UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended August 31, 1996
Commission File number 0-l87l6
MATRIX SERVICE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 73-1352l74
(State of incorporation) (I.R.S. Employer
Identification No.)
l070l E. Ute St., Tulsa, Oklahoma 74ll6-l5l7
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(9l8) 838-8822
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
1934 during the preceding l2 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 October 14, 1996, there were 9,491,153 shares of the Company's common
stock, $.0l par value per share, issued and 9,319,572 shares outstanding.
<PAGE>
PART I.- FINANCIAL INFORMATION
ITEM 1. Financial Statements
Matrix Service Company
Condensed Consolidated Statements of Income
(in thousands, except share and per share data)
[CAPTION]
Three Months Ended
August 31
-----------------------
(unaudited)
1996 1995
<TABLE> --------- ---------
<S> <C> <C>
Revenues $39,630 $43,161
Cost of revenues 35,665 38,840
-------- --------
Gross profit 3,965 4,321
Selling, general and
administrative expenses 2,459 2,591
Goodwill and noncompete
amortization 216 279
-------- --------
Operating income 1,290 1,451
Other income (expense):
Interest income 29 30
Interest expense (114) (216)
Other (49) 38
-------- --------
Income before income tax expense 1,156 1,303
Provision for federal and state
income tax expense 524 752
-------- --------
Net income $632 $551
======== ========
Net income per common and
common equivalent shares:
Primary $0.07 $0.06
Fully diluted $0.07 $0.06
Weighted average common and
common equivalent shares outstanding:
Primary 9,523,982 9,400,625
Fully diluted 9,523,982 9,405,226
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
Matrix Service Company
Condensed Consolidated Balance Sheets
(in thousands)
<CAPTION>
August 31, May 31,
1996 1996
----------- ---------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,376 $ 1,899
Accounts receivable 26,085 29,205
Costs and estimated earnings
in excess of billings on
uncompleted contracts 11,705 12,122
Inventories 4,783 4,149
Prepaid expenses 278 179
Deferred taxes 995 995
Income tax receivable 338 609
--------- --------
Total current assets 45,560 49,158
Investment in undistributed equity
of a foreign joint venture 374 374
Property, plant and equipment at cost:
Land and buildings 14,436 14,528
Construction equipment 22,936 23,414
Transportation equipment 5,275 4,990
Furniture and fixtures 2,749 2,806
Construction in progress 1,623 189
-------- --------
47,019 45,927
Less accumulated depreciation 18,017 17,065
-------- --------
Net property, plant and equipment 29,002 28,862
Goodwill, net of accumulated
amortization 26,906 27,033
Other assets 316 330
--------- ---------
Total assets $102,158 $105,757
========= =========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
Matrix Service Company
Condensed Consolidated Balance Sheets
(in thousands)
<CAPTION>
August 31, May 31,
1996 1996
------------ ---------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 7,145 $ 9,026
Billings on uncompleted contracts in
excess of costs and estimated earnings 5,108 4,353
Accrued expenses 6,125 7,780
Current portion of long-term debt 1,619 1,629
--------- ---------
Total current liabilities 19,997 22,788
Long-term debt:
Bank credit agreement 1,000 2,000
Acquisition notes payable 264 397
Term note payable 2,178 2,450
--------- ---------
Total long-term debt 3,442 4,847
Deferred income taxes 5,041 5,088
Stockholders' equity:
Common stock 95 95
Additional paid-in capital 50,927 50,927
Retained earnings 24,234 23,617
Cumulative translation adjustment (108) (107)
--------- ---------
75,148 74,532
Less:
Treasury stock, at cost 1,470 1,498
--------- ---------
Total stockholders' equity 73,678 73,034
--------- ---------
Total liabilities and stockholders'
equity $102,158 $105,757
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Matrix Service Company
Condensed Consolidated Cash Flow Statements
(in thousands)
<CAPTION>
Three Months Ended
August 31
(unaudited)
--------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 632 $ 551
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,392 1,428
Changes in current assets and
liabilities increasing
(decreasing) cash:
Accounts receivable 3,120 1,433
Costs and estimated earnings in
excess of billings on uncompleted
contracts 417 (2,548)
Inventories (634) 379
Prepaid expenses (99) (107)
Accounts payable (1,881) (1,185)
Billings on uncompleted
contracts in excess of
costs and estimated earnings 755 403
Taxes and other accruals (1,432) 1,716
Other (2) 7
--------- --------
Net cash provided by
operating activities 2,268 2,077
Cash flow from investing activities:
Capital expenditures (1,459) (713)
Proceeds from sale of equipment 21 8
Acuisition of subsidiary,
net of cash acquired 47 -
-------- --------
Net cash used in investing activities (1,391) (705)
<PAGE>
Matrix Service Company
Condensed Consolidated Cash Flow Statements
(in thousands)
<CAPTION>
Three Months Ended
August 31
(unaudited)
----------------------
1996 1995
---------- --------
<S> <C> <C>
Cash flows from financing activities:
Repayment of acquisition payables (133) (964)
Repayment of equipment notes (10) (12)
Issuance of long-term debt 1,000 1,000
Repayments of long-term debt (2,272) (2,272)
Issuance of stock 14 3
-------- -------
Net cash used in
financing activities (1,401) (2,245)
Cumulative translation adjustment 1 16
-------- -------
Decrease in cash and cash equivalents (523) (857)
Cash and cash equivalents at beginning
of period 1,899 1,976
-------- -------
Cash and cash equivalents at end
of period $1,376 $1,119
======== =======
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
MATRIX SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All significant
inter-company balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Rule 10-0l of Regulation S-X for interim
financial statements required to be filed with the Securities and Exchange
Commission and do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, the information furnished reflects all adjustments, consisting only
of normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods.
The accompanying financial statements should be read in conjunction with the
audited financial statements for the year ended May 3l, 1996, included in the
Company's Annual Report on Form 10-K for the year then ended. The Company's
business is seasonal; therefore, results for any interim period may not
necessarily be indicative of future operating results.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Three Months Ended August 31, 1996 Compared to Three Months Ended
August 31, 1995
Revenues for the quarter ending August 31, 1996 were $39.6 million as compared
to revenues of $43.2 million for the quarter ended August 31, 1995,
representing a decrease of approximately $3.5 million or 8.2%. The decrease
is due principally to decreased revenues from the Company's new construction
of aboveground storage tanks as compared with the same period in 1995 as a
result of less new tank work in the West Coast area for the current period.
Gross profit increased to $4.0 million for the quarterly period ending August
31, 1996. Gross profit as a percentage of revenues remained flat at 10% for
the 1996 period compared to the 1995 period. The Company is experiencing some
improvement in the demand for its products and services in its established
markets.
Selling, general and administrative expenses decreased to $2.5 million for
the quarterly period ending August 31, 1996 from expenses of $2.6 million for
the quarterly period ended August 31, 1995, a decrease of $132 thousand or
approximately 5% and representing as a percentage of revenues, an increase to
6.2% for the 1996 period from 6.0% for the 1995 period. The decrease in
expenses for the 1996 period was due to decreases in administrative costs as
compared with the 1995 period. The amortization of noncompetition expense
decreased for the 1996 period as compared to the 1995 period due to the
expiration of certain noncompetition agreements at May 31, 1996, which were
fully amortized at May 31, 1996.
Operating income decreased to $1.3 million for the quarterly period ending
August 31, 1996 from income of $1.5 million for the quarterly period ended
August 31, 1995, or a decrease of $161 thousand. The decrease was due to a
lower gross profit, partially offset by lower administrative costs and lower
expenses from the amortization of noncompetition agreements.
Interest expense decreased to $114 thousand for the quarterly period ending
August 31, 1996 from $216 thousand of interest expense for the quarterly
period ended August 31, 1995. The decrease resulted primarily from decreased
borrowing under the Company's revolving credit facility and a term loan
established on August 24, 1994. During the period there was an average of
$1.5 million outstanding under the term loan.
Net income increased to $632 thousand for the quarterly period ending August
31, 1996 from net income of $551 thousand for the quarterly period ended
August 31, 1995. The increase was due principally to decreased provision for
income tax for the 1996 period as compared to the 1995 period. The greater
income tax provision for the 1995 period resulted from the tax requirement on
certain transactions related to foreign operations which were discontinued
during the 1995 period.
Liquidity and Capital Resources
The Company has financed its operations recently with cash generated by
operations and advances under the Company's credit facility. The Company has
a credit facility with a commercial bank under which the Company may borrow
a total of $20.0 million. The Company may borrow up to $15.0 million under
a revolving credit agreement based on the level of the Company's eligible
receivables. The agreement provides for interest at the Prime Rate minus
one-half of one percent (1/2 of 1%), or a LIBOR based option, and matures on
October 31, 1997. At August 31, 1996, the interest rate was 7.75% and the
outstanding advances under the revolver totaled $1.0 million. The credit
facility also provides for a term loan up to $5.0 million. On October 5,
1994, a term loan of $4.9 million was made to the Company. The term loan is
due on August 31, 1999 and is to be repaid in 54 equal payments beginning in
March 1995 at an interest rate based upon the Prime Rate. At August 31, 1996,
the interest rate on the term loan was 8.25%, and the outstanding balance was
$3.3 million.
Operations of the Company provided $2.3 million of cash for the three months
ended August 31, 1996 as compared with providing cash from operations of $2.1
million for the three months ended August 31, 1995, representing an increase
of approximately $193 thousand. The increase was primarily the result of
increased collection of accounts receivable of $1.7 million and a net increase
of $3.3 million in costs and estimated earnings in excess ofbillings on
uncompleted contracts and offset by net decreases of $1.0 million from
inventory purchases and a decrease from taxes and other accruals of $3.1
million.
Capital expenditures during the three month period ended August 31, 1996
totaled approximately $1.5 million. The Company has invested approximately
$421 thousand in transportation equipment to be used to support field
operations and $700 thousand for land and a building for a new facility
in the Pacific Northwest. In addition, approximately $203 thousand was used
to purchase welding and construction equipment for field operations. The
Company has currently budgeted approximately $4.3 million for additional
capital expenditures during the remainder of fiscal year 1997 primarily to
be used to purchase construction equipment. The Company expects to be able
to finance such expenditures with available working capital.
The Company believes that its existing funds, amounts available for borrowing
under its credit facility, and cash generated by operations will be
sufficient to meet the Company's working capital needs at least through fiscal
1997 and possibly thereafter unless significant expansions of operations not
now planned are undertaken, in which case the Company would arrange additional
financing as a part of any such expansion.
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K:
A. Exhibit 11 - Computation of earnings per share.
B. Reports on Form 8-K: None
Signature
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.
MATRIX SERVICE COMPANY
Date: October 15, 1996 By: /s/C. William Lee
------------------------
C. William Lee
Vice President-Finance
Chief Financial Officer
Signing on behalf of the
registrants the registrant's
chief financial officer.
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] May-31-1997
[PERIOD-START] Jun-01-1996
[PERIOD-END] Aug-31-1996
[COMMON] 9,524
[NET-INCOME] 632
<EPS-PRIMARY 0.07
[COMMON] 9,524
[NET-INCOME] 632
[EPS-DILUTED] 0.07
[FISCAL-YEAR-END] May-31-1996
[PERIOD-START] Jun-01-1995
[PERIOD-END] Aug-31-1995
[COMMON] 9,401
[NET-INCOME] 551
[EPS-PRIMARY] 0.06
[COMMON] 9,405
[NET-INCOME] 551
[EPS-DILUTED] 0.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1996
<CASH> 1,376
<SECURITIES> 0
<RECEIVABLES> 26,085
<ALLOWANCES> 0
<INVENTORY> 4,783
<CURRENT-ASSETS> 45,560
<PP&E> 47,019
<DEPRECIATION> 18,017
<TOTAL-ASSETS> 102,158
<CURRENT-LIABILITIES> 19,997
<BONDS> 0
<COMMON> 95
0
0
<OTHER-SE> 73,583
<TOTAL-LIABILITY-AND-EQUITY> 102,158
<SALES> 39,630
<TOTAL-REVENUES> 39,630
<CGS> 35,665
<TOTAL-COSTS> 35,665
<OTHER-EXPENSES> 2,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 1,156
<INCOME-TAX> 524
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
