-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ug91zpD1kVCiPbJW+y8g1MwxCWWrCobhH/h8JZt0ft6wewDGjK7rF2h5opxDlzxc ohv69iuMF2kzukM0v/uD7w== 0000085608-99-000005.txt : 19990519 0000085608-99-000005.hdr.sgml : 19990519 ACCESSION NUMBER: 0000085608-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990404 FILED AS OF DATE: 19990518 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATEC CORP/DE/ CENTRAL INDEX KEY: 0000085608 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 060737363 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04184 FILM NUMBER: 99629160 BUSINESS ADDRESS: STREET 1: 75 SOUTH ST CITY: HOPKINTON STATE: MA ZIP: 01748 BUSINESS PHONE: 5084359039 MAIL ADDRESS: STREET 1: 75 SOUTH STREET CITY: HOPKINTON STATE: MA ZIP: 01748 FORMER COMPANY: FORMER CONFORMED NAME: RSC INDUSTRIES INC DATE OF NAME CHANGE: 19840515 FORMER COMPANY: FORMER CONFORMED NAME: REEVES INDUSTRIES INC DATE OF NAME CHANGE: 19710520 10-Q 1 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 4, 1999 ----------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- 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 offices) (Zip Code) (508) 435-9039 - ------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of May 14, 1999, the number of shares outstanding of Registrant's Common Stock, par value $.05 was 2,682,848. -1- MATEC Corporation Index Page ---- PART I. FINANCIAL INFORMATION Consolidated Condensed Balance Sheets - April 4, 1999 and December 31, 1998 ..................... 3 Consolidated Statements of Operations - Three Months Ended April 4, 1999 and April 5, 1998 ...... 4 Consolidated Condensed Statements of Cash Flows - Three Months Ended April 4, 1999 and April 5, 1998 ...... 5 Consolidated Statements of Comprehensive Income - Three Months Ended April 4, 1999 and April 5, 1998 ...... 6 Notes to Consolidated Condensed Financial Statements ..... 7-8 Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 9-11 Quantitative and Qualitative Disclosures about Market Risk ............................................. 11 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K ................ 12 Signatures ..................................................... 12 -2- PART I - FINANCIAL INFORMATION Item 1. Financial Statements MATEC Corporation and Subsidiaries Consolidated Condensed Balance Sheets (In thousands, except share data) (Unaudited) 4/4/99 12/31/98 -------- -------- ASSETS Current assets: Cash and cash equivalents ............................ $ 3,757 $ 4,516 Receivables, net ..................................... 1,775 1,772 Inventories .......................................... 3,023 2,793 Deferred income taxes and other current assets ....... 1,307 1,311 ------- ------- Total current assets ............................... 9,862 10,392 ------- ------- Property, plant and equipment, at cost ................. 8,037 7,916 Less accumulated depreciation ........................ 5,420 5,264 ------- ------- 2,617 2,652 ------- ------- Marketable equity securities ........................... 2,976 3,138 Other assets ........................................... 295 320 ------- ------- $15,750 $16,502 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ..................................... $ 983 $ 411 Accrued liabilities .................................. 998 1,165 Income taxes ......................................... 136 894 ------- ------- Total current liabilities .......................... 2,117 2,470 ------- ------- Deferred income taxes .................................. 1,482 1,547 Long-term debt ......................................... 1,994 1,993 Stockholders' equity: Preferred stock, $1.00 par value- Authorized 1,000,000 shares; issued none ............ - - Common stock, $.05 par value- Authorized 10,000,000 shares; Issued and outstanding: 2,710,648 and 2,716,948 shares ..................... 136 136 Capital surplus ...................................... 4,618 4,641 Retained earnings .................................... 3,717 3,932 Accumulated other comprehensive income ............... 1,686 1,783 ------- ------- Total stockholders' equity ...................... 10,157 10,492 ------- ------- $15,750 $16,502 ======= ======= See notes to consolidated condensed financial statements. -3- MATEC Corporation and Subsidiaries Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) Three Months Ended 4/4/99 4/5/98(a) ------- ------- Net sales ................................ $ 2,400 $ 3,499 Cost of sales ............................ 2,039 2,684 ------- ------- Gross profit ........................... 361 815 Operating expenses: Selling and advertising ................ 521 492 General and administrative ............. 265 271 ------- ------- 786 763 Operating profit (loss) .................. (425) 52 Other income (expense): Interest income ......................... 93 5 Interest expense ........................ (51) (51) Gain on sale of property, plant and equipment .............................. - 386 Other, net .............................. 18 7 ------- ------- 60 347 Earnings (loss) from continuing operations before income taxes .......... (365) 399 Income tax (expense) benefit ............. 120 (160) ------- ------- Earnings (loss) from continuing operations (245) 239 Earnings from discontinued operations .... 30 102 ------- ------- Net earnings (loss) ...................... $ (215) $ 341 ======= ======= Basic and diluted earnings (loss) per share: Continuing operations ................... $ (.09) $ .08 Discontinued operations ................. .01 .04 ------ ------ $ (.08) $ .12 ====== ====== Weighted average shares, basic ........... 2,716 2,734 ===== ===== Weighted average shares, diluted ......... 2,716 2,735 ===== ===== Cash dividends per share ................ $ - $ - ===== ===== (a) Restated to reflect discontinued operations. See notes to consolidated condensed financial statements. -4- MATEC Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended 4/4/99 4/5/98(a) -------- -------- Cash flows from operating activities: Net earnings (loss) from continuing operations ... $ (245) $ 239 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: Depreciation and amortization .................. 156 139 Deferred income taxes .......................... 40 (201) Changes in operating assets and liabilities .... (644) (640) Gain on sale of property, plant and equipment .. - (386) Other .......................................... 1 1 ------- ------- Net cash provided (used) by operating activities (692) (848) - ----------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment - 1,862 Capital expenditures, net ........................ (121) (230) Collection of note receivables ................... 35 - Other, net........................................ (8) (8) ------- ------- Net cash provided (used) by investing activities (94) 1,624 - ---------------------------------------------------------------------- Cash flows from financing activities: Purchases of common stock ........................ (23) - ------- ------- Net cash (used) by financing activities (23) - - ---------------------------------------------------------------------- Net cash provided (used) by discontinued operations 50 (366) - ---------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (759) 410 Cash and cash equivalents: Beginning of period .............................. 4,516 885 ------- ------- End of period .................................... $ 3,757 $ 1,295 ======= ======= (a) Restated to reflect discontinued operations. See notes to consolidated condensed financial statements. -5- MATEC Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (In thousands) (Unaudited) Three Months Ended 4/4/99 4/5/98 ------- ------- Net earnings (loss) ...................... $ (215) $ 341 Other comprehensive income, net of tax: Unrealized (loss) on marketable equity securities, net of tax benefit of $65 in 1999 and $207 in 1998 ............... (97) (311) ------- ------- Comprehensive income (loss) .............. $ (312) $ 30 ======= ======= See notes to consolidated condensed financial statements. -6- MATEC Corporation and Subsidiaries Notes to Consolidated Condensed Financial Statements 1. Financial Presentation: The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These interim financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company's 1998 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. 2. Receivables, net: Receivables, net of allowances, consist of the following: 4/4/99 12/31/98 ------- -------- (in thousands) Accounts receivable, less allowance for doubtful accounts of $85 and $75 ........................ $ 1,494 $ 1,649 Recoverable Federal income taxes ................ 160 - Amounts due from the sales of discontinued operations, less deferred gain of $1,200 and $1,250 .................................... 393 428 Less:amounts due after one year, less deferred gain of $1,125 and $1,175 ................. 272 305 ------- ------- Current amounts due, less deferred gain of $75 and $75 ............................... 121 123 ------- ------- $ 1,775 $ 1,772 ======= ======= 3. Inventories: Inventories consist of the following: 4/4/99 12/31/98 ------- -------- (in thousands) Raw materials ....................... $ 1,361 $ 1,529 Work in process ..................... 1,275 848 Finished goods ...................... 387 416 ------- ------- $ 3,023 $ 2,793 ======= ======= -7- 4. Discontinued Operations: On April 15, 1998, the Company sold the assets of its Bergen Cable Technologies, Inc. ("BCT") subsidiary. The purchase price received consisted of $7.5 million in cash, a 12% subordinated promissory note in the principal amount of $1.25 million, a 10% stock and membership interest in the acquiring entities and assumption of certain liabilities including trade payables. On August 3, 1998 the Company sold certain assets of its Matec Instruments, Inc. ("MII") and Matec Applied Sciences, Inc. ("MASI") subsidiaries. The purchase price received consisted of approximately $605,000 in cash, a subordinated promissory note in the principal amount of $250,000, a $250,000 noninterest bearing receivable, and the assumption of certain liabilities including trade payables. As a result, the operating results of BCT, MII, and MASI have been reported as discontinued operations and previously reported financial statements have been restated to reflect this classification for MII and MASI. As the Company had adopted a plan in 1997 to dispose of BCT, the operating results of BCT for 1998 had previously been reported as discontinued operations. Since the entity acquiring the assets of BCT had significant third-party debt compared to its equity and the Company's note receivable is subordinated to the third party debt, the Company has deferred any gain on the note and has not assigned any value to the stock portions of the sale until cash payments are received by the Company. In March 1999, the Company received a $50,000 note payment and recorded a $50,000 pre-tax gain on disposal of discontinued operations. As of April 4, 1999, the note balance, all of which has been deferred pending collection, is $1.2 million. See footnote 5. Subsequent Events. Net sales of BCT, MII, and MASI amounted to $5,224,000 for the quarter ended April 5, 1998. The earnings relating to the above discontinued operations are presented in the Consolidated Statements of Operations under the caption "Earnings from discontinued operations" and include: Three Months Ended 4/4/99 4/5/98 ------- ------- (in thousands) Earnings from operations (less applicable taxes of $0 and $67) $ - $ 102 Gain on disposal (less applicable taxes of $20 and $0) 30 - ------ ------ $ 30 $ 102 ====== ====== 5. Subsequent Events: On May 13, 1999, the Company received $1,188,000 in cash as payment in full for the $1.2 million note receivable from the sale of BCT along with accrued interest on the unpaid note. As a result, the Company will record an after-tax gain on the sale of discontinued operations of approximately $713,000 in the second quarter of 1999. See footnote 4. Discontinued Operations. -8- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents decreased $759,000 during the three months ended April 4, 1999 mainly due to the Company's continuing operations using $692,000 in cash. The $692,000 use of cash from continuing operations was mainly due to the $245,000 net loss and the $644,000 net increase in working capital, offset in part by $156,000 noncash benefit of depreciation. Receivables, net increased $3,000 as a $160,000 income tax receivable was partially offset by a decrease in trade accounts receivable. The trade accounts receivable decrease of $155,000 was mainly due to the lower sales volume in the quarter versus the prior quarter. The inventory increase of $230,000 is mainly to support the current sales backlog and future customer delivery requirements. The $572,000 increase in accounts payable is mainly attributable to the timing of inventory and machinery and equipment purchases. The $166,000 decrease in accrued liabilities resulted mainly from the payments of the 401(k) match, professional fees and environmental expenses. Income tax payments during the three months ended April 4, 1999 amounted to $758,000. During the three months ended April 4, 1999, capital expenditures amounted to $121,000 as the Company added new and upgraded existing production capabilities and processes. Management believes that based on its current working capital, the expected cash flows from operations and its $1,850,000 lines of credit availability, the Company's resources are sufficient to meet its financial needs in 1999 including a remaining capital expenditures budget of approximately $475,000. Results of Operations - --------------------- Net sales from continuing operations for the quarter ended April 4, 1999 decreased $1,099,000 (31%) from the comparable period in 1998. About 70% of the sales decline was due to lower sales in the import product line. Sales of domestically produced product decreased about 20% from last year. The main reason for the sales decrease in both product lines was the negative impact of the lower backlog at the beginning of 1999 compared to that in 1998. Sales in 1999 were also negatively impacted by the Company experiencing late deliveries of some of its domestically produced products. The Company has been working with and changing its supplier base to improve delivery performance. The backlog at the beginning of 1999 was $1.6 million or 42% lower than the backlog at the beginning of 1998. This lower backlog level mainly resulted from the 23% decrease in bookings in 1998 versus 1997. However, during the 1Q of 1999 the Company has experienced a positive change in its recent bookings trend as bookings increased 28% over the comparable period in 1998. At April 4, 1999, the backlog is 63% and 9% higher than that at December 31, 1998 and April 4, 1998, respectively. -9- The gross profit percentage decreased from 23% in 1998 to 15% in 1999 mainly due to the unfavorable effect of allocating the fixed overhead expenses over the lower sales volume. Raw material costs as a percentage of sales decreased about 7% from 1998 as a result of the change in sales mix. Selling expenses increased $29,000 (6%) over 1998 mainly as a result of higher advertising expenses and personnel costs were partially offset by lower sales commission expenses to the Company's manufacturers' representatives. General and administrative expenses for the quarter ended April 4, 1999 remained constant with the 1998 level. Interest income increased to $93,000 in 1999 from $5,000 in the comparable 1998 period as a result of the higher cash levels in 1999 and the interest income received on the notes receivable generated by the sales of the discontinued operations. Interest expense remained constant with the 1998 amount. During the quarter ended April 5, 1998, the Company sold its real estate complex located in Delaware and realized a $386,000 pre-tax gain on the sale. The estimated effective income tax rate for 1999 is 33% compared to 40% in 1998. The difference in rates is mainly due to the limited state tax benefit of operating losses within a state. As a result of the lower sales level and gross margin in 1999 and the slight increase in operating expenses, the Company reported an operating loss of $425,000 for the quarter ended April 4, 1999 compared to a $52,000 profit during the comparable period in 1998. Nonoperating income amounted to $60,000 in 1999 compared to $347,000 of income in 1998. As a result, the Company reported a pre-tax loss from continuing operations of $365,000 during the quarter ended April 4, 1999 versus a pre-tax profit of $399,000 in 1998. Continuing operations reported a net loss of $245,000 for the quarter ended April 4, 1999 compared to earnings of $239,000 in 1998. Earnings from discontinued operations amounted to $30,000 in 1999 compared to $102,000 in 1998. In total, the Company reported a net loss of $215,000 for the quarter ended April 4, 1999 compared to net earnings of $341,000 in the comparable period of 1998. -10- Year 2000 Issue - --------------- The Company is continuing to monitor the Year 2000 issue. The current accounting software is in the process of being modified to be Year 2000 compliant and the Company expects these changes to be completed by the 3rd quarter 1999. Based on the responses to date, the Company's major suppliers have assured the Company that they are currently or that they will be Year 2000 compliant. The Company is continuing to review its manufacturing equipment and facility to assess and minimize Year 2000 issues. While the review is not yet complete, at this time the Company does not believe there is any major obstacle which would effect its manufacturing equipment or its facility in the Year 2000. The Company expects that the estimated costs to resolve the Company's Year 2000 issues will not exceed $75,000. The Company does not have a formalized contingency plan if the software changes are not completed and working before 2000. The Company will continue to monitor progress on these changes and will determine during the 3rd quarter if a contingency plan is required. The Company believes it will not experience significant operational problems as a result of the Year 2000 issue. However, the Company could experience operational problems or disruptions if third-party vendors are unable to provide their services or materials due to Year 2000 issues. Forward-Looking Statements - -------------------------- Certain statements made herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Words such as "expects", "believes", "estimates", "plans" or similar expressions are intended to identify such forward-looking statements. Factors that could cause such differences include, but are not limited to those discussed in this section and those discussed in the Company's Form 10-K for the year ended December 31, 1998 under the section "Forward Looking Statements" included under the caption "Management's Discussion and Analysis", is herein incorporated by reference. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------ There have been no material changes in the Company's market risk during the three months ended April 4, 1999. The information set forth on page 5 of the 1998 Annual Report to Stockholders under the section "Quantitative and Qualitative Disclosures about Market Risk" included under the caption "Management's Discussion and Analysis" is incorporated by reference. -11- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 11. Statement re Computation of Per Share Earnings (Loss). Filed herein. 13. Annual report to security holders, Form 10-Q or 10-QSB, or quarterly report to security holders. Filed for electronic purposes only. 27. Financial Data Schedule. Filed for electronic purposes only. (b) Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MATEC Corporation ------------------------------------ Date: May 14, 1999 By /s/ Ted Valpey, Jr. --------------------------------- Ted Valpey, Jr. Chairman of the Board and President Date: May 14, 1999 By /s/ Michael J. Kroll --------------------------------- Michael J. Kroll, Vice President and Treasurer (Principal Financial and Accounting Officer) -12- EX-11 2 EARNINGS PER SHARE MATEC Corporation and Subsidiaries Exhibit 11 Calculation of Earnings Per Share (amounts in thousands, except per share data) Three Months Ended 4/4/99 4/5/98(A) ------- ------- Net earnings (loss) from continuing operations ... $ (245) $ 239 Discontinued operations: Net earnings from operations ................... - 102 Gain on sale ................................... 30 - ------ ------ Net earnings (loss) .............................. $ (215) $ 341 ====== ====== Calculation of basic earnings (loss) per share: - ----------------------------------------------- Weighted-average shares ......................... 2,716 2,734 ===== ===== Basic earnings (loss) per common share: Continuing operations ......................... $ (.09) $ .08 Discontinued operations: Operations .................................. - .04 Gain on sale ................................ .01 - ------ ------ $ (.08) $ .12 ====== ====== Calculation of diluted earnings (loss) per share: - ------------------------------------------------- Weighted average common shares outstanding ...... 2,716 2,734 Increase from assumed exercise of stock options and investment of proceeds in treasury stock, based upon the average market prices (B) (C) ... - 1 ----- ----- Adjusted weighted-average shares ................ 2,716 2,735 ===== ===== Diluted earnings per common share: Continuing operations ......................... $ (.09) $ .08 Discontinued operations: Operations .................................. - .04 Gain on sale ................................ .01 - ------ ------ $ (.08) $ .12 ====== ====== (A) Restated to reflect discontinued operations. (B) The dilutive effect of stock options and warrants was not considered in 1999 since the Company reported a loss from continuing operations. (C) The dilutive effect of outstanding warrants to purchase 85,000 shares of common stock was not included in the 1998 computation since the exercise price was greater than the average market price of the common shares. -13- EX-13 3 MATEC Corporation and Subsidiaries Exhibit 13 1998 Annual Report Management's Discussion and Analysis - ------------------------------------ Forward-Looking Statements - -------------------------- This Annual Report, including Management's Discussion and Analysis, the Letter to Stockholders and Operations, contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Words such as "expects", "believes", "estimates", "plans" or similar expressions are intended to identify such forward-looking statements. The forward-looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, but not limited to: the ability to develop, market and manufacture new innovative products competitively, the ability of the Company's suppliers to produce and deliver materials competitively, and the ability to limit the amount of the negative effect on operating results caused by pricing pressures. Quantitative and Qualitative Disclosures about Market Risk - ---------------------------------------------------------- The Company's cash balances in excess of operating requirements are currently invested in money market accounts. These money market accounts are subject to interest rate risk and interest income will fluctuate in relation to general money market rates. Based on the cash and cash equivalent balance at December 31, 1998, and assuming the balance was totally invested in money market instruments for the full year, a hypothetical 1% decline in interest rates would result in an approximate $45,000 decrease in interest income. The Company's investment in marketable equity securities, which are classified as available-for-sale, represents 517,527 shares of MetroWest Bank common stock and are subject to equity price risk. These securities are recorded on the balance sheet at fair market value with unrealized gains (losses) reported as a separate component of stockholders' equity under the caption "accumulated other comprehensive income". Accordingly, while a hypothetical 10% decline in the market value of these securities would reduce total assets by approximately $314,000, this decrease would not have an effect on the statement of operations unless the securities were actually sold. At December 31, 1998, the Company has a $2 million face amount term note at a 10% fixed interest rate. A hypothetical 10% adverse change (i.e. decrease) in interest rates, would result in a $30,000 increase in the fair value of the term note at December 31, 1998. The Company purchases certain inventory from and sells product to foreign countries. As these activities are currently transacted in U.S. dollars, they are not subject to foreign currency exchange risk. However, significant fluctuation in the currencies where the Company purchases inventory or sell product could make the U.S. dollar equivalent of such transactions more or less favorable to the Company and the other involved parties. -14- EX-27 4
5 1,000 3-MOS DEC-31-1999 APR-04-1999 3,757 0 1,860 85 3,023 9,862 8,037 5,420 15,750 2,117 1,996 0 0 136 10,021 15,750 2,400 2,400 2,039 2,039 0 9 51 (365) (120) (245) 30 0 0 (215) (.08) (.08)
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