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 26, 1996
----------------------------------
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.
2,420,850 Common Shares were outstanding as of June 14, 1996.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
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Page No.
PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements
Consolidated Balance Sheets May 26, 1996 (Unaudited)
and August 27, 1995 3
Consolidated Statements of Operations
Thirteen and Thirty -Nine weeks ended May 26, 1996 and
Thirteen and Thirty-Nine weeks ended May 28, 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
Thirty-Nine weeks ended May 26, 1996 and Thirty-Nine weeks
ended May 28, 1995 (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 5. Other Information 9
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 26, August 27,
Assets 1996 1995
----------- -----------
Current Assets:
Cash and cash equivalents $ 1,545,220 $ 1,260,053
Accounts receivable 2,663,169 3,735,457
Inventory 776,710 624,237
Prepaid expenses 406,270 411,430
----------- -----------
Total Current Assets 5,391,369 6,031,177
Property, Plant and Equipment 7,315,841 7,233,324
Other Assets 525 525
----------- -----------
$12,707,735 $13,265,026
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 0 $ 0
Trade accounts payable 1,056,826 1,280,368
Salaries, wages, and withholdings 631,890 728,946
Miscellaneous accrued expenses 292,635 442,701
Current portion of long-term debt 932,818 838,750
----------- -----------
Total Current Liabilities 2,914,169 3,290,765
Long-term Debt, less current portion 4,364,381 4,852,216
Long-term Pension Liability 444,404 411,213
Stockholders' Equity:
Common stock issued, 2,420,850 and
2,384,651 shares, respectively 242,085 238,465
Capital in excess of par value 1,511,598 1,406,299
Retained earnings 3,231,098 3,066,068
----------- -----------
Total Stockholders' Equity 4,984,781 4,710,832
----------- -----------
$12,707,735 $13,265,026
=========== ===========
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 26, May 28, May 26, May 28,
1996 1995 1996 1995
------------ ------------ ------------ ------------
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Net Sales $ 5,492,811 $ 8,154,066 $ 16,011,130 $ 23,270,729
Cost of products sold 4,868,158 7,241,820 14,464,508 21,549,404
------------ ------------ ------------ ------------
Gross margin 624,653 912,246 1,546,622 1,721,325
Selling and administrative expenses 524,191 618,738 1,613,817 1,804,366
Pension curtailment (gain) -- -- -- (254,419)
Real estate sale (gain) -- -- -- (890,475)
Interest and other income (70,142) (8,445) (628,957) (147,250)
Interest and other expense 111,040 172,458 390,932 498,817
------------ ------------ ------------ ------------
Earnings from operations
before income taxes(benefit) 59,564 129,495 170,830 710,286
Income taxes (benefit) -- (24,822) 5,800 (19,022)
------------ ------------ ------------ ------------
Earnings from operations $ 59,564 $ 154,317 $ 165,030 $ 729,308
============ ============ ============ ============
Net earnings per share $ 0.02 $ 0.07 $ 0.06 $ 0.31
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 2,487,025 2,384,651 2,477,207 2,383,250
============ ============ ============ ============
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See notes to consolidated financial statements.
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WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 weeks ended
--------------------------
May 26, May 28,
1996 1995
----------- -----------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 165,030 $ 729,308
Adjustments to reconcile net earnings to net cash
provided by operating activities:
(Gain) on sale of property, plant & equipment (592,224) (853,246)
Depreciation and amortization 1,505,270 1,945,998
Pension curtailment (gain) -- (254,419)
Deferred tax credits -- (29,022)
Changes in assets and liabilities:
Decrease in accounts receivable 1,074,988 714,284
(Increase) decrease in inventories (152,473) 921,791
Decrease in prepaid expenses 5,160 93,061
(Decrease) in accounts payable and accrued
expenses (473,364) (1,862,837)
----------- -----------
Net cash provided by operating activities 1,532,387 1,404,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant & equipment 644,000 1,770,052
Purchases of property, plant & equipment (754,234) (187,606)
----------- -----------
Net cash (used in) provided by investing activities (110,234) 1,582,446
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,279,097) (1,852,002)
Increase in pension liability 33,191 --
(Decrease) in notes payable -- (848,482)
Issuance of common stock 108,920 5,359
----------- -----------
Net cash used in financing activities (1,136,986) (2,695,125)
NET INCREASE IN CASH AND CASH EQUIVALENTS 285,167 292,239
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,260,053 208,014
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 1,545,220 $ 500,253
=========== ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 406,378 $ 498,817
Income taxes $ 5,800 $ 3,500
Noncash investing and financing activities:
Aquisition of machinery through capital lease $ 885,330 $ 1,729,600
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 26, 1996, the
consolidated statements of operations for the thirteen weeks ended May
26, 1996 and May 28, 1995 and the thirty- nine weeks ended May 26, 1996
and May 28, 1995 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.
The balance sheet at August 27, 1995, is derived from the
audited balance sheet as of that date. 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 fiscal 1995 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'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
Results of Operations:
Net sales of $5,493,000 for the quarter ending May 26, 1996
decreased $2,661,000 or 32.6% from the same quarter of the prior year.
Sales reductions occurred in the following markets: computer,
$2,058,000, fire arms, $749,000, marine, $689,000, general industrial,
$609,000 and small engine, $267,000. Sales to the agricultural and
automotive markets increased $1,676,000 and $35,000, respectively .
Net sales for the thirty-nine weeks ended May 26, 1996
decreased $7,260,000 or 31.2% from the comparable period of the prior
year. Sales reductions occurred in the following markets: computer,
$5,382,000, marine, $1,743,000, fire arms, $1,720,000, general
industrial, $1,356,000, automotive, $488,000 and small engine,
$107,000. Sales to the agricultural market increased $3,536,000.
Reductions in sales in the third fiscal quarter and
year-to-date resulted primarily from completed and discontinued
manufacturing programs.
The Company expects fourth quarter fiscal 1996 sales to be
lower than third quarter fiscal 1996 sales based on trends and
information received from customers. Sales generated by new customer
programs awarded to the Company earlier this year have not developed as
quickly as expected and two major customers will close their assembly
plants for two weeks in July due to normal, seasonal factors. The
Company will not make any shipments to those two customers during this
two week period and will temporarily close production lines that
manufacture parts for those two customers during two weeks in July. The
Company expects to resume production for both customers immediately
after this two week period. The Company expects the reduced level of
business to result in a loss in the fourth quarter which will more than
offset the earnings reported through the first three quarters of fiscal
1996.
Gross margin of 11.4% on parts sold in the quarter ended May
26, 1996 was up slightly from 11.2% in the same quarter of the prior
year.
Gross margin for the three quarters ended May 26, 1996 was
9.7% compared to 7.4% in the same time period of the prior year. Fiscal
1996 gross margin is benefiting from cost reductions and manufacturing
efficiencies which resulted from the plant consolidation that took
place during fiscal 1995.
Selling and administrative expense for the fiscal quarter and
fiscal three quarters ended May 26, 1996 declined $95,000 or 15.3% and
$191,000 or 10.6%, respectively, when compared to the same periods of
the prior year. Reductions in purchased services were primarily
responsible for the lower expenses.
Interest and other income of $70,000 in the third fiscal
quarter of 1996 was $62,000 higher than the comparable quarter of the
prior year primarily due to the gain on sale of excess and obsolete
equipment and interest income.
Interest and other income for the three quarters of fiscal
1996 was $629,000 and exceeded the same time period of the prior year
by $482,000. The primary reason for the additional income in fiscal
1996 was the gain on the disposition of excess equipment, related to
completed and discontinued manufacturing programs, which took place in
the second quarter of fiscal 1996.
Liquidity and Capital Resources:
On May 26, 1996 working capital of $2,477,000 was down
$263,000 from working capital on August 27, 1995. The ratio of current
assets to current liabilities increased to 1.85:1 on May 26, 1996
compared to 1.83:1 on August 27, 1995.
The Company did not have a balance outstanding on its line of
credit on May 26, 1996. On that date the Company reported cash and cash
equivalents of $1,545,000.
Total debt of $5,297,000 on May 26, 1996 was $394,000 lower
than total debt on August 27, 1995. The balance owing under the
Company's term note on May 26, 1996 was $2,849,000, or $942,000 less
than the balance owed on August 27, 1995. Due to new capital leases
entered into, the Company owed an additional $548,000 under capital
lease arrangements on May 26, 1996 compared to August 27, 1995.
It is management's belief that its internally generated funds
combined with funds available under the line of credit will be
sufficient to enable the Company to meet its financial requirements
during the remainder of fiscal 1996.
PART II. OTHER INFORMATION;
Item 5. Other Information:
A labor contract between the Company and the
International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America, Local 970 was agreed to
on April 11, 1996. This contract covers the next eighteen
months.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibit 27. Financial Data Schedule
b. There were no reports on Form 8-K filed for the thirteen
weeks ended May 26, 1996.
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: July 8, 1996 /s/ Michael J. Pudil
----------------------
Michael J. Pudil, President & CEO
Date: July 8, 1996 /s/ W. J. Lucke
----------------
W. J. Lucke, Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-25-1996
<PERIOD-END> MAY-26-1996
<CASH> 1,554,220
<SECURITIES> 0
<RECEIVABLES> 2,663,169
<ALLOWANCES> 0
<INVENTORY> 776,710
<CURRENT-ASSETS> 5,391,369
<PP&E> 26,914,366
<DEPRECIATION> 19,598,524
<TOTAL-ASSETS> 12,707,735
<CURRENT-LIABILITIES> 2,914,169
<BONDS> 4,364,381
242,085
0
<COMMON> 0
<OTHER-SE> 4,742,696
<TOTAL-LIABILITY-AND-EQUITY> 12,707,735
<SALES> 5,492,811
<TOTAL-REVENUES> 5,492,811
<CGS> 4,868,158
<TOTAL-COSTS> 4,868,158
<OTHER-EXPENSES> 454,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,040
<INCOME-PRETAX> 59,564
<INCOME-TAX> 0
<INCOME-CONTINUING> 59,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,564
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.00
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