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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended May 31, 2002.
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to
Commission File No. 0-18716
MATRIX SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-1352174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10701 East Ute Street 74116
Tulsa, Oklahoma (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (918) 838-8822.
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 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 [__]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of the registrant's common stock (based
upon the August 14, 2002 closing sale price of the common stock as reported by
the NASDAQ National Market System) held by non-affiliates as of August 14, 2002
was approximately $54,925,896.
The number of shares of the registrant's common stock outstanding as of August
14, 2002 was 7,857,782 shares.
Documents Incorporated by Reference
Certain sections of the registrant's definitive proxy statement relating to the
registrant's 2002 annual meeting of stockholders, which definitive proxy
statement will be filed within 120 days of the end of the registrant's fiscal
year, are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
Part I
Page
----
Item 1. Business...................................................................................... 1
Item 2. Properties.................................................................................... 11
Item 3. Legal Proceedings............................................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders........................................... 12
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 13
Item 6. Selected Financial Data....................................................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................... 22
Item 8. Financial Statements and Supplementary Data................................................... 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 46
Part III
Item 10. Directors and Executive Officers of the Registrant............................................ 46
Item 11. Executive Compensation........................................................................ 46
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 46
Item 13. Certain Relationships and Related Transactions................................................ 46
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 47
PART I
Item 1. Business
BACKGROUND
Matrix Service Company ("Matrix" or the "Company") provides specialized on-site
maintenance and construction services for the petroleum, energy, manufacturing,
industrial gas, transportation, chemical, food and processing industries. Matrix
has three operating segments. Aboveground Storage Tank ("AST") Services include
the maintenance, repair, construction and product sales of aboveground storage
tanks; Plant Services, include maintenance contracts, "turnarounds" and safety
services; and Construction Services, include turnkey, design build and general
construction. Matrix also provides bundled services where two or more of its
business units combine to provide a complete service to their customers.
Customers use these services to expand their operation, improve operating
efficiencies and to comply with stringent environmental and safety regulations.
The Company's principal executive offices are located at 10701 East Ute Street,
Tulsa, Oklahoma 74116. Its telephone number is (918) 838-8822 and its fax number
is (918) 838-8810. The Company's website address is www.matrixservice.com.
Unless the context otherwise requires, all references herein to "Matrix" or the
"Company" are to Matrix Service Company and/or its subsidiaries.
ABOVEGROUND STORAGE TANK (AST) SERVICES OPERATIONS
The Company's AST Services Operations include the engineering, fabrication,
construction, repair, maintenance and products sales of ASTs. The repair and
construction of these tanks incorporate devices that meet current federal and
state air and water quality guidelines. These devices include secondary tank
bottoms for containment of leaks, primary and secondary seals for floating roof
tanks that reduce evaporation loss from the tank and water intrusion into the
tank and many other fittings unique to the tank industry. The floating roof
seals are marketed under the Company's Flex-A-Seal(R) and Flex-A-Span(R) trade
names. The Company also markets a patented roof drain swivel, the
Flex-A-Swivel(R) used for floating roof drains that remove water from open-top
floating roof tanks.
AST Services Market and Regulatory Background
In 1989, the American Petroleum Institute ("API") estimated that there were
approximately 700,000 ASTs in the United States that stored crude oil,
condensate, lube oils, distillates, gasolines and various other petroleum
products. These tanks range in capacity from 26 barrels (42 gal/barrel) to in
excess of 1,000,000 barrels. The Company's principal focus is maintaining,
repairing, designing and constructing large ASTs, with capacities ranging from
250 barrels and larger. The Company believes, based on industry statistics, that
there are over 120,000 of these large tanks currently in use, accounting for
more than 70% of the domestic petroleum product storage capacity. These ASTs are
used primarily by the refining, pipeline and marketing segments of the petroleum
industry.
Historically, many AST owners limited capital expenditures on ASTs to new
construction and periodic maintenance on an as-needed basis. Typically, these
expenditures decreased during periods of depressed conditions in the petroleum
and petrochemical industries, as AST owners sought to defer expenditures not
immediately required for continued operations.
During recent years, many AST owners have taken a more proactive approach to
tank maintenance and repair and protection of the environment. Much of this is
driven by the fact that in 1989 it was estimated that over forty percent of the
existing AST's were over twenty years old. The AST owners have come to rely on
AST service companies to furnish the necessary modifications because they can
provide technical expertise, experienced field labor trained in safe work
habits, and materials and equipment that satisfy federal and state mandates. In
addition, because of the recent consolidations and cut backs in the petroleum
industry, the AST owners have fewer experienced personnel on staff and must rely
on qualified service providers to assist them in meeting their needs.
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In January 1991, the API adopted industry standards for the maintenance,
inspection and repair of existing ASTs (API 653). The API standards provide the
industry with uniform guidelines for the periodic inspection, maintenance and
repair of ASTs. The Company believes that these standards have resulted, and
will continue to result, in an increased level of AST maintenance and repair on
the part of many AST owners.
AST Services and Products
The Company provides its customers with a comprehensive range of AST services
and products as outlined below.
New Construction
The Company designs, fabricates and constructs new ASTs to both petroleum and
industrial standards and customer specifications. These tanks range in capacity
from approximately 1,000 barrels to 1,000,000 barrels and larger. Clients
require new tanks in conjunction with expansion plans, replacement of old or
damaged tanks, storage for additional product lines to meet environmental
requirements and changes in population.
Maintenance and Modification
The Company derives a significant portion of its revenues from providing AST
maintenance, repair and modification services. The principal services in this
area involve the design, construction and installation of floating roof and seal
assemblies, the design and construction of secondary containment systems (double
bottoms), and the provision of a variety of services for underground and
aboveground piping systems. The Company also installs, maintains and modifies
tank appurtenances, including spiral stairways, platforms, water drain-off
assemblies, roof drains, gauging systems, fire protection systems, rolling
ladders and structural supports.
Floating Roof and Seal Systems
Many ASTs are equipped with a floating roof and seal systems. The floating roof
is required by environmental regulations to minimize vapor emissions and reduce
fire hazard. A floating roof also prevents losses of stored petroleum products.
The seal spans the gap between the rim of the floating roof and the tank wall.
The seal prevents vapor emissions from an AST by creating the tightest possible
seal around the perimeter of the roof while still allowing movement of the roof
and seal upward and downward with the level of stored product. In addition, the
Company's seal systems prevent substantially all rainwater from entering the
product on open top floating roof tanks. The Company's seals are manufactured
from a variety of materials designed for compatibility with specific petroleum
products. All of the seals installed by the Company may be installed while the
tank is in service, which reduces tank owners' maintenance, cleaning and
disposal costs.
Secondary Containment Systems
The Company constructs a variety of secondary containment systems under or
around ASTs according to its own design or the design provided by its customers.
Secondary leak detection systems allow tank owners to detect leaks in the tanks
at an early stage before groundwater contamination has occurred. In addition,
the systems help to contain leakage until the tank can be repaired. The most
common type of secondary containment system constructed involves installing a
liner of high-density polyethylene, reinforced polyurethane or a layer of
impervious clay under the steel tank bottom. The space between the liner and the
new bottom is then filled with a layer of concrete or sand. A cathodic
protection system may be installed between the liner and the new bottom to help
control corrosion. Leak detection ports are installed between the liner and
steel bottom to allow for visual inspection while the tank is in service. The
Company believes that during the 1990's a substantial number of AST owners have
installed, and will continue to install, secondary containment systems.
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Specialty Tanks
The Company designs, fabricates and field erects new refrigerated and cryogenic
liquefied gas storage tanks for the storage of ammonia, butane, carbon dioxide,
ethane, methane, argon, nitrogen, oxygen, propane and other products. These
tanks are utilized by the chemical, petrochemical and industrial gas industries.
Manufacturing
The Company operates four fabrication facilities located in Oklahoma,
California, and Pennsylvania. At the Tulsa Port of Catoosa, Oklahoma, the
Company owns and operates a fabrication facility located on 13 acres of leased
land. This facility has the capacity to fabricate new tanks, new tank components
and all maintenance, retrofit and repair parts including fixed roofs, floating
roofs, seal assemblies, shell plate and tank appurtenances. The Tulsa Port has
transportation service via railroad and Mississippi River barge facilities in
addition to the interstate highway system, making it economical to transport
heavy loads of raw material and fabricated steel. This facility is qualified to
perform services on equipment that requires American Society of Mechanical
Engineer Code Stamps ("ASME codes"). In Bristol, Pennsylvania, the Company
leases land and buildings and owns the equipment used in fabrication. This
facility has the capacity to fabricate new tanks, new tank components, all
maintenance, retrofit and repair parts including fixed roofs, floating roofs,
shell plate and tank appurtenances. This facility is located close to the
petrochemical industry which supplies the large population center of the
Northeastern United States. At Bethlehem, Pennsylvania, the Company leases land
and facilities and owns equipment used to fabricate aluminum floating roofs and
seal systems. This facility has the capacity to fabricate new products or to
provide repair and maintenance parts for existing aluminum floating roofs and
seal systems. At Orange, California, the Company owns land, buildings and the
equipment used in fabrication. This facility has the capacity to fabricate tank
components, all maintenance, retrofit and repair parts including fixed roofs,
floating roofs and seals. This facility is located close to the petrochemical
industry which supplies the large population center of the Western United
States.
Power Industry
Matrix has expanded its offering to the rapidly increasing power market by
constructing tanks, stacks, ducting and turbine air inlet/outlet systems.
PLANT SERVICES OPERATIONS
The Company provides specialized maintenance and construction services to the
domestic petroleum refining industry and, to a lesser extent, to the gas
processing and petrochemical industries. The Company specializes in routine and
supplemental plant maintenance, turnarounds and capital construction services,
which involve complex, time-sensitive maintenance of the critical operating
units of a refinery or plant.
Plant Services Market Overview
According to the Oil and Gas Journal, the U.S. had 189 operating refineries at
the beginning of 1985 and only 143 refineries in operation by the beginning of
2002. Yet despite the fact that there are fewer refineries, nameplate crude
capacity has expanded. To ensure the operability, environmental compliance,
efficiency and safety of their plants, refiners must maintain, repair or replace
process equipment, operating machinery and piping systems on a regular basis.
Major maintenance and capital projects require the shutdown of an operating
unit, or in some cases, the entire refinery. In addition to routine maintenance,
numerous repair and capital improvement projects are undertaken during a
turnaround. Depending on the type, utilization rate, and operating efficiency of
a refinery, turnarounds of a refinery unit typically occur at scheduled
intervals ranging from six months to four years.
U.S. capacity in 1985 was approximately 15.1 million barrels per day and by 2002
this figure had grown to 16.6 million barrels per day. Many factors created this
increase in crude input including refinery expansion and debottle-necking. With
the domestic increase in demand for refined product, domestic
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refineries are operating at high utilization rates. Generally higher utilization
rates mean more wear and tear on the processing units. With the consolidations
and subsequent reductions in staff within the petroleum industry and the need
for reliable maintenance either during the turn-around process or day-to-day
maintenance, more reliance for performance is placed on service providers such
as Matrix.
Matrix provides day-to-day maintenance including managing the maintenance force
through reliability studies and other management tools. This continual effort to
improve performance is in concert with the industry's desire to reduce operating
cost. The day-to-day maintenance presence assists in the effort to obtain
turn-around work when the refinery periodically shuts down for major repairs.
Plant Service Customer Offerings
The Company provides its customers with a competitive range of services as
outlined below.
Turnaround Services
Effective plant shutdown and refinery turnaround management is achieved by a
combination of factors. Over the years Matrix has successfully developed and
implemented management requirements including:
.. Planning . QA/QC Management
.. Subcontractor Management . Experienced Supervisors
.. Scheduling . Teamwork
.. Safety Management . Quality Control
.. Cost Control . Inspection
Matrix utilizes the following Planning and Scheduling Software for turnarounds:
.. Primavera Finest Hour . Microsoft Project
.. Primavera P3 for Windows . CASP
.. Primavera Suretrak for Windows . TASC/MASC (Kurtz and Steel)
.. Teamwork (applicable modules) . SP - Impower
Additional Services:
.. Heater repair . ASME Code Work
.. Blinding . Exchanger Slab Management
.. Towers . Fin Fan Retube and Repair Procurement
.. Vessels . Cost Control
.. Exchangers . Subcontractor Management
.. Valves . QA/QC Services
.. Piping . Safety Professionals
Maintenance Services
Matrix's maintenance services include on-going, routine maintenance, in addition
to providing "quick response" to emergency situations. The Company recognizes
that not only is a skilled daily maintenance workforce imperative to successful
plant operation, but it can have a very positive impact on turnaround and other
"non-routine" maintenance requirements. We believe our most successful projects
come from locations where we have more than a transient presence. Maintenance
services include:
.. Daily Maintenance Management . Asbestos and Lead Abatement
.. Multi Craft Workforce . Piping and Vessel Insulation
.. Pipe Fitting and Welding . Marine Terminal Maintenance
.. Machinist/Millwright . Exchanger Extraction and Tube Repairs
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.. Instrumentation . Tower and Vessel Maintenance
.. Electrical . Aboveground Storage Tank Maintenance
Maintenance Achievements:
.. Maintenance personnel reductions through the implementation of Maintenance
Management Systems and Reliability Based Maintenance.
.. Maintenance Productivity Incentives.
.. Highly successful Safety and Quality Programs.
CONSTRUCTION SERVICES
The Company's Construction Services Division coordinates and executes major
projects for the following industries: power generation; petroleum refining;
industrial gas, liquid and dry bulk storage; chemical; food and processing
industries; and most manufacturing facilities. Proper execution of industrial
projects requires innovative thinking and well-conceived safety and execution
planning to ensure safe and on-time completion.
Turnkey Construction
From design coordination through project start-up and commissioning, Matrix
provides expert, site-specific teams to support projects. The Company emphasizes
lowering costs and shortening schedules by combining the vast experience of the
owner, vendors and contractors to ensure a successful project.
Power Industry
Matrix has also expanded into power plant start-up services for new plants,
including mechanical, instrumentation, structural and system cleaning.
Heavy Mechanical Installations
Matrix controls all aspects of the execution plan through a merit shop
environment. The Company's background in equipment setting, alignment, piping,
instrumentation and electrical work gives it the multi-discipline craft
resources necessary to complete the installation in the most efficient way
possible.
Civil, Concrete, Steel Erection and Structures
Matrix's experience includes a complete range of construction services including
heavy civil, concrete foundations, shoring, structural concrete and steel. Work
includes construction of the infrastructure required for industrial facilities
such as clean rooms, laboratories, and research and development facilities.
High Pressure Vessel, Boiler and Heater Erection and Code Welding
Matrix erects boilers from new to repair or replacement, and can supply R, PP, S
and U stamps for all work requiring code stamp certification. The Company's
welding expertise includes all types of specialty, exotic and alloy welding. It
can also provide vessel and pipe fabrication and modular skid construction for
special projects.
Retrofits, Expansions and Modernizations
The Company's experience and reputation are built upon a list of successful
retrofit and expansion projects, including extensive work in existing "live"
units.
Plant Dismantle and Equipment Relocation Services
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Matrix has the experience and talent to provide value engineering, execution
plant development, scheduling, demolition, removal, coordination, transportation
and installation of existing plants and equipment.
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Full Service Distribution, Terminal and Bulk Storage Services
Matrix's extensive capabilities allow it to provide a full range of planning,
design, construction, and management services for all types of terminals and
bulk storage for aviation, rail, transit and marine facilities. In addition,
Matrix can supply full tank construction and maintenance services.
OTHER BUSINESS MATTERS
Customers and Marketing
The Company derives a significant portion of its revenues from performing
construction and maintenance services for major integrated oil companies. In
fiscal 2002, Chevron represented 13% of the Company's consolidated revenues and
Amoco/Arco/BP accounted for 12% of consolidated revenues. The loss of any one of
these major customers could have a material adverse effect on the Company. The
Company also performs services for independent petroleum refining and marketing
companies, architectural and engineering firms, the food industry, general
contractors and several major petrochemical companies. The Company sold its
products and services to approximately 340 customers during fiscal 2002.
The Company markets its services and products primarily through its marketing
personnel, senior professional staff and its management. The marketing personnel
concentrate on developing new customers and assist management and staff with
existing customers. The Company enjoys many preferred provider relationships
with clients that are awarded without competitive bid through long-term contract
agreements. In addition, the Company competitively bids many projects.
Maintenance projects have a duration of one week to several months depending on
work scope. New tank projects have a duration of four weeks to more than a year.
General construction projects range from three months to two years.
Competition
The AST, Plant Services, and Construction Services Divisions are highly
fragmented and competition is intense within these industries. Major competitors
in the AST Service Division include Chicago Bridge & Iron Company as well as a
number of smaller regional companies. Major competitors in the West Coast plant
service industry are Timec and a number of large engineering firms. Competition
is based on, among other factors, work quality and timeliness of performance,
safety and efficiency, availability of personnel and equipment, and price. The
Company believes that its expertise and its reputation for providing safe and
timely services allow it to compete effectively. Although many companies that
are substantially larger than the Company have entered the market from time to
time in competition with the Company, the Company believes that the level of
expertise and experience necessary to perform complicated, on-site maintenance
and construction operations presents an entry barrier to these companies and
other competitors with less experience than the Company.
Backlog
At May 31, 2002, the Company's AST Services, Plant Maintenance and Construction
Services Divisions had an estimated backlog of work under contracts believed to
be firm of approximately $72.0 million, as compared with an estimated backlog of
approximately $62.8 million as of May 31, 2001. Virtually all of the projects
comprising this backlog are expected to be completed within fiscal year 2003.
Because many of the Company's contracts are performed within short time periods
after receipt of an order, the Company does not believe that the level of its
backlog is a meaningful indicator of its sales activity.
Seasonality
The operating results of the Plant Services Division, and to some extent AST
maintenance and repair, may be subject to significant quarterly fluctuations,
affected primarily by the timing of planned
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maintenance projects at customers' facilities. Generally, the Company's
turnaround projects are undertaken in two primary periods-February through May
and September through November-when refineries typically shut down certain
operating units to make changes to adjust to seasonal shifts in product demand.
As a result, the Company's quarterly operating results can fluctuate materially.
In addition, the AST Services Division typically has a lower level of operating
activity during the winter months and early into the new calendar year as many
of the Company's customers' maintenance budgets have not been finalized and
demand for storage fluctuates with demand for product.
Raw Material Sources and Availability
The only significant raw material that the Company purchases is steel and steel
pipe which is used primarily in the AST Services Division for new tank
construction and tank repair and maintenance activities and construction
services. The Company purchases its steel products from a number of suppliers
located throughout the United States. In today's market environment, steel is
readily available. The price and availability of steel historically has been
volatile and there is no assurance that the current market conditions will
remain unchanged in the future. Significantly higher steel prices or limited
availability could have a negative impact on the Company's future operating
performance.
Insurance
The Company maintains worker's compensation insurance, with statutory limits,
general liability insurance and auto liability insurance in the primary amount
of $1.0 million and pollution insurance in the primary amount of $5.0 million.
The Company maintains an umbrella policy with coverage limits of $25.0 million
in the aggregate. The Company also maintains policies to cover its equipment and
other property with coverage limits of $32.8 million and policies for the course
of construction with coverage limits of $6.0 million in the aggregate. Most of
the Company's policies provide for coverage on an occurrence basis, not a
"claims made" basis. The Company's liability policies are subject to certain
deductibles, none of which is higher than $500,000. The Company maintains a
performance and payment bonding line of $150.0 million. The Company also
maintains a key-man life insurance policy covering its current CEO, and
professional liability insurance.
Many of the Company's contracts require it to indemnify its customers for
injury, damage or loss arising in connection with their projects, and provide
for warranties of materials and workmanship. There can be no assurance that the
Company's insurance coverage will protect it against the incurrence of loss as a
result of such contractual obligations.
Employees
As of May 31, 2002, the Company employed 1,374 employees, of which 292 were
employed in non-field positions and 1,082 in field or shop positions. Throughout
fiscal year 2002, the Company employed a total of 3,170 employees in field or
shop positions who worked on a project-by-project basis.
As of May 31, 2002, 172 of the 1,082 field or shop employees were covered by a
collective bargaining agreement. The Company operates under two collective
bargaining agreements through the Boilermakers Union - the NTL Agreement for
Tank Construction Work and the Maintenance and Repair Agreement covering Tank
Repair and Related Work. Both agreements provide the union employees with
benefits including a Health and Welfare Plan, Pension Plan, National Annuity
Trust, Apprenticeship Training, and a Wage and Subsistence Plan.
The Company has not experienced any significant strikes or work stoppages and
has maintained high-quality relations with its employees.
Patents and Proprietary Technology
The Company holds two United States and one United Kingdom patents under the
Flex-A-Span (R) trademark which covers a peripheral seal for floating roof tank
covers. The United States patents expire in October, 2011 and August, 2008 and
the United Kingdom patent expires in May, 2011. The Company holds a U.S. patent
which covers its ThermoStor (R) diffuser system that receives, stores and
dispenses both chilled and warm water in and from the same storage tank. The
ThermoStor (R) patent expires in
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March, 2010. The Company has developed the RS 1000 Tank Mixer (R) which controls
sludge build-up in crude oil tanks through resuspension. The RS 1000 Tank Mixer
(R) patent expires in August, 2012. The Company has designed and developed the
Flex-A-Swivel (R), a swivel joint for floating roof drain systems. The United
States Patent expires in March, 2016. The Company holds a United States patent
under the Flex-A-Seal (R) trademark which covers a seal for floating tank
covers. The patent expires in June, 2008.
The Company holds a United States patent which covers a flexible fluid
containment system marketed as the Valve Shield (R). The Valve Shield (R)
captures and contains fluid leaking from pipe and valve connections. The Valve
Shield (R) patent expires in December, 2017. The Company holds two patents in
the United States and numerous foreign countries covering a full contact
floating roof and a perimeter seal for internal aluminum floating roofs. The
United States patents expire in May, 2015 and May, 2013, respectively. While the
Company believes that the protection of its patents is important to its
business, it does not believe that these patents are essential to the success of
the Company.
Regulation
Various environmental protection laws have been enacted and amended during the
past 30 years in response to public concern over the environment. The operations
of the Company and its customers are subject to these evolving laws and the
related regulations, which are enforced by the EPA and various other federal,
state and local environmental, safety and health agencies and authorities. The
Company believes that its current operations are in material compliance with
such laws and regulations; however, there can be no assurance that significant
costs and liabilities will not be incurred due to increasingly stringent
environmental restrictions and limitations. Historically, however, the cost of
measures taken to comply with these laws has not had a material adverse effect
on the financial condition of the Company. In fact, the proliferation of such
laws has led to an increase in the demand for some of the Company's products and
services. A discussion of the principal environmental laws affecting the Company
and its customers is set forth below.
Air Emissions Requirements. The EPA and many state governments have adopted
legislation and regulations subjecting many owners and operators of storage
vessels and tanks to strict emission standards. The regulations prohibit the
storage of certain volatile organic liquids ("VOLs") in open-top tanks and
require tanks which store VOLs to be equipped with primary and/or secondary roof
seals mounted under a fixed or floating roof. Related regulations also impose
continuing seal inspection and agency notification requirements on tank owners
and prescribe certain seal requirements. Under the latest EPA regulations, for
example, floating roofs on certain large tanks constructed or modified after
July 1984 must be equipped with one of three alternative continuous seals
mounted between the inside wall of the tank and the edge of the floating roof.
These seals include a foam or liquid-filled seal mounted in contact with the
stored petroleum product; a combination of two seals mounted one above the
other, the lower of which may be vapor mounted; and a mechanical shoe seal,
composed of a metal sheet held vertically against the inside wall of the tank by
springs and connected by braces to the floating roof. The EPA has imposed
similar requirements which are now effective or will be after completion of
various phase-in periods on certain large tanks, regardless of the date of
construction, operated by companies in industries such as petroleum refining and
synthetic organic chemical manufacturing which are subject to regulations
controlling hazardous air pollutant emissions. The EPA is in the process of
developing further regulations regarding seals and floating roofs.
Amendments to the federal Clean Air Act adopted in 1990 require, among other
things, that refineries produce cleaner burning gasoline for sale in certain
large cities where the incidence of volatile organic compounds in the atmosphere
exceeds prescribed levels leading to ozone depletion. Refineries are undergoing
extensive modifications to develop and produce acceptable reformulated fuels
that satisfy the Clean Air Act Amendments. Such modifications are anticipated to
cost refineries several billion dollars, and require the use of specialized
construction services such as those provided by the Company. A significant
number of refineries have completed changes to produce "reformulated fuels",
principally refineries serving specific areas of the U.S.; however, there are a
substantial number of refineries that have not made the change. The EPA is also
in the process of developing further regulations to require
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production of cleaner gasolines and diesel fuels including the production of
reduced sulfur gasoline and diesel fuel.
As part of the Clean Air Act Amendments of 1990, Congress required the EPA to
promulgate regulations to prevent accidental releases of air pollutants and to
minimize the consequences of any release. The EPA adopted regulations requiring
Risk Management Plans ("RMPs") from companies which analyze and limit risks
associated with the release of certain hazardous air pollutants. In addition,
the EPA requires companies to make RMPs available to the public. Many petroleum
related facilities, including refineries, will be subject to the regulations and
may be expected to upgrade facilities to reduce the risks of accidental
releases. Accordingly, the Company believes that the promulgation of accidental
release regulations could have a positive impact on its business.
Water Protection Regulations. Protection of groundwater and other water
resources from spills and leakage of hydrocarbons and hazardous substances from
storage tanks and pipelines has become a subject of increasing legislative and
regulatory attention, including releases from ASTs. Under Federal Water
Pollution Control Act regulations, owners of most ASTs are required to prepare
spill prevention, control and countermeasure ("SPCC") plans detailing steps that
have been taken to prevent and respond to spills and to provide secondary
containment for the AST to prevent contamination of soil and groundwater. These
plans are also subject to review by the EPA, which has authority to inspect
covered ASTs to determine compliance with SPCC requirements. Various states have
also enacted groundwater legislation that has materially affected owners and
operators of petroleum storage tanks. The adoption of such laws has prompted
many companies to install double bottoms on their storage tanks to lessen the
chance that their facilities will discharge or release regulated chemicals.
State statutes regarding protection of water resources have also induced many
petroleum companies to excavate product pipelines located in or near marketing
terminals, to elevate the pipelines aboveground and to install leak detection
systems under the pipelines. These laws and regulations have generally led to an
increase in the demand for some of the Company's products and services.
In the event hydrocarbons are spilled or leaked into groundwater or surface
water from an AST that the Company has constructed or repaired, the Company
could be subject to lawsuits involving such spill or leak. To date, the Company
has not suffered a material loss resulting from such litigation.
Hazardous Waste Regulations. The Resource Conservation and Recovery Act of 1976
("RCRA") provides a comprehensive framework for the regulation of generators and
transporters of hazardous waste, as well as persons engaged in the treatment,
storage and disposal of hazardous waste. Under state and federal regulations,
many generators of hazardous waste are required to comply with a number of
requirements, including the identification of such wastes, strict labeling and
storage standards, and preparation of a manifest before the waste is shipped off
site. Moreover, facilities that treat, store or dispose of hazardous waste must
obtain a RCRA permit from the EPA, or equivalent state agency, and must comply
with certain operating, financial responsibility and site closure requirements.
In 1990, the EPA issued its Toxicity Characteristic Leaching Procedure ("TCLP")
regulations. Under the TCLP regulations, which have been amended from time to
time, wastes containing prescribed levels of any one of several identified
substances, including organic materials found in refinery wastes and
waste-waters (such as benzene), will be characterized as "hazardous" for RCRA
purposes. As a result, some owners and operators of facilities that produce
hazardous wastes are being required to make modifications to their facilities or
operations in order to remain outside the regulatory framework or to come into
compliance with the Subtitle C requirements. Many petroleum refining,
production, transportation and marketing facilities are choosing to replace
existing surface impoundments with storage tanks and to equip certain of the
remaining impoundments with secondary containment systems and double liners.
Accordingly, the Company believes that the promulgation of the TCLP regulations
are having a positive impact on its tank construction and modification business.
Amendments to RCRA require the EPA to promulgate regulations banning the land
disposal of hazardous wastes, unless the wastes meet certain treatment standards
or the particular land disposal method meets certain waste containment criteria.
Regulations governing disposal of wastes identified as hazardous under the TCLP,
for example, could require water drained from the bottom of many petroleum
-10-
storage tanks to be piped from the tanks to a separate facility for treatment
prior to disposal. Because the TCLP regulations can, therefore, provide an
incentive for owners of petroleum storage tanks to reduce the amount of water
seepage in the tanks, the Company believes that the regulations have and will
continue to positively influence sales of its Flex-A-Seal(R) roof seals, which
materially reduce the amount of water seepage into tanks.
CERCLA. The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), also known as "Superfund", authorizes the EPA to identify
and clean up sites contaminated with hazardous substances and to recover the
costs of such activities, as well as damages to natural resources, from certain
classes of persons specified as liable under the statute. Such persons include
the owner or operator of a site and companies that disposed or arranged for the
disposal of hazardous substances at a site. Under CERCLA, private parties which
incurred remedial costs may also seek recovery from statutorily responsible
persons. Liabilities imposed by CERCLA can be joint and several where multiple
parties are involved. Many states have adopted their own statutes and
regulations to govern investigation and cleanup of, and liability for, sites
contaminated with hazardous substances or petroleum products.
Although the liabilities imposed by RCRA, CERCLA and other environmental
legislation are more directly related to the activities of the Company's
clients, they could under certain circumstances give rise to liability on the
part of the Company if the Company's efforts in completing client assignments
were considered arrangements related to the transport or disposal of hazardous
substances belonging to such clients. In the opinion of management, however, it
is unlikely that the Company's activities will result in any liability under
either CERCLA or other environmental regulations in an amount which will have a
material adverse effect on the Company's operations or financial condition, and
management is not aware of any current liability of the Company based on such a
theory.
Oil Pollution Act. The Oil Pollution Act of 1990 ("OPA") established a new
liability and compensation scheme for oil spills from onshore and offshore
facilities. Section 4113 of the OPA directed the President to conduct a study to
determine whether liners or other secondary means of containment should be used
to prevent leaking or to aid in leak detection at onshore facilities used for
storage of oil. The Company believes that its business would be positively
affected by any regulations eventually promulgated by the EPA that required
liners and/or secondary containment be used to minimize leakage from ASTs. While
the regulation has not, to date, been enacted, the industry designs secondary
containment in all new tanks being built and, in general, secondary containment
is installed in existing tanks when they are taken out of service for other
reasons, in anticipation of this regulation.
Health and Safety Regulations. The operations of the Company are subject to the
requirements of the Occupational Safety and Health Act ("OSHA") and comparable
state laws. Regulations promulgated under OSHA by the Department of Labor
require employers of persons in the refining and petrochemical industries,
including independent contractors, to implement work practices, medical
surveillance systems, and personnel protection programs in order to protect
employees from workplace hazards and exposure to hazardous chemicals. In
recognition of the potential for catastrophic accidents within refining and
petrochemical facilities, OSHA has enacted very strict and comprehensive safety
regulations. Regulations such as OSHA's Process Safety Management (PSM) standard
require facility owners and their contractors to ensure that their employees are
adequately trained regarding safe work practices and informed of known potential
hazards. The Company has established comprehensive programs for complying with
health and safety regulations. While the Company believes that it operates
safely and prudently, there can be no assurance that accidents will not occur or
that the Company will not incur substantial liability in connection with the
operation of its business.
The State of California has promulgated particularly stringent laws and
regulations regarding health and safety and environmental protection. The
Company's operations in California are subject to strict oversight under these
laws and regulations and the failure to comply with these laws and regulations
could have a negative impact on the Company.
-11-
Environmental
Matrix is a participant in certain environmental activities in various stages
involving assessment studies, cleanup operations and/or remedial processes.
In connection with the Company's sale of Brown and affiliated entities in 1999,
an environmental assessment was conducted at Brown's Newnan, Georgia facilities.
The assessment turned up a number of deficiencies relating to storm water
permitting, air permitting and waste handling and disposal. An inspection of the
facilities also showed friable asbestos that needed to be removed. In addition,
Phase II soil testing indicated a number of volatile organic compounds,
semi-volatile organic compounds and metals above the State of Georgia
notification limits. Ground water testing also indicated a number of
contaminants above the State of Georgia notification limits.
Appropriate State of Georgia agencies have been notified of the findings and
corrective and remedial actions have been completed, are currently underway, or
plans for such actions have been submitted to the State of Georgia for approval
on the remaining property. The current estimated total cost for cleanup and
remediation is $2.1 million, $0.1 million of which remains accrued at May 31,
2002. Additional testing, however, could result in greater costs for cleanup and
remediation than is currently accrued.
Matrix closed or sold the business operations of its San Luis Tank Piping
Construction Company, Inc. and West Coast Industrial Coatings, Inc.
subsidiaries, which are located in California. Although Matrix does not own the
land or building, it would be liable for any environmental exposure while
operating at the facility, a period from June 1, 1991 to the present. At the
present time, the environmental liability that could result from the testing is
unknown, however, Matrix has purchased a pollution liability insurance policy
with $5.0 million of coverage for all operations.
Matrix has other fabrication operations in Tulsa, Oklahoma; Bristol,
Pennsylvania; and Orange, California which could subject the Company to
environmental liability. It is unknown at this time if any such liability exists
but based on the types of fabrication and other manufacturing activities
performed at these facilities and the environmental monitoring that the Company
undertakes, Matrix does not believe it has any material environmental
liabilities at these locations.
Matrix builds aboveground storage tanks and performs maintenance and repairs on
existing aboveground storage tanks. A defect in the manufacturing of new tanks
or faulty repair and maintenance on an existing tank could result in an
environmental liability if the product stored in the tank leaked and
contaminated the environment. Matrix currently has liability insurance with
pollution coverage of $1 million, but the amount could be insufficient to cover
a major claim.
Item 2. Properties
The executive offices of the Company, located in Tulsa, Oklahoma, are housed in
a 20,400 square foot facility owned by the Company, and currently held for sale.
The Company owns a 69,600 square foot facility used for fabrication of tank and
tank parts located on 13 acres of land leased from the Tulsa Port of Catoosa. An
additional 50 acres of land has been leased from the Tulsa Port of Catoosa
designated for relocation of the executive offices, the Tank Construction
Division and the Tulsa Region offices and a new fabrication site. Currently the
Tank Construction Division and Tulsa Regional office have relocated to the Port
of Catoosa in a new 33,000 square foot facility and construction is in progress
on the new 153,000 square foot fabrication facility.
The Company owns a 73,500 square foot facility located on 14 acres in Tulsa,
Oklahoma, currently up for sale due to the relocation of the Tank Construction
operation to the Tulsa Port of Catoosa. The Company also owns a 13,320 square
foot facility in Temperance, Michigan for the Michigan regional operations; a
20,950 square foot facility in Houston, Texas for Houston regional operations; a
30,000 square foot facility located on 5.0 acres of owned land in Bellingham,
Washington for the Plant and Construction Services Divisions; a 52,475 square
foot facility located on 5.0 acres of owned land in Orange, California for the
Western Division; and a 7,800 square foot facility located in Sarnia, Ontario,
Canada for the Sarnia Division.
-12-
The Company owns a 132,000 square foot facility, located on 6.5 acres in Newnan,
Georgia, which is being leased by Caldwell Tanks Inc., the buyer of Brown. This
facility will be sold upon final environmental remediation as provided under the
Asset Sales Agreement with Caldwell Tanks, Inc. which expires August 31, 2002.
The Company leases offices in Tulsa, Oklahoma; Bay Point, California; Bristol
and Bethlehem, Pennsylvania and Newark, Delaware. The aggregate lease payments
for these leases during fiscal 2002 were approximately $1.0 million. The Company
believes that its facilities are adequate for its current operations.
Item 3. Legal Proceedings
The Company and its subsidiaries are named defendants in several lawsuits
arising in the ordinary course of their business. While the outcome of lawsuits
cannot be predicted with certainty, management does not expect these lawsuits to
have a material adverse impact on the Company.
See also "Item 1 - Business - Environmental" for a discussion of environmental
proceedings involving the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
-13-
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Price Range of Common Stock
The Common Stock has traded on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System
since the Company's initial public offering on September 26, 1990. The trading
symbol for the Common Stock is "MTRX". The following table sets forth the high
and low closing sale prices for the Common Stock on the National Market System
as reported by NASDAQ for the periods indicated:
Fiscal Year Fiscal Year
2002 2001
------------------ --------------------
High Low High Low
---- --- ---- ---
First Quarter $7.52 $6.00 $5.06 $4.63
Second Quarter 7.20 5.15 5.63 3.94
Third Quarter 8.00 6.58 6.75 5.06
Fourth Quarter 10.22 7.57 7.44 4.75
Fiscal Year
2003
--------------------
High Low
---- ---
First Quarter (through August 14, 2002) $9.50 $6.42
As of August 14, 2002 there were approximately 61 holders of record of the
Common Stock. The Company believes that the number of beneficial owners of its
Common Stock is substantially greater than 61.
Dividend Policy
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon the
financial condition, capital requirements and earnings of the Company as well as
other factors the Board of Directors may deem relevant. The Company's credit
agreement restricts the Company's ability to pay dividends.
-14-
Item 6. Selected Financial Data
The following table sets forth selected historical financial information for
Matrix covering the five years ended May 31, 2002.
Matrix Service Company
(In millions, except percentages and per share data)
----------------------------------------------------------------------
Years Ended
----------------------------------------------------------------------
2002 2001 2000 1999 1998
----------------------------------------------------------------------
Revenues $222.5 $190.9 $193.8 $211.0 $225.4
Gross profit 25.3 22.5 20.5 14.0 18.6
Gross profit % 11.4% 11.8% 10.6% 6.6% 8.3%
Operating income (loss)* 9.0 7.5 6.8 (11.5) (16.3)
Operating income (loss) % 4.0% 3.9% 3.5% (5.5%) (7.2%)
Pre-tax income / (loss) 9.5 7.1 7.2 (12.6) (17.3)
Net income / (loss) 5.9 4.6 6.6 (12.6) (11.6)
Net income / (loss) % 2.7% 2.4% 3.4% (6.0%) (5.1%)
Earnings / (loss) per share-diluted 0.73 0.54 0.74 (1.34) (1.22)
Equity per share-outstanding 7.66 6.99 6.29 5.56 6.80
Weighted average shares outstanding 8.1 8.5 9.0 9.4 9.5
Working capital 25.8 23.8 19.4 25.7 41.1
Total assets 101.2 83.7 78.3 88.2 112.7
Long-term debt 9.3 3.5 0.0 5.5 13.1
Capital expenditures 16.4 5.3 6.3 5.4 2.6
Stockholders' equity 60.2 53.3 54.9 49.7 65.3
Total long-term debt to equity % 15.4% 6.6% 0.0% 11.1% 20.1%
Cash flow from operations 8.7 6.0 8.4 16.7 3.0
*See Note 3 of the Notes to Consolidated Financial Statements regarding
restructuring, impairment and abandonment costs included in operating income
(loss).
-15-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Critical Accounting Policies
Matrix's financial statements are presented in accordance with generally
accepted accounting principles. Highlighted below are the accounting policies
that management considers significant to the understanding and operations of
Matrix's business.
Revenue Recognition
Matrix records profits on long-term contracts on a percentage-of-completion
basis on the cost-to-cost method. Contracts in process are valued at cost plus
accrued profits less billings on uncompleted contracts. Contracts are generally
considered substantially complete when field construction is completed. Matrix
includes pass-through revenue and costs on cost-plus contracts, which are
customer-reimbursable materials, equipment and subcontractor costs, when Matrix
determines that it is responsible for the procurement and management of such
cost components on behalf of the customer.
Matrix has numerous contracts that are in various stages of completion. Such
contracts require estimates to determine the appropriate cost and revenue
recognition. At May 31, 2002, a sensitivity analysis of these estimates
indicated that a 5% change in total estimated contract revenues would result in
a 60% change in gross profits on these jobs. Matrix has a history of making
reasonably dependable estimates of the extent of progress towards completion,
contract revenues and contracts costs, and accordingly, does not believe these
significant fluctuations would ever materialize. However, current estimates may
be revised as additional information becomes available. If estimates of costs to
complete long-term contracts indicate a loss, provision is made through a
contract write-down for the total loss anticipated. The elapsed time from award
of a contract to completion of performance may be in excess of one year.
Claims Recognition
Claims are amounts in excess of the agreed contract price (or amounts not
included in the original contract price) that a contractor seeks to collect from
customers or others for delays, errors in specifications and designs, contract
terminations, change orders in dispute or unapproved as to both scope and price
or other causes of unanticipated additional costs. Matrix records claims in
accordance with paragraph 65 of the American Institute of Certified Public
Accountants Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts". This statement of
position states that recognition of amounts as additional contract revenue
related to claims is appropriate only if it is probable that the claims will
result in additional contract revenue and if the amount can be reliably
estimated. Those two requirements are satisfied by management's determination of
the existence of all of the following conditions: the contract or other evidence
provides a legal basis for the claim; additional costs are caused by
circumstances that were unforeseen at the contract date and are not the result
of deficiencies in the contractor's performance; costs associated with the claim
are identifiable or otherwise determinable and are reasonable in view of the
work performed; and the evidence supporting the claim is objective and
verifiable. If such requirements are met, revenue from a claim is recorded to
the extent that contract costs relating to the claim have been incurred. The
amounts recorded, if material, are disclosed in the notes to the financial
statements. Costs attributable to claims are treated as costs of contract
performance as incurred.
-16-
Forward Looking Statements
This Annual Report and the information incorporated herein by reference contains
various "forward-looking statements" within the meaning of federal and state
securities laws, including those identified or predicated by the words
"believes," "anticipates," "expects," "plans," "should" or "could" or similar
expressions. Such statements are subject to a number of uncertainties that could
cause the actual results to differ materially from those projected. Such factors
include, but are not limited to, the following:
.. The timing and planning of maintenance projects at customer facilities in
the refinery industry which could cause adjustments for seasonal shifts in
product and service demands.
.. Changes in general economic conditions in the United States.
.. Changes in laws and regulations to which Matrix is subject, including tax,
environmental, and employment laws and regulations.
.. The cost and effects of legal and administrative claims and proceedings
against Matrix or its subsidiaries.
.. Conditions of the capital markets Matrix utilizes to access capital to
finance operations.
.. The ability to raise capital in a cost-effective way.
.. The effect of changes in accounting policies.
.. The ability to manage growth and to assimilate personnel and operations of
acquired businesses.
.. The ability to control costs.
.. Severe weather which could cause project delays and/or a decline in labor
productivity.
.. Changes in foreign economies, currencies, laws, and regulations, especially
in Canada where Matrix has made direct investments.
.. Political developments in foreign countries, especially in Canada where
Matrix has made direct investments.
.. The ability of Matrix to develop expanded markets and product or service
offerings as well as its ability to maintain existing markets.
.. The need to develop a learning curve in bidding and managing projects in a
new industry.
.. Technological developments, high levels of competition, lack of customer
diversification, and general uncertainties of governmental regulation in
the energy industry.
.. The ability to recruit, train, and retain project supervisors with
substantial experience.
.. A downturn in the petroleum storage operations or hydrocarbon processing
operations of the petroleum and refining industries.
.. Changes in the labor market conditions that could restrict the availability
of workers or increase the cost of such labor.
.. The negative effects of a strike or work stoppage.
.. Exposure to construction hazards related to the use of heavy equipment with
attendant significant risks of liability for personal injury and property
damage.
.. The use of significant production estimates for determining percent
complete on construction contracts could produce different results upon
final determination of project scope.
.. The inherent inaccuracy of estimates used to project the timing and cost of
exiting operations of non-core businesses.
.. Fluctuations in quarterly results.
Given these uncertainties, readers of this Annual Report are cautioned not to
place undue reliance upon such statements.
-17-
- ------------------------------------------------------------------------------------------------------------------------------------
Matrix Service Company
Annual Results of Operations
($ Amounts in millions, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
AST Construction Plant Other Combined
Services Services Services Total Services* Total
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended May 31, 2002
Gross revenues $166.8 $26.8 $30.9 $224.5 $ 0.0 $224.5
Less: Intersegment revenues (2.0) 0.0 0.0 (2.0) 0.0 (2.0)
Consolidated revenues 164.8 26.8 30.9 222.5 0.0 222.5
Gross profit 18.7 2.9 3.7 25.3 0.0 25.3
Operating income 6.7 1.2 1.1 9.0 0.0 9.0
Income before income tax expense 7.3 1.2 1.0 9.5 0.0 9.5
Net income 4.5 0.8 0.6 5.9 0.0 5.9
Earnings / per share - diluted 0.55 0.10 0.08 0.73 0.0 0.73
Weighted average shares - diluted 8,105
Year ended May 31, 2001
Gross revenues $140.7 $18.4 $33.2 $192.3 $ 0.0 $192.3
Less: Intersegment revenues (1.2) (0.2) 0.0 (1.4) 0.0 (1.4)
Consolidated revenues 139.5 18.2 33.2 190.9 0.0 190.9
Gross profit (loss) 18.9 0.2 3.4 22.5 0.0 22.5
Operating income (loss) 7.9 (1.0) 1.2 8.1 (0.6) 7.5
Income (loss) before income tax expense 8.1 (1.6) 1.2 7.7 (0.6) 7.1
Net income (loss) 5.2 (1.0) 0.8 5.0 (0.4) 4.6
Earnings / (loss) per share - diluted 0.62 (0.12) 0.09 0.59 (0.05) 0.54
Weighted average shares - diluted 8,519
Year ended May 31, 2000
Gross revenues $131.9 $ 9.3 $34.3 $175.5 $ 19.1 $194.6
Less: Intersegment revenues (0.1) 0.0 0.0 (0.1) (0.7) (0.8)
Consolidated revenues 131.8 9.3 34.3 175.4 18.4 193.8
Gross profit (loss) 17.4 (0.5) 3.2 20.1 0.4 20.5
Operating income (loss) 8.0 (1.8) 1.3 7.5 (0.7) 6.8
Income (loss) before income tax expense 8.0 (1.5) 1.3 7.8 (0.6) 7.2
Net income (loss) 7.4 (1.5) 1.3 7.2 (0.6) 6.6
Earnings / (loss) per share - diluted 0.83 (0.17) 0.14 0.80 (0.06) 0.74
Weighted average shares - diluted 8,993
Variances 2002 to 2001
Gross revenues $ 26.1 $ 8.4 $(2.3) $ 32.2 $ 0.0 $ 32.2
Consolidated revenues 25.3 8.6 (2.3) 31.6 0.0 31.6
Gross profit (loss) (0.2) 2.7 0.3 2.8 0.0 2.8
Operating income (1.2) 2.2 (0.1) 0.9 0.6 1.5
Income (loss) before income tax expense (0.8) 2.8 (0.2) 1.8 0.6 2.4
Net income (loss) (0.7) 1.8 (0.2) 0.9 0.4 1.3
Variances 2001 to 2000
Gross revenues $ 8.8 $ 9.1 $(1.1) $ 16.8 $(19.1) $ (2.3)
Consolidated revenues 7.7 8.9 (1.1) 15.5 (18.4) (2.9)
Gross profit (loss) 1.5 0.7 0.2 2.4 (0.4) 2.0
Operating income (0.1) 0.8 (0.1) 0.6 0.1 0.7
Income (loss) before income tax expense 0.1 (0.1) (0.1) (0.1) 0.0 (0.1)
Net income (loss) (2.2) 0.5 (0.5) (2.2) 0.2 (2.0)
* Includes Municipal Water and FCCU Services
-18-
Results of Operations
Consolidated Overview
Matrix operates in three segments - AST Services, Construction Services and
Plant Services. All operations are contained within these segments, therefore,
significant fluctuations in gross revenues, gross profits, selling, general and
administrative costs and operating income will be discussed below.
Other income in 2002 consists primarily of $0.4 million in reimbursed interest
from a settlement of contract litigation. Other loss in 2001 consists primarily
of a $0.2 million charge to write-off the remaining investment in a joint
venture. Other income in 2000 consists primarily of $0.4 million in bad debt
recoveries reserved in previous years.
The effective tax rates for the years ended May 31, 2002, 2001 and 2000 were
38%, 35% and 8%, respectively. The lower effective rates in 2001 and 2000 were
the result of the utilization of tax loss carry forwards.
AST Services 2002 vs. 2001
Gross revenues for AST Services in 2002 were $166.8 million, an increase of
$26.1 million or 18.6% over 2001. This increase is a result of the overall
business environment continuing to be very positive. Gross margin for 2002 of
11.2% was worse than the 13.4% produced in 2001, primarily due to two large
projects that had negative gross margins. One project experienced cost overruns
due to underestimated field manhours, and the second project experienced cost
overruns due to lower than expected labor productivity. Management has
strengthened policies and procedures to incorporate a more stringent methodology
into the estimating process and has taken actions to improve labor productivity
on the second job. The increased sales volumes offset by the gross margin
decreases resulted in a gross profit for 2002 of $18.7 million which was similar
to that of 2001.
Selling, general and administrative costs as a percent of revenues decreased to
7.0% in 2002 vs. 7.6% in 2001. The resulting decrease was primarily due to
better fixed cost absorption from a larger revenue base. However, total selling,
general and administrative costs increased $1.1 million in 2002 vs. 2001 as a
result of higher salary and health and welfare costs.
Operating income for 2002 of $6.7 million, or 4.0% as a percent of revenues was
less than the $7.9 million, or 5.6% produced in 2001, primarily as a result of
the lower gross margins and higher selling, general and administrative expense
discussed above.
AST Services 2001 vs. 2000
Gross revenues for AST Services in 2001 were $140.7 million, an increase of $8.8
million or 6.7% over 2000. Gross margin for 2001 of 13.4% was better than the
13.2% produced in 2000. Margin comparisons, year over year, were favorably
impacted by a $0.6 million gross profit loss on a project in Venezuela for
fiscal year 2000. Margins were negatively impacted by less than satisfactory
execution on a number of large maintenance jobs and lower margins in the Gulf
Coast and from the tank construction group. These margin gains along with the
increased sales volumes resulted in gross profit for 2001 of $18.9 million
exceeding that of 2000 by $1.5 million, or 8.6%.
Selling, general and administrative costs as a percent of revenues increased to
7.6% in 2001 vs. 6.8% in 2000 primarily as a result of increased salary and
wages, increased professional services costs and increased information
technology costs associated with the enterprise-wide management information
system. Prior year selling, general and administrative costs were negatively
impacted by $0.2 million in one time charges related to the shut down of the
International Division.
Operating income for 2001 of $7.9 million, or 5.6% as a percent of revenues was
slightly less than the $8.0 million, or 6.1% produced in 2000 primarily as the
result of higher gross profits offset by an increase in selling, general and
administrative expenses discussed above.
Construction Services 2002 vs. 2001
-19-
Gross revenues for Construction Services in 2002 were $26.8 million, an increase
of $8.4 million or 45.7%. This increase was due to increased business
development efforts towards Matrix's core customer base which began last year.
Gross margin for 2002 of 10.8% was significantly better than the 1.1% produced
in 2001, as a direct result of the higher margin construction projects and cost
centers put in place last year. These margin increases, along with the higher
sales volumes, resulted in a gross profit for 2002 of $2.9 million being $2.7
million more than the $0.2 million in 2001.
Selling, general and administrative expenses as a percent of revenues decreased
to 6.5% in 2002 vs. 6.9% in 2001 primarily as a result of the fixed cost
structure being spread over a larger revenue base in 2002 vs. 2001.
Operating income for 2002 of $1.2 million, or 4.5% as a percent of revenues was
better than the operating loss of $1.0 million and (5.4%) produced in 2001,
primarily as a result of higher gross profits discussed above.
Construction Services 2001 vs. 2000
Gross revenues for Construction Services in 2001 were $18.4 million, an increase
of $9.1 million or 97.8% over 2000. This increase was due to a larger backlog at
the beginning of the Company's fiscal year 2001 compared to the beginning of the
prior fiscal year. Gross margin for 2001 of 1.1% was significantly better than
the (5.4%) produced in 2000 as a direct result of better absorption of fixed
costs associated with higher volume of business. These margin increases along
with the increased sales volumes resulted in gross profit for 2001 of $0.2
million being $0.7 million greater than the ($0.5) million in 2000.
Selling, general and administrative expenses as a percent of revenues decreased
to 6.9% in 2001 vs. 14.0% in 2000 primarily as a result of the fixed salary
costs being spread over a larger revenue base in 2001 vs. 2000.
Operating loss for 2001 of ($1.0) million, or (5.4%) as a percent of revenues
was better than the ($1.8) million, or (19.4%) produced in 2000 primarily as the
result of a higher volume of work. Other income includes a one-time benefit of
$0.4 million for the fiscal year ended 2000 as a result of a customer invoice
previously reserved as a bad debt being fully collected. Additionally, other
income included a one-time charge of $0.5 million for the fiscal year ended 2001
as a result of the write-off of the pulp and paper joint venture.
Plant Services 2002 vs. 2001
Gross revenues for Plant Services in 2002 were $30.9 million, a decrease of $2.3
million or 6.9% over 2001. The decrease was due to lower routine maintenance
activity in the current year. Gross margin for 2002 of 12.0% was better than the
10.2% produced in 2001 primarily as a result of the higher volume of turnaround
work. These margin improvements resulted in gross profit for 2002 of $3.7
million which was an increase from 2001 gross profit of $3.4 million, or 8.8%.
Selling, general and administrative expenses as a percent of revenues increased
to 8.2% in 2002 vs. 6.5% in 2001 primarily as a result of total costs in salary
and health and welfare costs excluding the prior year amounts.
Operating income for 2002 of $1.1 million, or 3.6% as a percent of revenues was
slightly less than the $1.2 million or 3.6% produced in 2001, as a direct result
of higher gross profits offset by increased selling, general and administrative
expenses.
Plant Services 2001 vs. 2000
Gross revenues for Plant Services in 2001 were $33.2 million, a decrease of $1.1
million or 3.2% over 2000. The decrease was due to lower routine maintenance
work. Gross margin for 2001 of 10.2% was better than the 9.3% produced in 2000
as a direct result of more turnaround work this fiscal year compared to last
fiscal year slightly offset by a one-time $0.3 million charge in fiscal 2000
related to training expenses. This gross margin increase offset somewhat by
lower revenues resulted in gross profit for 2001 of $3.4 million which was an
increase from 2000 gross profit of $3.2 million, or 6.3%.
Selling, general and administrative expenses as a percent of revenues increased
to 6.5% in 2001 vs. 5.4% in 2000 primarily as a result of increased professional
service costs, increased information technology costs
-20-
associated with the enterprise-wide information management system and fixed
costs being spread over a smaller revenue base in 2001 versus 2000.
Operating income for 2001 of $1.2 million, or 3.6% as a percent of revenues was
slightly less than the $1.3 million or 3.8% produced in 2000, as a direct result
of higher gross profits offset by increased selling, general and administrative
expenses.
Exited Operations
Fiscal Year 1999
On March 24, 1999 the Company entered into a Letter of Intent with Caldwell
Tanks, Inc. for the sale of Brown, a subsidiary acquired in 1994. In April 1999,
the board of directors approved the transaction and a Stock Purchase Agreement
was executed on June 9, 1999. Based upon certain environmental concerns however,
the structure of this transaction was renegotiated as an asset sale with the
Company retaining temporary ownership of the land and buildings until
environmental remediation is completed.
Also, in May 1999 senior management approved and committed the Company to an
exit plan related to the San Luis operations which were acquired in 1992. The
exit plan specifically identified all significant actions to be taken to
complete the exit plan, listed the activities that would not be continued, and
outlined the methods to be employed for the disposition, with an expected
completion date of March 2000. Management obtained board approval and
immediately began development of a communication plan to the impacted employees
under the Workers Adjustment and Retraining Notification Act ("WARN Act").
In 1999, the Company recorded $9.8 million of restructuring, impairment and
abandonment costs and reserves, related to the Brown sale and the San Luis exit
plan.
Fiscal Year 2000
On August 31, 1999, the Company sold the assets and the business (municipal
water services) of Brown to Caldwell Tanks, Inc. ("Caldwell") for $4.3 million
cash and the assumption by the buyer of ongoing construction contracts
("Work-in-Process Contracts") and certain environmental liabilities of $0.4
million. Excluded from the assets sold were cash, accounts receivable, real
estate and buildings and other miscellaneous assets. Included in the assets sold
was all inventory of the subsidiaries, net of $0.7 million used as
work-in-process. The cash amount paid at closing was subject to adjustment after
the closing based upon the relationship of future billings and the cost to
complete the Work-in-Process Contracts which was $1.9 million paid to the
Company on October 7, 1999. The buyer entered into a three-year right to lease
and an option to acquire the real estate and buildings at a specified price of
$2.2 million, and is obligated to acquire, at the same specified price, if the
Company is able to satisfy specified environmental clean-up measures within the
three-year period. The estimated cost of the clean up was previously provided.
The Company agreed with the buyer not to compete in that business for 5 years.
For the fiscal year ended May 31, 2000, Brown accounted for 6.3% of the
Company's total revenues and 4.8% of the Company's total assets.
Based upon amounts paid and charged against the reserves for the year ended May
31, 2000, worker's compensation, general liability, and environmental amounts
for the Brown operation were determined to be $1.0 million short of previously
anticipated expenditures, resulting in an additional restructuring, impairment
and abandonment charge.
In June 1999, notices were given as required under the WARN Act indicating that
100% of the workforce would be terminated and the Company announced that it
would also pursue potential opportunities to sell the San Luis municipal water
services. In January 2000, the Company sold at fair market value, resulting in
no gain or loss, the assets of the coating operation, an affiliated company of
San Luis, to existing management for $0.3 million. In April 2000, the remaining
open contracts were completed and all operations were shutdown. This shutdown
resulted in actual termination benefits paid approximating termination benefits
accrued. Based upon amounts paid and charged against the reserves for the year
ended May 31, 2000, the exit plan amounts were re-evaluated and reduced by $0.8
million. This reduction was a result of a favorable ruling in existing
litigation,
-21-
better than anticipated environmental findings, and reductions in worker's
compensation and general liability reserves.
During fiscal 2000, Brown had operating losses of $0.9 million and San Luis had
operating income of $0.6 million.
Fiscal Year 2001
Matrix had no operating activities in Brown or San Luis for the year ended May
31, 2001. Based on amounts paid and charged against the reserves for the year
ended May 31, 2001, worker's compensation, general liability and environmental
amounts for the Brown operation were determined to be $0.6 million short of
previously anticipated expenditures, resulting in a restructuring, impairment
and abandonment charge.
In February of 2001, one of the two pieces of property that Caldwell was
obligated to acquire was sold for $0.5 million, the carrying value of the real
estate and building. Most environmental remediation was completed on the
remaining piece of property and Caldwell's option to acquire the remaining
property was reduced to $1.7 million.
Fiscal Year 2002
Matrix had no operating activities in Brown or SLT for the year ended May 31,
2002. Activity for the twelve months ended May 31, 2002 consists mainly of $0.4
million in increased environmental costs related to the remediation at Brown,
$0.5 million of increased worker's compensation claims activity of these exited
operations and $0.1 million in warranty work at SLT. These costs were offset by
a $1.0 million gain on the settlement of litigation over a contested contract.
Financial Condition & Liquidity
Matrix's cash and cash equivalent totaled approximately $0.8 million at May 31,
2002 and $0.8 million at May 31, 2001.
Matrix has financed its operations recently with cash from operations and from
advances under a credit agreement. On September 26, 2001, the Company amended
its credit agreement with a commercial bank under which a total of $20.0 million
may be borrowed on a revolving basis based on the level of the Company's
eligible receivables and costs in excess of billings. Matrix can elect revolving
loans which bear interest on a prime or LIBOR-based option and mature on October
31, 2004. At May 31, 2002, $4.0 million was outstanding under the revolver at a
LIBOR interest rate of 2.84% with $16.0 million remaining in availability with
$4.8 million utilized by outstanding letters of credit which mature from 2003 to
2004. The agreement requires maintenance of certain financial ratios, limits the
amount of additional borrowings and prohibits the payment of dividends. The
credit facility is secured by all accounts receivable, inventory, intangibles,
and proceeds related thereto.
In fiscal 2002, the Company also borrowed $5.9 million under a term loan that
matures June 6, 2006. The term loan is secured by a mortgage on certain
facilities under construction at the Port of Catoosa in Oklahoma. The term loan
bears interest at LIBOR + 1.5%.
Effective June 1, 2001, the Company entered into an interest rate swap agreement
for an initial notional amount of $6 million with a commercial bank, effectively
providing a fixed interest rate of 7.23% for the five year period on the term
note. The company will pay 7.23% and receive LIBOR +1.5%, calculated on the
notional amount. Net receipt or payments under the agreement will be recognized
as an adjustment to interest expense. The related debt was initially drawn under
the credit agreement revolving loan, and was rolled into the term loan on
September 26, 2001. At May 31, 2002 the balance on the term loan stands at $5.6
million at a LIBOR interest rate of 3.89%. The swap agreement expires in 2006.
If LIBOR decreases, interest payments received and the market value of the swap
position decrease.
-22-
Operations of Matrix provided $8.7 million of cash for the twelve months ended
May 31, 2002 as compared with providing $6.0 million of cash for the twelve
months ended May 31, 2001, representing an increase of approximately $2.7
million. The increase was due primarily to an increase in net income coupled
with decreased working capital needs in the current year as compared to the
prior year.
Capital expenditures during the twelve months ended May 31, 2002 totaled
approximately $16.4 million. Of this amount $6.9 has been used in the
construction of the offices and fabrication facility in Orange County,
California and $3.8 million in the construction of the Tank, Tulsa Regional and
Fabrication facilities at the Tulsa Port of Catoosa location. Other 2002 capital
expenditures include $1.4 million for purchase of transportation equipment for
field operations, $3.2 million for purchase of welding, construction and
fabrication equipment and approximately $1.1 million for office equipment,
furniture and fixtures. $15.8 million dollars has been budgeted for total
capital expenditures for fiscal 2003 of which $7.3 million is included for the
Tulsa Port of Catoosa construction.
Matrix believes that its existing funds, amounts available from borrowing under
its existing credit agreement and cash generated by operations will be
sufficient to meet the working capital needs through fiscal 2003 and for the
foreseeable time thereafter unless significant expansions of operations not now
planned are undertaken, in which case Matrix would need to arrange additional
financing as a part of any such expansion.
The preceding discussion contains forward-looking statements including, without
limitation, statements relating to Matrix's plans, strategies, objectives,
expectations, intentions, and adequate resources, that are made pursuant to the
"safe harbor" provision of the Private Securities Litigation Reform Act of 1995.
Readers are cautioned that such forward-looking statements contained in the
financial condition and liquidity section are based on certain assumptions which
may vary from actual results. Specifically, the capital expenditure projections
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the successful remediation of
environmental issues relating to the Brown sale and other factors. However,
there can be no guarantee that these estimates will be achieved, or that there
will not be a delay in, or increased costs associated with, the successful
remediation of the remaining Brown property.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Matrix's interest rate risk exposure primarily results from its debt portfolio
which is influenced by short-term rates, primarily Prime Rate and LIBOR-Based
borrowings under its credit agreement. To mitigate the impact of fluctuations in
interest rates, Matrix utilizes interest-rate swaps to change the ratio of its
fixed and variable rate debt portfolio based on Management's assessment of
future interest rates, volatility of the yield curve and Matrix's ability to
access the capital markets as necessary. The following table provides
information about Matrix's term debt and interest rate swap that is subject to
interest rate risk. For term debt, the table presents principal cash flows and
weighted-average interest rates by expected maturity dates. For the
interest-rate swap, the table presents notional amounts and weighted-average
interest rates by contractual maturity dates. Notional amounts are used to
calculate the contractual cash flows to be exchanged under the interest rate
swap.
- -----------------------------------------------------------------------------------------------------------------------------
(Amounts in 000's) 2002 2003 2004 2005 2006 Fair Value May 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate swap:
- -----------------------------------------------------------------------------------------------------------------------------
Notional amount $ 5,600 $ 5,200 $ 4,800 $ 4,400 $ 0 $ (280)
- -----------------------------------------------------------------------------------------------------------------------------
Pay rate 7.23% 7.23% 7.23% 7.23% 7.23% 7.23%
- -----------------------------------------------------------------------------------------------------------------------------
Receive rate *
- -----------------------------------------------------------------------------------------------------------------------------
* 30-day LIBOR (London Interbank Offer Rate) plus 150 basis points
- -----------------------------------------------------------------------------------------------------------------------------
Matrix also utilizes a $20 million revolving credit facility for which
interest-rate swaps are not utilized. Therefore, short-term interest rate
changes could have an impact on future interest expense on amounts outstanding
on the credit facility. At May 31, 2002, $4.0 million was outstanding on the
revolver at an interest rate of 2.84% based on LIBOR + 1.0%.
-23-
Foreign Currency Risk
Matrix has a subsidiary company whose operations are located in Canada, whose
functional currency is the local currency. Historically, results have not been
significantly impacted by movements in the foreign currency exchange rate.
However, these investments do have the potential to impact Matrix's financial
position, due to fluctuations in the local currencies arising from the process
of translating the local functional currency into the U.S. dollar. Management
has not entered into derivative instruments to hedge the foreign currency risk.
A 10% change in the respective functional currency against the U.S. dollar would
not have had a material impact on the financial results of the Company for the
year ended May 31, 2002.
-24-
Item 8. Financial Statements and Supplementary Data
Financial Statements of the Company
Report of Independent Auditors 24
Consolidated Balance Sheets as of May 31, 2002 and 2001. 25
Consolidated Statements of Income for the years ended
May 31, 2002, 2001, and 2000. 27
Consolidated Statements of Changes in Stockholders' Equity
for the years ended May 31, 2002, 2001, and 2000. 28
Consolidated Statements of Cash Flows for the years ended
May 31, 2002, 2001 and 2000. 29
Notes to Consolidated Financial Statements 31
Quarterly Financial Data (Unaudited) 44
Schedule II - Valuation and Qualifying Accounts 45
Financial Statement Schedules
The following financial statement schedule is filed as a part of this report
under "Schedule II" immediately preceding the signature page: Schedule II -
Valuation and Qualifying Accounts for the three fiscal years ended May 31, 2002,
2001 and 2000. All other schedules called for by Form 10-K are omitted because
they are inapplicable or the required information is shown in the financial
statements, or notes thereto, included herein.
-25-
Report of Independent Auditors
The Stockholders and Board of Directors
Matrix Service Company
We have audited the accompanying consolidated balance sheets of Matrix Service
Company as of May 31, 2002 and 2001, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the three
years in the period ended May 31, 2002. Our audits also included the financial
statement schedule listed in the Index under Item 14. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Matrix
Service Company at May 31, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
May 31, 2002, in conformity with accounting principles generally accepted in the
United States. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
August 14, 2002
-26-
Matrix Service Company
Consolidated Balance Sheets
May 31
2002 2001
-----------------------------
(In Thousands)
Assets
Current assets:
Cash and cash equivalents $ 826 $ 835
Accounts receivable, less allowances
(2002 - $242, 2001 - $375) 35,209 29,184
Costs and estimated earnings in excess of
billings on uncompleted contracts 13,096 12,951
Inventories 2,815 2,772
Income tax receivable 359 -
Deferred income taxes 348 442
Prepaid expenses 2,267 2,573
-----------------------------
Total current assets 54,920 48,757
Property, plant and equipment, at cost:
Land and buildings 15,452 10,108
Construction equipment 22,312 19,550
Transportation equipment 8,719 7,560
Furniture and fixtures 5,269 4,841
Construction in progress 5,912 2,306
-----------------------------
57,664 44,365
Accumulated depreciation 25,242 22,507
-----------------------------
32,422 21,858
Goodwill, net of accumulated amortization
(2002 - $2,777, 2001 - $2,427) 10,929 11,258
Other assets 2,919 1,848
-----------------------------
Total assets $ 101,190 $ 83,721
=============================
-27-
Matrix Service Company
Consolidated Balance Sheets
May 31
2002 2001
------------------------------------
(In Thousands)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 12,954 $ 10,229
Billings on uncompleted contracts in excess
of costs and estimated earnings 9,108 7,148
Accrued insurance 2,086 2,362
Accrued environmental reserves 92 471
Income tax payable 210 400
Other accrued expenses 4,072 4,307
Current portion of long-term debt 589 -
------------------------------------
Total current liabilities 29,111 24,917
Long-term debt 9,291 3,515
Deferred income taxes 2,588 1,983
Stockholders' equity:
Common stock - $.01 par value; 30,000,000
shares authorized; 9,642,638
shares issued in 2002 and 2001 96 96
Additional paid-in capital 51,868 51,596
Retained earnings 18,126 12,245
Accumulated other comprehensive loss (894) (813)
------------------------------------
69,196 63,124
Less treasury stock, at cost -1,784,856 and
2,021,972 shares in 2002 and 2001 respectively (8,996) (9,818)
------------------------------------
Total stockholders' equity 60,200 53,306
------------------------------------
Total liabilities and stockholders' equity $ 101,190 $ 83,721
====================================
See accompanying notes.
-28-
Matrix Service Company
Consolidated Statements of Income
Year ended May 31
2002 2001 2000
------------------------------------------------------
(In thousands, except share
and per share amounts)
Revenues $ 222,506 $ 190,901 $ 193,753
Cost of revenues 197,248 168,390 173,269
------------------------------------------------------
Gross profit 25,258 22,511 20,484
Selling, general and administrative expenses 16,004 14,081 12,993
Goodwill and noncompete amortization 341 353 484
Restructuring, impairment and abandonment costs (45) 608 180
------------------------------------------------------
Operating income 8,958 7,469 6,827
Other income (expense):
Interest expense (255) (407) (368)
Interest income 37 177 77
Other 748 (179) 660
------------------------------------------------------
Income before income taxes 9,488 7,060 7,196
Provision for federal, state and
foreign income taxes 3,607 2,480 580
------------------------------------------------------
Net income $ 5,881 $ 4,580 $ 6,616
======================================================
Basic earnings per common share $ 0.76 $ 0.55 $ 0.75
======================================================
Diluted earnings per common share $ 0.73 $ 0.54 $ 0.74
======================================================
Weighted average common shares outstanding:
Basic 7,718,688 8,334,383 8,872,847
Diluted 8,104,957 8,518,738 8,992,819
See accompanying notes.
-29-
Matrix Service Company
Consolidated Statements of Changes in Stockholders' Equity
Accumulated
Additional Other
Common Paid-In Retained Treasury Comprehensive
Stock Capital Earnings Stock Loss Total
Translation Derivative
---------------------------------------------------------------------------------------
Balances, May 31, 1999 $ 96 $ 51,596 $ 1,567 $(2,989) $(555) $ - $ 49,715
Net income - - 6,616 - - - 6,616
Other comprehensive income
Translation adjustment - - - - (138) - (138)
Comprehensive income 6,478
Purchase of treasury stock
(288,000 shares) - - - (1,354) - - (1,354)
Exercise of stock options
(67,078 shares) - - (398) 462 - - 64
---------------------------------------------------------------------------------------
Balances, May 31, 2000 96 51,596 7,785 (3,881) (693) - 54,903
Net income - - 4,580 - - - 4,580
Other comprehensive income
Translation adjustment - - - - (120) - (120)
Comprehensive income 4,460
Purchase of treasury stock
(1,166,400 shares) - - - (6,376) - - (6,376)
Exercise of stock options
(62,800 shares) - - (120) 439 - - 319
---------------------------------------------------------------------------------------
Balances, May 31, 2001 96 51,596 12,245 (9,818) (813) - 53,306
Net income - - 5,881 - - - 5,881
Other comprehensive income
Translation adjustment - - - - 93 - 93
Derivative activity (net of
$106 in tax) - - - - - (174) (174)
Comprehensive income 5,800
Exercise of stock options
(237,116 shares) - 272 - 822 - - 1,094
---------------------------------------------------------------------------------------
Balances, May 31, 2002 $ 96 $ 51,868 $18,126 $(8,996) $(720) $(174) $ 60,200
---------------------------------------------------------------------------------------
See accompanying notes.
-30-
Matrix Service Company
Consolidated Statements of Cash Flows
Year ended May 31
2002 2001 2000
------------------------------------------------------
(In Thousands)
Operating activities
Net income $ 5,881 $ 4,580 $ 6,616
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,980 4,540 3,894
Deferred income tax 805 1,541 -
Gain on sale of equipment (79) (200) (76)
Noncash write-off of joint venture - 529 -
Changes in operating assets and
liabilities increasing (decreasing)
cash, net of effects of acquisitions:
Accounts receivable (6,025) (4,996) 9,280
Costs and estimated earnings
in excess of billings on
uncompleted contracts (145) (1,922) (3,540)
Inventories (43) 277 929
Prepaid expenses 306 (14) (1,508)
Accounts payable 2,725 1,470 (1,046)
Billings on uncompleted
contracts in excess of costs
and estimated earnings 1,960 2,010 (2,218)
Accrued expenses (1,170) (1,932) (3,986)
Income taxes receivable/payable (549) 134 63
Other 82 (25) 7
------------------------------------------------------
Net cash provided by operating activities 8,728 5,992 8,415
Investing activities
Acquisition of property, plant and equipment (16,432) (5,277) (6,316)
Acquisitions net of cash acquired - - (851)
Proceeds from sale of exited operations - 480 6,805
Investment in joint venture - (250) (279)
Proceeds from other investing activities 160 700 36
------------------------------------------------------
Net cash used in investing activities $ (16,272) $ (4,347) $ (605)
-31-
Matrix Service Company
Consolidated Statements of Cash Flows (continued)
Year ended May 31
2002 2001 2000
------------------------------------------------------
(In Thousands)
Financing activities
Issuance of common stock $ 1,094 $ 319 $ 64
Purchase of treasury stock - (6,376) (1,354)
Advances under bank credit agreement 111,480 65,660 49,760
Repayments of bank credit agreement (105,115) (62,161) (57,260)
Repayment of other notes - (6) (91)
------------------------------------------------------
Net cash provided by/(used in) financing activities 7,459 (2,564) (8,881)
Effect of exchange rate changes on cash 76 (52) (95)
------------------------------------------------------
Net decrease in cash and cash equivalents (9) (971) (1,166)
Cash and cash equivalents, beginning of year 835 1,806 2,972
------------------------------------------------------
Cash and cash equivalents, end of year $ 826 $ 835 $ 1,806
======================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 2,992 $ 951 $ 475
Interest 567 249 370
See accompanying notes.
-32-
Matrix Service Company
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
The consolidated financial statements present the accounts of Matrix Service
Company and its subsidiaries (collectively referred to as the "Company").
Subsidiary companies include Matrix Service, Inc., ("MSI"), Matrix Service
Mid-Continent ("Mid-Continent"), Matrix Service, Inc. - Canada ("Canada"), San
Luis Tank Piping Construction, Inc. and Affiliates ("San Luis"), Brown Steel
Contractors, Inc. and Affiliates ("Brown"), and Midwest Industrial Contractors,
Inc. ("Midwest"). In 1999 Matrix sold the assets and business of Brown and in
2000, Matrix shutdown San Luis (see Note 3). Intercompany transactions and
balances have been eliminated in consolidation.
The Company operates primarily in the United States and has operations in
Canada. The Company's industry segments are Aboveground Storage Tank (AST)
Services, Construction Services, Plant Services, and Other Services.
Cash Equivalents
The Company includes as cash equivalents all investments with original
maturities of three months or less which are readily convertible into cash. The
carrying value of cash equivalents approximates fair value.
Inventories
Inventories consist primarily of raw materials and are stated at the lower of
cost or net realizable value. Cost is determined using the first-in, first-out
or average cost method.
Revenue Recognition
Revenues from fixed-price contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
date to estimated total costs for each contract. Revenues from cost-plus-fee
contracts are recognized on the basis of costs incurred plus the estimated fee
earned.
Anticipated losses on uncompleted contracts are recognized in full when they
become known. In forecasting ultimate profitability on certain contracts,
estimated recoveries are included for work performed under customer change
orders to contracts for which firm prices have not yet been negotiated. Due to
uncertainties inherent in the estimation process, it is reasonably possible that
completion costs, including those arising from contract penalty provisions and
final contract settlements, will be revised in the near-term. Such revisions to
costs and income are recognized in the period in which the revisions are
determined.
Additional contract revenue from claims is recognized when it is probable the
claims will result in additional contract revenue and the amount can be reliably
estimated. Costs attributable to claims are treated as costs of contract
performance as incurred.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated
useful lives of the depreciable assets. Goodwill and noncompete agreements are
being amortized over 40 and 3 to 5 years, respectively, using the straight-line
method. Goodwill represents the excess of cost over fair value of assets of
businesses acquired. See New Accounting Standards for impact of SFAS No. 142,
"Goodwill and Other Intangible Assets."
-33-
Matrix Service Company
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
The Company evaluates the long-lived assets and intangibles, including goodwill,
of identifiable business activities for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such assets used in operations may not be recoverable. The determination of
whether an impairment has occurred is based on management's estimate of
undiscounted future cash flows attributable to the assets as compared to the
carrying value of the assets. If an impairment has occurred, the amount of the
impairment recognized is determined by estimating the fair value for the assets
and recording a provision for loss if the carrying value is greater than fair
value.
For assets identified to be disposed of in the future, the carrying value of
these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.
Environmental Costs
Environmental liabilities are recognized when it is probable that a loss has
been incurred and the amount of that loss is reasonably estimable. Environmental
liabilities are based upon estimates of expected future costs without
discounting.
Income Taxes
Deferred income taxes are computed using the liability method whereby deferred
tax assets and liabilities are recognized based on temporary differences between
financial statement and tax basis of assets and liabilities using presently
enacted tax rates.
Earnings per Common Share
Basic earnings per common share is calculated based on the weighted average
shares outstanding during the period. Diluted earnings per share includes in
average shares outstanding employee stock options which are dilutive (386,269
shares, 184,355 shares and 119,972 shares in 2002, 2001 and 2000, respectively).
Stock Option Plans
Employee stock options are accounted for under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Derivative Instruments and Hedging Activities
On June 1, 2001, Matrix adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." All derivatives are reflected at their fair
value in the Consolidated Balance Sheet as of May 31, 2002. Derivative
instruments held by Matrix consist of an interest rate swap agreement.
-34-
Matrix Service Company
Notes to Consolidated Financial Statements
The accounting for changes in the fair value of a derivative depends upon
whether it has been designated in a hedging relationship and, further, on the
type of hedging relationship. To qualify for designation in a hedging
relationship, specific criteria must be met and the appropriate documentation
maintained. Hedging relationships are established pursuant to Matrix risk
management policies and are initially and regularly evaluated to determine
whether they are expected to be, and have been, highly effective hedges. If a
derivative ceases to be a highly effective hedge, hedge accounting is
discontinued prospectively, and future changes in the fair value of the
derivative are recognized in earnings each period. Changes in the fair value of
derivatives not designated in a hedging relationship are recognized in earnings
each period.
For derivatives designated as a hedge of a forecasted transaction or of the
variability of cash flows related to a recognized asset or liability (cash flow
hedges), the effective portion of the change in fair value of the derivative is
reported in other comprehensive income and reclassified into earnings in the
period in which the hedged item affects earnings. Amounts excluded from the
effectiveness calculation and any ineffective portion of the change in fair
value of the derivative are recognized currently in earnings. Gains or losses
deferred in accumulated other comprehensive income associated with terminated
derivatives and derivatives that cease to be highly effective hedges remain in
accumulated other comprehensive income until the hedged item affects earnings.
Forecasted transactions designated as the hedged item in a cash flow hedge are
regularly evaluated to assess whether they continue to be probable of occurring.
If the forecasted transaction is no longer probable of occurring, any gain or
loss deferred in accumulated other comprehensive income is recognized in
earnings currently.
Matrix entered into interest-rate swap agreements to modify the interest
characteristics of its long-term debt. These agreements were designated with all
or a portion of the principal balance and term of specific debt obligations.
These agreements involved the exchange of amounts based on a fixed interest rate
for amounts based on variable interest rates without an exchange of the notional
amount upon which the payments are based. The difference to be paid or received
is accrued and recognized as an adjustment of interest accrued. Gains and losses
from terminations of interest-rate swap agreements are deferred and amortized as
an adjustment of the interest expense on the outstanding debt over the remaining
original term of the terminated swap agreement. In the event the designated debt
is extinguished, gains and losses from terminations of interest-rate swap
agreements are recognized into income.
New Accounting Standards
The Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" in June
2001. SFAS No. 141 establishes accounting and reporting standards for business
combinations and requires all business combinations to be accounted for by the
purchase method. The Statement is effective for all business combinations
initiated after June 30, 2001, and any business combinations accounted for using
the purchase method for which the date of acquisition is July 1, 2001, or later.
SFAS No. 142 addresses accounting and reporting standards for goodwill and other
intangible assets. Under the provisions of this Statement, goodwill and
intangible assets with indefinite useful lives are no longer amortized, but will
be tested annually for impairment. Matrix applied the new rules on accounting
for goodwill and other intangible assets beginning June 1, 2002. Application of
the nonamortization provisions of the Statement will not materially impact the
comparability of the Consolidated Statement of Operations. During the first
quarter of fiscal 2003, Matrix began the initial impairment tests of goodwill as
of June 1, 2002. Preliminary results of these tests have indicated that there
will not be a significant unfavorable impact of adopting this standard; however,
all tests have not been completed.
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in October, 2001. This Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," and amends Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The Statement retains the basic framework of SFAS No.
121, resolves certain implementation issues of SFAS No. 121, extends
applicability to discontinued operations, and broadens the presentation of
-35-
Matrix Service Company
Notes to Consolidated Financial Statements
discontinued operations to include a component of an entity. The Statement is
being applied prospectively, beginning June 1, 2002. Initial adoption of the
Statement did not have any impact on Matrix results of operations or financial
position.
2. Joint Venture
In March 2000, the Company entered into a joint venture partnership agreement
for the construction of a pulp and paper project. The joint venture is accounted
for under the equity method. In May 2001, the joint venture became impaired and
Matrix fully reserved the net investment amount. Trade receivables includes a
$1.3 million balance from this affiliated joint venture which is believed to be
fully recoverable. The joint venture is currently in litigation with the owner
of the pulp and paper project, and has indicated recoveries sought are in excess
of the payable to Matrix.
3. Restructuring, Impairment and Abandonment Costs
Fiscal Year 1999
On March 24, 1999 the Company entered into a Letter of Intent with Caldwell
Tanks, Inc. for the sale of Brown, a subsidiary acquired in 1994. In April 1999,
the board of directors approved the transaction and a Stock Purchase Agreement
was executed on June 9, 1999. Based upon certain environmental concerns however,
the structure of this transaction was renegotiated as an asset sale with the
Company retaining temporary ownership of the land and buildings until
environmental remediation is completed.
Also, in May 1999 senior management approved and committed the Company to an
exit plan related to the San Luis operations which were acquired in 1992. The
exit plan specifically identified all significant actions to be taken to
complete the exit plan, listed the activities that would not be continued, and
outlined the methods to be employed for the disposition, with an expected
completion date of March 2000. Management obtained board approval and
immediately began development of a communication plan to the impacted employees
under the Workers Adjustment and Retraining Notification Act ("WARN Act").
In 1999, the Company recorded $9.8 million of restructuring, impairment and
abandonment costs and reserves, related to the Brown sale and the San Luis exit
plan.
Fiscal Year 2000
On August 31, 1999, the Company sold the assets and the business (municipal
water services) of Brown to Caldwell Tanks, Inc. ("Caldwell") for $4.3 million
cash and the assumption by the buyer of ongoing construction contracts
("Work-in-Process Contracts") and certain environmental liabilities of $0.4
million. Excluded from the assets sold were cash, accounts receivable, real
estate and buildings and other miscellaneous assets. Included in the assets sold
was all inventory of the subsidiaries, net of $0.7 million used as
work-in-process. The cash amount paid at closing was subject to adjustment after
the closing based upon the relationship of future billings and the cost to
complete the Work-in-Process Contracts which was $1.9 million paid to the
Company on October 7, 1999. The buyer entered into a three-year right to lease
and an option to acquire the real estate and buildings at a specified price of
$2.2 million, and is obligated to acquire, at the same specified price, if the
Company is able to satisfy specified environmental clean-up measures within the
three-year period. The estimated cost of the clean up was previously provided.
The Company agreed with the buyer not to compete in that business for 5 years.
For the fiscal year ended May 31, 2000, Brown accounted for 6.3% of the
Company's total revenues and 4.8% of the Company's total assets.
Based upon amounts paid and charged against the reserves for the year ended May
31, 2000, worker's compensation, general liability, and environmental amounts
for the Brown operation were determined to
-36-
Matrix Service Company
Notes to Consolidated Financial Statements
3. Restructuring, Impairment and Abandonment Costs (continued)
be $1.0 million short of previously anticipated expenditures, resulting in an
additional restructuring, impairment and abandonment charge.
In June 1999, notices were given as required under the WARN Act indicating that
100% of the workforce would be terminated and the Company announced that it
would also pursue potential opportunities to sell the San Luis municipal water
services. In January 2000, the Company sold at fair market value, resulting in
no gain or loss, the assets of the coating operation, an affiliated company of
San Luis, to existing management for $0.3 million. In April 2000, the remaining
open contracts were completed and all operations were shutdown. This shutdown
resulted in actual termination benefits paid approximating termination benefits
accrued. Based upon amounts paid and charged against the reserves for the year
ended May 31, 2000, the exit plan amounts were re-evaluated and reduced by $0.8
million. This reduction was a result of a favorable ruling in existing
litigation, better than anticipated environmental findings, and reductions in
worker's compensation and general liability reserves.
During fiscal 2000, Brown had operating losses of $0.9 million and San Luis had
operating income of $0.6 million.
Fiscal Year 2001
Matrix had no operating activities in Brown or San Luis for the year ended May
31, 2001. Based on amounts paid and charged against the reserves for the year
ended May 31, 2001, worker's compensation, general liability and environmental
amounts for the Brown operation were determined to be $0.6 million short of
previously anticipated expenditures, resulting in a restructuring, impairment
and abandonment charge.
In February of 2001, one of the two pieces of property that Caldwell was
obligated to acquire was sold for $0.5 million, the carrying value of the real
estate and building. Most environmental remediation was completed on the
remaining piece of property and Caldwell's option to acquire the remaining
property was reduced to $1.7 million.
Fiscal Year 2002
Matrix had no operating activities in Brown or SLT for the year ended May 31,
2002. Activity for the twelve months ended May 31, 2002 consists mainly of $0.4
million in increased environmental costs related to the remediation at Brown,
$0.5 million of increased worker's compensation claims activity of these exited
operations and $0.1 million in warranty work at SLT. These costs were offset by
a $1.0 million gain on the settlement of litigation over a contested contract.
As a result of these restructuring and closing operations, the Company recorded
the following charges:
May 31
2002 2001 2000
-------------------------------------
(In Thousands)
Legal Settlement (996) - -
Environmental Reserves 377 216 (32)
Other Reorganization Costs 574 392 212
-------------------------------------
Restructuring, impairment and
abandonment costs (45) $ 608 $ 180
=====================================
-37-
Matrix Service Company
Notes to Consolidated Financial Statements
4. Uncompleted Contracts
Contract terms of the Company's construction contracts generally provide for
progress billings based on completion of certain phases of the work. The excess
of costs incurred and estimated earnings recognized for construction contracts
over amounts billed on uncompleted contracts is reported as a current asset and
the excess of amounts billed over costs incurred and estimated earnings
recognized for construction contracts on uncompleted contracts is reported as a
current liability as follows:
May 31
2002 2001
--------------------
(In Thousands)
Costs incurred and estimated earnings
recognized on uncompleted contracts $259,516 $149,844
Billings on uncompleted contracts 255,528 144,041
--------------------
$ 3,988 $ 5,803
====================
Shown on balance sheet as:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 13,096 $ 12,951
Billings on uncompleted contracts in
excess of costs and estimated earnings 9,108 7,148
--------------------
$ 3,988 $ 5,803
====================
Approximately $4.9 million and $2.4 million of accounts receivable at May 31,
2002 and 2001, respectively, relate to billed retainages under contracts.
5. Long-Term Debt
Long-term debt consists of the following:
May 31
2002 2001
--------------------
(In Thousands)
Borrowings under bank credit facility:
Revolving credit facility $ 4,000 $ 3,515
Term note 5,600 -
Interest rate swap liability 280 -
--------------------
$ 9,880 $ 3,515
Less current portion
Term note 400 -
Interest rate swap liability 189 -
--------------------
$ 9,291 $ 3,515
====================
On September 26, 2001, the Company amended its credit agreement with a
commercial bank under which a total of $20.0 million may be borrowed on a
revolving basis based on the level of the Company's eligible receivables and
costs in excess of billings. Matrix can elect revolving loans which bear
interest on a prime or LIBOR-based option and mature on October 31, 2004. At May
31, 2002, $4.0 million was outstanding under the revolver at a LIBOR interest
rate of 2.84% with $16.0 million remaining in availability with $4.8 million
utilized by outstanding letters of credit which mature from 2003 to 2004. The
agreement requires maintenance of certain financial ratios, limits the amount of
additional borrowings and prohibits the payment of dividends. The credit
facility is secured by all accounts receivable, inventory, intangibles, and
proceeds related thereto.
-38-
Matrix Service Company
Notes to Consolidated Financial Statements
5. Long-Term Debt (continued)
In fiscal 2002, the Company also borrowed $5.9 million under a term loan that
matures June 6, 2006. The term loan is secured by a mortgage on certain
facilities under construction at the Port of Catoosa in Oklahoma. The term loan
bears interest at LIBOR + 1.5%.
Effective June 1, 2001, the Company entered into an interest rate swap agreement
for an initial notional amount of $6 million with a commercial bank, effectively
providing a fixed interest rate of 7.23% for the five year period on the term
note. The company will pay 7.23% and receive LIBOR +1.5%, calculated on the
notional amount. Net receipt or payments under the agreement will be recognized
as an adjustment to interest expense. The related debt was initially drawn under
the credit agreement revolving loan, and was rolled into the term loan on
September 26, 2001. At May 31, 2002 the balance on the term loan stands at $5.6
million at a LIBOR interest rate of 3.89%. The swap agreement expires in 2006.
If LIBOR decreases, interest payments received and the market value of the swap
position decrease.
Aggregate maturities of long-term debt for the years ending May 31, are as
follows (in thousands): 2003 - $400, 2004 - $400, 2005 - $4,400 and 2006 -
$4,400.
The carrying value of debt approximates fair value.
6. Income Taxes
The components of the provision for income taxes are as follows:
2002 2001 2000
-----------------------------
(In Thousands)
Current:
Federal $ 2,408 $ 442 $ 50
State 451 409 360
Foreign 49 88 170
-----------------------------
$ 2,908 939 580
Deferred:
Federal 593 1,298 -
State 111 234 -
Foreign (5) 9 -
-----------------------------
699 1,541 -
-----------------------------
$ 3,607 $ 2,480 $ 580
=============================
The difference between the expected income tax provision applying the domestic
federal statutory tax rate and the reported income tax provision is explained as
follows:
2002 2001 2000
------------------------------
(In Thousands)
Expected provision for
Federal income taxes
at the statutory rate $ 3,227 $ 2,400 $ 2,446
State income taxes, net of
Federal benefit 380 282 305
Charges without tax benefit,
primarily goodwill amortization 23 96 118
Valuation allowance - (332) (3,041)
Other (23) 34 752
------------------------------
Provision for income taxes $ 3,607 $ 2,480 $ 580
==============================
-39-
Matrix Service Company
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
Significant components of the Company's deferred tax liabilities and assets as
of May 31, 2002 and 2001 are as follows:
2002 2001
---------------------------------
(In Thousands)
Deferred tax liabilities:
Tax over book depreciation $ 2,858 $ 2,326
Other - net 215 189
---------------------------------
Total deferred tax liabilities 3,073 2,515
Deferred tax assets:
Bad debt reserve 92 142
Foreign insurance dividend 129 124
Vacation accrual - 113
Restructuring reserves 50 153
Noncompete amortization 357 408
Interest rate swap derivative 106 -
Other - net 99 34
---------------------------------
Total deferred tax assets $ 833 $ 974
---------------------------------
$ 2,240 $ 1,541
=================================
7. Stockholders' Equity
Preferred Stock
The Company has 5.0 million shares of preferred stock authorized, none of which
was issued or outstanding at May 31, 2002, or 2001.
Preferred Share Purchase Rights
The Company's Board of Directors authorized and directed a dividend of one
preferred share purchase right for each common share outstanding on November 12,
1999, and authorized and directed the issuance of one right per common share for
any shares issued after that date. These rights, which expire November 12, 2009,
will be exercisable only if a person or group acquires 15 percent or more of the
Company's common stock or announces a tender offer that would result in
ownership of 15 percent or more of the common stock. Each right will entitle
stockholders to buy one one-hundredth of a share of preferred stock at an
exercisable price of $40. In addition, the rights enable holders to either
acquire additional shares of the Company's common stock or purchase the stock of
an acquiring company at a discount, depending on specific circumstances. The
rights may be redeemed by the Company in whole, but not in part, for one cent
per right.
Incentive Stock Options
The Company has a 1990 Incentive Stock Option Plan (the "1990 Plan") and a 1991
Incentive Stock Option Plan (the "1991 Plan") to provide additional incentives
for officers and other key employees of the Company. The Company also has a 1995
Nonemployee Directors' Stock Option Plan (the "1995 Plan"). Under the 1990 and
1991 Plans, incentive and nonqualified stock options may be granted to the
Company's key employees and nonqualified stock options may be granted to
nonemployees who are elected for the first time as directors of the Company
after January 1, 1991. Employee options generally
-40-
Matrix Service Company
Notes to Consolidated Financial Statements
7. Stockholders' Equity (continued)
become exercisable over a five-year period from the date of the grant. Under the
1995 Plan, qualified stock options are granted annually to nonemployee directors
and generally become exercisable over a two-year period from the date of the
grant. Under each plan, options may be granted with durations of no more than
ten years. The option price per share may not be less than the fair market value
of the common stock at the time the option is granted. Shareholders have
authorized an aggregate of 900,000 options, 1,320,000 options and 250,000
options to be granted under the 1990, 1991, and 1995 Plans, respectively.
Options exercisable total 498,983 options, 570,426 options and 540,069 options
at May 31, 2002, 2001, and 2000, respectively. The weighted average exercise
prices of exercisable options were $4.485, $4.605 and $4.825 at May 31, 2002,
2001, and 2000, respectively.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123, and has been determined as
if the Company had accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rates of 2.81% to 6.74%;
dividend yield of -0-%; volatility factors of the expected market price of the
Company's stock of .420 to .860; and an expected life of the options of 2 to 5
years. The average grant date fair values of options awarded during 2002, 2001
and 2001 were $3.204, $2.488, and $2.840, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Statement's pro forma information from the options is as follows:
2002 2001 2000
------------------------------------------------
(In Thousands)
Net income as reported $ 5,881 $ 4,580 $ 6,616
Compensation expense from stock options 320 310 455
------------------------------------------------
Pro forma net income $ 5,561 $ 4,270 $ 6,161
================================================
Pro forma earnings per common share:
Basic $ .72 $ .51 $ .69
Diluted $ .69 $ .50 $ .69
The effect of compensation expense from stock options on pro forma net income
reflects the vesting of awards granted after June 1, 1995, the year in which the
pro forma reporting requirements under SFAS 123 were adopted.
-41-
Matrix Service Company
Notes to Consolidated Financial Statements
7. Stockholders' Equity (continued)
The following summary reflects option transactions for the past three years:
Shares Option Price Per Share Weighted Average
Price
---------------------------------------------------------------------
Shares under option:
---------------------------------------------------------------------
Outstanding at May 31, 1999 1,625,300 $ 0.67 - $7.75 4.624
Granted 40,000 4.125 - 5.188 4.789
Exercised (67,078) 0.67 - 5.75 0.957
Canceled (522,128) 3.88 - 7.75 5.286
---------------------------------------------------------------------
Outstanding at May 31, 2000 1,076,094 $ 3.625 - 7.75 4.538
Granted 215,000 4.25 - 5.00 4.500
Exercised (62,800) 3.625 - 6.25 5.079
Canceled (107,315) 3.625 - 6.25 4.930
---------------------------------------------------------------------
Outstanding at May 31, 2001 1,120,979 $ 3.625 - $7.75 4.463
Granted 140,000 6.05 - 6.05 6.050
Exercised (237,116) 3.625 - 6.25 4.617
Canceled (22,000) 4.375 - 5.75 4.563
---------------------------------------------------------------------
Outstanding at May 31, 2002 1,001,863 $ 3.625 - $7.75 4.647
=====================================================================
At May 31, 2002 the weighted average exercise price of outstanding options is
$4.647 and the weighted average remaining contractual life of outstanding
options is 6.56 years.
8. Commitments
The Company is the lessee under operating leases covering real estate in Tulsa
and Catoosa, Oklahoma; Bristol and Bethlehem, Pennsylvania; Bay Point,
California; and Newark, Delaware. The Company is also the lessee under operating
leases covering office equipment. Future minimum lease payments are as follows
(in thousands): 2003 - $361; 2004 - $271; 2005 - $224; 2006 - $194; 2007 - $168
and thereafter - $1,067. Rental expense was $1.0 million, $1.0 million and $1.0
million for the years ended May 31, 2002, 2001 and 2000, respectively.
9. Other Financial Information
The Company provides specialized on-site maintenance and construction services
for petrochemical processing and petroleum refining and storage facilities. The
Company grants credit without requiring collateral to customers consisting of
the major integrated oil companies, independent refiners and marketers, and
petrochemical companies. Although this potentially exposes the Company to the
risks of depressed cycles in oil and petrochemical industries, the Company's
receivables at May 31, 2002 have not been adversely affected by such conditions.
Sales to two customers accounted for approximately 13% and 12%, respectively of
the Company's revenues for the year ended May 31, 2002. The customer that
represented 13% of consolidated revenues, represented 8% of AST Services, 21% of
Plant Services and 36% of Construction Services revenues. The customer that
represented 12% of consolidated revenues represented 6% of AST Services
revenues, 44% of Plant Services revenues and 36% of Construction Services
revenues. Sales to two customers accounted for approximately 17% and 15%,
respectively of the Company's revenues for the year ended May 31, 2001. The
customer that represented 17% of consolidated revenues, represented 7% of AST
Services revenues, 57% of Plant Services and 21% of Construction Services
revenues. The customer that represented 15% of consolidated revenues represented
16% of AST Services revenues, 14% of Plant Services and 9% of Construction
Services revenues. Sales to two customers accounted for approximately 17% and
12% respectively of the Company's revenues for the year ended May 31, 2000.
Interest cost incurred in 2002 was $0.6 million, of which $0.3 million was
capitalized.
-42-
Matrix Service Company
Notes to Consolidated Financial Statements
10. Employee Benefit Plan
The Company sponsors a defined contribution 401(k) savings plan (the "Plan") for
all employees meeting length of service requirements. Participants may
contribute an amount up to 100% of pretax annual compensation as defined in the
Plan, subject to certain limitations in accordance with Section 401(k) of the
Internal Revenue Code. The Company matches employee contributions according to
the following table:
1 - 7 years service 25% of the first 6%
8 - 15 years of service 50% of the first 6%
16 or more years of service 75% of the first 6%
The Company recognized cost relating to the plan of $0.4 million, $0.4 million
and $0.3 million for the years ended May 31, 2002, 2001 and 2000, respectively.
11. Contingencies
The Company is insured for worker's compensation, auto, general liability,
pollution and property claims with deductibles for self-insured retention of
$500,000, $500, $50,000, $25,000 and $10,000 per incident, respectively.
Management estimates the reserve for such claims based on knowledge of the
circumstances surrounding the claims, the nature of any injuries involved,
historical experience, and estimates of future costs provided by certain third
parties. Accrued insurance at May 31, 2002 represents management's estimate of
the Company's liability at that date. Changes in the assumptions underlying the
accrual could cause actual results to differ from the amounts reported in the
financial statements.
The Company had been in litigation over a contested contract. In January 2000,
the Company won its case and was awarded $1.1 million. In July 2001, the
appellate court upheld the original verdict plus accrued interest and attorney's
fees. The Company recognized a $1.0 million gain on the settlement of this
litigation plus interest income of $0.4 million in 2002.
The Company is a defendant in various other legal actions and is vigorously
defending against each of them. It is the opinion of management that none of
such legal actions will have a material effect on the Company's financial
position.
As of May 31, 2002 and 2001, accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts included revenues for
unapproved change orders of approximately $0.4 million and $1.0 million,
respectively, and claims of approximately $0.7 million and $1.5 million,
respectively. Generally, amounts related to unapproved change orders and claims
will not be paid by the customer to Matrix until final resolution of related
claims, and accordingly, collection of these amounts may extend beyond one year.
12. Segment Information
The Company has three reportable segments from operations which are continuing -
Aboveground Storage Tank (AST) Services, Construction Services, and Plant
Maintenance Services - as well as one discontinued segment from exited
operations. The AST Services Division consists of five operating units that
perform specialized on-site maintenance and construction services with related
products for large petroleum storage facilities. The Construction Services
Division provides services to industrial process plants. The Plant Maintenance
Services Division specializes in performing "turnarounds," which involve
complex, time-sensitive maintenance of the critical operating units of a
refinery. The discontinued segment, included as Other Services, consists of
three operating units ("Brown," "Midwest" and "San Luis") which have all been
exited (see footnote 3).
-43-
Matrix Service Company
Notes to Consolidated Financial Statements
12. Segment Information (continued)
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales and transfers are recorded
at cost and there is no inter-company profit or loss on intersegment sales or
transfers.
The Company's reportable segments are business units that offer different
services. The reportable segments are each managed separately because they
require different expertise and resources for the services provided.
- ----------------------------------------------------------------------------------------------------------------------------------
Matrix Service Company
Annual Results of Operations
($ Amounts in millions)
- ----------------------------------------------------------------------------------------------------------------------------------
AST Construction Plant Other Combined
Services Services Services Services Total
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended May 31, 2002
Gross revenues $ 166.8 $ 26.8 $ 30.9 0.0 $ 224.5
Less: inter-segment revenues (2.0) 0.0 0.0 0.0 (2.0)
----------------------------------------------------------------------------
Consolidated revenues 164.8 26.8 30.9 0.0 222.5
Gross profit 18.7 2.9 3.7 0.0 25.3
Operating income 6.7 1.2 1.1 0.0 9.0
Income before income tax expense 7.3 1.2 1.0 0.0 9.5
Net income 4.5 0.8 0.6 0.0 5.9
Identifiable assets 81.6 6.8 11.0 1.8 101.2
Capital expenditures 15.6 0.5 0.3 0.0 16.4
Depreciation expense 4.0 0.1 0.5 0.0 4.6
Year ended May 31, 2001
Gross revenues $ 140.7 $ 18.4 $ 33.2 0.0 $ 192.3
Less: inter-segment revenues (1.2) (0.2) 0.0 0.0 (1.4)
----------------------------------------------------------------------------
Consolidated revenues 139.5 18.2 33.2 0.0 190.9
Gross profit 18.9 0.2 3.4 0.0 22.5
Operating income (loss) 7.9 (1.0) 1.2 (0.6) 7.5
Income (loss) before income tax expense 8.1 (1.6) 1.2 (0.6) 7.1
Net income (loss) 5.2 (1.0) 0.8 (0.4) 4.6
Identifiable assets 63.9 6.0 11.1 2.7 83.7
Capital expenditures 4.8 0.1 0.4 0.0 5.3
Depreciation expense 3.7 0.1 0.4 0.0 4.2
Year ended May 31, 2000
Gross revenues $ 131.9 $ 9.3 $ 34.3 $ 19.1 $ 194.6
Less: inter-segment revenues (0.1) 0.0 0.0 (0.7) (0.8)
----------------------------------------------------------------------------
Consolidated revenues 131.8 9.3 34.3 18.4 193.8
Gross profit (loss) 17.4 (0.5) 3.2 0.4 20.5
Operating income (loss) 8.0 (1.8) 1.3 (0.7) 6.8
Income (loss) before income tax expense 8.0 (1.5) 1.3 (0.6) 7.2
Net income (loss) 7.4 (1.5) 1.3 (0.6) 6.6
Identifiable assets 62.6 3.1 8.3 4.3 78.3
Capital expenditures 5.4 0.1 0.8 0.0 6.3
-44-
Matrix Service Company
Notes to Consolidated Financial Statements
Depreciation expense 2.7 0.1 0.4 0.2 3.4
-45-
Matrix Service Company
Notes to Consolidated Financial Statements
12. Segment Information (continued)
Geographical information is as follows:
Revenues Long Lived Assets
------------------------ -------------------------
2002 2001 2002 2001
------------------------ -------------------------
Domestic $ 219.9 $ 188.0 $ 43.9 $ 32.6
International 2.6 2.9 2.4 2.4
------------------------ -------------------------
$ 222.5 $ 190.9 $ 46.3 $ 35.0
======================== =========================
-46-
Matrix Service Company
Quarterly Financial Data (Unaudited)
Summarized quarterly financial data are as follows:
First Second Third Fourth
2002 Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------
(In Thousands except per share amounts)
Revenues $47,739 $54,404 $54,588 $65,775
Gross profit 5,879 6,959 4,592 7,828
Net income 1,193 1,597 1,239 1,852
Net income per common share:
Basic 0.16 0.21 0.16 0.24
Diluted 0.15 0.20 0.15 0.22
2001
--------------------------------------------------
Revenues $37,862 $45,052 $49,135 $58,852
Gross profit 3,820 4,768 5,762 8,161
Net income (loss) 8 989 1,450 2,133
Net income (loss) per common share:
Basic .00 .12 .17 .27
Diluted .00 .11 .17 .27
-47-
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Matrix Service Company
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Charged to
Balance at Charged to Other * Balance
Beginning Costs and Accounts- Deductions- At End
Description of Period Expenses Describe Describe Of Period
- --------------------------------------------------------------------------------------------------------------
(Amounts in Thousands)
Year ended May 31, 2002:
Deducted from assets accounts:
Allowance for doubtful accounts $ 375 $ 250 $ - $ (383) $ 242
---------------------------------------------------------------------
Total $ 375 $ 250 $ - $ (383) $ 242
=====================================================================
Year ended May 31, 2001:
Deducted from assets accounts:
Allowance for doubtful accounts $ 150 $ 345 $ - $ (120) $ 375
Reserve for deferred tax assets 332 (332) - - -
---------------------------------------------------------------------
Total $ 482 $ 13 $ - $ (120) $ 375
=====================================================================
Year ended May 31, 2000:
Deducted from assets accounts:
Allowance for doubtful accounts $ 2,464 $ - $ - $ (2,314) $ 150
Reserve for deferred tax assets 3,373 (3,041) - - 332
---------------------------------------------------------------------
Total $ 5,837 $(3,041) $ - $ (2,314) $ 482
=====================================================================
*Allowance reserves written off against receivable balances.
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
PART III
The information called for by Part III of Form 10-K (consisting of Item 10 --
Directors and Executive Officers of the Registrant. Item 11 -- Executive
Compensation, Item 12 -- Security Ownership of Certain Beneficial Owners and
Management and Item 13 -- Certain Relationships and Transactions), is
incorporated by reference from the Company's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
the end of the fiscal year to which this Report relates.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements of the Company
The following financial statements are filed as a part of this report under
"Item 8 - Financial Statements and Supplementary Data":
Report of Independent Auditors 24
Consolidated Balance Sheets as of May 31, 2002 and 2001. 25
Consolidated Statements of Income for the years ended
May 31, 2002, 2001, and 2000. 27
Consolidated Statements of Changes in Stockholders' Equity
for the years ended May 31, 2002, 2001, and 2000. 28
Consolidated Statements of Cash Flows for the years ended
May 31, 2002, 2001, and 2000. 29
Notes to Consolidated Financial Statements 31
Quarterly Financial Data (Unaudited) 44
Schedule II - Valuation and Qualifying Accounts 45
Financial Statement Schedules
The following financial statement schedule is filed as a part of this report
under "Schedule II" immediately preceding the signature page: Schedule II -
Valuation and Qualifying Accounts for the three fiscal years ended May 31, 2002.
All other schedules called for by Form 10-K are omitted because they are
inapplicable or the required information is shown in the financial statements,
or notes thereto, included herein.
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List of Exhibits
2.1 Stock Purchase Agreement, dated February 22, 1994, by and among
Matrix Service Company and the shareholders of Georgia Steel
Fabricators, Inc. (Exhibit 2.1 to the Company's Current Report
on Form 8-K (File No. 0-18716) filed March 7, 1994, is hereby
incorporated by reference).
3.1 Restated Certificate of Incorporation (Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (No. 33-36081), as
amended, filed July 26, 1990 is hereby incorporated by
reference).
3.2 Bylaws, as amended (Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (No. 33-36081) as amended, filed July 26,
1990 is hereby incorporated by reference).
4.1 Specimen Common Stock Certificate (Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File No. 33-36081), as
amended, filed July 26, 1990 is hereby incorporated by
reference).
+ 10.1 Matrix Service Company 1990 Incentive Stock Option Plan
(Exhibit 10.14 to the Company's Registration Statement on Form
S-1 (File No. 33-36081), as amended, filed July 26, 1990 is
hereby incorporated by reference).
+ 10.2 Matrix Service Company 1991 Stock Option Plan, as amended. Form
S-8 (File No. 333-56945) filed June 12, 1998 is hereby
incorporated by reference. Exhibit 10.1 to the Company's
Registration Statement.
10.3 Standard Industrial Lease, dated June 30, 1989, between Matrix
Service, Inc. and the Kinney Family Trust (Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (No. 33-36081), as
amended, filed July 26, 1990 is hereby incorporated by
reference).
10.4 Lease Agreement, dated May 30, 1991, between Tim S. Selby and
Stephanie W. Selby as Co-Trustees of the Selby Living Trust
dated October 20, 1983, Tim S. Selby and Stephanie W. Selby,
and Richard Chafin, Trustee of the Selby Children's Trust 1
dated December 12, 1983 and San Luis Tank Piping Construction
Co., Inc. (Exhibit 10.9 to the Company's Registration Statement
on Form S-1 (File No. 33-48373) filed June 4, 1992 is hereby
incorporated by reference).
+ 10.5 Employment and Noncompetition Agreement, dated June 1, 1991,
between West Coast Industrial Coatings, Inc. and San Luis Tank
Piping Construction Co., Inc., and Tim S. Selby (Exhibit 10.10
to the Company's Registration Statement on
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Form S-1 (File No. 33-48373) filed June 4, 1992 is hereby
incorporated by reference).
10.6 Promissory Note, dated December 30, 1992, by and between the
Company, Colt Acquisition Company and Colt Construction Company
and Duncan Electric Company. (Exhibit 10.17 to the Company's
Annual Report on Form 10-K (File No. 0-18716), filed August 27,
1993, is hereby incorporated by reference).
+ 10.7 Employment and Noncompetition Agreement dated February 22,
1994, between Brown Steel Contractors, Inc. and Mark A. Brown
(Exhibit 99.2 to the Company's Current Report on Form 8-K,
(File No. 0-18716), filed March 7, 1994, is hereby incorporated
by reference).
+ 10.8 Employment and Noncompetition Agreement dated February 22,
1994, between Brown Steel Contractors, Inc. and Sample D. Brown
(Exhibit 99.3 to the Company's Current Report on Form 8-K,
(File No. 0-18716), filed March 7, 1994, is hereby incorporated
by reference).
+ 10.9 Matrix Service Company 1995 Nonemployee Directors' Stock Option
Plan (Exhibit 4.3 to the Company's Registration Statement on
Form S-8 (File No. 333-2771), filed April 24, 1996 is hereby
incorporated by reference).
10.10 Stock Purchase Agreement, dated June 17, 1997, by and among
Matrix Service Company and the shareholders of General Service
Corporation.
10.11 Promissory Note (Term Note, due August 31, 1999), by and
between the Company and its subsidiaries, and Liberty Bank &
Trust Company of Tulsa, N.A.
10.12 Promissory Note (Term Note, due June 19, 2002), dated June 19,
1997 by and between the Company and its subsidiaries, and
Liberty Bank & Trust Company, N.A.
10.13 Interest Rate Swap Agreement, dated February 26, 1998 between
Matrix Service Company and Bank One, Oklahoma, N.A.
10.14 Stock Purchase Agreement by and among Caldwell Tanks Alliance,
LLC, Caldwell Tanks, Inc., Brown Steel Contractors, Inc.,
Georgia Steel Acquisition Corp. and Matrix Service Company,
dated June 9, 1999.
10.15 Amended and Restated Stock Purchase Agreement and Conversion to
Asset Purchase Agreement, dated August 31, 1999, by and among
Matrix Service Company and Caldwell Tanks, Inc. (Exhibit 99.1
to the Company's current report on Form 8-K
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(File No. 0-18716) filed September 13, 1999, is hereby
incorporated by reference).
10.16 Matrix Service Company 1990 Incentive Stock Option Plan, as
Amended (Exhibit A to the Company's Annual Report on Schedule
14A filed September 17, 1999, is hereby incorporated by
reference).
10.17 Matrix Service Company 1991 Incentive Stock Option Plan, as
Amended (Exhibit B to the Company's Annual Report on Schedule
14A filed September 17, 1999, is hereby incorporated by
reference).
10.18 Rights Agreement (including a form of Certificate of
Designation of Series B Junior participating Preferred Stock as
Exhibit A thereto, a form of Right Certificate as Exhibit B
thereto and a summary of Rights to Purchase Preferred Stock as
Exhibit C thereto), dated November 2, 1999, (Exhibit I to the
Company's current report on Form 8-K (File No. 0-18716) filed
November 9, 1999, is hereby incorporated by reference).
10.19 Second Amended and Restated Agreement, dated November 30, 1999
by and among the Company and its subsidiaries and Bank One,
Oklahoma, N.A. (Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q (File No. 0-18716) filed January 13, 2000, is
hereby incorporated by reference).
10.20 Lease Agreement Between The City of Tulsa-Rogers County Port
Authority and Matrix Service Company dated March 1, 2001.
10.21 International SWAP Dealers Association, Inc. Master Agreement
dated February 1, 1998.
10.22 Third Amended and Restated Credit Agreement, dated September
26, 2001 by and among the Company and its subsidiaries and Bank
One, Oklahoma, N.A. (Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q (File No. 0-18716) filed October 9, 2001,
is hereby incorporated by reference).
* 10.23 First Amendment of Lease Agreement between the City of
Tulsa-Rogers County Port Authority and Matrix Service Company
dated June 1, 2002.
* 21.1 Subsidiaries of Matrix Service Company.
* 23.1 Consent of Ernst & Young LLP.
* 99.1 Certification Pursuant to 18 U.S.C. ss. 1350 (Section 906 of
Sarbanes-Oxley Act of 2002) - Matrix Service Company
* Filed herewith.
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+ Management Contract or Compensatory Plan.
Reports on Form 8-K
April 11, 2002 - Form of presentation to investors and security
analysts.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Matrix Service Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Matrix Service Company
Date: August 15, 2002
/s/ Bradley S. Vetal
-------------------------------
Bradley S. Vetal, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
Bradley S. Vetal August 15, 2002
President and Director
/s/ Bradley S. Vetal (Principal Executive Officer)
- ------------------------
Bradley S. Vetal
Michael J. Hall August 15, 2002
Chief Financial Officer
and Director
(Principal Financial and
/s/ Michael J. Hall Accounting Officer)
- ------------------------
Michael J. Hall
Director August 15, 2002
/s/ Hugh E. Bradley
- ------------------------
Hugh E. Bradley
Director August 15, 2002
/s/ I. Edgar Hendrix
- ------------------------
I. Edgar Hendrix
Director August 15, 2002
/s/ Paul K. Lackey
- ------------------------
Paul K. Lackey
Director August 15, 2002
/s/ John S. Zink
- ------------------------
John S. Zink
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