-----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, A/VNLz1SE2DcokxlFU6L09S2yS1+t45dP07vvQrberocfC1e1lH3OKmN28uzAmxv HS+D3ObSjNam2iUb4fRfew== 0000899243-96-001489.txt : 19961118 0000899243-96-001489.hdr.sgml : 19961118 ACCESSION NUMBER: 0000899243-96-001489 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96664110 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 September 30, 1996 [ ] 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 September 30, 1996 ----- --------------------------------- Common stock, $0.01 par value 21,248,272 shares ERC INDUSTRIES, INC. INDEX
PAGE PART I FINANCIAL INFORMATION: Condensed Balance Sheets - September 30, 1996 (Unaudited) and December 31, 1995.. 2 Condensed Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 1996 and September 30, 1995............. 3 Condensed Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 1996 and September 30, 1995........ 4 Notes to Condensed Financial Statements.................. 5 Management's Discussion and Analysis..................... 7 PART II OTHER INFORMATION.......................................... 9 Signature Page........................................... 10
PART I. FINANCIAL INFORMATION ERC INDUSTRIES, INC. BALANCE SHEET (IN THOUSANDS)
September 30, December 31, 1996 1995 ------------ ------------ ASSETS Current assets: Trade accounts receivable, net of allowance for doubtful accounts of $612 and $492, respectively $ 9,794 $ 6,671 Inventory 13,477 8,599 Prepaid expenses and other current assets 216 60 Deferred tax asset 781 499 ------- ------- Total current assets 24,268 15,829 Property, plant and equipment, net 4,784 2,860 Other assets 650 493 Excess costs over net assets acquired, net 1,726 1,697 ------- ------- $31,428 $20,879 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings from banks $ 1,393 $ 2,425 Long-term debt and capital leases due within one year 293 390 Accounts payable 7,403 4,182 Other accrued liabilities 3,301 2,182 ------- ------- Total current liabilities 12,390 9,179 ------- ------- Long-term debt 2,105 1,787 Shareholders' equity: Preferred stock, par value $1; authorized and unissued--10,000,000 shares -- -- Common stock, $0.01 par value; 30,000,000 shares authorized; 21,248,272 and 13,863,656 issued and outstanding as of September 30, 1996 and December 31, 1995, respectively 212 139 Additional paid-in capital 11,613 5,237 Retained earnings from January 10, 1989 5,108 4,537 ------- ------- Total shareholders' equity 16,933 9,913 ------- ------- $31,428 $20,879 ======= =======
See notes to financial statements. 2 ERC INDUSTRIES, INC. STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended: Nine Months Ended: September 30, September 30, ------------------- ------------------ 1996 1995 1996 1995 ------ ------ ------ ------ Revenues $13,304 $ 9,271 $34,949 $25,714 Cost of goods sold 10,244 7,423 26,924 19,964 ------- ------- ------- ------- Gross profit 3,060 1,848 8,025 5,750 Selling, general and administrative expenses 2,397 1,992 6,906 5,832 ------- ------- ------- ------- Operating income 663 (144) 1,119 (82) ------- ------- ------- ------- Other (income) expense: Interest expense 19 117 211 314 Other, net (20) 4 (34) (34) ------- ------- ------- ------- (1) 121 177 280 ------- ------- ------- ------- Income (loss) before provision (benefit) for income taxes 664 (265) 942 (362) Provision (benefit) for income taxes 272 (79) 370 (93) ------- ------- ------- ------- Net income (loss) $ 392 $ (186) $ 572 $ (269) ======= ======= ======= ======= Net income (loss) per share $ 0.02 $ (0.01) $ 0.03 $ (0.02) ======= ======= ======= ======= Weighted average number of shares outstanding 21,248 13,864 16,990 13,864 ======= ======= ======= =======
See Notes to financial statements. 3 ERC INDUSTRIES, INC. STATEMENTS OF CASH FLOWS
Nine Months Ended: September 30, ------------------ 1996 1995 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 572 $ (269) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 728 778 Bad debt expense 51 130 Deferred tax benefit (282) (93) Non-cash charge for income taxes 614 -- Gain on sale of property, plant and equipment -- (5) (Increase) decrease in other assets (416) 163 Net effect of changes in operating accounts (3,316) (2,347) ------- ------- Net cash used in operating activities (2,049) (1,643) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisition (1,580) -- Purchases of property, plant and equipment (524) (411) Proceeds from sale of property, plant and equipment -- 14 ------- ------- Net cash used in investing activities (2,104) (397) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Line of credit borrowings, net (1,925) 2,075 Borrowings (repayments) on long-term debt and capital lease obligations 221 (347) Net proceeds from issue of common stock 5,857 -- ------- ------- Net cash provided by financing activities 4,153 1,728 ------- ------- Net increse in cash and cash equivalents -- (312) Cash and cash equivalents, beginning of period -- 312 ------- ------- Cash and cash equivalents, end of period $ -- $ -- ======= =======
See notes to financial statements. 4 ERC INDUSTRIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (1) The information contained herein with respect to September 30, 1996 and the three and nine months ended September 30, 1996 and 1995, 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, 1995. Included are all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial information for the three and nine months ended September 30, 1996 and 1995. The results of interim periods are not necessarily indicative of results to be expected for the year. (2) 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 business of Seaboard is the manufacture of oilfield equipment. Seaboard operates from a facility located in Cumbernauld, Scotland. The Company plans to continue to operate Seaboard in substantially the same manner as it was operated prior to the acquisition. 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 purchase price was allocated (based on preliminary estimates and assumptions) as follows:
Accounts Receivable $ 931,000 Inventory 1,088,000 Fixed Asset 1,605,000 Goodwill 317,000 Accounts Payable (545,000) Accrued Expenses (923,000) Bank Debt (893,000) ---------- $1,580,000 ==========
(3) At September 30, 1996, the Company had net operating loss carryforwards ("NOL Carryforwards") available to offset future taxable income in the approximate amount of $25,830,000. 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 NOL Carryforwards. 5 ERC INDUSTRIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS The following is a summary of the provision for income taxes:
Three Nine Months Ended Months Ended September 30, September 30, 1996 1995 1996 1995 ------ ------ ------ ------ (thousands) (thousands) Taxes currently payable $ 38 $ $ 38 $ Non-cash charge in lieu of income taxes 516 - 614 - Deferred benefit (282) (79) (282) (93) ----- ---- ----- ---- Provision (benefit) for income taxes $ 272 $(79) $ 370 $(93) ===== ==== ===== ====
The non-cash charges in lieu of income taxes represent the amount of income taxes the Company would pay absent the NOL Carryforwards which were generated before the Company affected a quasi-reorganization. (4) The following is a summary of the net effect of the changes in operating accounts on cash flows from operating activities for the nine months ended September 30, 1996 and September 30, 1995 (in thousands):
September 30, 1996 1995 --------- -------- (Increase) in trade accounts receivable $(2,243) $(1,672) (Increase) in inventories (3,790) (1,606) (Increase) decrease in prepaid expense/other current assets (156) 22 Increase in accounts payable 2,676 327 Increase in other accrued liabilities 197 582 ------- ------- Net effect of changes in operating accounts $(3,316) $(2,347) ======= =======
The Company made the following cash payments: (i) interest of $270,000 and $314,000 for the nine months ended September 30, 1996 and 1995, respectively, and (ii) income taxes of $0 and $6,800 for the nine months ended September 30, 1996 and 1995, 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 757 for the nine months ended September 30, 1996, compared with 709 for the nine months ended September 30, 1995. The average active rig count is an indicator of the market in which the Company operates. The Company's revenues increased by $4,033,000 (43.5%) to $13,304,000 for the three month period ended September 30, 1996, from $9,271,000 for the three month period ended September 30, 1995. In addition, the Company's nine month revenues increased by $9,235,000 (35.9%) to $34,949,000 for the nine months ended September 30, 1996, from $25,714,000 for the nine months ended September 30, 1995. The increase in revenues is principally the result of (i) higher drilling activity (ii) certain large customers increasing their levels of activity (iii) an increase in the Company's customer base, and (iv) higher international volume. Gross profit for the nine months ended September 30, 1996 increased by $2,275,000 to $8,025,000, from $5,750,000 for the nine months ended September 30, 1995. The gross profit percentage was 23.0% for the nine months ended September 30, 1996, compared with 22.4% for the nine months ended September 30, 1995. This increase is the result of higher fixed cost utilization and additional savings on outsourcing of materials. Selling, general and administrative expenses increased by $1,074,000 to $6,906,000 for the nine months ended September 30, 1996 from $5,832,000 for the nine months ended September 30, 1995. The primary reason for the increase is due to costs associated with international marketing efforts and additional sales personnel. The selling, general and administrative expense, as a percentage of sales, was 19.8% in the first nine months of 1996 compared with 22.7% for the same period in 1995. The Company generated operating income of $663,000 and $1,119,000 for the three and nine months ended September 30, 1996, compared with operating losses of $144,000 and $82,000 for the three and nine months ended September 30, 1995. The increase in operating profit is due to increased sales volume with relative decreases in direct, indirect, selling and administrative costs. The provision for income taxes for the nine months ended September 30, 1996 and 1995 resulted in a provision of $370,000 for 1996 and a benefit of $93,000 for 1995, respectively. 7 Liquidity and Capital Resources On June 6, 1996, the Company entered into an Investment Agreement pursuant to which John Wood Group PLC purchased and the Company sold an aggregate of 7,384,616 shares of Common Stock at a purchase price of $0.8125 (13/16) per share (or an aggregate consideration of $6,000,000.50). On August 6, 1996, the loan facility was amended to extend the line of credit through June 30, 1997 and the total availability was increased to $5,000,000. 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 business of Seaboard is the manufacture of oilfield equipment. Seaboard operates from a facility located in Cumbernauld, Scotland. The Company plans to continue to operate Seaboard in substantially the same manner as it was operated prior to the acquisition. 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. Pursuant to the Company's long-term debt agreements, approximately $293,000 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 $1,000,000 through 1996, principally for machine tools, 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. 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. --------------------------------------------------- None. Item 5. Other Information. ----------------- None. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits: None. (b) Reports on Form 8-K: On November 13, 1996, the Company filed a Current Report on Form 8-K, pursuant to Item 2 and 7 thereof, regarding its acquisition of the capital stocks of Seaboard Lloyd Limited. 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: November 14, 1996 ERC INDUSTRIES, INC. -------------------- /s/ ------------------------------ Wendell R. Brooks President, Secretary & Director /s/ ------------------------------ James E. Klima Chief Financial Officer 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 0 0 10,406 612 13,477 24,268 14,474 9,690 31,428 12,390 0 212 0 0 16,721 31,428 34,949 34,949 26,924 6,855 (34) 51 211 942 (370) 572 0 0 0 572 .03 .03
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