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 31, 1998
----------------------------------
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
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(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
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(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.
2,435,466 Common Shares were outstanding as of July 1, 1998.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets May 31, 1998 (Unaudited)
and August 31, 1997 3
Consolidated Statements of Operations
Third Quarter and First Nine Months ended May 31, 1998 and
Third Quarter and First Nine Months ended May 25, 1997 (Unaudited)4
Consolidated Statements of Cash Flows
First Nine Months ended May 31, 1998 and First Nine Months
ended May 25, 1997 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6,7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8,9
PART II. OTHER INFORMATION:
Item 5. Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 31, August 31,
Assets 1998 1997
----------- -----------
Current Assets:
Cash and cash equivalents $ 3,989,810 $ 2,847,598
Accounts receivable 2,891,837 2,545,318
Inventories - work-in-process 1,194,815 1,356,438
Prepaid and other current assets 157,821 89,155
----------- -----------
Total Current Assets 8,234,283 6,838,509
Property, Plant and Equipment 6,720,321 5,952,023
Other Long Term Assets 425 525
----------- -----------
$14,955,029 $12,791,057
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 0 $ 0
Trade accounts payable 1,641,267 1,153,995
Salaries, wages, and withholdings 441,948 411,102
Miscellaneous accrued expenses 1,339,614 1,031,931
Current portion of long-term debt 1,095,265 1,000,679
----------- -----------
Total Current Liabilities 4,518,094 3,597,707
Long-term Debt, less current portion 2,651,579 2,671,153
Long-term Pension Liability 401,823 467,073
Stockholders' Equity:
Common stock issued, 2,435,466 and
2,428,980 shares respectively 243,547 242,898
Capital in excess of par value 1,542,386 1,528,785
Retained earnings 5,597,600 4,283,441
----------- -----------
Total Stockholders' Equity 7,383,533 6,055,124
----------- -----------
$14,955,029 $12,791,057
=========== ===========
See notes to consolidated financial statements.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Third quarter ended First nine months ended
----------------------------- -----------------------------
May 31, May 25, May 31, May 25,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,634,918 $ 6,673,338 $ 17,626,097 $ 18,034,846
Cost of products sold $ 5,332,291 $ 5,636,488 14,392,484 15,332,425
------------ ------------ ------------ ------------
Gross margin 1,302,627 1,036,850 3,233,613 2,702,421
Selling and administrative expense $ 704,627 $ 636,620 1,835,118 1,810,624
Interest and other income $ (37,324) $ (26,312) (83,639) (549,223)
Interest and other expense $ 51,929 $ 66,516 137,175 239,358
------------ ------------ ------------ ------------
Earnings from operations
before income taxes 583,395 360,026 1,344,959 1,201,662
Income taxes $ 14,000 -- 30,800 5,800
------------ ------------ ------------ ------------
Earnings from operations $ 569,395 $ 360,026 $ 1,314,159 $ 1,195,862
============ ============ ============ ============
Basic earnings per share $ 0.23 $ 0.15 $ 0.54 $ 0.49
============ ============ ============ ============
Diluted earnings per share $ 0.22 $ 0.15 $ 0.52 $ 0.48
============ ============ ============ ============
Weighted average number of common
shares outstanding 2,435,466 2,424,980 2,432,310 2,423,494
============ ============ ============ ============
Weighted average number of common and
dilutive potential common shares 2,569,320 2,474,853 2,546,935 2,468,736
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES,INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
First nine months ended
---------------------------
May 31, May 25,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,314,159 $ 1,195,862
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of property, plant & equipment -- (432,445)
Depreciation and amortization 851,000 1,068,466
Increase (decrease) in pension liability (65,250) 6,428
Changes in assets and liabilities:
(Increase) in accounts receivable (346,519) (1,191,348)
(Increase) decrease in inventories 161,623 49,537
(Increase) decrease in prepaid expenses (68,566) 57,241
Increase (decrease) in accounts payable and
accrued expenses 920,387 1,237,981
----------- -----------
Net cash provided by operating activities 2,766,834 1,991,722
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 448,000
Purchases of property, plant & equipment (1,619,298) (337,662)
----------- -----------
Net cash provided by (used in) investing activities (1,619,298) 110,338
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (889,596) (1,210,781)
Placement of Capital Lease Financing 870,022 --
Issuance of common stock 14,250 10,000
----------- -----------
Net cash provided by (used in) financing activities (5,324) (1,200,781)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,142,212 901,279
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,847,598 1,642,739
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 3,989,810 $ 2,544,018
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 138,175 $ 243,573
Income taxes $ 51,027 $ 4,550
</TABLE>
See notes to consolidated financial statements.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of May 31, 1998, the
consolidated statements of operations for the third quarter and first
nine months ended May 31, 1998 and May 25, 1997 and the consolidated
statements of cash flows for the first nine months 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 31, 1997, 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 1997 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 April 30, 1997, the Company amended its agreement with the
bank for its debt and its line of credit. The agreement requires
principal payments of $37,500 per month with the loan balance due at
March 31, 2000. The fair value of the term debt is estimated to be its
carrying value since the debt has a variable interest rate. At May 31,
1998, and May 25, 1997 there was no balance outstanding on the line of
credit under this agreement.
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 EARNINGS PER
SHARE. Statement 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earning per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
<PAGE>
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Third quarter First nine months ended
---------------------- -----------------------
May 31, May 25, May 31, May 25,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per share:
Net Earnings 569,395 360,026 1,314,159 1,195,862
========= ========= ========= =========
Denominator:
Denominator for basic earnings
per share - weighed average shares 2,435,466 2,424,980 2,432,310 2,423,494
Effect of dilutive securities:
Employee/Director stock options 133,854 49,873 114,625 45,242
Dilutive potential common shares
Denominator for diluted earnings
per share-adjusted weighted shares
and assumed conversions 2,569,320 2,474,853 2,546,935 2,468,736
========= ========= ========= =========
Basic earnings per share 0.23 0.15 0.54 0.49
========= ========= ========= =========
Diluted earnings per share 0.22 0.15 0.52 0.48
========= ========= ========= =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
Results of Operations:
Net sales of $6,635,000 for the quarter ending May 31, 1998
decreased $38,000 or 0.6% from the third quarter of the prior year.
Primary changes in sales included a decrease in the small engines
market which was offset by an increase in the recreational vehicle
market.
Net sales of $17,626,000 for the first nine months ended May
31, 1998 decreased $409,000 or 2.3% from the first nine months of
fiscal 1997. Sales reductions in the small engines market and the
automotive components market were partially offset by increases in the
agribusiness market and the recreations vehicle market.
Gross margin improved to 19.6% of sales in the third quarter
of fiscal 1998 compared to 15.5% in the prior year's third quarter. The
first nine months of fiscal 1998 gross margin improved to 18.3%
compared to the prior year's first nine months gross margin of 15.0%.
The improved gross margins resulted primarily from cost reductions
related to lower headcount, reduced depreciation expense and increased
manufacturing efficiencies.
Selling and administrative expenses was $705,000 in the third
quarter and $1,835,000 in the first nine months. The third quarter was
$68,000 higher and the first nine months was $24,000 higher than the
prior years comparable periods due to higher professional services,
including fees incurred to move to the NASDAQ National Market.
Interest and other income was $11,000 higher than the
comparable quarter of the prior year due to increased interest income
from a higher money market investment balance. Interest and other
income for the first nine months of fiscal 1998 was $466,000 lower than
the first nine months of fiscal 1997. The first quarter of fiscal 1997
included $410,000 net gain from the disposition of excess equipment
related to completed or discontinued manufacturing programs.
Interest and other expense decreased $15,000 in the third
quarter of fiscal 1998 and $102,000 in the first nine months of fiscal
1998 from the comparable periods of the prior year due to lower term
debt balances.
In the first nine months of fiscal 1998, the Company recorded
a tax provision of $30,800 to cover mandatory state income taxes and
federal alternative minimum 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.
<PAGE>
Liquidity and Capital Resources:
On May 31, 1998 working capital was $3,716,000 compared to
$3,241,000 at August 31, 1997, an increase of $475,000, due primarily
to improvement in operations. The ratio of current assets to current
liabilities at May 31, 1998 and August 31, 1997 was 1.82 to 1.0 and
1.90 to 1.0, respectively.
On May 31, 1998, the Company did not have an outstanding
balance on the line of credit with the bank. As of that date the
Company had cash and cash equivalents of $3,990,000.
Company long-term debt of $2,652,000 on May 31, 1998 was
$20,000 lower than on August 31, 1997. Term debt owed the bank on May
31, 1998 was $1,057,000 and obligations under capital leases were
$1,595,000. Regular monthly payments of $890,000 in the first nine
months were offset by the placement of capital lease financing of
$870,000 during the same period of fiscal 1998.
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 1998.
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 31, 1997.
<PAGE>
PART II. OTHER INFORMATION:
Item 5. Exhibits and Reports on Form 8-K:
A. Exhibit 27 Financial Data Schedule, Q3, Fiscal 1998
B. There were no reports on Form 8-K for the thirteen weeks ended
May 31, 1998.
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 7, 1998 /s/ Michael J. Pudil
------------ --------------------------------------
Michael J. Pudil, President & CEO
Date: July 7, 1998 /s/ James J. Valento
------------ --------------------------------------
James J. Valento, Vice President & CFO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-END> MAY-31-1998
<CASH> 3,989,810
<SECURITIES> 0
<RECEIVABLES> 2,941,837
<ALLOWANCES> 50,000
<INVENTORY> 1,194,815
<CURRENT-ASSETS> 8,234,283
<PP&E> 23,148,950
<DEPRECIATION> 16,428,629
<TOTAL-ASSETS> 14,955,029
<CURRENT-LIABILITIES> 4,518,094
<BONDS> 2,651,579
0
0
<COMMON> 243,547
<OTHER-SE> 7,139,986
<TOTAL-LIABILITY-AND-EQUITY> 14,955,029
<SALES> 6,634,918
<TOTAL-REVENUES> 6,634,918
<CGS> 5,332,291
<TOTAL-COSTS> 5,332,291
<OTHER-EXPENSES> 667,303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,929
<INCOME-PRETAX> 583,395
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 569,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569,395
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
</TABLE>
