-----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, CdoUMybcThjlFfsictOdzTTDw+QT/pgiJHFOS51Y5hj1claaEp6ch59BO/N8t+Wd UupVbEDelbHXdnVJAEeMmQ== 0001104659-01-500086.txt : 20010328 0001104659-01-500086.hdr.sgml : 20010328 ACCESSION NUMBER: 0001104659-01-500086 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 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-K405 SEC ACT: SEC FILE NUMBER: 001-04184 FILM NUMBER: 1580014 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-K405 1 j0183c2s01_10k405.txt FORM 10-K405 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, 2000 ----------------- 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, an will not be contained, to the best of registrant's 1 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/ Aggregate market value of voting stock held by non-affiliates: $12,390,412 (computed by reference to the last sales price of such common stock on March 20, 2001 as reported in the American Stock Exchange consolidated trading index). Number of shares of common stock outstanding at March 20, 2001: 4,132,515 Documents incorporated by reference: Annual Report to Stockholders for the year ended December 31, 2000: Parts I, II and IV Proxy Statement for the 2001 annual meeting of stockholders: Part III 2 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 the fourth quarter of 2000, the Company sold certain assets of its piezoelectric and optical components product line. For further information, see Note 3 of the Notes to Financial Statements in the 2000 Annual Report, which Note is incorporated by reference. In addition, during the fourth quarter of 2000, the Company sold its real estate complex located in Northborough, Massachusetts which was operated by its wholly owned subsidiary, MEKontrol, Inc. For further information, see Note 3 of the Notes to Financial Statements in the 2000 Annual Report, which Note is incorporated by reference. Financial Information about Industry Segments - --------------------------------------------- The Company operates in one business segment. Information about export sales is set forth in Note 15 of the Notes to Consolidated Financial Statements in the 2000 Annual Report to Stockholders, which Note is incorporated by reference. Narrative Description of Business - ----------------------------------- Products -------- Valpey is involved in the design, production, import, and sale of frequency control devices and ultrasonic transducer devices. The frequency control devices include quartz crystals and oscillators incorporating these crystals and 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 frequency control devices including standard and custom-designed product. Capabilities include: - high-reliability, precision crystals and oscillators used in sophisticated industrial, military and aerospace applications. 3 - 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. Valpey's frequency control products are used by the telecommunications, computer and computer peripheral equipment, scientific, instrumentation, industrial, and aerospace markets. The majority of the Company's revenue is generated by the telecommunications markets including the wireless, networking and optical networking segments. The Company's frequency control products are used in telecommunications infrastructure equipment such as bandwidth multipliers, networking switches and routers, cellular base stations, transceivers and multiplexers. The ultrasonic transducer devices are sold to the NDT (nondestructive testing), industrial, research and medical markets. Applications include flaw detection, precision thickness gauging, corrosion inspection, weld inspection and various research applications. 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. From the fourth quarter of 1999 through the third quarter of 2000, the lead times for the delivery of certain raw materials increased significantly over prior lead times due to the worldwide demand for these products. Beginning in the fourth quarter of 2000, lead times began to level off and in some areas began to decline. During 2000, production was not significantly affected. However, in order to meet customer delivery requirements, Valpey changed some of its inventory purchasing practices (i.e. 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 from its foreign suppliers in U.S. dollars. As exchange rates fluctuate, Valpey's cost for these materials may become more expensive than its competitors that have taken measures to protect against exchange rate fluctuations. In addition, Valpey is subject to the inherent risks involved in international trade such as political instability and restrictive trade policies. 4 Marketing and Customers ----------------------- Valpey's direct sales personnel, independent manufacturers' representatives and distributors sell the frequency control products. Valpey's ultrasonic transducer devices are sold primarily by its direct sales personnel. Valpey sells its frequency control products primarily to original equipment manufacturers (OEMs), contract manufacturers (CMs), and distributors. Valpey's distributors also sell to both the OEMs and CMs. Ultrasonic transducer devices are sold primarily to OEMs, colleges and universities and research facilities. During 2000, sales to Solectron Corporation and Flextronics International, both CMs, accounted for approximately 21% and 13%, respectively, of Valpey's net sales. No customer accounted for more than 10% of Valpey's net sales in 1999 and 1998. Sales to Valpey's five largest customers accounted for approximately 50% of its sales in 2000, compared to 27% in 1999 and 26% in 1998. Sales to CMs accounted for approximately 47% of Valpey's sales in 2000, compared to 22% in 1999 and 13% in 1998. Export sales amounted to approximately 23% of Valpey's sales in 2000, 20% in 1999 and 26% in 1998. Sales to customers located in Canada accounted for approximately 49%, 48% and 42% of total export sales in 2000, 1999, and 1998, respectively. Valpey's international sales are transacted in U. S. dollars. Backlog ------- Valpey's backlog of firm orders was $16,424,000 at December 31, 2000 and $6,404,000 at December 31, 1999. Valpey expects to ship the entire December 31, 2000 backlog during 2001. 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. 5 Manufacturing ------------- Valpey's manufacturing facility is located in Hopkinton, Massachusetts. Valpey received its ISO-9001 registration for the design and manufacture of crystals and crystal oscillators in 1997. During 2001, Valpey will install a semi-automatic production line in order to increase its internal manufacturing capacity for frequency control products and to improve on customer delivery demands. During 2001, Valpey will begin the manufacturing of certain raw material and finished product at its operation located in Omsk, Russia. Valpey imports completed products from various Far East (including China, Japan, South Korea, Philippines, and Taiwan) suppliers for resale to its customers. 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 4 of the Notes to Consolidated Financial Statements in the 2000 Annual Report to Stockholders, which Note is incorporated by reference. Employees --------- At December 31, 2000, the Company employed 146 full-time and 5 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 - ------------------------------------------------ During 2000, Valpey established a division located in Omsk, Russia to mainly focus on new product development. At December 31, 2000, Valpey had no assets located in Russia. Financial information about export sales is set forth in Note 15 of the Notes to Consolidated Financial Statements in the 2000 Annual Report to Stockholders, which Note is incorporated by reference. 6 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 and its 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. Item 2. Properties - ------- ---------- Valpey owns its 32,000 square foot facility located in Hopkinton, Massachusetts that contains office and manufacturing space and serves as the Company's corporate headquarters. As a result of the disposal of a portion of its piezoelectric and optical business during 2000 and in anticipation of the addition of a semi-automatic production line in 2001, Valpey is in the process of reconfiguring the layout and making improvements to this facility. 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. 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. 7 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. 68 President and Chief Executive Officer Michael Deery 55 President and Chief Operating Officer- Valpey-Fisher Corporation Michael J. Kroll 52 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 1996 to 1998. Mr. Kroll has been Vice President and Treasurer of the Registrant since 1982. 8 PART II Item 5. Market for the Registrant's Common Equity and Related - ------- ----------------------------------------------------- Stockholder Matters ------------------- The information set forth on the inside back cover of the 2000 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 4 of the 2000 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 4 through 6 of the 2000 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 6 of the 2000 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 7 through 19 of the 2000 Annual Report to Stockholders is incorporated by reference. Item 9. Changes in and Disagreements with Accountants on Accounting - ------- ------------------------------------------------------------ and Financial Disclosure ------------------------ Not applicable 9 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 2001 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". 10 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 2000 Annual Report to Stockholders:
Page Number(s) in Annual Report Consolidated Balance Sheets, December 31, 2000 and 1999 ....................... 7 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 .................................... 8 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 .................................... 9 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 .................................... 10 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2000, 1999 an 1998 ..................................... 11 Notes to Consolidated Financial Statements......... 12-18 Independent Auditors' Report ...................... 19
(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............................ 14 Schedule II - Valuation Reserves ....................... 15
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. 11 (a) 3. The exhibits filed in this report or incorporated by reference, listed on the Exhibit Index on page 16, are as follows:
Exhibit No. Description ----------- ------------------------------------------------ 2. Agreement of Merger and Recapitalization 3.1 Articles of Incorporation 3.2 Amendment to Article II, Section 2 of the By-Laws effective March 14, 2000 3.3 Amendment to Article III, Section 1 of the By-Laws effective May 18, 2000 3.4 By-Laws effective May 18, 2000 10.1 * 1992 Stock Option Plan 10.2 * 1999 Stock Option Plan 10.3 * Management Incentive Plan 13. 2000 Annual Report to Stockholders 21. Subsidiaries of the Registrant 23. Independent Auditors' Consent
* 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, 2000. 12 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 20, 2001 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 20, 2001 - ----------------------- Officer, Chairman of the Board Ted Valpey, Jr. and Director /s/ Michael J. Kroll Vice President and Treasurer - ----------------------- (Principal Financial Officer March 20, 2001 Michael J. Kroll and Principal Accounting Officer) /s/ Richard W. Anderson Director March 20, 2001 - ----------------------- Richard W. Anderson /s/ Michael Deery Director March 20, 2001 - ----------------------- Michael Deery /s/ Eli Fleisher Director March 20, 2001 - ----------------------- Eli Fleisher /s/ Lawrence Holsborg Director March 20, 2001 - ----------------------- Lawrence Holsborg /s/ Michael P. Martinich Director March 20, 2001 - ------------------------ Michael P. Martinich /s/ John J. McArdle III Director March 20, 2001 - ------------------------ John J. McArdle III /s/ Robert W. Muir, Jr. Director March 20, 2001 - ------------------------ Robert W. Muir, Jr. /s/ Joseph W. Tiberio Director March 20, 2001 - ----------------------- Joseph W. Tiberio
13 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, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, and have issued our report thereon dated February 16, 2001 (February 27, 2001 as to Note 17); such consolidated financial statements and report are included in your 2000 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 February 16, 2001 (February 27, 2001 as to Note 17) 14 MATEC Corporation and Subsidiaries ---------------------------------- Schedule II - Valuation and Qualifying Accounts -----------------------------------------------
Additions ----------------------- Balance at Charged to Charged to Balance Beginning Costs and Other at End Description of Period Expenses Accounts Deductions of Period ----------- --------- -------- ---------- ---------- --------- Allowance for Doubtful Accounts: Year Ended: December 31, 2000 $ 93,000 $ 30,700 $ 51,300 $ - $ 175,000 ========= ========= ========= ========= ========== December 31, 1999 $ 75,000 $ 28,800 $ - $ (10,800) $ 93,000 ========= ========= ========= ========= ========== December 31, 1998 $ 45,000 $ 18,002 $ - $ (11,998) $ 75,000 ========= ========= ========= ========= ========== Inventory Reserve: Year Ended: December 31, 2000 $1,380,000 $ 935,000 $ - $(642,000) $1,673,000 ========== ========= ========= ========= ========== December 31, 1999 $1,212,000 $ 448,000 $ - $(280,000) $1,380,000 ========== ========= ========= ========= ========== December 31, 1998 $ 857,000 $ 419,730 $ - $ (64,730) $1,212,000 ========== ========= ========= ========= ==========
15 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). 3.2 Amendment to Article II, Section 2 of the By-Laws effective March 14, 2000. Filed herewith. 3.3 Amendment to Article III, Section 1 of the By-Laws effective May 18, 2000 (incorporated by reference to Exhibit 3.1 on Registrant's Form 10-Q for the quarterly period ended April 2, 2000. 3.4 By-Laws effective May 18, 2000. Filed herewith. 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). 10.3 Management Incentive Plan (incorporated by reference to Exhibit 10.3 on Registrant's Form 10-Q for the quarterly period ended July 2, 2000). 13. Portions of the 2000 Annual Report to Stockholders. Filed herewith. 21. Subsidiaries of the Registrant. Filed herewith. 23. Independent Auditors' Consent. Filed herewith. 16 EX-3.2 2 j0183c2s01_ex3-2.txt EX-3.2 Exhibit 3.2 MATEC Corporation Amendment to By-Laws - effective March 14, 2000 ARTICLE II STOCKHOLDERS Section 2. Annual Meetings. An annual meeting of stockholders for the election of directors and the transaction of such other business as may properly come before the meeting shall be held in May on such date and at such time as the Board of Directors each year shall fix. EX-3.4 3 j0183c2s01_ex3-4.txt EX-3.4 Exhibit 3.4 MATEC Corporation By-Laws - effective May 18, 2000 ARTICLE I OFFICES Section 1. Offices. The Corporation shall maintain a registered office in Maryland. The Corporation may maintain such other offices and keep its books, documents and records at such other places both within and without the State of Maryland as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 2. Annual Meetings. An annual meeting of stockholders for the election of directors and the transaction of such other business as may properly come before the meeting shall be held in May on such date and at such time as the Board of Directors each year shall fix. Section 3. Notice of Annual Meeting. Written or printed notice of the annual meeting stating the place, date and hour of the meeting shall be delivered not less than ten nor more than ninety days before the date of the meeting, by mail, by or at the direction of the chief executive officer, the Secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. Section 4. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the chief executive officer or the Board of Directors. The business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice of the meeting. Section 5. Notice of Special Meetings. Written or printed notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than ninety days before the date of the meeting, by mail, by or at the direction of the chief executive officer, the Secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. The notice shall also indicate that it is being issued by, or at the direction of, the person calling the meeting. Section 6. Quorum. The holders of a majority of the shares issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Articles of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally noticed. Section 7. Voting. At any meeting of stockholders each outstanding share having voting power shall be entitled to one vote on each matter submitted to a vote. A stockholder may vote either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. All elections shall be determined by plurality vote, and except as otherwise provided by statute or in the Articles of Incorporation, all other matters shall be determined by vote of a majority of the shares present or represented at such meeting and voting on such matters. -2- Section 8. Inspectors of Election. The Board of Directors in advance of any meeting of stockholders may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a meeting of stockholders may, and, on the request of any stockholder entitled to vote thereat, shall appoint one or more inspectors. In case any person appointed as inspector fails to appear or act, the vacancy may be filled by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. Section 9. List of Stockholders. A list of stockholders as of the record date, certified by the officer of the Corporation responsible for its preparation or by the transfer agent, shall be produced at any meeting of stockholders upon the request thereat or prior thereto of any stockholder. If the right to vote at any meeting is challenged, the inspectors of election, or person presiding thereat shall require such list of stockholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be stockholders entitled to vote thereat may vote at such meeting. ARTICLE III DIRECTORS Section 1. Number, Qualification and Term. The property and business of the Corporation shall be managed by its Board of Directors consisting of not less than Five (5) nor more than Thirteen (13) persons. The number of directors constituting the entire Board shall be Nine(9); provided, however, that from time to time, such number may be decreased to not less than Five (5) or increased to not more than Thirteen (13) persons by amendment of this section of the By-laws by a majority of the entire Board of Directors. Directors need not be stockholders. They shall be elected at the Annual Meeting of Stockholders and each director shall be elected to serve until his successor shall be elected and shall qualify. -3- Section 2. Removal. Any or all of the directors may be removed for cause at any time by the vote of the stockholders. Section 3. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next annual meeting of stockholders or until his successor is elected and qualifies. Section 4. Additional Powers. In addition to the powers and authorities by these By-Laws expressly conferred upon it, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. ARTICLE IV MEETINGS OF THE BOARD OF DIRECTORS Section 1. Place. Meetings of the Board of Directors, regular or special, may be held either within or without the State of Maryland. Section 2. First Meeting. The first meeting of each newly elected Board of Directors shall be held immediately after the annual meeting of stockholders at the same place as such meeting is held and no notice of such meeting to the newly elected directors shall be necessary in order legally to constitute the meeting provided a quorum shall be present, or it may convene at such place and time as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a duly executed waiver of notice thereof. -4- Section 3. Regular Meetings. Regular meetings of the Board of Directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the Board. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by the chief executive officer on written notice to each director, deposited in the United States mail no later than the third calendar day preceding the meeting date or delivered by hand or to the telegraph company no later than the first calendar day preceding the meeting date; special meetings shall be called by the chief executive officer or Secretary in like manner and on like notice on the written request of two directors. Section 5. Quorum. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business unless a greater or lesser number is required by law or by the Articles of Incorporation. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, unless the vote of a greater number is required by law or by the Articles of Incorporation. If a quorum shall not be present at any meeting of directors, the directors present may adjourn the meeting from time to time. Notice of any such adjournment shall be given to any director who was not present at the time of such adjournment and unless announced at the meeting to the other directors. Section 6. Consent in Lieu of Meeting. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. -5- Section 7. Telephone Participation at Meetings. Any one or more of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or of such committee by means of conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation in a meeting by such means shall constitute presence in person at a meeting. ARTICLE V COMMITTEES Section 1. Committees. The Board of Directors, by resolution adopted by a majority of the entire board, may designate, from among its members, an executive committee and other committees consisting of three or more directors, which, to the extent provided in the resolution, shall have all the authority of the Board, except as otherwise required by law. Vacancies in the membership of such committees shall be filled by the Board of Directors at a regular or special meeting. Such committees shall keep regular minutes of its proceedings and report the same to the Board when required. Subject to the provisions of these By-Laws, the executive committee and each other committee shall fix its own rules of procedure and shall meet as provided by such rules or by resolution of the Board of Directors and it shall also meet at the call of the Chairman of the Board or President of the Corporation or any two members of such committee. A majority of the executive committee and of each other committee shall constitute a quorum for the transaction of business and the vote of a majority of the members of such committee present at any meeting at which there is a quorum shall be the act of such committee. -6- ARTICLE VI NOTICES Section 1. Form; Delivery. Whenever, under the provisions of the statutes or of the Articles of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by hand delivery, effective upon such delivery, or by telegram which notice shall be deemed to have been given when delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of any statute or under the provisions of the Articles of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. In addition, any stockholder attending a meeting of stockholders in person or by proxy without protesting prior to the conclusion of the meeting, the lack of notice thereof to him, and any director attending a meeting of the Board of Directors without protesting prior to the meeting or at its commencement such lack of notice shall be conclusively deemed to have waived notice of such meeting. ARTICLE VII OFFICERS AND AGENTS Section 1. Officers. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a President, a Vice-President, a Secretary and a Treasurer. The Board of Directors may also choose additional Vice-Presidents, and one or more Assistant Secretaries and Assistant Treasurers. -7- Section 2. Election. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary and a Treasurer. Any two or more offices may be held by the same person. Section 3. Additional Officers and Agents. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. Compensation. The salaries of all officers of the Corporation shall be fixed by the Board of Directors and the compensation of employees and agents shall be so fixed or shall be fixed by officers thereunto duly authorized. Section 5. Term of Office; Removal. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer or agent elected or appointed by the Board of Directors may be removed at any time with or without cause by the Board. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors. Section 6. Powers and Duties of the Chairman of the Board. The Chairman of the Board of Directors shall preside at all meetings of the Board and all meetings of the stockholders at which he shall be present and shall have such other powers and duties as may from time to time be assigned to him by the Board of Directors. Section 7. Powers and Duties of the President. The President shall be the Chief Executive Officer of the Corporation, and shall have the general management and superintendence of the affairs of the Corporation, subject, however, to the control of the Board of Directors; and in all cases where, and to the extent that, the duties of the other officers of the Corporation are not specifically prescribed by By-Laws or rules or regulations of the Board of Directors, the President may prescribe such duties. He shall have general and active supervision over the property, business and affairs of the Corporation and may sign, execute, and deliver in the name of the Corporation deeds, mortgages, bonds, contracts, powers of attorney, and other instruments, except in cases where the signing and -8- execution thereof shall be expressly delegated by the Board of Directors or these By-Laws to some other officer or agent of the Corporation or shall be required by law or otherwise to be signed or executed, and may exercise any and all powers and perform any and all duties relating to such supervision, or which are imposed upon him by the By-Laws, or by the Board of Directors. Subject to such limitations as the Board of Directors may from time to time prescribe, the Chief Executive Officer shall have power to appoint and to dismiss all such agents and employees of the Corporation who are not officers thereof (including any appointed by the Board) as he may deem proper, and to prescribe their duties, and subject to like limitations, delegate to other officers of the Corporation any other of the powers and duties conferred upon him by the By-Laws or by the Board of Directors. Section 8. Powers and Duties of the Vice President. The Vice-President shall perform the duties as may be prescribed by the Board of Directors and subject to the chief executive officer. Section 9. Powers and Duties of the Secretary. The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for any committee of the Board when required. He shall cause to be given notice of all meetings of stockholders and directors and shall perform such other duties as pertain to his office. He shall keep in safe custody the seal of the Corporation and when authorized by the Board of Directors, affix it when required to any instrument. Section 10. Powers and Duties of the Treasurer. The Treasurer shall have the custody of all the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the chief executive officer and directors at the regular meetings of the Board, or whenever they may require it, an -9- account of all his transactions as treasurer and of the financial condition of the Corporation. Section 11. Powers and Duties of Other Officers. All other officers shall have such duties and exercise such powers as generally pertain to their respective offices and all officers shall have such other duties and exercise such other powers as from time to time may be prescribed by the chief executive officer or the Board of Directors. ARTICLE VIII SHARES Section 1. Form; Signature. The shares of the Corporation shall be represented by certificates signed by the President or a Vice-President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers of the Corporation upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or an employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. Section 2. Lost Certificates. The Board of Directors may authorize the officers or agents of the Corporation to issue a new certificate in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate to protect the Corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. Section 3. Transfer of Shares. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or -10- authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate cancelled and the transaction recorded upon the books of the Corporation. Section 4. Fixing Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a date at the record date for any such determination of stockholders. Such date shall not be more than sixty nor less than ten days before the date of any meeting nor more than sixty days prior to any other action. When a determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the Board fixes a new record date for the adjourned meeting. Section 5. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Maryland. ARTICLE IX GENERAL PROVISIONS Section 1. Dividends. Subject to the provisions of law and of the Articles of Incorporation relating thereto, dividends may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, the Corporation's bonds or its property, including the shares or bonds of other corporations, subject to any provisions of law and of the Articles of Incorporation. -11- Section 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 3. Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 4. Fiscal Year. The fiscal year of the Corporation shall begin on January 1st and end on December 31st of each year, unless otherwise provided by the Board of Directors. Section 5. Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "CORPORATE SEAL, MARYLAND". This seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. ARTICLE X AMENDMENTS Section 1. Amendments. The Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws. -12- EX-13 4 j0183c2s01_ex13.txt Five Year Financial Summary
- ------------------------------------------------------------------------------------------------------------------------------------ YEARS ENDED DECEMBER 31, 2000 1999 1998 1997 1996 ==================================================================================================================================== (IN THOUSANDS, EXCEPT PER SHARE DATA) Continuing operations: Net sales $ 26,408 $ 14,026 $12,062 $ 12,915 $ 12,388 Gross profit 7,861 3,332 2,672 3,189 2,566 Earnings (loss) before income taxes 5,019 226 192 93 (784) Income (taxes) benefit (1,950) (68) 13 (27) 324 Earnings (loss) 3,069 158 205 66 (460) Discontinued operations - net (90) 809 680 422 384 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) $ 2,979 $ 967 $ 885 $ 488 $ (76) ==================================================================================================================================== Basic earnings (loss) per share: (1) Continuing operations $ .75 $ .04 $ .05 $ .02 $(.11) Discontinued operations (.02) .20 .17 .10 .09 ==================================================================================================================================== $ .73 $ .24 $ .22 $ .12 $ (.02) ==================================================================================================================================== Diluted earnings (loss) per share: (1) Continuing operations $ .70 $ .04 $ .05 $ .02 $ (.11) Discontinued operations (.02) .20 .17 .10 .09 ==================================================================================================================================== $ .68 $ .24 $ .22 $ .12 $ (.02) ==================================================================================================================================== Cash dividends per share (1) $ .13 $ -- $ 1.17 $ -- $ -- ==================================================================================================================================== Total assets, end of year: Continuing operations $ 19,654 $ 16,532 $16,502 $ 14,782 $ 12,412 Discontinued operations -- -- -- 7,144 7,709 - ------------------------------------------------------------------------------------------------------------------------------------ $ 19,654 $ 16,532 $16,502 $ 21,926 $ 20,121 =================================================================================================================================== Long-term debt, end of year $ -- $ -- $ 1,993 $ 1,989 $ 1,984 ====================================================================================================================================
(1) Amounts have been restated to give retroactive treatment for the 3 for 2 stock split distributed on November 27, 2000. 1 Management's Discussion and Analysis FINANCIAL CONDITION Cash and cash equivalents decreased $1,491,000 from December 31, 1999. During this period, the Company's continuing operations used $1,401,000 of cash and discontinued operations used $90,000 in cash. Operating activities used $947,000 of cash as the $2,095,000 of cash generated by operations was offset by the $3,042,000 net increase in working capital. Accounts receivable, net increased $1,430,000 from the 1999 level mainly as a result of the higher fourth quarter sales in 2000 compared to the comparable period in 1999. Days sales outstanding improved from 63 days outstanding at the end of 1999 to 55 days at the end of the current year. Inventory increased $3,160,000 over 1999 primarily to support the current sales backlog and customer delivery requirements. The $900,000 increase in accounts payable is mainly due to the increased inventory level. Accrued liabilities increased $973,000 mainly as a result of higher provisions for profit sharing and incentive compensation. Capital expenditures amounted to $1,276,000 in 2000 as the Company added new and upgraded existing production capabilities and processes and began installation of a new computer information system. The Company's capital budget for 2001 is approximately $2,300,000 and includes a semi-automatic production line geared toward increasing production capacity and efficiencies, improvements in its manufacturing operations and building improvements. During 2000, the Company sold a common stock investment, a real estate complex and a portion of one of its product lines and received $1,909,000 in total cash. The Company recorded a total gain of $1,511,000 on these sales. In January 2000, the Company paid $750,000 in cash and issued 127,500 shares of common stock as payment in full for the $1 million term debt due in June 2000. The common stock was issued upon conversion of the lender's warrant. In February 2000, the Company paid a special cash dividend amounting to $548,000 or $.13 per share. At December 31, 2000, the Company had an unused line of credit of $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 2001. RESULTS OF OPERATIONS - 2000 VERSUS 1999 Net sales from continuing operations increased $12,382,000 or 88% over 1999. Strong bookings during the current year coupled with a $4.1 million higher backlog at the beginning of 2000 compared to that at the beginning of 1999 were the main reasons for the sales increase. Bookings during 2000 amounted to $36.4 million compared to $18.1 million in 1999. The book to bill ratio in 2000 was 1.4 to 1 compared to 1.3 to 1 in 1999. The backlog at December 31, 2000 was $16.4 million compared to $6.4 million at December 31, 1999. The strong market demand from the networking, telecommunications, and wireless markets were mainly responsible for the increases in the sales, bookings and backlog amounts. During the current year, the Company experienced some late deliveries to customers with some of its products. In an effort to improve its response to customer delivery demands, the Company is continuing its expansion plans which include a semi-automatic production line and process improvements in its Hopkinton, MA facility, further equipment investment in its Russian operation and additional outside supplier relationships. The gross profit percentage increased to 30% in 2000 from 24% in 1999. The increase in the margin percentage was mainly due to the favorable effects of allocating the fixed overhead expenses over the increased sales volume. Overall direct labor and material costs as percentages of sales remained fairly consistent during both years. Selling and advertising expenses increased $789,000 (36%) over 1999 mainly due to higher sales commission expense to the Company's outside manufacturers' representatives as a result of the increase in sales. General and administrative expenses increased $567,000 (53%) over 1999 mainly as a result of the increased provision for the management incentive bonus and increased personnel expense. During 2000, the Company sold a common stock investment, a real estate complex and a portion of one of its product lines and recorded a total gain of $1,511,000 on these sales. Interest income decreased $77,000 from 1999 mainly as a result of lower interest 2 Management's Discussion and Analysis Continued income earned on the notes receivable generated from the sales of discontinued operations. Interest expense decreased $145,000 from 1999 as a result of lower levels of debt outstanding during 2000. The effective income tax rate for 2000 was 39% compared to 30% in 1999. The primary reason for the difference in rates was the nontaxable effect of the dividend exclusion in 1999. Based on the lower level of taxable income in 1999, the dividend exclusion had a more significant effect on the effective rate in 1999 compared to that in 2000. As a result of the significant increases in sales and gross profit, offset in part by higher operating expenses in 2000, the Company reported an operating profit of $3,222,000 in 2000 compared to an operating profit of $51,000 in 1999. Nonoperating income amounted to $1,796,000 in 2000 compared to $176,000 in 1999. As a result, the Company reported pre-tax earnings from continuing operations of $5,019,000 in 2000 versus $226,000 in 1999. Earnings from continuing operations amounted to $3,069,000 in 2000 compared to $158,000 in 1999. Discontinued operations reported a loss of $90,000 in 2000 compared to earnings of $809,000 in 1999. In total, the Company reported net earnings of $2,979,000 in 2000 compared to $967,000 in 1999. 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 1999 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 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. 3 Management's Discussion and Analysis Continued 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, 2000, 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 $16,000 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 $298,000, 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 sells product could make the U.S. dollar equivalent of such transactions more or less favorable to the Company and the other involved parties. 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 and its suppliers to produce and deliver materials and products competitively, and the ability to limit the amount of the negative effect on operating results caused by pricing pressure. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company will adopt SFAS 133 effective January 1, 2001. Management does not expect the adoption of SFAS 133 to have a significant impact on the financial position, results of operations, or cash flows of the Company. 4 Consolidated Balance Sheets
December 31, 2000 1999 ==================================================================================================================================== Assets Current assets: Cash and cash equivalents $ 1,626,626 $ 3,117,681 Receivables, net 4,457,745 3,097,632 Inventories 6,413,273 3,329,799 Deferred income taxes and other current assets 860,086 811,093 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 13,357,730 10,356,205 ==================================================================================================================================== Property, plant and equipment, at cost: Land and improvements 222,552 313,674 Buildings and improvements 1,436,773 2,640,446 Machinery and equipment 6,263,494 5,664,989 - ------------------------------------------------------------------------------------------------------------------------------------ 7,922,819 8,619,109 Less accumulated depreciation 4,871,039 5,818,977 - ------------------------------------------------------------------------------------------------------------------------------------ 3,051,780 2,800,132 ==================================================================================================================================== Other assets: Marketable equity securities 2,975,780 3,072,817 Miscellaneous 268,819 302,776 - ------------------------------------------------------------------------------------------------------------------------------------ $19,654,109 $16,531,930 ==================================================================================================================================== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ -- $ 997,720 Accounts payable 2,216,582 1,316,793 Accrued liabilities 2,037,173 1,064,362 Income taxes 191,542 547,245 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 4,445,297 3,926,120 ==================================================================================================================================== Deferred income taxes 1,349,513 1,428,513 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: 4,131,015 and 3,975,169 shares 206,550 198,758 Capital surplus 4,761,522 4,460,347 Retained earnings 7,204,831 4,773,759 Accumulated other comprehensive income 1,686,396 1,744,433 - ------------------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 13,859,299 11,177,297 - ------------------------------------------------------------------------------------------------------------------------------------ $19,654,109 $16,531,930 ====================================================================================================================================
See notes to consolidated financial statements. 5 Consolidated Statements of Operations
For the Years Ended December 31, 2000 1999 1998 ============================================================================================================================= Net sales $ 26,407,735 $ 14,026,229 $ 12,061,652 Cost of sales 18,547,183 10,693,902 9,389,870 - ----------------------------------------------------------------------------------------------------------------------------- Gross profit 7,860,552 3,332,327 2,671,782 - ----------------------------------------------------------------------------------------------------------------------------- Selling and advertising expenses 2,991,528 2,202,113 2,082,465 General and administrative expenses 1,646,587 1,079,663 1,030,131 - ----------------------------------------------------------------------------------------------------------------------------- 4,638,115 3,281,776 3,112,596 - ----------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) 3,222,437 50,551 (440,814) Other income (expense): Gains on sales of assets 1,511,384 -- 523,351 Interest income 130,151 206,791 236,695 Interest expense (9,890) (154,718) (196,818) Other, net 164,820 123,532 69,733 - ----------------------------------------------------------------------------------------------------------------------------- 1,796,465 175,605 632,961 - ----------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 5,018,902 226,156 192,147 Income tax (expense) benefit (1,950,000) (68,000) 12,600 - ----------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations 3,068,902 158,156 204,747 Earnings (loss) from discontinued operations (90,000) 809,000 680,39 - ----------------------------------------------------------------------------------------------------------------------------- Net earnings $ 2,978,902 $ 967,156 $ 885,137 ============================================================================================================================= Basic earnings (loss) per share: Continuing operations $ .75 $ .04 $ .05 Discontinued operations (.02) .20 .17 - ----------------------------------------------------------------------------------------------------------------------------- $ .73 $ .24 $ .22 ============================================================================================================================= Diluted earnings (loss) per share: Continuing operations $ .70 $ .04 $ .05 Discontinued operations (.02) .20 .17 - ----------------------------------------------------------------------------------------------------------------------------- $ .68 $ .24 $ .22 =============================================================================================================================
See notes to consolidated financial statements. 6 Consolidated Statements of Cash Flows
2000 1999 1998 For the Years Ended December 31, ==================================================================================================================================== Cash Flows from Operating Activities: Earnings from continuing operations $ 3,068,902 $ 158,156 $ 204,747 Adjustments to reconcile earnings from continuing operations to net cash provided (used) by operating activities: Depreciation and amortization 610,411 568,051 504,634 Changes in deferred income taxes (75,000) (120,000) (349,900) Gains on sales of assets (1,511,384) -- (523,351) Other 2,280 4,440 4,440 Changes in assets and liabilities: Receivables, net (1,429,878) (1,171,322) 270,586 Inventories (3,159,863) (536,758) (166,289) Other current assets (10,335) 14,505 38,127 Accounts payable and accrued liabilities 1,762,600 805,973 (219,671) Income taxes, net (204,957) (528,541) 478,359 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided (used) by operating activities (947,224) (805,496) 241,682 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Capital expenditures (1,275,764) (716,324) (855,028) Collection of notes receivable 159,553 149,411 29,850 Proceeds from sales of assets 1,909,308 -- 2,061,780 Other, net (8,065) (8,065) (7,915) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided (used) by investing activities 785,032 (574,978) 1,228,687 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Payments on long-term debt (745,000) (1,000,000) -- Purchases of common stock -- (242,623) (164,157) Dividends paid (547,830) -- (4,826,943) Stock options exercised 53,967 -- 101,050 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash (used) by financing activities (1,238,863) (1,242,623) (4,890,050) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Provided (Used) by Discontinued Operations (90,000) 1,225,000 7,050,362 - ------------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash and Cash Equivalents (1,491,055) (1,398,097) 3,630,681 Cash and Cash Equivalents at beginning of year 3,117,681 4,515,778 885,097 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at end of year $ 1,626,626 $ 3,117,681 $ 4,515,778 ==================================================================================================================================== Supplemental Disclosures of Cash Flow Information Cash paid during the year by continuing operations for: Interest $ 9,980 $ 154,718 $ 208,492 Income taxes $ 2,423,941 $ 340,929 $ 146,256
Noncash Investing and Financing Activities: In connection with the sale of certain assets of a product line in 2000, the Company recorded a receivable of $295,000. During 2000, the Company issued 127,500 common shares upon the conversion of the lender's warrants as payment for $255,000 of debt. 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 $83,000, $1,874,000 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. 7 Consolidated Statements of Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------ ACCUMULATED COMMON STOCK OTHER ------------ CAPITAL RETAINED COMPREHENSIVE TREASURY SHARES AMOUNT SURPLUS EARNINGS INCOME STOCK ==================================================================================================================================== Balance, January 1, 1998 5,706,239 $ 285,312 $ 6,347,337 $ 11,443,318 $ 2,695,359 $(5,362,723) Net earnings -- -- -- 885,137 -- -- Cash dividends paid ($1.17 per share) -- -- -- (4,826,943) -- -- Purchases of common stock -- -- -- -- -- (164,157) Exercise of stock options 37,050 1,852 99,198 -- -- -- Retirement of treasury stock (1,667,920) (83,396) (1,873,630) (3,569,854) -- 5,526,880 Unrealized (loss) on marketable equity securities -- -- -- -- (912,236) -- - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 4,075,369 203,768 4,572,905 3,931,658 1,783,123 -- Net earnings -- -- -- 967,156 -- -- Purchases and retirement of common stock (100,200) (5,010) (112,558) (125,055) -- -- Unrealized (loss) on marketable equity securities -- -- -- -- (38,690) -- - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 3,975,169 198,758 4,460,347 4,773,759 1,744,433 -- Net earnings -- -- -- 2,978,902 -- -- Cash dividend paid ($.13 per share) -- -- -- (547,830) -- -- Exercise of stock options 28,346 1,417 52,550 -- -- -- Conversion of debt 127,500 6,375 248,625 -- -- -- Unrealized (loss) on marketable equity securities -- -- -- -- (58,037) -- - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2000 4,131,015 $ 206,550 $ 4,761,522 $ 7,204,831 $ 1,686,396 $ -- ====================================================================================================================================
See notes to consolidated financial statements. Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2000 1999 1998 ==================================================================================================================================== Net earnings $ 2,978,902 $ 967,156 $ 885,137 Other comprehensive income (loss), before tax: Unrealized (loss) on marketable equity securities (97,037) (64,690) (1,520,236) Income tax benefit 39,000 26,000 608,000 - ------------------------------------------------------------------------------------------------------------------------------------ Other comprehensive income (loss), net of tax (58,037) (38,690) (912,236) - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income (loss) $ 2,920,865 $ 928,466 $ ( 27,099) ====================================================================================================================================
See notes to consolidated financial statements. 8 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 and ultrasonic transducer devices. (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 10 and 11). 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 $692,000 and $2,360,000 at December 31, 2000 and 1999, 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, building 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 carried at fair value, with unrealized gains, net of taxes excluded from earnings and reported as a component of stockholders' equity. The Company's investment in marketable equity securities consists of 517,527 shares of MetroWest Bank common stock. At December 31, 2000 and 1999, the fair market value (based on quoted market prices) of these securities was $2,975,780 and $3,072,817, respectively, and the cost basis was $710,384. Gross unrealized gains amounted to $2,265,396 and $2,362,433 at December 31, 2000 and 1999, respectively. During 2000 and 1999, the Company recorded decreases of $58,037 and $38,690 respectively, in the "Accumulated Other Comprehensive Income" component of stockholder's 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 products are 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. COMMON STOCK SPLIT - On October 23, 2000, the Company announced a 3 for 2 common stock split in the form of a stock dividend to result in the issuance of one additional share of common stock for every two shares of common stock outstanding. The stock split was effective for stockholders of record on November 9, 2000 and was distributed on November 27, 2000. For periods prior to the effective date, all common share and per share amounts contained in this report have been retroactively restated to reflect the split. 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. 9 Notes Continued 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. 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 1998 and 1999 financial statements have been reclassified to conform to the 2000 presentation. RECENT ACCOUNTING PRONOUNCEMENTS - Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company will adopt SFAS 133 effective January 1, 2001. Management does not expect the adoption of SFAS 133 to have a significant impact on the financial position, results of operations, or cash flows of the Company. (3) GAINS ON SALES OF ASSETS: In the first quarter of 2000, the Company sold its common stock investment in Bergen Cable Technology, Inc., received $1,319,000 in cash after expenses and recorded a pre-tax gain of $1,226,000 on the sale. The Company acquired these shares as part of the purchase price for the sale of its Bergen Cable Technologies, Inc., subsidiary ("BCT"). (See Note 4.) In addition, the Company's share of the escrow balance amounts to approximately $170,000. This escrow balance, less any claims for indemnity thereon, will be distributed to the Company on or before January 4, 2002. The Company will record a gain on this escrow balance when the cash is received, if any. In the fourth quarter of 2000, the Company sold its real estate complex located in Northborough, Massachusetts for $550,000 in cash. None of the Company's operations were located in this facility. (See Note 4.) The Company recorded a pre-tax gain of $272,000 on the sale. In the fourth quarter of 2000, the Company sold certain assets of its piezoelectric and optical components product line. The purchase price received consisted of approximately $40,000 in cash, a secured promissory note in the principal amount of $210,000 bearing interest at prime rate (9.5% at December 31, 2000) and a $103,000 noninterest bearing receivable discounted to $85,000 based on an imputed interest rate of 9.5%. The Company recorded a pre-tax gain of $13,000 on this sale. Sales from this product line amounted to approximately $987,000 in 2000, $1,082,000 in 1999 and $1,184,000 in 1998. In the fourth quarter of 1998, the Company received net proceeds of $1,862,000 from the sale of its real estate complex located in Delaware and recorded a pre-tax gain of $386,000 on the sale. In the fourth quarter of 1998, the Company sold a common stock investment for $200,000 and recorded a $137,000 pre-tax gain on the sale. (4) DISCONTINUED OPERATIONS: In 1998, the Company sold all the assets of its BCT subsidiary. As a result of this sale, the Company is performing environmental cleanup at the site. During the first quarter of 2000, the Company expensed $150,000 to increase the environmental expense accrual to reflect the current available estimate to complete the remediation. As of December 31, 2000, $800,000 has been expensed for the cleanup and $72,000 is accrued for future payments. These costs represent the Company's best estimate, but the ultimate costs will not be known until the remediation is complete. In 1998, the purchase price received for the BCT assets sold 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 $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 market 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 3.) In 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 10 Notes Continued amount of $250,000 bearing interest at prime rate + 1% (10.5% at December 31, 2000), a $250,000 noninterest bearing receivable discounted to $206,000 based on an imputed interest rate of 9.5%, and the assumption of certain liabilities including trade payables. In addition, the buyer entered into a 5 year lease agreement with the Company to lease space that it occupied in Northborough Massachusetts and the buyer also had a 5 year option to purchase the real estate that included the leased space. (See Note 3.) The pre-tax gain on the sale recognized in 1998 was $400,000. In 1998, the Company received payment of $200,000 on a note relating to the sale of a product line in 1997and has included this amount in the gain on sale of discontinued operations. The gain recognition from the note was deferred pending collection. 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 for the year ended December 31, 1998. The earnings related to the above discontinued operations are presented in the Consolidated Statements of Operations under the caption "Earnings from discontinued operations" and include:
For the Years Ended December 31, 2000 1999 1998 ======================================================================================================= (in thousands) Earnings from operations (less applicable taxes of $66) $ - $ - $105 Gain (loss) on disposal (less applicable taxes of $60, $540, and $356) (90) 809 575 - ------------------------------------------------------------------------------------------------------- Earnings (loss) from discontinued operations $ (90) $809 $680 =======================================================================================================
As a result of the BCT sale, on May 15, 1998 the Company paid a special nonrecurring cash distribution of $1.17 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. (5) RECEIVABLES, NET: Receivables, net of allowances, consist of the following:
2000 1999 ==================================================================================================================================== Accounts receivable, less allowance for doubtful accounts of $175,000 and $93,000 $4,250,248 $2,820,370 Refundable income taxes -- 154,404 Amounts due from the sales of discontinued operations and assets 207,497 122,858 - ------------------------------------------------------------------------------------------------------------------------------------ $4,457,745 $3,097,632 ====================================================================================================================================
(6) INVENTORIES: Inventories consist of the following: 2000 1999 ==================================================================================================================================== Raw materials $3,088,730 $1,796,823 Work in process 2,009,636 1,179,264 Finished goods 1,314,907 353,712 - ------------------------------------------------------------------------------------------------------------------------------------ $6,413,273 $3,329,799 ====================================================================================================================================
(7) INCOME TAXES: The components of the provision (benefit) for income taxes are as follows:
2000 1999 1998 ==================================================================================================================================== Current provision: Federal $ 1,607,000 $ 149,000 $ 319,900 State 418,000 39,000 17,400 - ------------------------------------------------------------------------------------------------------------------------------------ 2,025,000 188,000 337,300 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred (benefit): Federal (70,000) (105,000) (270,900) State (5,000) (15,000) (79,000) - ------------------------------------------------------------------------------------------------------------------------------------ (75,000) (120,000) (349,900) - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 1,950,000 $ 68,000 $ (12,600) ====================================================================================================================================
11 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:
2000 1999 1998 ======================================================================================= Income taxes at statutory rates $ 1,706,400 $ 76,900 $ 65,330 State income tax, net of federal tax benefit 272,600 15,800 (11,000) Dividend exclusion (34,500) (32,000) (26,100) Non-deductible expenses 4,000 4,600 4,800 Benefit of state operating loss carryforward -- -- (45,000) Other, net 1,500 2,700 (630) - --------------------------------------------------------------------------------------- $ 1,950,000 $ 68,000 $(12,600) =======================================================================================
The tax effects of significant items comprising the Company's net deferred tax liability as of December 31, 2000 and 1999 are as follows:
2000 1999 =================================================================================================================== Deferred tax liabilities: Unrealized gain on marketable equity securities $ 574,700 $ 613,800 DISC commissions 428,100 481,600 Depreciation 346,700 333,100 - ------------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities 1,349,500 1,428,500 - ------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Inventory reserves 593,800 505,600 Accrued expenses 168,100 229,900 Allowance for doubtful accounts 50,100 37,700 - ------------------------------------------------------------------------------------------------------------------- Total deferred tax assets 812,000 773,200 - ------------------------------------------------------------------------------------------------------------------- Net deferred tax liabilities $ 537,500 $ 655,300 ===================================================================================================================
Other current assets include deferred income taxes of approximately $812,000 in 2000 and $773,000 in 1999. (8) 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 expenses amounted to $186,000 in 2000, $35,000 in 1999, and $0 in 1998. 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 $79,000 in 2000, $58,000 in 1999, and $51,000 in 1998.
(9) ACCRUED LIABILITIES: Accrued liabilities consist of the following items: 2000 1999 ====================================================================================================================== Employee compensation $1,195,000 $ 270,276 Environmental costs 72,000 158,000 Other 770,173 636,086 - ---------------------------------------------------------------------------------------------------------------------- $2,037,173 $1,064,362 ======================================================================================================================
(10) NOTES PAYABLE: The Company has a secured demand line of credit with a bank amounting to $850,000 that is secured by marketable equity securities. The Company had no borrowings outstanding under the line of credit at December 31, 2000 and 1999. There is no compensating balance requirement or significant commitment fees under the arrangement. 12 Notes Continued (11) LONG-TERM DEBT: At December 31, 1999, the current portion of long-term debt consisted of a 10% Term Debt Note with an original $2 million face amount due on June 30, 2000. In January 2000, the Company paid $745,000 in cash and issued 127,500 shares of common stock as payment in full for the $1 million portion outstanding. During 1999, the Company made a $1 million payment on this note. As part of the Agreement, the Company issued the lender transferable common stock warrants to purchase 127,500 shares of the Company's common stock at $3.17 per share less certain adjustments. The warrants were valued at $23,000 on the date of issuance. (12) STOCKHOLDERS' EQUITY: The Company has 4,131,015 and 3,975,169 shares of its $.05 par value Common Stock outstanding at December 31, 2000 and 1999, respectively. During 1999, the Company acquired 100,200 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 111,000 shares of stock through the open market or negotiated transactions 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 600,000 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, 2000, all options granted except for 90,000 options were ISO's. At December 31, 2000, the 1992 Plan has no options available for future grant and 375,604 common shares reserved for issuance upon exercise of the outstanding stock options. At December 31, 2000, the 1999 Plan has 52,416 options available for future grants and 97,584 common shares reserved for issuance upon exercise of the outstanding stock options. A summary of the status of the Company's two fixed stock option plans as of December 31, 2000, 1999, and 1998, and changes during the years ended on those dates is presented below:
2000 1999 1998 ============================================================================================================================== Number Weighted-Avg. Number Weighted-Avg. Number Weighted-Avg. of shares Exercise Price of shares Exercise Price of shares Exercise Price Outstanding, January 1 239,035 $ 2.37 69,997 $ 1.99 102,751 $2.79 Granted 270,000 4.26 180,000 2.52 27,096 2.07 Exercised (28,347) 1.92 -- -- (37,050) 2.73 Forfeited (7,500) 2.39 (10,962) 2.29 (22,800) 2.82 ============================================================================================================================== Outstanding, December 31 473,188 3.48 239,035 $ 2.37 69,997 $1.99 ============================================================================================================================== Exercisable, December 31 53,494 $ 2.31 25,551 $ 1.90 15,936 $1.94 ==============================================================================================================================
The following table summarizes information about fixed stock options outstanding at December 31, 2000:
Options Outstanding Options Exercisable ==================================================================================================================================== Weighted-Average ---------------- Range of Number Remaining Number Weighted Exercise Outstanding Contractual Exercise Exercisable Avg. Exercise Prices at 12/31/00 Life Price at 12/31/00 Price ==================================================================================================================================== $1.83 - 1.95 26,188 6.6 years $ 1.85 16,594 $1.86 $2.40 - 2.54 177,000 8.6 2.52 36,900 2.52 $3.42 240,000 9.1 3.42 - - $11.04 30,000 9.8 11.04 - - ==================================================================================================================================== 473,188 8.8 $ 3.48 53,494 $2.31 ====================================================================================================================================
13 Notes Continued The Company applies APB Opinion No, 25 and related Interpretations in accounting for its 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 2000, 1999 and 1998: dividend yield of 0%, an expected option life of 7 years and an expected stock price volatility of the Company's common stock of 50% for 2000 and 40% in 1999 and 1998. The weighted average risk-free interest rates were 6.6% in 2000, 6.1% in 1999 and 4.6% in 1998. The estimated weighted-average fair value per option at the date of grant for options was $2.56 in 2000, $2.00 in 1999 and $1.81 in 1998. 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 $95,000, $27,000 and $12,000 in 2000, 1999, and 1998, respectively. These pro forma decreases of net earnings would have reduced earnings per share by $.02 in 2000, $.01 in 1999 and would have no effect on earnings per share in 1998. 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. (13) EARNINGS PER SHARE: The computation of basic and diluted earnings per share from continuing operations is as follows:
======================================================================================================= 2000 1999 1998 ======================================================================================================= BASIC: Earnings from continuing operations $3,068,902 $ 158,156 $ 204,747 Weighted average shares outstanding 4,107,079 4,022,675 4,093,244 ======================================================================================================= Basic earnings per share from continuing operations $ .75 $ .04 $ .05 ======================================================================================================= DILUTED: Earnings from continuing operations $3,068,902 $ 158,156 $ 204,747 Add: interest impact, net of tax, from the assumed debt reduction from the conversion of warrants 4,420 -- -- - ------------------------------------------------------------------------------------------------------- Adjusted earnings from continuing operations $3,073,322 $ 158,156 $ 204,747 - ------------------------------------------------------------------------------------------------------- Weighted average shares outstanding 4,107,079 4,022,675 4,093,244 Dilutive effect of stock options outstanding, using the treasury stock method 241,849 19,731 3,326 Conversion of warrants 9,432 -- -- - ------------------------------------------------------------------------------------------------------- Diluted weighted average shares outstanding 4,358,360 4,042,406 4,096,570 ======================================================================================================= Diluted earnings per share from continuing operations $ .70 $ .04 $ .05 =======================================================================================================
In 1999 and 1998, the effect of the outstanding warrants to purchase 127,500 shares was antidilutive. (14) OTHER INCOME (EXPENSE), NET: Other, net consists of the following items:
2000 1999 1998 =================================================================================================================== Dividends $144,908 $ 134,557 $ 108,680 Real estate operations 19,912 (11,025) (38,947) - ------------------------------------------------------------------------------------------------------------------- $164,820 $ 123,532 $ 69,733 ===================================================================================================================
(15) INDUSTRY SEGMENT: The Company operates in one segment: the design, production, import, and sale of quartz crystals and oscillators and ultrasonic transducer devices. During 2000, two customers accounted for approximately 21% and 13% of net sales. No customer accounted for more than 10% of net sales in 1999 and 1998. Export sales amounted to $6,065,000, $2,768,000 and $3,118,000 in 2000, 1999, and 1998, respectively. Sales to customers located in Canada accounted for approximately 49%, 48% and 42% of total export sales in 2000, 1999 and 1998, respectively. 14 Notes Continued (16) QUARTERLY FINANCIAL DATA (UNAUDITED): Selected unaudited quarterly financial data for 2000 and 1999 is set forth below: First Second Third Fourth
First Second Third Fourth =========================================================================================================================== 2000 (in thousands, except per share data) Net sales from continuing operations $ 5,426 $ 6,287 $7,219 $7,476 Gross profit 1,624 1,893 2,131 2,213 Earnings (loss) before income taxes 1,881 831 943 1,364 Net earnings (loss) from: Continuing operations 1,129 499 565 876 Discontinued operations (90) -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Net earnings $ 1,039 $ 499 $ 565 $ 876 =========================================================================================================================== Basic earnings (loss) per share: Continuing operations $ .27 $ .12 $ .14 $ .21 Discontinued operations (.02) -- -- -- - --------------------------------------------------------------------------------------------------------------------------- $ .25 $ .12 $ .14 $ .21 =========================================================================================================================== Diluted earnings (loss) per share: Continuing operations $ .26 $ .11 $ .13 $ .20 Discontinued operations (.02) -- -- -- - --------------------------------------------------------------------------------------------------------------------------- $ .24 $ .11 $ .13 $ .20 =========================================================================================================================== 1999 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 $ (.06) $ (.04) $ .04 $ .10 Discontinued operations .01 .18 .02 -- - --------------------------------------------------------------------------------------------------------------------------- $ (.05) $ .14 $ .06 $ .10 ===========================================================================================================================
Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year earnings per share amounts. Earnings (loss) per share amounts have been restated to give retroactive treatment for the three-for-two stock split distributed on November 27, 2000. In the first quarter of 2000, net earnings from continuing operations includes a gain on sale of assets of $736,000 ($.18 basic earnings per share and $.17 diluted earnings per share). See Note 3. In the fourth quarter of 2000, net earnings from continuing operations includes gains on sale of assets amounting to $171,000 ($.04 basic and diluted earnings per share). See Note 3. In 1999, the net earnings from discontinued operations result from gains recognized on the sale of discontinued operations. (17) SUBSEQUENT EVENT: ON February 27, 2001, the Company entered into a bank credit arrangement which includes an unsecured $2 million 5 year term promissory note and an unsecured $1.25 million revolving line of credit. The interest rate on the term note is 6.62% and borrowings under the line of credit bear interest at LIBOR plus either 1.4% or 1.5% based on the option term chosen by the Company. There are no compensating balance or commitment fees under the arrangement. The credit arrangement includes certain typical financial covenants. Proceeds from the term note will be used primarily to fund capital expenditures. The line of credit will be used mainly to fund working capital needs. This debt arrangement replaces the $850,000 line of credit. 15 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, 2000 and 1999, 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, 2000. 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, such consolidated financial statements present fairly, in all material respects, the financial position of MATEC Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Boston, Massachusetts February 16, 2001 (February 27, 2001 as to Note 17) 16 COMMON STOCK INFORMATION MATEC common stock is listed and traded on the American Stock Exchange under the symbol MXC. On October 23, 2000, the Company announced a three-for-two stock split in the form of a stock dividend effective November 27, 2000 for stockholders of record on November 9, 2000. The range of high and low prices, adjusted for the three-for-two stock split, during each quarter for the past two years is shown below:
For the years ended December 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ High Low High Low - ------------------------------------------------------------------------------------------------------------------------------------ 4th quarter $13.29 $5.50 $4.17 $2.50 3rd quarter 15.33 5.67 2.75 2.33 2nd quarter 10.83 3.67 2.59 2.21 1st quarter 5.17 3.42 2.83 2.33 - ------------------------------------------------------------------------------------------------------------------------------------
During 2000, the Company paid a $.13 per share (adjusted for the three-for-two- stock split) cash dividend. No dividend was paid in 1999. The number of stockholders of record on February 28, 2001 was 1,011. This number does not include stockholders for whom shares are held in a "nominee" or "street" name. 17 EX-21 5 j0183c2s01_ex21.txt EX-21 Exhibit 21 Subsidiaries of the Registrant - ------------------------------ 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 MAS, Inc. Delaware Valpey-Fisher Corporation Massachusetts
EX-23 6 j0183c2s01_ex23.txt EX-23 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 February 16, 2001 (February 27, 2001 as to Note 17), appearing in and incorporated by reference in the Annual Report on Form 10-K of MATEC Corporation for the year ended December 31, 2000. /s/DELOITTE & TOUCHE LLP Boston, Massachusetts March 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----