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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended May 29, 2005
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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 0-619
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WSI Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant, as specified in its charter)
Minnesota 41-0691607
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(State or other jurisdiction of (I. R. S. Employer
incorporation of organization) Identification No.)
Monticello, Minnesota 55362
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(763) 295-9202
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
2,557,629 Common Shares were outstanding as of June 22, 2005.
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WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
-------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets May 29, 2005 (Unaudited)
and August 29, 2004 3
Condensed Consolidated Statements of Operations
Thirteen and Thirty-nine weeks ended May 29, 2005 and
May 30, 2004 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Thirty-nine weeks ended May 29, 2005 and
May 30, 2004 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9 - 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION:
Item 6. Exhibits 14
Signatures 14
2
Part I. Financial Information
Item 1. Financial Statements
WSI INDUSTRIES, INC
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 29, AUGUST 29,
2005 2004
---- ----
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 469,988 $ 294,766
Accounts receivable 1,933,625 1,757,282
Inventories 1,124,134 923,223
Prepaid and other current assets 101,684 93,394
Deferred tax assets 122,921 198,225
------------- -------------
Total Current Assets 3,752,352 3,266,890
------------- -------------
Property, Plant and Equipment -- Net 3,874,661 3,838,910
------------- -------------
Deferred tax assets 1,635,265 1,687,931
------------- -------------
Intangible assets, net 2,394,351 2,399,311
------------- -------------
$ 11,656,629 $ 11,193,042
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,055,271 $ 808,047
Accrued compensation and employee withholdings 405,346 251,343
Miscellaneous accrued expenses 66,516 145,294
Current portion of long-term debt 311,087 306,588
------------- -------------
Total Current Liabilities 1,838,220 1,511,272
------------- -------------
Long term debt, net of current portion 2,810,022 2,613,150
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 a share; authorized
10,000,000 shares; issued and outstanding
2,557,629 shares 255,763 255,763
Capital in excess of par value 1,837,441 1,837,441
Retained earnings 4,915,183 4,975,416
------------- -------------
Total Stockholders' Equity 7,008,387 7,068,620
------------- -------------
$ 11,656,629 $ 11,193,042
============= =============
See notes to condensed consolidated financial statements
3
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 weeks ended 39 weeks ended
--------------------------------- -------------------------------
May 29, May 30, May 29, May 30,
2005 2004 2005 2004
-------------- ------------- ------------- ------------
Net sales $ 4,244,285 $ 3,147,009 $ 11,772,801 $ 8,568,736
Cost of products sold 3,471,359 2,722,484 9,808,795 7,304,208
-------------- ------------- ------------- --------------
Gross margin 772,926 424,525 1,964,006 1,264,528
Selling and administrative expense 461,596 315,368 1,492,838 957,094
Interest and other income (5,988) (3,652) (12,644) (11,337)
Interest expense 46,140 17,895 128,339 48,921
-------------- ------------- ------------- ------------
Earnings from operations
before income taxes 271,178 94,914 355,473 269,850
Income tax expense 97,624 34,169 127,970 97,146
-------------- ------------- ------------- --------------
Net earnings $ 173,554 $ 60,745 $ 227,503 $ 172,704
============== ============= ============= ==============
Basic earnings per share $ .07 $ .02 $ .09 $ .07
============== ============= ============= ==============
Diluted earnings per share $ .07 $ .02 $ .09 $ .07
============== ============= ============= ==============
Cash dividend per share $ .0375 $ .0375 $ .1125 $ .1125
============== ============= ============= ==============
Weighted average number of
common shares 2,557,629 2,557,189 2,557,629 2,553,442
============== ============= ============= ==============
Weighted average number of
common and dilutive potential
common shares 2,639,010 2,627,420 2,629,243 2,627,832
============== ============= ============= ==============
See notes to condensed consolidated financial statements.
4
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 weeks ended
---------------------------
May 29, May 30,
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 227,503 $ 172,704
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 499,549 450,330
Amortization 4,960 -
Loss on disposal of equipment 1,125 -
Deferred taxes 127,970 166,086
Changes in assets and liabilities:
Increase in accounts receivable (176,343) (87,746)
Increase in inventories (200,911) (42,107)
Increase in prepaid expenses (8,291) (1,201)
Increase in accounts payable
and accrued expenses 322,450 81,984
------------- -------------
Net cash provided by operations 798,012 740,050
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (79,855) (2,044,171)
-------------- --------------
Net cash used in investing activities (79,855) (2,044,171)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised - 11,190
Issuance of long-term debt - 1,710,000
Payments of long-term debt (255,199) (153,756)
Deferred financing costs - (22,045)
Dividends paid (287,736) (287,249)
-------------- --------------
Net cash provided by (used in) financing activities (542,935) 1,258,140
-------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 175,222 (45,981)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 294,766 891,218
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 469,988 $ 845,237
============= ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 128,822 $ 17,894
Income taxes $ 2,205 $ -
Noncash investing and financing activities:
Acquisition of machinery through capital lease $ 456,570 $ 284,325
See notes to condensed consolidated financial statements.
5
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet as of May 29, 2005,
the condensed consolidated statements of operations for the thirteen
and thirty-nine weeks ended May 29, 2005 and May 30, 2004 and the
condensed consolidated statements of cash flows for the thirty-nine
weeks then ended, respectively, have been prepared by the Company
without audit. In the opinion of management, all adjustments (which
include normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows for all
periods presented have been made.
The condensed consolidated balance sheet at August 29, 2004 is
derived from the audited consolidated balance sheet as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, these
condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's 2004 annual report to shareholders. The results of
operations for interim periods are not necessarily indicative of the
operating results for the full year.
Reclassification: Certain prior year items have been reclassified to
conform to the current year presentation.
2. INVENTORIES
Inventories consist primarily of raw material,
work-in-progress (WIP) and finished goods. The following table breaks
out the values in each category net of the inventory valuation
allowances of $162,483 and $409,249 at May 29, 2005 and August 29,
2004, respectively.
May 29, August 29,
2005 2004
---- ----
Raw material $ 358,488 $ 277,359
WIP 324,232 359,432
Finished goods 441,414 286,432
------------ ----------
$ 1,124,134 $ 923,223
============ ==========
The reduction in the inventory valuation allowance came as a result of
the disposing of obsolete inventory. Since the inventory disposed of
had been previously reserved for and thus had minimal net book value,
there was no material effect on the gross margin in the financial
statements when the Company disposed of this inventory.
3. GOODWILL AND INTANGIBLE ASSETS:
Under Statements of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, goodwill and intangible assets
are deemed to have indefinite lives and are not amortized, but are
subjected to annual impairment tests in accordance with the statement.
Other intangible assets will continue to be amortized over their useful
lives.
6
The Company adopted the new rules on accounting for goodwill
and other intangible assets beginning in the first quarter of fiscal
2002. The Company performed its annual impairment test in the fourth
quarter of fiscal 2004 and has determined no charge is warranted.
Goodwill and other intangible assets resulting from
acquisitions of business and the formation of the Company consist of
the following:
May 29, August 29,
2005 2004
---------- ----------
Goodwill $2,713,264 $2,713,264
Less accumulated amortization 344,812 344,812
---------- ----------
$2,368,452 $2,368,452
========== ==========
Deferred financing $ 33,063 $ 33,063
Less accumulated amortization 7,164 2,204
---------- ----------
$ 25,899 $ 30,859
---------- ----------
$2,394,351 $2,399,311
========== ==========
4. EARNINGS PER SHARE:
The following table sets forth the computation of basic and
diluted earnings per share:
Thirteen weeks ended Thirty-nine weeks ended
------------------------------ ---------------------------
May 29, May 30, May 29, May 30,
2005 2004 2005 2004
---- ---- ---- ----
Numerator for basic and diluted earnings
per share:
Net earnings $ 173,554 $ 60,745 $ 227,503 $ 172,704
============= ============= =========== ============
Denominator
Denominator for basic earnings
per share -- weighted average shares 2,557,629 2,557,189 2,557,629 2,553,442
============= ============= =========== =========
Effect of dilutive securities:
Employee and non-employee options 81,381 70,231 71,614 74,390
============= ============= =========== ============
Dilutive common shares
Denominator for diluted earnings
Per share 2,639,010 2,627,420 2,629,243 2,627,832
============= ============= =========== ============
Basic earnings per share $ .07 $ .02 $ .09 $ .07
============= ============= =========== ============
Diluted earnings per share $ .07 $ .02 $ .09 $ .07
============= ============= =========== ============
7
5. DEBT AND LINE OF CREDIT:
In January, 2005, the Company renewed its revolving credit
agreement in the maximum amount of $1 million with its bank. Interest
on the renewed agreement is at the bank's prime rate. No balance
remains outstanding on the revolver at May 29, 2005 as the Company paid
off the $100,000 balance remaining at the end of its fiscal second
quarter ended February 27, 2005. The credit agreement is secured by all
assets of the Company and expires December 31, 2005. It contains
restrictive provisions concerning yearly capital expenditures, maximum
debt to net worth and minimum current ratios, as well as a minimum debt
service coverage ratio. At May 29, 2005, the Company was in compliance
with these provisions.
The Company purchased a new manufacturing facility and office
located in Monticello, Minnesota on May 3, 2004. In order to facilitate
the purchase, the Company entered into two mortgage agreements. The
first mortgage was with its bank for $1,360,000 with a monthly payment
of $8,307 based on a 25-year amortization schedule. Interest is at
5.37% with a provision to adjust the rate after 5 years to the monthly
five-year Treasury yield plus 2.5%. The entire principal balance is due
May 1, 2014.
The second mortgage is with the City of Monticello Economic
Development Authority (MEDA) for $350,000 with a monthly payment of
$1,483 based on a 25-year amortization schedule. Interest is at 2.0%.
The entire balance is due on May 1, 2009. The indebtedness to the bank
is secured pursuant to a mortgage and security agreement and fixture
financing statement and the debt to MEDA is secured by a mortgage.
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities.
The Company believes that the estimates, assumptions and judgments
involved in the accounting policies described below have the greatest potential
impact on our financial statements, so the Company consider these to be its
critical accounting policies. Because of the uncertainty inherent in these
matters, actual results could differ from the estimates the Company uses in
applying the critical accounting policies. Within the context of these critical
accounting policies, the Company is not currently aware of any reasonably likely
event that would result in materially different amounts being reported.
Allowance for Excess and Obsolete Inventory:
Inventories, which are composed of raw materials, work in process and
finished goods, are valued at the lower of cost or market by comparing the cost
of each item in inventory to its most recent sales price or sales order price.
Any excess of cost over the net realizable value of inventory components is
included in the allowance for obsolete inventory.
In addition, the Company determines the reserve for excess and obsolete
inventory by analyzing the sales history of its inventory, sales orders on hand
and indications from the Company's customers as to the future of various parts
or programs. If, in the Company's determination, the inventory value has become
impaired, the Company establishes an obsolescence reserve at the amount the
Company estimates as the ultimate net realizable value for that inventory. The
obsolescence reserve remains on the Company's books until the inventory is
disposed of or sold. Actual customer requirements in any future periods are
inherently uncertain and thus may differ from our estimates. If actual or
expected customer requirements were significantly lower than the established
reserves, the Company would record an increase to the obsolescence allowance in
the period in which the Company made such a determination. The Company performs
its lower of cost or market testing as well as its excess or obsolete inventory
analyses, quarterly.
The Company's allowance for obsolete inventory consists of the
following at May 29, 2005 and August 29, 2004:
May 29, 2005 August 29, 2004
------------ ---------------
Obsolete finished goods $87,678 $258,845
Obsolete work-in-process 8,740 90,020
Cost exceeding market value 66,065 60,384
------ ------
$162,483 $409,249
9
The Company disposed of a substantial portion of its obsolete inventory during
fiscal 2005. Since the inventory disposed of had been previously reserved for
and thus had minimal net book value, there was no material effect on the gross
margin in the financial statements when the Company disposed of this inventory.
The Company has no specific timeline to dispose of its remaining obsolete
inventory and intends to sell this obsolete inventory from time to time, as
market conditions allow.
Goodwill Impairment:
The Company evaluates the valuation of its goodwill according to the
provisions of SFAS 142 to determine if the current value of goodwill has been
impaired. The Company believes that its stock price is not necessarily an
indicator of the Company's value given its limited trading volume and its wide
price fluctuations. The Company follows the guidance provided by SFAS 142 and
utilizes a present value technique to measure fair value by estimating future
cash flows. The major assumptions in this analysis include: (a) sales estimates
for the Company in part provided with guidance from the Company's customers; and
(b) material and labor costs of the Company's major programs. The Company
constructs a discounted cash flow analysis based on these assumptions to
estimate the fair value of the Company (which is the only reporting unit). The
result of the analysis performed in the fiscal 2004 fourth quarter did not show
an impairment of goodwill. If the Company has changes in events or
circumstances, including reductions in anticipated cash flows generated by our
operations, goodwill could become impaired which would result in a charge to
earnings.
Deferred Taxes:
The Company accounts for income taxes using the liability method.
Deferred income taxes are provided for temporary difference between the
financial reporting and tax bases of assets and liabilities. A valuation
allowance would be set up should the realization of any deferred taxes become
less likely than not to occur. The valuation allowance is analyzed periodically
by the Company and may result in income tax expense different than statutory
rates. The Company has not established a valuation allowance as it believes it
is more likely than not that it will fully realize the benefit of its tax
assets. Currently, the Company's deferred tax assets have two major components
which relate to the Company's NOL and the Company's AMT tax credit
carryforwards. The Company's AMT tax credit carryforward does not expire. The
Company's NOL carryforward has $870,000 expiring in fiscal year 2009, $415,000
in fiscal 2011 and $2.8 million expiring in fiscal 2021 and after. The Company
believes that its current rate of growth will be sufficient to fully utilize its
NOL carryforwards before they expire. However, a significant loss of a customer
or a change in the Company's business could affect the realization of the
deferred tax assets. If a major program were discontinued, the Company would
immediately assess the impact of the loss of the program on the realization of
the deferred tax assets.
Revenue Recognition:
The Company considers its revenue recognition policy to fall under the guidance
of FASB's conceptual framework for revenue recognition. The Company recognizes
revenue only after: (a) The Company has received a purchase order identifying
price and delivery terms or services to be rendered; (b) shipment has occurred,
or in the case of services, after the service has been completed; (c) the
Company's price is fixed as evidenced by the purchase order; and (d)
collectibility is reasonably assured. The Company continually monitors its
accounts receivable for any delinquent or slow paying accounts. The Company
believes that based upon its past history with minimal bad debt write-offs, that
all accounts are collectible upon shipment or delivery of services. Credit
losses customers have been minimal and within management's expectations. Based
on management's evaluation of uncollected accounts receivable, bad debts are
provided for on the allowance method. Accounts are considered delinquent if they
are 120 days past due. If an uncollectible account should arise during the year,
it would be written-off at the point it was determined to be uncollectible. The
Company mitigates its credit risk by performing periodic credit checks and
actively pursuing past due accounts. The
10
Company refers to "net sales" in its consolidated statements of operations as
the Company's sales are sometimes reduced by product returned by its customers.
Results of Operations:
Net sales were $4,244,000 for the quarter ending May 29, 2005, an
increase of 35% or $1,097,000 from the same period of the prior year.
Year-to-date sales in fiscal 2005 were $11,773,000 compared to $8,569,000 in the
prior year. The increase in sales for the quarter, as well as the nine months,
came primarily from a new program related to the Company's recreational vehicle
market, although the Company's fiscal 2005 third quarter was also positively
affected by overall sales increases from its previously existing recreational
vehicle market programs.
Sales from the Company's recreational vehicle market amounted to
$3,702,000 and $2,551,000 for the quarters ended May 29, 2005 and May 30, 2004,
respectively. Year-to-date sales for the Company's recreational vehicle market
were $9,994,000 and $6,823,000 for the nine months ended May 29, 2005 and May
30, 2004, respectively.
Sales from the Company's aerospace and defense markets amounted to
$441,000 and $400,000 for the quarter ended May 29, 2005 and May 30, 2004,
respectively. Year-to-date sales for the Company's aerospace and defense markets
were $1,269,000 and $1,164,000 for the nine months ended May 29, 2005 and May
30, 2004, respectively. The Company believes these increases are not as a result
of significant change in a customer or product requirement, but rather as a
result from a general increase in the level of the Company's aerospace and
defense business with its current customers.
Sales from the Company's other revenue markets amounted to $101,000 and
$196,000 for the quarter ended May 29, 2005 and May 30, 2004, respectively.
Year-to-date sales for the Company's other revenue markets were $510,000 and
$582,000 for the nine months ended May 29, 2005 and May 30, 2004, respectively.
The Company's other revenue markets consist primarily of computer components and
small engine parts, with the decrease in the Company's sales during the quarter
ended May 29, 2005 coming primarily from a decrease in its computer components
business.
Gross margin increased to 18% for the quarter ending May 29, 2005
versus 13% in the year ago period. The increase in gross margin is attributable
to efficiencies related to higher levels of volume. Year-to-date gross margins
were 17% and 15% for the nine-month periods ending May 29, 2005 and May 30,
2004, respectively, with the current year's margin also positively affected by
the higher levels of volume.
No significant sales of obsolete inventory items occurred during the
first three fiscal quarters of 2005. Correspondingly, no significant gross
margin was realized from any of those sales. However, during the fiscal 2005
second quarter, the Company disposed of all but $8,740 of its obsolete WIP
inventory. During the Company's fiscal 2005 third quarter, the Company disposed
of all but $87,678 of its obsolete finished goods inventory. The total amounts
disposed amounted to approximately 15% of the gross inventory value. Since the
inventory disposed of had been previously reserved for and thus had minimal net
book value, there was no material effect on the financial statements when the
Company disposed of this inventory.
During the last quarter of fiscal 2004 and the first two quarters of
fiscal 2005, the Company moved its office and manufacturing operations from its
former site in Osseo, Minnesota to its current location in Monticello,
Minnesota. During this time, the Company recorded relocation costs, as well as
the costs associated with leasing and maintaining the Osseo facility, as selling
and administrative cost. These costs amounted to $340,000 for the nine months
ended May 29, 2005 with no material costs being incurred after the Company's
fiscal 2005 second quarter ended February 27, 2005.
11
Selling and administrative expense of $462,000 for the quarter ending
May 29, 2005 was $146,000 higher than in the prior year period due primarily to
higher compensation and benefit costs. Year-to-date selling and administrative
expense of $1,493,000 was $536,000 higher than the comparable prior year period
due to the higher compensation costs as well as the $340,000 of relocation costs
mentioned above.
Interest expense in the third quarter of fiscal 2005 was $46,000, which
was $28,000 more than the third quarter of fiscal 2004 amount of $18,000. The
increase is attributable to increased levels of debt due to mortgages on the
Company's new building of approximately $1.7 million that did not exist in the
prior year, as well as new capitalized leases for equipment purchases that have
occurred in the last 12 months. Year-to-date interest expense for fiscal 2005
also increased as compared to the same period of the prior year for the same
reasons.
The Company recorded income tax expense at an effective tax rate of 36%
for the quarter and nine months ended May 29, 2005 and May 30, 2004,
respectively.
Liquidity and Capital Resources
On May 29, 2005, working capital was $1,914,000 compared to $1,756,000
at August 29, 2004. The increase in working capital is attributed to the 37%
increase in the Company's sales during the first nine months of fiscal 2005. The
ratio of current assets to current liabilities at February 27, 2005 was 2.04 to
1.0 compared to 2.16 to 1.0 at August 29, 2004. The Company's cash balance
increased $175,000 during the first nine months of fiscal 2005 with $798,000 in
cash flow from operations being used to pay down $255,000 in long-term debt,
$288,000 in dividends as well as to purchase $80,000 in equipment.
As discussed in the Notes to Consolidated Financial Statements, the
Company renewed its $1,000,000 revolving credit facility with its bank. Interest
on the new agreement is at the bank's prime rate. At May 29, 2005, the Company
did not have a balance owing under this revolving line of credit agreement.
The Company paid quarterly dividends of $.0375 per share of its common
stock in each of the first three quarters of fiscal 2005 and 2004. The dividend
payments for the first nine months of fiscal 2005 and fiscal 2004 totaled
$288,000 and $287,000, respectively.
It is the Company's belief that its internally generated funds, as well
as its line of credit, will be sufficient to enable the Company to meet its
working capital requirements during the remainder of calendar 2005.
Cautionary Statement:
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements made with the approval of an authorized executive officer
that are not historical or current facts are "forward-looking statements." These
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
The following important factors, among others, in some cases have affected and
in the future could affect the Company's actual results and could cause the
Company's actual financial performance to differ materially from that expressed
in any forward-looking statement: (i) the Company's ability to obtain additional
manufacturing programs and retain current programs; (ii) the loss of significant
business from any one of its
12
current customers could have a material adverse effect on the Company; (iii) the
Company was dependent upon one customer for 79% of its revenues in fiscal year
2004 and expects that a significant portion of its future revenue will be
derived from this customer; (iv) a significant downturn in the industries in
which the Company participates could have an adverse effect on the demand for
Company services; (v) our sales are concentrated in a limited number of highly
competitive industries, each with a limited number of customers; (vi) the prices
of our products are subject to downward pressure from customers and market
pressure from competitors; (vii) the Company's ability to curtail its costs and
expenses for new manufacturing programs, commensurate with expected revenues;
(viii) the Company's ability to comply with covenants of its credit facility;
(ix) fluctuations in operating results due to, among other things, changes in
customer demand for our product, in our manufacturing costs and efficiencies of
our operations; and (x) a trend among our customers toward outsourcing
manufacturing to foreign operations.
The foregoing list should not be construed as exhaustive and the
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer, Michael J. Pudil, and Chief
Financial Officer, Paul D. Sheely, have evaluated the Company's disclosure
controls and procedures as of the end of the period covered by this report.
Based upon this review, they have concluded that these controls and procedures
are effective.
(b) Changes in Internal Controls over Financial Reporting.
There have been no changes in internal control financial reporting that
occurred during the fiscal period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
13
PART II. OTHER INFORMATION:
ITEM 6. EXHIBITS:
A. The following exhibits are included herein:
Exhibit 31.1 Certification of Chief Executive Officer
pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange
Act.
Exhibit 31.2 Certification of Chief Financial Officer
pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange
Act
Exhibit 32 Certification pursuant to 18 U.S.C. Section
1350.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WSI INDUSTRIES, INC.
Date: June 22, 2005 /s/ Michael J. Pudil
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Michael J. Pudil, President & CEO
Date: June 22, 2005 /s/ Paul D. Sheely
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Paul D. Sheely, Vice President,
Finance & CFO
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