UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 1-4433.
ARMATRON INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1052250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Main Street
Melrose, Massachusetts 02176
(Address of principal executive offices) (Zip Code)
(781) 321-2300
(Registrant's telephone number, including area code)
N/A
(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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares of Common Stock
(par value $1) outstanding at July 31, 1998 is 2,459,749 shares.
ARMATRON INTERNATIONAL, INC.
File No. 1-4433
----------------------------
PAGE(S)
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1998 and 1997, and September 30, 1997 3 - 4
Consolidated Condensed Statements of
Operations for the three and nine months
ended June 30, 1998 and 1997 5
Consolidated Condensed Statements of
Cash Flows for the nine months ended
June 30, 1998 and 1997 6
Notes to Consolidated Condensed Financial
Statements 7 - 11
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12 - 17
PART II - OTHER INFORMATION
Item 6(b) Reports on Form 8-K 18
SIGNATURES 19
Page 2
ARMATRON INTERNATIONAL, INC.
Consolidated Condensed Balance Sheets
June 30, 1998 and 1997, and September 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, September 30,
--------------- -------------
1998 1997 1997
---- ---- ----
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 729 $ 679 $ 1,126
Trade accounts receivable, net 4,635 3,530 2,389
Inventories 2,404 3,282 2,711
Deferred taxes 113 130 113
Prepaid and other current assets 180 235 165
----------------------------------
Total Current Assets 8,061 7,856 6,504
PROPERTY AND EQUIPMENT, NET 489 592 589
OTHER ASSETS 107 107 171
----------------------------------
Total Assets $ 8,657 $ 8,555 $ 7,264
==================================
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
Page 3
ARMATRON INTERNATIONAL, INC.
Consolidated Condensed Balance Sheets
June 30, 1998 and 1997, and September 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, September 30,
--------------- -------------
1998 1997 1997
---- ---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable 1,763 1,977 695
Interest payable to related parties 1,274 796 917
Other current liabilities 1,000 961 908
Current portion under capital
lease obligations 20 17 18
----------------------------------
Total Current Liabilities 4,057 3,751 2,538
----------------------------------
LONG-TERM DEBT, RELATED PARTIES 4,715 4,715 4,715
----------------------------------
LONG-TERM CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT PORTION 15 35 30
----------------------------------
DEFERRED RENT, NET OF CURRENT PORTION 24 42 38
----------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $1 per
share, 6,000,000 shares author-
ized; 2,606,481 shares issued
at June 30, 1998 and 1997,
and September 30, 1997 2,606 2,606 2,606
Additional paid-in capital 6,770 6,770 6,770
Accumulated deficit (9,144) (8,978) (9,047)
----------------------------------
232 398 329
Less:
Treasury stock at cost,146,732 shares
at June 30, 1998 and 1997, and
September 30, 1997 386 386 386
----------------------------------
Total Stockholders'(Deficiency)
Equity (154) 12 (57)
----------------------------------
Total Liabilities and
Stockholders' (Deficiency)
Equity $ 8,657 $ 8,555 $ 7,264
==================================
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
Page 4
ARMATRON INTERNATIONAL, INC.
Consolidated Condensed Statements of Operations
for the Three and Nine Months Ended June 30, 1998 and 1997
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 6,046 $ 5,267 $ 10,458 $ 10,350
Cost of products sold 4,556 3,792 8,401 8,251
Selling, general and
administrative expenses 766 760 1,807 1,937
Interest expense-related parties 119 121 357 359
Interest expense-third parties 8 38 24 57
Other (income) expense - net (4) (2) (34) (37)
---------------------------------------------------
Net income (loss) $ 601 $ 558 $ (97) $ (217)
===================================================
Per Share:
Net income (loss) $ .24 $ .23 $ (.04) $ (.09)
===================================================
Weighted average number of
common shares outstanding 2,459,749 2,459,749 2,459,749 2,459,749
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
Page 5
ARMATRON INTERNATIONAL, INC.
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended June 30, 1998 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
June 30,
------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (97) $ (217)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Depreciation and amortization 213 241
Change in operating assets
and liabilities (373) (995)
------------------
Net cash flow used for
operating activities: (257) (971)
------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of equipment - 2
Payments for machinery and equipment (127) (196)
------------------
Net cash flow used for
investing activities: (127) (194)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on capital lease obligations (13) (5)
------------------
Net cash flow used for
financing activities: (13) (5)
------------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (397) (1,170)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,126 1,849
------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 729 $ 679
==================
SUPPLEMENTAL INFORMATION:
Interest paid - related parties $ - $ -
Interest paid - third parties $ 23 $ 58
Income taxes paid $ - $ -
Non-cash investing and
financing activities:
Capital expenditures financed
by capital lease $ - $ 57
==================
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
Page 6
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
1. NATURE OF BUSINESS
------------------
The Company operates principally in two segments, the Consumer
Products segment and the Industrial Products segment. Operations in
the Consumer Products segment involve the manufacture and distribution
of Flowtron leafeaters, bugkillers, yard carts, storage sheds and dog
houses which comprised 94% and 97% of the Company's net sales for the
nine months ended June 30, 1998 and for the year ended September 30,
1997, respectively. The Company distributes its consumer products
primarily to major retailers throughout the United States, with some
products distributed under customer labels. Substantially all of the
Consumer Products segment's sales and accounts receivable related to
business activities with such retailers. The Industrial Products
segment manufactures electronic obstacle avoidance systems for
transportation and automotive applications and markets these systems
under the trademark "ECHOVISION". There are no intercompany sales
between segments.
2. OPINION OF MANAGEMENT
---------------------
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments(including
normal recurring adjustments) necessary to present fairly the
consolidated financial position as of June 30, 1998 and 1997, and
September 30, 1997, and the consolidated statements of operations for
the three and nine months ended June 30, 1998 and 1997 and the
consolidated statements of cash flows for the nine months ended June
30, 1998 and 1997. Certain reclassifications have been made to prior
period amounts to conform with the current period presentation. These
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1997. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The year-end balance sheet
data was derived from audited financial statements, but does not
include disclosures required by generally accepted accounting
principles. The accompanying unaudited, consolidated condensed
financial statements are not necessarily indicative of future trends
or the Company's operations for the entire year.
3. REVENUE RECOGNITION
-------------------
Revenue from product sales is recognized at the time the products are
shipped. Following industry trade practice, the Company's Consumer
Products segment offers extended payment terms for delivery of
seasonal items. Sales terms for the Industrial Products segment are
30 days net.
Provisions are recorded for estimated sales allowances and incentives
related to volume and program incentives offered to the Company's
various customers.
Page 7
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
4. USE OF ESTIMATES
----------------
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
5. CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade accounts
receivable. If any of the Company's major customers fail to pay the
Company on a timely basis, it could have a material adverse effect on
the Company's business, financial condition and results of operations.
For the nine months ended June 30, 1998, Sears, Roebuck and Co. and
Home Depot, Inc. accounted for approximately 30% and 11% of the
Company's net sales, respectively. At June 30, 1998, these customers
accounted for approximately 55% of the Company's trade accounts
receivable balance.
For the year ended September 30, 1997, Sears, Roebuck and Co. and Home
Depot, Inc. accounted for approximately 32% and 10% of the Company's
net sales, respectively. At September 30, 1997, these customers
accounted for approximately 57% of the Company's trade accounts
receivable balance.
For the nine months ended June 30, 1997, Sears, Roebuck and Co. and
Home Depot, Inc. accounted for approximately 43% and 11% of the
Company's net sales, respectively. At June 30, 1997, these customers
accounted for approximately 57% of the Company's trade accounts
receivable balance. The Company's export sales are not significant.
6. MAJOR SUPPLIERS
---------------
The Company had purchased its plastic storage sheds, yard carts and
dog houses from one supplier. In July 1998, the Company obtained
another supplier for its yard carts. The Company has transferred its
production molds for yard carts to this supplier. Management does not
believe the change to this new supplier will adversely affect the
Company's performance. These suppliers manufacture the Company's
products in accordance with the Company's designs and specifications.
The Company believes that other suppliers could provide the required
products although comparable terms may not be realized. A change in
suppliers could cause a delay in scheduled deliveries of the products
to the Company's customers and a possible loss of revenue, which would
adversely affect the Company's results of operations.
Page 8
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
7. YEAR 2000 DATE CONVERSION
-------------------------
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures
due to processing errors potentially arising from calculations using
the Year 2000 date are a known risk. The Company is addressing this
risk as to the availability and integrity of financial systems and the
reliability of operational systems. The Company is evaluating the
risks and costs associated with this problem. The computing portfolio
was identified, an initial assessment has been completed, and initial
conversion efforts are underway. The cost of achieving Year 2000
compliance is estimated to be approximately $100,000 over the cost of
normal software upgrades and computer equipment replacements and will
be incurred through fiscal 1999. The Company intends to finance
substantially all such costs through leasing arrangements.
8. CASH
----
The Company maintains its cash in bank deposit accounts that, at
times, may exceed Federally insured limits and in deposit accounts at
its commercial finance company. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to
any significant credit risk on cash and cash equivalents.
9. INVENTORIES
-----------
Inventories are stated on a first-in, first-out (FIFO) method at the
lower of cost or market and consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
(Unaudited) (Audited)
June 30, September 30,
1998 1997 1997
----------------------------------
<S> <C> <C> <C>
Purchased Components $1,658 $2,032 $1,680
Work in Process 22 29 21
Finished Goods 724 1,221 1,010
-------------------------------
$2,404 $3,282 $2,711
===============================
</TABLE>
10. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
----------------------------------------------
Property and equipment are stated at cost. Depreciation is computed
based upon the estimated useful lives of the various assets using the
straight-line method with annual rates of depreciation of 10 to 33
1/3%. Capitalized tooling costs are amortized over three years.
Leasehold improvements are amortized over the lesser of the term of
the lease or the estimated useful life of the related assets. Tooling
and molding costs are charged to a deferred cost account, prepaid
tooling, as incurred, until the tool or mold is completed. Upon
completion the costs are transferred to a property/equipment account.
Page 9
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
Maintenance and repairs are charged to operations as incurred.
Renewals and betterments, which materially extend the life of assets,
are capitalized and depreciated. Upon disposal, the asset cost and
related accumulated depreciation are removed from their respective
accounts. Any resulting gain or loss is reflected in earnings.
11. OTHER CURRENT LIABILITIES
-------------------------
Other current liabilities consist of the following as of:
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, September 30,
--------------- -------------
1998 1997 1997
<S> <C> <C> <C>
Salaries, commissions
and benefits....................... $ 514 $390 $399
Sales allowances and incentives..... 115 - 163
Professional fees................... 94 92 78
Warranty costs...................... 71 62 37
Advertising costs................... 110 152 82
Other............................... 96 265 149
----------------------------
$1,000 $961 $908
============================
</TABLE>
12. DEBT
----
Long-Term Debt With Related Parties
-----------------------------------
The Company has a $7,000,000 line of credit with a realty trust
operated for the benefit of the Company's principal shareholders.
This line of credit, with interest at 10%, requires monthly payments
of interest only, is payable in full in October 1998, and is
collateralized by all assets of the Company. The Company had
$4,715,000 outstanding under this line of credit at June 30, 1998.
Repayment of this line of credit is subordinate to the repayment of
any and all balances outstanding on the revolving line of credit
described below. At June 30, 1998 interest payments totaling
$1,274,000 were in arrears for the period November 1, 1995 to June 30,
1998. On July 28, 1998 the Company received a waiver for the covenant
violation as to the interest payments. The waiver extends the due
date as to the interest payments until June 30, 1999. The Company
plans to renew its line of credit with the realty trust operated for
the benefit of the Company's principal shareholders under terms and
conditions similar to existing terms and conditions prior to October
1998 and does not anticipate any problems or delays.
Page 10
ARMATRON INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
Note Payable
------------
The Company has a $3,500,000 revolving line of credit with a
commercial finance company, which permits combined borrowings up to
$3,500,000 in cash and letters of credit. This line of credit is
collateralized by all the assets of the Company and expires in
December 1999. The terms of this agreement include a borrowing limit
which fluctuates depending on the levels of accounts receivable and
inventory which collateralize the borrowings. The agreement contains
various covenants pertaining to maintenance of working capital, net
worth, restrictions on dividend distributions and other conditions.
Interest on amounts outstanding is payable on a monthly basis at 1
3/4% over the commercial base rate. The commercial base rate was 8.5%
at June 30, 1998. At June 30, 1998 the Company did not have letters
of credit or borrowings outstanding and approximately $3,404,000 was
available, pursuant to the borrowing formula, under this credit
agreement.
13. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." These
pronouncements are effective for fiscal years beginning after December
15, 1997. The Company does not believe that these new pronouncements
will have a material effect on its financial statements.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." The Company does not believe
that this pronouncement will have a material impact on its business or
results of operations.
Page 11
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
OVERVIEW
- --------
The Company operates principally in two segments, the Consumer Products
segment and Industrial Products segment. Operations in the Consumer
Products segment involve manufacture and distribution of Flowtron leaf-
eaters, bugkillers, yard carts, storage sheds, and dog houses which
comprised 94% and 97% of the Company's net sales for the nine months ended
June 30, 1998 and for the year ended September 30, 1997, respectively. The
Company distributes its consumer products primarily to major retailers
throughout the United States, with some products distributed under customer
labels. Substantially all of this segment's sales and accounts receivable
related to business activities with such retailers. The Industrial Products
segment manufactures electronic obstacle avoidance systems for
transportation and automotive applications and markets these systems under
the trademark "ECHOVISION". There are no intercompany sales between
segments.
For the nine months ended June 30, 1998, Sears, Roebuck and Co. and Home
Depot, Inc. accounted for approximately 30% and 11%, respectively, of the
Company's net sales. At June 30, 1998, these customers accounted for
approximately 55% of the Company's trade accounts receivable. If any of the
Company's major customers fail to pay the Company on a timely basis, it
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company had purchased its plastic storage sheds, yard carts and dog
houses from one supplier. In July 1998, the Company obtained another
supplier for its yard carts. The Company has transferred its production
molds for yard carts to this new supplier. Management does not believe the
change to this new supplier will adversely affect the Company's performance.
These suppliers manufacture the Company's products in accordance with the
Company's designs and specifications. The Company believes that other
suppliers could provide the required products although comparable terms may
not be realized. A change of suppliers could cause a delay in scheduled
deliveries of the products to the Company's customers and a possible loss of
revenue, which would adversely affect the Company's results of operations.
FORWARD-LOOKING STATEMENTS
- --------------------------
Management's discussion and analysis of the results of operations and
financial conditions and other sections of this report contain forward-
looking statements" about its prospects for the future. Such statements are
subject to certain risks and uncertainties, which could cause actual results
to differ materially from those, projected. Such risks and uncertainties
include, but are not limited to the following:
Page 12
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
* The Company's consumer products business is cyclical and is affected
by weather and some of the same economic factors that affects the
consumer and lawn and garden industries generally, including interest
rates, the availability of financing and general economic conditions.
In addition, the lawn and garden products manufacturing business is
highly competitive. Actions of competitors, including changes in
pricing, or slowing demand for lawn and garden products due to general
or industry economic conditions or the amount of inclement weather
could result in decreased demand for the Company's products, lower
prices received or reduced utilization of plant facilities.
* Increased costs of raw materials can result in reduced margins, as can
higher transportation and shipping costs. Historically, the Company
has been able to pass some of the higher raw material and
transportation costs through to the customer. Should the Company be
unable to recover higher raw material and transportation costs from
price increases of its products, operating results could be lower than
projected.
* If progress in manufacturing of products is slower than anticipated or
if demand for products produced does not meet current expectations,
operating results could be adversely affected.
* If the success of the Company in strengthening its relationship with
its customers, growing sales at targeted accounts, and expanding
geographically area not realized, operating results could be adversely
affected.
* If the Company's loses any of its major customers, operating results
would be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary cash requirements are for operating expenses,
including labor costs, raw material purchases and funding of accounts
receivable. Historically, the Company's sources of cash have been
borrowings from banks and finance companies and notes from a realty trust
which is operated for the benefit of the Company's principal shareholders.
During the nine months ended June 30, 1998, operating activities used cash
of approximately $257,000 primarily due to an increase in accounts
receivable of $2,246,000, offset by a decrease of inventories of $307,000,
increases in accounts payable of $1,068,000, interest payable of $357,000
and other current liabilities of $92,000 and the net loss of $97,000.
Page 13
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
The Company's Consumer Products segment is subject to seasonal fluctuations.
The Company manufacturers its products primarily in the first three quarters
of its fiscal year with most shipments of the products occurring in the
third quarter of the Company's fiscal year. Due to the timing as to the
production and shipment of the Company's products it is common for the
accounts receivable to increase during the third quarter of its fiscal year.
Inventories are generally built up during the first six months of the fiscal
year such that the Company will have the necessary products available for
timely shipments to its customers during the Company's third and fourth
quarters of its fiscal year. In addition, accounts payable and other
current liabilities increased during the first nine months of the fiscal
year due to the increased purchasing activities of the Company in support of
its operations.
The Company has a revolving line of credit agreement with a commercial
finance company, which permits combined borrowings up to $3,500,000 in cash
and letters of credit. This line of credit is collateralized by all assets
of the Company and expires in December 1999. At June 30, 1998 the Company
did not have letters of credit or borrowings outstanding and approximately
$3,404,000 was available, pursuant to the borrowing formula, under this
credit agreement.
The Company has a $7,000,000 line of credit with a realty trust that is
operated for the benefit of the Company's principal shareholders. These
principal shareholders include the Company's President, a Director who is
also President of the Company's subsidiary (Automatic Radio International,
Inc.). This line of credit, with interest payable at 10%, requires monthly
payments of interest only, is payable in full in October 1998 and is
collateralized by all assets of the Company. Interest payments for the
period November 1, 1995 through June 30, 1998 are in arrears. The Company
had $4,715,000 outstanding under this line of credit on June 30, 1998. On
July 28, 1998, the Company received a waiver for the covenant violation as
to the interest payments. The waiver extends the due date as to the
interest payments until June 30, 1999. The Company plans to renew its line
of credit with the realty trust which is operated for the benefit of the
principal shareholders under terms and conditions similar to existing terms
and conditions prior to October 1998 and does not anticipate any problems or
delays with such renewal.
Page 14
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Following industry trade practice, the Consumer Product segment offers
extended payment terms for delivery of existing seasonal products such as
the Flowtron bugkiller, leaf-eater, compost bin, yard cart and storage shed.
Sales terms for the Industrial Products segment are 30 days net.
The Company made investments of $127,000 in capital expenditures during the
nine months ended June 30, 1998. These expenditures were primarily for
tooling and dies used in production of the Company's products. As of June
30, 1998 the Company has commitments of approximately $6,000 for capital
expenditures that primarily relate to tooling and dies used in production.
In 1991, the California Department of Health Services (DHS) issued a
Corrective Action Order (CAO) against the Company and a former subsidiary.
The CAO requires the Company and a former subsidiary to comply with a
Cleanup and Abatement Order that was issued in 1990 against the Company for
soil contamination at the site of the former subsidiary. To date, no
determination has been made with regard to the extent of any environmental
damage and who may be liable. The Company does not believe, based on the
information available at this time, that the outcome of this matter will
have a material adverse effect on its financial position or results of
operations.
The Company believes that its present working capital, credit arrangements
with a commercial finance company and its line of credit with a realty trust
which is operated for the benefit of the Company's principal shareholders
and other sources of financing will be sufficient to finance its seasonal
borrowing needs, operations and investment in capital expenditures in fiscal
1998. Other sources of financing, primarily provided by the Company's
principal shareholders, are available to finance any working capital
deficiencies.
RESULTS OF OPERATIONS
Three months ended June 30, 1998
- --------------------------------
The results of consolidated operations for the three months ended June 30,
1998 resulted in net income of $601,000, or $.24 per share, as compared with
net income of $558,000 or $.23 per share in the same period of the previous
year.
Net sales increased $779,000, or 14.7%, to $6,046,000 for the three months
ended June 30, 1998, as compared to $5,267,000 for the same period of the
previous year. The increase in net sales was attributable to additional
volume of shipments of bugkiller and shed products.
Page 15
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Operating profit is the result of deducting operating expenses excluding
interest expense, general corporate expenses, and income taxes from total
revenue.
During the three and nine months ended June 30, 1998, general corporate
expenses were $173,000 and $527,000, respectively, as compared to general
corporate expenses of $141,000 and $484,000 for the three and nine months
ended June 30, 1997, respectively.
Net sales and operating profit for the Consumer Products segment for the
three months ended June 30, 1998 were approximately $5,835,000 and $898,000,
respectively, as compared to $5,184,000 and $905,000 in the previous year.
The increase in net sales was primarily due to additional volume of
shipments of bugkiller and shed products. Product lines within the Consumer
Products segment are subject to seasonal fluctuations, with most shipments
occurring in the third quarter of the Company's fiscal year. The reduction
in operating profit was due to the underutilization of this segment's
facilities.
Net sales and operating loss for the Industrial Products segment for the
three months ended June 30, 1998 were approximately $211,000 and $1,000,
respectively, as compared to net sales of $83,000 and an operating loss of
$50,000 for the same period of the prior year. The increase in net sales
for the Industrial Products segment was due to additional volume of
shipments of the Company's Echovision systems to new and existing customers.
Selling, general and administrative expenses increased $6,000 to $766,000
for the three months ended June 30, 1998, as compared to $760,000 for the
same period of the prior year. As a percentage of net sales, selling,
general, and administrative expenses were 12.7% of net sales for the three
months ended June 30, 1998 as compared to 14.4% of net sales for the three
months ended June 30, 1997.
Taxes were not provided during the three months ended June 30, 1998 as the
Company has net operating loss carry-forwards available to offset such
provisions.
Nine months ended June 30, 1998
- -------------------------------
The results of consolidated operations for the nine months ended June 30,
1998 resulted in a net loss of $97,000 or $.04 per share, as compared with a
net loss of $217,000, or $.31 per share in the same period of the previous
year. Net sales increased $108,000, or 1.0%, to $10,458,000 for the nine
months ended June 30, 1998, as compared to $10,350,000 for the corresponding
period in the previous year. The increase in net sales was attributable to
additional volume of shipments of Echovision systems of approximately
$459,000, offset by a decrease in sales volume of the Consumer Products
segment of approximately $350,000.
Page 16
ARMATRON INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Net sales and operating profit for the Consumer Products segment for the
nine months ended June 30, 1998 were approximately $9,867,000 and $782,000,
respectively, as compared to net sales of $10,217,000 and operating profit
of $874,000 in the previous year. The decrease in net sales of 3.4% was
primarily due to a decrease in sales volume of bugkiller products.
Net sales and operating loss for the Industrial Products segment during the
nine months ended June 30, 1998 were approximately $591,000 and $5,000,
respectively, as compared to net sales of $132,000 and an operating loss of
$229,000 for the same period of the prior year. The increase in net sales of
348% for the Industrial Products segment was due to additional volume of
shipments of the Company's Echovision systems to new and existing customers.
Selling, general and administrative decreased $130,000, or 6.7% to
$1,807,000. As a percentage of net sales, selling, general, and
administrative expenses were 17.2% of net sales for the nine months ended
June 30, 1998 as compared to 18.7% of net sales for the nine months ended
June 30, 1997.
Additional tax benefits from the losses on operations for the nine months
ended June 30, 1998 were offset by changes to the related valuation
allowances.
New Pronouncements
- ------------------
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." These pronouncements are effective for fiscal years
beginning after December 15, 1997. The Company does not believe these new
pronouncements will have a material effect on its financial statements.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use." The Company does not
believe that this pronouncement will have a material impact on its business
or results of operations.
Page 17
ARMATRON INTERNATIONAL, INC.
PART II
Item 6b.
Reports on Form 8-K
The Company filed no Form 8-K's for the quarter ended June 30, 1998.
Page 18
ARMATRON INTERNATIONAL, INC.
File No. 1-4433
____________________
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
ARMATRON INTERNATIONAL, INC.
(Registrant)
Date: August 11, 1998 /s/ Charles J. Housman
Charles J. Housman, President
and Treasurer
Date: August 11, 1998 /s/ Edward L. Housman
Director
Date: August 11, 1998 /s/ Malcolm D. Finks
Director
Page 19
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