Amended Form 8-K
Table of Contents

 


 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K/A

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report

(Date of earliest event reported): March 7, 2003

 


 

MATRIX SERVICE COMPANY

(Exact name of registrant as specified in its charter)

 

Delaware

    

0-18716

    

73-1352174

(State or other jurisdiction

of incorporation)

    

(Commission File Number)

    

(I.R.S. Employer

Identification No.)

 

10701 East Ute Street, Tulsa, Oklahoma 74116-1517

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (918) 838-8822.

 



Table of Contents

 

Item 2. Acquisition of Assets

 

This Amendment No. 1 to the Current Report on Form 8-K originally dated March 20, 2003, is being filed in order to include the historical financial statements of Hake Group, Inc. and Subsidiaries and the unaudited pro forma financial information listed below.

 

On March 7, 2003, Matrix Service Company (the “Registrant”) acquired all of the issued and outstanding capital stock of Hake Group, Inc. from its sole shareholder, Skyview Partners LLC, and all of the issued and outstanding minority interests in the majority owned subsidiaries of Hake Group, Inc. (the “Purchase”). As a result of the Purchase, the Registrant acquired 100% of the ownership interests in Hake Group, Inc. and its subsidiaries, Bish Investments, Inc., Bogan, Inc., Frank W. Hake, Inc., Hover Systems, Inc., I&S, Inc., I&S Joint Venture, LLC, McBish Management, Inc., Mechanical Construction, Inc., Mid-Atlantic Constructors, Inc. and Talbot Realty, Inc., which are commonly referred to as The Hake Group of Companies. Also included in the Purchase was a 50% membership interest in Ragner Hake, LLC.

 

The Hake Group of Companies is headquartered in Eddystone, Pennsylvania, and is an industrial services contractor providing services primarily for the oil and power industries located in the Mid-Atlantic region of the United States. Services are provided to customers as integrated bundled services and include:

 

Millwrighting, Hauling and Rigging

Electrical Contracting

General Maintenance and Civil Contracting

Boiler Work, Pipefitting and Fabrication

 

The Registrant intends to continue in the business of The Hake Group of Companies.

 

The consideration for the Purchase was approximately $54 million, subject to certain adjustments, of which approximately $44 million in cash was paid at closing with the remaining $10 million to be paid post-closing in varying installments over the next five years. Financing for the transaction was provided under a new Credit Agreement between Matrix and a group of lenders led by Bank One.

 

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits

 

(a)   Financial Statements of Business Acquired

 

The following financial statements of Hake Group, Inc. and Subsidiaries are included in this report:

Consolidated Balance Sheets as of June 30, 2002 and 2001 and December 31, 2002 (unaudited)

Consolidated Statements of Income and Retained Earnings for the years ended June 30, 2002, 2001 and 2000 and the six months ended December 31, 2002 (unaudited) and 2001 (unaudited)

Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000 and the six months ended December 31, 2002 (unaudited) and 2001 (unaudited)

Notes to the Consolidated Financial Statements

 

(b)   Pro Forma Financial Information

 

The following unaudited pro forma condensed financial information is being filed herewith:

Unaudited Pro Forma Condensed Combined Balance Sheet as of February 28, 2003

Unaudited Pro Forma Condensed Combined Statement of Income for the nine months ended February 28, 2003

Unaudited Pro Forma Condensed Combined Statement of Income for the year ended May 31, 2002

Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

 

(c)   Exhibits

 

2


Table of Contents

 

99.1 Equity Interests Purchase Agreement dated as of March 7, 2003 by and among Hake Acquisition Corp., Matrix Service Company, and the Holders of the Equity Interests of The Hake Group of Companies (incorporated by reference to Exhibit 99.1 in the Registrant’s 8-K filed March 24, 2003).

 

99.2 Credit Agreement dated as of March 7, 2003, by and among Matrix Service Company, the Lenders referred to therein, Bank One, Oklahoma N.A., as Agent and Wells Fargo Bank Texas, N.A., as Co-Agent (incorporated by reference to Exhibit 99.2 in the Registrant’s Form 8-K filed March 24, 2003).

 

INDEX TO FINANCIAL STATEMENTS OF BUSINESS ACQUIRED

 

    

Page


Independent Auditor Report

  

4

Consolidated Balance Sheets as of June 30, 2002 and 2001 and December 31, 2002 (unaudited)

  

5

Consolidated Statements of Income and Retained Earnings for the years ended June 30, 2002, 2001 and 2000 and the six months ended December 31, 2002 (unaudited) and 2001 (unaudited)

  

6

Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000 and the six months ended December 31, 2002 (unaudited) and 2001 (unaudited)

  

7

Notes to Consolidated Financial Statements

  

8-18

 

3


Table of Contents

 

INDEPENDENT AUDITOR REPORT

 

The Board of Directors

Hake Group, Inc. and Subsidiaries

Eddystone, Pennsylvania

 

We have audited the accompanying consolidated balance sheets of Hake Group, Inc. and Subsidiaries as of June 30, 2002 and 2001, and the related consolidated statements of income and retained earnings, and cash flows for each of the three years ended June 30, 2002, 2001 and 2000. These consolidated financial statements 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 U.S. 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 from 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 present fairly, in all material respects, the financial position of Hake Group, Inc. and Subsidiaries as of June 30, 2002 and 2001, and the results of its operations and its cash flows for each of the three years ended June 30, 2002, 2001 and 2000, in conformity with U.S. generally accepted accounting principles.

 

Rainer & Company

 

August 9, 2002

 

4


Table of Contents

 

HAKE GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(000’s Omitted)

 

    

06/30/01


  

06/30/02


  

(Unaudited) 12/31/02


ASSETS

                    

Current:

                    

Cash

  

$

207

  

$

21

  

$

1,011

Contracts Receivable, Which Include Allowances of $50, $174 and $109 as of June 30, 2001, 2002 and December 31, 2002

  

 

21,437

  

 

21,321

  

 

20,048

Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts

  

 

8,698

  

 

8,384

  

 

13,609

Prepaid Expenses and Other Current Assets

  

 

316

  

 

1,341

  

 

3,367

Investment in Joint Venture

  

 

0

  

 

0

  

 

982

Deferred Income Taxes

  

 

0

  

 

0

  

 

799

    

  

  

TOTAL CURRENT ASSETS

  

 

30,658

  

 

31,067

  

 

39,816

Property and Equipment, Net of Accumulated Depreciation

  

 

2,986

  

 

2,965

  

 

3,044

Other Assets

  

 

390

  

 

914

  

 

0

    

  

  

TOTAL ASSETS

  

$

34,034

  

$

34,946

  

$

42,860

    

  

  

LIABILITIES

                    

Current:

                    

Note Payable—Demand

  

$

8,212

  

$

1,693

  

$

0

Note(s) Payable—Stockholder(s)

  

 

425

  

 

100

  

 

0

Current Installments of Long-Term Debt

  

 

649

  

 

200

  

 

750

Accounts Payable and Accrued Expenses

  

 

12,624

  

 

15,226

  

 

15,020

Management Equity Plan

  

 

0

  

 

0

  

 

2,001

Income Taxes Payable

  

 

871

  

 

1,250

  

 

2,546

Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts

  

 

1,490

  

 

1,419

  

 

5,171

    

  

  

TOTAL CURRENT LIABILITIES

  

 

24,271

  

 

19,888

  

 

25,488

    

  

  

Long-Term:

                    

Note Payable, Net of Current Portion

  

 

1,570

  

 

650

  

 

0

Management Equity Plan

  

 

435

  

 

2,001

  

 

0

    

  

  

TOTAL LONG-TERM LIABILITIES

  

 

2,005

  

 

2,651

  

 

0

    

  

  

TOTAL LIABILITIES

  

 

26,276

  

 

22,539

  

 

25,488

    

  

  

Minority Interests

  

 

590

  

 

1,074

  

 

1,430

    

  

  

STOCKHOLDERS’ EQUITY

                    

Capital Stock

  

 

1,817

  

 

1,817

  

 

1,817

Additional Paid-In Capital

  

 

598

  

 

598

  

 

598

Retained Earnings

  

 

4,753

  

 

8,918

  

 

13,527

    

  

  

TOTAL STOCKHOLDERS’ EQUITY

  

 

7,168

  

 

11,333

  

 

15,942

    

  

  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  

$

34,034

  

$

34,946

  

$

42,860

    

  

  

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

 

HAKE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Retained Earnings

(000’s Omitted)

 

    

Years Ended


    

(Unaudited)

Six Months Ended


 
    

06/30/00


    

06/30/01


    

06/30/02


    

12/31/01


    

12/31/02


 

Revenues

  

$

85,315

 

  

$

112,748

 

  

$

174,808

 

  

$

91,782

 

  

$

95,917

 

Cost of Revenues

  

 

71,736

 

  

 

95,872

 

  

 

149,099

 

  

 

79,791

 

  

 

80,415

 

    


  


  


  


  


GROSS PROFIT

  

 

13,579

 

  

 

16,876

 

  

 

25,709

 

  

 

11,991

 

  

 

15,502

 

Operating Expenses

  

 

11,391

 

  

 

12,911

 

  

 

14,692

 

  

 

7,836

 

  

 

7,946

 

    


  


  


  


  


INCOME FROM OPERATIONS

  

 

2,188

 

  

 

3,965

 

  

 

11,017

 

  

 

4,155

 

  

 

7,556

 

    


  


  


  


  


Other Income (Expense):

                                            

Other Expense, Net of Other Income

  

 

(315

)

  

 

(322

)

  

 

(846

)

  

 

(143

)

  

 

(289

)

Management Equity Plan Expense

  

 

0

 

  

 

(435

)

  

 

(1,566

)

  

 

0

 

  

 

0

 

Income from Investment in Joint Venture

  

 

0

 

  

 

0

 

  

 

0

 

  

 

0

 

  

 

982

 

    


  


  


  


  


TOTAL OTHER INCOME (EXPENSE)

  

 

(315

)

  

 

(757

)

  

 

(2,412

)

  

 

(143

)

  

 

693

 

    


  


  


  


  


INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTERESTS IN NET INCOME OF CONSOLIDATED SUBSIDIARIES

  

 

1,873

 

  

 

3,208

 

  

 

8,605

 

  

 

4,012

 

  

 

8,249

 

Provision for Income Taxes

  

 

592

 

  

 

1,207

 

  

 

3,451

 

  

 

1,400

 

  

 

3,284

 

    


  


  


  


  


INCOME BEFORE MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES

  

 

1,281

 

  

 

2,001

 

  

 

5,154

 

  

 

2,612

 

  

 

4,965

 

Minority Interests in Net Income of Consolidated Subsidiaries

  

 

(73

)

  

 

(111

)

  

 

(484

)

  

 

(222

)

  

 

(356

)

    


  


  


  


  


NET INCOME

  

 

1,208

 

  

 

1,890

 

  

 

4,670

 

  

 

2,390

 

  

 

4,609

 

Retained Earnings—Beginning

  

 

2,091

 

  

 

3,299

 

  

 

4,753

 

  

 

4,753

 

  

 

8,918

 

Less: Dividends Paid

  

 

0

 

  

 

436

 

  

 

505

 

  

 

0

 

  

 

0

 

    


  


  


  


  


RETAINED EARNINGS—ENDING

  

$

3,299

 

  

$

4,753

 

  

$

8,918

 

  

$

7,143

 

  

$

13,527

 

    


  


  


  


  


 

The accompanying notes are an integral part of these statements.

 

 

6


Table of Contents

 

HAKE GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(000’s Omitted)

 

                         

(Unaudited)

 
    

Years Ended


    

Six Months Ended


 
    

06/30/00


    

06/30/01


    

06/30/02


    

12/31/01


    

12/31/02


 

Cash Flows From Operating Activities:

                                            

Net Income

  

$

1,208

 

  

$

1,890

 

  

$

4,670

 

  

$

2,390

 

  

$

4,609

 

Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:

                                            

Minority Interests in Net Income of Consolidated Subsidiaries

  

 

73

 

  

 

111

 

  

 

484

 

  

 

222

 

  

 

356

 

Depreciation and Amortization

  

 

454

 

  

 

470

 

  

 

520

 

  

 

256

 

  

 

244

 

Allowance for Doubtful Accounts

  

 

0

 

  

 

0

 

  

 

0

 

  

 

17

 

  

 

(65

)

Income from Investment in Joint Venture

  

 

0

 

  

 

0

 

  

 

0

 

  

 

0

 

  

 

(982

)

Gain on Sale of Property and Equipment

  

 

(64

)

  

 

(11

)

  

 

(26

)

  

 

0

 

  

 

0

 

Deferred Income Taxes

  

 

(119

)

  

 

(58

)

  

 

(338

)

  

 

0

 

  

 

0

 

Decrease (Increase) in:

                                            

Contracts Receivable

  

 

(2,527

)

  

 

(3,993

)

  

 

116

 

  

 

(5,346

)

  

 

4,689

 

Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts

  

 

1,131

 

  

 

(5,419

)

  

 

314

 

  

 

(794

)

  

 

(8,576

)

Prepaid Expenses and Other Current Assets

  

 

(80

)

  

 

21

 

  

 

(1,230

)

  

 

(117

)

  

 

(1,935

)

Increase (Decrease) in:

                                            

Accounts Payable and Accrued Expenses

  

 

(804

)

  

 

5,627

 

  

 

2,602

 

  

 

3,858

 

  

 

(206

)

Income Taxes Payable

  

 

298

 

  

 

(992

)

  

 

379

 

  

 

655

 

  

 

1,296

 

Management Equity Plan

  

 

0

 

  

 

435

 

  

 

1,566

 

  

 

0

 

  

 

0

 

Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts

  

 

1,146

 

  

 

(29

)

  

 

(71

)

  

 

3,139

 

  

 

3,752

 

    


  


  


  


  


NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

  

 

716

 

  

 

(1,948

)

  

 

8,986

 

  

 

4,280

 

  

 

3,182

 

    


  


  


  


  


Cash Flows From Investing Activities:

                                            

Purchases of Property and Equipment

  

 

(159

)

  

 

(1,800

)

  

 

(487

)

  

 

(426

)

  

 

(323

)

Principal Received from Related Party Note Receivable

  

 

286

 

  

 

602

 

  

 

7

 

  

 

0

 

  

 

24

 

Advances from Related Parties

  

 

(421

)

  

 

0

 

  

 

0

 

  

 

0

 

  

 

0

 

Proceeds from Sale of Property and Equipment

  

 

91

 

  

 

14

 

  

 

26

 

  

 

0

 

  

 

0

 

    


  


  


  


  


NET CASH (USED) BY INVESTING ACTIVITIES

  

 

(203

)

  

 

(1,184

)

  

 

(454

)

  

 

(426

)

  

 

(299

)

    


  


  


  


  


Cash Flows From Financing Activities:

                                            

Proceeds from Borrowings

  

 

2,473

 

  

 

4,760

 

  

 

0

 

  

 

0

 

  

 

0

 

Net Repayments on Demand Note Payable

  

 

0

 

  

 

0

 

  

 

0

 

  

 

(2,479

)

  

 

(1,693

)

Payments of Debt Obligations

  

 

(2,997

)

  

 

(1,012

)

  

 

(8,213

)

  

 

(1,563

)

  

 

(200

)

Dividends Paid

  

 

0

 

  

 

(436

)

  

 

(505

)

  

 

0

 

  

 

0

 

    


  


  


  


  


NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

  

 

(524

)

  

 

3,312

 

  

 

(8,718

)

  

 

(4,042

)

  

 

(1,893

)

    


  


  


  


  


NET INCREASE (DECREASE) IN CASH

  

 

(11

)

  

 

180

 

  

 

(186

)

  

 

(188

)

  

 

990

 

Cash—Beginning

  

 

38

 

  

 

27

 

  

 

207

 

  

 

207

 

  

 

21

 

    


  


  


  


  


CASH—ENDING

  

$

27

 

  

$

207

 

  

$

21

 

  

$

19

 

  

$

1,011

 

    


  


  


  


  


Supplemental Schedule of Cash Flow Information:

                                            

Cash Paid During the Period For:

                                            

Interest

  

$

728

 

  

$

717

 

  

$

469

 

  

$

331

 

  

$

131

 

Income Taxes

  

 

683

 

  

 

1,411

 

  

 

3,488

 

  

 

800

 

  

 

2,000

 

 

The accompanying notes are an integral part of these statements.

 

7


Table of Contents

 

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

NOTE 1Nature of Business

 

Hake Group, Inc. (the parent company) owns the stock of its consolidated subsidiaries as listed in Note 2. As an industrial service contractor, the following services provided to its customers are evaluated by management as integrated bundled services and, as such, the company operates as one business segment:

 

Millwrighting, Hauling and Rigging

Electrical Contracting

General Maintenance and Civil Contracting

Boiler Work, Pipefitting and Fabrication

 

NOTE 2Basis of Presentation and Summary of Significant Accounting Policies

 

Estimates—The process of preparing financial statements in conformity with U.S. generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

 

Principles of Consolidation—The accompanying consolidated financial statements include the accounts of the parent company and all of its subsidiaries. Minority interests in the respective entities are determined by their equity ownership. All significant intercompany transactions are eliminated in consolidation.

 

References in this report to “subsidiaries” include both wholly-owned and majority-owned subsidiaries. References to “company” include the Hake Group, Inc. and all consolidated subsidiaries.

 

Consolidated Subsidiaries


    

Ownership


Frank W. Hake, Inc.

    

100%

Bogan, Inc.

    

85%

Hover Systems, Inc.

    

100%

I & S, Inc.

    

100%

I & S Joint Venture, LLC

    

90%

Mechanical Construction, Inc.

    

100%

Mid-Atlantic Constructors, Inc.

    

90%

McBish Management, Inc.

    

100%

Bish Investments, Inc.

    

93%

Talbot Realty, Inc.

    

100%

 

Unaudited Interim Financial Statements—The interim financial statements of the company at December 31, 2002 and for the six months ended December 31, 2002 and 2001 included herein have been prepared by the company, without audit.

 

 

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Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 2Basis of Presentation and Summary of Significant Accounting Policies (Continued)

 

Revenue and Cost Recognition—Revenues from time and material contracts and fixed price contracts are recognized on the accrual basis, measured by costs incurred to date and the estimated gross profit percentage. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near-term.

 

Contract costs include all direct material, labor, subcontract and equipment costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

 

The asset, “Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts,” represents costs and earnings recognized in excess of amounts billed. The current liability, “Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts,” represents billings in excess of costs and earnings recognized.

 

In accordance with industry practice, the company classifies all contract related assets and liabilities as current under the operating cycle concept.

 

Property and Equipment—Property and equipment are carried at cost. Depreciation expense is provided for on the straight-line method over the estimated useful lives of the assets. Maintenance and minor repairs are charged to operations as incurred. Gains and losses on dispositions are recorded in current operations.

 

For financial reporting purposes, the estimated useful lives for depreciation and amortization are:

 

Leasehold Improvements

  

15-39 Years

Hauling Equipment

  

3-7 Years

Rigging Equipment

  

5-10 Years

Other Operating Equipment

  

3-7 Years

Automobiles

  

3-7 Years

Office Equipment

  

5 Years

 

Impairment of Long-Lived Assets—Long-lived assets and intangibles, including goodwill, of identifiable business activities are evaluated for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets used in operations may not be recoverable. The determination of whether an impairment has occurred is based on management’s estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value for the assets and recording a provision for loss if the carrying value is greater than fair value. For assets identified to be disposed of in the future, the carrying value of these assets is compared to the estimated fair value, less the cost to sell, to determine if an impairment is required. Until the assets are disposed of, an estimate of the fair value is redetermined when related events or circumstances change.

 

 

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Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 2Basis of Presentation and Summary of Significant Accounting Policies (Continued)

 

Income Taxes—Income taxes are based on amounts included in the Consolidated Statements of Income and Retained Earnings. Deferred income taxes are computed based on the tax liability or benefit in future years of the reversal of temporary differences in the recognition of income or deduction of expenses between financial and tax reporting purposes. Deferred taxes are classified as current or noncurrent based on the classification of the related assets and liabilities to which they relate.

 

Fair Value of Financial Instruments and Concentration of Credit Risk—Financial instruments which potentially subject the company to concentrations of credit risk consist of cash and contracts receivable. The carrying value of financial instruments approximates their fair value. The company places its cash with high quality institutions. At times, investments may be in excess of the FDIC insurance limit. Concentrations of credit risk, with respect to contracts receivable, are considered to be limited due to the quantity of customers comprising the company’s customer base and their dispersion across many different industries.

 

Cash and Cash Equivalents—For purposes of the consolidated statements of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less.

 

Contracts Receivable—Contracts receivable are recorded net of an allowance for expected losses. The allowance is estimated from historical performance and projections of trends.

 

NOTE 3Contracts Receivable

 

    

June 30,


  

(Unaudited)

December 31,

2002


    

2001


  

2002


  

Billed

  

$

19,941,032

  

$

19,126,261

  

$

17,758,361

Retainages

  

 

1,496,115

  

 

2,194,385

  

 

2,289,546

    

  

  

TOTAL

  

$

21,437,147

  

$

21,320,646

  

$

20,047,907

    

  

  

 

NOTE 4Costs, Estimated Earnings and Billings on Uncompleted Contracts

 

    

June 30,


  

(Unaudited)

December 31,

2002


    

2001


  

2002


  

Costs Incurred

  

$

86,696,226

  

$

99,642,128

  

$

117,041,127

Estimated Earnings

  

 

14,956,171

  

 

14,497,597

  

 

21,734,282

    

  

  

    

 

101,652,397

  

 

114,139,725

  

 

138,775,409

Less: Billings to Date

  

 

94,444,497

  

 

107,173,959

  

 

130,337,087

    

  

  

TOTAL

  

$

7,207,900

  

$

6,965,766

  

$

8,438,322

    

  

  

 

 

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Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 4Costs, Estimated Earnings and Billings on Uncompleted Contracts (Continued)

 

    

June 30,


    

(Unaudited) December 31,

2002


 
    

2001


    

2002


    

Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts

  

$

8,698,191

 

  

$

8,385,053

 

  

$

13,609,032

 

Billings in Excess of Costs and Estimated on Uncompleted Contracts

  

 

(1,490,291

)

  

 

(1,419,287

)

  

 

(5,170,710

)

    


  


  


NET

  

$

7,207,900

 

  

$

6,965,766

 

  

$

8,438,322

 

    


  


  


 

NOTE 5Property and Equipment

 

The components of property and equipment are as follows:

 

    

June 30,


  

(Unaudited)

December 31,

2002


    

2001


  

2002


  

Real Estate

  

$

204,764

  

$

204,764

  

$

204,764

Leasehold Improvements

  

 

996,079

  

 

1,149,757

  

 

1,163,491

Hauling Equipment

  

 

6,059,907

  

 

6,168,036

  

 

6,240,356

Rigging Equipment

  

 

1,406,201

  

 

1,460,358

  

 

1,460,358

Other Operating Equipment

  

 

323,754

  

 

323,754

  

 

323,754

Automobiles

  

 

353,721

  

 

263,060

  

 

263,060

Office Equipment

  

 

822,049

  

 

842,058

  

 

1,078,140

    

  

  

TOTAL PROPERTY AND EQUIPMENT

  

 

10,166,475

  

 

10,411,787

  

 

10,733,923

Less: Accumulated Depreciation

  

 

7,180,702

  

 

7,446,648

  

 

7,690,267

    

  

  

NET PROPERTY AND EQUIPMENT

  

$

2,985,773

  

$

2,965,139

  

$

3,043,656

    

  

  

 

Depreciation expense for the years ended June 30, 2000, 2001 and 2002 was $444,413, $458,132 and $506,950, respectively. Depreciation expense was $230,556 (unaudited) and $243,619 (unaudited) for the six months ended December 31, 2001 and 2002, respectively.

 

 

11


Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 6Other Assets

 

The components of other assets are as follows:

 

    

June 30,


    

2001


  

2002


Note Receivable, Net of Current Maturities

  

$

84,092

  

$

76,794

Intangible Asset, Net of Accumulated Amortization

  

 

50,000

  

 

38,000

Deferred Income Taxes

  

 

256,000

  

 

799,000

    

  

TOTAL OTHER ASSETS

  

$

390,092

  

$

913,794

    

  

 

The following represents the terms of the note receivable included in other assets:

 

    

June 30,


    

2001


  

2002


Note receivable from Hake Headquarters, a related party.
The note is being repaid in monthly installments
of $1,147, including interest of 8%. The final payment
is due December 2010

  

$

90,830

  

$

84,092

Less: Current Maturities

  

 

6,738

  

 

7,298

    

  

NOTE RECEIVABLE, NET OF CURRENT MATURITIES

  

$

84,092

  

$

76,794

    

  

 

NOTE 7Note Payable—Demand

 

At June 30, 2001, the company had available an $11,000,000 line of credit with interest payable monthly at the bank’s prime rate less ½%. During the fiscal year ended June 30, 2002, the available line of credit was increased to $14,500,000 with interest payable monthly at the bank’s prime rate less ¾%. The outstanding balance is limited to a borrowing base formula and is collateralized by the assets of the company. The balance outstanding at June 30, 2001 and 2002 was $8,212,209 and $1,693,177, respectively.

 

The line of credit and note payable—equipment (see Note 8) are personally guaranteed by a stockholder. In addition, under the terms of this credit facility, the company is required to maintain certain financial covenants.

 

 

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Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 8Long-Term Debt

 

    

June 30,


  

(Unaudited)
December 31,

2002


    

2001


  

2002


  

Term Loan—Due in monthly principal payments of
$26,667 plus interest at 7.25%. The note was
collateralized by the assets of the company. The
note was repaid in 2002

  

$

1,040,000

  

$

0

  

$

0

Note Payable—Individual. Due in monthly payments
of $5,225 plus interest at prime. The note matured
in 2002

  

 

62,700

  

 

0

  

 

0

Note Payable—Individual. Due in quarterly payments
of $15,000 including interest at 9%. The note matured
in 2002

  

 

69,701

  

 

0

  

 

0

Note Payable—Individual. Due in quarterly payments
of $10,000 including interest at 9%. The note matured
in 2002

  

 

46,468

  

 

0

  

 

0

Note Payable—Equipment. Due in monthly payments
of $16,667, plus interest of 7.54%, commencing
October 2001, collateralized by equipment and the
personal guarantee of a stockholder. The note
matures October 2006

  

 

1,000,000

  

 

850,000

  

 

750,000

    

  

  

TOTAL

  

 

2,218,869

  

 

850,000

  

 

750,000

Less: Current Installments

  

 

648,869

  

 

200,000

  

 

750,000

    

  

  

LONG-TERM DEBT

  

$

1,570,000

  

$

650,000

  

$

0

    

  

  

 

Future debt maturities at June 30, 2002 are as follows:

 

2003

  

$

200,000

2004

  

 

200,000

2005

  

 

200,000

2006

  

 

200,000

2007

  

 

50,000

    

TOTAL

  

$

850,000

    

 

 

13


Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 9Note(s) Payable—Stockholder(s)

 

During 2002, the company repaid the outstanding balances of the notes with the common stockholders. The amount outstanding at June 30, 2001 was $325,000.

 

The note payable to the preferred stockholder is due on demand with interest equal to the company’s base borrowing rate. The balance outstanding at June 30, 2001 and 2002 was $100,000.

 

NOTE 10Provision for Income Taxes

 

The provision for income taxes is comprised of the following:

 

    

June 30,


 
    

2000


    

2001


    

2002


 

Current:

                          

Federal

  

$

711,000

 

  

$

1,265,000

 

  

$

3,342,000

 

State

  

 

0

 

  

 

0

 

  

 

447,000

 

Deferred:

                          

Federal

  

 

(19,000

)

  

 

(108,000

)

  

 

(638,000

)

State

  

 

(100,000

)

  

 

50,000

 

  

 

300,000

 

    


  


  


TOTAL PROVISION FOR INCOME TAXES

  

$

592,000

 

  

$

1,207,000

 

  

$

3,451,000

 

    


  


  


Deferred Tax Asset (Liability):

                          

Federal

           

$

(19,000

)

  

$

619,000

 

State

           

 

480,000

 

  

 

180,000

 

             


  


TOTAL DEFERRED TAX ASSETS

           

$

461,000

 

  

$

799,000

 

             


  


Classification:

                          

Deferred Tax Asset—Current

           

$

205,000

 

  

$

0

 

Deferred Tax Asset—Non-Current

           

 

256,000

 

  

 

799,000

 

             


  


TOTAL DEFERRED TAX ASSETS

           

$

461,000

 

  

$

799,000

 

             


  


 

Significant components of deferred taxes are as follows:

 

    

June 30,


    

2001


    

2002


Deferred Tax Assets:

               

Management Equity Plan

  

$

174,000

 

  

$

799,000

State Net Operating Losses

  

 

292,000

 

  

 

0

Other Temporary Differences

  

 

(5,000

)

  

 

0

    


  

TOTAL DEFERRED TAX ASSETS

  

$

461,000

 

  

$

799,000

    


  

 

 

14


Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 10Provision for Income Taxes (Continued)

 

The company recognizes deferred tax assets and liabilities for future tax consequences of events that have been previously recognized in the company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of the enacted tax law. The effects of the future change in tax laws or rates are not considered.

 

A reconciliation of income tax at the statutory rate to the company’s effective rate is as follows:

 

    

June 30,


 
    

2000


    

2001


    

2002


 

Computed at the Expected Statutory Rate

  

34

%

  

34

%

  

34

%

Net Permanent Differences

  

6

%

  

6

%

  

1

%

State Tax Expense (Benefit), Net of Federal Tax

  

(8

)%

  

(2

)%

  

5

%

    

  

  

INCOME TAX EXPENSE—EFFECTIVE RATE

  

32

%

  

38

%

  

40

%

    

  

  

 

NOTE 11Capital Stock

 

    

June 30,


  

(Unaudited)

December 31,

2002


    

2001


  

2002


  

Preferred stock, Class B cumulative at 9%, no par
value, stated value $100, 30,000 shares authorized,
11,667 shares issued and outstanding

  

$

1,166,667

  

$

1,166,667

  

$

1,166,667

Common stock, Class A, voting, no par value, stated
value $1,300, 1,000 shares authorized, 100 shares
issued and outstanding

  

 

130,000

  

 

130,000

  

 

130,000

Common stock, Class B, non-voting, no par value,
stated value $1,300, 1,000 shares authorized, 400
shares issued and outstanding

  

 

520,000

  

 

520,000

  

 

520,000

    

  

  

TOTAL

  

$

1,816,667

  

$

1,816,667

  

$

1,816,667

    

  

  

 

 

15


Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 12Commitments

 

A.   The company leases its facilities from a partnership related by common ownership. Annual rent payments for the fiscal years ended June 30, 2001 and 2002 were $250,000. Effective July 1, 2002, the annual rent was increased to $300,000. The lease is annually renewable and requires the company to pay for all utilities and operating costs other than real estate taxes.

 

The company is the guarantor on debt of the partnership totaling $576,570 and $540,721 at June 30, 2001 and 2002, respectively. The company holds a note receivable from the partnership, the balance of which amounted to $90,830 and $84,092 at June 30, 2001 and 2002, respectively. The note is being repaid in monthly installments of $1,147 including interest at 8% through December 2010.

 

The company leases transportation equipment under operating leases with 36 to 48 month terms expiring through May 2005. Total rent expense was $409,844, $473,000 and $678,000 for the years ended June 30, 2000, 2001 and 2002, respectively.

 

The following is a schedule by years of future minimum obligations as described above:

 

June 30,


    

  2003

  

$

915,533

  2004

  

 

715,289

  2005

  

 

595,754

  2006

  

 

378,420

    

TOTAL

  

$

2,604,996

    

 

B.   The company is a guarantor of the debt of a related entity through common ownership. The entity’s property and equipment and a letter of credit serve as collateral for these obligations. As of June 30, 2001 and 2002, the outstanding balance of these obligations was approximately $1,965,000 and $1,615,000, respectively.

 

C.   The company has entered into an agreement with a former officer which requires annual payments of $170,000 for the remainder of his life. This agreement is cancelable at the discretion of the Board of Directors.

 

NOTE 13Retirement Benefits

 

The company provides a 401(k) salary reduction plan which covers all eligible employees. The plan provides for an employer-matching contribution equal to 50% of a participant’s annual contribution to the plan up to a maximum of 6% of an employee’s annual salary. The employer-matching contribution for the years ended June 30, 2000, 2001 and 2002 was $98,569, $93,628 and $100,935, respectively. The plan also has a profit sharing option which allows the company to make discretionary contributions. The company approved a discretionary contribution for the years ended June 30, 2001 and 2002 of $83,000 and $100,000, respectively. No discretionary profit sharing contributions were made for the year ended June 30, 2000.

 

 

16


Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 13Retirement Benefits (Continued)

 

The company also contributes to pension plans under industry-wide collective bargaining agreements which provide for pension benefits. Governmental regulations impose certain requirements relative to multi-employer plans. In the event of plan termination or employer withdrawal, an employer may be liable for a portion of the plan’s unfunded vested benefits. The company has not received information from the plans’ administrators to determine its share of unfunded vested benefits. The company does not anticipate withdrawal from the plans, nor is the company aware of any expected plan terminations.

 

NOTE 14Major Customers

 

The company conducts a major portion of its business with certain customers. For the year ended June 30, 2000, revenues from two major customers amounted to $27,778,000 or 33% of consolidated revenues. For the year ended June 30, 2001, revenues from three major customers amounted to $47,066,623 or 42% of consolidated revenues. For the year ended June 30, 2002, revenues from two major customers amounted to $68,314,581 or 39% of consolidated revenues.

 

NOTE 15Management Equity Plan

 

Effective July 1, 1999, the company established a Management Equity Plan for the purpose of furthering its growth and retaining its key executive management employees. A committee appointed by the Board of Directors administers the plan. Participant benefits under the plan will vest based on service to the company, ranging from three to five years and will be payable as deferred compensation in the event of the sale of the company or a termination of service.

 

Under the Plan, Units are granted to participating managers as determined by the committee. Units are not transferable and are not shares of stock, nor do they represent any form of equity ownership. Units are valued annually, as of the end of each fiscal year of the company. As defined in the Plan, the determined value is as follows:

 

    

June 30,


    

2001


  

2002


Plan Growth (as Defined)

  

$

1,553,200

  

$

5,732,800

    

  

Plan Growth Assigned to Units Granted

  

$

1,242,560

  

$

4,586,240

    

  

Present Value of Vested Benefits, Discounted at 6% Based on Five-Year Payment Stream

  

$

435,360

  

$

2,000,962

    

  

 

 

17


Table of Contents

HAKE GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2002 and 2001

 

 

NOTE 16—Event (Unaudited) Subsequent to the Date of the Independent Auditors’ Report

 

On March 7, 2003, the company and its subsidiaries entered into an Equity Interests Purchase Agreement with Matrix Service Company. Subject to conditions set forth in the Agreement, Matrix Service Company purchased all rights, title and interest in all of the issued and outstanding equity interests of the Hake Group, Inc. and subsidiaries.

 

18


Table of Contents

 

(b) Pro Forma Financial Information

 

The required pro forma financial information is set forth below.

 

INDEX TO PRO FORMA FINANCIAL INFORMATION

 

    

Page


Pro Forma Financial Information:

    

Unaudited Pro Forma Condensed Combined Balance Sheet as of February 28, 2003

  

21-22

Unaudited Pro Forma Condensed Combined Statement of Income for the nine months ended February 28, 2003

  

23

Unaudited Pro Forma Condensed Combined Statement of Income for the year ended May 31, 2002

  

24

Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

  

25-26

 

Unaudited Pro Forma Condensed Combined Financial Information

 

The following unaudited pro forma condensed combined financial statements and explanatory notes have been prepared to give effect to the acquisition of Hake Group, Inc. and Subsidiaries (“Hake”) by Matrix Service Company (“Matrix”) as if the acquisition had been completed on June 1, 2001 for statement of income purposes, and February 28, 2003 for balance sheet purposes. The acquisition is to be accounted for as a purchase business combination as defined by Statement of Financial Accounting Standards No. 141. In accordance with Article 11 of Regulation S-X under the Securities Act, an unaudited pro forma condensed combined balance sheet as of February 28, 2003, and unaudited pro forma condensed combined statements of income for the year ended May 31, 2002, and the nine months ended February 28, 2003, have been prepared to reflect the acquisition of Hake by Matrix.

 

As the companies have differing year ends, the unaudited pro forma condensed combined balance sheet as of February 28, 2003 combines the unaudited consolidated balance sheet of Matrix as of February 28, 2003 with the unaudited consolidated balance sheet of Hake as of December 31, 2002 and gives effect to the acquisition as if it had occurred on February 28, 2003.

 

The unaudited pro forma condensed combined statement of income for the nine months ended February 28, 2003 combines the unaudited consolidated statement of income of Matrix for the nine months ended February 28, 2003 with the unaudited consolidated statement of income of Hake for the nine months ended December 31, 2002 and gives effect to the acquisition as if it had occurred on June 1, 2001.

 

The unaudited pro forma condensed combined statement of income for the year ended May 31, 2002 combines the consolidated statement of income of Matrix for the year ended May 31, 2002 with the consolidated statement of income for the year ended June 30, 2002 of Hake and gives effect to the acquisition as if it had occurred on June 1, 2001.

 

Certain reclassifications were made to the financial information of Hake to conform to Matrix’s presentation. The statement of income data for Hake for the three months ended June 30, 2002 is included in the unaudited pro forma condensed combined statements of income for both the year ended May 31, 2002 and the nine months ended February 28, 2003.

 

The pro forma financial statements should be read in conjunction with (a) the historical consolidated financial statements of Matrix as of May 31, 2002 and 2001, and for each of the three years in the period ended May 31, 2002; (b) the unaudited condensed consolidated balance sheet of Matrix as of February 28, 2003, and the unaudited consolidated statements of income for the nine month period ended February 28, 2003; and (c) the audited consolidated financial statements of Hake as of June 30, 2002 and 2001 and for each of the three years ended June 30, 2002; and the unaudited consolidated balance sheet of Hake as of December 31, 2002, and the consolidated statement of income of Hake for the six months ended December 31, 2002 included in this Report on Form 8-K.

 

The pro forma adjustments are preliminary and based on Matrix management’s estimates of the value of the tangible and intangible assets acquired and liabilities assumed. Based on the timing of the closing of the transaction and other factors, pro forma adjustments may differ materially from those presented in these pro forma financial statements. A change

 

19


Table of Contents

affecting the value assigned to assets acquired and liabilities acquired and/or assumed would result in a reallocation of purchase price and modifications to the pro forma adjustments. The statements of income effect of these changes will depend on the nature and amount of the assets or liabilities adjusted.

 

The pro forma financial data is intended for informational purposes only and is not necessarily indicative of the future financial position or future results of operations of Matrix after the acquisition or the financial position or results of operations had the acquisition actually been effected on June 1, 2001.

 

20


Table of Contents

 

Matrix Service Company

Unaudited Pro Forma Condensed Combined Balance Sheets

As of February 28, 2003

(in thousands)

 

    

Matrix Historical


  

Hake Historical


  

Acquisition Adjustments


    

Pro Forma Combined Total


ASSETS:

                             

Current assets:

                             

Cash and cash equivalents

  

$

1,537

  

$

1,011

  

$

(757

)(a)

  

$

1,791

Accounts receivable, net

  

 

28,174

  

 

20,048

  

 

—  

 

  

 

48,222

Costs and estimated earnings in excess

  

 

9,683

  

 

13,609

  

 

—  

 

  

 

23,292

of billings on uncompleted contracts

                             

Inventories

  

 

2,411

  

 

—  

  

 

—  

 

  

 

2,411

Income tax receivable

  

 

1,046

  

 

—  

  

 

—  

 

  

 

1,046

Deferred income taxes

  

 

537

  

 

799

  

 

—  

 

  

 

1,336

Investment in Joint Venture

  

 

—  

  

 

982

  

 

—  

 

  

 

982

Prepaid expenses

  

 

2,256

  

 

3,367

  

 

—  

 

  

 

5,623

    

  

  


  

Total current assets

  

 

45,644

  

 

39,816

  

 

(757

)

  

 

84,703

Net property, plant and equipment

  

 

41,764

  

 

3,044

  

 

923

 (b)

  

 

45,731

Goodwill and intangibles

  

 

10,981

  

 

—  

  

 

39,426

 (c)

  

 

50,407

Other Assets

  

 

1,179

  

 

—  

  

 

527

 (d)

  

 

1,706

    

  

  


  

Total assets

  

$

99,568

  

$

42,860

  

$

40,119

 

  

$

182,547

    

  

  


  

 

21


Table of Contents

 

Matrix Service Company

Unaudited Pro Forma Condensed Combined Balance Sheets

As of February 28, 2003

(in thousands)

 

    

Matrix Historical


    

Hake Historical


  

Acquisition Adjustments


    

Pro Forma Combined Total


 

Current liabilities:

                                 

Accounts payable

  

$

7,578

 

  

$

15,020

  

 

—  

 

  

$

22,598

 

Billings on uncompleted contracts in

  

 

9,462

 

  

 

5,171

  

 

—  

 

  

 

14,633

 

Management equity plan

  

 

—  

 

  

 

2,001

  

 

—  

 

  

 

2,001

 

Accrued insurance

  

 

1,819

 

  

 

—  

  

 

—  

 

  

 

1,819

 

Accrued environmental reserves

  

 

17

 

  

 

—  

  

 

—  

 

  

 

17

 

Income tax payable

  

 

—  

 

  

 

2,546

  

 

—  

 

  

 

2,546

 

Other accrued expenses

  

 

4,110

 

  

 

—  

  

 

1,500

 (e)

  

 

5,610

 

Current portion of acquisition payable

  

 

—  

 

  

 

—  

  

 

951

(f)

  

 

951

 

Current portion of long-term debt

  

 

643

 

  

 

750

  

 

4,000

 (g)

  

 

5,393

 

    


  

  


  


Total current liabilities

  

 

23,629

 

  

 

25,488

  

 

6,451

 

  

 

55,568

 

Long-term debt

  

 

8,188

 

  

 

—  

  

 

41,000

 (g)

  

 

49,188

 

Deferred income taxes

  

 

2,275

 

  

 

—  

  

 

2,555

 (h)

  

 

4,830

 

Acquisition payable

  

 

—  

 

  

 

—  

  

 

7,485

(f)

  

 

7,485

 

Minority Interests

  

 

—  

 

  

 

1,430

  

 

(1,430

)(i)

  

 

—  

 

Stockholders’ equity:

                                 

Common stock

  

 

96

 

  

 

1,817

  

 

(1,817

)(j)

  

 

96

 

Additional paid-in capital

  

 

52,163

 

  

 

598

  

 

(598

)(j)

  

 

52,163

 

Retained earnings

  

 

22,654

 

  

 

13,527

  

 

(13,527

)(j)

  

 

22,654

 

Accumulated other comprehensive loss

  

 

(914

)

  

 

—  

  

 

—  

 

  

 

(914

)

    


  

  


  


    

 

73,999

 

  

 

15,942

  

 

(15,942

)

  

 

73,999

 

Less: Treasury stock

  

 

(8,523

)

  

 

—  

  

 

—  

 

  

 

(8,523

)

    


  

  


  


Total stockholders’ equity

  

 

65,476

 

  

 

15,942

  

 

(15,942

)

  

 

65,476

 

    


  

  


  


Total liabilities and stockholders’ equity

  

$

99,568

 

  

$

42,860

  

$

40,119

 

  

$

182,547

 

    


  

  


  


 

See Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

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Table of Contents

 

Matrix Service Company

Unaudited Pro Forma Condensed Combined Statements of Income

For the Nine Months Ended February 28, 2003

(in thousands)

 

    

Matrix Historical


    

Hake Historical


    

Acquisition Adjustments


    

Pro Forma Combined Total


 

Revenues

  

$

164,513

 

  

$

136,124

 

  

$

—  

 

  

$

300,637

 

Cost of revenues

  

 

144,266

 

  

 

113,246

 

  

 

186

(k)

  

 

257,698

 

    


  


  


  


Gross profit

  

 

20,247

 

  

 

22,878

 

  

 

(186

)

  

 

42,939

 

Selling, general and administrative

  

 

13,651

 

  

 

11,529

 

  

 

—  

 

  

 

25,180

 

Intangible amortization

  

 

—  

 

  

 

—  

 

  

 

750

(l)

  

 

750

 

    


  


  


  


Operating income

  

 

6,596

 

  

 

11,349

 

  

 

(936

)

  

 

17,009

 

Other income (expense):

                                   

Interest expense

  

 

(210

)

  

 

—  

 

  

 

(1,785

)(m)

  

 

(1,995

)

Interest income

  

 

15

 

  

 

—  

 

  

 

—  

 

  

 

15

 

Other

  

 

681

 

  

 

(900

)

  

 

—  

 

  

 

(219

)

Income from investment in joint venture

  

 

—  

 

  

 

982

 

  

 

—  

 

  

 

982

 

    


  


  


  


Income before income tax expense

  

 

7,082

 

  

 

11,431

 

  

 

(2,721

)

  

 

15,792

 

Provision for federal, state and foreign income tax expense

  

 

2,554

 

  

 

4,735

 

  

 

(1,034

)(n)

  

 

6,255

 

    


  


  


  


Income before minority interests in consolidated subsidiaries

  

 

4,528

 

  

 

6,696

 

  

 

(1,687

)

  

 

9,537

 

Minority interests in net income of consolidated subsidiaries

  

 

—  

 

  

 

(795

)

  

 

795

(i)

  

 

—  

 

    


  


  


  


Net income

  

$

4,528

 

  

$

5,901

 

  

$

(892

)

  

$

9,537

 

    


  


  


  


Earnings per share of common stock:

                                   

Basic

  

$

0.57

 

                    

$

1.21

 

    


                    


Diluted

  

$

0.55

 

                    

$

1.15

 

    


                    


Weighted average number of common shares:

                                   

Basic

  

 

7,888,565

 

                    

 

7,888,565

 

    


                    


Diluted

  

 

8,283,680

 

                    

 

8,283,680

 

    


                    


 

See Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

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Matrix Service Company

Unaudited Pro Forma Condensed Combined Statements of Income

For the Year Ended May 31, 2002

(in thousands)

 

    

Matrix Historical


    

Hake Historical


    

Acquisition Adjustments


    

Pro Forma Combined Total


 

Revenues

  

$

222,506

 

  

$

174,808

 

  

$

—  

 

  

$

397,314

 

Cost of revenues

  

 

197,248

 

  

 

150,195

 

  

 

248

(k)

  

 

347,691

 

    


  


  


  


Gross profit

  

 

25,258

 

  

 

24,613

 

  

 

(248

)

  

 

49,623

 

Selling, general and intangible administrative expenses

  

 

16,004

 

  

 

15,162

 

  

 

—  

 

  

 

31,166

 

Intangible amortization

  

 

341

 

  

 

—  

 

  

 

1,000

 (l)

  

 

1,341

 

Restructuring, impairment and abandonment costs

  

 

(45

)

  

 

—  

 

  

 

—  

 

  

 

(45

)

    


  


  


  


Operating income

  

 

8,958

 

  

 

9,451

 

  

 

(1,248

)

  

 

17,161

 

Other income (expense):

                                   

Interest expense

  

 

(255

)

  

 

—  

 

  

 

(2,424

)(m)

  

 

(2,679

)

Interest income

  

 

37

 

  

 

—  

 

  

 

—  

 

  

 

37

 

Other

  

 

748

 

  

 

(846

)

  

 

—  

 

  

 

(98

)

    


  


  


  


Income before income tax expense

  

 

9,488

 

  

 

8,605

 

  

 

(3,672

)

  

 

14,421

 

Provision for federal, state and foreign income tax expense

  

 

3,607

 

  

 

3,451

 

  

 

(1,395

)(n)

  

 

5,663

 

    


  


  


  


Income before minority interests in consolidated subsidiaries

  

$

5,881

 

  

$

5,154

 

  

 

(2,277

)

  

$

8,758

 

Minority interests in net income of consolidated subsidiaries

  

 

—  

 

  

 

(484

)

  

 

484

(i)

  

 

—  

 

    


  


  


  


Net income

  

$

5,881

 

  

$

4,670

 

  

$

(1,793

)

  

$

8,758

 

    


  


  


  


Earnings per share of common stock:

                                   

Basic

  

$

0.76

 

                    

$

1.13

 

    


                    


Diluted

  

$

0.73

 

                    

$

1.08

 

    


                    


Weighted average number of common shares:

                                   

Basic

  

 

7,718,688

 

                    

 

7,718,688

 

    


                    


Diluted

  

 

8,104,957

 

                    

 

8,104,957

 

    


                    


 

See Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

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Notes To Unaudited Pro Forma Condensed Combined Financial Statements

 

1.   Basis of Presentation

 

The unaudited pro forma condensed combined financial statements included herein have been prepared by Matrix Service Company (“Matrix”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, Matrix believes that the disclosures are adequate to make the information pertinent.

 

The unaudited pro forma condensed combined balance sheet as of February 28, 2003 combines the unaudited consolidated balance sheet of Matrix as of February 28, 2003 with the unaudited consolidated balance sheet of Hake as of December 31, 2002 and gives effect to the acquisition as if it had occurred on February 28, 2003.

 

The unaudited pro forma condensed combined statement of income for the nine months ended February 28, 2003 combines the unaudited consolidated statement of income of Matrix for the nine months ended February 28, 2003 with the unaudited consolidated statement of income of Hake for the nine months ended December 31, 2002 and gives effect to the acquisition as if it had occurred on June 1, 2001.

 

The unaudited pro forma condensed combined statement of income for the year ended May 31, 2002 combines the consolidated statement of income of Matrix for the year ended May 31, 2002 with the consolidated statement of income of Hake for the year ended June 30, 2002 and gives effect to the acquisition as if it had occurred on June 1, 2001.

 

Certain reclassifications were made to the financial information of Hake to conform to Matrix’s presentation. The statement of income data for Hake for the three months ended June 30, 2002 is included in the Unaudited Pro Forma Condensed Combined Statement of Income for both the year ended May 31, 2002 and the nine months ended February 28, 2003.

 

At the time of purchase, Matrix provided for costs to be incurred in restructuring the business. These restructuring charges primarily relate to provisions for costs of redundant functions and facilities. These restructuring costs are accrued on the pro forma balance sheet. Matrix may incur additional costs to integrate its combined businesses over the course of the next two years.

 

The following represents the preliminary allocation of the purchase price as of March 7, 2003, and is for illustrative purposes only. Actual fair values will be based on financial information as of the acquisition date.

 

Cash consideration

  

$

44,402,000

Acquisition payable

  

 

8,436,000

Transaction costs

  

 

828,000

Credit facility fees

  

 

527,000

    

Estimated total purchase price

  

$

54,193,000

    

 

Under the purchase method of accounting, the total estimated purchase price is allocated to net tangible and intangible assets acquired and liabilities assumed based upon their estimated fair value as of the date of completion of the merger. The preliminary purchase price allocation, which is subject to change based on Matrix’s final analysis, is as follows:

 

Net tangible assets acquired

  

$

24,176,000

 

Prepaid credit facility fees

  

 

527,000

 

Acquisition payable

  

 

(8,436,000

)

Restructuring liability

  

 

(1,500,000

)

Identifiable intangible assets

  

 

5,000,000

 

Goodwill

  

 

34,426,000

 

    


Estimated total purchase price

  

$

54,193,000

 

    


 

A preliminary estimate of $5 million has been allocated to identifiable intangible assets including non-compete

 

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agreements and backlog.

 

A preliminary estimate of $34.4 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.

 

2.   Unaudited Condensed Combined Pro Forma Adjustments

 

  (a)   Represents the receipt of $45 million in net proceeds from the new credit facility offset by acquisition payment of $44.4 million, transaction fees of $0.8 million and credit facility fees of $0.5 million.

 

  (b)   To adjust the basis in property, plant and equipment to estimated fair value.

 

  (c)   To record goodwill of $34.4 million and identifiable intangibles of $5 million.

 

  (d)   Represents prepaid credit facility fees of $0.5 million.

 

  (e)   To record restructuring cost associated with EITF 95-3. Amounts recorded primarily relate to the costs associated with redundant functions and facilities.

 

  (f)   Represents the fair value of the $10 million acquisition obligation which was discounted at 5.2%. The obligation will be paid in annual installments of $1 million, $2 million, $2 million, $2 million and $3 million during the five-year period ended March 7, 2008.

 

  (g)   To record additional debt of $45 million utilized to finance the acquisition of Hake.

 

  (h)   To record deferred tax liability of $1.9 million associated with intangible assets and $0.7 million associated with the basis difference of Hake property, plant and equipment.

 

  (i)   Elimination of Hake minority interest as Matrix acquired all of the issued and outstanding capital stock of Hake and its subsidiaries.

 

  (j)   To record the elimination of the historical stockholders’ equity and retained earnings of Hake in accordance with purchase business combination accounting.

 

  (k)   Represents additional depreciation related to the increased basis of Hake property, plant and equipment.

 

  (l)   Reflects the amortization of identifiable intangibles related to the acquisition assuming an average useful life of 5 years.

 

  (m)   Reflects the additional interest expense related to the new credit facility, amortization of the prepaid credit facility fees and accretion of the acquisition payable.

 

  (n)   To record the tax effect of the acquisition adjustments.

 

3.   Unaudited Pro Forma Net Earnings Per Share

 

The pro forma basic and diluted earnings per share is computed by dividing the net income by the weighted average number of common shares outstanding.

 

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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.

 

Date: May 13, 2003

         

    /s/ Michael J. Hall


               

    Michael J. Hall

    Vice President—Finance and

    Chief Financial Officer

 

- 27 -