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 August 31, 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 October 14, 1997, there were shares of the
Company's common stock, $.0l 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
August 31
(unaudited)
-----------------
1997 1996
------- -------
Revenues $49,519 $39,630
Cost of revenues 44,777 35,665
-------- --------
Gross profit 4,742 3,965
Selling, general and
administrative expenses 3,006 2,459
Goodwill and noncompete
amortization 296 216
-------- --------
Operating income 1,440 1,290
Other income (expense):
Interest income 43 29
Interest expense (258) (114)
Other 9 (49) -------- ----
-------- --------
Inome before income tax expense 1,234 1,156
Provision for federal and state
income tax expense 465 524
-------- --------
Net Income $ 769 $ 632
======== ========
Net income per common and
common equivalent shares:
Primary $ 0.08 $ 0.07
Fully diluted 0.08 0.07
Weighted average common and
common equivalent shares outstanding:
Primary 9,965,765 9,523,982
Fully diluted 9,965,765 9,523,982
<FN>
See Notes to Condensed Consolidated Financial Statements
Matrix Service Company
Condensed Consolidated Balance Sheets
(in thousands)
August 31, May 31,
---------- ---------
1997 1997
---------- ---------
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 1,184 $ 1,877
Accounts receivable 38,211 37,745
Costs and estimated earnings
in excess of billings on
uncompleted contracts 14,224 11,349
Inventories 5,720 4,989
Prepaid expenses 463 456
Deferred taxes 1,075 1,021
Income tax receivable 1,033 317
--------- ---------
Total current assets $ 61,910 $ 57,754
Investment in undistributed equity
of a foreign joint venture 174 174
Property, plant and equipment
at cost:
Land and buildings 19,099 15,097
Construction equipment 24,308 24,444
Transportation equipment 5,761 5,504
Furniture and fixtures 3,298 3,164
Construction in progress 2,950 2,614
--------- ---------
Less accumulated depreciation 24,398 20,861
--------- ---------
Net property, plant and equipment 31,018 29,962
Goodwill, net of accumulated 30,925 28,721
amortization
Other assets 811 261
--------- --------
Total assets $124,838 $116,872
See Notes to Condensed Consolidated Financial Statements
Matrix Service Company
Condensed Consolidated Balance Sheets
(in thousands)
August 31, May 31,
----------- ---------
1997 1997
----------- ---------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 12,620 $ 12,307
Billings on uncompleted contracts in
excess of costs and estimated earnings 6,943 6,325
Accrued expenses 7,057 6,583
Earnout payable 0 2,400
Income taxes payable 774 431
Deferred income taxes 177 0
Current portion of long-term debt 2,093 1,495
--------- ---------
Total current liabilities 29,664 29,541
Long-term debt:
Bank credit agreement 7,750 5,000
Equipment note payable 20 0
Acquisition notes payable 131 407
Term note payable 5,441 955
--------- ---------
Total long-term debt 13,342 6,362
Deferred income taxes 4,757 4,757
Stockholders' equity:
Common stock 95 95
Additional paid-in capital 50,903 50,903
Retained earnings 26,913 26,269
Cumulative translation adjustment (166) (145)
--------- ---------
77,745 77,122
Less: Treasury stock, at cost 670 910
--------- ---------
Total stockholders' equity 77,075 76,212
--------- ---------
Total liabilities and
stockholders' equity $124,838 $116,872
========= =========
<FN>
See Notes to Condensed Consolidated Financial Statements
Matrix Service Company
Condensed Consolidated
Cash Flow Statements
(in thousands)
Three Months Ended
August 31
(unaudited)
------------------
1997 1996
------- -------
Cash flow from operating activities:
Net income $ 769 $ 632
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,546 1,392
Changes in current assets and
liabilities increasing
(decreasing) cash:
Accounts receivable 4,129 3,120
Costs and estimated earnings
in excess of billings on
uncompleted contract (1,741) 417
Inventories 494 (634)
Prepaid expenses (16) (99)
Accounts payable (2,900) (1,881)
Billings on uncompleted
contracts in excess of
costs and estimated earnings 151 755
Taxes and other accruals (2,141) (1,432)
Other (3) (2)
-------- --------
Net cash provided by
by operating activities 288 2,268
Cash flow from investing activities:
Capital expenditures (932) (1,459)
Proceeds from sale of equipment 36 21
Acquisition of subsidiary,
net of cash acquired (4,129) 47
-------- --------
Net cash used in
investing activities (5,025) (1,391)
Matrix Service Company
Condensed Consolidated Cash Flow Statements
(in thousands)
Three Months Ended
August
(unaudited)
------------------
1997 1996
------- ------
Cash flows from financing activities:
Issuance of acquisition notes 197 -
Repayment of acquisition payables (132) (133)
Issuance of equipment notes 39 -
Repayment of equipment notes (3) (10)
Issuance of long-term debt 9,750 1,000
Repayment of long-term debt (5,910) (2,272)
Issuance of stock 116 14
------- -------
Net cash used in financing activities 4,057 (1,401)
Cumulative translation adjustment (13) 1
------- -------
Decrease in cash and cash equivalents (693) (523)
Cash and cash equivalents at beginning
of period 1,877 1,899
------- -------
Cash and cash equivalents at end
of period $1,184 $1,376
======= =======
<FN> 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, 1997, 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.
NOTE B - BUSINESS ACQUISITIONS
On June 17, 1997, the Company acquired all of the outstanding
common stock of General Service Corporation and its affiliated
companies, Maintenance Services, Inc., Allentech, Inc., and
Environmental Protection Services (collectively "GSC") for up to
$7.8 million, subject to certain adjustments. The purchase price
consisted of $4.75 million in cash and a $250 thousand, prime
rate (currently 8.25%) promissory note payable in 12 equal
quarterly installments. In addition, the stockholders of GSC are
entitled to receive in the future up to an additional $2.75
million in cash if GSC satisfies certain earnings requirements.
The transaction was accounted for as a purchase and created
approximately $3.0 million of goodwill and non-competition
covenants.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Three Months Ended August 31, 1997 Compared to Three Months Ended
August 31, 1996
General Service Corporation ("GSC") was acquired by Matrix
Service Company (the "Company") on June 17, 1997. Accordingly,
the results of operations of GSC, for two and one-half months are
included for the current period, but none of GSC's operations are
included in the prior year period.
Revenues for the quarter ending August 31, 1997 were $49.5
million as compared to revenues of $39.6 million for the quarter
ended August 31, 1996, representing an increase of approximately
$9.9 million or 25%. The increase is due primarily to the
inclusion in first quarter data of revenues of $5.3 million from
the operations of GSC (referred to above) and increased revenues
from refinery capital projects as compared with the same period
in 1996.
Gross profit for the quarterly period ending August 31, 1997 was
$4.7 million, an increase of $777 thousand over the period ended
August 31, 1996. Gross profit as a percentage of revenues
decreased to 9.6% for the 1997 period compared to 10.0% for the
1996 period. The decrease results mainly from revenue being
generated from capital work rather than repair and maintenance
which generally produces higher profit margins.
Selling, general and administrative expenses increased to $3.0
million for the quarterly period ending August 31, 1997 from
expenses of $2.5 million for the quarterly period ended August
31, 1996, an increase of $547 thousand or approximately 22% and
representing as a percentage of revenues, a decrease to 6.1% for
the 1997 period as compared to 6.2% for the 1996 period. The
principal amount of increase is due to the inclusion of expenses
of GSC.
Operating income increased to $1.4 million for the quarterly
period ending August 31, 1997 from income of $1.3 million for the
quarterly period ended August 31, 1996, an increase of $150
thousand. The increase was due to higher revenues combined with
stable cost of revenues and selling, general and administrative
expense offset by increased amortization of goodwill. The
increased goodwill is attributed to the GSC acquisition.
Interest expense increased to $258 thousand for the quarterly
period ending August 31, 1997 from $114 thousand of interest
expense for the quarterly period ended August 31, 1996. The
increase resulted primarily from increased borrowing under the
Company's revolving credit facility and term loans established on
August 24, 1994 as amended. During the period there was an
average of $6.3 million outstanding under the revolver loan. The
term loan increase was due primarily to the GSC acquisition.
Net income increased to $769 thousand for the quarterly period
ending August 31, 1997 from net income of $632 thousand for the
quarterly period ended August 31, 1996. The increase was due to
increased revenues and decreased provision for income tax for the
1997 period as compared to the 1996 period. The lower income tax
provision for the 1997 period resulted from a net operating loss
carry forward acquired with GSC.
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 $25.0 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 three quarters of one percent (3/4 of 1%), or a LIBOR
based option, and matures on October 31, 1999. At August 31,
1997, the interest rate was 7.75% and the outstanding advances
under the revolver totaled $7.75 million. The credit facility
also provides for two term loans up to $5.0 million each. On
October 5, 1994, and June 19, 1997 term loans of $4.9 million and
$5.0 million, respectively, were made to the Company. The 1994
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 or a LIBOR option. The 1997 term loan is due
January 23, 2002 and is to repaid in 54 equal payments beginning
January 7, 1998 at an interest rate based upon the prime rate or
a LIBOR option. At August 31, 1997, the interest rate on the
term loans was 8.25%, and the outstanding balance was $2.2
million and $5.0 million, respectively. The rates reflected
above are based on an agreement made after August 31, 1997.
Operations of the Company provided $288 thousand of cash for the
three months ended August 31, 1997 as compared with providing
cash from operations of $2.3 million for the three months ended
August 31, 1996, representing a decrease of approximately $2.0
million. The decrease was primarily the result of a net decrease
of $2.8 million in billings on uncompleted contracts in excess of
costs and estimated earnings in excess of billings.
Capital expenditures during the three month period ended August
31, 1997 totaled approximately $932 thousand. Of this amount
approximately $413 thousand was used to purchase welding and
construction equipment for field operations. The Company has
invested approximately $245 thousand for office expansion for
support of field operations. In addition, the Company has
currently budgeted approximately $2.6 million for additional
capital expenditures primarily to be used to purchase
construction equipment during the remainder of fiscal year 1998.
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 10.1 - Second Amendment to Credit Agreement
B. Exhibit 11 - Computation of earnings per share.
C. 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: October 15, 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.