<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 April 1, 2000 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
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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
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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 May 12, 2000
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Common Stock ($.50 par value) 2,149,382
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
-----------
April 1, January 1,
2000 2000
----------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents ....................... $ 1,148,853 $ 1,108,141
Accounts receivable, net......................... 3,432,023 3,774,796
Inventories ..................................... 3,161,780 2,913,423
Income tax refund receivable..................... 401,241 427,330
Other current assets ............................ 407,501 386,507
Deferred tax assets ............................. 744,000 744,000
----------- -----------
Total current assets ........................ 9,295,398 9,354,197
----------- -----------
Property, plant and equipment ..................... 19,494,745 19,213,264
Less accumulated depreciation ................... 11,769,459 11,337,477
----------- -----------
Property, plant and equipment, net............. 7,725,286 7,875,787
Other assets ...................................... 575,015 563,507
Goodwill, net...................................... 2,994,903 3,047,623
----------- -----------
Total Assets ................................ $20,590,602 $20,841,114
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------
Current liabilities:
Current portion of long-term debt ............... $ 2,611,696 $ 2,627,267
Accounts payable ................................ 1,063,973 1,164,584
Accrued liabilities ............................. 1,371,717 1,311,791
Income taxes payable............................. 16,884 -
----------- -----------
Total current liabilities ................... 5,064,270 5,103,642
Long-term debt, net of current portion ............ 1,583,302 1,769,447
Deferred compensation ............................. 223,832 234,734
Deferred tax liabilities .......................... 232,000 232,000
----------- -----------
Total liabilities ........................... 7,103,404 7,339,823
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Shareholders' equity:
Common stock, par value $.50 per share:
Authorized: 5,000,000 shares
Issued: 2,705,806 and 2,698,309 shares ....... 1,352,903 1,349,154
Additional paid-in capital ...................... 11,295,513 11,256,532
Retained earnings ............................... 9,027,923 9,192,310
Accumulated comprehensive income................. 123,770 142,589
----------- -----------
21,800,109 21,940,585
Less treasury stock, at cost:
943,904 and 958,904 shares .................... (7,952,911) (8,079,294)
Less loan to officer-shareholder ................ (360,000) (360,000)
----------- -----------
Total shareholders' equity ................... 13,487,198 13,501,291
----------- -----------
Total Liabilities and Shareholders' Equity ... $20,590,602 $20,841,114
=========== ===========
See accompanying notes.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
and COMPREHENSIVE INCOME
-------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------
April 1, April 3,
2000 1999
OPERATIONS -----------------------
<S> <C> <C>
Net sales ................................... $4,911,373 $4,738,531
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Costs and expenses:
Cost of sales ............................. 2,436,347 2,426,740
Selling, general and administrative ....... 1,983,612 1,546,468
Research and development .................. 355,970 394,260
Amortization of goodwill................... 39,340 14,522
Restructuring charge....................... 315,000 -
---------- ----------
5,130,269 4,381,990
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Operating income (loss)...................... (218,896) 356,541
Interest and other expense, net ............. 80,491 23,575
---------- ----------
Income (loss) before income taxes ........... (299,387) 332,966
Provision (benefit) for income taxes ........ (135,000) 120,000
---------- ----------
Net income (loss)............................ $ (164,387) $ 212,966
========== ==========
Net income (loss) per common share:
Basic...................................... $(.09) $.12
===== ====
Diluted.................................... $(.09) $.12
===== ====
Weighted average number of
shares outstanding:
Basic...................................... 1,747,147 1,768,532
========== ==========
Diluted.................................... 1,816,849 1,768,793
========== ==========
COMPREHENSIVE INCOME
Net income (loss)............................ $ (164,387) $ 212,966
Other comprehensive income, net of tax:
Foreign currency translation adjustments... (18,819) (35,524)
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Comprehensive income (loss).................. $ (183,206) $ 177,442
========== ==========
</TABLE>
See accompanying notes.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
-----------
Thirteen Weeks Ended
-------------------------
April 1, April 3,
2000 1999
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Cash flows from operating activities:
Net income (loss).................................. $ (164,387) $ 212,966
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 431,985 329,003
Amortization of goodwill ...................... 39,340 14,522
Deferred compensation ......................... 3,274 4,097
Changes in operating assets and liabilities
net of acquisition in 1999:
Accounts and income taxes receivable......... 368,169 373,736
Inventories.................................. (248,357) 27,893
Other current assets......................... (20,858) 21,908
Deferred tax assets.......................... - (1,972)
Other assets................................. (11,508) 110,435
Accounts payable............................. (100,610) (354,614)
Accrued liabilities.......................... 245,426 (266,783)
Income taxes payable......................... 16,884 86,847
Deferred compensation........................ (199,676) (199,000)
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Net cash provided by operating activities............ 359,682 359,038
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Cash flows from investing activities:
Purchase of capital assets......................... (281,481) (594,831)
Acquisition of business............................ - (4,673,794)
Cash acquired with acquisition..................... - 203,323
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Net cash used in investing activities................ (281,481) (5,065,302)
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Cash flows from financing activities:
Borrowing under term loan.......................... - 2,500,000
Borrowing under revolving credit facility.......... - 2,000,000
Debt assumed with acquisition...................... - 451,126
Repayment of borrowings............................ (201,716) (137,046)
Proceeds from the issuance of common stock......... 169,111 9,869
Repurchase of common stock for the treasury ....... - (328,898)
---------- ----------
Net cash provided by (used in) financing activities.. (32,605) 4,495,051
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Effect of exchange rate changes...................... (4,884) 10,288
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Net increase (decrease) in cash and cash equivalents. 40,712 (200,925)
Cash and cash equivalents at beginning of year....... 1,108,141 1,852,666
---------- ----------
Cash and cash equivalents at end of period........... $1,148,853 $1,651,741
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes..................................... $ - $ 10,000
========== ==========
Loan interest.................................... $ 88,673 $ 54,732
========== ==========
See accompanying notes.
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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 April 1, 2000 and its results of
operations and cash flows for the periods presented. Results of operations of
interim periods are not necessarily indicative of results for a full year. These
financial statements should be read in conjunction with the audited consolidated
financial statements in the Company's Annual Report on Form 10-KSB for January
1, 2000. Certain prior year amounts have been reclassified in order to conform
to current-year presentation.
B. 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 of
approximately $4,700,000 which included $203,000 cash acquired and included the
assumption of $451,000 existing indebtedness, was financed by utilizing an
existing unused credit facility. The acquisition has been 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 $3,179,000 recorded as goodwill
which is being amortized over 20 years.
The unaudited pro forma combined results for the comparative period
presented for 1999, as if FMI had been acquired at the beginning of
1999, are estimated to be as follows:
<TABLE>
<CAPTION>
Quarter Ended
-------------
April 3,
1999
-------------
<S> <C>
Net sales........................ $5,369,000
Net income....................... 152,000
Diluted net income per share..... $.09
</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.
C. Inventories
Inventories consist of the following:
April 1, January 1,
2000 2000
---------- ----------
Finished goods ...................... $ 603,759 $ 666,186
Work in process ..................... 1,219,709 1,004,037
Raw materials and purchased parts ... 1,338,312 1,243,200
---------- ----------
Total $3,161,780 $2,913,423
========== ==========
Total inventories are net of valuation allowances for obsolescence
of $1,214,000 at April 1, 2000 and $1,166,000 at January 1, 2000.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. Net income (loss) 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 standard, 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.
E. 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. The Company has determined that
the components of other comprehensive income impacting the Company consists
primarily of foreign currency translation adjustments.
F. 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 last and fiscal year 2002 will be
the next) is added to the fourth quarter, making such quarter consist of 14
weeks.
G. 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 of Common Stock that were purchased by Mr. Carter with the proceeds of
the loans. The Company recorded compensation expense of $52,000. The sale of
these shares of Common Stock was exempt from registration under the Securities
Act of 1933, as amended ("the Act"), as a transaction not involving a public
offering under Section 4 (2) of the Act.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H. Current and Long-term debt
The Company was obligated under the following debt
instruments at April 1 and January 1, 2000:
<TABLE>
<CAPTION>
April 1, January 1,
2000 2000
---------- ----------
<S> <C> <C>
Summit Bank:
Revolving credit facility, interest 1/2% below prime,
due June 2000.......................................... $2,000,000 $2,000,000
Term loan, interest 1/2% below prime, due December 2003..... 1,875,000 2,041,667
The Bank of Nova Scotia:
Equipment loans, interest prime plus 1%, due November 2000.. 39,520 56,042
Capital leases, interest 7.0%, due October 2003............. 280,478 299,005
---------- ----------
4,194,998 4,396,714
Less current portion........................................ 2,611,696 2,627,267
---------- ----------
Long-term portion........................................... $1,583,302 $1,769,447
========== ==========
</TABLE>
The Company is presently in the process of extending its revolving credit
facility due date to June 2001. The full amount outstanding of the revolving
credit facility was repaid April 7, 2000 (see Note J. Subsequent Event).
The Company has entered into a $7,000,000 revolving credit and term loan
agreement with Summit Bank. Up to $2,500,000 was available at April 1, 2000
($4,500,000 as of April 7, 2000) for future borrowing needs of the Company.
The term loan is secured by $2,500,000 of tangible personal property and
the equipment loans are covered by a general security agreement. The revolving
credit facility is unsecured.
At April 1 and January 1, 2000, the fair value of the Company's debt
approximates carrying value. The fair value of the Company's long-term debt is
estimated based on current interest rates.
Capital leases included in property, plant and equipment have a depreciated
cost of approximately $121,000 at April 1 and $138,000 at January 1, 2000.
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<PAGE>
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. Restructuring and related charges
As a result of accelerating the transfer of increased levels and complexity
of production to the Company's Costa Rica manufacturing facility, the Company
implemented a reduction of its workforce and provided severance benefits to
certain employees during the first quarter of 2000. The restructuring charge for
the first quarter of 2000 was $315,000, and charges net of tax benefits of
$189,000 or $.10 diluted per share. The reduction in workforce affected fifteen
persons, primarily electronic components manufacturing labor, and $123,000 has
been paid through April 1, 2000. The remaining balance of $192,000 of severance
benefits and other costs pursuant to the restructuring plan is expected to be
paid during fiscal 2000.
J. Subsequent event
The Company entered into a stock purchase and exclusivity agreement on
April 7, 2000 with Ericsson Microelectronics, A.B. ("Ericsson") and Ericsson
Holding International, B.V. ("EHI") pursuant to which the Company sold to EHI
375,000 shares of Company Common Stock from its treasury, representing
approximately 17.5% of the Company's outstanding common stock after giving
effect to the sale, for an aggregate cash purchase price of $3,375,000. The
stock purchase and exclusivity agreement also provides that the Company will
design, develop and produce exclusively for Ericsson Multi-Mix(TM) products that
incorporate active RF power transistors for use in wireless base station
applications, television transmitters and certain other applications that are
intended for Bluetooth transceivers and that the Company will generally be the
priority supplier for such products. Accordingly, Ericsson will receive first
priority on all Multi-Mix(TM) resources of the Company and will have priority
access to FMI's proprietary technology and manufacturing capabilities.
In connection with EHI's purchase of the Company's Common Stock, the
Company and EHI also entered into a registration rights agreement which provides
EHI with two demand registrations at any time following April 7, 2002.
K. 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. In June 1999, the Financial
Accounting Standards Board issued Statement of Accounting Standards No. 137
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133 an amendment of FASB Statement No.
133," which defers implementation of Statement No. 133 until fiscal years
beginning after June 15, 2000. The Company has reviewed Statement No. 133 and
has not yet determined the impact, timing of or method to be used in adopting
this statement.
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<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
-----------------------
Quarter 1
-----------------------
Thirteen Weeks Ended
-----------------------
April 1, April 3,
2000 1999
-------- ------
<S> <C> <C>
Net sales.................................... 100.0% 100.0%
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Costs and expenses:
Cost of sales.............................. 49.6 51.2
Selling, general and administrative........ 40.5 32.7
Research and development................... 7.2 8.3
Amortization of goodwill................... .8 .3
Restructuring charge....................... 6.4 -
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104.5 92.5
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Operating income (loss)...................... (4.5) 7.5
Interest and other expense, net.............. 1.6 .5
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Income (loss) before income taxes............ (6.1) 7.0
Provision (benefit) for income taxes......... (2.7) 2.5
------- ------
Net income (loss)............................ (3.4)% 4.5%
======= ======
</TABLE>
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
First quarter 2000 compared to first quarter 1999
Consolidated results of operations for the first quarter 2000 reflect a
3.6% increase in net sales of $173,000 to $4,911,000 and an operating loss of
$219,000, after a restructuring charge of $315,000. A net loss of $164,000 was
recorded for the first quarter 2000, after the $189,000 net effects of the
restructuring charge. Net income of $213,000 was reported for the first quarter
of the prior year. Diluted net loss per share was $.09, after the net effect of
the $.10 per share loss of the restructuring charge. Diluted net income per
share of $.12 was reported for the first quarter of the prior year.
The increase in consolidated net sales was attributable to the inclusion in
the first quarter 2000 of microwave micro-circuitry product net sales of
$1,163,000 from Filtran Microcircuits Inc. ("FMI"), which was acquired on
February 25, 1999, an increase of $701,000 compared to the post-acquisition net
sales amount of $462,000 reported in the prior year first quarter. This increase
was partially offset by reduced electronic components shipments of $514,000 or
12%, resulting from a smaller firm order backlog that existed as of the
beginning of this fiscal year.
Orders of $7,744,000 were received for the first quarter 2000, which
included $2,637,000 in new orders for FMI, an increase of $1,576,000 or 25.6%
compared to $6,168,000 in orders received for the first quarter of 1999. The
backlog at the end of the first quarter of 2000 was $8,951,000, an increase of
$2,833,000 or 46.3% over year-end 1999, and $1,375,000 or 18.1% when compared to
the first quarter 1999 backlog of $7,576,000. Orders received during the first
quarter of 2000 were approximately 58% above the first quarter 2000 sales level.
Cost of sales decreased $10,000 and as a percentage of net sales decreased
1.6% to 49.6% for the first quarter 2000. The decrease in cost of sales was
achieved from manufacturing efficiencies, reduction in labor expense, and a
favorable sales product mix. These decreases were primarily attributable to a
reduction in direct labor and manufacturing overhead costs partly related to the
increasing transfer of production to the Costa Rica manufacturing facility and
other manufacturing improvements resulting from the first quarter 2000
restructuring. Depreciation expense increased $103,000 for the first quarter
2000 resulting from higher capital equipment purchases in the current and prior
years and due to the acquisition of FMI.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross profit for the electronic components segment of $1,991,000 was 53.1%
of segment net sales of $3,748,000 in the first quarter 2000 compared to
$2,105,000, which was 49.2% of segment net sales of $4,276,000 in the first
quarter of 1999. Although the percentage of gross profit margin improved 3.9
percentage-points, the gross profit amount decreased $114,000 or 5.4% because of
the sales decline. Gross profit for the FMI microwave micro-circuitry segment
was $484,000 or 41.6 % of segment net sales of $1,163,000 in the first quarter
2000 compared to $206,000 or 44.7% of segment net sales of $462,000, from when
it was acquired on February 25, 1999, which amounts were included in the first
quarter 1999 results.
Selling, general and administrative expenses of $1,984,000 for the first
quarter 2000 increased $437,000 or 28.3%, and when expressed as a percentage of
net sales, increased 7.9% to 40.5% for the first quarter of 2000. Increases in
these expenses during the first quarter 2000 were related to new product samples
activity, and higher selling and marketing expenses in connection with the
Company's new Multi-Mix(TM) Microtechnology product line. In addition, expenses
from FMI of $204,000 compared to the post-acquisition amount of $58,000 that was
included in first quarter 1999 results.
Amortization expense of $39,000 for the first quarter of 2000 is
attributable to goodwill arising from the acquisition of FMI, which is being
amortized on a straight-line basis over a life of twenty years, which compares
to last year's short post-acquisition period amortization expense of $15,000.
Research and development expenses for new products were $356,000 for the
first quarter 2000, a decrease of $38,000 or 9.7% compared to the first quarter
of the prior year. Except for $44,000 at FMI, most of the research and
development expenses were for Multi-Mix(TM) Microtechnology.
The restructuring charge of $315,000 relates to severance and certain other
costs incurred for the termination of fifteen persons during the first quarter
of fiscal 2000, of which $296,000 was related to the electronic components
segment and $19,000 was related to FMI. The operating loss after the
restructuring charge for the electronic components segment was $367,000 in the
first quarter 2000 compared to operating income of $267,000 or 6.2% of segment
net sales in the first quarter of 1999. Operating income after the restructuring
charge for the FMI microwave micro-circuitry segment was $148,000 or 12.7% of
this segment's net sales compared to operating income of $89,000 in the first
quarter of 1999.
Interest expense, net was $80,000 for the first quarter 2000 compared to
$24,000 for the first quarter of last year and was principally incurred on
borrowings under a term loan and revolving credit facility in connection with
the acquisition of FMI during the first quarter of 1999, which was partially
offset by interest income.
-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 $1,149,000 at the end of first quarter of 2000 compared
to approximately $1,108,000 at the end of 1999. The Company's working capital
was approximately $4,200,000 and its current ratio was 1.8 at the end of the
first quarter of 2000 which compared to similar amounts and ratio at the end of
1999. Current liabilities at the end of the first quarter 2000 include
$2,000,000 of indebtedness under a revolving credit facility, which the Company
believes will be re-extended for one year beyond the June 30, 2000 renewal date.
On April 7, 2000 the full amount was repaid from proceeds from the sale of
Company Common Stock (see below and " Note J. Subsequent event" of Notes to
Consolidated Financial Statements).
The Company's operating activities provided cash flows of $360,000 in the
first quarter of 2000 compared to $359,000 in the first quarter of 1999. The
primary reasons for the slight increase in operating cash flows in the first
quarter of 2000 are the decrease in net income, an increase in inventories, and
payments made on accounts payable, and deferred compensation, which was offset
by decreases in accounts receivable, an increase in accrued liabilities, and
higher depreciation and amortization charges. The Company made investments in
property, plant and equipment of $281,000 in the first quarter of 2000 compared
to $595,000 in the first quarter of 1999. 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 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
unused portion of $2,500,000 of the revolving credit facility is available
($4,500,000 as of April 7, 2000) for working capital and general corporate
purposes.
Management believes that the $4,500,000 revolving credit facility, which is
up for renewal June 30, 2000, will be re-extended to June 30, 2001, and with its
present liquid resources and the expected remaining $2.5 million line of credit
available ($4,500,000 as of April 7, 2000), along with cash flows expected to be
provided by operations, the Company will have sufficient resources for currently
contemplated operations in fiscal year 2000.
The Company entered into a stock purchase and exclusivity agreement on
April 7, 2000 with Ericsson Microelectronics, A.B. ("Ericsson") and Ericsson
Holding International, B.V. ("EHI") pursuant to which the Company sold to EHI
375,000 shares of Company Common Stock from its treasury, representing
approximately 17.5% of the Company's outstanding common stock after giving
effect to the sale, for an aggregate cash purchase price of $3,375,000.
The Company's capital expenditures for new projects and production
equipment are anticipated to exceed its depreciation and amortization expenses
in fiscal 2000. The Company has issued purchase order commitments to processing
equipment-manufacturing vendors for approximately $1,400,000 of capital
equipment and building improvements. The Company anticipates that during fiscal
2000 such equipment will be purchased and become operational and building
improvements will be completed.
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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. The Company is authorized to repurchase up to
42,000 additional shares under the program. No shares have been repurchased
during fiscal 2000.
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 acquired Filtran Microcircuits
Inc. See Note B of Notes to Consolidated Financial Statements.
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. In June 1999, the Financial
Accounting Standards Board issued Statement of Accounting Standards No. 137"
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB No. 133," which
defers implementation of Statement No. 133 until fiscal years beginning after
June 15, 2000. The Company has reviewed Statement No. 133 and has not yet
determined the impact, timing of or method to be used in adopting this
statement.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year 2000 Readiness Disclosure
The Company recognized the need to assure that its operations would not be
adversely impacted by Year 2000 software failures. 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
and financial computer applications are Year 2000 compliant. Key suppliers have
confirmed in writing that they are Year 2000 compliant. Software revisions have
been performed by Company employees and the total estimated cost for achieving
Year 2000 compliance was not material to the Company's financial position or
results of operations.
The Year 2000 potential problem dates of January 1 and February 29, 2000
have passed without any significant software failures. The Company is confident
that its computer systems are fully Year 2000 compliant, and that its operations
should not be adversely affected in the future as a result of a Year 2000
software failure.
Forward-Looking Statements
This Quarterly Report on 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; the ability to protect
proprietary information and technology; 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.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On March 1, 2000, the Company sold a total of 15,000 shares of Common Stock
from its treasury to certain members of the Board of Directors for a cash
purchase price of $8.00 per share, the approximate market price of the Common
Stock on such date. In the stock sale, each of Albert H. Cohen, Edward H. Cohen,
and Joel H. Goldberg purchased 5,000 shares of Common Stock. The sales of these
shares were exempt from registration under the Securities Act of 1933, as
amended ("the Act"), as a transaction not involving a public offering under
Section 4(2) of the Act.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No.
- -----------
3(a) By-laws of Merrimac, as amended, is hereby incorporated by
reference to Exhibit 3(a)(2) to Merrimac's Quarterly Report
on Form 10-QSB dated August 12, 1999.
3(b) Restated Certificate of Incorporation of Merrimac filed
on June 14, 1999 is hereby incorporated by reference to
Exhibit 3(b)(2) to Merrimac's Quarterly Report on Form 10-QSB
dated August 12, 1999.
4(a) Shareholder Rights Agreement dated as of March 9, 1999 between
Merrimac and ChaseMellon Shareholder Services, L.L.C., as
rights agent, is hereby incorporated by reference to Exhibit 1
to Merrimac'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 Merrimac
and ChaseMellon Shareholder Services, L.L.C., as rights agent,
is hereby incorporated by reference to Exhibit 1 to Merrimac's
Current Report on Form 8-K dated June 9, 1999.
4(c) Amendment No. 2 dated as of April 7, 2000 to the Shareholder
Rights Agreement dated as of March 9, 1999 between Merrimac
and ChaseMellon Shareholder Services, L.L.C., as rights agent,
is hereby incorporated by reference to Exhibit 2 to Merrimac's
Current Report on Form 8-K dated April 10, 1999.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule for the First Quarter
Ended April 1, 2000.
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed on March 22, 2000 reporting
Merrimac's results of operations for the fourth quarter
and 1999 fiscal year.
-14-
<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: May 12, 2000 By: /s/ Mason N. Carter
-------------------------------------
Mason N. Carter
Chairman, President and
Chief Executive Officer
Date: May 12, 2000 By: /s/ Robert V. Condon
-------------------------------------
Robert V. Condon
Vice President, Finance, Treasurer,
Secretary and Chief Financial Officer
-15-
<PAGE>
EXHIBIT INDEX Sequentially
Exhibit Numbered Page
3(a) By-laws of Merrimac, as amended, is hereby incorporated by
reference to Exhibit 3(a)(2) to Merrimac's Quarterly Report
on Form 10-QSB dated August 12, 1999.
3(b) Restated Certificate of Incorporation of Merrimac filed
on June 14, 1999 is hereby incorporated by reference to
Exhibit 3(b)(2) to Merrimac's Quarterly Report on Form 10-QSB
dated August 12, 1999.
4(a) Shareholder Rights Agreement dated as of March 9, 1999 between
Merrimac and ChaseMellon Shareholder Services, L.L.C., as
rights agent, is hereby incorporated by reference to Exhibit 1
to Merrimac'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 Merrimac
and ChaseMellon Shareholder Services, L.L.C., as rights agent,
is hereby incorporated by reference to Exhibit 1 to Merrimac's
Current Report on Form 8-K dated June 9, 1999.
4(c) Amendment No. 2 dated as of April 7, 2000 to the Shareholder
Rights Agreement dated as of March 9, 1999 between Merrimac
and ChaseMellon Shareholder Services, L.L.C., as rights agent,
is hereby incorporated by reference to Exhibit 2 to Merrimac's
Current Report on Form 8-K dated April 10, 1999.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule for the First Quarter
Ended April 1, 2000.
-16-
Exhibit 11
MERRIMAC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(Unaudited)
-----------
Thirteen Weeks Ended
-------------------------
April 1, April 3,
2000 1999
---------- ----------
Numerator:
Net income (loss) available to common shareholders.... $(164,387) $212,966
========= =========
Basic earnings per share
- ------------------------
Weighted average number of shares outstanding for
basic net income per share
Common stock.......................................... 1,747,147 1,768,532
========= =========
Net income (loss) per common share - basic............ $(.09) $.12
==== ====
Diluted earnings per share
- --------------------------
Weighted average number of shares outstanding for
diluted net income per share
Common stock ......................................... 1,747,147 1,768,532
Effect of dilutive securities - stock options (1) .... 69,702 261
--------- ---------
Weighted average number of shares outstanding for
diluted net income per share.......................... 1,816,849 1,768,793
========= =========
Net income (loss) per common share - diluted.......... $(.09) $.12
==== ====
(1) Represents additional shares resulting from assumed conversion of
stock options less shares purchased with the proceeds therefrom.
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-1-2000
<CASH> 1,148,853
<SECURITIES> 0
<RECEIVABLES> 3,432,023
<ALLOWANCES> 0
<INVENTORY> 3,161,780
<CURRENT-ASSETS> 9,295,398
<PP&E> 19,494,745
<DEPRECIATION> 11,769,459
<TOTAL-ASSETS> 20,590,602
<CURRENT-LIABILITIES> 5,064,270
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0
0
<COMMON> 1,352,903
<OTHER-SE> 12,134,295
<TOTAL-LIABILITY-AND-EQUITY> 20,590,602
<SALES> 4,911,373
<TOTAL-REVENUES> 4,911,373
<CGS> 2,436,347
<TOTAL-COSTS> 2,436,347
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<INTEREST-EXPENSE> 88,673
<INCOME-PRETAX> (299,387)
<INCOME-TAX> (135,000)
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