<PAGE> 1
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 27, 2000
-------------------------------------------------
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 (I.R.S. Employer
incorporation of organization) Identification No.)
Wayzata, Minnesota 55391
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(952) 473-1271
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Long Lake, Minnesota
- --------------------------------------------------------------------------------
(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
----- -----
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, 2000.
<PAGE> 2
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets February 27, 2000 (Unaudited)
and August 29, 1999 3
Consolidated Statements of Operations
Thirteen and Twenty-Six weeks ended and February 27, 2000
Thirteen and Twenty-Six weeks ended February 28, 1999 (Unaudited) 4
Consolidated Statements of Cash Flows
Twenty-Six weeks ended February 27, 2000 and Twenty-Six weeks
ended February 28, 1999 (Unaudited) 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 4. Submission of Matters to a Vote of the Security Holders 10
Item 5. Other Information 10
Item 7. Exhibits and Reports on Form 8-K 10
Signatures 10
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item I. Financial Statements
WSI INDUSTRIES, INC
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
FEBRUARY 27, AUGUST 29,
ASSETS 2000 1999
- ------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,300 $ 131,588
Accounts receivable 4,217,248 2,962,268
Inventories 2,915,004 3,491,900
Prepaid and other current assets 203,599 72,478
------------- -------------
Total Current Assets 7,342,151 6,658,234
Property, Plant and Equipment - Net 11,130,382 12,181,909
Intangible Assets 5,540,689 5,684,869
------------- -------------
$ 24,013,222 $ 24,525,012
------------- -------------
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving credit facility $ 0 $ 279,578
Trade accounts payable 2,649,122 1,438,324
Accrued compensation and employee withholdings 743,885 627,731
Miscellaneous accrued expenses 535,714 716,655
Acquisition payments due 500,000 742,733
Current portion of long-term debt 1,279,586 1,442,199
------------- -------------
Total Current Liabilities 5,708,307 5,247,220
Long term debt, less current portion 10,049,981 10,666,120
Long term pension liability 121,375 347,437
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 a share; authorized
10,000,000 shares; issued and outstanding 2,465,229
and 2,453,425 shares respectively 246,523 245,343
Capital in excess of par value 1,640,934 1,600,302
Retained earnings 6,246,102 6,418,590
------------- -------------
Total Stockholders' Equity 8,133,559 8,264,235
------------- -------------
$ 24,013,222 $ 24,525,012
============== =============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
13 weeks ended 26 weeks ended
--------------------------------- -------------------------------
February 27, February 28, February 27, February 28,
2000 1999 2000 1999
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales $ 7,710,690 $ 3,729,158 $ 15,005,642 $ 9,369,866
Cost of products sold 6,612,616 3,563,151 12,880,212 8,378,828
-------------- ------------- ------------- -----------
Gross margin 1,098,074 166,007 2,125,430 991,038
Selling and administrative expense 1,215,848 578,661 2,195,546 1,122,299
Pension curtailment - (232,000)
Gain on sale of equipment (125,611) (394,682)
Severance costs - 248,507
Interest and other income (31,564) (65,595) (38,548) (132,666)
Interest and other expense 262,565 67,385 516,095 127,077
-------------- ------------- ------------- -----------
Earnings (loss) from operations
before income taxes (223,164) (414,444) (169,488) (125,672)
Income tax expense - 6,700 3,000 18,500
-------------- ------------- ------------- -----------
Net earnings $ (223,164) $ (421,144) $ 172,488 $ (144,172)
============== ============= ============= ===========
Basic earnings per share $ (.09) $ (0.17) $ (.07) $ (0.06)
-------------- ------------- ------------- -----------
Diluted earnings per share $ (.09) $ (0.17) $ (.07) $ (0.06)
============== ============= ============= ===========
Weighted average number of
common and dilutive potential
common shares 2,462,388 2,451,696 2,458,731 2,450,248
========= ========= ========= =========
Weighted average number of
common and dilutive potential
common shares 2,534,813 2,547,947 2,519,303 2,550,000
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
26 weeks ended
February 27, February 28,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (172,488) $ (144,172)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of property, plant & equipment (394,682) (40,230)
Depreciation and amortization 1,181,341 626,336
(Decrease) in pension liability (226,062) (14,190)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,254,980) 405,735
(Increase) decrease in inventories 576,896 (1,143,384)
(Increase) decrease in prepaid expenses (131,121) 98,439
Increase (decrease) in accounts payable and
accrued expenses 903,279 (247,194)
------------- -----------
Net cash provided by (used in) operations 482,183 (458,660)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 746,165 40,230
Purchase of property, plant and equipment (337,118) (185,126)
Purchase of subsidiary (net of cash acquired) - (6,667,124)
------------- -----------
Net cash provided by (used in) investing activities 409,047 (6,812,020)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,058,331) (384,674)
Proceeds from issuance of long term debt - 4,950,000
Issuance of common stock 41,813 8,250
------------- -----------
Net cash provided by (used in) financing activities (1,016,518) 4,573,576
------------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (125,288) (2,697,104)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 131,588 2,697,104
------------- -----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 6,300 $ 0
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 519,144 $ 127,598
Income taxes $ $ 22,500
Noncash investing and financing activities:
Acquisition of machinery through capital lease $ $ 980,250
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of February 27, 2000, the
consolidated statements of operations for the thirteen weeks and
twenty-six weeks ended February 27, 2000 and February 28, 1999 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 29, 1999 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 1999 annual report to
shareholders. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
The Company acquired Taurus Numeric Tool, Inc. on February 15,
1999. The Company subsequently acquired Bowman Tool and Machining Inc.
on August 6, 1999. Accordingly, the balance sheet as of February 27,
2000 and statements of operations and cash flows for the thirteen and
twenty-six weeks ended February 27, 2000 include the effects of both
Taurus and Bowman for the entire respective periods. However, the
balance sheet for the previous year only includes the effect of the
addition of Taurus as Bowman had not yet been acquired, and the
statements of operations and cash flows only reflect two weeks of
Taurus activity.
2 BUSINESS CONSOLIDATION AND RELOCATION
During the first and second quarters of fiscal 2000, the
Company closed its Long Lake, Minnesota facility and transferred all of
its production to its Taurus and Bowman subsidiaries. As a result of
this consolidation, the Company incurred severance costs in the first
quarter of 2000 for employees terminated or given notice in that
period. WSI was also able to sell excess production equipment during
the first half of the year. Concurrent with the consolidation decision,
the Company also decided to terminate its defined benefit pension plan.
See the accompanying Management Discussion and Analysis for
quantification of these events.
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 27, 2000, the outstanding balance on the term loan was
$4,085,714 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.
6
<PAGE> 7
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 27, 2000 of
$2,416,666.
The Company also entered into Subordinated Promissory Notes
with the former owners of Taurus and Bowman in the total amount of
$2,507,000. 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.
4. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 Earnings per
Share. Statement 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earning per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
13 weeks ended 26 weeks ended
----------------------------- ------------------------------
February 27, February 28, February 27, February 28,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per share:
Net Earnings (loss) $ (223,164) $ (421,144) $ (172,488) $ (144,172)
=========== =========== =========== ==========
Denominator:
Denominator for basic earnings
per share - weighed average shares 2,462,388 2,451,696 2,458,731 2,450,248
Effect of dilutive securities:
Employee/Director stock options 72,425 96,251 60,572 99,752
----------- ----------- ----------- ----------
Dilutive potential common shares
Denominator for diluted earnings
per share-adjusted weighted shares
and assumed conversions 2,534,813 2,547,947 2,519,303 2,550,000
=========== =========== =========== ==========
Basic earnings per share $ (.09) $ (.17) $ (.07) $ (.06)
=========== =========== =========== ==========
Diluted earnings per share $ (.09) $ (.17) $ (.07) $ (.06)
=========== =========== =========== ==========
</TABLE>
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
Results of Operations:
Net sales of $7,711,000 for the quarter ending February 27,
2000 increased 107% or 3,982,000 from the same period of the prior
year. Sales growth was generated by the addition of the Taurus and
Bowman subsidiaries, as well as an improvement in the agribusiness
market over the prior year. No market accounted for more than 35% of
sales in second quarter.
Gross margin improved to 14% as compared to 4% in the year ago
period, with the profitability of Bowman and Taurus operations largely
offsetting consolidation related expenses including equipment moving,
hiring, training and start-up expenses. Gross margin improved from the
beginning to the end of the second quarter as the month of February had
a gross margin that slightly exceeded 20%.
Selling and administrative expense of $1,216,000 was $637,000
higher than in the prior year period. The amount was higher due to the
addition of Taurus and Bowman selling and administrative expense as
well as intangible asset amortization not incurred for most of the
first half of fiscal 1999.
Interest and other income was $34,000 lower than the
comparable period of the prior year period due to lower cash balances
which generated less interest income.
Interest and other expense increased $195,000 in the period
versus the prior year period due to the debt incurred on the Bowman and
Taurus transactions.
WSI sold excess manufacturing equipment with a net book value
of $58,000 for $184,000, generating a gain of $126,000. The Long Lake,
Minnesota facility in now closed and the building is for sale.
In the twenty-six week period ended February 27, 2000, the
Company recorded a tax provision of $3,000 to cover mandatory state
income taxes and federal alternative minimum taxes, and was able to
recognized the benefit of a portion of its net operating loss
carry-forwards. 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 27, 2000 working capital was $1,634,000 compared
to $1,411,000 at August 29, 1999, an increase of $223,000. The level of
current assets and current liabilities have risen during the first half
of Fiscal 2000 in conjunction with the overall increase in the level of
business versus the fourth quarter of fiscal 1999. The ratio of current
assets to current liabilities at February 27, 2000 and August 29, 1999
was 1.29 to 1.0 and 1.27 to 1.0, respectively.
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
8
<PAGE> 9
$4,086,000 on its term loan facility but does not have a balance due on
its revolving facility. The revolving facility had $3,000,000 of
availability at February 27, 2000. The term loan carries an interest
rate at prime plus .75%. The revolver rate is at prime plus .50%. The
Company paid down $1,000,000 on the Term Loan subsequent to the end of
the quarter.
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 $2,417,000 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 $844,000 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 $2,320,000 on February 27,
2000 was $382,000 lower than on August 29, 1999. The decrease resulted
from payments on the leases with no new additions during the quarter.
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 2000.
Year 2000 Compliance:
As of April 1, the Company has not experienced any material
effects from the Year 2000 conversion.
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.
9
<PAGE> 10
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 6, 2000.
B. Directors elected at that meeting were:
Paul Baszucki For 2,294,909 Against 9,676
Melvin L. Katten For 2,294,509 Against 10,076
Gerald E. Magnuson For 2,294,268 Against 10,317
George J. Martin For 2,298,568 Against 6,017
Eugene J. Mora For 2,294,409 Against 10,176
Michael J. Pudil For 2,292,633 Against 11,952
Item 5. Other Information.
A. As reported on March 23, 2000, the Company was delisted
from the Nasdaq National Market and is currently trading
on the Nasdaq Small Cap Market under the same symbol
"WSCI"
Item 7. Exhibits and Reports on Form 8-K:
A. Exhibit 27. Financial Data Schedule, Q2, Fiscal 2000
B. Exhibit 99. Delisting Press Release.
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, 2000 /s/ Michael J. Pudil
-------------- ---------------------------------------------
Michael J. Pudil, President & CEO
Date: April 11, 2000 /s/ Paul D. Sheely
-------------- ---------------------------------------------
Paul D. Sheely, Vice President, Finance & CFO
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-27-2000
<PERIOD-END> FEB-27-2000
<CASH> 6,300
<SECURITIES> 0
<RECEIVABLES> 4,244,748
<ALLOWANCES> 27,500
<INVENTORY> 2,915,004
<CURRENT-ASSETS> 7,342,151
<PP&E> 21,064,650
<DEPRECIATION> 9,934,267
<TOTAL-ASSETS> 24,013,222
<CURRENT-LIABILITIES> 5,708,307
<BONDS> 10,049,981
0
0
<COMMON> 246,523
<OTHER-SE> 7,887,036
<TOTAL-LIABILITY-AND-EQUITY> 24,013,222
<SALES> 7,710,690
<TOTAL-REVENUES> 7,710,690
<CGS> 6,612,616
<TOTAL-COSTS> 6,612,616
<OTHER-EXPENSES> 1,058,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262,565
<INCOME-PRETAX> (223,164)
<INCOME-TAX> 0
<INCOME-CONTINUING> (223,164)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (233,164)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
<PAGE> 1
EXHIBIT 99
WSI DELISTING RELEASE
================================================================================
For Immediate Release
WSI INDUSTRIES' LISTING TRANSFERRED TO NASDAQ SMALLCAP MARKET
MARCH 22, 2000--WAYZATA, MN--WSI Industries, Inc. (Nasdaq: WSCI) today reported
that it has been notified by The Nasdaq Stock Market that its listing will be
transferred from the National Market System to the SmallCap Market effective
with the open of business on March 23, 2000.
The Company said it was notified by Nasdaq that it is not in compliance with the
minimum net tangible asset requirement of $4 million to maintain its listing on
the National Market. The Company said the reason for the non-compliance is due
to the goodwill related to the acquisitions of Taurus Numeric Tool, Inc.
(February 1999) and Bowman Tool & Machining, Inc. (August 1999).
Michael J. Pudil, president and chief executive officer said that although he is
disappointed by the Nasdaq action, he is extremely encouraged by the positive
impact of the Taurus and Bowman acquisitions on the Company's operations. He
said these acquisitions have accelerated the company's growth, been accretive to
consolidated earnings from the outset, and significantly diversified and
expanded the Company's base of business. Pudil said that as a result of these
factors, he remains very optimistic about the Company's prospects for all of
fiscal 2000.
WSI Industries, Inc. is a leading contract manufacturer that specializes in the
machining of complex, high-precision parts for a wide range of industries,
including agriculture, construction, aerospace and avionics, recreational
vehicles and computers.
# # #
For additional information:
Michael J. Pudil (CEO) or Paul D. Sheely (CFO)
952/473-1271
- --------------------------------------------------------------------------------
The statements included herein which are not historical or current facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Reform Act of 1995. There are certain important factors which
could cause actual results to differ materially from those anticipated by some
of the statements made herein, including the Company's ability to obtain
additional manufacturing programs and retain current programs and other factors
detailed from time to time in the Company's SEC reports, including the report on
Form 10-K for the year ended August 29, 1999
- --------------------------------------------------------------------------------
