SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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 31,
1996
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to
___________
Commission File: No. 0-2052
GODDARD INDUSTRIES, INC.
(Exact name of registrant as specified in its
charter)
Massachusetts 04-
2268165 (State or other jurisdiction of
(I.R.S. Employer
incorporation or organization) Identification
No.)
705 Plantation Street, Worcester, Massachusetts 01605
(Address of principal executive office) (Zip
Code)
Registrant's telephone number, including area code
(508)8522435
Check whether the registrant (1) filed all reports required
to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 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
State the number of shares outstanding of each of the
issuer's
classes of common stock, as of the latest practicable date.
Title of Each Class of Number of Shares
Outstanding
Common Stock Outstanding at March 31, 1996
Common Stock, $.01 par value 2,038,618
Transitional Small Business Disclosure Format
Yes ___ No _X_
GODDARD INDUSTRIES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1996
and September 30,
1995............................. 3
Consolidated Statement of Income - Six Months
Ended March 31, 1996 and March 31, 1995
.................
4
Consolidated Statement of Cash Flows - Six
Months Ended March 31, 1996 and March 31, 1995
.................
5
Notes to Consolidated Financial Statements.......
6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8
K.................. 13
-2
GODDARD INDUSTRIES, INC. AND
SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
(Unaudited)
March 31,
September 30,
1996
1995
ASSETS
(ALL PLEDGED, NOTE 4)
CURRENT ASSETS:
Cash $
80,131
$ 74,937
Accounts receivable, net of allowances
1,044,535
973,477
Inventories (Note 3)
2,903,349
2,911.234
Prepaid expenses and taxes
58,389
23,018
Deferred income taxes (Note 5)
58,400
56,000
TOTAL CURRENT ASSETS
4,144,804
4,038,666
PROPERTY, PLANT AND EQUIPMENT,
at cost
3,400,295
3,336,001
Less - Accumulated depreciation -
2,484,136 2,385,267
916,159 950,734
OTHER ASSETS:
Excess of cost of investment in subsidiaries
over equity in net assets acquired
20,258
22,136
Deferred income taxes - long term (Note 5)
150,600 139,000
Total other assets
170,858
161,136
TOTAL ASSETS
$5,231,821
$5,150,536
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt (Note 4) $
25,060 $ 109,191
Accounts payable
348,402
305,655
Accrued expenses
306,427
256,631
Income taxes payable
9,279
222,626
TOTAL CURRENT LIABILITIES
689,168
894,103
LONG-TERM DEBT, net of
current maturities (Note 4)
1,122,503 1,092,503
DEFERRED COMPENSATION
532,000
513,000
SHAREHOLDERS' EQUITY:
Common stock - par value $.01 per share;
authorized 3,000,000 shares, issued and
outstanding 2,038,618 shares.
20,386
20,328
Additional paid-in capital
398,612
395,763
Retained earnings
2,469,152
2,234,839
TOTAL SHAREHOLDERS' EQUITY 2,888,150
2,650,930
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
$5,231,821
$5,150,536
-3-
<TABLE>
GODDARD INDUSTRIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF
INCOME
(UNAUDITED)
<CAPTION>
MARCH 31, 1996
MARCH 31, 1995
FOR THE THREE FOR THE SIX FOR THE
THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS
ENDED MONTHS ENDED
<S> <C> <C> <C>
<C>
<C>
<C>
NET SALES $2,056,016 $3,847,258
$1,648,998
$3,054,251
COST OF SALES 1,396,486 2,597,442
1,078,753
2,013,736
GROSS PROFIT 659,530 1,249,816
570,245
1,040,515
SELLING AND ADMINISTRATIVE
EXPENSES 431,923 813,988
389,222
765,053
INCOME FROM OPERATIONS 227,607 435,828
181,023
275,462
OTHER INCOME (EXPENSE):
Interest expense -25,968 -53,972 -
38,439
- -72,907
Other income, net 10,362 17,257
6,267
9,671
TOTAL OTHER INCOME
(EXPENSE) -15,606 -36,715 -
32,172
- -63,236
INCOME BEFORE INCOME TAXES 212,001 399,113
148,851
212,226
PROVISION FOR INCOME TAXES 86,900 164,800
62,500
90,200
NET INCOME $125,101 $234,313
$86,351
$122,026
EARNINGS (LOSS)PER SHARE (Note 7)
Primary
Net Income $0.06 $0.12
$.04
$.06
</TABLE>
-4-
GODDARD INDUSTRIES, INC. AND
SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE
SIX MONTHS
ENDED March 31,
1996
1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $234,313
$122,026
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization
100,747
97,578
Deferred income taxes -
14,000
- -13,700
Changes in assets and liabilities:
Accounts receivable -
71,058
- -24,305
Inventories
7,885
- -360,144
Prepaid expenses and other -
35,371
59,523
Accounts payable
42,747
- -42,756
Accrued expenses
49,796
22,211
Income taxes payable
213,347 47,388
Deferred Compensation
19,000
19,000
Total Adjustments
- -
113,601 -195,205
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
120,712
- -73,179
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions -
64,294
- -50,314
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares 2,907
0
Increase in long-term debt
1,441,000
1,020,000
Repayments of long-term debt -
1,495,131
- -825,622
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES -
51,224
194,378
NET INCREASE IN CASH
5,194
70,885
CASH - BEGINNING
74,937
62,634
CASH - ENDING
$80,131
$
133,519
CASH PAID DURING THE PERIOD:
Interest
$54,181
$
69,294
Income taxes
$402,147
$
11,483
-5-
GODDARD INDUSTRIES, INC. AND
SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS
March 31, 1996
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Reference is made to the financial
statements included
in the Annual Report for the year ended
September 30, 1995
for a summary of significant accounting
policies and other
disclosures.
NOTE 2 BASIS OF PRESENTATION:
The information shown in the consolidated
financial
statements reflects all adjustments which
are,
in the
opinion of management, necessary for a fair
presentation
of the results for the interim period.
NOTE 3 INVENTORIES:
Consolidated inventories are comprised of:
March 31,
September 30,
1996
1995
Finished goods $2,697,398
$2,705,283
Work in process 11,003
11,003
Raw materials 194,948
194,948
$2,903,349
$2,911,234
The following factors were taken into
consideration in
determining inventory values:
Goddard Valve Corp. - March 31, 1996
$1,243,609
(estimated) and September 30, 1995
$1,132,582.
Interim inventories were valued by
management using
the gross profit method.
Webstone Company, Inc. - March 31, 1996
$1,659,740 (estimated) and Sepember
30,1995
- -
$1,778,652. Interim inventory was valued
by management using the gross profit
method. Total inventory is comprised of
finished
goods.
NOTE 4. LONG-TERM DEBT
The Company has available a revolving line of credit
totaling
$1,750,000 bearing interest at the greater of (i) prime
plus 3/4% or
(ii) the Federal Funds Effective Rate plus 1 1/4% per
annum. On
March 31, 1996 the effective interest rate was 9.0%.
The agreement
expires March 30, 1998 and is secured by all property
and assets.
Advances are restricted by certain limitations on
eligible receivables and inventories.
-6-
continued
LONG-TERM OBLIGATIONS (continued)
The credit agreement contains a number of covenants,
the most restrictive of which relate to working
capital,
tangible net worth, and profitability levels, and
restrict
payment of cash dividends to 10% of the immediately
preceding year's net income before taxes.
At March 31, 1996 long-term obligations consisted of
the following:
LONG
TERM CURRENT
Revolving line of credit
$1,087,503
$ -
Capital lease obligations for machinery, payable
in monthly installments of $8,455,
through July 1, 1996, with imputed interest rates
between 7.34%
and 8.02%. -
25,060
Note due 1997, unsecured, interest
at 10%
35,000
- -
$1,122,503 $25,060
NOTE 5 INCOME TAXES
The tax effects of the principal temporary
differences giving
rise to the net current and non-current deferred tax
assets are
as follows:
March 31,
September 30,
1996
1995
Deferred tax asset:
Deferred Compensation $212,800
$205,200
Inventory valuation 39,400
39,000
Accrued Salaries 5,800
5,800
Bad Debts 13,000
11,000
271,000
261,000
Deferred tax liability:
Depreciation 62,000
66,000
$209,000
$ 195,000
Management does not believe that any valuation
allowance is
necessary.
- - 7 -
NOTE 6 CONTINGENCIES
In 1990, the Town of Shrewsbury, Massachusetts commenced
a lawsuit in Massachusetts Superior Court against the
Company and
another corporation, Neles-Jamesbury, alleging that they
had caused
the Town to incur response costs for assessment,
containment and
removal of oil and hazardous materials in relation to
the Town's
Home Farm wells. The Town is seeking approximately $7
million in
damages. The Company is defending itself vigorously
against
this claim and has joined, as third party defendants,
several other
businesses which could be identified as likely to have
used the types
of compounds detected as contaminating the Town's wells.
Motions
for summary judgement were made during 1992 and 1993
resulting
in dismissal of some, but not all, of the Shrewsbury
complaint. In
September 1995, the court issued an order providing for
a single,
unified trial of all claims related to this matter.
Discovery
between the Company and the Town of Shrewsbury, with the
exception of
expert discovery, is complete. Discovery between the
Company, Neles-
Jamesbury, and the third party defendants is ongoing.
All discovery is
to be completed by July 26, 1996 and the trial is
scheduled to begin on
October 7, 1996. The Company and legal counsel are
unable to form an
opinion regarding the outcome of this matter.
Consequently, no loss
provision with respect to this lawsuit has been
recorded.
In connection with a proposed bank financing in 1987,
the Company retained an environmental engineering firm
to perform
a site assessment at its corporate headquarters. The
results of that
assessment revealed that the ground water is
contaminated and that
an off-site source may be introducing the contaminants.
As required by law, the Company notified the
Massachusetts Department of Environmental Protection
(DEP). The DEP has issued a Notice of Responsibility
designating the site as a priority
disposal site. A Phase One Limited Site Investigation
report has
been submitted to the DEP. In November 1995 the Company
received
a Tier I Transition Classification and Permit Statement
Cover Letter
designating the site as a Tier 1C Site under the
Massachusetts
Contingency Plan. Under DEP regulations, the Company
must complete
further site investigaion by November 1997. Until that
investigation is
completed, it is not possible to ascertain the cost, if
any, of
remediation or whether the Company will be able to
obtain reimbursement
for such costs from any third party causing the
contamination or any
insurance carrier. Accordingly, the Company has not
recorded any
provision for loss with respect to this DEP matter.
Several of the Company's insurers are participating in
the Company's defense in both the DEP matter and the
Town of Shrewsbury litigation under a reservation of
rights. The Company's principal insurer has also filed
suit for a declaratory
judgement that they have no duty to defend or indemnify
the Company.
This action is currently stayed.
- -8-
In the event that the Company does not prevail, these
matters could have a material adverse impact on the
Company's
financial condition, results of operations, and
liquidity.
NOTE 7 COMMON STOCK:
Primary earnings per share are computed on a
weighted average number of shares outstanding. Fully
diluted
earnings per share are not presented because the effect
of the
exercise of the stock options would not be dilutive.
-9-
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of
Financial Condition
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED MARCH 31, 1996 COMPARED TO
FISCAL QUARTER ENDED MARCH 31, 1995
Consolidated sales for the fiscal quarter ended March
31, 1996 were
$2,056,000, an increase of 24.7% over the $1,649,000
reported for the
same quarter in 1995. The Valve division sales
increased 16% over last
years March quarter, while the Webstone division enjoyed
an increase of
36%.
For the past several months, the volume of incoming
orders
in both our Valve and Webstone divisions have been at
record levels. This should result in increased sales
for the balance of the
fiscal year. The Company believes that its attention to
quality, its
record of product performance and its efforts toward
superior customer service have all contributed to the
current sales growth.
Selling and Administrative expenses increased from
$389,000 to
$432,000 as a result of increased promotional expense
and travel. As
a percentage of total sales, however, these expenses
decreased from
23.6% to 21.0%.
Net earnings increased to $125,101 (.06/share) for
the March '96
quarter compared to $86,351 (.04/share) for the same
quarter in 1995.
SIX MONTH PERIOD ENDED MARCH 31, 1996 COMPARED WITH
SIX MONTH PERIOD ENDED MARCH 31, 1995
For the six month period ended March 31, 1996, sales
were
$3,847,000 compared to its sales of $3,054,000 the prior
year
(a 26% increase). While both operating divisions share
in the
increase, the Valve division was particularly busy. Its
orders for
new items have increased substantially and as of March
31, 1996
the level of back orders for later delivery
approximately double
that of one year ago.
- 10 -
Inventory levels in both divisions are regularly
monitored. Due
to the special machining of many of the raw materials
consumed in the
Valve division and the foreign location of many of the
suppliers to the
Webstone division, long lead times are required to
obtain many of the
0inventory items. In order to meet customer demand for
timely delivery,
the Company must maintain high inventory levels which
result in fewer
inventory turns. The Company continues to add new
products in an
attempt to increase sales and earnings.
Gross profit margins of 32.5% for the first six
months of 1996,
due to product mix and increased sales, were slightly
less than the
34.1% for last year. Selling and administrative
expenses as a
percentage of total sales dropped from 25.0% in 1995 to
21.2% for the
current period. Interest expense for the period
decreased 26% compared
to 1995.
Net earnings for the first 6 months totaled $234,313,
nearly
double the earnings of $122,026 for the same period of
1995. Earnings per share were $0.12 and $0.06
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities of the Company provided $121,000
of cash
during the six months ended March 31, 1996. Cash was
generated from
earnings ($234,000), depreciation and amortization
($101,000),
increases in account payable ($43,000), and increases in
accrued
expenses ($50,000) while the major uses of cash were
increases in
accounts receivable ($71,000), prepaid expenses
($35,000) and
reductions in income tax liabilities ($234,000).
The cash provided by operating activities was used to
reduce
long-term debt by $54,000 and to invest in new equipment
totaling
$64,000.
The Company presently maintains a line of credit of
$1,750,000
with The First National Bank of Boston collateralized by
substantially
all of the assets of the Company. The agreement expires
on March 30,
1998. On March 31, 1996, approximately $1,088,000 had
been drawn under
that line of credit. The Company believes that the line
of credit
provides sufficient liquidity to handle the normal
working capital
requirements of its present business.
The Company borrows funds for periods of up to five
years for the
purchase of new machinery and meets the required
amortization and
interest payments from its current working capital. The
Company
believes that its future capital requirements for
equipment can be met
from the cash flow from operations, bank borrowings and
other available
sources.
- 11 -
As more fully described in Note 6 to the financial
statements,
the Company is a party to two lawsuits and an
administrative proceeding
relating to environmental matters. At the present time,
because of the
numerous uncertainties which surround the litigation and
administrative
proceedings (including without limitation the origin of
the alleged
contamination, the scope and cost of any required
remediation, the
ability to obtain reimbursement from third parties who
may have caused
the alleged contamination, and the extent of insurance
coverage which
may be available), it is not possible to estimate the
amount of loss,
if any, the Company may incur with respect to these
matters. If the
Company does not prevail either in its defense of the
proceedings or
in its third-party claims for contribution or coverage,
the adverse
resolution of the DEP or Shrewsbury proceedings could
have a material
adverse effect on the financial condition, results of
operations, and
liquidity of the Company.
Inflation has not been a major factor in the
Company's business
for the last several years. There can be no assurance
that this will
continue. The Company's results of operations have not
been materially
affected by seasonality.
- 12 -
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
As more fully described in the Company's Form 10-
KSB for
the year ended September 30, 1995, the Company is a
defendant in a
suit by the Town of Shrewsbury, Massachusetts alleging
that the
defendant caused Shrewsbury to incur various
environmental response costs and a suit by certain of
its prior insurers contesting
coverage for environmental claims under insurance
policies. There have been no material developments in
those cases since the
filing of the Form 10-KSB.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(10)(I) Letter agreement between Company's
subsidiaries and the bank dated
March 31, 1996 modifying banking
arrangement.
(11) Statement Re: Computation of Per
Share Earnings. The information
set forth in Note 7 to the
Financial
Statements found in PART I hereof
is hereby incorporated.
(27) Financial Data Schedule
(b) The Company did not file any reports on Form 8-
K during
the quarter ended March 31, 1996.
- 13 -
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of
1934, the Registrant has duly caused the Report to be
signed on its
behalf by the undersigned thereunto duly authorized.
Dated as of May 14, 1996
GODDARD INDUSTRIES,
INC.
by /s/ Saul I. Reck
Saul I. Reck,
President, Chief
Executive Officer
and Principal
Financial Officer
- 14 -
EXHIBIT (10)
(I) (Bank of Boston/Worcester appears here)
As of March 31,
1996
Goddard Valve Corp.
Webstone Company, Inc.
705 Plantation Street
Worcester, MA 01605
Attention: Saul I. Reck
Ladies and Gentlemen:
Goddard Valve Corp. (the "Company") and Webstone
Company, Inc.
("Webstone") have entered into a certain Consolidating
Revolving and
Term Credit and Security Agreement dated as of January
3, 1991 (as
amended, the "Agreement") with The First National Bank
of Boston
(the "Bank"). Revolving loans made pursuant to the
Agreement are
evidenced by a certain Revolving Loan Note dated as of
January 3, 1991,
as amended (the "Note") in the original principal amount
of $1,600,000
made by the Company and Webstone and payable to the
Bank. The Company
and Webstone have requested, and the Bank has agreed
upon the terms
contained herein, to amend the Agreement as provided
herein. Therefore,
for good and valuable consideration, the receipt of
which is hereby
acknowledged, the Company, Webstone and the Bank hereby
agree as
follows:
I. Amendments to the Agreement
1. Section 1.1 "Revolving Loan Termination Date" is
hereby amended
by deleting therefrom the following: "March 31, 1997"
and substituting
the following therefor: "March 30, 1998". All
references in the
Agreement to "Revolving Loan Termination Date" shall
refer to March 30,
1998.
2. Section 1.1 "Eligible Webstone Inventory" is
hereby amended by
deleting the word "and (ii)" in the seventh and eighth
lines thereof
and inserting the following in lieu thereof:
"(ii) Inventory in the amount of $250,000 which the
Bank, in its
discretion, considers to be slow moving Inventory;
and (iii)"
3. Section 2.10 Commitment Fee is hereby amended by
deleting
"1/2 of 1% per annum" and inserting the following in
lieu thereof:
"1/4 of 1% per annum".
II. Miscellaneous
1. Goddard Industries, Inc. has executed this letter
for the
purpose of acknowledging the terms hereof and affirming
the terms of
its Unlimited Guaranty dated as of January 3, 1991 as of
the date hereof
after giving effect to the amendment provided for
herein.
2. Other than as amended hereby, all terms and
provisions of the
Agreement are ratified and affirmed as of the date
hereof and the
Company and Webstone represent to the Bank that there
has occurred no
Default of Event or Default under the Agreement or the
Note.
3. The Company agrees to pay on demand all costs and
expenses of
the Bank in connection with the preparation, execution,
delivery and
enforcement of this letter, including the fees and
allocation costs
of its in-house counsel.
4. This letter may be executed in counterparts
each of which
shall be deemed to be an original document.
5. Upon receipt of an executed copy of this letter
this letter
shall be deemed to be an amendment to the Agreement
effective as of
the date first written above as an instrument under
seal to be governed
by the laws of The Commonwealth of Massachusetts.
Please evidence your agreement to the foregoing by
having an
authorized officer of each of the Company and Webstone
execute this
letter where indicated below and returning it to the
undersigned.
Very truly yours,
THE FIRST NATIONAL BANK
OF BOSTON
By: /s/ James T.
Paulhus Its: Vice
Presidnet
Acknowledged and Agreed:
GODDARD VALVE CORP.
By: /s/Saul I. Reck
Its: President
WEBSTONE COMPANY, INC.
By: /s/Saul I. Reck
Its: President
GODDARD INDUSTRIES, INC.
By: /s/Saul I. Reck
Its: President
