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 February 25, 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 March 8, 1996.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets February 25, 1996 (Unaudited)
and August 27, 1995 3
Consolidated Statements of Operations
Thirteen and Twenty -Six weeks ended February 25, 1996 and
Thirteen and Twenty-Six weeks ended February 26, 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
Twenty-Six weeks ended February 25, 1996 and Twenty-Six weeks
ended February 26, 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 4. Submission of Matters to a Vote of Security Holders 9
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)
February 25, August 27,
Assets 1996 1995
------
----------- -----------
Current Assets:
Cash and cash equivalents $ 1,947,011 $ 1,260,053
Accounts receivable 2,811,610 3,735,457
Inventory 693,086 624,237
Prepaid expenses 286,168 411,430
----------- -----------
Total Current Assets 5,737,875 6,031,177
Property, Plant and Equipment 6,968,168 7,233,324
Other Assets 525 525
----------- -----------
$12,706,568 $13,265,026
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 0 $ 0
Trade accounts payable 1,291,234 1,280,368
Salaries, wages, and withholdings 660,792 728,946
Miscellaneous accrued expenses 340,781 442,701
Current portion of long-term debt 884,250 838,750
----------- -----------
Total Current Liabilities 3,177,057 3,290,765
Long-term Debt, less current portion 4,206,081 4,852,216
Long-term Pension Liability 411,213 411,213
Stockholders' Equity:
Common stock issued, 2,414,850 and
2,384,651 shares, respectively 241,485 238,465
Capital in excess of par value 1,499,198 1,406,299
Retained earnings 3,171,534 3,066,068
----------- -----------
Total Stockholders' Equity 4,912,217 4,710,832
----------- -----------
$12,706,568 $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 26 weeks ended
---------------------------- ----------------------------
February 25, February 26, February 25, February 26,
1996 1995 1996 1995
------------ ------------ ------------ ------------
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Net Sales $ 5,175,844 $ 7,295,764 $ 10,518,318 $ 15,116,663
Cost of products sold 4,911,106 6,842,001 9,596,350 14,307,584
------------ ------------ ------------ ------------
Gross margin 264,738 453,763 921,968 809,079
Selling and administrative expense 571,706 638,970 1,089,625 1,185,627
Pension curtailment (gain) -- -- -- (254,419)
Real estate sale (gain) -- (890,475) -- (890,475)
Interest and other income (488,099) (95,269) (558,815) (138,804)
Interest and other expense 129,925 149,527 279,892 326,359
------------ ------------ ------------ ------------
Earnings before income taxes 51,206 651,010 111,266 580,791
Income taxes -- 5,800 5,800 5,800
------------ ------------ ------------ ------------
Net earnings $ 51,206 $ 645,210 $ 105,466 $ 574,991
============ ============ ============ ============
Net earnings per common and
common equivalent share $ 0.02 $ 0.27 $ 0.04 $ 0.24
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 2,478,083 2,382,698 2,472,298 2,382,549
============ ============ ============ ============
See notes to consolidated financial statements.
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WASHINGTON SCIENTIFIC INDUSTRIES,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
26 weeks ended
--------------------------
February 25, February 26,
1996 1995
----------- -----------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 105,466 $ 574,991
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of property, plant & equipment (564,965) (895,287)
Depreciation and amortization 1,024,008 1,270,933
Pension curtailment (gain) -- (254,419)
Changes in assets and liabilities:
Decrease in accounts receivable 923,848 500,006
(Increase) decrease in inventories (68,849) 544,244
Decrease in prepaid expenses 125,262 82,733
(Decrease) in accounts payable and accrued
expenses (159,209) (1,858,317)
----------- -----------
Net cash provided by (used in) operating activities 1,385,561 (35,116)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 614,000 1,758,552
Purchases of property, plant & equipment (365,588) (53,065)
----------- -----------
Net cash provided by investing activities 248,412 1,705,487
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,042,934) (1,570,449)
Increase in notes payable -- (201,299)
Issuance of common stock 95,919 5,359
----------- -----------
Net cash (used in) financing activities (947,015) (1,766,389)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 686,958 (96,018)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,260,053 208,014
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 1,947,011 $ 111,996
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 143,815 $ 176,169
Income taxes $ 3,200 $ 800
Noncash investing and financing activities:
Acquisition of property, plant and equipment
through capital lease $ 442,300 $ 420,000
See notes to consolidated financial statements.
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WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of February 25, 1996, the
consolidated statements of operations for the thirteen weeks ended
February 25, 1996 and February 26, 1995 and the twenty six weeks ended
February 25, 1996 and February 26, 1995 and the consolidated statements
of cash flows for the twenty-six 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 $5,176,000 for the quarter ending February 25,
1996 decreased $2,120,000 or 29.1% from the same quarter of the prior
year. Sales reductions occurred in the following markets: computer,
$1,416,000, fire arms, $608,000, marine, $570,000, general industrial,
$565,000 and automotive, $109,000. Sales to the agricultural, and small
engine markets increased $1,114,000 and $34,000, respectively .
Net sales for the 26 weeks ended February 25 ,1996 decreased
$4,598,000 or 30.4% from the first half of fiscal 1995. Sales
reductions occurred in the following markets: computer, $3,324,000,
marine, $1,053,000 fire arms, $971,000, general industrial, $747,000
and automotive, $523,000. Sales to the agricultural and small engine
markets increased $1,860,000 and $160,000, respectively.
Reductions in sales in the second fiscal quarter and fiscal
half year resulted primarily from completed and discontinued
manufacturing programs.
The Company recently began production on four new multi-year
manufacturing programs, however, it is not expected that sales from
these programs will have a material impact on fiscal 1996 business.
Gross margin of 5.1% on parts sold in the quarter ended
February 25, 1996 was down from 6.2% when compared to the same quarter
of the prior year. Lower sales and a different sales mix caused the
decline.
In the first half year of fiscal 1996 gross margin reached
8.8% compared to 5.3% in the first half of fiscal 1995. Even though
sales were lower in the first half of fiscal 1996, compared to the
prior year, gross margins were higher primarily because the first half
of fiscal 1995 included manufacturing overhead costs from two plant
locations, during a portion of the half year, and start-up and training
costs connected with the consolidation of two manufacturing plants.
Selling and administrative expense for the quarter and half
year ended February 25, 1996 declined $67,000 and $96,000,
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 was $488,000 in the second quarter
of fiscal 1996. This resulted primarily from the disposition of excess
equipment related to completed and discontinued manufacturing programs
and was $393,000 higher than the same quarter in the prior year.
First half interest and other income of $559,000 was heavily
affected by the disposition of equipment in the second quarter. First
half interest and other income in fiscal 1995 amounted to $139,000.
Interest and other expense was lower in the second quarter and
first half of fiscal 1996 than in the comparable periods of the prior
year by $20,000 and $46,000, respectively. These reductions were due to
lower notes payable balances and lower interest rates.
In fiscal 1996 and 1995 the Company was able to recognize the
benefit of a portion of its net operating loss carryforwards. Income
taxes reported on the Consolidated Statement of Operations are for
minimum state income taxes.
Liquidity and Capital Resources:
On February 25, 1996, both working capital and the ratio of
current assets to current liabilities reported a slight decline when
compared to comparable numbers on August 27, 1995. Working capital of
$2,561,000 decreased $179,000 and the ratio of current assets to
current liabilities declined to 1.81:1.0 from 1.83 to 1.0.
The Company did not have any credit line debt on February 25,
1996. On that date the Company reported cash and cash equivalents of
$1,947,000.
Company debt of $5,090,000 on February 25, 1996 was $601,000
lower than Company debt on August 27, 1995. Term debt owed the bank on
February 25, 1996 was $2,961,000 or $829,000 lower than the term debt
balance on August 27, 1995. Capital lease debt increased $228,000 on
February 25, 1996 compared to August 27, 1995.
Proceeds from the disposition of excess equipment related to
completed and discontinued manufacturing programs amounted to $604,000
in the fiscal quarter ended February 25, 1996. Those proceeds and
scheduled monthly debt payments of $37,500 were responsible for the
reduction in the term debt balance.
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 1996.
PART II. OTHER INFORMATION;
Item 4. Submission of Matters to a Vote of Security Holders.
a. The Annual Meeting of Company Stockholders was held
on January 11, 1996.
b. Directors elected at that meeting were:
Paul Baszucki For 2,189,546 Against 2,200
Melvin L. Katten For 2,188,521 Against 3,225
T. E. Larsen For 2,189,446 Against 2,300
Gerald E. Magnuson For 2,187,596 Against 4,150
George J. Martin For 2,191,121 Against 625
Eugene J. Mora For 2,189,321 Against 2,425
Michael J. Pudil For 2,188,768 Against 2,978
Item 5. Other Information:
The labor contract between the Company and the
International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America, Local 970 is scheduled to
expire on April 11, 1996. The Company and the Union are
negotiating a new contract as of this date.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibit 27. Financial Data Schedule
b. Form 8-K filed on January 15, 1996 reported the termination
of the services of Deloitte & Touche LLP as principal
accountant and the engagement of Ernst & Young LLP as
principal accountant to audit Company financial statements for
the fiscal year ending 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: April 3, 1996 /s/ Michael J. Pudil
--------------------
Michael J. Pudil, President & CEO
Date: April 3, 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> FEB-25-1996
<CASH> 1,947,011
<SECURITIES> 0
<RECEIVABLES> 2,811,610
<ALLOWANCES> 0
<INVENTORY> 693,086
<CURRENT-ASSETS> 5,737,875
<PP&E> 26,558,044
<DEPRECIATION> 19,589,876
<TOTAL-ASSETS> 12,706,568
<CURRENT-LIABILITIES> 3,177,057
<BONDS> 4,206,081
0
0
<COMMON> 241,485
<OTHER-SE> 4,912,217
<TOTAL-LIABILITY-AND-EQUITY> 12,706,568
<SALES> 5,175,844
<TOTAL-REVENUES> 5,175,844
<CGS> 4,911,106
<TOTAL-COSTS> 4,911,106
<OTHER-EXPENSES> 83,607
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,925
<INCOME-PRETAX> 51,206
<INCOME-TAX> 0
<INCOME-CONTINUING> 51,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,206
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.00
</TABLE>
