Winland Electronics Inc Reports Operating Results (10-Q)

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Nov 13, 2009
Winland Electronics Inc (WEX, Financial) filed Quarterly Report for the period ended 2009-09-30.

WINLAND ELECTRIC designs and manufactures electronic control devices. They design, produce and distribute products in two product categories defined as Electronic Controls and Assemblies and Proprietary Products and Services, primarily for the Security/Industrial markets. Winland Electronics Inc has a market cap of $2.8 million; its shares were traded at around $0.76 with and P/S ratio of 0.1.

Highlight of Business Operations:

The Company reported a net loss of $695,000 or $0.19 per basic and diluted share for the three months ended September 30, 2009 compared to net income of $118,000 or $0.03 per basic and diluted share for the same period in 2008. The Company reported a net loss of $1,534,000 or $0.42 per basic and diluted share for the nine months ended September 30, 2009 compared to a net loss of $1,027,000 or $0.28 per basic and diluted share for the same period in 2008.

Net sales for the three months ended September 30, 2009 were $5,122,000, down $1,881,000 from the same period in 2008. EMS net sales of $4,228,000 were down $1,823,000 compared to the same period last year, a 30% decrease. Customer A sales were down $647,000. Customer B, a medical customer whose product was designed by and transitioned from our engineering services during 2008, were up $383,000. Customer C sales were up $181,000 compared with the same period a year ago. Sales to Customer D, who allowed their contract to expire at the end of the March 2009, were down $1,079,000. Net sales of Proprietary Products decreased $58,000 or 6% to $894,000 compared to a year ago primarily due to sales to our two largest distributors being down 5%.

Net sales for the nine months ended September 30, 2009 were $18,008,000, down $2,893,000 from the same period in 2008. EMS net sales of $15,636,000 were down $2,555,000 compared to the same period last year, a 14% decrease. Customer A sales were down $177,000. Customer B sales were up $2,069,000. Customer C sales were down $411,000 compared to the same period last year. Sales to Customer D were down $2,296,000. Net sales of Proprietary Products decreased $338,000 or 13% to $2,372,000 compared to a year ago primarily due to sales to our two largest distributors being down 15%.

The Company reported an operating loss of $1,297,000 and $1,079,000 for the nine months ended September 30, 2009 and 2008, respectively. Gross margins decreased from 11.5% to 10.3% for the nine months ended September 30, 2009 compared to the same period in 2008. The Company s EMS segment reported operating income of $100,000 for the nine months ended September 30, 2009 compared to operating income of $630,000 reported a year ago. EMS gross margins were 2.9% for the nine months ended September 30, 2009 down from 6.1% in 2008 due to under utilization of fixed overhead expenses. Operating expenses were reduced $125,000 compared to last year due to reduced wages and benefits of $103,000 and advertising expense of $22,000. The Company s Proprietary Products segment s operating income was $239,000 for the nine months ended September 30, 2009 compared to operating income of $60,000 last year. Proprietary Products segment gross margins were 39.8% for the nine months ended September 30, 2009 consistent with the same period a year ago. The $179,000 of increased income was driven by $500,000 in reduced spending on new product developments offset by $234,000 of increased wages and benefits relating to increased sales and marketing staff, $50,000 increase in advertising & promotions, $37,000 increase in commissions paid to outside rep agencies and $20,000 increased travel related expenses.

General and Administrative expenses were $468,000 down $108,000 compared to the same period a year ago primarily due to reductions in other tax expense and penalties of $51,000 related to Washington Business and Opportunity tax, reduced wages and benefits of $28,000 and reduced professional fees of $19,000. For the nine months ended September 30, 2009, general and administrative expenses were $1,636,000 down $133,000 primarily due to reduced professional fees of $50,000, reduced wages and benefits of $37,000 and reduced other tax expense and penalties of $32,000.

Operating activities used cash of $209,000 and $166,000 for the nine months ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009, the net loss of $1,534,000 was partially offset by depreciation expense of $615,000 and net changes in working capital of $618,000. For the nine months ended September 30, 2008, the $1,027,000 net loss was the primary driver of cash used in operations offset by depreciation expense of $611,000 and non-cash stock compensation expense of $202,000. Cash used in investing activities was used to acquire capital equipment of $75,000 and $130,000 for the nine months ended September 30, 2009 and 2008, respectively. Cash used in financing activities for the payment of long-term debt was $302,000 for the nine months ended September 30, 2009 compared to $397,000 for the same period in 2008. For the nine months ended September 30, 2009 and 2008 cash was provided by borrowing against the revolving line-of-credit in the amount of $506,000 and $55,000, respectively.

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