UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31. 1994
Commission file Number 0-11201
Merrimac Industries Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-1642321
(State of incorporation) I.R.S Employer Identification No
41 Fairfield Place West Caldwell, New Jersey 07006
(Address of principal executive offices)
Registrant's telephone number including area code 201-575-1300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(9) of the Act: Common Stock
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 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-KSB or any amendment to
this Form 10-KSB. ( X )
The registrant revenues for the most recent fiscal year were $13,592,787.
The aggregate market value of Common Stock held by non-affiliates based
upon the average price of such stock as quoted on AMEX for March 3, 1995 was
$12,939,150 Shares of Common Stock held by each officer and director, have been
excluded in that such persons may be deemed to be affiliates.
Registrant's Common Stock outstanding at March 3 1995 was 1,705,010 shares.
DOCUMENTS INCORPORATED BY REFERENCE
part I - Certain information contained in the Annual Report to Shareholders
& for Fiscal Year Ended December 31, 1994,
part II filed as Exhibit 13 herewith.
part III - Certain information contained in the Proxy Statement for April 27,
1995 Annual Meeting of Shareholders.
<PAGE>
PART I
Merrimac Industries, Inc., was incorporated in 1954 under the laws of the
State of New York. Merrimmac Industries, Inc. was reincorporated in New Jersey
in 1994 and is hereinafter sometimes referred to as the "Company".
ITEM 1. BUSINESS
General
The Company manufactures and sells approximately 1, 500 components and
subsystems used in signal processing systems (the extraction of useable
information from radio signals) in the frequency spectrum of D.C. to 65 GHz. The
Company's products are designed to process signals in a wide bandwidth and are
of relatively small size and lightweight. When integrated into subsystems,
advantages of lower cost and smaller size are realized due to the removal of
connectors, cases and headers. The Company" components range in price from
twenty dollars to $4,000 and its subsystems range from $500 to $30,000 or more.
The Company has traditionally developed and offered for sale products built
to specific customer needs and standard catalog items. The sales of components
and sub-assemblies for use in government applications accounted for
approximately 60% of 1994 revenues. Approximately 22% of 1994 revenues were
derived from initial orders for products custom designed for specific customer
applications, 48% from repeat orders for such products, and 30% from catalog
sales.
The Company's strategy is to be a reliable supplier of high quality
technically innovative signal processing products. The Company coordinates its
marketing, research and development, and manufacturing operations to develop new
products and expand its markets. The Company's marketing and development
activities focus on identifying and producing prototypes for new military
programs and applications in space, in defense systems, in communications and in
medical electronics. The Company's research and development efforts are targeted
towards providing customers with more complex, reliable, and compact products at
lower costs. Improved production efficiencies and more extensive use of
automated test equipment such as Hewlett Packard network analyzers (models 3577,
8505, 8510, 8720 and 8753) resulted in considerable reduction of the set-up time
to take measurements, calibration of test equipment and hard copy print out of
data. In addition, computerized cost controls such as closed job history,
up-to-date work in process costs and selling prices are also enhancing the
Company's competitive position. In 1992 the Company purchased laser marking
equipment which became fully operational in 1994. Laser marking is now being
incorporated into the process of metal packages. This provides totally permanent
marking, greater flexibility and lower costs. See also discussion of CAD/CAM in
"Research and Developmen below.
<PAGE>
For a discussion of financial information about the business segment,
foreign and domestic operations and export sales, reference is made to Note 10
to Consolidated Financial Statements in tne Company's Annual Report to
Shareholders for Fiscal Year Ended December 31, 1994 which note is incorporated
herein by reference.
Products
The Company's major product categories are: (1) power dividers/combiners
that equally divide input signals or combine coherent signals for nearly
lossless power combinations; (2) quadrature couplers that serve to split input
signals into two output signals 90 degrees out of phase or combine equal
amplitude quadrature signals; (3) hybrid junctions that serve to split input
signals into two output signals 180 degrees out of phase or combine equal
amplitude signals with 0 degree or 180 degrees out of phase; (4) directional
couplers that allow for signal sampling along transmission lines; (5) balanced
mixers that convert two input frequencies to another frequency; (6) variable
attenuators that serve to control or reduce power flow with distortion; (7)
phase shifters that accurately and repeatedly alter a signal's phase
transmission to achieve desired signal processing or demodulation; (8)
beamformers that permit an antenna to electronically track or transmit a signal;
(9) I&Q networks (a subassembly of circuits which allows two information signals
(incident and quadrature to be carried on a single radio signal for use in
digital communication and navigational positioning: and (10) solid-state
switches that control signal routing. The Company's other product categories
include RF converters, vector modulators and a wide variety of specialized
integrated assemblies. In the last fiscal year, no one product accounted for
more than ten percent of total net sales.
About 36% of the Company's sales are derived from the sales of products for
use in high-reliability space, satellite, and missile applications. These
products are designed to withstand severe environments without failure or
maintenance over a prolonged period. The Company provides facilities dedicated
to the design, development manufacture, and testing of these products along with
special program management and documentation personnel. The Company offers
products in each of its major categories for high-reliability applications.
The Company's products are also used in a broad range of other defense and
commercial applications, including radar, navigation, electronic warfare and
countermeasures, medical electronics, and communications equipment. The
Company's products are also utilized in systems to receive and distribute
television signals from satellites and through other microwave networks
including cellular radio.
<PAGE>
Marketing
The Company markets its products in the United States and Canada directly
to customers through a marketing staff comprised of 13 employees and through 15
independent domestic sales organizations The Company's marketing program focuses
on identifying new programs and applications for which the Company can develop
prototypes leading to volume production orders.
The Company utilizes approximately 17 sales organizations to market its
products elsewhere in the world. Sales to foreign customers amounted to: in
fiscal 1994 $3,256,000 (24.0% of sales), in fiscal 1993 $4,129,000 (29.0% of
sales) and in fiscal 1992 $3,250,000 (26.1% of sales).
The Company's customers are primarily major industrial corporations that
incorporate the Company's products into a wide variety of defense and commercial
systems. The Company's customers include Raytheon, Boeing, Norden, Westinghouse,
Martin Marietta, General Electric, Litton Industries, Hughes Aircraft, TRW,
Unisys, Magnavox, Motorola and Rockwell International. Sales to any one foreign
geographic area did not exceed 10% of net sales for 1994, 1993 or 1992. In 1994
sales to Raytheon Company amounted to 10.0% of net sales and in 1992 sales to
General Electric Company amounted to 12.8% . No one company accounted for more
than 10% of net sales in 1993.
Research and Development
During fiscal 1994, 1993 and 1992, research and development expenditures
amounted to $398,000, $254,000 and $566,000, respectively. The Company plans to
invest development funds at the same level in as in 1994 and will focus its
efforts at specific customer application requiring further miniaturization and
precision.
The Company's research and development activities include development of
prototypes for new programs and applications and the implementation of new
technologies to enhance the Company's competive position. Projects focusing on
surface mounted devices (SMD) and micro-electronic assemblies are directed
toward development of more circuitry in smaller, lower cost, and more reliable
packaging that is easier for customers to integrate into their products. The
Company is expanding its use of computer aided design and manufacturing
(CAD/CAM. in order to reduce design and manufacturing costs as well as
development time.
<PAGE>
Backlog
The Company manufactures specialized components and subsystems pursuant to
firm orders from customers and standard components for inventory. At December
31, 1994, the Company had a firm backlog of orders of approximately $5,112,000.
The Company estimates that approximately 90% of the orders in backlog as of
December 31, 1994 will be filled within one year. The Company does not consider
its business to he seasonal
Competition
The Company encounters competition in all phases of its business. The
Company competes both domestically and internationally in the military and
commercial markets and specifically within the space and communication areas.
The Company's competitors consist of entities of all sizes. Generally, the
smaller companies offer 1ower prices due to lower overhead expenses, and often
larger companies have greater financial resources than the Company. The Company
competes with them on a basis of technological performance, quality reliability
and dependability in meeting shipping schedules as well as on the basis of
price. The Company believes that the above factors have served well in earning
the respect and loyalty of many custome in the industry. These factors have
enabled the Company over the years to successfully maintain a stable customer
base and have directly contributed to the Company's ability to attract new
custom
Manufacturing, Assembly and Source of Supply
Manufacturing operations consist principally of assembly an testing of
components and subsystems built from purchased electronic materials and
components, fabricated parts, and printed circuits. Manual and semi-automatic
methods are employed depending principally upon production volumes. The Company
has its own machine shop employing CAD/CAM techniques and etching facilities to
handle soft and hard substrate materials. In addition, the Company maintains
testing and inspection procedures intended to minimize production errors and
enhance product reliability.
During 1994, the Company continued to implement programs to improve the
efficiency of manufacturing operations, and reduce costs. The Company continues
to establish more stringent procedures and documentation standards to provide
for the prompt transfer of the production of proto-type products from
engineering to manufacturing To enhance the structure and quality of these
functions, MIL STD 1772 (qualified line certification) and ISO 9001
certification are being investigated for implementation. The efforts so far have
increased production efficiency steadily from 1990 to 1994 and with the
prospective improvements this trend will continue through 1995 and beyond.
<PAGE>
It is the Company policy to use manufacturing cost savings to enhance, its
competitive position.
Electronic components and raw materials used in the Company products are
generally available from a substantial number of qualified suppliers. Some
materials are standard items and others are manufactured to the Company's
specifications by subcontractors. The Company is not dependent upon any single
supplier for components or materials.
Employee Relations
As of December 31, 1994 the Company employed 119 full time , 2 part time
persons. None of the Company's employees are represented by a labor
organization. The Company has never experienced a work stoppage or interruption
due to a labor dispute. Management believes that its relations with its
employees are satisfactory.
Since 1967, the Company has had a profit sharing plan for its employees and
contributes ten percent of its pretax income (before the profit sharing
contribution) into the Plan each fiscal year. In 1984, the Company adopted a
Savings and Investment Plan permitting employees to invest, by means of salary
deductions, up to 16% of their regular compensation with the first 6% of such
savings being 25% matched by the Company. In 1985, shareholders approved a Stock
Purchase Plan Company employees. Eligible employees, through salary deductions
over a period of 27 months may enter into an agreement to purchase that number
of shares which equals 10% of annual compensations, at 85% of the market value
at the time of the agreement or at the time of purchase, whichever is less. The
Plan expired December 31, 1989. April 1990, Company's shareholders approved an
amendment to the Plan - extending it for another five years. The Plan expired
December 31, 1994.
Patents
The Company owns 15 patents with respect to certain inventions it
developed. Although it has from time to time filed patent applications in
connection with the inventions which it believes patentable the Company does not
believe that patents or other similar intangib rights afford significant
protection from competitors or are material to its business.
<PAGE>
ITEM 2. PROPERTIES
Property
All of the Company's administrative offices and research and production
facilities are located in West Caldwell, New Jersey, on a five acre parcel owned
by the Company. A 12,000 square-foot plant was built in November 1966; a 13,500
square-foot addition was completed in December 1971; and a 26,300 square-foot
addition was completed in July 1980.
The Company owns all of its land, buildings, laboratory, production and
office equipment, as well as its furniture and fixtures. The Company believes
that its plant and facilities are well suited for the Company's business and are
properly utilized, suitably located and in good repair.
ITEM 3. LEGAL PROCEEDINGS
On July 1, 1993, the Company filed a $750,000 Amended complaint against the
former principals of 785645 Ontario, Ltd., in the United States District Court
for the District of New Jersey, for misrepresentations made by them in
conjunction with the Stock Purchase Agreement between the parties. On or about
November 1, 1993, the former principals filed an action in Ontario Court against
the Company for breach of the same Stock Purchase Agreement, fraud, breach of
employment agreements, wrongful dismissal, breach of lease and damage to leased
premise. The former principals have demanded $(Canadian) 1,000,000 in
compensatory and punitive damages. The Company believes that the principals'
action is without merit and has been initiated solely as a tactic to forestall
the Company's initial action. The Company intends to pursue its action and
vigorously contest the former principals' lawsuit. Management does not believe
that the outcome will have a material adverse effect on the Company's
consolidated financial position or results of operation. Discovery proceedinqs
are on going.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock began trading on the American Stock Exchange on
July 11, 1988 under the symbol MRM.
<PAGE>
Reference is made to the table captioned "Quarterly Common Stock Data" page
35 of the Company's Annual Report to Shareholder for Fiscal Year Ended December
31, 1994, which is incorporated herein in by reference for information with
respect to the high and low bid prices of the Company's Common Stock during the
Company's past two fiscal years.
The Company had approximately 200 holders of record on March 10. 1995.
Reference is made to Note 9 to the Consolidated Financial Statements in the
Company's Annual Report to Shareholders for fiscal Year Ended December 31, 1994,
which note is incorporated herein by reference for information with respect to
payment of cash dividend in 1994. 1993 and 1992.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to pages 22 and 23 of the Company's Annual Report to
Shareholders for Fiscal Year Ended December 31, 1994, which pages are
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 24 through 35 of the Company' Annual Report to
Shareholders for Fiscal Year Ended December 31, 1994, which pages are
incorporated herein by reference with respect to the Company's Financial
Statements as of December 31, 1994 and January 1, 1994 and each of the years in
the three year periods ended December 31, 1994 and the reports of J.H. Cohn &
Company and Ernst & Young LLP included herein on pages 12 and 13, respectively
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The decision to dismiss Ernst & Young LLP as the Company accountants was
approved by the Audit Committee of the Board of Directors. During the Company's
two most recent fiscal years, prior to dismissal, there had not been any
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, nor
had Ernst & Young LLP's reports on the Company's financial statements for such
years contained an adverse opinion or a disclaimer of opinion, or been qualified
or modified as to uncertainty, audit scope or accounting principles.
PART III
Pursuant to General Instruction E to Form 10-KSB, portions of information
required by items 9-12 is hereby incorporated by reference to the Company's
definitive Proxy Statement for the 1995 Annual Meeting of Shareholders (the
"Proxy Statement") which the Company filed with the Securities and Exchange
Commission on March 27, 1995.
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following is a list of the Company's executive officers, their ages and
their positions as of December 31, 1994. Generally each executive officer is
elected for a term of one year at the re-organizational meeting of the Board of
Directors following the annual shareholders meeting.
Name Age Position
Charles F. Huber II 65 Chairman
Eugene W. Niemiec 55 President, Chief Executive
Officer, Chief Operating
Officer, Treasurer and
Chief Financial Officer
John J. Antonich 61 Vice President
Secretary/Controller
John Z. Blahosky 63 Executive Vice President
Brian R. Dornan 46 Group Vice President
Manufacturing
Anthony N. Ramsden 50 Vice President
Sales and Marketing
Family Relationships
There are no family relationships among the officers listed. All elected
officers hold office for one year and until their successors are elected and
qualified.
<PAGE>
Business Experience of Executive Officers During Past Five Year,
Mr. Huber, effective September 9, 1994, was elected Chairman of Merrimac
Industries, Inc. In addition, he is currently a leveraged buy-out specialist,
Chairman of Transnational Industries, Inc., a manufacturing company in Chadds
Ford, Pennsylvania and Treasurer and Director of Pannebaker, a custom cabinet
company in McAllisterville, Pennsylvania. He has been a managing Director of
William D. Witter, Inc., an investment banking organization in New York, New
York since 1981.
Mr. Niemiec, effective September 9, 1994, was elected to the additional
offices of Chief Executive Officer, Chief Financial Officer and Treasurer. He
continues to hold the offices of President and Chief Operating Officer of the
Company which he has held since January 1, 1990. From 1981 to 1990 he served as
Executive Vice President and Technical Director of the Company.
Mr. Antonich has been Vice President Secretary/Controller since prior to
1989.
Mr. Blahosky, effective January 1, 1990, became Executive, Vice President
of the Company. Prior to 1990 he served as Senior Vice President of IF Products.
Mr. Dornan has been Group Vice President of Manufacturing since joining the
Company in 1986.
Mr. Ramsden has been Vice President of Sales and Marketing since joining
the Company in 1986.
ITEM 10. EXECUTIVE COMPENSATION
See the information under the caption "EXECUTIVE COMPENSATION" contained in
the Proxy Statement, which information is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
See the information in the table and the notes thereto, under the caption
"SHARE OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICE AND CERTAIN SHAREHOLDERS"
contained in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Annual Report
to
Shareholders
Form-10KSB 1994
(a) 1. Financial Statements
Consolidated Balance Sheets at December 31,
1994 and January 1, 1994 24
Fiscal years ended December 31, 1994
January 1, 1994 and January 2, 1993:
Consolidated Statements of Income 25
Consolidated Statements of Stockholders'
Equity 25
Consolidated Statements of Cash Flows 26-27
Notes to consolidated financial statements 28-35
Reports of Independent Public Accountants 12-13
Consents of Independent Public Accountants 14-15
(a) 2. Financial Statement Schedules
fiscal years ended December 31,
1994, January 1, 1994 and
January 2, 1993
II. - Valuation and qualifying
accounts - fiscal years 16
ended December 31, 1994,
January 1, 1994 and
Januarv 2. 1993
All other schedules are omitted since they are not required, not applicable
or the information has been included in the financial statements or notes
thereto.
<PAGE>
(a) 3. Exhibits
Exhibit No.
3 (a) By-Laws of the Company are hereby incorporated
by reference to Exhibit C to the Proxy Statement
of the Company dated March 18, 1994.
(b) Certificate of Incorporation of the Company is
hereby incorporated by reference to Exhibit B
the Proxy Statement of the Company dated
March 18, 1994.
10 (a) Profit Sharing Plan of the Company is hereby
incorporated by reference to Exhibit 10(n) to
the Company's Registration Statement
(No. 2-79455). *
(b) 1993 Stock Option Plan of the Company effective
March 31, 1993 is hereby incorporated by
reference to Exhibit 4(c) to the Company's
Registration Statement on Form S-8 which was
filed with the Securities and Exchange Commision
on September 14, 1993. *
13 Annual Report to Shareholders for Fiscal Year
Ended December 31, 1994.
22 Subsidiaries of the Registrant. Merrimac
International, Inc. FSC is organized under
the laws of the United States Virgin Islands,
and Merrimac Industries (Ontario) Ltd. is
organized under the laws of the Province of
Ontario, Canada.
23 (a) Consent of J.H. Cohen & Company (included on
page 14 herein)
(b) Consent of Ernest & Young LLP (included on
page 15 herein).
27 Financial Data Schedule for Fiscal Year Ended December 31,1994
(b) - Reports on Form 8-K
No reports onForm 8-K were filed during the
fourth quarter of the fiscal year ended
December 31, 1994.
* Indicates that exhibit is a management contract or compensatory
plan or arrangement.
<PAGE>
MERRIMAC INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1994, January 1, 1994 and January 2, 1993
Balance at Additions
Beginning charged to Balance at
of Year Income Deductions End of Year
_________________________________________________
1994:
Inventory Valuation account $ 819,199, $ 343,739 $ 170,205 $ 992,733
1993:
Inventory Valuation account 872,333 314,085 367,219 819,199
1992:
Inventory Valuation account 1,147,804 460,428 735,899 872,333
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, therein duly authorized.
MERRIMAC INDUSTRIES, INC.
(Registrant)
Date: March 22, 1995 By: /s/ Euqene W. Niemiec
---------------------------
(Eugene W. Niemiec, President,
Treasurer, Principal Executive
Officer, and Principal Financial
Officer)
Date: March 22, 1995 By: /s/ John J. Antonich
---------------------------
(John J. Antonich, Secretary,
Controller and Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Date Title
/s/ Charles F. Huber II 3-22-95 Director
-------------------------
(Charles F. Huber II)
/s/ Eugene W. Niemiec 3-22-95 Director
-------------------------
(Eugene W. Niemiec)
/s/ Arthur A. Oliner 3-22-95 Director
-------------------------
(Arthur A. Oliner)
/s/ John J. Antonich 3-22-95 Director
-------------------------
(John J. Antonich)
/s/ Mason N. Carter 3-22-95 Director
-------------------------
(Mason N. Carter)
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1994 compared to 1993
Sales: Considering the declining market in the defense industry, the
Company held its own, as sales for fiscal 1994 fell only 4.6% below the fiscal
1993 level. Bookings were 9.3% below 1993 levels due primarily to the loss of a
major space program to, in our opinion, an unqualified competitor based on price
alone. Quality and experience in making space qualified parts were apparently
not factored into the award, and Merrimac has every expectation of picking up
the pieces when the competitor fails to deliver to specification or on time.
Additionally, several other government programs were delayed into 1995, further
contributing to the fall in bookings. Export shipments and bookings fell 22% and
3%, respectively, because several significant orders received and shipped in
1993 were not repeated in 1994. The backlog at the end of 1994 was up 2.6% from
1993 levels.
Cost of Sales: The cost of sales as a percentage of sales for fiscal 1994
increased by only 0.9% over 1993. The increase can be attributed to a slight
rise in manufacturing overhead expenses and direct labor plus the discontinuance
of a three year pay freeze in November 1994. The Company had 121 employees at
the end of 1994, approximately the same number as it had at the end of the prior
year. The Company expects to implement a Total Quality Management (TQM) program
this year in order to be better able to identify and eliminate waste in the
Company's operation, thus improving the Company's Competitive position.
Selling, General and Administrative: The SG&A expenses as a percentage of
sales increased by 4.3% for fiscal 1994 when compared to fiscal 1993. These
increases occurred in selling expenses (advertising and technical data),
administrative expenses (professional fees) and general expenses (proposal and
development expenses). Significant proposal efforts were expended in pursuit of
both commercial and government space programs, in which Merrimac was only
partially successful.
The Company's contribution to the profit sharing plan amounted to $259,389
in 1994 compared to $340,922 in 1993, due to less favorable results in 1994,
which offset some of the above increases.
1993 compared to 1992
Sales:The results of operations for fiscal 1993 are highlighted by higher
sales, and improved profit and income per share. The surge in order inputs
experienced in the fourth quarter of fiscal 1992 persisted throughout 1993 as
order inputs, sales and backlog rose by 26%, 14.5% and 22%, respectively, when
compared to fiscal 1992. In 1993, the Company recorded record export sales of
$4,129,000.
Cost of Sales: The cost of sales as a percentage of sales for fiscal 1993
stands at 46.9% compared to 53.1% for fiscal 1992. The substantial reduction is
attributed primarily to discontinuance of operations in January 1993 of a
Canadian subsidiary acquired in April 1992, to the extension of the Company's
pay freeze for a third year, and to other improved efficiencies.
Selling, General and Administrative: The SG&A expenses as a percentage of
sales for fiscal 1993 are lower by approximately 7% when compared to fiscal
1992. The most significant reduction occurred in the development area where
design and engineering personnel devoted most of their efforts in 1993 to
customer orders. The other two areas where expenses are significantly lower are:
(1) Selling Expenses - in 1992 the Company printed and distributed the M-92
Product Catalogue, (a new catalog was not produced in 1993) and (2)
Administrative Expenses - in 1992 the Company incurred significant professional
fees in connection with the acquisitions. The above reductions were somewhat
offset with the increase in profit sharing contribution which amounted to
$340,922 in 1993 compared to $156,685 in 1992, due to more favorable results in
1993.
Other Expenses:In fiscal 1993 the Company incurred $199,486 in amortization
of intangible assets resulting from the acquisition of MRD compared to $101,903
in fiscal 1992. A significant factor which had a bearing on 1992 results was the
loss from the shut down of subsidiary (BTI) which amounted to $332,086.
Exhibit 13
<PAGE>
Liquidity and Capital Resources.
The Company's financial condition remained strong throughout fiscal 1994.
At the end of fiscal 1994, the Company had liquid resources comprised of cash
and investments in available-for-sale securities, totaling approximately
$4,000,000, as compared to cash and investment securities totaling 4,600,000 at
the end of fiscal 1993. In January 1994, Management determined that it was
appropriate to classify all investment securities, which are held by the Company
for possible use in financing current operations or for financing the possible
expansion of current activities and are readily marketable, as current assets.
As a result, investments in municipal securities with a carrying value of
approximately $3,200,000 at that time were reclassified as current assets. As a
result, the Company's working capital stood at $9,100,000 and its current ratio
was 6.9 at the end of fiscal 1994. Assuming all marketable investments had been
reclassified as current assets at the end of fiscal 1993, the Company's current
ratio would have been 6.8.
The Company's operating activities generated cash flows of $2,262,780 in
fiscal 1994 compared to $2,885,043 in fiscal 1993 and 1,498,283 in fiscal 1992.
The Company made net investments in property, plant and equipment of $1,103,339
in fiscal 1994 compared to $684,762 in fiscal 1993 and $684,682 in fiscal 1992.
During 1994, the Company purchased 100,200 shares of its common stock on the
open market at a cost of $903,907. Purchases of common stock cost $101,096 in
1993 and $992,743 in 1992. In addition, the Company paid $690,939 in cash
dividends in 1994, or $.40 per share, compared to $510,388, or $.30 per share,
in 1993 and $498,187, or $.30 per share, in 1992. The Company intends to
continue to pay dividends at no less than the 1994 annual rate of $.40 per
share.
The Company has a $2,500,000 unsecured line of credit agreement with
Chemical Bank New Jersey, at the bank's floating prime rate. As of December 31,
1994, the full balance of $2,500,000 was available for future borrowing.
Management believes that with the liquid resources and the unused line of
credit available at the end of fiscal 1994, along with cash flows expected to be
generated by operations, the Company will have sufficient resources for
currently contemplated operations in fiscal 1995. The Company is exploring the
possibility of acquiring similar manufacturers of electronic devices although it
currently has no definitive plans or agreements for such acquisitions.
Management believes that such acquisitions could be financed through the liquid
and capital resources currently available as described above, and/or through
additional borrowing or the issuance of equity securities.
Exhibit 13
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
1994 1993
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) ................................................ $ 789,152 $ 574,107
Investments in securities (Note 2) ................................................ 3,232,272 403,838
Accounts receivable ............................................................... 2,051,653 2,168,647
Inventories (Note 1) .............................................................. 3,647,830 3,636,256
Prepaid expenses .................................................................. 82,817 109,872
Prepaid income taxes .............................................................. 104,083 83,175
Deferred tax assets (Note 8) ...................................................... 774,831 526,060
Total current assets ..................................................... 10,682,638 7,501,955
Property, plant and equipment, at cost (Note 3) ............................................ 11,911,822 11,467,581
Less accumulated depreciation and amortization .................................... 8,477,332 8,485,860
Net property, plant and equipment ................................................. 3,434,490 2,981,721
Investments at cost (approximates market) .................................................. -- 3,593,466
Intangible assets, less accumulated amortization of $478,124 and
$301,389 (Notes 1 and 11) ......................................................... 421,466 636,867
Other assets ............................................................................... 166,850 1,850
$ 14,705,444 $ 14,715,859
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .................................................................. $ 318,250 $ 346,379
Accrued liabilities (Note 5) ...................................................... 940,874 1,027,286
Income taxes payable .............................................................. 292,357 258,544
Total current liabilities ................................................ 1,551,481 1,632,209
Deferred tax liabilities (Note 8) .......................................................... 141,500 144,729
Total liabilities ........................................................ 1,692,981 1,776,938
Stockholders' equity (Notes 6, 7 and 9)
Common stock, par value $.50 per share;
5,000,000 shares authorized; 2,521,196 and 2,469,440 shares issued 1,260,598 1,234,720
Additional paid-in capital ........................................................ 8,537,460 8,112,426
Retained earnings ................................................................. 9,989,697 9,249,440
Unrealized holding loss on available-for-sale securities, less deferred tax benefit (213,720) --
19,574,035 18,596,586
Less treasury stock, at cost - 830,735 and 730,535 shares ......................... 6,561,572 5,657,665
Total stockholders' equity ............................................... 13,012,463 12,938,921
$ 14,705,444 $ 14,715,859
</TABLE>
See accompanying notes.
Exhibit 13
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, January 1, 1994 and January 2, 1993
<TABLE>
<CAPTION>
1994 1993 1992*
<S> <C> <C> <C>
Net sales .......................................... $13,592,787 $14,252,309 $12,444,624
Costs and expenses:
Cost of sales ............................. 6,493,598 6,677,147 6,609,058
Selling, general and administrative ....... 4,828,601 4,452,464 4,771,702
Amortization of intangible assets (Note 11) 176,735 199,486 101,903
Loss from shutdown of subsidiary (Note 11) -- -- 332,086
11,498,934 11,329,097 11,814,749
Operating income ................................... 2,093,853 2,923,212 629,875
Net interest and other income ...................... 174,343 157,776 88,968
Income before income taxes ......................... 2,268,196 3,080,988 718,843
Provision for income taxes (Note 8) ................ 837,000 1,097,000 349,000
Net income ......................................... $ 1,431,196 $ 1,983,988 $ 369,843
Net income per common share (Note 1) ............... $ .81 $ 1.14 $ .22
Weighted average shares outstanding ................ 1,765,375 1,743,789 1,692,322
</TABLE>
*Fiscal year 1992 contains 53 weeks, all others presented contain 52 weeks.
See accompanying notes.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, January 1, 1994 and January 2, 1993
Additional Unrealized
Common Stock paid-in holding Retained Treasury
Shares Amount capital loss earnings stock
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 28, 1991 2,297,559 $1,148,780 $7,039,550 $7,904,184 $(4,563,826)
-------------------------------------------------------------------------------------------------------------------------------
Net income 369,843
Exercise of options (Notes 6 and 7) 84,200 42,100 440,657
Tax benefit - stock options* 71,358
Cash dividends (Note 9) (498,187)
Purchase of common stock (992,743)
-------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 1993 2,381,759 1,190,880 7,551,565 7,775,840 (5,556,569)
-------------------------------------------------------------------------------------------------------------------------------
Net income 1,983,988
Exercise of options (Notes 6 and 7) 77,681 38,840 401,814
Shares issued (Note 11) 10,000 5,000 66,250
Tax benefit - stock options* 92,797
Cash dividends (Note 9) (510,388)
Purchase of common stock (101,096)
-------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1994 2,469,440 1,234,720 8,112,426 9,249,440 (5,657,665)
-------------------------------------------------------------------------------------------------------------------------------
Net income 1,431,196
Exercise of options (Notes 6 and 7) 38,423 19,212 231,238
Shares issued (Note 11) 13,333 6,666 144,996
Tax benefit - stock options* 48,800
Net unrealized holding loss
on securities (Note 2) $(213,720)
Cash dividends (Note 9) (690,939)
Purchase of common stock (903,907)
-------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 2,521,196 $1,260,598 $8,537,460 $(213,720) $9,989,697 $(6,561,572)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Tax benefit resulting from employees' exercise and disposition of stock
options. See accompanying notes.
Exhibit 13
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, January 1, 1994 and January 2, 1993
<TABLE>
<CAPTION>
1994 1993 1992*
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ........................................................ $ 1,431,196 $ 1,983,988 $ 369,843
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................ 837,863 881,014 834,483
Loss from shutdown of subsidiary ......................... -- -- 332,086
Deferred income taxes .................................... (110,000) (107,597) 18,652
Accounts receivable ...................................... 116,994 153,026 (666,693)
Inventories .............................................. (11,574) (365,787) 761,537
Prepaid income taxes ..................................... (20,908) 50,473 (133,648)
Prepaid expenses ......................................... 27,055 31,959 (10,285)
Other assets ............................................. (165,000) -- 57,776
Accounts payable ......................................... (28,129) (4,503) (97,723)
Other liabilities ........................................ 102,670 (88,871) 123,035
Income taxes payable ..................................... 82,613 351,341 (90,780)
Total adjustments ........................................ 831,584 901,055 1,128,440
Net cash provided by operating activities .................................. 2,262,780 2,885,043 1,498,283
Cash flows from investing activities:
Acquisitions of businesses ........................................ -- -- (1,164,631)
Purchase of capital assets ........................................ (1,116,551) (747,827) (984,772)
Proceeds from sales of capital assets ............................. 13,212 63,065 300,090
Proceeds from sales and maturities of available-for-sale securities 400,000 -- --
Purchase of investment securities ................................. -- (4,252,269) (1,478,119)
Proceeds from sales of investment securities ...................... -- 1,821,321 --
Net cash used in investing activities ...................................... (703,339) (3,115,710) (3,327,432)
Cash flows from financing activities:
Borrowings under line-of-credit ................................... -- -- 275,000
Repayments of borrowings under line-of-credit ..................... -- -- (275,000)
Repurchase of common stock ........................................ (903,907) (101,096) (992,743)
Proceeds from the issuance of common stock ........................ 250,450 440,657 482,757
Payments of dividends ............................................. (690,939) (510,388) (498,187)
Net cash used in financing activities ...................................... (1,344,396) (170,827) (1,008,173)
Net increase (decrease) in cash and cash equivalents ....................... 215,045 (401,494) (2,837,322)
Cash and cash equivalents at beginning of year ............................. 574,107 975,601 3,812,923
Cash and cash equivalents at end of year ................................... $ 789,152 $ 574,107 $ 975,601
</TABLE>
*Fiscal year 1992 contains 53 weeks, all others presented contain 52 weeks.
See accompanying notes.
Exhibit 13
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS continued
Years Ended December 31, 1994, January 1, 1994 and January 2, 1993
<TABLE>
<CAPTION>
1994 1993 1992*
Acquisitions of Businesses:
785645 Ontario Ltd., (BTI):
<S> <C> <C> <C>
Working capital other than cash ............................... $ (22,939)
Equipment ..................................................... 304,289
Goodwill ...................................................... 168,650
450,000
Microwave Research & Development Inc., (MRD):
Working capital other than cash ............................... 110,177
Equipment ..................................................... 25,194
Intangible assets ............................................. 828,260
Less: Acquisition costs accrued ............................... (249,000)
714,631
Net cash used to acquire businesses .................................... 1,164,631
Supplemental disclosures of cash flows information:
Cash paid during the year for:
Interest ...................................................... -- -- 3,183
Income taxes .................................................. $ 885,295 $ 725,418 565,000
Supplemental disclosure of non-cash investing and
financing activity:
Unrealized holding loss on available-for-sale
securities, less deferred tax benefit of $142,000 ...................... (213,720) -- --
Tax benefit related to employees' stock options ........................ 48,800 92,797 71,358
Increase (decrease) in intangible assets (Note 11) ..................... (38,666) 109,998 --
Issuance of common stock (Note 11) ..................................... 151,662 71,250 --
</TABLE>
*Fiscal year 1992 contains 53 weeks, all others presented contain 52 weeks.
See accompanying notes.
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
1.Summary of significant accounting policies:
Principles of consolidation: The financial statements include the accounts
of the Company and Merrimac International, Inc. FSC, a foreign sales corporation
(FSC) and Merrimac Industries (Ontario) Ltd. Both subsidiaries are wholly owned.
All intercompany accounts have been eliminated in consolidation.
Cash and cash equivalents: The Company considers all highly liquid
securities with an original maturity of less than three months to be cash
equivalents. The Company maintains cash deposits with banks that at times exceed
applicable insurance limits. The Company reduces its exposure to credit risk by
maintaining such deposits with high quality financial institutions.
Contract revenues: Sales and related costs of sales under fixed-price
contracts are recorded as deliveries are made. Prior to shipment, manufacturing
costs incurred on such contracts are recorded as work in process inventory.
Anticipated future losses on contracts are charged to income when identified.
Investments: Effective January 2, 1994, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and classified its portfolio of
investment securities, which is comprised of municipal debt securities, as
available-for-sale securities pursuant to this new standard. Available-for-sale
securities are carried at fair market value and unrealized gains and losses from
changes in fair market value are included as a separate component of
stockholders' equity. Realized gains and losses, determined using the specific
identification method, are included in income in the period incurred. Prior to
the adoption of Statement No. 115, the Company carried its investments in debt
securities at amortized cost.
Statement No. 115 was adopted on a prospective basis and prior period
financial statements have not been restated. The amortized cost of the Company's
investments in debt securities at the date of adoption was $3,593,466, which
approximated their market value. Accordingly, the cumulative effect of adopting
Statement No. 115 as of January 2, 1994 was not material. The Company
reclassified its investments in securities from non-current to current assets
effective January 2, 1994.
Inventories: Inventories are valued at the lower of average cost or market,
and consist of the following:
1994 1993
Finished goods ....................... $1,223,559 $1,098,579
Work in process ...................... 1,022,962 1,015,360
Raw materials and
purchased parts ...................... 1,401,309 1,522,317
$3,647,830 $3,636,256
Total inventory is net of reserves of $992,733 in 1994 and $819,199 in 1993.
Depreciation: Depreciation is computed for financial reporting purposes on
the straight-line method, while accelerated methods are used, where applicable,
for tax purposes. The following estimated useful lives are used for financial
reporting purposes:
Land improvements ..................................... 10 years
Building .............................................. 25 years
Machinery and equipment ............................... 3 - 10 years
Office equipment, furniture and fixtures............... 5 - 10 years
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
Assets under construction are not depreciated until the assets are placed
into service. Fully depreciated assets in use at December 31, 1994 and January
1, 1994 amounted to approximately $5,834,000 and $5,808,000, respectively, and
are included in the property, plant and equipment and accumulated depreciation
accounts.
Intangible assets:Intangible assets represent the cost of purchasing unique
technical capabilities (some of which may be patentable) which will enable the
Company to enter into new and emerging markets (see Note 11). The costs are
being amortized over the estimated 5 year life of the technology using the
straight-line method of amortization.
Income taxes: In February 1992, the Financial Accounting Standards Board
issued Statement No. 109, Accounting for Income Taxes. The Company adopted the
provisions of the new standard in its financial statements for the year ended
January 1, 1994. As permitted by Statement No. 109, prior year financial
statements have not been restated to reflect the change in accounting method.
The cumulative effect as of January 3, 1993 of adopting Statement No. 109
increased net income by $50,000.
Under Statement No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based ontemporary differences between financial reporting and tax
bases of assets and liabilities, and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Prior to adoption of Statement No. 109, income tax expense was determined using
the deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
Profit Sharing Plan: Based on the annual authorization from the Board of
Directors, 10% of pre-tax income before the profit sharing provision ($252,389
in 1994, $340,922 in 1993 and $156,685 in 1992) is contributed to a trusteed
fund. Eligible employees receive payments from the fund upon retirement or early
separation based on the value of each individual employee's vested share of the
fund at that date.
Savings and Investment Plan: The Company's Savings and Investment Plan
(401(k) plan) became effective on January 1, 1984. The salary reduction plan
permits eligible employees to save and invest up to 16% of their regular
compensation with the first 6% of such savings being 25% matched by the Company.
The Company's contributions to the Plan were $51,091 in 1994, $49,560 in 1993
and $41,686 in 1992.
Participating employees receive payments from the Company's contributions
upon retirement or early separation based on their vested portion of such
contributions on that date.
Research and development: Research and development expenditures of $398,000
in 1994, $254,000 in 1993 and $566,000 in 1992 are expensed as incurred.
Interest expense: Interest expense was not material in 1994, 1993 and 1992.
Net income per share: Net income per share is based upon weighted average
number of common shares and common equivalent shares outstanding during the
year. Common equivalent shares arise from the dilutive effects of shares that
may be purchased under stock option and purchase plans (see Notes 5 and 6).
Accounting period: The Company's fiscal year is the 52-53 week period
ending on the Saturday closest to December 31. Quarterly financial information
is reported on a 12-12-16-12 week basis in a 52 week fiscal year, and
12-12-16-13 week basis in a 53 week fiscal year.
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
2. Investments in securities
The amortized cost and estimated fair market value of the Company's
portfolio of available-for-sale investments in marketable municipal debt
securities at December 31, 1994 are set forth below by contractual maturity.
Date Due Amortized Estimated Fair
(years) Cost Market Value
--------------------------------------------------------------------------------
In 1 or less ......................... $ 300,396 $ 300,000
After 1 through 5 .................... 201,134 187,132
After 5 through 10 ................... 2,786,462 2,485,140
After 10 ............................. 300,000 260,000
================================================================================
$3,587,992 $3,232,272
The gross unrealized holding loss on available-for-sale securities at
December 31,1994 was $355,720 which is included as a separate component in
stockholders' equity. There were no gross unrealized gains.
3. Property, plant and equipment
1994 1993
Land and land improvements ............... $ 547,446 $ 547,446
Building ................................. 2,226,956 2,150,235
Machinery and equipment .................. 5,586,960 5,264,058
Office equipment,
furniture and fixtures ................... 3,550,460 3,505,842
================================================================================
$11,911,822 $11,467,581
4.Line of credit
The Company has a $2,500,000 unsecured line of credit agreement with its
bank, borrowings under which are at the prime rate. No amounts were outstanding
under this line of credit agreement at either December 31, 1994 or January 1,
1994.
The average interest rate for 1992 was 6.0%. There were no borrowings in
1994 or 1993.
5.Accrued liabilities
Accrued liabilities consist of the following:
1994 1993
Commissions .......................... $ 136,047 $ 106,037
Vacation ............................. 109,888 104,363
Profit sharing ....................... 199,389 319,922
Payroll and taxes .................... 73,466 66,277
Warranty reserve ..................... 100,000 100,000
Other+ ............................... 322,084 330,687
================================================================================
$ 940,874 $1,027,286
+Consists primarily of a payable of $165,000 to the Company's former
Chairman of the Board in 1994 and liabilities related to acquisitions in 1992
(see Note 11).
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
6.Stock options
A summary of stock options activity is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
Option Number Option Number Option Number
price of shares price of shares price of shares
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year .. $4.45 - $10.88 73,645 $4.45 - $8.00 84,976 $4.45 - $8.00 144,671
Granted ............... 9.75 4,500 7.13 - 10.88 30,000 5.50 23,500
Exercised ............. 4.45 - 8.00 (22,118) 4.45 - 8.00 (38,831) 4.45 - 6.48 (73,271)
Cancelled ............. 10.88 (1,500) 5.50 - 8.00 (2,500) 5.50 - 8.00 (9,924)
----------------------------------------------------------------------------------------------------------------------
Outstanding
at end of year ..... 4.45 - 10.88 54,527 4.45 - 10.88 73,645 4.45 - 8.00 84,976
----------------------------------------------------------------------------------------------------------------------
Exercisable at year end 54,527 49,645 61,476
</TABLE>
Under the 1983 Key Employees Stock Option Plan, 206,250 shares of the
Company's common stock were initially reserved. The plan expired on March 21,
1993. On December 31, 1994, a total of 21,527 shares remain outstanding and
exercisable under the 1983 plan. The 1983 plan provided that the option price
could not be less than 100% of the fair market value of the shares on the date
of grant and that any options so granted could be exercised at any time between
one and ten years from the date of grant.
On April 29, 1993, the shareholders approved the 1993 Stock Option Plan
under which 300,000 shares of the Company's common stock were initially
reserved. On December 31, 1994, there were 33,000 shares outstanding and
exercisable and 267,000 shares available for future grants.
The 1993 plan provides for qualified and non-qualified options. The
qualified options are treated under the same terms as under the 1983 plan. The
non-qualified options may be granted to employees at a price determined by the
Stock Option Committee of the Board of Directors which may be less than, equal
to or greater than the fair market value of the common stock on the date of
grant, but in no event less than the par value. Such shares may be exercised
immediately after the grant and/or at any time before the 10th anniversary of
the grant. The non-qualified options may also be granted to non-employee
directors, in which case the option price shall be the closing price on the date
the option is granted.
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
7.Stock Purchase Plan
A summary of stock purchase plan subscription activity is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
Subscription Number Subscription Number Subscription Number
price of shares price of shares price of shares
Subscribed at
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of year ..... $4.68 - $9.24 29,981 $4.68 - $6.80 48,831 $4.68 - $6.80 22,867
Granted ................. 6.69 29,766 9.24 22,000 4.68 40,065
Exercised ............... 4.68 - 9.24 (16,305) 4.68 - 6.80 (38,850) 4.68 - 6.80 (10,929)
Cancelled ............... -- -- 4.68 (2,000) 4.68 - 6.80 (3,172)
==================================================================================================================
Subscribed at end of year 4.68 - 9.24 43,442 4.68 - 9.24 29,981 4.68 - 6.80 48,831
</TABLE>
In 1985, the Company's shareholders approved the Employees Stock Purchase
Plan pursuant to which 275,000 shares of the Company's common stock were
initially reserved for purchase by eligible employees. On April 17, 1990, the
Company's shareholders approved an extension of the Plan through December 31,
1994
The plan allows employees to purchase, through payroll deductions, shares
at 85% of the fair market value of the shares at the time of the offer or at the
time of the purchase, whichever is less.
The Company intends to submit a new plan for approval at the next annual
meeting of the shareholders, pursuant to which 200,000 shares of the Company's
common stock may be purchased by eligible employees on subtantially the same
terms as the prior plan.
8.Income taxes
Effective January 3, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes". As permitted under the new rules, prior years' financial statements have
not been restated.
The cumulative effect of adopting Statement No. 109 as of January 3, 1993
was an increase in net income by $50,000 which is included in other income.
Income tax expense consists of the following components:
1994 1993 1992
Liability Liability Deferred
Method Method Method
Current tax expense:
Federal ............................ $ 724,000 $ 887,000 $ 253,000
State .............................. 208,000 268,000 78,000
--------------------------------------------------------------------------------
932,000 1,155,000 331,000
--------------------------------------------------------------------------------
Deferred tax expense (benefit):
Federal ............................ (101,000) (55,000) 10,000
State .............................. (9,000) (3,000) 8,000
--------------------------------------------------------------------------------
(110,000) (58,000) 18,000
--------------------------------------------------------------------------------
Provision for income taxes ......... $ 822,000 $ 1,097,000 $ 349,000
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
8.Income taxes (continued)
Deferred income tax reflects 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.
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities at December 31, 1994 and January 1, 1994 are as
follows:
1994 1993
Current deferred tax assets:
Inventory reserves not currently deductible ..... $426,800 $355,327
Unrealized holding loss on securities ........... 142,000 --
Capitalized inventory costs ..................... 118,400 87,060
Warranty cost ................................... 43,000 43,375
Other ........................................... 44,631 40,298
=======================================================================
774,831 526,060
Long term deferred tax liabilities:
Book over tax basis in fixed and amortized assets 88,400 94,450
State taxes ..................................... 53,100 50,279
-----------------------------------------------------------------------
141,500 144,729
=======================================================================
Net deferred tax assets ......................... $633,331 $381,331
The change in net deferred tax assets during 1994 of $252,000 is comprised
of the deferred tax credit of $110,000 included in the provision for income tax
and the deferred tax benefit associated with the unrealized holding loss on
available-for-sale securities of $142,000 included in stockholders' equity.
Deferred tax expense for 1992 results from timing differences in the
recognition of revenue and expense for tax and financial statement purposes. The
sources of these differences and the tax effect of each were as follows:
1992
Excess of book over tax depreciation ......................... $ (14,215)
Inventory reserves not currently deductible for
tax purposes ............................................. 108,219
Capitalized inventory costs .................................. (28,195)
Tax deferral attributable to a former
Domestic International Sales Corporation .................. (4,667)
Accrued vacation ............................................. (900)
Unrealized foreign exchange gain ............................. (11,554)
Warranty cost ................................................ (28,194)
Other ........................................................ (2,494)
================================================================================
$ 18,000
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
8.Income taxes (continued)
The statutory federal income tax rate is reconciled to the effective tax
rate (obtained by dividing the tax provision by income before taxes) as follows:
<TABLE>
<CAPTION>
1994 1993 1992
Liability Deferred Deferred
Method Method Method
<S> <C> <C> <C>
Statutory rate ....................................... 34.0% 34.0% 34.0%
Effect of:
State income tax expense (net of federal deduction) 5.81 5.68 7.89
Municipal interest ................................ (2.72) (1.16) (4.40)
Amortization of intangible asset and
capital acquisition costs ......................... -- -- 9.04
Foreign subsidiary loss ........................... -- -- 3.90
Foreign Sales Corporation ......................... (1.33) (2.39) (2.35)
Other ............................................. .46 (.53) .47
Effective tax rate ................................... 36.22% 35.60% 48.55%
</TABLE>
9.Cash dividends
The Company's Board of Directors declared the following cash dividends in
1994, 1993 and 1992:
Date Record Dividend
declared date per share
1994 Feb 22 Mar 1 .10
Apr 28 Jun 1 .10
Jul 20 Sep 2 .10
Sep 9 Dec 2 .10
------------------------------------------------
1993 Feb 24 Mar 10 .075
Apr 29 Jun 2 .075
Jul 20 Sep 1 .075
Oct 13 Dec 2 .075
------------------------------------------------
1992 Feb 17 Mar 6 .075
Apr 30 Jun 1 .075
Sep 1 Sep 14 .075
Dec 1 Dec 9 .075
10.Nature of business
Management considers the Company to be in only one business segment: the
manufacture and sale of electronic devices offering extremely broad frequency
coverage and high performance characteristics. The Company sells primarily to
customers in the defense industry. Export sales amounted to approximately
$3,526,000 in 1994, $4,129,000 in 1993 and $3,250,000 in 1992.
Sales to any one foreign geographic area did not exceed 10% of net sales
for 1994, 1993 or 1992. In 1994, sales to Raytheon Company amounted to 10.0% of
net sales. In 1992, sales to General Electric Company amounted to 12.8% of net
sales.
Accounts receivable are financial instruments that expose the Company to a
concentration of credit risk. A substantial portion of the Company's accounts
receivable are from customers in the defense industry, and 28% of its
receivables at December 31, 1994 were from five customers. Exposure to credit
risk is limited by the large number of customers comprising the remainder of the
Company's customer base and their geographical dispersion and by ongoing
customer credit evaluations.
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
11.Acquisitions and loss from shutdown of subsidiary
In April 1992, the Company acquired all the outstanding capital stock of a
small Canadian company known as 785645 Ontario, Ltd., an electronic components
manufacturer, for $450,000 in cash. The acquisition was effective April 16,
1992, and was accounted for using the purchase method of accounting. The wholly
owned subsidiary operated under the name of Merrimac Industries (Ontario) Ltd.
during the remainder of 1992.The results of its operations are included in the
Company's consolidated statements of income from the effective date of
acquisition.The excess of cost over net assets acquired of approximately
$169,000 was recorded as goodwill.
The venture proved to be uneconomical since the technology the Company was
seeking was not fully developed and was not reproducible within the market's
cost and performance objectives.On January 11, 1993, the Company shutdown the
operation and transferred certain assets to the West Caldwell facility. The
balance ($332,086) of assets and goodwill were written-off and charged against
1992 earnings.
On July 1, 1993, the Company filed a $750,000 amended complaint against the
former principals of 785645 Ontario, Ltd., in the United States District Court
for the District of New Jersey, for misrepresentations made by them in
conjunction with the Stock Purchase Agreement between the parties. On or about
November 1, 1993, the former principals filed an action in Ontario Court against
the Company for breach of the same Stock Purchase Agreement, fraud, breach of
employment agreements, wrongful dismissal, breach of lease and damage to leased
premises. The former principals have demanded $(Canadian) 1,000,000 in
compensatory and punitive damages. The Company believes that the former
principals' action is without merit and has been initiated solely as a tactic to
forestall the Company's initial action. The Company intends to pursue its action
and vigorously contest the former principals' lawsuit. Management does not
believe that the outcome will have a material adverse effect on the Company's
consolidated financial position or results of operations.
In May 1992, the Company acquired the business and assets (including
certain technology) of a small New Jersey company known as Microwave Research
and Development, Inc. (MRD), an electronic components manufacturer, for
approximately $715,000 in cash plus a certain number of shares of the Company's
common stock, which had an approximate fair value of $249,000 at the date of
acquisition and are payable as described below.The acquisition was effective May
28, 1992 and was accounted for using the purchase method of accounting. MRD's
assets and personnel were transferred to the West Caldwell facility and were
fully integrated with the Company's operations. In 1994 all of MRD's remaining
personnel resigned. The results of MRD's operations are included in the
Company's consolidated statements of income from the effective date of the
acquisition.The intangible assets (technology) acquired, initially totalling
$828,260, are being amortized over a five-year period on a straight-line basis.
The Purchase Agreement further provides that shares or cash shall be issued
and delivered to the selling shareholders in three installments on the first
business day of January of each of 1993, 1994, and 1995, respectively.The first
such installment shall consist of that number of shares as shall be equal to
13,334 minus that number of shares the aggregate market value of which shall
equal $30,000.The second and third such installments shall consist of 13,333
shares each.If, with respect to any such installment, the market value of the
shares shall be equal to or less than $8 per share, the market value of said
shares shall be payable in cash in lieu of delivery of such shares.
In January 1993, $63,005 was paid in cash, based on an average market value
of $6.975 per share for the last five days of 1992. The average market value for
the last five days of 1993 was $11.10 per share. In January 1994 the Company
issued 13,333 shares to MRD.
Exhibit 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and january 2,1993
11.Acquisitions and loss from shutdown of subsidiary continued
The average market value of the shares for the last five days of 1994 was
$7.925 per share. Included in accrued liabilities at December 31, 1994 is
approximately $106,000 that may be payable in cash to MRD based on that average.
However, the Company did not make a payment onJanuary 1, 1995 since management
believes that the principals of MRD have breached certain agreements relating to
the purchase. No complaints had been filed by either party as of February 17,
1995. The intangible asset initially recorded in connection with the acquisition
of MRD in 1992 was increased by $109,998 in 1993 and decreased by $38,666 in
1994 based on the average market value of the shares for the last five days of
each year.
12.Quarterly financial information (unaudited)
Summarized quarterly financial data reported on a 12-12-16-12 week basis
for 1994 and 1993 are as follows:
Quarter ended
1994 March 26 June 18 October 8 December 31
Net sales ............ $3,061,241 $3,430,526 $3,948,675 $3,152,345
Gross profit ......... 1,584,971 1,725,467 1,889,263 1,899,488
Net income ........... 350,972 299,183 308,850 472,191
Net income per share . .19 .17 .18 .27
--------------------------------------------------------------------------
1993 March 27 June 19 October 9 January 1
Net sales ............ $2,787,800 $3,092,721 $5,105,288 $3,266,500
Gross profit ......... 1,266,809 1,549,536 2,751,819 2,006,998
Net income ........... 236,772 370,544 808,915 567,757
Net income per share . .14 .22 .46 .32
QUARTERLY COMMON STOCK DATA
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1993
Quarter Quarter
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Market price per share:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High ....... 12 3/4 10 7/8 12 9 3/8 7 3/8 8 1/4 12 5/8 13 3/4
Low ........ 10 1/2 9 1/8 8 1/4 7 5/8 6 6 7/8 7 1/4 10 3/8
</TABLE>
The Company's Common Stock is traded on the American Stock Exchange under
the symbol MRM.
The market price information is provided with regard to the high and low
bid prices of the Company's stock during the periods indicated.
Exhibit 13
<PAGE>
J. H COHN & COMPANY
75 EISENHOWER PARKWAY LAWRENCEVILLE,NJ
ROSELAND NJ 07068-1697 NEW YORK,NY
(201) 228-3500 ROSELAND, NJ
SAN DIEGO,CA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders Merrimac Industries, Inc.
We have audited the accompanying consolidated balance sheet of MERRIMAC
INDUSTRIES, INC as of December 31, 1994, and the related consolidated statements
of income, stockholder equity and cash flows for the year then ended included in
the 1994 Annual Report to Shareholders of Merrimac Industries, Inc. and
incorporated by reference in this Annual Report on Form l0-KSB. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. The 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 financil statement presentation.
We believe that our audit provides 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 Merrimac
Industries, Inc. as December 31, 1994, and its results of operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles.
As described in Note l to the consolidated financial statements, the
Company changed its method of valuinq investments in debt securities in 1994.
Our audit referred to above also included Schedule II as of and for the
year ended December 31, 1994, included elsewhere in this Annual Report on Form
l0-KSB, which presents fairly, when read in conjunction with the consolidated
financial statements, the information required to be set forth therein.
/s/ J.H. COHN & COMPANY
-----------------------
J. H. COHN & COMPANY
Roseland, New Jersey
February l7, l995
Exhibit 13
<PAGE>
ERNST&YOUNG LLP MetroPark
99 Wood Avenue South
P.O. Box 751
Iselin, New Jersey 08830-0471
Report of Independent Auditors
The Board of Directors and Shareholders Merrimac Industries, Inc.
We have audited the consolidated balance sheet of Merrimac Industries, Inc.
as of January 1, 1994 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the two years in the period
ended January 1, 1994 included in the 1994 Annual Report to Shareholders of
Merrimac Industries, Inc and incorporated by reference in this Form 10-KSB. Our
audits also included the financial statement schedule listed in the Index at
Item 13(a)2 for each of the two years in the period ended January 1, 1994. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to expres an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position of
Merrimac Industries, Inc., at January 1, 1994, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
January 1, 1994, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statemenl schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
MetroPark, New Jersey
February 21, 1994
Exhibit 13
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 2-86405) pertaining to the 1983 Key Employees' Stock
Option Plan and 1972 Key Employees' Stock Option Plan and (ii) the Registration
Statement (Form S-8 No. 2-9601 pertaining to the Employee Stock Purchase Plan
previously filed by Merrimac Industries Inc. of our report, dated February 17,
1995, appearing in this Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994 (the "Form 10-KSB"), with respect to the consolidated
financial statements and financial statement schedule of Merrimac Industries
Inc. and Subsidiaries as of December 31, 1994 and for the year then ended,
incorporated by reference and included in this Annual Report on Form 10-KSB.
/s/ J.H. COHN & COMPANY
-----------------------
J.H. Cohn & Company
Roseland, New Jersey
March 22, 1995
Exhibit 23(A)
Consent of Independent Auditors
We consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 2-86405) pertaining to the 1983 Key Employees' Stock
Option Plan and 1972 Key Employees' Stock Option Plan of Merrimac Industries,
Inc. and (ii) the Registration Statement (Form S-8 No. 2-96014) pertaining to
the Employee Stock Purchase Plan of Merrimac Industries, Inc. and in the related
Prospectuses of our report dated February 21, 1994 with respect to the
consolidated financial statements and schedule of Merrimac Industries, Inc .
incorporated by reference in this Annual Report (Form 10-KSB) for each of the
two years in the period ended January 1, 1994.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
MetroPark, New Jersey
March 20, 1995
Exhibit 23(B)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 789,152
<SECURITIES> 3,232,272
<RECEIVABLES> 2,051,653
<ALLOWANCES> 0
<INVENTORY> 3,647,830
<CURRENT-ASSETS> 10,682,683
<PP&E> 11,911,822
<DEPRECIATION> 8,477,332
<TOTAL-ASSETS> 14,705,444
<CURRENT-LIABILITIES> 1,551,481
<BONDS> 0
<COMMON> 1,260,598
0
0
<OTHER-SE> 11,751,865
<TOTAL-LIABILITY-AND-EQUITY> 14,705,444
<SALES> 13,592,787
<TOTAL-REVENUES> 13,592,787
<CGS> 6,493,598
<TOTAL-COSTS> 6,493,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,268,196
<INCOME-TAX> 837,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,431,196
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
