UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 6, 2006
Matrix Service Company
(Exact Name of Registrant as Specified in Its Charter)
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)
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)) |
Item 2.02 Results of Operations and Financial Condition.
On April 6, 2006, Matrix Service Company (the “Company”) issued a press release announcing its financial results for the third 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 9.01 Financial Statements and Exhibits.
The following exhibit is filed or furnished herewith:
| Exhibit No. | Description | |
| 99 | Press Release dated April 6, 2006, announcing financial results for the third quarter of fiscal year 2006. | |
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: April 6, 2006 | By: | /s/ George L. Austin | ||
| George L. Austin | ||||
| Chief Financial Officer and Principal Accounting Officer | ||||
EXHIBIT INDEX
| Exhibit No. | Description | |
| 99 | Press Release dated April 6, 2006, announcing financial results for the third quarter of fiscal year 2006. | |
Exhibit 99
FOR IMMEDIATE RELEASE
MATRIX SERVICE REPORTS FULLY DILUTED EARNINGS PER SHARE OF $0.08 IN THE THIRD
QUARTER OF FISCAL 2006 ENDED FEBRUARY 28, 2006
Bank Debt Completely Repaid
Third Quarter 2006 Highlights:
| • | Revenues were $119.6 million versus $111.4 million a year earlier; |
| • | Net income was $1.8 million compared with a net loss of $35.5 million in the third quarter a year ago; |
| • | Gross margins increased to 9.8% from 5.3% for the third quarter a year earlier; and |
| • | Fully diluted EPS was $0.08 versus a net loss of $2.05 in the same quarter a year ago. |
Nine Month 2006 Highlights:
| • | Revenues were $355.3 million versus $309.9 million for the same period in fiscal 2005; |
| • | Fully diluted EPS was $0.21 versus a net loss of $2.03 a year earlier; and |
| • | Bank debt was zero at February 28, 2006 versus $42.8 million at May 31, 2005. |
TULSA, OK – April 6, 2006 – Matrix Service Co. (Nasdaq: MTRX), a leading industrial services company, today reported its financial results for the third quarter of fiscal 2006 ended February 28, 2006. Total revenues for the quarter were $119.6 million compared to $111.4 million recorded in the third quarter of fiscal 2005.
Michael J. Hall, president and chief executive office of Matrix Service Company, said, “We continue to experience strong revenue gains, particularly in the Downstream Petroleum Industry where third quarter revenues are up almost 15%. Bidding activity continues to strengthen and we have been able to maintain our historically high backlog levels at approximately $238 million. With our bank debt repaid and restructuring efforts complete, our improved capital structure should allow for sustained revenue growth into the future.”
Net income for the third quarter of fiscal 2006 was $1.8 million, or $0.08 per fully diluted share, which included pre-tax charges of $0.4 million, or $0.01 per fully diluted share, for legal fees related to three major contract disputes. These results also include pre-tax charges of $0.4 million, or $0.01 per fully diluted share, for amortization of debt issuance cost primarily due to the accelerated amortization of certain previously paid bank fees resulting from the prepayment of the term portion of the Company’s senior credit facility. These results compare favorably to prior year third quarter net loss of $35.5 million, or $2.05 per fully diluted share, which included pre-tax charges of $25.0 million, or $1.44 per share, for goodwill impairment, $10.4 million, or $0.40 per share, for an additional reserve on the previously disclosed disputed contracts, and $1.6 million, or $0.09 per share, for establishing a valuation reserve for a deferred tax asset relating to net operating loss carryforwards.
EBITDA(1) for the third quarter of fiscal 2006 was $5.8 million, compared to an EBITDA loss of $35.5 million for the same period last year. Gross margins on a consolidated basis for the current quarter were 9.8% compared to 5.3% reported in the same quarter a year ago. The gross margins were driven by improvements in both the Construction Services and Repair & Maintenance Services segments.
| (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. |
Matrix Service Company
April 6, 2006
Page 2
Construction Services revenues for the third quarter of fiscal 2006 were $54.2 million compared to $48.7 million in the same period a year earlier. The increase was a result of higher construction work in the Downstream Petroleum Industry, where third quarter revenues increased 6.4% to $41.0 million, from $38.5 million in the third quarter of fiscal 2005, and by Other Industries’ revenues, which improved 48.8% to $10.4 million, from $7.0 million for the year earlier period. These increases were slightly offset by Power Industry revenues, which decreased 11.2% to $2.8 million, from $3.2 million a year earlier. Construction Services’ gross margins were 7.2% versus 3.5% in the third quarter of fiscal 2005. The third quarter margin improvement in fiscal 2006 was primarily attributable to the inclusion of higher margin work for Other Industries and Downstream Petroleum tank construction work. Although improvement occurred, gross margins were still below expectations due to higher than anticipated cost on two projects, one on the East Coast and one on the West Coast, and less revenue and gross profit on a LNG project this quarter due to weather delays.
Repair & Maintenance Services revenues advanced by $2.6 million, or 4.2%, in the third quarter of fiscal 2006 to $65.3 million, from $62.7 million in the same quarter in fiscal 2005. The increase was primarily a result of higher Downstream Petroleum Industry revenues, where third quarter revenues rose 20.6% to $63.0 million, from $52.2 million a year earlier. This increase was somewhat offset by a decrease from the Power Industry, which was $1.5 million versus $8.2 million in the third quarter of fiscal 2005, and from Other Industries’ revenues, which fell to $0.8 million, versus $2.3 million in the third quarter of fiscal 2005. Gross margins were 11.9% in the quarter versus 6.6% in the third quarter a year ago. The Company benefited from the realization of higher margins on turnaround projects at the Eastern division.
Mr. Hall added, “Repair & Maintenance revenues should continue its strong performance through the fourth fiscal quarter and into fiscal 2007. We should also see a higher level of revenue in the Other Industries’ revenues as our LNG project revenues increase. Our fourth quarter of fiscal 2006 should continue to show improvement over the third quarter results. Revenues are expected to be in the range of $105 million to $115 million and we would expect some margin improvement in the Construction Services segment. Gross margins in Repair and Maintenance should be excellent, although they may not be at the same level as the third quarter of fiscal 2006.”
Nine Months Results
For the nine months ended February 28, 2006, Matrix Service reported consolidated revenues of $355.3 million compared to $309.9 million recorded in the year earlier period.
Net income for the nine month period was $4.3 million, or $0.21 per fully diluted share, which included pre-tax charges of $1.6 million, or $0.04 per fully diluted share, for legal fees related to three major contract disputes. These results also include pre-tax charges of $2.6 million, or $0.06 per fully diluted share, for amortization of debt issuance cost primarily due to the accelerated amortization of certain previously paid bank fees resulting from the Company’s refinancing of its senior credit facility and the subsequent repayment of its term loan. These charges were partially offset by $1.5 million, or $0.04 per share, for pre-tax gains associated with disposed excess facilities and equipment. These results compare favorably to the prior year nine month net loss of $35.1 million, or $2.03 per fully diluted share, which included pre-tax charges of $25.0 million, or $1.44 per share, for goodwill impairment, $10.4 million, or $0.40 per share, for an additional reserve on the previously disclosed disputed contracts, and $1.6 million, or $0.09 per share, for establishing a valuation reserve for a deferred tax asset relating to net operating loss carryforwards.
EBITDA(1) for the nine months ended February 28, 2006 was $18.3 million, compared with an EBITDA loss of $29.3 million for the year earlier period. Consolidated gross margins increased to 9.8% from 7.6% a year earlier. The gross margins were driven by improvements in both the Construction Services and Repair & Maintenance Services segments.
Matrix Service Company
April 6, 2006
Page 3
Revenues for the Construction Services segment were $164.9 million, compared with $153.0 million for the nine months ending February 28, 2005. The increase was due to significantly higher construction work in the Downstream Petroleum Industry, where revenues for the nine month period increased 45.9% to $140.4 million versus $96.3 million for the same nine month period last year. Revenues declined in the Power Industry to $9.4 million, versus $33.8 million a year earlier. Other Industries also saw a decline to $15.0 million, versus $23.0 million a year earlier. Gross margins in the Construction Services segment increased to 8.8% from 6.5% a year earlier, as the lower margin Power Industry work completed in fiscal 2005 was partially replaced with higher margin Downstream Petroleum Industry work.
Revenues for Repair & Maintenance Services rose $33.6 million, or 21.4%, to $190.5 million for the nine month period ending February 28, 2006, from $156.9 million for the first nine months of fiscal 2005. The increase was primarily due to significantly higher Downstream Petroleum Industry work, where revenues rose 32.0% to $179.1 million, versus $135.7 million for the same nine month period last year. This increase was partially offset by a decrease from the Power Industry, which dropped to $7.4 million versus $13.1 million for the same nine month period last year, and from Other Industries’ revenues, which fell to $4.0 million, versus $8.1 million in the same nine month period last year. Gross margins were 10.7% versus 8.7% a year earlier as fiscal 2006 benefited from higher margin turnaround work performed at the Eastern division.
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 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 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
Matrix Service Company
April 6, 2006
Page 4
Matrix Service Company
Consolidated Statements of Operations
(In thousands, except share and per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| February 28, 2006 |
February 28, 2005 |
February 28, 2006 |
February 28, 2005 |
|||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Revenues |
$ | 119,575 | $ | 111,447 | $ | 355,349 | $ | 309,908 | ||||||||
| Cost of revenues |
107,910 | 105,573 | 320,542 | 286,352 | ||||||||||||
| Gross profit |
11,665 | 5,874 | 34,807 | 23,556 | ||||||||||||
| Selling, general and administrative expenses |
7,048 | 18,076 | 21,742 | 32,949 | ||||||||||||
| Impairment and abandonment costs |
— | 25,000 | 70 | 25,000 | ||||||||||||
| Restructuring |
236 | 2 | 603 | 150 | ||||||||||||
| Operating income (loss) |
4,381 | (37,204 | ) | 12,392 | (34,543 | ) | ||||||||||
| Other income (expense): |
||||||||||||||||
| Interest expense |
(1,537 | ) | (1,637 | ) | (6,952 | ) | (3,634 | ) | ||||||||
| Interest income |
46 | — | 55 | 1 | ||||||||||||
| Other |
4 | 84 | 1,572 | 98 | ||||||||||||
| Income (loss) before income taxes |
2,894 | (38,757 | ) | 7,067 | (38,078 | ) | ||||||||||
| Income tax provision (benefit) |
1,123 | (3,288 | ) | 2,753 | (3,010 | ) | ||||||||||
| Net income (loss) |
$ | 1,771 | $ | (35,469 | ) | $ | 4,314 | $ | (35,068 | ) | ||||||
| Basic earnings per common share |
$ | 0.09 | $ | (2.05 | ) | $ | 0.22 | $ | (2.03 | ) | ||||||
| Diluted earnings per common share |
$ | 0.08 | $ | (2.05 | ) | $ | 0.21 | $ | (2.03 | ) | ||||||
| Weighted average common shares outstanding: |
||||||||||||||||
| Basic |
20,805,535 | 17,339,069 | 19,245,130 | 17,309,133 | ||||||||||||
| Diluted |
26,560,079 | 17,339,069 | 25,442,564 | 17,309,133 | ||||||||||||
Matrix Service Company
April 6, 2006
Page 5
Matrix Service Company
Consolidated Balance Sheets
(In thousands)
| February 28, 2006 |
May 31, 2005 |
|||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 2,435 | $ | 1,496 | ||||
| Accounts receivable, less allowances ($181 as of February 28, 2006 and $461 as of May 31, 2005, respectively) |
65,530 | 70,088 | ||||||
| Contract dispute receivables, net |
11,709 | 20,975 | ||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts |
20,831 | 22,733 | ||||||
| Inventories |
4,302 | 4,739 | ||||||
| Income tax receivable |
1,798 | 3,004 | ||||||
| Deferred income taxes |
2,234 | 4,820 | ||||||
| Prepaid expenses |
4,528 | 8,245 | ||||||
| Assets held for sale |
809 | 1,479 | ||||||
| Total current assets |
114,176 | 137,579 | ||||||
| Property, plant and equipment at cost: |
||||||||
| Land and buildings |
22,864 | 23,087 | ||||||
| Construction equipment |
30,034 | 29,711 | ||||||
| Transportation equipment |
10,902 | 10,862 | ||||||
| Furniture and fixtures |
9,366 | 8,889 | ||||||
| Construction in progress |
1,124 | 318 | ||||||
| 74,290 | 72,867 | |||||||
| Accumulated depreciation |
(38,570 | ) | (35,791 | ) | ||||
| 35,720 | 37,076 | |||||||
| Goodwill |
23,571 | 24,834 | ||||||
| Other assets |
2,030 | 2,891 | ||||||
| Total assets |
$ | 175,497 | $ | 202,380 | ||||
Matrix Service Company
April 6, 2006
Page 6
Matrix Service Company
Consolidated Balance Sheets
(In thousands, except share data)
| February 28, 2006 |
May 31, 2005 |
|||||||
| (unaudited) | ||||||||
| Liability and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 30,640 | $ | 38,059 | ||||
| Billings on uncompleted contracts in excess of costs and estimated earnings |
18,115 | 12,311 | ||||||
| Accrued insurance |
5,104 | 5,038 | ||||||
| Other accrued expenses |
13,702 | 15,759 | ||||||
| Current capital lease obligation |
350 | 113 | ||||||
| Current portion of long-term debt |
— | 42,765 | ||||||
| Current portion of acquisition payable |
1,478 | 1,808 | ||||||
| Total current liabilities |
69,389 | 115,853 | ||||||
| Convertible notes |
25,000 | 30,000 | ||||||
| Acquisition payable |
4,330 | 4,169 | ||||||
| Long-term capital lease obligation |
548 | 231 | ||||||
| Deferred income taxes |
3,471 | 4,142 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock—$.01 par value; 30,000,000 shares authorized and 22,595,243 and |
226 | 193 | ||||||
| Additional paid-in capital |
75,809 | 56,322 | ||||||
| Retained earnings (deficit) |
980 | (3,307 | ) | |||||
| Accumulated other comprehensive income (loss) |
592 | (22 | ) | |||||
| 77,607 | 53,186 | |||||||
| Less: treasury stock, at cost – 1,744,586 and 1,873,750 shares as of February 28, 2006 |
(4,848 | ) | (5,201 | ) | ||||
| Total stockholders’ equity |
72,759 | 47,985 | ||||||
| Total liabilities and stockholders’ equity |
$ | 175,497 | $ | 202,380 | ||||
Matrix Service Company
April 6, 2006
Page 7
Matrix Service Company
Segment Information
(In thousands)
| Construction Services |
Repair & Maintenance Services |
Other | Combined Total |
|||||||||||||
| Three Months ended February 28, 2006 |
||||||||||||||||
| Gross revenues |
$ | 56,995 | $ | 65,375 | $ | — | $ | 122,370 | ||||||||
| Less: Inter-segment revenues |
(2,746 | ) | (49 | ) | — | (2,795 | ) | |||||||||
| Consolidated revenues |
54,249 | 65,326 | — | 119,575 | ||||||||||||
| Gross profit |
3,882 | 7,783 | — | 11,665 | ||||||||||||
| Operating income (loss) |
1,223 | 3,258 | (100 | ) | 4,381 | |||||||||||
| Income (loss) before income tax expense |
261 | 2,733 | (100 | ) | 2,894 | |||||||||||
| Net income (loss) |
163 | 1,670 | (62 | ) | 1,771 | |||||||||||
| Segment assets |
84,982 | 62,311 | 28,204 | 175,497 | ||||||||||||
| Capital expenditures |
1,294 | 306 | 467 | 2,067 | ||||||||||||
| Depreciation and amortization expense |
705 | 723 | — | 1,428 | ||||||||||||
| Three Months ended February 28, 2005 |
||||||||||||||||
| Gross revenues |
$ | 51,618 | $ | 63,018 | $ | — | $ | 114,636 | ||||||||
| Less: Inter-segment revenues |
(2,891 | ) | (298 | ) | — | (3,189 | ) | |||||||||
| Consolidated revenues |
48,727 | 62,720 | — | 111,447 | ||||||||||||
| Gross profit |
1,727 | 4,147 | — | 5,874 | ||||||||||||
| Operating income (loss) |
(37,474 | ) | 272 | (2 | ) | (37,204 | ) | |||||||||
| Income (loss) before income tax expense |
(38,483 | ) | (272 | ) | (2 | ) | (38,757 | ) | ||||||||
| Net income (loss) |
(35,305 | ) | (163 | ) | (1 | ) | (35,469 | ) | ||||||||
| Segment assets |
82,831 | 76,767 | 29,207 | 188,805 | ||||||||||||
| Capital expenditures |
62 | 69 | 405 | 536 | ||||||||||||
| Depreciation and amortization expense |
873 | 795 | — | 1,668 | ||||||||||||
| Nine Months ended February 28, 2006 |
||||||||||||||||
| Gross revenues |
$ | 171,829 | $ | 190,858 | $ | — | $ | 362,687 | ||||||||
| Less: Inter-segment revenues |
(6,962 | ) | (376 | ) | — | (7,338 | ) | |||||||||
| Consolidated revenues |
164,867 | 190,482 | — | 355,349 | ||||||||||||
| Gross profit |
14,434 | 20,373 | — | 34,807 | ||||||||||||
| Operating income (loss) |
5,004 | 7,488 | (100 | ) | 12,392 | |||||||||||
| Income (loss) before income tax expense |
1,550 | 5,617 | (100 | ) | 7,067 | |||||||||||
| Net income (loss) |
949 | 3,427 | (62 | ) | 4,314 | |||||||||||
| Segment assets |
84,982 | 62,311 | 28,204 | 175,497 | ||||||||||||
| Capital expenditures |
2,467 | 524 | 1,155 | 4,146 | ||||||||||||
| Depreciation and amortization expense |
2,089 | 2,203 | — | 4,292 | ||||||||||||
| Nine Months ended February 28, 2005 |
||||||||||||||||
| Gross revenues |
$ | 161,228 | $ | 157,456 | $ | — | $ | 318,684 | ||||||||
| Less: Inter-segment revenues |
(8,229 | ) | (547 | ) | — | (8,776 | ) | |||||||||
| Consolidated revenues |
152,999 | 156,909 | — | 309,908 | ||||||||||||
| Gross profit |
9,959 | 13,597 | — | 23,556 | ||||||||||||
| Operating income (loss) |
(37,164 | ) | 2,771 | (150 | ) | (34,543 | ) | |||||||||
| Income (loss) before income tax expense |
(39,466 | ) | 1,538 | (150 | ) | (38,078 | ) | |||||||||
| Net income (loss) |
(35,893 | ) | 914 | (89 | ) | (35,068 | ) | |||||||||
| Segment assets |
82,831 | 76,767 | 29,207 | 188,805 | ||||||||||||
| Capital expenditures |
318 | 277 | 728 | 1,323 | ||||||||||||
| Depreciation and amortization expense |
2,675 | 2,496 | — | 5,171 | ||||||||||||
Matrix Service Company
April 6, 2006
Page 8
Segment revenue from external customers by industry type are as follows:
| Construction Services |
Repair & Maintenance Services |
Total | |||||||
| (In thousands) | |||||||||
| Three Months Ended February 28, 2006 |
|||||||||
| Downstream Petroleum Industry |
$ | 41,000 | $ | 62,978 | $ | 103,978 | |||
| Power Industry |
2,836 | 1,541 | 4,377 | ||||||
| Other Industries |
10,413 | 807 | 11,220 | ||||||
| Total |
$ | 54,249 | $ | 65,326 | $ | 119,575 | |||
| Three Months Ended February 28, 2005 |
|||||||||
| Downstream Petroleum Industry |
$ | 38,534 | $ | 52,230 | $ | 90,764 | |||
| Power Industry |
3,193 | 8,161 | 11,354 | ||||||
| Other Industries |
7,000 | 2,329 | 9,329 | ||||||
| Total |
$ | 48,727 | $ | 62,720 | $ | 111,447 | |||
| Nine Months Ended February 28, 2006 |
|||||||||
| Downstream Petroleum Industry |
$ | 140,442 | $ | 179,130 | $ | 319,572 | |||
| Power Industry |
9,435 | 7,370 | 16,805 | ||||||
| Other Industries |
14,990 | 3,982 | 18,972 | ||||||
| Total |
$ | 164,867 | $ | 190,482 | $ | 355,349 | |||
| Nine Months Ended February 28, 2005 |
|||||||||
| Downstream Petroleum Industry |
$ | 96,287 | $ | 135,732 | $ | 232,019 | |||
| Power Industry |
33,761 | 13,084 | 46,845 | ||||||
| Other Industries |
22,951 | 8,093 | 31,044 | ||||||
| Total |
$ | 152,999 | $ | 156,909 | $ | 309,908 | |||
Other Industries consists primarily of liquefied natural gas, wastewater, food and beverage, manufacturing and paper industries.
Matrix Service Company
April 6, 2006
Page 9
Non-GAAP Financial Measure
EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before interest expense, income 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:
| • | 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. |
| • | It does not include income taxes. Because the payment of income taxes is a necessary and ongoing part of our operations, any measure that excludes income taxes has material limitations. |
| • | 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 nine-month period ended February 28, 2006 was $18.3 million, compared to an EBITDA loss of $29.3 million for the nine-month period ended February 28, 2005. A reconciliation of EBITDA to net income follows:
| Three Months Ended | Nine Months Ended | |||||||||||||
| February 28, 2006 |
February 28, 2005 |
February 28, 2006 |
February 28, 2005 |
|||||||||||
| (In thousands) | (In thousands) | |||||||||||||
| Net income |
$ | 1,771 | $ | (35,469 | ) | $ | 4,314 | $ | (35,068 | ) | ||||
| Interest expense, net |
1,491 | 1,637 | 6,897 | 3,633 | ||||||||||
| Provision (benefit) for income taxes |
1,123 | (3,288 | ) | 2,753 | (3,010 | ) | ||||||||
| Depreciation and amortization |
1,428 | 1,668 | 4,292 | 5,171 | ||||||||||
| EBITDA |
$ | 5,813 | $ | (35,452 | ) | $ | 18,256 | $ | (29,274 | ) | ||||
The $47.5 million increase in EBITDA for the nine months ended February 28, 2006 as compared to the nine-month period for the prior year was primarily due to an impairment charge of $25.0 million and a contract dispute reserve of $10.4 million recorded in the third quarter of fiscal 2005. Higher revenues and margins in fiscal 2006 combined with the benefit of restructuring efforts, which led to a lower fixed cost structure, contributed to the increase in EBITDA. 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.