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Form 10-Q WSI INDUSTRIES, INC. For: Nov 29

December 29, 2015 11:14 AM EST

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended November 29, 2015

 

OR

 

[  ] 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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

213 Chelsea Road, Monticello, Minnesota   55362
(Address of principal executive offices)   (Zip Code)

 

(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.

 

Large accelerated filer [  ]   Accelerated filer [  ]
     
Non-accelerated filer [  ]   Smaller reporting company [X]

 

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: 2,919,500 shares of common stock were outstanding as of December 18, 2015.

 

 

 

 
   

 

WSI INDUSTRIES, INC.

 

AND SUBSIDIARIES

 

INDEX

 

      Page No.
       
PART I. FINANCIAL INFORMATION:
       
  Item 1. Financial Statements
       
    Condensed Consolidated Balance Sheets November 29, 2015 and August 30, 2015 (Unaudited) 3
     
    Condensed Consolidated Statements of Income Thirteen weeks ended November 29, 2015 and November 30, 2014 (Unaudited) 4
     
    Condensed Consolidated Statements of Cash Flows Thirteen weeks ended November 29, 2015 and November 30, 2014 (Unaudited) 5
     
    Notes to Condensed Consolidated Financial Statements (Unaudited) 6-7
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 8-10
       
  Item 4. Controls and Procedures 10
       
PART II. OTHER INFORMATION:  
       
  Item 6. Exhibits 11
       
  Signatures 12

 

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Part I. Financial Information

 

Item I. Financial Statements

 

WSI INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   November 29, 2015   August 30, 2015 
Assets          
           
Current Assets:          
           
Cash and cash equivalents  $5,040,529   $4,149,645 
Accounts receivable   2,861,486    2,985,256 
Inventories   4,616,692    5,951,706 
Prepaid and other current assets   442,119    542,064 
Deferred tax assets   153,456    117,904 
Total Current Assets   13,114,282    13,746,575 
           
Property, Plant and Equipment – Net   12,464,735    12,900,900 
           
Goodwill and other assets, net   2,378,144    2,379,147 
           
Total Assets  $27,957,161   $29,026,622 
           
Liabilities and Stockholders’ Equity          
           
Current Liabilities:          
           
Trade accounts payable  $2,104,636   $2,793,948 
Accrued compensation and employee withholdings   409,229    388,770 
Other accrued expenses   214,720    208,364 
Current portion of long-term debt   1,514,829    1,527,688 
Total Current Liabilities   4,243,414    4,918,770 
           
Long-term debt, less current portion   7,959,136    8,342,926 
           
Deferred tax liabilities   1,826,321    1,890,194 
           
Stockholders’ Equity:          
Common stock, par value $.10 a share; authorized 10,000,000 shares; issued and outstanding 2,919,500 shares   291,950    291,950 
Capital in excess of par value   3,683,471    3,683,471 
Retained earnings   9,952,869    9,899,311, 
Total Stockholders’ Equity   13,928,290    13,874,732 
Total Liabilities and Stockholders’ Equity  $27,957,161   $29,026,622 

  

See notes to condensed consolidated financial statements.

 

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WSI INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   13 weeks ended 
   November 29, 2015   November 30, 2014 
         
Net sales  $9,731,406   $10,098,171 
           
Cost of products sold   8,843,401    9,058,939 
           
Gross margin   888,005    1,039,232 
           
Selling and administrative expense   704,583    699,786 
Interest and other income   (1,435)   (1,503)
Interest and other expense   82,205    88,469 
Earnings from operations before income taxes   102,652    252,480 
           
Income tax expense (benefit)   (29,686)   85,843 
           
Net income  $132,338   $166,637 
          
Basic earnings per share  $.05   $.06 
           
Diluted earnings per share  $.05   $.06 
           
Cash dividend per share  $.04   $.04 
           
Weighted average number of common shares outstanding, basic   2,919,500    2,904,331 
           
Weighted average number of common shares outstanding, diluted   2,932,111    2,961,014 

 

See notes to condensed consolidated financial statements.

 

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WSI INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   13 weeks ended 
   November 29, 2015   November 30, 2014 
         
Cash Flows From Operating Activities:          
Net income  $132,338   $166,637 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   485,779    505,187 
Amortization   1,003    1,002 
Deferred taxes   (99,425)   65,843 
Stock option compensation expense   38,001    46,950 
Changes in assets and liabilities:          
Decrease in accounts receivable   123,770    988,717 
Decrease (increase) in inventories   1,335,014    (767,575)
Decrease (increase) in prepaid expenses   99,945    (46,804)
Decrease in accounts payable and accrued expenses   (662,497)   (524,358)
Net cash provided by operations   1,453,928    435,599 
           
Cash Flows From Investing Activities:          
Purchase of property, plant and equipment   (49,614)   (32,695)
Net cash used in investing activities   (49,614)   (32,695)
           
Cash Flows From Financing Activities:          
Payments of long-term debt   (396,649)   (430,011)
Dividends paid   (116,781)   (116,165)
           
Net cash used in financing activities   (513,430)   (546,176)
           
Net Increase (Decrease) In Cash And Cash Equivalents   890,884    (143,272)
           
Cash And Cash Equivalents At Beginning Of Year   4,149,645    3,233,436 
           
Cash And Cash Equivalents At End Of Reporting Period  $5,040,529   $3,090,164 
           
Supplemental cash flow information:          
Cash paid during the period for:          
Interest  $82,883   $88,469 
Payroll withholding taxes in cashless stock option exercise  $-   $230 
Income taxes  $-   $20,000 

 

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 29, 2015, the condensed consolidated statements of income for the thirteen weeks ended November 29, 2015 and November 30, 2014 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 30, 2015 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 30, 2015. 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 29, 2015   August 30, 2015 
Raw material  $2,006,883   $3,340,594 
WIP   1,523,518    1,373,904 
Finished goods   1,086,291    1,237,208 
   $4,616,692   $5,951,706 

 

3. OTHER ASSETS

 

Goodwill and other assets consist of costs resulting from business acquisitions which total $2,368,452 at November 29, 2015 (net of accumulated amortization of $344,812 recorded prior to the adoption of ASC 350 Goodwill and Other Intangible Assets) as well as deferred financing costs of $9,692 (net of accumulated amortization of $10,361) incurred in connection with a mortgage agreement entered into with the Company’s bank.

 

4. DEBT AND LINE OF CREDIT:

 

During the quarter ended November 29, 2015 the Company renewed and modified its Revolving Line of Credit with its bank. Under the agreement the Company can borrow up to $1 million. The agreement expires on February 28, 2017, is collateralized by all assets of the Company and carries an interest rate of LIBOR plus 2%. The agreement also contains restrictive provisions requiring a minimum year-to-date earnings before interest, taxes, depreciation and amortization (EBITDA) measured quarterly, a minimum liquidity, a maximum debt to tangible net worth ratio, as well as a debt service coverage ratio. At November 29, 2015 the Company was in compliance with these provisions.

 

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5. INCOME TAXES:

 

The Company’s effective tax rate for its quarter ended November 29, 2015 was a negative (28.9)% as compared to 34.0% for the quarter ended November 30, 2014. The Company has determined that certain of its activities the Company performs qualify for the Research & Development tax credit (R&D credit) as defined by Internal Revenue Code Section 41. During the fiscal 2016 first quarter the Company recognized tax benefits related to R&D tax credits which were generated in a prior year which lowered the overall effective tax rate. Subsequent to the end of the Company’s fiscal 2016 first quarter, the Federal R&D tax credit law was retroactively renewed for calendar year 2015 and also made permanent going forward. Since for calendar year 2015 the law was enacted retroactively, any effects are recognized as a component of income tax expense or benefit from continuing operations in the financial statements in the interim period that the law was enacted, which in this case will be the Company’s fiscal 2016 second quarter.

 

6. CLAIMS AND CONTINGENCIES:

 

The Company is exposed to a number of asserted and unasserted claims encountered in the ordinary course of business. Although the outcome of any such claim cannot be predicted, management believes that there are no pending legal proceedings or claims against or involving the Company for which the outcome is likely to have a material adverse effect upon its financial position or results of operations.

 

7. EARNINGS PER SHARE:

 

The following table sets forth the computation of basic and diluted earnings per share:

 

   Thirteen weeks ended 
   November 29, 2015   November 30, 2014 
Numerator for earnings per share:        
Net income  $132,338   $166,637 
           
Denominator:          
Denominator for basic earnings per share - weighted average shares   2,919,500    2,904,331 
           
Effect of dilutive securities:          
Employee and non-employee options   12,611    56,683 
           
Dilutive common shares          
Denominator for diluted earnings per share   2,932,111    2,961,014 
           
Basic earnings per share  $.05   $.06 
           
Diluted earnings per share  $.05   $.06 

 

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Item 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 

And

 

RESULTS OF OPERATIONS

 

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 30, 2015. Refer to the Annual Report on Form 10-K for detailed information on accounting policies.

 

Results of Operations:

 

Net sales were $9,731,000 for the first quarter of fiscal year 2016 ending November 29, 2015, a 4% decrease 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 29,   of Total   November 30,   of Total   Percent 
   2015   Sales   2014   Sales   Change 
                     
ATV & Motorcycle  $8,763,000    90%  $7,918,000    78%   11%
Energy   296,000    3%   1,507,000    15%   -80%
Aerospace, Defense & Other   672,000    7%   673,000    7%   -%
Total Sales  $9,731,000    100%  $10,098,000    100%   -4%

 

Sales from the Company’s ATV and motorcycle markets increased 11% in the fiscal 2016 first quarter as compared to the prior year’s first quarter. Sales increases for the fiscal 2016 first quarter were due primarily to a new product line that in the year prior was still ramping up, as well as increased sales in certain of the Company’s product lines that offset a decrease in sales from other product lines.

 

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Sales from the Company’s energy business for the fiscal first quarter of 2016 decreased by 80% versus the prior year’s first quarter. All of the Company’s customers in the energy market have their own internal machining capabilities and therefore the Company’s sales are generated primarily when their customers have limited machining capacity and therefore need to outsource. Circumstances such as a low price for oil will tend to drive machining in house and therefore lower the Company’s sales.

 

Sales from the Company’s aerospace, defense and other markets were consistent with the prior year with most of the Company’s customers having similar sales from fiscal 2015 to fiscal 2016.

 

Gross margin decreased to 9.1% of net sales for the quarter ending November 29, 2015 as compared to 10.3% of net sales for the quarter ending November 30, 2014. The decrease in fiscal 2016 was attributable to a lower level of energy business which led to excess capacity and a higher percentage of sales in fixed costs such as depreciation. Gross margin was also negatively impacted by product mix which led to a higher material content percentage of sales.

 

Selling and administrative expense was $705,000 in the fiscal 2016 first quarter as compared to $700,000 in the prior year first quarter. Most items that make up selling and administrative expense were comparable to the prior year with some small increases and decreases year over year.

 

Interest expense in the first quarter of fiscal 2016 was $82,000 as compared to $88,000 in first quarter of fiscal 2015. The decrease was due to a lower overall level of debt.
 

The Company’s effective tax rate for its quarter ended November 29, 2015 was a negative (28.9)% as compared to 34.0% for the quarter ended November 30, 2014. The Company has determined that certain of its activities the Company performs qualify for the Research & Development tax credit (R&D credit) as defined by Internal Revenue Code Section 41. During the fiscal 2016 first quarter the Company recognized tax benefits related to R&D tax credits which were generated in a prior year which lowered the overall effective tax rate. Subsequent to the end of the Company’s fiscal 2016 first quarter, the Federal R&D tax credit law was retroactively renewed for calendar year 2015 and also made permanent going forward. Since for calendar year 2015 the law was enacted retroactively, any effects are recognized as a component of income tax expense or benefit from continuing operations in the financial statements in the interim period that the law was enacted, which in this case will be the Company’s fiscal 2016 second quarter.

 

Liquidity and Capital Resources:

 

At November 29, 2015, working capital was $8,871,000 which was a $43,000 increase as compared to $8,828,000 at August 30, 2015. The small increase was due to offsetting factors including an increase in cash and lower accounts payable offset by a decrease in inventory. The ratio of current assets to current liabilities of was 3.09 to 1.0 at November 29, 2015 as compared to the 2.79 to 1.0 ratio at August 30, 2015. The improvement in the current ratio was due to the same reasons.

 

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. At November 29, 2015, the Company had a $1 million line of credit with its bank that had not been accessed.

 

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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 30, 2015, 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 29, 2015 our disclosure controls and procedures were effective.

 

(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.

 

10
   

 

PART II. OTHER INFORMATION:

 

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.
   
101.INS** XBRL Instance
   
101.SCH** XBRL Taxonomy Extension Schema
   
101.CAL** XBRL Taxonomy Extension Calculation
   
101.DEF** XBRL Taxonomy Extension Definition
   
101.LAB** XBRL Taxonomy Extension Labels
   
101.PRE** XBRL Taxonomy Extension Presentation

 

11
   

 

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: December 29, 2015 /s/ Benjamin T. Rashleger
  Benjamin T. Rashleger, President & CEO
   
Date: December 29, 2015 /s/ Paul D. Sheely
  Paul D. Sheely, Vice President, Finance & CFO

 

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Exhibit 31.1

 

CERTIFICATIONS

 

I, Benjamin T. Rashleger, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of WSI Industries, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: December 29, 2015

 

  /s/ Benjamin T. Rashleger
  Benjamin T. Rashleger
  President & Chief Executive Officer
  (principal executive officer)

 

 
 

 

 

Exhibit 31.2

 

CERTIFICATIONS

 

I, Paul D. Sheely, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of WSI Industries, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: December 29, 2015

 

  /s/ Paul D. Sheely
  Paul D. Sheely
  Chief Financial Officer
  (principal financial and accounting officer)

 

 
 

 

 

Exhibit 32

 

CERTIFICATION

 

The undersigned certify pursuant to 18 U.S.C. § 1350, that:

 

(1) The accompanying Quarterly Report on Form 10-Q for the period ended November 29, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: December 29, 2015 /s/ Benjamin T. Rashleger
  President & Chief Executive Officer
  (principal executive officer)
   
Date: December 29, 2015 /s/ Paul D. Sheely
  Chief Financial Officer
  (principal financial and accounting officer)

 

 
 

 

 

v3.3.1.900
Document and Entity Information - shares
3 Months Ended
Nov. 29, 2015
Dec. 18, 2015
Document And Entity Information    
Entity Registrant Name WSI INDUSTRIES, INC.  
Entity Central Index Key 0000104897  
Document Type 10-Q  
Document Period End Date Nov. 29, 2015  
Amendment Flag false  
Current Fiscal Year End Date --08-28  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   2,919,500
Trading Symbol WSCI  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2016  
v3.3.1.900
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
Nov. 29, 2015
Aug. 30, 2015
Current Assets:    
Cash and cash equivalents $ 5,040,529 $ 4,149,645
Accounts receivable 2,861,486 2,985,256
Inventories 4,616,692 5,951,706
Prepaid and other current assets 442,119 542,064
Deferred tax assets 153,456 117,904
Total Current Assets 13,114,282 13,746,575
Property, Plant and Equipment - Net 12,464,735 12,900,900
Goodwill and other assets, net 2,378,144 2,379,147
Total Assets 27,957,161 29,026,622
Current Liabilities:    
Trade accounts payable 2,104,636 2,793,948
Accrued compensation and employee withholdings 409,229 388,770
Other accrued expenses 214,720 208,364
Current portion of long-term debt 1,514,829 1,527,688
Total Current Liabilities 4,243,414 4,918,770
Long-term debt, less current portion 7,959,136 8,342,926
Deferred tax liabilities 1,826,321 1,890,194
Stockholders' Equity:    
Common stock, par value $.10 a share; authorized 10,000,000 shares; issued and outstanding 2,919,500 shares 291,950 291,950
Capital in excess of par value 3,683,471 3,683,471
Retained earnings 9,952,869 9,899,311
Total Stockholders' Equity 13,928,290 13,874,732
Total Liabilities and Stockholders' Equity $ 27,957,161 $ 29,026,622
v3.3.1.900
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares
Nov. 29, 2015
Aug. 30, 2015
Statement of Financial Position [Abstract]    
Common stock, par value $ .10 $ .10
Common stock, shares authorized 10,000,000 10,000,000
Common stock, shares issued 2,919,500 2,919,500
Common stock, shares outstanding 2,919,500 2,919,500
v3.3.1.900
Condensed Consolidated Statements of Income (Unaudited) - USD ($)
3 Months Ended
Nov. 29, 2015
Nov. 30, 2014
Income Statement [Abstract]    
Net sales $ 9,731,406 $ 10,098,171
Cost of products sold 8,843,401 9,058,939
Gross margin 888,005 1,039,232
Selling and administrative expense 704,583 699,786
Interest and other income (1,435) (1,503)
Interest and other expense 82,205 88,469
Earnings from operations before income taxes 102,652 252,480
Income tax expense (benefit) (29,686) 85,843
Net income $ 132,338 $ 166,637
Basic earnings per share $ 0.05 $ 0.06
Diluted earnings per share 0.05 0.06
Cash dividend per share $ 0.04 $ 0.04
Weighted average number of common shares outstanding, basic 2,919,500 2,904,331
Weighted average number of common shares outstanding, diluted 2,932,111 2,961,014
v3.3.1.900
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Nov. 29, 2015
Nov. 30, 2014
Cash Flows From Operating Activities:    
Net income $ 132,338 $ 166,637
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 485,779 505,187
Amortization 1,003 1,002
Deferred taxes (99,425) 65,843
Stock option compensation expense 38,001 46,950
Changes in assets and liabilities:    
Decrease in accounts receivable 123,770 988,717
Decrease (increase) in inventories 1,335,014 (767,575)
Decrease (increase) in prepaid expenses 99,945 (46,804)
Decrease in accounts payable and accrued expenses (662,497) (524,358)
Net cash provided by operations 1,453,928 435,599
Cash Flows From Investing Activities:    
Purchase of property, plant and equipment (49,614) (32,695)
Net cash used in investing activities (49,614) (32,695)
Cash Flows From Financing Activities:    
Payments of long-term debt (396,649) (430,011)
Dividends paid (116,781) (116,165)
Net cash used in financing activities (513,430) (546,176)
Net Increase (Decrease) In Cash And Cash Equivalents 890,884 (143,272)
Cash And Cash Equivalents At Beginning Of Year 4,149,645 3,233,436
Cash And Cash Equivalents At End Of Reporting Period 5,040,529 3,090,164
Supplemental cash flow information:    
Interest $ 82,883 88,469
Payroll withholding taxes in cashless stock option exercise 230
Income taxes $ 20,000
v3.3.1.900
Condensed Consolidated Financial Statements
3 Months Ended
Nov. 29, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Condensed Consolidated Financial Statements

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

 

The condensed consolidated balance sheet as of November 29, 2015, the condensed consolidated statements of income for the thirteen weeks ended November 29, 2015 and November 30, 2014 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 30, 2015 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 30, 2015. The results of operations for interim periods are not necessarily indicative of the operating results for the full year.

 

v3.3.1.900
Inventories
3 Months Ended
Nov. 29, 2015
Inventory Disclosure [Abstract]  
Inventories

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 29, 2015     August 30, 2015  
Raw material   $ 2,006,883     $ 3,340,594  
WIP     1,523,518       1,373,904  
Finished goods     1,086,291       1,237,208  
    $ 4,616,692     $ 5,951,706  

 

v3.3.1.900
Other Assets
3 Months Ended
Nov. 29, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
Other Assets

3. OTHER ASSETS

 

Goodwill and other assets consist of costs resulting from business acquisitions which total $2,368,452 at November 29, 2015 (net of accumulated amortization of $344,812 recorded prior to the adoption of ASC 350 Goodwill and Other Intangible Assets) as well as deferred financing costs of $9,692 (net of accumulated amortization of $10,361) incurred in connection with a mortgage agreement entered into with the Company’s bank.

v3.3.1.900
Debt and Line of Credit
3 Months Ended
Nov. 29, 2015
Debt Disclosure [Abstract]  
Debt and Line of Credit

4. DEBT AND LINE OF CREDIT:

 

During the quarter ended November 29, 2015 the Company renewed and modified its Revolving Line of Credit with its bank. Under the agreement the Company can borrow up to $1 million. The agreement expires on February 28, 2017, is collateralized by all assets of the Company and carries an interest rate of LIBOR plus 2%. The agreement also contains restrictive provisions requiring a minimum year-to-date earnings before interest, taxes, depreciation and amortization (EBITDA) measured quarterly, a minimum liquidity, a maximum debt to tangible net worth ratio, as well as a debt service coverage ratio. At November 29, 2015 the Company was in compliance with these provisions.

 

v3.3.1.900
Income Taxes
3 Months Ended
Nov. 29, 2015
Income Tax Disclosure [Abstract]  
Income Taxes

5. INCOME TAXES:

 

The Company’s effective tax rate for its quarter ended November 29, 2015 was a negative (28.9)% as compared to 34.0% for the quarter ended November 30, 2014. The Company has determined that certain of its activities the Company performs qualify for the Research & Development tax credit (R&D credit) as defined by Internal Revenue Code Section 41. During the fiscal 2016 first quarter the Company recognized tax benefits related to R&D tax credits which were generated in a prior year which lowered the overall effective tax rate. Subsequent to the end of the Company’s fiscal 2016 first quarter, the Federal R&D tax credit law was retroactively renewed for calendar year 2015 and also made permanent going forward. Since for calendar year 2015 the law was enacted retroactively, any effects are recognized as a component of income tax expense or benefit from continuing operations in the financial statements in the interim period that the law was enacted, which in this case will be the Company’s fiscal 2016 second quarter.

 

v3.3.1.900
Claims and Contingencies
3 Months Ended
Nov. 29, 2015
Commitments and Contingencies Disclosure [Abstract]  
Claims and Contingencies

6. CLAIMS AND CONTINGENCIES:

 

The Company is exposed to a number of asserted and unasserted claims encountered in the ordinary course of business. Although the outcome of any such claim cannot be predicted, management believes that there are no pending legal proceedings or claims against or involving the Company for which the outcome is likely to have a material adverse effect upon its financial position or results of operations.

v3.3.1.900
Earnings Per Share
3 Months Ended
Nov. 29, 2015
Earnings Per Share [Abstract]  
Earnings Per Share

7. EARNINGS PER SHARE:

 

The following table sets forth the computation of basic and diluted earnings per share:

 

    Thirteen weeks ended  
    November 29, 2015     November 30, 2014  
Numerator for earnings per share:            
Net income   $ 132,338     $ 166,637  
                 
Denominator:                
Denominator for basic earnings per share - weighted average shares     2,919,500       2,904,331  
                 
Effect of dilutive securities:                
Employee and non-employee options     12,611       56,683  
                 
Dilutive common shares                
Denominator for diluted earnings per share     2,932,111       2,961,014  
                 
Basic earnings per share   $ .05     $ .06  
                 
Diluted earnings per share   $ .05     $ .06  

v3.3.1.900
Inventories (Tables)
3 Months Ended
Nov. 29, 2015
Inventory Disclosure [Abstract]  
Schedule of 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 29, 2015     August 30, 2015  
Raw material   $ 2,006,883     $ 3,340,594  
WIP     1,523,518       1,373,904  
Finished goods     1,086,291       1,237,208  
    $ 4,616,692     $ 5,951,706  

 

v3.3.1.900
Earnings Per Share (Tables)
3 Months Ended
Nov. 29, 2015
Earnings Per Share [Abstract]  
Schedule of Basic and Diluted Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

 

    Thirteen weeks ended  
    November 29, 2015     November 30, 2014  
Numerator for earnings per share:            
Net income   $ 132,338     $ 166,637  
                 
Denominator:                
Denominator for basic earnings per share - weighted average shares     2,919,500       2,904,331  
                 
Effect of dilutive securities:                
Employee and non-employee options     12,611       56,683  
                 
Dilutive common shares                
Denominator for diluted earnings per share     2,932,111       2,961,014  
                 
Basic earnings per share   $ .05     $ .06  
                 
Diluted earnings per share   $ .05     $ .06  

v3.3.1.900
Inventories - Schedule of Inventories (Details) - USD ($)
Nov. 29, 2015
Aug. 30, 2015
Inventory Disclosure [Abstract]    
Raw material $ 2,006,883 $ 3,340,594
WIP 1,523,518 1,373,904
Finished goods 1,086,291 1,237,208
Inventories Net $ 4,616,692 $ 5,951,706
v3.3.1.900
Other Assets (Details Narrative)
Nov. 29, 2015
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill $ 2,368,452
Accumulated amortization goodwill net 344,812
Deferred finance costs, net 9,692
Accumulated amortization deferred finance costs $ 10,361
v3.3.1.900
Debt and Line of Credit (Details Narrative) - Revolving Line of Credit [Member] - Bank [Member]
3 Months Ended
Nov. 29, 2015
USD ($)
Maximum borrowings $ 1,000,000
Agreement expires date Feb. 28, 2017
LIBOR [Member]  
Debt instrument interest rate 2.00%
v3.3.1.900
Income Taxes (Details Narrative)
3 Months Ended
Nov. 29, 2015
Nov. 30, 2014
Income Tax Disclosure [Abstract]    
Percent of effective income tax rate reconciliation, (28.90%) 34.00%
v3.3.1.900
Earnings Per Share - Schedule of Basic and Diluted Earnings Per Share (Details) - USD ($)
3 Months Ended
Nov. 29, 2015
Nov. 30, 2014
Earnings Per Share [Abstract]    
Net income $ 132,338 $ 166,637
Denominator for basic earnings per share - weighted average shares 2,919,500 2,904,331
Effect of dilutive securities, Employee and non-employee options 12,611 56,683
Dilutive common shares, Denominator for diluted earnings per share 2,932,111 2,961,014
Basic earnings per share $ 0.05 $ 0.06
Diluted earnings per share $ 0.05 $ 0.06
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