UNITED STATES 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 June 29, 1997
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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
- -------------------------------------------------------------------------
(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 7, 1997, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,733,691.
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<PAGE>
MATEC Corporation
Index
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
June 29, 1997 and December 31, 1996 ..................... 3
Consolidated Statements of Operations - Three Months and
Six Months Ended June 29, 1997 and June 30, 1996 ........ 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 29, 1997 and June 30, 1996 ........ 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)
6/29/97 12/31/96
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 912 $ 884
Receivables, net ..................................... 5,040 5,764
Inventories .......................................... 5,838 5,464
Deferred income taxes and other current assets ....... 1,347 1,037
------- -------
Total current assets ............................... 13,137 13,149
------- -------
Property, plant and equipment, at cost ................. 19,516 18,894
Less accumulated depreciation ........................ 12,956 12,480
------- -------
6,560 6,414
------- -------
Marketable equity securities ........................... 2,976 2,782
Other assets ........................................... 122 109
------- -------
$22,795 $22,454
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ........................................ $ 890 $ 1,190
Current portion of long-term debt .................... 200 200
Accounts payable ..................................... 2,533 2,035
Accrued liabilities .................................. 1,352 1,399
Income taxes ......................................... 149 119
------- -------
Total current liabilities .......................... 5,124 4,943
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Deferred income taxes .................................. 1,750 1,652
Long-term debt ......................................... 1,987 1,984
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 3,804,195 shares 190 190
Capital surplus ...................................... 6,443 6,443
Retained earnings .................................... 10,978 10,955
Net unrealized gain on marketable equity securities .. 1,686 1,570
Treasury stock at cost, 1,069,004 and 1,049,467 shares (5,363) (5,283)
------- -------
Total stockholders' equity ...................... 13,934 13,875
------- -------
$22,795 $22,454
======= =======
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
6/29/97 6/30/96 6/29/97 6/30/96
------- ------- -------- --------
Net sales ..................... $ 7,545 $ 8,114 $ 14,990 $ 16,765
Cost of sales ................. 6,074 5,972 12,007 12,235
------- ------- -------- --------
Gross profit ................ 1,471 2,142 2,983 4,530
Operating expenses:
Selling and administrative .. 1,408 1,603 2,805 3,366
Research and development .... 19 177 70 310
Restructuring ............... (90) - (90) -
------- ------- -------- --------
1,337 1,780 2,785 3,676
Operating profit .............. 134 362 198 854
Other income (expense):
Interest expense ............. (83) (115) (166) (231)
Other, net ................... 19 25 6 12
------- ------- -------- --------
(64) (90) (160) (219)
Earnings before income taxes .. 70 272 38 635
Income tax expense ............ 28 96 15 242
------- ------- -------- --------
Net earnings .................. $ 42 $ 176 $ 23 $ 393
======= ======= ======== ========
Earnings per share ............ $ .02 $ .06 $ .01 $ .14
===== ===== ===== =====
Average shares outstanding .... 2,734 2,765 2,741 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
6/29/97 6/30/96
-------- --------
Cash flows from operating activities:
Net earnings ..................................... $ 23 $ 393
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Non-cash items ................................. 665 667
Changes in operating assets and liabilities .... 563 503
------- -------
Net cash provided by operating activities 1,251 1,563
- ----------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures, net ........................ (822) (524)
Other, net........................................ (21) (12)
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Net cash (used) by investing activities (843) (536)
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Cash flows from financing activities:
Net (repayments) under lines of credit ........... (300) (625)
Purchases of treasury stock ...................... (80) -
Payments on long-term debt ....................... - (48)
Stock options exercised .......................... - 23
------- -------
Net cash (used) by financing activities ........... (380) (650)
- ----------------------------------------------------------------------
Net increase in cash and cash equivalents ......... 28 377
Cash and cash equivalents:
Beginning of period .............................. 884 830
------- -------
End of period .................................... $ 912 $ 1,207
======= =======
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 1996 MATEC
Corporation and Subsidiaries Annual Report which is incorporated by
reference in Form 10-KSB for the year ended December 31, 1996.
2. Receivables:
Receivables consist of the following (in thousands):
6/29/97 12/31/96
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Accounts receivable, less allowance for
doubtful accounts of $135 and $145 ..... $ 4,774 $ 5,498
Costs and estimated earnings in excess of
billings on uncompleted contracts ...... 142 142
Refundable income taxes ................. 124 124
------- --------
$ 5,040 $ 5,764
======= ========
3. Inventories:
Inventories consist of the following (in thousands):
6/29/97 12/31/96
------- --------
Raw materials ....................... $ 2,711 $ 2,586
Work in process ..................... 1,223 849
Finished goods ...................... 1,904 2,029
------- -------
$ 5,838 $ 5,464
======= =======
Inventories of $2,769,000 in 1997 and $2,575,000 in 1996 are
determined by the LIFO method.
4. Subsequent Events:
In July 1997, the Company announced the signing of a letter of
intent to sell its Bergen Cable Technologies, Inc. subsidiary to Teleflex
Incorporated for approximately $9,750,000 in cash. The transaction is
subject to the negotiation and execution of a definitive purchase
agreement and real estate lease between the parties, and the parties'
necessary corporate approvals. Bergen's operations make up the steel
cable segment of the Company's business. On August 5, 1997, Teleflex
informed the Company that the acquisition of Bergen by Teleflex on the
basis previously discussed is not in the best interests of Teleflex.
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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 $28,000 during the six months
ended June 29, 1997. The Company's operations generated $1,251,000 in
cash during this period, while investing and financing activities used
cash of $843,000 and $380,000, respectively.
The primary sources of cash from operations were net earnings of
$23,000, the net noncash items, mainly depreciation, of $665,000 and
$563,000 from the favorable change in operating assets and liabilities.
A decrease in receivables and an increase in payables, offset in part by
an increase in inventory, were the primary reasons for the decrease in
net operating assets. The receivables decrease of $754,000 from the
December 31, 1996 level is mainly due to a reduction in the number of
days sales in receivables outstanding. The increase in accounts payable
is mainly attributable to the timing of inventory purchases. Higher
inventory levels in the steel cable segment due to the increased sales
levels and in the instruments segment in order to complete its current
backlog of orders were the main reasons for the increase in inventory.
The Company's principal investing activity during the six months
ended June 29, 1997 was the purchase of $822,000 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 29, 1997, the Company reduced its
lines of credit borrowings by $300,000. At June 29, 1997, the Company's
unused portion of its lines of credit arrangements was $1,960,000.
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
1997 including a remaining capital expenditures budget of approximately
$480,000.
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<PAGE>
Results of Operations -- Overview --
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Net sales for the quarter ended June 29, 1997 decreased $569,000 (7%)
from the comparable period in 1996, as lower sales in the instruments
segment were partially offset by increased sales in the steel cable
segment. During the six months ended, net sales decreased $1,775,000
(11%) from the 1996 level, as lower sales in both the instruments and
electronics segments were partially offset by increased sales in the
steel cable segment.
During both periods the overall gross profit percentage decreased
from 1996 levels mainly as a result of lower margins in the steel cable
and electronics segments.
Total selling and administrative expenses for the quarter and six
months ended June 29, 1997 decreased $195,000 (12%) and $561,000 (17%),
respectively, from the 1996 comparable periods. Lower selling expenses
in the instruments and electronics segments accounted for the majority of
the decrease in expenses during both periods.
Research and development expenses decreased in both periods compared
to 1996 as a result of lower expenses in the instruments segment.
The restructuring credit represents a cash recovery, net of legal
expenses, from the the sale of one of the product lines in the
instruments segment.
During the quarter and six months ended June 29, 1997, interest
expense decreased $32,000 and $65,000, respectively, from the 1996
periods due to the lower levels of short and long-term debt.
Other income (expense), net includes the following (in thousands):
Quarter Ended Six Months Ended
6/29/97 6/30/96 6/29/97 6/30/96
------- ------- ------- -------
Dividend income ........... $ 16 $ 26 $ 31 $ 26
Real estate operations .... (10) (5) (37) (23)
Interest income ........... 8 4 9 4
Other, net ................ 5 - 3 5
------- ------- ------- -------
$ 19 $ 25 $ 6 $ 12
======= ======= ======= =======
The higher losses in the real estate operations are mainly due to
decreased rental income.
The estimated effective income tax rate for 1997 is 40% compared to
38% in 1996.
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<PAGE>
Based on the lower sales levels and the decreased gross margin,
partially offset by the lower operating expenses, the Company reported
decreased operating profit during both the quarter and six month periods
ended June 29, 1997. The net nonoperating expenses decreased slightly
from the corresponding 1996 periods. As a result, the Company reported
pre-tax profits of $70,000 and $38,000 during the quarter and six months
ended June 29, 1997, respectively, versus $272,000 and $635,000 in the
corresponding 1996 periods. Net earnings amounted to $42,000 for the
quarter ended June 29, 1997 versus $176,000 in 1996 and $23,000 for the
six months ended June 29, 1997 versus $393,000 in 1996.
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
6/29/97 6/29/97
--------------- ----------------
Segment (000's) % (000's) %
- --------------------- ------- --- ------- ---
Electronics ......... $ 15 - $(1,394) (18)
Steel Cable ......... 409 13 1,169 19
Instruments ......... (993) (59) (1,550) (51)
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Total $ (569) (7) $(1,775) (11)
======= =======
Sales in the electronics segment remained flat with the second
quarter of 1996, but decreased 18% from 1996 during the six month period
ended. This decrease was primarily attributable to lower sales to both
the OEM and contract manufacturers in the telecommunications market. The
segment first began to see the softness in this market during the latter
part of the second quarter of 1996. During the quarter ended, the
overall gross profit percentage decreased 3% from 1996 mainly as a result
of changes in sales mix. During the six months ended, the overall gross
profit percentages decreased 17% as a result of the negative effect of
allocating the fixed overhead over the lower sales level and changes in
the sales mix. During the quarter and six months ended, total operating
expenses decreased 5% and 11%, respectively, from the 1996 periods mainly
due to lower sales commission and personnel expenses. As a result of the
above, the electronics segment reported a $22,000 increase in operating
profit over 1996 during the quarter ended and a $505,000 decrease from
1996 during the six months ended period.
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<PAGE>
The higher sales levels in the steel cable segment were mainly due to
increased sales to the automotive market. During the quarter and six
months ended June 29, 1997, the overall gross profit percentage decreased
43% and 36%, respectively, from 1996 mainly as a result of increased
operating costs, primarily labor and freight, in its Mexican facility.
Based on the increased sales volume and customer delivery requirements
from its Mexican operation, the Company experienced an increase in the
number of and turnover of direct labor people, resulting in significant
labor inefficiencies and higher than anticipated labor costs. In
addition, in order to meet customer delivery requirements, the Company
incurred higher than expected freight expenses. During both periods,
total operating expenses decreased slightly from prior year periods,
mainly due to a lower bad debt expense provision. Mainly as a result of
the lower gross margins, the steel cable segment reported decreases of
$236,000 and $275,000 in operating profit versus 1996 during the quarter
and six months period ended June 29, 1997, respectively.
While all product lines in the instruments segment reported sales
decreases from 1996 during both periods, lower sales of custom test
systems to the NDT/NDE markets accounted for the majority of the
decreases in both periods. During both periods in 1997 the overall gross
profit percentage has remained fairly consistent with the 1996 period
despite the sales decreases. The changes in the 1997 sales mix to
increased instruments sales versus custom test systems and operating
efficiencies achieved by the consolidation of this segment into one
location were the main reasons for the margin consistency. During the
quarter and six months ended periods, total operating expenses decreased
approximately 50% from 1996 levels, due mainly to lower selling and
research and development expenses. The selling expense decreases were
mainly due to lower personnel, travel, commission, and advertising
expenses. Decreased personnel expense and operating supplies and
materials were the primary reasons for the lower research and development
expense. Based on the decrease in the amount of gross profit recorded on
the lower sales levels, offset in part by reduced operating expenses, the
instruments segment reported a $15,000 operating loss for the 1997
quarter ended compared to a $49,00 operating profit in 1996. For the six
months ended June 29, 1997, this segment reported a $39,000 lower
operating loss versus the 1996 period.
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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 11, 1997 By /s/ Ted Valpey, Jr.
---------------------------------
Ted Valpey, Jr.
Chairman of the Board and
President
Date: August 11, 1997 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
6/29/97 6/30/96
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Net earnings ...................................... $ 42 $ 176
======= ======
Calculation of primary earnings per share:
- ------------------------------------------
Weighted average common shares outstanding ....... 2,734 2,765
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon average market prices ................ 37 79
------- ------
Average common stock and common equivalent
shares outstanding (B) .......................... 2,771 2,844
======= ======
Net earnings per common and common equivalent
share (A) ....................................... $ .02 $ .06
======= ======
Calculation of fully diluted earnings per share:
- ------------------------------------------------
Weighted average common shares outstanding ....... 2,734 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 ................................... 56 79
------- ------
Average common stock and common equivalent
shares used to calculate fully diluted earnings
per share (B) ................................... 2,790 2,844
======= ======
Net earnings per common and common equivalent
share assuming full dilution (C) ................ $ .02 $ .06
======= ======
(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 since they do not
meet either test of paragraph 37 of APB Opinion 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
6/29/97 6/30/96
------ -------
Net earnings ...................................... $ 23 $ 393
====== ======
Calculation of primary earnings per share:
- ------------------------------------------
Weighted average common shares outstanding ....... 2,741 2,765
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon average market prices ................ 22 79
------ -------
Average common stock and common equivalent
shares outstanding (B) .......................... 2,763 2,844
====== =======
Net earnings per common and common equivalent
share (A) ....................................... $ .01 $ .14
====== =======
Calculation of fully diluted earnings per share:
- ------------------------------------------------
Weighted average common shares outstanding ....... 2,741 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 ................................... 40 79
------ -------
Average common stock and common equivalent
shares used to calculate fully diluted earnings
per share (B) ................................... 2,781 2,844
====== =======
Net earnings per common and common equivalent
share assuming full dilution (C) ................ $ .01 $ .14
====== =======
(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 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>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 912
<SECURITIES> 0
<RECEIVABLES> 5,175
<ALLOWANCES> 135
<INVENTORY> 5,838
<CURRENT-ASSETS> 13,137
<PP&E> 19,516
<DEPRECIATION> 12,956
<TOTAL-ASSETS> 22,795
<CURRENT-LIABILITIES> 5,124
<BONDS> 1,987
0
0
<COMMON> 190
<OTHER-SE> 13,744
<TOTAL-LIABILITY-AND-EQUITY> 22,795
<SALES> 14,990
<TOTAL-REVENUES> 14,990
<CGS> 12,007
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<OTHER-EXPENSES> 0
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