<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 1-4184
------
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 office) (Zip Code)
Registrant's telephone number, including area code: (508) 435-9039
--------------
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of each exchange on which registered:
-------------------- ------------------------------------------
Common Stock $.05 par value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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
------ -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec.229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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<PAGE>
Aggregate market value of voting stock held by non-affiliates: $10,286,975
(computed by reference to the last sales price of such common stock on
March 27, 2000 as reported in the American Stock Exchange consolidated
trading index).
Number of shares of common stock outstanding at March 27, 2000: 2,739,148
Documents incorporated by reference:
Annual Report to Stockholders for the year ended December 31, 1999:
Parts I, II and IV
Proxy Statement for the 2000 annual meeting of stockholders: Part III
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<PAGE>
<PAGE>
PART I
Item 1. Business
- -----------------
General
- -------
MATEC Corporation ("MATEC" or "Registrant") is incorporated under
the laws of Maryland. As used herein the term "Company" refers to
MATEC and its subsidiaries.
The Company's current business is conducted through its
Valpey-Fisher Corporation ("Valpey") subsidiary. In addition, the
Company has a real estate complex located in Northborough,
Massachusetts which is operated by its wholly owned subsidiary,
MEKontrol, Inc.
Financial Information about Industry Segments
- ---------------------------------------------
The Company operates in one business segment. Information about
export sales is set forth in Note 13 of the Notes to Consolidated
Financial Statements in the 1999 Annual Report to Stockholders, which
Note is incorporated by reference.
Narrative Description of Business
- ---------------------------------
Valpey is involved in the design, production, import, and sale of
quartz crystals and oscillators, ultrasonic transducers and a wide
variety of piezoelectric and high-precision optical components.
The quartz crystals and oscillators are used as integral components
in electronic circuitry to assure precise timing and frequency
reference. Except for more costly atomic standards, quartz crystals
and oscillators continue to be one of the most stable references for
accurately controlling electronic frequencies and time.
Valpey provides a wide-frequency range of crystals and oscillators
including standard and custom-designed product. Capabilities include:
- high-reliability, precision crystals and oscillators used
in sophisticated industrial, military and aerospace
applications.
- ultra-high frequency crystals used in crystal filters and
oscillators for OEM telecommunications and microwave
applications.
- high-volume, low-cost crystals and oscillators for consumer
and commercial applications.
Markets for Valpey's products include computers and computer
peripheral equipment, internet, networking, PCS (personal
communications services), satcom, telecommunications, telemetry, and
wireless.
-3-
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<PAGE>
Valpey has continued to invest in equipment and people to meet
customer needs and to increase its manufacturing capabilities. Valpey
received its ISO-9001 registration for the design and manufacture of
crystals and crystal oscillators in 1997.
The piezoelectric crystals and components are used for ultrasonic
transducers in non-destructive testing ("NDT") and medical
applications, accelerometers, and sensors that measure flow, proximity,
acceleration, distance and force. The high-precision optical
components include windows, mirrors, lenses and prisms made from
sapphire, quartz, and a wide range of other materials. These
components are utilized in a variety of sensors, imaging, and other
types of photonic-based instrumentation. Valpey designs and
manufactures ultrasonic transducers for NDT scientific, industrial, and
medical markets.
The quartz crystals and oscillators are sold by Valpey's direct
sales personnel, independent manufacturers' representatives and
distributors. Valpey's other products and services are sold primarily
by its direct sales personnel.
Raw Materials
-------------
Quartz crystal bases, ceramic packages and ICs are the principal
raw materials and are available from a number of domestic and foreign
suppliers. Since the fourth quarter of 1999, the lead times for the
delivery of certain raw materials has increased significantly over
prior lead times due to the worldwide demand for these products.
Production has not yet been signficantly affected. However, in order
to meet future customer delivery requirements, Valpey may be required
to change some of its inventory purchasing practices (ie stocking
higher inventory levels) to compensate for the long delivery lead
times.
Valpey imports sub-assemblies and completed products from various
Far East (including China, Japan, South Korea, Philippines, and Taiwan)
suppliers for use in its domestically manufactured product and for
resale to its customers.
In order to eliminate the effects of currency fluctuations, Valpey
currently purchases the product in U.S. dollars. However, Valpey is
subject to the inherent risks involved in international trade such as
political instability and restrictive trade policies.
Customers
---------
No customer accounted for more than 10% of Valpey's net sales in
1999 and 1998. During 1997, one customer accounted for 12% of net
sales. Approximately 27% of Valpey's sales in 1999 were made to its
five largest customers, compared to 26% in 1998 and 32% in 1997.
Backlog
-------
Valpey's backlog of firm orders was $6,404,000 at December 31, 1999
and $2,294,000 at December 31, 1998. Valpey expects to ship all of the
December 31, 1999 backlog during 2000.
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<PAGE>
Competition
-----------
There are many domestic and foreign suppliers of quartz crystals
and oscillators. A number of the competitors are larger and have
greater resources than the Company. In addition, foreign competitors,
particularly from the Far East, continue to dominate the U.S. markets.
However, Valpey believes it can maintain a competitive position in its
business based on its quality, strong design and application
engineering, responsive customer service and a willingness to provide
specialty small quantity orders.
Environmental Regulations
-------------------------
To the knowledge of the Company compliance with Federal, state and
local provisions which have been enacted or adopted regulating the
discharge of materials into the environment or otherwise relating to
the protection of the environment, has not had, nor will have a
material effect upon capital expenditures, earnings from continuing
operations or competitive position.
As a result of the sale of its Bergen Cable subsidiary in 1998, the
Company is performing environmental clean up at that site. See Note 8
of the Notes to Consolidated Financial Statements in the 1999 Annual
Report to Stockholders, which Note is incorporated by reference.
Employees
---------
At December 31, 1999, the Company employed 101 full-time and 8
part-time employees. No employees of the Company are represented by a
collective bargaining unit. The Company considers its relations with
its employees to be satisfactory.
Foreign and Domestic Operations and Export Sales
- ------------------------------------------------
The Company's has no foreign operations. Financial information
about export sales is set forth in Note 13 of the Notes to Consolidated
Financial Statements in the 1999 Annual Report to Stockholders, which
Note is incorporated by reference.
Forward-Looking Statements
- --------------------------
Items 1 and 7 of this Form 10-K 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.
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<PAGE>
Item 2. Properties
- ------- ----------
Valpey owns its 32,000 square foot facility located in Hopkinton,
Massachusetts. This facility contains office and manufacturing space
and serves as the Company's corporate headquarters.
The Company believes its facility is suitable for its current use
and is in good repair. The Company believes that its facility is
adequate to satisfy its production capacity needs for the immediate
future.
In addition, the Company's real estate operation owns a 35,000
square foot facility located in Northborough, Massachusetts. This
facility is currently fully occupied and the Company considers this
property to be in good repair.
Item 3. Legal Proceedings
- ------- -----------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
No matters were submitted to a vote of the Registrant's security
holders during the last quarter of the fiscal year covered by this
report.
Executive Officers of the Registrant
- ------------------------------------
The names, ages and offices of the executive officers of the
Company are as follows:
Name Age Office
---- --- ------
Ted Valpey, Jr. 67 President and Chief Executive Officer
Michael Deery 54 President and Chief Operating Officer -
Valpey Fisher Corporation
Michael J. Kroll 51 Vice President and Treasurer
The term of office for each officer of the Registrant is until the
first meeting of the Board of Directors following the Annual Meeting of
Stockholders and until a successor is chosen and qualified.
Mr. Valpey has been President and Chief Executive Officer of the
Registrant since April 28, 1997. He has been Chairman of the
Corporation since 1982.
Mr. Deery has been President and Chief Operating Officer of Valpey
Fisher Corporation since September 1999. He was Vice President of
International Manufacturing of Tambrands, Inc., a manufacturer of
health care products, from prior to 1995 to 1998.
Mr. Kroll has been Vice President and Treasurer of the Registrant
since 1982.
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<PAGE>
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
- ------- ----------------------------------------------------
Stockholder Matters
-------------------
The information set forth on the inside front cover of the 1999
Annual Report to Stockholders under the caption "Common Stock
Information" is incorporated by reference.
Item 6. Selected Financial Data
- ------- -----------------------
The information set forth on page 3 of the 1999 Annual Report to
Stockholders under the caption "Five Year Financial Summary" is
incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
The information set forth on pages 3 through 5 of the 1999 Annual
Report to Stockholders under the caption "Management's Discussion and
Analysis" is incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- -------- ----------------------------------------------------------
The information set forth on page 5 of the 1999 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.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The information contained in the Consolidated Financial Statements,
Notes to Consolidated Financial Statements and the Independent
Auditors' Report appearing on pages 6 through the inside back cover of
the 1999 Annual Report to Stockholders is incorporated by reference.
Item 9. Changes In and Disagreements with Accountants on Accounting
- ------- -----------------------------------------------------------
and Financial Disclosure
------------------------
Not applicable.
-7-
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<PAGE>
PART III
The information called for by Part III is hereby incorporated by
reference from the information set forth and under the headings "Common
Stock Ownership of Certain Beneficial Owners and Management", "Election
of Directors", and "Executive Compensation" in Registrant's definitive
proxy statement for the 2000 Annual Meeting of Stockholders, which
meeting involves the election of directors, such definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the end of the fiscal
year covered by this Annual Report on Form 10-K. In addition,
information on Registrant's executive officers has been included in
Part I above under the caption "Executive Officers of the Registrant".
-8-
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- -------------------------------------------------------
Form 8-K
--------
(a) 1. The following Consolidated Financial Statements are
incorporated by reference from the indicated pages of the
1999 Annual Report to Stockholders:
Page Number(s) in
Annual Report
Consolidated Balance Sheets,
December 31, 1999 and 1998 .................... 6
Consolidated Statements of Operations
for the Years Ended December 31, 1999,
1998 and 1997 ................................. 7
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1999,
1998 and 1997 ................................. 8
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1999,
1998 and 1997 ................................. 9
Consolidated Statements of Comprehensive Income
(Loss) for the Years Ended December 31, 1999,
1998 and 1997 ................................. 9
Notes to Consolidated Financial Statements ..... 10-16
Independent Auditors' Report ................... Inside back
cover
(a) 2. The following schedule to the Consolidated Financial
Statements and the Independent Auditors' Report on Schedule
are filed as part of this report.
Page Number
-----------
Independent Auditors' Report ...................... 12
Schedule II - Valuation Reserves .................. 13
All other schedules are omitted because they are not applicable,
not required or because the required information is included in
the Consolidated Financial Statements or notes thereto.
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<PAGE>
(a) 3. The exhibits filed in this report or incorporated by
reference, listed on the Exhibit Index on page 14, are as
follows:
Exhibit No. Description
----------- ---------------------------------------------
2. Agreement of Merger and Recapitalization
3.1 Articles of Incorporation
3.3 By-Laws
4.2 Common Stock Purchase Warrant
10.1 * 1992 Stock Option Plan
10.2 * 1999 Stock Option Plan
11. Calculation of Earnings Per Share
13. 1999 Annual Report to Stockholders
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
27. Financial Data Schedule
* 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
The Registrant did not file any reports on Form 8-K during the
last quarter of its year ended December 31, 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MATEC Corporation
Date: March 29, 2000 By:/s/ Ted Valpey, Jr.
-------------------
Ted Valpey, Jr.
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Ted Valpey, Jr. President, Chief Executive March 29, 2000
- ------------------------ Officer, Chairman of the Board
Ted Valpey, Jr. and Director
/s/ Michael J. Kroll Vice President and Treasurer
- ------------------------ (Principal Financial Officer March 29, 2000
Michael J. Kroll and Principal Accounting
Officer)
/s/ Michael Deery Director March 29, 2000
- ------------------------
Michael Deery
/s/ Eli Fleisher Director March 29, 2000
- ------------------------
Eli Fleisher
/s/ Lawrence Holsborg Director March 29, 2000
- ------------------------
Lawrence Holsborg
/s/ Michael P. Martinich Director March 29, 2000
- -------------------------
Michael P. Martinich
/s/ John J. McArdle III Director March 29, 2000
- ------------------------
John J. McArdle III
/s/ Robert W. Muir, Jr. Director March 29, 2000
- ------------------------
Robert W. Muir, Jr.
/s/ Joseph W. Tiberio Director March 29, 2000
- ------------------------
Joseph W. Tiberio
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<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
MATEC Corporation
Hopkinton, Massachusetts
We have audited the consolidated financial statements of MATEC Corporation
and subsidiaries as of December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, and have issued our
report thereon dated March 10, 2000; such consolidated financial
statements and report are included in your 1999 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of MATEC Corporation and
subsidiaries, listed in Item 14(a)2. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Boston, Massachusetts
March 10, 2000
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<PAGE>
MATEC Corporation and Subsidiaries
----------------------------------
Schedule II - Valuation and Qualifying Accounts
-----------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------- ---------- ---------- ---------- ----------
Allowance for
Doubtful Accounts:
Year Ended
December 31, 1999 $ 75,000 $ 28,800 $ (10,800)(A) $ 93,000
========= ========= ========= =========
December 31, 1998 $ 45,000 $ 18,002 $ (11,998)(A) $ 75,000
========= ========= ========= =========
December 31, 1997 $ 35,000 $ (6,915) $ (16,915)(A) $ 45,000
========= ========= ========= =========
Inventory Reserve:
Year Ended:
December 31, 1999 $1,212,000 $ 448,000 $(280,000)(B) $1,380,000
========== ========= ========= ==========
December 31, 1998 $ 857,000 $ 419,730 $ (64,730)(B) $1,212,000
========== ========= ========= ==========
December 31, 1997 $ 780,000 $ 123,667 $ (46,667)(B) $ 857,000
========== ========= ========= ==========
(A) Write-off of uncollectible accounts, net of recoveries.
(B) Write-off of inventory.
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EXHIBIT INDEX
-------------
Exhibit No. (inapplicable items are omitted)
- -----------
2. Agreement of Merger and Recapitalization between MATEC
Corporation a Delaware corporation and MATEC Corporation a
Maryland corporation (incorporated by reference to Exhibit
A to the Proxy Statement of Registrant for its Special in
Lieu of Annual Meeting of Stockholders held on June 18,
1998).
3.1 Articles of Incorporation (incorporated by reference to
Exhibit B to the Proxy Statement of Registrant for its
Special In Lieu of Annual Meeting of Stockholders held on
June 18, 1998).
3.3 By-Laws (incorporated by reference to Exhibit 3.3 to
Registrant's Form 10-Q for the quarterly period ended
October 3, 1999).
4.2 Common Stock Purchase Warrant dated April 12, 1995 between
the Registrant and Massachusetts Capital Resource Company
(incorporated by reference to Exhibit 4.(a) on Registrant's
Form 10-Q for the quarterly period ended July 2, 1995).
10.1 1992 Stock Option Plan (incorporated by reference to
Exhibit 10.(a) on Registrant's Form 10-K for the year ended
December 31, 1997).
10.2 1999 Stock Option Plan (incorporated by reference to
Exhibit A to the Proxy Statement of Registrant for its
Special In Lieu of Annual Meeting of Stockholders held on
May 13, 1999).
11. Calculation of Earnings Per Share. Filed herewith.
13. Portions of the 1999 Annual Report to Stockholders. Filed
herewith.
21. Subsidiaries of the Registrant. Filed herewith.
23. Independent Auditors' Consent. Filed herewith.
27. Financial Data Schedule. Filed for electronic purposes
only.
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MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Years Ended December 31,
1999 1998 1997
------ ------ ------
Net earnings from continuing operations .......... $ 158 $ 205 $ 66
Net earnings from discontinued operations ........ 809 680 422
------ ------ ------
Net earnings ..................................... $ 967 $ 885 $ 488
====== ====== ======
Calculation of basic earnings per share:
- ----------------------------------------
Weighted-average shares outstanding ............. 2,682 2,729 2,737
===== ===== =====
Basic earnings per common share:
Continuing operations ......................... $ .06 $ .07 $ .02
Discontinued operations ....................... .30 .25 .16
------ ------ ------
$ .36 $ .32 $ .18
====== ====== ======
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MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Years Ended December 31,
1999 1998 1997
------ ------ ------
Net earnings from continuing operations ......... $ 158 $ 205 $ 66
Plus: interest impact, net of taxes from the
assumed reduction of debt from the
conversion of warrants .................... 9 - -
------ ------ ------
Adjusted net earnings from continuing operations 167 205 66
Net earnings from discontinued operations ....... 809 680 422
------ ------ ------
Adjusted net earnings ........................... $ 976 $ 885 $ 488
====== ====== ======
Calculation of diluted earnings per share:
- ------------------------------------------
Weighted average shares outstanding ............. 2,682 2,729 2,737
Increase from the assumed
exercise of stock options and investment of
proceeds in treasury stock, based upon the
average market prices ......................... 13 2 2
conversion of warrants ......................... 42 - -
----- ----- -----
Diluted weighted average shares outstanding ..... 2,737 2,731 2,739
Diluted earnings per common share:
Continuing operations ......................... $ .06 $ .07 $ .02
Discontinued operations ....................... .30 .25 .16
------ ------ ------
$ .36 $ .32 $ .18
====== ====== ======
(A) The dilutive effect of the outstanding warrants to purchase 85,000 shares
of common stock was not considered in 1998 since the effect would be
antidilutive and was not included in 1997 since the exercise price was
greater than the average market price of the common shares.
<PAGE>
COMMON STOCK INFORMATION
MATEC common stock is listed and traded on the American Stock Exchange
under the symbol MXC. The range of high and low prices during each
quarter for the past two years is shown below:
For the years ended December 31, 1999 1998
- ---------------------------------------------------------------------
High Low High Low
- ---------------------------------------------------------------------
4th quarter $6.25 $3.75 $4.00 $3.38
3rd quarter 4.13 3.50 4.00 3.63
2nd quarter 3.88 3.31 6.00 3.25
1st quarter 4.25 3.50 4.50 3.75
No dividend was paid in 1999. The Company paid a special nonrecurring
cash distribution of a $1.75 per share in May 1998. This distribution
represented a substantial portion of the net cash proceeds from the
sale of its Bergen Cable Technologies subsidiary. See Note 3 of the
Notes to Consolidated Financial Statements.
The approximate number of stockholders of record on February 28, 2000
was 1,067. This number does not include stockholders for whom shares
are held in a "nominee" or "street" name.
(Remaining information on inside front cover not incorporated by
reference.)
Inside front cover
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<TABLE>
Five Year Financial Summary
<CAPTION>
Years Ended December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Continuing operations:
Net sales $14,026 $12,062 $12,915 $12,388 $12,949
Gross profit 3,332 2,672 3,189 2,566 3,634
Earnings (loss) before income taxes 226 192 93 (784) 573
Income (taxes) benefit (68) 13 (27) 324 (252)
Earnings (loss) 158 205 66 (460) 321
Discontinued operations - net 809 680 422 384 (18)
- ---------------------------------------------------------------------------------------------------
Net earnings (loss) $ 967 $ 885 $ 488 $ (76) $ 303
===================================================================================================
Basic and diluted earnings (loss) per share:
Continuing operations $ .06 $ .07 $ .02 $ (.17) $ .12
Discontinued operations .30 .25 .16 .14 (.01)
- --------------------------------------------------------------------------------------------------
Earnings (loss) $ .36 $ .32 $ .18 $ (.03) $ .11
===================================================================================================
Weighted average shares outstanding 2,682 2,729 2,737 2,767 2,765
===================================================================================================
Cash dividends per share $ - $ 1.75 $ - $ - $ -
===================================================================================================
Total assets, end of year:
Continuing operations $16,532 $16,502 $14,782 $12,412 $13,935
Discontinued operations - - 7,144 7,709 7,793
- ---------------------------------------------------------------------------------------------------
$16,532 $16,502 $21,926 $20,121 $21,728
===================================================================================================
Long-term debt, end of year $ - $ 1,993 $ 1,989 $ 1,984 $ 2,180
===================================================================================================
</TABLE>
<PAGE>
<PAGE>
Management's Discussion and Analysis
Financial Condition
Cash and cash equivalents decreased $1,398,000 from December 31,
1998. During this period, the Company's continuing operations used
$2,623,000 of cash while the discontinued operations generated
$1,225,000 in cash.
Operating activities used $805,000 of cash mainly due to a $1,416,000
net increase in working capital. Accounts receivable, net increased
$1,172,000 from the 1998 level mainly as a result of the higher
fourth quarter sales in 1999 compared to the comparable period in
1998. Inventory increased $537,000 over 1998 primarily to support
the current sales backlog and delivery requirements. The $906,000
increase in accounts payable is mainly due to the timing of inventory
and machinery and equipment purchases. Net income taxes decreased
$528,000 from 1998 mainly as a result of tax payments.
Capital expenditures amounted to $716,000 in 1999 as the Company
added new and upgraded existing production capabilities and
processes. The Company's capital budget for 2000 is approximately
$850,000 and is geared toward continued improvement in its
manufacturing operations.
The Company made a $1 million payment in July 1999 on the $2 million
term debt note due on June 30, 2000. During 1999, the Company
purchased 66,800 shares of common stock for $243,000 and retired
these shares.
During 1999, discontinued operations generated cash of $1,225,000 as
the Company received note payments of $1,225,000 from the sale of its
Bergen Cable Technologies, Inc. subsidiary in 1998. This note amount
and related gain had been deferred pending collection.
At December 31, 1999, the Company has unused lines of credit of
$1,850,000.
The Company believes that, based on its current working capital, the
expected cash flows from operations and its current debt
arrangements, its resources are sufficient to meet the financial
needs and to fund the capital expenditures for the projected levels
of business in 2000.
<PAGE>
<PAGE>
Management's Discussion and Analysis continued
Results of Operations -- 1999 versus 1998
Net sales from continuing operations increased $1,965,000 (16%) over
1998 mainly due to the higher bookings in 1999 versus 1998. The book
to bill ratio was 1.3 to 1 in 1999 compared to .86 to 1 in 1998.
These increases were mainly attributable to the strong market demand
from the telecommunications industry especially for the Company's
domestically produced crystal oscillator products. The backlog at
the end of 1999 is $6.4 million compared to $2.3 million at the end
of 1998. Due to the rapid increase in bookings during 1999, the
Company experienced late deliveries on some of its domestically
produced crystal oscillators. The Company continues to work with its
supplier base and to increase its manufacturing capacity to improve
its delivery performance.
The gross profit percentage increased to 24% in 1999 from 22% in
1998. The increase in margin was mainly due to the favorable effect
of allocating the fixed overhead expenses over the increased sales
volume. Overall direct labor and material costs remained fairly
consistent during both years.
Selling and advertising expenses increased $120,000 (6%) over 1998
mainly as a result of increased sales commissions expense to the
Company's outside manufacturers' representatives associated with the
sales growth.
General and administrative expenses remained fairly level with 1998.
Interest income decreased $30,000 from 1998 mainly due to a
combination of lower notes receivable balances resulting from the
sale of discontinued operations and lower cash balances. Interest
expense decreased $42,000 as a result of the lower level of
outstanding debt. Other, net for 1998 includes $523,000 of gains on
the sales of assets.
The Company recorded tax expense of $68,000 in 1999 compared to a tax
benefit of $13,000 in 1998. The 1999 effective income tax rate of
30% is lower than the combined federal and state statutory rate of
40% due mostly to the nontaxable effect of the dividend exclusion.
The main reasons causing the tax benefit in 1998 were the recognition
of a state operating loss carryforward and the nontaxable effect of
the dividend exclusion.
As a result of the increased sales level and gross margin in 1999,
offset in part by higher operating expenses, the Company reported an
operating profit of $51,000 in 1999 compared to an operating loss of
$441,000 in 1998. Nonoperating income amounted to $176,000 in 1999
compared to $633,000 in 1998. As a result, the Company reported
pre-tax earnings from continuing operations of $226,000 in 1999
versus $192,000 in 1998. Earnings from continuing operations
amounted to $158,000 in 1999 compared to $205,000 in 1998. Earnings
from discontinued operations amounted to $809,000 in 1999 and
$680,000 in 1998. In total, the Company reported net earnings of
$967,000 in 1999 versus $885,000 in 1998.
<PAGE>
<PAGE>
Management's Discussion and Analysis continued
Results of Operations -- 1998 versus 1997
Net sales from continuing operations decreased $853,000 (7%) from
1997 as a result of a 34% decrease in sales of imported product that
was partially offset by a 24% increase in sales of domestically
produced product. The sales decrease in the import product line was
due to a lower beginning backlog and lower bookings during the year.
The sales increase in the domestically produced product line mainly
resulted from a higher beginning backlog level. Bookings in 1998
were approximately 23% lower than 1997 and resulted mainly from a
slow down in the electronic component industry caused in part by the
financial difficulties in the Far East.
The gross profit percentage decreased from 25% in 1997 to 22% in
1998. The margin decrease was mainly attributable to an increased
overhead percentage offset in part by lower raw material costs.
Direct labor costs remained fairly comparable during both years. The
unfavorable effect of allocating the fixed overhead over the lower
sales volume and increased personnel costs and depreciation expense
were the main factors causing the higher overhead percentage in
1998. The decrease in material costs was mainly due to a change in
sales mix.
Selling and advertising expenses increased $423,000 (26%) over 1997
mainly as a result of increased personnel costs and advertising
expenses.
General and administrative expenses decreased $209,000 (17%) from
1997 mainly due to lower corporate payroll expense in 1998. The
payroll decrease occurred primarily as a result of the Company's
president resigning in the third quarter of 1997 and not being
replaced.
Interest expense decreased from $241,000 in 1997 to $197,000 in 1998
as a result of lower levels of short-term debt and a lower interest
rate on the term debt. Interest income amounted to $237,000 in 1998
compared to $16,000 in 1997. The increase in interest income results
from the higher cash levels generated by the sales of real estate and
discontinued operations and the interest income received on the note
receivables related to the sales of the discontinued operation. The
$523,000 gain on sales of assets results from the sales of the
Company's real estate complex in Delaware and the common stock
investment in Colloidal Dynamics Pty. Ltd.
The Company recorded a $13,000 tax benefit in 1998 compared to tax
expense of $27,000 in 1997. The main reasons causing the tax benefit
in 1998 was the recognition of a state operating loss carryforward
and the nontaxable effect of the dividend exclusion. The 1997 tax
expense also includes the nontaxable effect of the dividend
exclusion.
As a result of the lower sales level and gross margin in 1998 and the
increase in operating expenses over 1997, the Company reported an
operating loss of $441,000 in 1998 compared to an operating profit of
$291,000 in 1997. Nonoperating income amounted to $633,000 in 1998
compared to expense of $197,000 in 1997. As a result, the Company
reported pre-tax earnings from continuing operations of $192,000
<PAGE>
<PAGE>
Management's Discussion and Analysis continued
in 1998 compared to $93,000 in 1997. Earnings from continuing
operations amounted to $205,000 in 1998 versus $66,000 in 1997.
Earnings from discontinued operations amounted to $680,000 in 1998
compared to $422,000 in 1997. In total, the Company reported net
earnings of $885,000 in 1998 compared to $488,000 in 1997.
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, 1999, 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 $31,000 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 $307,000, this decrease would not have an effect on the
statement of operations unless the securities were actually sold.
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.
Impact of the Year 2000 Issue
During the third and fourth quarters of 1999, the Company modified
its current accounting software to be Year 2000 compliant. The costs
to complete the modifications were not material.
The Company has not experienced any problems with its major
suppliers, customers, service providers, or manufacturing processes
that related to the Year 2000 compliance issue.
<PAGE>
<PAGE>
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.
Recent Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 was not required to be implemented until
fiscal year 2000. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133". SFAS No. 137 delayed the
original implementation date of SFAS No. 133 by one year. This will
require that the Company implement this statement in fiscal year
2001. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. The Company is
currently evaluating the impact of SFAS No. 133 and has not yet
determined its effect on the Company's consolidated financial
statements.
<PAGE>
<PAGE>
Consolidated Balance Sheets
December 31, 1999 1998
- --------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 3,117,681 $ 4,515,778
Receivables, net 3,097,632 1,771,906
Inventories 3,329,799 2,793,041
Deferred income taxes and other current assets 811,093 1,311,386
- --------------------------------------------------------------------------
Total current assets 10,356,205 10,392,111
- --------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land and improvements 313,674 313,674
Buildings and improvements 2,640,446 2,617,916
Machinery and equipment 5,664,989 4,984,213
- --------------------------------------------------------------------------
8,619,109 7,915,803
Less accumulated depreciation 5,818,977 5,263,944
- --------------------------------------------------------------------------
2,800,132 2,651,859
Other assets:
Marketable equity securities 3,072,817 3,137,507
Miscellaneous 302,776 320,122
- --------------------------------------------------------------------------
$16,531,930 $16,501,599
==========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 997,720 $ -
Accounts payable 1,316,793 410,664
Accrued liabilities 1,064,362 1,164,518
Income taxes 547,245 894,319
- --------------------------------------------------------------------------
Total current liabilities 3,926,120 2,469,501
- --------------------------------------------------------------------------
Deferred income taxes 1,428,513 1,547,364
Long-term debt - 1,993,280
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:
2,650,148 and 2,716,948 shares 132,507 135,847
Capital surplus 4,526,598 4,640,826
Retained earnings 4,773,759 3,931,658
Accumulated other comprehensive income 1,744,433 1,783,123
- --------------------------------------------------------------------------
Total stockholders' equity 11,177,297 10,491,454
- --------------------------------------------------------------------------
$16,531,930 $16,501,599
=========================================================================
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $14,026,229 $12,061,652 $12,914,921
Cost of sales 10,693,902 9,389,870 9,725,756
- -----------------------------------------------------------------------------------------
Gross profit 3,332,327 2,671,782 3,189,165
- -----------------------------------------------------------------------------------------
Selling and advertising expenses 2,202,113 2,082,465 1,659,183
General and administrative expenses 1,079,663 1,030,131 1,239,429
- ---------------------------------------------------------------------------------------
3,281,776 3,112,596 2,898,612
- ----------------------------------------------------------------------------------------
Operating profit (loss) 50,551 (440,814) 290,553
Other income (expense):
Interest income 206,791 236,695 16,170
Interest expense (154,718) (196,818) (241,037)
Other, net 123,532 593,084 27,467
- -----------------------------------------------------------------------------------------
175,605 632,961 (197,400)
- -----------------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes 226,156 192,147 93,153
Income tax (expense) benefit (68,000) 12,600 (27,200)
- -----------------------------------------------------------------------------------------
Earnings from continuing operations 158,156 204,747 65,953
- ----------------------------------------------------------------------------------------
Earnings from discontinued operations 809,000 680,390 422,402
- -----------------------------------------------------------------------------------------
Net earnings $ 967,156 $ 885,137 $ 488,355
=========================================================================================
Basic and diluted earnings per share:
Continuing operations $ .06 $ .07 $ .02
Discontinued operations .30 .25 .16
- -----------------------------------------------------------------------------------------
$ .36 $ .32 $ .18
=========================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Earnings from continuing operations $ 158,156 $ 204,747 $ 65,953
Adjustments to reconcile earnings from
continuing operations to net cash provided (used)
by operating activities:
Depreciation and amortization 568,051 504,634 557,991
Changes in deferred income taxes (120,000) (349,900) (30,200)
Gain on sales of assets - (523,351) -
Other 4,440 4,440 4,440
Changes in assets and liabilities:
Receivables, net (1,171,322) 270,586 (219,514)
Inventories (536,758) (166,289) (269,196)
Other current assets 14,505 38,127 (46,339)
Accounts payable and accrued liabilities 805,973 (219,671) 153,036
Income taxes, net (528,541) 478,359 297,437
- --------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (805,496) 241,682 513,608
- ---------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (716,324) (855,028) (337,174)
Collection of note receivables 149,411 29,850 -
Proceeds from sales of assets - 2,061,780 -
Other, net (8,065) (7,915) (1,696)
- ---------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (574,978) 1,228,687 (338,870)
- ---------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Payments on long-term debt (1,000,000) - (200,000)
Purchases of common stock (242,623) (164,157) (79,597)
Dividend paid - (4,826,943) -
Stock options exercised - 101,050 -
Net repayments under lines of credit - - (650,000)
- -----------------------------------------------------------------------------------------------------------
Net cash (used) by financing activities (1,242,623) (4,890,050) (929,597)
- ---------------------------------------------------------------------------------------------------------
Cash Provided by Discontinued Operations 1,225,000 7,050,362 1,029,666
- -------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (1,398,097) 3,630,681 274,807
Cash and Cash Equivalents at beginning of year 4,515,778 885,097 610,290
- ---------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at end of year $ 3,117,681 $ 4,515,778 $ 885,097
=========================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid during the year by continuing operations for:
Interest $ 154,718 $ 208,492 $ 261,119
Income taxes $ 340,929 $ 146,256 $ 12,540
</TABLE>
<PAGE>
<PAGE>
Consolidated Statements of Cash Flows - continued
Noncash Investing and Financing Activities:
During 1998, the Company retired all of its treasury stock. The total
cost of the treasury shares of $5,527,000 reduced common stock, capital
surplus and retained earnings by $56,000, $1,901,000 and $3,570,000,
respectively.
In connection with the sales of discontinued operations in 1998, the
Company recognized a $124,000 investment in common stock in 1999 and a
$456,000 receivable and a $1,250,000 note receivable less a deferred gain
on sale of $1,250,000 in 1998.
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
<CAPTION>
Accumulated
Other
Common Stock Capital Retained Comprehensive Treasury
Shares Amount Surplus Earnings Income Stock
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Balance, January 1, 1997 3,804,195 $190,210 $6,442,439 $10,954,963 $1,570,324 $(5,283,126)
Net earnings - - - 488,355 - -
Purchases of common stock - - - - - (79,597)
Unrealized gain on marketable
equity securities - - - - 1,125,035 -
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 3,804,195 190,210 6,442,439 11,443,318 2,695,359 (5,362,723)
Net earnings - - - 885,137 - -
Cash dividend paid ($1.75
per share) - - - (4,826,943) - -
Purchases of common stock - - - - - (164,157)
Exercise of stock options 24,700 1,234 99,816 - - -
Retirement of treasury stock (1,111,947) (55,597) (1,901,429) (3,569,854) - 5,526,880
Unrealized (loss) on marketable
equity securities - - - - (912,236) -
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 2,716,948 135,847 4,640,826 3,931,658 1,783,123 $ -
Net earnings - - - 967,156 - -
Purchase and retirement of
common stock (66,800) (3,340) (114,228) (125,055) - -
Unrealized (loss) on marketable
equity securities - - - - (38,690) -
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 2,650,148 $132,507 $4,526,598 $4,773,759 $1,744,433 $ -
================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Comprehensive Income (Loss)
<CAPTION>
For the years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 967,156 $ 885,137 $ 488,355
Other comprehensive income, before tax:
Unrealized gain (loss) on
marketable equity securities (64,690) (1,520,236) 1,876,035
Income tax (expense) benefit 26,000 608,000 (751,000)
- ------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax (38,690) (912,236) 1,125,035
- ------------------------------------------------------------------------------------
Comprehensive income (loss) $ 928,466 $ (27,099) $ 1,613,390
====================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Description of Business -- The Company's current business is conducted
through its Valpey-Fisher subsidiary, which is involved in the design,
production, import, and sale of quartz crystals and oscillators,
ultrasonic transducers and a wide variety of piezoelectric and high
precision optical components.
(2) Summary of Significant Accounting Policies:
Principles of consolidation -- The accompanying consolidated financial
statements include the accounts of MATEC Corporation and its wholly owned
subsidiaries. Significant intercompany balances and transactions have
been eliminated in consolidation.
Use of estimates -- The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet
dates. Estimates include reserves for accounts receivable and inventory,
useful lives of property, plant and equipment, accrued liabilities, and
deferred income taxes.
Fair value of financial instruments -- Statement of Financial
Accounting Standards ("SFAS") No. 107 "Disclosures About Fair Value of
Financial Instruments" requires disclosure of the fair value of certain
financial instruments. The carrying amounts of cash, cash equivalents,
accounts payable and accrued expenses approximate fair value because of
their short-term nature. Marketable equity securities are recorded in the
financial statements at aggregate fair value. The carrying amounts of the
Company's debt instruments approximate fair value (Notes 9 and 10).
Cash equivalents -- The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash equivalents are stated at cost plus accrued
interest, which approximates market value. Cash and cash equivalents in
accounts at MetroWest Bank amounted to approximately $2,360,000 and
$4,242,000 at December 31, 1999 and 1998, respectively.
Inventories -- Inventories are stated at the lower of cost or market
and are determined by the first-in, first-out method (FIFO).
Property, plant and equipment -- The Company uses the straight-line
method of providing for depreciation and amortization of property, plant
and equipment for financial reporting purposes and accelerated methods for
tax purposes. The estimated lives used to compute depreciation and
amortization are as follows: land improvements - 10 years, buildings and
improvements - 15 to 40 years and machinery and equipment - 3 to 10 years.
Marketable equity securities -- Marketable equity securities consist
of common stocks and are valued under SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". Under SFAS No. 115, the
Company has classified these securities as "available for sale" and are
valued at fair value, with unrealized gains, net of taxes excluded from
earnings and reported as a component of stockholders' equity.
<PAGE>
<PAGE>
Notes continued
The Company's investment in marketable equity securities consists of
517,527 shares of MetroWest Bank common stock. At December 31, 1999 and
1998, the fair market value (based on quoted market prices) of these
shares was $3,072,817 and $3,137,507 respectively, and the cost basis was
$710,384. Gross unrealized gains amounted to $2,362,433 and $2,427,123 at
December 31, 1999 and 1998, respectively. During 1999 and 1998, the
Company recorded decreases of $38,690 and $912,236, respectively, in the
"Accumulated Other Comprehensive Income" component of stockholders'
equity. The Chairman and Chief Executive Officer of the Company is the
Chairman of MetroWest Bank and a Director of the Company is Chief
Executive Officer of MetroWest Bank.
Revenue recognition -- Revenue is recognized when product is shipped.
Income taxes -- The Company accounts for income taxes under SFAS No.
109 "Accounting for Income Taxes". This Statement requires the Company to
compute deferred income taxes based on the differences between the
financial statement and tax basis of assets and liabilities using enacted
rates in effect in the years in which the differences are expected to
reverse.
Earnings per share -- The Company calculates earnings per share under
SFAS No. 128 "Earnings per Share". Under this Statement, basic earnings
per share is computed by dividing net earnings by the weighted average
number of common shares outstanding. Diluted earnings per share is
computed by dividing net earnings adjusted for the after-tax interest
expense reduction that would arise from the assumed conversion of the
warrants, if dilutive, by the diluted weighted average shares
outstanding. Diluted weighted average shares includes the weighted
average number of common shares outstanding, the weighted average number
of common shares that would have been outstanding if potentially dilutive
common shares relating to stock options had been issued using the treasury
stock method and the weighted average number of shares issued upon the
conversion of the warrants, if dilutive.
The weighted average number of shares outstanding was 2,681,783 shares
in 1999, 2,728,829 shares in 1998 and 2,737,198 shares in 1997. In 1999,
the dilutive effect of the outstanding stock options and warrants was not
material. In 1998, the dilutive effect of the outstanding stock options
was not material and the effect of the outstanding warrants to purchase
85,000 shares was antidilutive. In 1997, the dilutive effect of
outstanding stock options was not material. The dilutive effect of the
outstanding warrants was not included in the computation of diluted
earnings per share in 1997 since the exercise price was greater than the
average market price of the common shares.
Stock compensation plans -- The Company applies APB Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plans.
Comprehensive income (loss) -- The Company applies SFAS No. 130,
"Reporting Comprehensive Income" for the reporting and displaying of
comprehensive income (loss) and its components in its financial
statements.
<PAGE>
<PAGE>
Notes continued
Comprehensive income (loss) 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
other comprehensive income (loss) for the Company is unrealized holding
gains (losses) on available for sale marketable equity securities.
Reclassifications -- Certain items in the 1997 and 1998 financial
statements have been reclassified to conform with the 1999 presentation.
(3) Discontinued Operations: On April 15, 1998, the Company sold all 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
("BCT Note"), a 10% stock and membership interest in the acquiring
entities and assumption of certain liabilities including trade payables.
Since the acquiring entity had significant third-party debt compared to
its equity and the Company's note was subordinated to the third party
debt, the Company had deferred any gain on the BCT note, $75,000 due in
1999 and $1,175,000 due thereafter, and had not assigned any value to the
stock portions of the sale until cash payments were received by the
Company in 1999. As a result, the Company recorded a $330,000 pre-tax
gain on the sale in 1998, excluding the deferred gain discussed above. In
the first and second quarters of 1999, the Company received a $50,000 and
a $1,175,000 note payment, respectively, and recorded a corresponding
pre-tax gain on the disposal of discontinued operations during these
quarters. The $1,175,000 note payment in the second quarter was accepted
as payment in full for the $1.2 million outstanding note receivable
balance. After full payment of the note receivable balance, the Company
recognized the fair value of the common stock received of $124,000 in the
third quarter of 1999 and a corresponding pre-tax gain on the disposal of
discontinued operations. See Note 15.
On August 3, 1998, the Company sold certain assets of its Matec
Instruments, Inc. ("MII") and Matec Applied Sciences, Inc. ("MASI")
subsidiaries to a newly formed corporation. The purchase price received
consisted of approximately $605,000 in cash, a subordinated promissory
note ("Note") in the principal amount of $250,000, a $250,000 noninterest
bearing receivable ("Receivable"), and the assumption of certain
liabilities including trade payables. The note bears interest at prime
rate + 1% (9.50% at December 31, 1999) and is payable in 48 monthly
installments of $5,208 plus interest. The receivable has been discounted
to $206,000 based on an imputed interest rate of 9.5%. Payments on the
receivable are due in quarterly installments based on 1.5% of net sales.
In addition, the buyer has entered into a 5 year lease agreement with the
Company to lease space that it currently occupies and the buyer also has a
5 year option to purchase the real estate that includes the leased space.
The pre-tax gain on the sale recognized in 1998 was $400,000.
In the fourth quarter of 1996, the Company adopted a plan to dispose
of the AcoustoSizer product line and related assets ("ASZ") of MASI and
recorded a pre-tax charge of $475,000 to cover the estimated costs to
dispose of this product line. In 1997, the Company received $150,000 in
cash and a $200,000 note from the sale of the ASZ. The gain recognition
from the note was deferred pending collection. In 1997, the Company
recorded a gain on the sale of discontinued operations of $134,000
<PAGE>
<PAGE>
Notes continued
representing the cash received less legal expenses. In 1998, the Company
received payment of the $200,000 note and has included this amount in the
gain on sale of discontinued operations.
As a result of the above, the operating results of BCT, MII, and MASI
have been reported as discontinued operations.
Net sales of BCT, MII, and MASI amounted to $6,994,000 and $18,792,000
for the years ended December 31, 1998 and 1997, respectively.
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:
1999 1998 1997
---------- ---------- ----------
(in thousands)
Earnings from operations (less
applicable taxes of $ 0, $ 66,
and $ 250) $ - $ 105 $ 344
Gain on disposal (less applicable
taxes of $ 540, $ 356, and $ 56) 809 575 78
------ ------ ------
Earnings from discontinued operations $ 809 $ 680 $ 422
====== ====== ======
As a result of the BCT sale, on May 15, 1998 the Company paid a
special nonrecurring cash distribution of a $1.75 per share to
stockholders of record on May 4, 1998. This special nonrecurring
distribution totaled $4,827,000 and represented a substantial portion of
the net cash proceeds from the sale of BCT.
<PAGE>
<PAGE>
Notes continued
(4) Receivables, net: Receivables, net of allowances, consist of the
following:
1999 1998
- --------------------------------------------------------------------------
Accounts receivable, less allowance for doubtful
accounts of $93,000 and $75,000 $2,820,370 $1,648,672
Refundable income taxes 154,404 -
Amounts due from the sales of discontinued
operations, less deferred gain of $ 0 and
$1,250,000 278,139 427,926
Less: amounts due after one year, less deferred
gain of $ 0 and $1,175,000 155,281 304,692
- --------------------------------------------------------------------------
Current amounts due, less deferred gain of $ 0
and $75,000 122,858 123,234
- --------------------------------------------------------------------------
$3,097,632 $1,771,906
==========================================================================
(5) Inventories: Inventories consist of the following:
1999 1998
- --------------------------------------------------------------------------
Raw materials $1,796,823 $1,529,283
Work in process 1,179,264 847,640
Finished goods 353,712 416,118
- --------------------------------------------------------------------------
$3,329,799 $2,793,041
==========================================================================
<PAGE>
<PAGE>
Notes continued
(6) Income Taxes: The components of the provision (benefit) for income
taxes are as follows:
1999 1998 1997
- --------------------------------------------------------------------------
Current provision:
Federal $ 149,000 $ 319,900 $ 37,800
State 39,000 17,400 19,600
- --------------------------------------------------------------------------
188,000 337,300 57,400
- --------------------------------------------------------------------------
Deferred (benefit):
Federal (105,000) (270,900) (22,000)
State (15,000) (79,000) (8,200)
- --------------------------------------------------------------------------
(120,000) (349,900) (30,200)
- --------------------------------------------------------------------------
Total $ 68,000 $ (12,600) $ 27,200)
==========================================================================
The tax effects of significant items comprising the Company's net
deferred tax liability as of December 31, 1999 and 1998 are as follows:
1999 1998
- --------------------------------------------------------------------------
Deferred tax liabilities:
Unrealized gain on marketable equity securities $ 613,800 $ 639,800
DISC commissions 481,600 535,200
Depreciation 333,100 372,400
- --------------------------------------------------------------------------
Total deferred tax liabilities 1,428,500 1,547,400
- --------------------------------------------------------------------------
Deferred tax assets:
Inventory reserves 505,600 487,600
Accrued expenses 229,900 205,000
Allowance for doubtful accounts 37,700 30,200
Bergen note receivable and investment - 539,200
- --------------------------------------------------------------------------
Total deferred tax assets 773,200 1,262,000
- --------------------------------------------------------------------------
Net deferred tax liabilities $ 655,300 $ 285,400
==========================================================================
Other current assets include deferred income taxes of approximately
$773,000 in 1999 and $1,262,000 in 1998.
<PAGE>
<PAGE>
Notes continued
The total income tax provision (benefit) differs from that computed by
applying the federal income tax rate to income before income taxes. The
reasons for the difference are as follows:
1999 1998 1997
- --------------------------------------------------------------------------
Income taxes at statutory rates $ 76,900 $ 65,330 $ 31,672
State income tax, net of federal
tax benefit 15,800 (11,000) 7,400
Dividend exclusion (32,000) (26,100) (21,000)
Nondeductible expenses 4,600 4,800 10,500
Benefit of state operating loss
carryforward - (45,000) -
Other, net 2,700 (630) (1,372)
- --------------------------------------------------------------------------
$ 68,000 $ (12,600) $ 27,200
==========================================================================
(7) Profit Sharing and Savings Plan: The Company has a trusteed profit
sharing 401(k) plan that covers all qualified employees. Under the profit
sharing section of the plan, the Company may make contributions to the
plan at the discretion of the Board of Directors. Profit sharing expense
amounted to $35,000 in 1999, $0 in 1998 and $0 in 1997. Under the 401(k)
section of the plan, the Company matched 50% of employee contributions up
to 6% of compensation. Total Company contributions charged to operations
were $58,000 in 1999, $51,000 in 1998 and $63,000 in 1997.
(8) Accrued Liabilities: Accrued liabilities consists of the following
items:
1999 1998
- --------------------------------------------------------------------------
Employee compensation $ 270,276 $ 134,496
Environmental costs 158,000 346,000
Other 636,086 684,022
- --------------------------------------------------------------------------
$1,064,362 $1,164,518
=========================================================================
As a result of the sale of its Bergen Cable subsidiary, the Company is
performing environmental clean-up at that site. Total costs of
remediation are estimated to be approximately $650,000, which was expensed
in 1998, of which $158,000 is accrued at December 31, 1999 for future
payments. These costs represent the Company's best estimate, but the
ultimate costs will not be known until the remediation is complete.
(9) Notes Payable: The Company has secured demand lines of credit with
two banks amounting in total to $1,850,000. The $1,000,000 line of credit
is secured by all assets of the Company, except for real estate and
marketable equity securities. Advances under this line are based on
percentage formulas of specific receivable and inventory balances of a
certain subsidiary. The $850,000 line of credit is secured by marketable
equity securities. The Company had no borrowings outstanding under either
line of credit at December 31, 1999 and 1998. There are no compensating
balance requirements or significant commitment fees under either
arrangement.
<PAGE>
<PAGE>
Notes continued
(10) Long-Term Debt: Long-term debt consists of a 10% Term Debt Note
with an original $2 million face amount due on June 30, 2000. Interest is
payable quarterly. During 1999, the Company made a $1 million payment on
this note. See Note 15.
The Term Debt Note is secured by all the Company's assets, except for
real estate, marketable equity securities, and certain specific equipment
with a total book value of $69,000. The Term Debt Agreement includes
covenants covering debt to equity and interest expense ratios and
restrictions as to the total amount of debt, dividends, and capital stock
repurchases. During 1999 and 1998, the lender waived certain covenants.
Under the Agreement, the lender will subordinate its security interest
for up to $4 million in debt, with corresponding increases in the interest
rate from the 10% stated rate to 12% based on the subordination amount.
The lender has subordinated its security interest to the $1 million bank
line of credit. As part of the Agreement, the Company issued the lender
transferable common stock warrants to purchase 85,000 shares of the
Company's common stock at $4.75 per share less certain adjustments. The
warrants were valued at $23,000 on the date of issuance. The warrants
expire on June 30, 2000.
(11) Stockholders' Equity: The Company has 2,650,148 and 2,716,948
shares of its $.05 par value Common Stock outstanding at December 31, 1999
and 1998, respectively. During 1999, the Company acquired 66,800 shares
of common stock at a cost of $242,623 and retired the shares.
Under prior authorizations from the Board of Directors, the Company is
authorized to purchase up to an additional 74,000 shares of stock through
the open market or negotiated transactions.
<PAGE>
<PAGE>
Notes continued
The MATEC Corporation 1999 and 1992 Stock Option Plans allow for the
granting of options to officers, key employees, and other individuals to
purchase a maximum of 400,000 shares of the Company's common stock. The
option price and terms are determined by the Company's Stock Option-
Compensation Committee. The options granted may qualify as incentive stock
options ("ISO's"). Through December 31, 1999, all options granted were ISO's.
At December 31, 1999, the 1992 Plan has 109,944 options available for future
grant and 269,300 common shares reserved for issuance. At December 31, 1999,
the 1999 Plan has 100,000 options available for future grants and 100,000
common shares reserved for issuance.
A summary of the status of the Company's two fixed stock option plans as
of December 31, 1999, 1998, and 1997, and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
Number Weighted-avg. Number Weighted-avg. Number Weighted-avg.
of shares exercise price of shares exercise price of shares exercise price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 46,664 $2.98 68,500 $4.18 210,500 $3.66
Granted 120,000 3.78 18,064 3.10 30,000 4.22
Exercised - - (24,700) 4.09 - -
Forfeited (7,308) 3.43 (15,200) 4.23 (172,000) 3.54
- ------------------------------------------------------------------------------------------------------
Outstanding, December 31 159,356 $3.56 46,664 $2.98 68,500 $4.18
=======================================================================================================
Exercisable, December 31 17,034 $2.86 10,624 $2.91 22,300 $4.09
=======================================================================================================
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------- ----------------------------
Weighted Average
-----------------------------
Range of Number Remaining Number Weighted-
Exercise Outstanding Contractual Exercise Exercisable Avg. Exercise
Prices at 12/31/99 Life Price at 12/31/99 Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.74-2.92 34,356 7.4 years $2.79 16,034 $2.81
$3.62-3.82 125,000 9.3 3.77 1,000 3.63
- ------------------------------------------------------------------------------------------------
159,356 8.9 $3.56 17,034 $2.86
================================================================================================
</TABLE>
<PAGE>
<PAGE>
Notes continued
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for these plans.
Pro forma net earnings and earnings per share information, as required
by SFAS No. 123, "Accounting for Stock-Based Compensation," has been
determined as if the Company had accounted for its employee stock options
under the fair value method described by SFAS No. 123. The fair value of
these options was estimated at the grant date using the Black-Scholes
option pricing model with the following weighted-average assumptions for
1999, 1998 and 1997: dividend yield of 0%, an expected option life of 7
years and an expected stock price volatility of the Company's common stock
of 40%. The weighted average risk-free interest rates were 6.1% in 1999,
4.6% in 1998 and 6.3% in 1997. The estimated weighted-average fair value
per option granted at the date of grant was $2.00 in 1999, $1.81 in 1998
and $2.25 in 1997. For purposes of the pro forma disclosures, the
estimated fair value of the options is amortized to expense over the
five-year vesting period of the options. The pro forma effects of
recognizing compensation expense under SFAS No. 123 would have decreased
earnings from continuing operations by $27,000, $12,000 and $10,000 in
1999, 1998, and 1997, respectively. These pro forma decreases of net
earnings would have reduced earnings per share by $.01 in 1999 and would
have had no effect on earnings per share in 1998 and 1997. The pro forma
effects to net earnings reflect options granted since 1995. Therefore,
the full impact of calculating compensation expense under SFAS No. 123 is
not reflected above, since the compensation cost is reflected over the
options' vesting period of five years and options granted prior to 1995
are not considered.
(12) Other Income (Expense), net: Other, net consists of the following
items:
1999 1998 1997
- --------------------------------------------------------------------------
Dividends $ 134,557 $ 108,680 $ 87,980
Real estate operations (11,025) (38,947) (60,513)
Gain on sales of assets - 523,351 -
- --------------------------------------------------------------------------
$ 123,532 $ 593,084 $ 27,467
==========================================================================
Interest expense of $7,000 is included in real estate operations in
1997.
During the first quarter of 1998, the Company received net proceeds of
$1,862,000 from the sale of its real estate complex located in Delaware.
None of the Company's operations were located at this facility. The
Company recorded a pre-tax gain of $386,000 on the sale. During the
fourth quarter of 1998, the Company sold its common stock investment in
Colloidal Dynamics Pty. Ltd. for $200,000 and recorded a $137,000 pre-tax
gain on the sale.
(13) Industry Segment: The Company operates in one segment: the design,
production, import, and sale of quartz crystals and oscillators,
ultrasonic transducers and a wide variety of piezoelectric and high
precision optical components.
<PAGE>
<PAGE>
Notes continued
No customer accounted for more than 10% of net sales in 1999 and
1998. During 1997, one customer accounted for 12% of net sales. Export
sales amounted to $2,828,000, $3,118,000 and $3,124,000 in 1999, 1998, and
1997, respectively. Sales to customers located in Canada accounted for
approximately 48%, 42%, and 49% of total export sales in 1999, 1998 and
1997, respectively.
(14) Quarterly Financial Data (unaudited): Selected unaudited quarterly
financial data for 1999 and 1998 is set forth below:
First Second Third Fourth
- -----------------------------------------------------------------------
1999 (in thousands, except per share data)
Net sales from continuing operations $2,400 $3,355 $3,974 $4,297
Gross profit 361 580 999 1,392
Earnings (loss) before income taxes (365) (217) 255 553
Net earnings (loss) from:
Continuing operations (245) (144) 166 381
Discontinued operations 30 705 74 -
- ------------------------------------------------------------------------
Net earnings (loss) $ (215) $ 561 $ 240 $ 381
========================================================================
Basic and diluted earnings (loss)
per share:
Continuing operations $ (.09) $ (.05) $ .06 $ .14
Discontinued operations .01 .26 .03 -
- ------------------------------------------------------------------------
$ (.08) $ .21 $ .09 $ .14
========================================================================
1998
Net sales from continuing operations $3,499 $3,397 $2,580 $2,586
Gross profit 815 814 509 534
Earnings (loss) before income taxes 399 55 (270) 8
Net earnings (loss) from:
Continuing operations 239 33 (157) 90
Discontinued operations 102 207 251 120
- -----------------------------------------------------------------------
Net earnings (loss) $ 341 $ 240 $ 94 $ 210
=======================================================================
Basic and diluted earnings (loss)
per share:
Continuing operations $ .08 $ .02 $ (.06) $ .03
Discontinued operations .04 .07 .09 .05
- -----------------------------------------------------------------------
$ .12 $ .09 $ .03 $ .08
=======================================================================
In 1999, the net earnings from discontinued operations result from
gains recognized on the sale of discontinued operations.
In the 1998 first quarter, net earnings from continuing operations
includes a gain on sale of assets of $232,000 ($.08 per share). See Note
12.
<PAGE>
<PAGE>
Notes continued
In the 1998 fourth quarter, net earnings from continuing operations
includes a $86,000 ($.03 per share) gain on sale of assets and $63,000
($.02 per share) of interest income from a note receivable. See Notes 12
and 3.
In the 1998 second, third and fourth quarters, net earnings from
discontinued operations result primarily from gains on the sale of
discontinued operations. See Note 3.
(15) Subsequent Events: In January 2000, the Company sold its common
stock in Bergen Cable Technology, Inc. and received approximately
$1,308,000 in cash after estimated expenses at the closing. As a result,
the Company will record a pre-tax gain of approximately $1,215,000 in the
first quarter of 2000. In addition, the Company's share of the escrow
balance amounts to approximately $170,000. This escrow balance will be
distributed to the Company, less any claims for indemnity thereon, on or
before January 4, 2002. The Company will record a gain on this escrow
balance upon receipt of the cash. The Company acquired the shares in
Bergen Cable Technology, Inc. as part of the purchase price for the sale
of its wholly owned subsidiary, Bergen Cable Technologies, Inc. See Note
3.
In January 2000, the Company paid $745,000 in cash and issued 85,000
common shares as payment in full for the $1 million term debt note due on
June 30, 2000. The common shares were issued upon the conversion of the
lender's warrant. See Note 10.
On February 2, 2000, the board of directors declared a special cash
dividend of $.20 per common share payable on February 28, 2000 to
stockholders of record on February 14, 2000.
<PAGE>
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors of MATEC Corporation:
We have audited the accompanying consolidated balance sheets of MATEC
Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, comprehensive income
(loss), stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of MATEC Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
March 10, 2000
(Remaining information on inside back cover is not incorporated by
reference.)
inside back cover
<PAGE>
Subsidiaries of the Registrant Exhibit 21
------------------------------ ----------
The following is a list of the Registrant's subsidiaries (all
of which are 100% owned):
State or Other Jurisdiction
Of Incorporation
---------------------------
MATEC EFO Corp. Massachusetts
Matec International, Inc. Massachusetts
MEKontrol, Inc. Massachusetts
MTCI, Inc. Delaware
Old BCT, Inc. New Jersey
Old MAS, Inc. Delaware
Valpey-Fisher Corporation Massachusetts
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 333-94491 and 033-77554 of MATEC Corporation and
subsidiaries on Form S-8, as amended, of our reports dated March
10, 2000, appearing in and incorporated by reference in this Annual
Report on Form 10-K of MATEC Corporation for the year ended
December 31, 1999.
Deloitte & Touche LLP
Boston, Massachusetts
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,118
<SECURITIES> 0
<RECEIVABLES> 3,191
<ALLOWANCES> 93
<INVENTORY> 3,330
<CURRENT-ASSETS> 10,356
<PP&E> 8,619
<DEPRECIATION> 5,819
<TOTAL-ASSETS> 16,532
<CURRENT-LIABILITIES> 3,926
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 11,044
<TOTAL-LIABILITY-AND-EQUITY> 16,532
<SALES> 14,026
<TOTAL-REVENUES> 14,026
<CGS> 10,694
<TOTAL-COSTS> 10,694
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 226
<INCOME-TAX> 68
<INCOME-CONTINUING> 158
<DISCONTINUED> 809
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 967
<EPS-BASIC> .36
<EPS-DILUTED> .36
</TABLE>
