UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] 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
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(Exact name of registrant as specified in its charter)
Delaware 06-0737363
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
75 South St., 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 May 10, 1996, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,764,269.
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MATEC Corporation
Index
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
March 31, 1996 and December 31, 1995 .................... 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and April 2, 1995 ..... 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1996 and April 2, 1995 ..... 5
Notes to Consolidated Condensed Financial Statements ..... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 7-9
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of
Security Holders ................................ 10
Item 6 - Exhibits and Reports on Form 8-K ................ 10
Signatures ..................................................... 11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MATEC Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except share data) (Unaudited)
3/31/96 12/31/95
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 825 $ 830
Receivables, less allowances of $288 and $194 ........ 5,928 5,673
Inventories .......................................... 6,926 7,719
Deferred income taxes and other current assets ....... 1,060 1,032
------- -------
Total current assets ............................... 14,739 15,254
------- -------
Property, plant and equipment, at cost ................. 18,595 18,333
Less accumulated depreciation ........................ 11,979 11,638
------- -------
6,616 6,695
------- -------
Marketable equity securities ........................... 1,941 2,135
Other assets ........................................... 145 141
------- -------
$23,441 $24,225
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ........................................ $ 2,235 $ 2,435
Current portion of long-term debt .................... 204 228
Accounts payable ..................................... 2,053 2,637
Accrued liabilities .................................. 1,308 1,379
Income taxes ......................................... 408 350
------- -------
Total current liabilities .......................... 6,208 7,029
------- -------
Deferred income taxes .................................. 1,370 1,436
Long-term debt ......................................... 2,181 2,180
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 6,397
Retained earnings .................................... 11,249 11,031
Net unrealized gain on marketable equity securities .. 1,065 1,181
Treasury stock at cost, 1,029,364 and 1,029,315 shares (5,219) (5,219)
------- -------
Total stockholders' equity ...................... 13,682 13,580
------- -------
$23,441 $24,225
======= =======
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
3/31/96 4/2/95
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Net sales ............................ $ 8,652 $ 6,319
Cost of sales ........................ 6,263 4,501
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Gross profit ....................... 2,389 1,818
Operating expenses:
Selling and administrative ......... 1,762 1,600
Research and development ........... 134 112
------- -------
1,896 1,712
Operating profit ..................... 493 106
Other income (expense):
Interest expense .................... (116) (82)
Other, net .......................... (13) (16)
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(129) (98)
Earnings before income taxes ......... 364 8
Income tax expense ................... 146 3
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Net earnings ......................... 218 5
======= =======
Earnings per share ................... $ .08 $ .00
====== ======
Average shares outstanding ........... 2,764 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)
Three Months Ended
3/31/96 4/2/95
-------- --------
Cash flows from operating activities:
Net earnings ..................................... $ 218 $ 5
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Non-cash items ................................. 285 341
Changes in operating assets and liabilities .... (12) (1,275)
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Net cash provided (used) by operating activities 491 (929)
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Cash flows from investing activities:
Capital expenditures, net ........................ (262) (415)
Collection of amount due from sale of
discontinued operations ......................... - 250
Other, net........................................ (10) (15)
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Net cash (used) by investing activities (272) (180)
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Cash flows from financing activities:
Net borrowings (repayments) under lines of credit (200) 1,158
Payments on long-term debt ....................... (24) (24)
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Net cash provided (used) by financing activities (224) 1,134
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Net increase (decrease) in cash and cash equivalents (5) 25
Cash and cash equivalents:
Beginning of period .............................. 830 544
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End of period .................................... $ 825 $ 569
======= =======
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 1995 MATEC
Corporation and Subsidiaries Annual Report which is incorporated by
reference in Form 10-K for the year ended December 31, 1995.
2. Inventories:
Inventories consist of the following (in thousands):
3/31/96 12/31/95
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Raw materials ....................... $ 3,221 $ 3,415
Work in process ..................... 1,008 925
Finished goods ...................... 2,697 3,379
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$ 6,926 $ 7,719
======= =======
Inventories of $2,799,000 in 1996 and $2,897,000 in 1995 are
determined by the LIFO method.
3. Adoption of New Accounting Standards:
In 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" and SFAS No. 123,
"Accounting for Stock-Based Compensation". The adoption of SFAS No. 121
did not have a material effect on the Company's financial statements. As
allowed by SFAS 123, the Company will continue to apply Accounting
Principles Board Opinion No. 25 for employee stock compensation
measurement. The pro-forma disclosures required by this standard will be
adopted for the year ended December 31, 1996 financial statements.
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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 $5,000 during the three months
ended March 31, 1996. The Company's operations generated $491,000 in
cash during this period, while investing and financing activities used
cash of $272,000 and $224,000, respectively.
Net earnings of $218,000 and the noncash effect of depreciation and
amortization expense of $347,000 partially offset by the changes in
deferred income taxes of $63,000 were the primary sources of cash from
operations. During the quarter ended March 31, 1996, $12,000 of cash was
used to support the net change in operating assets and liabilities. The
increase in accounts receivable and the reduction in accounts payable,
partially offset by the reduction in inventory were the main reasons for
the use of cash. Accounts receivable, net increased $255,000 mainly as a
result of the higher sales level and the timing of sales during the
current quarter. The Company reduced its accounts payable balance by
$584,000 during the current quarter. The inventory decrease of $793,000
from the December 31, 1995 level is due to a combination of shorter lead
times for certain products, shipments on previously delayed shipment
dates and the Company's effort to reduce certain inventory levels.
The Company's principal investing activity during the three months
ended March 31, 1996 was the purchase of $262,000 of capital equipment.
Machinery and equipment additions in the steel cable and electronics
segments accounted for the majority of these expenditures. These
additions are geared toward adding new and upgrading existing production
capabilities and processes within both segments.
During the quarter ended March 31, 1996, the Company reduced its
lines of credit borrowings by $200,000 and its long-term debt by $24,000.
At March 31, 1996, the Company's unused portion of its lines of credit
arrangements was $615,000.
Management believes that based on its current debt arrangements,
its current working capital, and the expected cash flows from operations
the Company's resources are sufficient to meet its financial needs in
1996 including a remaining capital expenditures budget of $1,538,000.
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Results of Operations -- Overview --
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Net sales for the quarter ended March 31, 1996 increased $2,333,000
(37%) over the comparable period in 1995, mainly as a result of higher
sales in the electronics and steel cable segments.
The overall gross profit percentage decreased slightly from 1995 as
lower margins in the instruments segment were partially offset by higher
margins in the electronics and steel cable segments.
Total selling and administrative expenses increased $162,000 (10%)
over 1995. Selling expenses increased $94,000 (9%) over 1995, but as a
percentage of sales decreased from 16.4% in 1995 to 13.1% in 1996.
Higher expenses in the electronics segment, partially offset by lower
expenses in both the steel cable and instruments segments accounted for
the net increase in selling expense. General and administrative expenses
increased $68,000 (12%), but as a percentage of sales decreased from 8.9%
in 1995 to 7.3% in 1996. The increased expenses were mainly due to the
higher Company-wide profit sharing and incentive bonus expense, partially
offset by lower expenses in the steel cable segment.
Research and development expenses increased $22,000 (20%) over 1995
as a result of higher expenses in the instruments segment.
Other income (expense), net amounted to $129,000 of expense in 1996
compared to $98,000 of expense in 1995. Interest expense increased
$34,000 over 1995 due to the higher levels of short and long-term debt.
The real estate operations loss declined $5,000 from 1995 mainly as a
result of increased rental income.
The estimated effective income tax rate for 1996 is 40% compared to
37% in 1995. The difference in rates is mainly due to higher estimated
state income taxes in 1996.
Based on the higher sales level, the increased gross margin and the
lower percentage of operating expenses to sales, operating profit
increased from $106,000 in 1995 to $493,000 during the quarter ended
March 31, 1996. Nonoperating expenses increased $31,000 over 1995 mainly
as a result of increased interest expense. As a result, the Company
reported a pre-tax profit of $364,000 during the quarter ended March 31,
1996 versus $8,000 in 1995. The after tax earnings amounted to $218,000
in 1996 compared to $5,000 in 1995.
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Business Segment Results
- ------------------------
Sales in the electronics segment increased $1,712,000 (65%) over
1995 as all but one product line reported significant increases. The
sales increases were primarily attributable to higher sales to both the
OEM and contract manufacturers in the telecommunications market. The
overall gross profit percentage increased 16% over 1995 mainly as a
result of the favorable effects of allocating the fixed overhead expenses
over the increased sales level. Total operating expenses increased
$221,000 (61%) over 1995, but remained level with 1995 as a percentage of
sales. Increased profit sharing and bonus expense and higher selling
expenses accounted for the change. Increased sales commission, bad debt
and personnel expenses were the major items causing the higher selling
expense. Based on the increased sales and gross profit, offset in part
by higher operating expenses, the electronics segment reported an
operating profit increase of $365,000 over 1995.
Sales in the steel cable segment increased $601,000 (26%) over 1995
mainly due to increased sales to the automotive and marine markets. The
overall gross profit percentage increased slightly over last year as the
favorable effects of spreading the fixed overhead over the increased
sales was partially offset by increased material costs due to the product
mix. Total operating expenses decreased $102,000 (21%) from 1995 mainly
as a result of a decrease in legal fees, advertising and personnel
expenses. As a result of the increased sales and gross margin coupled
with the decrease in operating expenses, the steel cable segment reported
a $239,000 increase in operating profit over 1995.
Total sales in the instruments segment increased slightly over 1995
as increased sales to the NDT/NDE markets were partially offset by
decreased unit sales of instruments to the colloidal markets. Sales to
the medical research market remained flat with 1995. The overall gross
profit percentage decreased 26% from 1995 as all product lines reported
lower margins. Changes in the sales mix and increased personnel costs
were the main causes of the lower margin. Total operating expenses
decreased $33,000 (5%) from 1995 as a decrease in selling expenses was
partially offset by higher research and development costs. The selling
expense decrease was due to lower personnel, travel and advertising
expenses. Increased personnel and operating supplies costs were the
primary reasons for the increase in research and development expense.
Based on the decreased margins recorded on the slightly higher sales,
offset in part by lower operating expenses, the instruments segment
reported a $122,000 increase in its operating loss compared to 1995.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on April 24, 1996
to consider and vote on the election of seven directors.
Stockholders cast votes for the election of directors as
follows:
Nominee "For" "Withheld"
------------------ --------- ----------
Eli Fleisher 2,203,515 6,412
Robert B. Gill 2,203,517 6,410
Lawrence Holsborg 2,203,367 6,560
John J. McArdle III 2,203,200 6,727
Joseph W. Tiberio 2,203,490 6,437
Robert W. Valpey 2,202,971 6,956
Ted Valpey, Jr. 2,202,521 7,406
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement re Computation of Per Share Earnings.
Filed herein.
27. Financial Data Schedule. Filed for electronic
purposes only.
(b) Reports on Form 8-K - None
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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: May 10, 1996 By
---------------------------------
Robert B. Gill,
President and Chief Executive
Officer
Date: May 10, 1996 By
---------------------------------
Michael J. Kroll,
Vice President and Treasurer
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<PAGE>
MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Three Months Ended
3/31/96 4/2/95
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Net earnings ...................................... $ 218 $ 5
====== ======
Calculation of primary earnings per share:
- ------------------------------------------
Weighted average common shares outstanding ....... 2,764 2,765
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon average market prices ................ 23 31
------ -------
Average common stock and common equivalent
shares outstanding (C) .......................... 2,787 2,796
====== =======
Net earnings per common and common equivalent
share (A) ....................................... $ .08 $ .00
====== =======
Calculation of fully diluted earnings per share:
- ------------------------------------------------
Weighted average common shares outstanding ....... 2,764 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 ................................... 23 31
------ -------
Average common stock and common equivalent
shares used to calculate fully diluted earnings
per share (C) ................................... 2,787 2,796
====== =======
Net earnings per common and common equivalent
share assuming full dilution (B) ................ $ .08 $ .00
====== =======
(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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<PAGE>
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<PP&E> 18595
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