-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BvHyp+f9IovrTofChm0+PLGdCni0gTnsdNzHfmU7G6B/y48eBYRS3VB8SMNnvRlj GvVNxDZaaVtMB3o/hhXU4w== 0000897101-96-001025.txt : 19961125 0000897101-96-001025.hdr.sgml : 19961125 ACCESSION NUMBER: 0000897101-96-001025 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960825 FILED AS OF DATE: 19961122 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASHINGTON SCIENTIFIC INDUSTRIES INC CENTRAL INDEX KEY: 0000104897 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 410691607 STATE OF INCORPORATION: MN FISCAL YEAR END: 0828 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-00619 FILM NUMBER: 96671113 BUSINESS ADDRESS: STREET 1: 2605 W WAYZATA BLVD STREET 2: BOX 340 CITY: LONG LAKE STATE: MN ZIP: 55356-0340 BUSINESS PHONE: 6124731271 MAIL ADDRESS: STREET 1: 2605 W WAYZATA BLVD BOX 340 STREET 2: 2605 W WAYZATA BLVD BOX 340 CITY: LONG LAKE STATE: MN ZIP: 55356-0340 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Form 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 25, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ended from _________ to _________ Commission File No. 0-619 WASHINGTON SCIENTIFIC INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) Minnesota 41-069-1607 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 2605 West Wayzata Boulevard Long Lake, Minnesota 55356 (Address of principal executing offices) (Zip Code) Registrant's telephone number, including area code (612) 473-1271 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock (par value $.10 per share) (Title of Class) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes______X______ No____________ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the common shares held by non-affiliates of the Registrant on November 11, 1996 (based upon the closing sale price of those shares on the NASDAQ SmallCap Market System) was approximately $6,960,000. Number of shares outstanding of the Registrant's common stock, par value $.10 per share, as of November 11, 1996 is 2,420,850. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the annual meeting of shareholders to be held on January 9, 1997 are incorporated by reference into Part III. ------------------------------------- This form 10-K Report consists of 44 pages (including exhibits); the index to the exhibits is set forth on page 13. WASHINGTON SCIENTIFIC INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED AUGUST 25, 1996 INFORMATION REQUIRED IN REPORT PART I Item 1. Business: (a) General development of business: The Company was incorporated in Minnesota in 1950 for the purpose of performing precision contract machining for the aerospace, communication, and industrial markets. Several years later, the Company focused on providing precision machining services for the computer peripheral market. That segment of business has since provided the major portion of company revenues; however, machining work for the computer-peripheral related business is declining and other markets are expected to be of greater importance to the Company in the future. In 1960, the Company started development of a hydraulic motor which was the origin of the Fluid Power Division. In 1973, the Company purchased Von Ruden Mfg. Co., a manufacturer of transmission devices used in agricultural and industrial applications. During fiscal 1983, the Fluid Power Division and the Transmission Devices Division (Von Ruden Mfg. Co.) were physically combined into the newly named Power Components Division. On May 1, 1985, the Company completed the acquisition of the manufacturing business and assets of Rogers & Oling, Inc., which was operated as part of a subsidiary known as Washington Scientific Industries of California, Inc. (formerly K. Y. Rogers, Incorporated), a California manufacturer of precision machined parts for the computer and aerospace industries. On June 28, 1988, the Company announced a restructuring of the California subsidiary operations which entailed closing one of the two manufacturing plants in California in early fiscal 1989. On June 17, 1988, the Company acquired all of the outstanding stock of Advanced Custom Molders, Inc. (ACM), a Texas manufacturer of precision molded plastic components. On August 25, 1989, the Company sold the Power Components Division because the product focus of the Division was no longer compatible with the Company's long-term commitment to high-production, precision contract manufacturing. On October 1, 1991, the Company announced the restructuring of Advanced Custom Molders which entailed closing one of its three manufacturing plants in early fiscal 1992. Advanced Custom Molders had manufacturing plants in Georgetown and El Paso, Texas. On April 13, 1992, the Company announced the restructuring and closing of its Covina, California plant. Production from that plant was moved to the Company's Minnesota plants, and the Covina plant was closed in the fourth quarter of fiscal 1992. That plant was closed primarily because of excess manufacturing capacity and the Company's demonstrated ability to reliably serve West Coast customers from its Minnesota plants, where its technical machining expertise is located. As of the close of business on June 30, 1993, the Company sold the business and substantially all of the assets of Advanced Custom Molders, Inc. (ACM) to Moll PlastiCrafters, L.P. ACM was sold primarily because it did not meet profit expectations and because WSI's contract machining business required the attention of all the Company's resources. On June 27, 1994, the Company announced the consolidation of its manufacturing operations in its Long Lake, Minnesota plant and the closing of its Owatonna, Minnesota plant. The consolidation allowed the Company to reduce expenses and capital employed in the business while optimizing plant capacity and human resources. On October 5, 1994, the Company announced that it had entered into an agreement for the sale of its Owatonna property to OTC, a division of SPX Corporation. On January 4, 1995, the Company sold its Owatonna, Minnesota real estate to OTC, a division of SPX Corporation, for a total cash consideration of $1,534,000. Contract manufacturing now constitutes the Company's business. (b) Financial information about industry segments: As noted above, the Company's business is now conducted in a single industry segment--contract manufacturing. (c) Narrative description of the business: (1)(i) The principal products and services of the Company are set forth below. The Company manufactures metal components in medium to high volumes requiring tolerances as close as one ten-thousandth (.0001) of an inch. These components are manufactured in accordance with customer specifications using materials generally purchased by the Company, but occasionally supplied by the customer. The major markets served by the Company have changed in the past several years because of declining requirements in several mature computer programs and the Company's effort to diversify its customer and market base. Company sales to the computer industry amounted to 54%, 34% and 14% of total sales in fiscal 1994, 1995 and 1996, respectively. Sales to the agricultural industry were 25% and 61% of total Company sales in fiscal years 1995 and 1996 respectively. The Company expects that in fiscal 1997 a major portion of its sales will be to the agricultural industry and it will continue diversification efforts to broaden its customer and industry base. The Company has a reputation as a dependable supplier, one capable of meeting stringent specifications to produce quality components at high production rates. The Company has demonstrated an ability to develop sophisticated manufacturing processes and controls essential to produce precision and reliability in its products. * * * * * (ii) The Company's machining business is continually developing or modifying processes, but no new single process in development is expected to require the investment of a material amount of the assets of the Company. (iii) Purchased materials for the Company are generally available in adequate supply. (iv) Patents and trademarks are not deemed significant to the Company. (v) Seasonal patterns in the Company's business are reflections of its customers seasonal patterns since the Company's business is that of a provider of manufacturing services. The Company's customer mix has changed and currently its two major customers each have a one week shutdown near the end of the calendar year and a two week shutdown in the summer. This will affect the Company's production pattern until it gains other business to fill that void. (vi) The Company does not believe that its business demands unusual working capital requirements. (vii) Sales in excess of 10 percent of fiscal 1996 consolidated revenues were made to John Deere, $12,246,000 or 61% of Company revenues and the Kohler Company, $2,077,000 or 10% of Company revenues. (viii) Approximate dollar backlog at August 25, 1996 and August 27, 1995 was $5,694,000 and $9,043,000, respectively. Backlog is not deemed to be any more significant for the Company than for other companies engaged in similar businesses. The above backlog amounts are believed to be firm, and no appreciable amount of the backlog as of August 25, 1996 is scheduled for delivery later than during the current fiscal year. (ix) No material portion of the contract business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government. (x) Although there are a large number of companies engaged in machining, the Company believes the number of entities with the technical capability and capacity for producing products of the class and in the volumes manufactured by the Company is relatively small. Competition is primarily based on product quality, service, timely delivery, and price. (xi) No material amount has been spent on company -sponsored research and development activities. (xii) No material capital expenditures for environmental control were made or are anticipated in the foreseeable future. (xiii) At August 25, 1996, the Registrant had 130 employees. (d) Financial information about foreign and domestic operations and export sales: The Company has no operations in any foreign country. The Company's export sales in fiscal 1996, 1995, and 1994 were not significant. Item 2. Properties: The Company's executive offices and a production facility are located in Long Lake, Minnesota (a western suburb of Minneapolis). The one-story, concrete block building is owned by the Company, contains approximately 182,500 square feet of floor space, and is located on approximately 25 acres of property owned by the Company. The Company considers its manufacturing equipment, facilities, and other physical properties to be suitable and adequate to meet the requirements of its business. Item 3. Legal Proceedings: Registrant is not a party to any material legal proceedings, other than ordinary routine litigation incidental to its business. Item 4. Submission of Matters to a Vote of Security Holders: None. Item 4A. Executive Officers of Registrant: The following table sets forth certain other information regarding Registrant's executive officers: Name Age Position George J. Martin 59 Chairman of the Board Michael J. Pudil 48 President, Chief Executive Officer, and Director William J. Lucke 61 Vice President, Treasurer, and Assistant Secretary Gerald E. Magnuson 66 Secretary and Director Mr. Martin was engaged as Chairman of the Board and interim Chief Executive Officer following the resignation of the former Chief Executive Officer on July 28, 1993 until Michael J. Pudil was hired as the Company's President and Chief Executive Officer effective November 4, 1993. Mr. Martin is a director of the Company and previously served as the Company's Chief Executive Officer from December 1983 to January 1985. Mr. Martin was the President, Chief Executive Officer and Chairman of PowCon, Incorporated, a manufacturer of electronic welding systems, from 1987 to October 1995. Mr. Martin now serves as a consultant to PowCon, Incorporated. Mr. Pudil was elected President, Chief Executive Officer, and a Director of the Company on November 4, 1993. During the prior nine years, Mr. Pudil served as General Manager and Vice President and General Manager of the Production Division for Remmele Engineering, Inc. Remmele Engineering is a contract manufacturer primarily involved in machining metal. Mr. Lucke has been a Vice President of the Company since 1979. Mr. Magnuson has served as Secretary of the Company since 1961 and as a Director since 1962. He is Of Counsel to the law firm of Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters: (a) The common stock of the Company is traded on the and over-the-counter NASDAQ SmallCap Market under the (c) symbol WSCI. Common stock information: Stock Price High Low FISCAL 1996: First quarter $4-3/4 $3-7/8 Second quarter 4-1/4 3-7/8 Third quarter 4-3/8 3-7/8 Fourth quarter 4-3/8 3 FISCAL 1995: First quarter $4-1/4 $2-3/4 Second quarter 3-3/4 3-1/4 Third quarter 4-3/8 3-3/8 Fourth quarter 4-3/8 3-7/8 Washington Scientific Industries common stock is traded on the NASDAQ SmallCap Market under the symbol "WSCI". The Company's credit agreement restricts payment of dividends. The Company has not paid any cash dividends since fiscal 1992 and does not anticipate paying cash dividends in the foreseeable future. (b) The number of stockholders of record of the Company's common stock as of November 11, 1996 was 730. Item 6. Selected Financial Data:
FIVE-YEAR SUMMARY OF OPERATIONS (In thousands, except for number of shares and per share information) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Net sales $ 20,173 $ 30,409 $ 30,823 $ 29,293 $ 44,388 Cost of products sold 18,555 27,534 28,357 28,839 39,329 ----------- ---------- --------- ---------- ---------- Gross margin 1,618 2,875 2,466 454 5,059 Selling and administrative expense 2,145 2,560 2,350 3,593 3,195 Provisions for plant closing - - 704 - 1,713 Pension curtailment (gain) - (254) - - - Real estate sale (gain) - (890) - - - Interest and other income (658) (109) (50) (16) (203) Interest expense 492 645 765 991 1,147 ----------- ---------- --------- ---------- ---------- (Loss) earnings from continuing operations before taxes (361) 923 (1,303) (4,114) (793) Income (benefit) taxes 6 (22) (14) (93) (77) ----------- ----------- --------- ---------- ---------- (Loss) earnings from continuing operations (367) 945 (1,289) (4,021) (716) Discontinued operations - - - (1,534) (548) ----------- ---------- --------- ---------- ---------- Net (loss) earnings $ (367) $ 945 $ (1,289) $ (5,555) $ (1,264) ============ ========== ========= ========== ========== (Loss) earnings per common and common equivalent share: Continuing operations $ (.15) $ .39 $ (.54) $ (1.69) $ (.30) Discontinued operations - - - (.64) (.23) ----------- ----------- ---------- ---------- ---------- Net (loss) earnings per common and common equivalent share: $ (.15) $ .39 $ (.54) $ (2.33) $ (.53) =========== =========== ========= ========== ========== Average number of common and common equivalent shares outstanding 2,410,837 2,446,262 2,382,401 2,382,401 2,380,401 Additional information: Current ratio 1.87:1 1.83:1 1.07:1 .88:1 .93:1 Working capital $ 2,196 $ 2,740 $ 452 $ (922) $ (617) Plant and equipment expenditures 809 356 118 513 684 Long-term debt 4,124 4,852 4,848 5,491 6,500 Total assets 11,573 13,265 16,434 18,696 26,533 Stockholders' equity 4,453 4,711 3,704 4,955 10,523 Stockholders' equity per share $ 1.85 $ 1.98 $ 1.55 $ 2.08 $ 4.42
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation LIQUIDITY AND CAPITAL RESOURCES: The Company's working capital of $2,196,000 on August 25, 1996 was down $544,000 from the same period in the prior year. The ratio of current assets to current liabilities increased to 1.87 to 1.0 from 1.83 to 1.0 at year-end 1995. Although the Company experienced an operating loss for the year, cash provided by operations was $1,720,000 in fiscal 1996. Non-cash charges for depreciation and amortization and lower accounts receivable were primarily responsible for cash provided by operating activities. Cash provided by operations was $2,262,000 and $1,195,000 in 1995 and 1994, respectively. Additions to property, plant and equipment from cash were $809,000 in fiscal 1996 compared to $356,000 in 1995 and $118,000 in 1994. A new information system and roof replacement were the major causes of the 1996 capital expenditures. Proceeds from the sale of equipment amounted to $644,000 and primarily resulted from disposition of excess equipment related to completed and discontinued manufacturing programs. Comparable numbers were $1,814,000 in 1995, which included the sale of the Company's Owatonna, Minnesota real estate, and $412,000 in 1994. Proceeds of $217,000 were received on a note receivable in 1996. This was the final payment from Moll PlastiCrafters L.P. for the purchase of substantially all of the assets of Advanced Custom Molders, Inc. Total Company debt was $613,000 lower at August 25, 1996 than the previous year-end. Term debt owed the bank on August 25, 1996 declined $1,054,000 to $2,736,000 while capital lease debt increased $441,000 to $2,342,000. At August 25, 1996 the Company did not have any credit line debt. All debt owed the bank is secured by substantially all of the assets of the Company. It is managements' belief that internally generated funds combined with the line of credit will be sufficient to enable the Company to meet its financial requirements during fiscal 1997. RESULTS OF OPERATIONS: Net sales of $20,173,000 decreased $10,236,000 or 33.7% from the previous year. Sales to IBM, which historically has been one of the Company's main customers, continued to decline because most of the IBM programs serviced by the Company have expired. Sales to IBM declined from $15,965,000 and $6,104,000 in 1994 and 1995, respectively to $1,449,000 in 1996. Sales to other customers were $14,858,000 in 1994, $24,305,000 in 1995 and $18,724,000 in 1996. The lack of continued growth in business to other customers in 1996 resulted from declining requirements in several mature programs, customer outsourcing decisions and lack of new business. Based on information received from customers and recent trends, the Company believes that 1997 sales will show moderate growth from 1996. In fiscal 1996, the Company reported a net loss of $367,000 or $.15 per share compared to net earnings of $945,000 or .39 per share in 1995 and a net loss of $1,289,000 or $.54 per share in 1994. The net loss in 1996 included a one-time gain of $455,000 or $.18 per share from the disposition of excess equipment related to completed and discontinued manufacturing programs while the net income reported in 1995 included gains of $1,144,000 or $.47 per share related to the sale of a manufacturing facility. The net loss in 1994 included a provision for restructuring and plant closing of $704,000 or $.30 per share. Gross margin on parts sold in fiscal 1996 was 8.0 percent of sales compared to 9.5 percent of sales and 8.0 percent of sales in 1995 and 1994, respectively. The decline in gross margin percentage in 1996 can be primarily attributed to reduced manufacturing activity resulting from the decisions of two major customers to close their assembly plants during part of the Company's fourth quarter. The gross margin was 1.7 percent of sales in the fourth quarter. Selling and administrative expense of $2,145,000 in fiscal 1996 decreased $415,000 and $205,000 from fiscal years 1995 and 1994, respectively. The reduction can be primarily attributed to a lower level of purchased services and employee reductions. Interest and other income was $549,000 higher in fiscal 1996 than 1995, and $608,000 higher than 1994 primarily because of the gain on the disposition of excess equipment related to completed and discontinued manufacturing programs. Interest and other expense of $492,000 in fiscal 1996 was $153,000 lower than 1995 and $273,000 lower than 1994 because of lower debt levels and lower interest rates. CAUTIONARY STATEMENT: Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations, in the letter to shareholders and elsewhere in the Annual Report, in this report and 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. Item 8. Financial Statements and Supplementary Data: See Consolidated Financial Statements section of this Annual Report on Form 10-K beginning on page 16, attached hereto, which consolidated financial statements are incorporated herein by reference. Quarterly earnings summary (unaudited): Per Common and Common Equivalent Shares Net Net Net Gross Earnings Earnings Sales Margin (Loss) (Loss) FISCAL 1996: First quarter $ 5,342,474 $ 657,230 $ 54,261 $ .02 Second quarter 5,175,844 264,738 51,206 (a) .02 Third quarter 5,492,811 624,653 59,564 .02 Fourth quarter 4,162,379 71,622 (531,720) (.22) ----------- ---------- --------- ------- $20,173,508 $1,618,242 $(366,690) $ (.15) =========== ========== ========== ======= FISCAL 1995: First quarter $ 7,820,899 $ 355,316 $ (70,219) (b) $ (.03) Second quarter 7,295,764 453,763 645,210 (c) .27 Third quarter 8,154,066 912,246 154,317 .07 Fourth quarter 7,138,742 1,153,530 215,765 .09 ----------- ---------- --------- ------- $30,409,471 $2,874,855 $ 945,073 $ .39 =========== ========== ========== ======= (a) Includes gain from sale of equipment in the amount of $455,000. (b) Includes pension curtailment gain in the amount of $254,419. (c) Includes gain from sale of real estate in the amount of $890,475. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure: On January 11, 1996, the Company terminated Deloitte & Touche LLP as its independent auditors and appointed Ernst & Young LLP as the Company's independent auditors. The reports of Deloitte & Touche LLP on the consolidated financial statements of the Company for the fiscal years ended August 27, 1995 and August 28, 1994 were unqualified and did not contain an adverse opinion, any disclaimers, qualification or modification as to uncertainty, audit scope, or accounting principles. The decision to change firms was recommended by the Audit Committee of the Board of Directors. In connection with the audits of the consolidated financial statements of the Company for the fiscal years ended August 27, 1995 and August 28, 1994, and during the period commencing August 27, 1995 through January 11, 1996, there were no disagreements or reportable events. PART III Pursuant to General Instruction G(3), Registrant omits Part III, Items 10, 11, 12, and 13, except that portion of Item 10 relating to Executive Officers of the Registrant (which is included in Part I, Item 4A), as a definitive proxy statement will be filed with the Commission pursuant to Regulation 14(a) within 120 days after August 25, 1996, and such information required by such items is incorporated herein by reference from the proxy statement. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K: (a) Documents filed as part of this report: 1. Consolidated Financial Statements: Reference is made to the Index to Consolidated Financial Statements (page 16) hereinafter contained for all Consolidated Financial Statements. 2. Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts - page 32 Schedules not listed above have been omitted, because they are either not applicable or not material, or the required information is included in the financial statements or related notes. 3. Exhibits. Exhibit Page No. Description No. 3.1 Articles of Incorporation as amended, incorporated by reference from Exhibit 3.1 of the Registrant's Form 10-K for the year ended August 28, 1994. 3.2 Bylaws, as amended, incorporated by reference from Exhibit 3.2 of the Registrant's Form 10-K for the fiscal year ended August 30, 1987. 10.1 1981 Employee Incentive Stock Option Plan, incorporated by reference from Exhibit 10.3 of Registrant's Form 10-K for the fiscal year ended August 30, 1987. 10.2 1987 Stock Option Plan, incorporated by reference from Exhibit 10.4 of the Registrant's Form 10-K for the fiscal year ended August 30, 1987. 10.3 Amendment dated August 31, 1989 to the 1987 Stock Option Plan, incorporated by reference from Exhibit 10.5 of the Registrant's Form 10-K for the fiscal year ended August 27, 1989. 10.4 Washington Scientific Industries, Inc. 1994 Stock Plan, incorporated by reference from Exhibit 10.2 of the Registrant's Form 10-Q for the quarter ended February 26, 1995. Exhibit Page No. Description No. 10.6 Form of Employment Agreement for certain executive officers, incorporated by reference from Exhibit (c) of Registrant's Form 8-K dated April 24, 1986. 10.7 Amendment dated June 29, 1989 to the employment agreements between the Registrant and certain executive officers, incorporated by reference from Exhibit 10.4 of Registrant's Form 10-K for the fiscal year ended August 27, 1989. 10.8 Employment (Change of Control) Agreement between Michael J. Pudil and Registrant dated October 18, 1995 10.9 Amended and Restated Credit and Security Agreement between the Company and FBS Business Finance Corporation dated March 31, 1995, incorporated by reference from Exhibit 10.4 of the Registrant's Form 10-Q for the quarter ended February 26, 1995. 10.10 First Amendment to Amended and Restated Credit and Security Agreement dated April 20, 1995, incorporated by reference from Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended May 28, 1995. 10.11 Waiver and Second Amendment to Amended and Restated Credit and Security Agreement dated October 31, 1996. 33 16 Letter regarding change in certifying accountant incorporated by reference to Exhibit 1 of the Company's Form 8-K dated January 15, 1996. 23.1 Independent Auditors' Consent of Ernst & Young LLP. 42 23.2 Independent Auditors' Consent of Deloitte & Touche LLP. 43 27 Financial Data Schedule. 44 (b) Reports on Form 8-K. None SIGNATURES Pursuant to the requirements of Section 13 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. WASHINGTON SCIENTIFIC INDUSTRIES, INC. BY: /s/ Michael J. Pudil -------------------------------------- Michael J. Pudil, President and Chief Executive Officer BY: /s/ W. J. Lucke -------------------------------------- W. J. Lucke Vice President and Treasurer DATE: November 20, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Michael J. Pudil President, November 20, 1996 - ------------------------ Chief Executive Michael J. Pudil Officer, Director /s/ Paul Baszucki Director November 20, 1996 - ------------------------ Paul Baszucki /s/ Melvin L. Katten Director November 20, 1996 - ------------------------ Melvin L. Katten /s/ T. E. Larsen Director November 20, 1996 - ------------------------ T. E. Larsen /s/ Gerald E. Magnuson Director November 20, 1996 - ------------------------ Gerald E. Magnuson /s/ George J. Martin Director November 20, 1996 - ------------------------ George J. Martin /s/ Eugene J. Mora Director November 20, 1996 - ------------------------ Eugene J. Mora INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Page CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report, Ernst & Young LLP 17 Independent Auditors' Report, Deloitte & Touche LLP 18 Consolidated Balance Sheets - August 25, 1996 and August 27, 1995 19 Consolidated Statements of Operations - Years Ended August 25, 1996, August 27, 1995, and August 28, 1994 20 Consolidated Statements of Stockholders' Equity - Years Ended August 25, 1996, August 27, 1995, and August 28, 1994 21 Consolidated Statements of Cash Flows - Years Ended August 25, 1996, August 27, 1995, and August 28, 1994 22 Notes to Consolidated Financial Statements 23 SCHEDULE Schedule II - Valuation and Qualifying Accounts 32 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Washington Scientific Industries, Inc. Long Lake, Minnesota We have audited the accompanying consolidated balance sheet of Washington Scientific Industries, Inc. and subsidiaries as of August 25, 1996, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Washington Scientific Industries, Inc. and subsidiaries for the years ended August 27, 1995 and August 28, 1994 were audited by other auditors whose report dated October 13, 1995 expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1996 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Washington Scientific Industries, Inc. and subsidiaries as of August 25, 1996, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the baisc financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Minneapolis, Minnesota October 4, 1996 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Washington Scientific Industries, Inc. Long Lake, Minnesota We have audited the accompanying consolidated balance sheets of Washington Scientific Industries, Inc. and subsidiaries (the Company) as of August 27, 1995 and August 28, 1994 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. Our audit also included the financial statement schedule listed in the index at Item 14. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a text basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 27, 1995 and August 28, 1994 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Deloitte & Touche, LLP October 13, 1995 Minneapolis, Minnesota
WASHINGTON SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AUGUST 25, 1996 AND AUGUST 27, 1995 - ------------------------------------------------------------------------------------------ 1996 1995 ---- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,642,739 $ 1,260,053 Accounts receivable, less allowance for doubtful accounts of $50,000 at August 25, 1996 and $55,000 at August 27, 1995, respectively 1,868,942 3,735,457 Inventories - work-in-process 1,098,613 624,237 Prepaid and other current assets 123,186 411,430 ----------- ----------- Total current assets 4,733,480 6,031,177 PROPERTY, PLANT, AND EQUIPMENT, at cost (Note 4): Land 66,906 66,906 Buildings and improvements 5,019,373 4,855,952 Machinery and equipment 21,770,126 23,216,598 ----------- ----------- 26,856,405 28,139,456 Less accumulated depreciation 20,017,166 20,906,132 ----------- ----------- Total property, plant, and equipment 6,839,239 7,233,324 OTHER LONG TERM ASSETS: 525 525 ----------- ----------- $11,573,244 $13,265,026 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 785,602 $ 1,280,368 Notes payable (Note 3) -- -- Salaries, wages, and employee withholdings 474,107 728,946 Accrued real estate taxes 190,911 191,718 Miscellaneous accrued expenses 133,303 250,983 Current portion of long-term debt (Note 3) 953,570 838,750 ----------- ----------- Total current liabilities 2,537,493 3,290,765 LONG-TERM DEBT, less current portion (Note 3) 4,124,188 4,852,216 LONG-TERM PENSION LIABILITY (Note 7) 458,502 411,213 COMMITMENTS (Note 4) -- -- STOCKHOLDERS' EQUITY (Note 5): Common stock, par value $.10 a share; authorized 10,000,000 shares; issued and outstanding 2,420,850 and 2,384,651 shares, respectively 242,085 238,465 Capital in excess of par value 1,511,598 1,406,299 Retained earnings 2,699,378 3,066,068 ----------- ----------- Total stockholders' equity 4,453,061 4,710,832 ----------- ----------- $11,573,244 $13,265,026 =========== =========== See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED AUGUST 25, 1996, AUGUST 27, 1995, AND AUGUST 28, 1994 - ------------------------------------------------------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- Net sales (Note 8) $ 20,173,508 $ 30,409,471 $ 30,822,980 Cost of products sold 18,555,266 27,534,616 28,356,841 ------------ ------------ ------------ Gross margin 1,618,242 2,874,855 2,466,139 Selling and administrative expense 2,144,962 2,560,407 2,349,940 Provision for restructuring and plant closings (Note 2) -- -- 704,000 Pension curtailment (gain) -- (254,419) -- Real estate sale (gain) -- (889,911) -- Interest and other income (658,158) (109,387) (49,950) Interest expense 492,328 645,314 764,950 ------------ ------------ ------------ 1,979,132 1,952,004 3,768,940 ------------ ------------ ------------ Profit (loss) before income taxes (360,890) 922,851 (1,302,801) Income tax (benefit) (Note 6) 5,800 (22,222) (14,038) ------------ ------------ ------------ Net earnings (loss) $ (366,690) $ 945,073 $ (1,288,763) ============ ============ ============ Net earnings (loss) per common and common equivalent share: $ (.15) $ .39 $ (.54) ============ ============ ============ Weighted average number of common and common equivalent shares outstanding 2,410,837 2,446,262 2,382,401 ============ ============ ============ See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------ ADDITIONAL CAPITAL MINIMUM TOTAL COMMON STOCK IN EXCESS RETAINED PENSION STOCKHOLDERS' SHARES AMOUNT OF PAR VALUE EARNINGS LIABILITY EQUITY BALANCE AT AUGUST 29, 1993 2,382,401 $ 238,240 $ 1,401,165 $ 3,409,758 $ (94,317) $ 4,954,846 Net loss - - - (1,288,763) - (1,288,763) Change in additional minimum pension liability in excess of prior service cost (Note 7) - - - - 37,981 37,981 ----------- ---------- ------------ ------------- --------- -------------- BALANCE AT AUGUST 28, 1994 2,382,401 238,240 1,401,165 2,120,995 (56,336) 3,704,064 Net earnings - - - 945,073 - 945,073 Exercise of stock option 2,250 225 5,134 - - 5,359 Change in additional minimum pension liability in excess of prior service cost (Note 7) - - - - 56,336 56,336 ----------- ---------- ------------ ------------- --------- ------------- BALANCE AT AUGUST 27, 1995 2,384,651 238,465 1,406,299 3,066,068 0 4,710,832 Net loss - - - (366,690) - (366,690) Exercise of stock options 36,199 3,620 105,299 - - 108,919 ----------- ---------- ------------ ------------- --------- ------------- BALANCE AT AUGUST 25, 1996 2,420,850 $ 242,085 $ 1,511,598 $ 2,699,378 $ 0 $ 4,453,061 =========== ========== ============ ============= ========= ============= See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED AUGUST 25, 1996, AUGUST 27, 1995, AND AUGUST 28, 1994 - --------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ (366,690) $ 945,073 $(1,288,763) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,038,939 2,448,013 2,826,546 (Gain) on sale of property, plant, and equipment and other assets (594,300) (763,451) (27,612) Deferred income taxes -- (29,022) Provision for restructuring and plant closings -- -- 704,000 Pension curtailment (gain) -- (254,419) -- Increase in pension liability 47,289 -- -- Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 1,866,516 733,940 (324,952) Inventories (474,375) 1,551,031 (460,393) Other assets -- 217,402 153,923 Prepaid expenses 70,840 (273,678) (164,276) (Decrease) increase in accounts payable and accrued expenses (868,092) (2,313,235) (223,529) ----------- ----------- ----------- Net cash provided by (used in) operating activities 1,720,127 2,261,654 1,194,944 Cash flows from investing activities: Additions to property, plant, and equipment (809,224) (356,136) (117,621) Proceeds from sale of equipment and other assets 644,000 1,813,746 412,464 Proceeds on note receivable 217,402 300,000 200,000 ----------- ----------- ----------- Net cash provided by investing activities 52,178 1,757,610 494,843 Cash flows from financing activities: Payments of long-term debt (1,498,539) (6,064,219) (262,847) Net payments on line of credit -- (848,482) (1,372,477) Placement of long-term debt -- 3,940,117 -- Issuance of common stock 108,920 5,359 -- ----------- ----------- ----------- Net cash used in financing activities (1,389,619) (2,967,225) (1,635,324) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 382,686 1,052,039 54,463 Cash and cash equivalents at beginning of year 1,260,053 208,014 153,551 ----------- ----------- ----------- Cash and cash equivalents at end of year: $ 1,642,739 $ 1,260,053 $ 208,014 =========== =========== =========== Supplemental cash flow information: Cash paid during the year for: Interest $ 509,561 $ 723,685 $ 786,324 Income taxes 5,800 3,500 5,800 Noncash investing and financing activities: Acquisition of machinery through capital lease 885,330 1,729,600 181,016 Reversal of additional minimum pension liability: Intangible asset -- (279,287) -- Retained earnings offset -- (56,336) (37,981) Related deferred taxes -- (29,022) -- See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED AUGUST 25, 1996, AUGUST 27, 1995, AND AUGUST 28, 1994 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR - Washington Scientific Industries, Inc. and subsidiaries' (the Company) fiscal years represent a 52- to 53-week period ending the last Sunday in August. Fiscal 1996, 1995 and 1994 each consisted of 52 weeks. BASIS OF PRESENTATION - The consolidated financial statements include the accounts of Washington Scientific Industries, Inc. and its subsidiaries. All material intercompany balances and transactions have been eliminated. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand, bank account balances and money market investments including debt obligations issued by the U. S. Government or its agencies and corporate obligations. INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventory costs consist of material, direct labor, and manufacturing overhead. The Company's inventories are stated net of valuation allowances of approximately $17,000 and $334,000 at August 25, 1996 and August 27, 1995, respectively. The greater allowance at August 27, 1995 was related to the Company's estimate of certain specific excess inventory quantities. DEPRECIATION - The cost of buildings and substantially all equipment is being depreciated using the straight-line method. The estimated useful lives of the assets are as follows: Buildings and improvements 15 to 32 years Machinery and equipment 3 to 10 years Leasehold improvements 4 to 20 years Automotive equipment 3 to 5 years INCOME TAXES - The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. REVENUE RECOGNITION - Revenues from sales of product are recorded upon shipment. The Company performs periodic credit evaluations of its customers' financial condition. Credit losses relating to customers have been minimal and within management's' expectations. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NET EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES - Net earnings (loss) per common and common equivalent shares has been computed by dividing earnings (loss) by the weighted average number of common and common equivalent shares outstanding during each period. The computed number of common equivalent shares was 61,611 for the year ended August 27, 1995. Outstanding stock options were not considered in the fiscal 1996 and 1994 calculations as they had an antidilutive effect. In March 1995, SFAS 121 "Accounting for the Impairment of Long-Lived Assets" was issued, which is effective for fiscal years beginning after December 15, 1995. The Company has not determined the impact of the new statement on its financial statements. In October 1995, SFAS 123 "Accounting for Stock-Based Compensation" was issued, which is effective for fiscal years beginning after December 15, 1995. The new standard encourages companies to adopt a fair value based method of accounting for employee stock options, but allows companies to continue to account for those plans using the accounting prescribed by APB Opinion 25 "Accounting for Stock Issued to Employees." The Company will adopt the disclosure requirements of the standard in fiscal 1997 and plans to continue accounting for stock compensation using APB 25 making pro forma disclosures of net income and earnings per share as if the fair value based method had been applied. 2. PROVISION FOR RESTRUCTURING AND PLANT CLOSINGS OWATONNA - On June 27, 1994, the Company announced the closing of its plant located in Owatonna, Minnesota and the consolidation of operations in the Long Lake, Minnesota plant. The closing and consolidation was completed in the first half of fiscal 1995. A provision of $704,000 was recorded during fiscal 1994 and consisted principally of: Equipment moves $ 348,000 Severance and relocation costs 356,000 ------------ $ 704,000 ============ The balance of $29,000 at August 25, 1995 was utilized during fiscal 1996 for employee relocation.
3. DEBT Long-term debt consisted of the following: August 25, August 27, 1996 1995 1995 secured notes, interest at the bank's base rate (8.25% at August 25, 1996, 8.75% at August 27, 1995) plus 1.75 percentage points, payable in monthly installments of $37,500 plus interest with final payment due March 31, 1998. $ 2,736,117 $ 3,790,117 Capitalized lease obligations (Note 4) 2,341,641 1,900,849 --------------- --------------- 5,077,758 5,690,966 Less current portion 953,570 838,750 --------------- --------------- Long-term debt $ 4,124,188 $ 4,852,216 =============== ===============
During fiscal 1995, the Company refinanced its term debt and renegotiated its line of credit with the same bank with which the Company previously had its line of credit. The agreement requires principal payments of $37,500 per month with the loan balance due at March 31, 1998. Interest on the term debt is calculated at the bank's base rate (8.25 % at August 25, 1996) plus 1.75 percentage points, with payments made monthly. Interest on the line of credit is at the bank's base rate (8.25% at August 25, 1996) plus 1.5 percentage points, and expires March 31, 1998. The agreement maintains secured borrowing of up to $3,000,000; however, the Company is charged an annual unused credit line fee of 0.75%. At August 25, 1996, and August 27, 1995 there was no balance outstanding under this agreement. During the years ended August 27, 1995 and August 28, 1994 the weighted average interest rates for short term borrowings were 11.1%, and 9.6%, respectively. Restrictive provisions of the agreement requires, among other provisions, that the Company (1) maintain a net worth of not less than $3,000,000, (2) maintain a ratio of liabilities to net worth not greater than 4.0 to 1.0, (3) limit capital expenditures to $3,000,000 in each fiscal year with no more than $1,000,000 coming from its line of credit and (4) maintain a defined cash flow coverage ratio of no less than 1.1 to 1.0. Cash dividends are fully restricted. At August 25, 1996, the Company was in compliance with, or had obtained waivers with respect to, the various covenants of the credit agreement. Maturities of long-term debt, excluding the capital lease obligations, for the years subsequent to August 25, 1996 are as follows: Fiscal years ending August: 1997 $ 450,000 1998 2,286,117 ------------- $ 2,736,117 ============= The notes, line of credit and capital leases are collateralized by the receivables, inventory, and property, plant, and equipment of the Company. 4. COMMITMENTS LEASES - Included in the consolidated balance sheet at August 25, 1996 are cost and accumulated depreciation on equipment subject to capitalized leases of $3,175,430 and $778,274, respectively. At August 27, 1995, the amounts were $2,290,100 and $333,580, respectively. The present value of the net minimum payments on capital leases as of August 25, 1996 are as follows: Capital Leases Fiscal years ending August: 1997 $ 691,580 1998 690,909 1999 656,764 2000 410,325 2001 170,106 2002 170,106 2003 49,402 ------------ Total minimum lease payments 2,839,192 Less amount representing interest 497,551 ------------ Present value of net minimum lease payments 2,341,641 Current portion 503,570 ------------ Capital lease obligation, less current portion $ 1,838,071 ============ Rent expense of approximately $22,295, $245,215, and $ 412,993 has been charged to operations for the years ended August 25, 1996, August 27, 1995, and August 28, 1994, respectively. 5. STOCKHOLDERS' EQUITY STOCK OPTIONS - Under the 1981 employee incentive stock option plan, a total of 225,000 shares of common stock were reserved for granting of options to officers and key employees at a price not less than the fair market value on the day of the grant. At August 25, 1996, no shares remained reserved and available for grant under the plan. The outstanding options have a five-year term from date of grant. In fiscal 1988, the 1987 stock option plan was approved and 175,000 shares of common stock were reserved for granting of options to officers, key employees, and directors. At August 25, 1996, 3,276 shares remained reserved and available for grant under the plan. In fiscal 1995, the 1994 stock option plan was approved and 250,000 shares of common stock were reserved for granting of options to officers, key employees, and directors. At August 25, 1996, 224,000 shares remained reserved and available for grant under the plan.
Option transactions during the three years ended August 25, 1996 are summarized as follows: 1981 Employee Incentive 1987 Stock 1994 Stock Option Plan Option Plan Option Plan Average Average Average Shares Price Shares Price Shares Price -------- ------- -------- -------- ------ --------- Outstanding at August 29, 1993 46,925 $ 4.81 93,250 $ 6.43 -- -- Granted -- -- 127,000 2.11 -- -- Lapsed (16,025) 4.89 (58,000) 7.33 -- -- -------- -------- Outstanding at August 28, 1994 30,900 3.10 162,250 2.72 -- -- Granted -- -- -- -- 10,000 $ 3.83 Lapsed (850) 3.25 (20,000) 6.52 -- -- Exercised -- -- (2,250) 2.38 -- -- -------- -------- ------ Outstanding at August 27, 1995 30,050 3.10 140,000 2.19 10,000 3.83 Granted -- -- 25,000 3.88 16,000 3.88 Lapsed (75) 3.25 (1,000) 3.25 -- -- Exercised (27,975) 3.14 (9,000) 2.69 -- -- -------- -------- ------ Outstanding at August 25, 1996 2,000 $ 2.50 155,000 $ 2.42 26,000 $ 3.86 ======== ======= ======== ======== ====== ========= Options exercisable at August 25, 1996 2,000 136,835 10,501 ======== ======== ======
6. INCOME TAXES The Company has adopted SFAS No. 109, ACCOUNTING FOR INCOME TAXES, which requires an asset and liability approach to financial accounting and reporting for income taxes. Income tax expense (benefit) consisted of: Years Ended ---------------------------------- August 25, August 27, August 28, 1996 1995 1994 -------- -------- -------- Currently payable: Federal -- -- -- State $ 6,800 $ 5,800 $ 5,800 -------- -------- -------- 5,800 6,800 5,800 Deferred: Federal -- (29,022) (19,838) State -- -- -- -------- -------- -------- -- (29,022) (19,838) -------- -------- -------- Total $ 5,800 $(22,222) $(14,038) ======== ======== ======== A reconciliation of the federal income tax provision at the statutory rate with actual taxes provided on (loss) earnings from continuing operations is as follows: Years Ended ------------------------ August 25, August 27, August 28, 1996 1995 1994 ---- ---- ---- Ordinary federal income tax statutory rate (35.0)% 35.0% (35.0)% Limitation on (utilization of) tax assets 34.0 (34.0) 32.5 State income taxes, net of federal income tax benefit 1.6 0.7 0.4 Impact of graduated income tax 1.0 (1.0) 1.0 Other -- (3.1) -- ---- ---- ---- Taxes provided (benefit) 1.6% (2.4)% (1.1)% ==== ==== ====
Deferred income taxes are provided for the temporary differences between the financial reporting and tax bases of the Company's assets and liabilities. Temporary differences, net operating loss carryforwards, and valuation allowances comprising the net deferred taxes on the balance sheet are as follows: Year Ended August 25, 1996 ------------------------------------------- Assets Liabilities Total ----------- ----------- ----------- Costs for disposal of business segment $ 2,734 $ 2,734 Accrual for vacation earned 82,924 82,924 Inventory valuation accruals 5,684 5,684 Noncompete agreement 26,742 26,742 Incurred but not reported accrual 27,880 27,880 Accounts receivable accrual 17,000 17,000 Other 68,512 $ (31,420) 37,092 ----------- ----------- ----------- Current 231,476 (31,420) 200,056 Valuation allowance (200,056) Net current $ 0 =========== Tax depreciation less than book $ (254,683) $ (254,683) Pension accrual $ 119,485 119,485 Net operating loss carryforward 1,958,337 1,958,337 Tax credit carryforward 505,750 505,750 Contribution carryforward 5,730 5,730 ----------- ----------- ----------- Noncurrent 2,589,302 (254,683) 2,334,619 Valuation Allowance (2,334,619) ----------- Net noncurrent $ 0 ===========
Year Ended August 27, 1995 ------------------------------------------- Assets Liabilities Total ----------- ----------- ----------- Accrual for plant closing costs $ 9,860 $ 9,860 Costs for disposal of business segment 9,068 9,068 Accrual for vacation earned 100,161 100,161 Inventory valuation accruals 113,577 113,577 Noncompete agreement 49,664 49,664 Incurred but not reported accrual 45,101 45,101 Accounts receivable accrual 18,700 18,700 Other 41,304 $ (65,020) (23,716) ----------- ----------- ----------- Current 387,435 (65,020) 322,415 Valuation allowance (322,415) ----------- Net current $ 0 =========== Tax depreciation less than book depreciation $ (357,693) $ (357,693) Pension accrual $ 103,407 103,407 Noncompete agreement 26,742 26,742 Net operating loss carryforward 1,840,331 1,840,331 Tax credit carryforward 505,744 505,744 Contribution carryforward 12,572 12,572 ----------- ----------- ----------- Noncurrent 2,488,796 (357,693) 2,131,103 Valuation allowance (2,131,103) ----------- Net noncurrent $ 0 ===========
As of August 25, 1996, the Company had federal, Minnesota, and California state income tax net operating loss carryforwards of approximately $5,435,000, $1,082,000, and $686,000, respectively, of which most will expire in 2008. Also as of August 25, 1996, the Company had $454,000 in federal alternative minimum tax (AMT) credit carryforward and approximately $46,000 in other credit carryforward. The AMT credits are available to offset future tax liabilities only to the extent that the Company has regular tax liabilities in excess of AMT tax liabilities. 7. EMPLOYEE BENEFITS Washington Scientific Industries, Inc. combined its two non-contributory pension plans into one plan effective February 1, 1995, for employees who are at least 21 years of age and have completed at least one year of service. Benefits for the union employees are based on years of service and a pre-established rate in the year of retirement. Benefits for non-union employees are based on years of service and a percentage of annual compensation in the five years preceding retirement. Plan assets consist primarily of shares of a balanced fund offered by a major regional bank. During fiscal 1995, as part of the Owatonna plant restructuring, the Owatonna employees were either terminated or transferred to the Long Lake facility during 1995. As a result, a curtailment of the non-union employee plan occurred during fiscal 1995, as defined in SFAS No. 88, EMPLOYERS' ACCOUNTING FOR SETTLEMENTS AND CURTAILMENTS OF DEFINED BENEFIT PENSION PLANS AND TERMINATION BENEFITS. The amount of the curtailment gain was $254,419 and was reflected in the financial statements for the year ended August 27, 1995.
Net periodic pension cost consisted of the following: Years Ended ------------------------------------- August 25, August 27, August 28, 1996 1995 1994 --------- --------- --------- Service cost - benefits earned during the year $ 152,055 $ 131,866 $ 242,660 Interest cost on projected benefit obligation 461,780 413,134 423,879 Actual return on plan assets (685,255) (784,597) (252,710) Net amortization and deferral 118,709 225,208 (241,683) --------- --------- --------- Net periodic pension cost $ 47,289 $ (14,389) $ 172,146 ========= ========= =========
The funded status of the plans and the amount recognized on the balance sheet are as follows: Years Ended ----------- ----------- August 25, 1996 August 27, 1995 ----------- ----------- Actuarial present value of benefit obligations: Vested benefits $ 5,646,084 $ 5,562,099 Nonvested benefits 156,723 148,326 ----------- ----------- Accumulated benefit obligations 5,802,807 5,710,425 Effect of projected future compensation increases 276,625 301,027 ----------- ----------- Projected benefit obligations 6,079,432 6,011,452 Plan assets at fair value 6,731,214 6,296,909 ----------- ----------- Plan assets (in excess of) less than projected benefit obligations (651,782) (285,457) Unrecognized net gain (loss) 1,315,227 665,414 Unrecognized prior-service cost (541,202) (348,688) Unrecognized net transition assets 336,259 379,944 Additional minimum liability -- -- ----------- ----------- Pension liability $ 458,502 $ 411,213 =========== =========== Weighted average discount rate 7.75% 7.5% Rate of increase in future compensation levels, non-union employees 4.5% 4.5% Expected long-term rate of return on plan assets 9.0% 9.0% The Company's policy is to currently fund an amount to include full current costs and amortization of the unfunded actuarial accrued liability over the expected future service of active participants; however, contributions are not in excess of the maximum allowable tax deduction for the Company. Pension liability amounts expected to be funded under this policy within one year are included in miscellaneous accrued expenses with amounts expected to be funded in periods beyond one year included as long-term liabilities. The Company has a management incentive compensation plan for certain key employees designated annually by a committee of the Board of Directors. The amount of incentive compensation for eligible participants is contingent on attaining minimum pre-tax earnings. All employees are eligible to participate in the Company's retirement savings 401(k) plan. The Company matches contributions up to 25% of the first 6% of employee contributions to the plan. Further discretionary contributions are authorized fully by the Board of Directors. Contributions charged to operations for fiscal 1996, 1995, and 1994 were approximately $66,648, $29,933, and $51,336, respectively. 8. INFORMATION CONCERNING SALES TO MAJOR CUSTOMERS The Company had sales to five customers which exceeded 10 percent of total sales during any one of fiscal years 1996, 1995 or 1994 as listed below: Fiscal Year Sales Customer 1996 1995 1994 -------- ---- ---- ---- #1 $ 12,246,000 $ 7,546,000 $ 3,178,000 #2 $ 2,077,000 $ 2,553,000 $ 2,959,000 #3 $ 1,449,000 $ 6,104,000 $ 15,965,000 #4 $ 1,392,000 $ 3,330,000 $ 2,508,000 #5 $ 1,379,000 $ 4,340,000 $ 706,000 9. DISCONTINUED OPERATIONS Effective June 30, 1993, the Company sold the majority of the assets and liabilities of its plastic injection molding segment (Advanced Custom Molders) for $4,217,400 consisting of $3,500,000 in cash and a promissory note for $717,400 and reported such activity as a discontinued operation. Assets of approximately $231,000 representing the note receivable and other assets and liabilities of approximately $27,000 relating primarily to transaction costs and rental obligations, were remaining from the discontinued segment as of August 27, 1995. WASHINGTON SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - -------------------------------------------------------------------------------- BALANCE AT NET ADDITIONS BALANCE AT BEGINNING CHARGED TO NET END OF DESCRIPTION OF PERIOD COST AND EXPENSES DEDUCTIONS PERIOD ======== ======== ======== ======== Reserves deducted from assets to which it applies: ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year ended August 28, 1994 $200,000 $ $109,828 $ 90,172 ======== ======== ======== ======== Year ended August 27, 1995 $ 90,172 $ $ 35,172 $ 55,000 ======== ======== ======== ======== Year ended August 25, 1996 $ 55,000 $ $ 5,000 $ 50,000 ======== ======== ======== ======== ALLOWANCE FOR EXCESS OR OBSOLETE INVENTORY: Year ended August 28, 1994 $463,859 $ 40,054 $351,533 $152,380 ======== ======== ======== ======== Year ended August 27, 1995 $152,380 $334,051 $152,380 $334,051 ======== ======== ======== ======== Year ended August 25, 1996 $334,051 $ 16,716 $334,051 $ 16,716 ======== ======== ======== ======== (1) Receivables determined to be uncollectible are charged against reserves, net of collections on accounts previously written off. EX-10.11 2 WAIVER AND SECOND AMENDMENT EXHIBIT 10.11 WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT THIS WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT (the "Amendment") is dated as of October 31, 1996 and is by and between WASHINGTON SCIENTIFIC INDUSTRIES, INC. (the "Borrower") and FBS BUSINESS FINANCE CORPORATION (the "Lender"). Terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement. RECITALS WHEREAS, the Borrower and the Lender are parties to an Amended and Restated Credit and Security Agreement, dated as of March 31, 1995 as amended by that certain First Amendment to Amended and Restated Credit and Security Agreement dated as of April 20,1995 (as so amended, the "Credit Agreement") under which the Lender has agreed to make Advances to the Borrower; and WHEREAS, the Borrower has informed the Lender of the occurrence of an Event of Default under the Credit Agreement; and WHEREAS, the Borrower and the Lender desire to amend the Credit Agreement and the Lender is willing to waive the Event of Default, all as hereinafter set forth. NOW THEREFORE, for value received, the Borrower and the Lender agree as follows. ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Amendments. (a) Section 5.5 of the Credit Agreement is amended to read in its entirety as follows: 5.5 Books, Records and Access. Maintain, and cause each Subsidiary to maintain, complete and accurate books and records (including, without limitation, records relating to Accounts Receivable, Inventory, Equipment and other Collateral), in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its respective business and activities. Cause its books and records as at the end of any accounting period to be posted and closed not more than 15 days after the last business day of such period. Permit, and cause each Subsidiary to permit, access by the Lender and its agents or employees to the books and records of the Borrower and such Subsidiary at the Borrower's or such Subsidiary's place or places of business at intervals to be determined by the Lender and without hindrance or delay, and permit, and cause each Subsidiary to permit, the Lender or its agents and employees to inspect the Borrower's Inventory and Equipment and such Subsidiary's inventory and equipment and to inspect, audit, check and make copies and/or extracts from the books, records, journals, orders, receipts correspondence and other data relating to Inventory, Accounts Receivable, chattel paper, General Intangibles, Equipment and any other Collateral or Third Party Collateral, or to any other transactions between the parties hereto. Any and all such inspections and/or audits shall be at the Borrower's expense. If no Event of Default or Unmatured Event of Default shall have occurred and be continuing, the Lender's audit described in the third sentence of this Section 5.5 shall be limited to no more than three such audits in any fiscal year of Borrower; provided however that if (i) no Event of Default or; Unmatured Event of Default shall have occurred and be continuing, and (ii) the average daily amount of outstanding Revolving Loans for the immediately preceding 120 days is $100,000 or less, then the Lender's audit described in the third sentence of this Section 5.5 shall be limited to inspection and other access as described therein with respect to Borrower's Equipment and any Subsidiary's equipment and all books, records, journals, orders, receipts, correspondence, and other data relating thereto, and shall be limited to no more than two such audits in any fiscal year of Borrower. (b) Supplement A to the Credit Agreement is hereby amended to read in its entirety in the form of Supplement A attached hereto as Exhibit A. 1.2 Construction. All references in the Credit Agreement to "this Agreement", "herein" and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment. ARTICLE II - DEFAULT AND WAIVER 2.1 Event of Default. Under Section 5.4 of Supplement A to the Credit Agreement, the Borrower agreed to maintain a Cash Flow Coverage Ratio of not less than 1.1 to 1.0. The Borrower failed to maintain the required Cash Plow Coverage Ratio for the reporting period ending August 25,1996. 2.2 Waiver. Upon the date on which this Amendment becomes effective, the Lender hereby waives the Borrower's Event of Default described in the preceding Section 2.1. The waiver set forth herein shall not constitute a waiver by the Lender of any other Event of Default or any Unmatured Event of Default, if any, under the Credit Agreement, and shall not be, and shall not be deemed to be, a course of action with respect thereto upon which the Borrower may rely in the future and the Borrower hereby expressly waives any claim to such effect. ARTICLE III- REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Lender that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. ARTICLE IV- CONDITIONS PRECEDENT This Amendment shall become effective as of the date first set forth above, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent. 4.1 Execution of Amendment and Supplement A. The Borrower and the Lender shall have executed this Amendment and initialled Supplement A as amended pursuant hereto. 4.2 Warranties. Before and after giving effect to this Amendment, the representations and warranties in Article IV of the Credit Agreement shall be true and correct as though made on the date hereof, except for changes that are permitted by the terms of the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 4.3 Defaults. After giving effect to this Amendment, no Event of Default and no Unmatured Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 4.4 Documents. The following shall have been delivered to the Lender, each duly executed and dated, or certified, as of the date hereof, as the case may be: (a) Resolutions. Certified copies of resolutions of the Board of Directors of the Borrower authorizing or ratifying the execution, delivery and performance, respectively, of this Amendment and other documents (if any) provided for in this Amendment. (b) Consents. Certified copies of all documents evidencing any necessary corporate action, consent or governmental or regulatory approval (if any) with respect to this Amendment. (c) Incumbency and Signatures. A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names of the officer or officers of the Borrower authorized to sign this Amendment and other documents provided for in this Amendment, together with a sample of the true signature of each such officer. (d) Good Standing Certificates. Certificates of good standing as to the Borrower issued by the Secretary of State of the state in which the Borrower is organized, and each other state in which the failure of the Borrower to be in good standing would constitute an Adverse Event or have a material adverse effect on the Lender's rights in any Collateral. ARTICLE V - GENERAL 5.1 Expenses. The Borrower agrees to reimburse the Lender upon demand for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by this Lender in the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and in enforcing the obligations of the Borrower hereunder, and to pay and save the Lender harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment hereunder, which obligations of the Borrower shall survive any termination of the Credit Agreement. 5.2 Counterparts. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 5.3 Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 5.4 Law. This Amendment shall be a contract made under the laws of the State of Minnesota, which laws shall govern all the rights and duties hereunder. 5.5 Successors; Enforceability. This Amendment shall be binding upon the Borrower and the Lender and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Lender and the successors and assigns of the Lender. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed at Minneapolis, Minnesota by their respective officers thereunto duly authorized as of the date first written above. WASHINGTON SCIENTIFIC INDUSTRIES, INC. By: /s/ W. J. Lucke ---------------------------------- Title: Vice President FBS BUSINESS FINANCE CORPORATION BY: /s/ Leonard H. Ramotar ---------------------------------- Title: Vice President EXHIBIT A SUPPLEMENT A (Amended October 31,1996) to AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT Dated as of MARCH 31,1995 Between FBS BUSINESS FINANCE CORPORATION (the "Lender") and WASHINGTON SCIENTIFIC INDUSTRIES, INC. (the "Borrower") 1. Credit Agreement Reference. This Supplement A, as it may be amended or modified from time to time, is a part of the Amended and Restated Credit and Security Agreement, dated as of March 31, 1995, between the Borrower and the Lender (together with all amendments, modifications and supplements thereto, the "Credit Agreement"). Capitalized terms used herein which are defined in the Credit Agreement shall have the meanings given such terms in the Credit Agreement unless the context otherwise requires. 2. Definitions. 2.1 Revolving Credit Amount. The term "Revolving Credit Amount" shall mean the maximum amount of Revolving Loans which the Lender will make available to the Borrower which amount shall not exceed THREE MILLION AND NO/100 DOLLARS ($3,000,000); provided however that the aggregate outstanding principal balance of the Revolving Loans plus the Letter of Credit Obligations shall not exceed the Revolving Credit Amount. 2.2 Borrowing Base. (a) Definition. The term "Borrowing Base" shall mean an amount of up to 80% of the net amount (as determined by the Lender after deduction of such reserves and allowances as the Lender deems proper and necessary) of the Borrower's Eligible Accounts Receivable. (b) Lender's Rights. The Borrower agrees that nothing contained in this Supplement A (a) shall be construed as the Lender's agreement to resort or look to a particular type or item of Collateral or as security for any specific Loan or advance or in any way limit the Lender's right to resort to any or all of the Collateral or as security for any of the Obligations, (b) shall be deemed to limit or reduce any lien on or any security interest in or upon any portion of the Collateral or other security for the Obligations or (c) shall supersede Section 2.10 of the Credit Agreement. 2.3 Letter of Credit Sublimit. The term "Letter of Credit Sublimit" shall mean $300,000. 2.4 Termination Date. The term "Termination Date" shall mean March 31, 1998. 3. Interest; Fees. 3.1 Loans. (a) Interest to Maturity. The unpaid principal balance of the Revolving Loans shall bear interest to maturity at the Reference Rate in effect from time to time plus 1.50% per annum. The unpaid principal balance of the Term Loan shall bear interest to maturity at the Reference Rate in effect from time to time plus 1.75% per annum. (b) Default Rate. If any amount of the Loans is not paid when due, whether by acceleration or otherwise, the entire unpaid principal balance of the Loans (other than Overdraft Loans and Over Advances) shall bear interest until paid at a rate per annum equal to the greater of (i) the Reference Rate from time to time in effect plus 4% or (ii) 4% above the Reference Rate in effect at the time such amount became due. 3.2 Overdraft Loans; Over Advances. Overdraft Loans and Over Advances shall bear interest at the rate(s) determined pursuant to Section 2.7 or Section 2.8 of the Credit Agreement, as applicable. 3.3 Commitment Fee. The Borrower shall pay to the Lender a commitment fee for the period from the date hereof to the date the Credit terminates in an amount equal to.75% per annum on the average daily Unused Revolving Credit Amount. 3.4 Letter of Credit Fees. The Borrower shall pay the Lender, or any Affiliate, a commission on the undrawn amount of each Letter of Credit and on each L/C Draft accepted by the Lender, or such Affiliate, in an amount equal to 2.0% per annum. 3.5 Prepayment Fee. Upon prepayment in full of the Term Loan pursuant to any third party refinancing of the same or in connection with a sale of the Borrower or substantially all of its assets, the Borrower shall pay to the Lender a prepayment fee in an amount equal to one percent (1%) of the outstanding principal balance of the Term Loan; provided, that if at the time of such prepayment the advance rate then applicable to Eligible Accounts Receivable pursuant to Section 2.2(a) of this Supplement A is less than 75%, the prepayment fee shall not be applicable. 4. Eligible Account Receivable Requirements. (a) For Accounts Receivable which are due and payable in full within 30 days of the date of the invoice evidencing such Account Receivable, such Account Receivable must not be unpaid on the date that is 60 days after the due date. For Accounts Receivable which are due and payable in full within 60, 90 or 120 days of the date of the invoice evidencing such Account Receivable, such Account Receivable must not be unpaid on the date that is 30 days after the due date. (b) If invoices representing 10% or more of the unpaid net amount of all Accounts Receivable from any one Account Debtor are unpaid more than the number of days set forth in Section 4(a) above for such Accounts Receivable, then all Accounts Receivable relating to such Account Debtor shall cease to be Eligible Accounts Receivable. 5. Additional Covenants. From the date of the Credit Agreement and thereafter until all of the Borrower's Obligations under the Credit Agreement are paid in full, the Borrower agrees that, unless the Lender shall otherwise consent in writing, it will not, and will not permit any Subsidiary to, do any of the following: 5.1 Net Worth. Permit the Borrower's Net Worth at any time to be less than $3,000,000. 5.2 Liabilities to Net Worth Ratio. Permit the ratio, as of the last day of any fiscal quarter, of the Borrower's consolidated total liabilities to the Borrower's Net Worth to exceed 4.0 to 1.0. 5.3 Capital Expenditures. (a) Make Capital Expenditures in an amount exceeding $3,000,000 on a consolidated basis in any fiscal year. (b) Fund any Capital Expenditures with Revolving Loans in an amount exceeding $1,000,000 in any fiscal year. 5.4 Cash Flow Coverage Ratio. (a) Permit the ratio of the Borrower's EBITDA to the sum of (i) its consolidated interest expense (including, without limitation, imputed interest expense on Capitalized Leases) plus (ii) mandatory principal payments on Long Term Debt, plus (iii) income taxes actually paid during such period, to be less than (x) 0.75 to 1.0 as of November 24, 1996, for the four consecutive fiscal quarters ending on that date and (y) 1.1 to 1.0 as of February 23, 1997, for the four consecutive fiscal quarters ending on that date. (b) Subsequent to February 23, 1997, permit the ratio, as of the last day of any fiscal quarter, of the Borrower's EBlTDA for the four consecutive fiscal quarters ending on that date to the sum of (a) its consolidated interest expense (including without limitation, imputed interest expense on Capitalized Leases,) plus (b) mandatory principal payments on Long Term Debt, plus (c) cash Capital Expenditures not financed by Long Term Debt, plus (d) income taxes actually paid during such period, to be less than 1.1 to 1.0. Borrower's Initials /s/ wjl Lender's Initials /s/lhr Dated as of October 31, 1996 EX-23.1 3 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement Form S-8 (Nos. 2-75087, 33-19650 and 33-58565) of our report dated October 4, 1996, with respect to the consolidated financial statements and schedule of Washington Scientific Industries, Inc. included in the Annual Report (Form 10-K) for the year ended August 25, 1996. ERNST & YOUNG LLP Minneapolis, Minnesota November 19, 1996 EX-23.2 4 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 2-75087, Registration Statement No. 33-19650 and Registration Statement No 33-58565 of Washington Scientific Industries, Inc. and subsidiaries on Form S-8 of our report dated October 13, 1995, appearing in this Annual Report on Form 10-K of Washington Scientific Industries, Inc. and subsidiaries for the year ended August 25, 1996. DELOITTE & TOUCHE LLP November 18, 1996 Minneapolis, Minnesota EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS AUG-25-1996 AUG-25-1996 1,642,739 0 1,918,942 50,000 1,098,613 4,733,481 26,856,405 20,017,166 11,573,244 2,537,494 4,124,188 0 0 242,085 4,210,976 11,573,244 20,173,508 20,173,508 18,555,266 18,555,266 1,486,804 0 492,328 (360,890) 5,800 (366,690) 0 0 0 (366,690) (.15) .00
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