UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-4184
Valpey-Fisher Corporation
(Exact name of registrant as specified in its charter)
Maryland 06-0737363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
75 South St., Hopkinton, Massachusetts 01748
(Address of principal executive offices) (Zip Code)
(508) 435-9039
(Registrant's telephone number, including area code)
MATEC Corporation
(Former name, if changed since last report)
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
--- ---
As of August 8, 2002, the number of shares outstanding of Registrant's Common
Stock, par value $.05 was 4,144,615.
1
Valpey-Fisher Corporation
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
June 30, 2002 and December 31, 2001 ........................ 3
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 2002 and July 1, 2001 ............ 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 2002 and July 1, 2001 ............ 5
Consolidated Statements of Comprehensive Income (Loss) -
Three Months and Six Months ended June 30, 2002
and July 1, 2001 ........................................... 6
Notes to Consolidated Condensed Financial Statements ......... 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 10-12
Quantitative and Qualitative Disclosures about
Market Risk ................................................ 13
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders . 14
Item 6 - Exhibits and Reports on Form 8-K .................... 14
Signatures ............................................................ 15
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Valpey-Fisher Corporation and Subsidiaries
(Formerly MATEC Corporation and Subsidiaries)
Consolidated Condensed Balance Sheets
(In thousands, except share data) (Unaudited)
6/30/02 12/31/01
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 6,782 $ 5,960
Receivables, net ................................. 1,811 2,307
Inventories, net .................................. 3,580 4,469
Deferred income taxes and other current assets .... 1,415 1,469
------- -------
Total current assets ....................... 13,588 14,205
------- -------
Property, plant and equipment, at cost ............. 9,985 9,910
Less accumulated depreciation ..................... 5,820 5,383
------- -------
4,165 4,527
------- -------
Other assets......................................... 78 109
------- -------
$17,831 $18,841
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 403 $ 403
Accounts payable .................................. 395 475
Accrued liabilities ............................... 933 957
------- -------
Total current liabilities .................. 1,731 1,835
------- -------
Long-term debt ...................................... 1,076 1,278
Deferred income taxes ............................... 741 754
Stockholders' equity:
Preferred stock, $1.00 par value-
Authorized 1,000,000 shares; issued none ......... - -
Common stock, $.05 par value-
Authorized 10,000,000 shares;Issued and outstanding:
4,144,615 and 4,152,515 shares ............. 207 208
Capital surplus ................................... 4,786 4,810
Retained earnings ................................. 9,290 9,956
------- -------
Total stockholders' equity ................. 14,283 14,974
------- -------
$17,831 $18,841
======= =======
See notes to consolidated condensed financial statements
3
Valpey-Fisher Corporation and Subsidiaries
(Formerly MATEC Corporation and Subsidiaries)
Consolidated Statements of Operations
(In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended
6/30/02 7/1/01 6/30/02 7/1/01
------- ------- ------- -------
Net sales .................... $ 1,722 $ 4,913 $ 4,075 $11,914
Cost of sales ................ 1,746 3,688 3,936 8,673
------- ------- ------- -------
Gross profit (loss) ........ (24) 1,225 139 3,241
Operating expenses:
Selling and advertising ..... 387 741 740 1,526
General and administrative... 288 364 593 820
------- ------- ------- -------
675 1,105 1,333 2,346
Operating profit (loss) ...... (699) 120 (1,194) 895
Other income (expense):
Interest income ............. 27 11 55 34
Interest expense............. (22) (30) (49) (34)
Gain on sale of investment... - 152 155 152
Other, net .................. - 36 - 72
------- ------- ------- -------
5 169 161 224
Earnings (loss) from continuing
operations before income taxes (694) 289 (1,033) 1,119
Income tax benefit (expense) . 276 (116) 412 (448)
------- ------- ------- -------
Earnings (loss) from continuing
operations ................... (418) 173 (621) 671
(Loss) from discontinued
operations, net of taxes ..... - - (45) -
------- ------- ------- -------
Net earnings (loss) ........... $ (418) $ 173 $ (666) $ 671
======= ======= ======= =======
Basic earnings(loss)per share:
Continuing operations........ $ (.10) $ .04 $ (.15) $ .16
Discontinued operations...... - - (.01) -
------- ------- ------- -------
$ (.10) $ .04 $ (.16) $ .16
======= ======= ======= =======
Diluted earnings(loss)per share:
Continuing operations........ $ (.10) $ .04 $ (.15) $ .15
Discontinued operations...... - - (.01) -
------- ------- ------- -------
$ (.10) $ .04 $ (.16) $ .15
======= ======= ======= =======
Weighted average shares:
Basic....................... 4,145 4,133 4,147 4,132
Diluted .................... 4,145 4,279 4,147 4,330
Cash dividends per share ..... $ - $ - $ - $ -
======= ======= ======= =======
4
Valpey-Fisher Corporation and Subsidiaries
(Formerly MATEC Corporation and Subsidiaries)
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
6/30/02 7/1/01
-------- -------
Cash flows from operating activities:
Net earnings (loss) from continuing operations .... $ (621) $ 671
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization ................... 437 391
Deferred income taxes ........................... (13) (96)
Gain on sale of investment ...................... (155) (152)
Changes in operating assets and liabilities ..... 1,253 (1,937)
------- ------
Net cash provided (used) by operating activities 901 (1,123)
- -----------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of investment .................. 155 183
Capital expenditures .............................. (75) (1,793)
Collection of note receivables .................... 120 121
Other, net ........................................ (8) (8)
------ ------
Net cash provided (used) by investing activities 192 (1,497)
- -----------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt ...................... - 2,000
Payments on long-term debt ........................ (201) (118)
Purchases of common stock ........................ (25) -
Stock options exercised ........................... - 5
------ ------
Net cash provided (used) by financing activities (226) 1,887
- -----------------------------------------------------------------------
Net cash (used) by discontinued operations (45) -
- -----------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 822 (733)
Cash and cash equivalents:
Beginning of period ............................... 5,960 1,627
------ ------
End of period ..................................... $6,782 $ 894
====== ======
See notes to consolidated condensed financial statements.
5
Valpey-Fisher Corporation and Subsidiaries
(Formerly MATEC Corporation and Subsidiaries)
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended
6/30/02 7/1/01
------- -------
Net earnings (loss) .................................. $ (418) $ 173
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities, net of tax expense of $879 in 2001 ...... - 1,320
------- -------
Comprehensive income (loss) .......................... $ (418) $ 1,493
======= =======
Six Months Ended
6/30/02 7/1/01
------- -------
Net earnings (loss) .................................. $ (666) $ 671
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities, net of tax expense of $1,139 in 2001 ... - 1,708
------- -------
Comprehensive income (loss) ......................... $ (666) $ 2,379
======= =======
See notes to consolidated condensed financial statements.
6
Valpey-Fisher Corporation and Subsidiaries
(Formerly MATEC Corporation and Subsidiaries)
Notes to Consolidated Condensed Financial Statements
1. Financial Presentation:
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for fair presentation of results
for such periods. The results of operations for any interim period are not
necessarily indicative of results for the full year.
These interim financial statements should be read in conjunction with
the financial statements and related notes thereto included in the Company's
2001 Annual Report on Form 10-K as filed with the Securities and Exchange
Commission.
2. Name Change:
On May 31, 2002, under an Agreement of Merger and Plan of Liquidation
Under Section 368(a)(1)(A) and Section 332 of the Internal Revenue Code of 1986,
as amended, ("IRC") Valpey-Fisher Corporation ("VFC"), a wholly owned subsidiary
of MATEC Corporation ("MATEC") was merged with and into MATEC and the separate
corporate existence of VFC ceased. The parties intend that the Merger qualify as
a reorganization described in Section 368(a)(1)(A) and a Plan of Liquidation
described in Section 332 of the IRC. MATEC changed its name to Valpey-Fisher
Corporation effective June 3, 2002.
3. Receivables, net:
Receivables, net of allowances, consist of the following:
6/30/02 12/31/01
------- --------
(in thousands)
Accounts receivable, less allowance for doubtful
accounts of $433 and $396 .......................... $ 1,065 $ 1,909
Refundable income taxes ............................. 711 282
Amounts due from the sale of discontinued operations
and assets ......................................... 35 116
------- -------
$ 1,811 $ 2,307
======= =======
7
4. Inventories:
Inventories consist of the following:
6/30/02 12/31/01
------- --------
(in thousands)
Raw materials ............................ $ 2,678 $ 3,573
Work in process .......................... 408 306
Finished goods ........................... 494 590
------- -------
$ 3,580 $ 4,469
======= =======
5. Discontinued Operations:
During 1998, the Company sold the assets of its Bergen Cable
Technologies, Inc. subsidiary. As a result of the sale, the company is
performing environmental cleanup at the site. During the first quarter of 2002,
the Company expensed $75,000 to increase the environmental expense accrual to
reflect the revised estimate to complete the remediation. As of June 30, 2002,
$875,000 has been expensed for the cleanup and $72,000 is accrued for future
payments.
6. Gain on Sale of Investment:
In the first quarter of 2000, the Company sold its common stock
interest in Bergen Cable Technology, Inc., received $1,319,000 in cash after
estimated expenses and recorded a pre-tax gain of $1,226,000 on the sale. The
above gain did not include the Company's share of the sale escrow balance, less
any claims for indemnity thereon, if any, to be distributed on or before January
4, 2002. In the first quarter of 2002, the Company received $155,000 in cash as
its estimated share of the escrow balance, less estimated claims thereon and
reported this amount as a gain on sale of investment.
In the second quarter of 2001, the real estate owned by Bergen Real
Estate L.L.C. was sold. The Company had retained a 10% ownership interest in
the L.L.C. and as a result, received $183,000 in cash after estimated expenses
and recorded a pre-tax gain of $152,000 on the sale. The Company acquired its
interest in this L.L.C. as part of the purchase price for the sale of its
Bergen Cable Technologies, Inc. subsidiary.
8
7. Earnings (loss) Per Share:
The computation of basic and diluted earnings (loss) per share from
continuing operations is as follows:
THREE MONTHS ENDED
In thousands, except per share amounts 6/30/02 7/1/01
- -------------------------------------- ------- -------
BASIC
-----
Earnings (loss) from continuing operations $ (418) $ 173
====== ======
Weighted average shares outstanding 4,145 4,133
====== ======
Basic earnings (loss) per share from
continuing operations $ (.10) $ .04
====== ======
DILUTED
-------
Earnings (loss) from continuing operations $ (418) $ 173
====== ======
Weighted average shares outstanding 4,145 4,133
Increase from the assumed exercise
of stock options - 146
------ ------
Diluted weighted average shares outstanding 4,145 4,279
====== ======
Diluted earnings (loss) per share from
continuing operations $ (.10) $ .04
====== ======
SIX MONTHS ENDED
6/30/02 7/1/01
------- -------
BASIC
-----
Earnings (loss) from continuing operations $ (621) $ 671
======= ======
Weighted average shares outstanding 4,147 4,132
======= ======
Basic earnings (loss) per share from
continuing operations $ (.15) $ .16
======= ======
DILUTED
-------
Earnings (loss) from continuing operations $ (621) $ 671
======= ======
Weighted average shares outstanding 4,147 4,132
Increase from the assumed exercise of stock options - 198
------- ------
Diluted weighted average shares outstanding 4,147 4,330
======= ======
Diluted earnings (loss) per share from
continuing operations $ (.15) $ .15
======= ======
During the three and six months ended June 30, 2002, options to purchase
314,438 shares of common stock were not considered in the computation of diluted
earnings per share since the Company reported a loss from continuing operations.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Critical Accounting Policies
- ----------------------------
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates, judgments, and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the related disclosure of
contingent assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes that judgments and estimates related to the following
critical accounting policies could materially affect its consolidated financial
statements. The Company performs on-going credit evaluations of customers and
assesses the collectibility of its accounts receivable based on a number of
factors including the customer's financial condition and collection history, and
current economic trends. Similarly, the Company estimates the carrying value of
its inventory based upon historic and projected usage, product design changes
and projected customer purchases. The constant-changing technology markets that
we supply also affect these estimates.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents increased $822,000 during the six months
ended June 30, 2002. During this period, the Company's continuing operations and
investing activities generated cash of $901,000 and $192,000, respectively, and
financing activities used cash of $226,000.
The cash provided by operations was mainly the result of a decrease in
working capital of $1,253,000. Reductions in inventory of $889,000 and trade
receivables of $844,000 were the main reasons for the improved working capital
position. The decrease in inventory was mainly due to orders being filled from
existing inventory and a continuing control on inventory purchases. The decrease
in trade receivables resulted mainly from increased collections of outstanding
balances. These working capital reductions were partially offset by an increase
in refundable income taxes of $429,000, and reductions in accounts payable and
accrued liabilities totaling $104,000. The decrease in accounts payable is
mainly due to lower inventory purchases and the decrease in accrued liabilities
is due primarily to the payment of the 401(k) match.
10
During the six months ended June 30, 2002, the Company received
$155,000 in cash from the sale of an investment. These proceeds represented the
Company's share of the escrow balance; less estimated claims thereon, relating
to the Company's sale of its common stock interest in Bergen Cable Technology,
Inc., in the first quarter of 2000. In the second quarter of 2001, the real
estate owned by Bergen Real Estate L.L.C. was sold. The Company had retained a
10% ownership interest in the L.L.C. and as a result, received $183,000 in cash
after estimated expenses and recorded a pre-tax gain of $152,000 on the sale.
The Company used $201,000 of cash during the six months ended June 30,
2002 to make regularly scheduled payments on its $2 million term note.
Management believes that based on its current working capital, the expected
cash flows from operations, and its $1,250,000 revolving line of credit, the
Company's resources are sufficient to meet its financial needs in 2002 including
a remaining capital expenditures budget of approximately $375,000.
Results of Operations
- ---------------------
For the quarter and six months ended June 30, 2002, net sales decreased
$3,191,000 (65%) and $7,839,000 (66%) from the comparable periods in 2001. The
main reason for the drop in sales from last year was the lower backlog at the
beginning of 2002 ($1.4 million) compared to that at the beginning of 2001
($16.4 million). Sales recorded during the six months ended June 30, 2002
include sales cancellation charges of approximately $723,000 from two customers.
The Company began to experience a drop-off in bookings during the first quarter
of 2001. This drop-off continued through the end of 2001 as the market demand
from the telecom, networking and wireless markets dropped significantly as
customers began reporting slower growth rates and excess inventory levels.
During 2001 customers were also requesting order cancellations and push-out of
deliveries. The book-to-bill ratio during the six months ended June 30, 2002 was
1.11, with the backlog amounting to $1.6 million at June 30, 2002. As compared
to the 1999-2001 time period, the Company continues to see customer orders for
smaller quantities and reduced delivery dates. The Company is not sure of the
potential impact on its future operations from the current continuing telecom
market uncertainties. Over the past several months, the Company has directed
more effort at new products for the medical, military, and instrumentation
markets, as well as the telecom market.
During the quarter ended June 30 2002, the Company reported a gross loss on
sales of $24,000 compared to a gross profit of $1,225,000 in the comparable
period in 2001. For the six months ended June 30, 2002, the gross profit was
$139,000 compared to $3,241,000 in the comparable 2001 period. The main reason
for the decrease in gross margins during both periods was the unfavorable effect
of allocating the fixed overhead
11
expenses over the lower sales volume. During these periods raw material and
direct labor costs as a percentage of sales increased about 9% in total over
the 2001 amount.
During the quarter and six months ended June 30, 2002, selling and
advertising expenses decreased $354,000 (48%)and $786,000 (52%), respectively,
from the comparable periods in 2001. Lower sales commission expense to the
Company's outside manufacturers' representatives and a decrease in advertising
and promotion expenses were the main reasons for the expense decreases during
these periods.
During the quarter ended June 30, 2002, general and administrative
expenses decreased $76,000 (21%) from 2001 mainly as a result of reduced
personnel expense. During the six months ended June 30, 2002, general and
administrative expenses decreased $227,000 (28%) from the comparable period in
2001 mainly due to reduced personnel expense and a lower provision for the
management incentive bonus.
The increases in interest income during the quarter and six months
ended June 30, 2002 resulted mainly from the higher cash balances during the
current year. The decrease in interest expense during the quarter ended June 30,
2002 is mainly due to the lower amount of outstanding debt. The increase in
interest expense during the six months ended June 30, 2002 is mainly due to the
higher amount of outstanding debt during the comparable periods. During the six
months ended June 30, 2002, the Company received $155,000 in cash and reported
this amount as a gain on sale of investment. This cash represents the Company's
estimated share of the net escrow balance relating to the sale of the Company's
common stock investment in Bergen Cable Technology, Inc. in 2000. In the second
quarter of 2001, the real estate owned by Bergen Real Estate L.L.C. was sold.
The Company realized a pre-tax gain of $152,000 after estimated expenses for its
ownership share in this company.
The estimated effective income tax rate for both 2002 and 2001 is 40%.
For the quarter ended June 30, 2002, the Company reported an operating
loss of $699,000 versus an operating profit of $120,000 in the comparable
quarter of 2001 mainly as a result of the decrease in sales and gross margin
offset in part by lower operating expenses. Nonoperating income amounted to
$5,000 in 2002 compared to $169,000 in the corresponding 2001 period. As a
result, the Company reported a net loss from continuing operations of $418,000
during the quarter ended June 30, 2002 compared to net earnings of $173,000 in
in the comparable 2001 period.
For the six months ended June 30, 2002, the Company reported an
operating loss of $1,194,000 versus an operating profit of $895,000 in the
comparable period of 2001 mainly as a result of a decrease in sales and gross
margin offset in part by lower operating expenses. Nonoperating income amounted
to $161,000 in 2002 compared to $224,000 of income in the corresponding 2001
period. As a result, the Company reported a net loss from continuing operations
of $621,000 during the six
12
months ended June 30, 2002 compared to net earnings of $671,000 in 2001. Loss
from discontinued operations during the six months ended June 30, 2002 amounted
to $45,000. In total, the Company reported a consolidated net loss of $666,000
during the six months ended June 30, 2002 versus net earnings of $671,000 in
the comparable period of 2001.
Forward-Looking Statements
- --------------------------
Certain statements made herein contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Words such as
"expects", "believes", "estimates", "plans" or similar expressions are intended
to identify such forward-looking statements. The forward-looking statements are
based on the Company's current views and assumptions and involve risks and
uncertainties that include, but not limited to: the ability to develop, market
and manufacture new innovative products competitively, the fluctuations in
product demand of the telecommunications industry, the ability of the Company
and its suppliers to produce and deliver materials and products competitively,
and the ability to limit the amount of the negative effect on operating results
caused by pricing pressure.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ---------------------------------------------------------------------
The Company's cash balances in excess of operating requirements are
currently invested in money market accounts. These money market accounts are
subject to interest rate risk and interest income will fluctuate in relation to
general money market rates. Based on the cash and cash equivalent balance at
June 30, 2002, and assuming the balance was totally invested in money market
instruments for the full year, a hypothetical 1% point decline in interest rates
would result in an approximate $68,000 decrease in interest income.
The Company purchases certain inventory from and sells product in foreign
countries. As these activities are currently transacted in U.S. dollars, they
are not subject to foreign currency exchange risk. However, significant
fluctuation in the currencies where the Company purchases inventory or sells
product could make the U.S. dollar equivalent of such transactions more or less
favorable to the Company and the other involved parties.
13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 9, 2002. Listed
below are the matters submitted to stockholders and the results of the
stockholder votes.
(i) Election of eight directors:
Nominee "For" "Withheld"
--------------------- --------- ----------
Richard W. Anderson 3,602,807 10,784
Eli Fleisher 3,598,726 14,865
Lawrence Holsborg 3,602,126 11,465
John J. McArdle III 3,601,757 11,834
Michael P. Martinich 3,598,726 14,865
Robert W. Muir, Jr. 3,602,426 11,165
Joseph W. Tiberio 3,599,576 14,015
Ted Valpey, Jr. 3,601,907 11,684
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Amendment to Articles of Incorporation dated May 30, 2002
3.2 Restated and Amended Articles of Incorporation as of June 3, 2002
99.1 Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K - None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Valpey-Fisher Corporation
-------------------------------
Date: August 8, 2002 By /s/ Ted Valpey, Jr.
----------------------------
Ted Valpey, Jr.,
Chairman of the Board, Chief
Executive Officer and
President
Date: August 8, 2002 By /s/ Michael J. Kroll
----------------------------
Michael J. Kroll
Vice President, Treasurer and
Chief Financial Officer