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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 July 2, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4184
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MATEC Corporation
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(Exact name of registrant as specified in its charter)
Maryland 06-0737363
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
75 South St., Hopkinton, Massachusetts 01748
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(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 4, 2000, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,740,323.
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MATEC Corporation
Index
Page
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PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
July 2, 2000 and December 31, 1999 ...................... 3
Consolidated Statements of Operations - Three Months and
Six Months Ended July 2, 2000 and July 4, 1999 .......... 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended July 2, 2000 and July 4, 1999 .......... 5
Consolidated Statements of Comprehensive Income -
Three Months and Six Months ended July 2, 2000
and July 4, 1999 ........................................ 6
Notes to Consolidated Condensed Financial Statements ..... 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 10-12
Quantitative and Qualitative Disclosures about
Market Risk ............................................. 12
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ................ 13
Signatures ..................................................... 14
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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)
7/2/00 12/31/99
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ASSETS
Current assets:
Cash and cash equivalents ............................ $ 2,326 $ 3,118
Receivables, net ..................................... 4,122 3,097
Inventories .......................................... 4,831 3,330
Deferred income taxes and other current assets ....... 1,026 811
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Total current assets ............................... 12,305 10,356
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Property, plant and equipment, at cost ................. 9,271 8,619
Less accumulated depreciation ........................ 6,130 5,819
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3,141 2,800
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Marketable equity securities ........................... 2,846 3,073
Other assets ........................................... 135 303
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$18,427 $16,532
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................... $ - $ 998
Accounts payable ..................................... 2,513 1,317
Accrued liabilities .................................. 1,683 1,064
Income taxes ......................................... 632 547
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Total current liabilities .......................... 4,828 3,926
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Deferred income taxes .................................. 1,298 1,429
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:
2,740,323 and 2,650,148 shares ..................... 137 132
Capital surplus ...................................... 4,791 4,527
Retained earnings .................................... 5,764 4,774
Accumulated other comprehensive income ............... 1,609 1,744
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Total stockholders' equity ...................... 12,301 11,177
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$18,427 $16,532
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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 Six Months Ended
7/2/00 7/4/99 7/2/00 7/4/99
------- ------- -------- --------
Net sales ..................... $ 6,287 $ 3,355 $11,713 $ 5,755
Cost of sales ................. 4,394 2,775 8,196 4,814
------- ------- ------- -------
Gross profit ................ 1,893 580 3,517 941
Operating expenses:
Selling and advertising ..... 753 557 1,375 1,078
General and administrative .. 383 262 794 527
------- ------- ------- -------
1,136 819 2,169 1,605
Operating profit (loss) ....... 757 (239) 1,348 (664)
Other income (expense):
Interest income .............. 39 49 84 142
Interest expense ............. - (51) (9) (102)
Gain on sale of investment ... - - 1,226 -
Other, net ................... 35 24 63 42
------- ------- ------- -------
74 22 1,364 82
Earnings (loss) from continuing
operations before income taxes 831 (217) 2,712 (582)
Income tax (expense) benefit .. (332) 73 (1,084) 193
------- ------- ------- -------
Earnings (loss) from continuing
operations ................... 499 (144) 1,628 (389)
Earnings (loss) from discontinued
operations, net of taxes ..... - 705 (90) 735
------- ------- ------- -------
Net earnings .................. $ 499 $ 561 $ 1,538 $ 346
======= ======= ======= =======
Basic earnings (loss) per share:
Continuing operations ....... $ .18 $(.05) $ .59 $(.14)
Discontinued operations ..... - .26 (.03) .27
----- ----- ----- -----
$ .18 $ .21 $ .56 $ .13
===== ===== ===== =====
Diluted earnings (loss) per share:
Continuing operations ....... $ .17 $(.05) $ .57 $(.14)
Discontinued operations ..... - .26 (.03) .27
----- ----- ----- -----
$ .17 $ .21 $ .54 $ .13
===== ===== ===== =====
Weighted average shares:
Basic ....................... 2,740 2,688 2,726 2,702
Diluted ..................... 2,900 2,688 2,867 2,702
Cash dividends per share ...... $ - $ - $ .20 $ -
===== ===== ===== =====
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
7/2/00 7/4/99
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Cash flows from operating activities:
Net earnings (loss) from continuing operations ... $ 1,628 $ (389)
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization .................. 311 312
Deferred income taxes .......................... (241) 40
Gain on sale of investment ..................... (1,226) -
Other .......................................... 2 3
Changes in operating assets and liabilities .... (639) (1,165)
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Net cash (used) by operating activities (165) (1,199)
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Cash flows from investing activities:
Proceeds from sale of investment ................. 1,319 -
Capital expenditures ............................. (652) (339)
Collection of note receivables ................... 83 65
Other, net........................................ (8) (8)
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Net cash provided (used) by investing activities 742 (282)
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Cash flows from financing activities:
Payments on long-term debt ....................... (745) (1,000)
Dividend paid .................................... (548) -
Stock options exercised .......................... 14 -
Purchases of common stock ........................ - (125)
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Net cash (used) by financing activities ........... (1,279) (1,125)
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Net cash provided (used) by discontinued operations (90) 1,225
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Net (decrease) in cash and cash equivalents ....... (792) (1,381)
Cash and cash equivalents:
Beginning of period .............................. 3,118 4,516
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End of period .................................... $ 2,326 $ 3,135
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Noncash investing and financing activities:
During 2000, the Company issued 85,000 common shares upon the
conversion of the lender's warrant as payment for $255,000 of
debt.
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
7/2/00 7/4/99
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Net earnings ................................. $ 499 $ 561
Other comprehensive income, net of tax:
Unrealized gain (loss) on marketable
equity securities, net of a tax benefit
of $40 in 2000 and tax expense of $246
in 1999 ..................................... (58) 369
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Comprehensive income ......................... $ 441 $ 930
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Six Months Ended
7/2/00 7/4/99
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Net earnings ................................ $ 1,538 $ 346
Other comprehensive income, net of tax:
Unrealized gain (loss) on marketable
equity securities, net of tax benefit
of $92 in 2000 and tax expense of $181
in 1999 .................................... (135) 272
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Comprehensive income ........................ $ 1,403 $ 618
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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 1999 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:
7/2/00 12/31/99
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(in thousands)
Accounts receivable, less allowance for doubtful
accounts of $116 and $93 ....................... $ 4,000 $ 2,820
Refundable income taxes ......................... - 154
Amounts due from the sale of discontinued
operations .................................... 122 123
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$ 4,122 $ 3,097
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3. Inventories:
Inventories consist of the following:
7/2/00 12/31/99
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(in thousands)
Raw materials ....................... $ 2,493 $ 1,797
Work in process ..................... 1,803 1,179
Finished goods ...................... 535 354
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$ 4,831 $ 3,330
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4. Long-Term Debt:
In January 2000, the Company paid $745,000 in cash and issued 85,000
shares of common stock as payment in full for the $1 million term debt
note due June 30, 2000. The common shares were issued upon conversion of
the lender's warrant.
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4. Discontinued Operations:
During 1998, the Company sold the assets of its Bergen Cable
Technologies, Inc. ("BCT") subsidiary. As a result of the sale, the
Company is performing environmental clean-up at that site. During the
first quarter of 2000, the Company expensed $150,000 to increase the
environmental expense accrual to reflect the current available estimate
to complete the remediation. As of July 2, 2000, $800,000 has been
expensed for the clean-up and $275,000 is accrued for future payments.
In the second quarter of 1999, the Company received $1,175,000 in
cash as payment in full for the $1.2 million outstanding note
receivable balance and recorded a $1,175,000 pre-tax gain on disposal
of discontinued operations. In the first quarter of 1999, the Company
received a $50,000 note payment and recorded a $50,000 pre-tax gain on
disposal of 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 was subordinated to the third party
debt, the Company had deferred any gain on the note until cash payments
were received by the Company.
5. Gain on Sale of Investment:
In the first quarter of 2000, the Company sold its common stock
interest in Bergen Cable Technology, Inc., received $1,319,000 in cash
after estimated expenses and recorded a pre-tax gain of $1,226,000 on
the sale. The Company acquired these shares as part of the purchase
price for the sale of BCT. In addition, the Company's share of the
escrow balance amounts to approximately $170,000. This escrow balance,
less any claims for indemnity thereon, will be distributed to the
Company on or before January 4, 2002. The Company will record a gain
on this escrow balance when the cash is received.
6. Earnings (Loss) Per Share:
The computation of basic and diluted earnings (loss) per share from
continuing operations is as follows:
Three months ended
In thousands, except per share amounts 7/2/00 7/4/99
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Basic
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Earning (loss) from continuing operations $ 499 $ (144)
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Weighted average shares outstanding 2,740 2,688
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Basic earnings (loss) per share from
continuing operations $ .18 $ (.05)
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Three Months Ended
In thousands, except per share amounts 7/2/00 7/4/99
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Diluted
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Earning (loss) from continuing operations $ 499 $ (144)
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Weighted average shares outstanding 2,740 2,688
Increase from assumed exercise of
stock options 160 -
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Diluted weighted average shares outstanding 2,900 2,688
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Diluted earnings (loss) per share from
continuing operations $ .17 $ (.05)
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Six Months Ended
In thousands, except per share amounts 7/2/00 7/4/99
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Basic
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Earnings (loss) from continuing operations $1,628 $ (389)
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Weighted average shares outstanding 2,726 2,702
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Basic earnings (loss) per share from
continuing operations $ .59 $ (.14)
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Diluted
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Earnings (loss) from continuing operations $1,628 $ (389)
Plus: interest impact, net of taxes from
the assumed reduction of debt from
the conversion of warrants 4 -
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Adjusted earnings (loss) from continuing
operations $1,632 $ (389)
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Weighted average shares outstanding 2,726 2,702
Increase from the assumed :
exercise of stock options 128 -
conversion of warrants 13 -
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Diluted weighted average shares outstanding 2,867 2,702
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Diluted earnings (loss) per share from
continuing operations $ .57 $(.14)
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In 1999, options to purchase 59,356 shares of common stock and
warrants to purchase 85,000 shares of common stock were not considered in
the computation of diluted earnings per share since the Company reported
a loss from continuing operations.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
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Cash and cash equivalents decreased $792,000 during the six months
ended July 2, 2000. During this period, the Company's continuing
operations and financing activities used cash of $165,000 and $1,279,000,
respectively, and investing activities provided cash of $742,000.
Discontinued operations used $90,000 in cash.
Trade receivables, net increased $1,180,000 mainly as a result of the
increased sales level. Inventories increased $1,501,000 mainly to
support the current sales backlog and customer delivery requirements.
The $1,196,000 increase in accounts payable is mainly due to the higher
inventory level. Income tax payments during the six months ended July 2,
2000 amounted to $1,211,000.
During the six months ended July 2, 2000, the Company sold its common
stock in Bergen Cable Technologies, Inc. and received $1,319,000 in cash
after estimated expenses of the sale. During this same period, capital
expenditures amounted to $652,000 as the Company upgraded and increased
its existing production capabilities and processes and began installation
of a new computer information system.
In January 2000, the Company paid $745,000 in cash and issued 85,000
shares of common stock as payment in full for the $1 million term debt
note due June 30, 2000. The common stock was issued upon conversion of
the lender's warrant. In February 2000, the Company paid a special cash
dividend amounting to $548,000 or $.20 per common share.
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 2000 including a remaining capital expenditures budget
of approximately $200,000.
Results of Operations
---------------------
For the quarter ended July 2, 2000, net sales from continuing
operations increased $2,932,000 or 87% over the comparable quarter in
1999. During the six months ended July 2, 2000, net sales increased
$5,958,000 or 104% over comparable period in 1999. The higher backlog at
the beginning of 2000 ($6.4 million) as compared to that at the beginning
of 1999 ($2.3 million) and the continued strong bookings during the
current year are the main reasons for these sales increases over last
year. The strong market demand from the telecommunications, networking
and wireless markets are mainly responsible for the increases in the
sales, bookings and backlog amounts. The backlog at July 2, 2000 is
$12.8 million compared to $5.2 million at July 4, 1999. During 2000,
the Company has experienced some late shipping deliveries with some of
its products. The Company is continuing to work with its supplier base
and to increase its manufacturing capacity to improve its delivery
performance.
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During the quarter ended July 2, 2000, the gross profit percentage
was 30% compared to 17% in 1999. For the six months ended July 2, 2000,
the gross profit percentage was 30% versus 16% in 1999. The higher
margins during the current year results mainly from the favorable effects
of allocating the fixed overhead expenses over the increased sales
volumes. Overall direct labor and material costs decreased slightly as a
percentage of sales from 1999 mainly as a result of changes in sales mix.
During the quarter and six months ended July 2, 2000, selling and
advertising expenses increased $196,000 (35%) and $297,000 (28%),
respectively, over the comparable periods in 1999. Higher sales
commission expense to the Company's outside manufacturers'
representatives and increased advertising expenses were the main reasons
for the expense increases during these periods.
General and administrative expenses during the quarter and six months
ended July 2, 2000, increased $121,000 (46%) and $267,000 (51%),
respectively over the comparable periods in 1999. These increases were
mainly due to increased personnel expense and provision for the
management incentive bonus.
During the quarter and six months ended July 2, 2000, interest income
decreased $10,000 and $58,000, respectively, from the comparable periods
in 1999 mainly as a result of the lower interest income received on the
notes receivable generated from the sales of the discontinued
operations. The decreases in interest expense during both periods is
mainly due to lower levels of outstanding debt. During the six months
ended July 2, 2000, the company sold its common stock investment in
Bergen Cable Technology, Inc. and realized a $1,226,000 pre-tax gain on
the sale.
The estimated effective income tax rate for 2000 is 40% compared to
33% in 1999. The difference in the rates is mainly due to the limited
state tax benefit of operating losses within a state.
For the quarter ended July 2, 2000, the Company reported an operating
profit of $757,000 compared to an operating loss of $239,000 in
comparable quarter of 1999 mainly as a result of the increase in gross
margin offset in part by higher operating expenses. Nonoperating income
amounted to $74,000 in 2000 compared to $22,000 of income in the
corresponding 1999 period. As a result, the Company reported net
earnings from continuing operations of $499,000 during the quarter July
2, 2000 compared to a net loss of $144,000 in 1999. Earnings from
discontinued operations during the quarter ended July 4, 1999 amounted to
$705,000. In total, the Company reported consolidated net earnings of
$499,000 during the quarter ended July 2, 2000 versus $561,000 in the
comparable quarter of 1999.
During the six months ended July 2, 2000, the Company reported an
operating profit of $1,348,000 compared to an operating loss of $664,000
during the comparable period in 1999 as a result of the increase in gross
profit offset in part by higher operating expenses. For the six months
ended July 2, 2000 nonoperating income amounted to $1,364,000 compared to
$82,000 of income in 1999. As a result, the Company reported net
earnings from continuing operations of $1,628,000 during the six months
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ended July 2, 2000 versus a net loss of $389,000 in 1999. Discontinued
operations reported a loss of $90,000 for the six months ended July 2,
2000 versus net earnings of $735,000 in 1999. In total, the Company
reported consolidated net earnings of $1,538,000 during the six months
ended July 2, 2000 compared to $346,000 in 1999.
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 1999
Form 10-K 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
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There have been no material changes in the Company's market risk
during the six months ended July 2, 2000.
The information set forth on pages 5 of the 1999 Annual Report to
Stockholders under the section "Qualitative and Quantitative Disclosures
about Market Risk" included under the caption "Management's Discussion
and Analysis" is incorporated by reference.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 18, 2000.
Listed below is the matter submitted to stockholders and the results of
the stockholder votes.
Election of nine directors:
Nominee "For" "Withheld"
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Richard W. Anderson 2,069,210 7,225
Michael Deery 2,069,210 7,225
Eli Fleisher 2,067,710 8,725
Lawrence Holsborg 2,067,710 8,725
Michael P. Martinich 2,069,210 7,225
John J. McArdle III 2,067,710 8,725
Robert W. Muir, Jr. 2,069,210 7,225
Joseph W. Tiberio 2,067,710 8,725
Ted Valpey, Jr. 2,069,210 7,225
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.3* Management Incentive Plan.
13. Page 5 of the 1999 Annual Report to Stockholders.
Filed for electronic purposes only.
27. Financial Data Schedule. Filed for electronic purposes
only.
* Management contract or compensatory plan or arrangement
required to be filed as an Exhibit pursuant to Item
14(c) of this report.
(b) Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MATEC Corporation
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Date: August 7, 2000 By /s/ Ted Valpey, Jr.
---------------------------------
Ted Valpey, Jr.,
Chairman of the Board and
President
Date: August 7, 2000 By /s/ Michael J. Kroll
---------------------------------
Michael J. Kroll,
Vice President and Treasurer
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