UNITED STATES
                               SECURITIES AND EXCHANGE COMMISSION
                                     WASHINGTON, D.C.  20549

                                            FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended February 28, 1997

Commission File number 0-l87l6


                              MATRIX SERVICE COMPANY
             (Exact name of registrant as specified in its charter)



DELAWARE                            73-1352l74
(State of incorporation)         (I.R.S. Employer 
                                  Identification No.)


l070l E. Ute St., Tulsa, Oklahoma 74ll6-l5l7
(Address of principal executive offices and zip code)


Registrant's telephone number, including area code:  
(9l8) 838-8822

Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section l3 or l5(d) of the Securities 
Exchange Act of 1934 during the preceding l2 months (or for such shorter 
period that the registrant was required to file such reports), and (2) 
has been subject to such filing requirements for the past 90 days.    

                                             Yes  [X]    No [ ]

     As of April 14, 1997, there were              shares of the Company's 
     common stock, $.01 par value per share, issued and              shares 
     outstanding.



                                                                      
                                         PART I.- FINANCIAL INFORMATION

ITEM 1.   Financial Statements

                                           Matrix Service Company
                                Condensed Consolidated Statements of Income
                              (in thousands, except share and per share data)
[CAPTION]

                              Three Months Ended        Nine Months Ended
                                 (unaudited)              (unaudited)
                          ----------------------------------------------------
                          February 28, February 29,  February 28, February 29,
                             1997         1996          1997         1996
                          ------------ ------------  ------------ ------------
[MULTIPLIER]                1,000
                                                        
Revenues                     $42,305      $39,951      $130,147     $131,375

Cost of revenues              38,224       35,965       117,463      118,743
                             -------      -------      --------     ---------

Gross profit                   4,081        3,986        12,684       12,632

Selling, general and
  administrative expenses      2,765        2,715         7,943        8,013

Goodwill and noncompete
  amortization                   216          279           648          836
                              ------       ------       -------      -------

Operating income               1,100          992         4,093        3,783

Other income (expense):
  Interest income                 67           49           124          100
  Interest expense              (136)        (207)         (365)        (651)
  Other                           28           11            95           40
                              ------       ------       -------      -------

Income before income
  tax expense                  1,059          845        3,947         3,272

Provision for federal 
   and state income 
   tax expense                   415          388        1,717         1,594
                              ------       ------       ------       -------

Net income                      $644         $457       $2,230        $1,678

Net income per common and
common equivalent shares:

     Primary                   $0.07        $0.05        $0.23         $0.18
     Fully diluted             $0.07        $0.05        $0.23         $0.18

Weighted average common and
common equivalent shares 
outstanding:
       
      Primary               9,671,196    9,441,659    9,604,982     9,432,087
      Fully diluted         9,778,442    9,458,758    9,782,174     9,455,043


See Notes to Condensed Consolidated Financial Statements
[MULTIPLIER] 1,000 Matrix Service Company Condensed Consolidated Balance Sheets (in thousands)
February 28, May 31, 1997 1996 ---------- --------- (unaudited) ASSETS: Current assets: Cash and cash equivalents $ 1,091 $ 1,899 Accounts receivable 25,816 29,205 Costs and estimated earnings in excess of billings on uncompleted contracts 14,322 12,122 Inventories 4,879 4,149 Prepaid expenses 274 179 Deferred tax asset 995 995 Income tax receivable 274 609 -------- -------- Total current assets 47,651 49,158 Investment in undistributed equity of a foreign joint venture 374 374 Property, plant and equipment: Land and buildings 14,467 14,528 Construction equipment 23,936 23,414 Transportation equipment 5,383 4,990 Furniture and fixtures 2,945 2,806 Construction in progress 2,660 189 ------- ------- 49,391 45,927 Less accumulated depreciation 19,830 17,065 ------- ------- Net property, plant and equipment 29,561 28,862 Goodwill, net of accumulated amortization 26,516 27,033 Other assets 279 330 -------- -------- Total assets $104,381 $105,757 ======== ======== See Notes to Condensed Consolidated Financial Statements
[MULTIPLIER] 1,000 Matrix Service Company Condensed Consolidated Balance Sheets (in thousands)
February 28, May 31, 1997 1996 ----------- --------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 7,212 $ 9,026 Billings on uncompleted contracts in excess of costs and estimated earnings 5,388 4,353 Accrued expenses 5,643 7,780 Current portion of long-term debt 1,618 1,629 -------- -------- Total current liabilities 19,861 22,788 Long-term debt: Bank credit agreement 2,500 2,000 Acquisition payable - 397 Term note 1,633 2,450 -------- -------- Total long-term debt 4,133 4,847 Deferred income taxes 5,041 5,088 Stockholders' equity: Common stock 95 95 Capital in excess of par value 50,927 50,927 Retained earnings 25,724 23,617 -------- -------- Total capital and retained earnings 76,746 74,639 Less: Treasury shares, at cost 1,274 1,498 Cumulative translation adjustment 126 107 -------- -------- Total stockholders' equity 75,346 73,034 Total liabilities and stockholders' equity $104,381 $105,757 ======== ======== See Notes to Condensed Consolidated Financial Statements
[MULTIPLIER] 1,000 Matrix Service Company Condensed Consolidated Cash Flow Statements (in thousands)
Nine Months Ended (unaudited) February 28, February 29, 1997 1996 ----------- ----------- Operating activities: Net income $2,230 $1,678 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,062 4,375 Changes in current assets and liabilities increasing (decreasing) cash: Accounts receivable 3,389 464 Costs and estimated earnings in excess of billings on uncompleted contracts (2,200) (2,528) Inventories (730) 489 Prepaid expenses (95) (75) Accounts payable (1,814) (2,447) Billings on uncompleted contracts in excess of costs and estimated earnings 1,035 3,374 Taxes and other accruals (1,849) 3,118 Other (25) (4) ----------- ---------- Net cash provided by operating activities 4,003 8,444 Investing activities: Capital expenditures (4,331) (2,456) Proceeds from sale of assets 117 55 Acquisition of subsidiary 47 - Foreign joint venture - 80 Other, net (21) (61) ----------- -------- Net cash used in investing activities (4,188) (2,382) Matrix Service Company Condensed Consolidated Cash Flow Statements (in thousands) Nine Months Ended (unaudited) February 28, February 29, 1997 1996 ----------- ----------- Financing activities: Repayment of acquisition payable ($ 397) ($1,277) Repayment of equipment notes (10) - Issuance under long-term credit agreement 4,500 5,500 Repayments under long-term credit agreement (4,000) (7,500) Repayment of long-term debt (817) (817) Change in treasury stock 101 15 Other, net - 11 ---------- --------- Net cash in financing activities (623) (4,068) ---------- --------- Increase (decrease) in cash and cash equivalents (808) 1,994 Cash and cash equivalents at beginning of period 1,899 1,976 ---------- --------- Cash and cash equivalents at end of period $1,091 $3,970 See Notes to Condensed Consolidated Financial Statements
MATRIX SERVICE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE A - BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant inter-company balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-0l of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, the information furnished reflects all adjustments, consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The accompanying financial statements should be read in conjunction with the audited financial statements for the year ended May 3l, 1996, included in the Company's Annual Report on Form 10-K for the year then ended. The Company's business is seasonal; therefore, results for any interim period may not necessarily be indicative of future operating results. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Three Months Ended February 28, 1997 Compared to Three Months Ended February 29, 1996 Revenues for the quarter ended February 28, 1997 were $42.3 million as compared to revenues of $40.0 million for the quarter ended February 29, 1996, representing an increase of approximately $2.4 million or 5.9%. The increase is due to increased revenues from work related to refinery maintenance in the Northwest region of the U.S. Gross profit remained level at $4.1 million for the quarterly period ended February 28, 1997 as compared to the quarterly period ended February 29, l996. Selling, general and administrative expenses increased to $2.8 million for the quarterly period ended February 28, 1997 from expenses of $2.7 million for the quarterly period ending February 29, 1996, an increase of $50 thousand or approximately 1.8% and representing as a percentage of revenues, a decrease to 6.5% for the 1997 period from 6.8% for the 1996 period. The increase in expenses was due principally to annual escalation of certain expenses, such as salaries, offset by reduction in office expenses due to cost saving programs. Operating income increased to $1.1 million for the quarterly period ended February 28, 1997 from $992 thousand for the quarterly period ended February 29, 1996, or an improvement of $108 thousand. The increase was due to an increase in gross profit and a reduction in amortization expense during the 1997 period as compared to the 1996 period. Interest expense decreased to $136 thousand for the quarterly period ending February 28, 1997 from $207 thousand for the quarterly period ended February 29, 1996. The decrease resulted primarily from decreased borrowing under the Company's bank credit facility and lower amounts of acquisition debt outstanding. Net income increased to $644 thousand for the quarterly period ended February 28, 1997 from $457 thousand for the quarterly period ended February 29, 1996. The increase was due to increased gross profit, lower amortization expense and lower interest expense for the 1997 period, as compared with the 1996 period. Nine Months Ended February 28, 1997 Compared With The Nine Months Ended February 29, 1996 Revenues for the nine months ended February 28, 1997 were $130.1 million as compared to revenues of $131.4 million for the nine months ended February 29, 1996, representing a decrease of approximately $1.3 million or 1.0%. The decrease was primarily due to lower revenues during the second quarter from the Company's tank maintenance operations as compared with the same period of the prior year. This decrease resulted primarily from a shortage of work available on the West Coast. Gross profit remained level at $12.7 million for the nine months ended February 28, 1997 as compared with the nine months ended February 29, 1996. Gross margins in some markets have improved; however, the Company continues to experience some pricing pressure from refinery maintenance. Selling, general and administrative expenses decreased to $7.9 million for the nine months ended February 28, 1997 from expenses of $8.0 million for the nine months ended February 29, 1996, a decrease of $70 thousand or approximately 0.9% and remaining at 6.1% of revenues for nine months ending February 28, 1997 as compared to the nine months ending February 29, 1996. The decrease in expenses was a result of improved cost controls. Operating income increased to $4.1 million for the nine months ended February 28, 1997 from income of $3.8 million for the nine months ended February 29, 1996 an increase of $310 thousand or approximately 8.2%. The increase was due to lower selling, general and administrative expenses and lower amortization expense during the 1997 period as compared to the 1996 period. Interest expense decreased to $365 thousand for the nine month period ending February 28, 1997 from $651 thousand of interest expense for the nine month period ended February 29, 1996. The decrease resulted primarily from decreased borrowing and lower average outstanding balances under the Company's credit facility during the nine month period of 1997 as compared with the 1996 period. Under this facility a $4.9 million term loan was made to the Company on October 5, 1994, and the balance outstanding at February 28, 1997 is $2.7 million. Net income increased to $2.2 million for the 1997 period from net income of $1.7 million for the 1996 period. The increase in net income for the current period is due to lower interest, selling, general and administrative, and amortization expense as compared to the 1996 period. Liquidity and Capital Resources The Company has financed its operations recently with cash generated by operations and advances under the Company's credit facility. The Company has a credit facility with a commercial bank under which the Company may borrow a total of $20.0 million. The Company may borrow up to $15.0 million under a revolving credit agreement based on the level of the Company's eligible receivables. The agreement provides for interest at the Prime Rate minus one-half of one percent (1/2 of 1%), or a LIBOR based option, and matures on October 31, 1997. At February 29, 1997, the interest rate was 7.75% and the outstanding advances under the revolver totaled $2.5 million. The credit facility also provides for a term loan up to $5.0 million. On October 5, 1994, a term loan of $4.9 million was made to the Company. The term loan is due on August 31, 1999 and is to be repaid in 54 equal payments beginning in March 1995 at an interest rate based upon the Prime Rate. At February 29, 1996, the interest rate on the term loan was 8.25%, and the outstanding balance was $2.7 million. Operations of the Company provided $4.0 million of cash for the nine months ended February 28, 1997 as compared with providing cash from operations of $8.4 million for the nine months ended February 29, 1996, representing a decrease of approximately $4.4 million. The decrease was primarily the result of an increase in inventory of $1.2 million, and a decrease of $5.0 million in taxes and other accruals offset by a net increase of $2.6 million in billings on uncompleted contracts in excess of costs and estimated earnings and an increase of $1.2 million in inventory. Capital expenditures during the nine month period ended February 28, 1997 totaled approximately $4.3 million. Of this amount approximately $1.4 million was used to purchase welding and construction equipment for field operations. The Company has invested approximately $950 thousand in transportation equipment to be used to support field operations. The Company has expended $1.4 million for a new facility in the northwest. This facility is expected to be completed in June of 1997. In addition, the Company has currently budgeted approximately $1.5 million for additional capital expenditures primarily to be used to purchase construction equipment during the remainder of fiscal year 1997. The Company expects to be able to finance any such expenditures with available working capital. The Company believes that its existing funds, amounts available for borrowing under its credit facility, and cash generated by operations will be sufficient to meet the Company's working capital needs at least through fiscal 1998 and possibly thereafter unless significant expansions of operations not now planned are undertaken, in which case the Company would arrange additional financing as a part of any such expansion. PART II OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K: A. Exhibit 11 - Computation of earnings per share Exhibit 27 - Financial Data Schedule B. Reports on Form 8-K: None Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MATRIX SERVICE COMPANY Date: April 14, 1997 By: /s/C. William Lee C. William Lee Vice President-Finance Chief Financial Officer Signing on behalf of the registrants the registrant's chief financial officer.
[ARTICLE]                   5
[MULTIPLIER]                1,000
                         
[PERIOD-TYPE]               3-MOS
[FISCAL-YEAR-END]           May-31-1997
[PERIOD-START]              Dec-01-1996
[PERIOD-END]                Feb-28-1997
[COMMON]                          9,671
[NET-INCOME]                        644
[EPS-PRIMARY]                      0.07
[COMMON]                          9,778
[NET-INCOME]                        644
[EPS-DILUTED]                      0.07
[FISCAL-YEAR-END]           May-31-1996
[PERIOD-START]              Dec-01-1995
[PERIOD-END]                Feb-29-1996
[COMMON]                          9,442
[NET-INCOME]                        457 
[EPS-PRIMARY]                      0.05 
[COMMON]                          9,459
[NET-INCOME]                        457 
[EPS-DILUTED]                      0.05
[PERIOD-TYPE]               9-MOS
[FISCAL-YEAR-END]           May-31-1997
[PERIOD-START]              Jun-01-1996
[PERIOD-END]                Feb-28-1997
[COMMON]                          9,605
[NET-INCOME]                      2,230
[EPS-PRIMARY]                      0.23
[COMMON]                          9,782
[NET-INCOME]                      2,230
[EPS-DILUTED]                      0.23
[FISCAL-YEAR-END]           May-31-1996
[PERIOD-START]              Jun-01-1995
[PERIOD-END]                Feb-29-1996
[COMMON]                          9,432
[NET-INCOME]                      1,678
[EPS-PRIMARY]                      0.18
[COMMON]                          9,455
[NET-INCOME]                      1,678
[EPS-DILUTED]                      0.18
 

5 1,000 9-MOS May-31-1997 Feb-28-1997 1,091 0 25,816 0 4,879 47,651 49,391 19,830 104,381 19,861 0 95 0 0 75,251 104,381 130,147 130,147 117,463 117,463 8,591 0 365 3,947 1,717 0 0 0 0 2,230 0.23 0.23