SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 1, 1995
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4184
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MATEC Corporation
- - -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0737363
- - ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
75 South Street, Hopkinton, Massachusetts 01748
- - ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(508) 435-9039
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(Registrant's telephone number, including area code)
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
--- ---
As of November 10, 1995, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,764,380.
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MATEC Corporation
Index
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
October 1, 1995 and December 31, 1994 ................... 3
Consolidated Statements of Operations - Three Months and
Nine Months Ended October 1, 1995 and October 2, 1994 ... 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended October 1, 1995 and October 2, 1994 ... 5
Notes to Consolidated Condensed Financial Statements ..... 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 8-11
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ................ 12
Signatures ..................................................... 13
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PART I - FINANCIAL INFORMATION
MATEC Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except share data) (Unaudited)
October 1, December 31,
1995 1994
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................. $ 502 $ 544
Receivables, net .......................... 5,188 4,852
Inventories ............................... 7,235 5,629
Deferred income taxes and
other current assets ..................... 1,163 1,145
------- -------
Total current assets .................... 14,088 12,170
------- -------
Property, plant and equipment, at cost ...... 18,551 17,474
Less accumulated depreciation ............. 11,829 10,887
------- -------
6,722 6,587
Marketable equity securities ................ 2,394 1,552
Other assets ................................ 138 139
------- -------
$23,342 $20,448
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ............................. $ 915 $ 915
Current portion of long-term debt ......... 228 223
Accounts payable .......................... 3,265 3,152
Accrued liabilities ....................... 1,459 1,375
Income taxes .............................. 293 326
------- -------
Total current liabilities ............... 6,160 5,991
------- -------
Deferred income taxes ....................... 1,488 1,124
Long-term debt .............................. 2,179 428
Stockholders' equity:
Preferred stock, $1.00 par value-
Authorized 1,000,000 shares; issued none . - -
Common stock, $.05 par value-
Authorized 10,000,000 shares;
Issued 3,793,695 shares .................. 190 190
Capital surplus ........................... 6,397 6,374
Retained earnings ......................... 10,809 10,727
Net unrealized gain on marketable
equity securities ........................ 1,337 832
Treasury stock at cost,
1,029,215 and 1,029,145 shares ........... (5,218) (5,218)
------- -------
Total stockholders' equity .............. 13,515 12,905
------- -------
$23,342 $20,448
======= =======
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
10/1/95 10/2/94 10/1/95 10/2/94
------- ------- ------- -------
Net sales ................... $ 7,118 $ 6,042 $20,463 $17,546
Cost of sales ............... 5,160 4,311 14,559 12,451
------- ------- ------- -------
Gross profit .............. 1,958 1,731 5,904 5,095
Operating expenses:
Selling and administrative 1,645 1,444 5,102 4,696
Research and development .. 158 238 388 729
------- ------- ------- -------
1,803 1,682 5,490 5,425
Operating profit (loss) ..... 155 49 414 (330)
Other income (expense), net . (79) (24) (283) (44)
------- ------- ------- -------
Earnings (loss) before
income taxes ............... 76 25 131 (374)
Income (taxes) credit ....... (27) (7) (49) 122
------- ------- ------- -------
Net earnings (loss) ......... $ 49 $ 18 $ 82 $ (252)
======= ======= ======= =======
Earnings (loss) per share ... $ .02 $ .01 $ .03 $ (.09)
===== ====== ===== ======
Average shares outstanding .. 2,765 2,765 2,765 2,765
===== ===== ===== =====
Cash dividends per share .... $ - $ - $ - $ -
===== ===== ===== =====
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
10/1/95 10/2/94
-------- --------
Cash flows from operating activities:
Net earnings (loss) .............................. $ 82 $ (252)
Adjustments to reconcile net earnings (loss) to
net cash (used) by operating activities:
Non-cash items ................................. 941 735
Changes in operating assets and liabilities .... (1,999) (1,300)
------- --------
Net cash (used) by operating activities (976) (817)
- - -----------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures, net ........................ (1,077) (1,625)
Purchase of marketable equity securities ......... - (150)
Collection of amount due from sale of
discontinued operations ......................... 250 155
Other, net........................................ (18) (3)
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Net cash (used) by investing activities (845) (1,623)
- - -----------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt
and warrants .................................... 2,000 -
Net borrowings under line of credit .............. - 915
Payments on long-term debt ....................... (221) (209)
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Net cash provided by financing activities 1,779 706
- - -----------------------------------------------------------------------
Net (decrease) in cash and cash equivalents ....... (42) (1,734)
Cash and cash equivalents:
Beginning of period .............................. 544 2,222
------- -------
End of period .................................... $ 502 $ 488
======= =======
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
1. Financial Presentation:
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for fair presentation of
results for such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
The accounting policies followed by the Company are set forth
in Note 1 to the Company's financial statements in the 1994 MATEC
Corporation and Subsidiaries Annual Report which is incorporated by
reference in Form 10-K for the year ended December 31, 1994.
2. Inventories:
Inventories consist of the following (in thousands):
10/1/95 12/31/94
------- --------
Raw materials ....................... $ 3,494 $ 3,007
Work in process ..................... 1,025 698
Finished goods ...................... 2,716 1,924
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$ 7,235 $ 5,629
======= =======
Inventories of $3,106,000 in 1995 and $2,752,000 in 1994 are
determined by the LIFO method.
3. Receivables, net:
Receivables, net of allowances, consist of the following (in
thousands):
10/1/95 12/31/94
------- --------
Accounts receivable, less allowance for
doubtful accounts of $220,000 and $199,000 $5,188 $4,602
Amount due on the sale
of Alloy Surfaces Co., Inc. .............. - 250
------ ------
$5,188 $4,852
====== ======
4. Income Taxes:
The Company's estimated effective tax rate for 1995 is 37% compared
to 32% in 1994. The lower rate in 1994 is primarily due to the limited
state tax benefit of losses.
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4. Long-Term Debt:
Long-term debt consists of the following:
10/1/95 12/31/94
-------- --------
10% Term Debt, $2 million face amount,
due in 2000; interest payable quarterly $ 1,979 $ -
Industrial Revenue Bonds:
Principal payments of $180,000 in 1996 and
$200,000 in 1997; interest payable semi-
annually at a rate of 7.0% 380 555
Semi-annual principal payments of $24,167
through 1996; interest payable semi-annually
at a rate of 65% of the trustee's prime rate 48 96
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2,407 651
Less current portion 228 223
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$ 2,179 $ 428
======= =======
The Term Debt Note is secured by all the Company's assets, except for
real estate, marketable equity securities, and certain specific equipment
with a total book value of $266,000. The Term Debt Agreement includes
covenants covering debt to equity and interest expense ratios and
restrictions as to the amount of total debt, dividends, and capital stock
repurchases. Under the Agreement, the lender will subordinate its
security interest for up to $4 million in debt, with corresponding
increases in interest rates based on the subordination amounts. As part
of the Agreement, the Company issued the lender transferable common stock
warrants to purchase 85,000 shares of the Company's common stock at $4.75
per share. The warrants expire on June 30, 2000.
The Industrial Revenue Bonds are secured by certain assets with
carrying values of $2,985,000.
5. Short-Term Debt:
On September 25, 1995 the Company entered into a $2 million demand
line of credit agreement with a bank. The line is secured by all assets
except real estate and marketable equity securities. There are no
compensating balance requirements or commitment fees under the
arrangement and the interest rate is the bank's prime rate plus 1%.
Advances under the line are based on percentage formulas of specific
receivable and inventory balances of certain subsidiaries. The Company
had no borrowings outstanding at October 1, 1995.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
- - -------------------
Cash and cash equivalents decreased $42,000 during the nine months
ended October 1, 1995 and the Company received $2 million from the
issuance of term debt. The main uses of the cash were operations
($976,000) and capital expenditures ($1,077,000). Increases in inventory
of $1,606,000 and trade receivables of $586,000, partially offset by
$961,000 of depreciation expense, were the main reasons for the use of
cash by operations. While all segments reported higher levels of
inventory, increased inventory levels in the electronics segment
accounted for the majority of the 29% rise in total inventory. The
higher inventory levels are mainly needed to support the increased levels
of current and projected future business. The increase in the trade
receivables is attributable to the higher sales volume.
The Company spent $1,077,000 on capital expenditures during the nine
months ended October 1, 1995. Machinery and equipment additions in the
steel cable segment accounted for the majority of these expenditures.
These additions are geared toward adding new and upgrading existing
production capabilities and processes within this segment.
Management believes that based on its current working capital, the
expected cash flows from operations, and its $3 million lines of credit,
the Company's present resources are sufficient to meet its financial
needs in 1995 including a remaining capital expenditures budget of
$623,000.
Results of Operations
- - ---------------------
Net sales for the quarter and nine months ended October 1, 1995
increased $1,076,000 (18%) and $2,917,000 (17%), respectively, over the
comparable periods in 1994. The following table presents by segment the
amounts and percentages of sales increase (decrease) from the
corresponding prior year periods.
Quarter Ended Nine Months Ended
10/1/95 10/1/95
--------------- ----------------
Segment (000's) % (000's) %
- - ----------------------- ------- --- ------- ---
Electronics ........... $ 1,292 67 $ 2,727 47
Instruments ........... (66) (4) 685 16
Steel cable ........... (150) (6) (495) (7)
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Total ............. $ 1,076 18 $ 2,917 17
======= =======
Electronics
-----------
All product lines reported significant sales increases over both 1994
periods. The majority of the sales increases were attributable to higher
sales to both OEM and contract manufacturers in the telecommunications
market and to the distributor markets.
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Instruments
-----------
During both the current quarter and on a year-to-date basis, higher
sales to both the non-destructive testing/evaluation ("NDT/NDE") and
medical research markets, partially offset by lower sales to the
colloidal markets accounted for the net sales changes from the comparable
1994 periods.
The sales increases (12% for the quarter and 63% for the
year-to-date) to the NDT/NDE markets were attributable to higher sales of
its custom test systems. The sales increases (66% for the quarter and 5%
for the year-to-date) to the medical research market resulted from both
sales of its new products introduced in late 1994 and higher domestic
sales partially offset by lower foreign sales. The decreased sales (32%
for the quarter and 10% for the year-to-date) to the colloidal market was
mainly due to lower sales of its older ESA-8000 instrument.
Steel Cable
-----------
During both periods, overall sales to most markets increased or
decreased slightly from the 1994 periods. The net sales declines in both
periods were mainly attributable to lower sales of assembly products to
the fitness equipment market.
Gross Profit
- - ------------
During the quarter and nine months ended October 1, 1995, total gross
profit increased 13% and 16%, respectively, over the comparable 1994
periods. During the current quarter the overall gross profit percentage
decreased slightly from 1994, while during the nine months ended the
overall margin remained level with the prior year. During both of these
periods, the electronics segment reported increases in its gross profit
percentages, offset by lower margins in steel cable segment. In the
instruments segment, the gross profit percentage remained level with 1994
during the current quarter and decreased from 1994 on a year-to-date
basis.
In the electronics segment, the increases in the gross profit
percentages over 1994 (67% for the quarter and 37% for the nine months)
were mainly due to the favorable effects of allocating the fixed overhead
expenses over the increased sales levels, increased sales of internally
manufactured products which produce a higher margin than that from the
resale of imported products, and product yield improvements.
The overall gross profit percentage in the instrument segment
remained level with that in 1994 during the quarter ended and declined 8%
from last year during the nine months ended. While sales during the
quarter ended declined from the prior year, the overall gross profit
percentage remained level with 1994 due to changes in the product mix of
sales. While sales increased during the nine months ended, a lower
overall margin was reported because of changes in the product mix of
sales, higher occupancy costs due to increased space requirements of the
segment, and increased personnel costs caused by additional employees.
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In the steel cable segment, the current year gross profit percentage
decreased 42% and 25% from 1994 during the quarter and the nine months
ended periods, respectively. During both periods, the lower margins were
primarily due to the start-up expenses and the operating inefficiencies
associated with several new programs scheduled for second and third
quarter production, increased depreciation expense, and the effect of the
fixed operating costs over the lower sales volume.
Operating Expenses
- - ------------------
During the quarter and nine months ended October 1, 1995, selling and
administrative expenses increased $201,000 (14%) and $406,000 (9%),
respectively, over the 1994 comparable periods. Higher selling expenses
accounted for the majority of the increase during both periods.
Increased sales commission expense in the electronics and instrument
segments and increased personnel expenses due to additional employees in
all segments were the major items causing the higher selling expenses.
During the quarter and nine months ended October 1, 1995, research
and development expenses decreased $80,000 and $341,000, respectively,
from the corresponding periods in 1994. These expense decreases are due
to lower expenses as product and process development projects in both the
instruments and electronics segments were completed in 1994 or early
1995.
Other Income (Expense), net
- - ---------------------------
Other income (expense), net includes the following items:
Quarter Ended Nine Months Ended
10/1/95 10/2/94 10/1/95 10/2/94
------- ------- ------- -------
(in thousands)
Interest expense ........... $ (85) $ (13) $ (258) $ (16)
Real estate operations ..... 5 (17) (43) (54)
Interest income ............ 0 9 13 24
Other, net ................. 1 (3) 5 2
------ ------ ------ ------
$ (79) $ (24) $ (283) $ (44)
====== ====== ====== ======
The increases in interest expense are attributable to the higher
levels of outstanding debt during 1995. The improvements in the real
estate operations are mainly due to lower operating expenses. The
reduced amounts of interest income are attributable to the lower levels
of cash investments in 1995.
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The Company reported operating profits of $155,000 and $414,000
during the quarter and nine months ended October 1, 1995, respectively,
versus an operating profit of $49,000 and an operating loss of $330,000
in the comparable 1994 periods. Non-operating expenses increased $55,000
and $239,000 over the corresponding 1994 periods, respectively, mainly as
a result of increased interest expense. As a result, the Company
reported a pre-tax profit of $76,000 for the quarter ended October 1,
1995 versus a pre-tax profit of $25,000 for the 1994 period. For the
nine months ended October 1, 1995, the Company reported a pre-tax profit
of $131,000 versus a pre-tax loss of $374,000 in 1994.
The improvements in the 1995 operating performance are mainly due to
the higher sales level, the increased gross margin, and the reduction in
operating expenses as a percentage of sales. The Company expects to see
continuing improvements in operating performance during 1995 based on the
projected sales increases resulting from both the Company's sales of new
products developed in recent years and in sales, product promotion and
customer service geared to increasing market share.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement re Computation of Per Share Earnings. Filed
herein, beginning on page 14.
27. Financial Data Schedule. Filed for electronic purposes
only.
(b) Reports on Form 8-K - None
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<PAGE>
SIGNATURES
Pursuant to the requirements 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.
MATEC Corporation
---------------------------------
Date: November 13, 1995 By /s/ Robert B. Gill
------------------------------
Robert B. Gill,
President and Chief Executive
Officer
Date: November 13, 1995 By /s/ Michael J. Kroll
------------------------------
Michael J. Kroll,
Vice President and Treasurer
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MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Three Months Ended
10/1/95 10/2/94
------- -------
Net earnings ....................................... $ 49 $ 18
====== ======
CALCULATION OF PRIMARY EARNINGS PER SHARE:
Weighted average common shares outstanding ........ 2,765 2,765
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon average market prices ................. 29 12
----- -----
Average common stock and common equivalent
shares outstanding (C) ........................... 2,794 2,777
===== =====
Net earnings per common and common
equivalent share (A) ............................. $ .02 $ .01
====== ======
CALCULATION OF FULLY DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding ........ 2,765 2,765
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon the higher of average or
quarter-end market prices ........................ 41 43
----- -----
Average common stock and common equivalent
shares used to calculate fully diluted earnings
per share (C) .................................... 2,806 2,808
===== =====
Net earnings per common and common equivalent share
assuming full dilution (B) ....................... $ .02 $ .01
====== ======
(A) Dilution from stock options is less than 3%, therefore primary
earnings per share is based on the weighted average number of shares
outstanding.
(B) Dilution is less than 3%, therefore the primary basis was used for
per share calculations.
(C) The effect of the outstanding warrants is excluded since they do not
meet either test of paragraph 37 of APB Opinion No. 15.
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MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings per Share
(amounts in thousands, except per share data)
Nine Months Ended
10/1/95 10/2/94
------- -------
Net earnings (loss) ............................... $ 82 $ (252)
====== ======
CALCULATION OF PRIMARY EARNINGS (LOSS) PER SHARE:
Weighted average common shares outstanding ....... 2,765 2,765
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon average market prices (A) ............ 29 -
----- -----
Average common stock and common equivalent
shares outstanding (D) .......................... 2,794 2,765
===== =====
Net earnings (loss) per common and common
equivalent share (B) ............................ $ .03 $ (.09)
====== ======
CALCULATION OF FULLY DILUTED EARNINGS (LOSS)
PER SHARE:
Weighted average common shares outstanding ....... 2,765 2,765
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon the higher of average or
quarter-end market prices ....................... 33 15
----- -----
Average common stock and common equivalent
shares used to calculate fully diluted earnings
per share (D) ................................... 2,798 2,780
===== =====
Net earnings (loss) per common and common
equivalent share assuming full dilution (C) ..... $ .03 $ (.09)
====== ======
(A) In loss periods, dilutive common equivalent shares are excluded as
the effect would be anti-dilutive.
(B) Dilution from stock options is less than 3%, therefore primary
earnings per share is based on the weighted average number of shares
outstanding.
(C) Dilution is less than 3%, therefore the primary basis was used for
per share calculations.
(D) The effect of the outstanding warrants is excluded since they do not
meet either test of paragraph 37 of APB Opinion No. 15.
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-01-1995
<CASH> 502
<SECURITIES> 0
<RECEIVABLES> 5,408
<ALLOWANCES> 220
<INVENTORY> 7,235
<CURRENT-ASSETS> 14,088
<PP&E> 18,551
<DEPRECIATION> 11,829
<TOTAL-ASSETS> 23,342
<CURRENT-LIABILITIES> 6,160
<BONDS> 2,179
<COMMON> 190
0
0
<OTHER-SE> 13,325
<TOTAL-LIABILITY-AND-EQUITY> 23,342
<SALES> 20,463
<TOTAL-REVENUES> 20,463
<CGS> 14,559
<TOTAL-COSTS> 14,559
<OTHER-EXPENSES> 5,453
<LOSS-PROVISION> 37
<INTEREST-EXPENSE> 258
<INCOME-PRETAX> 131
<INCOME-TAX> 49
<INCOME-CONTINUING> 82
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
