| • FORM 10-Q • EXHIBIT 31.1 • EXHIBIT 31.2 • EXHIBIT 32 • XBRL INSTANCE • XBRL TAXONOMY EXTENSION SCHEMA • XBRL TAXONOMY EXTENSION CALCULATION • XBRL TAXONOMY EXTENSION DEFINITION • XBRL TAXONOMY EXTENSION LABELS • XBRL TAXONOMY EXTENSION PRESENTATION | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended February 26, 2012
OR
For the transition period from to
Commission file number 0-619
WSI Industries, Inc.
(Exact name of registrant as specified in its charter)
(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 x 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.
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: 2,904,682 shares of common stock were outstanding as of March 22, 2012.
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WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
2
Part 1. Financial Information
Item 1. Financial Statements
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
See notes to condensed consolidated financial statements.
3
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
See notes to condensed consolidated financial statements.
4
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
See notes to condensed consolidated financial statements.
5
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated balance sheet as of February 26, 2012, the condensed consolidated statements of income for the thirteen and twenty-six weeks ended February 26, 2012 and February 27, 2011 and the condensed consolidated statements of cash flows for the twenty-six 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.
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The following table sets forth the computation of basic and diluted earnings per share:
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Item 2.
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 $7,021,000 for the thirteen weeks ending February 26, 2012, an increase of 24% or $1,339,000 from the same period of the prior year. Year-to-date sales in fiscal 2012 are $13,008,000 compared to $11,210,000 in the prior year which equates to a 16% increase. Total Company sales by product markets are as follows:
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Sales from the Company’s ATV and Motorcycle markets were up 17% for the fiscal 2012 second quarter as compared to the prior year quarter due to increased demand across all product lines from the Company’s largest customer. Year-to-date sales for the ATV and Motorcycle markets were up 4% as compared to the prior year for the same reason. Partially offsetting the increases in demand, both quarter-to-date and year-to-date sales were negatively impacted by a previously announced phasing out of a line in our motorcycle business, but the impact was not great enough to offset increases in other programs. The effect from the product line phasing out will continue through the fiscal 2012 third quarter.
Sales from the Company’s energy business for the fiscal second quarter were up by 51% over the prior year’s second quarter. This increase was due primarily to the continued ramping up of programs in the shale fracturing business. Year to date sales are up 74% as compared to the prior year for the same reason.
Sales from the Company’s aerospace, defense and other markets were down 1% in the fiscal 2012 second quarter versus the prior year; an amount the Company does not consider a material change. Year-to-date sales were down 11% versus the prior, an amount the Company also doesn’t consider to be a material change.
Gross margin in the fiscal 2012 second quarter was comparable to the prior year quarter and came in at 15%. Year-to-date gross margin in fiscal 2012 was 15%, which was an increase over the prior year-to-date gross margin of 14%. The fiscal 2012 and 2011 second quarter gross margins were affected by similar items in each year. Both years had similar material content percent of sales and both were negatively affected by start-up costs related to new programs in the energy sector. The year-to-date gross margin increase to 15% in fiscal 2012 resulted from primarily a lower material content percent of sales, although there were several other factors that affected margin both up and down. Year-to-date gross margins in both years were negatively affected by start-up costs in the energy business.
Selling and administrative expense of $711,000 for the quarter ending February 26, 2012 was $104,000 higher than in the prior year period due primarily to higher compensation expense. Year-to-date selling and administrative expense of $1,401,000 was $201,000 higher than the comparable prior year period due primarily to the same reason. As a percent of sales, both the fiscal 2012 second quarter and year-to-date selling and administrative expense were similar to their prior year respective periods.
Interest expense in the second quarter of fiscal 2012 was $80,000, which was $2,000 higher than the second quarter of fiscal 2011 amount of $78,000. Year-to-date interest expense for fiscal 2012 of $156,000 was higher than the prior year-to-date amount by $7,000. The higher interest costs are a result of the overall higher level of long-term debt offset by a lower overall effective interest rate of that debt.
The Company recorded income tax expense at an effective tax rate of 36% for the quarter and year-to-date periods ended February 26, 2012 and February 27, 2011.
Liquidity and Capital Resources:
On February 26, 2012 working capital was $5,039,000 as compared to $5,283,000 at August 28, 2011. The ratio of current assets to current liabilities at February 26, 2012 was 2.32 to 1.0 compared to 2.54 to 1.0 at August 28, 2011. The decrease in these measures is a result of current assets remaining relatively steady while current liabilities increased. Current assets had offsetting affects of increases in accounts receivable, inventory and prepaid and other assets offset by a decrease in cash. Current liabilities had increases in accounts payable and current maturities of long-term debt partially offset by a decrease in accrued compensation and employee withholdings. Cash decreased $1.2 million year-to-date in fiscal 2012 as a result of these changes in the elements of working capital as well as cash being used to pay for equipment, dividends and long-term debt.
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The increase in accounts receivable is due to the overall sales increase as well as the fiscal 2012 second quarter sales being unevenly weighted towards the end of the quarter. The increase in inventories is primarily due to the conversion of some energy business product lines from consigned raw material to purchased raw material. The increase in prepaid and other assets is due primarily to sales tax refunds that have been applied for but yet to be received back from a State governmental unit.
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.
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
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 February 26, 2012 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.
The Company does 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.
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PART II. OTHER INFORMATION:
Item 1A. RISK FACTORS
Not Applicable.
Item 6. EXHIBITS
A. The following exhibits are included herein:
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.
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