<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 4, 1999
-----------------------------------------
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)
Maryland 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 14, 1999, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,682,848.
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MATEC Corporation
Index
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
April 4, 1999 and December 31, 1998 ..................... 3
Consolidated Statements of Operations -
Three Months Ended April 4, 1999 and April 5, 1998 ...... 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended April 4, 1999 and April 5, 1998 ...... 5
Consolidated Statements of Comprehensive Income -
Three Months Ended April 4, 1999 and April 5, 1998 ...... 6
Notes to Consolidated Condensed Financial Statements ..... 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 9-11
Quantitative and Qualitative Disclosures about
Market Risk ............................................. 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)
4/4/99 12/31/98
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 3,757 $ 4,516
Receivables, net ..................................... 1,775 1,772
Inventories .......................................... 3,023 2,793
Deferred income taxes and other current assets ....... 1,307 1,311
------- -------
Total current assets ............................... 9,862 10,392
------- -------
Property, plant and equipment, at cost ................. 8,037 7,916
Less accumulated depreciation ........................ 5,420 5,264
------- -------
2,617 2,652
------- -------
Marketable equity securities ........................... 2,976 3,138
Other assets ........................................... 295 320
------- -------
$15,750 $16,502
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 983 $ 411
Accrued liabilities .................................. 998 1,165
Income taxes ......................................... 136 894
------- -------
Total current liabilities .......................... 2,117 2,470
------- -------
Deferred income taxes .................................. 1,482 1,547
Long-term debt ......................................... 1,994 1,993
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 and outstanding:
2,710,648 and 2,716,948 shares ..................... 136 136
Capital surplus ...................................... 4,618 4,641
Retained earnings .................................... 3,717 3,932
Accumulated other comprehensive income ............... 1,686 1,783
------- -------
Total stockholders' equity ...................... 10,157 10,492
------- -------
$15,750 $16,502
======= =======
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
4/4/99 4/5/98(a)
------- -------
Net sales ................................ $ 2,400 $ 3,499
Cost of sales ............................ 2,039 2,684
------- -------
Gross profit ........................... 361 815
Operating expenses:
Selling and advertising ................ 521 492
General and administrative ............. 265 271
------- -------
786 763
Operating profit (loss) .................. (425) 52
Other income (expense):
Interest income ......................... 93 5
Interest expense ........................ (51) (51)
Gain on sale of property, plant and
equipment .............................. - 386
Other, net .............................. 18 7
------- -------
60 347
Earnings (loss) from continuing
operations before income taxes .......... (365) 399
Income tax (expense) benefit ............. 120 (160)
------- -------
Earnings (loss) from continuing operations (245) 239
Earnings from discontinued operations .... 30 102
------- -------
Net earnings (loss) ...................... $ (215) $ 341
======= =======
Basic and diluted earnings (loss) per share:
Continuing operations ................... $ (.09) $ .08
Discontinued operations ................. .01 .04
------ ------
$ (.08) $ .12
====== ======
Weighted average shares, basic ........... 2,716 2,734
===== =====
Weighted average shares, diluted ......... 2,716 2,735
===== =====
Cash dividends per share ................ $ - $ -
===== =====
(a) Restated to reflect discontinued operations.
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)
Three Months Ended
4/4/99 4/5/98(a)
-------- --------
Cash flows from operating activities:
Net earnings (loss) from continuing operations ... $ (245) $ 239
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization .................. 156 139
Deferred income taxes .......................... 40 (201)
Changes in operating assets and liabilities .... (644) (640)
Gain on sale of property, plant and equipment .. - (386)
Other .......................................... 1 1
------- -------
Net cash provided (used) by operating activities (692) (848)
- -----------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment - 1,862
Capital expenditures, net ........................ (121) (230)
Collection of note receivables ................... 35 -
Other, net........................................ (8) (8)
------- -------
Net cash provided (used) by investing activities (94) 1,624
- ----------------------------------------------------------------------
Cash flows from financing activities:
Purchases of common stock ........................ (23) -
------- -------
Net cash (used) by financing activities (23) -
- ----------------------------------------------------------------------
Net cash provided (used) by discontinued operations 50 (366)
- ----------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (759) 410
Cash and cash equivalents:
Beginning of period .............................. 4,516 885
------- -------
End of period .................................... $ 3,757 $ 1,295
======= =======
(a) Restated to reflect discontinued operations.
See notes to consolidated condensed financial statements.
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<PAGE>
MATEC Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended
4/4/99 4/5/98
------- -------
Net earnings (loss) ...................... $ (215) $ 341
Other comprehensive income, net of tax:
Unrealized (loss) on marketable equity
securities, net of tax benefit of $65
in 1999 and $207 in 1998 ............... (97) (311)
------- -------
Comprehensive income (loss) .............. $ (312) $ 30
======= =======
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.
These interim financial statements should be read in conjunction
with the financial statements and related notes thereto included in
the Company's 1998 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
2. Receivables, net:
Receivables, net of allowances, consist of the following:
4/4/99 12/31/98
------- --------
(in thousands)
Accounts receivable, less allowance for doubtful
accounts of $85 and $75 ........................ $ 1,494 $ 1,649
Recoverable Federal income taxes ................ 160 -
Amounts due from the sales of discontinued
operations, less deferred gain of $1,200
and $1,250 .................................... 393 428
Less:amounts due after one year, less deferred
gain of $1,125 and $1,175 ................. 272 305
------- -------
Current amounts due, less deferred gain of
$75 and $75 ............................... 121 123
------- -------
$ 1,775 $ 1,772
======= =======
3. Inventories:
Inventories consist of the following:
4/4/99 12/31/98
------- --------
(in thousands)
Raw materials ....................... $ 1,361 $ 1,529
Work in process ..................... 1,275 848
Finished goods ...................... 387 416
------- -------
$ 3,023 $ 2,793
======= =======
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<PAGE>
4. Discontinued Operations:
On April 15, 1998, the Company sold the assets of its Bergen Cable
Technologies, Inc. ("BCT") subsidiary. The purchase price received
consisted of $7.5 million in cash, a 12% subordinated promissory note
in the principal amount of $1.25 million, a 10% stock and membership
interest in the acquiring entities and assumption of certain
liabilities including trade payables. On August 3, 1998 the Company
sold certain assets of its Matec Instruments, Inc. ("MII") and Matec
Applied Sciences, Inc. ("MASI") subsidiaries. The purchase price
received consisted of approximately $605,000 in cash, a subordinated
promissory note in the principal amount of $250,000, a $250,000
noninterest bearing receivable, and the assumption of certain
liabilities including trade payables.
As a result, the operating results of BCT, MII, and MASI have been
reported as discontinued operations and previously reported financial
statements have been restated to reflect this classification for MII
and MASI. As the Company had adopted a plan in 1997 to dispose of
BCT, the operating results of BCT for 1998 had previously been
reported as discontinued operations.
Since the entity acquiring the assets of BCT had significant
third-party debt compared to its equity and the Company's note
receivable is subordinated to the third party debt, the Company has
deferred any gain on the note and has not assigned any value to the
stock portions of the sale until cash payments are received by the
Company. In March 1999, the Company received a $50,000 note payment
and recorded a $50,000 pre-tax gain on disposal of discontinued
operations. As of April 4, 1999, the note balance, all of which has
been deferred pending collection, is $1.2 million. See footnote 5.
Subsequent Events.
Net sales of BCT, MII, and MASI amounted to $5,224,000 for the
quarter ended April 5, 1998. The earnings relating to the above
discontinued operations are presented in the Consolidated Statements
of Operations under the caption "Earnings from discontinued
operations" and include:
Three Months Ended
4/4/99 4/5/98
------- -------
(in thousands)
Earnings from operations (less applicable
taxes of $0 and $67) $ - $ 102
Gain on disposal (less applicable taxes
of $20 and $0) 30 -
------ ------
$ 30 $ 102
====== ======
5. Subsequent Events:
On May 13, 1999, the Company received $1,188,000 in cash as
payment in full for the $1.2 million note receivable from the sale of
BCT along with accrued interest on the unpaid note. As a result, the
Company will record an after-tax gain on the sale of discontinued
operations of approximately $713,000 in the second quarter of 1999.
See footnote 4. Discontinued Operations.
-8-
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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 decreased $759,000 during the three months
ended April 4, 1999 mainly due to the Company's continuing operations
using $692,000 in cash.
The $692,000 use of cash from continuing operations was mainly due
to the $245,000 net loss and the $644,000 net increase in working
capital, offset in part by $156,000 noncash benefit of depreciation.
Receivables, net increased $3,000 as a $160,000 income tax receivable was
partially offset by a decrease in trade accounts receivable. The trade
accounts receivable decrease of $155,000 was mainly due to the lower
sales volume in the quarter versus the prior quarter. The inventory
increase of $230,000 is mainly to support the current sales backlog and
future customer delivery requirements. The $572,000 increase in accounts
payable is mainly attributable to the timing of inventory and machinery
and equipment purchases. The $166,000 decrease in accrued liabilities
resulted mainly from the payments of the 401(k) match, professional fees
and environmental expenses. Income tax payments during the three months
ended April 4, 1999 amounted to $758,000.
During the three months ended April 4, 1999, capital expenditures
amounted to $121,000 as the Company added new and upgraded existing
production capabilities and processes.
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 1999 including a remaining capital expenditures budget
of approximately $475,000.
Results of Operations
- ---------------------
Net sales from continuing operations for the quarter ended April 4,
1999 decreased $1,099,000 (31%) from the comparable period in 1998.
About 70% of the sales decline was due to lower sales in the import
product line. Sales of domestically produced product decreased about 20%
from last year. The main reason for the sales decrease in both product
lines was the negative impact of the lower backlog at the beginning of
1999 compared to that in 1998. Sales in 1999 were also negatively
impacted by the Company experiencing late deliveries of some of its
domestically produced products. The Company has been working with and
changing its supplier base to improve delivery performance.
The backlog at the beginning of 1999 was $1.6 million or 42% lower
than the backlog at the beginning of 1998. This lower backlog level
mainly resulted from the 23% decrease in bookings in 1998 versus 1997.
However, during the 1Q of 1999 the Company has experienced a positive
change in its recent bookings trend as bookings increased 28% over the
comparable period in 1998. At April 4, 1999, the backlog is 63% and 9%
higher than that at December 31, 1998 and April 4, 1998, respectively.
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The gross profit percentage decreased from 23% in 1998 to 15% in 1999
mainly due to the unfavorable effect of allocating the fixed overhead
expenses over the lower sales volume. Raw material costs as a percentage
of sales decreased about 7% from 1998 as a result of the change in sales
mix.
Selling expenses increased $29,000 (6%) over 1998 mainly as a result
of higher advertising expenses and personnel costs were partially offset
by lower sales commission expenses to the Company's manufacturers'
representatives.
General and administrative expenses for the quarter ended April 4,
1999 remained constant with the 1998 level.
Interest income increased to $93,000 in 1999 from $5,000 in the
comparable 1998 period as a result of the higher cash levels in 1999 and
the interest income received on the notes receivable generated by the
sales of the discontinued operations. Interest expense remained constant
with the 1998 amount. 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.
The estimated effective income tax rate for 1999 is 33% compared to
40% in 1998. The difference in rates is mainly due to the limited state
tax benefit of operating losses within a state.
As a result of the lower sales level and gross margin in 1999 and the
slight increase in operating expenses, the Company reported an operating
loss of $425,000 for the quarter ended April 4, 1999 compared to a
$52,000 profit during the comparable period in 1998. Nonoperating income
amounted to $60,000 in 1999 compared to $347,000 of income in 1998. As a
result, the Company reported a pre-tax loss from continuing operations
of $365,000 during the quarter ended April 4, 1999 versus a pre-tax
profit of $399,000 in 1998. Continuing operations reported a net loss of
$245,000 for the quarter ended April 4, 1999 compared to earnings of
$239,000 in 1998. Earnings from discontinued operations amounted to
$30,000 in 1999 compared to $102,000 in 1998. In total, the Company
reported a net loss of $215,000 for the quarter ended April 4, 1999
compared to net earnings of $341,000 in the comparable period of 1998.
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Year 2000 Issue
- ---------------
The Company is continuing to monitor the Year 2000 issue. The current
accounting software is in the process of being modified to be Year 2000
compliant and the Company expects these changes to be completed by the
3rd quarter 1999. Based on the responses to date, the Company's major
suppliers have assured the Company that they are currently or that they
will be Year 2000 compliant. The Company is continuing to review its
manufacturing equipment and facility to assess and minimize Year 2000
issues. While the review is not yet complete, at this time the Company
does not believe there is any major obstacle which would effect its
manufacturing equipment or its facility in the Year 2000. The Company
expects that the estimated costs to resolve the Company's Year 2000
issues will not exceed $75,000.
The Company does not have a formalized contingency plan if the software
changes are not completed and working before 2000. The Company will
continue to monitor progress on these changes and will determine during
the 3rd quarter if a contingency plan is required.
The Company believes it will not experience significant operational
problems as a result of the Year 2000 issue. However, the Company could
experience operational problems or disruptions if third-party vendors are
unable to provide their services or materials due to Year 2000 issues.
Forward-Looking Statements
- --------------------------
Certain statements made herein contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Words such as
"expects", "believes", "estimates", "plans" or similar expressions are
intended to identify such forward-looking statements. Factors that could
cause such differences include, but are not limited to those discussed in
this section and those discussed in the Company's Form 10-K for the year
ended December 31, 1998 under the section "Forward Looking Statements"
included under the caption "Management's Discussion and Analysis", is
herein incorporated by reference.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
There have been no material changes in the Company's market risk during
the three months ended April 4, 1999.
The information set forth on page 5 of the 1998 Annual Report to
Stockholders under the section "Quantitative and Qualitative Disclosures
about Market Risk" included under the caption "Management's Discussion
and Analysis" is incorporated by reference.
-11-
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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.
13. Annual report to security holders, Form 10-Q or
10-QSB, or quarterly report to security holders.
Filed for electronic purposes only.
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 14, 1999 By /s/ Ted Valpey, Jr.
---------------------------------
Ted Valpey, Jr.
Chairman of the Board and
President
Date: May 14, 1999 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
4/4/99 4/5/98(A)
------- -------
Net earnings (loss) from continuing operations ... $ (245) $ 239
Discontinued operations:
Net earnings from operations ................... - 102
Gain on sale ................................... 30 -
------ ------
Net earnings (loss) .............................. $ (215) $ 341
====== ======
Calculation of basic earnings (loss) per share:
- -----------------------------------------------
Weighted-average shares ......................... 2,716 2,734
===== =====
Basic earnings (loss) per common share:
Continuing operations ......................... $ (.09) $ .08
Discontinued operations:
Operations .................................. - .04
Gain on sale ................................ .01 -
------ ------
$ (.08) $ .12
====== ======
Calculation of diluted earnings (loss) per share:
- -------------------------------------------------
Weighted average common shares outstanding ...... 2,716 2,734
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon the average market prices (B) (C) ... - 1
----- -----
Adjusted weighted-average shares ................ 2,716 2,735
===== =====
Diluted earnings per common share:
Continuing operations ......................... $ (.09) $ .08
Discontinued operations:
Operations .................................. - .04
Gain on sale ................................ .01 -
------ ------
$ (.08) $ .12
====== ======
(A) Restated to reflect discontinued operations.
(B) The dilutive effect of stock options and warrants was not considered
in 1999 since the Company reported a loss from continuing operations.
(C) The dilutive effect of outstanding warrants to purchase 85,000 shares
of common stock was not included in the 1998 computation since the
exercise price was greater than the average market price of the common
shares.
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MATEC Corporation and Subsidiaries Exhibit 13
1998 Annual Report
Management's Discussion and Analysis
- ------------------------------------
Forward-Looking Statements
- --------------------------
This Annual Report, including Management's Discussion and Analysis,
the Letter to Stockholders and Operations, contain forward-looking
statements that involve risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. Words such as "expects", "believes", "estimates",
"plans" or similar expressions are intended to identify such
forward-looking statements. The forward-looking statements are based
on the Company's current views and assumptions and involve risks and
uncertainties that include, but not limited to: the ability to
develop, market and manufacture new innovative products
competitively, the ability of the Company's suppliers to produce and
deliver materials competitively, and the ability to limit the amount
of the negative effect on operating results caused by pricing
pressures.
Quantitative and Qualitative Disclosures about Market Risk
- ----------------------------------------------------------
The Company's cash balances in excess of operating requirements are
currently invested in money market accounts. These money market
accounts are subject to interest rate risk and interest income will
fluctuate in relation to general money market rates. Based on the
cash and cash equivalent balance at December 31, 1998, and assuming
the balance was totally invested in money market instruments for the
full year, a hypothetical 1% decline in interest rates would result
in an approximate $45,000 decrease in interest income.
The Company's investment in marketable equity securities, which are
classified as available-for-sale, represents 517,527 shares of
MetroWest Bank common stock and are subject to equity price risk.
These securities are recorded on the balance sheet at fair market
value with unrealized gains (losses) reported as a separate component
of stockholders' equity under the caption "accumulated other
comprehensive income". Accordingly, while a hypothetical 10% decline
in the market value of these securities would reduce total assets by
approximately $314,000, this decrease would not have an effect on the
statement of operations unless the securities were actually sold.
At December 31, 1998, the Company has a $2 million face amount term
note at a 10% fixed interest rate. A hypothetical 10% adverse change
(i.e. decrease) in interest rates, would result in a $30,000 increase
in the fair value of the term note at December 31, 1998.
The Company purchases certain inventory from and sells product to
foreign countries. As these activities are currently transacted in
U.S. dollars, they are not subject to foreign currency exchange
risk. However, significant fluctuation in the currencies where the
Company purchases inventory or sell product could make the U.S.
dollar equivalent of such transactions more or less favorable to the
Company and the other involved parties.
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> APR-04-1999
<CASH> 3,757
<SECURITIES> 0
<RECEIVABLES> 1,860
<ALLOWANCES> 85
<INVENTORY> 3,023
<CURRENT-ASSETS> 9,862
<PP&E> 8,037
<DEPRECIATION> 5,420
<TOTAL-ASSETS> 15,750
<CURRENT-LIABILITIES> 2,117
<BONDS> 1,996
0
0
<COMMON> 136
<OTHER-SE> 10,021
<TOTAL-LIABILITY-AND-EQUITY> 15,750
<SALES> 2,400
<TOTAL-REVENUES> 2,400
<CGS> 2,039
<TOTAL-COSTS> 2,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> (365)
<INCOME-TAX> (120)
<INCOME-CONTINUING> (245)
<DISCONTINUED> 30
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (215)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
