<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 the quarterly period ended October 2, 1999 Commission file No. 0-11201
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MERRIMAC INDUSTRIES, INC.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-1642321
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 Fairfield Place, West Caldwell, New Jersey 07006
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(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code (973) 575-1300
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock American Stock Exchange
Common Stock Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
----
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at November 8, 1999
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Common Stock ($.50 par value) 1,738,638
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
-----------
October 2, January 2,
1999 1999
----------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents ....................... $ 771,274 $ 1,852,666
Accounts receivable ............................. 4,097,520 3,755,131
Inventories ..................................... 3,612,307 3,101,256
Income tax refund receivable..................... 233,258 413,018
Other current assets ............................ 620,800 357,906
Deferred tax assets ............................. 900,600 899,600
----------- -----------
Total current assets ........................ 10,235,759 10,379,577
----------- -----------
Property, plant and equipment ..................... 20,522,295 16,539,251
Less accumulated depreciation ................... 13,054,181 10,322,958
----------- -----------
Net property, plant and equipment ............. 7,468,114 6,216,293
Other assets ...................................... 380,124 319,512
Goodwill .......................................... 2,902,535 -
----------- -----------
Total Assets ................................ $20,986,532 $16,915,382
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------
Current liabilities:
Current portion of long-term debt ............... $ 632,409 $ -
Accounts payable ................................ 1,719,059 1,479,284
Accrued liabilities ............................. 1,240,271 1,499,917
Income taxes payable............................. 249,660 -
----------- -----------
Total current liabilities ................... 3,841,399 2,979,201
Long-term debt, net of current portion ............ 3,372,427 -
Deferred compensation ............................. 233,117 459,322
Deferred tax liabilities .......................... 54,600 54,600
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Total liabilities ........................... 7,501,543 3,493,123
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Shareholders' equity:
Common stock, par value $.50 per share:
Authorized: 5,000,000 shares
Issued: 2,697,542 and 2,690,405 shares ....... 1,348,771 1,345,203
Additional paid-in capital ...................... 11,252,598 11,220,873
Retained earnings ............................... 9,354,648 8,950,055
Translation adjustments ......................... (31,733) -
----------- -----------
21,924,284 21,516,131
Less treasury stock, at cost:
958,904 and 902,549 shares .................... (8,079,295) (7,733,872)
Less loan to officer-shareholder ................ (360,000) (360,000)
----------- -----------
Total shareholders' equity ................... 13,484,989 13,422,259
----------- -----------
Total Liabilities and Shareholders' Equity ... $20,986,532 $16,915,382
=========== ===========
See accompanying notes to consolidated financial statements.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------- -------------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
----------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales ................................... $5,328,250 $5,120,946 $15,192,026 $16,487,212
---------- ---------- ----------- -----------
Costs and expenses:
Cost of sales ............................. 2,694,482 2,851,976 7,847,373 9,101,555
Selling, general and administrative ....... 1,821,110 1,674,779 5,053,253 5,032,992
Research and development .................. 577,410 282,264 1,523,728 745,665
---------- ---------- ----------- -----------
5,093,002 4,809,019 14,424,354 14,880,212
---------- ---------- ----------- -----------
Operating income ............................ 235,248 311,927 767,672 1,607,000
Interest and other expense (income), net .... 65,540 (36,876) 145,079 (66,191)
---------- ---------- ----------- -----------
Income before income taxes .................. 169,708 348,803 622,593 1,673,191
Provision for income taxes .................. 60,000 101,000 218,000 589,000
---------- ---------- ----------- -----------
Net income .................................. $ 109,708 $ 247,803 $ 404,593 $ 1,084,191
========== ========== =========== ===========
Net income per common share:
Basic...................................... $.06 $.14 $.23 $.62
Diluted.................................... $.06 $.14 $.23 $.59
==== ==== ==== ====
Weighted average number of
shares outstanding:
Basic...................................... 1,741,327 1,782,675 1,749,739 1,758,769
Diluted.................................... 1,771,825 1,805,997 1,776,321 1,831,076
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
-----------
Nine Months Ended
-------------------------
October 2, October 3,
1999 1998
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Cash flows from operating activities:
Net income ........................................ $ 404,593 $1,084,191
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 1,164,823 702,704
Amortization of goodwill ...................... 90,914 -
Deferred compensation ......................... 12,261 174,977
Stock-based compensation expense .............. - 87,400
Changes in operating assets and liabilities:
Accounts and income taxes receivable......... 631,964 (1,665,013)
Inventories.................................. (306,973) 1,166,828
Other current assets......................... (247,757) (250,454)
Deferred tax assets.......................... (1,000) 34,300
Other assets................................. (23,594) 22,745
Accounts payable............................. 57,421 (18,598)
Accrued liabilities.......................... (334,758) (69,836)
Income taxes payable......................... 234,546 199,155
Deferred compensation........................ (238,468) (39,047)
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Net cash provided by operating activities............ 1,443,972 1,429,352
---------- ----------
Cash flows from investing activities:
Purchase of capital assets......................... (1,716,694) (2,012,535)
Proceeds from sales of capital assets.............. - 12,775
Acquisition of business, net of cash acquired ..... (4,052,354) -
---------- ----------
Net cash used in investing activities................ (5,769,048) (1,999,760)
---------- ----------
Cash flows from financing activities:
Borrowings under term loan facilities ............. 2,500,000 -
Borrowings under revolving credit facilities ...... 2,500,000 -
Repayment of borrowings under credit and
lease facilities ................................ (1,446,290) -
Proceeds from the issuance of common stock......... 35,397 341,891
Payment of dividends............................... - (1,009)
Repurchase of common stock for the treasury ....... (345,423) -
---------- ----------
Net cash provided by financing activities ........... 3,243,684 340,882
---------- ----------
Net decrease in cash and cash equivalents............ (1,081,392) (229,526)
Cash and cash equivalents at beginning of year....... 1,852,666 2,414,725
---------- ----------
Cash and cash equivalents at end of period........... $ 771,274 $2,185,199
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes..................................... $ 139,000 $ 390,000
========== ==========
Interest expense................................. $ 220,224 $ 6,056
========== ==========
See accompanying notes to consolidated financial statements.
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<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 management, necessary for a fair presentation of
the financial position of the Company as of October 2, 1999 and its results of
operations and cash flows for the periods presented.
B. Inventories
Inventories consist of the following:
October 2, January 2,
1999 1999
---------- ----------
Finished goods ...................... $ 630,723 $ 607,738
Work in process ..................... 1,737,896 1,597,215
Raw materials and purchased parts ... 1,243,688 896,303
---------- ----------
Total $3,612,307 $3,101,256
========== ==========
C. Net income per common share
Effective January 3, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which
establishes the new standard for computation and presentation of net income per
common share. Under the new requirements both basic and diluted net income per
common share are presented.
Basic net income per common share is calculated by dividing net income,
less dividends on preferred stock, if any, by the weighted average common shares
outstanding during the period.
The calculation of diluted net income per common share is similar to that
of basic net income per common share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares, principally those
issuable under stock options, were issued during the reporting period.
D. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 defines comprehensive income, which includes items in addition
to those reported in the statement of operations, and requires disclosures about
the components of comprehensive income. Comprehensive income includes all
changes in shareholders' equity during a period except those resulting from
investments by or distributions to shareholders. For the Company,
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<PAGE>
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
comprehensive income for all periods presented consists solely of net
income and foreign currency translation adjustments pursuant to Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation," as
follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
-------------------- ----------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Net income ................................ $109,708 $247,803 $404,593 $1,084,191
Foreign currency translation adjustments .. 37,464 (26,528) (31,733) (9,207)
-------- -------- -------- ----------
Total comprehensive income $147,172 $221,275 $372,860 $1,074,984
======== ======== ======== ==========
</TABLE>
E. 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 year 1997 was the latest and fiscal year 2002 will
be the next) is added to the fourth quarter, making such quarter consist of 14
weeks.
F. Transactions with management and loan to officer-shareholder
On May 4, 1998, the Company sold 20,000 (22,000 after giving effect to the
Company's 10% stock dividend on June 5, 1998) shares of Common Stock from its
treasury to Mason N. Carter, Chairman, President and Chief Executive Officer of
the Company, at a price of $12.75 per share (the approximate average closing
price of the Company's Common Stock during the first quarter of 1998). The
Company extended Mr. Carter a loan of $255,000 in connection with the purchase
of these shares and amended a prior loan to Mr. Carter of $105,000. A new
promissory note for a total of $360,000, due May 4, 2003, with interest payments
due quarterly (except as provided below), calculated at a variable interest rate
based on the prime rate of the Company's lending bank, was executed by Mr.
Carter in favor of the Company. Payment of interest accrued from November 1998
until November 1999, however, will be deferred until the end of the term of the
new promissory note. Payment of the loan is secured by the pledge of the 33,000
shares
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<PAGE>
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of Common Stock that were purchased by Mr.Carter with the proceeds of the loans
loans. The Company recorded compensation expense of $52,000, which was charged
to operations over the one-year period commencing on the date of the
transaction, as Mr. Carter performed services throughout this time period. The
sale of these shares of Common Stock was exempt from registration under the
Securities Act of 1933, as amended, as a transaction not involving a public
offering under Section 4 (2) of the Act.
G. Acquisition of Filtran Microcircuits Inc.
In February 1999, the Company completed the acquisition of all of the
outstanding stock of privately held Filtran Microcircuits Inc. ("FMI") of
Ottawa, Ontario, Canada. FMI, which had 1998 sales of approximately $3.2
million, is a manufacturer of microwave micro circuitry. The purchase price was
approximately $4.5 million, net of $203,000 cash acquired and including the
assumption of $451,000 existing indebtedness, and was financed by utilizing an
existing unused credit facility. The acquisition is being accounted for as a
purchase, and, accordingly, the purchase price has been allocated to the
underlying assets and liabilities based on their estimated fair values at the
date of the acquisition, with the excess cost of approximately $3.0 million
recorded as goodwill which is being amortized over 20 years.
The unaudited pro forma combined results for the comparative periods
presented for 1999 and 1998, as if FMI had been acquired at the beginning of
1998, are estimated to be as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------- ------------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales..................... $5,328,000 $6,284,000 $15,822,000 $19,019,000
Net income.................... 110,000 160,000 364,000 840,000
Diluted net income per share.. $.06 $.09 $.20 $.46
</TABLE>
The proforma results are based on various assumptions and are not
necessarily indicative of what would have actually occurred had the acquisition
and related financing transactions been completed at the beginning of last year,
nor are they necessarily indicative of future consolidated results.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H. Debt
Long-term debt consists of the following:
Revolving credit facility, interest 1/2% below prime........ $1,500,000
Term loan, interest 1/2% below prime, due 2004.............. 2,125,000
Equipment loans, interest prime plus 1%, due July 1999
to May 2001................................................. 74,184
Capital leases, interest 6.9%, due November 2003............ 305,652
----------
4,004,836
Less current portion........................................ 632,409
----------
Long-term portion........................................... $3,372,427
==========
The term loan is secured by $2,500,000 of recently acquired tangible
personal property and the equipment loans are covered by a general security
agreement. The revolving credit facility is unsecured. Capital leases included
in property, plant and equipment have a depreciated cost of approximately
$200,000.
I. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133 ("Accounting for Derivative Instruments and Hedging
Activities"). This statement establishes accounting and reporting standards
requiring that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recorded on the balance sheet as an
asset or liability and measured at its fair value. This statement is effective
for fiscal years beginning after June 15, 2000 but can be adopted earlier.
Management has not yet determined the timing of or method to be used in adopting
this statement. Management does not believe at this time that such adoption
would have a material impact on the Company's consolidated financial statements.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT OF OPERATIONS SUMMARY
-------------------------------
(Unaudited)
-----------
The following table displays line items in the Consolidated Statements of
Operations as a percentage of net sales.
<TABLE>
<CAPTION>
Percentage of Net Sales
---------------------------------------------
Third Quarter Year-to-date
---------------------------------------------
Quarter Ended Nine Months Ended
--------------------- ----------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0%
------ ------ ----- ------
Costs and expenses:
Cost of sales.............................. 50.6 55.7 51.7 55.2
Selling, general and administrative........ 34.2 32.7 33.2 30.5
Research and development................... 10.8 5.5 10.0 4.5
------ ------ ----- ------
95.6 93.9 94.9 90.2
------ ------ ----- ------
Operating income............................. 4.4 6.1 5.1 9.8
Interest and other expense (income), net..... 1.2 (0.7) 1.0 (0.4)
------ ------ ----- ------
Income before income taxes................... 3.2 6.8 4.1 10.2
Provision for income taxes................... 1.1 2.0 1.4 3.6
------ ------ ----- ------
Net income................................... 2.1% 4.8% 2.7% 6.6%
====== ====== ===== ======
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Quarter and nine months ended October 2, 1999 compared to the quarter and
nine months ended October 3, 1998
Results of operations for the quarter reflects an increase in net sales of
$207,000 or 4.0%, and decreases in: operating income of $77,000 or 24.6%; net
income of $138,000 or 55.7%; and diluted net income per share of $.08 or 57.1%.
Nine months results of operations reflect decreases in: net sales of $1,295,000
or 7.9%; operating income of $839,000 or 52.2%; net income of $680,000 or 62.7%;
and diluted net income per share of $.36 or 61.0%.
The net sales decrease was primarily attributable to shipments against a
smaller firm order backlog that existed as of the beginning of the current
fiscal year, with the order release dates that coincided with production and
shipment schedules, partially offset by net sales of recently acquired Filtran
Microcircuits Inc. ("FMI").
Orders received for the third quarter of 1999 of $4,446,000 increased
$847,000 or 23.5% compared to orders received for the third quarter of 1998, and
the backlog of firm unfilled orders at October 2, 1999 increased $1,552,000 or
24.2% to $7,975,000 for the same end of quarter comparisons, including $645,000
of backlog at recently acquired FMI. Orders received for the first nine months
of 1999 were $16,999,000 and for the comparable nine-month period in 1998
increased $3,840,000 or 29.2%. Compared to year-end 1998, backlog increased
$1,807,000 or 29.3%, including $645,000 of backlog at recently acquired FMI. An
extended delay of or reduction in new orders for Company products could have a
material financial impact on future sales and earnings. Customer requests for
design work have increased and are currently under development utilizing the
Company's proprietary Multi-Mix(TM) Microtechnology. This technology, which
provides greater per unit content, enables the Company to enter into new
markets.
Cost of sales decreased $157,000 or 5.5% for the quarter and $1,254,000 or
13.8% for nine months. Cost of sales as a percentage of net sales decreased 5.1%
to 50.6% for the quarter and 3.5% to 51.7% for nine months. Notwithstanding
higher quarterly sales, the decrease in cost of sales for the third quarter was
achieved from manufacturing efficiencies, reduction in labor expense, and a
favorable sales product mix. For the first nine months, these decreases were
primarily attributable to the effects of the decrease in sales revenue on cost
of sales and a reduction in direct labor and manufacturing overhead costs partly
related to efficiency improvements resulting from last year's fourth quarter
restructuring. Depreciation expense increased $129,000 for the third quarter and
$389,000 for the first nine months as a result of higher capital equipment
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
purchases in the current and prior years and due to the acquisition of FMI.
Selling, general and administrative expenses increased $146,000 or 8.7% for
the quarter and $20,000 for nine months, and when expressed as a percentage of
net sales increased 1.5% to 34.2% for the quarter and 2.8% to 33.2% for nine
months. Increases in selling expenses during the third quarter were related to
higher selling and marketing expenses in connection with the Company's new
Multi-Mix(TM) product line, and the inclusion of expenses from recently acquired
FMI. For the first nine months, selling, general and administrative expenses
increased slightly, as a result of the additional expenses incurred in the third
quarter as described above, and were partially offset by a reduction in
compensation costs related to last year's restructuring. Also, the increases
arose from higher depreciation and amortization expenses of $61,000 for the
third quarter and $160,000 for the first nine months, which included the
amortization of goodwill attributable to the acquisition of FMI.
Research and development expenses for new products, primarily the recently
introduced Multi-Mix(TM) Microtechnology were $577,000 for the third quarter and
$1,524,000 for the nine months, increases of $295,000 or 105% and $778,000 or
104% compared to $282,000 and $746,000 for the prior year.
Interest expense, net was $66,000 for the third quarter and $145,000 for
the first nine months of 1999 and was incurred on borrowings of $2,500,000 for
capital expenditures under the term loan facility, and borrowings under its
revolving credit facility in connection with the acquisition of FMI during the
first quarter of 1999, partially offset by interest income. During 1998, the
Company earned interest income on its invested cash balances of $37,000 and
$66,000 for the corresponding quarter and nine-month periods, respectively.
Net income of $110,000 for the third quarter was $138,000 lower than net
income of $248,000 reported for the third quarter of 1998, a decrease of 55.7%.
Diluted net income per share was $.06, a decrease of 57.1% compared to diluted
net income per share of $.14 reported for the third quarter of last year. Net
income decreased $680,000 or 62.7% to $405,000 for the first nine months of 1999
compared to $1,084,000 reported in 1998. Diluted net income per share was $.23
on a 3.0% decrease in the number of weighted average diluted common shares
outstanding, compared to the diluted net income per share amount of $.59
reported for the first nine months of the prior year.
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company had liquid resources comprised of cash and cash equivalents
totaling approximately $800,000 at the end of the third quarter of 1999 compared
to approximately $2,200,000 at the end of the third quarter of 1998. The
Company's working capital was approximately $6,400,000 and its current ratio was
2.7 at the end of the third quarter of 1999 compared to $9,000,000 and 4.6,
respectively, at the end of the third quarter of 1998.
The Company's operating activities provided cash flows of $1,444,000 in the
first nine months of 1999 compared to $1,429,000 in the first nine months of
1998. The primary reasons for the increase in operating cash flows in the first
nine months of 1999 are a decrease in accounts receivable as a result of lower
net sales and higher depreciation and amortization charges partially offset by
decreases in net income and payments made on accounts payable, accrued
liabilities and deferred compensation. The Company made net investments in
property, plant and equipment of $1,717,000 in the first nine months of 1999
compared to $2,000,000 in the first nine months of 1998. These capital
expenditures are related to new production and test equipment capabilities in
connection with the introduction of new products and enhancements to existing
products.
The cost to the Company for its acquisition of FMI, net of $203,000 in
acquired cash and excluding the assumption of $451,000 in debt, was $4,052,000,
which was financed by borrowings under a previously unused credit facility.
The Company has a $7,000,000 revolving credit and term loan agreement with
Summit Bank with an interest rate at one-half percent below the bank's floating
prime rate. The Company borrowed $2,500,000 for capital expenditures under the
term loan facility and $2,000,000 under its revolving credit facility in
connection with the acquisition of FMI during the first quarter of 1999. The
Company has repaid $500,000 in the aggregate on the revolving credit facility.
The unused portion of the revolving credit facility of $3,000,000 is available
for working capital and general corporate purposes.
Management believes that with the liquid resources and the remaining line
of credit available, along with cash flows expected to be provided by
operations, the Company will have sufficient resources for currently
contemplated operations in 1999.
The Company's capital expenditures for new projects and production
equipment are anticipated to exceed its depreciation and amortization expenses
in 1999.
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company has issued purchase order commitments to processing equipment
manufacturing vendors for approximately $400,000 of capital equipment and
building improvements. The Company anticipates that during 1999 such equipment
will be purchased and become operational and building improvements will be
completed.
The Company has been authorized by its Board of Directors to repurchase up
to 110,000 shares (adjusted for the 10% stock dividend on June 5, 1998) of its
common stock, from time to time, depending on market conditions, and has
repurchased approximately 68,000 shares of common stock to date. During 1999,
the Company repurchased 56,000 shares of common stock at a cost of $346,000. The
Company repurchased 8,000 shares of common stock during 1998, no shares during
1997, and 4,000 shares in 1996.
Periodically, the Company explores the possibility of acquiring similar
manufacturers of electronic devices or companies in related fields. Management
believes that any such acquisitions and business operation expansion could be
financed through its liquid and capital resources currently available as
previously discussed and/or through additional borrowing or issuance of equity
or debt securities. The additional debt from any acquisitions, if consummated,
would increase the Company's debt-to-equity ratio and such debt or equity
securities might, at least in the near term, have a dilutive effect on net
income per share. In February 1999, the Company completed the acquisition of
Filtran Microcircuits Inc.
Year 2000 Readiness Disclosure
The Company recognizes the need to assure that its operations will not be
adversely impacted by Year 2000 software failures. The impact on operations has
been evaluated and plans were formulated to ensure complete Year 2000 compliance
by November 30, 1999. The Company's manufactured products do not contain
software of any kind and therefore are not subject to Year 2000 problems. All of
the Company's existing mission-critical manufacturing software and financial
computer applications were made Year 2000 compliant as of December 31, 1998. Key
suppliers have been contacted and have confirmed that they are Year 2000
compliant as of September 30, 1999.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information Technology Systems
Without remediation, certain of the Company's internally developed order
processing and manufacturing support applications would not have been capable of
processing dates beyond December 31, 1999 properly. The Company has corrected
the programs, and all business order processing and manufacturing support
operations applications should properly process dates beyond December 31, 1999.
The Company's desktop computers and internal local area network have been
checked for Year 2000 problems and none have been found. All programs purchased
from third parties are believed to be Year 2000 compliant, based on
certification received from the vendors.
Non-Information Technology Systems
Internal systems used in the Company's manufacturing processes are not date
dependent. Other support systems, such as security and HVAC, have been checked
and will not be adversely affected by dates beyond December 31, 1999.
Costs to Company to Address Year 2000 Issues
To date, the Company has expended approximately $70,000 (exclusive of
internal personnel compensation costs) to perform the program remediation to
non-compliant programs and for training and other consulting services. The
Company estimates remaining costs to project completion to be approximately
$30,000 to replace non-compliant systems that are not mission-critical.
Risks of the Company to Year 2000 Issues
The Company believes that the risks of the Year 2000 problem are moderately
low because its products are not date dependent and it has been utilizing its
Year 2000 compliant internal software applications since December 31, 1998. The
Company's customers are evaluating their own Year 2000 readiness and have
circulated questionnaires regarding the Company's level of compliance. The
Company will continue to update its customers with respect to Year 2000
readiness and will monitor the progress of its customers to assess the attendant
risks of inadequate Year 2000 compliance.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Contingency Plans
Currently, the Company does not have a contingency plan, since its products
are not date dependent. In addition, the Company's Year 2000 compliance program
is on schedule and nearly complete.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133 ("Accounting for Derivative Instruments and Hedging
Activities"). This statement establishes accounting and reporting standards
requiring that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recorded on the balance sheet as an
asset or liability and measured at its fair value. This statement is effective
for fiscal years beginning after June 15, 2000 but can be adopted earlier.
Management has not yet determined the timing of or method to be used in adopting
this statement. Management does not believe at this time that such adoption
would have a material impact on the Company's consolidated financial statements.
Forward-Looking Statements
This Form 10-QSB contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: general economic and industry conditions;
slower than anticipated penetration into the satellite communications, defense
and wireless markets; the risk that the benefits expected from the acquisition
of Filtran Microcircuits Inc. are not realized; competitive products and pricing
pressures; risks relating to governmental regulatory actions in communications
and defense programs; and inventory risks due to technological innovation, as
well as other risks and uncertainties, including but not limited to those
detailed from time to time in the Company's Securities and Exchange Commission
filings. These forward-looking statements are made only as of the date hereof,
and the Company undertakes no obligation to update or revise the forward-looking
statements, whether as a result of new information, future events or otherwise.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No.
- -----------
3(a)(1) Amendment dated June 10,1999 to the By-laws of the Company is
hereby incorporated by reference to Exhibit 3(a)(1) to the
Company's Quarterly Report on Form 10-QSB dated
August 12, 1999.
3(a)(2) By-laws of the Company, as amended, is hereby incorporated
by reference to Exhibit 3(a)(2) to the Company's Quarterly
Report on Form 10-QSB dated August 12, 1999.
3(b)(1) Amendment to the Certificate of Incorporation of the Company
filed on June 11, 1999 is hereby incorporated by reference to
Exhibit 3(b)(1) to the Company's Quarterly Report on Form
10-QSB dated August 12, 1999.
3(b)(2) Restated Certificate of Incorporation of the Company filed
on June 14, 1999 is hereby incorporated by reference to
Exhibit 3(b)(2) to the Company's Quarterly Report on Form
10-QSB dated August 12, 1999.
4(a) Shareholder Rights Agreement dated as of March 9, 1999 between
the Company and ChaseMellon Shareholder Services, L.L.C., as
rights agent, is hereby incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated
March 9, 1999.
4(b) Amendment NO.1 dated as of June 9, 1999 to the Shareholder
Rights Agreement dated as of March 9, 1999 between the
Company and ChaseMellon Shareholder Services, L.L.C., as
rights agent, is hereby incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated
June 9, 1999.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule for the Third Quarter Ended
October 2, 1999.
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed on August 5, 1999 reporting the
Company's results of operations for the second quarter 1999.
A Current Report on Form 8-K was filed on November 5, 1999 reporting the
Company's results of operations for the third quarter 1999.
-15-
<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 12, 1999 By: /s/ Mason N. Carter
-------------------------------------
Mason N. Carter
Chairman, President and
Chief Executive Officer
Date: November 12, 1999 By: /s/ Robert V. Condon
-------------------------------------
Robert V. Condon
Vice President, Finance, Treasurer,
Secretary and Chief Financial Officer
-16-
<PAGE>
EXHIBIT INDEX Sequentially
Exhibit Numbered Page
3(a)(1) Amendment dated June 10,1999 to the By-laws of the Company is
hereby incorporated by reference to Exhibit 3(a)(1) to the
Company's Quarterly Report on Form 10-QSB dated
August 12, 1999.
3(a)(2) By-laws of the Company, as amended, is hereby incorporated
by reference to Exhibit 3(a)(2) to the Company's Quarterly
Report on Form 10-QSB dated August 12, 1999.
3(b)(1) Amendment to the Certificate of Incorporation of the Company
filed on June 11, 1999 is hereby incorporated by reference to
Exhibit 3(b)(1) to the Company's Quarterly Report on Form
10-QSB dated August 12, 1999.
3(b)(2) Restated Certificate of Incorporation of the Company filed
on June 14, 1999 is hereby incorporated by reference to
Exhibit 3(b)(2) to the Company's Quarterly Report on Form
10-QSB dated August 12, 1999.
4(a) Shareholder Rights Agreement dated as of March 9, 1999 between
the Company and ChaseMellon Shareholder Services, L.L.C., as
rights agent, is hereby incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated
March 9, 1999.
4(b) Amendment NO.1 dated as of June 9, 1999 to the Shareholder
Rights Agreement dated as of March 9, 1999 between the
Company and ChaseMellon Shareholder Services, L.L.C., as
rights agent, is hereby incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated
June 9, 1999.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule for the Third Quarter Ended
October 2, 1999.
-17-
Exhibit 11
MERRIMAC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(Unaudited)
-----------
Quarter Nine Months
----------------------------
Months Ended October 2, 1999
----------------------------
Numerator:
Net income available to common shareholders........... $ 109,708 $ 404,593
========= =========
Basic earnings per share
- ------------------------
Weighted average number of shares outstanding for
basic net income per share
Common stock.......................................... 1,741,327 1,749,739
========= =========
Net income per common share - basic................... $.06 $.23
==== ====
Diluted earnings per share
- --------------------------
Weighted average number of shares outstanding for
diluted net income per share
Common stock ......................................... 1,741,327 1,749,739
Effect of dilutive securities - stock options (1) .... 30,498 26,582
--------- ---------
Weighted average number of shares outstanding for
diluted net income per share.......................... 1,771,825 1,776,321
========= =========
Net income per common share - diluted.................. $.06 $.23
==== ====
(1) Represents additional shares resulting from assumed conversion of
stock options less shares purchased with the proceeds therefrom.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-END> Oct-2-1999
<CASH> 771,274
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<COMMON> 1,348,771
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