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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 February 25, 2001
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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
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Commission File Number 0-619
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WSI Industries, Inc.
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(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.)
Wayzata, Minnesota 55391
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(Address of principal executive offices) (Zip Code)
(952) 473-1271
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(Registrant's telephone number, including area code)
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(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
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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.
2,465,229 Common Shares were outstanding as of March 31, 2001.
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WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets February 25, 2001(Unaudited)
and August 27, 2000 3
Consolidated Statements of Operations
Thirteen and Twenty-Six weeks ended February 25, 2001 and
Thirteen and Twenty-Six weeks ended February 27, 2000 (Unaudited) 4
Consolidated Statements of Cash Flows
Twenty-Six weeks ended February 25, 2001 and February 27, 2000 5
Notes to Consolidated Financial Statements (Unaudited) 6, 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8, 9
PART II. OTHER INFORMATION:
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
Item 4. Submission of Matters to a Vote of the Security Holders 10
Item 7. Exhibits and Reports on Form 8-K 10
Signatures 10
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Part I. Financial Information
Item 1. Financial Statements
WSI INDUSTRIES, INC
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
FEBRUARY 25, AUGUST 27,
ASSETS 2001 2000
------ ------------- ------------
Current Assets:
Cash and cash equivalents $ 5,654 $ 6,300
Accounts receivable 2,182,341 3,713,198
Inventories 1,937,118 2,738,346
Prepaid and other current assets 169,269 148,206
----------- -----------
Total Current Assets 4,294,382 6,606,050
Property, Plant and Equipment - Net 10,060,933 10,655,696
Intangible Assets 6,288,178 6,169,919
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$20,643,493 $23,431,665
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving credit facility $ 0 $ 369,134
Trade accounts payable 1,139,703 2,041,089
Accrued compensation and employee withholdings 607,507 857,739
Accrued real estate taxes 151,227 151,230
Miscellaneous accrued expenses 207,377 229,719
Current portion of long-term debt 1,899,917 1,236,460
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Total Current Liabilities 4,005,731 4,885,371
Long term debt, less current portion 7,901,353 9,601,003
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 a share;
authorized 10,000,000 shares; issued and
outstanding 2,465,229 shares 246,523 246,523
Capital in excess of par value 1,640,934 1,640,934
Retained earnings 6,848,952 7,057,834
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Total Stockholders' Equity 8,736,409 8,945,291
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$20,643,493 $24,431,665
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See notes to consolidated financial statements
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WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 weeks ended 26 weeks ended
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February 25, February 27, February 25, February 27,
2001 2000 2001 2000
------------ ----------- ----------- ------------
Net sales $ 5,370,556 $7,710,690 $11,945,596 $15,005,642
Cost of products sold 4,266,761 6,612,616 9,400,373 12,880,212
----------- ---------- ----------- -----------
Gross margin 1,103,795 1,098,074 2,545,223 2,125,430
Selling and administrative expense 1,169,197 1,215,848 2,308,371 2,195,546
Pension curtailment -- -- -- (232,000)
Gain on sale of equipment -- (125,611) -- (394,682)
Severance costs -- -- -- 248,507
Interest and other income (5,325) (31,564) (18,362) (38,548)
Interest and other expense 215,615 262,565 461,096 516,095
----------- ---------- ----------- -----------
Earnings (loss) from operations
before income taxes (275,692) (223,164) (205,882) (169,488)
Income tax expense -- -- 3,000 3,000
----------- ---------- ----------- -----------
Net loss $ (275,692) $ (223,164) $ (208,882) $ (172,488)
=========== =========== =========== ===========
Basic and diluted loss per share $ (.11) $ (0.09) $ (.08) $ (0.07)
=========== =========== =========== ===========
Weighted average number of
common shares 2,465,229 2,462,388 2,465,229 2,458,731
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See notes to consolidated financial statements.
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WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
26 weeks ended
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February 25, February 27,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (208,882) $ (172,488)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of property, plant & equipment -- (394,682)
Depreciation and amortization 1,226,174 1,181,341
(Decrease) in pension liability -- (226,062)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,530,857 (1,254,980)
(Increase) decrease in inventories 801,228 576,896
(Increase) decrease in prepaid expenses (21,063) (131,121)
Increase (decrease) in accounts payable and
accrued expenses (1,173,963) 903,279
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Net cash provided by (used in) operations 2,154,351 482,183
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 746,165
Purchase of property, plant and equipment (146,398) (337,118)
Purchase of subsidiary (280,600) --
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Net cash provided by (used in) investing activities (426,998) 409,047
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (2,008,599) (1,058,331)
Proceeds from issuance of long term debt 280,600 --
Issuance of common stock -- 41,813
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Net cash provided by (used in) financing activities (1,727,999) (1,016,518)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (646) (125,288)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,300 131,588
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CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 5,654 $ 6,300
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 257,868 $ 519,144
Income taxes $ 7,500
Noncash investing and financing activities:
Acquisition of machinery through capital lease $ 322,671
See notes to consolidated financial statements.
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WSI INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements:
The consolidated balance sheet as of February 25, 2001, the
consolidated statements of operations for the thirteen weeks and
twenty-six weeks ended February 25, 2001 and February 27, 2000 and the
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.
The balance sheet at August 27, 2000 is derived from the audited
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 2000 annual report to
shareholders. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
2 Business Consolidation and Relocation -- Prior Year First Six Month
Financial Impact:
On September 2, 1999, the Company announced that it was closing
its Long Lake, Minnesota facility and transferring all of the production
to its Taurus and Bowman subsidiaries. As a result of this
consolidation, the Company incurred severance costs in the first quarter
of 2000 of $248,507 for employees terminated or given notice in that
period. WSI was also able to sell excess production equipment in the
first half of 2000 which contributed a gain on sales of $394,682.
Concurrent with the consolidation decision, the Company also decided to
terminate its defined benefit pension plan that resulted in a gain of
$232,000.
3. Debt and Line of Credit:
Pursuant to the Bowman transaction, the Company amended its
credit and security agreement with its bank. The amended agreement calls
for a term loan in the principal amount of $4,400,000 and a revolving
credit facility in the maximum amount of $3,000,000. Interest is accrued
at prime plus .75% for the term loan and prime plus .50% for the
revolving credit facility. Each facility has a LIBOR rate option. The
term loan is payable in equal monthly installments of $52,381 of
principal commencing August 31, 1999 and matures March 31, 2002. At
February 25, 2001, the outstanding balance on the term loan was
$1,457,142 while there was no outstanding balance on the revolving
facility. The fair value of the term debt is estimated to be its
carrying value since the debt has a variable interest rate.
During fiscal 1999, the Company obtained a mortgage with the same
bank that it has its term debt and line of credit facility. The
agreement requires monthly principal payments of $13,889, bears interest
at prime plus 1.0% and has a balance at February 25, 2001 of $2,250,000.
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The Company also entered into Subordinated Promissory Notes with
the former owners of Taurus and Bowman in the amounts of $1,663,000 and
$1,875,000, respectively. In connection with the Bowman acquisition, the
seller earned $280,600 on the second of two contingencies during the
second quarter of fiscal 2001. This amount was added to the note. The
notes bear interest at 7.75% with interest payable quarterly. Principal
payments are due in three annual equal installments commencing on
February 15, 2002 for the Taurus related note and August 6, 2002 for the
Bowman related note.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
Results of Operations:
Net sales of $5,371,000 for the quarter ending February 25, 2001
decreased 30% or 2,340,000 from the same period of the prior year. As
discussed in the prior quarter's 10-Q, two major customers made the
decision to consign raw materials for their manufacturing programs to
the Company instead of WSI purchasing the material and subsequently
reselling the material to the customer after manufacturing. This move to
consigned inventory in combination with a softening of the agriculture,
construction and power systems markets led to the lower sales level.
Year to date sales of $11,946,000 were $3,060,000 or 20% less than the
prior year due to the reasons described above.
Gross margin improved to 21% as compared to 14% in the prior year
for both the thirteen and twenty-six week periods. These improvements
reflected the reduced content of low margin raw materials in the
Company's revenue stream as well as strengthened manufacturing
efficiencies.
Selling and administrative expense of $1,169,000 was $46,000
lower than the prior year quarter due to lower professional service
expense partially offset by salaries paid to consolidation transition
employees in Fiscal 2000. Year to date selling and administration
expense of $2,308,000 was $113,000 higher in fiscal 2001 than fiscal
2000 due to the carrying cost of the Long Lake, Minnesota building being
included in selling and administrative expense in the first quarter of
2001 and in cost of sales in 2000.
Interest and other expense decreased $47,000 for the quarter and
$55,000 year to date due to the lower levels of long term debt in Fiscal
2001 versus Fiscal 2000.
During Fiscal 2000, WSI sold excess manufacturing equipment with
a net book value of $351,000 for $746,000, generating a gain of
$395,000.
The Company has listed its Long Lake facility for sale. During
the second quarter of fiscal 2001, the Company incurred approximately
$190,000 in expense including interest. For the first half of 2001, the
expense was approximately $330,000.
In the twenty-six week period ended February 25, 2001, the
Company recorded a tax provision of $3,000 to cover mandatory state
income taxes and federal alternative minimum taxes. The Company has not
recorded the benefit of net operating losses and other net deductible
temporary differences in the consolidated statement of operations due to
the fact that the Company has not been able to establish that it is more
likely than not that the tax benefit will be realized.
Liquidity and Capital Resources:
On February 25, 2001 working capital was $289,000 compared to
$1,721,000 at August 27, 2000, a decrease of $1,432,000. The ratio of
current assets to current liabilities at February 25, 2001
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and August 27, 2000 was 1.07 to 1.0 and 1.35 to 1.0, respectively. The
working capital decrease was attributable to a combination of lower
accounts receivable and inventory due to the consigned inventory
situation discussed previously, as well as the inclusion of one-third
of the Taurus related Subordinated Promissory Note Payable now
included in current maturities.
As described previously in the Notes to Consolidated Statements,
the Company amended its credit and security agreement with its bank on
August 6, 1999. Currently, the Company owes $1,457,000 on its term loan
facility but does not have a balance due on its revolving facility. The
revolving facility had approximately $2,000,000 of availability at
February 25, 2001. The term loan carries an interest rate at prime plus
.75%. The revolver rate is at prime plus .50%.
The Company also entered into a mortgage with the same bank on
August 6, 1999 as outlined in the Notes to Consolidated Statements. The
Company currently owes $2,250,000 with interest paid at prime plus 1.0%.
As also described in the Notes, the Company entered into a
subordinated promissory note with the former owner of Taurus for
approximately $1,663,000. Interest is accrued at a rate of 7.75% paid
quarterly. Principal payments are due in three equal annual installments
commencing on February 15, 2002. The Company also has a subordinated
promissory note of $1,875,000 with the former owner of Bowman. Interest
is accrued at 7.75% payable quarterly with principal payments due in
equal annual installments commencing August 6, 2002.
Total capitalized lease debt of $2,557,000 on February 25, 2001
was $81,000 higher than on August 27, 2000. The increase resulted from a
new capital lease of $323,000 offset by payments on the leases.
It is management's belief that its internally generated funds
combined with the line of credit will be sufficient to enable the
Company to meet its financial requirements during fiscal 2001.
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 which 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 current customers could have a material adverse effect on the
Company; (iii) a significant downturn in the industries in which the
Company participates, principally the agricultural industry, could have
an adverse effect on the demand for Company services. 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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
1. Not Applicable
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders.
A. The Annual Meeting of the Company Stockholders was held on
January 11, 2001.
B. Directors elected at that meeting were:
Paul Baszucki For 1,395,409 Against 26,245
Melvin L. Katten For 1,399,309 Against 22,343
George J. Martin For 1,399,268 Against 22,384
Eugene J. Mora For 1,395,109 Against 26,543
Michael J. Pudil For 1,398,896 Against 22,756
C. Amendment to bylaws to reduce the number of directors to
five:
For 909,948 Against 11,982 Abstain 3,384 Broker non-vote 0
Item 7. Exhibits and Reports on Form 8-K:
A. None
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: April 11, 2001 /s/ Michael J. Pudil
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Michael J. Pudil, President & CEO
Date: April 11, 2001 /s/ Paul D. Sheely
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Paul D. Sheely, Vice President, Finance &
CFO
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