<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter ended June 28, 1997 Commission file No. 0-11201
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MERRIMAC INDUSTRIES, INC.
- -----------------------------------------------------------------------------
(Exact name of the registrant as specified in its charter)
New Jersey 22-1642321
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 Fairfield Place
West Caldwell, New Jersey 07007-0986
- ------------------------------- ------------------------
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (973) 575-1300
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 1, 1997
- ----------------------------- ------------------------------
Common Stock ($.50 par value) 1,537,496
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
---------------------------
(Unaudited)
June 28
1997
-----------
ASSETS
- ------
Current Assets:
Cash and cash equivalents ....................... $ 1,078,166
Available-for-sale securities (D) ............... 1,302,635
Accounts receivable ............................. 2,644,391
Inventories:
Finished goods ................................ 1,000,360
Work in process ............................... 2,503,407
Parts and raw materials ....................... 971,421
-----------
Total inventories ........................... 4,475,188
Prepaid expenses ............................... 259,358
Deferred tax assets ............................ 953,449
-----------
Total current assets ........................ 10,713,187
Property, plant and equipment ..................... 13,462,774
Less accumulated depreciation ................... 9,643,221
-----------
Net property, plant and equipment ........... 3,819,553
Deferred income taxes ............................. 47,000
Other assets ...................................... 127,285
-----------
Total Assets ................................ $14,707,025
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
Current Liabilities:
Accounts payable ................................ $ 1,213,009
Accrued liabilities ............................. 1,289,103
Income taxes payable ............................ 189,827
-----------
Total current liabilities ................... 2,691,939
Other liabilities.................................. 312,391
-----------
Total liabilities ........................... 3,004,330
-----------
Stockholders' equity:
Common stock, par value $.50 per share:
Authorized: 5,000,000 shares
Issued: 2,609,560 shares ..................... 1,304,780
Additional paid-in capital ...................... 9,199,080
Retained earnings ............................... 10,397,855
Unrealized holding gain on available-for-sale
securities, less deferred tax effects (D) ...... 28,045
-----------
20,929,760
Less treasury stock at cost:
Purchased: 1,074,839 shares ................... 9,227,065
-----------
Total stockholders' equity ................... 11,702,695
-----------
Total Liabilities and Stockholders' equity ... $14,707,025
===========
See accompanying notes to consolidated financial statements.
- 1 -
<PAGE>
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
Quarter Ended Year-to-Date
---------------------- ----------------------
Thirteen Weeks Twenty-six Weeks
---------------------- ----------------------
June 28 June 29 June 28 June 29
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net sales ..................... $4,986,288 $3,925,528 $9,261,443 $7,112,873
---------- ---------- ---------- ----------
Cost and expenses:
Cost of sales ............... 2,601,083 2,197,024 4,976,190 3,874,841
Selling, general and
administrative ............ 1,797,045 1,284,927 3,286,051 2,453,266
---------- ---------- ---------- ----------
4,398,128 3,481,951 8,262,241 6,328,107
---------- ---------- ---------- ----------
Operating income .............. 588,160 443,577 999,202 784,766
Interest and other income, net. 20,940 34,372 47,644 74,486
---------- ---------- ---------- ----------
Income before income taxes .... 609,100 477,949 1,046,846 859,252
Provision for income taxes .... 231,000 165,000 391,000 294,000
---------- ---------- ---------- ----------
Net income .................... $ 378,100 $ 312,949 $ 655,846 $ 565,252
========== ========== ========== ==========
Net income per common share.... $.24 $.20 $.42 $.35
==== ==== ==== ====
Cash dividend per share of
common stock ................ $.10 $.10 $.20 $.20
==== ==== ==== ====
Weighted average number of
shares outstanding .......... 1,579,558 1,587,133 1,573,263 1,610,551
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Twenty-six Weeks Ended
-------------------------
June 28 June 29
1997 1996
---------- ----------
Cash flows from operating activities:
Net income ......................................... $ 655,846 $ 565,252
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 428,831 444,769
Deferred compensation .......................... 63,291
Changes in operating assets and liabilities:
Accounts receivable........................... (794,349) 82,184
Inventories................................... (309,370) (737,937)
Other current assets.......................... 12,452 (152,554)
Other assets.................................. (96,845) (17,197)
Accounts payable.............................. 462,246 174,923
Accrued liabilities........................... 336,223 (104,914)
Income taxes payable.......................... 189,827 (88,500)
---------- ----------
Total adjustments........................... 292,306 (399,226)
---------- ----------
Net cash provided by operating activities........... 948,152 166,026
---------- ----------
Cash flows from investing activities:
Purchase of capital assets....................... (911,756) (265,708)
Proceeds from sales of capital assets............ 750 415
Proceeds from sales of available-for-sale
securities..................................... - 1,005,068
Purchase of investment securities................ (125,371) -
----------- ----------
Net cash provided by (used in) investing activities (1,036,377) 739,775
----------- ----------
Cash flows from financing activities:
Repurchase of 96,700 shares of common stock...... - (1,020,815)
Proceeds from the issuance of 23,811 and 14,387
shares of common stock......................... 205,658 104,679
Payment of dividends............................. (304,848) (313,477)
----------- ----------
Net cash used in financing activities.............. (99,190) (1,229,613)
----------- ----------
Net decrease in cash and cash equivalents (187,415) (323,812)
Cash and cash equivalents at beginning of year..... 1,265,581 2,295,186
----------- ----------
Cash and cash equivalents at end of period......... $1,078,166 $1,971,374
=========== ==========
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Income taxes................................... $ 325,000 $ 382,500
=========== ==========
See accompanying notes to consolidated financial statements.
-3
<PAGE>
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and therefore,
do not include all information and footnote disclosures otherwise required
by Regulation S-B. The financial statements do, however, reflect all
adjustments which are, in the opinion of the management necessary for a
fair presentation of the financial position of the Company as of June 28,
1997 and its results of operations and cash flows for the periods
presented.
B. Net Income Per Common Share
Net income per common share is based upon the weighted average number of
common shares and common equivalent shares outstanding during the period.
Common equivalent shares arise from the dilutive effects of shares that may
be purchased under stock option and purchase plans.
C. Accounting Period
The Company's fiscal year is the 52-53 week period ending on the Saturday
closest to December 31. The Company has quarterly dates that correspond
with the Saturday closest to the last day of each calendar quarter and each
quarter consists of 13 weeks in a 52 week year. Every fifth year, the
additional week to make a 53 week year (fiscal 1997 is the next) is added
to the fourth quarter making such quarter consist of 14 weeks.
D. Investments in available-for-sale securities
The cost of the Company's portfolio of available-for-sale investments in
marketable equity securities at June 28, 1997 is reconciled to the fair
market value, which was also the carrying value, of the portfolio as
follows:
June 28
1997
----------
Cost $1,255,841
Gross unrealized gains 46,794
Gross unrealized gains -
----------
Fair market value $1,302,635
==========
The net unrealized gains of $46,794 at June 28, 1997 are included as a
separate component of stockholders' equity, net of deferred tax effects.
-4-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INCOME STATEMENT SUMMARY
------------------------
(Unaudited)
The following table displays line items in the Consolidated Statements of
Income as a percentage of net sales.
Percentage of Net Sales
------------------------------------
Quarter Ended Year-to-Date
---------------- ----------------
Thirteen Weeks Twenty-six Weeks
---------------- ----------------
June 28 June 29 June 28 June 29
1997 1996 1997 1996
------- ------- ------- -------
Net sales......................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses:
Cost of sales................... 52.2 56.0 53.7 54.5
Selling, general and
administrative.................. 36.0 32.7 35.5 34.4
----- ----- ----- -----
88.2 88.7 89.2 88.9
----- ----- ----- -----
Operating income.................. 11.8 11.3 10.8 11.1
Interest and other income, net.... .4 .9 .5 1.0
----- ----- ----- -----
Income before income taxes........ 12.2 12.2 11.3 12.1
Provision for income taxes........ 4.6 4.2 4.2 4.2
----- ----- ----- -----
Net income........................ 7.6% 8.0% 7.1% 7.9%
===== ===== ===== =====
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Second quarter and six months 1997 compared to 1996
Results of operations for the quarter reflect increases in: net sales of
$1,061,000 or 27.0%; operating income of $145,000 or 32.6%; net income of
$65,000 or 20.8%; and net income per share of $.04 or 20.0%. Six months results
of operations reflect increases in: net sales of $2,149,000 or 30.2%; operating
income of $214,000 or 27.3%; net income of $91,000 or 16.0%; and net income per
share of $.07 or 20%.
The increases in net sales were partially attributable to increased
shipments of orders from a higher order backlog, process improvement
initiatives, customer service focus and reduction of total-cycle-time to market.
Six months incoming orders received for comparable time periods increased
$2,600,000 or 32.4%. The backlog of firm unfilled orders increased $3,100,000 or
47.0% to $9,742,000 compared to the same time last year. Compared to year-end
1996, backlog is up $1,511,000 or 18.4% which reflects increased demand for
Company products.
As a result of the increases in the quarter and six month net sales, cost
of sales increased $404,000 or 18.4% for the quarter and $1,101,000 or 28.4% for
six months. Cost of sales as a percentage of net sales decreased 3.8% to 52.2%
for the quarter and .8% to 53.7% for six months. The decrease in cost of sales
as a percentage of net sales for the quarter and six months when compared to the
prior year is the result of volume related improved efficiencies in the
manufacturing cycle, a higher concentration of productive labor utilized in
completing customer orders and a reduction of non-productive labor associated
with training and instruction programs instituted during the prior year.
Selling, general and administrative expenses increased $512,000 or 39.9%
for the quarter and $833,000 or 34.0% for six months, and as a percentage of net
sales increased 3.3% to 36.0% for the quarter and increased 1.1% to 35.5% for
six months. Increases in selling costs were related to higher sales
commissions due to increased sales revenues. General and administrative
expenses partially increased due to compensation related to the hiring of
additional administrative personnel and higher compensation expenses resulting
from last year's mid-year merit increases to all employees. Certain transitional
costs associated with further restructuring also impacted selling, general and
administrative expenses.
Net income for the second quarter increased 20.8% to $378,000 compared to
$313,000 and net income per share was $.24 compared to $.20, an increase of 20%.
Net income for six months increased 16% to $656,000 compared to $565,000 and net
income per share increased 20% to $.42 compared to $.35. Net income for the six
months 1997 benefited by approximately $.01 per share resulting from the
reduction of the number of weighted average common shares outstanding by 38,000
shares primarily from common stock repurchases during 1996, partly offset by the
dilutive effect of stock options this year.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's financial condition remained strong throughout the first six
months of 1997. The Company had liquid resources comprised of cash, cash
equivalents and investments in available-for-sale securities, totaling
approximately $2,300,000 compared to approximately $3,200,000 in 1996. The
Company's working capital stood at $8,000,000 and its current ratio was 4.0 at
the end of the second quarter compared to $9,500,000 and 6.8, respectively, in
1996.
The Company's operating activities generated cash flows of $948,000 in the
first six months of 1997 compared to $166,000 in 1996. A primary reason for the
increase in cash flows in 1997 are the increases in net income plus depreciation
and current liabilities, which offset increases in accounts receivable and
inventories. The Company made net investments in property, plant and equipment
of $911,000 in the first six months of 1997 compared to $266,000 in 1996. The
Company paid cash dividends of $305,000 in 1997 compared to $313,000 in 1996 at
the quarterly rate of $.10 per share. During the first six months of 1996 the
Company made open market purchases of 96,700 shares of its common stock at a
cost of $1,021,000. No shares were purchased in 1997. The Company in the past
has returned a substantial portion of its net income to its stockholders.
Achievement of growth anticipated by the Company will inevitably require a
review of the dividend policy.
The Company has a $3,000,000 unsecured line of credit with the Bank of New
York, 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, along with cash flows expected to be generated from
operations, the Company will have sufficient resources for currently
contemplated operations in 1997. Expansion plans for the Company's manufacturing
facility in Costa Rica which became operational during the second half of 1996
are being contemplated for the current year. The Company's projected capital
expenditures for new projects and production equipment is anticipated to exceed
its depreciation and amortization expenses in 1997.
The Company was authorized on November 1, 1996 to purchase up to 100,000
shares of its common stock from time-to-time depending on market conditions, and
has purchased 4,100 shares to date under such authorization.
The Company is also exploring the possibility of acquiring similar
manufacturers of electronic devices, although it currently has no definitive
plans or agreements. 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 issuance of equity or debt securities.
-7-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Date of Meeting: May 12, 1997
Annual Stockholders Meeting
(b) Election of (5) Directors
Elected
---------------------------
Nominated: For Withheld
----------- ---------
Charles F. Huber II 1,068,196 104,259
Eugene W. Niemiec 1,070,054 102,401
Arthur A. Oliner 1,068,196 104,259
Mason N. Carter 1,072,142 100,313
Albert H. Cohen 1,067,966 104,489
For Against Abstain
--------- ------- --------
(c) Approve appointment of
independent auditors 1,160,804 6,553 5,098
Proposition was approved
(d) Approve the 1997 Long-
Term Incentive Plan 734,908 237,413 12,297
Proposition was approved
Item 6. Exhibits and Reports on Form 8-K
Exhibit No.
-----------
(11) - Statement re: Computation of Earnings per Share
(b) Reports Filed by the Registrant on Form 8-K
April 16, 1997 - Reporting the dismissal of the accounting firm
of J.H. Cohn LLP on April 11, 1997. J.H. Cohn
LLP was previously engaged as the principal
accountant to audit the registrant's financial
statements.
July 25, 1997 - Reporting the resignation of Charles F. Huber II.
July 29, 1997 - Reporting the second quarter earnings.
8
<PAGE>
Exhibit (11)
MERRIMAC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(Unaudited)
Number of Weeks Ended
----------------------------
Thirteen Twenty-six
----------- -----------
June 28 June 28
1997 1997
----------- -----------
Net income ............................ $ 378,100 $ 655,846
=========== ===========
PRIMARY EARNINGS PER SHARE
---------------------------
Average number of shares outstanding
Common stock........................ 1,529,035 1,521,188
Stock options (1)................... 27,183 29,430
--------- ---------
Shares outstanding as adjusted......... 1,556,218 1,550,618
========= =========
Net income per common share and common
equivalent share.................... $.24 $.42
==== ====
FULLY DILUTED EARNINGS PER SHARE
--------------------------------
Average number of shares outstanding
Common stock........................ 1,529,035 1,521,188
Stock options (1)................... 50,523 52,075
--------- ---------
Shares outstanding as adjusted......... 1,579,558 1,573,263
========= =========
Net income per common share assuming
full dilution....................... $.24 $.42
==== ====
(1) Represents additional shares resulting from assumed conversion of stock
options less shares purchased with the proceeds thereof.
-9-
<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, thereunto duly authorized.
MERRIMAC INDUSTRIES, INC.
-------------------------
(Registrant)
Date: August 5, 1997 By /s/ Mason N. Carter
--------------------------------------
Mason N. Carter
Chairman, President and
Chief Executive Officer
Date: August 5, 1997 By /s/ Robert V. Condon
--------------------------------------
Robert V. Condon
Vice President, Finance, Treasurer,
Secretary and Chief Financial Officer
-10-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-3-1998
<PERIOD-END> Jun-28-1997
<CASH> 1,078,166
<SECURITIES> 1,302,635
<RECEIVABLES> 2,644,391
<ALLOWANCES> 0
<INVENTORY> 4,475,188
<CURRENT-ASSETS> 10,713,187
<PP&E> 13,462,774
<DEPRECIATION> 9,643,221
<TOTAL-ASSETS> 14,707,025
<CURRENT-LIABILITIES> 2,691,939
<BONDS> 0
0
0
<COMMON> 1,304,780
<OTHER-SE> 10,397,915
<TOTAL-LIABILITY-AND-EQUITY> 14,707,025
<SALES> 9,261,443
<TOTAL-REVENUES> 9,261,443
<CGS> 4,976,190
<TOTAL-COSTS> 4,976,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,046,846
<INCOME-TAX> 391,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 655,846
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
