-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VeE+1aWs0MG0D0sx45oiuUjSjaT/uwdUknN+OPxJR6q35MH6LP3CdEwSnOq0tZmQ gylfS6+257sfDbYZKNGbDw== 0000899243-95-000503.txt : 19950814 0000899243-95-000503.hdr.sgml : 19950814 ACCESSION NUMBER: 0000899243-95-000503 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 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: 95561782 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 June 30, 1995 [ ] 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) 2906 Holmes Road, Houston, Texas 77051 (Address of principal executive offices) (Zip Code) (713) 733-9301 (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 August 11, 1995 ----- ------------------------------ Common stock, $0.01 par value 13,863,656 shares ERC INDUSTRIES, INC. INDEX
PAGE PART I FINANCIAL INFORMATION: Condensed Balance Sheets - June 30, 1995 (unaudited) and December 31, 1994.................. 2 Condensed Statements of Income (Unaudited) - Three and Six Months Ended June 30, 1995 and 1994.. 3 Condensed Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 1995 and 1994............ 4 Notes to Condensed Financial Statements........................... 5 Management's Discussion and Analysis.............................. 7 PART II OTHER INFORMATION.................................................. 10 Signature Page.................................................... 11
PART I. FINANCIAL INFORMATION ERC INDUSTRIES, INC. BALANCE SHEET (in thousands)
June 30, December 31, 1995 1994 -------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ -- $ 312 Trade accounts receivable, net of allowance for doubtful accounts of $593 and $512, respectively 5,962 5,664 Inventory 8,080 6,936 Prepaid expenses and other current assets 185 57 Deferred tax asset 448 434 ------- ------- Total current assets 14,675 13,403 Property, plant and equipment, net 3,069 3,102 Other assets 494 701 Excess cost over net assets acquired, net 1,805 1,913 ------- ------- $20,043 $19,119 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt due within one year $ 478 $ 533 Line of credit 2,825 -- Accounts payable 2,502 3,607 Other accrued liabilities 1,571 1,326 ------- ------- Total current liabilities 7,376 5,466 ------- ------- Long-term debt 1,938 2,841 Deferred taxes 129 129 ------- ------- 2,067 2,970 ------- ------- Commitments and contingencies -- -- Shareholders' equity: Preferred stock, par value $1; authorized and unissued--10,000,000 shares -- -- Common stock, par value $.01; authorized-- 30,000,000 shares; issued and outstanding-- 13,863,656 shares 139 139 Additional paid-in capital 5,232 5,232 Retained earnings from January 10, 1989 5,229 5,312 ------- ------- Total shareholders' equity 10,600 10,683 ------- ------- $20,043 $19,119 ======= =======
See notes to financial statements. 2 ERC INDUSTRIES, INC. STATEMENTS OF INCOME (in thousands, except per share data) (Unaudited)
Three Months Ended: Six Months Ended: June 30, June 30, -------------------- ------------------ 1995 1994 1995 1994 -------- -------- -------- -------- Revenues $ 8,523 $ 7,602 $16,443 $15,069 Cost of goods sold 6,525 5,825 12,541 11,471 ------- ------- ------- ------- Gross profit 1,998 1,777 3,902 3,598 Selling, general and administrative expenses 1,975 1,820 3,830 3,617 ------- ------- ------- ------- Operating income (loss) 23 (43) 72 (19) ------- ------- ------- ------- Other (income) expense: Interest expense 107 94 197 142 Other, net (8) -- (28) (36) ------- ------- ------- ------- 99 94 169 106 ------- ------- ------- ------- Loss before provision (benefit) for income taxes (76) (137) (97) (125) Provision (benefit) for income taxes (7) -- (14) 11 ------- ------- ------- ------- Net loss $ (69) $ (137) $ (83) $ (136) ======= ======= ======= ======= Net loss per share $ none $ (.01) $ (.01) $ (.01) ======= ======= ======= ======= Weighted average number of shares outstanding 13,864 13,864 13,864 13,864 ======= ======= ======= =======
See notes to financial statements. 3 ERC INDUSTRIES, INC. STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Six Months Ended: June 30, --------------------- 1995 1994 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (83) $ (136) Adjustments to reconcile net (loss) income to net cash used in by operating activities: Depreciation and amortization 535 483 Bad debt expense 83 76 Deferred tax benefit (14) (377) (Gain) on sale of property, plant and equipment (4) (9) Non-cash charge for income taxes -- 377 (Decrease) increase in other assets 162 10 Net effect of changes in operating accounts (2,513) (3,461) ------- ------- Net cash used in operating activities (1,834) (3,037) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (340) (530) Proceeds from sale of property, plant and equipment 13 11 ------- ------- Net cash used in investing activities (327) (519) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Line of credit borrowings, net 2,075 2,800 Principal payments on long-term debt and capital lease obligations (226) (244) Payments pursuant to reorganization plan: Payments made on plan obligations -- (23) ------- ------- Net cash provided by financing activities 1,849 2,533 ------- ------- Net decrease in cash and cash equivalents (312) (1,023) Cash and cash equivalents, beginning of period 312 1,336 ------- ------- Cash and cash equivalents, end of period $ 0 $ 313 ======= =======
See notes to financial statements. 4 ERC INDUSTRIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (1) The information contained herein with respect to June 30, 1995 and the three and six month ended June 30, 1995 and 1994, 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, 1994. Included are all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial information for the three and six months ended June 30, 1995 and 1994. The results of interim periods are not necessarily indicative of results to be expected for the year. (2) FASB No. 109, "Accounting for Income Taxes" requires recording deferred tax liabilities or assets for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
June 30, 1995 ---- (in thousands) Deferred tax liabilities: Tax over book depreciation...... $ 129 ------- Total deferred tax liabilities.. 129 ------- Deferred tax assets: Net operating loss.............. 7,932 Tax over book inventory basis... 1,129 Other........................... 209 Valuation allowance............. (8,822) ------- Total deferred tax assets....... 448 ------- Net deferred tax asset........ $ 319 =======
At June 30, 1995 the Company had net operating loss carryforwards available to offset future taxable income in the approximate amount of $23,329,000. These amounts expire between the years 2001 and 2003. Special limitations exist under the law which may restrict utilization of the regular tax and alternative minimum tax net operating loss carryforwards. 5 (3) The following is a summary of the provision for income taxes for the three and six months ended June 30 (in thousands):
Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 -------- -------- ------ -------- Current - federal (due to alternative minimum tax) $ - $ - $ - $ 11 Non-cash charge in lieu of federal income taxes - - - 377 Deferred benefit (7) - (14) (377) ----- ----- ----- ----- Provision for income taxes $ (7) $ - $ (14) $ 11 ===== ===== ===== =====
The non-cash charges in lieu of income taxes represent the amount of income taxes the Company would pay absent the net operating loss carryforward which was generated before the Company effected a quasi-reorganization. Such charges are offset within shareholders' equity by an increase in additional paid-in capital. (4) The following is a summary of the net effect of the changes in operating accounts on cash flows from operating activities for the six months ended (in thousands):
June 30, June 30, 1995 1994 --------- --------- Trade accounts receivable, net $ (381) $ (987) Inventories (1,144) (2,149) Prepaid expenses and other current assets (128) 220 Accounts payable (1,105) (694) Other accrued expenses 245 203 Excess cost over net assets - (54) ------- ------- Net effect of changes in operating accounts $(2,513) $(3,461) ======= =======
The Company made the following cash payments: (i) interest of $181,000 and $119,000 for the six months ended June 30, 1995 and 1994, respectively, and (ii) income taxes of $6,800 and $28,000 for the six months ended June 30, 1995 and 1994, respectively. 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, was 677 for the three months ended June 30, 1995 compared with 734 for the three months ended June 30, 1994, a 7.8% decrease. For the six months ended June 30, 1995 the rig count decreased by 7.4% to 691 compared with 746 for the comparable period last year. The average active rig count is a clear indicator of the market in which the Company operates based on prior years' experience. In contrast to the change in the rig count, the Company's revenues increased by $921,000 (12.1%) to $8,523,000 for the three month period ended June 30, 1995, from $7,602,000 for the three month period ended June 30, 1994. In addition, the Company's six month revenues increased by $1,374,000 (9.1%) to $16,443,000 for the six months ended June 30, 1995, from $15,069,000 for the six months ended June 30, 1994. The increase in revenues is principally the result of (i) certain large customers increasing their levels of activity and (ii) an increase in the Company's customer base. Cost of goods sold increased by $700,000 and $1,070,000 for the three and six month periods ended June 30, 1995 and 1994, respectively. Gross profit margins remained at 23.4% for the three month period ended June 30, 1995 compared with the three months ended June 30, 1994. Gross profit margins for the six month period ended June 30, 1995 changed to 23.7% from 23.9% for the six months ended June 30, 1994. Selling, general and administrative (SG&A) expenses increased by $155,000 to $1,975,000 for the three month period ended June 30, 1995 compared with $1,820,000 for the three month period ended June 30, 1994. For the six month period ended June 30, 1995, SG&A increased by $213,000 to $3,830,000 from $3,617,000 for the six months ended June 30, 1994. SG&A expenses have increased due to costs associated with additional employment in connection with the Barton Wood operation, increases in our sales force, and severance costs associated with administrative terminations. The Company generated an operating loss of $76,000 and $97,000 for the three and six months ended June 30, 1995 as compared with an operating loss of $137,000 and $125,000 for the same period last year. This improvement in operating profit is due to an increase in sales, partially offset by an increase in general and administrative expenses. The provision for income taxes for the three and six months ended June 30, 1995 resulted in a benefit of $7,000 and $14,000, respectively. The provision for income taxes for the three and six months ended June 30, 1994 was $0 and $11,000. The $11,000 for the six months ended June 30, 1994 represents a provision for alternative minimum taxes. 7 Financial Position Working Capital decreased by $638,000 to $7,299,000 at June 30, 1995 compared with $7,937,000 at December 31, 1994. The decrease in working capital was due to the reclassification of the line of credit facility from a long term obligation to a short term obligation maturing on February 26, 1996. This was the effect of a February 27, 1995 amendment which resulted in the bank lowering its lending rate by one-half of one percent (.50%) from the bank's prime rate. The line of credit balance at June 30, 1995 was $2,825,000 compared with $750,000 at December 31, 1995. The increase in the line of credit was primarily due to increased inventory levels of approximately $1,145,000 and a reduction in trade payables of $1,105,000. Pursuant to the Company's long-term debt agreements, approximately $478,000 in principal payments are due over the next twelve months. As of June 30, 1995, the Company had $150,000 in letter of credit obligations outstanding under the credit agreement and $2,825,000 in line of credit borrowings, leaving a balance of $25,000 available for borrowings. The Company believes that it is currently in compliance with all covenants under the credit agreement. The Company is finalizing an agreement with its principal lender which will provide an additional $1,000,000 line of credit under the same terms and conditions of its present borrowing facility. The additional line of credit will be used to finance expansion and growth, as well as operational needs. The Company believes that amounts available under its current and additional line of credit facility, combined with cash generated from operations, are adequate to fund its operations for at least the next twelve months. The Company currently anticipates incurring for the remainder of 1995, capital expenditures of as much as $420,000, principally for manufacturing equipment, facility improvements and additions and vehicle purchases for use in its day-to- day operations. 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. 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 or results of operations. 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 At the Company's Annual Meeting of Shareholders held on May 23, 1995, the shareholders of the Company re-elected to the Board of Directors, John Derek Prichard-Jones by a vote of 12,109,913 for and 85,476 against, and Raymond A. Johnson by a vote of 12,115,696 shares for and 79,693 against. George W. Tilley and Allister G. Langlands continue serving in their capacity as directors. The shareholders also ratified the appointment of Coopers & Lybrand as the Company's independent public accountants for the fiscal year ending December 31, 1995 by a vote of 12,094,809 shares in favor and 61,736 shares abstaining. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27--Financial Data Schedule 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: August 11, 1995 ERC INDUSTRIES, INC. --------------------------------------- (Registrant) /s/ Wendell R. Brooks --------------------------------------- Wendell R. Brooks President /s/ Carl R. Caldwell --------------------------------------- Carl R. Caldwell Controller and Chief Accounting Officer 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 0 0 6,555 (593) 8,080 14,675 11,664 (8,595) 20,043 7,376 0 139 0 0 10,461 20,043 16,443 16,443 12,541 3,747 (28) 83 197 (97) (14) (83) 0 0 0 (83) (.01) (.01)
-----END PRIVACY-ENHANCED MESSAGE-----