-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UwMtfO1NFGQPVR6QjZ3rxh2Ww7rE5/+BhJ717gKy072Yi3hQqv9xYj6fVa+AZs6T WE1HTqzTu8+0z2Hj73IUHg== 0000899243-97-001012.txt : 19970520 0000899243-97-001012.hdr.sgml : 19970520 ACCESSION NUMBER: 0000899243-97-001012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ERC INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000775477 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 760382879 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14439 FILM NUMBER: 97609519 BUSINESS ADDRESS: STREET 1: 2906 HOLMES RD CITY: HOUSTON STATE: TX ZIP: 77051 BUSINESS PHONE: 7137339301 MAIL ADDRESS: STREET 2: 2906 HOLMES RD CITY: HOUSTON STATE: TX ZIP: 77051 FORMER COMPANY: FORMER CONFORMED NAME: ERC CORP /DE/ DATE OF NAME CHANGE: 19851103 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File No. 0-14439 ERC INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 76-0382879 (State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 15835 Park Ten Place, Suite 115, Houston, Texas 77084 (Address of principal executive offices) (Zip Code) (281) 398-8901 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 14, 1997 ----- --------------------------- Common stock, $0.01 par value 21,248,272 shares ERC INDUSTRIES, INC. INDEX PAGE ---- PART I FINANCIAL INFORMATION: Condensed Consolidated Balance Sheet - March 31, 1997 and December 31, 1996.................. 2 Condensed Consolidated Statements of Operations Three Months Ended March 31, 1997 and March 31, 1996.. 3 Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 1997 and March 31, 1996.. 4 Notes to Condensed Consolidated Financial Statements..... 5 Management's Discussion and Analysis..................... 7 PART II OTHER INFORMATION.......................................... 9 Signature Page........................................... 10 ERC INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEET (in thousands, except for share amounts)
(Unaudited) March 31, December 31, 1997 1996 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ - $ 1 Trade accounts receivable, net of allowance for doubtful accounts of $534 and $534, respectively 12,589 11,738 Inventory 17,792 15,314 Prepaid expenses and other current assets 289 257 Deferred tax assets 618 651 ------- ------- Total current assets 31,288 27,961 Property, plant and equipment, net 5,638 4,932 Other assets 577 532 Deferred tax assets-noncurrent 170 170 Excess cost over net assets acquired, net 1,581 1,714 ------- ------- Total assets $39,254 $35,309 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt and capital leases due within one year $ 6,898 $ 3,295 Accounts payable 9,370 9,655 Other accrued liabilities 2,714 2,912 ------- ------- Total current liabilities 18,982 15,862 ------- ------- Long-term debt 2,503 1,826 Commitments and contingencies Shareholders' equity: Preferred stock, par value $1; authorized and unissued - 10,000,000 shares - - Common stock, par value $0.01; authorized - 30,000,000 shares; 21,248,272 issued and outstanding 213 213 Additional paid-in capital 11,791 11,791 Retained earnings from January 10, 1989 5,772 5,552 Translation adjustment (7) 65 ------- ------- Total shareholders' equity 17,769 17,621 ------- ------- Total liabilities and shareholders' equity $39,254 $35,309 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. 2 ERC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Three Months Ended March 31, --------------- 1997 1996 ------ ------ Revenues $16,534 $ 9,828 Cost of goods sold 12,578 7,789 ------- ------- Gross profit 3,956 2,039 Selling, general and administrative expenses 3,436 2,030 ------- ------- Operating income 520 9 ------- ------- Other (income) expense: Interest expense 143 101 Other, net 38 (5) ------- ------- 181 96 ------- ------- Income (loss) before provision (benefit) for income taxes 339 (87) Provision (benefit) for income taxes 119 (17) ------- ------- Net income (loss) $ 220 $ (70) ======= ======= Net income (loss) per share $0.01 $(0.01) ======= ======= Weighted average number of shares outstanding 21,248 13,864 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 ERC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended March 31, ------------------ 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash used in operating activities $(3,028) $ (144) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (328) (338) Proceeds from sale of property, plant and equipment 6 - ------- ------- Net cash used in investing activities (322) (338) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Line of credit borrowings, net 3,616 675 Proceeds from issuance of debt - 365 Principal payments on long-term debt and capital lease obligations (195) - ------- ------- Net cash provided by financing activities 3,421 1,040 ------- ------- Effect of exchange rate changes on cash (72) - ------- ------- Net increase (decrease) in cash and cash equivalents (1) 558 Cash and cash equivalents, beginning of period 1 - ------- ------- Cash and cash equivalents, end of period $ 0 $ 558 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 ERC INDUSTRIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (1) The information contained herein with respect to March 31, 1997 and the three months ended March 31, 1997 and 1996, has not been audited but was prepared in conformity with the accounting principles and policies described in the Company's annual report (Form 10-K) for the year ended December 31, 1996. Included are all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial information for the three months ended March 31, 1997 and 1996. The results of interim periods are not necessarily indicative of results to be expected for the year. (2) Supplemental Cash Flow Information: In connection with the Barton Wood acquisition in late 1993, the Company leased, and has an option to purchase certain equipment from the Barton lenders ("Lessors") at any time during the term of the lease, which extends through February, 1998. As a result, the Company exercised a portion of this purchase option in February 1997. This noncash transaction totaled $800,000. (3) Acquisition of Seaboard On September 27, 1996, the Company acquired 100% of the issued and outstanding capital shares of Seaboard Lloyd Limited ("Seaboard"), a private company incorporated in Scotland under the Companies Acts of the United Kingdom in a privately negotiated transaction. The Company paid a purchase price of $1,580,000 cash for the issued share capital of Seaboard. The source of the funds for the purchase was approximately $1,080,000 in cash on hand and $500,000 borrowed under the Company's existing credit facility. The operating results of Seaboard are included in operations from the date of acquisition. The following represents the pro-forma results of operations as if the acquisition of Seaboard had occurred on January 1, 1996 (in thousands, except per share data): Three Months Ended March 31, 1996 --------------------- Revenues $ 12,914 Net loss (202) Net loss per share (.01) 5 (4) Recent Accounting Pronouncement: In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share", was issued. This statement, which is required to be adopted in the fourth quarter of fiscal 1997, established standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock. This statement simplifies the standards for computing EPS under existing accounting principles and makes it more comparable to international accounting standards. This statement requires restatement of all prior-period EPS data presented, however, management believes that the adoption of this standard will not have a significant impact on the financial statements. 6 ERC INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Industry wide, the average active domestic rig count as reported by Baker Hughes Incorporated, a leading industry observer, increased by 20% to 853 for the three months ended March 31, 1997, compared with 708 for the three months ended March 31, 1996. The average active rig count is a clear indicator of the market in which the Company operates. The Company's revenues increased by $6,706,000 for the three months ended March 31, 1997 to $16,534,000 from $9,828,000 for the three months ended March 31, 1996, a 68.2% increase. The increase in revenues was due to new customers added, increased activity with existing customers as a result of higher drilling activity, higher international sales volume, and the inclusion of the sales of Seaboard Lloyd Limited. The gross margin for the three months ended March 31, 1997 increased by $1,917,000 to $3,956,000, from $2,039,000 for the three months ended March 31, 1996. The gross profit percentage was 23.9% for the three months ended March 31, 1997 compared with 20.7% for the three months ended March 31, 1996. This increase is a result of (i) outsourcing of manufacturing at lower costs (ii) product mix shift toward higher margin products, and (iii) the acquisition of Seaboard Lloyd Ltd. Selling, general and administrative expenses increased by $1,406,000 to $3,436,000 for the three months ended March 31, 1997 from $2,030,000 for the three months ended March 31, 1996. The primary reasons for the increase were costs associated with international marketing efforts, additional sales personnel, and the acquisition of Seaboard Lloyd Ltd. The Company generated operating income of $520,000 for the three months ended March 31, 1997 compared with operating income of $9,000 for the three months ended March 31, 1996. The increase in operating profit was due primarily to increased sales partially offset by increased selling, general and administrative expenses. Other expense, net increased by $85,000. This was principally due to an increase in interest expense as a result of higher inventory levels since March of 1996, which required an increase in the company's line of credit borrowing. The provision for income taxes for the three months ended March 31, 1997 and 1996 resulted in an expense of $119,000 and a benefit of $17,000, respectively. 7 Liquidity and Capital Resources Working capital increased by $207,000 to $12,306,000 at March 31, 1997 compared with $12,099,000 at December 31, 1996. The increase is due primarily to higher inventory levels offset by higher current liabilities. Pursuant to the Company's long-term debt agreements, approximately $6,898,000 in principal payments are due over the next twelve months. The Company believes its line of credit facility, combined with cash generated from operations, will be adequate to fund its operations for at least the next twelve months. The Company currently anticipates incurring capital expenditures of approximately $2,900,000 through 1997, principally for vehicles and computer purchases. The Company expects to fund these expenditures from cash provided by operations, additional capital lease obligations and from the Company's line of credit facility. Recent Accounting Pronouncement In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share", was issued. This statement, which is required to be adopted in the fourth quarter of fiscal 1997, established standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock. This statement simplifies the standards for computing EPS under existing accounting principles and makes it more comparable to international accounting standards. This statement requires restatement of all prior-period EPS data presented, however, management believes that the adoption of this standard will not have a significant impact on the financial statements. 8 Part II - OTHER INFORMATION Item 1. Legal Proceedings. The Company is involved in various claims and disputes in the normal course of its business. Management of the Company believes the disposition of all such claims, individually or in the aggregate, will not have a material adverse effect on the Company's financial condition, results of operations, or cash flows. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: None. (b) Reports on Form 8-K: None. 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 14, 1997 ERC INDUSTRIES, INC. /s/ Wendell R. Brooks --------------------------------- Wendell R. Brooks President, Secretary & Director /s/ James E. Klima -------------------------------- James E. Klima Chief Financial Officer 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 0 0 13,123 534 17,792 31,288 15,304 9,666 39,254 18,982 0 0 0 213 17,556 39,254 16,534 16,534 12,578 3,436 38 0 143 339 (119) 220 0 0 0 220 .01 .01
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