<PAGE>
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 April 5, 1998
-----------------------------------------
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
- ------------------------------- -------------------------
(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 8, 1998, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,758,253.
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MATEC Corporation
Index
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
April 5, 1998 and December 31, 1997 ..................... 3
Consolidated Statements of Operations -
Three Months Ended April 5, 1998 and March 30, 1997 ..... 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended April 5, 1998 and March 30, 1997 ..... 5
Consolidated Statements of Comprehensive Income -
Three Months Ended April 5, 1998 and March 30, 1997 ..... 6
Notes to Consolidated Condensed Financial Statements ..... 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 9-11
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ................ 12
Signatures ..................................................... 12
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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)
4/5/98 12/31/97
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 1,295 $ 885
Receivables, less allowances of $100 and $90 ......... 3,263 3,124
Inventories .......................................... 3,927 3,193
Deferred income taxes and other current assets ....... 896 977
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Total current assets ............................... 9,381 8,179
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Property, plant and equipment, at cost ................. 8,855 12,143
Less accumulated depreciation ........................ 6,349 8,233
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2,506 3,910
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Marketable equity securities ........................... 4,140 4,657
Net assets of discontinued operations .................. 6,276 5,662
Other assets ........................................... 97 90
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$22,400 $22,498
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 1,675 $ 1,195
Accrued liabilities .................................. 886 1,172
Income taxes ......................................... 500 416
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Total current liabilities .......................... 3,061 2,783
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Deferred income taxes .................................. 1,910 2,317
Long-term debt ......................................... 1,990 1,989
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 .................................... 11,784 11,443
Net unrealized gain on marketable equity securities .. 2,385 2,696
Treasury stock at cost, 1,070,642 and 1,070,544 shares (5,363) (5,363)
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Total stockholders' equity ...................... 15,439 15,409
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$22,400 $22,498
======= =======
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
4/5/98 3/30/97(a)
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Net sales ................................ $ 4,573 $ 3,756
Cost of sales ............................ 3,373 2,802
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Gross profit ........................... 1,200 954
Operating expenses:
Selling and administrative ............. 1,000 973
Research and development ............... 51 51
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1,051 1,024
Operating profit (loss) .................. 149 (70)
Other income (expense):
Interest expense ........................ (51) (63)
Gain on sale of property, plant and
equipment .............................. 386 -
Other, net .............................. 13 (11)
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348 (74)
Earnings (loss) before from continuing
operations before income taxes .......... 497 (144)
Income tax (expense) benefit ............. (199) 58
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Earnings (loss) from continuing operations 298 (86)
Earnings from discontinued operations .... 43 67
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Net earnings (loss) ...................... $ 341 $ (19)
======= =======
Basic and diluted earnings (loss) per share:
Continuing operations ................... $ .10 $ (.03)
Discontinued operations ................. .02 .02
------ ------
$ .12 $ (.01)
====== ======
Weighted average shares, basic ........... 2,734 2,748
===== =====
Weighted average shares, diluted ......... 2,735 2,748
===== =====
Cash dividends per share ................ $ - $ -
===== =====
(a) Restated to reflect discontinued operations.
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
4/5/98 3/30/97(a)
-------- --------
Cash flows from operating activities:
Net earnings (loss) from continuing operations ... $ 298 $ (86)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization .................. 164 169
Deferred income taxes .......................... (201) (10)
Gain on sale of property, plant and equipment .. (386) -
Changes in operating assets and liabilities .... (514) 210
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Net cash provided (used) by operating activities (639) 283
- -----------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 1,862 -
Capital expenditures, net ........................ (234) (60)
Other, net........................................ (8) (15)
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Net cash provided (used) by investing activities 1,620 (75)
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Cash flows from financing activities:
Net (repayments) under lines of credit ........... - (50)
Purchases of common stock ........................ - (73)
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Net cash (used) by financing activities - (123)
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Net cash provided (used) by discontinued operations (571) 57
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Net increase in cash and cash equivalents ......... 410 142
Cash and cash equivalents:
Beginning of period .............................. 885 610
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End of period .................................... $ 1,295 $ 752
======= =======
(a) Restated to reflect discontinued operations.
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended
4/5/98 3/30/97
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Net earnings (loss) ...................... $ 341 $ (19)
Other comprehensive income, net of tax:
Unrealized gain (loss) on marketable
equity securities, net of tax benefit
of $207 in 1998 and $52 in 1997 ........ (311) (78)
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Comprehensive income ..................... $ 30 $ (97)
======= =======
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 1997 MATEC
Corporation and Subsidiaries Annual Report which is incorporated by
reference in Form 10-K for the year ended December 31, 1997.
2. Inventories:
Inventories consist of the following (in thousands):
4/5/98 12/31/97
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Raw materials ....................... $ 1,389 $ 1,074
Work in process ..................... 1,414 1,097
Finished goods ...................... 1,124 1,022
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$ 3,927 $ 3,193
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3. Discontinued Operations:
In the third quarter of 1997, the Company adopted a plan to sell
its Bergen Cable Technologies, Inc. ("Bergen") subsidiary and the
Company signed a letter of intent in December 1997 to sell
substantially all of the assets of Bergen. In April 1998, the Company
completed the sale as discussed in Footnote 5. Subsequent Events. The
Company expects to realize a gain on the disposition of Bergen.
The operating results of Bergen have been reported as discontinued
operations, and previously reported financial statements have been
reported to reflect this classification. The operating results of
Bergen are presented in the Consolidated Statements of Operations
under the caption "Earnings from discontinued operations" and include
(in thousands):
Three Months Ended
4/5/98 3/30/97
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Net sales $ 4,150 $ 3,689
Earnings before income taxes 71 112
Income taxes 28 45
Net earnings 43 67
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Net assets of Bergen include (in thousands):
4/5/98 12/31/97
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Current assets $ 5,302 $ 5,008
Property, plant and equipment, net 2,391 2,407
Current liabilities 1,417 1,753
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Net assets of discontinued operations $ 6,276 $ 5,662
======= ========
At April 5, 1998, all of the assets of Bergen, except real estate,
are pledged as collateral for Bergen's $1 million line of credit, the
Company's $1 million line of credit and the Company's Term Debt Note
($2 million face amount) due in 2000. At April 5, 1998, Bergen had no
borrowings outstanding under its line of credit.
4. New Accounting Standards:
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" during the first
quarter of 1998, as required. SFAS 130 establishes standards for
reporting and displaying comprehensive income and its components in a
set of financial statements.
Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events
and circumstances from nonowner sources. Presently, the only
component of comprehensive income for the Company is unrealized
holding gains (losses) on available for sale marketable equity
securities.
The Company is currently evaluating its segment disclosures and
will adopt SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" in the 1998 fourth quarter as required.
5. Subsequent Events:
On April 15, 1998, the Company sold all of the assets of its
Bergen Cable Technologies, Inc. ("Bergen") subsidiary. The purchase
price received consisted of $7.5 million in cash, a subordinated
promissory note in the principal amount of $1,250,000, a 10% stock and
membership interest in the acquiring entities, and assumption of
certain liabilities including trade payables. The Company will report
an after-tax gain from the cash proceeds of the sale of approximately
$200,000 or $.08 per share in the second quarter of 1998.
Since the acquiring entity has significant third-party debt
compared to its equity and the Company's note is subordinated to the
third-party debt, the Company will not record any gain realized on the
note and stock portions of the sale, until cash payments are received
by the Company.
On April 21, 1998, the Company's Board of Directors approved a
special nonrecurring cash distribution payable May 15, 1998 to
stockholders of record on May 4, 1998 in the amount of $1.75 per
share. This special nonrecurring distribution represents a
substantial portion of the net cash proceeds from the sale of Bergen.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
- -------------------
Cash and cash equivalents increased $410,000 during the three months
ended April 5, 1998. During this period, the Company's operations and
discontinued operations used $639,000 and $571,000 in cash, respectively,
and investing activities generated cash of $1,620,000.
The $639,000 use of cash from continuing operations was mainly due
to the $514,000 net increase in working capital. The $139,000 increase
in receivables is mainly due to a slight increase in the number of days
sales outstanding. The majority of the inventory increase is
attributable to increased levels in the electronics segments mainly to
support the current sales backlog and delivery requirements. The
increase in accounts payable is mainly attributable to the timing of
inventory purchases. The decrease in accrued liabilities resulted mainly
from the payments of the 401(k) match, employee bonuses and professional
fees. The $571,000 use of cash by the discontinued operations was mainly
due to the pay off of $690,000 in short-term borrowings.
During the three months ended April 5, 1998, the Company received
proceeds of $1,862,000 from the sale its real estate complex located in
Delaware. None of the Company's operations were located at this
facility. During this period, the Company purchased $234,000 capital
equipment. Machinery and equipment additions mainly in the electronics
segment geared toward adding new and upgrading existing production
capabilities and processes accounted for the majority of these
expenditures.
Management believes that based on its current working capital, the
expected cash flows from operations and its $1,850,000 lines of credit
availability, the Company's resources are sufficient to meet its
financial needs in 1998 including a remaining capital expenditures budget
of approximately $650,000.
On April 21, 1998, the Company's Board of Directors approved a
special nonrecurring cash distribution payable May 15, 1998 to
stockholders of record on May 4, 1998 in the amount of $1.75 share. This
special nonrecurring distribution represents a substantial portion of the
net cash proceeds from the sale of its Bergen Cable subsidiary.
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Results of Operations -- Overview --
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Net sales for the quarter ended April 5, 1998 increased $817,000
(22%) over the comparable period in 1997 as both the electronics and
instruments segments reported increased sales.
The overall gross profit percentage increased from 25% in 1997 to
26% in 1998 as slightly higher margins in the electronics segment were
partially offset by lower margins in the instruments segment.
Total selling and administrative expenses increased $27,000 (3%)
from 1997. Selling expenses increased $69,000 (12%) from 1997 as
increased expenses in the electronics segment were partially offset by
lower expenses in the instruments segment. Overall general and
administrative expenses decreased $42,000 (11%) from 1997 mainly as a
result of lower corporate payroll and travel expenses as the Company has
not replaced its former president since his resignation as an employee in
the third quarter of 1997.
Research and development expenses remained level with last year.
Interest expense decreased $12,000 from 1997 due to the lower levels
of short and long-term debt. During the quarter ended April 5, 1998, the
Company sold its real estate complex located in Delaware and realized a
$386,000 pre-tax gain on the sale. Other income (expense), net amounted
to $13,000 of income in 1998 compared to $11,000 of expense in 1997. The
main reason for the change was a lower loss in real estate operations in
1998 versus 1997.
The estimated effective income tax rate for both 1998 and 1997 is
40%.
Based on both the higher sales level and gross margin, offset in
part by a slight increase in operating expenses, operating profit
increased to $149,000 during the quarter ended April 5, 1998 compared to
a $74,000 loss during the comparable period in 1997. The 1998 quarter
included nonoperating income of $348,000 mainly as a result of the gain
on the sale of real estate compared to $74,000 of expense in 1997. As a
result, the Company reported a pre-tax profit from continuing operations
of $497,000 during the quarter ended April 5, 1998 versus a pre-tax loss
of $144,000 in 1997. Earnings from continuing operations amounted to
$298,000 in 1998 compared a $86,000 loss in 1997. Earnings from
discontinued operations amounted to $43,000 in 1998 compared to $67,000
in 1997. In total, the Company reported net earnings of $341,000 during
the quarter ended April 5, 1998 compared to a $19,000 loss in the
comparable period of 1997.
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Business Segment Results
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Sales in the electronics segment increased $556,000 (19%) over 1997
as the current quarter's sales benefitted from a significantly higher
beginning backlog level compared to last year. The overall gross profit
percentage increased 7% from 1997 mainly as a result of spreading the
fixed overhead expenses over the increased sales level. Total operating
expenses increased 20% over 1997; however, as a percentage of sales,
these expenses remained level with 1997. This increase in operating
expenses is attributable to higher selling expenses mainly caused by
increased personnel costs and increased sales commissions paid to
independent sales representatives. Based on the increased sales and gross
profit levels, offset in part by increased operating expenses, the
electronics segment reported a $73,000 increase in operating profit over
the comparable quarter in 1997.
Total sales in the instruments segment increased $261,000 (32%) over
1997 as higher sales to both the NDT/NDE and medical research markets
were partially offset by decreased unit sales of instruments to the
colloidal markets. The overall gross profit percentage decreased 8% from
1997 mainly as a result of custom test systems representing a larger
percentage of sales in 1998. Total operating expenses declined 14% from
1997 mainly due to lower sales travel expense and decreased professional
fees. As a result of the sales increase, the increase in gross profit,
and lower operating expenses, during the quarter ended April 5, 1998, the
instruments segment reported a $118,000 increase in its operating profit
over the comparable period in 1997.
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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
(Loss). Filed herein.
27. Financial Data Schedule. Filed for electronic
purposes only.
(b) Reports on Form 8-K - None
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 15, 1998 By /s/ Ted Valpey, Jr.
---------------------------------
Ted Valpey, Jr.
Chairman of the Board and
President
Date: May 15, 1998 By /s/ Michael J. Kroll
---------------------------------
Michael J. Kroll,
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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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
4/5/98 3/30/97(A)
------ -------
Net earnings (loss) from continuing operations ... $ 298 $ (86)
Net earnings from discontinued operations ........ 43 67
------ ------
Net earnings (loss) .............................. $ 341 $ (19)
====== ======
Calculation of basic earnings per share:
- ----------------------------------------
Weighted average common shares outstanding ...... 2,734 2,748
===== =====
Basic earnings (loss) per common share:
Continuing operations ......................... $ .10 $ (.03)
Discontinued operations ....................... .02 .02
------ ------
$ .12 $ (.01)
====== ======
Calculation of diluted earnings per share:
- ------------------------------------------
Weighted average common shares outstanding ...... 2,734 2,748
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon the average market prices (B) (C) ... 1 -
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Average common stock and common equivalent
shares used to calculate diluted earnings
(loss) per share ............................... 2,735 2,748
===== =====
Diluted earnings (loss) per common share:
Continuing operations ......................... $ .10 $ (.03)
Discontinued operations ....................... .02 .02
------ ------
$ .12 $ (.01)
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(A) Restated for discontinued operations.
(B) The dilutive effect of stock options and warrants was not considered
in 1997 since the Company reported a loss from continuing operations.
(C) The dilutive effect of outstanding warrants to purchase 85,000 shares
of common stock were not included in the 1998 computations since the
exercise price was greater than the average market price of
the common shares.
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> APR-05-1998
<CASH> 1,295
<SECURITIES> 0
<RECEIVABLES> 3,363
<ALLOWANCES> 100
<INVENTORY> 3,927
<CURRENT-ASSETS> 9,381
<PP&E> 8,855
<DEPRECIATION> 6,349
<TOTAL-ASSETS> 22,400
<CURRENT-LIABILITIES> 3,061
<BONDS> 1,990
0
0
<COMMON> 190
<OTHER-SE> 15,249
<TOTAL-LIABILITY-AND-EQUITY> 22,400
<SALES> 4,573
<TOTAL-REVENUES> 4,573
<CGS> 3,373
<TOTAL-COSTS> 3,373
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> 497
<INCOME-TAX> 199
<INCOME-CONTINUING> 298
<DISCONTINUED> 43
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 341
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
