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 June 30, 1996
-----------------------------------------
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
- -------------------------------------------------------------------------
(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 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 August 9, 1996, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,774,743.
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<PAGE>
MATEC Corporation
Index
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
June 30, 1996 and December 31, 1995 ..................... 3
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1996 and July 2, 1995 ......... 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1996 and July 2, 1995 ......... 5
Notes to Consolidated Condensed Financial Statements ..... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 7-10
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ................ 11
Signatures ..................................................... 12
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MATEC Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except share data) (Unaudited)
6/30/96 12/31/95
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 1,207 $ 830
Receivables, net ..................................... 5,354 5,673
Inventories .......................................... 6,313 7,719
Deferred income taxes and other current assets ....... 979 1,032
------- -------
Total current assets ............................... 13,853 15,254
------- -------
Property, plant and equipment, at cost ................. 18,857 18,333
Less accumulated depreciation ........................ 12,313 11,638
------- -------
6,544 6,695
------- -------
Marketable equity securities ........................... 2,005 2,135
Other assets ........................................... 142 141
------- -------
$22,544 $24,225
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ........................................ $ 1,810 $ 2,435
Current portion of long-term debt .................... 180 228
Accounts payable ..................................... 1,477 2,637
Accrued liabilities .................................. 1,300 1,379
Income taxes ......................................... 279 350
------- -------
Total current liabilities .......................... 5,046 7,029
------- -------
Deferred income taxes .................................. 1,397 1,436
Long-term debt ......................................... 2,182 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 3,799,695 shares 190 190
Capital surplus ...................................... 6,420 6,397
Retained earnings .................................... 11,424 11,031
Net unrealized gain on marketable equity securities .. 1,104 1,181
Treasury stock at cost, 1,029,426 and 1,029,315 shares (5,219) (5,219)
------- -------
Total stockholders' equity ...................... 13,919 13,580
------- -------
$22,544 $24,225
======= =======
See notes to consolidated condensed financial statements.
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<PAGE>
MATEC Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
6/30/96 7/2/95 6/30/96 7/2/95
------- ------- -------- --------
Net sales ..................... $ 8,114 $ 7,026 $ 16,765 $ 13,345
Cost of sales ................. 5,972 4,897 12,235 9,398
------- ------- -------- --------
Gross profit ................ 2,142 2,129 4,530 3,947
Operating expenses:
Selling and administrative .. 1,603 1,857 3,366 3,456
Research and development .... 177 119 310 231
------- ------- -------- --------
1,780 1,976 3,676 3,687
Operating profit .............. 362 153 854 260
Other income (expense):
Interest expense ............. (115) (91) (231) (173)
Other, net ................... 25 (15) 12 (31)
------- ------- -------- --------
(90) (106) (219) (204)
Earnings before income taxes .. 272 47 635 56
Income tax expense ............ 96 19 242 22
------- ------- -------- --------
Net earnings .................. $ 176 $ 28 $ 393 34
======= ======= ======== ========
Earnings per share ............ $ .06 $ .01 $ .14 $ .01
===== ===== ===== =====
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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<PAGE>
MATEC Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
6/30/96 7/2/95
-------- --------
Cash flows from operating activities:
Net earnings ..................................... $ 393 $ 34
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Non-cash items ................................. 667 659
Changes in operating assets and liabilities .... 503 (1,941)
------- -------
Net cash provided (used) by operating activities 1,563 (1,248)
- ----------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures, net ........................ (524) (827)
Collection of amount due from sale of
discontinued operations ......................... - 250
Other, net........................................ (12) (22)
------- -------
Net cash (used) by investing activities (536) (599)
- ----------------------------------------------------------------------
Cash flows from financing activities:
Net repayments under lines of credit ............. (625) -
Proceeds from issuance of long-term debt and
warrants ........................................ - 2,000
Payments on long-term debt ....................... (48) (223)
Stock options exercised .......................... 23 -
------- -------
Net cash provided (used) by financing activities (650) 1,777
- ----------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 377 (70)
Cash and cash equivalents:
Beginning of period .............................. 830 544
------- -------
End of period .................................... $ 1,207 $ 474
======= =======
See notes to consolidated condensed financial statements.
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<PAGE>
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. Revenue Recognition:
Revenue is generally recognized when products are shipped. Revenue
under long-term contracts is recorded primarily on the percentage of
completion method. Under this approach, sales and gross margin are
recognized as the work is performed, based on the ratio that incurred
costs bear to estimated total completion costs. Provisions for
anticipated losses are made in the period in which they first become
determinable.
3. Receivables:
Receivables consist of the following (in thousands):
6/30/96 12/31/95
------- --------
Accounts receivable, less allowance for
doubtful accounts of $278 and $194 ..... $ 4,897 $ 5,673
Costs and estimated earnings in excess of
billings on uncompleted contracts ...... 457 -
------- --------
$ 5,354 $ 5,673
======= ========
4. Inventories:
Inventories consist of the following (in thousands):
6/30/96 12/31/95
------- --------
Raw materials ....................... $ 2,934 $ 3,415
Work in process ..................... 993 925
Finished goods ...................... 2,386 3,379
------- -------
$ 6,313 $ 7,719
======= =======
Inventories of $2,615,000 in 1996 and $2,897,000 in 1995 are
determined by the LIFO method.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents increased $377,000 during the six months
ended June 30, 1996. The Company's operations generated $1,563,000 in
cash during this period, while investing and financing activities used
cash of $536,000 and $650,000, respectively.
The primary sources of cash from operations were net earnings of
$393,000, the net noncash effect of expenses, mainly depreciation, of
$667,000 and $503,000 from the favorable change in operating assets and
liabilities. Decreases in inventory and receivables, offset in part by a
reduction in accounts payable, were the primary reasons for the decrease
in net operating assets. The inventory decrease of $1,406,000 from the
December 31, 1995 level is mainly due to the Company's effort to reduce
certain inventory levels and the shorter lead times for certain
products. Receivables, net decreased $319,000 mainly as a result of the
lower sales level compared to the fourth quarter of 1995 and an increase
in the allowance for doubtful accounts. The Company reduced its accounts
payable balance by $1,160,000 during the six month period.
The Company's principal investing activity during the six months
ended June 30, 1996 was the purchase of $524,000 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 six months ended June 30, 1996, the Company reduced its
lines of credit borrowings by $625,000 and its long-term debt by $48,000.
At June 30, 1996, the Company's unused portion of its lines of credit
arrangements was $1,040,000.
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 estimated capital expenditures of $500,000.
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<PAGE>
Results of Operations -- Overview --
- ------------------------------------
Net sales for the quarter and six months ended June 30, 1996
increased $1,088,000 (15%) and $3,420,000 (26%), respectively, over the
comparable periods in 1995, as higher sales in the electronics and steel
cable segments were partially offset by lower sales in the instruments
segment.
During both periods the overall gross profit percentage decreased
from 1995 levels mainly as a result of lower margins in the instruments
segment.
Total selling and administrative expenses for the quarter and six
months ended June 30, 1996 decreased $254,000 (14%) and $90,000 (3%),
respectively, from the 1995 comparable periods. Lower selling expenses,
partially offset by higher administrative expenses, resulted in the net
decrease in expenses during both periods. Reduced expenses in both the
steel cable and instruments segments, partially offset by higher expenses
in the electronics segment, accounted for the net decreases in selling
expense. During the quarter and six months ended June 30, 1996, general
and administrative expenses increased $15,000 (3%) and $85,000 (7%),
respectively. 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.
The increases in research and development expenses were due to
higher expenses in the instruments segment.
During the quarter and six months ended June 30, 1996, interest
expense increased $24,000 and $58,000, respectively, over the 1995
periods due to the higher levels of short and long-term debt.
Other income (expense), net includes the following (in thousands):
Quarter Ended Six Months Ended
6/30/96 7/2/95 6/30/96 7/2/95
------- ------- ------- -------
Dividend income ........... $ 26 $ - $ 26 $ -
Real estate operations .... (5) (25) (23) (48)
Interest income ........... 4 8 4 13
Other, net ................ - 2 5 4
------- ------- ------- -------
$ 25 $ (15) $ 12 $ (31)
======= ======= ======= =======
The lower losses in the real estate operations are mainly due to
increased rental income.
The estimated effective income tax rate for 1996 is 38% compared to
39% in 1995. The difference in rates is mainly due to the effective
state income tax rate.
-8-
<PAGE>
Based on the higher sales levels, the increased gross margin and the
lower operating expenses, the Company reported increased operating profit
during both the quarter and six month periods ended June 30, 1996. The
net nonoperating expenses remained fairly level with the corresponding
1995 period. As a result, the Company reported pre-tax profits of
$272,000 and $635,000 during the quarter and six months ended June 30,
1996, respectively, versus $47,000 and $56,000 in the corresponding 1995
periods. Net earnings amounted to $176,000 for the quarter ended June
30, 1996 versus $28,000 in 1995 and $393,000 for the six months ended
June 30, 1996 versus $34,000 in 1995.
Based on the recent weakness in the telecommunications market and the
softness in order input, the Company believes that sales and operating
performance in the electronics segment in the next two quarters may be
lower than that experienced in the past several quarters.
Business Segment Results
- ------------------------
The following table presents by segment the amounts and percentages
of sales increase (decrease) from the corresponding prior year periods.
Quarter Ended Six Months Ended
6/30/96 6/30/96
--------------- ----------------
Segment (000's) % (000's) %
- --------------------- ------- --- ------- ---
Electronics ......... $ 514 19 $ 2,226 42
Steel Cable ......... 869 37 1,470 31
Instruments ......... (295) (15) (276) (8)
------- -------
Total $ 1,088 15 $ 3,420 26
======= =======
The sales increases in the electronics segment were primarily
attributable to higher sales to both the OEM and contract manufacturers
in the telecommunications market. During the quarter ended, the overall
gross profit percentage decreased 14% from 1995 mainly as a result of
increased overhead expenses and changes in sales mix with higher sales
levels from the resale of imported product at lower margins. During the
six months ended, the overall gross profit percentages were comparable.
During the quarter and six months ended, total operating expenses
increased $80,000 (18%) and $301,000 (36%), respectively, over the 1995
periods. As a percentage of sales, these expenses decreased slightly
from the 1995 periods. Increased sales commission, advertising, bad debt
and personnel expenses were the major items causing the higher operating
expenses. As a result of the above, the electronics segment reported a
slight decline in operating profit from 1995 during the quarter ended.
For the six months ended June 30, 1996, this segment reported a $357,000
increase in operating profit over 1995.
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<PAGE>
The higher sales levels in the steel cable segment were mainly due to
increased sales to the automotive and marine markets. During the quarter
and six months ended June 30, 1996, the overall gross profit percentage
increased 37% and 17%, respectively, over 1995 due to the sales mix and
the favorable effects of spreading the fixed overhead over the increased
sales, partially offset by a slight increase in material costs due to the
product mix. Total operating expenses decreased $92,000 and $194,000
from 1995 during the quarter and six months ended 1996 periods,
respectively, mainly as a result of a decrease in legal fees 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 $427,000 increase in operating profit over 1995 during the
quarter ended and a $666,000 increase over 1995 during the six months
ended June 30, 1996.
The lower sales in the instruments segment were due to decreased unit
sales of instruments to the colloidal and medical research markets offset
in part by increased sales to the NDT/NDE markets. During both the
quarter and six months ended June 30, 1996, the overall gross profit
percentage decreased 25% from the 1995 periods as all product lines
reported lower margins. Changes in the sales mix, increased personnel
costs and the effects of spreading the fixed overhead over the lower
sales levels were the main causes of the margin decrease. During the
quarter and six months ended periods, total operating expenses decreased
$207,000 (26%) and $240,000 (17%), respectively, from the 1995 periods as
lower selling expenses were partially offset by higher research and
development costs. The selling expense decreases were due to lower
personnel, travel and advertising expenses. Increased personnel and
operating supplies costs were the primary reasons for the higher research
and development expense. Based on the decreased margins recorded on the
lower sales levels, offset in part by reduced operating expenses the
instruments segment reported a $154,000 decrease in its operating profit
for the 1996 quarter ended compared to 1995. For the six months ended
June 30, 1996, this segment reported an operating loss of $74,000 versus
a $202,000 profit in 1995.
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<PAGE>
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.
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: August 9, 1996 By /s/ Robert B. Gill
---------------------------------
Robert B. Gill,
President and Chief Executive
Officer
Date: August 9, 1996 By /s/ Michael J. Kroll
---------------------------------
Michael J. Kroll,
Vice President and Treasurer
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<PAGE>
MATEC Corporation Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Three Months Ended
6/30/96 7/2/95
------- ------
Net earnings ...................................... $ 176 $ 28
======= ======
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 ................ 79 26
------- ------
Average common stock and common equivalent
shares outstanding (B) .......................... 2,844 2,791
======= ======
Net earnings per common and common equivalent
share (A) ....................................... $ .06 $ .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 ................................... 79 26
------- ------
Average common stock and common equivalent
shares used to calculate fully diluted earnings
per share (B) ................................... 2,884 2,791
======= ======
Net earnings per common and common equivalent
share assuming full dilution (C) ................ $ .06 $ .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) The effect of the outstanding warrants is excluded from the 1996
calculation since the effect of the warrants using the if-converted
method would be antidilutive. The effect of the outstanding warrants
is excluded from 1995 since they do not meet either test of paragraph
37 of APB Opinion No. 15.
(C) Dilution is less than 3%, therefore the primary basis was used for
per share calculations.
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<PAGE>
MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Six Months Ended
6/30/96 7/2/95
------ ------
Net earnings ...................................... $ 393 $ 34
====== ======
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 ................ 79 29
------ -------
Average common stock and common equivalent
shares outstanding (B) .......................... 2,844 2,794
====== =======
Net earnings per common and common equivalent
share (A) ....................................... $ .14 $ .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 ................................... 79 29
------ -------
Average common stock and common equivalent
shares used to calculate fully diluted earnings
per share (B) ................................... 2,844 2,794
====== =======
Net earnings per common and common equivalent
share assuming full dilution (C) ................ $ .14 $ .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) The effect of the outstanding warrants is excluded from the 1996
calculation since the effect of the warrants using the if-converted
method would be antidilutive. The effect of the outstanding warrants
is excluded from 1995 since they do not meet either test of paragraph
37 of APB Opinion No. 15.
(C) Dilution is less than 3%, therefore the primary basis was used for
per share calculations.
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,207
<SECURITIES> 0
<RECEIVABLES> 5,632
<ALLOWANCES> 278
<INVENTORY> 6,313
<CURRENT-ASSETS> 13,853
<PP&E> 18,857
<DEPRECIATION> 12,313
<TOTAL-ASSETS> 22,544
<CURRENT-LIABILITIES> 5,046
<BONDS> 2,182
0
0
<COMMON> 190
<OTHER-SE> 13,729
<TOTAL-LIABILITY-AND-EQUITY> 22,544
<SALES> 16,765
<TOTAL-REVENUES> 16,765
<CGS> 12,235
<TOTAL-COSTS> 12,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 102
<INTEREST-EXPENSE> 231
<INCOME-PRETAX> 635
<INCOME-TAX> 242
<INCOME-CONTINUING> 393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 393
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
