UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended March 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-11906
MEASUREMENT SPECIALTIES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2378738
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 LITTLE FALLS ROAD, 07004
FAIRFIELD, NEW JERSEY (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (973) 808-1819
Securities registered under Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
COMMON STOCK, NO PAR VALUE AMERICAN STOCK EXCHANGE
Securities registered under Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
At November 5, 2002, the average market value of the voting stock held by
non-affiliates was approximately $16,128,703 based on the closing price of the
registrant's common stock on the American Stock Exchange on November 5, 2002.
At November 5, 2002, 11,912,958 shares of common stock were outstanding.
Explanatory Note
This Amendment No. 1 on Form 10-K/A (the "Amendment") amends the Annual Report
on Form 10-K of Measurement Specialties, Inc. (the "Company") for the fiscal
year ended March 31, 2002, previously filed on October 28, 2002 (the "Original
10-K"). The Company has filed this Amendment solely to amend the Consolidated
Statements of Cash Flows for the fiscal years ended March 31, 2002, 2001 and
2000 contained in the Original 10-K. The line items in the Consolidated
Statements of Cash Flows that have been amended are as follows: (i) "Goodwill
and other impairments," (ii) "Provision for warranty," (iii) "Loss on disposal
of assets" (this line has been removed), (iv) "Accounts receivable, trade," (v)
"Inventories," (vi) "Other assets," (vii) "Accounts payable, trade," and (viii)
"Accrued expenses and other liabilities." This Amendment makes no other changes
to the Original 10-K.
This Amendment contains only the consolidated financial statements of the
Company for the years ended March 31, 2002, 2001, and 2000 and as of March 31,
2002 and 2001 and should be read in conjunction with the information set forth
in the Original 10-K, as well as the Company's quarterly report on Form 10-Q
for the three months ended June 30, 2002, filed on October 29, 2002 and any
subsequent reports filed pursuant to the Securities Exchange Act of 1934.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following financial statements and schedules are filed at the end of
this report, beginning on page F-l. Other schedules are omitted because they are
not required or are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
Document Pages
Report of Independent Certified Public Accountants F-1
Consolidated Statements of Operations for the Years Ended
March 31, 2002, 2001 and 2000 F-2
Consolidated Balance Sheets as of March 31, 2002 and 2001 F-3 to F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended March 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Cash Flows for the Years Ended F-6
March 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements F-7 to F-36
Schedule II - Valuation and Qualifying Accounts, for the Years
Ended March 31, 2002, 2001 and 2000 S-1
(c) Exhibits
Exhibit 23.1 Consent of Grant Thornton LLP.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to the
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
MEASUREMENT SPECIALTIES, INC.
By: /s/ Frank Guidone November 5, 2002
---------------------
Frank Guidone
Chief Executive Officer
I, Frank Guidone, certify that:
1. I have reviewed this annual report on Form 10-K of Measurement Specialties,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 5, 2002 /s/ Frank Guidone
_____________________________
Name: Frank Guidone
Title: Chief Executive Officer
I, John P. Hopkins, certify that:
1. I have reviewed this annual report on Form 10-K of Measurement Specialties,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 5, 2002 /s/ John P. Hopkins
-------------------
Name: John P. Hopkins
Title: Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Measurement Specialties, Inc.
We have audited the accompanying consolidated balance sheets of Measurement
Specialties, Inc. and Subsidiaries (a Delaware corporation) as of March 31, 2002
and 2001, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended March 31,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Measurement
Specialties, Inc. and Subsidiaries as of March 31, 2002 and 2001, and the
results of its operations and its cash flows for each of the three years in the
period ended March 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 3, the accompanying consolidated financial statements as of
and for the year ended March 31, 2001 have been restated. The effect of the
restatement is disclosed in Note 3.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company incurred a net loss of $29,047,000 during the year ended March 31, 2002
and anticipates incurring additional losses for the next several quarters.
Additionally, the Company was in default of certain financial covenants in its
credit agreement and the Company and its lenders have entered into a forbearance
agreement which expires November 1, 2002 or earlier. These factors, among
others, as discussed in Note 1 to the financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133") on April 1, 2001.
In addition, as disclosed in notes 2, 4 and 7, the Company adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142") on April 1, 2001.
We have also audited Schedule II for each of the three years in the period ended
March 31, 2002. In our opinion, this schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information therein.
GRANT THORNTON LLP
New York, New York
October 9, 2002
F-1
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31,
----------------------------------------
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2002 2001 2000
--------------------------------------------------------- ------------ ------------ -----------
AS RESTATED
NOTE 3
------------
Net sales $ 132,619 $ 101,975 $ 59,997
Cost of goods sold 97,611 66,938 34,524
--------- --------- ---------
Gross profit 35,008 35,037 25,473
--------- --------- ---------
Operating expenses (income):
Selling, general and administrative 44,464 29,541 16,132
Research and development 6,591 5,082 3,360
Customer funding of research and development (1,784) (4,132) (1,611)
Goodwill and other impairments 7,479 -- --
Restructuring and other costs 1,413 -- --
--------- --------- ---------
Total operating expenses 58,163 30,491 17,881
--------- --------- ---------
Operating income (loss) (23,155) 4,546 7,592
Interest expense, net of interest income of $33,
$20, and $99 in 2002, 2001, and 2000, respectively 2,681 2,634 287
Other (income) expense 441 (293) 17
--------- --------- ---------
3,122 2,341 304
--------- --------- ---------
Income (loss) before provision for income
taxes and cumulative effect of accounting change (26,277) 2,205 7,288
Provision for income taxes 2,522 1,008 1,757
--------- --------- ---------
Income (loss) before cumulative effect
of accounting change (28,799) 1,197 5,531
Cumulative effect of accounting change, net of taxes (248) -- --
--------- --------- ---------
Net income (loss) $ (29,047) $ 1,197 $ 5,531
========= ========= =========
Earnings (loss) per common share - Basic
Income (loss) before cumulative effect
of accounting change (2.74) 0.15 0.73
Cumulative effect of accounting change (0.02) -- --
--------- --------- ---------
Net income (loss) $ (2.76) $ 0.15 $ 0.73
========= ========= =========
Earnings (loss) per common share - Diluted
Income (loss) before cumulative effect
of accounting change $ (2.74) $ 0.13 $ 0.64
Cumulative effect of accounting change (0.02) -- --
--------- --------- ---------
Net income (loss) $ (2.76) $ 0.13 $ 0.64
========= ========= =========
Weighted average number of common and common
equivalent shares outstanding:
Basic 10,531 8,144 7,612
========= ========= =========
Diluted 10,531 9,045 8,696
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31,
-----------------------
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2002 2001
-------------------------------------------------------- -------- ----------
AS RESTATED
ASSETS NOTE 3
-----------
CURRENT ASSETS:
Cash and cash equivalents $ 4,542 $ 593
Accounts receivable, trade, net of allowance for doubtful
accounts of $1,004 and $914, respectively 19,914 14,902
Inventories 22,969 24,362
Deferred income taxes -- 2,129
Refundable income taxes 1,146 --
Prepaid expenses and other current assets 2,477 1,137
------- -------
TOTAL CURRENT ASSETS 51,048 43,123
------- -------
PROPERTY AND EQUIPMENT 35,851 29,598
Less accumulated depreciation and amortization 17,506 12,529
------- -------
18,345 17,069
------- -------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $483 and $963, respectively 8,265 11,412
Trademark 9,549 --
Deferred income taxes -- 2,055
Other assets, net 2,405 3,820
------- -------
20,219 17,287
------- -------
TOTAL ASSETS $89,612 $77,479
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31,
--------------------------
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2002 2001
-------------------------------------------------- ----------- -----------
AS RESTATED
LIABILITIES AND SHAREHOLDERS' EQUITY NOTE 3
-----------
CURRENT LIABILITIES:
Current portion of long term debt $ 32,758 $ 36,736
Accounts payable 19,252 13,713
Accrued compensation 2,070 2,529
Accrued acquisition costs -- 604
Accrued expenses and other current liabilities 7,287 4,999
-------- --------
TOTAL CURRENT LIABILITIES 61,367 58,581
-------- --------
OTHER LIABILITIES:
Long term debt, net of current portion 249 --
Other liabilities 1,169 1,181
-------- --------
1,418 1,181
-------- --------
TOTAL LIABILITIES 62,785 59,762
-------- --------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity
Serial preferred stock;
221,756 shares authorized; none outstanding -- --
Common stock, no par; 20,000,000 shares authorized;
shares issued and outstanding 11,864,958 and
8,333,340, respectively 5,502 5,502
Additional paid-in capital 42,346 3,769
Accumulated (deficit) retained earnings (20,586) 8,461
Other comprehensive loss (435) (15)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 26,827 17,717
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 89,612 $ 77,479
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED MARCH 31, 2002, 2001, AND 2000
Retained Other
Additional Earnings Compre- Compre-
Common paid-in (Accumulated hensive hensive
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) stock capital Deficit) Loss Total Income (Loss)
----------------------------------------------- --------- --------- -------- --------- ---------- -------------
Balance, April 1, 1999 $ 5,502 $ 308 $ 1,733 $ (1) $ 7,542
Comprehensive income, March 31, 2000:
Net income -- -- 5,531 -- 5,531 $ 5,531
--------
Comprehensive income $ 5,531
========
Tax benefit on exercise of options -- 610 -- -- 610
652,266 common shares issued upon
exercise of options -- 1,124 -- -- 1,124
-------- -------- -------- -------- --------
Balance, March 31, 2000 5,502 2,042 7,264 (1) 14,807
Comprehensive income, March 31, 2001:
Net income, as restated (Note 3) -- -- 1,197 -- 1,197 $ 1,197
Currency translation adjustment -- -- -- (14) (14) (14)
--------
Comprehensive income, as restated (Note 3) $ 1,183
========
Tax benefit on exercise of options -- 924 -- -- 924
353,500 common shares issued upon
exercise of options -- 803 -- -- 803
-------- -------- -------- -------- --------
Balance, March 31, 2001, as restated (Note 3) 5,502 3,769 8,461 (15) 17,717
Comprehensive income, March 31, 2002:
Net (loss) -- -- (29,047) -- (29,047) $(29,047)
Currency translation adjustment -- -- -- (420) (420) (420)
--------
Comprehensive (loss) $(29,467)
========
Reversal of tax benefit on exercise of options -- (1,534) -- -- (1,534)
2,530,000 common shares issued in secondary
offering, net of expenses -- 30,874 -- -- 30,874
503,692 common shares issued upon acquisition -- 6,800 -- -- 6,800
182,434 common shares issued upon
exercise of options -- 429 -- -- 429
315,492 common shares issued
in private placement -- 2,008 -- -- 2,008
-------- -------- -------- -------- --------
BALANCE, MARCH 31, 2002 $ 5,502 $ 42,346 $(20,586) $ (435) $ 26,827
======== ======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
MEASUREMENT SPECIALTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31,
----------------------------------------
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2002 2001 2000
---------------------------------------------------------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES: AS RESTATED
NOTE 3
----------
Net income (loss) $(29,047) $ 1,197 $ 5,531
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,977 2,841 2,083
Deferred rent 126 178 --
Goodwill and other impairments 7,124 -- --
Provision for writedown of assets 458 -- --
Provision for doubtful accounts 1,158 698 (8)
Provision for warranty 85 380 (80)
Reversal of tax benefit on exercise of options (1,534) -- --
Deferred income taxes 2,650 (947) 8
Tax benefit on exercise of stock options -- 924 610
Net changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable, trade (903) (3,227) (1,020)
Inventories 8,882 (11,322) (3,417)
Prepaid expenses and other current assets (1,375) (455) (324)
Other assets 1,646 (513) (151)
Accounts payable, trade (5,343) 3,757 2,760
Accrued expenses and other liabilities 1,156 762 2,137
-------- -------- --------
Net cash (used in) provided by operating activities (9,940) (5,727) 8,129
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,366) (5,653) (2,510)
Purchases of intangible assets -- (40) (1,121)
Acquisition of businesses, net of cash acquired (10,669) (17,408) (12,368)
-------- -------- --------
Net cash used in investing activities (13,035) (23,101) (15,999)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit agreement 23,632 14,736 --
Repayments under bank line of credit agreement (14,935) -- --
Repayments under capital lease obligations (597) -- --
Proceeds from long term debt -- 25,000 10,000
Repayments of long term debt (13,836) (13,000) (3,800)
Payment of deferred financing costs (231) -- (283)
Proceeds from exercise of options and warrants 429 803 1,124
Proceeds from issuance of common stock, net of expenses 32,882 -- --
-------- -------- --------
Net cash provided by (used in) financing activities 27,344 27,539 7,041
-------- -------- --------
Effect of exchange rates (420) -- --
-------- -------- --------
Net change in cash and cash equivalents 3,949 (1,289) (829)
Cash and cash equivalents, beginning of year 593 1,882 2,711
-------- -------- --------
Cash and cash equivalents, end of year $ 4,542 $ 593 $ 1,882
======== ======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 2,818 $ 2,409 $ 368
Taxes 621 817 681
Non-cash transactions:
Common stock issued in connection with acquisition 6,800 -- --
Capital lease obligation for equipment 2,007 -- --
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
Notes to Consolidated Financial Statements
MARCH 31, 2002
($ IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS AND LIQUIDITY:
Description of business:
Measurement Specialties, Inc., a New Jersey Corporation, ("MSI" or "the
Company") is a designer and manufacturer of sensors and sensor-based consumer
products. The Company produces a wide variety of sensors that use advanced
technologies to measure precise ranges of physical characteristics, including
pressure, motion, force, displacement, angle, flow and distance. The Company has
a Sensor segment and a Consumer Products segment. The Sensor segment designs and
manufactures sensors for leading original equipment manufacturers for
electronic, automotive, medical, military and industrial applications. Sensor
products include pressure sensors, custom microstructures and accelerometers.
The Consumer Products segment designs and manufactures sensor based consumer
products which are sold to leading retailers and distributors in both the United
States and Europe. Consumer products include bathroom and kitchen scales, tire
pressure gauges, and distance estimators (see Note 17).
Current Developments:
In February 2002, the Company, at its own initiative, contacted the staff of the
SEC after discovering that our former Chief Financial Officer made the
misrepresentation to senior management, the Board and our auditors that a waiver
of our covenant default under our credit agreement had been obtained when the
lenders had, in fact refused to grant such a waiver. Since February 2002, the
Company and a Special Committee formed by our Board of Directors have been
cooperating with the staff of the SEC. In June 2002, the staff of the Division
of Enforcement of the SEC informed the Company that it is conducting a formal
investigation relating to matters reported in our quarterly report on Form 10-Q
for the quarter ended December 31, 2001. We cannot predict how long the SEC
investigation will continue or its outcome.
Liquidity and Going Concern:
The Company has incurred a net loss of approximately $29,047 for the year ended
March 31, 2002, and anticipates incurring additional losses for the next several
quarters. From September 30, 2001 through March 31, 2002, the Company was in
default of certain financial covenants in its credit agreement and as a result
of the restatement of previously issued financial statements the Company was
also in default of certain financial covenants for earlier periods. The Company
sought, but did not obtain, a waiver of such events of default from its lenders.
As described in Note 8, the Company and its lenders have entered into a
forbearance agreement which expires November 1, 2002 or earlier.
As a result of the significant losses for the last several reporting periods and
the Company's inability to make the required payments under the Company's loan
agreement, management and the Board of Directors approved a restructuring
program with the aim of reducing costs, streamlining operations and generating
cash to repay the Company's lenders. As of March 31, 2002, excluding the effects
of Terraillon and Schaevitz UK, the Company has reduced its workforce by 138
employees as compared to its workforce as of June 30, 2001. Additionally, as of
September 30, 2002, the Company has reduced its workforce by an additional 49
employees as compared to its workforce as of March 31, 2002. In addition, the
Company (i) discontinued its operations in the United Kingdom, (ii) sold the
assets related to its silicon wafer fab manufacturing
F-7
operations in Milpitas, California, which were part of the Company's IC Sensors
division for approximately $5,250 in July 2002, and (iii) sold all of the
outstanding stock of Terraillon Holdings Limited, the Company's European
subsidiary, that it purchased in August 2001, for approximately $22,300.
Approximately $2,282 of the purchase price will be held in escrow until January
24, 2003 to secure payment of certain purchase price adjustments, if any (see
Note 20).
The Company is currently in the process of responding to the claims made in the
class action lawsuit (see Note 16). The Company intends to defend the foregoing
lawsuit vigorously, but cannot predict the outcome and is not currently able to
evaluate the likelihood of its success or the range of potential loss, if any.
However, if the Company were to lose this lawsuit, the judgment would likely
have a material adverse effect on its consolidated financial position, results
of operations and cash flows. The Company has Directors and Officers insurance
policies that provide an aggregate coverage of $10,000, for the period during
which the lawsuit was filed, but cannot evaluate at this time whether such
coverage will be available or adequate to cover losses, if any, arising out of
this lawsuit.
The Company is also subject to a formal investigation conducted by the Division
of Enforcement of the United States Securities and Exchange Commission related
to matters reported in the Company's quarterly report on Form 10-Q for the
quarter ended December 31, 2001. The United States Attorney for the District of
New Jersey is also conducting an inquiry into the matters being investigated by
the SEC. In addition, the trading of the Company's common stock on the American
Stock Exchange ("AMEX") has been suspended and the Company has received a letter
from the AMEX indicating that the Company is no longer in compliance with AMEX
listing requirements. The Company has appealed this determination.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The Company has been pursuing and will continue to pursue,
among other initiatives, i) refinancing existing bank debt, ii) seeking
additional sales opportunities within its core business, iii) reducing expenses
to a level that would provide the Company with sufficient cash flow to meet its
obligations, iv) additional equity investments, v) sales of assets and/or vi) a
combination of any of the foregoing. Although there can be no assurances that
the Company will be able to achieve any of the foregoing initiatives, the
financial statements included in this report do not contain any adjustments that
might be necessary if the Company is unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of MSI and its
wholly-owned subsidiaries (the "Subsidiaries"): Measurement Limited, organized
in Hong Kong ("ML"); Jingliang Electronics (Shenzhen) Co. Ltd. ("JL"), organized
in the People's Republic of China ("China"); IC Sensors Inc. ("IC Sensors");
Measurement Specialties, U.K. Limited ("Schaevitz, UK"), organized in the United
Kingdom; and Terraillon Holdings Limited, organized in Ireland, and its
wholly-owned subsidiaries ("Terraillon"); all collectively referred to as the
"Company." As discussed in Note 4, on August 7, 2001, the Company acquired the
stock of Terraillon Holdings Limited; on February 14, 2000, acquired the stock
of IC Sensors from PerkinElmer Inc.; and on August 4, 2000, acquired certain
assets and assumed certain liabilities of the Schaevitz Sensors business based
in Virginia and the United Kingdom (collectively "Schaevitz") from TRW
Components, Inc. (TRW). Results of operations of acquired subsidiaries are
included in the consolidated results of operations from their date of
acquisition. All significant intercompany balances and transactions have been
eliminated.
Use of estimates:
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions which affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-8
Cash equivalents:
The Company considers highly liquid investments with maturities of up to three
months, when purchased to be cash equivalents.
Fair value of financial instruments and derivative financial instruments:
Cash equivalents and short-term debt are carried at cost, which approximates
fair value due to the short-term nature of such instruments.
During the year ended March 31, 2002, an aggregate of $315 was reflected in the
income statement relating to the interest rate swap. Of such amounts, $248 was
reflected as a cumulative effect of adoption of an accounting principle and $67
was reflected as interest expense.
During the year ended March 31, 2002, $50 was reflected as a reduction of cost
of goods sold for the value of the foreign currency options and contracts that
do not qualify for hedges.
Inventories:
Inventories are stated at the lower of cost or estimated market value. The FIFO
(first-in, first-out) method is utilized to determine cost for the Company's
inventories.
Property and equipment:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets, generally three to ten years. Leasehold improvements are
amortized over the shorter of the lease terms or the estimated useful lives of
the assets. Normal maintenance and repairs of property and equipment are
expensed as incurred. Renewals, betterments and major repairs that materially
extend the useful life of property and equipment are capitalized.
Income taxes:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences between the
financial reporting and tax bases of existing assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Tax benefits from early disposition of the stock by employees of incentive stock
options and from exercise of non-qualified stock options are credited to
additional paid-in capital.
Foreign currency translation and transactions:
The functional currency of the Company's foreign operations is the applicable
local currency. The foreign subsidiaries' assets and liabilities are translated
into United States dollars using exchange rates in
F-9
effect at the balance sheet date and their operations are translated using the
average exchange rates prevailing during the year. The resulting translation
adjustments are recorded as a component of other comprehensive income (loss).
Realized foreign currency transaction gains and losses are included in
operations.
Intangible assets:
Goodwill represents the excess of cost over the net tangible and identifiable
assets of acquired businesses. Effective April 1, 2001, goodwill and certain
identifiable intangible assets with indefinite useful lives, primarily
trademarks, are no longer being amortized in accordance with SFAS No. 142, as
more fully described below under Recent Accounting Pronouncements. Other
identifiable intangible assets with finite useful lives are amortized over a
period of 3 to 5 years.
Revenue recognition:
Revenue is recorded when products are shipped, at which time title generally
passes to the customer. Certain consumer products may be sold with a provision
allowing the customer to return a portion of products not sold to third party
customers. Upon shipment, the Company provides for allowances for returns and
warranties based upon historical and estimated return rates.
The company utilizes manufacturing representatives as sales agents for certain
of the Company's products. Such representatives do not receive orders directly
from customers, take title to or physical possession of products, or invoice
customers. Accordingly, revenue is recognized upon shipment to the customer.
Certain consumer products are sold under "private label" arrangements with
various distributors. Such products are manufactured to the distributor's
specifications. The Company is not responsible for the ultimate sale to third
party customers and therefore records revenue upon shipment to the distributor.
Classification of certain costs
Shipping and handling costs are recorded in cost of sales. Promotional and other
consideration provided to customers is reflected as a reduction in revenue.
Advertising Costs:
Advertising costs are included in selling, general and administrative expenses
and are expensed when the advertising or promotion is published or presented to
customers. Advertising expenses for the years ended March 31, 2002, 2001 and
2000 were approximately $1,243, $967 and $735, respectively.
Research and development:
Research and development expenditures are expensed as incurred. Customer funding
is recognized as a reduction in research and development expense when earned.
Warranty reserve:
F-10
The Company's products generally are marketed under warranties to end users of
up to ten years. The Company provides for estimated product warranty obligations
at the time of sale, based on its historical warranty claims experience and
assumptions about future warranty claims. This estimate is susceptible to
changes in the near term based on introductions of new products, product quality
improvements and changes in end user application and/or behavior.
Comprehensive income (loss):
Comprehensive income (loss) consists of net earnings or loss for the period and
the impact of unrealized foreign currency translation adjustments.
Stock based compensation:
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"), the Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations ("APB 25") in accounting for its employee stock options. Under
APB 25, when the exercise price of the employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recorded. The Company has presented the additional pro forma disclosures
required by SFAS 123, in Note 15.
Derivative Instruments:
The Company utilizes derivative financial instruments to reduce interest rate
and foreign currency risks. The Company does not hold or issue derivative
financial instruments for trading purposes. In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which was amended in June 2000
by SFAS No. 138. SFAS No. 133, as amended, establishes accounting and reporting
standards for derivative instruments and hedging activities. They require that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
Changes in the fair value of those instruments will be reported in earnings or
other comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. The accounting for gains and losses associated
with changes in the fair value of the derivative and the effect on the
consolidated financial statements will depend on its hedge designation and
whether the hedge is highly effective in achieving offsetting changes in the
fair value of cash flows of the asset or liability hedged. The Company adopted
SFAS 133, as amended, as of April 1, 2001. The cumulative effect of the adoption
of the accounting principle was $248. The fair value of the swap at March 31,
2002 was included in accrued expenses.
The Company manages exposure to fluctuations in foreign exchange rates by
creating offsetting positions through the use of forward exchange contracts or
currency options. The Company enters into forward exchange contracts and foreign
currency options to hedge anticipated transactions. Gains and losses on forward
exchange contracts are charged to cost of sales because they do not qualify as
hedges. The fair value of the contracts held at March 31, 2002 are included in
prepaid expenses and other current assets.
Pro forma income before cumulative effect of change in accounting principle, net
income (loss) and related diluted earnings per common share amounts as if SFAS
133 had been in effect for the years ended March 31, 2001 and 2000 are as
follows:
F-11
For the Year Ended March 31,
2001 2000
----------- -----------
Net income
As reported $ 1,197 $ 5,531
Pro forma 949 5,526
Net income per diluted share
As reported $ 0.15 $ 0.73
Pro forma 0.12 0.73
Reclassifications:
Certain reclassifications have been made to conform prior years to the current
year's presentation.
Recent accounting pronouncements:
On July 29, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred, rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS 146 is
required to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The Company is currently evaluating the impact of this
standard.
The Company's current policy is to accrue restructuring and other costs at
commitment date of a plan in accordance with the provisions of Emerging Issues
Task Force ("EITF") No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity" and Staff Accounting
Bulletin No. 100, "Restructuring and Impairment Charges." Accordingly, the
Company has provided for certain restructuring costs during the year ended March
31, 2002 and expects to provide for additional costs during the first quarter of
fiscal 2003 (see notes 4 and 20).
In 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13 and Technical Corrections." The
Statement rescinds SFAS No. 4 which required all gains and losses from
extinguishment of debt to be aggregated and, when material, classified as an
extraordinary item net of related income tax effect. SFAS No. 145 also amends
Statement 13 to require that certain lease modifications having economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. The Company is required to implement this standard
for transactions occurring after May 15, 2002 and do not expect this Statement
will have a material effect on our financial position or results of operations.
The Company will implement the provisions related to the rescission of SFAS No.
4 in the first quarter of fiscal 2003.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This standard supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The standard retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands on the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has
F-12
been disposed of or is classified as held for sale. The Company is required to
implement SFAS No. 144 on April 1, 2002. The Company does not expect this
standard to have a material impact on its consolidated financial position or
results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard addresses financial accounting and reporting for
obligations associated with retirement of tangible long-lived assets and the
associated assets' retirement costs. The Company is required to implement SFAS
No. 143 on April 1, 2003. The Company does not expect this standard to have a
material impact on its consolidated financial position or results of operations.
The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), effective April 1, 2001.
Under SFAS 142, goodwill is not amortized but is tested for impairment on an
annual basis. The impairment test is a two step process. The first step
identifies potential impairment by comparing an entity's fair value (including
goodwill) to its carrying amount. If the entity's carrying amount exceeds its
fair value, a second step is performed which compares the fair value of the
entity's goodwill to the carrying amount of that goodwill. If the carrying
amount of goodwill exceeds the fair value, an impairment loss is recognized.
Upon adoption, any impairment loss identified is presented as a change in
accounting principle and recorded as of the beginning of the fiscal year of
adoption. After adoption, any impairment loss recognized is recorded as a charge
to income from operations. In connection with its restructuring program, the
Company performed additional impairment tests, which resulted in an impairment
charge of $7,194 for the quarter ended March 31, 2002. Refer to Note 7, Goodwill
for further discussions of the impact of SFAS 142 on the Company's financial
position and results of operations.
The Company adopted Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("SFAS 141"), effective July 1, 2001. SFAS 141 addresses
the accounting and reporting requirements for business combinations. This
statement requires that all business combinations be accounted for under the
purchase method, as well as some additional disclosures. SFAS 141 is effective
for all business combinations completed after June 30, 2001.
In April 2001, the Company adopted EITF No. 00-09 "Consideration Given by a
Vendor to a Customer," which specified the accounting for and classification of
coupons and promotional items. Accordingly, volume rebates and co-operative
advertising costs are classified as reductions in revenue. Previously, these
costs were included in sales and marketing expense. The financial statements for
the applicable periods in the year ended March 31, 2001 have been reclassified
to conform to the current period's classifications.
3. RESTATEMENT:
Based on the advice of its auditors and discussion with the Securities and
Exchange Commission, the Company determined it was necessary to conduct a
thorough re-examination of its historical determination of inventory values and
cost of goods sold. As a result of additional procedures employed, a number of
errors in the Company's historical inventory valuation relating to the
absorption of manufacturing costs were discovered. Each of the Company's
business units experienced various types of calculation and application errors.
These errors varied by quarter, type and cause. The errors and causes thereof
are included in the following general categories:
- Failure to analyze and account for standard cost variances properly and on
a timely basis;
- Failure to use readily available accounting and costing records to
determine manufacturing costs;
- Inclusion of inappropriate expenses in inventory cost pools;
- Apparent mathematical errors (including amounts used in calculations that
could not be reconciled to our underlying accounting records);
- Failure to adjust inventories to the lower of cost or market; and
- Use of inconsistent parameters to determine cost pools that relate to
inventory at each reporting period.
Accordingly, the Company has restated its financial statements for the fiscal
year ended March 31, 2001 and the Company's previously issued selected financial
information for each of the quarterly periods in the fiscal year ended March 31,
2001 and the first three quarters in the fiscal year ended March 31, 2002. The
effect of the restatement was a reduction of our previously reported inventory
values and operating income and a corresponding increase to costs of goods sold
aggregating approximately $8,200 for the fiscal year ended March 31, 2001.
In connection with the restatement and due in part to the cessation of
operations of Arthur Andersen LLP, the previous auditors of our financial
statements for the fiscal year ended March 31, 2001, the Company requested our
current auditors to conduct a reaudit of the financial statements for the fiscal
year ended March 31, 2001. The reaudit resulted in the following additional
adjustments: reclassification of certain costs included in selling, general, and
administrative expenses to revenue for $1,009; acceleration of amortization of
deferred financing costs relating to the company's bank loan in the amount of
$667; expensing of
F-13
unallocated acquisition costs of $439; straight-lining of lease expense in
accordance with SFAS No. 13 in the amount of $178; and certain other
adjustments. As a result of all the above adjustments, the Company recalculated
its tax provision resulting in a benefit of $1,821.
FISCAL YEAR ENDED
MARCH 31, 2001
-------------------------
AS PREVIOUSLY AS
REPORTED RESTATED
------------- --------
Consolidated statements of operations data:
Sales $103,095 $101,975
Cost of goods sold 58,782 66,938
Gross profit 44,313 35,037
Selling, general and administrative expenses 29,232 29,541
Income before provision
for income taxes 11,790 2,205
Provision for income taxes 2,829 1,008
Net income 8,961 1,197
Earnings per common share
Basic $ 1.10 $ 0.15
Diluted 0.99 0.13
Consolidated balance sheet data:
Accounts receivable, net $ 14,935 $ 14,902
Inventories 31,868 24,362
Deferred income taxes, current 2,180 2,129
Goodwill 12,606 11,412
Other assets 3,894 3,820
Accrued expenses and other current liabilities 6,221 4,999
Accrued compensation 2,579 2,529
Other liabilities 1,003 1,181
Accumulated retained earnings 16,225 8,461
Stockholders' equity 25,481 17,717
See Note 19, Quarterly Financial Information (Unaudited) for selected restated
quarterly information for fiscal 2001 and fiscal 2002.
4. ACQUISITIONS/DISPOSITIONS:
Terraillon. In August 2001, the Company acquired all of the outstanding shares
of Terraillon Holdings Limited ("Terraillon"), a European manufacturer of
branded consumer bathroom and kitchen scales. As a result of the acquisition,
the Company expected to add new technologies, diversify our product mix, and
expand distribution channels. The acquisition was accounted for as a purchase,
and accordingly, the consolidated financial statements include operations of
Terraillon from the date of acquisition. The aggregate purchase price was
$17,468 and included $10,320 in cash, the issuance of 503,692 in shares of
restricted Company common stock valued at $6,800 based on the closing market
price on the date of acquisition of $13.50 per share, and closing costs of $348.
The purchase price allocation of assets purchased and liabilities assumed was
based on management's estimate of fair values at the date of
F-14
acquisition. The excess of the purchase price over the net assets acquired of
$13,551 was assigned to indefinite life trademarks of $9,477 and to goodwill of
$4,074 in accordance with SFAS No. 141. All of the intangibles have been
allocated to the consumer segment. The Company financed the acquisition through
the use of proceeds of an underwritten offering of its common stock, which is
described in Note 9. Included in the liabilities assumed below is a liability of
approximately $1,404 for severance and related costs from the closure of
Terraillon's manufacturing plant in Sligo, Ireland. All employees at such
facility were terminated in November, 2001. At March 31, 2002, there is no
remaining liability. The Company is obligated to file a registration statement
to register the resale of the 503,692 restricted shares issued to the seller.
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition.
Current assets $ 13,868
Property, plant, and equipment 2,338
Trademark 9,477
Goodwill 4,074
--------
Total assets acquired 29,757
--------
Current liabilities (including
severance liability of $1,404) 12,289
--------
Net assets acquired $ 17,468
========
The value assigned to the trademark was based upon a third-party valuation and
is not subject to amortization.
The following unaudited pro forma consolidated results of operations for the
period assumes the Terraillon acquisition had occurred as of April 1, 2000,
giving effect to purchase accounting adjustments. The pro forma data is for
informational purposes only and may not necessarily reflect results of
operations had Terraillon been operated as part of the Company since April 1,
2000.
F-15
Year Ended March 31,
------------------------------
2002 2001
------------ ------------
As Restated
Note 3
------------
(unaudited)
Net sales $ 146,877 $ 144,749
Net (loss) before cumulative effect
of change in accounting principle $ (29,394) $ (587)
Cumulative effect of change in accounting principle (248) --
----------- -----------
Net (loss) $ (29,642) $ (587)
=========== ===========
(Loss) per common share - basic
(Loss) before cumulative effect of accounting change $ (2.79) $ (0.07)
Cumulative effect of accounting change (0.02) --
----------- -----------
Net (loss) $ (2.81) $ (0.07)
=========== ===========
(Loss) per common share - diluted
(Loss) before cumulative effect of accounting change $ (2.79) $ (0.07)
Cumulative effect of accounting change (0.02) --
----------- -----------
Net (loss) $ (2.81) $ (0.07)
=========== ===========
In September 2002, the Company sold the stock of Terraillon (see Subsequent
Events, Note 20).
Schaevitz. In August 2000, the Company acquired Schaevitz(TM) Sensors
("Schaevitz") from TRW Components, Inc. Schaevitz designs and manufacturers a
variety of tilt, displacement, and pressure transducers and transmitters in the
United States and Europe which are sold worldwide. The acquisition was accounted
for as a purchase, and accordingly, the consolidated financial statements
include operations of Schaevitz from the date of acquisition. The aggregate cash
paid was $17,860 (including payment to TRW Components Inc. of $16,775 and
closing costs of $1,085). The excess of the purchase price over the net assets
acquired (principally goodwill) of $6,998 was being amortized over 15 years
(prior to implementation of SFAS 142, as more fully described in Note 1). The
transaction was financed with a term loan issued by a syndicate of lending
institutions led by the Company's principal bank. Net assets acquired were
$10,862, consisting of the fair value of assets acquired of $13,991 less
liabilities assumed of $3,129.
The following unaudited pro forma consolidated results of operations for the
period assumes the Schaevitz acquisition had occurred as of April 1, 1999,
giving effect to purchase accounting adjustments. The pro forma data is for
informational purposes only and may not necessarily reflect results of
operations had Schaevitz been operated as part of the Company since April 1,
1999.
F-16
YEAR ENDED MARCH 31,
2001 2000
------------ ---------
AS RESTATED
NOTE 3
-----------
(unaudited)
Net sales $110,933 $ 83,801
Net income (loss) 479 4,855
Earnings (loss) per common share
Basic $ 0.06 $ 0.64
======== ==========
Diluted $ 0.05 $ 0.56
======== ==========
At March 31, 2002, as a result of the planned liquidation of Schaevitz UK, we
recorded an impairment charge of $3,062 relating to goodwill allocated to the
Schaevitz UK operation. In addition, based upon the results of the tests defined
in SFAS 142, goodwill in the amount of $3,625 (see Note 7) remaining from this
acquisition was determined to be impaired and written off during the fourth
quarter of fiscal 2002.
IC Sensors. On February 14, 2000, the Company acquired IC Sensors, Inc. from
PerkinElmer, Inc. IC Sensors designs, manufactures and markets micromachined
silicon pressure sensors, accelerometers and microstructures. The acquisition
was accounted for as a purchase, and accordingly, the consolidated financial
statements include the operations of IC Sensors from the date of acquisition.
The aggregate cash paid was $12,368 (including payment to PerkinElmer of $12,000
and closing costs of $368). The excess of the purchase price over the net assets
acquired (principally goodwill) of $3,177 was being amortized over 15 years
(prior to implementation of SFAS 142, as more fully described in Note 1). The
transaction was financed with a term loan issued by a syndicate of lending
institutions led by the Company's principal bank. Net assets acquired were
$9,191 consisting of the fair value of assets acquired of $10,451 less
liabilities assumed of $1,260. In connection with the acquisition of IC Sensors
Inc., the Company recorded a liability of approximately $350 for severance and
related costs. As of March 31, 2002 these costs have been paid.
The following unaudited pro forma consolidated results of operations for the
period assumes the IC Sensors acquisition had occurred as of April 1, 1999,
giving effect to purchase accounting adjustments. The pro forma data is for
informational purposes only and may not necessarily reflect results of
operations had IC Sensors been operated as part of the Company since April 1,
1999.
YEAR ENDED
MARCH 31, 2000
------------
(unaudited)
Net sales $ 70,727
Net income 1,320
Earnings per common share
Basic $ 0.17
==========
Diluted $ 0.15
==========
As discussed in Note 20, the assets related to the silicon wafer fab
manufacturing operations of IC Sensors were sold during July 2002.
F-17
Exeter. On January 5, 2000 the Company acquired, for cash, certain assets
comprising the ultrasonic garage parking system business of Exeter Technologies,
Inc. Pursuant to the acquisition agreement, the Company made an initial payment
of $625 and is required to pay additional consideration based upon future sales.
The additional consideration is equal to 15% of net sales in year one, 10% in
year two and 5% in year three. No payments are to be made after year three. The
acquisition was accounted for under the purchase method of accounting. Net
assets acquired were $469, consisting of the fair value of the assets acquired
of $625 and liabilities assumed of $156. Goodwill of $956 was being amortized
over 7 years prior to adoption of SFAS 142. During September 2001, we
discontinued this product line and wrote off the remaining goodwill in the
amount of $779.
5. INVENTORIES
Inventories are summarized as follows:
March 31,
------------------------
2002 2001
-------- -----------
As Restated
Note 3
-----------
Raw materials $ 7,367 $ 9,431
Work in process 2,763 3,266
Finished goods 12,839 11,665
------- -------
$22,969 $24,362
======= =======
6. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
March 31,
----------------------------------------
2002 2001 Useful Life
---------- -------- ----------------
Production machinery and equipment $ 22,017 $ 19,582 5-7 years
Tooling costs 3,765 2,022 5-7 years
Furniture and equipment 5,537 3,694 3-10 years
Remaining term
Leasehold improvements 3,329 3,148 of the lease
Construction in progress 1,203 1,152 -
-------- -------
Total 35,851 29,598
Less: accumulated depreciation and
amortization (17,506) (12,529)
-------- --------
$ 18,345 $ 17,069
======== ========
Depreciation expense was $4,303, $2,655, and $1,744 for the years ended March
31, 2002, 2001, and 2000, respectively.
7. GOODWILL
F-18
The Company adopted SFAS 142 effective April 1, 2001 and discontinued amortizing
goodwill. The changes in the carrying value of goodwill for the years ended
March 31, 2002 and 2001 are as follows:
SENSORS CONSUMER TOTAL
-------- -------- --------
Balance as of March 31, 2000 $ 4,687 $ 914 $ 5,601
Purchase business combination 6,558 -- 6,558
Goodwill amortization (612) (135) (747)
-------- -------- --------
Balance as of March 31, 2001 10,633 779 11,412
Purchase business combination -- 4,074 4,074
Impairment loss (6,415) (779) (7,194)
Other (27) -- (27)
-------- -------- --------
Balance as of March 31, 2002 $ 4,191 $ 4,074 $ 8,265
======== ======== ========
During the fourth quarter of fiscal 2002 and the first quarter of fiscal 2003,
the Company, after considering ongoing operating losses, approved a
restructuring program. As a result of the Company's evaluation of its businesses
and its restructuring plan, management, with the assistance of valuation
experts, performed impairment tests for the Company's reporting units and
concluded that impairment charges were required for certain reporting units. The
impairments related primarily to the Company's Schaevitz and Schaevitz, UK
reporting units. In addition to goodwill, an impairment of $285 was provided for
patents.
The following table provides comparative disclosure of adjusted net income
excluding goodwill amortization expense, net of taxes, for the periods
presented:
FOR THE YEARS ENDED MARCH 31,
----------------------------------------
2002 2001 2000
-------- -------- --------
As Restated
Note 3
-----------
Income (loss) before cumulative
effect of accounting changes, as reported $(28,799) $1,197 $5,531
Goodwill Amortization -- 747 146
-------- ------ ------
Income (loss) before cumulative
effect of accounting changes, as adjusted (28,799) 1,944 5,677
Net income (loss), as reported (29,047) 1,197 5,531
Goodwill Amortization -- 747 146
-------- ------ ------
Net income (loss), as adjusted $(29,047) $1,944 $5,677
======== ====== ======
Income (loss) before cumulative effect
of accounting change per share
Basic, as reported $ (2.74) $ 0.15 $ 0.73
Goodwill Amortization -- 0.09 0.02
-------- ------- ------
Basic, as adjusted $ (2.74) $ 0.24 $ 0.75
======== ====== ======
Diluted, as reported (2.74) 0.13 0.64
Goodwill Amortization -- 0.08 0.01
-------- ------ ------
Diluted, as adjusted $ (2.74) $ 0.21 $ 0.65
======== ====== ======
Earnings (loss) per share
Basic net income (loss) per share, $ (2.76) $ 0.15 $ 0.73
as reported
Goodwill Amortization -- $ 0.09 $ 0.02
-------- ------ ------
Net income (loss) per share, as adjusted $ (2.76) $ 0.24 $ 0.75
Diluted net income (loss) per share,
as reported $ (2.76) $ 0.13 $ 0.64
Goodwill amortization -- 0.08 0.01
-------- ------ ------
Diluted net income (loss) per share, as adjusted $ (2.76) $ 0.21 $ 0.65
======== ====== ======
8. LONG-TERM DEBT:
F-19
Long-term debt is summarized as follows:
MARCH 31,
---------------------
2002 2001
------- ------
Borrowings under bank line of credit $20,899 $14,736
Term loan 8,164 22,000
Bank loans - Terraillon 2,534 --
Other, principally capital lease obligations 1,410 --
------- -------
Total long-term debt 33,007 36,736
Less: current portion 32,758 36,736
------- -------
Long-term portion (foreign capital lease obligations) $ 249 $ --
======= =======
Bank loans. In connection with the acquisition of Schaevitz, the Company repaid
the then outstanding balance of a previous term loan and entered into a $25,000
term loan agreement with a syndicate of lending institutions led by the
Company's principal bank. The term loan originally bore interest at a LIBOR rate
plus 3.25% (6.67% and 8.13% as of March 31, 2002 and 2001, respectively). The
term loan required quarterly principal payments of $1,000 through 2007. The term
loan is collateralized by a senior security interest in substantially all of the
Company's assets. Additional principal payments were required from a portion of
the net proceeds of any issuance of additional equity sales. During August 2001,
there was a mandatory prepayment of $9,169 as a result of funds received in a
public offering of common stock (see Note 9).
In August 2000, February 2001 and September 6, 2001, the Company renegotiated
its bank line of credit. As of March 31, 2002, the maximum amount available
amount under the revolving credit portion of the facility was $23,000 which
included an excess line of credit of $6,000 which was scheduled to expire on
March 31, 2002. The Company had been unable to make the mandatory payments
required by the loan agreement to repay this excess amount. The Company also had
availability under the revolving credit portion of the line of credit to borrow
up to the Pounds Sterling equivalent of $3,500 U.S. dollars. Borrowings under
the line of credit were limited to the calculation of "availability" defined as
sum of eligible Accounts Receivable and Inventory, as defined, and are
collateralized by a senior security interest in substantially all the Company's
domestic and U.K. assets. Borrowings bore interest at a maximum of the lesser of
the bank's prime rate plus 1.00% or LIBOR plus 2.75% (7.75% as of March 31,
2002). If the Company achieved certain financial ratios (which did not occur),
the lowest rate became the lesser of the bank's prime rate plus 0.50% or a LIBOR
rate plus 2.25%. Upon an event of a default under the credit agreement, the
interest rate became the lesser of the bank's prime rate plus 3% or LIBOR plus
4.75%. The agreement required annual payment of a commitment fee equal to 0.375%
of the unutilized available balance. As of March 31, 2002, borrowings under the
line of credit exceeded availability as defined above by approximately $8,864.
Debt covenants required the Company to maintain certain fixed charge coverage
ratios and other ratios. Additionally loan agreement required the lenders'
consent for the payment of dividends, acquisitions, and divestitures. Because of
the Company's inability to comply with certain financial covenants contained in
its credit agreement with respect to the fiscal quarters ended September 30,
2001, December 31, 2001, and March 31, 2002, events of default have occurred and
are continuing under the credit agreement. The Company sought, but did not
obtain, a waiver of such events of default from its lenders. Additionally, after
restating the financial statements as discussed in Note 3 the Company determined
that they would not have been in compliance with certain financial covenants at
March 31, 2001 based on the restated results. As a result of the actual defaults
under the credit agreement and the defaults that became
F-20
apparent as a result of the restatement, the Company has classified all of its
outstanding debt as current as of March 31, 2002 and 2001. Further, as a result
of these events the remaining deferred financing costs were fully amortized in
the restated results as of March 31, 2001. Additional financing costs incurred
during the year ended March 31, 2002, were reflected as interest expense.
In April 2002, the Company entered into a forbearance agreement with its lenders
that upon extension expired June 21, 2002 and signed an additional forebearance
agreement on July 2, 2002, pursuant to which the lenders agreed to forbear from
exercising the rights and remedies available to them under the credit agreement
as a result of the Company's defaults until the earlier of November 1, 2002 or
(i) the Company's breach or violation of the provisions of the forbearance
agreement, (ii) the institution of bankruptcy proceedings under the federal
bankruptcy laws, or (iii) the occurrence of additional defaults under the credit
agreement (the time period between July 2, 2002 and the termination of the
lenders' obligation to forbear from the exercise of their rights is referred to
herein as the "forbearance period"). The Company is required under the
forbearance agreement to, among other things, comply with certain strict
financial covenants, actively seek purchasers for certain assets, continue to
make required term loan payments, pledge certain unencumbered assets in favor of
the lenders and issue the lenders a warrant to purchase up to 4.99% of the
Company's common stock. The warrant was issued in July 2002, and subsequently
50% was canceled on October 1, 2002. The balance of the warrant will be canceled
if the company's obligations to the lenders are repaid in full on or before
November 1, 2002. The forbearance agreement also provides that the Company's
borrowings will bear interest at a rate equal to the lenders' prime rate plus
3%, which rate will increase by an additional 2% in the event of a default under
the forbearance agreement.
In connection with the execution of the forbearance agreement, the lenders
agreed to extend additional credit under the revolving credit facility as well
as allow the Company to apply the proceeds from the sale/liquidation of certain
assets against amounts outstanding under the revolving credit facility (rather
than against amounts outstanding under the term loan as otherwise required by
the credit agreement).
Subject to the Company's continued compliance with its terms, the forbearance
agreement permitted the Company to maintain an over advance under the revolving
credit facility of up to $9.0 million until July 31, 2002, after which time the
Company's permitted over advance was reduced to $8.0 million. As a result of the
sale of Terraillon and the application of the proceeds of the sale to amounts
outstanding under the revolving credit facility, the over advance under the
revolving credit facility was eliminated.
Under the forbearance agreement, the deadline for repayment of the term loan and
revolving credit facility has been changed to November 1, 2002.
As of March 31, 2002, the weighted average short-term interest rate on the
revolving credit facility was 7.2%. The average amount outstanding under this
agreement during the year ended March 31, 2002 was $18,873.
Terraillon. At March 31, 2002, Terraillon had short-term debt obligations of
approximately $2,534 with various French bank facilities pursuant to which there
was an unsecured overdraft facility of FRF 2.5 million and a factoring agreement
(collateralized by factored accounts receivable) with a limit of FRF 20 million.
These obligations are not subject to bank covenants, but are callable with 60
days notice. Accordingly, they are included in the current portion of long-term
debt in the financial statements. As of March 31, 2002 the weighted average
short term interest rate on the above borrowings was 6.2%.
Capital lease obligations. During the year ended March 31, 2002, the Company
entered into capital lease obligations which had an aggregate principal balance
of $2,007. Monthly payments aggregate $54 and interest ranges from 7.35% to 9.0%
per annum. Maturity dates for these leases range from April 2003 through
December 2004. At March 31, 2002, equipment under capital lease was $2,007 and
F-21
accumulated depreciation was $449. Most of the capital leases contain certain
cross-default provisions and therefore the capital leases are classified as
current as of March 31, 2002.
Summary. The aggregate contractual maturities of long-term debt as of March 31,
2002 (which is classified as current on such date) are as follows:
FISCAL PRINCIPAL
YEAR REPAYMENTS
------------------ ---------
2003 $27,984
2004 4,547
2005 471
2006 5
-------
Total $33,007
=======
The above schedule of principal repayments includes $353, $380, and $211 for
capital leases for IC Sensors for the fiscal years ended 2003, 2004, and 2005,
respectively. A portion of this operation, along with the capital leases, was
sold as of July, 2002 (see Note 20).
The carrying amounts of the Company's debt instruments approximate fair value as
defined under SFAS No. 107 due to the short maturity of such instruments.
Interest rate swap. As a hedge of its interest rate risk associated with the
term loan, the Company entered into two Interest Rate Swap Agreements (the
"Swaps"). As of March 31, 2002, the Swaps have an initial notional amount of
$14,000 and mature June 2004. The Swaps require the Company to pay a fixed rate
of 6.98% (an effective rate of 10.23%) and receive a floating rate of 6.75% (an
effective weighted-average floating rate of 10.0%). The notional reduction of
the Swaps is as follows:
NOTIONAL
FISCAL REDUCTION
YEAR (MILLIONS)
--------- -----------
2003 2.0
2004 2.0
2005 3.0
As discussed in Note 1, the Company adopted SFAS 133 as of April 1, 2001. The
fair value of the outstanding interest rate swap agreements at March 31, 2001
was $248, or $0.02 per share, representing the amount that would be payable by
the Company if the interest rate swaps were terminated at such date. As of March
31, 2002, the fair market value of the swap of $315 is included in accrued
expenses.
9. SHAREHOLDERS' EQUITY:
The Company is authorized to issue 21,200,000 shares of capital stock, of which
221,756 shares have been designated as serial preferred stock and 20,000,000
shares have been designated as common stock. Each share of common stock has one
vote. The Board of Directors has not designated 978,244 authorized shares of
preferred stock.
F-22
In December 2001, the Company issued 314,081 shares of its newly issued,
unregistered shares of common stock in connection with a private placement with
a member of the Board of Directors. The purchase price was $2,000 or $6.37 per
share, which was an eight percent discount from the average closing price for
the twenty trading days preceding December 24, 2001, the effective date of the
purchase. These monies which were received in January 2002 were used to fund
operations and repay debt. The Company is required to file a registration
statement on Form S-3 to register the resale of these shares following the first
anniversary from the effective date or as soon as it shall become eligible to
use such form.
In August 2001, the Company completed an underwritten offering of 2,530,000
shares of its common stock, including the exercise of the overallotment option.
The stock was priced at $13.50 per share resulting in proceeds of $30,874, net
of underwriting discount of $2,201 and expenses of $1,080. Of the proceeds,
$10,669 was used to fund the Terraillon acquisition (see Note 2), and $9,169 was
used to repay outstanding principal on the term loan.
JL is subject to certain Chinese government regulations, including currency
exchange controls, which limit cash dividends and loans to ML and MSI. At March
31, 2002 and 2001, JL's restricted net assets approximated $9,476 and $6,281,
respectively.
10. BENEFIT PLANS:
Defined contribution plans:
MSI has a qualified defined contribution plan under section 401(k) of the
Internal Revenue Code. Substantially all of its U.S. employees are eligible to
participate after completing three months of service. Participants may elect to
contribute a portion of their compensation to the plan. Until April 1, 2002, MSI
matched a portion of participants' contributions, at which time the Company
decided to suspend the Company's contribution to the 401(k) program. For the
years ended March 31, 2002, 2001, and 2000, matching participants' contributions
were $598, $463, and $164, respectively. At the discretion of the Board, the
Company may make profit sharing contributions. No profit sharing contributions
were made for fiscal 2002, 2001, or 2000. Terraillon also maintained defined
contribution plans in France and Ireland.
Defined benefit plans:
MSI provides a contributory defined benefit retirement plan for certain
Schaevitz United Kingdom employees. As a result of the Company's decision to put
its Schaevitz, UK operations in liquidation in the first quarter of fiscal year
2003, the Company will be required to concurrently account for the termination
of the retirement plan (see Note 20, Subsequent Events).
The following tables set forth reconciliations of the beginning and ending
balances of the benefit obligation, fair value of plan assets, funded status and
amounts recognized in the Consolidated Balance Sheets included in other assets
related to the defined benefit plans.
F-23
YEAR ENDED MARCH 31,
2002 2001
------- -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 2,862 $ --
Service cost 285 142
Interest cost 171 115
Benefits paid (413) --
Plan participants' contributions -- 37
Acquisition -- 3,458
Actuarial (gain) loss 345 (890)
------- -------
Benefit obligation at end of year $ 3,250 $ 2,862
======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 5,737 $ --
Actual return on plan assets (834) (74)
Benefits paid (413) --
Acquisition -- 5,774
Plan participants' contributions 827 37
------- -------
Fair value of plan assets at end of year $ 5,317 $ 5,737
======= =======
RECONCILIATION OF FUNDED STATUS:
Funded status $ 2,067 $ 2,678
Unrecognized net actuarial loss (gain) 242 (548)
------- -------
Net amount recognized $ 2,309 $ 2,130
======= =======
At March 31, 2002 and 2001, the net funded status of $2,309 and $2,130,
respectively, is included in other assets in the consolidated balance sheet.
The assumptions used in determining the projected benefit obligations were as
follows:
YEAR ENDED MARCH 31,
2002 2001
------- -------
Weighted-average assumed discount rate 5.9% 6.0%
Expected long-term rate of return on assets
used in determining net periodic pension cost 7.3% 7.5%
Rate of compensation increase used to
measure the projected benefit obligation 5.0% 4.0%
The net periodic pension cost included the following components:
F-24
YEAR ENDED MARCH 31,
2002 2001
----- -----
Service cost $ 285 $ 142
Interest cost 171 115
Expected return on plan assets (428) (267)
----- -----
Net periodic pension cost $ 28 $ (10)
===== =====
11. RELATED PARTY TRANSACTIONS:
The Company paid approximately $15 in legal fees to a member of its board of
directors during each of the years ended March 31, 2002, 2001 and 2000.
In September 2001, the Company loaned $125 to a member of its board of
directors. The loan, which was subsequently memorialized by a Promissory Note
dated August 1, 2002, accrues interest at a rate of 6% per year. Bimonthly
payments of principal and interest in the amount of $1,000 are payable until
September 15, 2006. The entire unpaid balance of principal and accrued interest
under the note is due and payable on September 15, 2006. The loan is included in
other assets.
The Company sublets a residence used by employees in China from an officer and
director under a month to month arrangement. Rent expense was approximately
$6,000 for each of the fiscal years ended March 31, 2002, 2001 and 2000.
12. RESTRUCTURING AND OTHER COSTS:
During the quarter ended March 31, 2002, management and the Board of Directors
approved a plan of reduction of workforce and a reduction of operating capacity
at certain locations. The reduction in workforce consisted of approximately 106
employees in the consumer and sensor segments, in addition to the corporate
offices. These costs consist of severance costs and the writedown of fixed
assets which amounted to $1,413. As of March 31, 2002 the remaining unpaid
balance of accrued severance costs was $85 and is included in accrued expenses
and other current liabilities in the consolidated balance sheet. All other
previous amounts provided for have been paid.
Additionally, the Company recorded the following costs:
March 31, 2002
--------------
Write-downs of fixed assets $ 458
Severance 955
------
Total $1,413
======
13. INCOME TAXES:
Income (loss) before income taxes and the cumulative effect of accounting change
consists of the following:
F-25
2002 2001 2000
---------- ------------- --------
AS RESTATED
NOTE 3
------------
Domestic $(24,004) $ (533) $ 2,384
Foreign (2,273) 2,738 4,904
-------- -------- --------
$(26,277) $ 2,205 $ 7,288
======== ======== ========
The income tax provision (benefit) consists of the following:
2002 2001 2000
-------- ----------- -------
AS RESTATED
NOTE 3
-----------
CURRENT
Federal $ (132) $ 1,139 $ 939
Foreign 59 691 670
State (55) 125 140
------- ------- -------
Total (128) 1,955 1,749
------- ------- -------
DEFERRED
Federal $ 1,689 $ (769) $ 55
Foreign 120 (65) (47)
State 841 (113) --
------- ------- -------
Total 2,650 (947) 8
------- ------- -------
$ 2,522 $ 1,008 $ 1,757
======= ======= =======
Differences between the federal statutory income tax rate and the effective tax
rates are as follows:
2002 2001 2000
----------- ------------ ------
As Restated
Note 3
-----------
Statutory tax rate (34.0)% 34.0% 34.0%
Effect of foreign taxes 3.1 (13.8) (14.3)
State taxes and other (0.1) 0.4 4.4
Other nondeductible -- 25.1 --
Valuation allowance 40.6 -- --
---- ---- ----
9.6% 45.7% 24.1%
==== ==== ====
The Company's share of cumulative undistributed earnings of its foreign
subsidiaries were approximately $7,100 and $9,373 at March 31, 2002 and 2001 (as
restated), respectively. No provision has been made for U.S. or additional
foreign taxes on the undistributed earnings of foreign subsidiaries because such
earnings are expected to be reinvested indefinitely in the subsidiaries'
operations. It is not practical to estimate the amount of additional tax that
might be payable on these foreign earnings in the event of
F-26
distribution or sale. However, under existing law, foreign tax credits would be
available to substantially reduce, or in some cases, eliminate U.S. taxes
payable.
Pursuant to current Chinese tax policies, JL qualifies for a special state
corporate tax rate of 15 percent. Additionally, because JL has agreed to operate
in China for a minimum of ten years, a tax holiday (which expired on March 31,
1998) was available for two years, and a 50 percent tax rate reduction to 7.5
percent (which expired on March 31, 2001) was available for the three years
thereafter. In July 2001, JL was granted and treated as an advanced technology
enterprise. As a result, JL is entitled to a 50 percent tax rate reduction to
7.5 percent for the following three years. The Hong Kong corporate tax rate, at
which ML's earnings are taxed, is 16 percent.
The significant components of the net deferred tax assets consist of the
following:
YEAR ENDED MARCH 31,
-----------------------------
2002 2001
---------- ---------
As Restated
Note 3
-----------
CURRENT DEFERRED TAX ASSETS (LIABILITIES):
Accrued expenses $ 574 $ 488
Inventory 1,622 682
Accounts receivable allowance 641 785
Other 144 174
Valuation allowance (2,981) --
-------- --------
Total $ -- $ 2,129
======== ========
LONG-TERM DEFERRED TAX ASSETS (LIABILITIES):
Basis difference in acquired property and equipment $ 2,648 $ 2,648
Net operating loss carryforward 7,639 --
Other (254) (93)
Valuation allowance (10,034) (500)
-------- --------
Total $ -- $ 2,055
======== ========
The Company has a pretax loss for financial reporting purposes. Recognition of
deferred tax assets will require generation of future taxable income. As there
can be no assurance that the Company will generate earnings in future years, the
Company has established a valuation allowance on deferred tax assets of
approximately $13,015 and $500 as of March 31, 2002 and 2001, respectively.
The Company has federal net operating loss carryforwards of approximately
$13,390, which expire beginning in fiscal year 2022. The utilization of these
net operating loss carryforwards may be significantly limited under the Internal
Revenue Code as a result of ownership changes due to the Company's stock and
other equity offerings.
The Company has net operating loss carryforwards for state tax purposes of
approximately $6,760 which expire beginning in fiscal years ending 2010.
F-27
The Company has current year net operating losses from its foreign operations of
approximately $9,300 which begin to expire in 2007.
A portion of the Company's deferred tax valuation allowance, when reduced, will
be allocated to additional paid in capital ($2,153).
14. PER SHARE INFORMATION:
Basic per share information is computed based on the weighted-average common
shares outstanding during each period. Diluted per share information
additionally considers the shares that may be issued upon exercise or conversion
of stock options, less the shares that may be repurchased with the funds
received from their exercise. Potentially dilutive securities are not included
in earnings per share for the year ended March 31, 2002, as their inclusion
would be antidilutive.
The following is a reconciliation of the numerators and denominators of basic
and diluted EPS computations:
WEIGHTED
AVERAGE
INCOME (LOSS) SHARES (000) PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------ ----------
March 31, 2002
Basic per share information $(29,047) 10,531 $(2.76)
Effect of dilutive securities -- --
-------- ------
Diluted per-share information $(29,047) 10,531 $(2.76)
======== ======
MARCH 31, 2001
Basic per share information $ 1,197 8,144 $ 0.15
Effect of dilutive securities -- 901
-------- ------
Diluted per-share information $ 1,197 9,045 $ 0.13
======== ======
MARCH 31, 2000
Basic per share information $ 5,531 7,612 $ 0.73
Effect of dilutive securities -- 1,084
-------- ------
Diluted per-share information $ 5,531 8,696 $ 0.64
======== ======
For the year ended March 31, 2002, an aggregate of 446,000 options were excluded
from the earnings per share calculation because the effect would be
antidilutive. No options were excluded in the years ended March 31, 2001 or
2000.
15. STOCK OPTION PLANS:
Options to purchase up to 1,828,000 common shares may be granted under MSI's
1995 Stock Option Plan and its predecessor plan (together the "1995 Plan"),
until its expiration on September 8, 2005. Shares issuable under 1995 Plan
grants which expire or otherwise terminate without being exercised become
available for later issuance. All shares eligible for grant were issued prior to
April 1, 1999.
Options to purchase up to 1,500,000 shares may be granted under the Company's
1998 Stock Option Plan, (the "1998 Plan") until its expiration on October 19,
2008. Shares issuable under 1998 Plan grants which expire or otherwise terminate
without being exercised become available for later issuance. The aggregate
F-28
numbers of shares available for grants of options under the 1998 Plan were
661,558 and 639,008 as of March 31, 2002 and March 31, 2001, respectively. A
total of 728,438 and 818,692 options to purchase shares were outstanding at
March 31, 2002 and March 31, 2001, respectively.
Options under all Plans generally vest over service periods of up to five years,
and expire no later than ten years from the date of grant. Options may, but need
not, qualify as "incentive stock options" under section 422 of the Internal
Revenue Code. Tax benefits are recognized upon nonqualified exercises and
disqualifying dispositions of shares acquired by qualified exercises. There were
no changes in the exercise prices of outstanding options, through cancellation
and reissuance or otherwise, for 2002, 2001, or 2000.
A summary of the status of stock options as of March 31, 2002, 2001, and 2000
and changes during the years ended on those dates is presented below:
NUMBER OF SHARES WEIGHTED-AVERAGE EXERCISE PRICE
----------------------------------------- -------------------------------------------------
OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE
-------------------- ------------------ --------------------- ----------------------
March 31, 1999 1,658,200 988,532 1.88 1.90
Granted at market 130,450 6.42
Forfeited (52,000) 2.23
Exercised (652,266) 1.75
----------
MARCH 31, 2000 1,084,384 601,400 2.50 2.46
Granted at market 466,600 15.67
Forfeited (13,800) 8.81
Exercised (337,300) 2.33
----------
MARCH 31, 2001 1,199,884 458,044 7.60 2.71
Granted at market 222,300 15.10
Forfeited (190,080) 11.53
Exercised (182,434) 2.35
----------
MARCH 31, 2002 1,049,670 514,660 9.39 4.55
==========
Summarized information about stock options outstanding at March 31, 2002
follows:
Weighted-
Weighted-average average
Number of underlying shares Exercise Exercise price remaining
-------------------------------- -------------------------------
Outstanding Exercisable Price Range Outstanding Exercisable contractual life
--------------- ----------- ------------------------- -------------- ----------- ----------------
475,570 337,700 $ 1.38 $ 6.19 $ 2.21 $ 2.26 5.56
58,000 32,200 $ 8.34 $12.63 $ 8.96 $ 9.10 7.87
516,100 144,760 $14.19 $24.88 $16.06 $15.53 8.53
--------- ------- ------ ------ ----
1,049,670 514,660 $ 9.39 $ 4.55 7.06
========= ======= ------ ------ ----
Had the Company adopted the fair value based method for employee stock options
at grant dates, the Company's pro forma net income (loss) for 2002, 2001, and
2000 would have been reduced to $(29,186), ($(2.77) per basic share and $(2.77)
per diluted share), $187 ($0.02 per basic share and $0.02 per diluted share),
and $5,257 ($.69 per basic share and $.60 per diluted share), respectively.
Based on calculations using the Black-Scholes option pricing model, the
weighted-average fair value of options granted in 2002, 2001, and 2000 at the
date of grant was $9.03, $7.93, and $3.68 per share, respectively. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model
F-29
(single grant assumption with straight-line amortization) with the following
weighted-average assumptions:
2002 2001 2000
------- ----- -----
Expected volatility 90.0% 53.0% 63.0%
Risk-free interest rate 4.9% 5.8% 5.9%
Dividend yield -- -- --
Expected life in years 5.0 5.0 5.0
16. COMMITMENTS AND CONTINGENCIES:
LEASES. The Company leases certain property and equipment under noncancellable
operating leases expiring on various dates through July 2011. Rent expense,
including real estate taxes, insurance and maintenance expenses associated, with
net operating leases approximated $3,032 for 2002, $1,864 for 2001, and $1,050
for 2000. At March 31, 2002, total minimum rentals under leases with initial or
remaining noncancellable lease terms of more than one year were:
YEAR ENDING MARCH 31,
--------------------------------------
2003 $ 2,789
2004 1,803
2005 1,501
2006 1,106
2007 884
Thereafter
Approximately $353 of such lease commitments in 2003, $380 in 2004, and $211 in
2005, ceased when the Company sold the assets relating to its silicon wafer
manufacturing facility in Milpitas, CA in July 2002. The lease for this facility
was assumed by the buyer of these assets. See Note 20.
LEGAL. Class Action Lawsuits. On March 20, 2002, a class action lawsuit was
filed on behalf of purchasers of the Company's common stock in the United States
District Court for the District of New Jersey against Measurement Specialties
and certain of the Company's present and former officers and directors. The
complaint was subsequently amended to include the underwriters of the Company's
August 2001 public offering and the Company's former auditors. The lawsuit
alleges violations of the federal securities laws including, among other things,
that the registration statement related to the Company's August 2001 public
offering and the Company's periodic SEC filings misrepresented or omitted
material facts and that certain of the Company's officers made false or
misleading statements of material fact. The lawsuit seeks an unspecified award
of money damages. After March 20, 2002, nine additional similar class actions
were filed in the same court. The ten lawsuits have been consolidated into one
case under the caption In re: Measurement Specialties, Inc. Securities
Litigation, 02 Civ. No. 1071 (D.N.J.). Plaintiffs filed a Consolidated Amended
Complaint on September 12, 2002. The Company must file a responsive pleading by
November 11, 2002.
The Company is currently in the process of responding to the claims made in the
class action lawsuit, and intends to defend the foregoing lawsuit vigorously,
but cannot predict the outcome and is not currently able to evaluate the
likelihood of success or the range of potential loss, if any. However, if the
Company were to lose this lawsuit, judgment would likely have a material adverse
effect on the Company's consolidated financial position, results of operations
and cash flows. The Company maintains Directors and Officers insurance policies
that provide an aggregate coverage of $10,000 for the period during which
the claims were filed, but cannot evaluate at this time whether such coverage
will be available or adequate to cover losses, if any, arising out of this
litigation.
F-30
SEC Investigation. In February 2002, the Company, at its own initiative,
contacted the staff of the SEC after discovering that the Company's former Chief
Financial Officer misrepresented to senior management, the Board and the
Company's auditors that a waiver of the covenant default under the Company's
credit agreement had been obtained when, in fact, the lenders refused to grant
such a waiver. Since February 2002, the Company and a Special Committee formed
by its Board of Directors have been cooperating with the staff of the SEC. In
June 2002, the staff of the Division of Enforcement of the SEC informed the
Company that it is conducting a formal investigation relating to matters
reported in the Company's quarterly report on Form 10-Q for the quarter ended
December 31, 2001. The Company cannot predict how long the SEC investigation
will continue or its outcome.
United States Attorney Inquiry.
The Company has also learned that the Office of the United States Attorney for
the District of New Jersey is conducting an inquiry into the same matters that
are being investigated by the SEC. The Company cannot predict how long the
United States Attorney's inquiry will continue or its outcome.
Other Litigation.
In re Service Merchandise Company, Inc. (Service Merchandise Company, Inc. v.
Measurement Specialties, Inc.), United States Bankruptcy Court for the Middle
District of Tennessee, Nashville Division, Case No. 399-02649, Adv. Pro. No.
301-0462A
The Company is currently a the defendant in a lawsuit filed in March 2001 by
Service Merchandise Company, Inc. ("SMC") and its related debtors (collectively,
the "Debtors") in the context of the Debtors' Chapter 11 bankruptcy proceedings.
The Bankruptcy Court entered a stay of the action in May 2001, which was lifted
in February 2002. Citing 11 U.S.C. Section 547(b), the action alleges that the
Company received $645 from one or more of the Debtors during the ninety (90) day
period before the Debtors filed their bankruptcy petitions, that the transfers
were to the Company's benefit, were for or on account of an antecedent debt owed
by one or more of the Debtors, made when one or more of the Debtors were
insolvent, and that the transfers allowed the Company to receive more than it
would have received if the cases were cases under Chapter 7 of the United States
Bankruptcy Code. The action seeks to disgorge the sum of $645 from the Company.
It is not possible at this time to predict the outcome of the litigation or
estimate the extent of any damages that could be awarded in the event that the
Company is found liable to the estates of SMC or the other Debtors.
Robert L. DeWelt v. Measurement Specialties, Inc. et al., United States District
Court, District of New Jersey, Civil Action No. 02-CV-3431.
On July 17, 2002, the Company's former acting Chief Financial Officer and
general manager of the Company's Schaevitz Division, filed a lawsuit against the
Company and certain of its officers and directors. The lawsuit alleges a claim
for constructive wrongful discharge and violations of the New Jersey
Conscientious Employee Protection Act. The former Chief Financial Officer seeks
an unspecified amount of compensatory and punitive damages. The Company has
filed a Motion to Dismiss for which a hearing is scheduled on November 12, 2002.
At this early point in the litigation, we cannot predict its outcome.
Terraillon Stock Purchase. On or about July 23, 2002, Hibernia Capital Partners
I, ilp and Hibernia Capital Partners II, ilp filed a lawsuit against the Company
in the High Court of Dublin. The Plenary Summons states that plaintiffs seek a
declaration that the plaintiffs entered into the share purchase agreement on
June 7, 2001 for the sale of their shares in Terraillon Holdings Limited to
Measurement Specialties as a result of an operative misrepresentation and
misstatement. Plaintiffs further seek damages for misrepresentation and/or
breach of contract and/or breach of warranty and costs of the proceedings. On
August 9, 2002, the Company entered an Appearance, which is the equivalent of
the acceptance of service of process. On August 22, 2002, plaintiffs filed a
Statement of Claim, which is the equivalent of a Complaint. The Company is still
engaged in the initial pleadings process wherein
F-31
plaintiffs' claims and our defenses will be set forth in detail. The Company
intends to defend the foregoing lawsuit vigorously, but cannot predict the
outcome and are not currently able to evaluate the likelihood of success or the
range of potential loss, if any.
The Company has other litigation occurring in the normal course of its business.
The Company does not believe that this litigation will have a material effect on
financial position or results of operations.
17. SEGMENT INFORMATION:
The Company's reportable segments are strategic business units that operate in
different industries and are managed separately. Management has organized the
business based on the nature of the products and services. For a description of
the products and services included in each segment, see Note 1.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies.
The Company has no material intersegment sales.
At March 31, 2002 the foreign subsidiaries' total assets aggregated $53,108 of
which $5,431 was in the United Kingdom, $27,985 was in France and Ireland,
$5,239 was in Hong Kong and $14,453 was in China. At March 31, 2001 the foreign
subsidiaries' total assets aggregated $24,935 of which $9,796 was in the United
Kingdom, $4,789 was in Hong Kong and $10,350 in China. The Company is
potentially subject to the risks of foreign currency transaction and translation
losses, which might result from fluctuations in the values of the Hong Kong
dollar and the Chinese renminbi. The foreign subsidiaries' operations reflect
intercompany transfers of costs and expenses, including interest on intercompany
trade receivables, at amounts established by the Company.
The following is information related to industry segments:
F-32
2002 2001 2000
--------- ---------- ----------
As Restated
Note 3
----------
Net sales:
Consumer Products $ 76,395 $ 53,027 $ 44,123
Sensors 56,224 48,948 15,874
--------- --------- ---------
Total $ 132,619 $ 101,975 $ 59,997
========= ========= =========
Operating income
Consumer Products $ 4,487 $ 9,089 $ 9,302
Sensors (18,655) 916 3,275
--------- --------- ---------
Total segment operating income (loss) (14,168) 10,005 12,577
Unallocated expenses (8,987) (5,459) (4,985)
--------- --------- ---------
Total operating income (loss) (23,155) 4,546 7,592
Interest expense, net of interest income (2,681) (2,634) (287)
Other (expense) income (441) 293 (17)
--------- --------- ---------
Income (loss) before taxes and
cumulative effect of accounting change $ (26,277) $ 2,205 $ 7,288
========= ========= =========
Depreciation and amortization:
Consumer Products $ 1,430 $ 1,018 $ 1,079
Sensors 3,547 1,823 1,004
--------- --------- ---------
Total $ 4,977 $ 2,841 $ 2,083
========= ========= =========
Segment assets:
Consumer Products $ 43,617 $ 19,229 $ 12,505
Sensors 43,801 55,425 23,672
Unallocated 2,194 2,825 3,434
--------- --------- ---------
Total $ 89,612 $ 77,479 $ 39,611
========= ========= =========
Capital expenditures:
Consumer Products $ 687 $ 1,455 $ 841
Sensors 1,679 4,198 1,669
--------- --------- ---------
Total $ 2,366 $ 5,653 $ 2,510
========= ========= =========
Unallocated assets consist mainly of cash and other assets not attributable to
any reportable segment. Unallocated expenses consist of general corporate
expenses.
Geographic information for revenues, based on country of origin, and long-lived
assets which included property, plant and equipment, goodwill and other
intangibles, net of related depreciation and amortization follows:
F-33
2002 2001 2000
-------- ----------- --------
As Restated
-----------
Net sales:
Germany $ 15,453 $ 11,046 $ 9,835
France 15,193 1,394 846
Other Europe 15,184 14,279 5,011
Other 16,994 9,155 1,351
United States 69,795 66,101 42,954
-------- -------- --------
Total $132,619 $101,975 $ 59,997
======== ======== ========
Long-lived assets by jurisdiction are as follows:
2002 2001 2000
------- ----------- -------
As Restated
-----------
Hong Kong $ 2,013 $ 1,447 $ 707
China 7,451 6,686 1,936
France 14,390 -- --
United Kingdom 2,070 5,887 --
United States 12,640 20,336 16,038
------- ------- -------
Total $38,564 $34,356 $18,681
======= ======= =======
18. CONCENTRATIONS:
Financial instruments which potentially subject the Company to significant
concentrations of credit risk are principally are cash trade accounts receivable
and interest rate swaps and foreign currency options and forwards.
The Company generally maintains its cash and cash equivalents at major financial
institutions in the United States, United Kingdom, France, Hong Kong and China.
Cash held in foreign institutions amounted to $930 and $487 at March 31, 2002
and 2001, respectively. The Company periodically evaluates the relative credit
standing of financial institutions considered in its cash investment strategy.
Accounts receivable are concentrated in United States and European distributors
and retailers of consumer products. To limit credit risk, the Company evaluates
the financial condition and trade payment experience of customers to whom credit
is extended. The Company generally does not require customers to furnish
collateral, though certain foreign customers furnish letters of credit.
The Company manufactures the substantial majority of its sensor products, and
most of its sensor subassemblies used in its consumer products, in leased
premises located in Shenzhen, China. Sensors are also manufactured at the
Company's United States facilities located in Virginia, California, and
Pennsylvania and its Slough, United Kingdom facility. Additionally, certain key
management, sales and support activities are conducted at leased premises in
France and Hong Kong. Substantially all of the Company's consumer products are
assembled in China, primarily by a single supplier, River Display, Ltd. ("RDL"),
although the Company is utilizing alternative Chinese assemblers. There are no
agreements which would require the Company to make minimum payments to RDL, nor
is RDL obligated to maintain capacity available for the Company's benefit,
though the Company accounts for a significant portion of RDL's revenues.
Additionally, most of the Company's products contain key components which are
obtained from a limited number of sources. These concentrations in external and
foreign sources of supply present risks of interruption for reasons beyond the
Company's control, including, with respect to China, political, economic and
legal uncertainties.
F-34
A United States manufacturer and distributor of electric housewares accounted
for 10% and 19% of total net sales for the fiscal years ended March 31, 2001 and
2000, respectively. A German distributor of diversified housewares accounted for
10% and 14% of total net sales for the fiscal years ended March 31, 2001 and
2000, respectively. Both customers are in the Company's Consumer Products
segment. There were no customers who accounted for more than 10% of total sales
for the year ended March 31, 2002.
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Presented below is a schedule of selected restated quarterly operating results
(see Note 3).
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
ENDED JUNE 30 ENDED SEPT. 30 ENDED DEC. 31 ENDED MARCH 31
------------- -------------- ------------- --------------
YEAR ENDED MARCH 31, 2002
AS REPORTED
Net sales $25,871 $34,868 $43,022 $29,917(1)
Gross profit 10,699 8,682 420 7,544
Net income (loss) 1,351 (3,811) (11,346) (18,056)
Income (loss)
EPS basic 0.16 (0.37) (0.98) (1.52)
EPS diluted 0.15 (0.37) (0.98) (1.52)
AS RESTATED
Net sales $25,658 $34,399 $42,190 $30,372
Gross profit 6,718 7,991 11,838 8,461
Net income (loss) (2,545)(2) (5,835) (1,935) (18,732)
Income (loss)
EPS basic (0.29) (0.57) (0.17) (1.58)
EPS diluted (0.29) (0.57) (0.17) (1.58)
YEAR ENDED MARCH 31, 2001
AS REPORTED
Net sales $16,302 $28,237 $34,330 $24,226
Gross profit 7,511 11,999 13,936 10,867
Net income (loss) 1,196 2,816 3,148 1,801
Income (loss)
EPS basic 0.30 0.35 0.38 0.22
EPS diluted 0.27 0.32 0.35 0.20
AS RESTATED
Net sales $16,154 $28,277 $34,438 $23,106
Gross profit 5,369 11,689 10,087 7,892
Net income (loss) (1,703) 1,821 213 866
Income (loss)
EPS basic (0.43) 0.23 0.03 0.11
EPS diluted (0.43) 0.21 0.02 0.10
F-35
(1) Not previously reported.
(2) Includes cumulative effect of accounting change.
Earnings per share are computed independently for each of the quarters
presented, on the basis described in Note 14. The sum of the quarters may not be
equal to the full year earnings per share amounts.
20. SUBSEQUENT EVENTS (UNAUDITED):
During June 2002, the Board of Directors approved a second restructuring program
with the aim of reducing costs, streamlining operations and generating cash to
repay the Company's Lenders. In connection with this restructuring program, the
Company has taken the following actions:
UK Operations. The Company placed its United Kingdom subsidiary, Schaevitz, UK,
into receivership on June 5, 2002 pursuant to the terms of a Mortgage Debenture
dated February 28, 2001, as the Company was no longer in a position to support
its losses. The receiver's function was to dispose of Schaevitz, UK's business
and assets for the best price possible. The book debt recoveries and sale
proceeds were applied in settlement of the receiver's remuneration, costs and
expenses, the preferential creditors' claims, (i.e. the claims of the Inland
Revenue, Customs & Excise and employee claims up to certain statutory limits)
and then to (i) claims by our lenders in accordance with UK insolvency
legislation (the Insolvency Act 1986) and (ii) priority arrangements. Schaevitz,
UK's landlord has a potential dilapidations claim of up to 350,000 pounds
sterling (approximately $549,000 United States dollars based on market exchange
rates as of October 8, 2002) against Schaevitz, UK that arose on the expiration
of the lease of 543/544 Ipswich Road Trading Estate, Slough, Berkshire, England
on June 23, 2002. The Company is currently in negotiations with the landlord
regarding this matter.
IC Sensors. In July 2002, the Company sold the assets related to its silicon
wafer fab manufacturing operation in Milpitas, California to Silicon
Microstructures, Inc. (SMI), a wholly-owned subsidiary of Elmos Semiconductor
AG. The wafer fab operation was formerly part of the Company's IC Sensors
division. The price paid by SMI for the assets was approximately $5,250,
consisting of approximately $3,370 in cash and $1,880 in prepaid credit for
products and services, subject to reduction under certain circumstances.
Approximately $1,000 of the cash purchase price was used to satisfy an
outstanding equipment lease obligation. The prepaid credits for products and
services, if utilized, will be accounted for as a component of our wafer costs.
The estimated gain on this sale is approximately 150, net of tax.
Terraillon. In September 2002, we sold all of the outstanding stock of
Terraillon Holdings Limited, a European manufacturer of branded consumer
bathroom and kitchen scales, to Fukuda (Luxembourg) S.a.r.l., an investment
holding company incorporated in Luxembourg, for approximately $22,300.
Approximately $2,282 of the purchase price will be held in escrow until January
24, 2003 to secure payment of certain purchase price adjustments, if any. The
estimated gain on this sale is approximately $1,500, net of tax.
Corporate Revitalization Partners. In May 2002, the Company retained Corporate
Revitalization Partners (CRP) to conduct its ongoing operational/financial
restructuring efforts. In June 2002, Frank Guidone, Managing Director of CRP,
became the Company's chief executive officer. As of October 8, 2002, the Company
has incurred $1,200 in consulting fees to CRP (excluding the success fees
described in the following sentence). In addition to consulting fees based on
hours billed by CRP consultants, there is a "success fee" consisting of $50 and
a warrant exercisable to purchase 43,860 shares of the Company's common stock
(at an exercise price of $2.28 per share) that is payable upon the occurrence
of each of the following three events:
- the successful negotiation and execution of an extended forbearance
agreement with the Company's lenders (this agreement has been
executed);
- the Company's compliance as of September 30, 2002 with the terms of
the forbearance agreement with its lenders (the Company was in
compliance with the forbearance agreement as of September 30, 2002);
and
- the repayment of all amounts due to the Company's existing senior
lenders and refinancing of the Company's debt on or before November 1,
2002.
F-36
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED MARCH 31, 2002, 2001, AND 2000
---------------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
---------------------------------------------------------------------------------------------------------------------------
Description Balance at Additions Deductions -- Balance at
Beginning Describe End
Of Period ------------------------- of Period
(1) (2)
Charged to Charged to
Costs and Other
Expenses Accounts --
Describe
---------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2002*
Deducted from asset accounts:
Allowance for doubtful accounts $ 914 $ 1,158 $ -- $ (1,068)(a) $ 1,004
Sales return reserve 337 876 -- (824)(b) 389
Inventory allowance 2,628 3,762 -- -- 6,390
Valuation allowance for deferred taxes 500 12,515 -- -- 13,015
---------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2001*
Deducted from asset accounts:
Allowance for doubtful accounts $ 318 $ 698 $ -- $(102)(a) $ 914
Sales return reserve 80 380 -- (123)(b) 337
Inventory allowance 2,897 (269) -- -- 2,628
Valuation allowance for deferred taxes 500 -- -- -- 500
---------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2000
Deducted from asset accounts:
Allowance for doubtful accounts $ 326 $ (8) $ -- $ -- $ 318
Sales return reserve 63 17 -- -- 80
Inventory allowance 1,195 1,702 -- -- 2,897
Valuation allowance for deferred taxes -- 500 -- -- 500
---------------------------------------------------------------------------------------------------------------------------
(a) Bad debts written off, net of recoveries
(b) Actual returns received
* As Restated
S-1