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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, 1999.
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. [ ]
The approximate aggregate market value of the registrant's common stock (based
upon the August 25, 1999 closing sale price of the common stock as reported by
the NASDAQ National Market System) held by non-affiliates as of August 25, 1999
was approximately $36,920,557.
The number of shares of the registrant's common stock outstanding as of August
25, 1999 was 8,950,438 shares.
Documents Incorporated by Reference
Certain sections of the registrant's definitive proxy statement relating to the
registrant's 1999 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.
TABLE OF CONTENTS
Part I
Page
----
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 11
Item 3. Legal Proceedings............................................... 11
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..................................... 12
Item 6. Selected Financial Data......................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 13
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........................................ 48
Part III
Item 10. Directors and Executive Officers of the Registrant.............. 48
Item 11. Executive Compensation.......................................... 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 48
Item 13. Certain Relationships and Related Transactions.................. 48
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..................................................... 49
PART I
Item 1. Business
BACKGROUND
Matrix Service Company (the "Company" or "Matrix") provides specialized on-site
maintenance and construction services for petroleum refining and storage
facilities for the private industry sector. Owners of these facilities use
Matrix's services in an effort to improve operating efficiencies and to comply
with stringent environmental and safety regulations. Through its subsidiaries
Matrix Service, Inc. ("MSI"), Matrix Service Mid-Continent, Inc. ("Mid-Con"),
and Matrix Service, Inc. - Canada ("Canada"), and through its South American
branch, Matrix Service, Inc. - Venezuela ("Venezuela"), Matrix provides
maintenance and construction services and related products for large aboveground
storage tanks ("ASTs") holding petroleum, petrochemical and other products and
piping systems located at petroleum refineries, and bulk storage terminals.
Matrix also provides maintenance and construction services for industrial
process plants and refineries. Matrix specializes in performing "turnarounds",
which involve complex, time-sensitive maintenance of the critical operating
units of a refinery and other in-plant maintenance. Matrix's fluid catalytic
cracking unit ("FCCU") services that were performed by its subsidiary, Midwest
Industrial Contractors, Inc. ("Midwest") were exited in the third quarter of
fiscal 1998. Matrix's Municipal Water Services that were performed by its
subsidiaries San Luis Tank Piping & Construction Company, Inc. ("SLT") and an
affiliated company, and Brown Steel Contractors, Inc. ("Brown") and affiliated
companies are in the process of being exited.
Matrix was incorporated in Delaware in 1989 to become a holding company for MSI,
which was incorporated in Oklahoma in 1984, and Mid-Con, which was incorporated
in Oklahoma in 1985. In October 1990, Matrix acquired through a subsidiary
substantially all of the assets and operations of Midwest. In June 1991, Matrix
acquired SLT. In December 1992, Matrix acquired through a subsidiary
substantially all of the assets and operations of Colt Construction Company
("Colt"). In June 1993, Matrix acquired substantially all of the assets and
assumed certain liabilities of Heath Engineering Ltd. which has subsequently
become Canada. In April 1994, Matrix acquired Brown. In August 1994, the Company
acquired certain assets of Mayflower Vapor Seal Corporation ("Mayflower"). In
June 1997, Matrix acquired General Service Corporation ("GSC") and affiliated
companies. GSC provides services and products similar to those provided by
Matrix and operates primarily in the Northeast part of the United States, with
products sales to U.S. and foreign customers. In September, 1998, Matrix formed
Venezuela to perform AST services in South America. In June 1999, Matrix merged
Colt and GSC into its existing subsidiary structure.
On December 16, 1997, the Company and ITEQ, Inc. ("ITEQ") entered into a Plan
and Agreement of Merger whereby ITEQ agreed to acquire the Company. On January
19, 1998 the Company and ITEQ mutually agreed to terminate the Plan and
Agreement of Merger, due to unanticipated difficulties in connection with the
expected integration of personnel from divergent corporate cultures.
During the third quarter of fiscal year 1998, the board of directors approved a
plan whereby Matrix would exit the operations of Midwest and terminate
operations in the markets that Midwest had historically participated. Matrix
completed all open contracts and disposed of all assets of Midwest. For each of
the fiscal years ended 1998 and 1997, Midwest had operating losses of $3.4
million and $1.8 million respectively.
Also during the third quarter of fiscal 1998, Matrix adopted a board of
directors approved plan to restructure operations to reduce costs, eliminate
duplication of facilities and improve efficiencies. The plan included closing
fabrication shops in Newark, Delaware and Rancocas, New Jersey and moving these
operations to a more efficient and geographically centered facility in Bristol,
Pennsylvania. Additionally, the Company closed a fabrication shop at Elkston,
Maryland. The production from the Maryland facility, which was principally
elevated water tanks, was to be provided by the Company's Newnan, Georgia plant.
(The facilities located in Delaware, New Jersey, Pennsylvania and Maryland were
all leased facilities.) Matrix sold real estate that was not being utilized in
Mississauga, Canada, and terminated the business of certain product lines that
were no longer profitable.
As part of a periodic review of long-lived assets, Matrix separately reviewed
the operations of SLT for impairment indicators as actual operating and cash
flow results were less than projections for Fiscal 1998, the principals in
management, from whom the original business was purchased, left the employment
of the company in early fiscal 1998, SLT reputation in the industry had
deteriorated and the business name was dissolved into Matrix. The operating
income and cash flows from this business unit were not historically negative;
however, there were significant concerns that future operations may not be
positive. Based on these potential impairment indicators, an estimate of the
undiscounted cash flows of the SLT operations was made. This estimate indicated
impairment and, as a result, the
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entire amount of the goodwill related to SLT was written off.
Additionally, in evaluating Matrix's Mayflower operations, the operating income
and cash flows from this business unit indicated that positive amounts were not
attainable. Therefore, the businesses was completely abandoned, the goodwill
written-off, and impaired assets abandoned or sold at their net realizable
value. The operating results of Mayflower were not significant to Matrix's
operations.
Employee termination costs associated with the reorganization and termination of
all employees of Midwest and Mayflower were recognized and paid during fiscal
1998.
Other reorganization costs include the cost of travel related expenses for
reorganization teams which proposed, planned and carried out the Company's
restructuring plans, cost of the failed merger with ITEQ and equipment moving.
On March 24, 1999 Matrix 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 (See Item 1
- - Business - Environmental), however, the structure of this transaction is being
renegotiated as an asset sale with Matrix retaining temporary ownership of the
land and buildings until environmental remediation is completed.
Also, in May 1999 senior management approved and committed Matrix to an exit
plan related to the SLT 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 June 1999, notices were given as required under the WARN Act and Matrix
announced that it would also pursue potential opportunities to sell SLT and West
Coast Industrial Coatings, Inc., an affiliated Company.
As a result of these restructuring, abandonment and impairment operations,
Matrix recorded charges of $9.8 million and $21.0 million in 1999 and 1998
respectively. (See Note 3 to the Consolidated Financial Statements).
Unless the context otherwise requires, all references herein to the Company
include Matrix Service Company and its subsidiaries. The Company's principal
executive offices are located at 10701 East Ute Street, Tulsa, Oklahoma 74116,
and its telephone number at such address is (918) 838-8822.
ABOVEGROUND STORAGE TANK (AST) OPERATIONS
The Company's AST Operations include maintenance, repair, design and
construction of AST's. 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-
SealO and Flex-A-SpanO trade names. The Company also markets a patented roof
drain swivel, the Flex-A-SwivelO used for floating roof drains that remove water
from open-top floating roof tanks.
AST Market and Regulatory Background
In 1989, the American Petroleum Institute 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,
2
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 goals.
A key factor driving new tank construction is a need to change the petroleum
transportation infrastructure to meet increases in population in different areas
of the country. As an example, there have been at least two projects that will
increase product delivery from the Gulf Coast to El Paso, Tucson and Phoenix.
The proposed Aspen project will provide the capability to move product from the
Gulf Coast to Albuquerque and then to Salt Lake City.
In January 1991, the American Petroleum Institute ("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 50 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,
replacement of surface impoundments 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 Assemblies
Many ASTs are equipped with a floating roof and seal assembly. 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 downward and upward with the level of stored
product. In addition, the Company's seal system prevents substantially all
rainwater from entering the tank. 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.
3
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
elevation of 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.
Specialty Tanks
The Company designs, fabricates and field erects new refrigerated liquefied gas
storage tanks for the storage of ammonia, butane, carbon dioxide, ethane,
methane, nitrogen, oxygen, propane and other low temperature products. These
tanks are utilized by the chemical, petrochemical and industrial gas industries.
Manufacturing
The Company operates three "state-of-the-art" facilities located in Oklahoma,
California, and Pennsylvania. The Company owns and operates a fabrication
facility located on 13 acres at the Tulsa Port of Catoosa. The Company owns the
building and equipment. 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"). The
Company leases one fabrication facility in California. The Company rents the
real estate and owns the equipment in the leased facility in California. The
Pennsylvania facilities contain 91,824 square feet, which is leased. The Company
owns the equipment which is used for the fabrication of new tanks and tank
components.
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.
Plant Services Market Overview
The domestic petroleum refining industry presently consists of approximately 161
operating refineries. 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.
The U.S. refinery industry has undergone significant changes in the last 18
years. From 1981 to 1998 domestic refining capacity went from 18.6 million
barrels per day to 16.4 million barrels per day. Many factors created this
reduction in capacity including the importing of refined product, the need to
close inefficient, uneconomic refining facilities and the changes in proximity
of crude production to refining capacity. With these refinery closings and the
domestic increase in demand for refined product, domestic 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.
4
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 Services
The Company's principal plant services include turnarounds for most refinery
process units and complete construction and maintenance services. The Company
performs unit turnarounds involving maintenance and modification of heat
exchangers, heaters, vessels and piping.
Heat Exchanger Services
This service involves the removal, cleaning, testing, repairing and
re-installing of the heat exchanger tube bundles. The Company owns specialized
equipment to extract and reinstall heat exchangers at ground level and in aerial
installations. In addition, Matrix has re-tubing equipment, hydraulic
bolt-torquing equipment and specialized transport carriers for moving the heat
exchangers throughout the facilities.
Other Support Services
Emergency Response Services. The Company also performs substantial repair and
revamp services in connection with refinery unit failures, fires, explosions and
other accidents. The Company believes that it has enhanced its relationships
with its customers by responding quickly to these types of emergencies and by
providing timely repair services, returning the affected plants to normal
operations without substantial delays.
ASME Code Stamp Services. The Company is qualified to perform services on
equipment that contains ASME codes. Many state agencies and insurance companies
require that qualified ASME code installers perform services on ASME coded
equipment. Many of the Company's competitors are not ASME code qualified, which
forces them to subcontract portions of a project involving work with coded
equipment.
Daily and Routine Supplemental Maintenance. The Company provides supplemental
and routine daily maintenance services for operating refineries. Daily work
crews at the refineries range in size from 60 to over 150 per refinery. The
Company provides a wide range of supplemental services including equipment
operations and complete daily maintenance services and repairs. Moreover, the
pressure to reduce the overall cost of maintaining the refineries has initiated
a trend of restructuring the daily and routine maintenance forces. Refineries
are seeking outside supplemental maintenance forces with proven programs for
increasing unit and equipment reliability, and a history of performing work
safely. The Company has entered into two multi-year maintenance agreements. The
Company believes there is a substantial market for a quality maintenance
workforce that places an emphasis on safety and that can forge partnerships with
refinery personnel to reduce maintenance expenses.
CONSTRUCTION SERVICES OPERATIONS
The Company is active in providing construction services focusing primarily on
negotiated, turnkey, and design build contracts. Selected projects, however, are
also completed on a competitive bid basis. Projects range from one million to
thirty million dollars or more. The Construction Services division is especially
well suited for clients who require bundled services. Projects requiring storage
tanks, piping, and work and experience in dealing with and working around
hazardous materials are ideal because the Company is able to self-perform this
work. The Construction Services division has been successful in completing a
variety of different projects including the design and construction of a new
crude oil terminal, the cutdown and relocation of a large piece of process
equipment for a sugar processing plant, the successful completion of a
modification and expansion of production facilities for a silicon wafer
producer, and the erection of tanks at several co-generation facilities.
OTHER
Elevated Tanks
In April 1994, as a result of the Company's efforts to expand its product base,
the Company purchased Brown, which designs, fabricates and erects elevated tanks
for water storage for municipalities and industrial customers. In March
5
1999, the Company signed a Letter of Intent to sell Brown to Caldwell Tanks,
Inc. and will exit the elevated water tank segment.
OTHER BUSINESS MATTERS
Customers and Marketing
The Company derives a significant portion of its revenues from performing
construction and maintenance services for the major integrated oil companies. In
fiscal 1999, Arco represented more than 10% of the Company's consolidated
revenues. In addition, Chevron accounted for more than 10% of the Company's
fiscal 1999 revenues from its core continuing segments. If the merger between
Amoco/BP and Arco is consummated, this will significantly increase the value of
this customer to Matrix. 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, food industry, general construction and for several major
petrochemical companies. The Company enjoys many preferred provider
relationships with clients wherein the work is released against a long-term
service contract. The Company sold its products and services to approximately
535 customers during fiscal 1999.
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. As previously stated, 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 three
months to more than a year.
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, Pitt-Des
Moines, Inc. and ITEQ as well as a number of smaller regional companies. Major
competitors in the West Coast refinery 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 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, 1999, 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 $40.8 million, as compared with an estimated backlog of
approximately $48.8 million as of May 31, 1998. Virtually all of the projects
comprising this backlog are expected to be completed within fiscal year 1999.
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 may be subject to
significant quarterly fluctuations, affected primarily by the timing of planned
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.
Raw Material Sources and Availability
6
The only significant raw material that the Company purchases is steel which is
used primarily in the AST Services Division for new tank construction and tank
repair and maintenance activities. The Company purchases its steel from a number
of suppliers located throughout the United States. In today's market
environment, steel is readily available at attractive prices. However, 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, general liability
insurance and auto liability insurance in the primary amount of $1.0 million,
and an umbrella policy with coverage limits of $50.0 million in the aggregate.
The Company also maintains policies to cover its equipment and other property
with coverage limits of $60.2 million and policies for care, custody and control
with coverage limits of $2.7 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 $250,000. The Company maintains a performance and payment
bonding line of $50.00 million. The Company also maintains key-man insurance
policies covering certain of its executive officers, 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, 1999, the Company employed 1,387 employees, of which 326 were
employed in non-field positions and 1,061 in field or shop positions. Throughout
fiscal year 1999, the Company employed a total of 2,204 employees in field or
shop positions who worked on a project-by-project basis.
As of May 31, 1999, 220 of the 1,061 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 shortages and
has maintained high-quality relations with its employees.
Patents and Proprietary Technology
The Company holds one patent in the United States and one in Canada under the
Flex-A-Seal (R) trademark which covers a seal for floating roof storage tanks.
The United States patent expires in August 2000 and the Canadian patent expires
in September 2008. The Company also 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 August
2008 and October 2001 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 March 2010. The Company also
holds a patent for a Floating Deck Support Apparatus (R) for aluminum roofs.
This patent expires in January 2001. 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 2019.
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
7
and health agencies and authorities. Except as described under "Item 1 --
Business -- Environmental," the Company believes that its 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 production of
cleaner gasolines and diesel fuels including the production of reduced sulfur
gasoline and diesel duel.
As part of the Clean Air Act Amendments of 1990, Congress required EPA to
promulgate regulations to prevent accidental releases of air pollutants and to
minimize the consequences of any release. 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,
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.
8
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
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 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
9
protect employees from workplace hazards and exposure to hazardous chemicals. In
addition, in response to recent accidents in the refining and petrochemical
industries, new legislation and regulations including OSHA's Process Safety
Management Standard ("PSM") requiring stricter safety requirements have been
enacted. Under PSM, employers and contractors must ensure that their employees
are trained in and follow all facility work practices and safety rules and are
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.
Environmental
Matrix is a participant in certain environmental activities in various stages
involving assessment studies, cleanup operations and/or remedial processes.
An environmental assessment was conducted at the Newnan, Georgia facilities of
Brown upon execution of a Letter of Intent on March 24, 1999 to sell Brown to
Caldwell Tanks, Inc. 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 VOC's, SVOC's
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.
The current estimated cost for cleanup and remediation is $1.5 million, all of
which has been accrued at May 31, 1999. Additional testing, however, could
result in greater costs for cleanup and remediation than is currently accrued.
Matrix is in the process of closing down or selling its SLT and West Coast
Industrial Coatings, Inc. subsidiaries. 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. A potential purchaser
of the two companies has engaged an Environmental Engineer to conduct a Phase I
Environmental Study and if appropriate, a Phase II and Phase III evaluation. At
the present time, the environmental liability that could result from the testing
is unknown.
Matrix has other fabrication operations in Tulsa, Oklahoma; Bristol,
Pennsylvania; and Anaheim, 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. Matrix is currently involved in one potential claim which
occurred before pollution coverage was obtained. The Company does not believe
that its repair work was defective and is not liable for any subsequent
environmental damage.
Item 2. Properties
The executive offices of the Company are located in a 20,400 square foot
facility owned by the Company and located in Tulsa, Oklahoma. The Company owns a
64,000 square foot facility located on 13 acres of land leased from the Tulsa
Port of Catoosa which is used for the fabrication of tanks and tank parts. The
Company owns a 60,000 square foot facility on 14 acres of land in Tulsa,
Oklahoma which use to house the Midwest operation but is now occupied by the new
tank construction group. The Company also owns a 22,000 square foot facility
located on 14 acres of land in Tulsa, Oklahoma for Tulsa regional operations, a
13,300 square foot facility in Temperance, Michigan for the Michigan
10
regional operations and a 8,800 square foot facility in Houston, Texas for
Houston regional operations. The Company owns 143,300 square foot and 41,000
square foot facilities, located on 6.5 acres and 31.8 acres, respectively, in
Newnan, Georgia which are being sold and are currently used for the fabrication
of elevated tanks. The Company owns a 30,000 square foot facility located on 5.0
acres of land in Bellingham, Washington. Also, the Company owns a 1,806 square
foot facility located in Sarnia, Ontario, Canada. The Company leases offices in
Anaheim, Bay Point, and Paso Robles, California; Bristol and Bethlehem,
Pennsylvania; Houston, Texas and Newark, Delaware. The aggregate lease payments
for these leases during fiscal 1999 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.
An environmental assessment was conducted at the Newnan, Georgia facilities of
Brown upon execution of a Letter of Intent on March 24, 1999 to sell Brown to
Caldwell Tanks, Inc. 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 VOC's, SVOC's
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.
(See "Item 1 -- Business - Environmental")
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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
1999 1998
---------------- ---------------
High Low High Low
---- --- ---- ---
First Quarter $7.75 $ 4.88 $8.75 $6.63
Second Quarter 5.50 3.97 8.25 6.75
Third Quarter 5.13 3.50 9.63 5.69
Fourth Quarter 4.50 2.94 8.50 6.81
Fiscal Year
2000
-----------------
High Low
---- ---
First Quarter (through August 25, 1999) $4.63 $3.75
11
As of August 25, 1999 there were approximately 90 holders of record of the
Common Stock. The Company believes that the number of beneficial owners of its
Common Stock is substantially greater than 90.
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. Certain of the Company's
credit agreements restrict the Company's ability to pay dividends.
12
Item 6. Selected Financial Data
The following table sets forth selected historical financial information for
Matrix covering the five years ended May 31, 1999. The following financial
information includes the operations of GSC from its date of acquisition in June
1997.
See the Notes to the Company's Consolidated Financial Statements.
(In millions, except per share data)
Matrix Service Company
---------------------------------------------------------------------------
Years Ended
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- --------------- --------------- --------------- -----------
Revenues 211.0 225.4 183.1 183.7 177.5
Gross profit 14.0 18.6 17.4 16.6 13.9
Gross profit % 6.6% 8.3% 9.5% 9.0% 7.8%
Operating income (loss) (11.5) (16.3) 5.5 4.7 1.5
Operating income (loss) % (5.5)% (7.2)% 3.0% 2.6% (0.8)%
Pre-tax income / (loss) (12.6) (17.3) 5.1 4.4 (0.5)
Net income / (loss) (12.6) (11.6) 3.0 2.4 (0.2)
Net income / (loss) % (6.0)% (5.1)% 1.6% 1.3% (0.1)%
Earnings / (loss) per share-diluted (1.34) (1.22) 0.31 0.26 (0.02)
Equity per share-diluted 5.29 6.87 7.86 7.68 7.53
Weighted average shares outstanding 9.4 9.5 9.7 9.5 9.4
Working capital 25.7 41.1 28.2 26.4 26.8
Total assets 88.2 112.7 116.9 105.8 105.7
Long-term debt 5.5 13.1 6.4 4.8 8.5
Capital expenditures 5.4 2.6 5.8 3.4 5.2
Stockholders' equity 49.7 65.3 76.2 73.0 70.8
Total long-term debt to equity 11.1% 20.1% 8.4% 6.6% 12.0%
Cash flow from operations 16.7 3.0 6.2 9.6 0.6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Matrix believes these
forward-looking statements are based on reasonable assumptions, it cannot give
any assurance that it will reach every objective. Matrix is making these
forward-looking statements in reliance on the safe harbor protections provided
under the Private Securities Litigation Reform Act of 1995.
As required by the act, Matrix identifies the following important factors that
could cause actual results to differ materially from any results projected,
forecasted, estimated, or budgeted:
. 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.
13
. The ability to raise capital in a cost-effective way.
. Year 2000 readiness of Matrix, its customers, and its vendors.
. 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.
. Changes in foreign economies, currencies, laws, and regulations, especially
in Canada and Venezuela where Matrix has made direct investments.
. Political developments in foreign countries, especially in Canada
and Venezuela 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.
. 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.
. The timing and planning of maintenance projects at customer facilities in
the refinery industry which could cause adjustments for seasonal shifts in
product demands.
. 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.
14
- ------------------------------------------------------------------------------------------------------------------------------------
Matrix Service Company
Annual Results of Operations
($ Amounts in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
AST Construction Plant Municipal Water FCCU Combined
Services Services Services Total Services Services Total Total
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended May 31, 1999
Revenues 112.6 22.9 29.9 165.4 45.1 0.5 45.6 211.0
Gross profit 12.9 (0.2) 3.8 16.5 (2.4) (0.1) (2.5) 14.0
Selling, general and 8.4 1.3 2.0 11.7 3.3 0.0 3.3 15.0
administrative expenses
Restructuring, impairment & 0.0 0.0 0.0 0.0 9.8 0.0 9.8 9.8
abandonment costs
Operating income (loss) 3.9 (1.5) 1.8 4.2 (15.6) (0.1) (15.7) (11.5)
Income (loss) before income tax expense 3.4 (1.6) 1.7 3.5 (16.1) 0.0 (16.1) (12.6)
Net income (loss) 3.4 (1.6) 1.7 3.5 (16.1) 0.0 (16.1) (12.6)
Earnings / (loss) per share - 0.36 (0.17) 0.18 0.37 (1.71) 0.00 (1.71) (1.34)
diluted
Weighted average shares 9,440
Year ended May 31, 1998
Revenues 103.0 45.0 20.6 168.6 46.2 10.6 56.8 225.4
Gross profit 11.0 5.4 2.4 18.8 1.7 (1.9) (0.2) 18.6
Selling, general and 6.8 1.1 1.6 9.5 2.7 0.7 3.4 12.9
administrative expenses
Restructuring, impairment & 1.9 0.0 0.0 1.9 4.1 15.0 19.1 21.0
abandonment costs
Operating income (loss) 1.8 4.3 0.8 6.9 (5.3) (17.9) (23.2) (16.3)
Income (loss) before income tax expense 1.5 4.2 0.7 6.4 (5.4) (18.3) (23.7) (17.3)
Net income (loss) 1.2 2.5 0.4 4.1 (4.8) (10.9) (15.7) (11.6)
Earnings / (loss) per share - 0.14 0.26 0.04 0.44 (0.51) (1.15) (1.66) (1.22)
diluted
Weighted average shares 9,546
Year ended May 31, 1997
Revenues 71.7 23.1 19.8 114.6 52.0 16.5 68.5 183.1
Gross profit 6.8 2.4 2.2 11.4 6.0 0.0 6.0 17.4
Selling, general and 4.6 0.9 1.3 6.8 2.9 1.4 4.3 11.1
administrative expenses
Restructuring, impairment & 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
abandonment costs
Operating income (loss) 2.0 1.5 0.9 4.4 2.9 (1.8) 1.1 5.5
Income (loss) before income tax expense 2.1 1.4 0.8 4.3 2.7 (1.9) 0.8 5.1
Net income (loss) 1.4 0.8 0.5 2.7 1.6 (1.3) 0.3 3.0
Earnings / (loss) per share - 0.15 0.08 0.05 0.28 0.16 (0.13) 0.03 0.31
diluted
Weighted average shares 9,699
Variances 1999 to 1998
Revenues 9.6 (22.1) 9.3 (3.2) (1.1) (10.1) (11.2) (14.4)
Gross profit 1.9 (5.6) 1.4 (2.3) (4.1) 1.8 (2.3) (4.6)
Selling, general and (1.6) (0.2) (0.4) (2.2) (0.6) 0.7 0.1 (2.1)
administrative expenses
Restructuring, impairment & 1.9 0.0 0.0 1.9 (5.7) 15.0 9.3 11.2
abandonment costs
Operating income (loss) 2.1 (5.8) 1.0 (2.7) (10.3) 17.8 7.5 4.8
Income (loss) before income tax expense 1.9 (5.8) 1.0 (2.9) (10.7) 18.3 7.6 4.7
Net income (loss) 2.2 (4.1) 1.3 (0.6) (11.3) 10.9 (0.4) (1.0)
Variances 1998 to 1997
Revenues 31.3 21.9 0.8 54.0 (5.8) (5.9) (11.7) 42.3
Gross profit 4.2 3.0 0.2 7.4 (4.3) (1.9) (6.2) 1.2
Selling, general and (2.2) (0.2) (0.3) (2.7) 0.2 0.7 0.9 (1.8)
administrative expenses
Restructuring , impairment & (1.9) 0.0 0.0 (1.9) (4.1) (15.0) (19.1) (21.0)
abandonment costs
Operating income (loss) (0.2) 2.8 (0.1) 2.5 (8.2) (16.1) (24.3) (21.8)
Income (loss) before income tax expense (0.6) 2.8 (0.1) 2.1 (8.1) (16.4) (24.5) (22.4)
Net income (loss) (0.2) 1.7 (0.1) 1.4 (6.4) (9.6) (16.0) (14.6)
15
Results of Operations
AST Services 1999 vs. 1998
Revenues for AST Services in 1999 were $112.6 million, an increase of $9.6
million or 9.3% over 1998, primarily as a result of a continued good business
climate and Matrix's strategic emphasis on alliances and building customer
relationships through value added services. Gross margin for 1999 of 11.5% was
slightly better than the 10.7% produced in 1998 as a direct result of higher and
more efficient man-hour utilization and better execution of job plans in a more
safety conscience work environment. These margin improvements along with the
increased sales volumes resulted in gross profit for 1999 of $12.9 million
exceeding that of 1998 by $1.9 million, or 17.3%.
Selling, general and administrative costs as a percent of revenues increased to
7.5% in 1999 vs. 6.6% in 1998 primarily as a result of increased salary and
wages, increased legal costs and increased information technology costs
associated with the new enterprise-wide management information system discussion
the "Year 2000 Compliance" section.
Operating income for 1999 of $3.9 million was significantly better than the $1.8
million produced in 1998, primarily the result of no restructuring, impairment
and abandonment costs in 1999 versus $1.9 million in 1998. The improvements in
gross profit of $1.9 million was almost offset by the increase in selling,
general and administrative expenses discussed above.
AST Services 1998 vs. 1997
Revenues for AST Services in 1998 were $103.0 million, an increase of $31.3
million or 43.7% over 1997, primarily as a result of a good business climate and
Matrix's strategic emphasis on alliances and building customer relationships
through value-added services. Gross margin for 1998 of 10.7% was significantly
better than the 9.5% produced in 1997 as a direct result of better execution of
job plans in a more safety conscience work environment. These margin gains along
with the increased sales volumes resulted in gross profit for 1998 of $11.0
million exceeding that of 1997 by $4.2 million, or 61.8%.
Selling, general and administrative costs as a percent of revenues were
relatively flat at 6.6% in 1998 vs. 6.4% in 1997.
In the third quarter of 1998, in connection with the shutdown of Midwest, the
AST services segment incurred $1.9 million of restructuring, impairment and
abandonment costs.
Operating income for 1998 of $1.8 million, or 1.8% as a percent of revenues was
significantly worse than the $2.0 million, or 2.8% produced in 1997, as a direct
result of selling, general and administrative increases and restructuring costs,
offset by the gross margin gains discussed above.
Construction Services 1999 vs. 1998
Revenues for Construction Services in 1999 were $22.9 million, a decrease of
$22.1 million or 49.1% from 1998, primarily as a result of two large projects
totaling $34.0 million of revenues in fiscal 1998 which were not replaced with
similar size projects in fiscal 1999. Gross margin for 1999 of (0.9)% was much
worse than the 12.0% produced in 1998 as a result of lower volume and the
establishment of a $2.0 million reserve for bad debts for two large potentially
uncollectible receivables. These margin declines along with the decreased sales
volumes resulted in gross profit for 1999 of ($0.2) million which was a decrease
from 1998 gross profit of $5.6 million, or (103.7%).
Selling, general and administrative expenses as a percent of revenues increased
to 5.7% in 1999 vs. 2.4% in 1998 primarily as a result of the fixed salary costs
not being reduced sufficiently to compensate for the decreased revenues in 1999.
Operating losses for 1999 of ($1.5) million, or (6.6%) were significantly worse
than the operating income of $4.3 million, or 9.6% produced in 1998 as a direct
result of the selling, general and administrative expense increases and the
gross margin declines discussed above.
Construction Services 1998 vs. 1997
Revenues for Construction Services in 1998 were $45.0 million, an increase of
$21.9 million or 94.8% over 1997,
16
primarily as a result of two large projects totaling $34.0 million of fiscal
1998 revenues for which similar sized projects were not available in fiscal
1997. Gross profit for 1998 of 12.0% was slightly better than the 10.4% produced
in 1997 as a result of higher margin construction jobs. These margin gains along
with the increased sales volumes resulted in gross profit for 1998 of $5.4
million, exceeding that of 1997 by $3.0 million, or 125.0%.
Selling, general and administrative expenses as a percent of revenues decreased
to 2.4% in 1998 vs. 3.9% in 1997 primarily as a result of the fixed salary costs
being spread over a larger revenue base in 1998 vs. 1997.
Operating income for 1998 of $4.3 million, or 9.6% as a percent of revenues was
significantly better than the $1.5 million, or 6.5% produced in 1997 as a direct
result of the gross margin gains and selling, general and administrative
decreases discussed above.
Plant Services 1999 vs. 1998
Revenues for Plant Services in 1999 were $29.9 million, an increase of $9.3
million or 45.1% over 1998, primarily as a result of a good business climate and
Matrix's strategic emphasis on alliances and building customer relationships
through value-added services. Gross margin for 1999 of 12.7% was slightly better
than the 11.7% produced in 1998 as a direct result of better execution of job
plans, higher and more efficient man-hour utilization and a more favorable mix
of higher margin turnaround versus lower margin maintenance contracts. These
margin gains along with the increased sales volumes resulted in gross profit for
1999 of $3.8 million exceeding that of 1998 by $1.4 million, or 58.3%.
Selling, general and administrative expenses as a percent of revenues decreased
to 6.7% in 1999 vs. 7.8% in 1998 primarily as a result of the fixed salary costs
being spread over a larger revenue base in 1999 vs. 1998.
Operating income for 1999 of $1.8 million, or 6.0% as a percent of revenues was
significantly better than the $0.8 million, or 3.9% produced in 1998, as a
direct result of the selling, general and administrative decreases and the gross
margin gains discussed above.
Plant Services 1998 vs. 1997
Revenues for Plant Services in 1998 were $20.6 million, a modest increase of
4.0% over 1997. Gross margins for 1998 of 11.7% was slightly better than the
11.1% produced in 1997 as a direct result of better execution of job plans in a
more safety conscience work environment. These margin gains along with the
slightly increased sales volumes resulted in gross profit for 1998 of $2.4
million exceeding that of 1997 by $0.2 million, or 9.1%.
Selling, general and administrative expenses as a percent of revenues increased
to 7.8% in 1998 vs. 6.6% in 1997 primarily as a result of a decision to build
infrastructure to facilitate anticipated growth in 1999.
Operating income for 1998 of $0.8 million, or 3.9% as a percent of revenues was
slightly less than the $0.9 million, or 4.5% produced in 1997, as a direct
result of the selling, general and administrative increases, offset by the
margin gains discussed above.
Exited Operations
- -----------------
Fiscal Year 1999
- ----------------
On March 24, 1999, Matrix 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 (see Item 1.
Business Environmental), the structure of this transaction is being renegotiated
as an asset sale with Matrix retaining temporary ownership of the land and
buildings until environmental remediation is completed.
Also, in May 1999 senior management approved and committed Matrix to an exit
plan related to the SLT 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 Workers Adjustment and
Retraining Notification Act ("WARN Act").
17
In June of 1999, notices were given as required under the WARN Act and Matrix
announced that it would also pursue potential opportunities to sell SLT.
As a result of these restructuring, impairment and abandonment operations,
Matrix recorded a charge of $9.8 million (See Footnote 3 to the Consolidated
Financial Statements).
Fiscal Year 1998
- ----------------
During the third quarter of fiscal year 1998, the board of directors approved a
plan whereby Matrix would exit the operations of Midwest and discontinue to
operate in the markets that Midwest has historically participated. Matrix
completed all open contracts and disposed of all assets of Midwest. During each
of the fiscal years ended 1998 and 1997, Midwest had operating losses of
$3.4 million and $1.8 million respectively.
Also during the third quarter of fiscal 1998, Matrix adopted a board of
directors approved plan to restructure operations to reduce costs, eliminate
duplication of facilities and improve efficiencies. The plan included closing
fabrication shops in Newark, Delaware and Rancocas, New Jersey and moving these
operations to a more efficient and geographically centered facility in Bristol,
Pennsylvania. Additionally, the Company closed a fabrication shop at Elkston,
Maryland. The production from the Maryland facility, which was principally
elevated water tanks, will be provided by the Company's Newnan, Georgia plant.
(The facilities located in Delaware, New Jersey, Pennsylvania and Maryland were
all leased facilities.) Matrix sold real estate that was not being utilized in
Mississauga, Canada, and terminated the business of certain product lines that
were no longer profitable.
As part of the restructuring plan Matrix separately reviewed the operations of
SLT for impairment indicators as actual operating and cash flow results were
less than projections for Fiscal 1998, the principals in management, from whom
the original business was purchased, left the employment of the company in early
fiscal 1998, SLT reputation in the industry had deteriorated and the business
name was dissolved into Matrix. The operating income and cash flows from this
business unit were not historically negative; however, there were significant
concerns that future operations may not be positive. Based on these potential
impairment indicators, an estimate of the undiscounted cash flows of the SLT
operations was made. This estimate indicated impairment and, as a result, the
entire amount of the goodwill related to SLT was written off.
Additionally, in evaluating Matrix's Mayflower vapor seal operations, the
operating income and cash flows from this business unit indicated that positive
amounts were not attainable. Therefore, the businesses was completely abandoned,
the goodwill written-off, and impaired assets abandoned or sold at their net
realizable value. The operating results of Mayflower were not significant to
Matrix's operations.
Employee termination costs associated with the reorganization and termination of
all employees of Midwest and Mayflower were recognized and paid during fiscal
1998.
Other reorganization costs include the cost of travel related expenses for
reorganization teams which proposed, planned and carried out the Company's
restructuring plans, cost of a failed merger with ITEQ and equipment moving.
As a result of these restructuring and closing operations, Matrix recorded a
charge of $21.0 million (See Footnote 3 to the Consolidated Financial
Statements).
Municipal Water Services 1999 vs. 1998
Revenues for Municipal Water Services in 1999 were $45.1 million, a slight
decrease of $1.1 million, or 2.4% as compared to 1998 due principally to weak
market demand in the flat bottom water tank sector. Gross margin for 1999 of
(5.3)% was significantly worse than the 3.7% produced in 1998 as a result of
major weakness in the markets, intensified competition, poor execution of job
plans and the inefficiency experienced during the selling and shutdown process.
Included in 1999 margins was the impact of losses accrued on jobs yet to be
completed of $0.5 million. These margin declines along with the slightly
decreased sales volumes resulted in gross profit for 1999 of ($2.4) million, a
$4.1 million decrease from 1998.
Operating losses for 1999 of ($15.6) million were significantly worse than the
operating losses of ($5.3) million, in 1998 as a result primarily of lower gross
profits discussed above and restructuring impairment and abandonment costs of
$9.8 million relating to the decision to exit the business versus a
restructuring, impairment and
18
abandonment charge of $4.1 million in 1998 relating to the impairment of
goodwill at SLT.
Municipal Water Services 1998 vs. 1997
Revenues for Municipal Water Services in 1998 were $46.2 million, a decrease of
$5.8 million or 11.2% from 1997, primarily as a result of a softening in the new
construction market. Gross margin for 1998 of 3.7% was significantly worse than
the 11.5% produced in 1997 as a direct result of intensified competition and
poor execution of job plans. These margin declines along with the decreased
sales volumes resulted in gross profit for 1998 of $1.7 million falling short of
1997 gross profits by $4.3 million, or 71.7%.
Selling, general and administrative costs as a percent of revenues was
relatively flat at 5.8% in 1998 vs. 5.6% in 1997.
Operating losses for 1998 of ($5.3) million were significantly worse than the
operating income of $2.9 million produced in 1997 as a direct result of gross
profit shortfalls discussed above and a $4.1 million charge for restructuring,
impairment and abandonment costs in 1998 relating to the impairment of goodwill
at SLT.
FCCU Services 1999 vs. 1998
Midwest was exited in the third quarter of 1998 and there was no significant
FCCU activity in 1999.
FCCU Services 1998 vs. 1997
After an extensive analysis of the market and an evaluation of Midwest's ability
to compete in that market, Management made the decision to terminate the
operations of Midwest effective February 28, 1998. Additionally, the decision
was made to exit the market for structural work on FCCU's and refractory linings
for hydrocarbon processing vessels, which is substantially the revenue base for
Midwest.
Revenue for Midwest was $10.6 million in fiscal 1998 as compared with $16.5
million for the full year ending May 31, 1997 or a decrease of $5.9 million or
35.8%. The decline was primarily the result of weak market conditions and the
decision to exit the business in the third quarter of fiscal 1998.
Gross margin for Midwest in fiscal 1998 of (17.9%) was significantly worse than
the 0.0% produced in 1997 as a direct result of poor execution of job plans and
the inefficiencies associated with the close down of the business. These margin
shortfalls along with decreased sales volumes resulted in gross profit for 1998
declining from 1997 levels by $1.9 million.
Financial Condition & Liquidity
Matrix's cash and cash equivalents totaled approximately $3.0 million at May 31,
1999 and $2.6 million at May 31, 1998.
Matrix has financed its operations recently with cash generated by operations
and advances under a credit agreement. Matrix has a credit agreement with a
commercial bank under which a total of $30.0 million may be borrowed. Matrix may
borrow up to $20.0 million on a revolving basis based on the level of the
Company's eligible receivables. Revolving loans bear interest at a Prime Rate or
a LIBOR based option, and mature on October 31, 2000. At May 31, 1999, there
were no outstanding advances under the revolver. The credit agreement also
provides for a term loan up to $10.0 million. On March 2, 1998, a term loan of
$10.0 million was made to Matrix. The term loan is due on February 28, 2003 and
is to be repaid in 60 equal payments beginning in March 1998 at an interest rate
based upon the Prime Rate or a LIBOR Option. At May 31, 1999 the balance
outstanding on the term loan was $7.5 million. In conjunction with the term loan
effective March 2, 1998, Matrix entered into an Interest Rate Swap Agreement
with a commercial bank, effectively providing a fixed interest rate of 7.5% for
the five-year period of the term loan.
Operations of the Company provided $16.7 million of cash for the year ended May
31, 1999 as compared with providing $3.0 million of cash for the year ended May
31, 1998, representing a increase of approximately $13.7 million. The increase
was due primarily to changes in net working capital for the year.
Capital expenditures during the year ended May 31, 1999 totaled approximately
$5.4 million. Of this amount, approximately $1.0 million was used to purchase
transportation equipment for field operations, and approximately $1.9 million
was used to purchase welding, construction, and fabrication equipment. Matrix
has invested approximately $2.0
19
million in office equipment furniture and fixtures during the year, which
includes approximately $1.2 million invested for a new enterprise wide
management information system. Matrix has budgeted approximately $6.3 million
for capital expenditures for fiscal 2000. Of this amount, approximately $1.4
million would be used to purchase transportation equipment for field operations,
and approximately $2.7 million would be used to purchase welding, construction,
and fabrication equipment. A 6,000 square foot expansion is planned for the Port
of Catoosa fabrication facility at a cost of approximately $0.7 million and an
additional $0.8 million is anticipated to be spent on the enterprise wide
management information system. Matrix expects to be able to finance these
expenditures with operating cash flow and borrowings under the credit agreement.
Matrix believes that its existing funds, amounts available from borrowings under
its existing credit agreement, and cash generated by operations and through the
sale of Brown will be sufficient to meet the working capital needs through
fiscal 2000 and 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" provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that such forward-looking statements contained in
the financial conditions and liquidity section are based on certain assumptions
which may vary from actual results. Specifically, the dates on which Matrix
believes the sale of Brown will be consummated and 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 to complete the closing of 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 closing of the Brown sale.
Qualitative & Quantitative Disclosures
Year 2000 Compliance
Matrix initiated an enterprise-wide project on 1998 to address the year 2000
compliance issue for both traditional and non-traditional technology areas. The
project focuses on all technology hardware, software, external interfaces with
customers and suppliers, and facility items. The phases of the project are
awareness, assessment, remediation, and implementation.
Matrix has completed its inventory and assessment efforts. During the assessment
phase, all systems were inventoried and classified into five categories: 1)
business applications, 2) end-user applications, 3) development tools, 4)
hardware and system software and 5) non-IT systems. Each system also was
assigned one of three priorities: critical, necessary, or low.
Based on assessment results, Matrix determined that it would be required to
modify, upgrade or replace only a limited number of its systems so that its
business areas would function properly with respect to dates in the year 2000
and thereafter. As of May 31, 1999, all critical and necessary systems have been
remediated and implemented in the production environment.
Remediation of the low priority systems is substantially complete. These systems
represent a minor portion of the inventory and have been considered to have no
material impact on the operations of the business.
Matrix has minimal external interface systems; however, communications have been
initiated with significant suppliers and large customers to determine the extent
to which these companies are addressing year 2000 compliance. In connection with
this activity, Matrix has processed approximately 250 letters and questionnaires
with external parties. As of May 31, 1999, approximately 30 percent of the
companies contacted have responded and all of these have indicated that they are
already compliant or will be compliant on a timely basis.
The anticipated cost of the year 2000 effort has been estimated at $200,000 and
is being funded through operating cash flows. Of the total project cost, 40% is
attributable to the purchase of new systems, which will be capitalized. The
remaining 60% will be expensed as incurred, is not expected to have a material
effect on the results of operations. As of May 31, 1999, expended project costs
were approximately $150,000. Matrix estimates any future costs will not exceed
$50,000.
20
Despite the best planning and execution efforts, Matrix is working from the
premise that some issues will not be uncovered, and that some issues that are
uncovered will not be successfully resolved. In an effort to manage and mitigate
this risk exposure, Matrix has developed a risk management and contingency plan
for its critical operations.
In addition to Matrix's remediation strategy, a new enterprise-wide management
information system has been purchased as a replacement for the core financial
and operational systems. The project began in January 1999 and has an estimated
duration of nine months. The scope of this project has been maintained
separately and independent of Matrix's year 2000 efforts. If the existing
remediation strategy fails, this project could be escalated to mitigate any
material business disruptions.
All critical systems over which Matrix has control are planned to be compliant
and tested before year 2000. However, Matrix has identified the possibility of
service disruptions due to non-compliance by third parties as the area equating
to the most reasonably likely worst case scenario. For example, power failures
and telecommunication outages would cause service interruptions. It is not
possible to quantify the possible financial impact if this most reasonably
likely worst case scenario were to come to fruition.
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" provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that such forward-looking statements contained in
the year 2000 update are based on certain assumptions which may vary from actual
results. Specifically, the dates on which Matrix believes the year 2000 project
will be completed and computer systems will be implemented are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third-party modification plans 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 implementation of the year
2000 project. Other specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in large part from the
uncertainty of the year 2000 readiness of third parties, Matrix cannot ensure
its ability to timely and cost effectively resolve problems associated with the
year 2000 issue that may affect its operations and business, or expose it to
third-party liability.
21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Disclosures
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 long-term debt and interest rate swap that is subject
to interest rate risk. For long-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.
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 Fair Value Fair Value May
May 31, 1999 May 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate swap:
- ------------------------------------------------------------------------------------------------------------------------------------
Pay fixed/receive $9,666,666 $7,666,666 $5,666,666 $3,666,666 $1,666,666 $0 $<35,900> $<54,300>
variable
- ------------------------------------------------------------------------------------------------------------------------------------
Pay rate 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Receive rate *
- ------------------------------------------------------------------------------------------------------------------------------------
* 30-day LIBOR (London Interbank Offer Rate) plus 150 basis points
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Currency Risk
Matrix has subsidiary companies whose operations are located in Canada and
Venezuela. Matrix's financial results could be affected if these companies incur
a permanent decline in value as a result of changes in foreign currency exchange
rates and the economic conditions in these foreign countries. Matrix attempts to
mitigate these risks by investing in different countries and business segments.
Venezuela's currency has recently suffered significant devaluation and
volatility. The ultimate severity of the conditions in Venezuela remain
uncertain, as does the long-term impact on Matrix's investment, however, the
total investment in Venezuela is not material to the Financial Position of
Matrix taken as a whole.
22
Item 8. Financial Statements and Supplementary Data
Financial Statements of the Company
Report of Independent Auditors 24
Consolidated Balance Sheets as of May 31, 1999 and 1998. 25
Consolidated Statements of Operations for the years ended May 31,
1999, 1998 and 1997. 27
Consolidated Statements of Changes in Stockholders' Equity for the
years ended May 31, 1999, 1998 and 1997. 28
Consolidated Statements of Cash Flows for the years ended May 31,
1999, 1998 and 1997. 29
Notes to Consolidated Financial Statements 31
Quarterly Financial Data (Unaudited) 46
Schedule II - Valuation and Qualifying Accounts 47
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, 1999.
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.
23
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, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended May 31, 1999. 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 generally accepted auditing
standards. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
May 31, 1999, in conformity with generally accepted accounting principles. 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.
Ernst & Young LLP
Tulsa, Oklahoma
August 27, 1999
24
Matrix Service Company
Consolidated Balance Sheets
May 31
1999 1998
-------------------------------------------
(In Thousands)
Assets
Current assets:
Cash and cash equivalents $ 2,972 $ 2,606
Accounts receivable, less allowances
(1999 - $2,464, 1998 - $-0-) 34,390 37,165
Costs and estimated earnings in excess of
billings on uncompleted contracts 8,541 15,340
Inventories 3,042 6,352
Assets held for disposal 8,556 -
Income tax receivable 104 5,279
Deferred income taxes - 3,252
Prepaid expenses 1,051 524
-------------------------------------------
Total current assets 58,656 70,518
Property, plant and equipment, at cost:
Land and buildings 9,645 16,481
Construction equipment 15,562 24,092
Transportation equipment 6,144 6,108
Furniture and fixtures 2,449 3,315
Construction in progress 2,385 973
-------------------------------------------
36,185 50,969
Accumulated depreciation 17,971 22,533
-------------------------------------------
18,214 28,436
Goodwill, net of accumulated amortization of $1,753
and $1,595 in 1999 and 1998, respectively 11,122 13,217
Other assets 228 570
-------------------------------------------
Total assets $ 88,220 $112,741
===========================================
25
Matrix Service Company
Consolidated Balance Sheets
May 31
1999 1998
--------------------------------------------
(In Thousands)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 9,805 $ 12,250
Billings on uncompleted contracts in excess
of costs and estimated earnings 7,356 7,612
Accrued insurance 4,541 2,369
Accrued environmental reserves 1,778 -
Earnout payable 727 884
Income tax payable 307 -
Other accrued expenses 6,378 4,214
Current portion of long-term debt 2,092 2,105
--------------------------------------------
Total current liabilities 32,984 29,434
Long-term debt 5,521 13,106
Deferred income taxes - 4,949
Stockholders' equity:
Common stock - $.01 par value; 15,000,000
Shares authorized; 9,642,638 and 9,600,232
Shares issued in 1999 and 1998, respectively 96 96
Additional paid-in capital 51,596 51,458
Retained earnings 1,567 14,221
Cumulative translation adjustment (555) (523)
--------------------------------------------
52,704 65,252
Less treasury stock, at cost - 697,450 shares
in 1999 (2,989) -
--------------------------------------------
Total stockholders' equity 49,715 65,252
--------------------------------------------
Total liabilities and stockholders' equity $ 88,220 $112,741
============================================
See accompanying notes.
26
Matrix Service Company
Consolidated Statements of Operations
Year ended May 31
1999 1998 1997
--------------------------------------------------------------------
(In thousands, except share
and per share amounts)
Revenues $210,997 $225,428 $183,144
Cost of revenues 197,012 206,839 165,704
--------------------------------------------------------------------
Gross profit 13,985 18,589 17,440
Selling, general and administrative expenses 15,025 12,947 11,080
Goodwill and noncompete amortization 670 977 864
Restructuring, impairment and abandonment
costs 9,772 20,956 -
--------------------------------------------------------------------
Operating income (loss) (11,482) (16,291) 5,496
Other income (expense):
Interest expense (969) (1,275) (536)
Interest income 291 267 164
Other (452) (54) (10)
--------------------------------------------------------------------
Income (loss)
before income taxes (12,612) (17,353) 5,114
Provision (benefit) for federal, state and foreign
income taxes
- (5,715) 2,130
--------------------------------------------------------------------
Net income (loss) $(12,612) $ (11,638) $ 2,984
====================================================================
Basic earnings (loss) per common share $ (1.34) $ (1.22) $ .32
====================================================================
Diluted earnings (loss) per common share $ (1.34) $ (1.22) $ .31
====================================================================
Weighted average common shares outstanding:
Basic 9,440,310 9,545,979 9,330,246
Diluted 9,440,310 9,545,979 9,698,659
See accompanying notes.
27
Matrix Service Company
Consolidated Statements of Changes in Stockholders' Equity
Accumulated
Additional Other
Common Paid-In Retained Treasury Comprehensive
Stock Capital Earnings Stock Income (Loss) Total
--------------------------------------------------------------------------------------
(In Thousands)
Balances, May 31, 1996 $95 $50,927 $23,617 $(1,498) $(107) $73,034
---------------
Net income - - 2,984 - - 2,984
Other comprehensive income,
net of tax
Translation adjustment - - - - (38) (38)
---------------
Comprehensive income 2,946
---------------
Exercise of stock options
(62,239 shares) - - (332) 588 - 256
Tax effect of exercised stock options - (24) - - - (24)
--------------------------------------------------------------------------------------
Balances, May 31, 1997 95 50,903 26,269 (910) (145) 76,212
Net loss - - (11,638) - - (11,638)
Other comprehensive income,
net of tax
Translation adjustment - - - - (378) (378)
---------------
Comprehensive income (12,016)
---------------
Exercise of stock options
(224,307 shares) 1 555 (410) 910 - 1,056
--------------------------------------------------------------------------------------
Balances, May 31, 1998 96 51,458 14,221 - (523) 65,252
Net loss - - (12,612) - - (12,612)
Other comprehensive income,
net of tax
Translation adjustment - - - - (32) (32)
---------------
Comprehensive income (12,644)
---------------
Purchase of treasury stock
(704,200 shares) - - - (3,036) - (3,036)
Exercise of stock options
(49,156 shares) - 138 (42) 47 - 143
--------------------------------------------------------------------------------------
Balances, May 31, 1999 $96 $51,596 $1,567 $(2,989) $(555) $49,715
======================================================================================
See accompanying notes.
28
Matrix Service Company
Consolidated Statements of Cash Flows
Year ended May 31
1999 1998 1997
------------------------------------------------------------
(In Thousands)
Operating activities
Net income (loss) $(12,612) $(11,638) $2,984
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,717 5,134 5,365
Deferred income tax (1,697) (2,039) (356)
(Gain) loss on sale of equipment 632 467 (70)
Noncash write-off of restructuring,
impairment and abandonment costs 6,344 19,772 -
Changes in operating assets and
liabilities increasing (decreasing)
cash, net of effects of acquisitions:
Accounts receivable 2,775 5,166 (8,540)
Costs and estimated earnings
in excess of billings on
Uncompleted contracts 6,799 (2,858) 773
Inventories 1,470 (138) (840)
Prepaid expenses (527) (77) (277)
Accounts payable (2,445) (3,486) 3,281
Billings on uncompleted
contracts in excess of costs
and estimated earnings (256) 473 1,972
Accrued expenses 5,957 (2,484) 1,203
Income taxes receivable/payable 5,482 (4,544) 699
Other 47 (797) (15)
-------------------------------------------------------------------
Net cash provided by operating activities 16,686 2,951 6,179
Investing activities
Acquisition of property, plant and equipment (5,379) (2,577) (5,802)
Acquisitions and investment in foreign joint
venture, net of cash acquired (637) (5,068) (2,353)
Return of investment in foreign joint venture - - 200
Proceeds from other investing activities 182 652 155
-------------------------------------------------------------------
Net cash used in investing activities (5,834) (6,993) (7,800)
29
Matrix Service Company
Consolidated Statements of Cash Flows (continued)
Year ended May 31
1999 1998 1997
---------------------------------------------------------------------
(In Thousands)
Financing activities
Issuance of common stock $ 143 $ 1,056 $ 256
Purchase of treasury stock (3,036) - -
Advances under bank credit agreement 5,425 11,750 7,000
Repayments of bank credit agreement (12,925) (4,200) (4,000)
Repayment of other notes (17) (3,652) (1,089)
Repayment of acquisition note (62) (459) (529)
Issuance of acquisition note - 250 -
Issuance of equipment lease - - 22
Issuance of equipment notes 4 40 -
Repayments of equipment notes (23) - (23)
---------------------------------------------------------------------
Net cash provided by (used in)
financing activities (10,491) 4,785 1,637
Effect of exchange rate changes on cash 5 (14) (38)
---------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 366 729 (22)
Cash and cash equivalents, beginning of year 2,606 1,877 1,899
---------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,972 $ 2,606 $1,877
=====================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 477 $ 1,064 $1,706
Interest 967 1,275 545
See accompanying notes.
30
Matrix Service Company
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
The consolidated financial statements present the accounts of Matrix Service
Company ("Matrix") 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 1998, Matrix purchased General Services
Corporation and affiliates ("GSC") which was later merged into existing
subsidiaries, see Note 2. In 1998, Matrix exited the Midwest operation, and is
in the process of exiting Brown and San Luis in 1999, 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, Mexico and Venezuela. The Company's industry segments are Aboveground
Storage Tank Services (AST), Construction Services, Plant Services, Municipal
Water Services, and Fluid Catalytic Cracking Unit Services (FCCU).
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.
31
Matrix Service Company
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
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.
Impairment of Long-Lived Assets
The Company reviews long-lived assets and intangible assets, including goodwill,
for impairment periodically whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets is measured by comparison of the carrying amount of the asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
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 bases of assets and liabilities using presently
enacted tax rates.
Earnings per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per 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 (-0-, -0- and 368,413 shares in 1999, 1998 and 1997,
respectively). All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements.
32
Matrix Service Company
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed in Note 7,
the alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. 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.
Comprehensive Income
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for reporting and display of comprehensive income and its components. The
Company has reclassified all years presented to reflect comprehensive income and
its components in the consolidated statements of shareholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
2. Acquisition
On June 17, 1997, the Company acquired all of the outstanding common stock of
GSC for up to $7.75 million, subject to certain adjustments. The purchase price
consisted of $4.75 million in cash and a $0.25 million, prime rate (currently
8.25%) promissory note payable in 12 equal quarterly installments. In addition,
the stockholders of GSC are entitled to receive in the future up to an
additional $2.75 million in cash if GSC satisfies certain earnings requirements.
The Company recorded $0.8 million and $0.9 million under this provision in
fiscal 1999 and 1998, respectively. Under the provision of the contract the
stockholders have the right to elect 70% of the earnout amount upon change of
control of the Company. This transaction was accounted for as a purchase and
resulted in approximately $4.0 million of goodwill and non-competition
covenants. Operations of GSC are included in the accompanying financial
statements from date of acquisition. Operations of GSC from June 1, 1997 to date
of acquisition and for fiscal 1997 was not significant to the Company's reported
results.
33
Matrix Service Company
Notes to Consolidated Financial Statements
3. Restructuring, Impairment and Abandonment Costs
During the third quarter of fiscal year 1998, the board of directors approved a
plan whereby the Company would exit the operations of Midwest and discontinue to
operate in the markets that Midwest has historically participated. The Company
completed all open contracts and disposed of all assets. The Company abandoned
this business entirely. During the years ended in fiscal 1998 and 1997, Midwest
had operating losses of $3.4 million and $1.8 million, respectively.
Also during the third quarter of 1998, the Company adopted a board of directors
approved plan to restructure operations to reduce costs, eliminate duplication
of facilities and improve efficiencies. The plan included closing fabrication
shops in Newark, Delaware and Rancocas, New Jersey and moving these operations
to a more efficient and geographically centered facility in Bristol,
Pennsylvania. Additionally, the Company closed a fabrication shop at Elkston,
Maryland. The production from the Maryland facility, which was principally
elevated water tanks, is now provided by the Company's Newnan, Georgia plant.
(The facilities located in Delaware, New Jersey, Pennsylvania and Maryland were
all leased facilities.) The Company sold real estate that was not being utilized
in Mississauga, Canada, and also discontinued certain product lines that were no
longer profitable.
As part of the 1998 restructuring plan the Company separately reviewed the
operations of San Luis for impairment indicators as actual operating and cash
flow results were less than projections for fiscal 1998, the principals in
management, from whom the original business was purchased, left the employment
of the company in early fiscal 1998, San Luis reputation in the industry had
deteriorated and the business name was dissolved into Matrix. The operating
income and cash flows from this business unit were not historically negative;
however, there were significant concerns that future operations may not be
positive. Based on these potential impairment indicators, an estimate of the
undiscounted cash flows of the San Luis operations was made. This estimate
indicated impairment and, as a result, the entire amount of the goodwill related
to San Luis was written off.
Additionally, in evaluating the Company's Mayflower vapor seal operations, the
operating income and cash flows from this business unit indicated that positive
amounts were not attainable. Therefore, the businesses was completely abandoned
in fiscal 1998, the goodwill written-off, and impaired assets abandoned and sold
at their net realizable value. The operating results of Mayflower have not been
significant to the Company's operations.
Employee termination costs associated with the reorganization and termination of
all employees of Midwest and Mayflower were recognized and paid during fiscal
1998.
34
Matrix Service Company
Notes to Consolidated Financial Statements
3. Restructuring, Impairment and Abandonment Costs (continued)
Other reorganization costs in fiscal 1998 include the cost of travel related
expenses for reorganization teams which proposed, planned and carried out the
Company's restructuring plans, cost of a failed merger with ITEQ, Inc. and
equipment moving.
In May 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 is being renegotiated as an asset sale with the
Company retaining temporary ownership of the land and buildings until
environmental remediation is completed. The Company expects this transaction to
close in late August or early September 1999. During the years ended 1999 and
1998, Brown had operating losses of $4.0 million and $0.2 million,
respectively. In 1997, Brown had operating income of $2.2 million.
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").
During the years ended 1999 and 1998, San Luis had operating loses of $1.8
million and $1.0 million, respectively. In 1997 San Luis had operating income of
$0.7 million.
In June 1999, notices were given as required under the WARN Act and the Company
announced that it would also pursue potential opportunities to sell San Luis.
As a result of these restructuring and closing operations, the Company recorded
the following charges:
May 31
1999 1998
----------------------- -----------------------
(In Thousands)
Impairment:
Midwest Goodwill $ - $14,555
San Luis Goodwill - 4,103
Mayflower Goodwill - 466
Brown Goodwill 2,333 -
Asset Impairment 4,011 648
Employee Termination 205 386
Environmental Reserves 1,778 -
Other Reorganization Costs 1,445 798
----------------------- -----------------------
Restructuring, impairment and
abandonment costs $9,772 $20,956
======================= =======================
35
Matrix Service Company
Notes to Consolidated Financial Statements
3. Restructuring, Impairment and Abandonment Costs (continued)
In addition, the Company wrote down inventory held by Brown and San Luis by $1.0
million in fiscal 1999, which is included in cost of revenues.
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
1999 1998
---------------------------------------------
(In Thousands)
Costs incurred and estimated earnings
recognized on uncompleted contracts $151,739 $207,229
Billings on uncompleted contracts 150,554 199,501
=============================================
$ 1,185 $ 7,728
=============================================
Shown on balance sheet as:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 8,541 $ 15,340
Billings on uncompleted contracts in
excess of costs and estimated earnings 7,356 7,612
---------------------------------------------
$ 1,185 $ 7,728
=============================================
Approximately $3.7 million and $4.0 million of accounts receivable at May 31,
1999 and 1998, respectively, relate to billed retainages under contracts.
36
Matrix Service Company
Notes to Consolidated Financial Statements
5. Long-Term Debt
Long-term debt consists of the following:
1999 1998
--------------------------------------
(In Thousands)
Borrowings under bank credit facility:
Revolving note $ - $ 5,500
Term note 7,500 9,500
Other 113 211
--------------------------------------
7,613 15,211
Less current portion 2,092 2,105
--------------------------------------
$ 5,521 $13,106
======================================
On March 1, 1998, the Company and a commercial bank entered into an amendment to
a credit facility agreement originally established in 1994, whereby the Company
may borrow a total of $30 million. The amended agreement provides for a $20
million revolving credit facility based on the level of the Company's eligible
receivables. The agreement provides for an interest rate based on a prime or
LIBOR option and matures on October 31, 1999. The credit facility also provides
for a $10 million term loan, due February 29, 2003, payable in 60 equal payments
beginning in March 1999. The interest rates for the revolver and the term loan
at May 31, 1999 were 6.0% and 7.5%, respectively. 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 conjunction with the term note, effective March 2, 1998, the Company entered
into an interest rate swap agreement for an initial notional amount of $10
million with a commercial bank, effectively providing a fixed interest rate of
7.5% for the five-year period on the term note. The Company pays 7.5% interest
and receives LIBOR plus 1 1/2%, calculated on the notional amount. The notional
amount was $7.7 million at May 31, 1999. Net receipts or payments under the
agreement are recognized as an adjustment to interest expense. The swap
agreement expires in 2003. If LIBOR decreases, interest payments received and
the market value of the swap position decrease.
37
Matrix Service Company
Notes to Consolidated Financial Statements
5. Long-Term Debt (continued)
The Company has outstanding letters of credit and letters of guarantee totaling
$2.9 million which mature during 1999 and 2000.
Aggregate maturities of long-term debt for the years ending May 31 are as
follows (in thousands), for each fiscal year: 2000 - $2,092; 2001 - $2,021;
2002 -$2,000, and 2003 - $1,500.
The carrying value of debt approximates fair value.
6. Income Taxes
The components of the provision (benefit) for income taxes are as follows:
1999 1998 1997
-----------------------------------------------------------
(In Thousands)
Current:
Federal $ 1,003 $(2,760) $1,825
State 387 (961) 443
Foreign 307 45 218
-----------------------------------------------------------
1,697 (3,676) 2,486
Deferred:
Federal (1,516)* (1,963) (121)
State - (13) (180)
Foreign (181) (63) (55)
-----------------------------------------------------------
(1,697) (2,039) (356)
-----------------------------------------------------------
$ - $(5,715) $2,130
===========================================================
* Net of valuation allowance of $3,373.
38
Matrix Service Company
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The difference between the expected tax rate and the effective tax rate is
indicated below:
1999 1998 1997
------------------------------------------------------------
(In Thousands)
Expected provision (benefit) for
Federal income taxes
at the statutory rate $(4,288) $(5,900) $1,739
State income taxes, net of
Federal benefit (255) (642) 290
Charges without tax benefit,
Primarily goodwill amortization 836 827 225
Valuation allowance 3,373 - -
Other 334 - (124)
============================================================
Provision for income taxes $ - $(5,715) $2,130
============================================================
Significant components of the Company's deferred tax liabilities and assets as
of May 31, 1999 and 1998 are as follows:
1999 1998
-----------------------------------------
(In Thousands)
Deferred tax liabilities:
Tax over book depreciation $2,478 $4,878
Other - net 123 71
-----------------------------------------
Total deferred tax liabilities 2,601 4,949
Deferred tax assets:
Bad debt reserve 826 -
Foreign insurance dividend 104 275
Vacation accrual 248 239
Restructuring reserves 1,626 -
Noncompete amortization 481 472
Loss carryforward 2,664 1,377
Other - net 25 889
Valuation allowance (3,373) -
-----------------------------------------
Total deferred tax assets 2,601 3,252
=========================================
Net deferred tax liability $ - $1,697
=========================================
39
Matrix Service Company
Notes to Consolidated Financial Statements
7. Stockholders' Equity
The Company has adopted 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 has
also adopted 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. Options generally 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. Stock options
granted under the 1995 Plan 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 1,320,000, 900,000, and
250,000 options to be granted under the 1990, 1991, and 1995 Plans,
respectively. Options exercisable total 679,267 and 803,211 at May 31, 1999 and
1998, 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 4.01% to 6.62%;
dividend yield of -0-%; volatility factors of the expected market price of the
Company's stock of .326 to .860; and an expected life of the options of 2 to 5
years.
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.
40
Matrix Service Company
Notes to Consolidated Financial Statements
7. Stockholders' Equity (continued)
The Statement's pro forma information from the options is as follows:
1999 1998 1997
--------------------------------------------------------------
(In Thousands)
Net income (loss) before stock options $(12,612) $(11,638) $2,984
Compensation expense from stock options 580 362 269
--------------------------------------------------------------
Net income (loss) $(13,192) $(12,000) $2,715
==============================================================
Pro forma earnings (loss) per common share:
Basic $ (1.40) $ (1.26) $ .29
Diluted $ (1.40) $ (1.26) $ .28
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.
The following summary reflects option transactions for the past three years:
Shares Option Price Per Share
------------------------------------------------------------
Shares under option:
Balance at May 31, 1996 1,521,556 $ .67 - $6.25
Granted 113,000 5.88 - 7.875
Exercised (62,239) .67 - 6.25
Canceled (47,313) 3.63 - 6.25
------------------------------------------------------------
Balance at May 31, 1997 1,525,004 $ .67 - 7.875
Granted 530,500 6.75 - 8.00
Exercised (224,307) .67 - 6.25
Canceled (170,540) 3.625 - 8.00
------------------------------------------------------------
Balance at May 31, 1998 1,660,657 $ .67 - $8.00
Granted 883,000 3.75 - 4.375
Exercised (49,156) .67 - 6.25
Canceled (869,901) 3.625 - 8.00
============================================================
Balance at May 31, 1999 1,625,300 $ .67 - $7.75
============================================================
41
Matrix Service Company
Notes to Consolidated Financial Statements
8. Commitments
The Company is the lessee under operating leases covering real estate in Tulsa,
Oklahoma; Bristol, Pennsylvania; Anaheim, California; Bay Point, California;
Paso Robles, California; Bellingham, Washington; and Carson, California. The
Paso Robles lessors are former stockholders of San Luis. The Company is also the
lessee under operating leases covering office equipment. Future minimum lease
payments are as follows: 2000 - $723,000, 2001 - $552,000, 2002 - $386,000, 2003
- - $31,000, and 2004 - $31,000 and thereafter - $113,000. Rental expense was
$1,257,000, $710,000 and $516,000 for the years ended May 31, 1999, 1998 and
1997, respectively. Rental expense on related party leases was $344,000,
$157,000 and $149,000 for the years ended May 31, 1999, 1998 and 1997,
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, 1999 have not been adversely affected by such conditions.
The Company did establish a bad debt reserve in the current year for
construction service projects of $2.0 million as well as a reserve of $0.4
million for municipal water projects, as that segment is being exited.
Sales to one customer accounted for approximately 11% of the Company's revenues
for the years ended May 31, 1999 and 1998. There were no sales to one customer
in excess of 10% of revenues for the year ended May 31, 1997.
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 15% of pretax annual compensation as defined in the
Plan, subject to certain limitations in accordance with Section 401(k) of the
Internal Revenue Code. Beginning on July 1, 1998, the Company matched
contributions at 25% of the first 6% of employee contributions. The Company
recognized cost relating to the plan of $0.3 million for the year ended May 31,
1999.
42
Matrix Service Company
Notes to Consolidated Financial Statements
11. Contingent Liabilities
The Company is insured for worker's compensation, auto, and general liability
claims with deductibles for self-insured retention of $250,000, $25,000, and
$250,000 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, 1999
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 is a defendant in various 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.
12. Segment Information
The Company has three reportable segments from operations which are continuing -
Above Ground Storage Tank (AST) Services, Construction Services, and Plant
Maintenance Services - as well as two reportable segments from exited operations
- - Municipal Water Services and Fluid Catalytic Cracking Units (FCCU) Services.
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
Municipal Water Services division consists of two operating units "Brown" and
"San Luis," both of which have been exited (see footnote 3). The FCCU Services
division consisted of one operating unit "Midwest" which was exited in the 3rd
quarter of fiscal 1998 (see footnote 3).
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.
43
Matrix Service Company
Notes to Consolidated Financial Statements
12. Segment Information (continued)
- ---------------------------------------------------------------------------------------------------------------------------------
Matrix Service Company
Annual Results of Operations
($ Amounts in millions)
- ---------------------------------------------------------------------------------------------------------------------------------
Municipal
AST Construction Plant Water FCCU Combined
Services Services Services Services Services Total
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended May 31, 1999
Revenues 112.6 22.9 29.9 45.1 0.5 211.0
Gross profit 12.9 (0.2) 3.8 (2.4) (0.1) 14.0
Selling, general and administrative expenses 8.4 1.3 2.0 3.3 0.0 15.0
Restructuring, impairment & abandonment costs 0.0 0.0 0.0 9.8 0.0 9.8
Operating income (loss) 3.9 (1.5) 1.8 (15.6) (0.1) (11.5)
Income (loss) before income tax expense 3.4 (1.6) 1.7 (16.1) 0.0 (12.6)
Net income (loss) 3.4 (1.6) 1.7 (16.1) 0.0 (12.6)
Identifiable assets 52.9 8.1 6.7 20.5 0.0 88.2
Capital expenditures 4.2 0.2 0.2 0.8 0.0 5.4
Depreciation expense 2.5 0.2 0.3 1.0 0.0 4.0
Year ended May 31, 1998
Revenues 103.0 45.0 20.6 46.2 10.6 225.4
Gross profit 11.0 5.4 2.4 1.7 (1.9) 18.6
Selling, general and administrative expenses 6.8 1.1 1.6 2.7 0.7 12.9
Restructuring, impairment & abandonment costs 1.9 0.0 0.0 4.1 15.0 21.0
Operating income (loss) 1.8 4.3 0.8 (5.3) (17.9) (16.3)
Income (loss) before income tax expense 1.5 4.2 0.7 (5.4) (18.3) (17.3)
Net income (loss) 1.2 2.5 0.4 (4.8) (10.9) (11.6)
Identifiable assets 61.9 13.7 7.7 29.4 0.0 112.7
Capital expenditures 1.7 0.2 0.4 0.3 0.0 2.6
Depreciation expense 2.5 0.2 0.3 1.1 0.2 4.3
Year ended May 31, 1997
Revenues 71.7 23.1 19.8 52.0 16.5 183.1
Gross profit 6.8 2.4 2.2 6.0 0.0 17.4
Selling, general and administrative expenses 4.6 0.9 1.3 2.9 1.4 11.1
Restructuring, impairment & abandonment costs 0.0 0.0 0.0 0.0 0.0 0.0
Operating income (loss) 2.0 1.5 0.9 2.9 (1.8) 5.5
Income (loss) before income tax expense 2.1 1.4 0.8 2.7 (1.9) 5.1
Net income (loss) 1.4 0.8 0.5 1.6 (1.3) 3.0
Identifiable assets 39.0 12.5 7.7 34.4 23.3 116.9
Capital expenditures 1.8 1.0 1.6 1.3 0.1 5.8
Depreciation expense 2.6 0.2 0.3 1.1 0.3 4.5
44
Matrix Service Company
Notes to Consolidated Financial Statements
12. Segment Information (continued)
Geographical information is as follows:
Revenues Long Lived Assets
------------------------------- ----------------------------------
1999 1998 1999 1998
------------- --- ------------- -------------- ---- --------------
Domestic 207.7 222.3 26.6 38.6
International 3.3 3.1 2.9 3.1
------------- --- ------------- -------------- ---- --------------
211.0 225.4 29.5 41.7
============= === ============= ============== ==== ==============
45
Matrix Service Company
Quarterly Financial Data (Unaudited)
Summarized quarterly financial data are as follows:
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands except per share amounts)
Revenues 51,158 55,399 47,074 57,366
Gross profit 4,989 4,878 3,136 982
Net income (loss) 837 1,023 (333) (14,139)
Net income (loss) per common share data:
Basic - net income (loss) .09 .11 (.03) (1.49)
Diluted - net income (loss) .09 .10 (.03) (1.49)
1998
- ----------------------------------------------------
Revenues 49,519 62,017 55,449 58,443
Gross profit 4,742 5,142 3,298 5,407
Net income (loss) 769 953 (14,657) 1,297
Net income (loss) per common share data:
Basic - net income (loss) .09 .11 (1.55) .13
Diluted - net income (loss) .09 .11 (1.55) .13
Note: The summarized quarterly financial data for 1999 has been restated from
previously reported amounts in the Company's originally filed quarterly
reports on Form 10-Q for the first, second and third quarters of fiscal
1999 to reflect Midwest's operating activities as continuing
operations. (See Note 3 to the accompanying financial statements)
46
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Matrix Service Company
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
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, 1999: Deducted from assets accounts:
Allowance for doubtful accounts $ - $2,464 $ - $2,464
Reserve for deferred tax assets - 3,373 - 3,373
----------------------------------------------------------------------------
Total $ - $5,837 $ - $5,837
============================================================================
47
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), of the
Company," 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.
48
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, 1999 and 1998. 25
Consolidated Statements of Operations for the years ended May 31,
1999, 1998 and 1997. 27
Consolidated Statements of Changes in Stockholders' Equity for the
years ended May 31, 1999, 1998 and 1997. 28
Consolidated Statements of Cash Flows for the years ended May 31,
1999, 1998 and 1997. 29
Notes to Consolidated Financial Statements 31
Quarterly Financial Data (Unaudited) 46
Schedule II - Valuation and Qualifying Accounts 47
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, 1999.
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.
49
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
Form S-1 (File No. 33-48373) filed June 4, 1992 is
hereby incorporated by reference).
10.6 Revolving Credit Agreement, dated August 30, 1994,
by and among the Company and its subsidiaries, and
Liberty Bank & Trust Company of Tulsa, N.A.
(Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995
(File No. 0-18716) is hereby incorporated by
reference).
10.7 Security Agreement, dated August 30, 1994, by and
among the Company and its subsidiaries, and
Liberty Bank & Trust Company of Tulsa, N.A.
(Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995
(File No. 0-18716) is hereby incorporated by
reference).
10.8 Promissory Note, dated December 30, 1992, by and
between the Company, Colt Acquisition Company and
Colt Construction Company and Duncan
50
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).
+ 10.9 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).
+ 10.10 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).
+ 10.11 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).
10.12 Stock Purchase Agreement, dated June 17, 1997, by
and among Matrix Service Company and the
shareholders of General Service Corporation.
10.13 First Amendment to Credit Agreement, dated June
19, 1997, by and among the Company and its
subsidiaries, and Liberty Bank & Trust Company of
Tulsa, N.A.
10.14 Security Agreement, dated June 19, 1997, by and
among the Company and its subsidiaries, and
Liberty Bank & Trust Company of Tulsa, N.A.
10.15 Promissory Note (Revolving Note) dated June 19,
1997 by and between the Company and its
subsidiaries, and Liberty Bank & Trust Company of
Tulsa, N.A.
10.16 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.
10.17 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.
* 10.18 Interest Rate Swap Agreement, dated February 26,
1998 between Matrix Service Company and Bank One,
Oklahoma, N.A.
10.19 Fourth Amendment to Credit Agreement, dated
October 22, 1998, by and among the Company and its
subsidiaries, and Bank One, Oklahoma, N.A.
* 10.20 Amended and Restated Security Agreement, dated
October 22, 1998, by and the Company and its
subsidiaries, and Bank One, Oklahoma, N.A.
* 10.21 Fifth Amendment to Credit Agreement, dated
October 22, 1998, by and among the Company and its
subsidiaries and Bank One, Oklahoma, N.A.
* 10.22 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.
* 11.1 Computation of Per Share Earnings.
* 21.1 Subsidiaries of Matrix Service Company.
51
* 23.1 Consent of Ernst & Young LLP.
* 27.1 Financial Data Schedule.
- -------------------------
* Filed herewith.
+ Management Contract or Compensatory Plan.
Reports on Form 8-K
None
52
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 27, 1999 /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
---------- ----- ----
/s/ Bradley S. Vetal Bradley S. Vetal August 27, 1999
- -------------------------------------------- President and Director
Bradley S. Vetal (Principal Executive Officer)
/s/ Michael J. Hall Michael J. Hall August 27, 1999
- -------------------------------------------- Chief Financial Officer
Michael J. Hall and Director
(Principal Financial and
Accounting Officer)
/s/ Hugh E. Bradley Director August 27, 1999
- ------------------------------------------
Hugh E. Bradley
/s/ Robert A. Peterson Director August 27, 1999
- ------------------------------------------
Robert A. Peterson
/s/ John S. Zink Director August 27, 1999
- ---------------------------------------------
John S. Zink
55