SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
__ 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)852-2435
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, 1997
Common Stock, $.01 par value 2,049,369
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, 1997
and September 28, 1996 3
Consolidated Statement of Income - Six Months Ended
March 31, 1997 and March 31, 1996 4
Consolidated Statement of Cash Flows - Six Months Ended
March 31, 1997 and March 31, 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
-2-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, September 28,
1997 1996
AUDITED
ASSETS
(ALL PLEDGED, NOTE 4)
CURRENT ASSETS:
Cash $ 109,799 $ 65,951
Accounts receivable, net of allowances 1,475,729 1,154,871
Miscellaneous Receivable 90,000 785,000
Inventories (Note 3) 3,326,163 3,312,449
Prepaid expenses and taxes 51,389 33,809
Deferred income taxes (Note 5) 84,300 82,000
TOTAL CURRENT ASSETS 5,137,380 5,434,080
PROPERTY, PLANT AND EQUIPMENT,
at cost 3,924,527 3,641,818
Less - Accumulated depreciation -2,703,704 -2,589,252
1,220,823 1,052,566
OTHER ASSETS:
Excess of cost of investment in
subsidiaries over equity in net
assets acquired 16,502 18,380
Deferred income taxes (Note 5) 171,000 167,000
Total other assets 187,502 185,380
TOTAL ASSETS $ 6,545,705 $6,672,026
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt (Note 4) $ 117,000 $ 51,000
Accounts payable 435,847 317,321
Accrued expenses 385,690 399,861
Accrued environmental costs (Note 6) 45,000 795,000
Income taxes payable 91,671 191,771
TOTAL CURRENT LIABILITIES 1,075,208 1,754,953
LONG-TERM DEBT, net of
current maturities (Note 4) 1,010,887 1,026,398
DEFERRED COMPENSATION 551,000 551,000
SHAREHOLDERS' EQUITY:
Common stock - par value $.01 per share,
authorized 3,000,000 shares, issued
and outstanding 2,049,369 shares. 20,493 20,401
Additional paid-in capital 406,531 399,353
Retained earnings 3,481,586 2,919,921
TOTAL SHAREHOLDERS'EQUITY 3,908,610 3,339,675
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 6,545,705 $6,672,026
-3-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
March 31, 1997 March 31, 1996
For The Three For the Six For the Three For the Six
Months Ended Months Ended Months Ended Month Ended
NET SALES $2,872,729 $5,862,252 $2,056,016 $3,847,258
COST OF SALES 1,889,681 3,847,002 1,396,486 2,597,442
GROSS PROFIT 983,048 2,015,250 659,530 1,249,186
SELLING AND ADMINISTRATIVE
EXPENSES 537,592 1,040,260 431,923 813,988
INCOME FROM OPERATIONS 445,456 974,990 227,607 435,828
OTHER INCOME (EXPENSE):
Interest expense -23,844 -43,227 -25,968 -53,972
Other income, net 8,787 16,503 10,362 17,257
TOTAL OTHER INCOME
(EXPENSE) -15,057 -26,724 -15,606 -36,715
INCOME BEFORE INCOME TAXES 430,399 948,266 212,001 399,113
PROVISION FOR INCOME TAXES 176,000 386,600 86,900 164,800
NET INCOME $254,399 $561,666 $125,101 $234,313
EARNINGS PER SHARE (Note 7)
Primary $ 0.12 $ 0.26 $ 0.06 $ 0.12
-4-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $561,666 $234,313
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 116,330 100,747
Deferred income taxes -6,300 -14,000
Changes in assets and liabilities:
Accounts receivable -320,858 -71,058
Inventories -13,714 7,885
Miscellaneous receivable 695,000 0
Prepaid expenses and other -17,580 -35,371
Accounts payable 118,526 42,747
Accrued expenses -14,171 49,796
Accrued environmental liability -750,000 0
Income taxes payable -100,100 -213,347
Deferred compensation 0 19,000
Total Adjustments -292,867 -113,601
NET CASH PROVIDED BY
OPERATING ACTIVITIES 268,799 120,712
CASH FLOWS FROM INVESTING ACTIVITIES:
Property,plant and equipment additions -66,881 -64,294
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares 7,270 2,907
Increase in long-term debt 1,616,000 1,441,000
Repayments of long-term debt -1,781,340 -1,495,131
NET CASH (USED IN)
FINANCING ACTIVITIES -158,070 -51,224
NET INCREASE IN CASH 43,848 5,194
CASH AND EQUIVALENTS - BEGINNING 65,951 74,937
CASH AND EQUIVALENTS - ENDING $109,799 $ 80,131
CASH PAID DURING THE PERIOD
Interest $43,100 $ 54,181
Income taxes $493,000 $402,147
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GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 1997
(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 28, 1996 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 28,
1997 1996
Finished goods $3,017,612 $3,003,898
Work in process 21,687 21,687
Raw materials 286,864 286,864
$3,326,163 $3,312,449
The following factors were taken into consideration in
determining inventory values:
Goddard Valve Corp. - March 31, 1997 - $1,834,210
(estimated) and September 28, 1996 - $1,657,426. Interim
inventories were valued by management using the
gross profit method.
Webstone Company, Inc. - March 31, 1997 - $1,491,953
(estimated) and September 28, 1996 - $1,655,023. 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, 1997 the effective interest rate was 9.0%. The
agreement expires March 31, 1999 and is secured by all property and
assets. Advances are restricted by certain limitations on eligible
receivables and inventories.
continued
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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, 1997 long-term debt consisted of the following:
LONG-TERM CURRENT
Revolving line of credit $ 784,503 $ -
Capital lease obligations for machinery,
payable in monthly installments of
$5,274, through July 1, 1999, with
imputed interest rate of 8.936% and
monthly installments of $6,807, through
March 1, 2,000, with imputed interest
rate of 8.441%. 226,364 117,000
$1,010,867 $117,000
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 28,
1997 1996
Deferred tax asset
Deferred compensation $ 220,400 $ 220,400
Inventory valuation 61,200 60,800
Accrued salaries 6,200 6,200
Environmental matters 4,000 4,000
Bad debts 12,900 11,000
304,700 302,400
Depreciation 49,400 53,400
$ 255,300 $ 249,000
Management does not believe that any valuation allowance is
necessary.
-7-
NOTE 6 ENVIRONMENT MATTERS
The Company has been a party to the following environmental
matters:
DEP Matter:
An environmental assessment of the Corporate headquarters in
connection with a proposed bank financing in 1987 revealed
that there may have been a release or threat of release of
oil or hazardous materials and that an off-site source may
be introducing the contaminants. The Company notified the
Massachusetts Department of Environmental Protection (DEP).
In 1995 the site was designated as a Tier 1C Site under the
Massachusetts Contingency Plan and the Company must complete
a further site investigation by November 1997.
One of the Company's insurance carriers has paid the Company
$70,000 to be used as the Company determines in defense of
the DEP proceeding in exchange for a release of any further
claim with respect to this matter. In addition,
environmental engineers employed by the Company estimate
that the required remediation costs will be a minimum of
$45,000.
Shrewsbury matter:
The Shrewsbury environmental litigation was settled in
January, 1997 and the effects of that settlement reflected
in the financial statements for the year ended
September 28, 1996.
In the accompanying financial statements, the miscellaneous
receivable represents amounts due from insurance carriers with
respect to environmental matters and accrued environmental costs
represents amounts due the Town of Shrewsbury and the minimum
estimated remediation costs related to the DEP matter.
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.
-8-
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial
Condition
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED MARCH 31, 1997 COMPARED TO
FISCAL QUARTER ENDED MARCH 31, 1996
Goddard enjoyed a productive second quarter with sales and earnings
well ahead of last year. For the quarter ended March 31, 1997
consolidated sales were $2,873,000, a 39.7% increase over the same
quarter for the prior year. During the preceding 12 months, the order
backlog in the Valve division had reached record levels and delivery
times had lengthened. The Company purchased additional new machinery
and added a second shift, enabling it to increase levels of production,
shorten the delivery time for new orders, and increase revenues. As a
result of this increased output, backlog has been reduced.
Gross profits as a percentage of sales increased from 32% to 34.2%
over the corresponding quarter of the prior year, primarily as a result
of larger orders and changes in product mix. Selling and administrative
expenses as a percentage of sales declined to 18.7% in the quarter ended
March 31, 1997 compared to 21% for the same quarter of fiscal 1996, as
those expenses did not increase at the same rate as sales.
As a result of the increase in sales volume, improved operating
efficiencies and changes in product mix, income from operations almost
doubled to $446,000 for the quarter ended March 31, 1997, compared to
$228,000 in the same quarter of fiscal 1996. Earnings, at $254,000
($.12/share), were approximately double the $125,000 earnings
($.06/share) reported for the same quarter in fiscal 1996.
While the order backlog in the Valve division has been reduced as
a result of the Company's improved output, the growth in the level of
new orders experienced over the last few quarters appears to have
leveled off. Management anticipates that new product lines now in the
prototype stage which are being developed for the Valve division will
enter production late this year, and that these lines will increase
sales volume. Management believes that the development of these new
lines reflecting advanced product design, together with the Company's
emphasis on prompt, dependable service, help the Company maintain its
competitive position as a leader in the cryogenic valve industry. The
Webstone Division also has been adding new plumbing items and an array
of high styled faucets to its product offerings, which will be
introduced when its new catalog is published for national distribution
in mid-May 1997.
- 9 -
SIX MONTH PERIOD ENDED MARCH 31, 1997 COMPARED TO
SIX MONTH PERIOD ENDED MARCH 31, 1996
Both sales and earnings for the six months ended March 31, 1997
were up substantially over the same period last fiscal year.
Consolidated sales for the six month period ended March 31, 1997 were
$5,862,000, a 52.4% increase over the $3,847,000 recorded for the same
period in fiscal 1996. The increase in sales resulted from larger
blanket orders received in prior periods and sales of recently developed
product lines, as well as increased production in the most recent
quarter.
Gross profits as a percentage of sales increased to 34.4% for the
six month period ended March 31, 1997, compared to 32.4% for
corresponding period of fiscal 1996, reflecting the economies involved
in larger orders and favorable product mix. Selling and administrative
expenses as a percentage of sales declined from 21.1% in the first six
months of fiscal 1996 to 17.7% in the first six months of fiscal 1997,
as those expenses did not increase proportional to increased sales.
Income from operations as a percentage of sales increased from
11.3% in the first six months of fiscal 1996 to 16.6% in the first six
months of fiscal 1997, reflecting the improved operating efficiencies,
economy of larger orders, favorable product mix and increased output.
As a result, net income during the six month period improved to $562,000
(or $.26 per share) compared to $234,000 (or $.12 per share) for the
same period of fiscal 1996, a 140% increase.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded operations primarily through
earnings and bank borrowings. At March 31, 1996, the Company had net
working capital of approximately $4,062,000, including $110,000 in cash.
The Company also had a line of credit of $1,750,000 from BankBoston
collarteralized by substantially all of the assets of the Company. At
March 31, 1997, approximately $785,000 have been drawn under the line of
credit, which bears interest at a rate equal to the bank's prime rate
plus 3/4s of 1%.
During the first six months of fiscal 1997, operating activities
of the Company provided $269,000 of cash. Cash was generated
principally from earnings ($562,000), increases in accounts payable
($119,000) and depreciation and amortization ($116,000). The principal
uses of cash were increases in accounts receivable ($321,000), decreased
tax liabilities ($100,000) and net environmental settlement obligations
($55,000).
During the six month period, the Company used approximately
$67,000 to purchase machinery and equipment, and repayment of financing
consumed approximately $158,000.
- 10 -
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 plans
to add an additional 10,000 square feet of manufacturing and warehouse
space to the rear of its existing building in Worcester. Its lending
bank has agreed to allow it to finance the addition using moneys
available under the existing line of credit. The Company believes that
the remaining amounts available under its line of credit after that
borrowing, plus cash flow from operations and other available sources,
should provide sufficient liquidity to handle the normal working capital
requirements of its present business.
As described in Note 6 to the financial statements, the Company is
a party to an administrative environmental proceed which the Company
does not anticipate will have a material effect on the Company's
financial resources.
Inflation has not been a factor in the Company's business for the
last several years, although there can be no assurance that this will
continue to be the case. The Company's results of operations have not
been materially affected by seasonality.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-QSB contains certain
"forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the
use of forward looking terminology such as "may", "will", "expect",
"anticipate", "believe", "intend", "estimate" or other variations or
comparable terminology. All forward looking statements involve risks
and uncertainties, and actual results could differ materially from those
set forth in the forward looking statements. Some of the principal
factors which could affect the Company's future operations include the
loss of or decline in level of orders from a major customer, the failure
of the market to accept the new product lines being introduced by the
Valve division and the Webstone division in the coming months, and
changes in general economic conditions.
- 11 -
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no further developments in the DEP environmental
proceeding from those described in the Company's Form 10-QSB for the
year ended September 28, 1996.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(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, 1997.
-12-
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 9, 1997
GODDARD INDUSTRIES, INC.
by/s/Saul I. Reck
Saul I. Reck, President
Chief Executive Officer
and Principal Financial
Officer