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 November 30, 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.
2,429,980 Common Shares were outstanding as of December 31, 1997.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets November 30, 1997 (Unaudited)
and August 31, 1997 3
Consolidated Statements of Operations
Thirteen weeks ended November 30, 1997 and November 24, 1996
(unaudited) 4
Consolidated Statements of Cash Flows
Thirteen weeks ended November 30, 1997 and November 24, 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 5. Exhibits and Reports on Form 8-K 9
Signatures 9
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 30, August 31,
Assets 1997 1997
----------- -----------
Current Assets:
Cash and cash equivalents $ 2,820,202 $ 2,847,598
Accounts receivable 2,713,621 2,545,318
Inventories - work-in-process 1,368,147 1,356,438
Prepaid and other current assets 71,254 89,155
----------- -----------
Total Current Assets 6,973,224 6,838,509
Property, Plant and Equipment 6,160,179 5,952,023
Other Long Term Assets 525 525
----------- -----------
$13,133,928 $12,791,057
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 0 $ 0
Trade accounts payable 1,310,489 1,153,995
Salaries, wages, and withholdings 365,227 411,102
Miscellaneous accrued expenses 1,284,446 1,031,931
Current portion of long-term debt 682,296 1,000,679
----------- -----------
Total Current Liabilities 3,642,458 3,597,707
Long-term Debt, less current portion 2,744,230 2,671,153
Long-term Pension Liability 445,323 467,073
Stockholders' Equity:
Common stock issued, 2,428,980 and
2,428,980 shares respectively 242,898 242,898
Capital in excess of par value 1,528,785 1,528,785
Retained earnings 4,530,234 4,283,441
----------- -----------
Total Stockholders' Equity 6,301,917 6,055,124
----------- -----------
$13,133,928 $12,791,057
=========== ===========
See notes to consolidated financial statements.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 weeks ended
----------------------------
November 30, November 24,
1997 1996
----------- -----------
Net sales $ 5,313,700 $ 5,590,588
Cost of products sold 4,508,624 4,813,720
----------- -----------
Gross margin 805,076 776,868
Selling and administrative expense 526,139 518,187
Interest and other income (21,456) (456,480)
Interest and other expense 44,600 92,573
----------- -----------
Earnings from operations
before income taxes 255,793 622,588
Income taxes 9,000 5,800
----------- -----------
Earnings from operations $ 246,793 $ 616,788
=========== ===========
Net earnings per share $ 0.10 $ 0.25
=========== ===========
Weighted average number of common and
common equivalent shares outstanding 2,544,227 2,458,738
=========== ===========
See notes to consolidated financial statements.
<PAGE>
WASHINGTON SCIENTIFIC INDUSTRIES,INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
13 weeks ended
----------------------------
November 30, November 24,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 246,793 $ 616,788
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of property, plant & equipment -- (432,445)
Depreciation and amortization 279,000 426,961
Increase (decrease) in pension liability (21,750) 2,143
Changes in assets and liabilities:
(Increase) in accounts receivable (168,303) (952,912)
(Increase) decrease in inventories (11,709) 110,847
(Increase) decrease in prepaid expenses 17,901 (7,945)
Increase (decrease) in accounts payable and
accrued expenses 44,751 355,600
----------- -----------
Net cash provided by operating activities 386,683 119,037
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 448,000
Purchases of property, plant & equipment (487,156) (90,988)
----------- -----------
Net cash provided by (used in) investing activities (487,156) 357,012
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt 73,077 (265,123)
Issuance of common stock -- 2,500
----------- -----------
Net cash provided by (used in) financing activities 73,077 (262,623)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (27,396) 213,426
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,847,598 1,642,739
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 2,820,202 $ 1,856,165
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for:
Interest $ 44,579 $ 94,187
Income taxes $ 27,250 $ 2,050
Noncash investing and financing activities:
Aquisition of machinery through capital lease 0 0
</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 November 30, 1997, the
consolidated statements of earnings for the thirteen weeks ended
November 30, 1997 and November 24, 1996 and the consolidated statements
of cash flows for the thirteen 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 November
30, 1997, and November 24, 1996 there was no balance outstanding on the
line of credit under this agreement.
3. EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128,
EARNINGS PER SHARE, which is required to be adopted for the year ending
August 30, 1998. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be
excluded. The impact is expected to result in an increase in basic
earnings per share of $.00 in the quarter ended November 30, 1997 and
$.01 in the quarter ended November 24, 1996. The impact of Statement
128 on the calculation of fully diluted earnings per share for these
quarters is not expected to be material.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
Results of Operations:
Net sales of $5,314,000 for the quarter ending November 30,
1997 decreased $277,000 or 5.0% from the first quarter of the prior
year. Primary changes in sales included a decrease in the small engines
market of $222,000 and a decrease in the industrial compressor market
of $52,000.
Gross margin improved to 15.2% of sales in the first quarter
of fiscal 1998 compared to 13.9% in the prior year's first quarter. The
improved gross margin can be primarily attributed to cost reductions
related to lower headcount, reduced depreciation expense and increased
manufacturing efficiencies.
Selling and administrative expense of $526,000 was comparable
to the first quarter of the prior year.
Interest and other income was $435,000 lower than the
comparable quarter of the prior year. The prior year quarter included
$410,000 net gain from the disposition of excess equipment related to
completed or discontinued manufacturing programs.
Interest and other expense of $45,000 decreased $42,000 from
the prior year's first quarter because of lower term debt balances.
In the first quarter of fiscal 1998, the Company recorded a
$9,000 tax provision to cover mandatory state income taxes and
estimated federal income taxes, and was able to recognize the benefit
of a portion of its net operating loss carryforwards. 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 November 30, 1997, working capital was $3,331,000 compared
to $3,241,000 at August 31, 1997, an increase of $90,000, due primarily
to an increase in accounts receivable. The ratio of current assets to
current liabilities at November 30, 1997 and August 31, 1997 was 1.91
to 1.0 and 1.90 to 1.0, respectively.
On November 30, 1997, the Company did not have a balance due
on notes payable to the bank. As of that date the Company had cash and
cash equivalents of $2,820,202.
<PAGE>
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 result of operation.
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
B. There were no reports on Form 8-K filed for the thirteen
weeks ended November 30, 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: January 9, 1998
/s/ Michael J. Pudil
--------------------------------------
Michael J. Pudil, President & CEO
Date: January 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> 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> 0.00
</TABLE>
