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 30, 1995
Commission file Number 0-11201
Merrimac Industries Inc.
(Name of small business issuer 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 Exchange Act: None
Title of each class Name of each Exchange on which registered
- ------------------- -----------------------------------------
Common stock American Stock Exchange
Securities registered pursuant to Section 12(9) of the Exchange Act:
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Exchange Act during the 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure 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. ( )
State registrant revenues for its most recent fiscal year were $14,396,633.
The aggregate market value of voting Stock held by non-affiliates based
upon the average price of such stock as quoted on AMEX for March 8, 1996 was
$13,499,420 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 8,1996 was 1,585,240 shares.
DOCUMENTS INCORPORATED BY REFERENCE
part I - Certain information contained in the Annual Report to Shareholders
& for Fiscal Year Ended December 30, 1995,
part II filed as Exhibit 13 herewith.
part III - Certain information contained in the Proxy Statement for April 25,
1996 Annual Meeting of Shareholders.
Exhibit index on page 10.
<PAGE>
PART I
Merrimac Industries, Inc., was incorporated in 1954 under the laws of the
State of New York. Merrimac Industries, Inc. was reincorporated in New Jersey
in 1994 and is hereinafter sometimes referred to as the "Company".
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company manufactures and sells approximately 1, 500 components and
subsystems used in signal processing systems (the extraction of usable
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
$20 to $10,000 and its subsystems range from $500 to $75,000 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 50% of 1995 revenues. Approximately 22% of 1995 revenues were
derived from initial orders for products custom designed for specific customer
applications, 45% from repeat orders for such products, and 33% 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 aerospace, defense systems, communications and
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) have resulted in a considerable reduction of the
set-up time to take measurements, calibrate test equipment and print out hard
copy 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 Development below.
<PAGE>
For a discussion of financial information about the Nature of business
foreign and domestic operations and export sales, reference is made to Note 10
to Consolidated Financial Statements in the Company's Annual Report to
Stockholders for Fiscal Year Ended December 30, 1995 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 single side band modulators, 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 38% of the Company's sales were derived from the sales of products
for use in high-reliability aerospace, satellite, and missile applications in
1995. These products are designed to withstand severe environments without
failure or maintenance over a prolonged time 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, missles, 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 1995 $4,229,000 (29.4% of sales), in fiscal 1994 $3,526,000 (25.9% of
sales) and in fiscal 1993 $4,129,000 (29% 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,
E-Systems, Southwest Research, Magnavox, Motorola and Rockwell International.
Sales to any one foreign geographic area did not exceed 10% of net sales for
1995, 1994 or 1993. In 1994 sales to Raytheon Company amounted to 10.9% of net
sales. No one company accounted for more than 10% of net sales in 1995 and 1993.
Research and Development
During fiscal 1995, 1994 and 1993, research and development expenditures
amounted to $275,000, $398,000 and $254,000, 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 and volume applications.
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 competative 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 continues to expand 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
30, 1995, the Company had a firm backlog of orders of approximately $5,656,000.
The Company estimates that approximately 90% of the orders in backlog as of
December 30, 1995 will be filled within one year. The Company does not consider
its business to be 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 all 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 custom 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. The Company anticipates it will commence assembly
operations in Costa Rica in the second half of 1996.
During 1995, 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, ISO 9001 certification is being implemented. The efforts so far have
increased production efficiency steadily from 1990 to 1995 and with the
prospective improvements this trend should continue through 1996 and beyond.
<PAGE>
It is the Company's 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 sufficent 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 any of its component or materials.
Employee Relations
As of December 30, 1995 the Company employed 130 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 50% (25% prior to 1995)
of the first 6% of such savings matched by the Company. In 1985, stockholders
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 compensation, 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
stockholders approved an amendment to the Plan - extending it for another five
years. In 1995 the Company's stockholders approved a new five year Plan with
substantially the same terms as the prior Plan.
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 intangible rights afford significant
protection from competitors or are material to its business.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
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 26,500 square-foot
addition was completed in July 1980, aggregating 52,000 square feet presently.
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. The Company is in the
process of negotiating a lease for a 3,000 square foot facility in Costa Rica.
The Company does not make any investments in real estate other than in
connection with its operations.
ITEM 3. LEGAL PROCEEDINGS
On July 1, 1993, the Company filed a $750,000 amended complaint against the
former principals of an acquired Canadian Business, 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. During 1995 the Company and former principles
settled at lawsuit filed in United States distric Court without compensation to
either party, however the litigation in Ontario is continuing and the Company
has filed a counter claim demanding $1,500,000 in compensation and punitive
damages. During 1995 the Company and former principles settled at lawsuit filed
in United States Distric Court without compensation to either party, however the
litigation in Ontario is continuing and the Company has filed a counter claim
demanding $1,500,000 in compensatory and punitive damages. The Company believes
that the former principals' action is without merit and intends to pursue its
action and vigorously contest the former principals' lawsuit.
The Company is a party to other lawsuits, both as a plaintiff and a
defendant, arising in the normal course of business. It is the opinion of
Management, after consultation with counsel, that the disposition of these
various lawsuits, including the lawsuit described above, will not individually
or in the aggregate materially adversely affect the consolidated financial
position or the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR 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 and still trades there.
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
30, 1995, 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 8, 1996.
Reference is made to Note 9 to the Consolidated Financial Statements in the
Company's Annual Report to Shareholders for fiscal Year Ended December 30, 1995,
which note is incorporated herein by reference for information with respect to
payment of cash dividend in 1995, 1994 and 1993.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
Reference is made to pages 8 and 9 of the Company's Annual Report to
Shareholders for fiscal year ended December 30, 1995, which pages are
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
Reference is made to pages 10 through 22 of the Company' Annual Report to
Shareholders for fiscal year ended December 30, 1995, which pages are
incorporated herein by reference with respect to the Company's Financial
Statements as of December 30, 1995 and December 31, 1994 and each of the years
in the three year periods ended December 30, 1995 and the reports of J.H. Cohn &
Company and Ernst & Young LLP included herein on pages 11 and 12 respectively
as follows:
Annual Report
to
Shareholders
Form-10KSB 1995
Consolidated Balance Sheets at December 30,
1995 and December 31, 1994 11
Fiscal years ended December 30, 1995
December 31, 1994 and January 1, 1994:
Consolidated Statements of Income 10
Consolidated Statements of Stockholders'
Equity 12
Consolidated Statements of Cash Flows 13
Notes to Consolidated Financial Statements 14-21
Reports of Independent Public Accountants 11-12
ITEM 8. CHANGES IN DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The decision to replace 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 such replacement, 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.
<PAGE>
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 22, 1996.
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 30, 1995. 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 66 Chairman
Eugene W. Niemiec 56 President, Chief Executive
Officer, Chief Operating
Officer, Treasurer and
Chief Financial Officer
John J. Antonich 62 Vice President,
Secretary/Controller
John Z. Blahosky 64 Executive Vice President
Brian R. Dornan 47 Group Vice President
Manufacturing
Anthony N. Ramsden 51 Vice President
Sales, Marketing and
International Sales
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 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; and Director, Vice President, Secretary and
Treasurer of Prodo-Pak Corp., a manufacturer of Packaging machinery, Garfield,
New Jersey. He has been a Managing Director of William D. Witter, Inc., an
investment banking organization in New York, New York since 1981 where he
specializes in leveraged buyouts.
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.
Mr. Antonich has been Vice President Secretary/Controller since prior to
1991.
Mr. Blahosky, has been executive Vice President since prior to 1991.
Mr. Dornan has been Group Vice President of Manufacturing upon joining the
Company in 1986.
Mr. Ramsden has been Vice President of Sales and Marketing upon joining the
Company in 1986.
Information relating to compliance with Section 16 of the Exchange Act is
incorporated herein by reference to page 7 of the proxy statement.
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 AND MANAGEMENT
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, AND REPORTS ON FORM 8-K
(a) 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 of
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. *
(c) 1995 Stock Purchase Plan of the Company is hereby
incorporated by reference to Exhibit A of the Proxy
Statement of the Company dated March 17,1995.
13 Annual Report to Shareholders for Fiscal Year
Ended December 30, 1995.
21 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 30,1995
(b) - Reports on Form 8-K
A report on Form 8-K dated October 11, 1995,
was filed with the Securities and Exchange
Commission re: Registrant's press release
regarding the purchase of 90,000 shares of
common stock from Victor P. Terranova, a former
Director of the Company, in a private transaction.
* Indicates that exhibit is a management contract or compensatory
plan or arrangement.
<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, 1996 By: /s/ Euqene W. Niemiec
---------------------------
(Eugene W. Niemiec, President,
Treasurer, Principal Executive
Officer, and Principal Financial
Officer)
Date: March 22, 1996 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 3-22-96 Director
-------------------------
(Charles F. Huber II)
/s/ Eugene W. Niemiec 3-22-96 Director
-------------------------
(Eugene W. Niemiec)
/s/ Arthur A. Oliner 3-22-96 Director
-------------------------
(Arthur A. Oliner)
/s/ John J. Antonich 3-22-96 Director
-------------------------
(John J. Antonich)
/s/ Mason N. Carter 3-22-96 Director
-------------------------
(Mason N. Carter)
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1995 compared to 1994
Results of operations reflect increases in: net sales of $804,000 or 5.9%;
operating income of $215,000 or 10.3%; net income of $221,000 or 15.4%; and net
income per share of $.14 or 17.3%.
The net sales increase was attributed to further expansion into foreign
markets through our network of 17 sales organizations. Foreign sales amounted to
$4,229,000 or 29.4% of 1995 net sales, an increase of $703,000 or 19.9% compared
to prior year's foreign net sales of $3,526,000. Domestic net sales amounted to
$10,168,000 an increase of $101,000 or 1.0% compared to prior year's domestic
net sales of $10,067,000. Management attributes these changes to the continued
decline of domestic defense activity and the rapid expansion of the space and
wireless communications markets in the far east. Orders increased $1,200,000 or
8.7% to $14,953,000 in 1995 and the backlog of firm unfilled orders increased
$545,000 or 10.7% to $5,656,000 at year-end.
Cost of sale increased $715,000 or 11.0% and as a percentage of net sales
increased 2.3%. The primary reasons for that increase were: a diversion of
production labor for the newly adopted Total Quality Management (TQM)
educational training as well as the ISO-9001 Quality Standards Program; The
manufacture of prototypes and shipments of products which are considered
developmental; and merit pay increases to the manufacturing and supervisory
staff, that became effective mid-year.
Selling, general and administrative expenses decreased $118,000 or 2.4% and
as a percentage of sales were 32.7%, a decrease of 2.8%. There were increases
in: sales commissions of $92,000 as net sales increased: in Professional fees
(legal) of $89,000 from defending our claims regarding a 1992 acqusition
disagreement: Contributions to the Company Savings and Investment Plan of
$54,000 resulting from the doubling of the matching contribution rate by the
Company; and the Profit Sharing Plan contribution increase of $36,000 or 14.3%
to $288,000. These increases were offset by decreases in advertising and
promotional expenses of $36,000 or 20.5%, proposal expenses of $180,000 or
27.2%, and development expenses of $123,000 or 31.0%, as personnel concentrated
their efforts on expediting shipments.
1994 compared to 1993
Results of operations reflect decreases in: net sales of $660,000 or 4.6%;
operating income of $829,000 or 28.4%; net income of $553,000 or 27.9%; and net
income per share of $.33 or 28.9%.
Considering the declining market in the defense industry, the Company held
its own, as sales for 1994 fell only 4.6% below the 1993 level. Orders were 9.3%
below 1993 levels due primarily to the loss of a major defense space program.
Management believes that quality and experience in making space qualified parts
were not factored into the award, and Merrimac has every expectation of
regaining some of this business if 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 orders. Foreign
shipments and orders 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.
The cost of sales as a percentage of sales for 1994 increased by only .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 was preparing to implement a Total Quality Management (TQM) program in
1995 in order to be better able to identify and eliminate waste in the Company's
operations, with a goal to improving the Company's Competitive position.
Selling, General and Administrative: The SG&A expenses as a percentage of
sales increased by 4.3% for 1994 when compared to 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.
<PAGE>
Liquidity and Capital Resources
The Company's financial condition remained strong throughout 1995. At the
end of 1995, the Company had liquid resources comprised of cash and investments
in available-for-sale securities, totaling approximately $4,600,000, compared to
4,000,000 at the end of 1994. The Company's working capital stood at $10,024,000
and its current ratio was 7.0 at the end of 1995 compared to $9,131,000 and 6.9%
respectively at the end of 1994.
The Company's operating activities generated cash flows of $2,193,000 in
1995 compared to $2,263,000 in 1994 and 2,885,000 in 1993. The Company made net
investments in property, plant and equipment of $447,000 in 1995 compared to
$1,103,000 in 1994 and $685,000 in 1993. During 1995, the Company made open
market purchases of 90,004 shares of its common stock at a cost of $1,035,000.
Purchases of common stock were $904,000 in 1994 and $101,000 in 1993. The
Company paid cash dividends quarterly at the annual rate of $.40 per share on
its common stock amounting to $676,000 in 1995 and $691,000 in 1994. In 1993,
the company paid cash dividends quarterly at the rate of $.30 per share on its
common stock amounting to $510,000. The Company intends to continue to pay cash
dividends quarterly in 1996 at no less than the 1995 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 and the full line is
available for future borrowing.
Management believes that with the liquid resources and the unused line of
credit available at the end of 1995, along with cash flows expected to be
generated by operations, the Company will have sufficient resources for
currently contemplated operations in 1996. The Company is in the process of
establishing a low cost manufacturing facility in Costa Rica, and anticipates it
will be operational in the second half of 1996. The Company is also 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 and business operations
expansion could be financed through the liquid and capital resources currently
available as previously discussed, and/or through additional borrowing or the
issuance of equity or debt securities.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales .......................................... $14,396,633 13,592,787 $14,252,309
Costs and expenses:
Cost of sales ............................. 7,208,152 6,493,598 6,677,147
Selling, general and administrative ....... 4,710,752 4,828,601 4,452,464
Amortization of intangible assets (Note 11) 169,180 176,735 199,486
-----------------------------------------
12,088,084 11,498,934 11,329,097
-----------------------------------------
Operating income ................................... 2,308,549 2,093,853 2,923,212
Net interest and other income ...................... 282,517 174,343 157,776
-----------------------------------------
Income before income taxes ......................... 2,591,066 2,268,196 3,080,988
Provision for income taxes (Note 8) ................ 939,000 837,000 1,097,000
-----------------------------------------
Net income ......................................... $ 1,652,066 $ 1,431,196 $ 1,983,988
=========================================
Net income per common share (Note 1) ............... $ .95 $ .81 $ 1.14
Weighted average number of shares outstanding ....... 1,736,675 1,765,375 1,743,789
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
1995 1994
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) ................................................ $ 2,295,186 789,152
Available-for-sale in securities (Note 2) ......................................... 2,297,705 3,232,272
Accounts receivable ............................................................... 2,373,181 2,051,653
Inventories (Note 1) .............................................................. 3,920,010 3,647,830
Prepaid expenses .................................................................. 112,215 82,817
Prepaid income taxes .............................................................. -- 104,083
Deferred tax assets (Note 8) ...................................................... 691,200 774,831
----------------------------
Total current assets ..................................................... 11,689,497 10,682,638
----------------------------
Property, plant and equipment, at cost (Note 3) ............................................ 12,085,514 11,911,822
Less accumulated depreciation and amortization .................................... 8,957,870 8,477,332
----------------------------
Net property, plant and equipment ................................................. 3,127,644 3,434,490
Intangible assets, less accumulated amortization of $574,152 and
$478,124 (Notes 1 and 11) ......................................................... 219,774 421,466
Other assets ............................................................................... 151,597 166,850
----------------------------
Total Assets $ 15,188,512 $ 14,705,444
============================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .................................................................. $ 386,303 $ 318,250
Accrued liabilities (Note 5 and 11) ............................................... 955,277 940,874
Income taxes payable .............................................................. 323,549 292,357
----------------------------
Total current liabilities ................................................ 1,665,129 1,551,481
Deferred tax liabilities (Note 8) .......................................................... 154,500 141,500
----------------------------
Total liabilities ........................................................ 1,819,629 1,692,981
Contingencies
Stockholders' equity (Notes 6, 7 and 9)
Common stock, par value $.50 per share;
5,000,000 shares authorized; 2,549,452 and 2,521,196 shares issued 1,274,726 1,260,598
Additional paid-in capital ........................................................ 8,723,124 8,537,460
Retained earnings ................................................................. 10,965,750 9,989,697
Unrealized holding gain(loss) on available-for-sale securities,
less deferred tax provision (benefit) ...................................... 1,900 (213,720)
-----------------------------
20,965,500 19,574,035
Less treasury stock, at cost - 920,739 and 730,535 shares ......................... 7,596,617 6,561,572
-----------------------------
Total stockholders' equity ............................................... 13,368,883 13,012,463
-----------------------------
Total Liabilities and Stockholders Equity $ 15,188,512 $ 14,705,444
=============================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
Unrealized
Additional holding
Common Stock paid-in gain Retained Treasury
Shares Amount capital (loss) earnings stock
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 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
Effect of change in fair value of
available-for-sale 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)
- -------------------------------------------------------------------------------------------------------------------------------
Net income 1,652,066
Exercise of options (Notes 6 and 7) 28,256 14,128 164,364
Tax benefit - stock options* 21,300
Effect of change in fair value of
available-for-sale securities (Note 2) 215,620
Cash dividends (Note 9) (676,013)
Purchase of common stock (1,035,045)
- -------------------------------------------------------------------------------------------------------------------------------
Balance December 30, 1995 2,549,452 $1,274,726 $8,723,124 $1,900 $10,965,750 $(7,596,617)
</TABLE>
*Tax benefit resulting from exercise and disposition of stock options.
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
1995 1994 1993
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ........................................................ $ 1,652,066 $ 1,431,196 $ 1,983,988
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................ 850,637 837,863 881,014
Deferred income taxes .................................... (46,621) (110,000) (107,597)
Changes in operating assets and liabilities
Accounts receivable .................................. (321,528) 116,994 153,026
Inventories .......................................... (272,180) (11,574) (365,787)
Prepaid income taxes ................................. 104,083 (20,908) 50,473
Prepaid expenses ..................................... (29,398) 27,055 31,959
Other assets ......................................... 15,253 (165,000) --
Accounts payable ..................................... 68,053 (28,129) (4,503)
Other liabilities .................................... 120,067 102,670 (88,871)
Income taxes payable ................................. 52,492 82,613 351,341
--------------------------------------------
Net cash provided by operating activities .................................. 2,192,924 2,262,780 2,885,043
--------------------------------------------
Cash flows from investing activities:
Purchase of capital assets ........................................ (450,977) (1,116,551) (747,827)
Proceeds from sales of capital assets ............................. 3,690 13,212 63,065
Proceeds from sales and maturities of available-for-sale securities 1,292,983 400,000
Purchase of investment securities ................................. (4,252,269)
Proceeds from sales of investment securities ...................... 1,821,321
--------------------------------------------
Net cash provided by (used) in investing activities ........................ 845,676 (703,339) (3,115,710)
--------------------------------------------
Cash flows from financing activities:
Repurchase of common stock ........................................ (1,035,045) (903,907) (101,096)
Proceeds from the issuance of common stock ........................ 178,492 250,450 440,657
Payments of dividends ............................................. (676,013) (690,939) (510,388)
--------------------------------------------
Net cash used in financing activities ...................................... (1,532,566) (1,344,396) (170,827)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents ....................... 1,506,034 215,045 (401,494)
Cash and cash equivalents at beginning of year ............................. 789,152 574,107 975,601
--------------------------------------------
Cash and cash equivalents at end of year ................................... $ 2,295,186 $ 789,152 $ 574,107
============================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Supplemental disclosures of cash flows information:
Cash paid during the year for:
Income taxes .................................................. $ 833,776 $ 885,295 $ 725,418
Supplemental disclosure of non-cash investing and
financing activity:
Unrealized holding gain (loss) on available-for-sale
securities, less deferred tax provision of $143,000
and tax benefit of $142,000 ......................................... $ 215,620 $ (213,720) $
Tax benefit related to employees' stock options ........................ 21,300 48,800 92,797
Increase (decrease) in intangible assets (Note 11) ..................... (105,664) (38,666) 109,998
Issuance of common stock (Note 11) ..................................... 151,662 71,250
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 30,1995, December 31, 1994 and January 1,1994
1.Summary of significant accounting policies
Principles of consolidation: The financial statements include the accounts
of the Company and Merrimac International, Inc. FSC, a wholly-owned foreign
sales corporation (FSC). All intercompany accounts have been eliminated in
consolidation.
Fair value of financial instruments: 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. Because of their liquidity and short-term maturities, the carrying
value of these financial instruments equals their fair value.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
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 financial instruments that are carried at fair market value based
on quoted market values. 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 were not 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.
Inventories: Inventories are valued at the lower of average cost or market
and consist of the following:
1995 1994
Finished goods ....................... $1,079,983 $1,223,559
Work in process ...................... 1,404,901 1,022,962
Raw materials and
purchased parts ...................... 1,435,126 1,401,309
$3,920,010 $3,647,830
Total inventories are net of valuation allowances for obsolescence of $1,138,514
in 1995 and $992,733 in 1994.
Depreciation: Depreciation is computed for financial 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
statement purposes:
Land improvements ..................................... 10 years
Building .............................................. 25 years
Machinery and equipment ............................... 3 - 10 years
Office equipment, furniture and fixtures............... 5 - 10 years
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
Assets under construction are not depreciated until the assets are placed
into service. Fully depreciated assets in use at December 30, 1995 and December
31, 1994 amounted to $6,016,000 and $5,834,000, respectively.
Intangible assets:Intangible assets represent excess cost over the fair
value of net assets of acquired businesses. The balance at December 30, 1995
represents primarily the amount allocated to the cost of purchasing unique
technology which could enable the Company to enter into new and emerging
markets. The costs are being amortized over the estimated five year life of the
technology using the straight-line method of amortization.
Advertising: The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations were $140,000 in 1995,
$176,000 in 1994, $123,000 in 1993.
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 on temporary 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 ($288,000
in 1995, $252,000 in 1994, $341,000 in 1993) is contributed to a trust fund.
Savings and Investment Plan: The Company's Savings and Investment Plan
(401(k) plan) permits eligible employees to save and invest up to 16% of their
regular compensation with the first 6% of such savings 50% (25% prior to 1995)
matched by the Company. The Company's contributions to the Plan were $105,000 in
1995, $51,000 in 1994 and $50,000 in 1993.
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 $275,000
in 1995, $398,000 in 1994 and $254,000 in 1993 were expensed as incurred.
Interest expense: Interest expense was not material in 1995, 1994 and 1993.
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 6 and 7).
Accounting period: The Company's fiscal year is the 52-53 week period
ending on the Saturday closest to December 31. References to 1995, 1994 and 1993
to the 52 weeks ended December 30, 1995, December 31, 1994 and January 1, 1994,
respectively. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 30, 1995, December 31, 1994 and January 1, 1993
2. Investments in Available-for-sale securities
The amortized cost of the Company's portfolio of available-for-sale
investments in marketable municipal debt securities at December 30, 1995 and
December 31, 1994 is reconciled to the fair market value, which was also the
carrying value, of the portfolio as follows:
1995 1994
----------- ----------
Amortized cost $2,294,548 $3,587,992
Gross unrealized gains 8,278 ---
Gross unrealized losses (5,121) (355,720)
----------- -----------
Fair market value $2,297,705 $3,232,272
The net unrealized gains of $3,157 in 1995 and net unrealized losses of
$355,720 in 1994 are included as a separate component of stockholders' equity,
net of deferred tax effects. Sales totaled $993,000 in 1995 and $100,000 in
1994. Realized gains and losses in 1995 and 1994 were not material?
The amortized cost and fair market value of the portfolio by contractual
maturities as of December 30, 1995 are as follows:
Date Due Amortized Estimated Fair
(years) Cost Market Value
- --------------------------------------------------------------------------------
After 1 through 5 .................... $ 199,918 $ 198,800
After 5 through 10 ................... 1,994,630 2,000,240
After 10 ............................. 100,000 98,665
================================================================================
$2,294,548 $2,297,705
3. Property, plant and equipment
Property Plant and Equipment consist of the following:
1995 1994
Land and land improvements ............... $ 547,446 $ 547,446
Building ................................. 2,245,928 2,226,956
Machinery and equipment .................. 5,654,608 5,586,960
Office equipment,
furniture and fixtures ................... 3,637,532 3,550,460
================================================================================
$12,085,514 $11,911,822
4.Line of credit
The Company has a $2,500,000 unsecured Bank line of credit agreement with
interest payable at the prime rate. There were no borrowings or amounts
outstanding under this line of credit agreement at either December 30, 1995 or
December 31, 1994, or January 1, 1994.
5.Accrued liabilities
Accrued liabilities consist of the following:
1995 1994
Commissions .......................... $ 143,833 $ 136,047
Vacation ............................. 152,403 109,888
Profit sharing ....................... 270,960 199,389
Payroll, employee compensation........ 212,373 238,466
Warranty reserve ..................... 100,000 100,000
Other ............................... 75,708 157,084
================================================================================
$ 955,277 $ 940,874
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 30,1995, December 31,1994 and January 1,1994
6.Stock options
A summary of stock option activity follows:
<TABLE>
<CAPTION>
1995 1994 1993
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>
Beginning of year ..... $4.45 $10.88 54,527 $4.45 - $10.88 73,645 $4.45 - $8.00 84,976
Granted ............... 9.00 97,000 9.75 4,500 7.13 - 10.88 30,000
Exercised ............. 4.45 6.48 (3,493) 4.45 - 8.00 (22,118) 4.45 - 8.00 (38,831)
Cancelled ............. 7.13 10.88 (7,350) 10.88 (1,500) 5.50 - 8.00 (2,500)
- ----------------------------------------------------------------------------------------------------------------------
At end of year ........ 5.50 - 10.88 140,684 4.45 - 10.88 54,527 4.45 - 10.88 73,645
- ----------------------------------------------------------------------------------------------------------------------
Exercisable at year end 49,684 54,527 49,645
</TABLE>
Under the 1983 Key Employees Stock Option Plan, 206,250 shares of the
Company's common stock were initially reserved for issuance. 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.
Although no additional options could be granted as of December 30, 1995, options
for a total of 18,034 shares remained outstanding and exercisable under the 1983
plan.
Under the 1993 Stock Option Plan 300,000 shares of the Company's common
stock were initially reserved for issuance. The 1993 plan provides for issuance
of qualified and non-qualified options. The qualified options may be issued
under the same terms as those under the 1983 Plan. The non-qualified options may
be granted to employees at an exercise price determined by the Stock Option
Committee of the Board of Directors which may not be less than par value. Such
options may become exercisable immediately after the grant and/or at any time
before the tenth anniversary of the grant. The non-qualified options may also be
granted to non-employee directors, provided the option price is at least equal
to the closing price on the date the option is granted. Such options may become
exercisable immediatly after the grant and/or at any time before the fifth
anniversary of the grant.
As of December 30, 1995 options for a total of 122,650 shares remained
outstanding under the 1993 Plan of which options for 31,650 shares were
exercisable and options for 177,350 were available for future grant.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 30,1995, December 31,1994 and January 1,1994
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of year ....... $4.68 - $6.80 43,442 $4.68 - $9.24 29,981 $4.68 - $6.80 48,831
Granted ................. 9.24 6.69 29,766 9.24 22,000
Exercised ............... 4.68 - 9.24 (24,763) 4.68 - 9.24 (16,305) 4.68 - 6.80 (38,850)
Cancelled ............... 9.25 (1,747) -- -- 4.68 (2,000)
==================================================================================================================
End of year 6.69 - 9.20 16,932 4.68 - 9.24 43,442 4.68 - 9.24 29,981
</TABLE>
In 1985, the Company's stockholders approved the Employees Stock Purchase
Plan pursuant to which 275,000 shares of the Company's common stock were
initially reserved for issuance to eligible employees. On April 17, 1990, the
Company's stockholders 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.
In 1995 the Company's stockholders approved a new Plan, pursuant to which
as of December 30, 1995 a total of 200,000 shares of the Company's common stock
could be purchased by eligible employees on substantially 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.
The provision for income taxes consists of the following components:
1995 1994 1993
Current tax:
Federal ............................ $ 767,000 $ 739,000 $ 887,000
State .............................. 219,000 208,000 268,000
- --------------------------------------------------------------------------------
986,000 947,000 1,155,000
- --------------------------------------------------------------------------------
Deferred tax benefit:
Federal ............................ (46,000) (101,000) (55,000)
State .............................. (1,000) (9,000) (3,000)
- --------------------------------------------------------------------------------
(47,000) (110,000) (58,000)
- --------------------------------------------------------------------------------
Provision for income taxes ......... $ 939,000 $ 837,000 $ 1,097,000
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 30,1995, December 31,1994 and January 1,1994
8.Income taxes (continued)
Temporary differences which gave rise to a significant portion of deferred
tax assets and liabilities at December 30, 1995 and December 31, 1994 are as
follows:
1995 1994
Current deferred tax assets:
Inventory valuation allowance.................... $489,600 $426,800
Unrealized holding loss on securities ........... 142,000
Capitalized inventory costs ..................... 107,400 118,400
Warranty cost ................................... 43,000 43,000
Other ........................................... 51,200 44,631
=======================================================================
691,200 74,831
Non-current deferred tax liabilities:
Depreciation and amortization ................... 101,000 88,400
State Income taxes .............................. 53,400 53,100
-----------------------------------------------------------------------
154,500 141,500
=======================================================================
Net deferred tax assets ......................... $536,700 $633,331
The change in net deferred tax assets during 1995 of $96,000 is comprised
of the deferred tax credit of $47,000 included in the provision for income tax
and the deferred tax provision associated with the unrealized holding gain on
available-for-sale securities of $143,000 included in stockholders' equity.
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 deferred tax benefit associated with the unrealized holding loss on
available-for-sale securities of $142,000 included in stockholders' equity.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 30,1995, December 31,1994 and January 1,1994
8.Income taxes (continued)
The statutory federal income tax rate is reconciled to the effective tax
rate (computed by dividing the provision for income taxes by income before
income taxes) as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory rate ....................................... 34.00% 34.00% 34.00%
Effect of:
State income tax expense net of federal deduction 5.55 6.49 5.68
Tax exempt interest ................................ (2.22) (2.72) (1.16)
Foreign Sales Corporation ......................... (1.59) (1.33) (2.39)
Other ............................................. .50 .46 (.47)
Effective tax rate ................................... 36.24% 36.90% 35.60%
</TABLE>
9.Cash dividends
The Company's Board of Directors declared the following cash dividends in
1995, 1994 and 1993:
Date Record Dividend
declared date per share
1995 Feb 22 Mar 1 .10
Apr 28 Jun 1 .10
Jul 20 Sep 2 .10
Sep 9 Dec 2 .10
------------------------------------------------
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
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 industries. Foreign sales amounted to approximately
$4,229,000 in 1995, $3,526,000 in 1994 and $4,129,000 in 1993.
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% 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 36% of its
receivables at December 30, 1995 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.
<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 May 1992, the Company acquired the business and assets of Microwave
Research and Development, Inc. (MRD), an electronic components manufacturer, for
approximately $715,000 in cash and an agreement to issue up to 40,000 shares of
the Company's common stock in installments on the first business day of January
1993, 1994 and 1995, or make certain cash payments instead of the issuance of
such shares. The number of shares to be issued and/or the amount of the cash to
be paid was contingent upon the market value of the Company's shares on
specified dates.
The acquisition was accounted for using the purchase method of accounting.
The Company initially recorded the excess of the cost of the acquisition over
the fair value of the net assets acquired of approximately $828,000 (including
$249,000 representing the approximate market value at the date of acquisition of
the 40,000 shares potentially issuable to the sellers) as an intangible asset
(technology), which it began amortizing over the five year period from the date
of the acquisition on a straight-line basis. As a result of changes in the
market value of the shares, the company made a cash payment of approximately
$63,000 and issued 13,333 shares to the sellers in January 1993 and January
1994, respectively, and had accrued a liability of approximately $106,000 as of
December 31, 1994 for the payment that was scheduled to be made in January 1995
pursuant to the original terms of the agreement. However, management of the
Company believed that the sellers had breached certain terms of the agreement
and the Company reached a settlement with the sellers during 1995 whereby it
will not be required to make the payment that would have been due in January
1995.
As a result of the changes in the market value of the shares and the
settlement, the carrying value of the intangible asset initially recorded was
reduced by approximately $106,000 in 1995 and $39,000 in 1994 and increased by
approximatly $110,000 in 1993, and charges for amortization of the intangible
asset totaled approximatly $96,000 in 1995, $177,000 in 1994 and $199,000 in
1993.
12. Contingencies
On July 1, 1993, the Company filed a $750,000 amended complaint against the
former principals of an acquired Canadian business, 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. During 1995 the Company and the former
principles settled a lawsuit filed in the United States district Court without
compensation to either party. However the litigation in Ontario is continuing
and the Company has filed a counter claim demanding $1,500,000 in compensatory
and punitive damages. The Company believes that the former principals' action is
without merit and intends to pursue its action and vigorously contest the former
principals' lawsuit.
The company is a party to other lawsuits, both as a plaintiff and a
defendant, arising in the normal course of business. It is the opinion of
Management, after consultation with counsel, that the disposition of these
various lawsuits, including the lawsuit described above, will not individually
or in the aggregate materially adversely affect the consolidated financial
position or the results of operations of the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,1994, January 1,1994 and January 2,1993
13. Quarterly financial information (unaudited)
Summarized quarterly financial data reported on a 12-12-16-12 week basis
for 1995 and 1994 are as follows:
Quarter ended
1995 March 25 June 17 October 7 December 30
Net sales ............ $3,452,193 $3,076,952 $4,355,200 $3,512,288
Gross profit ......... 1,811,073 1,427,368 2,054,914 1,895,126
Net income ........... 449,761 279,808 469,020 453,477
Net income per share . .26 .16 .26 .27
- --------------------------------------------------------------------------
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
14. New accounting pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived assets to be Disposed of," which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets which are
held and used or disposed of. Statement No. 121 will be effective for fiscal
years beginning after December 15, 1995. The Company does not anticipate that
the adoption of statement No. 121 will have a material adverse effect on the
Company's consolidated financial Statements.
During October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting for
stock-based compensation plans and requires additional disclosures for those
companies who elect not to adopt the new method of accounting. While the Company
studies the impact of the pronouncement, it continues to account for employee
purchase rights and stock options under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Statement No. 123 will be effective for fiscal years
beginning after December 15, 1995.
QUARTERLY COMMON STOCK DATA
<TABLE>
<CAPTION>
Fiscal 1995 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 ....... 9 3/8 9 13/16 12 3/8 12 1/4 12 3/4 10 7/8 12 9 3/8
Low ........ 7 7/8 8 1/2 9 5/8 7 5/8 10 1/2 9 1/8 8 1/4 7 5/8
</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.
<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 sheets of MERRIMAC
INDUSTRIES, INC. as of December 30, 1995 and December 31, 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended included in the 1995 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 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 financal statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Merrimac Industries, Inc. as of December 30, 1995 and December 31,
1994, and their results of operations and cash flows for the years 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 valuing investments in debt securities in 1994.
/s/ J.H. COHN & COMPANY
-----------------------
J. H. COHN & COMPANY
Roseland, New Jersey
February l7, l996
<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 statements of income, stockholders' equity
and cash flows of Merrimac Industries Inc. for the year ended January 1, 1994
included in the 1995 Annual Report to Shareholders of Merrimac Industries, Inc
and incorporated by reference in this Form 10-KSB. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audit 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, Merrimac Industries Inc. consolidated
results of operations and its cash flows for the year ended January 1, 1994, in
conformity with generally accepted accounting principles.
/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 on Form S-3 (No. 33-68862) pertaining to the 1993 Stock Option Plan,
(ii) the Registration Statement on Form S-8 (No. 2-86405) pertaining to the 1983
Key Employees' Stock Option Plan and (iii) the Registration Statement on Form
S-8 (No. 2-96014) pertaining to the Employee Stock Purchase Plan previously
filed by Merrimac Industries, Inc. of our report, dated February 17, 1996,
appearing in this Annual Report on Form 10-KSB for the fiscal year ended
December 30, 1995 (the "Form 10-KSB"), with respect to the consolidated
financial statements of Merrimac Industries, Inc. and Subsidiaries as of
December 30, 1995 and December 31, 1994 and for the years then ended,
incorporated by reference in this Annual Report on Form 10-KSB.
/s/ J.H. COHN & COMPANY
-----------------------
J.H. Cohn & Company
Roseland, New Jersey
March 20, 1996
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, 1996
Exhibit 23(B)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 2,295,186
<SECURITIES> 2,297,705
<RECEIVABLES> 2,373,181
<ALLOWANCES> 0
<INVENTORY> 3,920,010
<CURRENT-ASSETS> 11,689,497
<PP&E> 12,085,514
<DEPRECIATION> 8,957,870
<TOTAL-ASSETS> 15,188,512
<CURRENT-LIABILITIES> 1,665,129
<BONDS> 0
0
0
<COMMON> 1,274,726
<OTHER-SE> 12,094,157
<TOTAL-LIABILITY-AND-EQUITY> 15,188,512
<SALES> 14,396,633
<TOTAL-REVENUES> 14,396,633
<CGS> 7,208,152
<TOTAL-COSTS> 7,208,152
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,591,066
<INCOME-TAX> 939,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,652,066
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
