<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 September 27, 1997 Commission file No. 0-11201
------------------ -------
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 November 4, 1997
- ----------------------------- -------------------------------
Common Stock ($.50 par value) 1,550,640
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
---------------------------
(Unaudited)
Sept 27
1997
-----------
ASSETS
- ------
Current Assets:
Cash and cash equivalents ....................... $ 974,390
Available-for-sale securities ................... 1,336,014
Accounts receivable ............................. 3,426,988
Inventories:
Finished goods ................................ 787,654
Work in process ............................... 2,546,444
Parts and raw materials ....................... 955,909
-----------
Total inventories ........................... 4,290,007
Prepaid expenses ............................... 230,785
Deferred tax assets ............................ 945,338
-----------
Total current assets ........................ 11,203,522
Property, plant and equipment ..................... 13,643,943
Less accumulated depreciation ................... 9,865,592
-----------
Net property, plant and equipment ........... 3,778,351
Deferred income taxes ............................. 47,000
Other assets ...................................... 123,095
-----------
Total Assets ................................ $15,151,968
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
Current Liabilities:
Accounts payable ................................ $ 914,591
Accrued liabilities ............................. 1,440,561
Income taxes payable ............................ 263,827
-----------
Total current liabilities ................... 2,618,979
Other liabilities.................................. 355,629
-----------
Total liabilities ........................... 2,974,608
-----------
Stockholders' equity:
Common stock, par value $.50 per share:
Authorized: 5,000,000 shares
Issued: 2,638,498 shares ..................... 1,319,249
Additional paid-in capital ...................... 9,446,399
Retained earnings ............................... 10,598,534
Unrealized holding gain on available-for-sale
securities, less deferred tax effects .......... 40,243
-----------
21,404,425
Less treasury stock at cost:
Purchased: 1,074,839 shares ................... 9,227,065
-----------
Total stockholders' equity ................... 12,177,360
-----------
Total Liabilities and Stockholders' equity ... $15,151,968
===========
See accompanying notes to consolidated financial statements.
- 1 -
<PAGE>
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
Quarter Ended Year-to-Date
---------------------- ------------------------
Thirteen Weeks Thirty-nine Weeks
---------------------- ------------------------
Sept 27 Sept 28 Sept 27 Sept 28
1997 1996 1997 1996
---------- ---------- ----------- -----------
Net sales .................... $4,983,793 $2,997,905 $14,245,236 $10,110,778
---------- ---------- ----------- -----------
Cost and expenses:
Cost of sales .............. 2,734,619 1,990,562 7,710,809 5,787,835
Selling, general and
administrative ........... 1,708,432 1,329,790 4,994,483 3,783,056
Amortization of
intangible assets ......... - - - 77,568
Restructuring charge (A) ... - 1,526,709 - 1,526,709
---------- ---------- ----------- -----------
4,443,051 4,847,061 12,705,292 11,175,168
---------- ---------- ----------- -----------
Operating income (loss) ...... 540,742 (1,849,156) 1,539,944 (1,064,390)
Interest and other
income, net................. 23,273 5,899 70,917 80,385
---------- ---------- ----------- -----------
Income (loss) before
income taxes ............... 564,015 (1,843,257) 1,610,861 (984,005)
Provision (credit) for
income taxes ............... 214,000 (704,000) 605,000 (410,000)
---------- ---------- ----------- -----------
Net income (loss) (A) ........ $ 350,015 $(1,139,257) $ 1,005,861 $ (574,005)
========== ========== =========== ===========
Net income (loss) per
common share:
Primary (A) ................ $.21 $(.73) $.63 $(.36)
==== ===== ==== =====
Fully Diluted (A) .......... $.21 $(.73) $.60 $(.36)
==== ===== ==== =====
Cash dividend per share of
common share ............... $.10 $.10 $.30 $.30
==== ==== ==== =====
Weighted average number of
shares outstanding:
Primary .................... 1,643,135 1,559,906 1,607,162 1,591,802
Fully Diluted .............. 1,672,993 1,564,609 1,665,869 1,595,455
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
(A) The restructuring charge (adjusted from the amount originally reported in
the third quarter last year) net of related tax benefits was $916,000 or $.57
per share in 1996.
-2-
<PAGE>
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Thirty-nine Weeks Ended
-------------------------
Sept 27 Sept 28
1997 1996
---------- ----------
Cash flows from operating activities:
Net income (loss) .................................. $1,005,861 $ (574,005)
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 682,345 546,094
Loss on available-for-sale securities........... - 19,000
Write-off of intangible assets.................. - 244,500
Deferred compensation .......................... 106,530 223,000
Deferred income taxes........................... - (381,252)
Changes in operating assets and liabilities:
Accounts receivable........................... (1,576,446) 608,737
Inventories................................... (124,189) 24,829
Other current assets.......................... 41,025 (200,243)
Other assets.................................. (92,655) 59,746
Accounts payable.............................. 163,828 230,453
Accrued liabilities........................... 487,681 (79,820)
Income taxes payable.......................... 263,827 (323,549)
---------- ----------
Total adjustments........................... (48,054) 971,495
---------- ----------
Net cash provided by operating activities........... 957,807 397,490
---------- ----------
Cash flows from investing activities:
Purchase of capital assets....................... (1,121,213) (722,126)
Proceeds from sales of capital assets............ 2,257 980
Proceeds from sales of available-for-sale
securities..................................... - 2,272,071
Purchase of available-for-sale securities........ (138,442) -
----------- ----------
Net cash provided by (used in) investing activities (1,257,398) 1,550,925
----------- ----------
Cash flows from financing activities:
Repurchase of 143,600 shares of common stock...... - (1,520,830)
Proceeds from the issuance of 52,749 and 20,304
shares of common stock......................... 467,444 147,287
Payment of dividends............................. (459,044) (466,689)
----------- ----------
Net cash provided by (used) in financing activities 8,400 (1,840,232)
----------- ----------
Net increase (decrease) in cash and cash equivalents (291,191) 108,183
Cash and cash equivalents at beginning of year..... 1,265,581 2,295,186
----------- ----------
Cash and cash equivalents at end of period......... $ 974,390 $2,403,369
=========== ==========
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Income taxes................................... $ 395,000 $ 465,000
========== ==========
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 September 27, 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 September 27, 1997 is reconciled to the
fair market value, which was also the carrying value, of the portfolio
as follows:
Sept 27
1997
----------
Cost $1,295,771
Gross unrealized gains 40,243
Gross unrealized losses -
----------
Fair market value $1,336,014
==========
The net unrealized gains of $40,243 at September 27, 1997 are included as a
separate component of stockholders' equity, net of deferred tax effects.
E. Restructuring
The restructuring of engineering responsibilities and its attendant
re-focus of product lines impacted the valuation of inventories. A review of
inventories, certain intangibles arising from acquired product designs, a
non-compete agreement, and deferred compensation for a retiring senior officer
resulted in aggregate charges (adjusted from those amounts originally reported
in the third quarter last year) of $1,527,000, and charges net of related tax
benefits of $916,000 or $.57 per share, to operations in the third quarter of
1996.
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<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 Thirty-nine Weeks
---------------- ----------------
Sept 27 Sept 28 Sept 27 Sept 28
1997 1996 1997 1996
------- ------- ------- -------
Net sales......................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses:
Cost of sales................... 54.9 66.4 54.1 57.2
Selling, general and
administrative................ 34.3 44.4 35.1 37.4
Amortization of intangible
assets........................ - - - .8
Restructuring charge (A) ....... - 50.9 - 15.1
----- ----- ----- -----
89.2 161.7 89.2 110.5
----- ----- ----- -----
Operating income (loss) .......... 10.8 (61.7) 10.8 (10.5)
Interest and other income, net.... .5 .2 .5 .8
----- ----- ----- -----
Income (loss) before income taxes. 11.3 (61.5) 11.3 (9.7)
Provision (credit)
for income taxes................ 4.3 (23.5) 4.2 (4.1)
----- ----- ----- -----
Net income (loss) (A)............. 7.0% (38.0)% 7.1% (5.6)%
===== ===== ===== =====
(A) The effects on net income (loss) of the third quarter 1996
restructuring charge (adjusted from the amount originally reported in the third
quarter last year), net of related tax benefits, were 30.6% for the quarter and
9.0% year-to-date in 1996. Excluding the restructuring charge net of related tax
benefits, the 1996 quarter and year-to-date percentages would have been (7.4%)
and 3.4%, respectively.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Third quarter and nine months 1997 compared to 1996
Results of operations for the quarter reflect increases in: net sales of
$1,986,000 or 66.2%; operating income (before restructuring charge) of $863,000;
operating income (after restructuring charge) of $2,390,000; net income of
$1,489,000; and net income per share on a fully diluted basis of $.94 to $.21
per share. The restructuring charge (adjusted from the amount originally
reported in the third quarter last year), was $1,527,000 ($916,000 net of
related tax benefits or $.57 per share) in the third quarter 1996.
For the first nine months, results of operations reflect increases in: net
sales of $4,134,000 or 40.9%; operating income (before restructuring charge) of
$1,078,000; operating income (after restructuring charge) of $2,604,000; net
income of $1,580,000; and net income per share on a fully diluted basis of $.96
per share to $.60 per share. Nine-month net income per share on a primary basis
was $.03 more than net income per share on a fully diluted basis.
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.
Nine-month incoming orders received for comparable time periods increased
$4,700,000 or 41.7%. The backlog of firm unfilled orders increased $3,300,000 or
48.4% to $10,134,000 compared to the same time last year. Compared to year-end
1996, backlog is up $1,903,000 or 23.1% which reflects increased demand for
Company products.
As a result of the increases in the quarter and nine month net sales, cost
of sales increased $744,000 or 37.4% for the quarter and $1,923,000 or 33.2% for
nine months. Cost of sales as a percentage of net sales decreased 11. 5% to
54.9% for the quarter and 3.1% to 54.1% for nine months. The decrease in cost of
sales as a percentage of net sales for the quarter and nine 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 $379,000 or 28.5%
for the quarter and $1,211,000 or 32.0% for nine months, and as a percentage of
net sales decreased 10.1% to 34.3% for the quarter and decreased 2.4% to 35.1%
for nine months, as the fixed portion of such costs are being measured on a
percentage basis to the higher sales revenue. Increases in selling costs were
related to higher sales commissions due to increased sales revenues. General and
administrative expenses partially increased due to additional compensation
expenses 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
increased selling, general and administrative expenses. Research and development
expenses for new products were $162,000 for the quarter and $344,000 for the
first nine months of 1997 which increased $118,000 or 268.2% and $154,000 or
81.1%, respectively.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Third quarter and nine months 1997 compared to 1996 (continued)
Third quarter 1997 fully diluted net income per share was $.21 compared to
the third quarter net loss of $.73 per share after the restructuring charge in
the prior year. Net income of $350,000 for the third quarter of 1997 compares to
the net loss of $1,139,000 after the restructuring charge in 1996. For the first
nine months of 1997, fully diluted net income per share increased to $.60 per
share compared to the $.36 per share loss in the prior year. Net income for the
first nine months of 1997 was $1,006,000 compared to the net loss of $574,000
after the restructuring charge reported in 1996.
The fully diluted weighted average number of common shares outstanding for
the first nine months of 1997 increased by 71,000 compared to that of the prior
year. This increase was due mainly to the "in-the-money" value of Company issued
stock options, which resulted from higher Company stock prices during the
quarter, and contributed to the inclusion of an additional 108,000 common
equivalent shares produced from the assumed conversion of the stock options.
Common stock repurchases during 1996 partially offset this increase. The
increase in the number of weighted shares outstanding at the end of the third
quarter impacted nine-month primary net income per share of $.63 by $.03 per
share, causing nine-month fully diluted net income per share of $.60 to be
reported.
Liquidity and Capital Resources
The Company's financial condition remained strong throughout the first nine
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 $2,400,000 in 1996. The
Company's working capital stood at $8,600,000 and its current ratio was 4.3 at
the end of the third quarter compared to $8,000,000 and 6.3, respectively, in
1996.
The Company's operating activities generated cash flows of $958,000 in the
first nine months of 1997 compared to $397,000 in 1996. Primary reasons for the
increase in cash flows in 1997 are increases in net income plus depreciation and
current liabilities which offset increases in accounts receivable and
inventories. Company investments in property, plant and equipment were
$1,119,000 in the first nine months of 1997 compared to $721,000 in 1996.
Proceeds from the exercise of stock options were $467,000 for 52,700 shares of
common stock in 1997 compared to $147,000 for 20,300 shares in 1996. The Company
paid cash dividends of $459,000 in 1997 compared to $467,000 in 1996 at the
quarterly rate of $.10 per share.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
The Company issued a press release on August 28, 1997 regarding the Board
of Directors review of its strategy for growth and relationship to its cash
dividend policy. Their decision was to reinvest all future earnings in the
Company and thus eliminated the cash dividend. During the first nine months of
1996 the Company made open market purchases of 143,000 shares of its common
stock at a cost of $1,521,000. No shares have been repurchased in 1997.
The Company has recently entered into a $7,000,000 revolving credit and
term loan agreement with Summit Bank, at one-half percent below the bank's
floating prime rate. Up to $2,500,000 of borrowings may be used for capital
expenditures under the term loan, and the full line is available for future
borrowing needs for working capital and general corporate purposes.
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 of the Company's manufacturing
facility in Costa Rica, that became operational during the second half of 1996,
is currently underway with completion anticipated early next year. The Company's
capital expenditures for new projects and production equipment have exceeded 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.
From time-to-time the Company explores the possibility of acquiring similar
manufacturers of electronic devices, although it currently has no definitive
plans or agreements. Management believes that any such acquisitions and business
operation 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.
-8-
<PAGE>
PART II. OTHER INFORMATION
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
August 28, 1997 - Reporting the elimination of the cash dividend.
November 6, 1997 - Reporting the appointment of two new outside
members to its Board of Directors, and the
increase in the number of its Board seats to
seven.
-9-
<PAGE>
Exhibit (11)
MERRIMAC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(Unaudited)
Number of Weeks Ended
----------------------------
Thirteen Thirty-nine
----------- -----------
Sept 27 Sept 27
1997 1997
----------- -----------
Net income ............................ $ 350,015 $1,005,861
=========== ===========
PRIMARY EARNINGS PER SHARE
---------------------------
Average number of shares outstanding
Common stock........................ 1,539,989 1,527,455
Stock options (1)................... 103,146 79,707
--------- ---------
Shares outstanding as adjusted......... 1,643,135 1,607,162
========= =========
Net income per common share and common
equivalent share.................... $.21 $.63
==== ====
FULLY DILUTED EARNINGS PER SHARE
--------------------------------
Average number of shares outstanding
Common stock........................ 1,539,989 1,527,455
Stock options (1)................... 133,004 138,414
--------- ---------
Shares outstanding as adjusted......... 1,672,993 1,665,869
========= =========
Net income per common share assuming
full dilution....................... $.21 $.60
==== ====
(1) Represents additional shares resulting from assumed conversion of stock
options less shares purchased with the proceeds thereof.
-10-
<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: November 7, 1997 By /s/ Mason N. Carter
-------------------------------------
Mason N. Carter
Chairman, President and
Chief Executive Officer
Date: November 7, 1997 By /s/ Robert V. Condon
-------------------------------------
Robert V. Condon
Vice President, Finance, Treasurer,
Secretary and Chief Financial Officer
-11-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-3-1998
<PERIOD-END> Sep-27-1997
<CASH> 974,390
<SECURITIES> 1,336,014
<RECEIVABLES> 3,426,988
<ALLOWANCES> 0
<INVENTORY> 4,290,007
<CURRENT-ASSETS> 11,203,522
<PP&E> 13,643,943
<DEPRECIATION> 9,865,592
<TOTAL-ASSETS> 15,151,968
<CURRENT-LIABILITIES> 2,618,979
<BONDS> 0
0
0
<COMMON> 1,319,249
<OTHER-SE> 10,858,111
<TOTAL-LIABILITY-AND-EQUITY> 15,151,968
<SALES> 14,245,236
<TOTAL-REVENUES> 14,245,236
<CGS> 7,710,809
<TOTAL-COSTS> 7,710,809
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,610,861
<INCOME-TAX> 605,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,005,861
<EPS-PRIMARY> .63
<EPS-DILUTED> .60
</TABLE>
