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 May 28, 1995
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 0-619
Washington Scientific Industries, Inc.
(Exact name of registrant, as specified in its charter)
Minnesota 41-0691607
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Long Lake, Minnesota 55356
(Address of principal executive offices) (Zip Code)
(612) 473-1271
(Registrant's telephone number, including area code)
Not Applicable
(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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
2,384,651 Common Shares were outstanding as of June 2, 1995.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
I N D E X
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets May 28, 1995, (Unaudited)
and August 28, 1994 (Unaudited) 3
Consolidated Statements of Operations Thirteen and
Thirty Nine weeks ended May 28, 1995; and Thirteen
and Thirty-Nine weeks ended May 29, 1994 (Unaudited) 4
Consolidated Statements of Cash Flows Thirty-Nine
weeks ended May 28, 1995 and Thirty-Nine weeks ended
May 29, 1994 (Unaudited) 5
Notes to Consolidated Financial Statements(Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7,8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 28, August 28,
Assets 1995 1994
Current Assets:
Cash and cash equivalents $500,253 $208,014
Accounts receivable 3,755,112 4,469,397
Inventory 1,253,477 2,175,268
Prepaid expenses 344,691 437,752
Total Current Assets 5,853,533 7,290,431
Property, Plant and Equipment 7,700,298 8,604,352
Other Assets 217,927 538,758
$13,771,758 $16,433,541
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $0 $848,482
Trade accounts payable 1,735,349 2,614,454
Salaries, wages, and withholdings 780,289 1,168,139
Miscellaneous accrued expenses 374,457 970,340
Current portion of long-term debt 863,658 1,237,149
Total Current Liabilities 3,753,753 6,838,564
Long-term Debt, less current portion 5,099,408 4,848,319
Long-term Pension Liability 423,530 1,042,594
Stockholders' Equity:
Common stock issued, 2,384,651 and
2,382,401 shares respectively 238,465 238,240
Capital in excess of par value 1,406,299 1,401,165
Retained earnings 2,850,303 2,120,995
Additional minimum pension liability -- (56,336)
Total Stockholders' Equity 4,495,067 3,704,064
$13,771,758 $16,433,541
See notes to consolidated financial statements.
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WASHINGTON SCIENTIFIC INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
13 weeks ended 39 weeks ended
May 28, May 29, May 28, May 29,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Sales $8,154,066 $8,982,277 $23,270,729 $21,951,096
Cost of products sold 7,241,820 7,408,182 21,549,404 20,408,193
Gross margin 912,246 1,574,095 1,721,325 1,542,903
Selling and administrative expense 618,738 567,451 1,804,366 1,795,461
Provision for costs related to
plant closing - 634,000 - 634,000
Pension curtailment (gain) - - (254,419) -
Real estate sale (gain) - - (890,475) -
Interest and other income (8,445) 24,748 (147,250) (87,227)
Interest and other expense 172,458 195,173 498,817 604,421
Earnings (loss) from operations
before income taxes (benefit) 129,495 152,723 710,286 (1,403,752)
Income taxes (benefit) (24,822) - (19,022) -
Earnings (loss) from operations $154,317 $152,723 $729,308 ($1,403,752)
Net earnings (loss) per share $0.07 $0.07 $0.31 ($0.59)
Weighted average number of
common shares outstanding 2,384,651 2,382,401 2,383,250 2,382,401
</TABLE>
See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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39 weeks ended
May 28, May 29,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 729,308 ($1,403,752)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
(Gain) on sale of property, plant & equipment (853,246) (65,428)
Depreciation and amortization 1,945,998 2,188,937
Pension curtailment (gain) (254,419) --
Deferred tax credits (29,022) --
Provision for restructuring and plant closing -- 634,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 714,284 (694,047)
Decrease in inventories 921,791 788,022
Decrease in prepaid expenses 93,061 185,567
(Decrease) in accounts payable and accrued expenses (1,862,837) (809,016)
Other assets -- (40,803)
Net cash provided by operating activities 1,404,918 783,481
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant & equipment 1,770,052 368,363
Purchases of property, plant & equipment (187,606) (73,847)
Net cash provided by investing activities 1,582,446 294,516
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,852,002) (3,338)
(Decrease) in notes payable (848,482) (1,117,038)
Issuance of common stock 5,359 --
Net cash used in financing activities (2,695,125) (1,120,376)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 292,239 (42,379)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 208,014 153,551
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 500,253 $ 111,172
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 498,817 $ 604,421
Income taxes $ 3,500 --
Noncash investing and financing activities:
Aquisition of machinery through capital lease $ 1,729,600 $ 29,610
Reversal of additional minimum pension liability:
Intangible Asset $ 279,287 --
Retained Earnings offset $ 56,336 --
Related Deferred Taxes $ 29,022 --
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See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of May 28, 1995, the consolidated
statements of earnings for the thirteen weeks ended May 28, 1995 and May 29,
1994 and the thirty nine weeks ended May 28, 1995 and May 29, 1994 and the
consolidated statements of cash flows for the thirty nine weeks then ended,
respectively, have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Therefore, these condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1994 annual
report to shareholders. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
2. SALE OF REAL ESTATE:
On January 4, 1995, the Company sold its Owatonna, Minnesota real
estate to OTC, a division of SPX Corporation, for a total cash consideration of
$1,534,000.
3. PENSION CURTAILMENT:
A pension curtailment gain was recorded in the first quarter of
fiscal 1995. As part of the Owatonna plant closing, all of the Owatonna
employees who were members of the non-union pension plan were either terminated
or transferred to the Long Lake facility. As a result, during the first quarter
of fiscal 1995, a curtailment of the non-union employee plan occurred as defined
in SFAS No.88, Employers Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and Termination Benefits.
4. DEBT AND LINE OF CREDIT:
On March 31, 1995, the Company amended its line of credit agreement
and refinanced its term debt. The Agreement, which combines the line of credit
and term debt, will expire on March 31, 1998 and is with the same bank with
which the Company previously had its line of credit.
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net sales for the quarter ending May 28, 1995 decreased $828,000 or
9.2% when compared to the third quarter of fiscal 1994. The sales decline
resulted from business with IBM which decreased $3,392,000 from the same quarter
in fiscal 1994. $3,048,000 of the decline in sales to IBM came from a program
that will end in calendar year 1995. Sales to customers other than IBM increased
$2,564,000 or 57.9% compared to the same quarter last year.
Net sales in the third quarter of fiscal 1995 increased $858,000
compared to the preceding quarter of fiscal 1995. In that time period sales to
IBM declined $161,000 while sales to other customers increased $1,019,000.
Net sales for the thirty-nine weeks ended May 28, 1995 increased
$1,320,000 or 6.0% from the comparable period in the prior fiscal year. During
that time period business with IBM declined $6,732,000 while sales to customers
other than IBM increased by $8,052,000 or 78.0%.
Gross margin on parts sold in the third quarter of fiscal 1995 was
11.2% of sales. This compares with a gross margin of 17.5% of sales reported in
the same quarter of the prior year. The third quarter of fiscal 1994 reported an
unusually high gross margin when compared with the second and fourth quarter
1994 gross margin of 5.5% and 10.4% respectively. Third quarter fiscal 1994
gross margin was favorably influenced by the reversal of an obsolete inventory
reserve of $218,000. In addition, that quarter benefitted from $3,758,000 of
sales from a profitable program which declined to $710,000 in the third quarter
of fiscal 1995 due to the maturing of that program.
Gross margin for the three quarters ended May 28, 1995 was 7.4% of
sales compared to 7.0% of sales for the comparable period last year.
Selling and administrative expense in the quarter ended May 28, 1995
was $51,000 higher than the same quarter of the prior year. The prior year
quarter included a credit from an insurance policy refund in the amount of
$80,000. This was the primary reason for the quarter differences.
Selling and administrative expense for the three quarters ended May
28, 1995 was $9,000 higher than the same period last year. The percentage of
sales for selling and administrative expense for the first three quarters of
fiscal years 1995 and 1994 was 7.8% and 8.2% respectively.
A gain on the sale of real estate in the amount of $890,475 was
recorded in the quarter ending February 26, 1995. That gain came from the sale
of the Company's Owatonna, Minnesota real estate which was disposed of in
connection with the Company's consolidation of its operations in Long Lake,
Minnesota.
A pension curtailment gain of $254,419 was recorded in the first
quarter of fiscal 1995. As part of the Owatonna plant restructuring, all of the
Owatonna employees who were members of the non-union pension plan were either
terminated or transferred to the Long Lake facility. As a result, during the
first quarter of fiscal 1995, a curtailment of the non-union employee plan
occurred as defined in SFAS's No. 88, Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and Termination Benefits.
Interest and other income increased $33,000 in the third quarter of
fiscal 1995 from the same quarter in the prior year. Interest and other income
increased $60,000 in the first three quarters of fiscal 1995 over the comparable
period last year.
Interest and other expense was lower in the third quarter and first
three quarters of fiscal 1995 from the comparable periods of fiscal 1994 by
$23,000 and $106,000 respectively. The primary reason for lower interest and
other expense is lower notes payable balances.
LIQUIDITY AND CAPITAL RESOURCES:
On May 28, 1995, working capital was $2,100,000 compared to $452,000
at August 28, 1994, an increase of $1,648,000. The ratio of current assets to
current liabilities at May 28, 1995 and August 28, 1994 was 1.56 to 1.0 and 1.07
to 1.0 respectively.
On May 28, 1995, the Company did not have an outstanding bank loan
balance. On that date the Company reported cash and cash equivalents of $500,000
and had eliminated the $848,000 bank loan balance reported on August 28, 1994.
It is management's belief that its internally generated funds
combined with the line of credit will be sufficient to enable the Company to
meet its financial requirements during fiscal 1995.
On April 20, 1995 the Company amended its Credit and Security
Agreement with FBS Business Finance Corporation to allow Letters of Credit up to
$300,000.
Part II Other Information
Item 6. Exhibits and reports on Form 8-K
a. Exhibit 10.1. First Amendment to Amended and Restated Credit and
Security Agreement.
Exhibit 27. Financial Data Schedule
b. There were no reports on From 8-K filed for the thirteen weeks
ended May 28, 1995.
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.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
Date June 30, 1995 /s/ Michael J. Pudil
Michael J. Pudil, President & CEO
Date June 30, 1995 /s/ W. J. Lucke
W. J. Lucke, Vice President & Treasurer
FIRST AMENDMENT TO AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY
AGREEMENT ("Amendment"), dated as of April 20, 1995, is entered into between
WASHINGTON SCIENTIFIC INDUSTRIES, INC. (the Borrower") and FBS BUSINESS FINANCE
CORPORATION (the Lender").
RECITALS
WHEREAS, the Borrower and the Lender are parties to that certain
Amended and Restated Credit and Security Agreement dated as of March 31, 1995,
as supplemented by Supplement A to Credit and Security Agreement dated as of
March 31, 1995 ( Supplement A") (as so supplemented, the "Credit Agreement");
and
WHEREAS, the Credit Agreement does not provide for the issuance of
Letters of Credit by the Lender or any Affiliate as part of the Credit;
WHEREAS, the Borrower has requested the Lender to amend Supplement A to
the Credit Agreement to provide for a Letter of Credit Sublimit; and
WHEREAS, the Lender is willing to grant the Borrower's request on the
terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the continued performance by
Borrower of its promises and obligations under this Amendment, the Credit
Agreement, and all documents executed and delivered pursuant hereto and thereto,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Lender hereby agree as
follows:
1. Definitions.
(a) All capitalized terms used herein shall have the meaning ascribed
to them in the Credit Agreement unless otherwise specifically defined
herein.
(b) Article I of the Credit Agreement is amended by adding the
definition of Pledge Agreement" as follows:
"Pledge Agreement": The Pledge Agreement dated as of October 29,
1993 made by the Borrower and WSI in favor of the Lender, in its
individual capacity and as "Agent" thereunder, and in favor of
the Insurance Companies, and assigned to the Lender by the
Insurance Companies to the extent of their respective interests
therein pursuant to and in connection with the Lender's purchase
of the Purchased Loans on March 31, 1995.
(c) The definition of "Letter of Credit Sublimit" contained in Section
2.3 of Supplement A is amended by deleting the amount "$0" that
appears therein and substituting therefor the amount "$300,000".
2. Additional Amendment to Supplement A. Section 3.4 of Supplement A is
amended by deleting the term "N/A%" that appears therein and substituting
therefor "2.0%".
3. Reaffirmation. Except as expressly modified by this Amendment, all of
the terms, conditions, provisions, agreements, requirements, promises,
obligations, duties, covenants and representations of the Borrower under the
Credit Agreement, the Loan Documents and any Supplemental Documentation are
hereby reaffirmed by the Borrower.
4. Pledge Agreement. The Borrower hereby acknowledges and agrees that the
Lender has succeeded to all rights of the Insurance Companies with respect to
the Purchased Loans, as amended by the Credit Agreement, and, in particular,
without limiting the generality of the foregoing, the Lender has succeeded to
all rights of the Insurance Companies under the Pledge Agreement. The Borrower
further acknowledges and agrees that, in addition to the rights and remedies
specified in the Pledge Agreement and in the Credit Agreement, following the
occurrence of an Event of Default, the Lender may collect any and all payments
and other amounts payable on account of or with respect to the Collateral that
is the subject of the Pledge Agreement and apply such payments and amounts and
other proceeds of such Collateral to the Obligations as the Lender may elect in
its sole discretion.
5. Representations, Warranties and Acknowledgements of Borrower. The
Borrower represents, warrants and acknowledges to the Lender that:
(a) The above Recitals are true and correct as of the date hereof.
(b) The Borrower's Obligations to the Lender exist and are owing with
no offset, defense or counterclaim assertable by the Borrower.
(c) The Borrower is a corporation duly incorporated and validly
existing and in good standing under the laws of the jurisdiction of
its incorporation and has all requisite corporate power and authority
to carry on its business as now conducted, to enter into this
Amendment and to perform its obligations hereunder and under the
Credit Agreement as amended hereby. This Amendment has been duly
authorized by all necessary corporate action and when executed and
delivered will be the legal and binding obligation of the Borrower.
The execution and delivery of this Amendment will not violate the
Borrower's Articles of Incorporation or bylaws or any law applicable
to the Borrower. No governmental consent or exemption or third party
consent is required in connection with the Borrower's execution and
delivery of this Amendment that has not been obtained by the date
hereof other than previously disclosed by the Borrower to the Lender
in writing.
6. Conditions Precedent. The Borrower acknowledges that this Amendment
shall become effective as of April 20, 1995 ("Effective Date"), but only upon
receipt by the Lender of counterparts of this Amendment duly executed by the
Lender and the Borrower, and acknowledged by WSI, and such other agreements,
instruments and documents as the Lender may request the Borrower to deliver, or
to cause to be delivered, to effectuate this Amendment.
7. No Defaults. The Borrower hereby represents and warrants to the Lender
that no Event of Default or Unmatured Event of Default has occurred or is
continuing under the Credit Agreement.
8. Reimbursement of Expenses. The Borrower agrees to promptly reimburse the
Lender for any and all reasonable expenses, fees and disbursements, including
reasonable attorneys' fees incurred in the connection with the preparation,
negotiation and execution of this Amendment, and all documents related hereto
and thereto.
9. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original, and all of which counterparts of this Amendment when taken
together, shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date and year first written above.
WASHINGTON SCIENTIFIC INDUSTRIES,INC.
By /s/ W.J. Lucke
Its Vice President
FBS BUSINESS FINANCE CORPORATION
By /s/ Leonard H. Ramotar
Its Vice President
ACKNOWLEDGMENT
The undersigned, WSI South, Inc., hereby affirms to the Lender the
undersigned's obligations under the Pledge Agreement and acknowledges and agrees
to the provisions of Section 4 of the above Amendment with respect to the rights
of the Lender under the Pledge Agreement.
Dated: April 20, 1995 WSI SOUTH, INC.
By /s/ W.J. Lucke
Its Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-27-1995
<PERIOD-END> MAY-28-1995
<CASH> 500,253
<SECURITIES> 0
<RECEIVABLES> 3,755,112
<ALLOWANCES> 0
<INVENTORY> 1,253,477
<CURRENT-ASSETS> 5,853,533
<PP&E> 29,051,124
<DEPRECIATION> 21,350,826
<TOTAL-ASSETS> 13,771,758
<CURRENT-LIABILITIES> 3,753,753
<BONDS> 0
<COMMON> 238,465
0
0
<OTHER-SE> 4,256,602
<TOTAL-LIABILITY-AND-EQUITY> 13,771,758
<SALES> 8,154,066
<TOTAL-REVENUES> 8,154,066
<CGS> 7,241,820
<TOTAL-COSTS> 7,241,820
<OTHER-EXPENSES> 610,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,458
<INCOME-PRETAX> 129,495
<INCOME-TAX> (24,822)
<INCOME-CONTINUING> 154,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,317
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.00
</TABLE>
