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 9,491,153 shares of the Company's
common stock, $.01 par value per share, issued and 9,362,526 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
