UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997.
Commission file number 0-1388:
WATERS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter.)
(d/b/a Waters Corporation)
Minnesota 41-0832194
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2411 Seventh Street NW
Rochester, Minnesota 55901
(Address of principal executive offices)
(507) 288-7777
(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $.10 Par Value - 1,462,271 shares outstanding as of November 13,
1997.
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
WATERS INSTRUMENTS, INC.
Statement of Operations
(Thousands, except per share data)
<CAPTION>
<S> <C> <C>
For The For The
Three Three
Months Months
Ended Ended
September September
30, 1997 30, 1996
(Unaudited) (Unaudited)
NET SALES $ 4,000 $ 3,925
COST OF GOODS SOLD 2,712 2,766
--------- -----------
GROSS PROFIT 1,288 1,159
OPERATING EXPENSES
Administrative 366 409
Selling 519 370
Research and Development 114 98
-------- ----------
Total Operating Expenses 999 877
-------- ----------
OPERATING INCOME 289 282
OTHER INCOME (EXPENSE)
Net Interest Income (Expense) 22 19
Net Other Income (Expense) 5 (3)
-------- ----------
INCOME BEFORE INCOME TAX 316 298
INCOME TAX PROVISION 119 120
-------- ----------
NET INCOME 197 178
EARNINGS PER COMMON SHARE $ 0.13 $ 0.12
Weighted Average Number of 1,462,271 1,462,271
Shares Outstanding
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
WATERS INSTRUMENTS, INC.
Balance Sheet
(Thousands)
<CAPTION>
<S> <C> <C>
September 30, June 30,
1997 1997
(Unaudited) (Unaudited)
Current Assets
Cash & Cash Equivalents $ 2,082 $ 1,632
Net Trade Receivables 1,733 1,955
Inventories 1,853 1,772
Prepaid Expenses 97 115
Deferred Income Taxes 250 250
----------- ------------
Total Current Assets 6,015 5,724
Fixed Assets
Property, Plant & Equipment 4,834 4,743
Less Accumulated Depreciation 3,317 3,219
----------- ------------
Net Fixed Assets 1,517 1,524
Other Assets 3 3
Goodwill 76 80
----------- ------------
TOTAL ASSETS $ 7,611 $ 7,331
Current Liabilities
Current Maturities of Long-term Debt $ 5 $ 5
Accounts Payable 599 645
Accrued Salaries, Wages and Other Compensation 520 392
Product Warranties 229 229
Accrued Other Expenses 218 215
----------- ------------
Total Current Liabilities 1,571 1,486
Long-term Debt, Less Current Maturities 33 34
Deferred Income Taxes 50 50
----------- ------------
TOTAL LIABILITIES 1,654 1,570
----------- ------------
Stockholders' Equity
Common Stock 146 146
Additional Paid-in Capital 1,246 1,246
Retained Earnings 4,565 4,369
TOTAL STOCKHOLDERS' EQUITY 5,957 5,761
----------- ------------
TOTAL LIABILITIES & EQUITY $ 7,611 $ 7,331
----------- ------------
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
WATERS INSTRUMENTS, INC.
Statement of Cash Flows
(Thousands)
<CAPTION>
<S> <C> <C>
For the For the
Three Three
Months Months
Ended Ended
September September
30, 1997 30, 1996
(Unaudited) (Unaudited)
----------- ------------
CASH FLOWS FROM OPERATIONS
Cash received from customers $ 4,219 $ 4,399
Interest received 23 20
----------- ------------
Cash provided from operations 4,242 4,419
Cash paid to suppliers and employees 3,582 3,544
Taxes paid 116 30
Interest paid 1 1
---------- ------------
Cash disbursed from operations 3,699 3,575
Net cash provided (used) for operations 543 844
CASH FLOWS FROM INVESTING
Net aquisition of fixed assets (91) (111)
---------- -----------
Net cash used for investing (91) (111)
CASH FLOWS FROM FINANCING
Reduction of Long-Term Debt (2) (2)
---------- -----------
Net cash used for financing (2) (2)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 450 731
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,632 964
---------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,082 $ 1,695
RECONCILIATION OF NET INCOME TO
NET CASH FROM (USED FOR) OPERATIONS:
Net Income $ 197 $ 178
Depreciation and Amortization 102 86
Provisions For Losses On Accounts Receivable 3 3
CHANGES IN ASSETS AND LIABILITIES:
Accounts Receivable 219 478
Inventories (81) 284
Prepaid Expenses and Deferred Income Taxes 18 (55)
Accounts Payable and Accrued Expenses 85 (130)
---------- ------------
NET CASH FROM (USED FOR) OPERATIONS $ 543 $ 844
<FN>
See Note to Financial Statements
</FN>
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
WATERS INSTRUMENTS, INC.
(d/b/a Waters Corporation)
Note to Financial Statements
September 30, 1997
The financial statements have been prepared by Waters Corporation, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished in the financial statements
includes normal recurring adjustments and reflects all adjustments, which are,
in the opinion of management, necessary for a fair presentation of such
financial statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements are read in
conjunction with the financial statements and the accompanying notes included
in the Company's latest Annual Report.
The marketable securities included as cash equivalents on the balance sheet and
cash flow statements meet the definition of cash equivalents set forth in
paragraph 8 and 9 of SFAS95.
<TABLE>
<CAPTION>
Inventories consisted of the following:
<S> <C> <C>
September 30, 1997 June 30, 1997
Raw Materials $1,520,000 $1,350,000
Work-In-Process 199,000 256,000
Finished Goods 134,000 166,000
---------- ----------
Total Inventories $1,853,000 $1,772,000
</TABLE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Requirements
The Company's working capital position at September 30, 1997 was $4,444,000, a
4.9% increase from the $4,238,000 amount at June 30, 1997. The cash balance for
the Company was $2,082,000 at September 30, 1997 compared to the
cash balance of $1,632,000 at June 30, 1997. In December 1996, the Company
renewed the bank's $1,000,000 line of credit commitment and extended it to
December 16, 1997. The bank's line of credit charges interest at the bank's
base (prime) rate. The prime rate was 8.50% at September 30, 1997. The
Company has not borrowed against the line of credit during Fiscal Year 1998.
The Company believes that its existing funds, cash generated from operations,
and short-term borrowing under the Company's line of credit will be adequate to
meet the Company's foreseeable operating activities and outlays for
capital expenditures. The Company has not been charged a commitment fee on the
bank line of credit.
<PAGE>
PART I FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
Capital expenditures were $91,000 for the quarter ended September 30, 1997.
The Company estimates that capital expenditures for the three remaining
quarters of the current Fiscal Year will approach $425,000 in total. The
Company anticipates continued improvements in its overall efficiency and
information systems of the corporation as a result of these capital
expenditures. On October 23, 1997, at a regularly scheduled meeting of the
Company's Board of Directors, the Board approved a cash dividend.
A dividend of $.04 per share of the Company's common stock will be paid on
or about December 8, 1997 to shareholders of record on November 7, 1997.
Results of Operations
Net sales for the quarter ended September 30, 1997 were $4,000,000, an increase
of 2% when comparing to the comparable quarter of the prior year.
Waters Medical Systems had net sales of $466,000 for the quarter ended
September 30, 1997, an increase of 13% over the comparable quarter of the
prior year. The Company has experienced increased demand for its existing
oximetry units that determine whole blood oxygen saturation levels during
catheterization and other invasive procedures. The Company believes the
higher demand for its oximetry units is primarily due to the easing of
capital budget constraints by hospitals and clinics. The Company anticipates
higher revenues for Waters Medical Systems for the remainder of FY1998 over
the prior year due to the demand for the recently released RM3 Renal
Preservation Monitor. The Company expects to exceed projected sales
expectations for the RM3, which the Company believes is the first
device for pulsatile preservation of any organ to have received FDA marketing
approval. Shipments of the RM3 are anticipated to begin in November 1997 to
satisfy existing customer orders. The RM3 Renal Preservation Monitor was the
subject of a news release made by the Company on October 17, 1997.
Net sales for American FarmWorks for the quarter ended September 30, 1997 were
$2,522,000. This represents a decrease of 3% when comparing to the comparable
quarter of the prior year. The Company anticipates a slight
softening in demand to continue through the second quarter of FY1998 due to
industry declines in demand for electric fencing products. To offset the
decline, the Company is aggressively marketing new products introduced in
FY1997 along with the new products scheduled for release during FY1998. In
addition, the Company is developing a global presence through development of
distribution channels in targeted locations in Central America and Europe.
Waters Technical Systems' net sales were $504,000 for the quarter ended
September 30, 1997, representing an increase of 5.4% over the previous year.
The net sales increase was primarily due from business at two new accounts
that are expected to grow in the subsequent quarters of Fiscal Year 1998. The
Company continues to focus heavily on improving the efficiency of its
manufacturing processes and anticipates improving profitability of this
business unit.
Waters Network Systems' net sales increased 21% to $508,000 for the quarter
ending September 30, 1997 from $421,000 during the same period ending
September 30, 1996. The Company expects the sales in the Network Systems'
division to grow at a significant rate for the remaining year dur primarily
to the Company's increased investment in the sales process to address the
growing needs of the K-12 educational market. With the projected increased
sales coverage, expanded distribution, and a further broadening of its
product offering, the Company anticipates investments will result in stronger
sales growth in the future.
For the quarter ended September 30, 1997, gross profit improved to 32.2% of
net sales, up from 29.5% reported for the comparable period of last year.
Continued improvements on key manufacturing metrics have resulted in
significant reductions in product cost within the entire organization, but
principally in the American FarmWorks' business unit.
Operating expenses were $999,000 for the quarter ended September 30, 1997,
representing an increase of $122,000 from the comparable figure of $877,000
for the prior year. Such an increase resulted from the Company's continued
efforts to finance future growth opportunities by pursing strategic business
partnerships, aggressively marketing new products and creating a global
presence through the development of distribution channels.
<PAGE>
PART I FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
Net income, for the quarter ended September 30, 1997, increased 10.7% for a
profit of $197,000, or $.13 per share, on revenues of $4,000,000. For the
comparable quarter of the prior year, the Company had a profit of $178,000, or
$.12 per share, on revenues of $3,925,000.
Certain statements in this Managements Discussion and Analysis are forward-
looking that involve a number of risks and uncertainties which may cause the
Company's future operations and results of operations to differ
materially from those anticipated in this report. Specifically, statements
relating to the demand for and expected revenue from the RM3 Renal Preservation
Monitor, new product development and marketing within the American
FarmWorks' unit, and expected revenue levels for each business unit are subject
to the risks of uncertainty with respect to product acceptance and product
demand, as well as fluctuations in the price of raw materials, competition,
and facilities utilization. These statements are based upon current
expectations and actual reports may differ materially from those predicted.
PART-II OTHER INFORMATION
Item 1. Legal Proceedings. None
It4m 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27 Financial Data Schedule (submitted only in electronic format).
(B) No report on Form 8-K was filed during the period covered by this
report.
In accordance with the requirements of the Securities Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WATERS INSTRUMENTS, INC.
By: /S/ Jerry Grabowski
Jerry W. Grabowski
President, CEO
November 13, 1997
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Sep-30-1997
<CASH> 2,082
<SECURITIES> 0
<RECEIVABLES> 1,768
<ALLOWANCES> 35
<INVENTORY> 1,853
<CURRENT-ASSETS> 6,015
<PP&E> 4,834
<DEPRECIATION> 3,317
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<CURRENT-LIABILITIES> 1,571
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<COMMON> 146
0
0
<OTHER-SE> 5,811
<TOTAL-LIABILITY-AND-EQUITY> 7,611
<SALES> 4,000
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<CGS> 2,712
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<NET-INCOME> 197
<EPS-PRIMARY> .13
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</TABLE>
