Attached files
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EX-32 - EXHIBIT 32 - WSI INDUSTRIES, INC. | c10744exv32.htm |
EX-31.2 - EXHIBIT 31.2 - WSI INDUSTRIES, INC. | c10744exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - WSI INDUSTRIES, INC. | c10744exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 28, 2010
OR
o | 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
WSI Industries, Inc.
(Exact name of registrant as specified in its charter)
Minnesota | 41-0691607 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
213 Chelsea Road, Monticello, Minnesota | 55362 | |
(Address of principal executive offices) | (Zip Code) |
(763) 295-9202
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of larger
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date: 2,872,427 shares of common stock were outstanding as of December
31, 2010.
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No. | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6-7 | ||||||||
8 - 10 | ||||||||
10 | ||||||||
10 | ||||||||
11 | ||||||||
11 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
2
Table of Contents
Part I. Financial Information
Item I. Financial Statements
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 28, | August 29, | |||||||
2010 | 2010 | |||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 2,560,671 | $ | 2,347,113 | ||||
Accounts receivable |
2,706,068 | 3,087,087 | ||||||
Inventories |
2,040,440 | 2,185,283 | ||||||
Prepaid and other current assets |
159,624 | 60,686 | ||||||
Deferred tax assets |
203,993 | 171,713 | ||||||
Total Current Assets |
7,670,796 | 7,851,882 | ||||||
Property, Plant and Equipment Net |
6,880,366 | 6,506,669 | ||||||
Deferred tax assets |
204,778 | 258,901 | ||||||
Other assets, net |
2,368,452 | 2,368,452 | ||||||
$ | 17,124,392 | $ | 16,985,904 | |||||
Liabilities and Stockholders Equity |
||||||||
Current Liabilities: |
||||||||
Trade accounts payable |
$ | 1,303,297 | $ | 1,266,641 | ||||
Accrued compensation and employee withholdings |
531,477 | 615,048 | ||||||
Other accrued expenses |
281,939 | 367,218 | ||||||
Current portion of long-term debt |
1,219,032 | 1,165,192 | ||||||
Total Current Liabilities |
3,335,745 | 3,414,099 | ||||||
Long-term debt, less current portion |
4,002,065 | 3,736,505 | ||||||
Stockholders Equity: |
||||||||
Common stock, par value $.10 a share; authorized
10,000,000 shares; issued and outstanding
2,872,427 and 2,888,492 shares, respectively |
287,243 | 288,850 | ||||||
Capital in excess of par value |
2,972,564 | 2,922,048 | ||||||
Deferred compensation |
(280,230 | ) | (250,412 | ) | ||||
Retained earnings |
6,807,005 | 6,874,814 | ||||||
Total Stockholders Equity |
9,786,582 | 9,835,300 | ||||||
$ | 17,124,392 | $ | 16,985,904 | |||||
See notes to condensed consolidated financial statements.
3
Table of Contents
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
13 weeks ended | ||||||||
November 28, | November 29, | |||||||
2010 | 2009 | |||||||
Net sales |
$ | 5,527,846 | $ | 4,254,309 | ||||
Cost of products sold |
4,797,697 | 3,471,967 | ||||||
Gross margin |
730,149 | 782,342 | ||||||
Selling and administrative expense |
594,953 | 530,324 | ||||||
Interest and other income |
(5,348 | ) | (7,979 | ) | ||||
Interest and other expense |
71,172 | 97,457 | ||||||
Earnings from operations
before income taxes |
69,372 | 162,540 | ||||||
Income taxes |
24,974 | 58,514 | ||||||
Net income |
$ | 44,398 | $ | 104,026 | ||||
Basic earnings per share |
$ | .02 | $ | .04 | ||||
Diluted earnings per share |
$ | .02 | $ | .04 | ||||
Cash dividend per share |
$ | .04 | $ | | ||||
Weighted average number of common
shares outstanding, basic |
2,808,316 | 2,794,373 | ||||||
Weighted average number of common
Shares outstanding, diluted |
2,856,652 | 2,794,373 | ||||||
See notes to condensed consolidated financial statements.
4
Table of Contents
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
13 weeks ended | ||||||||
November 28, | November 29, | |||||||
2010 | 2009 | |||||||
Cash Flows From Operating Activities: |
||||||||
Net income |
$ | 44,398 | $ | 104,026 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation |
266,364 | 270,480 | ||||||
Deferred taxes |
21,843 | 58,514 | ||||||
Stock option compensation expense |
40,415 | 46,803 | ||||||
Changes in assets and liabilities: |
||||||||
Decrease in accounts receivable |
381,019 | 761,006 | ||||||
Decrease in inventories |
144,843 | 214,249 | ||||||
(Increase) decrease in prepaid expenses |
(98,938 | ) | 16,270 | |||||
Decrease in accounts payable and
accrued expenses |
(153,518 | ) | (605,774 | ) | ||||
Net cash provided by operations |
646,426 | 865,574 | ||||||
Cash Flows From Investing Activities: |
||||||||
Purchase of property, plant and equipment |
(86,448 | ) | | |||||
Net cash used in investing activities |
(86,448 | ) | | |||||
Cash Flows From Financing Activities: |
||||||||
Payments of long-term debt |
(234,213 | ) | (215,515 | ) | ||||
Dividends paid |
(112,207 | ) | | |||||
Net cash used in financing activities |
(346,420 | ) | (215,515 | ) | ||||
Net Increase In Cash And Cash Equivalents |
213,558 | 650,059 | ||||||
Cash And Cash Equivalents At Beginning Of Year |
2,347,113 | 2,879,952 | ||||||
Cash And Cash Equivalents At End Of Reporting Period |
$ | 2,560,671 | $ | 3,530,011 | ||||
Supplemental cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 71,644 | $ | 97,763 | ||||
Payroll withholding taxes in cashless stock option exercise |
$ | 21,324 | $ | 3,577 | ||||
Income taxes |
$ | 28,000 | $ | 3,486 | ||||
Non-cash investing and financing activities: |
||||||||
Acquisition of equipment through capital lease |
$ | 553,613 | $ | |
See notes to condensed consolidated financial statements.
5
Table of Contents
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: |
The condensed consolidated balance sheet as of November 28, 2010, the
condensed consolidated statements of income for the thirteen weeks ended November 28, 2010
and November 29, 2009 and the condensed consolidated statements of cash flows for the
thirteen 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, 2010 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 accounting principles
generally accepted in the United States of America 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 Companys Annual Report on
Form 10-K for the year ended August 29, 2010. The results of operations for interim periods
are not necessarily indicative of the operating results for the full year.
2. | INVENTORIES |
Inventories consist primarily of raw material, work-in-progress (WIP) and
finished goods and are valued at the lower of cost or market value:
November 28, | August 29, | |||||||
2010 | 2010 | |||||||
Raw material |
$ | 501,910 | $ | 584,719 | ||||
WIP |
897,024 | 939,085 | ||||||
Finished goods |
641,506 | 661,479 | ||||||
$ | 2,040,440 | $ | 2,185,283 | |||||
3. | OTHER ASSETS |
Goodwill and other assets consist of costs resulting from business acquisitions which
total $2,368,452 at November 28, 2010 (net of accumulated amortization of $344,812 recorded
prior to the adoption of SFAS No. 142 Goodwill and Other Intangible Assets). The Company
assesses the valuation or potential impairment of its goodwill by utilizing a present value
technique to measure fair value by estimating future cash flows. The Company constructs a
discounted cash flow analysis based on various sales and cost assumptions to estimate the
fair value of the Company (which is the only reporting unit). The result of the analysis
performed in the fiscal 2010 fourth quarter did not indicate an impairment of goodwill. The
Company will analyze goodwill more frequently should changes in events or circumstances,
including reductions in anticipated cash flows generated by our operations, occur.
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Table of Contents
4. | DEBT |
During the quarter ended November 28, 2010, the Company entered into a capitalized
lease of approximately $534,000 in connection with the acquisition of machinery and
equipment. The lease carries an interest rate of approximately 4.75% and matures in 2017.
5. | EARNINGS PER SHARE: |
The following table sets forth the computation of basic and diluted earnings per share:
Thirteen weeks ended | ||||||||
November 28, | November 29, | |||||||
2010 | 2009 | |||||||
Numerator for earnings per share: |
||||||||
Net income |
$ | 44,398 | $ | 104,026 | ||||
Denominator: |
||||||||
Denominator for basic earnings
per share weighted average shares |
2,808,316 | 2,794,373 | ||||||
Effect of dilutive securities: |
||||||||
Employee and non-employee options |
48,336 | | ||||||
Dilutive common shares |
||||||||
Denominator for diluted earnings
per share |
2,856,652 | 2,794,373 | ||||||
Basic earnings per share |
$ | .02 | $ | .04 | ||||
Diluted earnings per share |
$ | .02 | $ | .04 | ||||
7
Table of Contents
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
And
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates:
Managements Discussion and Analysis of Financial Condition and Results of Operations discuss
our 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.
We base our estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances, the result of which forms the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Results may differ from these estimates due to actual outcomes being different from
those on which we based our assumptions. The estimates and judgments utilized are reviewed by
management on an ongoing basis and by the audit committee of our board of directors at the end of
each quarter prior to the public release of our financial results.
The critical accounting policies and estimates followed in the preparation of the financial
information contained in this Quarterly Report on Form 10-Q are the same as those described in the
Companys Annual Report on Form 10-K for the year ended August 29, 2010. Refer to the Annual
Report on Form 10-K for detailed information on accounting policies.
Results of Operations:
Net sales were $5,528,000 for the first quarter of fiscal year 2011 ending November 28, 2010,
a 30% increase from the same period of the prior year. Sales by product line for the quarter and
year-to-date periods are as below:
Fiscal First Quarter Thirteen Weeks Ended | ||||||||||||||||||||
Percent | Percent | Dollar | ||||||||||||||||||
November 28, | of Total | November 29, | of Total | Percent | ||||||||||||||||
2010 | Sales | 2009 | Sales | Change | ||||||||||||||||
ATV & Motorcycle |
$ | 4,026,000 | 73 | % | $ | 2,548,000 | 54 | % | 58 | % | ||||||||||
Energy |
871,000 | 16 | % | 1,283,000 | 27 | % | -32 | % | ||||||||||||
Aerospace & Defense |
564,000 | 10 | % | 369,000 | 8 | % | 53 | % | ||||||||||||
Bioscience |
67,000 | 1 | % | 54,000 | 1 | % | 24 | % | ||||||||||||
Total Sales |
$ | 5,528,000 | 100 | % | $ | 4,254,000 | 100 | % | 17 | % | ||||||||||
Sales from the Companys ATV and motorcycle markets were up 58% in the fiscal 2011 first
quarter as compared to the prior years first quarter due to volume increases in both markets.
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Sales from the Companys energy business for the fiscal first quarter of 2011 declined by 32%.
The Company believes that the reduction of the volume of orders from its customers in this segment
is due to a
combination of factors including tight credit conditions and a reduction in the demand of the
particular type of oilfield equipment the Company manufactures. Sales have also decreased as a
result of the consignment of the raw material the Company machines in its end products as opposed
to purchasing the raw material. The Company has experienced, in recent quarters, a higher
percentage of consigned raw materials in its parts which then leads to a lower overall end sales
price to its customers in the energy sector.
Sales from the Companys aerospace and defense markets increased in the Companys fiscal first
quarter of 2011 by 53% as compared to the fiscal first quarter of 2010. The growth was due to a
general increased level of business from most of its customers as well as sales to a new customer
for an assembly program previously announced by the Company in July 2010.
Sales from the Companys biosciences market increased in the fiscal 2011 first quarter as
compared to the prior year quarter as this market appears to be slowly emerging from the recession.
Gross margin decreased to 13% for the quarter ending November 28, 2010 versus 18% in the prior
year quarter. The decrease is due in large measure to start-up costs related to a new program from
a new customer in the energy sector that the Company incurred during the quarter. The decrease in
gross margin in the fiscal 2011 first quarter is also attributable to a higher percentage of
material and outside services content in product shipped during the quarter. This higher material
content had a negative effect on gross margins in the fiscal 2011 first quarter.
Selling and administrative expense of $595,000 for the quarter ending November 28, 2010 was
$65,000 higher than the prior years quarter. The increase is primarily attributable to higher
compensation costs which included a ratable portion of the amount due to the Companys chief
executive officer at the end of calendar year 2011 in relation to his employment contract with the
Company.
Interest expense in the first quarter of fiscal 2011 was $71,000 compared to $97,000 in first
quarter of fiscal 2010. This decrease reflects a lower level of overall debt.
The Company recorded income tax expense at an effective tax rate of 36% for the quarter ended
November 28, 2010 and November 29, 2009, respectively.
Liquidity and Capital Resources:
On November 28, 2010, working capital was $4,335,000 which did not change significantly as
compared to $4,438,000 at August 29, 2010. The ratio of current assets to current liabilities of
2.30 to 1.0 at November 28, 2010 was identical to the ratio at August 29, 2010.
It is the Companys belief that its current cash balance, plus future internally generated
funds and its line of credit, will be sufficient to enable the Company to meet its working capital
requirements through the next 12 months. The Companys line of credit expires February 1, 2011;
however, it expects that the line of credit will be renewed at that point. There can be no
assurance that the line of credit will be renewed or, if renewed, that the material terms (such as
availability and interest rate) will be the same as the Companys current line of credit. No
amounts have been borrowed under the line of credit which carries an interest rate at LIBOR plus
2.75%.
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Table of Contents
Cautionary Statement:
Statements included in this Managements Discussion and Analysis of Financial Condition and
Results of Operations, in future filings by the Company with the Securities and Exchange
Commission, in the Companys 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. These risks and uncertainties are described in the Companys Annual
Report on Form 10-K for the year ended August 29, 2010, as well as other filings the Company makes
with the Securities and Exchange Commission. 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 and are
not predictions of actual future results. 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.
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was
performed under the supervision and with the participation of our management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).
Based on that evaluation, the CEO and CFO have concluded that as of November 28, 2010 our
disclosure controls and procedures were not effective because of the material weakness in internal
control over financial reporting in the areas of segregation of duties and adequacy of personnel as
a result of the Companys reduction in staff during the quarter ended May 31, 2009.
Due to the lack of financial and personnel resources, we do not intend to take any action at
this time to increase our financial accounting staff to remediate this material weakness and the
corresponding deficiency in disclosure controls, but will continue to rely on our remaining staff
and historic oversight of management to provide reasonable assurances regarding the reliability of
our financial reporting.
(b) Changes in Internal Controls over Financial Reporting.
There have been no changes in internal control over financial reporting that occurred during
the fiscal period covered by this report that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION:
ITEM 1A. RISK FACTORS
Not Applicable.
10
Table of Contents
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. §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: January 10, 2011 | /s/ Michael J. Pudil | |||
Michael J. Pudil, CEO | ||||
Date: January 10, 2011 | /s/ Paul D. Sheely | |||
Paul D. Sheely, Vice President, Finance & CFO |
11