Attached files
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EXCEL - IDEA: XBRL DOCUMENT - WSI INDUSTRIES, INC. | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - WSI INDUSTRIES, INC. | ex31-1.htm |
EX-31.2 - EXHIBIT 31.2 - WSI INDUSTRIES, INC. | ex31-2.htm |
EX-32 - EXHIBIT 32 - WSI INDUSTRIES, INC. | ex32.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended November 27, 2011
OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 0-619
WSI Industries, Inc.
(Exact name of registrant as specified in its charter)
Minnesota
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41-0691607
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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213 Chelsea Road, Monticello, Minnesota
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55362
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(Address of principal executive offices)
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(Zip Code)
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(763) 295-9202
(Registrant’s telephone number, including area code)
Not Applicable
(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 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 ¨ No ¨
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 ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,896,080 shares of common stock were outstanding as of December 28, 2011.
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No. | |||
PART I. FINANCIAL INFORMATION:
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Item 1.
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Financial Statements
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Condensed Consolidated Balance Sheets November 27, 2011 (Unaudited) and August 28, 2011
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3 | ||
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Condensed Consolidated Statements of Income Thirteen weeks ended November 27, 2011 and November 28, 2010 (Unaudited) | 4 | |
Condensed Consolidated Statements of Cash Flows Thirteen weeks ended November 27, 2011 and November 28, 2010 (Unaudited)
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5 | ||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 6-7 | ||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operation
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8 - 9 | |
Item 4.
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Controls and Procedures |
10
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PART II. OTHER INFORMATION:
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Item 1A. | Risk Factors |
10
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Item 6.
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Exhibits
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11
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Signatures |
11
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2
Part I. Financial Information
Item I. Financial Statements
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 27,
2011 |
August 28,
2011 |
|||||||
Assets | ||||||||
Current Assets:
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||||||||
Cash and cash equivalents
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$ | 2,855,082 | $ | 2,920,078 | ||||
Accounts receivable
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2,916,407 | 3,292,227 | ||||||
Inventories
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2,287,401 | 2,016,325 | ||||||
Prepaid and other current assets
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164,141 | 227,239 | ||||||
Deferred tax assets
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278,357 | 254,439 | ||||||
Total Current Assets
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8,501,388 | 8,710,308 | ||||||
Property, Plant and Equipment – Net
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8,334,510 | 7,078,061 | ||||||
Goodwill and other assets, net
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2,368,452 | 2,368,452 | ||||||
Total Assets
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$ | 19,204,350 | $ | 18,156,821 | ||||
Liabilities and Stockholders’ Equity
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||||||||
Current Liabilities:
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Trade accounts payable
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$ | 1,415,552 | $ | 1,302,958 | ||||
Accrued compensation and employee withholdings
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743,488 | 1,018,665 | ||||||
Other accrued expenses
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124,892 | 116,609 | ||||||
Current portion of long-term debt
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1,156,019 | 989,191 | ||||||
Total Current Liabilities
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3,439,951 | 3,427,423 | ||||||
Long-term debt, less current portion
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4,877,423 | 3,935,712 | ||||||
Deferred tax liabilities
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376,502 | 308,061 | ||||||
Stockholders’ Equity:
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||||||||
Common stock, par value $.10 a share; authorized 10,000,000 shares; issued and outstanding 2,896,080 and 2,889,567 shares, respectively
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289,608 | 288,957 | ||||||
Capital in excess of par value
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3,178,164 | 3,149,674 | ||||||
Deferred compensation
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(271,014 | ) | (275,106 | ) | ||||
Retained earnings
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7,313,716 | 7,322,100 | ||||||
Total Stockholders’ Equity
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10,510,474 | 10,485,625 | ||||||
Total Liabilities and Stockholders’ Equity
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$ | 19,204,350 | $ | 18,156,821 |
See notes to condensed consolidated financial statements.
3
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
13 weeks ended
|
||||||||
November 27,
2011 |
November 28,
2010 |
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Net sales
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$ | 5,986,941 | $ | 5,527,846 | ||||
Cost of products sold
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5,059,171 | 4,797,697 | ||||||
Gross margin
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927,770 | 730,149 | ||||||
Selling and administrative expense
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690,174 | 594,953 | ||||||
Interest and other income
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(2,198 | ) | (5,348 | ) | ||||
Interest and other expense
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75,453 | 71,172 | ||||||
Earnings from operations before income taxes
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164,341 | 69,372 | ||||||
Income taxes
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59,162 | 24,974 | ||||||
Net income
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$ | 105,179 | $ | 44,398 | ||||
Basic earnings per share
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$ | .04 | $ | .02 | ||||
Diluted earnings per share
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$ | .04 | $ | .02 | ||||
Cash dividend per share
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$ | .04 | $ | .04 | ||||
Weighted average number of common shares outstanding, basic
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2,837,555 | 2,808,316 | ||||||
Weighted average number of common shares outstanding, diluted
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2,897,525 | 2,856,652 |
See notes to condensed consolidated financial statements.
4
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
13 weeks ended
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||||||||
November 27,
2011 |
November 28,
2010 |
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Cash Flows From Operating Activities:
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Net income
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$ | 105,179 | $ | 44,398 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation
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327,665 | 266,364 | ||||||
Deferred taxes
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44,522 | 21,843 | ||||||
Stock option compensation expense
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39,747 | 40,415 | ||||||
Changes in assets and liabilities:
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Decrease in accounts receivable
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375,820 | 381,019 | ||||||
(Increase) decrease in inventories
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(271,076 | ) | 144,843 | |||||
Decrease (increase) in prepaid expenses
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63,098 | (98,938 | ) | |||||
Decrease in accounts payable and accrued expenses
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(160,812 | ) | (153,518 | ) | ||||
Net cash provided by operations
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524,143 | 646,426 | ||||||
Cash Flows From Investing Activities:
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Purchase of property, plant and equipment
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(205,156 | ) | (86,448 | ) | ||||
Net cash used in investing activities
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(205,156 | ) | (86,448 | ) | ||||
Cash Flows From Financing Activities:
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Payments of long-term debt
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(270,419 | ) | (234,213 | ) | ||||
Dividends paid
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(113,564 | ) | (112,207 | ) | ||||
Net cash used in financing activities
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(383,983 | ) | (346,420 | ) | ||||
Net (Decrease) Increase In Cash And Cash Equivalents
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(64,996 | ) | 213,558 | |||||
Cash And Cash Equivalents At Beginning Of Year
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2,920,078 | 2,347,113 | ||||||
Cash And Cash Equivalents At End Of Reporting Period
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$ | 2,855,082 | $ | 2,560,671 | ||||
Supplemental cash flow information:
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Cash paid during the period for:
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Interest
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$ | 75,453 | $ | 71,644 | ||||
Payroll withholding taxes in cashless stock option exercise
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$ | 6,513 | $ | 21,324 | ||||
Income taxes
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$ | 11,000 | $ | 28,000 | ||||
Non-cash investing and financing activities:
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Acquisition of equipment through loans
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$ | 1,378,958 | $ | 553,613 |
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 November 27, 2011, the condensed consolidated statements of income for the thirteen weeks ended November 27, 2011 and November 28, 2010 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 28, 2011 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 Company’s Annual Report on Form 10-K for the year ended August 28, 2011. 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 27,
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August 28,
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|||||||
2011
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2011
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Raw material
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$ | 491,578 | $ | 347,829 | ||||
WIP
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1,065,002 | 976,879 | ||||||
Finished goods
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730,821 | 691,617 | ||||||
$ | 2,287,401 | $ | 2,016,325 |
3. OTHER ASSETS
Goodwill and other assets consist of costs resulting from business acquisitions which total $2,368,452 at November 27, 2011 (net of accumulated amortization of $344,812 recorded prior to the adoption of ASC 350 Goodwill and Other Intangible Assets).
4. LONG-TERM DEBT
During the quarter ended November 27, 2011, the Company entered into two debt agreements for a total of approximately $1,379,000 in connection with the acquisition of machinery and equipment. The debt agreements require monthly payments, carry interest rates of approximately 4.0% to 4.2%, are secured by the related assets acquired and mature in 2018.
6
5. EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted earnings per share:
Thirteen weeks ended
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November 27,
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November 28,
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2011
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2010
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Numerator for earnings per share:
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Net income
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$ | 105,179 | $ | 44,398 | ||||
Denominator:
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Denominator for basic earnings per share - weighted average shares
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2,837,555 | 2,808,316 | ||||||
Effect of dilutive securities:
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Employee and non-employee options
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59,970 | 48,336 | ||||||
Dilutive common shares
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Denominator for diluted earnings per share
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2,897,525 | 2,856,652 | ||||||
Basic earnings per share
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$ | .04 | $ | .02 | ||||
Diluted earnings per share
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$ | .04 | $ | .02 |
7
Item 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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And
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RESULTS OF OPERATIONS
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Critical Accounting Policies and Estimates:
Management's Discussion and Analysis of Financial Condition and Results of Operations discuss our 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.
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 Company’s Annual Report on Form 10-K for the year ended August 28, 2011. Refer to the Annual Report on Form 10-K for detailed information on accounting policies.
Results of Operations:
Net sales were $5,987,000 for the first quarter of fiscal year 2012 ending November 27, 2011, an 8% increase from the same period of the prior year. Sales by product line for the quarter and year-to-date periods are as below:
Fiscal First Quarter Thirteen Weeks Ended
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||||||||||||||||||||
Percent
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Percent
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Dollar
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||||||||||||||||||
November
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of Total
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November
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of Total
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Percent
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27, 2011 |
Sales
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28, 2010 |
Sales
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Change
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ATV & Motorcycle
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$ | 3,645,000 | 61 | % | $ | 4,026,000 | 73 | % | -9 | % | ||||||||||
Energy
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1,823,000 | 30 | % | 871,000 | 16 | % | 109 | % | ||||||||||||
Aerospace & Defense
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469,000 | 8 | % | 564,000 | 10 | % | -17 | % | ||||||||||||
Bioscience
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50,000 | 1 | % | 67,000 | 1 | % | -25 | % | ||||||||||||
Total Sales
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$ | 5,987,000 | 100 | % | $ | 5,528,000 | 100 | % | 8 | % |
Sales from the Company’s ATV and motorcycle markets were down 9% in the fiscal 2012 first quarter as compared to the prior year’s first quarter. While the Company continued to experience increase in demand in its product lines, overall sales decreased due to a previously announced phasing out of a line in our motorcycle business.
8
Sales from the Company’s energy business for the fiscal first quarter of 2012 more than doubled versus the prior year’s first quarter. The increase in sales comes primarily from previously disclosed new customers in the shale fracturing and well drilling segments of our energy business. The Company also experienced a sales increase in its existing blow-out protection product line which also contributed to the overall increase in sales.
Sales from the Company’s aerospace and defense markets decreased in the Company’s fiscal first quarter of 2012 by 17% as compared to the fiscal first quarter of 2011. The decrease is attributable to an assembly program with one customer that is still in the initial phases of marketing by that customer. The Company had minimal sales in the fiscal 2012 first quarter with this customer. Revenues from the Company’s other customers in the aerospace and defense markets were generally higher in the fiscal 2012 first quarter as compared to the prior year’s quarter.
Sales from the Company’s biosciences market decreased from the prior year first quarter, but amount to only 1% of the Company’s overall sales.
Gross margin increased to 15% of net sales for the quarter ending November 27, 2011 as compared to 13% of net sales for the quarter ending November 28, 2010. The increase is due in large measure to fiscal 2011 first quarter start-up costs related to what was then a new program from a new customer in the energy sector. The Company did incur start-up costs in its fiscal 2012 first quarter on new energy programs, but the costs were not as extensive as the prior year’s quarter. The Company anticipates that it will incur additional start-up costs in its current fiscal 2012 second quarter ending February 26, 2012.
Selling and administrative expense was $690,000 in the fiscal 2012 first quarter as opposed to $595,000 for the prior year first quarter. The increase is primarily attributable to higher compensation costs.
Interest expense in the first quarter of fiscal 2012 was $75,000 which was comparable to the $71,000 in first quarter of fiscal 2011.
The Company recorded income tax expense at an effective tax rate of 36% for the quarter ended November 27, 2011 and November 28, 2010, respectively.
Liquidity and Capital Resources:
On November 27, 2011, working capital was $5,061,000 which was a $222,000 decrease as compared to $5,283,000 at August 28, 2011. The decrease was due primarily to the decrease in accounts receivable while the level of current liabilities remained steady. The ratio of current assets to current liabilities of 2.47 to 1.0 at November 27, 2011 was slightly lower than the 2.54 to 1.0 ratio at August 28, 2011.
It is the Company’s 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 Company’s line of credit expires February 1, 2012; 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 Company’s current line of credit. No amounts have been borrowed under the line of credit which carries an interest rate at LIBOR plus 3.0%.
9
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. These risks and uncertainties are described in the Company's Annual Report on Form 10-K for the year ended August 28, 2011, 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
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(a)
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Evaluation of Disclosure Controls and Procedures.
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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 27, 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 Company’s 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 Company’s internal control over financial reporting.
PART II. OTHER INFORMATION:
ITEM 1A. RISK FACTORS
Not Applicable.
10
ITEM 6. EXHIBITS
A. The following exhibits are included herein:
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Exhibit 31.1
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Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.
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Exhibit 31.2
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Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.
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Exhibit 32
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Certification pursuant to 18 U.S.C. §1350.
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101.INS**
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XBRL Instance
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101.SCH**
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XBRL Taxonomy Extension Schema
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101.CAL**
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XBRL Taxonomy Extension Calculation
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101.DEF**
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XBRL Taxonomy Extension Definition
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101.LAB**
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XBRL Taxonomy Extension Labels
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101.PRE**
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XBRL Taxonomy Extension Presentation
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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 6, 2012
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/s/ Benjamin T. Rashleger | ||
Benjamin T. Rashleger, President & CEO | |||
Date: January 6, 2012 | /s/ Paul D. Sheely | ||
Paul D. Sheely, Vice President, Finance & CFO | |||
11