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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

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FORM 8-K

 

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CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported)             January 3, 2006            

 

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Matrix Service Company

(Exact Name of Registrant as Specified in Its Charter)

 

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Delaware

(State or Other Jurisdiction of Incorporation)

 

001-15461		73-1352174
(Commission File Number)		(IRS Employer Identification No.)

 

10701 E. Ute Street		Tulsa, Oklahoma		74116
(Address of Principal Executive Offices)				(Zip Code)

 

918-838-8822

(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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Item 2.02.

Results of Operations and Financial Condition.

 

On January 5, 2006, Matrix Service Company (the “Company”) issued a press release announcing its financial results for the second quarter of fiscal year 2006. The full text of the press release is attached as Exhibit 99 to this Current Report on Form 8-K.

 

The information in this Item 2.02 and Exhibit 99 attached hereto is being furnished pursuant to Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 4.01.

Changes in Registrant’s Certifying Accountants.

 

Replacement of Independent Auditors

 

At a meeting held on January 3, 2006, the Audit Committee of the Board of Directors of the Company, approved the engagement of Deloitte & Touche LLP as its independent registered public accounting firm for the fiscal year ending May 31, 2006 to replace the firm of Ernst & Young LLP, which was dismissed as independent registered public accounting firm of the Company, each effective January 6, 2006.

 

The reports of Ernst & Young LLP on the Company’s financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

 

In connection with the audits of the Company’s financial statements for each of the two fiscal years ended May 31, 2005, and in the subsequent interim period preceding their dismissal, there were no disagreements with Ernst & Young LLP on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedures which, if not resolved to the satisfaction of Ernst & Young LLP would have caused Ernst & Young LLP to make reference to the matter in their report.

 

During the two most recent fiscal years and the subsequent interim period preceding their dismissal, there were no “reportable events” as defined by Item 304(a)(1)(v) of Regulation S-K, except that Ernst & Young LLP noted that Management’s Report on Internal Control Over Financial Reporting included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2005 identified the following deficiencies which together constitute a material weakness related to revenue recognition at the Company’s Eastern Business Unit:

 

•

Change orders were inappropriately or inaccurately included in or, in certain instances, excluded from reports utilized in the Company’s percentage of completion computations.

 

•

Job forecasts were inadequately prepared and supported or inadequately reviewed by appropriate members of project management and financial accounting.

 

•

Preparation of invoices for a material contract lacked appropriate reconciliations to information recorded in the Company’s financial accounting system.

 

The material weakness described above affects the Company’s revenue, accounts receivable, cost and estimated earnings in excess of billings on uncompleted contracts and billings on uncompleted contracts in excess of costs and estimated earnings financial statement accounts. As a result, management concluded that the Company’s

 

2

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internal control over financial reporting as of May 31, 2005 was ineffective. Ernst & Young LLP’s opinion indicated that management’s assessment was fairly stated in all material respects and that because of the effect of the material weakness, Matrix Service Company did not maintain effective internal control over financial reporting as of May 31, 2005.

 

Based upon their evaluation, management and the Company have taken the following steps to improve the effectiveness of its disclosure controls:

 

•

formed a committee, including the chief executive officer and chief financial officer, that is responsible for correcting the control issues identified;

 

•

developed a remediation plan and timeline; and

 

•

implemented improved and more documented reviews of job forecasts and related percentage-of-completion computations, and procedures for documenting such reviews.

 

The Company will also be taking the following steps to improve the effectiveness of its disclosure controls:

 

•

implementing new and expanded training programs for information critical to employees responsible for financial reporting;

 

•

reinforcing procedures related to recording and reporting approved and disputed change orders;

 

•

improving documentation of invoicing reconciliation; and

 

•

developing additional compensating controls.

 

During the Company’s two most recent fiscal years and the subsequent interim period preceding Ernst & Young LLP’s dismissal, the Company did not consult with Deloitte & Touche LLP with respect to the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, or any other matters or reportable events described in Items 304(a)(2)(i) and (ii) of Regulation S-K.

 

Statement of Independent Auditors

 

The Company has asked Ernst & Young LLP to furnish it with a letter addressed to the SEC stating whether it agrees or disagrees with the above statements, and a copy of that letter is attached as Exhibit 16 to this Report. The Company has authorized Ernst & Young LLP to fully respond to the inquiries of Deloitte & Touche LLP.

 

Item 9.01.

Financial Statements and Exhibits.

 

The following exhibits are filed or furnished herewith:

 

Exhibit No.		Description
16		Ernst & Young LLP letter dated January 5, 2006.
99		Press Release dated January 5, 2006, announcing financial results for the second quarter of fiscal year 2006.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

						Matrix Service Company
Dated:  January 5, 2006						By:		/s/ George L. Austin
								George L. Austin
								Chief Financial Officer and
								Principal Accounting Officer

 

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EXHIBIT INDEX

 

Exhibit No.		Description
16		Ernst & Young, LLP letter dated January 5, 2006.
99		Press Release dated January 5, 2006, announcing financial results for the second quarter of fiscal year 2006.

 

5

Exhibit 16

 

January 5, 2006

 

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

 

Gentlemen:

 

We have read Item 4.01 of Form 8-K dated January 5, 2006, of Matrix Service Company and are in agreement with the statements contained in the second, third, fourth, and fifth paragraphs of Item 4.01 on pages two and three therein. We have no basis to agree or disagree with other statements of the registrant contained therein.

 

Regarding the registrant’s statement concerning a material weakness related to revenue recognition at Matrix Service Company’s Eastern Business Unit, included in paragraph four of Item 4.01 on page two therein, we had considered such matter in determining the nature, timing and extent of procedures performed in our audit of the registrant’s 2005 financial statements.

 

/s/ Ernst & Young LLP

Exhibit 99

 

 

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FOR IMMEDIATE RELEASE

 

 

MATRIX SERVICE REPORTS FULLY DILUTED EARNINGS PER SHARE OF $0.10 IN THE

SECOND QUARTER OF FISCAL 2006, ENDED NOVEMBER 30, 2005

 

Second Quarter 2006 Highlights:

•

Revenues were $126.8 million versus $113.5 million a year earlier;

•

Net income was $2.2 million compared with $1.3 million in the second quarter a year ago;

•

Gross margins increased to 10.2% from 9.7% for the second quarter a year earlier; and

•

Fully diluted EPS was $0.10 versus $0.07 in the same quarter a year ago.

 

Six Month 2006 Highlights:

•

Revenues were $235.8 million versus $198.5 million for the same period in fiscal 2005; and

•

Fully diluted EPS was $0.13 versus $0.02 a year earlier.

 

TULSA, OK – January 5, 2006 – Matrix Service Co. (Nasdaq: MTRX), a leading industrial services company, today reported its financial results for the second quarter of fiscal 2006, ended November 30, 2005. Total revenues for the quarter were $126.8 million compared to $113.5 million recorded in the second quarter of fiscal 2005.

 

Net income for the second quarter of fiscal 2006 was $2.2 million, or $0.10 per fully diluted share, versus $1.3 million, or $0.07 per fully diluted share, in the second quarter a year ago. These second quarter 2006 results include pre-tax charges and expenses of $0.8 million, or $0.02 per fully diluted share, for legal fees related to three major contract disputes. These results also include pre-tax charges of $1.1 million, or $0.03 per fully diluted share, for the accelerated amortization of certain previously paid bank fees in anticipation of the Company refinancing its senior facility which occurred on December 20, 2005. These charges were partially offset by $0.8 million, or $0.02 per fully diluted share, for pre-tax gains associated with the disposal of certain excess and non-core assets. EBITDA⁽¹⁾ for the second quarter of fiscal 2006 was $7.6 million, compared to $5.0 million for the same period last year. Gross margins on a consolidated basis for the current quarter were 10.2% compared to 9.7% reported in the same quarter a year ago. The gross margins were driven entirely by the improvement in the Repair & Maintenance Services segment.

 

Michael J. Hall, president and chief executive office of Matrix Service Company, said, “The restructuring and turnaround measures have been essentially completed with the refinancing of the $55 million senior credit facility announced on December 21, 2005 and the resolutions reached on our two largest disputed contracts for more than $20 million announced on December 28, 2005. During the past six months, total debt has been reduced by 38.1% from $72.7 million at May 31, 2005 to $45.0 million at November 30, 2005. With these latest dispute resolutions, we continue to believe Matrix Service will be essentially free of all bank debt by May 31, 2006, leaving us with only $25 million of long-term indebtedness related to our convertible notes.”

 

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(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 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.

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Construction Services revenues for second quarter 2006 were $48.4 million compared to $59.9 million in the same period a year earlier. The decrease was a result of significantly lower construction work in the Power Industry, where second quarter revenues decreased 83.7% to $3.1 million, from $19.3 million in the second quarter of fiscal 2005, and by Other Industries’ revenues, which declined 11.3% to $9.7 million, from $10.9 million for the year-earlier period. These decreases were partially offset by Downstream Petroleum Industry revenues, which increased 19.7% to $35.6 million, from $29.7 million a year earlier. Construction Services’ gross margins were 8.5% versus 9.1% in the second quarter of fiscal 2005. The second quarter margin decline was primarily attributable to Power Industry margins from prior year jobs completed in the Eastern division and from the absence of higher margin nuclear work that had previously been sold as part of the restructuring.

 

Repair & Maintenance Services revenues advanced by $24.8 million, or 46.3%, in the second quarter of 2006 to $78.4 million, from $53.6 million in the same quarter in 2005. The increase was primarily a result of higher Downstream Petroleum Industry revenues, where second quarter revenues rose 58.1% to $74.1 million, from $46.9 million a year earlier, primarily as a result of higher turnaround work in the Eastern division. Gross margins were 11.3% in the quarter versus 10.3% in the second quarter a year ago. The Company benefited from the higher revenue volumes relative to its overall fixed cost structure.

 

Mr. Hall added, “While we are still not in a position to provide earnings guidance, we believe the strength demonstrated in our Construction Services segment, particularly in the Downstream Petroleum Industry, should continue. Repair & Maintenance revenues is expected to continue its strong performance through the balance of the year, particularly in the fourth fiscal quarter when some additional revenue will be realized from the repair work associated with the damage sustained in the Gulf Coast region from the recent hurricanes. Based upon these factors, we are raising our revenue guidance for fiscal 2006 to be between $450 million to $475 million compared to our previous guidance of between $400 million to $450 million.”

 

Six Months Results

 

For the six months ended November 30, 2005, Matrix Service reported consolidated revenues of $235.8 million versus $198.5 million recorded in the year-earlier period.

 

Net income for the six month period was $2.5 million, or $0.13 per fully diluted share, versus $0.4 million, or $0.02 per fully diluted share for the same six month period a year earlier. These 2006 results include pre-tax charges and expenses of $1.3 million, or $0.03 per fully diluted share, for legal fees related to three major contract disputes. These results also include pre-tax charges of $2.2 million, or $0.05 per fully diluted share, for the accelerated amortization of certain previously paid bank fees in anticipation of the Company refinancing its senior facility which occurred on December 20, 2005. These charges were partially offset by $1.5 million, or $0.04 per fully diluted share, for pre-tax gains associated with disposed excess facilities and equipment. EBITDA⁽¹⁾ for the six months ended November 30, 2005 was $12.4 million, compared with $6.2 million for the year-earlier period. Consolidated gross margins increased to 9.8% from 8.9% a year earlier.

 

Revenues for the Construction Services segment were $110.6 million, compared with $104.3 million for the six months ending November 30, 2004. The increase was due to significantly higher construction work in the Downstream Petroleum Industry, where revenues for the six-month period increased 48.9% to $86.0 million versus $57.8 million for the same six-month period last year, and to higher Other Industries’ revenues, which increased 12.5% to $17.9 million in the recent six-month period, versus $16.0 million a year earlier. Revenues declined in the Power Industry to $6.7 million, versus $30.6 million a year earlier. Gross margins in the Construction Services segment increased to 9.5% from 7.9% a year earlier, as the lower margin Power Industry work completed in fiscal 2005 was partially replaced with higher margin Downstream Petroleum Industry work.

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Revenues for Repair & Maintenance Services rose $31.0 million, or 32.9%, to $125.2 million, for the six-month period ending November 30, 2005, from $94.2 million for the first six months of fiscal 2005. The increase was primarily due to significantly higher Downstream Petroleum Industry work, where revenues rose 40.2% to $117.1 million, versus $83.5 million for the same six-month period last year. Revenues also increased from the Power Industry to $5.9 million versus $4.9 million for the same six-month period last year. These increases were partially offset by lower Other Industries’ revenues, which fell 61.3% to $2.2 million in the six-month period from $5.8 million in the same six-month period last year. Gross margins were 10.1% versus 10.0% a year earlier.

 

Change in Independent Auditor

 

At a meeting held on January 3, 2006, the Audit Committee of the Board of Directors of Matrix Service Company (the “Company”), approved the engagement of Deloitte & Touche LLP as its independent registered public accounting firm for the fiscal year ending May 31, 2006 to replace the firm of Ernst & Young LLP, which was dismissed as independent registered public accounting firm of the Company, each effective January 6, 2006.

 

Conference Call

 

In conjunction with the press release, Matrix Service will host a conference call with Michael J. Hall, president and CEO, and Les Austin, vice president and chief financial officer. 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.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 those identified 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:

Truc Nguyen

The Global Consulting Group

T: 646-284-9418

E: tnguyen@hfgcg.com

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Matrix Service Company

Consolidated Statements of Operations

(In thousands, except share and per share data)

 

		Three Months Ended								Six Months Ended
		November 30, 2005				November 30, 2004				November 30, 2005				November 30, 2004
		(unaudited)								(unaudited)
Revenues		$	126,778			$	113,522			$	235,774			$	198,461
Cost of revenues			113,819				102,554				212,632				180,779
Gross profit			12,959				10,968				23,142				17,682
Selling, general and administrative expenses			7,487				7,740				14,694				14,873
Impairment and abandonment costs			70				—				70				—
Restructuring			45				(27	)			367				148
Operating income			5,357				3,255				8,011				2,661
Other income (expense):
Interest expense			(2,638	)			(1,096	)			(5,415	)			(1,997	)
Interest income			2				1				9				1
Other			838				22				1,568				14
Income before income taxes			3,559				2,182				4,173				679
Income tax provision			1,391				889				1,630				278
Net income		$	2,168			$	1,293			$	2,543			$	401
Basic earnings per common share		$	0.11			$	0.07			$	0.14			$	0.02
Diluted earnings per common share		$	0.10			$	0.07			$	0.13			$	0.02
Weighted average common shares outstanding:
Basic			19,537,664				17,319,133				18,477,718				17,294,411
Diluted			25,693,625				17,605,025				24,881,711				17,673,718

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Matrix Service Company

Consolidated Balance Sheets

(In thousands)

 

		November 30, 2005				May 31, 2005
Assets		(unaudited)
Current assets:
Cash and cash equivalents		$	2,496			$	1,496
Accounts receivable, less allowances (November 30, 2005 — $632, May 31, 2005 — $461)			61,317				70,088
Contract dispute receivables, net			22,179				20,975
Costs and estimated earnings in excess of billings on uncompleted contracts			28,106				22,733
Inventories			3,741				4,739
Income tax receivable			670				3,004
Deferred income taxes			4,739				4,820
Prepaid expenses			5,717				8,245
Assets held for sale			1,488				1,479
Total current assets			130,453				137,579
Property, plant and equipment at cost:
Land and buildings			22,754				23,087
Construction equipment			28,908				29,711
Transportation equipment			10,544				10,862
Furniture and fixtures			9,057				8,889
Construction in progress			945				318
			72,208				72,867
Accumulated depreciation			(37,163	)			(35,791	)
			35,045				37,076
Goodwill			23,510				24,834
Other assets			1,425				2,891
Total assets		$	190,433			$	202,380

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Matrix Service Company

Consolidated Balance Sheets

(In thousands, except share data)

 

		November 30,				May 31,
		2005				2005
		(unaudited)
Liability and stockholders’ equity
Current liabilities:
Accounts payable		$	32,311			$	38,059
Billings on uncompleted contracts in excess of costs and estimated earnings			13,508				12,311
Accrued insurance			4,827				5,038
Other accrued expenses			14,187				15,759
Current capital lease obligation			299				113
Current portion of long-term debt			20,004				42,765
Current portion of acquisition payable			1,472				1,808
Total current liabilities			86,608				115,853
Convertible notes			25,000				30,000
Acquisition payable			4,276				4,169
Long-term capital lease obligation			548				231
Deferred income taxes			3,618				4,142
Stockholders’ equity:
Common stock—$.01 par value; 30,000,000 shares authorized and 22,595,243 and 19,285,276 shares issued as of November 30, 2005 and May 31, 2005, respectively			226				193
Additional paid-in capital			75,612				56,322
Retained deficit			(769	)			(3,307	)
Accumulated other comprehensive income (loss)			421				(22	)
			75,490				53,186
Less: treasury stock, at cost – 1,838,700 and 1,873,750 shares as of November 30, 2005 and May 31, 2005, respectively			(5,107	)			(5,201	)
Total stockholders’ equity			70,383				47,985
Total liabilities and stockholders’ equity		$	190,433			$	202,380

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Matrix Service Company

Segment Information

(In thousands)

 

		Construction Services				Repair & Maintenance Services				Other				Combined Total
Three Months Ended November 30, 2005
Gross revenues		$	50,589			$	78,547			$	—			$	129,136
Less: Inter-segment revenues			(2,186	)			(172	)			—				(2,358	)
Consolidated revenues			48,403				78,375				—				126,778
Gross profit			4,111				8,848				—				12,959
Operating income			1,297				4,060				—				5,357
Income before income tax expense			260				3,299				—				3,559
Net income			153				2,015				—				2,168
Segment Assets			92,239				64,578				33,616				190,433
Capital Expenditures			551				129				456				1,136
Depreciation and amortization expense			684				733				—				1,417
Three Months ended November 30, 2004
Gross revenues		$	62,831			$	53,681			$	—			$	116,512
Less: Inter-segment revenues			(2,885	)			(105	)			—				(2,990	)
Consolidated revenues			59,946				53,576				—				113,522
Gross profit			5,440				5,528				—				10,968
Operating income			1,278				1,950				27				3,255
Income before income tax expense			552				1,603				27				2,182
Net income			329				948				16				1,293
Segment Assets			119,478				63,389				29,259				212,126
Capital Expenditures			168				120				107				395
Depreciation and amortization expense			921				850				—				1,771
Six Months ended November 30, 2005
Gross revenues		$	114,834			$	125,483			$	—			$	240,317
Less: Inter-segment revenues			(4,216	)			(327	)			—				(4,543	)
Consolidated revenues			110,618				125,156				—				235,774
Gross profit			10,552				12,590				—				23,142
Operating income			3,781				4,230				—				8,011
Income before income tax expense			1,289				2,884				—				4,173
Net income			786				1,757				—				2,543
Segment Assets			92,239				64,578				33,616				190,433
Capital Expenditures			1,169				218				688				2,075
Depreciation and amortization expense			1,384				1,480				—				2,864
Six Months ended November 30, 2004
Gross revenues		$	109,610			$	94,438			$	—			$	204,048
Less: Inter-segment revenues			(5,338	)			(249	)			—				(5,587	)
Consolidated revenues			104,272				94,189				—				198,461
Gross profit			8,232				9,450				—				17,682
Operating income			310				2,499				(148	)			2,661
Income before income tax expense			(983	)			1,810				(148	)			679
Net income			(588	)			1,077				(88	)			401
Segment Assets			119,478				63,389				29,259				212,126
Capital Expenditures			256				208				323				787
Depreciation and amortization expense			1,802				1,701				—				3,503

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Segment revenue from external customers by industry type are as follows:

 

		Construction Services			Repair & Maintenance Services			Total
Three Months Ended November 30, 2005
Downstream Petroleum Industry		$	35,547		$	74,126		$	109,673
Power Industry			3,148			2,986			6,134
Other Industries			9,708			1,263			10,971
Total		$	48,403		$	78,375		$	126,778
Three Months Ended November 30, 2004
Downstream Petroleum Industry		$	29,687		$	46,873		$	76,560
Power Industry			19,314			3,560			22,874
Other Industries			10,945			3,143			14,088
Total		$	59,946		$	53,576		$	113,522
Six Months Ended November 30, 2005
Downstream Petroleum Industry		$	85,982		$	117,069		$	203,051
Power Industry			6,692			5,855			12,547
Other Industries			17,944			2,232			20,176
Total		$	110,618		$	125,156		$	235,774
Six Months Ended November 30, 2004
Downstream Petroleum Industry		$	57,753		$	83,502		$	141,255
Power Industry			30,568			4,923			35,491
Other Industries			15,951			5,764			21,715
Total		$	104,272		$	94,189		$	198,461

 

Other Industries consists primarily of liquefied natural gas, wastewater, food and beverage, manufacturing and paper industries.

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Non-GAAP Financial Measure

 

EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before 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” 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 does not necessarily represent funds available for discretionary use, and is not necessarily a measure of our ability to fund our cash needs. As EBITDA excludes certain financial information compared with net income, the most directly comparable GAAP financial measure, users of this financial information should consider the type of events and transactions, that are excluded. Our non-GAAP performance measure, EBITDA, has certain material limitations as follows:

 

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It does not include 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.

 

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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.

 

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

 

EBITDA for the six-month period ended November 30, 2005 was $12.4 million, compared to $6.2 million for the six-month period ended November 30, 2004. A reconciliation of EBITDA to net income follows:

 

		Three Months Ended						Six Months Ended
		November 30, 2005			November 30, 2004			November 30, 2005			November 30, 2004
		(In thousands)						(In thousands)
Net income		$	2,168		$	1,293		$	2,543		$	401
Interest expense, net			2,636			1,095			5,406			1,996
Provision for income taxes			1,391			889			1,630			278
Depreciation and amortization			1,417			1,771			2,864			3,503
EBITDA		$	7,612		$	5,048		$	12,443		$	6,178

 

The $6.2 million increase in EBITDA for the six months ended November 30, 2005 as compared to six-month period for the prior year was primarily due to higher revenues and margins in fiscal 2006 combined with the benefit of restructuring efforts, which led to a lower fixed cost structure. In addition, EBITDA for fiscal 2006 was further enhanced by gains on the sale of assets that were part of the Company’s restructuring efforts.