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 November 30, 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 reg-
istrant 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 January 13, 1997, there were 9,491,153 shares of the Company's common
stock, $.01 par value per share, issued and 9,321,612 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 Six Months Ended
November 30 November 30
------------------ -----------------
(unaudited) (unaudited)
1996 1995 1996 1995
------------------ -----------------
[MULTIPLIER] 1,000
<TABLE>
<S> <C> <C> <C> <C>
Revenues $48,212 $48,262 $87,842 $91,423
Cost of revenues 43,574 43,948 79,239 82,788
-------- ------- ------- -------
Gross profit 4,638 4,314 8,603 8,635
Selling, general and
administrative expenses 2,719 2,695 5,178 5,286
Goodwill and noncompete
amortization 216 279 432 558
-------- ------- ------- -------
Operating income 1,703 1,340 2,993 2,791
Other income (expense):
Interest income 28 21 57 51
Interest expense (115) (229) (229) (444)
Other 116 (8) 67 29
-------- -------- ------- --------
Income before income
tax expense 1,732 1,124 2,888 2,427
Provision for federal and
state income tax expense 778 454 1,302 1,206
-------- ------- ------- -------
Net income $954 $670 $1,586 $1,221
======== ======= ======= =======
Net income per common and
common equivalent shares:
Primary $0.10 $0.07 $0.17 $0.13
Fully diluted $0.10 $0.07 $0.17 $0.13
Weighted average common and
common equivalent shares
outstanding:
Primary 9,569,550 9,443,620 9,555,545 9,426,047
Fully diluted 9,569,550 9,443,620 9,562,788 9,438,015
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
[MULTIPLIER] 1,000
<TABLE>
Matrix Service Company
Condensed Consolidated Balance Sheets
(in thousands)
<CAPTION>
November 30, May 31,
1996 1996
----------- ---------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 398 $ 1,899
Accounts receivable 29,197 29,205
Costs and estimated earnings
in excess of billings on
uncompleted contracts 15,563 12,122
Inventories 5,001 4,149
Prepaid expenses 268 179
Deferred taxes 995 995
Income tax receivable 338 609
-------- -------
Total current assets 51,760 49,158
Investment in undistributed equity
of a foreign joint venture 374 374
Property, plant and equipment:
Land and buildings 14,482 14,528
Construction equipment 23,171 23,414
Transportation equipment 5,423 4,990
Furniture and fixtures 2,801 2,806
Construction in progress 2,529 189
------- -------
48,406 45,927
Less accumulated depreciation 19,046 17,065
Net property, plant and equipment 29,360 28,862
Goodwill, net of accumulated
amortization 26,711 27,033
Other assets 301 330
-------- --------
Total assets $108,506 $105,757
======== ========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
[MULTIPLIER] 1,000
<TABLE>
Matrix Service Company
Condensed Consolidated Balance Sheets
(in thousands)
<CAPTION>
November 30, May 31,
1996 1996
------------ ---------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 9,805 $ 9,026
Billings on uncompleted contracts in
excess of costs and estimated earning 6,139 4,353
Accrued expenses 6,217 7,780
Current portion of long-term debt 1,618 1,629
------- -------
Total current liabilities 23,779 22,788
Long-term debt:
Bank credit agreement 3,000 2,000
Acquisition payable 132 397
Term notes 1,906 2,450
------- -------
Total long-term debt 5,038 4,847
Deferred income taxes 5,041 5,088
Stockholders' equity:
Common stock 95 95
Capital in excess of par value 50,927 50,927
Retained earnings 25,150 23,617
------- -------
Total capital and
retained earnings 76,172 74,639
Less:
Treasury stock, at cost 1,427 1,498
Cumulative translation adjustment 97 107
------- -------
Total stockholders' equity 74,648 73,034
------- -------
Total liabilities and stockholders'
equity $108,506 $105,757
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
[MULTIPLIER] 1,000
<TABLE>
Matrix Service Company
Condensed Consolidated Cash Flow Statements
(in thousands)
<CAPTION>
Six Months Ended
November 30
(unaudited)
1996 1995
-----------------
<S> <C> <C>
Cash flow from operating activities:
Net income $1,586 $1,221
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,795 2,945
Changes in current assets and
liabilities increasing
(decreasing) cash:
Accounts receivable 8 (2,296)
Costs and estimated earnings in
excess of billings on uncompleted
contracts (3,441) (3,013)
Inventories (852) 311
Prepaid expenses (89) (104)
Accounts payable 779 (2,241)
Billings on uncompleted contracts
in excess of costs and estimated
earnings 1,786 945
Taxes receivable and other accruals (1,340) 3,775
Other 34 42
------ ------
Net cash provided by
operating activities 1,266 1,585
Cash flow from investing activities:
Capital expenditures (3,049) (1,321)
Acquisition of subsidiary,
net of cash acquired 47 (18)
Other, net 36 -
------ ------
Net cash used in investing
activities (2,966) (1,339)
<PAGE>
Matrix Service Company
Condensed Consolidated Cash Flow Statements
(in thousands)
<CAPTION>
Six Months Ended
November 30,
(unaudited)
1996 1995
------ ------
<S> <C> <C>
Cash flows from financing activities:
Repayment of acquisition payables (265) (1,145)
Repayment of equipment notes (11) (30)
Issuance under long-term credit
agreement 3,000 5,500
Repayments under long-term
credit agreement (2,000) (2,000)
Repayment of long-term debt (544) (544)
Issuance of stock - 3
Change in treasury stock 19 -
------ ------
Net cash provided by
financing activities 199 1,784
------ ------
Increase in cash and cash
equivalents (1,501) 2,030
Cash and cash equivalents at beginning
of period 1,899 1,976
------ ------
Cash and cash equivalents at end
of period $ 398 $4,006
====== ======
<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 November 30, 1996 Compared With The Three Months Ended
November 30, 1995
Revenues for the quarter ended November 30, 1996 were $ 48.2 million as
compared to revenues of $48.3 million for the quarter ended November 30, 1995,
representing a small change as compared with the same period in 1995.
Gross profit increased to $ 4.6 million for the quarterly period ended
November 30, 1996 from gross profit of $4.3 million for the quarterly period
ended November 30, l995, an increase of approximately $324 thousand or 7.5%.
Gross profit as a percentage of revenues increased to 9.6% for the 1996
period from 8.9% for the 1995 period. The increase in gross profit
percentage for the current period as compared with the prior period is due to
some improvement in pricing, and lower operating costs.
Selling, general and administrative expenses remained flat at approximately
$2.7 million for the quarterly period ended November 30, 1996 as compared to
the quarterly period ended November 30, 1995. Selling, general and
administrative expenses as a percentage of revenues remained the same at 5.6%,
for the current period as compared to the prior period.
Operating income increased to $1.7 million for the quarterly period ended
November 30, 1996 from income of $1.3 million for the quarterly period ended
November 30, 1995, an increase of $363 thousand or approximately 27.1%. The
increase in operating profit was due to improved gross profit margins and a
reduction in amortization expense.
Interest expense decreased to $115 thousand for the quarterly period ended
November 30, 1996 from $229 thousand of interest expense for the quarterly
period ended November 30, 1995. The decrease resulted primarily from a
decreased level of borrowing under the Company's credit facility.
Net income increased to $954 thousand for the quarterly period ended
November 30, 1996 from net income of $670 thousand for the quarterly period
ended November 30, 1995, an increase of $284 thousand or 42.4%. The increase
was due to improved gross profit margin from the Company's established
markets, miscellaneous income, that is of a nonrecurring nature, and decreased
interest expense for the 1996 period as compared with the 1995 period.
Six Months Ended November 30, 1996 Compared With The Six Months Ended
November 30, 1995
Revenues for the six months ended November 30, 1996 were $87.8 million as
compared to revenues of $91.4 million for the six months ended November 30,
1995, representing a decrease of approximately $3.6 million or 3.9%. The
decrease was due to decreased revenues from the Company's tank maintenance
and construction operations in the six month period ended November 30,
1996, as compared with the same period in 1995. This decrease resulted
primarily from a shortage of work available in the West Coast area during
the current period.
Gross profit decreased slightly to $8.60 million for the six months ended
November 30, 1996 from gross profit of $8.63 million for the six months ended
November 30, 1995. Gross profit as a percentage of revenues increased slightly
to 9.8% for the 1996 period from 9.4% for the 1995 period. The increase in
gross profit percentage for the current period as compared with prior period
is due to some improvement in pricing and lower operating costs.
Selling, general and administrative expenses remained relatively flat at $5.2
million for the six months ended November 30, 1996 compared to the six months
ended November 30, 1995, with a slight decrease of $108 thousand or
approximately 2.0%. Selling, general and administrative expenses as a
percentage of revenues increased slightly to 5.9% for the current period as
compared with 5.8% for the 1995 period. The increase in the selling, general
and administrative expenses as a percentage of revenues for the current
period as compared to the prior period is due to the lower revenues.
Operating income increased to $3.0 million for the six months ended November
30, 1996 from income of $2.8 million for the six months ended November 30,
1995, an increase of $202 thousand or approximately 7.2%. The increase was
due to lower selling, general and administrative expenses and a decrease in
amortization of expenses.
Net income increased to $1.6 million in the 1996 period from net income of
$1.2 million in 1995. The increase was due to improved gross margin
percentage, a lower interest expense, decreased selling, general and
administrative expenses and decreased amortization expenses.
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, 1998. At November 30, 1996, the interest rate was
7.75% and the outstanding advances under the revolver totaled $3.0 million.
The credit facility also provides for a term loan of 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 November 30, 1996, the interest rate on the term loan
was 8.25%, and the outstanding balance was $3.0 million.
Operations of the Company provided $1.3 million of cash for the six months
ended November 30, 1996 as compared with providing cash from operations of
$1.6 million for the six months ended November 30, 1995, representing a
decrease of approximately $319 thousand. The decrease was primarily the
result of increased collection of accounts receivable of $2.3 million,
an increase of $413 thousand in billings in excess of cost and estimated
earnings on uncompleted contracts and an increase of $3.0 million in accounts
payable all of which were offset by a $1.2 million increase in inventories
and a decrease of $5.1 million from taxes and other accruals.
Capital expenditures during the six month period ended November 30, 1996
totaled approximately $3.0 million. The Company has invested approximately
$682 thousand in transportation equipment to be used to support field
operations and $882 thousand for land and a building for a new facility in
the Pacific Northwest. In addition, approximately $1.3 million was used to
purchase welding and construction equipment for field operations. The
Company has currently budgeted approximately $2.8 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 4. Submission of Matters to a Vote of Security Holders:
The Company's annual meeting of stockholders was held in Tulsa, Oklahoma
at 10:00 a.m. local time, on Tuesday, October 22, 1996. Proxies for the
meeting were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, as amended. There was no solicitation in opposition
to the nominees for election as directors as listed in the proxy statement,
and all nominees were elected.
Out of a total of 9,315,972 shares of the Company's common stock outstanding
and entitled to vote, 7,870,840 shares were present at the meeting in person
or by proxy, representing approximately 84.5 percent. Matters voted upon at
the meeting were as follows:
a) Election of six directors to serve on the Company's board of directors.
Messrs. Bradley, Curry, Lee, West, Wood and Zink were elected to serve until
the 1997 Annual Meeting. The vote tabulation with respect to each nominee
was as follows:
Authority
Nominee For Withheld
--------------- ----------- -------------
Doyl D. West 7,862,551 8,289
C. William Lee 7,862,081 8,759
Hugh E. Bradley 7,848,662 22,178
Robert L. Curry 7,851,962 18,878
William P. Wood 7,854,162 16,678
John S. Zink 7,850,662 20,178
b) There were 7,863,706 shares voted for the ratification of the appointment
of Ernst & Young LLP as the Company's independent public accountants, with
3,664 shares voted against, 3,470 abstentions, and zero broker non-votes.
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: January 13, 1997
By: /s/C. William Lee
-------------------
C. William Lee
Vice President-Finance
Chief Financial Officer
Signing on behalf of the registrant and
as 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] Sep-01-1996
[PERIOD-END] Nov-30-1996
[COMMON] 9,570
[NET-INCOME] 954
[EPS-PRIMARY] 0.10
[COMMON] 9,570
[NET-INCOME] 954
[EPS-DILUTED] 0.10
[FISCAL-YEAR-END] May-31-1996
[PERIOD-START] Sep-01-1995
[PERIOD-END] Nov-30-1995
[COMMON] 9,444
[NET-INCOME] 670
[EPS-PRIMARY] 0.07
[COMMON] 9,444
[NET-INCOME] 670
[EPS-DILUTED] 0.07
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] May-31-1997
[PERIOD-START] Jun-01-1996
[PERIOD-END] Nov-30-1996
[COMMON] 9,556
[NET-INCOME] 1,586
[EPS-PRIMARY] 0.17
[COMMON] 9,563
[NET-INCOME] 1,586
[EPS-DILUTED] 0.17
[FISCAL-YEAR-END] May-31-1996
[PERIOD-START] Jun-01-1995
[PERIOD-END] Nov-30-1995
[COMMON] 9,426
[NET-INCOME] 1,221
[EPS-PRIMARY] 0.13
[COMMON] 9,438
[NET-INCOME] 1,221
[EPS-DILUTED] 0.13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 398
<SECURITIES> 0
<RECEIVABLES> 29,197
<ALLOWANCES> 0
<INVENTORY> 5,001
<CURRENT-ASSETS> 51,760
<PP&E> 48,406
<DEPRECIATION> 19,046
<TOTAL-ASSETS> 108,506
<CURRENT-LIABILITIES> 23,779
<BONDS> 0
<COMMON> 95
0
0
<OTHER-SE> 76,077
<TOTAL-LIABILITY-AND-EQUITY> 108,506
<SALES> 87,842
<TOTAL-REVENUES> 87,842
<CGS> 79,239
<TOTAL-COSTS> 79,239
<OTHER-EXPENSES> 5,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229
<INCOME-PRETAX> 2,888
<INCOME-TAX> 1,302
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,586
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
