Merrimac Reports Second Quarter and Six Months 2007 Results

Second Quarter 2007 Loss Driven by Filtran Subsidiary Goodwill Impairment

Charge

Record Orders and Highest Backlog Ever

    WEST CALDWELL, N.J., Aug. 14 /PRNewswire-FirstCall/ -- Merrimac
 Industries, Inc. ( MRM), a leader in the design and manufacture of RF
 Microwave components, subsystem assemblies and micro-multifunction modules
 (MMFM(R)), today announced results for the second quarter and first six
 months of 2007.
     Sales for the second quarter of 2007 were $6,225,000, a decrease of
 $2,026,000 or 24.6 percent compared to the second quarter of 2006 sales of
 $8,251,000. Sales for the second quarter of 2006 included both the shipment
 of a $750,000 order to a significant military customer and $1,200,000 of
 revenue recognized in connection with the early close out of a fixed price
 customer contract which did not recur in the second quarter of 2007. Sales
 for the microwave micro-circuitry segment decreased $285,000 for the second
 quarter of 2007 as compared to the second quarter of 2006 due to weakness
 in orders received in the first quarter of 2007. Gross profit for the
 second quarter of 2007 was $2,382,000, a decrease of $1,328,000 or 35.8
 percent, and was 38.3 percent of sales as compared to gross profit of
 $3,710,000 or 45.0 percent of sales for the second quarter of 2006. The
 decrease in gross profit and gross profit percentage for the second quarter
 of 2007 was due to the impact of the lower level of sales having to absorb
 fixed manufacturing costs. Second quarter 2006 gross profit also included
 $1,060,000 from the early close out of a fixed price customer contract.
     Operating loss for the second quarter of 2007 was $(2,892,000),
 compared to operating income of $549,000 for the second quarter of 2006.
 Operating loss for the second quarter of 2007 included a $2,630,000
 non-cash charge related to a partial impairment of goodwill recorded in
 connection with the Company's 1999 acquisition of Filtran Microcircuits
 Inc. ("Filtran"). After the impairment charge, the remaining Filtran
 goodwill balance is approximately $1,063,000. Excluding the $2,630,000
 goodwill impairment charge, the remaining operating loss for the second
 quarter of 2007 was due to the lower gross profit caused by the decrease in
 sales, partially offset by decreased research and development costs and
 administrative costs.
     Net loss for the second quarter of 2007 was $(3,469,000) compared to
 net income of $529,000 for the second quarter of 2006. Net loss per share
 was $(1.19) for the second quarter of 2007, compared to net income per
 share of $.17 reported for the second quarter of 2006. Net loss for the
 second quarter of 2007 includes a non-cash income tax charge of $506,000 or
 $.17 per share to provide for a full valuation allowance against Filtran's
 deferred tax asset. Excluding the aforementioned charges for goodwill
 impairment of $.90 per share and taxes of $.17 per share, the adjusted loss
 per share for the second quarter of 2007 was $(.12). The components of the
 adjusted loss per share are attributed to a $.02 per share contribution
 from the Merrimac electronic components and subsystems sector and $(.14)
 per share loss from the Filtran microwave micro-circuitry sector.
     Sales for the first six months of 2007 were $11,649,000, a decrease of
 $2,832,000 or 19.6 percent compared to sales of $14,482,000 for the first
 six months of 2006. Sales for the first six months of 2006 included both
 the shipment of a $750,000 order to a significant military customer and
 $1,200,000 of revenue recognized in connection with the early close out of
 a fixed price customer contract mentioned above which did not recur in the
 first six months of 2007. Sales for the first six months of 2007 reflected
 a sales reduction in the microwave micro-circuitry segment of $1,005,000
 due to a reduced beginning of the year backlog and weakness in first
 quarter 2007 orders. Gross profit for the first six months of 2007 was
 $4,164,000, a decrease of $1,948,000 or 31.9 percent, and was 35.7 percent
 of sales as compared to gross profit of $6,112,000 or 42.2 percent of sales
 for the second quarter of 2006. The decrease in gross profit and gross
 profit percentage for the first six months of 2007 was due to the impact of
 the lower level of sales having to absorb fixed manufacturing costs. Gross
 profit for the first six months of 2006 also included $1,060,000 from the
 early close out of a fixed price customer contract.
     Operating loss for the first six months of 2007 was $(4,113,000)
 compared to operating income for the first six months of 2006 of $93,000.
 Operating loss for the first six months of 2007 included a $2,630,000
 non-cash charge related to a partial impairment of goodwill. Excluding the
 $2,630,000 impairment charge, the reduction in the remaining operating
 income for the first six months of 2007 as compared to the first six months
 of 2006 was due to the lower gross profit caused by the decrease in sales,
 partially offset by decreased selling, general and administrative expenses
 compared to the first six months of 2006.
     Net loss for the first six months of 2007 was $(4,733,000) or $(1.58)
 per share compared to net income of $89,000 or $.03 per share for the first
 six months of 2006. Net loss for the first six months of 2007 includes a
 non-cash income tax charge of $506,000 or $.17 per share to provide a full
 valuation allowance against Filtran's deferred tax asset.
     During the quarter ended June 30, 2007, the Company conducted an
 interim goodwill impairment test of its Filtran reporting unit. This
 occurred as a result of Filtran's failure to meet 2007 bookings and sales
 targets, which resulted in continuing operating losses and a reduction of
 its bank borrowing availability. Filtran's goodwill balance has increased
 since its acquisition in 1999 from the continued strengthening of the
 Canadian dollar versus the U.S. dollar. During the first six months of
 2007, such goodwill amount increased $189,000 to $3,693,000 resulting from
 the Canadian dollar increase from $0.86 at December 30, 2006 to $0.94 at
 the end of June. The stronger Canadian dollar has an unfavorable impact on
 Filtran's cost structure and upon its U.S. dollar denominated export sales,
 which were approximately 75 percent of Filtran's sales during the first six
 months of 2007. As a result of the impairment test, the Company recorded a
 non-cash goodwill impairment charge of $2,630,000 to the Filtran reporting
 unit.
     In conjunction with the determination that goodwill was impaired and
 the continuing losses at Filtran, the Company established a full valuation
 allowance of $506,000 during the second quarter of 2007 for Filtran's
 Canadian net deferred tax asset as management believed that it is more
 likely than not that its deferred tax asset will not be realized.
     Company management has determined, and the Board of Directors has
 approved, that the Company should divest its Filtran operations and is in
 the process of seeking interested parties. The potential divestiture should
 enable Merrimac Industries, Inc. to concentrate its resources on RF
 Microwave and Multi-Mix(R) Microtechnology product lines to generate
 sustainable, profitable growth. Beginning with the third quarter of 2007,
 the Company will reflect Filtran as a discontinued operation and the
 Company intends to restate prior financial statements to reflect the
 results of operations, cash flows and financial position of Filtran as
 discontinued operations.
     Orders of $9,974,000 were received during the second quarter of 2007,
 an increase of $1,055,000 or 11.8 percent compared to $8,919,000 in orders
 received during the second quarter of 2006. Orders of $16,459,000 were
 received during the first six months of 2007, an increase of $3,595,000 or
 27.9 percent compared to $12,864,000 in orders received during the first
 six months of 2006. Backlog increased by $4,810,000 or 38.8 percent to
 $17,195,000 at the end of the second quarter of 2007 compared to
 $12,385,000 at year-end 2006, due to the increased orders received during
 the second quarter. The June 30, 2007 backlog is a record for the highest
 quarter-end backlog the Company has achieved. The book-to-bill ratio for
 the second quarter of 2007 was 1.60 to 1 and for the second quarter of 2006
 was 1.08 to 1. The book-to-bill ratio for the first six months of 2007 was
 1.41 to 1 and for the first six months of 2006 was 0.89 to 1.
     Chairman and CEO Mason N. Carter commented, "While we were disappointed
 with the second quarter operating results, there were some distinct bright
 spots. In this quarter, Merrimac set a record for new orders received at
 nearly $10 million. This came following a first quarter bookings figure of
 $6.5 million. However, we also see this as positive feedback from the
 market that our strategy and actions are taking us in the right direction.
     "We are seeing solid increases in core component business and, to an
 even greater extent, in our Multi-Mix(R) Microtechnology. The increase in
 Multi- Mix(R) business is a confirmation that we are advancing the market's
 need for integration of RF Microwave technology for our military and space
 markets. The growth we are seeing, in our opinion, is long term. Many of
 these new orders are the beginning of multi-year projects, which will bring
 follow on business for years to come, setting our "base level" higher. The
 projects include new Satellite systems, Electronic Systems for Advanced
 Navy Ships, and Electronic Countermeasures for Military Aircraft.
     "Our R&D efforts, to enter into the commercial market with multilayer
 power amplifier technology, are progressing in parallel with our on-going
 success in establishing our integration technology for the military and
 space markets. As our efforts in this area come to fruition, we are
 confident that the broad base of applications and markets we envisioned for
 Multi-Mix(R) technology will be realized.
     "The potential divestiture of Filtran will benefit Merrimac Industries,
 Inc. by allowing us to concentrate our resources on RF Microwave and Multi-
 Mix(R) Microtechnology product lines to generate sustainable, profitable
 growth."
     Mr. Carter continued, "Our financial highlights include:
 
     -- Record orders booked of $10.0 million for the second quarter and $16.5
        million for the first six months of 2007.
     -- Multi-Mix(R) represents about 20% of the total six months bookings ...
        a record.
     -- Highest quarter-end backlog ever of $17.2 million.
     -- Book-to-bill ratio of 1.41 to 1 for the first six months of 2007.
     -- Working capital of $9.9 million and current ratio of 3.6 to 1."
     Investors are invited to participate in the financial results
 conference call on Tuesday, August 14, 2007 at 4:15 p.m. (Eastern) by
 dialing 1-800-311- 0799 (for International callers: 1-719-457-2695) ten
 minutes prior to the scheduled start time, and reference the Merrimac
 Industries second quarter 2007 conference call. For those unable to
 participate, a replay will be available for seven days by dialing
 1-888-203-1112, or 1-719-457-0820 for international callers, passcode
 number 5074821.
     This conference call will also be broadcast live over the internet by
 logging on to the web at this address:
 http://www.videonewswire.com/event.asp?id=41847
     If you are unable to participate during the live webcast, a link to the
 archived webcast will be listed on the Merrimac Industries, Inc. website
 http://www.merrimacind.com .
     About Merrimac
     Merrimac Industries, Inc. is a leader in the design and manufacture of
 RF Microwave signal processing components, subsystem assemblies, and
 Multi-Mix(R) micro-multifunction modules (MMFM(R)), for the worldwide
 Defense, Satellite Communications (Satcom), Commercial Wireless and
 Homeland Security market segments. Merrimac is focused on providing Total
 Integrated Packaging Solutions(R) with Multi-Mix(R) Microtechnology, a
 leading edge competency providing value to our customers through
 miniaturization and integration. Multi-Mix(R) MMFM(R) provides a patented
 and novel packaging technology that employs a platform modular architecture
 strategy that incorporates embedded semiconductor devices, MMICs, etched
 resistors, passive circuit elements and plated-through via holes to form a
 three-dimensional integrated module applicable to High Power, High
 Frequency and High Performance mission-critical applications. Merrimac
 Industries facilities are registered under ISO 9001:2000, an
 internationally developed set of quality criteria for manufacturing
 operations.
     Merrimac Industries, Inc. has facilities located in West Caldwell, NJ,
 San Jose, Costa Rica and Ottawa, Ontario, Canada, and has approximately 220
 co-workers dedicated to the design and manufacture of signal processing
 components, gold plating of high-frequency microstrip, bonded stripline and
 thick metal-backed Teflon (PTFE) micro-circuitry and subsystems providing
 Total Integrated Packaging Solutions(R) for wireless applications. Merrimac
 (MRM) is listed on the American Stock Exchange. Multi-Mix(R), Multi-Mix
 PICO(R), MMFM(R) and Total Integrated Packaging Solutions(R) are trademarks
 of Merrimac Industries, Inc. For more information about Merrimac
 Industries, Inc. and its Canadian subsidiary Filtran Microcircuits Inc.,
 please visit http://www.merrimacind.com and http://www.filtranmicro.com.
     This press release contains statements relating to future results of
 the Company (including certain projections and business trends) that are
 "forward- looking statements" as defined in the Private Securities
 Litigation Reform Act of 1995. Actual results may differ materially from
 those projected as a result of certain risks and uncertainties. These risks
 and uncertainties include, but are not limited to: risks associated with
 demand for and market acceptance of existing and newly developed products
 as to which the Company has made significant investments, particularly its
 Multi-Mix(R) products; the possibilities of impairment charges to the
 carrying value of our Multi-Mix(R) assets, thereby resulting in charges to
 our earnings; risks associated with adequate capacity to obtain raw
 materials and reduced control over delivery schedules and costs due to
 reliance on sole source or limited suppliers; slower than anticipated
 penetration into the satellite communications, defense and wireless
 markets; failure of our Original Equipment Manufacturer or OEM customers to
 successfully incorporate our products into their systems; changes in
 product mix resulting in unexpected engineering and research and
 development costs; delays and increased costs in product development,
 engineering and production; reliance on a small number of significant
 customers; the emergence of new or stronger competitors as a result of
 consolidation movements in the market; the timing and market acceptance of
 our or our OEM customers' new or enhanced products; general economic and
 industry conditions; the risk that the benefits expected from the Company's
 acquisition of Filtran Microcircuits Inc. are not realized; the ability to
 protect proprietary information and technology; competitive products and
 pricing pressures; our ability and the ability of our OEM customers to keep
 pace with the rapid technological changes and short product life cycles in
 our industry and gain market acceptance for new products and technologies;
 foreign currency fluctuations between the U.S. and Canadian dollars; risks
 relating to governmental regulatory actions in communications and defense
 programs; and inventory risks due to technological innovation and product
 obsolescence, as well as other risks and uncertainties as are detailed from
 time to time in the Company's Securities and Exchange Commission filings.
 These forward-looking statements are made only as of the date hereof, and
 the Company undertakes no obligation to update or revise the
 forward-looking statements, whether as a result of new information, future
 events or otherwise.
                           Merrimac Industries, Inc.
                Summary of Consolidated Statements of Operations
                                  (Unaudited)
 
                                                            Quarter Ended
                                                     June 30,       July 1,
                                                      2007           2006
 
     Net sales                                     $6,225,000     $8,251,000
     Gross profit                                   2,382,000      3,710,000
     Selling, general and administrative expenses   2,284,000      2,645,000
     Research and development                         360,000        516,000
     Goodwill impairment charge                     2,630,000              -
     Operating income (loss)                       (2,892,000)       549,000
     Interest and other expense,  net                 (71,000)       (33,000)
     Income (loss) before income taxes             (2,963,000)       516,000
     Provision (benefit) for income taxes             506,000        (13,000)
     Net income (loss)                             (3,469,000)       529,000
 
     Net income (loss) per common share-basic and
      diluted                                          $(1.19)          $.17
 
     Weighted average number of shares outstanding -
      basic                                         2,911,000      3,144,000
     Weighted average number of shares outstanding -
      diluted                                       2,911,000      3,183,000
 
 
                                                        Six Months Ended
                                                     June 30,        July 1,
                                                      2007            2006
 
     Net sales                                    $11,649,000    $14,482,000
     Gross profit                                   4,164,000      6,112,000
     Selling, general and administrative expenses   4,775,000      5,131,000
     Research and development                         872,000        888,000
     Goodwill impairment charge                     2,630,000              -
     Operating income (loss)                       (4,113,000)        93,000
     Interest and other expense, net                 (114,000)       (52,000)
     Income (loss) before income taxes             (4,227,000)        41,000
     Provision (benefit) for income taxes             506,000        (48,000)
     Net income (loss)                             (4,733,000)        89,000
 
     Net income (loss) per common share-basic
      and diluted                                      $(1.58)          $.03
 
     Weighted average number of shares
      outstanding - basic                           3,004,000      3,146,000
     Weighted average number of shares
      outstanding - diluted                         3,004,000      3,166,000
 
 
 
                           Merrimac Industries, Inc.
                     Condensed Consolidated Balance Sheets
 
                                                    June 30,      December 30,
                                                      2007            2006
                                                   (Unaudited)    (Unaudited)
 
     ASSETS
     Current assets:
       Cash and cash equivalents                   $2,817,000     $5,961,000
       Accounts receivable, net                     5,230,000      5,852,000
       Income tax refunds receivable                  103,000         99,000
       Inventories                                  4,784,000      3,917,000
       Other current assets                           727,000        882,000
       Deferred tax assets                                  -         10,000
     Total current assets                          13,661,000     16,721,000
     Property, plant and equipment, net            12,738,000     12,985,000
     Other assets                                     538,000        493,000
     Deferred tax assets                              100,000        552,000
     Goodwill                                       1,063,000      3,503,000
 
     Total Assets                                $ 28,100,000   $ 34,254,000
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Liabilities:
       Current portion of long-term debt             $621,000       $649,000
       Deferred tax liabilities                       100,000        100,000
       Other current liabilities                    3,066,000      2,618,000
     Total current liabilities                      3,787,000      3,367,000
     Long-term debt, net of current portion         4,277,000      4,564,000
     Deferred liabilities                              50,000         38,000
     Total liabilities                              8,114,000      7,969,000
     Stockholders' equity
       Common stock                                    33,000         33,000
       Additional paid-in capital                  19,450,000     19,237,000
       Retained earnings                            1,867,000      6,600,000
       Accumulated other comprehensive income       1,758,000      1,389,000
       Treasury stock                              (3,122,000)      (974,000)
     Stockholders' equity                          19,986,000     26,285,000
     Total Liabilities and
      Stockholders' Equity                       $ 28,100,000   $ 34,254,000
 
 
 
 
                             Merrimac Industries, Inc.
                  Condensed Consolidated Statements of Cash Flows
 
                                                        Six Months Ended
                                                          (Unaudited)
 
                                                     June 30,        July 1,
                                                       2007            2006
 
     Cash flows from operating activities:
        Net income (loss)                         $ (4,733,000)      $89,000
        Adjustments to reconcile net income
         (loss) to net cash provided by
         operating activities:
          Depreciation and amortization              1,292,000     1,318,000
          Amortization of deferred financing costs      15,000        25,000
          Goodwill impairment charge                 2,630,000             -
          Deferred income taxes                        506,000             -
          Share-based compensation                     132,000        82,000
          Changes in operating assets and liabilities:
            Accounts receivable                        686,000      (174,000)
            Inventories                               (846,000)     (287,000)
            Other current assets                       166,000        62,000
            Other assets                               (62,000)      (21,000)
            Other current liabilities                  379,000      (736,000)
            Deferred liabilities                        12,000         8,000
     Net cash provided by operating activities         177,000       366,000
     Cash flows from investing activities:
        Purchases of capital assets                   (927,000)     (979,000)
     Net cash used in investing activities            (927,000)     (979,000)
     Cash flows from financing activities:
        Borrowings under revolving lease line                -       160,000
        Repurchase of stock for the treasury        (2,148,000)            -
        Repayment of borrowings                       (343,000)     (464,000)
        Proceeds from stock sales                       81,000       186,000
     Net cash used in financing activities          (2,410,000)     (118,000)
     Effect of exchange rate changes                    16,000        33,000
     Net decrease in cash and cash equivalents      (3,144,000)     (698,000)
     Cash and cash equivalents at
      beginning of year                              5,961,000     4,081,000
     Cash and cash equivalents at end of period    $ 2,817,000   $ 3,383,000
 
 
     Contact:  Mason N. Carter, Chairman & CEO
               973-575-1300, ext. 1202
               mnc@merrimacind.com
 
 

SOURCE Merrimac Industries, Inc.