-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F5WmD1Om80Emj17EeYIvDBD+BNBLGAUmJviBcLVZOkoUXUyJlIvV5L77gqQQ0pVx USCYZ5O1AvjXJJUeEccQfg== 0000041980-96-000010.txt : 19960515 0000041980-96-000010.hdr.sgml : 19960515 ACCESSION NUMBER: 0000041980-96-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GODDARD INDUSTRIES INC CENTRAL INDEX KEY: 0000041980 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 042268165 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-02052 FILM NUMBER: 96563221 BUSINESS ADDRESS: STREET 1: 705 PLANTATION ST CITY: WORCESTER STATE: MA ZIP: 01605 BUSINESS PHONE: 5088522435 MAIL ADDRESS: STREET 1: P O BOX 165 CITY: WORCESTER STATE: MA ZIP: 01613-0765 10QSB 1 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)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, 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- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
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 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
-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 inventory 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 - EXHIBIT (27) This schedule contains summary financial information extracted from Form 10-QSB and is qualified in its entirety by reference to such financial statements. 3-MOS 6 MOS Fiscal year end Sep 28 1996 Period start Jan 01 1996 Oct 01 1995 Period end Mar 31 1996 Mar 31 1996 CASH 80,131 SECURITIES 0 RECEIVABLES 1,079,147 ALLOWANCES 34,612 INVENTORY 2,903,349 CURRENT ASSETS 4,144,804 PP&E 3,400,295 DEPRECIATION 2,484,136 TOTAL ASSETS 5,231,821 CURRENT LIABILITIES 689,168 COMMON 20,386 OTHER 2,867,764 TOTAL LIABILITY 5,231,821 AND EQUITY SALES 2,056,016 3,847,258 TOTAL REVENUES 2,066,378 3,864,515 COS 1,396,486 2,597,442 TOTAL COSTS 431,923 813,988 INTEREST EXPENSES 25,968 53,972 LOSS PROVISION 3,000 6,000 INCOME PRETAX 212,001 399,113 INCOME TAX 86,900 164,800 NET INCOME 125,101 234,313 EPS .06 .012 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 -----END PRIVACY-ENHANCED MESSAGE-----