquisition. The resolution of these contingencies is
not determinable at this time, and accordingly, the Company’s purchase price
allocation for Atexis is subject to earn-out payments. Atexis designs
and manufactures temperature sensors and probes utilizing NTC, Platinum (Pt) and
thermo-couples technologies through wholly-owned subsidiaries in France and
China. The transaction was partially financed with borrowings under
the Company’s Amended Credit Facility (See Note 8). The
Company’s final purchase price allocation, except for earn-out contingencies,
related to the Atexis acquisition is as follows:
Assets:
|
|
|
|
Cash
|
|
$ |
110 |
|
Accounts
receivable
|
|
|
2,268 |
|
Inventory
|
|
|
2,613 |
|
Other
assets
|
|
|
270 |
|
Property
and equipment
|
|
|
1,532 |
|
Acquired
intangible assets
|
|
|
1,610 |
|
Goodwill
|
|
|
1,524 |
|
|
|
|
9,927 |
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
|
1,384 |
|
Accrued
expenses and other liabilities
|
|
|
2,292 |
|
Deferred
income taxes
|
|
|
892 |
|
|
|
|
4,568 |
|
Total
Purchase Price
|
|
$ |
5,359 |
|
FGP: On
January 30, 2009, the Company consummated the acquisition of all of the capital
stock of FGP Instrumentation, GS Sensors and ALS (collectively “FGP”), sensor
companies located in Les Clayes-sous-Bois and Druex, France for
€6,112. The total purchase price in U.S. dollars based on the January
30, 2009 exchange rate was approximately $7,998 ($4,711 in cash at close,
discharge of certain liabilities totaling $3,059 and $228 in acquisition costs).
The selling shareholders have the potential to receive up to an additional
€1,400 tied to 2009 sales growth objectives, and if the contingencies are
resolved and meet established conditions, these amounts will be recorded as an
additional element of the cost of the acquisition. The resolution of
these contingencies is not determinable at this time, and accordingly, the
Company’s purchase price allocation for FGP is subject to earn-out
payments. FGP is a designer and manufacturer of custom force,
pressure and vibration sensors for aerospace and test and measurement
markets. The transaction was partially financed with borrowings under
the Company’s Amended Credit Facility (See Note 8). The
Company’s final purchase price allocation, except for earn-out contingencies,
related to the FGP acquisition is as follows:
Assets:
|
|
|
|
Cash
|
|
$ |
980 |
|
Accounts
receivable
|
|
|
1,678 |
|
Inventory
|
|
|
1,807 |
|
Other
assets
|
|
|
85 |
|
Property
and equipment
|
|
|
789 |
|
Deferred
income taxes
|
|
|
351 |
|
Acquired
intangible assets
|
|
|
1,900 |
|
Goodwill
|
|
|
3,723 |
|
|
|
|
11,313 |
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
|
1,100 |
|
Accrued
expenses and other liabilities
|
|
|
1,472 |
|
Deferred
income taxes
|
|
|
743 |
|
|
|
|
3,315 |
|
Total
Purchase Price
|
|
$ |
7,998 |
|
Acquired
Intangibles: In connection with all acquisitions, the Company
acquired certain identifiable intangible assets, including customer
relationships, proprietary technology, patents, trade-names, order backlogs and
covenants-not-to-compete. The gross amounts and accumulated amortization, along
with the range of amortizable lives, are as follows:
|
|
|
|
|
June
30, 2009
|
|
|
March
31, 2009
|
|
|
|
Weighted-
Average
Life
in
years
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Amortizable
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
|
9
|
|
|
$ |
28,823 |
|
|
$ |
(9,871 |
) |
|
$ |
18,952 |
|
|
$ |
27,627 |
|
|
$ |
(8,794 |
) |
|
$ |
18,833 |
|
Patents
|
|
|
16
|
|
|
|
4,182 |
|
|
|
(1,003 |
) |
|
|
3,179 |
|
|
|
3,984 |
|
|
|
(895 |
) |
|
|
3,089 |
|
Tradenames
|
|
|
3
|
|
|
|
2,097 |
|
|
|
(1,662 |
) |
|
|
435 |
|
|
|
2,000 |
|
|
|
(1,478 |
) |
|
|
522 |
|
Backlog
|
|
|
1
|
|
|
|
2,845 |
|
|
|
(2,799 |
) |
|
|
46 |
|
|
|
2,732 |
|
|
|
(2,556 |
) |
|
|
176 |
|
Covenants-not-to-compete
|
|
|
3
|
|
|
|
1,016 |
|
|
|
(945 |
) |
|
|
71 |
|
|
|
1,008 |
|
|
|
(932 |
) |
|
|
76 |
|
Proprietary
technology
|
|
|
13
|
|
|
|
6,078 |
|
|
|
(1,141 |
) |
|
|
4,937 |
|
|
|
5,763 |
|
|
|
(981 |
) |
|
|
4,782 |
|
|
|
|
|
|
|
$ |
45,041 |
|
|
$ |
(17,421 |
) |
|
$ |
27,620 |
|
|
$ |
43,114 |
|
|
$ |
(15,636 |
) |
|
$ |
27,478 |
|
Amortization
expense for the three months ended June 30, 2009 and 2008 was $1,722, and
$1,364, respectively. Estimated annual amortization expense is as
follows:
|
|
Amortization
|
|
Year
|
|
Expense
|
|
2010
|
|
$ |
4,671 |
|
2011
|
|
|
4,214 |
|
2012
|
|
|
3,623 |
|
2013
|
|
|
2,942 |
|
2014
|
|
|
2,257 |
|
Thereafter
|
|
|
9,913 |
|
|
|
$ |
27,620 |
|
Pro forma
Financial Data: The following represents the Company’s pro
forma consolidated net income attributable to MEAS for the three months ended
June 30, 2008, based on final purchase accounting information assuming the
Atexis and FGP acquisitions occurred as of April 1, 2008, giving effect to
purchase accounting adjustments. The pro forma data is for informational
purposes only and may not necessarily reflect results of operations had all the
acquired companies been operated as part of the Company since April 1,
2008.
|
|
For
the three months
ended
June 30, 2008
|
|
Net
sales
|
|
$ |
64,941 |
|
|
|
|
|
|
Net
income attributable to MEAS
|
|
$ |
3,729 |
|
|
|
|
|
|
Net
income attributable to MEAS per common share:
|
|
|
|
|
Basic
|
|
$ |
0.26 |
|
Diluted
|
|
$ |
0.26 |
|
7.
FINANCIAL INSTRUMENTS:
Fair
Value of Financial Instruments
The
Company adopted SFAS No. 157 as of April 1, 2009. This statement defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The adoption of SFAS No.
157 did not have a material impact on the condensed consolidated financial
statements.
SFAS No.
157 clarifies that fair value is an exit price, representing the amount that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a
market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset and liability. As a
basis for considering such assumptions, SFAS No. 157 establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurements). The three
levels of the fair value hierarchy defined by SFAS 157 are as
follows:
Level 1 -
Quoted prices in active markets for identical assets or
liabilities;
Level 2 -
Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active;
and
Level 3 -
Unobservable inputs in which there is little or no market data which require the
reporting entity to develop its own assumptions.
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments:
For cash
and cash equivalents, accounts receivable, notes receivable and other
receivables, prepaid and other assets (current and long-term), accounts payable,
accrued expenses other liabilities (non-derivatives, current and long-term), and
foreign currency contracts, the carrying amounts approximate fair value because
of the short maturity of these instruments or amounts have already been recorded
at approximate fair value. As required by SFAS No. 157, financial
assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The
Company's assessment of the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of fair value of
assets and liabilities and their placement within the fair value hierarchy
levels. The fair value of the Company’s cash and cash equivalents was
determined using Level 1 measurements in the fair value
hierarchy. The fair value of the Company’s foreign currency contracts
was based on Level 2 measurements in the fair value hierarchy. The
fair value of the foreign currency contracts is based on forward exchange rates
relative to current exchange rates which were obtained from independent
financial institutions reflecting market quotes.
For
promissory notes payable, deferred acquisition payments and capital lease
obligation, the fair value is determined as the present value of expected future
cash flows discounted at the current interest rate, which approximates rates
currently offered by lending institutions for loans of similar terms to
companies with comparable credit risk. These are considered Level 2
inputs.
For
long-term debt and the revolver, the fair value of the Company’s long-term debt
is estimated by discounting future cash flows of each instrument at rates
currently offered to the Company for similar debt instruments of comparable
maturities by the Company’s lenders. These are considered Level 2
inputs. The fair value of long-term debt and revolver approximates
carrying value due to the variable interest nature of the debt.
Derivative
Instruments and Risk Management
The
Company is exposed to market risks from changes in interest rates, commodities,
credit and foreign currency exchange rates, which could impact its results of
operations and financial condition. The Company attempts to address its exposure
to these risks through its normal operating and financing activities. In
addition, the Company’s relatively broad-based business activities help to
reduce the impact that volatility in any particular area or related areas may
have on its operating earnings as a whole.
Interest
Rate Risk: Under our term and revolving credit facilities, we are
exposed to a certain level of interest rate risk. Interest on the principal
amount of our borrowings under our revolving credit facility and term loan
accrue at a rate based on either a LIBOR rate plus a LIBOR margin or at an
Indexed (prime based) Rate plus an Index Margin. The LIBOR or Index Rate is at
our election. Our results will be adversely affected by any increase in interest
rates. We do not currently hedge this interest rate exposure.
Foreign
Currency Exchange Rate Risk: Foreign currency exchange rate risk
arises from the Company’s investments in subsidiaries owned and operated in
foreign countries, as well as from transactions with customers in countries
outside the U.S. and transactions denominated in currencies other than the
applicable functional currency.
The
effect of a change in currency exchange rates on the Company’s net investment in
international subsidiaries is reflected in the “accumulated other comprehensive
income” component of stockholders’ equity. The Company does not hedge
the Company’s net investment in subsidiaries owned and operated in countries
outside the U.S.
Although
the Company has a U.S. dollar functional currency for reporting purposes, it has
manufacturing sites throughout the world and a large portion of its sales are
generated in foreign currencies. A substantial portion of our revenues are
priced in U.S. dollars, and most of our costs and expenses are priced in U.S.
dollars, with the remaining priced in Chinese renminbi, Euros, Swiss francs and
Japanese yen. Sales by subsidiaries operating outside of the United States are
translated into U.S. dollars using exchange rates effective during the
respective period. As a result, the Company is exposed to movements in the
exchange rates of various currencies against the U.S. dollar. Accordingly, the
competitiveness of our products relative to products produced locally (in
foreign markets) may be affected by the performance of the U.S. dollar compared
with that of our foreign customers’ currencies. Refer to Note 10, Segment
Information, for details concerning annual net sales invoiced from our
facilities within the U.S. and outside of the U.S., as well as long-lived
assets. Therefore, both positive and negative movements in currency
exchange rates against the U.S. dollar will continue to affect the reported
amount of sales, profit, and assets and liabilities in the Company’s condensed
consolidated financial statements.
The value
of the renminbi (“RMB”) relative to the U.S. dollar was stable during the first
three months of fiscal 2010, but appreciated 2.5% and 9.0% in fiscal years 2009
and 2008, respectively. The Chinese government no longer pegs the renminbi to
the US dollar, but established a currency policy letting the renminbi trade in a
narrow band against a basket of currencies. The Company has more expenses in
renminbi than sales (i.e., short renminbi position), and as such, when the U.S.
dollar weakens relative to the renminbi, our operating profits decrease. We
continue to consider various alternatives to hedge this exposure, and we are
attempting to manage this exposure through, among other things, forward
purchase contracts, pricing and monitoring balance sheet exposures for payables
and receivables.
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 U.S. dollar. However, there can be no assurance that the value of
the Hong Kong dollar will continue to be tied to that of the U.S.
dollar.
The
Company’s French and Germany subsidiaries have more sales in Euro than expenses
in Euro and the Company’s Swiss subsidiary has more expenses in Swiss franc than
sales, and as such, if the U.S. dollar weakens relative to the Euro and Swiss
franc, our operating profits increase in France and Germany but decline in
Switzerland.
The
Company has a number of foreign currency exchange contracts in Europe and Asia
in an attempt to hedge the Company’s exposure to the Euro, RMB and Japanese Yen.
The Euro/U.S. dollar, RMB/U.S. dollar and Japanese Yen/Euro currency contracts
have notional amounts totaling $4,116, $5,000, and $2,319, respectively, with
exercise dates through June 2010 at an average exchange rate of $1.36 (Euro to
U.S. dollar conversion rate), $0.148 (RMB to U.S. dollar conversion rate) and
119 Yen (Euro to Japanese Yen). Since these derivatives are not designated as
hedges under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, changes in their fair value are
recorded in earnings, not in other comprehensive income. The fair value of our
RMB currency contracts and our results of operations will be adversely affected
by a decrease in value of the RMB relative to the U.S. dollar.
To manage
our exposure to potential foreign currency transaction and translation risks, we
may purchase additional foreign currency exchange forward contracts, currency
options, or other derivative instruments, provided such instruments may be
obtained at suitable prices.
Fair
values of derivative instruments not designated as hedging instruments under
SFAS No. 133:
|
|
June
30,
|
|
|
March
31,
|
|
|
|
|
2009
|
|
|
2009
|
|
Balance
sheet location
|
Financial
position:
|
|
|
|
|
|
|
|
Foreign
currency exchange contracts - Euro/US dollar
|
|
$ |
119 |
|
|
$ |
105 |
|
Other
assets
|
Foreign
currency exchange contracts - RMB
|
|
$ |
(76 |
) |
|
$ |
(143 |
) |
Other
liabilities
|
Foreign
currency exchange contracts - Japanese Yen
|
|
$ |
188 |
|
|
$ |
115 |
|
Other
assets
|
The
effect of derivative instruments not designated as hedging instruments on the
statements of operations and cash flows for the three months ended June 30, 2009
and 2008:
|
|
Three months ended
June 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
Location of gain or loss recognized in
income
|
Results
of operations:
|
|
|
|
|
|
|
|
Foreign
currency exchange contracts - Euro/US dollar
|
|
$ |
(145 |
) |
|
$ |
(22 |
) |
Foreign
currency exchange gain
|
Foreign
currency exchange contracts - RMB
|
|
|
11 |
|
|
|
- |
|
Foreign
currency exchange loss
|
Foreign
currency exchange contracts - Japanese Yen
|
|
|
(73 |
) |
|
|
- |
|
Foreign
currency exchange gain
|
Total
|
|
$ |
(207 |
) |
|
$ |
(22 |
) |
|
Cash
flows from operating activities: Source (Use)
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange contracts - Euro/US dollar
|
|
$ |
138 |
|
|
$ |
22 |
|
Other
assets
|
Foreign
currency exchange contracts – RMB
|
|
|
(56 |
) |
|
|
- |
|
Other
liabilities
|
Total
|
|
$ |
82 |
|
|
$ |
22 |
|
|
8.
LONG-TERM DEBT:
LONG-TERM
DEBT
To
support the financing of acquisitions, effective April 1, 2006, the Company
entered into an Amended and Restated Credit Agreement (“Amended and Restated
Credit Facility”) with General Electric Capital Corporation (“GE”) as
agent which, among other things, increased the Company’s existing credit
facility from $35,000 to $75,000, consisting of a $55,000 revolving credit
facility and a $20,000 term loan, and lowered the applicable London Inter-bank
Offered Rate (“LIBOR”) or Index Margin from 4.50% and 2.75%, respectively, to
LIBOR and Index Margins of 2.75% and 1.0%, respectively. To support the
financing of the acquisition of Intersema (See Note 6), the Company entered
into an Amended Credit Agreement (“Amended Credit Facility”) with four
banks, with GE as agent, effective December 10, 2007 which, among other
things, increased the Company’s existing revolving credit facility from $55,000
to $121,000 and lowered the applicable LIBOR or Index Margin from 2.75% and
1.0%, respectively, to LIBOR and Index Margins of 2.00% and 0.25%, respectively.
Interest accrues on the principal amount of the borrowings at a rate based on
either LIBOR plus a LIBOR margin, or at the election of the borrower, at an
Index Rate (prime based rate) plus an Index Margin. The applicable margins may
be adjusted quarterly based on a change in specified financial ratios.
Borrowings under the line are subject to certain financial covenants and
restrictions on indebtedness, dividend payments, repurchase of Company common
stock, financial guarantees, annual capital expenditures, and other related
items. The borrowing availability of the revolving credit facility is not based
on any borrowing base requirements, but borrowings are limited by certain
financial covenants. The term loan portion of our credit facility was
not changed with the Amended Credit Facility. The term loan is payable in $500
quarterly installments plus interest through March 1, 2011, with a final term
payment of $10,500 and the revolver payable on April 3, 2011. The Company has
provided a security interest in substantially all of the Company’s U.S. based
assets as collateral for the Amended Credit Facility.
On April
27, 2009, the Company entered into an amendment (the “Amendment”) to the Amended
Credit Facility whereby the Company proactively negotiated a reduction of our
debt covenant requirements, as a result of the decline in our sales and
profitability resulting from the impact of the global recession. The
Amendment provides the Company with additional flexibility under its minimum
EBITDA covenant, total leverage ratio covenant, fixed charge ratio covenant and
maximum capital expenditure covenant included in its senior credit facility.
Under the terms of the Amendment, the principal amount available under the
Company’s revolver has been reduced from $121,000 to $90,000. The Amendment
increased the interest rate by between 1.50% and 2.25%, increased the Index
Margin and LIBOR Margin (which vary based on the Company’s debt to EBITDA
leverage ratio), and also increased the commitment fee on the unused balance to
0.5% per annum. As part of the Amendment, the Company paid $832 in
amendment fees, which were capitalized as deferred financing
costs. Pursuant to the Amendment, the Company is prohibited from
consummating any business acquisitions without lender approval during the
covenant relief period, which ends March 31, 2010. The Company is
presently in compliance with applicable financial covenants at June 30,
2009.
The
Company’s debt covenant requirements for June 30, 2009 and the next three
quarters are as follows:
|
|
Amended Financial Covenant
Requirements
|
|
|
|
June 30, 2009
|
|
|
September 30,
2009
|
|
|
December 31,
2009
|
|
|
March 31,
2010
|
|
Minimum
Proforma Earnings Before Income Taxes, Stock
Options, Depreciation, and Amortization
("PEBITSDA")
|
|
$ |
21,400 |
|
|
$ |
16,600 |
|
|
$ |
19,100 |
|
|
$ |
24,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
Adjusted Fixed Charge Coverage Ratio for the last twelve
months
|
|
|
1.10 |
|
|
|
1.00 |
|
|
|
1.15 |
|
|
|
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
Adjusted Capital Expenditures for the last twelve months
|
|
$ |
7,829 |
|
|
$ |
6,541 |
|
|
$ |
7,978 |
|
|
$ |
8,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
Adjusted Total Leverage Ratio
|
|
|
4.00 |
|
|
|
5.00 |
|
|
|
4.25 |
|
|
|
3.25 |
|
PEBITSDA
is the Company’s earnings before income taxes, stock options, depreciation and
amortization for last twelve months, in addition to the last twelve months of
PEBITSDA for acquisitions. Adjusted fixed charge coverage ratio is
PEBITSDA less adjusted capital expenditures divided by fixed
charges. Fixed charges are the last twelve months of interest, taxes
paid, and the last twelve months of payments of long-term debt, notes payable
and capital leases. Adjusted capital expenditures represent purchases
of plant, property and equipment during the last twelve months. Total
leverage ratio is total debt less cash maintained in U.S. bank accounts which
are subject to blocked account agreements with lenders divided by the last
twelve months of PEBITSDA. All of the aforementioned financial
covenants are subject to various adjustments, many of which are detailed in the
amended credit agreement and subsequent amendments to the credit agreement
previously filed with the Securities Exchange Commission, as well as other
adjustments approved by the lender. These adjustments include such
items as excluding capital expenditures associated with the new China facility
from capital expenditures, and adjustments to PEBITSDA for certain items such as
litigation settlement costs, severance costs and other items considered
non-recurring in nature.
As of
June 30, 2009, the Company utilized the LIBOR based rate for the term loan and
for $66,000 of the revolving credit facility under the Amended Credit Facility.
The weighted average interest rate applicable to borrowings under the revolving
credit facility was approximately 5.2% at June 30, 2009. As of June 30, 2009,
the outstanding borrowings on the revolving credit facility, which is classified
as long-term debt, were $66,435, and the Company had an additional $23,565
available under the revolving credit facility. The Company’s borrowing capacity
is limited by financial covenant ratios, including earnings ratios, and as such,
our borrowing capacity is subject to change. At June 30, 2009, the
Company could borrow an additional $17,900.
Promissory
Notes: In connection with the acquisition of Intersema, the
Company issued 20,000 Swiss franc unsecured promissory notes (“Intersema
Notes”). At June 30, 2009, the Intersema Note totaled $6,909,
of which $2,303
was classified as current. The Intersema Notes are payable in four equal annual
installments, the first of which was made in January 2009, and bear an interest
rate of 4.5% per year.
Long-Term Debt
and Promissory Notes: Below is a summary of the long-term debt
and promissory notes outstanding at June 30, 2009 and March 31,
2009:
|
|
June
30,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2009
|
|
Prime
or LIBOR plus 4.50% or 3.00% five-year term loan with a final installment
due on April 3, 2011
|
|
$ |
13,500 |
|
|
$ |
14,000 |
|
|
|
|
|
|
|
|
|
|
Governmental
loans from French agencies at no interest and payable based on R&D
expenditures
|
|
|
498 |
|
|
|
517 |
|
|
|
|
|
|
|
|
|
|
Term
credit facility with six banks at an interest rate of 4% payable through
2010
|
|
|
566 |
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,564 |
|
|
|
15,125 |
|
Less
current portion of long-term debt
|
|
|
2,329 |
|
|
|
2,356 |
|
|
|
$ |
12,235 |
|
|
$ |
12,769 |
|
4.5%
promissory note payable in four equal annual installments through December
28, 2011
|
|
$ |
6,909 |
|
|
$ |
6,528 |
|
Less
current portion of promissory notes payable
|
|
|
2,303 |
|
|
|
2,176 |
|
|
|
$ |
4,606 |
|
|
$ |
4,352 |
|
The
annual principal payments of long-term debt, promissory notes and revolver as of
June 30, 2009 are as follows:
Year
|
|
Term
|
|
|
Other
|
|
|
Subtotal
|
|
|
Notes
|
|
|
Revolver
|
|
|
Total
|
|
2010
|
|
$ |
2,000 |
|
|
$ |
329 |
|
|
$ |
2,329 |
|
|
$ |
2,303 |
|
|
$ |
- |
|
|
$ |
4,632 |
|
2011
|
|
|
1,000 |
|
|
|
699 |
|
|
|
1,699 |
|
|
|
2,303 |
|
|
|
- |
|
|
|
4,002 |
|
2012
|
|
|
10,500 |
|
|
|
22 |
|
|
|
10,522 |
|
|
|
2,303 |
|
|
|
66,435 |
|
|
|
79,260 |
|
2013
|
|
|
- |
|
|
|
14 |
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
|
|
14 |
|
2014
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Thereafter
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
13,500 |
|
|
$ |
1,064 |
|
|
$ |
14,564 |
|
|
$ |
6,909 |
|
|
$ |
66,435 |
|
|
$ |
87,908 |
|
9.
COMMITMENTS AND CONTINGENCIES:
Litigation: There
are currently no material pending legal proceedings. From time to time, the
Company is subject to legal proceedings and claims in the ordinary course of
business. The Company currently is not aware of any such legal proceedings or
claims that the Company believes will have, individually or in the aggregate, a
material adverse effect on the Company’s business, financial condition, or
operating results.
Contingency: Exports
of technology necessary to develop and manufacture certain of our products are
subject to U.S. export control laws, and we may be subject to adverse regulatory
consequences, including government oversight of facilities and export
transactions, monetary penalties and other sanctions for violations of these
laws. All exports of technology necessary to develop and manufacture
our products are subject to U.S. export control laws. In certain instances,
these regulations may prohibit us from developing or manufacturing certain of
our products for specific end applications outside the United
States. In late May 2009, the Company became aware that certain of its
piezo products when designed or modified for use with or
incorporation into a defense article are subject the
International Traffic in Arms Regulations ("ITAR") administered by the United
States Department of State. Certain technical data relating to the design
of the products may have been exported to China without authorization from the
U.S. Department of State. As required by the ITAR, we are currently
investigating the matter thoroughly. In addition, we have taken steps to
mitigate the impact of potential violations, and we are in the process of
strengthening our export-related controls and procedures. The U.S.
Department of State encourages voluntary disclosures and generally affords
parties mitigating credit under such circumstances. We nevertheless could be
subject to continued investigation and potential regulatory consequences related
to these possible violations ranging from a no-action letter, government
oversight of facilities and export transactions, monetary penalties, and in
extreme cases, debarment from government contracting, denial of export
privileges and criminal penalties.
Acquisition Earn-Outs and Contingent
Payments: In
connection with the Visyx acquisition, the Company has a contingent payment
obligation of approximately $2,000 based on the commercialization of certain
sensors, and a sales performance based earn-out totaling $9,000. In connection
with the Intersema acquisition, the Company has earnings performance based
earn-out obligations totaling 20,000 Swiss francs. In connection with
the Atexis acquisition, the selling shareholders have the potential to receive
up to an additional €2,000 tied to 2009 and 2010 sales growth
thresholds. In connection with the FGP acquisition, the selling
shareholders have the potential to receive up to an additional €1,400 tied to
2009 sales growth thresholds. No amounts related to the above
acquisition earn-outs were accrued at June 30, 2009 since the contingencies were
not determinable or achieved.
10.
SEGMENT INFORMATION:
The
Company continues to have one reporting segment, a sensor business, under the
guidelines established with SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. For a description of the products and
services of the Sensor business, see Note 1.
Geographic
information for revenues based on country from which invoiced, and long-lived
assets based on country of location, which includes property, plant and
equipment, but excludes intangible assets and goodwill, net of related
depreciation and amortization follows:
|
|
For the three months ended June
30,
|
|
|
|
2009
|
|
|
2008
|
|
Net
Sales:
|
|
|
|
|
|
|
United
States
|
|
$ |
18,904 |
|
|
$ |
25,000 |
|
France
|
|
|
8,208 |
|
|
|
7,808 |
|
Germany
|
|
|
2,631 |
|
|
|
4,842 |
|
Ireland
|
|
|
2,646 |
|
|
|
3,522 |
|
Switzerland
|
|
|
2,478 |
|
|
|
4,148 |
|
China
|
|
|
9,874 |
|
|
|
13,678 |
|
Total:
|
|
$ |
44,741 |
|
|
$ |
58,998 |
|
|
|
|
|
|
|
|
|
|
Long
Lived Assets:
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
United
States
|
|
$ |
7,384 |
|
|
$ |
7,754 |
|
France
|
|
|
8,184 |
|
|
|
7,860 |
|
Germany
|
|
|
2,352 |
|
|
|
2,253 |
|
Ireland
|
|
|
3,605 |
|
|
|
3,434 |
|
Switzerland
|
|
|
1,847 |
|
|
|
1,918 |
|
China
|
|
|
23,074 |
|
|
|
23,656 |
|
Total:
|
|
$ |
46,446 |
|
|
$ |
46,875 |
|
At June
30, 2009, approximately $5,652 of the Company’s cash is maintained in China,
which is subject to certain restrictions on the transfer to another country
because of currency control regulations.
11.
DISCONTINUED OPERATIONS:
Effective
December 1, 2005, the Company completed the sale to Fervent Group Limited (FGL)
of its Consumer Products segment, including its Cayman Island subsidiary,
Measurement Limited. FGL is a company controlled by the owners of River Display
Limited, the Company’s long time partner and primary supplier of consumer
products in Shenzhen, China. Under the terms of the agreement, the Company could
have earned an additional $5,000 if certain performance criteria (sales and
margin targets) were met within the first year. The Company recorded $2,156 of
the earn-out in fiscal year 2007, because a portion of the earn-out targets were
met. The related receivable is included in the condensed consolidated balance
sheet as current portion of promissory note receivable and any cash collections
are included as net cash proved by investing activities of discontinued
operations in the condensed consolidated statement of cash flows. At June 30,
2009 and March 31, 2009, the promissory notes receivable related to the sale and
earn-out of the Consumer business totaled $283.
12.
SUBSEQUENT EVENTS:
In July
2009, the Company received notification of approval from the local Chinese tax
authority for certain research and development (“R&D”) deductions, which is
expected to provide the Company a tax refund of approximately
$266. These R&D deductions will be recorded as a tax benefit when
the Company files for the tax refund, which is expected during the quarter
ending September 30, 2009.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Amounts
in thousands, except per share data)
INFORMATION
RELATING TO FORWARD-LOOKING STATEMENTS
This
report includes forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. Certain information included or
incorporated by reference in this Quarterly Report, in press releases, written
statements or other documents filed with or furnished to the Securities and
Exchange Commission (“SEC”), or in our communications and discussions through
webcasts, phone calls, conference calls and other presentations and meetings,
may be deemed to be “forward-looking statements” within the meaning of the
federal securities laws. All statements other than statements of historical fact
are statements that could be deemed forward-looking statements, including
statements regarding: projections of revenue, margins, expenses, tax provisions
(or reversals of tax provisions), earnings or losses from operations, cash
flows, synergies or other financial items; plans, strategies and objectives of
management for future operations, including statements relating to potential
acquisitions, executive compensation and purchase commitments; developments,
performance or industry or market rankings relating to products or services;
future economic conditions or performance; future compliance with debt
covenants; the outcome of outstanding claims or legal proceedings; assumptions
underlying any of the foregoing; and any other statements that address
activities, events or developments that Measurement Specialties, Inc. (“MEAS”,
the “Company,” “we,” “us,” “our”) intends, expects, projects, believes or
anticipates will or may occur in the future. Forward-looking statements may be
characterized by terminology such as “forecast,” “believe,” “anticipate,”
“should,” “would,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,”
“positioned,” “strategy,” and similar expressions. These statements are based on
assumptions and assessments made by our management in light of their experience
and perception of historical trends, current conditions, expected future
developments and other factors they believe to be appropriate.
Any such
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties, many of which are beyond our control.
Actual results, developments and business decisions may differ materially from
those envisaged by such forward-looking statements. These forward-looking
statements speak only as of the date of the report, press release, statement,
document, webcast or oral discussion in which they are made. Factors that might
cause actual results to differ materially from the expected results described in
or underlying our forward-looking statements include:
·
|
Conditions
in the general economy, including risks associated with the current
financial crisis and worldwide economic conditions and reduced demand for
products that incorporate our
products;
|
·
|
Conditions
in the credit markets, including our ability to raise additional funds or
refinance our existing credit
facility;
|
·
|
Competitive
factors, such as price pressures and the potential emergence of rival
technologies;
|
·
|
Interruptions
of suppliers’ operations or the refusal of our suppliers to provide us
with component materials, particularly in light of the current economic
conditions and potential for suppliers to
fail;
|
·
|
Timely
development, market acceptance and warranty performance of new
products;
|
·
|
Changes
in product mix, costs and yields;
|
·
|
Uncertainties
related to doing business in Europe and
China;
|
·
|
Fluctuations
in foreign currency exchange and interest
rates;
|
·
|
Legislative
initiatives, including tax legislation and other changes in the Company’s
tax position;
|
·
|
Compliance
with export control laws and
regulations;
|
·
|
Compliance
with debt covenants, including events beyond our
control;
|
·
|
Adverse
developments in the automotive industry and other markets served by us;
and
|
·
|
The
risk factors listed from time to time in the reports we file with the SEC,
including those described below under “Item 1A. Risk Factors” in our
Annual Report on Form 10-K.
|
This list
is not exhaustive. Except as required under federal securities laws and the
rules and regulations promulgated by the SEC, we do not have any intention or
obligation to update publicly any forward-looking statements after the filing of
this Quarterly Report on Form 10-Q, whether as a result of new information,
future events, changes in assumptions or otherwise.
OVERVIEW
Measurement
Specialties, Inc. is a global leader in the design, development and manufacture
of sensors and sensor-based systems for original equipment manufacturers and end
users, based on a broad portfolio of proprietary technology. The Company is a
multi-national corporation with twelve primary manufacturing facilities
strategically located in the United States, China, France, Ireland, Germany and
Switzerland, enabling the Company to produce and market world-wide a broad range
of sensors that use advanced technologies to measure precise ranges of physical
characteristics. These sensors are used for automotive, medical, consumer,
military/aerospace, and industrial applications. The Company’s sensor products
include pressure sensors and transducers, linear/rotary position sensors,
piezoelectric polymer film sensors, custom microstructures, load cells,
accelerometers, optical sensors, humidity and temperature sensors. The
Company's advanced technologies include piezo-resistive silicon sensors,
application-specific integrated circuits, micro-electromechanical systems,
piezoelectric polymers, foil strain gauges, force balance systems, fluid
capacitive devices, linear and rotational variable differential transformers,
electromagnetic displacement sensors, hygroscopic capacitive sensors, ultrasonic
sensors, optical sensors, negative thermal coefficient ceramic sensors and
mechanical resonators.
Effective
December 1, 2005, we completed the sale of our Consumer business, including our
Cayman Island subsidiary, Measurement Limited (“ML”), to Fervent Group Limited
(“FGL”). FGL is a company controlled by the owners of River Display Limited, our
long time partner and primary supplier of consumer products in Shenzhen, China.
Accordingly, the related financial statements for the Consumer segment are
reported as discontinued operations. All comparisons in Management’s Discussion
and Analysis for each of the periods ended June 30, 2009, and 2008, exclude the
results of these discontinued operations except as otherwise
noted.
EXECUTIVE
SUMMARY
The
Company remains focused on creating long-term shareholder value. To
accomplish this goal, we continue to execute measures we believe will result in
higher sales performance in excess of the overall market and generation of
positive EBITDA. We have implemented aggressive actions not only to
proactively address the current economic recession, but to position the Company
for future growth in sales and profitability, all of which we ultimately expect
to translate to enhanced shareholder value.
During
the first quarter of fiscal 2010, we experienced a stabilization in sales and a
modest improvement in bookings which leads us to believe we may have seen the
worst of the recession. We believe sales bottomed out during our
fourth quarter of fiscal 2009 and our order backlog appears to be stabilizing
with modest increases during our first quarter. These increases in
bookings and backlog, if sustained, should translate to improvements in future
sales performance. However, economic conditions continue to be
challenging. Accordingly, cost cutting and strengthening our business
still remain primary objectives. Our cash generation and cost cutting
initiatives are working, in spite of the continued impact of the economic
recession.
The
overall impact of the recession became most evident during the third quarter of
fiscal 2009. We started fiscal 2009 with positive sales and profit
growth, well on track to achieve another record year. Sales then
decreased very quickly and drastically, and by the final months of fiscal 2009,
we were into one of the worst recessions in decades. Sales in all of
our markets decreased during fiscal 2009. Our sales to the automotive
and heavy truck sector were especially hard hit. In spite of not
losing any major customers in 2009 to competitive situations and having a
diversified global customer base with a wide range of sensor products, we have
had significant variability in our sales, earnings and cash
flows. The high degree of economic uncertainty has created a
situation whereby our visibility with respect to future performance continues to
be greatly diminished.
We have
taken decisive action, including aligning our labor workforce with the latest
projected sale volumes. We have lowered costs through additional
reductions in headcount, extended management salary reductions and eliminated
the Company’s management bonus program and 401(k) match, as well as curtailed
capital expenditures and implemented other cost control
measures. Additionally, the Company modified the three business group
structure, in order to, among other things, better focus on cross-selling of the
differing sensor products and to address current business conditions and certain
changes within the management group, which resulted in one operating
segment. Furthermore, effective April 1, 2009, the Company entered
into an amendment to the credit agreement with our lenders whereby the Company
proactively negotiated a reduction of our debt covenant
requirements. As a consequence of the decline in our sales and
profitability resulting from the impact of the global recession, the Company
negotiated revisions to its debt covenant requirements for fiscal 2010, which
will, among other things, result in higher fees and interest rates charged by
our lenders to the Company and a reduction in the principal amount available
under our revolver to $90,000. We believe that these revisions to our debt
covenants should address the adverse impact of the recession with respect to our
covenant requirements, but there can be no assurance that these reductions will
be sufficient, particularly if the recession is longer or worse than we
expect. As part of this credit facility amendment, the Company will
be prohibited from any future acquisitions without lender approval during the
covenant relief period which ends March 31, 2010.
We have
taken several additional critical steps to better position the Company not only
to weather the recession but to capitalize on opportunities when the economy
improves. To that end, we currently have one of the strongest product
development pipelines in the history of the Company, which we expect to lay the
foundation for accelerated future sales growth. Research and
development will continue to play a key role in our efforts to maintain product
innovations for new sales and to improve profitability. Consistent with our
strategy to expand our product portfolio, global footprint and additional
opportunities for cost synergies, we are integrating the acquisitions of Atexis
and FGP (the “2009 Acquisitions”). Atexis expanded our temperature
sensors and probes business utilizing NTC, Platinum (Pt) and thermo-couple
technologies and increased our temperature manufacturing base through
wholly-owned subsidiaries in France and China. FGP was focused on
custom force, pressure and vibration sensors for aerospace and test and
measurement markets.
TRENDS
There are
a number of trends that we expect to have material effects on the Company in the
future, including global economic conditions with the resulting impact on sales,
profitability, capital spending, changes in foreign currency exchange rates
relative to the U.S. dollar, changes in debt levels and interest rates, and
shifts in our overall effective tax rate.
Our
visibility with respect to future sales is very limited at this
time. Current market indicators are mixed, but there are some recent
signs of some stabilization. However, there continue to be
indications that global demand will not quickly recover and may continue to
contract for most, if not all, of fiscal 2010. Such lower demand
levels are anticipated to continue to adversely impact the Company’s sales and
profitability. In particular, the Company’s automotive, housing and
industrial businesses are likely to be the most impacted with medical
technologies less affected. In future periods, we expect the sensor
market will continue to perform well relative to the overall economy as a result
of the increase in sensor content in various products across most end markets in
the U.S., Europe and Asia. While we believe third and fourth quarter sales in
fiscal 2009 were unusually hard hit as a result of reducing inventory levels in
the supply chain to match lower anticipated demand, it is not yet clear how much
improvement, if any, we will see in future quarters, or whether sales will
continue to decline.
Since we
cannot provide definitive sales guidance, it is also challenging to provide
guidance for gross margins. Within this context, we expect gross
margins for fiscal 2010 to range from approximately 39% to 42%, primarily
reflecting the impact of a more stable product sales mix and assuming stability
in the value of the Chinese renminbi (“RMB”) relative to the U.S.
dollar. Gross Margins for a specific quarter could be outside this
expected range due to certain factors within that particular
quarter. Gross margins have trended down over the past several years,
largely due to unfavorable product sales mix (both in terms of organic growth
and acquired sales) and the impact of the increase in the value of the RMB
relative to the U.S. dollar. However, our gross margins improved
slightly in fiscal 2009 as compared to the prior year because of the decrease in
the proportionate amount of lower grossing product mix, especially with sales to
our largest customer and automotive market. Our sales to the
automotive market are usually characterized as higher volumes but carry lower
gross margins than our average. Since the Company’s China operations
have more costs than sales denominated in RMB (short RMB position), increases in
the RMB relative to the U.S. dollar have resulted in margin
erosion. However, over the past several months, the RMB has
stabilized relative to the U.S. dollar, and this trend is expected to continue
into fiscal 2010. Finally, as with all manufacturers, our gross
margins are sensitive to the overall volume of business (i.e., economies of
scale) in that certain costs are fixed, and since our overall level of business
declined in fiscal 2009, especially during the second half, our gross margins
and overall level of profits decreased accordingly. We expect
continued downward pressures on our gross margins given our expectation that
global demand will not recover and may continue to contract for fiscal 2010, as
well as our expectation to reduce inventory levels during the first half of
fiscal 2010, which will result in additional unfavorable overhead
absorption.
Total
selling, general and administrative expense (“Total SG&A”) as a percent of
net sales increased in fiscal 2009 as compared to prior years, reflecting the
drop in sales and the increase in Total SG&A expenses due to SG&A
expenses related to acquisitions. Historically, we have been
successful in leveraging our SG&A expense, growing SG&A expense more
slowly than our sales growth in fiscal 2009, but the global economic recession
adversely impacted our SG&A leverage. As a percent of sales, Total SG&A
for 2009 increased to 35.4%, as compared to 29.5% and 32.5% in fiscal years 2008
and 2007, respectively. We are expecting an overall decrease in SG&A due to
various cost control measures, which are expected to be partially offset by
continued investment in R&D costs for new programs that are not yet
generating sales (such as our new fluid property sensor), higher costs
associated with recent acquisitions, and certain costs directly related to the
recession, including such costs as amendment fees charged by our lenders and
related professional fees, as well as bad debt expenses due to uncollectible
trade receivables, as discussed in further detail in Note 8 to the Condensed
Consolidated Financial Statements filed in this quarterly report on Form
10-Q. However, since sales are declining, we are not expecting
improvements in SG&A as a percentage of sales. The Company does
not have any significant direct trade receivable exposures with Chrysler or
General Motors, since we are primarily a tier two or tier three supplier to
them. The Company does not expect to make any acquisitions during
fiscal 2010.
Amortization
of acquired intangible assets and deferred financing costs increased
dramatically from fiscal 2008 to fiscal 2009, associated with the acquisitions
of Intersema and Visyx (the “2008 Acquisitions) and the acquisitions of 2009
Acquisitions. Amortization is disproportionately loaded more in the initial
years of the acquisition, and therefore amortization expense is higher in the
quarters immediately following a transaction, and declines in later years based
on how various intangible assets are valued and amortized. Even with the
acquisitions of Atexis and FGP completed toward the end of fiscal 2009,
amortization is expected to decrease in fiscal 2010 as compared to fiscal
2009.
In
addition to the margin exposure as a result of the depreciation of the U.S.
dollar due to our higher level of costs than sales denominated in RMB, the
Company also has foreign currency exchange exposures related to balance sheet
accounts. When foreign currency exchange rates fluctuate, there is a resulting
revaluation of assets and liabilities denominated and accounted for in foreign
currencies. Foreign currency exchange (“fx”) expense or gain due to the
revaluation of local subsidiary balance sheet accounts with realized fx
transactions and unrealized fx translation adjustments has increased sharply in
recent years, because of, among other factors, volatility of foreign currency
exchange rates. For example, our Swiss company, Intersema, which uses the Swiss
franc as their functional currency, holds cash denominated in foreign currencies
(U.S. dollar and Euro). As the Swiss franc appreciates against the U.S. dollar
and/or Euro, the cash balances held in those denominations are devalued when
stated in terms of Swiss francs. These transaction and translation gains and
losses are reflected in our “Foreign Currency Exchange Gain or Loss.” Aside from
cash, our foreign entities generally hold receivables in foreign currencies, as
well as payables. In fiscal 2009 and 2008, we posted a net expense of $771 and
$618, respectively, in realized and unrealized foreign exchange losses
associated with the revaluation of foreign assets held by foreign entities. We
would expect to see continued fx expense or gains associated with volatility of
foreign currency exchange rates.
On
average the U.S. dollar weakened relative to the RMB, but appreciated against
the Euro and Swiss franc during fiscal 2009. The Company has used
foreign currency contracts to hedge some of this exposure. The
Company has not hedged all of this exposure, but has accepted the exposure to
exchange rate movements without using derivative financial instruments to manage
this risk under hedge accounting. Therefore, both positive and
negative movements in currency exchange rates relative to the US dollar will
continue to affect the reported amounts of sales, profits, and assets and
liabilities in the Company’s consolidated financial statements.
Our
overall effective tax rate will continue to fluctuate as a result of the
allocation of earnings among various taxing jurisdictions with varying tax
rates. We expect our 2010 overall effective tax rate excluding
discrete items to increase relative to 2009 resulting from, among other factors,
a higher tax rate in China, the valuation allowance to be recorded for
additional net operating losses at our German subsidiary, and a higher
percentage of total profits generated in jurisdictions with higher tax rates
than our overall average effective tax rate.
The
Company expects to continue investing in various capital projects in fiscal
2010, and capital spending in 2010 is expected to approximate
$7,000. This level is lower than fiscal 2009, because capital
spending in 2009 included the completion of the new China facility, as well as
reductions related to various cost control measures.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED JUNE 30, 2009 COMPARED TO THREE MONTHS ENDED JUNE 30,
2008
THE FOLLOWING TABLE SETS FORTH
CERTAIN ITEMS FROM OPERATIONS IN OUR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008,
RESPECTIVELY:
|
|
Three months ended June
30,
|
|
|
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
Net
sales
|
|
$ |
44,741 |
|
|
$ |
58,998 |
|
|
$ |
(14,257 |
) |
|
|
(24.2 |
) |
Cost
of goods sold
|
|
|
28,490 |
|
|
|
33,757 |
|
|
|
(5,267 |
) |
|
|
(15.6 |
) |
Gross
profit
|
|
|
16,251 |
|
|
|
25,241 |
|
|
|
(8,990 |
) |
|
|
(35.6 |
) |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative
|
|
|
15,010 |
|
|
|
17,425 |
|
|
|
(2,415 |
) |
|
|
(13.9 |
) |
Non-cash
equity based compensation (SFAS 123R)
|
|
|
600 |
|
|
|
798 |
|
|
|
(198 |
) |
|
|
(24.8 |
) |
Amortization
of acquired intangibles and deferred financing costs
|
|
|
1,722 |
|
|
|
1,364 |
|
|
|
358 |
|
|
|
26.2 |
|
Total
selling, general and administrative expenses
|
|
|
17,332 |
|
|
|
19,587 |
|
|
|
(2,255 |
) |
|
|
(11.5 |
) |
Operating
income (loss)
|
|
|
(1,081 |
) |
|
|
5,654 |
|
|
|
(6,735 |
) |
|
|
(119.1 |
) |
Interest
expense, net
|
|
|
1,168 |
|
|
|
706 |
|
|
|
462 |
|
|
|
65.4 |
|
Foreign
currency exchange gain
|
|
|
(536 |
) |
|
|
(63 |
) |
|
|
(473 |
) |
|
|
750.8 |
|
Other
expense (income)
|
|
|
19 |
|
|
|
(421 |
) |
|
|
440 |
|
|
|
(104.5 |
) |
Income
(loss) before income taxes
|
|
|
(1,732 |
) |
|
|
5,432 |
|
|
|
(7,164 |
) |
|
|
(131.9 |
) |
Provision
(benefit) for income taxes
|
|
|
(367 |
) |
|
|
1,500 |
|
|
|
(1,867 |
) |
|
|
(124.5 |
) |
Net
income (loss)
|
|
|
(1,365 |
) |
|
|
3,932 |
|
|
|
(5,297 |
) |
|
|
(134.7 |
) |
Less: Net
income attributable to noncontrolling interest
|
|
|
112 |
|
|
|
77 |
|
|
|
35 |
|
|
|
45.5 |
|
Net
income (loss) attributable to Measurement Specialties, Inc.
("MEAS")
|
|
$ |
(1,477 |
) |
|
$ |
3,855 |
|
|
$ |
(5,332 |
) |
|
|
(138.3 |
) |
Net
Sales: Net
sales for the quarter decreased 24.2%
or $14,257
from $58,998 to $44,741.
The overall decrease in sales is due to the global economic
recession. Organic sales, defined as net sales excluding sales
attributed to 2009 Acquisitions of $3,990, declined $18,247 or
31%.
The
current recession is one of the worst recessions in decades, and there is
continued economic pressure in most areas of the global economy. The
decrease in sales due to the overall impact of the recession was not evident in
the first quarter of fiscal 2009, but became more evident in the third quarter
of fiscal 2009. As such, first quarter sales for fiscal 2010 were
down significantly relative to first quarter sales in fiscal
2009. Decreases in sales were in all sectors, driven largely by sharp
reductions in sales to passenger and non-passenger vehicle customers in US,
Europe and Asia. The most notable decline was with our largest
customer, a large automotive supplier. We continue to implement
decisive action to align our labor workforce with the latest sales projections
and we have lowered costs through additional reductions in headcount, management
salaries, and elimination of the Company’s management bonus program and 401(k)
match, as well as implementing other cost control measures.
Gross
Margin: Gross margin (gross profit as a percent of net sales)
declined to approximately 36.3%
for the quarter ended June 30, 2009 from 42.8% during the quarter ended June 30,
2008. The decrease in margin is mainly due to lower volumes and the resulting
decrease in overhead absorption, partially offset by improved product sales mix
and certain cost control measures. As with all manufacturers, our gross margins
are sensitive to overall volume of business in that certain costs are
fixed. Since our overall level of business declined relative to the
same period last year, our gross margins and overall level of profits decreased
accordingly. The decrease in production volumes not only reflects the
decrease due to the alignment of production levels to match lower sales volumes,
but also the working-off of inventory built-up as part of the China facility
move. The more favorable product sales mix is largely associated with
lower proportion of sales of lower gross margin products. This would include
lower sales to our largest customer, which primarily serves the automotive
market and carries a lower gross margin than our average. The average RMB
exchange rate relative to the U.S. dollar for the three months ended June 30,
2009 appreciated approximately 1.5% as compared to the same period last year.
This translates to approximately $275 in annualized margin
erosion.
On a
continuing basis, our gross margin may vary due to product mix, sales volume,
availability of raw materials, foreign currency exchange rates, and other
factors.
Selling,
General and Administrative: Overall,
total selling, general and administrative (“total SG&A”) expenses decreased
$2,255
or 11.5%
to $17,332
largely due to cost reductions in direct response to the global economic
recession. As a percent of net sales, total SG&A expenses
increased to 38.7%
from 33.2%. The increase in operating expenses as a percent of net sales is due
to costs decreasing at a lower rate than net sales, which is the resulting
impact of the recession on sales, and higher salaries, amortization and
professional fees and other costs directly related to 2009
Acquisitions. Organic SG&A costs, defined as total SG&A costs
excluding SG&A costs associated with the 2009 Acquisitions of $1,668,
decreased $3,923 to $15,664 for the three months ended June 30,
2009.
Stock
Option Expense: Stock option expense decreased $198
to $600
from $798 for the three months ended June 30, 2009 as compared to the three
months ended June 30, 2008. The decrease in stock option expense is mainly due
to the lower valuation of non-cash equity based compensation under SFAS No.
123R, Share-Based
Payments, resulting primarily from the decrease in the Company’s stock
price, partially offset by higher volatility and quantity of options issued with
the annual grant in fiscal 2009 relative to the annual grant in fiscal
2008. Total compensation cost related to share based payments not yet
recognized totaled $3,143 at June 30, 2009, which is expected to be recognized
over a weighted average period of approximately 1.8
years.
Amortization
of acquired intangibles and deferred financing costs: Amortization
of acquired intangible assets and deferred financing costs increased $358
to $1,722
for the three months ended June 30, 2009 as compared to $1,364 for the three
months ended June 30, 2008. The increase in amortization expense is
due to higher amortization expense associated with the 2009 Acquisitions and the
write-off of certain deferred financing costs. Amortization expense
for intangible assets is higher during the first years after an acquisition
because, among other things, the order back-log is fully amortized during the
initial year. Additionally, during the three months ended June 30,
2009, the Company expensed approximately $190 in deferred financing costs due to
the amendment to the credit facility which resulted in a reduction in the
principal amount of availability under the revolving credit
facility. Amortization of acquired intangibles and deferred financing
costs for fiscal 2010 is expected to decline relative to the prior
year.
Interest
expense, net: Interest
expense increased $462
to $1,168
for the three months ended June 30, 2009 from $706 during the three months ended
June 30, 2008. The increase in interest expense is primarily attributable to the
increase in average total debt outstanding and average interest
rates. Interest rates increased from about 4.8% last year to
approximately 5.20% this year, and average total outstanding debt increased from
an average amount outstanding of $74,046 during the three months ended June 30,
2008 to $82,652 during the three months ended June 30,
2009.
Foreign Currency
Exchange Gain: The increase in foreign currency exchange gain
mainly reflects the increase in the gain associated with the changes in the
value of the U.S. dollar relative to the Euro, and the decrease in foreign
currency exchange losses associated with the value of the RMB relative to the
U.S. dollar. Over the past few years, the Company has had foreign
currency exchange losses due to the appreciation of the RMB relative to the U.S.
dollar, but during the three months ended June 30, 2009, the value of the RMB
relative to the U.S. dollar remained relatively stable as compared to the same
period last year, and as such, there was a significant decrease in the related
foreign currency exchange loss. The higher foreign currency exchange
gain is the result of the depreciation of the value of the U.S. dollar relative
to the Euro from March 31, 2009 to June 30, 2009. The value of the
U.S. dollar relative to the Euro was moderately stable during the three months
ended June 30, 2008. The Company continues to be impacted by
volatility in foreign currency exchange rates, including the impact of the
fluctuation of the U.S. dollar relative to the Euro and Swiss franc, as well as
the appreciation of the RMB relative to the U.S. dollar.
Other expense
(income): Other expense (income)
consists of various non-operating items. Other expense (income)
fluctuated from income of $421 for the quarter ended June 30, 2008 to an expense
of $19 for the quarter ended June 30, 2009, mainly due to approximately $500 of
Chinese incentives for foreign investments provided to the Company last
year.
Income
Taxes: Income
taxes during the first quarter of fiscal 2010 fluctuated to an income tax
benefit of $367,
as compared to $1,500 income tax expense for the first quarter of fiscal
2009. The fluctuation of income tax expense to income tax benefit is
due to the swing from a profit before taxes last year to a loss before taxes
this year.
Income
taxes during interim periods are based on an estimated overall effective tax
rate (“ETR”). The estimated overall ETR for fiscal 2010 is
approximately 20%, as compared to 28% ETR during the first quarter of fiscal
2009. The decrease in the estimated overall effective tax rate mainly
reflects the impact of the overall decrease in business due to the current
economic situation, particularly with regard to the tax expense associated with
certain foreign based income taxable in the U.S., as well as the shift of
taxable earnings to tax jurisdictions with lower tax rates. The
overall estimated effective tax rate is based on expectations and other
estimates and involves complex domestic and foreign tax issues, which the
Company monitors closely, but are subject to change.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
balances totaled $23,444 at June 30, 2009, a decrease of $39 as compared to
March 31, 2009, reflecting, among other factors, the Company’s ability to
generate positive operating cash flows, which was partially offset by
approximately $5,800 in payments to reduce debt and $943 of cash used for
purchases of property and equipment. Cash balances may decline as the Company
pays down debt and funds capital additions, as well as the overall impact of the
global recession.
The
following schedule compares the primary categories of the consolidated statement
of cash flows:
|
|
Three
months ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities from continuing
operations
|
|
$ |
7,241 |
|
|
$ |
9,322 |
|
|
$ |
(2,081 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities from continuing
operations
|
|
|
(988 |
) |
|
|
(3,314 |
) |
|
|
2,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities from continuing
operations
|
|
|
(6,645 |
) |
|
|
(940 |
) |
|
|
(5,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
271 |
|
|
|
(271 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
353 |
|
|
|
(122 |
) |
|
|
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents from continuing
operations
|
|
$ |
(39 |
) |
|
$ |
5,217 |
|
|
$ |
(5,256 |
) |
The
underlying reason for the decrease in overall operating cash flows is the
economic recession. In spite of the economic recession, the Company
was able to generate positive operating cash flows, as a result of implementing
initiatives to improve operating cash flows through working capital management
and various cost control measures. However, the Company was not able
to fully offset the impact of the recession on operating cash flows. Net income
declined $5,297. Cash flows provided by operating working capital
(trade accounts receivables, plus inventory, less accounts payable) increased
from $599 last year to $2,133 during the current period. Inventory
balances decreased as compared to last year because of the consumption of
inventory built-up for the planned China facility move, as well as the reduction
of inventory due to the decrease in production resulting from a decrease in
projected sales. Other items impacting operating cash flows include
the fluctuation of income tax payable and accrued expenses. The
increase in accrued expenses is due in large part to the increase in accrued
interest payable resulting from the higher interest expense caused by increases
in interest rates. The fluctuation in the income taxes payable and
receivable reflects, among other things, the collection of certain research tax
credits and the swing from income tax expense to income tax benefit as a
consequence of the change from a profit before taxes to a loss before taxes
during the current year.
Net cash
used in investing activities was $988 as compared to $3,314 last year. The prior
year capital spending levels were higher due to the construction of the new
China facility, and the lower level of capital spending during the current year
reflects the impact of cost control measures.
Net cash
used in financing activities totaled $6,645 for the three months ended June 30,
2009, as compared to $940 used in financing activities during the same period
last year. The increase in debt payments reflects the Company’s
efforts to reduce debt levels.
Long-Term
Debt: To support the financing of acquisitions, effective
April 1, 2006, the Company entered into an Amended and Restated Credit Agreement
(“Amended and Restated Credit Facility”) with General Electric Capital
Corporation (“GE”) as agent which, among other things, increased the
Company’s existing credit facility from $35,000 to $75,000, consisting of a
$55,000 revolving credit facility and a $20,000 term loan, and lowered the
applicable London Inter-bank Offered Rate (“LIBOR”) or Index Margin from 4.50%
and 2.75%, respectively, to LIBOR and Index Margins of 2.75% and 1.0%,
respectively. To support the financing of the acquisition of Intersema (See Note
6), the Company entered into an Amended Credit Agreement (“Amended
Credit Facility”) with four banks, with GE as agent, effective December 10,
2007 which, among other things, increased the Company’s existing revolving
credit facility from $55,000 to $121,000 and lowered the applicable LIBOR or
Index Margin from 2.75% and 1.0%, respectively, to LIBOR and Index Margins of
2.00% and 0.25%, respectively. Interest accrues on the principal amount of the
borrowings at a rate based on either LIBOR plus a LIBOR margin, or at the
election of the borrower, at an Index Rate (prime based rate) plus an Index
Margin. The applicable margins may be adjusted quarterly based on a change in
specified financial ratios. Borrowings under the line are subject to certain
financial covenants and restrictions on indebtedness, dividend payments,
repurchase of Company common stock, financial guarantees, annual capital
expenditures, and other related items. The borrowing availability of the
revolving credit facility is not based on any borrowing base requirements, but
borrowings are limited by certain financial covenants. The term loan
portion of our credit facility was not changed with the Amended Credit Facility.
The term loan is payable in $500 quarterly installments plus interest through
March 1, 2011, with a final term payment of $10,500 and the revolver payable on
April 3, 2011. The Company has provided a security interest in substantially all
of the Company’s U.S. based assets as collateral for the Amended Credit
Facility.
On April
27, 2009, the Company entered into an amendment (the “Amendment”) to the Amended
Credit Facility whereby the Company proactively negotiated a reduction of our
debt covenant requirements, as a result of the decline in our sales and
profitability resulting from the impact of the global recession. The
amendment provides the Company with additional flexibility under its minimum
EBITDA covenant, total leverage ratio covenant, fixed charge ratio covenant and
maximum capital expenditure covenant included in its senior credit facility.
Under the terms of the amendment, the principal amount available under the
Company’s revolver has been reduced from $121,000 to $90,000. The Amendment
increased the interest rate by between 1.50% and 2.25%, increased the Index
Margin and LIBOR Margin (which vary based on the Company’s debt to EBITDA
leverage ratio), and also increased the commitment fee on the unused balance to
0.5% per annum. As part of the Amendment, the Company paid $832 in
amendment fees, which were capitalized as deferred financing
costs. Pursuant to the Amendment, the Company is prohibited from
consummating any business acquisitions without lender approval during the
covenant relief period, which ends March 31, 2010. Management
believes the Company will be in compliance with the revised debt covenants, but
there can be no assurance that these reductions will be sufficient if the
recession is longer or worse than we expect. The Company is presently
in compliance with applicable financial covenants at June 30,
2009.
The
Company’s debt covenant requirements for June 30, 2009 and the next three
quarters are as follows:
|
|
Amended
Financial Covenant Requirements
|
|
|
|
June
30, 2009
|
|
|
September
30,
2009
|
|
|
December
31,
2009
|
|
|
March
31,
2010
|
|
Minimum
Proforma Earnings Before Income Taxes, Stock
Options, Depreciation, and Amortization
("PEBITSDA")
|
|
$ |
21,400 |
|
|
$ |
16,600 |
|
|
$ |
19,100 |
|
|
$ |
24,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
Adjusted Fixed Charge Coverage Ratio for the last twelve
months
|
|
|
1.10 |
|
|
|
1.00 |
|
|
|
1.15 |
|
|
|
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
Adjusted Capital Expenditures for the last twelve months
|
|
$ |
7,829 |
|
|
$ |
6,541 |
|
|
$ |
7,978 |
|
|
$ |
8,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
Adjusted Total Leverage Ratio
|
|
|
4.00 |
|
|
|
5.00 |
|
|
|
4.25 |
|
|
|
3.25 |
|
PEBITSDA
is the Company’s earnings before income taxes, stock options, depreciation and
amortization for last twelve months, in addition to the last twelve months of
PEBITSDA for acquisitions. Adjusted fixed charge coverage ratio is
PEBITSDA less adjusted capital expenditures divided by fixed
charges. Fixed charges are the last twelve months of interest, taxes
paid, and the last twelve months of payments of long-term debt, notes payable
and capital leases. Adjusted capital expenditures represent purchases
of plant, property and equipment during the last twelve months. Total
leverage ratio is total debt less cash maintained in U.S. bank accounts which
are subject to blocked account agreements with lenders divided by the last
twelve months of PEBITSDA. All of the aforementioned financial
covenants are subject to various adjustments, many of which are detailed in the
amended credit agreement and subsequent amendments to the credit agreement
previously filed with the Securities Exchange Commission, as well as other
adjustments approved by the lender. These adjustments include such
items as excluding capital expenditures associated with the new China facility
from capital expenditures, and adjustments to PEBITSDA for certain items such
litigation settlement costs, severance costs and other items considered
non-recurring in nature.
As of
June 30, 2009, the Company utilized the LIBOR based rate for the term loan and
for $66,000 of the revolving credit facility under the Amended Credit Facility.
The weighted average interest rate applicable to borrowings under the revolving
credit facility was approximately 5.2% at June 30, 2009. As of June 30, 2009,
the outstanding borrowings on the revolving credit facility, which is classified
as long-term debt, were $66,435, and the Company had an additional $23,565
available under the revolving credit facility. The Company’s borrowing capacity
is limited by financial covenant ratios, including earnings ratios, and as such,
our borrowing capacity is subject to change. At June 30, 2009, the
Company could borrow an additional $17,900.
Promissory
Notes: In connection with the acquisition of Intersema, the
Company issued Swiss franc denominated unsecured promissory notes (“Intersema
Notes”) totaling 20,000 Swiss francs. At June 30, 2009, the
unpaid balance of the Intersema Notes totaled $6,909, of which $2,303 is
classified as current. The Intersema Notes are payable in four equal annual
installments, the first of which was paid in January 2009, and bear an interest
rate of 4.5% per year.
LIQUIDITY: Management
assesses the Company’s liquidity in terms of available cash, our ability to
generate cash and our ability to borrow to fund operating, investing and
financing activities. The Company continues to generate cash from operating
activities, and the Company remains in a positive financial position with
availability under existing credit facilities. The Company will
continue to have cash requirements to support working capital needs, capital
expenditures, earn-outs related to acquisitions, and to pay interest and service
debt. We believe the Company’s financial position, generation of cash
and the existing credit facility, in addition to the potential to refinance or
obtain additional financing will be sufficient to meet funding of day-to-day and
material short and long-term commitments for the foreseeable
future.
At June
30, 2009, we had approximately $23,444
of available cash and $17,900 of borrowing capacity under the revolving credit
facility after considering the impact of the Amendment on borrowing capacity.
This cash balance includes cash of $5,652
in China, which is subject to certain restrictions on the transfer to
another country because of currency control regulations. The
Company’s cash balances are generated and held in numerous locations throughout
the world, including substantial amounts held outside the United States. The
Company utilizes a variety of tax planning and financing strategies in an effort
to ensure that its worldwide cash is available in the locations in which it is
needed. Wherever possible, cash management is centralized and intra-company
financing is used to provide working capital to the Company’s operations. Most
of the cash balances held outside the United States could be repatriated to the
United States, but, under current law, would potentially be subject to United
States federal income taxes, less applicable foreign tax credits. Repatriation
of some foreign balances is restricted or prohibited by local laws. Where local
restrictions prevent an efficient intra-company transfer of funds, the Company’s
intent is that cash balances would remain in the foreign country and it would
meet United States liquidity needs through ongoing cash flows, external
borrowings, or both.
ACCUMULATED
OTHER COMPREHENSIVE INCOME: Accumulated other comprehensive income
primarily consists of foreign currency translation adjustments, which relate to
the Company’s European and Asian operations and the effects of changes in the
exchange rates of the U.S. dollar relative to the Euro, Chinese RMB, Hong Kong
dollar, Japanese Yen and Swiss franc.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES: The preparation of financial
statements in accordance with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. These estimates and
assumptions may require significant judgment about matters that are inherently
uncertain, and future events are likely to occur that may require management to
change them. Accordingly, management regularly reviews these estimates
and assumptions based on historical experience, changes in the business
environment and other factors that management believes to be reasonable under
the circumstances. Management discusses the development, selection and
disclosures concerning critical accounting policies with the Audit Committee of
its Board of Directors. There have been no significant changes to the
Application of Critical Accounting Policies disclosure contained in the
Company’s Annual Report on Form 10-K for the year ended March 31,
2009.
NEW
ACCOUNTING PRONOUNCEMENTS: In December 2007, the FASB issued SFAS No. 141R,
Business Combinations
(“SFAS No. 141R”) and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements- an amendment to ARB No. 51
(“SFAS No. 160”). SFAS No. 141R and SFAS No. 160 require most
identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at “full fair value” and
require noncontrolling interests (previously referred to as minority interests)
to be reported as a component of equity, which changes the accounting for
transactions with noncontrolling interest holders. Both Statements are effective
April 1, 2009. SFAS No.141R will be applied to business combinations occurring
after March 31, 2009. The accounting for contingent consideration under SFAS No.
141R requires the measurement of contingencies at the fair value on the
acquisition date. Contingent consideration can be either a liability or equity
based, and as such will be accounted for under SFAS No. 150, SFAS No. 133, or
EITF 00-19. Subsequent changes to the fair value of the contingent consideration
(liability) are recognized in earnings, not to goodwill, and equity classified
contingent consideration amounts are not re-measured. The adoption of
SFAS No. 141R and SFAS No. 160 did not have a material impact on the Company’s
results of operations and financial position.
In
February 2008, the FASB issued FSP FAS No. 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measures for Purposes of Lease Classification or
Measurement under Statement 13 (“FSP 157-1”). FSP 157-1 removed leasing
transactions accounted for under SFAS No. 13, Accounting for Leases, and
related guidance from the scope of SFAS 157. On April 1, 2009, the
Company adopted the previously deferred provisions of SFAS No. 157, Fair Value Measurements, for
non-financial assets and liabilities. The adoption of SFAS No. 157
did not have any impact on the Company’s results of operations and financial
condition.
In April
2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets, (“FSP 142-3”). FSP 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and
Other Intangible Assets, (“SFAS 142”). The intent of FSP 142-3
is to improve the consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS No. 141R, Business Combinations, (“SFAS
No. 141(R)”), and other U.S. GAAP pronouncements. FSP 142-3 shall be
applied prospectively to all intangible assets acquired after its effective
date. FSP 142-3 is effective for our interim and annual financial statements
beginning after March 31, 2009. The adoption of this statement did not any
impact on the Company’s results of operations and financial
condition.
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”), and in June 2009, SFAS No. 162 was
replaced by SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles—a replacement of FASB Statement No. 162
.. SFAS No. 168 identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with U.S. GAAP. SFAS No. 168 is effective for financial statements
issued for interim and annual periods ending after September 15,
2009. There will be no impact on our financial position, results of
operations or cash flow upon the adoption of this standard.
Financial
Accounting Standards Board Staff Position (“FSP”) No. 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets,” was issued on
December 30, 2008. The FSP, effective for fiscal years ending after
December 15, 2009, clarifies an employer’s disclosures about plan assets of a
defined benefit pension or other postretirement plan. The FSP prescribes
expanded disclosures regarding investment allocation decisions, categories of
plan assets, inputs, and valuation techniques used to measure fair value, the
effect of Level 3 inputs on changes in plan assets and significant
concentrations of risk. The Company will adopt the FSP at March 31, 2010
and does not expect the adoption of this FSP will have a material impact on the
Company’s results of operations and financial condition.
In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (“SFAS No. 167”). SFAS No. 167 improves financial
reporting by enterprises involved with variable interest entities and addresses
(1) the effects on certain provisions of FIN 46(R), as a result of the
elimination of the qualifying special-purpose entity concept in SFAS No. 166,
Accounting for Transfers of
Financial Assets, and (2) constituent concerns about the application of
certain key provisions of FIN 46(R), including those in which the accounting and
disclosures under SFAS No. 167 do not always provide timely and useful
information about an enterprise’s involvement in a variable interest
entity. SFAS No. 167 is effective as of the beginning of the
annual reporting period that begins after November 15, 2009, for interim periods
within that annual reporting period, and for interim and annual reporting
periods thereafter. Earlier application is prohibited. The
Company does not expect the adoption of SFAS No. 167 to have a material impact
on the Company’s results of operations and financial condition.
DIVIDENDS: We have not declared
cash dividends on our common equity. Additionally, the payment of dividends is
prohibited under our Amended Credit Facility. We intend to retain earnings to
support our growth strategy and we do not anticipate paying cash dividends in
the foreseeable future.
At
present, there are no material restrictions on the ability of our Hong Kong and
European subsidiaries to transfer funds to us in the form of cash dividends,
loans, advances, or purchases of materials, products, or services. Chinese laws
and regulations, including currency exchange controls, however, restrict
distribution and repatriation of dividends by our China subsidiary.
SEASONALITY: As a whole, there is no
material seasonality in our sales. However, general economic conditions have had
a material impact on our business and quarterly financial results, and certain
end-use markets experience certain seasonality. For example, European sales are
often lower in summer months and OEM sales are often stronger immediately
preceding and following the introduction of new products.
INFLATION: We
compete on the basis of product design, features, and value. Accordingly, our
prices 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. 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.
OFF
BALANCE SHEET ARRANGEMENTS: We do not have any financial partnerships
with unconsolidated entities, such as entities often referred to as structured
finance, special purpose entities or variable interest entities which are often
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. Accordingly, we are not exposed
to any financing, liquidity, market or credit risk that could arise if we had
such relationships.
The
Company has acquired and divested of certain assets, including the acquisition
of businesses and the sale of the Consumer business. In connection with these
acquisitions and divestitures, the Company often provides representations,
warranties and/or indemnities to cover various risks and unknown liabilities,
such as claims for damages arising out of the use of products or relating to
intellectual property matters, commercial disputes, environmental matters or tax
matters. The Company cannot estimate the potential liability from such
representations, warranties and indemnities because they relate to unknown
conditions. However, the Company does not believe that the liabilities relating
to these representations, warranties and indemnities will have a material
adverse effect on the Company’s financial position, results of operations or
liquidity.
AGGREGATE
CONTRACTUAL OBLIGATIONS: As of June 30, 2009, the Company’s
contractual obligations, including payments due by period, are as
follows:
Contractual
Obligations:
|
|
Payment
due by period
|
|
|
|
Total
|
|
|
1
year
|
|
|
2-3
years
|
|
|
4-5
years
|
|
|
>
5years
|
|
Long-term
debt obligations
|
|
$ |
87,908 |
|
|
$ |
4,632 |
|
|
$ |
83,262 |
|
|
$ |
14 |
|
|
$ |
- |
|
Interest
obligation on long-term debt
|
|
|
9,977 |
|
|
|
5,054 |
|
|
|
4,922 |
|
|
|
1 |
|
|
|
- |
|
Capital
lease obligations
|
|
|
893 |
|
|
|
679 |
|
|
|
214 |
|
|
|
- |
|
|
|
- |
|
Operating
lease obligations *
|
|
|
22,302 |
|
|
|
3,612 |
|
|
|
5,036 |
|
|
|
4,547 |
|
|
|
9,107 |
|
Other
long-term obligations**
|
|
|
483 |
|
|
|
355 |
|
|
|
128 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
121,563 |
|
|
$ |
14,332 |
|
|
$ |
93,562 |
|
|
$ |
4,562 |
|
|
$ |
9,107 |
|
* Operating lease obligations
are not reduced for annual sublease rentals of approximately $150.
**Other
long-term obligations on the Company’s balance sheet under GAAP primarily
consist of obligations under warranty polices and tax liabilities, but exclude
earn-out contingencies associated with acquisitions since the satisfaction of
the contingencies is not determinable or achieved at June 30, 2009. The timing
of cash flows associated with these obligations is based upon management’s
estimate over the terms of these arrangements and are largely based on
historical experience.
The above
contractual obligation table excludes certain contractual obligations, such as
earn-outs related to acquisitions or possible severance payments to certain
executives, since these contractual commitments are not accrued as liabilities
at June 30, 2009. These contractual obligations are accrued as
liabilities when the respective contingencies are determinable or
achieved. Amounts in the above table for other long-term obligations
are based on March 31, 2009 balances because there have been no significant
changes as of June 31, 2009.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Company is exposed to market risk from changes in interest rates, foreign
currency exchange rates, commodity and credit risk, which could impact its
results of operations and financial condition. The Company attempts to address
its exposure to these risks through its normal operating and financing
activities. In addition, the Company’s broad-based business activities help to
reduce the impact that volatility in any particular area or related areas may
have on its operating earnings as a whole.
Interest
Rate Risk: Under our term and revolving credit facilities, we are
exposed to a certain level of interest rate risk. Interest on the principal
amount of our borrowings under our revolving credit facility and term loan
accrue at a rate based on either a LIBOR rate plus a LIBOR margin or at an
Indexed (prime based) Rate plus an Index Margin. The LIBOR or Index Rate is at
our election. Our results will be adversely affected by any increase in interest
rates. For example, based on the $79,935 of total debt outstanding under
these facilities at June 30, 2009, an annual interest rate increase of 100
basis points would increase interest expense and decrease our pre-tax
profitability by $799. We do not currently hedge this interest rate
exposure.
Commodity
Risk: The Company uses a wide range of commodities in our products,
including steel, non-ferrous metals and petroleum based products, as well as
other commodities required for the manufacture of our sensor
products. Changes in the pricing of commodities directly affect our
results of operations and financial condition. We attempt to pass
increases in commodity costs to our customers, and we do not currently hedge
such commodity price exposures.
Credit
Risk: Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and temporary
investments, foreign currency forward contracts and trade accounts receivable.
The Company is exposed to credit losses in the event of nonperformance by
counter parties to its financial instruments. The Company places cash and
temporary investments with various high-quality financial institutions
throughout the world, and exposure is limited at any one institution. Although
the Company does not obtain collateral or other security to secure these
obligations, it does periodically monitor the third-party depository
institutions that hold our cash and cash equivalents. Our emphasis is primarily
on safety and liquidity of principal and secondarily on maximizing yield on
those funds. In addition, concentrations of credit risk arising from trade
accounts receivable are limited due to the diversity of the Company’s customers.
The Company performs ongoing credit evaluations of its customers’ financial
conditions and the Company does not obtain collateral, insurance or other
security. Notwithstanding these efforts, the current distress in the
global economy may increase the difficulty in collecting accounts
receivable.
Foreign
Currency Exchange Rate Risk: Foreign currency exchange rate risk
arises from the Company’s investments in subsidiaries owned and operated in
foreign countries, as well as from transactions with customers in countries
outside the United States. The effect of a change in currency exchange rates on
the Company’s net investment in international subsidiaries is reflected in the
“accumulated other comprehensive income” component of stockholders’ equity. A
10% appreciation in major currencies relative to the U.S. dollar at June 30,
2009 would result in a reduction of stockholders’ equity of approximately
$10,574 .
Although
the Company has a U.S. dollar functional currency for reporting purposes, it has
manufacturing sites throughout the world and a large portion of its sales are
generated in foreign currencies. A substantial portion of our revenues are
priced in U.S. dollars, and most of our costs and expenses are priced in U.S.
dollars, with the remaining priced in Chinese renminbi, Euros, Swiss francs and
Japanese yen. Sales by subsidiaries operating outside of the United States are
translated into U.S. dollars using exchange rates effective during the
respective period. As a result, the Company is exposed to movements in the
exchange rates of various currencies against the United States dollar.
Accordingly, the competitiveness of our products relative to products produced
locally (in foreign markets) may be affected by the performance of the U.S.
dollar compared with that of our foreign customers’ currencies. Refer to Item 1,
Business, Foreign Operations set forth in our Annual Report on Form 10-K for the
year ended March 31, 2009 for details concerning annual net sales invoiced from
our facilities within the U.S. and outside of the U.S. and as a percentage of
total net sales for the last three years, as well as net assets and the related
functional currencies. Therefore, both positive and negative
movements in currency exchange rates against the U.S. dollar will continue to
affect the reported amount of sales, profit, and assets and liabilities in the
Company’s consolidated financial statements.
The
renminbi did not appreciate during the first quarter of fiscal 2010, but
appreciated by 2.5%, 9.0% and 4.0% during 2009, 2008 and 2007, respectively. The
Chinese government no longer pegs the renminbi to the US dollar, but established
a currency policy letting the renminbi trade in a narrow band against a basket
of currencies. The Company has more expenses in renminbi than sales (i.e., short
renminbi position), and as such, when the U.S. dollar weakens relative to the
renminbi, our operating profits decrease. Based on our net exposure of renminbi
to U.S. dollars for the fiscal year ended March 31, 2009 and forecast
information for fiscal 2010, we estimate a negative operating income impact of
approximately $183 for every 1% appreciation in renminbi against the U.S. dollar
(assuming no price increases passed to customers, and no associated cost
increases or currency hedging). We continue to consider various alternatives to
hedge this exposure, and we are attempting to manage this exposure through,
among other things, forward purchase contracts, pricing and monitoring
balance sheet exposures for payables and receivables.
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 U.S. dollar. However, there can be no assurance that the value of
the Hong Kong dollar will continue to be tied to that of the U.S.
dollar.
The
Company’s French and Germany subsidiaries have more sales in Euro than expenses
in Euro and the Company’s Swiss subsidiary has more expenses in Swiss franc than
sales, and as such, if the U.S. dollar weakens relative to the Euro and Swiss
franc, our operating profits increase in France and Germany but decline in
Switzerland. Based on the net exposures of Euros and Swiss francs to the U.S.
dollars for the fiscal year ended March 31, 2009, we estimate a negative
operating income impact of $55 in Euros and a positive income impact of less
than $1 for every 1% appreciation in the Euro and Swiss franc, respectively,
relative to the U.S. dollar (assuming no price increases passed to customers,
and associated cost increases or currency hedging).
The
Company has a number of foreign currency exchange contracts in Europe and Asia
in an attempt to hedge the Company’s exposure to the Euro and RMB. The Euro/U.S.
dollar, RMB/U.S. dollar and Japanese Yen/Euro currency contracts have gross
notional amounts totaling $4,116, $5,000, and $2,319, respectively, with
exercise dates through June 2010 at an average exchange rate of 1.36 (Euro to
U.S. dollar conversion rate), $0.148 (RMB to U.S. dollar conversion rate) and
119 Yen (Euro to Japanese Yen). Since these derivatives are not
designated as hedges under SFAS No. 133, changes in their fair value are
recorded in earnings, not in other comprehensive income. The fair
value of our RMB currency contracts and our results of operations will be
adversely affected by a decrease in value of the RMB relative to the U.S.
dollar. For example, based on the $5,000 notional amount of these contracts
outstanding at June 30, 2009 and current pricing of forward exchange rates of
the RMB relative to the U.S. dollar, a 1% depreciation of the RMB would
increase foreign currency expense and decrease our pre tax profitability by
$50.
To manage
our exposure to potential foreign currency transaction and translation risks, we
may purchase additional foreign currency exchange forward contracts, currency
options, or other derivative instruments, provided such instruments may be
obtained at suitable prices.
ITEM
4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure
Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer with the
participation of management evaluated the effectiveness of our disclosure
controls and procedures as of June 30, 2009. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by the company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of June 30,
2009, our Chief Executive Officer and Chief Financial Officer concluded that, as
of such date, our disclosure controls and procedures were
effective.
(b) Changes in Internal
Control Over Financial Reporting
During
the fiscal quarter ended June 30, 2009, management did not identify any changes
in the Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Management’s
evaluation of our controls and procedures as of June 30, 2009 excluded the
evaluation of internal controls for the Company’s joint venture in Japan,
Nikisso-THERM (“NT”), and the Company’s recent acquisitions of RIT SARL
(“Atexis”) and FGP Instrumentation, GS Sensors and ALS (collectively “FGP”)
during 2009. NT is an entity consolidated pursuant to FIN 46R. The
Company does not have the ability to dictate or modify the controls of NT, and
the Company does not have the ability, in practice, to assess those controls.
Management expects to implement the Company’s internal controls over financial
reporting for Atexis and FGP within one year from the acquisition
date.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Pending
Matters: From time to time, the Company is subject to legal
proceedings and claims in the ordinary course of business. The Company currently
is not aware of any legal proceedings or claims that the Company believes will
have, individually or in the aggregate, a material adverse effect on the
Company’s business, financial condition, or operating results.
ITEM
1A. RISK FACTORS
While we
attempt to identify, manage and mitigate risks and uncertainties associated with
our business to the extent practical under the circumstances, some level of risk
and uncertainty will always be present. Item 1A of our Annual Report
on Form 10-K for the year ended March 31, 2009 describes some of the risks and
uncertainties associated with our business. These risks and
uncertainties have the potential to materially affect our results of operations
and our financial condition. We do not believe that there have been
any material changes to the risk factors previously disclosed in our Annual
report on Form 10-K for the year ended March 31, 2009.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
ITEM
6. EXHIBITS
See
Exhibit Index.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
Measurement
Specialties, Inc.
(Registrant)
|
|
|
|
Date: August
5, 2009
|
By:
|
/s/
Frank D. Guidone
|
|
President,
Chief Executive Officer
(Principal
Executive Officer)
|
Date: August
5, 2009
|
By:
|
/s/
Mark Thomson
|
|
Chief
Financial Officer
(Principal
Financial
Officer)
|
EXHIBIT
INDEX
EXHIBIT
NUMBER
|
|
DESCRIPTION
|
|
|
|
31.1
|
|
Certification
of Frank D. Guidone required by Rule 13a-14(a) or Rule
15d-14(a)
|
|
|
|
31.2
|
|
Certification
of Mark Thomson required by Rule 13a-14(a) or Rule
15d-14(a)
|
|
|
|
32.1
|
|
Certification
of Frank D. Guidone and Mark Thomson required by Rule 13a-14(b) or Rule
15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section
1350
|