Form 12b-25

:

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 12b-25

 

NOTIFICATION OF LATE FILING

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SEC FILE NUMBER

     

   
   

CUSIP NUMBER

     

 

(Check One)    

 

¨  Form 10-K     ¨  Form 20-F     ¨  Form 11-K     þ  Form 10-Q

¨  Form 10-D     ¨   Form N-SAR     ¨  Form N-CSR

  For Period Ended: November 30, 2007                                                     
  ¨  Transition Report on Form 10-K
  ¨  Transition Report on Form 20-F
  ¨  Transition Report on Form 11-K
  ¨  Transition Report on Form 10-Q
  ¨  Transition Report on Form N-SAR
  For the Transition Period Ended:                                                                  

 

 

Read Instruction (on back page) Before Preparing Form. Please Print or Type.

Nothing in this form shall be construed to imply that the Commission has verified any information contained herein.

 

If the notification relates to a portion of the filing checked above, identify the Item(s) to which the notification relates:             

 

 

PART I — REGISTRANT INFORMATION

 

Matrix Service Company
Full Name of Registrant
 
Former Name if Applicable
10701 E. Ute Street
Address of Principal Executive Office (Street and Number)
Tulsa, Oklahoma 74116-1517
City, State and Zip Code

 


PART II — RULES 12b-25(b) AND (c)

If the subject report could not be filed without unreasonable effort or expense and the registrant seeks relief pursuant to Rule 12b-25(b), the following should be completed. (Check box if appropriate)

 

þ   

  (a)   The reasons described in reasonable detail in Part III of this form could not be eliminated without unreasonable effort or expense;
  (b)   The subject annual report, semi-annual report, transition report on Form 10-K, Form 20-F, Form 11-K, Form N-SAR or Form N-CSR, or portion thereof, will be filed on or before the fifteenth calendar day following the prescribed due date; or the subject quarterly report or transition report on Form 10-Q, or subject distribution report on Form 10-D, or portion thereof, will be filed on or before the fifth calendar day following the prescribed due date; and
  (c)   The accountant’s statement or other exhibit required by Rule 12b-25(c) has been attached if applicable.



PART III — NARRATIVE

State below in reasonable detail why Forms 10-K, 20-F, 11-K, 10-Q, 10-D, N-SAR, N-CSR, or the transition report or portion thereof, could not be filed within the prescribed time period.

(Attach Extra Sheets if Needed)

The Company has been working diligently to complete its Quarterly Report on Form 10-Q for the quarter ended November 30, 2007 (the “Form 10-Q”). As a result of the effort required to review and quantify the charges for cost overruns on a liquefied natural gas construction contract in the Gulf Coast region and as a result of lost time due to the December ice storm in Tulsa, Oklahoma, the Company requires additional time to complete the preparation and review of the Form 10-Q.


PART IV — OTHER INFORMATION

 

(1) Name and telephone number of person to contact in regard to this notification

 

George L. Austin      918    838-8822
(Name)      (Area Code)    (Telephone Number)

 

(2) Have all other periodic reports required under Section 13 or 15(d) of the Securities Exchange Act of 1934 or Section 30 of the Investment Company Act of 1940 during the preceding 12 months or for such shorter period that the registrant was required to file such report(s) been filed? If answer is no, identify report(s).    þ  Yes    ¨  No

 

 

 

(3) Is it anticipated that any significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements to be included in the subject report or portion thereof?    þ  Yes    ¨  No

If so, attach an explanation of the anticipated change, both narratively and quantitatively, and, if appropriate, state the reasons why a reasonable estimate of the results cannot be made.

 


 

 

Matrix Service Company
(Name of Registrant as Specified in Charter)

has caused this notification to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date 

   January 9, 2008    By     /s/ George L. Austin
         George L. Austin

INSTRUCTION: The form may be signed by an executive officer of the registrant or by any other duly authorized representative. The name and title of the person signing the form shall be typed or printed beneath the signature. If the statement is signed on behalf of the registrant by an authorized representative (other than an executive officer), evidence of the representative’s authority to sign on behalf of the registrant shall be filed with the form.

 

    ATTENTION     
       

Intentional misstatements or omissions of fact constitute Federal Criminal Violations (See 18 U.S.C. 1001).

 

 


EXPLANATION REFERRED TO IN PART IV, ITEM (3) OF FORM 12b-25

See attached earnings release

 

3


LOGO

 


FOR IMMEDIATE RELEASE

MATRIX SERVICE CHARGES OF $17.9 MILLION REDUCE FULLY DILUTED EARNINGS

PER SHARE TO $0.01 IN THE SECOND QUARTER OF FISCAL 2008, ENDED

NOVEMBER 30, 2007

Second Quarter 2008 Highlights:

   

Revenues were $194.7 million compared to $166.4 million a year earlier;

   

Net income was $0.2 million compared with $8.1 million in the second quarter a year ago;

   

Gross margins were 5.8% versus 13.2% for the second quarter a year earlier; and

   

Fully diluted EPS was $0.01 per share versus $0.31 per share in the same quarter a year ago.

Six Month 2008 Highlights:

   

Revenues were $356.1 million compared to $293.2 million for the same period in fiscal 2007; and

   

Fully diluted EPS was $0.24 per share versus $0.43 per share a year earlier.

TULSA, OK – January 9, 2008 – Matrix Service Co. (Nasdaq: MTRX), a leading industrial services company, today reported its financial results for the second quarter of fiscal 2008, ended November 30, 2007. Total revenues for the quarter were $194.7 million compared to $166.4 million recorded in the second quarter of fiscal 2007.

Net income for the second quarter of fiscal 2008 was $0.2 million, or $0.01 per fully diluted share compared to $8.1 million, or $0.31 per fully diluted share, in the prior year second quarter. Current second quarter results included pre-tax charges of $17.0 million, or $0.38 per fully diluted share, for cost overruns on a liquefied natural gas (LNG) construction project in the Gulf Coast Region ($16.0 million) and to fully reserve a receivable from a customer who filed bankruptcy in the second quarter ($1.0 million). These results also reflect an additional $0.9 million pre-tax charge for non-recurring employee benefit costs. In addition to these charges, Matrix Service recorded a $0.7 million tax benefit in the second quarter resulting from the continuing assessment of the realizability of state investment tax credits.

Michael J. Bradley, president and chief executive officer of Matrix Service Company, said, “We are extremely proud of the continued growth in our underlying businesses and the hard work and dedication of our skilled workforce. With that said, we are disappointed with the charges related to cost overruns on the Gulf Coast LNG project which overshadowed what otherwise was an outstanding quarter.”

EBITDA(1) for the second quarter of fiscal 2008 was $1.5 million, compared to $14.9 million for the same period last year. Gross margins on a consolidated basis for the current quarter were 5.8% compared to 13.2% reported in the same quarter a year ago. Absent the impact of the special items discussed above, gross margins would have been 15.0% in the current quarter(2).

 


(1) The Company uses EBITDA (earnings before net interest, income taxes, depreciation and amortization) as part of its overall assessment of financial performance by comparing EBITDA between accounting periods. Matrix Service believes that EBITDA is used by the financial community as a method of measuring the Company's performance and of evaluating the market value of companies considered to be in similar businesses. EBITDA should not be considered as an alternative to net income or cash provided by operating activities, as defined by accounting principles generally accepted in the United States (“GAAP”). A reconciliation of EBITDA to net income is included at the end of this release.

 

(2) Gross margins before special items (and the related amounts per share), a non-GAAP financial measure, exclude a $16.0 million pre-tax charge for the second quarter of fiscal 2008 and exclude a $17.5 million pre-tax charge for the first six months of fiscal 2008 relating to a LNG project. Also excluded is a $0.5 million pre-tax charge in the second quarter and the six month period related to non-recurring employee benefit costs. Management believes these charges affect the comparison of results for the periods presented. Management also believes that results excluding these items are useful in evaluating operational trends for Matrix Service and its performance relative to its competitors. A reconciliation of revenues, gross profit, gross margin %, SG&A and operating income before special items is included at the end of this press release.


Matrix Service Company

January 9, 2008

Page 2

 

Construction Services revenues for the second quarter 2008 were $116.3 million compared to $83.3 million in the same period a year earlier. The increase was a result of significantly higher construction work in Aboveground Storage Tanks, where second quarter revenues soared 53.0% to $58.3 million, from $38.1 million in the second quarter of fiscal 2007. The increase was also driven by Downstream Petroleum revenues, which gained 55.5% to $39.5 million, from $25.4 million for the year-earlier period, and by Specialty revenues, which increased 6.5% to $13.2 million, from $12.4 million for the year-earlier period. These improvements were partially offset by a decline of $2.1 million in Electrical and Instrumentation revenues. Construction Services’ gross margins were (1.6)% versus 11.3% in the second quarter of fiscal 2007. Absent the impact of the special items discussed previously, margins would have been 13.6% in the current quarter(2).

Repair and Maintenance Services revenues were $78.5 million in the second quarter of 2008 versus $83.1 million in the same quarter in 2007. The decrease was primarily a result of lower Downstream Petroleum revenues, where second quarter revenues were $29.8 million compared to $42.8 million a year earlier, and by lower Electrical and Instrumentation revenues, which fell to $4.1 million, from $6.6 million for the year-earlier period. These declines were partially offset by Aboveground Storage Tank revenues which rose 32.0% to $44.5 million from $33.7 million in the year-earlier period. Gross margins were 16.7% in the quarter versus 15.1% in the second quarter a year ago. Repair and Maintenance Services’ gross margins benefited from continued high levels of callout work, particularly in our Aboveground Storage Tank segment.

Six Month Results

For the six months ended November 30, 2007, Matrix Service reported consolidated revenues of $356.1 million versus $293.2 million recorded in the year-earlier period.

Net income for the six month period was $6.5 million, or $0.24 per fully diluted share, compared to $11.1 million, or $0.43 per fully diluted share, in the comparable period last year. Current year results included pre-tax charges of $18.5 million, or $0.41 per fully diluted share for cost overruns on a LNG construction project in the Gulf Coast Region ($17.5 million) and to fully reserve a receivable from a customer who filed bankruptcy in the second quarter ($1.0 million). These results also reflect an additional pre-tax $0.9 million charge for non-recurring employee benefit costs. In addition to these charges, Matrix Service recorded a $0.7 million tax benefit in the second quarter resulting from the continuing assessment of the realizability of state investment tax credits. EBITDA(1) for the six months ended November 30, 2007 was $14.1 million, compared with $22.1 million for the year-earlier period. Consolidated gross margins were 8.5% compared to 12.0% a year earlier. Absent the impact of the special items discussed above, year-to-date margins would have been 14.9%(2).

Revenues for the Construction Services segment were $215.1 million, compared with $160.1 million for the six months ending November 30, 2006. The increase was due to significantly higher construction work in Downstream Petroleum, where revenues for the six month period increased 82.3% to $73.1 million versus $40.1 million for the same six month period last year. The increase was also driven by higher Aboveground Storage Tank revenues, which jumped 28.0% to $97.8 million in the recent six month period, versus $76.4 million a year earlier, and by higher Specialty revenues, which gained 15.4% to $36.8 million in the recent six month period compared to $31.9 million a year earlier. These increases were partially offset by a decline of $4.4 million in Electrical and Instrumentation revenues. Gross margins in the Construction Services segment were 3.2% compared to 11.1% a year earlier. Absent the impact of the special items discussed previously, margins would have been 13.6% in the first half of fiscal year 2008(2).

 


Matrix Service Company

January 9, 2008

Page 3

 

Revenues for Repair and Maintenance Services rose $7.9 million, or 5.9%, to $141.0 million, for the six month period ending November 30, 2007, from $133.1 million for the six month period ending November 30, 2006. The increase was primarily due to significantly higher Aboveground Storage Tank revenues which rose 43.6% to $86.0 million, versus $59.9 million for the same six month period last year. These increases were partially offset by lower Downstream Petroleum revenues, which fell 24.3% to $47.3 million in the six month period from $62.5 million in the same six month period last year, and by Electrical and Instrumentation revenues, which fell 29.0% to $7.6 million in the six month period from $10.7 million in the same six month period last year. Gross margins were 16.5% versus 13.1% a year earlier.

Mr. Bradley added, “Based upon the results of our LNG project, we will not meet our earlier gross margin guidance. We believe gross margins in the remaining six months of the fiscal year should be in the range of 11.5% to 13.5%, which would include approximately $27 million of additional LNG revenues at zero gross profit. We are maintaining our original revenue guidance of $700 million to $750 million and SG&A expense should still range between 5.0% and 5.5%.”

Conference Call Details

In conjunction with the press release, Matrix Service will host a conference call with Michael J. Bradley, president and CEO, and Les Austin, vice president and CFO. The call will take place at 11:00 a.m. (EST)/10:00 a.m. (CST) today and will be simultaneously broadcast live over the Internet at www.matrixservice.com or www.vcall.com. Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast. The online archive of the broadcast will be available within one hour of completion of the live call.

About Matrix Service Company

Matrix Service Company provides general industrial construction and repair and maintenance services principally to the petroleum, petrochemical, power, bulk storage terminal, pipeline and industrial gas industries.

The Company is headquartered in Tulsa, Oklahoma, with regional operating facilities located in Oklahoma, Texas, California, Michigan, Pennsylvania, Illinois, Washington, and Delaware in the U.S. and Canada.

This release contains forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are generally accompanied by words such as “anticipate,” “continues,” “expect,” “forecast,” “outlook,” “believe,” “estimate,” “should” and “will” and words of similar effect that convey future meaning, concerning the Company’s operations, economic performance and management's best judgment as to what may occur in the future. Future events involve risks and uncertainties that may cause actual results to differ materially from those we currently anticipate. The actual results for the current and future periods and other corporate developments will depend upon a number of economic, competitive and other influences, including the possibility of further overruns or delays on the Company’s Gulf Coast LNG project and those factors discussed in the “Risk Factors” and “Forward Looking Statements” sections and elsewhere in the Company’s reports and filings made from time to time with the Securities and Exchange Commission. Many of these risks and uncertainties are beyond the control of the Company, and any one of which, or a combination of which, could materially and adversely affect the results of the Company’s operations and its financial condition. We undertake no obligation to update information contained in this release.

For more information, please contact:

Matrix Service Company

Les Austin

Vice President Finance and CFO

T: 918-838-8822

E: laustin@matrixservice.com

Investors and Financial Media:

Trúc Nguyen

The Global Consulting Group

T: 646-284-9418

E: tnguyen@hfgcg.com

 


Matrix Service Company

January 9, 2008

Page 4

 

Matrix Service Company

Consolidated Statements of Operations

(In thousands, except share and per share data)

 

     Three Months Ended     Six Months Ended  
    

November 30,

2007

   

November 30,

2006

   

November 30,

2007

   

November 30,

2006

 
     (unaudited)     (unaudited)  

Revenues

   $ 194,734     $ 166,366     $ 356,061     $ 293,225  

Cost of revenues

     183,488       144,464       325,911       258,016  
                                

Gross profit

     11,246       21,902       30,150       35,209  

Selling, general and administrative expenses

     11,841       8,749       19,887       16,433  
                                

Operating income (loss)

     (595 )     13,153       10,263       18,776  

Other income (expense):

        

Interest expense

     (273 )     (759 )     (577 )     (1,505 )

Interest income

     15       29       31       58  

Other

     47       198       37       302  
                                

Income (loss) before income taxes

     (806 )     12,621       9,754       17,631  

Provision (benefit) for federal, state and foreign income taxes

     (1,016 )     4,547       3,208       6,549  
                                

Net income

   $ 210     $ 8,074     $ 6,546     $ 11,082  
                                

Basic earnings per common share

   $ 0.01     $ 0.35     $ 0.25     $ 0.50  

Diluted earnings per common share

   $ 0.01     $ 0.31     $ 0.24     $ 0.43  

Weighted average common shares outstanding:

        

Basic

     26,625       23,004       26,609       22,252  

Diluted

     27,131       26,589       27,109       26,572  

 


Matrix Service Company

January 9, 2008

Page 5

 

Matrix Service Company

Consolidated Balance Sheets

(In thousands)

 

     November 30,
2007
    May 31,
2007
 
     (unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 6,229     $ 9,147  

Accounts receivable, less allowances (November 30, 2007 - $192 and May 31, 2007 - $260)

     134,802       98,497  

Costs and estimated earnings in excess of billings on uncompleted contracts

     43,158       45,634  

Inventories

     4,866       4,891  

Income tax receivable

     3,104       —    

Deferred income taxes

     5,819       3,283  

Prepaid expenses

     2,149       2,910  

Other current assets

     1,759       929  
                

Total current assets

     201,886       165,291  

Property, plant and equipment at cost:

    

Land and buildings

     23,719       23,405  

Construction equipment

     43,583       39,958  

Transportation equipment

     15,203       14,380  

Furniture and fixtures

     11,102       10,116  

Construction in progress

     5,472       1,788  
                
     99,079       89,647  

Accumulated depreciation

     (46,894 )     (43,654 )
                
     52,185       45,993  

Goodwill

     23,530       23,357  

Other assets

     660       8,268  
                

Total assets

   $ 278,261     $ 242,909  
                


Matrix Service Company

January 9, 2008

Page 6

 

Matrix Service Company

Consolidated Balance Sheets

(In thousands, except share data)

 

     November 30,
2007
    May 31,
2007
 
     (unaudited)        

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 63,414     $ 52,144  

Billings on uncompleted contracts in excess of costs and estimated earnings

     51,994       34,243  

Accrued insurance

     6,396       6,422  

Accrued wages and benefits

     9,980       15,442  

Income tax payable

     —         956  

Current capital lease obligation

     854       753  

Current portion of acquisition payable

     2,781       2,712  

Other accrued expenses

     1,553       1,313  
                

Total current liabilities

     136,972       113,985  

Long-term capital lease obligation

     521       836  

Long-term debt

     3,250       —    

Deferred income taxes

     3,573       2,512  

Stockholders’ equity:

    

Common stock – $.01 par value; 60,000,000 shares authorized 27,888,217 shares issued as of November 30, 2007 and May 31, 2007

     279       279  

Additional paid-in capital

     106,157       104,408  

Retained earnings

     29,953       23,422  

Accumulated other comprehensive income

     1,439       967  
                
     137,828       129,076  

Less: Treasury stock, at cost – 1,218,518 and 1,297,466 shares as of November 30, 2007 and May 31, 2007

     (3,883 )     (3,500 )
                

Total stockholders’ equity

     133,945       125,576  
                

Total liabilities and stockholders’ equity

   $ 278,261     $ 242,909  
                


Matrix Service Company

January 9, 2008

Page 7

 

Results of Operations

 

    

Construction

Services

    Repair &
Maintenance
Services
   Other    

Combined

Total

 
     (In thousands)  

Three Months Ended November 30, 2007

         

Gross revenues

   $ 119,443     $ 79,420    $ —       $ 198,863  

Less: Inter-segment revenues

     3,170       959      —         4,129  
                               

Consolidated revenues

     116,273       78,461      —         194,734  

Gross profit (loss)

     (1,839 )     13,085      —         11,246  

Operating income (loss)

     (9,269 )     8,508      166       (595 )

Income (loss) before income tax expense

     (9,432 )     8,460      166       (806 )

Net income (loss)

     (5,240 )     5,350      100       210  

Segment assets

     163,597       93,030      21,634       278,261  

Capital expenditures

     2,400       1,870      1,169       5,439  

Depreciation and amortization expense

     1,178       861      —         2,039  

Three Months Ended November 30, 2006

         

Gross revenues

   $ 85,871     $ 83,383    $ —       $ 169,254  

Less: Inter-segment revenues

     2,568       320      —         2,888  
                               

Consolidated revenues

     83,303       83,063      —         166,366  

Gross profit

     9,372       12,530      —         21,902  

Operating income (loss)

     4,609       8,590      (46 )     13,153  

Income (loss) before income tax expense

     4,487       8,180      (46 )     12,621  

Net income (loss)

     2,945       5,157      (28 )     8,074  

Segment assets

     93,561       82,739      20,014       196,314  

Capital expenditures

     1,921       1,173      378       3,472  

Depreciation and amortization expense

     896       677      —         1,573  

Six Months Ended November 30, 2007

         

Gross revenues

   $ 222,460     $ 143,405    $ —       $ 365,865  

Less: Inter-segment revenues

     7,408       2,396      —         9,804  
                               

Consolidated revenues

     215,052       141,009      —         356,061  

Gross profit

     6,834       23,316      —         30,150  

Operating income (loss)

     (5,345 )     15,527      81       10,263  

Income (loss) before income tax expense

     (5,719 )     15,392      81       9,754  

Net income (loss)

     (3,013 )     9,510      49       6,546  

Segment assets

     163,597       93,030      21,634       278,261  

Capital expenditures

     3,906       2,542      1,879       8,327  

Depreciation and amortization expense

     2,231       1,582      —         3,813  

Six Months Ended November 30, 2006

         

Gross revenues

   $ 164,862     $ 133,811    $ —       $ 298,673  

Less: Inter-segment revenues

     4,750       698      —         5,448  
                               

Consolidated revenues

     160,112       133,113      —         293,225  

Gross Profit

     17,819       17,390      —         35,209  

Operating income (loss)

     8,900       9,922      (46 )     18,776  

Income (loss) before income tax expense

     8,198       9,479      (46 )     17,631  

Net income (loss)

     5,172       5,938      (28 )     11,082  

Segment assets

     93,561       82,739      20,014       196,314  

Capital expenditures

     4,193       1,935      649       6,777  

Depreciation and amortization expense

     1,695       1,336      —         3,031  

 


Matrix Service Company

January 9, 2008

Page 8

 

Segment Revenue from External Customers by Industry Type

 

     Construction
Services
   Repair &
Maintenance
Services
   Total
     (In thousands)

Three Months Ended November 30, 2007

        

Aboveground Storage Tanks

   $ 58,326    $ 44,504    $ 102,830

Downstream Petroleum

     39,499      29,810      69,309

Electrical and Instrumentation

     5,239      4,147      9,386

Specialty

     13,209      —        13,209
                    

Total

   $ 116,273    $ 78,461    $ 194,734
                    

Three Months Ended November 30, 2006

        

Aboveground Storage Tanks

   $ 38,147    $ 33,685    $ 71,832

Downstream Petroleum

     25,411      42,761      68,172

Electrical and Instrumentation

     7,315      6,617      13,932

Specialty

     12,430      —        12,430
                    

Total

   $ 83,303    $ 83,063    $ 166,366
                    

Six Months Ended November 30, 2007

        

Aboveground Storage Tanks

   $ 97,801    $ 86,033    $ 183,834

Downstream Petroleum

     73,050      47,347      120,397

Electrical and Instrumentation

     7,410      7,629      15,039

Specialty

     36,791      —        36,791
                    

Total

   $ 215,052    $ 141,009    $ 356,061
                    

Six Months Ended November 30, 2006

        

Aboveground Storage Tanks

   $ 76,351    $ 59,893    $ 136,244

Downstream Petroleum

     40,087      62,481      102,568

Electrical and Instrumentation

     11,774      10,739      22,513

Specialty

     31,900      —        31,900
                    

Total

   $ 160,112    $ 133,113    $ 293,225
                    

 


Matrix Service Company

January 9, 2008

Page 9

 

Non-GAAP Financial Measures

EBITDA is a supplemental, non-generally accepted accounting principle (GAAP) financial measure. EBITDA is defined as earnings before net interest expense, taxes, depreciation and amortization. We have presented EBITDA because it is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in similar businesses. We believe that the line item on our consolidated statements of operations entitled “net income (loss)” is the most directly comparable GAAP measure to EBITDA. Since EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. EBITDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, this measure is not necessarily a measure of our ability to fund our cash needs. As EBITDA excludes certain financial information compared with net income (loss), the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions, which are excluded. Our non-GAAP performance measure, EBITDA, has certain material limitations as follows:

 

   

It does not include net interest expense. Because we have borrowed money to finance our operations, interest expense is a necessary and ongoing part of our costs and has assisted us in generating revenue. Therefore, any measure that excludes interest expense has material limitations.

   

It does not include taxes. Because the payment of taxes is a necessary and ongoing part of our operations, any measure that excludes taxes has material limitations.

   

It does not include depreciation and amortization expense. Because we use capital assets to generate revenue, depreciation and amortization expense is a necessary element of our cost structure. Therefore, any measure that excludes depreciation and amortization expense has material limitations.

A reconciliation of EBITDA to net income follows:

 

     Three Months Ended    Six Months Ended
     November 30,
2007
    November 30,
2006
   November 30,
2007
   November 30,
2006
     (In thousands)    (In thousands)

Net income

   $ 210     $ 8,074    $ 6,546    $ 11,082

Interest expense, net

     258       730      546      1,447

Provision (benefit) for income taxes

     (1,016 )     4,547      3,208      6,549

Depreciation and amortization

     2,039       1,573      3,813      3,031
                            

EBITDA

   $ 1,491     $ 14,924    $ 14,113    $ 22,109
                            

 


Matrix Service Company

January 9, 2008

Page 10

 

Non-GAAP Financial Measures (Continued)

A reconciliation of these categories before special items follows:

 

     Actual     LNG
Construction
Project
    Bankrupt
Customer
Charge
   

Non-

Recurring

Employee
Benefit

Costs

    Before
Special
Items
 

Three Months Ended November 30, 2007

Consolidated

          

Revenues

   $ 194,734     $ (9,939 )   $       $ —       $ 184,795  

Gross Profit

     11,246       16,000         500       27,746  

Gross Margin %

     5.8 %           15.0 %

SG&A

     11,841         (975 )     (358 )     10,508  

Operating Income (loss)

     (595 )     16,000       975       858       17,238  

Three Months Ended November 30, 2007

Construction Services

          

Revenues

   $ 116,273     $ (9,939 )   $       $ —       $ 106,334  

Gross Profit

     (1,839 )     16,000         290       14,451  

Gross Margin %

     (1.6 %)           13.6 %

SG&A

     7,430         (975 )     (222 )     6,233  

Operating Income (loss)

     (9,269 )     16,000       975       512       8,218  

Six Months Ended November 30, 2007

Consolidated

          

Revenues

   $ 356,061     $ (33,711 )   $       $ —       $ 322,350  

Gross Profit

     30,150       17,500         500       48,150  

Gross Margin %

     8.5 %           14.9 %

SG&A

     19,887         (975 )     (358 )     18,554  

Operating Income

     10,263       17,500       975       858       29,596  

Six Months Ended November 30, 2007

Construction Services

          

Revenues

   $ 215,052     $ (33,711 )   $       $ —       $ 181,341  

Gross Profit

     6,834       17,500         290       24,624  

Gross Margin %

     3.2 %           13.6 %

SG&A

     12,179         (975 )     (222 )     10,982  

Operating Income (loss)

     (5,345 )     17,500       975       512       13,642  

Revenues, gross profit, gross margins, SG&A and operating income before special items (and the related amounts per share), which are non-GAAP financial measures, exclude certain pre-tax charges for the first and second quarters of fiscal 2008 that management believes affect the comparison of results for the periods presented. Management also believes that results excluding these items are useful in evaluating operational trends for Matrix Service and its performance relative to its competitors.