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 March 1, 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
(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.
2,435,466 Common Shares were outstanding as of March 31, 1998.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets March 1, 1998 (Unaudited)
and August 31, 1997 3
Consolidated Statements of Operations
Thirteen and Twenty-Six weeks ended March 1, 1998 and
Thirteen and Twenty-Six weeks ended February 23, 1997 (Unaudited) 4
Consolidated Statements of Cash Flows Twenty-Six weeks ended
March 1, 1998 and Twenty-Six weeks
ended February 23, 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)
March 1, August 31,
Assets 1998 1997
- ------ ----------- -----------
Current Assets:
Cash and cash equivalents $ 3,673,071 $ 2,847,598
Accounts receivable 2,822,385 2,545,318
Inventories - work-in-process 1,297,089 1,356,438
Prepaid and other current assets 78,910 89,155
----------- -----------
Total Current Assets 7,871,455 6,838,509
Property, Plant and Equipment 6,335,802 5,952,023
Other Long Term Assets 425 525
----------- -----------
$14,207,682 $12,791,057
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Notes payable $ 0 $ 0
Trade accounts payable 1,682,369 1,153,995
Salaries, wages, and withholdings 444,298 411,102
Miscellaneous accrued expenses 1,249,794 1,031,931
Current portion of long-term debt 1,076,402 1,000,679
----------- -----------
Total Current Liabilities 4,452,863 3,597,707
Long-term Debt, less current portion 2,517,108 2,671,153
Long-term Pension Liability 423,573 467,073
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 5,028,205 4,283,441
----------- -----------
Total Stockholders' Equity 6,814,138 6,055,124
----------- -----------
$14,207,682 $12,791,057
=========== ===========
See notes to consolidated financial statements.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
13 weeks ended 26 weeks ended
---------------------------- ----------------------------
March 1, February 23, March 1, February 23,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 5,677,479 $ 5,770,920 $ 10,991,179 $ 11,361,508
Cost of products sold 4,551,569 4,882,217 9,060,193 9,695,937
------------ ------------ ------------ ------------
Gross margin 1,125,910 888,703 1,930,986 1,665,571
Selling and administrative expense 604,352 655,817 1,130,491 1,174,004
Interest and other income (24,859) (66,431) (46,315) (522,911)
Interest and other expense 40,646 80,269 85,246 172,842
------------ ------------ ------------ ------------
Earnings from operations
before income taxes 505,771 219,048 761,564 841,636
Income taxes 7,800 -- 16,800 5,800
------------ ------------ ------------ ------------
Earnings from operations $ 497,971 $ 219,048 $ 744,764 $ 835,836
============ ============ ============ ============
Basic earnings per share $ 0.20 $ 0.09 $ 0.31 $ 0.34
============ ============ ============ ============
Diluted earnings per share $ 0.20 $ 0.09 $ 0.29 $ 0.34
============ ============ ============ ============
Weighted average number of common
shares outstanding 2,432,483 2,424,509 2,430,732 2,422,751
============ ============ ============ ============
Weighted average number of common and
dilutive potential common shares 2,527,257 2,472,617 2,535,742 2,465,678
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES,INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
26 weeks ended
--------------------------
March 1, February 23,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 744,764 $ 835,836
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of property, plant & equipment -- (432,445)
Depreciation and amortization 559,000 747,713
Increase (decrease) in pension liability (43,500) 4,286
Changes in assets and liabilities:
(Increase) in accounts receivable (277,067) (949,830)
(Increase) decrease in inventories 59,349 243,174
(Increase) decrease in prepaid expenses 10,345 51,420
Increase (decrease) in accounts payable and
accrued expenses 855,156 841,753
----------- -----------
Net cash provided by operating activities 1,908,047 1,341,907
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 448,000
Purchases of property, plant & equipment (942,779) (104,059)
----------- -----------
Net cash provided by (used in) investing activities (942,779) 343,941
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (586,537) (955,636)
Placement of Capital Lease Financing 432,492 --
Issuance of common stock 14,250 10,000
----------- -----------
Net cash provided by (used in) financing activities (139,795) (945,636)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 825,473 740,212
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,847,598 1,642,739
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 3,673,071 $ 2,382,951
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 86,145 $ 177,456
Income taxes $ 28,500 $ 3,300
</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 March 1, 1998, the
consolidated statements of operations for the thirteen weeks and
twenty-six weeks ended March 1, 1998 and February 23, 1997 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 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 March 1,
1998, and February 23, 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 period 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>
13 weeks ended 26 weeks ended
---------------------- -----------------------
March 1, February 23, March 1, February 23,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per share:
Net Earnings 497,971 219,048 744,764 835,836
========= ========= ========= =========
Denominator:
Denominator for basic earnings
per share - weighed average shares 2,432,483 2,424,509 2,430,732 2,422,751
Effect of dilutive securities:
Employee/Director stock options 94,744 48,108 105,010 42,927
Dilutive potential common shares
Denominator for diluted earnings
per share-adjusted weighted shares
and assumed conversions 2,527,257 2,472,617 2,535,742 2,465,678
========= ========= ========= =========
Basic earnings per share 0.20 0.09 0.31 0.34
========= ========= ========= =========
Diluted earnings per share 0.20 0.09 0.29 0.34
========= ========= ========= =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
Results of Operations:
Net sales of $5,677,000 for the quarter ending March 1, 1998
decreased $93,000 or 1.6% from the second quarter of the prior year.
Primary changes in sales included a decrease in the automotive
components market of $410,000 a decrease in the small engines market of
$339,000, an increase in the agribusiness market of $531,000 and an
increase in the marine market of $175,000.
Net sales for the twenty six weeks ended March 1, 1998
decreased $370,000 or 3.3% from the first half of fiscal 1997. Sales
reductions occurred in the automotive components market of $568,000,
the small engines market of $561,000 and in the industrial component
market of $120,000. The agribusiness market increased by $670,000 and
the computer market increased $172,000.
Gross margin improved to 19.8% of sales in the second quarter
of fiscal 1998 compared to 15.4% in the prior year's second quarter.
The first half of fiscal 1998 gross margin improved to 17.6% compared
to the prior year's first half gross margin of 14.7%. The improved
gross margins resulted primarily from cost reductions related to lower
headcount, reduced depreciation expense and increased manufacturing
efficiencies.
Selling and administrative expense of $604,000 was $51,000
lower than the second quarter of the prior year and the first half's
$1,130,000 was $44,000 lower due to lower compensation and fringe
benefit costs.
Interest and other income was $42,000 lower than the
comparable quarter of the prior year. The second quarter of fiscal 1997
included $32,000 net gain from the sale of miscellaneous equipment. The
first half of fiscal 1998 was $477,000 lower than the first half 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 $40,000 in the second
quarter of fiscal 1998 and $88,000 in the first half of fiscal 1998
than in the comparable periods of the prior year due to lower term debt
balances.
In the first quarter of fiscal 1998, the Company recorded
$7,800 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.
<PAGE>
Liquidity and Capital Resources:
On March 1, 1998 working capital was $3,419,000 compared to
$3,241,000 at August 31, 1997, an increase of $554,000, due primarily
to improvement in operations. The ratio of current assets to current
liabilities at March 1, 1998 and August 31, 1997 was 1.77 to 1.0 and
1.90 to 1.0, respectively.
On March 1, 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 $3,673,000.
Company debt of $2,517,000 on March 1, 1998 was $154,000 lower
than on August 31, 1997. Term debt owed the bank on March 1, 1998 was
$1,150,000 and obligations under capital leases were $1,367,000.
Regular monthly payments of $587,000 in the first six months were
offset by the placement of capital lease financing of $432,000 in the
second quarter 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.
The Company is aware of the issues associated with the
programming code in existing computer systems as the year 2000
approaches. The Company has evaluated the risks associated with the
"Year 2000" problem and has determined that the cost of addressing the
Year 2000 issue will be an immaterial event for the Company and will
not affect the Company's financial position or results of operations.
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 4. Submission of Matters to a Vote of Security Holders.
A. The Annual Meeting of the Company Stockholders was held on
January 8, 1998.
B. Directors elected at that meeting were:
Paul Baszucki For 2,022,467 Against 331
Melvin L. Katten For 2,022,242 Against 556
Gerald E. Magnuson For 2,022,242 Against 556
George J. Martin For 2,022,467 Against 331
Eugene J. Mora For 2,022,467 Against 331
Michael J. Pudil For 2,022,398 Against 400
Item 5. Exhibits and Reports on Form 8-K:
A. Exhibit 27.1 Financial Data Schedule, Q2, Fiscal 1998
Exhibit 27.2 Restated Financial Data Schedule, Q1, Fiscal 1998
Exhibit 27.3 Restated Financial Data Schedule, Q1, Q2, Q3 and
Year-end, Fiscal 1997
Exhibit 27.4 Restated Financial Data Schedule, Q2, Q3 and
Year-end, Fiscal 1996
B. There were no reports on Form 8-K for the thirteen weeks ended
March 1, 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: April 9, 1998 /s/ Michael J. Pudil
------------- --------------------------------------
Michael J. Pudil, President & CEO
Date: April 9, 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> MAR-01-1998
<CASH> 3,673,071
<SECURITIES> 0
<RECEIVABLES> 2,872,385
<ALLOWANCES> 50,000
<INVENTORY> 1,297,089
<CURRENT-ASSETS> 7,871,455
<PP&E> 22,472,431
<DEPRECIATION> 16,136,629
<TOTAL-ASSETS> 14,207,682
<CURRENT-LIABILITIES> 3,642,458
<BONDS> 2,517,108
0
0
<COMMON> 243,547
<OTHER-SE> 6,570,591
<TOTAL-LIABILITY-AND-EQUITY> 14,207,682
<SALES> 5,677,479
<TOTAL-REVENUES> 5,677,479
<CGS> 4,551,569
<TOTAL-COSTS> 4,551,569
<OTHER-EXPENSES> 579,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,646
<INCOME-PRETAX> 505,771
<INCOME-TAX> 7,800
<INCOME-CONTINUING> 497,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 497,971
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-END> NOV-30-1997
<CASH> 2,820,202
<SECURITIES> 0
<RECEIVABLES> 2,763,621
<ALLOWANCES> 50,000
<INVENTORY> 1,368,147
<CURRENT-ASSETS> 6,973,224
<PP&E> 22,178,761
<DEPRECIATION> 16,018,582
<TOTAL-ASSETS> 13,133,928
<CURRENT-LIABILITIES> 3,642,458
<BONDS> 2,744,230
0
0
<COMMON> 242,898
<OTHER-SE> 6,059,019
<TOTAL-LIABILITY-AND-EQUITY> 13,133,928
<SALES> 5,313,700
<TOTAL-REVENUES> 5,313,700
<CGS> 4,508,624
<TOTAL-COSTS> 4,508,624
<OTHER-EXPENSES> 504,683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,600
<INCOME-PRETAX> 255,793
<INCOME-TAX> 9,000
<INCOME-CONTINUING> 246,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 246,793
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> AUG-31-1997 AUG-31-1997 AUG-31-1997 AUG-31-1997
<PERIOD-END> NOV-24-1996 FEB-23-1997 MAY-25-1997 AUG-31-1997
<CASH> 1,856,165 2,382,951 2,544,018 2,847,598
<SECURITIES> 0 0 0 0
<RECEIVABLES> 2,871,854 2,868,772 3,110,290 2,595,318
<ALLOWANCES> 50,000 50,000 50,000 50,000
<INVENTORY> 987,764 855,437 1,049,076 1,356,438
<CURRENT-ASSETS> 5,796,916 6,128,928 6,719,327 6,838,509
<PP&E> 25,457,629 25,470,700 25,711,530 21,691,605
<DEPRECIATION> 18,969,918 19,290,670 19,618,650 15,739,582
<TOTAL-ASSETS> 12,285,152 12,309,483 12,812,732 12,791,057
<CURRENT-LIABILITIES> 2,893,094 3,379,247 3,775,474 3,775,474
<BONDS> 3,859,064 3,168,551 2,913,405 2,671,153
0 0 0 0
0 0 0 0
<COMMON> 242,185 242,498 242,498 242,498
<OTHER-SE> 4,830,164 5,056,399 5,416,425 5,812,626
<TOTAL-LIABILITY-AND-EQUITY> 12,285,152 12,309,483 12,812,732 12,791,057
<SALES> 5,590,588 5,770,920 6,673,338 24,153,089
<TOTAL-REVENUES> 5,590,588 5,770,920 6,673,338 24,153,089
<CGS> 4,813,720 4,882,217 5,636,488 20,494,767
<TOTAL-COSTS> 4,813,720 4,882,217 5,636,488 20,494,767
<OTHER-EXPENSES> 61,707 589,386 610,308 1,745,752
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 92,573 80,269 66,516 286,707
<INCOME-PRETAX> 622,588 219,048 360,026 424,201
<INCOME-TAX> 5,800 0 0 41,800
<INCOME-CONTINUING> 616,788 219,048 360,026 1,584,063
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 616,788 219,048 360,026 1,584,063
<EPS-PRIMARY> 0.25 0.09 0.15 0.65
<EPS-DILUTED> 0.25 0.09 0.15 0.64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> AUG-25-1996 AUG-25-1996 AUG-25-1996
<PERIOD-END> FEB-25-1996 MAY-26-1996 AUG-25-1996
<CASH> 1,947,011 1,554,220 1,642,739
<SECURITIES> 0 0 0
<RECEIVABLES> 2,811,610 2,663,169 1,918,942
<ALLOWANCES> 0 0 50,000
<INVENTORY> 693,086 776,710 1,098,613
<CURRENT-ASSETS> 5,737,875 5,391,369 4,733,480
<PP&E> 26,558,044 26,914,366 26,856,405
<DEPRECIATION> 19,589,876 19,598,524 20,017,166
<TOTAL-ASSETS> 12,706,568 12,707,735 11,573,244
<CURRENT-LIABILITIES> 3,177,057 2,914,169 2,537,493
<BONDS> 4,206,081 4,364,381 4,124,188
<COMMON> 241,485 242,085 242,085
0 0 0
0 0 0
<OTHER-SE> 4,912,217 4,742,696 4,210,976
<TOTAL-LIABILITY-AND-EQUITY> 12,706,568 12,707,735 11,573,244
<SALES> 5,175,844 5,492,811 20,173,508
<TOTAL-REVENUES> 5,175,844 5,492,811 20,173,508
<CGS> 4,911,106 4,868,158 18,555,266
<TOTAL-COSTS> 4,911,106 4,868,158 18,555,266
<OTHER-EXPENSES> 83,607 454,049 1,486,804
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 129,925 111,040 492,328
<INCOME-PRETAX> 51,206 59,564 (360,890)
<INCOME-TAX> 0 0 5,800
<INCOME-CONTINUING> 51,206 59,564 (366,690)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 51,206 59,564 (366,690)
<EPS-PRIMARY> 0.02 0.02 (0.15)
<EPS-DILUTED> 0.02 0.02 (0.15)
</TABLE>
