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 23, 1997
-------------------------------------------------
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.
2,424,980 Common Shares were outstanding as of March 31, 1997.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements
Consolidated Balance Sheets February 23, 1997 (Unaudited)
and August 25, 1996 3
Consolidated Statements of Operations
Thirteen and Twenty -Six weeks ended February 23, 1997 and
Thirteen and Twenty-Six weeks ended February 25, 1996
(Unaudited) 4
Consolidated Statements of Cash Flows
Twenty-Six weeks ended February 23, 1997 and Twenty-Six
weeks ended February 25, 1996 (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. 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 23, August 25,
Assets 1997 1996
------ ----------- -----------
Current Assets:
Cash and cash equivalents $ 2,382,951 $ 1,642,739
Accounts receivable 2,818,772 1,868,942
Inventories - work-in-process 855,437 1,098,613
Prepaid and other current assets 71,768 123,186
----------- -----------
Total Current Assets 6,128,928 4,733,480
Property, Plant and Equipment 6,180,030 6,839,239
Other Long Term Assets 525 525
----------- -----------
$12,309,483 $11,573,244
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Notes payable $ 0 $ 0
Trade accounts payable 1,559,441 785,602
Salaries, wages, and withholdings 446,937 474,107
Miscellaneous accrued expenses 395,195 324,214
Current portion of long-term debt 977,674 953,570
----------- -----------
Total Current Liabilities 3,379,247 2,537,493
Long-term Debt, less current portion 3,168,551 4,124,188
Long-term Pension Liability 462,788 458,502
Stockholders' Equity:
Common stock issued, 2,424,980 and
2,420,850 shares, respectively 242,498 242,085
Capital in excess of par value 1,521,185 1,511,598
Retained earnings 3,535,214 2,699,378
----------- -----------
Total Stockholders' Equity 5,298,897 4,453,061
----------- -----------
$12,309,483 $11,573,244
=========== ===========
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 23, February 25, February 23, February 25,
1997 1996 1997 1996
------------ ------------ ------------ ------------
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Net Sales $ 5,770,920 $ 5,175,844 $ 11,361,508 $ 10,518,318
Cost of products sold 4,882,217 4,911,106 9,695,937 9,596,350
------------ ------------ ------------ ------------
Gross margin 888,703 264,738 1,665,571 921,968
Selling and administrative expense 655,817 571,706 1,174,004 1,089,625
Interest and other income (66,431) (488,099) (522,911) (558,815)
Interest and other expense 80,269 129,925 172,842 279,892
------------ ------------ ------------ ------------
Earnings from operations
before income taxes 219,048 51,206 841,636 111,266
Income taxes -- -- 5,800 5,800
------------ ------------ ------------ ------------
Earnings from operations $ 219,048 $ 51,206 $ 835,836 $ 105,466
============ ============ ============ ============
Net earnings per share $ 0.09 $ 0.02 $ 0.34 $ 0.04
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 2,472,617 2,478,083 2,465,678 2,472,298
============ ============ ============ ============
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 23, February 25,
1997 1996
----------- -----------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 835,836 $ 105,466
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of property, plant & equipment (432,445) (564,965)
Depreciation and amortization 747,713 1,024,008
Increase in pension liability 4,286 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (949,830) 923,848
(Increase) decrease in inventories 243,174 (68,849)
(Increase) decrease in prepaid expenses 51,420 125,262
Increase (decrease) in accounts payable and
accrued expenses 841,753 (159,209)
----------- -----------
Net cash provided by operating activities 1,341,907 1,385,561
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 448,000 614,000
Purchases of property, plant & equipment (104,059) (365,588)
----------- -----------
Net cash provided by investing activities 343,941 248,412
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (955,636) (1,042,934)
Issuance of common stock 10,000 95,919
----------- -----------
Net cash (used in) financing activities (945,636) (947,015)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 740,212 686,958
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,642,739 1,260,053
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 2,382,951 $ 1,947,011
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 177,456 $ 143,815
Income taxes $ 3,300 $ 3,200
Noncash investing and financing activities:
Acquisition of property, plant and equipment
through capital lease $ 0 $ 442,300
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 23, 1997, the
consolidated statements of operations for the thirteen weeks and
twenty-six weeks ended February 23, 1997 and February 25, 1996 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 25, 1996, 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 1996 annual report
to shareholders. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
2. 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 $5,771,000 for the quarter ending February 23,
1997 increased $595,000 or 11.5% from the second quarter of the prior
year. Primary changes in sales included a decrease in the computer
market of $661,000, a decrease in the industrial compressor market of
$114,000, an increase in the agricultural market of $1,150,00 and an
increase in the marine market of $225,000.
Net sales for the twenty six weeks ended February 23, 1997
increased $843,000 or 8.0% from the first half of fiscal 1996. Sales
reductions occurred in the computer market of $1,475,000 and in the
industrial component market of $752,000. The agricultural market
increased by $2,870,000.
Gross margin improved to 15.4% of sales in the second quarter
of fiscal 1997 compared to 5.1% in the prior year's second quarter. The
first half of fiscal 1997 gross margin improved to 14.7% compared to
the prior year's first half gross margin of 8.8%. The improved gross
margins resulted primarily from cost reductions and improved
manufacturing efficiencies.
Selling and administrative expense of $656,000 was $84,000
higher than the second quarter of the prior year and the first half's
$1,174,000 was $84,000 higher due to costs related to performance based
compensation, depreciation and maintenance of new computer equipment
and increased costs of attendance at trade shows.
Interest and other income was $422,000 lower than the
comparable quarter of the prior year. The second quarter of fiscal 1996
included $455,000 net gain from the disposition of excess equipment
related to completed or discontinued manufacturing programs. The first
half of fiscal 1997 was $36,000 less due to lower net gain from the
disposition of excess equipment than in the comparable period of the
prior year.
Interest and other expense decreased $50,000 in the second
quarter and $107,000 in the first half than in the comparable periods
of the prior year due to lower term debt balances.
In the first quarter of fiscal 1997, the Company recorded
$5,800 of mandatory state income taxes and was able to recognize the
benefit of a portion of its net operating loss carry-forwards. The
Company has not recorded the benefit of net operating losses and other
net deductible temporary differences in the consolidated statement of
operations due to the fact that the Company has not been able to
establish that it is more likely than not that the tax benefits will be
realized.
Liquidity and Capital Resources:
On February 23, 1997, working capital was $2,750,000 compared
to $2,196,000 at August 25, 1996 an increase of $554,000, due primarily
to improvement in operations. The ratio of current assets to current
liabilities at February 23, 1997 and August 25, 1996 was 1.81 to 1.0
and 1.87 to 1.0, respectively.
On February 23, 1997, the Company did not have an outstanding
bank note payable balance. As of that date the Company had cash and
cash equivalents of $2,383,000.
Proceeds from the disposition of excess equipment related to
completed and discontinued manufacturing programs amounted to $410,000
in the fiscal quarter ended November 24, 1996. Those proceeds and
scheduled monthly payments reduced the long-term debt by $955,000 in
the first half of fiscal 1997.
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 1997.
Cautionary Statement:
The statements included herein which are not historical or
current facts are "forward-looking statements" made pursuant to the
safe harbor provisions of the Private Securities Reform Act of 1995.
There are certain important factors which could cause actual results to
differ materially from those anticipated by some of the statements made
herein, including the Company's ability to obtain additional
manufacturing programs and retain current programs and other factors
detailed from time to time in the Company's SEC reports, including the
report on Form 10-K for the year ended August 25, 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 9, 1997.
B. Directors elected at that meeting were:
Paul Baszucki For 2,258,196 Against 770
Melvin L. Katten For 2,258,196 Against 770
T. E. Larsen For 2,225,571 Against 3,395
Gerald E. Magnuson For 2,258,721 Against 245
George J. Martin For 2,258,866 Against 100
Eugene J. Mora For 2,258,341 Against 625
Michael J. Pudil For 2,256,780 Against 2,186
Item 5. Exhibits and Reports on Form 8-K:
A. Exhibit 10. Amendment dated January 9, 1997, to Employment
Agreement between the Company and Michael J. Pudil.
Exhibit 27. Financial Data Schedule
B. There were no reports on Form 8-K filed for the thirteen
weeks ended February 23, 1997
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 4, 1997 /s/ Michael J. Pudil
----------------------------------------
Michael J. Pudil, President & CEO
Date: April 4, 1997 /s/ James J. Valento
----------------------------------------
James J. Valento, Vice President & CFO
AMENDMENT
The Employment Agreement (the "Agreement") dated October 22, 1993 between
WASHINGTON SCIENTIFIC INDUSTRIES, INC. ("WSI") and Michael J. Pudil ("Pudil")
shall be amended as of January 9, 1997 only as set forth below. All other
provisions of the Agreement shall remain unchanged.
1. In paragraph 2, the term of Pudil's employment following expiration of
the initial three-year term shall be two years and such employment
shall be automatically renewed for successive two year terms unless
either party provides written notice to the other party of nonrenewal
at least six months in advance of the expiration of any two-year term.
2. In paragraph 4, Pudil's base annual salary shall be $162,500 and the
references to bonuses of $30,000, $30,000 and $40,000 shall be deleted.
3. In paragraph 8, in the event of the termination of Pudil's employment
for Good Reason, and in paragraph 9, in the event of the termination of
Pudil's employment without Good Cause, payments of Pudil's base salary
and the employer share of benefit premiums shall continue for eighteen
months instead of for the term of the Agreement or his reemployment or
self-employment, provided however that in the event of the termination
of Pudil's employment following a Change in Control of WSI, as defined
in the Employment Agreement (the "Change in Control Agreement") dated
October 18, 1995 between WSI and Pudil, Pudil shall be entitled to
receive the compensation and benefits set forth in the Change in
Control Agreement under the circumstances described in the Change in
Control Agreement and his rights to compensation and benefits under the
Agreement shall cease. Pudil's right to WSI group employee benefits
under the Agreement shall at all times be contingent upon the
continuation of said benefits for active WSI employees and his
eligibility to participate in said benefit plans under the terms of the
plans and applicable law.
4. The first sentence of paragraph 14 shall be deleted and replaced by the
following two sentences: "This Employment Agreement, as amended by the
Amendment dated January 9, 1997, contains the entire understanding of
the parties, except for the Change in Control Agreement dated October
18, 1995 which shall remain in effect according to its terms and which,
in the event of conflict with this Agreement, shall control. There
shall be no duplication of benefits on Pudil's behalf in this Agreement
and the Change in Control Agreement in the event of the termination of
Pudil's employment following a Change in Control."
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and
year first set forth above.
/s/ Michael J. Pudil
----------------------------------------
MICHAEL J. PUDIL
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
By /s/ Gerald E. Magnuson
-------------------------------------
Its Secretary
---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-23-1997
<CASH> 2,382,951
<SECURITIES> 0
<RECEIVABLES> 2,868,772
<ALLOWANCES> 50,000
<INVENTORY> 855,437
<CURRENT-ASSETS> 6,128,928
<PP&E> 25,470,700
<DEPRECIATION> 19,290,670
<TOTAL-ASSETS> 12,309,483
<CURRENT-LIABILITIES> 3,379,247
<BONDS> 3,168,551
0
0
<COMMON> 242,498
<OTHER-SE> 5,056,399
<TOTAL-LIABILITY-AND-EQUITY> 12,309,483
<SALES> 5,770,920
<TOTAL-REVENUES> 5,770,920
<CGS> 4,882,217
<TOTAL-COSTS> 4,882,217
<OTHER-EXPENSES> 589,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,269
<INCOME-PRETAX> 219,048
<INCOME-TAX> 0
<INCOME-CONTINUING> 219,048
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,048
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.00
</TABLE>
