UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the Quarterly Period Ended June 30, 2004
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 000-49890
MTC TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 02-0593816 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 4032 Linden Avenue, Dayton, Ohio | 45432 | |
| (Address of principal executive offices) | (Zip Code) |
(937) 252-9199
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares of Common Stock, $0.001 par value, of the registrant outstanding as of July 31, 2004 was 15,604,685.
MTC TECHNOLOGIES, INC. AND SUBSIDIARIES
Index
2
MTC TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(dollar amounts in thousands except per share amounts)
| June 30, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 72,403 | $ | 15,050 | ||||
| Accounts receivable, net |
51,122 | 46,004 | ||||||
| Costs and estimated earnings in excess of amounts billed on uncompleted contracts |
819 | 2,249 | ||||||
| Work-in-process inventories |
451 | 2,488 | ||||||
| Prepaid expenses and other current assets |
1,648 | 1,957 | ||||||
| Total current assets |
126,443 | 67,748 | ||||||
| Property, plant and equipment, net |
2,855 | 2,382 | ||||||
| Goodwill, net |
23,944 | 23,817 | ||||||
| Intangible assets, net |
7,309 | 8,164 | ||||||
| Other assets |
109 | 156 | ||||||
| $ | 160,660 | $ | 102,267 | |||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 11,962 | $ | 18,572 | ||||
| Compensation and related items |
10,264 | 9,774 | ||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts |
113 | 481 | ||||||
| Amounts due under earn-out agreements |
— | 5,668 | ||||||
| Income taxes payable and other current liabilities |
481 | 714 | ||||||
| Total current liabilities |
22,820 | 35,209 | ||||||
| Deferred income tax liabilities |
1,604 | 1,823 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.001 par value; 50,000,000 shares authorized; 15,603,018 and 13,210,946 shares issued and outstanding, at June 30, 2004 and December 31, 2003, respectively |
16 | 13 | ||||||
| Paid-in capital |
116,787 | 53,751 | ||||||
| Retained earnings |
20,794 | 12,832 | ||||||
| Treasury stock |
(1,361 | ) | (1,361 | ) | ||||
| Total stockholders’ equity |
136,236 | 65,235 | ||||||
| $ | 160,660 | $ | 102,267 | |||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
MTC TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(dollar amounts in thousands except per share amounts)
| Three months ended June 30, |
Six months ended June 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Revenue |
$ | 62,679 | $ | 42,565 | $ | 122,547 | $ | 78,674 | ||||
| Cost of revenue |
52,847 | 35,381 | 103,381 | 65,147 | ||||||||
| Gross profit |
9,832 | 7,184 | 19,166 | 13,527 | ||||||||
| General and administrative expenses |
2,812 | 2,453 | 5,504 | 4,857 | ||||||||
| Intangible asset amortization |
428 | 118 | 856 | 237 | ||||||||
| Operating income |
6,592 | 4,613 | 12,806 | 8,433 | ||||||||
| Interest income |
206 | 76 | 287 | 151 | ||||||||
| Income before income tax expense |
6,798 | 4,689 | 13,093 | 8,584 | ||||||||
| Income tax expense |
2,641 | 1,850 | 5,131 | 3,390 | ||||||||
| Net income |
$ | 4,157 | $ | 2,839 | $ | 7,962 | $ | 5,194 | ||||
| Basic and diluted earnings per common share |
$ | 0.27 | $ | 0.22 | $ | 0.53 | $ | 0.40 | ||||
| Weighted average common shares outstanding: |
||||||||||||
| Basic |
15,599,824 | 13,095,416 | 14,980,886 | 13,005,597 | ||||||||
| Diluted |
15,635,883 | 13,137,871 | 15,020,892 | 13,127,131 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
MTC TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Condensed Consolidated Statements of Cash Flows
(dollar amounts in thousands)
| Six months ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 7,962 | $ | 5,194 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Deferred income taxes |
(219 | ) | — | |||||
| Depreciation and amortization |
1,165 | 439 | ||||||
| Other |
204 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(5,170 | ) | (3,227 | ) | ||||
| Costs and estimated earnings in excess of billings on uncompleted contracts |
1,430 | (321 | ) | |||||
| Inventory |
2,037 | (2,127 | ) | |||||
| Prepaid expenses and other assets |
356 | 165 | ||||||
| Accounts payable |
(6,610 | ) | 2,630 | |||||
| Compensation and related items |
490 | 478 | ||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts |
(368 | ) | (66 | ) | ||||
| Income taxes payable and other current liabilities |
(233 | ) | — | |||||
| Net cash provided by operating activities |
1,044 | 3,165 | ||||||
| Cash flows from investing activities: |
||||||||
| Payments for acquired businesses |
(2,180 | ) | (1,227 | ) | ||||
| Purchase of property and equipment |
(1,188 | ) | (199 | ) | ||||
| Proceeds from sale of property and equipment |
224 | — | ||||||
| Net cash used in investing activities |
(3,144 | ) | (1,426 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock |
59,453 | 1,410 | ||||||
| Repurchase of common stock |
— | (879 | ) | |||||
| Net cash provided by financing activities |
59,453 | 531 | ||||||
| Net increase in cash |
57,353 | 2,270 | ||||||
| Cash and cash equivalents at beginning of period |
15,050 | 21,950 | ||||||
| Cash and cash equivalents at end of period |
$ | 72,403 | $ | 24,220 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
MTC TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 1. Financial Statements
Notes to Condensed Consolidated Financial Statements
A. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Interim financial information—The consolidated financial statements as of June 30, 2004 and for the three and six month periods ended June 30, 2004 and 2003 are unaudited and have been prepared on the same basis as our audited consolidated financial statements. MTC Technologies, Inc. (MTC or the Company) has continued to follow the accounting principles set forth in the consolidated financial statements included in its 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting only of normal recurring items, necessary to present fairly the periods indicated. Results of operations for the interim periods ended June 30, 2004 and 2003 are not necessarily indicative of the results for the full year.
Business Segment—We operate as one segment, delivering a broad array of services primarily to the federal government in four areas, which are offered separately or in combination across our customer base. These services are Systems Engineering and Technical Services, Information Technology, Intelligence and Program Management. Although we offer the services referred to above, revenue is internally reviewed by our management primarily on a contract basis. Therefore, it would be impracticable to determine revenue by services offered.
Stock Based Compensation—We apply Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for our stock option plans. Compensation expense for stock options to employees under the 2002 Equity and Performance Incentive Plan is recognized based on the difference, if any, between the fair value of our stock and the exercise price of the option at the date of grant. Had compensation costs been determined based on the fair value of the options on the grant dates consistent with the methodology prescribed by Statement of Financial Accounting Standard No. 123, Accounting for Stock Based Compensation (SFAS No. 123), our net income and earnings per share would have been reduced to the pro forma amounts indicated below.
Because future stock option awards may be granted and because it is unlikely that actual events will ever match the assumptions used in making these calculations, the pro forma impacts shown below are probably not indicative of the impact in future years.
6
MTC TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 1. Financial Statements
Notes to Condensed Consolidated Financial Statements
Pro forma disclosure:
| Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net income, as reported |
$ | 4,157 | $ | 2,839 | $ | 7,962 | $ | 5,194 | ||||||||
| Add: Stock based compensation included in reported net income, net of related tax benefits |
14 | — | 14 | — | ||||||||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
(117 | ) | (63 | ) | (368 | ) | (152 | ) | ||||||||
| Pro forma net income |
$ | 4,054 | $ | 2,776 | $ | 7,608 | $ | 5,042 | ||||||||
| Earnings per share: |
||||||||||||||||
| Basic – as reported |
$ | 0.27 | $ | 0.22 | $ | 0.53 | $ | 0.40 | ||||||||
| Basic – pro forma |
$ | 0.26 | $ | 0.21 | $ | 0.51 | $ | 0.39 | ||||||||
| Diluted – as reported |
$ | 0.27 | $ | 0.22 | $ | 0.53 | $ | 0.40 | ||||||||
| Diluted – pro forma |
$ | 0.26 | $ | 0.21 | $ | 0.51 | $ | 0.38 | ||||||||
B. STOCKHOLDERS’ EQUITY
The Company and a selling stockholder completed a public offering of 2,250,000 primary and 1,500,000 secondary shares of common stock in February 2004. The primary shares were issued by the Company and the secondary shares were sold by the selling stockholder. The Company did not receive any proceeds from the sale of the shares by the selling stockholder. The Company received net proceeds of $59.3 million from the offering, after deducting the Company’s portion of expenses and the underwriting discount.
We intend to use the proceeds from the offering (together with cash on hand and additional borrowings) for working capital and general corporate purposes including possible strategic acquisitions.
In the first quarter of 2004, we issued 133,074 shares of our common stock, with a value of $3.6 million, in connection with the fourth quarter 2003 acquisition of International Consultants, Inc. See Note C. Acquisitions.
C. ACQUISITIONS
International Consultants, Inc.
On October 1, 2003, we signed a stock purchase agreement and acquired International Consultants, Inc. (ICI) from ICI’s shareholders. Essentially all of ICI’s work is in the defense industry where its main focus has been to support the United States Army. ICI specializes in program management, information technology and logistics services and operations.
The initial purchase price for 100% of the outstanding common stock of ICI was $10.2 million, which was paid with $2.4 million in our common stock, $7.5 million in assumption of ICI debt (of which
7
MTC TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 1. Financial Statements
Notes to Condensed Consolidated Financial Statements
approximately $3.0 million arose in connection with payments to ICI’s