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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
/X/ Quarterly report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 1, 1995
/ / Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the period from to
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COMMISSION FILE NUMBER 0-6890
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MECHANICAL TECHNOLOGY INCORPORATED
(Exact name of registrant as specified in its charter)
NEW YORK 14-1462255
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
968 ALBANY-SHAKER RD., LATHAM, NEW YORK 12110
---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(518) 785-2211
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Registrant's telephone number, including area code
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
CLASS OUTSTANDING AT July 1, 1995
----------------------------- ----------------------------
COMMON STOCK, $1.00 PAR VALUE 3,565,868 SHARES
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<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX
Part I Financial Information Page No.
--------
Consolidated Balance Sheets - July 1, 1995
and September 30, 1994 3 - 4
Consolidated Statements of Income -
Three months and nine months ended
July 1, 1995 and July 2, 1994 5
Consolidated Statements of Cash Flows -
Nine months ended July 1, 1995
and July 2, 1994 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
Part II Other Information 12
Signature 13
<PAGE>
PART I FINANCIAL INFORMATION
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
As of July 1, 1995 (Unaudited) and
September 30, 1994 (Derived from audited financial statements)
(Dollars in Thousands)
<TABLE>
<CAPTION>
JULY 1, SEPT. 30,
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 206 $ 1,820
Trade accounts 6,193 11,632
Other receivables 222 94
------- -------
Gross receivables 6,415 11,726
Allowance for doubtful accounts (93) (101)
------- -------
Net receivables 6,322 11,625
Income taxes receivable 55 122
INVENTORIES:
Raw materials and components 1,781 3,640
Work in process 2,230 2,231
Finished Goods 306 197
------- -------
Total inventories 4,317 6,068
Deferred income taxes 69 306
Prepaid expenses & other
current assets 234 214
------- -------
Total Current Assets 11,203 20,155
Other Assets:
Excess of cost over net assets of
acquired companies, net 1,667 1,726
Other 837 227
Property, Plant and Equipment:
Cost 19,032 20,629
Accumulated depreciation (16,145) (17,420)
------- -------
Net Property, Plant and Equipment 2,887 3,209
------- -------
TOTAL ASSETS $ 16,594 $ 25,317
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
As of July 1, 1995 (Unaudited) and
September 30, 1994 (Derived from audited financial statements)
(Dollars in thousands)
<TABLE>
<CAPTION>
JULY 1, SEPT.30,
1995 1994
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line-of-credit $ 2,582 $ 4,000
Note Payable 3,000 3,000
Current installments on long-term debt 2,298 9,038
Accounts payable 2,072 3,684
Accrued expenses 2,848 5,998
Net liabilities of discontinued operations 2,756 2,756
Payroll and other taxes withheld
and accrued 330 267
------- -------
Total Current Liabilities 15,886 28,743
Long-term debt, net of current maturities - 2,144
Deferred income taxes and other credits 848 848
Shareholders' Equity:
Common stock 3,569 3,546
Treasury Stock (29) (100)
Paid-in capital 12,856 12,944
Retained earnings - beginning of year (22,759) 1,619
- current year 6,277 (24,378)
Stock Grants (30) (18)
Foreign currency translation adjustment (24) (31)
------- -------
TOTAL SHAREHOLDERS' EQUITY (140) (6,418)
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 16,594 $ 25,317
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 1, JULY 2, JULY 1, JULY 2,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Product Sales $ 3,411 $ 5,433 $ 14,806 $ 17,673
Research & Development revenue 3,247 2,574 7,824 7,691
------- ------- ------- -------
Total Revenues 6,658 8,007 22,630 25,364
Product cost of sales 2,437 3,454 9,111 10,970
Research & Development contract costs 2,355 1,948 6,330 5,896
Selling, general and administrative
expenses 1,678 2,294 5,637 6,727
Product development costs
and research 264 915 1,006 2,443
------- ------- ------- -------
Operating (loss) income
from continuing operations (76) (604) 546 (672)
Interest expense (231) (302) (814) (820)
Gain on sale of subsidiary, ProQuip - - 6,779 -
Gain on sale of assets - - - 1,856
Other income (expense), net (42) (46) (155) (137)
------- ------- ------- -------
(Loss) income from continuing
operations before income taxes (349) (952) 6,356 227
Income tax (benefit) expense 11 (296) 79 191
------- ------- ------- -------
(Loss) income from continuing
operations (360) (656) 6,277 36
Loss from discontinued operation - (961) - (20,178)
------- ------- ------- -------
Net (loss) income $ (360) $ (1,617) $ 6,277 $(20,142)
======= ======= ======= =======
(Loss) earnings per share:
Continuing operations $ (.10) $ (.19) $ 1.76 $ .01
Discontinued operations .00 (.27) - (5.72)
------- ------- ------- -------
(Loss) earnings per share $ (.10) $ (.46) $ 1.76 $ (5.71)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 1, JULY 2,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES -------- --------
Net income from continuing operations $ 6,277 $ 36
Adjustments to reconcile net income to net
cash (used) provided by continuing operations:
Depreciation and amortization 548 754
Gain on sale of assets - (1,856)
Gain on sale of subsidiary (6,779) -
Provision for deferred income taxes 1 307
Foreign currency translation 7 3
Other 12 63
Changes in operating assets and liabilities
net of effects of discontinued operations:
Accounts receivable 2,082 1,530
Inventories (1,063) (1,749)
Prepaid expenses and other current assets (34) 259
Accounts payable 137 697
Income taxes 326 (910)
Accrued liabilities (1,501) 2,261
------- -------
Net cash provided by continuing operations 13 1,395
------- -------
Discontinued operations:
(Loss) from discontinued operations - (20,178)
Adjustments to reconcile (loss) to net cash
(used) by discontinued operations
Write down of assets to net realizable value - 9,488
Change in net assets/liabilities of
discontinued operations - 5,885
------- -------
Net cash (used) by discontinued operations - (4,805)
------- -------
Net cash provided (used) by operations 13 (3,410)
------- -------
INVESTING ACTIVITIES
Purchases of property, plant & equipment (584) (456)
Proceeds from sale of subsidiary, ProQuip,
net of cash balance and expenses 9,125 -
Proceeds on sale of assets - 1,959
------- -------
Net cash provided in investing activities 8,541 1,503
------- -------
FINANCING ACTIVITIES
Net borrowing under line-of-credit and
notes payable agreements (1,418) 4,091
Principal payments of long-term debt (8,750) (2,011)
------- -------
Net cash (used) provided in financing activities (10,168) 2,080
------- -------
(Decrease) increase in cash and cash equivalents (1,614) 173
Cash and cash equivalents - beginning of period 1,820 675
------- -------
Cash and cash equivalents - end of period $ 206 $ 848
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The management of the Company believes the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
primarily of normal recurring accruals) necessary to fairly present the
financial position as of July 1, 1995 and results of operations and changes
in financial position for the nine months then ended.
2. The results of operations for the nine-month period ended July 1, 1995 are
not necessarily indicative of the results to be expected for the full year.
3. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
Report for the fiscal year ended September 30, 1994.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's United Telecontrol Electronics, Inc. ("UTE") subsidiary filed
for voluntary bankruptcy under Chapter 11 of the Federal Bankruptcy Code in
April 1994 and commenced an orderly liquidation in October 1994. Accordingly,
the Company no longer includes Defense/Aerospace amongst its reportable business
segments and UTE has been classified as "discontinued operations" in the
Consolidated Financial Statements; prior year information has been restated to
conform to this treatment. (For further information on this bankruptcy see the
discussion under the caption "Results of Operations: 1994 in Comparison with
1993", in Item 7: Management's Discussion and Analysis of the Financial
Condition and Results of Operations and Note 16 to the Consolidated Financial
Statements, in the Company's Form 10-K Report for the fiscal year ended
September 30, 1994 which are incorporated herein by reference).
UTE has recently signed settlement agreements with various parties which resolve
outstanding disputes and claims with the United States Government related to the
Maverick, AMRAAM and Stinger missile programs. Under the terms of these
agreements, the Company would be released from performance guarantees it had
provided, and all claims against it associated therewith. The Company and UTE in
turn would release the government from all claims for equitable adjustments
under these contracts. This settlement is subject to notification of the
creditors and the entry of a formal order of the bankruptcy court. The
Company and UTE are also party to a settlement agreement, which was reached
with the official committee of unsecured creditors of UTE in a hearing
before the bankruptcy court. This settlement is also subject to the entry of
a formal order of the bankruptcy court. (For further information, see Note 16
to the Consolidated Financial Statements,in the Company's Form 10-K Report
for the fiscal year ended September 30, 1994 which are incorporated herein
by reference).
The Company expects the final liquidation of UTE (including resolution of fines
to be assessed in the UTE criminal proceeding and all required court approvals)
will occur during calendar year 1995. At that time any final adjustments to the
Company's financial statements as a result of the UTE bankruptcy will be made.
(For further information, see Note 11 and 16 to the Consolidated Financial
Statements, in the Company's Form 10-K Report for the fiscal year ended
September30, 1994 which are incorporated herein by reference).
The following is management's discussion and analysis of certain significant
factors which have affected the Company's earnings during the periods
included in the accompanying consolidated statements of income. This
discussion relates only to the Company's continuing operations, which
included ProQuip Inc. prior to its sale in November 1994.
RESULTS OF OPERATIONS (Dollars in thousands)
---------------------
SALES
Nine Months Ended
--------------------
BUSINESS SEGMENT: 7/1/95 7/2/94 Change
----------------- -------- -------- ------
Technology $ 8,163 $ 8,029 $ 134
Test & Measurement 14,467 17,335 (2,868)
------ ------ ------
TOTAL $22,630 $25,364 $(2,734)
====== ====== ======
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Dollars in thousands)
---------------------
(continued)
OPERATING
INCOME
Nine Months Ended
--------------------
BUSINESS SEGMENT: 7/1/95 7/2/94 Change
----------------- -------- -------- ------
Technology $ (528) $ (859) $ 331
Test & Measurement 1,074 187 887
------ ------ ------
TOTAL $ 546 $ (672) $ 1,218
====== ====== ======
Sales for the first nine months of fiscal year 1995 versus the same
period of fiscal year 1994 have decreased while operating income for the same
period increased. The effect each business segment had on this change is
outlined in the above table and discussed below.
TECHNOLOGY
----------
The Technology segment reported increases in sales and operating profit
compared to the corresponding period last year. The segment's performance
for the first nine months of fiscal year 1995 were favorably impacted by work
completed on a new major order along with lower product development and selling
expenses. The write-off of inventory of approximately $150 thousand on the
unsuccessful funding of an anticipated project, the margin reversal of
approximately $42 thousand as the result of a customer bankruptcy and a contract
overrun resulting in a negative margin of approximately $186 thousand were the
major negative factors affecting the Technology segment's results for the first
nine months of the 1995.
The Technology Division has been successful in the first nine months of the
year in receiving orders for new business in advanced bearing development,
fuel cell and flywheel energy storage system development, and expects to
continue to move toward focusing its resources on markets offering the
strongest potential for future growth: advanced turbomachinery components;
power and energy systems; monitoring and diagnostics systems; and engineering
services.
TEST AND MEASUREMENT
--------------------
The Test & Measurement segment reported a 17% decrease in revenues and
a 474% increase in operating income compared to the same period last year.
The decrease in sales was entirely attributable to the sale of ProQuip, noted
below, while most of the increase in operating income occurred at the other
continuing business units in this segment.
The results of the segment include ProQuip Inc. ("ProQuip") which was
sold by the Company in November 1994 resulting in a gain on the sale of
$6,779 thousand during the first nine months of the 1995 fiscal year. (For
further information on this sale transaction see the discussion under the
caption "Results of Operations: 1994 in Comparison with 1993, in Item 7:
Management's Discussion and Analysis of the Financial Condition and Results
of Operations" and Note 17 to the Consolidated Financial Statements, in the
Company's Form 10-K Report for the fiscal year ended September 30, 1994 which
are incorporated herein by reference).
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TEST AND MEASUREMENT (continued)
--------------------
Sales attributable to ProQuip during the period covered by this Form 10-Q were
$2,584 thousand and $7,027 thousand for fiscal year 1995 and fiscal year 1994,
respectively. ProQuip also accounted for $705 thousand of operating profit
during the first nine months of 1995 and $596 thousand for the corresponding
period of the prior year.
The remainder of the Test and Measurement segment, which includes Ling
Electronics, Inc. ("Ling"), the L.A.B. Division and the Advanced Products
Division, reported sales for the first nine months of 1995 of $11,883 thousand,
which was 15% higher than 1994's comparable period. Operating profit for 1995,
which was $778 thousand higher than 1994, reflects higher sales, improved
margins and lower expenses. Export license restrictions, imposed during the
first quarter of the fiscal year on certain of Ling's products, are continuing
to cause delays in shipments and to negatively impact Ling's sales and profits.
Management believes that sustainable growth of this segment will come
from new products for existing and new niche markets. During the current
fiscal year, the MICROTRAK 7000 (tm), a new laser triangulation sensor product,
for Advanced Products and the Transportation Simulator for L.A.B. are
examples of recent new product introductions.
FINANCIAL CONDITION
-------------------
During the first quarter of fiscal 1995, the Company sold its ProQuip
subsidiary for approximately $13.3 million. The sale resulted in a gain of
approximately $6.8 million. Approximately $8.0 million of the net proceeds
were applied to the Company's term debt. The balance of this term debt was $2.3
million at July 1, 1995 which is payable in full by October 31, 1995. (For
further information on this transaction see Note 17: "Subsequent Event" to
the Consolidated Financial Statements in the Company's Form 10-K Report for
the fiscal year ended September 30, 1994 which is incorporated herein by
reference).
Working capital reflects a $3.9 million improvement from September 30,
1994, but remains in a significantly negative position of $4.7 million at
July 1, 1995. The working capital deficiency was mainly due to a $3.0
million note payable, the $2.3 million term debt noted above, and
approximately $2.8 million net liabilities of discontinued operation, which
resulted from the bankruptcy and subsequent pending liquidation of the
Company's United Telecontrol Electronics, Inc. subsidiary; see Management's
Discussion and Analysis of Financial Condition and Results of Operations on
page 8 of this Form 10-Q and the discussion under the caption "Results of
Operations: 1994 in Comparison with 1993", in Item 7: Management's
Discussion and Analysis of the Financial Condition and Results of Operations
and Note 16 to the Consolidated Financial Statements, in the Company's Form
10-K Report for the fiscal year ended September 30, 1994 which are
incorporated herein by reference. The lender of the $3.0 million note payable,
which was due on May 31, 1995, granted a due date extension until September 30,
1995. The maturity of the Company's line-of-credit and term debt on October 31,
1995, along with the note payable due on September 30, 1995, will require the
Company to secure alternative financing or make other arrangements to satisfy
its obligations as they become due; see the discussion under the caption
"Liquidity and Capital Resources" in Item 7: Management's Discussion and
Analysis of the Financial Condition and Results of Operations, in the
Company's Form 10-K Report for the fiscal year ended September 30, 1994
which is incorporated herein by reference.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION (continued)
-------------------
At July 1, 1995 cash and cash equivalents were $206 thousand versus
$1,820 thousand at September 30, 1994. As shown by the Consolidated
Statement of Cash Flow for the nine months ended July 1, 1995, cash and cash
equivalents were used to reduce, among other things, current liabilities, the
line-of-credit, and long-term debt.
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May 9, 1995. The
following members were elected to the Company's Board of Directors to hold
office for the ensuing year.
Nominee In Favor Withheld
Harry Apkarian 2,147,904 916,507
R. Wayne Diesel 2,128,451 935,960
Stanley I. Landgraf 2,149,300 915,111
Albert W. Lawrence 2,081,772 982,639
E. Dennis O'Connor 2,148,700 915,711
Lawrence A. Shore 2,144,536 919,875
The results of the voting on the proposal to approve the reappointment of
Coopers & Lybrand as the Company's auditors were as follows:
In Favor Opposed Abstained
3,058,801 2,860 2,750
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) No Reports on Form 8-K were filed by the registrant during the quarter
for which this Report is filed.
<PAGE>
SIGNATURE
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.
MECHANICAL TECHNOLOGY INCORPORATED
8-14-95 /s/ R. WAYNE DIESEL
--------- ------------------------------------
(Date) R. Wayne Diesel
President & Chief Executive Officer
8-14-95 /s/ STEPHEN T. WILSON
--------- ------------------------------------
(Date) Stephen T. Wilson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 206
<SECURITIES> 0
<RECEIVABLES> 6,415
<ALLOWANCES> 93
<INVENTORY> 4,317
<CURRENT-ASSETS> 11,203
<PP&E> 19,032
<DEPRECIATION> 16,145
<TOTAL-ASSETS> 16,594
<CURRENT-LIABILITIES> 15,886
<BONDS> 0
<COMMON> 3,569
0
0
<OTHER-SE> (3,709)
<TOTAL-LIABILITY-AND-EQUITY> 16,594
<SALES> 22,630
<TOTAL-REVENUES> 22,630
<CGS> 15,441
<TOTAL-COSTS> 22,084
<OTHER-EXPENSES> 155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 814
<INCOME-PRETAX> 6,356
<INCOME-TAX> 79
<INCOME-CONTINUING> 6,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,277
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
