Company Quick10K Filing
Quick10K
WSI Industries
10-Q 2018-05-27 Quarter: 2018-05-27
10-Q 2018-02-25 Quarter: 2018-02-25
10-Q 2017-11-26 Quarter: 2017-11-26
10-K 2017-08-27 Annual: 2017-08-27
10-Q 2017-05-28 Quarter: 2017-05-28
10-Q 2017-02-26 Quarter: 2017-02-26
10-Q 2016-11-27 Quarter: 2016-11-27
10-K 2016-08-28 Annual: 2016-08-28
10-Q 2016-05-29 Quarter: 2016-05-29
10-Q 2016-02-28 Quarter: 2016-02-28
10-Q 2015-11-29 Quarter: 2015-11-29
10-K 2015-08-30 Annual: 2015-08-30
10-Q 2015-05-31 Quarter: 2015-05-31
10-Q 2015-03-01 Quarter: 2015-03-01
10-Q 2014-11-30 Quarter: 2014-11-30
10-K 2014-08-31 Annual: 2014-08-31
10-Q 2014-05-25 Quarter: 2014-05-25
10-Q 2014-02-23 Quarter: 2014-02-23
8-K 2018-11-07 Leave Agreement, M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Exhibits
8-K 2018-10-04 Earnings, Officers, Other Events, Exhibits
8-K 2018-09-05 Enter Agreement, Officers, Amend Bylaw, Exhibits
8-K 2018-06-12 Earnings, Other Events, Exhibits
8-K 2018-06-12 Earnings, Other Events, Exhibits
8-K 2018-05-31 Other Events, Exhibits
8-K 2018-03-19 Regulation FD, Exhibits
8-K 2018-03-16 Earnings, Other Events, Exhibits
8-K 2018-03-06 Other Events, Exhibits
8-K 2018-02-28 Earnings, Exhibits
8-K 2018-02-26 Regulation FD, Exhibits
8-K 2018-02-15 Enter Agreement, Off-BS Arrangement, Exhibits
TRNC Tronc 646
SBRT Solbright Group 83
IGC India Globalization Capital 45
CANB Canbiola 17
GRST Ethema Health 2
LNBI Lazuriton Nano Biotechnology 0
NHMD Nate's Food 0
GNTH Genethera 0
FWDR Fairwind Energy 0
RHNO Rhino Resource Partners 0
WSCI 2018-05-27
Part 1. Financial Information
Item 1. Financial Statements
Item 2.
Item 4. Controls and Procedures
Part II. Other Information:
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32 ex32.htm

WSI Industries Earnings 2018-05-27

WSCI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10-q.htm

 

 

 

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 May 27, 2018

 

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)

 

Registrant’s telephone number, including area code: (763) 295-9202

 

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 by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company [  ]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,970,283 shares of common stock were outstanding as of June 12, 2018.

 

 

 

   
   

 

WSI INDUSTRIES, INC.

 

AND SUBSIDIARIES

 

INDEX

 

    Page No.
PART I. FINANCIAL INFORMATION: 3
   
Item 1. Financial Statements 3
   
  Condensed Consolidated Balance Sheets May 27, 2018 and August 27, 2017 (Unaudited) 3
   
  Condensed Consolidated Statements of Income Thirteen and Thirty-Nine weeks ended May 27, 2018 and May 28, 2017 (Unaudited) 4
   
  Condensed Consolidated Statements of Cash Flows Thirty-Nine weeks ended May 27, 2018 and May 28, 2017 (Unaudited) 5
   
  Notes to Condensed Consolidated Financial Statements (Unaudited) 6
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 9-11
   
Item 4. Controls and Procedures 11
   
PART II. OTHER INFORMATION: 12
   
Item 1A. Risk Factors 12
   
Item 6. Exhibits 12
   
 

Signatures

13

 

 2 
   

 

Part 1. Financial Information

 

Item 1. Financial Statements

 

WSI INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   May 27, 2018   August 27, 2017 
Assets          
           
Current Assets:          
Cash and cash equivalents  $4,920,095   $5,846,933 
Accounts receivable   3,790,935    2,739,087 
Inventories   3,405,695    3,131,679 
Prepaid and other current assets   118,394    78,409 
Total Current Assets   12,235,119    11,796,108 
           
Property, Plant and Equipment – Net   10,852,944    10,320,808 
           
Goodwill and other assets, net   2,368,452    2,368,452 
           
Total Assets  $25,456,515   $24,485,368 
           
Liabilities and Stockholders’ Equity          
           
Current Liabilities:          
Trade accounts payable  $1,697,170   $2,058,992 
Accrued compensation and employee withholdings   770,119    664,277 
Other accrued expenses and deferred revenue   249,440    530,552 
Current portion of long-term debt   1,587,100    1,438,057 
Total Current Liabilities   4,303,829    4,691,878 
           
Long-term debt, less current portion   6,132,839    5,441,848 
           
Deferred tax liabilities   543,811    915,068 
           
Stockholders’ Equity:          
Common stock, par value $.10 a share; authorized 10,000,000 shares; issued and outstanding 2,970,283 and 2,959,940 shares, respectively   297,029    295,994 
Capital in excess of par value   4,192,174    4,192,578 
Deferred compensation   -    (76,500)
Retained earnings   9,986,833    9,024,502 
Total Stockholders’ Equity   14,476,036    13,436,574 
Total Liabilities and Stockholders’ Equity  $25,456,515   $24,485,368 

 

See notes to condensed consolidated financial statements.

 

 3 
   

 

WSI INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   13 weeks ended   39 weeks ended 
   May 27, 2018   May 28, 2017   May 27, 2018   May 28, 2017 
Net sales  $9,790,735   $9,593,941   $25,873,460   $22,237,468 
                     
Cost of products sold   8,340,645    8,563,262    22,645,623    20,692,334 
                     
Gross margin   1,450,090    1,030,679    3,227,837    1,545,134 
                     
Selling and administrative expense   833,732    1,202,533    2,486,853    2,684,676 
Equipment impairment loss   -    147,502    -    147,502 
Interest and other income   (8,640)   (6,870)   (37,204)   (10,127)
Interest expense   80,602    72,510    229,346    206,637 
                     
Income (loss) before income taxes   544,396    (384,996)   548,842    (1,483,554) 
                     
Income tax expense (benefit)   78,257    (165,323)   (532,257)   (579,326)
                     
Net income (loss)  $466,139   $(219,673)  $1,081,099   $(904,228)
                     
Basic earnings (loss) per share  $.16  $(.08)  $.37   $ (.31)
                     
Diluted earnings (loss) per share  $.16  $(.08)  $.36   $ (.31)
                     
Cash dividend per share  $.04   $-   $.04   $- 
                    
Weighted average number of common shares outstanding, basic   2,969,610    2,923,483    2,956,381    2,920,828 
                     
Weighted average number of  common shares outstanding, diluted   3,001,058    2,923,483    2,975,972    2,920,828 

 

See notes to condensed consolidated financial statements.

 

 4 
   

 

WSI INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   39 weeks ended 
   May 27, 2018   May 28, 2017 
         
Cash Flows From Operating Activities:          
Net income (loss)  $1,081,099   $(904,228)
Adjustments to reconcile net earnings to net cash provided by operating activities:          
Depreciation   1,279,937    1,361,510 
Amortization   2,950    7,667 
Deferred taxes   (532,257)   (579,326)
Impairment of property, plant and equipment   -    147,502 
Stock option compensation expense   310,191    220,204 
Changes in assets and liabilities:          
Decrease (increase) in accounts receivable   (1,051,848)   808,158 
Decrease (increase) in inventories   (274,016)   257,474 
Increase in prepaid and other current assets   (39,985)   (34,197)
Increase (decrease) in accounts payable and accrued expenses   (537,092)   1,213,591 
Net cash provided by operations   238,979    2,498,355 
           
Cash Flows From Investing Activities:          
Purchase of property, plant and equipment   (515,917)   (785,705)
Net cash provided by (used in) investing activities   (515,917)   (785,705)
           
Cash Flows From Financing Activities:          
Proceeds from issuance of long-term debt   -    3,700,000 
Equipment advance payments exchanged with debt   687,245    - 
Payments of long-term debt   (1,146,317)   (4,745,057)
Restricted cash requirement   -    1,250,000 
Payroll withholding taxes in cashless stock option exercise   (72,060)   (29,759)
Deferred financing costs   -    (39,336)
Dividends paid   (118,768)   - 
Net cash provided by (used in) by financing activities   (649,900)   135,848 
           
Net Increase In Cash And Cash Equivalents   (926,838)   1,848,498 
           
Cash And Cash Equivalents At Beginning Of Year   5,846,933    3,739,324 
           
Cash And Cash Equivalents At End Of Reporting Period  $4,920,095   $5,587,822 
           
Supplemental cash flow information:          
Cash paid during the period for:          
Interest  $229,554   $203,680 
Income taxes  $7,350   $4,200 
Noncash investing and financing activities:          
Acquisition of machinery through debt  $1,983,401   $- 

 

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 May 27, 2018, the condensed consolidated statements of income for the thirteen and thirty-nine weeks ended May 27, 2018 and May 28, 2017 and the condensed consolidated statements of cash flows for the thirty-nine 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 27, 2017 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 27, 2017. 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 net realizable value:

 

   May 27, 2018   August 27, 2017 
         
Raw material  $960,056   $1,047,931 
WIP   1,328,060    1,448,282 
Finished goods   1,117,579    635,466 
   $3,405,695   $3,131,679 

 

3. OTHER ASSETS

 

Goodwill and other assets consist of costs resulting from business acquisitions which total $2,368,452 at May 27, 2018 (net of accumulated amortization of $344,812 recorded prior to the adoption of ASC 350 Goodwill and Other Intangible Assets).

 

 6 
   

 

4. INCOME TAXES:

 

The Company’s effective tax rate for its fiscal third quarter ended May 27, 2018 was 14.4% as compared to a negative (42.9)% for the quarter ended May 28, 2017. The year-to-date effective tax rate was a negative (97.0)% in the current year versus a negative (39.1)% in for the prior year.

 

On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” was signed into law. Among other things, the Tax Cuts and Jobs Act permanently lowers the federal corporate tax rate to 21% from the existing maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, U.S. generally accepted accounting principles require companies to re-value their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment which occurred during the Company’s fiscal second quarter ending February 25, 2018. After the revaluation of its net deferred tax liability, the Company recognized an overall income tax benefit of $663,000 during the fiscal quarter ending February 25, 2018, of which most of that amount was attributable to the revaluation.

 

The Company will continue to evaluate the effects of the new law on its effective tax rate as the law contains provisions for limiting the deductibility of interest expense, imposes limitations on the utilization of operating loss carryforwards, retroactively applies the 100% bonus depreciation deduction under the new tax legislation, which applies to qualified property placed in service after September 27, 2017 as well as the lowering of the corporate tax to 21% for a portion of the Company’s fiscal year.

 

The Company has also 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 which affects the Company’s effective tax rate.

 

5. EQUIPMENT IMPAIRMENT:

 

The Company evaluates long-term assets on a periodic basis in compliance with Accounting Standards Codification (“ASC”) 360, Accounting for the Impairment of Long-lived Assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount. If the undiscounted cash flows are less than the carrying amount, the impairment recognized is measured by the amount the carrying value of the assets exceeds their fair value determined primarily through the present value of estimated future cash flows. During the quarter ended May 28, 2017, the Company determined that one of its pieces of equipment was impaired and recognized an expense of approximately $148,000.

 

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 
   

 

7. EARNINGS PER SHARE:

 

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

 

   Thirteen weeks ended   Thirty-nine weeks ended 
   May 27, 2018   May 28, 2017   May 27, 2018   May 28, 2017 
Numerator for basic and diluted earnings per share:                
Net income (loss)  $466,139   $(219,673)  $1,081,099   $(904,228)
                     
Denominator                    
Denominator for basic earnings per share – weighted average shares   2,969,610    2,923,483    2,956,381    2,920,828 
                     
Effect of dilutive securities:                    
Employee and non-employee options   31,448    -    19,591    - 
                     
Dilutive common shares Denominator for diluted earnings per share   3,001,058    2,923,483    2,975,972    2,920,828 
                     
Basic earnings (loss) per share  $.16   $(.08)  $.37   $(.31)
                     
Diluted earnings (loss) per share  $.16   $(.08)  $.36   $(.31)

 

8. RECENT ACCOUNTING PRONOUNCEMENTS:

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. This guidance defines how companies report revenues from contracts with customers and also requires enhanced disclosures. In July 2015, the Financial Accounting Standards Board voted to defer the effective date by one year, with early adoption on the original effective date permitted. ASU 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within the annual reporting period. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. The Company is currently evaluating the potential effects of the adoption of this update on the consolidated financial statements.

 

In March 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize the assets and liabilities that arise from most leases. The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. For lessors, the guidance included in ASU 2016-02 modifies the classification criteria and the accounting for sales-type and direct financing leases. ASU 2016-02 provides specific guidance for determining whether a contractual arrangement contains a lease, lease classification by lessees and lessors, initial and subsequent measurement of leases by lessees and lessors, sale and leaseback transactions, transition, and financial statement disclosures. ASU 2016-02 requires entities to use a modified retrospective approach to apply its guidance, and includes a number of optional practical expedients that entities may elect to apply. For public entities, the amendments included in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential effects of the adoption of this guidance on the consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting which provides guidance that amends the accounting for stock-based compensation and requires excess tax benefits and deficiencies to be recognized as a component of income tax expense rather than equity. The inclusion of excess tax benefits and deficiencies as a component of income tax expense will increase volatility within our provision for income taxes as the amount of excess tax benefits or deficiencies from stock-based compensation awards depends on our stock price at the date the awards vest. This guidance also requires excess tax benefits and deficiencies to be presented as operating activity in the statement of cash flows and allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. We adopted this guidance during the first quarter of fiscal 2018 and elected to recognize forfeitures as they occur.

 

 8 
   

 

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 27, 2017. Refer to the Annual Report on Form 10-K for detailed information on accounting policies.

 

Results of Operations:

 

Net sales were $9,791,000 for the quarter ended May 27, 2018 compared to $9,594,000 in the same period of the prior year, an increase of 2%. Year-to-date sales for the first three quarters of fiscal 2018 were $25,873,000 compared to $22,237,000 in the prior year, an increase of 16%. Sales by product line for the quarter and year-to-date periods are as below:

 

   Fiscal Third Quarter Thirteen Weeks Ended   Fiscal Third Quarter Year-to-Date Ended 
       Percent       Percent          Percent       Percent    
   May 27,   of Total   May 28,   of Total  

Dollar

Percent

   May 27,   of Total   May 28,   of Total  

Dollar

Percent

 
   2018   Sales   2017   Sales   Change   2018   Sales   2017   Sales   Change 
Recreational Vehicles  $7,366,000    75%  $8,229,000    86%   -10% $20,149,000    78%  $19,153,000    86%   5%
Energy   1,050,000    11%   507,000    5%   107%   2,313,000    9%   841,000    4%   175%
Aerospace Defense & Other   1,375,000    14%   858,000    9%   60%   3,411,000    13%   2,243,000    10%   52%
Total Sales  $9,791,000    100%  $9,594,000    100%   2%  $25,873,000    100%  $22,237,000    100%   16%

 

 9 
   

 

Sales from the Company’s ATV and Motorcycle markets for the fiscal 2018 third quarter were down 10% as compared to the prior year quarter. During the fiscal 2017 third quarter, the Company experienced a one-time sale of remaining product related to its primary customer’s wind down of one of their product lines. Otherwise, overall sales for the Company’s ATV and Motorcycle lines were up 5% as compared to the prior year’s quarter. Excluding the one-time sale, year-to-date sales for the ATV and Motorcycle markets were also up 12% as compared to the prior year.

 

Sales from the Company’s energy business for the fiscal 2018 third quarter increased by 107% over the prior year’s third quarter. Year-to-date sales as of May 27, 2018 were 175% higher than the same year-to-date period of the prior year. The increases in sales are derived from increased demand from existing as well as new customers in the energy sector.

 

Sales from the Company’s aerospace, defense and other markets were up 60% in the fiscal 2018 third quarter and the year-to-date period was up 52% as compared to the prior year. The increase in the fiscal 2018 third quarter and year-to-date aerospace and defense sales were derived mostly from new programs and customers as well as increases in demand from existing customers.

 

Gross margin increased to 14.8% from 10.7% in the quarter ended May 27, 2018 versus the prior year quarter. Year-to-date gross margins increased to 12.5% versus 6.9% in the prior year-to-date period. The increases in gross margins came from both volume efficiencies and operational improvements.

 

Selling and administrative expense was $834,000 for the quarter ended May 27, 2018 versus $1,203,000 in the prior year quarter. Year-to-date selling and administrative expense was $2,487,000 as compared to $2,685,000 in the prior year-to-date period. The decrease in the quarterly and year-to-date expense was due primarily to increases in compensation costs and stock option expense related to the change in the Company’s executive leadership that occurred during the fiscal 2017 third quarter.

 

Interest expense in the third quarter of fiscal 2018 was $81,000 as compared to $73,000 in the prior year quarter. Year-to-date interest expense for fiscal 2018 was $229,000 versus $207,000 in the prior year. The higher interest costs are a result of a higher level of long-term debt.

 

The Company’s effective tax rate for its fiscal third quarter ended May 27, 2018 was 14.4% as compared to a negative (42.9)% for the quarter ended May 28, 2017. The year-to-date effective tax rate was a negative (97.0)% in the current year versus a negative (39.1)% in for the prior year.

 

On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” was signed into law. Among other things, the Tax Cuts and Jobs Act permanently lowers the federal corporate tax rate to 21% from the existing maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, U.S. generally accepted accounting principles require companies to re-value their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment which occurred during the Company’s fiscal second quarter ending February 25, 2018. After the revaluation of its net deferred tax liability, the Company recognized an overall income tax benefit of $663,000 during the fiscal quarter ending February 25, 2018, of which most of that amount was attributable to the revaluation.

 

Liquidity and Capital Resources:

 

On May 27, 2018 working capital was $7,931,000 as compared to $7,104,000 at August 27, 2017. The ratio of current assets to current liabilities at May 27, 2018 was 2.84 to 1.0 compared to 2.51 to 1.0 at August 27, 2017. The increase in these two ratios came primarily from an increase in accounts receivable and inventories and lower accounts payable partially offset by a lower level of cash and cash equivalents.

 

 10 
   

 

The Company has a revolving credit agreement with its bank. The revolving credit agreement provides for a maximum loan of $1,500,000 with interest at the thirty day LIBOR rate plus 2.0% with a base rate of 2.75%. The revolver has a maturity date of February 15, 2019. No amounts have been drawn against the revolving line of credit.

 

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 27, 2017, 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 May 27, 2018, 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.

 

 11 
   

 

PART II. OTHER INFORMATION:

 

Item 1A. RISK FACTORS

 

Not Applicable.

 

Item 6. EXHIBITS

 

A.        The following exhibits are included herein:

 

  Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.
     
  Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.
     
  Exhibit 32 Certificate 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

 

 12 
   

 

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: June 14, 2018 /s/ Michael J. Pudil
  Michael J. Pudil, President & CEO
   
Date: June 14, 2018 /s/ Paul D. Sheely
  Paul D. Sheely, Vice President, Finance & CFO

 

 13