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EX-32 - EXHIBIT 32 - WSI INDUSTRIES, INC. | c19234exv32.htm |
EX-31.2 - EXHIBIT 31.2 - WSI INDUSTRIES, INC. | c19234exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - WSI INDUSTRIES, INC. | c19234exv31w1.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 May 29, 2011
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)
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 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: 2,889,252 shares of common stock were outstanding as of
June 24, 2011.
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No. | ||||||||
PART I. FINANCIAL INFORMATION: |
||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 - 7 | ||||||||
8 - 10 | ||||||||
10 | ||||||||
11 | ||||||||
11 | ||||||||
11 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
2
Table of Contents
Item I. Financial Statements
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 29, | August 29, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 2,319,607 | $ | 2,347,113 | ||||
Accounts receivable |
2,949,754 | 3,087,087 | ||||||
Inventories |
2,317,728 | 2,185,283 | ||||||
Prepaid and other current assets |
117,240 | 60,686 | ||||||
Deferred tax assets |
240,844 | 171,713 | ||||||
Total Current Assets |
7,945,173 | 7,851,882 | ||||||
Property, Plant and Equipment Net |
6,896,554 | 6,506,669 | ||||||
Deferred tax assets |
| 258,901 | ||||||
Goodwill and other assets, net |
2,368,452 | 2,368,452 | ||||||
$ | 17,210,179 | $ | 16,985,904 | |||||
Liabilities and Stockholders Equity |
||||||||
Current Liabilities: |
||||||||
Trade accounts payable |
$ | 1,140,126 | $ | 1,266,641 | ||||
Accrued compensation and employee withholdings |
811,110 | 615,048 | ||||||
Other accrued expenses |
98,671 | 367,218 | ||||||
Current portion of long-term debt |
960,961 | 1,165,192 | ||||||
Total Current Liabilities |
3,010,868 | 3,414,099 | ||||||
Long-term debt, less current portion |
3,874,569 | 3,736,505 | ||||||
Deferred tax liabilities |
114,540 | | ||||||
Stockholders Equity: |
||||||||
Common stock, par value $.10 a share; authorized
10,000,000 shares; issued and outstanding
2,889,252 and 2,888,492 shares, respectively |
288,925 | 288,850 | ||||||
Capital in excess of par value |
3,098,924 | 2,922,048 | ||||||
Deferred compensation |
(272,981 | ) | (250,412 | ) | ||||
Retained earnings |
7,095,334 | 6,874,814 | ||||||
Total Stockholders Equity |
10,210,202 | 9,835,300 | ||||||
$ | 17,210,179 | $ | 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 OPERATIONS
(Unaudited)
13 weeks ended | 39 weeks ended | |||||||||||||||
May 29, | May 30, | May 29, | May 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 6,531,996 | $ | 4,656,589 | $ | 17,742,134 | $ | 12,970,497 | ||||||||
Cost of products sold |
5,065,735 | 3,743,987 | 14,679,308 | 10,618,108 | ||||||||||||
Gross margin |
1,466,261 | 912,602 | 3,062,826 | 2,352,389 | ||||||||||||
Selling and administrative expense |
773,581 | 582,993 | 1,973,748 | 1,644,392 | ||||||||||||
Interest and other income |
(2,442 | ) | (7,798 | ) | (8,366 | ) | (25,322 | ) | ||||||||
Interest expense |
74,726 | 90,487 | 223,632 | 280,304 | ||||||||||||
Income before income taxes |
620,396 | 246,920 | 873,812 | 453,015 | ||||||||||||
Income taxes |
223,343 | 88,890 | 314,573 | 163,085 | ||||||||||||
Net income |
$ | 397,053 | $ | 158,030 | $ | 559,239 | $ | 289,930 | ||||||||
Basic earnings per share |
$ | .14 | $ | .06 | $ | .20 | $ | .10 | ||||||||
Diluted earnings per share |
$ | .14 | $ | .06 | $ | .19 | $ | .10 | ||||||||
Cash dividend per share |
$ | .04 | $ | .00 | $ | .12 | $ | .00 | ||||||||
Weighted average number of
common shares outstanding, basic |
2,835,424 | 2,805,181 | 2,822,754 | 2,799,887 | ||||||||||||
Weighted average number of
common shares outstanding, diluted |
2,877,819 | 2,805,181 | 2,870,263 | 2,799,887 | ||||||||||||
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)
39 weeks ended | ||||||||
May 29, | May 30, | |||||||
2011 | 2010 | |||||||
Cash Flows From Operating Activities: |
||||||||
Net income (loss) |
$ | 559,239 | $ | 289,930 | ||||
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
||||||||
Depreciation |
870,259 | 808,110 | ||||||
Net tax benefits related to share-based compensation |
(21,901 | ) | | |||||
Deferred taxes |
326,211 | 163,085 | ||||||
Stock option compensation expense |
156,576 | 162,290 | ||||||
Changes in assets and liabilities: |
||||||||
Decrease in accounts receivable |
137,333 | 569,960 | ||||||
(Increase) decrease in inventories |
(132,445 | ) | 339,318 | |||||
Increase in prepaid expenses |
(56,554 | ) | (56,346 | ) | ||||
Decrease in accounts payable
and accrued expenses |
(255,605 | ) | (936,001 | ) | ||||
Net cash provided by operations |
1,583,113 | 1,340,346 | ||||||
Cash Flows From Investing Activities: |
||||||||
Purchase of property, plant and equipment |
(316,081 | ) | (28,215 | ) | ||||
Net cash used in investing activities |
(316,081 | ) | (28,215 | ) | ||||
Cash Flows From Financing Activities: |
||||||||
Payments of long-term debt |
(1,010,230 | ) | (652,960 | ) | ||||
Issuance of common stock |
32,510 | | ||||||
Net tax benefits related to share-based compensation |
21,901 | | ||||||
Dividends paid |
(338,719 | ) | | |||||
Net cash used in financing activities |
(1,294,538 | ) | (652,960 | ) | ||||
Net Increase (Decrease) In Cash And Cash Equivalents |
(27,506 | ) | 659,171 | |||||
Cash And Cash Equivalents At Beginning Of Year |
2,347,113 | 2,879,952 | ||||||
Cash And Cash Equivalents At End Of Reporting Period |
$ | 2,319,607 | $ | 3,539,123 | ||||
Supplemental cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 224,137 | $ | 280,414 | ||||
Income taxes |
$ | 35,641 | $ | 11,377 | ||||
Payroll withholding taxes in cashless stock option exercise |
$ | 56,604 | $ | 16,823 | ||||
Non-cash investing and financing activities: |
||||||||
Acquisition of machinery through capital lease |
$ | 944,063 | $ | |
See notes to condensed consolidated financial statements.
5
Table of Contents
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, 2011, the
condensed consolidated statements of operations for the thirteen and
thirty-nine weeks ended May 29, 2011 and May 30, 2010 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, 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 2010 annual report to shareholders
on Form 10-K. 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:
May 29, | August 29, | |||||||
2011 | 2010 | |||||||
Raw material |
$ | 517,976 | $ | 584,719 | ||||
WIP |
1,061,331 | 939,085 | ||||||
Finished goods |
738,421 | 661,479 | ||||||
$ | 2,317,728 | $ | 2,185,283 | |||||
The Company did not dispose of any significant obsolete inventory during the quarter ended
May 29, 2011 and therefore there was no material effect on gross margin from any
dispositions.
3. | GOODWILL AND INTANGIBLE ASSETS: |
Goodwill and other intangible assets consist of costs resulting from business
acquisitions which total $2,368,452 (net of accumulated amortization of $344,812 recorded
prior to the adoption of Accounting Standard Codification Topic 350 Intangibles). 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 and since that time no events or circumstances have occurred that suggest an
impairment exists. The Company will analyze goodwill annually and more frequently should
changes in events or circumstances, including reductions in anticipated cash flows generated
by our operations or negative operating results, occur.
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Table of Contents
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, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator for basic and diluted
earnings per share: |
||||||||||||||||
Net income |
$ | 397,053 | $ | 158,030 | $ | 559,239 | $ | 289,930 | ||||||||
Denominator |
||||||||||||||||
Denominator for basic earnings
per share weighted average shares |
2,835,424 | 2,805,181 | 2,822,754 | 2,799,887 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Employee and non-employee options |
42,395 | | 47,509 | | ||||||||||||
Dilutive common shares |
||||||||||||||||
Denominator for diluted earnings
per share |
2,877,819 | 2,805,181 | 2,870,263 | 2,799,887 | ||||||||||||
Basic earnings per share |
$ | .14 | $ | .06 | $ | .20 | $ | .10 | ||||||||
Diluted earnings per share |
$ | .14 | $ | .06 | $ | .19 | $ | .10 | ||||||||
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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 $6,532,000 for the quarter ending May 29, 2011 compared to $4,657,000 in the
same period of the prior year, an increase of 40%. Year-to-date sales for the first three quarters
of fiscal 2011 were $17,742,000 compared to $12,970,000 in the prior year, an increase of 37%.
Sales by product line for the quarter and year-to-date periods are as below:
Fiscal Third Quarter Thirteen Weeks Ended | Fiscal Third Quarter Year-to-Date Ended | |||||||||||||||||||||||||||||||||||||||
Percent | Percent | Dollar | Percent | Percent | Dollar | |||||||||||||||||||||||||||||||||||
May 29, | of Total | May 30, | of Total | Percent | May 29, | of Total | May 30, | of Total | Percent | |||||||||||||||||||||||||||||||
2011 | Sales | 2010 | Sales | Change | 2011 | Sales | 2010 | Sales | Change | |||||||||||||||||||||||||||||||
Recreational |
||||||||||||||||||||||||||||||||||||||||
Vehicles |
$ | 4,145,000 | 64 | % | $ | 3,252,000 | 70 | % | 27 | % | $ | 12,041,000 | 68 | % | $ | 8,276,000 | 64 | % | 45 | % | ||||||||||||||||||||
Energy |
1,693,000 | 26 | % | 878,000 | 19 | % | 93 | % | 3,894,000 | 22 | % | 3,202,000 | 25 | % | 22 | % | ||||||||||||||||||||||||
Aerospace |
||||||||||||||||||||||||||||||||||||||||
& Defense |
587,000 | 9 | % | 429,000 | 9 | % | 37 | % | 1,482,000 | 8 | % | 1,110,000 | 8 | % | 34 | % | ||||||||||||||||||||||||
Bioscience |
81,000 | 1 | % | 91,000 | 2 | % | -11 | % | 265,000 | 2 | % | 264,000 | 2 | % | 0 | % | ||||||||||||||||||||||||
Other |
26,000 | 0 | % | 7,000 | 0 | % | 271 | % | 60,000 | 0 | % | 118,000 | 1 | % | -49 | % | ||||||||||||||||||||||||
Total Sales |
$ | 6,532,000 | 100 | % | $ | 4,657,000 | 100 | % | 40 | % | $ | 17,742,000 | 100 | % | $ | 12,970,000 | 100 | % | 37 | % | ||||||||||||||||||||
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Table of Contents
Sales from the Companys recreational vehicle market were up 27% for the fiscal 2011
third quarter as compared to the prior year quarter due to volume increases. In the fiscal 2011
third quarter, much of the volume increase was related to a previously disclosed new product line.
Year-to-date sales for the recreational vehicle market were up 45% with the increases again due to
volume increases and additional new product lines.
Sales from the Companys energy business for the fiscal third quarter and year-to-date periods
increased by 93% and 22%, respectively. The Companys fiscal third quarters sales were positively
affected by sales to a previously disclosed new customer who provides equipment to the shale
fracturing (fracking) industry as well as increases in sales to an existing customer. Year-to-date
sales increases are attributable to the same reasons. The Companys energy business has been
strong over the past two fiscal quarters.
Sales from the Companys aerospace and defense markets increased year over year in the
Companys fiscal third quarter by 37%. The bulk of the increase is attributable to sales from a
previously announced new assembly program. Year-to-date sales were up 34% versus the prior year
for primarily the same reason.
Sales from the Companys biosciences market were down 11% in the Companys fiscal third
quarter but the decrease was insignificant to the Companys overall sales. Year-to-date sales were
flat versus the prior year.
Sales from the Companys other category amount to less than 1% of sales in the Companys
fiscal third quarter. Year-to-date sales in the other category were down 49% versus the prior year
as the prior years sales included what the Company believes was a one-time sale of repair parts.
Gross margin increased to 22% for the quarter ending May 29, 2011 versus 20% in the prior year
period. Year-to-date gross margins were 17% and 18% for the thirty-nine week periods ending May
29, 2011 and May 30, 2010, respectively. The increase in gross margin in the fiscal 2011 third
quarter is primarily attributable to efficiencies gained from increases in volume and the mix of
parts sold. Year-to-date gross margins were down slightly as the gain in margin the fiscal 2011
third quarter was offset by lower margins from the Companys first two fiscal quarters of the 2011
year. The lower margins in the first two fiscal quarters were attributable to start-up costs in
new programs incurred primarily in those quarters.
Selling and administrative expense was $774,000 for the quarter ending May 29, 2011 versus
$583,000 in the prior year quarter. Year-to-date selling and administrative expense of $1,976,000
was $331,000 higher than the comparable prior year period. The quarterly and year-to-date
increases are due primarily to increased payroll costs and incentive compensation accrued.
Included in selling and administrative expense are non-cash stock option compensation expense costs
related to the adoption of Accounting Standard Codification Topic 710
Compensation in the amount of $61,000 and $57,000 for the quarters ended May 29,
2011 and May 30, 2010, respectively. The year-to-date stock option compensation expenses are
$157,000 and $162,000 for the periods ended May 29, 2011 and May 30, 2010, respectively.
Interest expense in the third quarter of fiscal 2011 was $75,000 as compared to $90,000 in the
prior year quarter. Year-to-date interest expense for fiscal 2011 was $224,000 versus $280,000 in
the prior year. Interest expense is down due primarily to a lower level of overall debt as a
result of the payoff in June 2010 of a term loan due to the Companys bank of $1.2 million as well
as overall lower levels of capital lease related debt in fiscal 2011 as compared to the prior year.
The Company recorded income tax expense at an effective tax rate of 36% for the quarter and
year-to-date periods ended May 29, 2011 and May 30, 2010, respectively.
Liquidity and Capital Resources
On May 29, 2011 working capital was $4,934,000 as compared to $4,438,000 at August 29, 2010.
The ratio of current assets to current liabilities at February 27, 2011 was 2.64 to 1.0 compared to
2.30 to 1.0 at August 29, 2010. The Companys liquidity position has steadily improved in the last twelve
months as its current ratio has improved from 1.97 to 1.0 at the end of the fiscal 2010 third
quarter to its present 2.64 to 1.0. The improvement is due in large measure to the payoff of a
bank term loan in June of 2010 as well as cash generated from operations during the past twelve
months.
9
Table of Contents
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.
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 May 31, 2011 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.
10
Table of Contents
PART II. OTHER INFORMATION:
Item 1A. RISK FACTORS
Not Applicable.
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: June 24, 2011 | /s/ Michael J. Pudil | |||
Michael J. Pudil, Chief Executive Officer | ||||
Date: June 24, 2011 | /s/ Paul D. Sheely | |||
Paul D. Sheely, Vice President, Finance & CFO |
11