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 [FEE REQUIRED]
For the fiscal year ended August 27, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 13, 1995 (based upon the closing sale price of those
shares on the NASDAQ SmallCap Market System) was approximately $11,060,000.
Number of shares outstanding of the Registrant's common stock, par value $.10
per share, as of November 13, 1995 is 2,391,326.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the annual meeting of shareholders to be
held on January 11, 1996 are incorporated by reference into Part III.
_____________________________________
This form 10-K Report consists of 46 pages (including exhibits); the index to
the exhibits is set forth on page 15.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED AUGUST 27, 1995
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. Sales and earnings of the Company's
discontinued plastic injection molding business
segment for the ten months ended June 30, 1993 are
set forth in Note 9 (Discontinued Operations) of the
Notes to Consolidated Financial Statements included
in the Consolidated Financial Statements section of
this Annual Report on Form 10-K beginning on page 18,
attached hereto, which note is incorporated herein by
reference.
(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. Thirty four percent of Company sales in
fiscal 1995 were made to customers in the computer
equipment market. This number includes sales made to
the large computer disk drive market, which amounted
to 18% of total Company sales. Company sales to the
large computer disk drive market have been declining
rapidly over the past few years and the Company
expects that trend to continue.
The Company embarked on a customer and market
diversification program several years ago in an
effort to reduce the impact of change caused by one
customer being such a significant part of the
Company's business and in anticipation of a decline
in the disk drive market. The Company continued
making significant progress in that effort in 1995
when sales of non-disk drive components substantially
replaced the sales decline the Company experienced in
disk drive business.
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) The Company's business does not have a
seasonal pattern.
(vi) The Company does not believe that its
business demands unusual working capital
requirements.
(vii) Total sales to the following companies in
fiscal 1995 were more than ten percent of
Company sales: John Deere, $7,546,000 or 25%
of Company sales, IBM $6,104,000 or 20% of
Company sales, Storage Technology,
$4,340,000 or 14% of Company sales and The
Trane Company, $3,330,000 or 11% of Company
sales. Sales to IBM have declined steadily
over the past several years because many of
the IBM programs serviced by the Company
have expired. The Company expects a further
decline in its business with IBM in 1996.
(viii) Approximate dollar backlog at August 27,
1995 and August 28, 1994 was $9,043,000 and
$14,061,000, 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 27, 1995 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 27, 1995, the Registrant had 191
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 1995, 1994, and
1993 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. Included is an expansion
consisting of a 32,500-square-foot manufacturing facility,
which was completed in fiscal 1989.
The Company considers its manufacturing equipment, facilities,
and other physical properties to be suitable and adequate to
meet the requirements of its business. The Company believes
that it may need to lease several new machines depending upon
the type of new business obtained in the fiscal year.
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:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
George J. Martin 58 Chairman of the Board
Michael J. Pudil 47 President, Chief Executive Officer, and Director
Terry J. Blount 52 Vice President - Human Resources
William J. Lucke 60 Vice President, Treasurer, and Assistant Secretary
Gerald E. Magnuson 65 Secretary and Director
</TABLE>
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. Blount has been a Vice President of the Company since
1982.
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:
<TABLE>
<CAPTION>
(a) The common stock of the Company is traded on the over-the-counter
and NASDAQ SmallCap Market under the symbol WSCI.
(c)
Common stock information:
Stock Price
High Low
FISCAL 1995:
<S> <C> <C>
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
FISCAL 1994:
First quarter $3-3/8 $2-1/16
Second quarter 2-1/4 1-7/8
Third quarter 2-1/4 2
Fourth quarter 3-1/2 2
</TABLE>
The Company has paid no cash dividends during the
last two fiscal years. The information required by
Item 5 as to any restrictions on payment of dividends
by the Registrant is described in Note 3 of Notes to
Consolidated Financial Statements included in the
Consolidated Financial Statements section of this
Annual Report on Form 10-K beginning on page 18,
attached hereto.
(b) The number of stockholders of record of the Company's
common stock as of November 13, 1995 was 793.
Item 6. Selected Financial Data:
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF OPERATIONS
(In thousands, except for number
of shares and per share information)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
NET SALES $ 30,409 $ 30,823 $ 29,293 $ 44,388 $ 44,980
COST OF PRODUCTS SOLD 27,534 28,357 28,839 39,329 40,014
Gross margin 2,875 2,466 454 5,059 4,966
Selling and administrative expense 2,560 2,350 3,593 3,195 3,681
Provisions for plant closing 704 1,713
Pension curtailment (gain) (254)
Real estate sale (gain) (890)
Interest and other income (109) (50) (16) (203) (98)
Interest expense 645 765 991 1,147 1,205
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE TAXES 923 (1,303) (4,114) (793) 178
Income (benefit) taxes (22) (14) (93) (77) 10
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 945 (1,289) (4,021) (716) 168
DISCONTINUED OPERATIONS - - (1,534) (548) (4,938)
NET EARNINGS (LOSS) $ 945 $ (1,289) $ (5,555) $ (1,264) $ (4,770)
EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE:
Continuing operations $ .39 $ (.54) $ (1.69) $ (.30) $ .07
Discontinued operations (.64) (.23) (2.07)
NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE: $ .39 $ (.54) $ (2.33) $ (.53) $ (2.00)
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,446,262 2,382,401 2,382,401 2,380,401 2,380,401
ADDITIONAL INFORMATION:
Current ratio 1.83:1 1.07:1 .88:1 .93:1 .87:1
Cash dividends declared per share $ .00 $ .00 $ .00 $ .05 $ .20
Working capital 2,740 452 (922) (617) (1,368)
Plant and equipment expenditures 356 118 513 684 1,156
Long-term debt 4,852 4,848 5,491 6,500 8,121
Total assets 13,265 16,434 18,696 26,533 31,839
Stockholders' equity 4,711 3,704 4,955 10,523 11,982
Stockholders' equity per share $ 1.98 $ 1.55 $ 2.08 $ 4.42 $ 5.03
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
LIQUIDITY AND CAPITAL RESOURCES:
The Company's working capital increased to $2,740,000 at
August 27, 1995, and continued the recent trend of improving
levels of working capital. The increase in working capital
resulted primarily from cash provided by operations and the
sale of assets, offset by payments on long-term debt. Cash
provided by operating activities increased to $2,262,000 in
fiscal 1995 compared to $1,195,000 and $(28,000) in fiscal
years 1994 and 1993, respectively. The ratio of current assets
to current liabilities improved to 1.83 to 1.0 from 1.07 to
1.0 and .88 to 1.0 reported for fiscal years ended 1994 and
1993, respectively.
Additions to property, plant and equipment were $356,000
compared to $118,000 in 1994 and $513,000 in 1993. Acquisition
of machinery through capital leases was $1,730,000 compared to
$181,000 and $331,000 in 1994 and 1993, respectively.
Machinery additions in 1995 were higher than the prior two
fiscal years primarily because new machinery was needed to
process new business and because capital additions in fiscal
years 1994 and 1993 had been minimized as a result of economic
measures imposed on itself by the Company.
Proceeds from the sale of equipment and other assets amounted
to $1,814,000 in fiscal 1995, compared to $412,000 in 1994 and
$50,000 in 1993. In 1995, the Company consolidated its
manufacturing operations in Long Lake, MN. As a result, in
January, 1995, the Company sold the real estate it owned in
Owatonna, MN for $1,534,000.
Expenditures for maintenance and repairs were $950,268,
$1,035,616 and $1,158,303 for the years ended August 27, 1995,
August 28, 1994 and August 29, 1993, respectively.
Proceeds of $300,000 were received on a note receivable in
fiscal 1995 compared with $200,000 received in 1994. Those
payments came from Moll PlastiCrafters L.P. and were for the
balance due on the purchase of substantially all of the assets
of Advanced Custom Molders, Inc. The balance of the note in
the amount of $217,000 is scheduled for payment in fiscal
1996.
On March 31, 1995, the Company restructured its term debt and
amended its line of credit agreement. The term debt was
refinanced with the same bank with which the Company has its
line of credit by amending the Credit and Security Agreement
with the bank. There were no penalty payments connected with
the term debt prepayment. The Amended and Restated Credit and
Security Agreement is for a three year time period and
requires substantially lower term debt payments over the next
three years than the former agreements. The credit line
available to the Company remains at $3,000,000; however, the
interest rate on the credit line was reduced by 1.5 percentage
points.
Payments made by the Company on its long-term debt and line of
credit, including payments to the former holders of the term
debt notes, were $6,913,000 in fiscal 1995. Placement of
long-term debt from refinancing was $3,940,000. The net of
payments on long-term debt and line of credit and placement of
long-term debt in fiscal 1995 was $2,973,000. This compares
with payments on long-term debt and line of credit of
$1,635,000 and $3,379,000 in 1994 and 1993, respectively.
Total Company debt was $394,000 lower at August 27, 1995 than
the previous fiscal year- end. Term Debt of $3,790,000 owed
the bank on August 27, 1995 was substantially lower than the
$5,303,000 of term debt at August 28, 1994. However, capital
lease debt increased to $1,901,000 at August 27, 1995 compared
to $782,000 of capital and other lease obligations at August
28, 1994.
At August 27, 1995, 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 management's belief that internally generated funds
combined with the line of credit will be sufficient to enable
the Company to meets its financial requirements during fiscal
1996.
RESULTS OF OPERATIONS:
Net sales of $30,409 000 decreased $414,000 from the previous
year. Even though sales have been almost level over the most
recent three years, with sales of $30,823,000 in 1994 and
$29,293,000 in 1993, there has been a significant change in
customer mix. Sales to IBM, which historically has been the
Company's main customer, have declined significantly because
many of the IBM programs serviced by the Company have expired.
Sales to IBM have declined from $22,230,000 in 1993 and
$15,965,000 in 1994 to $6,104,000 in 1995. To offset
this decline the Company has experienced an increase in
business from other customers. Sales revenue from other
customers increased from $7,063,000 in 1993 to $14,858,000 in
1994 to $24,305,000 in 1995, with no single customer
accounting for more than 25% of the Company's sales in 1995.
Based on information received from customers and recent trends
the Company's outlook is for lower sales in fiscal 1996
compared to fiscal 1995.
In fiscal 1995, the Company reported net earnings of $945,000
or $.39 per share compared to losses of $1,289,000 or $.54 per
share and $5,555,000 or $2.33 in 1994 and 1993, respectively.
The earnings in fiscal 1995 were favorably affected by two
actions resulting from the consolidation of manufacturing
operations in the Company's Long Lake, MN. plant. The
consolidation permitted the Company to sell its Owatonna, MN.
plant and record a pension curtailment gain as a result of
having fewer employees in its pension plan. The gain from
those two actions was $1,144,000. Excluding the impact of
unusual gains, fiscal 1995 would show a loss from operations
in the first half and profitable third and fourth quarters.
The Company incurred many costs associated with its plant
consolidation in the first half year. Costs such as; labor
inefficiencies, start-up and overtime pay had a negative
impact on first half earnings.
Gross margin on parts sold in fiscal 1995 increased to 9.5
percent of sales compared to 8.0 percent of sales and 1.6
percent of sales in 1994 and 1993, respectively. The gross
margin improvement can be attributed to improved manufacturing
efficiencies resulting from the consolidation of all
manufacturing in one plant.
Selling and administrative expense increased $210,000 from the
prior year to $2,560,000. The higher spending was attributable
to increased advertising and other selling expenses, salaries
and professional services. Selling and administrative expense
was $2,350,000 in 1994 and $3,594,000 in 1993.
Other Expense and Income Information - Interest expense of
$645,000 decreased $120,000 from the prior year. This resulted
from lower debt levels and lower interest rates. Interest
expense was $765,000 in 1994 and $991,000 in 1993. Interest
and other income was $109,000 in 1995 compared to $50,000 and
$16,000 in 1994 and 1993, respectively.
Income Taxes - Effective August 31, 1992, the Company 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. In fiscal 1994 and 1993 the Company was unable
to record the benefit of net operating losses and most other
net deductible temporary differences in the consolidated
statement of operations due to the fact that the likelihood of
realization of the tax benefits could not be established. In
fiscal 1995, the Company was able to recognize the benefit of
a portion of its net operating loss carryforwards, but
continues to provide a valuation allowance for excess deferred
tax assets. In addition, in fiscal 1995, the Company did
record a small tax benefit of $22,000 relating to the reversal
of an additional minimum pension liability.
Item 8. Financial Statements and Supplementary Data:
See Consolidated Financial Statements section of this Annual
Report on Form 10-K beginning on page 18, attached hereto,
which consolidated financial statements are incorporated
herein by reference.
Quarterly earnings summary (unaudited):
<TABLE>
<CAPTION>
Per Common
and Common
Equivalent
Shares
Net Net
Net Gross Earnings Earnings
Sales Margin (Loss) (Loss)
<S> <C> <C> <C> <C>
FISCAL 1995:
First quarter $ 7,820,899 $ 355,316 $ (70,219) (a) $ (.03)
Second quarter 7,295,764 453,763 645,210 (b) .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
FISCAL 1994:
First quarter $ 6,186,288 $ (401,836) $(1,161,353) $ (.49)
Second quarter 6,782,531 370,644 (395,122) (.17)
Third quarter 8,982,277 1,574,095 152,723 (c) .07
Fourth quarter 8,871,884 923,236 114,989 .05
$30,822,980 $2,466,139 $(1,288,763) $ (.54)
</TABLE>
(a) Includes pension curtailment gain in the amount of
$254,419.
(b) Includes gain from sale of real estate in the amount of
$890,475.
(c) Includes provision for closing of Owatonna plant in the
amount of $634,000.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
None.
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 27, 1995, 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 18) hereinafter contained for all
Consolidated Financial Statements.
2. Financial Statement Schedules: Schedule II -
Valuation and Qualifying Accounts - page 35
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.
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C> <C>
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.
10.5 Employment Agreement between Michael
J. Pudil and Registrant dated November
4, 1993, incorporated by reference
from Exhibit 10.4 of the Registrant's
Form 10-K for the year ended August
28, 1994.
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 35 between Michael J. Pudil
and Registrant dated October 18, 1995 35
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.
23 Independent Auditors' Consent. 45
27 Financial Data Schedule 46
</TABLE>
(b) There were no reports on Form 8-K for the year ended
August 27, 1995.
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, 1995
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:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael J. Pudil President, Chief Executive Officer, November 20, 1995
Michael J. Pudil Director
/s/ Paul Baszucki Director November 20, 1995
Paul Baszucki
/s/ Melvin L. Katten Director November 20, 1995
Melvin L. Katten
/s/ T. E. Larsen Director November 20, 1995
T. E. Larsen
/s/ Gerald E. Magnuson Director November 20, 1995
Gerald E. Magnuson
/s/ George J. Martin Director November 20, 1995
George J. Martin
/s/ Eugene J. Mora Director November 20, 1995
Eugene J. Mora
</TABLE>
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 19
Consolidated Balance Sheets - August 27, 1995 and August 28, 1994 20
Consolidated Statements of Operations - Years Ended August 27, 1995,
August 28, 1994, and August 29, 1993 21
Consolidated Statements of Stockholders' Equity - Years Ended
August 27, 1995, August 28, 1994, and August 29, 1993 22
Consolidated Statements of Cash Flows - Years Ended August 27, 1995,
August 28, 1994, and August 29, 1993 23
Notes to Consolidated Financial Statements 24
INDEPENDENT AUDITORS' REPORT
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 each of the three years in the period
ended August 27, 1995. 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 test 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
each of the three years in the period ended August 27, 1995 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
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AUGUST 27, 1995 AND AUGUST 28, 1994
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,260,053 $ 208,014
Accounts receivable, less allowance for doubtful
accounts of $55,000 and $90,172 at August 27, 1995
and August 28, 1994, respectively 3,735,457 4,469,397
Inventories - work-in-process 624,237 2,175,268
Prepaid and other current assets 411,430 437,752
Total current assets 6,031,177 7,290,431
PROPERTY, PLANT, AND EQUIPMENT, at cost (Note 4):
Land 66,906 90,906
Buildings and improvements 4,855,952 5,656,578
Machinery and equipment 23,216,598 25,873,081
28,139,456 31,620,565
Less accumulated depreciation 20,906,132 23,016,213
Total property, plant, and equipment 7,233,324 8,604,352
OTHER LONG TERM ASSETS 525 538,758
$ 13,265,026 $16,433,541
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,280,368 $ 2,614,454
Notes payable (Note 3) 848,482
Salaries, wages, and employee withholdings 728,946 1,168,139
Accrued pension contributions 95,579
Accrued real estate taxes 191,718 158,442
Miscellaneous accrued expenses 250,983 716,319
Current portion of long-term debt (Note 3) 838,750 1,237,149
Total current liabilities 3,290,765 6,838,564
LONG-TERM DEBT, less current portion (Note 3) 4,852,216 4,848,319
LONG-TERM PENSION LIABILITY (Note 7) 411,213 1,042,594
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY (Note 5):
Common stock, par value $.10 a share; authorized
10,000,000 shares; issued and outstanding 2,384,651 and
2,382,401 shares respectively 238,465 238,240
Capital in excess of par value 1,406,299 1,401,165
Retained earnings 3,066,068 2,120,995
Additional minimum pension liability (Note 7) (56,336)
Total stockholders' equity 4,710,832 3,704,064
$ 13,265,026 $16,433,541
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 27, 1995, AUGUST 28, 1994, AND AUGUST 29, 1993
1995 1994 1993
<S> <C> <C> <C>
NET SALES (Note 8) $ 30,409,471 $ 30,822,980 $ 29,293,130
COST OF PRODUCTS SOLD 27,534,616 28,356,841 28,838,925
Gross margin 2,874,855 2,466,139 454,205
Selling and administrative expense 2,560,407 2,349,940 3,593,878
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 (109,387) (49,950) (16,008)
Interest expense 645,314 764,950 990,839
1,952,004 3,768,940 4,568,709
PROFIT (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 922,851 (1,302,801) (4,114,504)
Income tax benefit (Note 6) 22,222 14,038 93,216
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS 945,073 (1,288,763) (4,021,288)
DISCONTINUED OPERATIONS (Note 9):
Loss from operations, net of income taxes (846,935)
Loss on disposal (686,962)
NET EARNINGS (LOSS) $ 945,073 $ (1,288,763) $ (5,555,185)
NET EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Continuing operations $ .39 $ (.54) $ (1.69)
Discontinued operations (.64)
NET EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE: $ .39 $ (.54) $ (2.33)
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 2,446,262 2,382,401 2,382,401
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT AUGUST 30, 1992 2,380,401 $ 238,040 $ 1,396,365 $ 8,964,943 $ (76,592) $ 10,522,756
Net loss (5,555,185) (5,555,185)
Exercise of stock option 2,000 200 4,800 5,000
Change in additional minimum
pension liability in excess of
prior service cost (Note 7) (17,725) (17,725)
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 $ - $ 4,710,832
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 27, 1995, AUGUST 28, 1994, AND AUGUST 29, 1993
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $945,073 $(1,288,763) $(5,555,185)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,448,013 2,826,546 3,068,552
Loss on disposal of discontinued operations 686,962
(Gain) loss on sale of property, plant, and equipment
and other assets (763,451) (27,612) 16,169
Deferred income taxes (29,022) (99,016)
Provision for restructuring and plant closings 704,000
Pension curtailment (gain) (254,419)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 733,940 (324,952) 52,432
Inventories 1,551,031 (460,393) 919,522
Other assets 217,402 153,923 (6,921)
Prepaid expenses (273,678) (164,276) 207,840
(Decrease) increase in accounts payable and accrued expenses (2,313,235) (223,529) 681,235
Net cash provided by (used in) operating activities 2,261,654 1,194,944 (28,410)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (356,136) (117,621) (513,190)
Proceeds from sale of equipment and other assets 1,813,746 412,464 50,000
Proceeds on note receivable 300,000 200,000
Proceeds from sale of discontinued operations 3,500,000
Other changes in net assets of discontinued operations (188,420)
Net cash provided by investing activities 1,757,610 494,843 2,848,390
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (6,064,219) (262,847) (3,024,792)
Net payments on line of credit (848,482) (1,372,477) (354,050)
Proceeds from issuance of long-term debt 3,940,117
Issuance of common stock 5,359 5,000
Net cash used in financing activities (2,967,225) (1,635,324) (3,373,842)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,052,039 54,463 (553,862)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 208,014 153,551 707,413
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,260,053 $ 208,014 $ 153,551
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 723,685 $ 786,324 $1,054,056
Income taxes 3,500 5,800 92,000
Noncash investing and financing activities:
Note receivable for net assets of discontinued operations 717,400
Acquisition of machinery through capital lease 1,729,600 181,016 330,629
Reversal of additional minimum pension liability:
Intangible Asset (279,287)
Retained Earnings (56,336) (37,981) 17,725
Related Deferred Taxes (29,022)
</TABLE>
See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 27, 1995, AUGUST 28, 1994, AND AUGUST 29, 1993
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 1995, 1994 and 1993 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, overnight investments, and certificates of deposit with original
maturities to the Company of three months or less.
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 $334,000 and $152,000 at
August 27, 1995 and August 28, 1994, respectively. The increase in the
allowance at August 27, 1995 is 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.
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 (stock options) 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 1994 and 1993 calculations as they had an antidilutive effect.
Business Segment - Since August 29, 1993, the Company's business has been
conducted in a single industry segment--contract manufacturing.
2. PROVISION FOR RESTRUCTURING AND PLANT CLOSINGS
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
At August 27, 1995, liabilities of approximately $29,000 remained, which
are intended to cover the relocation costs of three employees. At August
28, 1994, liabilities of approximately $590,000 relating to the plant
closing provision remained, $334,000 of which was recorded as salaries,
wages, and employee withholdings and $256,000 of which was recorded as
miscellaneous accrued expenses.
3. DEBT
Long-term debt consisted of the following:
August 27, August 28,
1995 1994
1995 secured notes, interest at the bank's
base rate (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 $3,790,117
1988 secured notes $3,667,015
1986 secured notes 1,635,819
Capitalized lease obligations (Note 4) 1,900,849 542,366
Other rent obligations 240,268
5,690,966 6,085,468
Less current portion 838,750 1,237,149
Long-term debt $4,852,216 $4,848,319
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 (8.75 % at August
27, 1995) plus 1.75 percentage points, with payments made monthly.
Interest on the line of credit is at the bank's base rate (8.75% at
August 27, 1995) 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 27, 1995, there was no balance outstanding under this agreement.
During the years ended August 27, 1995, August 28, 1994 and August 29,
1993 the weighted average interest rates for short term borrowings were
11.1%, 9.6% and 8.1%, 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 27, 1995, the Company was
in compliance with respect to these financial covenants of the secured
agreement.
Maturities of long-term debt, excluding the capital lease obligations,
for the years subsequent to August 27, 1995 are as follows:
Fiscal years ending August:
1996 $ 450,000
1997 450,000
1998 2,890,117
$ 3,790,117
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 - The Company has operating lease commitments on office and
manufacturing facilities, and certain equipment. Certain of the leases
contain purchase options.
Included in the consolidated balance sheet at August 27, 1995 are cost
and accumulated depreciation on equipment subject to capitalized leases
of $2,290,100 and $333,580, respectively. At August 28, 1994, the amounts
were $560,500 and $106,994, respectively.
Future minimum lease payments required under operating leases together
with the present value of the net minimum payments on capital leases as
of August 27, 1995 are as follows:
Capital Operating
Leases Leases
Fiscal years ending August:
1996 $ 540,145 $ 3,363
1997 521,474
1998 511,156
1999 482,846
2000 207,365
Total minimum lease payments 2,262,986 $ 3,363
Less amount representing interest 362,137
Present value of net minimum
lease payments 1,900,849
Current portion 388,750
Capital lease obligation,
less current portion $ 1,512,099
Rent expense of approximately $245,215, $412,993, and $ 61,583 has been
charged to operations for the years ended August 27, 1995, August 28,
1994, and August 29, 1993, 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 27, 1995, 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 27, 1995, 27,500 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 27, 1995, 240,000 shares remained
reserved and available for grant under the plan.
Option transactions during the three years ended August 27, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1981 Employee
Incentive 1987 Stock 1994 Stock
Option Plan Option Plan Option Plan
Average Average Average
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at August 30, 1992 67,725 $ 4.07 137,600 $ 6.44
Granted 7,000 2.44
Lapsed (18,800) 5.00 (51,350) 6.30
Exercised (2,000) 2.50
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
Options exercisable at
August 27, 1995 30,050 96,835 1,500
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended
August 27, August 28, August 29,
1995 1994 1993
<S> <C> <C> <C>
Currently payable:
Federal -- -- --
State $ 6,800 $ 5,800 $ 5,800
6,800 5,800 5,800
Deferred:
Federal (29,022) (19,838) (99,016)
State -- -- --
(29,022) (19,838) (99,016)
Total $(22,222) $(14,038) $(93,216)
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended
August 27, August 28, August 29,
1995 1994 1993
<S> <C> <C> <C>
Ordinary federal income tax statutory rate 35.0% (35.0)% (34.0)%
Limitation on (utilization of) tax assets (34.0) 32.5 33.9
State income taxes, net of federal income
tax benefit 0.7 0.4 0.1
Impact of graduated income tax (1.0) 1.0
Other (3.1) (2.3)
Taxes provided (benefit) (2.4)% (1.1)% (2.3)%
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ended August 27, 1995
Assets Liabilities Total
<S> <C> <C> <C>
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 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 2,131,103
Valuation allowance (2,131,103)
Net noncurrent $ 0
Year Ended August 28, 1994
Assets Liabilities Total
Accrual for plant closing costs $ 201,071 $ 201,071
Costs for disposal of business segment 225,008 225,008
Accrual for vacation earned 113,766 113,766
Inventory valuation accruals 51,809 51,809
Noncompete agreement 49,664 49,664.
Incurred but not reported accrual 49,895 49,895
Accounts receivable accrual 30,658 30,658
Other 25,514 $ (44,215) (18,701)
Current 703,170
Valuation allowance (703,170)
Net current $ 0
Tax depreciation less than book depreciation $ (608,471) $ (608,471)
Pension accrual $ 227,303 227,303
Noncompete agreement 76,406 76,406
Net operating loss carryforward 1,961,610 1,961,610
Tax credit carryforward 505,744 505,744
Additional minimum liability credit 28,842 28,842
Contribution carryforward 16,480 16,480
Noncurrent 2,207,914
Valuation allowance (2,207,914)
Net noncurrent $ 0
</TABLE>
As of August 27, 1995, the Company had federal, Minnesota, and California
state income tax net operating loss carryforwards of approximately
$5,020,000, $917,000, and $1,108,000, respectively, of which most will
expire in 2008. Also as of August 27, 1995, 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
During fiscal 1995 there were two events affecting the Company's
non-contributory pension plans. First, 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.
Second, effective February 1, 1995, Washington Scientific Industries,
Inc. combined its two noncontributory pension plans into one plan 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 preestablished 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. Net periodic pension cost consisted of the following:
<TABLE>
<CAPTION>
Years Ended
August 27, August 28, August 29,
1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 131,866 $ 242,660 $ 229,031
Interest cost on projected benefit obligation 413,134 423,879 408,297
Actual return on plan assets (784,597) (252,710) (724,461)
Net amortization and deferral 225,208 (241,683) 276,875
Net periodic pension cost $ (14,389) $ 172,146 $ 189,742
</TABLE>
The funded status of the plans and the amount recognized on the balance
sheet are as follows:
<TABLE>
<CAPTION>
Years Ended
August 27, 1995 August 28, 1994
Non-Union
Combined Union Employee
Plan Plan Plan
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 5,562,099 $ 1,842,159 $ 2,886,525
Nonvested benefits 148,326 77,875 92,431
Accumulated benefit obligations 5,710,425 1,920,034 2,978,956
Effect of projected future compensation
increases 301,027 500,680
Projected benefit obligations 6,011,452 1,920,034 3,479,636
Plan assets at fair value 6,296,909 1,450,398 4,269,800
Plan assets (in excess of) less than projected
benefit obligations (285,457) 469,636 (790,164)
Unrecognized net gain (loss) 665,414 (136,020) 1,099,652
Unrecognized prior-service cost (348,688) (279,287) (14,033)
Unrecognized net transition assets 379,944 50,662 373,082
Additional minimum liability 364,645
Pension liability $ 411,213 $ 469,636 $ 668,537
Weighted average discount rate 7.5% 8.0% 8.0%
Rate of increase in future compensation
levels, non-union employees 4.5% N/A 5.0%
Expected long-term rate of return on
plan assets 9.0% 9.0% 9.0%
</TABLE>
In accordance with SFAS No. 87, Employers' Accounting for Pensions, the
Company has recorded an additional minimum pension liability for the
union pension plan of $364,645 at August 28, 1994. The amount represents
the excess of unfunded accumulated benefit obligations over accrued
pension liabilities. An intangible asset equal to the unrecognized
prior-service cost was recorded in the amount of $279,287 at August 28,
1994. An amount equal to the remaining minimum liabilities, net of
related deferred tax assets, was reflected as a separate reduction of
stockholders' equity at August 28, 1994.
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 management incentive compensation plans 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 1995, 1994, and 1993 were
approximately $29,933, $51,336, and $43,538, respectively.
8. INFORMATION CONCERNING SALES TO MAJOR CUSTOMERS
The Company had sales to four customers which exceed 10 percent of total
sales during any one of fiscal years 1995, 1994 or 1993. Sales to those
customers and the percentage of accounts receivable for those customers
to total Company accounts receivable as of August 27, 1995 and August 28,
1994 are listed below:
<TABLE>
<CAPTION>
Percentage of Customer Accounts Receivable
Fiscal Year Sales to total Company Accounts Receivable
August 27, August 28,
Customer 1995 1994 1993 1995 1994
<S> <C> <C> <C> <C> <C>
#1 $ 6,104,000 $ 15,965,000 $22,230,000 19% 45%
#2 $ 7,546,000 $ 3,178,000 $ 1,077,000 24% 8%
#3 $ 4,340,000 $ 706,000 $ 710,000 14% 6%
#4 $ 3,330,000 $ 2,508,000 $ 0 12% 13%
</TABLE>
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 and $556,000, representing the note
receivable and other assets and liabilities of approximately $27,000 and
$536,000, relating primarily to transaction costs and rental obligations,
were remaining from the discontinued segment as of August 27, 1995 and
August 28, 1994, respectively. Net earnings from April 1, 1993 (the
measurement date) to June 30, 1993, included in loss on disposal of
discontinued operations, were $51,223. Operating results of the plastic
injection molding segment were as follows:
Ten
Months Ended
June 30, 1993
Net sales $ 13,428,301
Costs and expenses 13,978,388
Interest expense, net 245,625
Loss before income tax benefit (795,712)
Income tax benefit
Net loss $ (795,712)
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C>
Year ended
August 29, 1993 $ 50,000 $ 150,000 $ (1) $ 200,000
Year ended
August 28, 1994 $ 200,000 $ $ 109,828 $ 90,172
Year ended
August 27, 1995 $ 90,172 $ $ 35,172 $ 55,000
ALLOWANCE FOR
EXCESS OR
OBSOLETE
INVENTORY:
Year ended
August 29, 1993 $ 135,580 $ 463,859 $ 135,580 $ 463,859
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
</TABLE>
(1) Receivables determined to be uncollectible are charged against reserves,
net of collections on accounts previously written off.
EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
AGREEMENT made as of this 18th day of October, 1995 by and between
Washington Scientific Industries, Inc., a Minnesota corporation with its
principal offices at 2605 West Wayzata Boulevard, Long Lake, Minnesota ("WSI")
and Michael J. Pudil (the "Executive").
WHEREAS, WSI considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of WSI and its shareholders; and
WHEREAS, the Executive has made and is expected to make, due to Executive's
intimate knowledge of the business and affairs of WSI, its policies, methods,
personnel and problems, a significant contribution to the profitability, growth
and financial strength of WSI; and
WHEREAS, WSI, as a publicly held corporation, recognizes that the
possibility of a Change in Control may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure of the Executive or distraction in the performance of the Executive's
duties to the detriment of WSI and its shareholders; and
WHEREAS, Executive is willing to remain in the employ of WSI upon the
understanding that WSI will provide income security if the Executive's
employment is terminated under certain terms and conditions; and
WHEREAS, it is in the best interests of WSI and its shareholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Executive, to their assigned duties without distraction and
to ensure the continued availability to WSI of the Executive in the event of a
Change in Control.
THEREFORE, in consideration of the foregoing and other respective covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until such time as WSI notifies the Executive of
termination of the Agreement. Notwithstanding the preceding sentence, if a
Change in Control occurs, this Agreement shall continue in effect for a period
of 36 months from the date of the occurrence of a Change in Control.
2. Change in Control. No benefits shall be payable hereunder unless there
shall have been a Change in Control, as set forth below.
For purposes of this Agreement, a "Change in Control" of WSI shall mean any
of the following events which does not arise from a transaction or series of
transactions authorized, recommended or approved by formal action taken by the
Board of Directors:
(i) if any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of WSI representing 20% or more
of the combined voting power of WSI's then outstanding securities;
(ii) if there ceases to be at least a seventy-five percent (75%)
majority of the Board of Directors comprised of the following: (A)
individuals who on the date hereof constituted the Board of Directors of
WSI, and (B) any new director who subsequently was elected by, or on the
nomination or recommendation of, at least a seventy-five percent (75%)
majority of the directors who held such office immediately prior to a
Change in Control;
(iii) if a change in control otherwise occurs which would be required
to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, whether or not WSI is then subject to
such reporting requirement;
(iv) if there is a merger or consolidation of WSI with, or the sale of
all or substantially all of the assets of WSI to, any person or entity or
group of associated persons or entities; or
(v) if the shareholders of WSI approve any plan or proposal for the
liquidation or dissolution of WSI.
3. Termination Following Change in Control. If a Change in Control shall
have occurred while this Agreement is in effect, Executive shall be entitled to
the benefits provided in subsection 4(d) unless such termination is (A) because
of Executive's death or Retirement, (B) by WSI for Cause or Disability, or (C)
by Executive other than for Good Reason.
(a) Disability; Retirement. If, as a result of incapacity due to
physical or mental illness, the Executive shall have been absent from the
full-time performance of Executive's duties with WSI for six consecutive
months, and within 30 days after written Notice of Termination is given the
Executive shall not have returned to the full-time performance of the
Executive's duties, WSI may terminate Executive's employment for
"Disability". Any question as to the existence of Executive's Disability
upon which Executive and WSI cannot agree shall be determined by a
qualified independent physician selected by Executive (or, if the Executive
is unable to make such selection, it shall be made by any adult member of
the Executive's immediate family), and approved by WSI. The determination
of such physician made in writing to WSI and to Executive shall be final
and conclusive for all purposes of this Agreement. Termination by WSI or
Executive of Executive's employment based on "Retirement" shall mean
termination with a normal retirement pension in accordance with the WSI
Pension Plan and Trust.
(b) Cause. Termination by WSI of Executive's employment for "Cause"
shall mean termination for theft or embezzlement of WSI assets, intentional
material violations of law or WSI written policies, a material breach of
the provisions of this Agreement, or conviction by a court of competent
jurisdiction for felony criminal conduct.
(c) Good Reason. Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without Executive's express written consent, any of the
following:
(i) the assignment to Executive of any duties inconsistent with
Executive's status or position with WSI, or a substantial alteration
in the nature or status of Executive's responsibilities from those in
effect immediately prior to the Change in Control;
(ii) a reduction by WSI in Executive's annual base salary in
effect immediately prior to a Change in Control;
(iii) the relocation of WSI's principal executive offices to a
location more than twenty-five miles from Long Lake, Minnesota, or WSI
requiring Executive to be based anywhere other than WSI's principal
executive offices except for required travel on WSI's business to an
extent substantially consistent with Executive's prior business travel
obligations;
(iv) the failure by WSI to continue to provide Executive with
benefits at least as favorable to those enjoyed by Executive under any
of WSI's pension, life insurance, medical, health and accident,
disability, deferred compensation, incentive or bonus, incentive and
other stock option, or savings plans in which Executive was
participating at the time of the Change in Control, the taking of any
action by WSI which would directly or indirectly materially reduce any
of such benefits or deprive Executive of any material fringe benefit
enjoyed at the time of the Change in Control, or the failure by WSI to
provide Executive with the number of paid vacation days to which
Executive is entitled at the time of the Change in Control; provided,
however, that WSI may amend any such plan or programs as long as such
amendments do not reduce any benefits to which Executive would be
entitled;
(v) the failure of WSI to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement, as
contemplated in Section 8;
(vi) the taking of any action by WSI that would materially
adversely affect the physical conditions existing at the time of the
Change in Control in or under which Executive performs his employment
duties;
(vii) any material breach of this Agreement by WSI; or
(viii) notwithstanding any provision herein to the contrary, if
during a period commencing on the 91st day following a Change in
Control (as herein defined) and ending on the 180th day following a
Change in Control, the Executive may voluntarily terminate his
employment for any reason, and such termination shall be deemed "Good
Reason" for all purposes of this Agreement. The provisions contained
herein governing Notice and Date of Termination and any dispute of
termination shall apply to a voluntary termination pursuant to this
Subsection.
(d) Notice of Termination. Any purported termination of Executive's
employment by WSI or by Executive shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 9. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth a summary of the facts and circumstances
claimed to provide a basis for termination of Executive's employment.
(e) Date of Termination. For purposes of this Agreement, "Date of
Termination" shall mean:
(i) if Executive's employment is terminated for Disability, 30
days after Notice of Termination is given (provided that the Executive
shall not have returned to the full-time performance of the
Executive's duties during such 30 day period);
(ii) if Executive's employment is terminated for Retirement, on
the date of retirement pursuant to the WSI Pension Plan and Trust; and
(iii) if Executive's employment is terminated pursuant to
subsections (b) or (c) above or for any other reason (other than
death, Disability or Retirement), the date specified in the Notice of
Termination (which shall not be less than 10 days from the date such
Notice of Termination is given).
(f) Dispute of Termination. If, within 10 days after any Notice of
Termination is given, the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination,
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent jurisdiction (which
is not appealable or the time for appeal therefrom having expired and no
appeal having been perfected); provided, that the Date of Termination shall
be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, WSI shall continue to pay Executive full compensation in effect
when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue Executive as a participant in all
compensation, benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved in accordance with this subsection. Amounts
paid under this subsection are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts
under this Agreement.
4. Compensation Upon Termination or During Disability. Following a Change
in Control, upon termination of Executive's employment or during a period of
Disability, Executive shall be entitled to the following benefits:
(a) During any period that Executive fails to perform full-time duties
with WSI as a result of a Disability, WSI shall pay Executive, the base
salary of the Executive at the rate in effect at the commencement of any
such period, until such time as the Executive is determined to be eligible
for long term disability benefits in accordance with WSI's insurance
programs then in effect.
(b) If Executive's employment shall be terminated by WSI for Cause or
by Executive other than for Good Reason, Disability or Retirement, WSI
shall pay to Executive his full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given and WSI
shall have no further obligation to Executive under this Agreement.
(c) If Executive's employment shall be terminated by WSI or by
Executive for Disability or Retirement, or by reason of death, WSI shall
immediately commence payment to the Executive (or Executive's designated
beneficiaries or estate, if no beneficiary is designated) any and all
benefits to which the Executive is entitled under WSI's retirement and
insurance programs then in effect.
(d) If Executive's employment by WSI shall be terminated (A) by WSI
other than for Cause, Retirement, or Disability or (B) by Executive for
Good Reason, then Executive shall be entitled to the benefits provided
below:
(i) WSI shall pay Executive the Executive's full base salary
through the Date of Termination at the rate in effect at the time the
Notice of Termination is given;
(ii) In lieu of any further salary payments for periods
subsequent to the Date of Termination, WSI shall pay as a severance
payment (the "Severance Payment") an amount equal to 2.99 times the
average of the annual compensation which was paid to Executive by WSI
(or any corporation ("Affiliate") affiliated with WSI within the
meaning of section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code")) and includible in Executive's gross income for
Federal income tax purposes for the five calendar years (or, if
Executive has been employed by WSI for less than five, the number of
complete calendar years of employment) (the "Base Period") preceding
the earlier of the calendar year in which a Change in Control of WSI
occurred or the calendar year of the Date of Termination. Such average
shall be determined in accordance with temporary or final regulations
promulgated under section 28OG(d) of the Code. Compensation payable to
Executive by WSI (or an Affiliate) shall include every type and form
of compensation includible in Executive's gross income in respect of
Executive's employment by WSI (or an Affiliate), including
compensation income recognized as a result of the exercise of stock
options or sale of the stock so acquired, except to the extent
otherwise provided in temporary or final regulations promulgated under
section 28OG(d) of the Code. The Severance Payment shall be made
within 60 days after termination of employment.
(iii) For a 36 month period after the Date of Termination, WSI
shall arrange to provide Executive with life, disability, accident and
health insurance benefits substantially similar to those which the
Executive is receiving or entitled to receive immediately prior to the
Notice of Termination. Benefits otherwise receivable by Executive
pursuant to this paragraph (iii) shall be reduced to the extent
comparable benefits are actually received by Executive during such 36
month period, and any such benefits actually received by Executive
shall be reported to WSI.
(iv) Except to the extent such payment would constitute a
"parachute payment" within the meaning of Section 28OG(b)(2) of the
Code as determined under subsection (d)(v), WSI shall also pay to
Executive all legal fees and expenses incurred by Executive as a
result of such termination (including all such fees and expenses, if
any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this
Agreement); and
(v) The Severance Payment shall be reduced by the value of
benefits actually provided in (iii) above and by the amount of any
other payment or the value of any benefit received or to be received
by Executive in connection with the termination of employment or
contingent upon a Change in Control of WSI (whether payable pursuant
to the terms of this Agreement, any other plan, agreement or
arrangement with WSI or an Affiliate) unless (1) Executive shall have
effectively waived receipt or enjoyment of such payment or benefit
prior to the date of payment of the Severance Payment, (2) in the
opinion of tax counsel selected by WSI and acceptable to Executive,
such other payment or benefit does not constitute a "parachute
payment" within the meaning of section 28OG(b)(2) of the Code, or (3)
in the opinion of such tax counsel, the Severance Payment (in its full
amount or as partially reduced, as the case may be) plus all other
payments or benefits which constitute "parachute payments" within the
meaning of section 28OG(b)(2) of the Code are reasonable compensation
for services actually rendered, within the meaning of section
28OG(b)(4) of the Code, and such payments are deductible by WSI. The
value of any non-cash benefit or any deferred cash payment shall be
determined by WSI in accordance with the principles of sections
28OG(d)(3) and (4) of the Code.
(vi) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that, notwithstanding
the good faith of Executive and WSI in applying the terms of this
Subsection 4(d), the aggregate "parachute payments" paid to or for
Executive's benefit are in an amount that would result in any portion
of such "parachute payments" not being deductible by WSI or its
Affiliates by reason of section 28OG of the Code, then Executive shall
have an obligation to pay WSI upon demand an amount equal to the sum
of (1) the excess of the aggregate "parachute payments" paid to or for
the Executive's benefit over the aggregate "parachute payments" that
would have been paid to or for the Executive's benefit without any
portion of such "parachute payments" not being deductible by reason of
section 28OG of the Code; and (2) interest on the amount set forth in
clause (1) of this sentence at the applicable Federal rate (as defined
in section 1274(d) of the Code) from the date of Executive's receipt
of such excess until the date of such payment.
(e) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 4 be reduced by any compensation earned by Executive as the
result of employment by another employer or by retirement benefits after
the Date of Termination, or otherwise except as specifically provided in
this Section 4.
(f) In addition to all other amounts payable to Executive under this
Section 4, Executive shall be entitled to receive all benefits payable to
the Executive under the Washington Scientific Industries, Inc. Pension Plan
and Trust and the Washington Scientific Industries, Inc. Employee Stock
Ownership Plan and Trust and any other plan or agreement relating to
retirement benefits.
5. Funding of Payments. In order to assure the performance by WSI or its
successor of its obligations under this Agreement, WSI may deposit in trust an
amount equal to the maximum payment that will be due the Executive under the
terms hereof. Under a written trust instrument, the Trustee shall be instructed
to pay to the Executive (or the Executive's legal representative, as the case
may be) the amount to which the Executive shall be entitled under the terms
hereof, and the balance, if any, of the trust not so paid or reserved for
payment shall be repaid to WSI. If WSI deposits funds in trust, payment shall be
made by the Trustee to the Executive in accordance with the provisions of this
Agreement. If and to the extent there are not amounts in trust sufficient to pay
Executive under this Agreement, WSI shall remain liable for any and all payments
due to Executive. In accordance with the terms of such trust, at all times
during the term of this Agreement, Executive shall have no rights, other than as
an unsecured general creditor of WSI, to any amounts held in trust and all trust
assets shall be general assets of WSI and subject to the claims of creditors of
WSI.
6. Confidential Information. Executive will not while this Agreement is in
effect or after its expiration or termination, use, other than in connection
with Executive's employment with WSI, or disclose any confidential information
to any person not employed by WSI or not authorized by WSI to receive such
information without the prior written consent of WSI. Executive will use
reasonable and prudent care to safeguard, protect and prevent the unauthorized
disclosure of confidential information. The obligations contained in this
Section 6 will survive for as long as WSI in its sole judgment considers the
information to be confidential information.
7. Disclosure and Assignment.
(a) Disclosure. Executive will disclose promptly in writing to WSI all
inventions, improvements, discoveries and writings and other works of
authorship ("works") which are conceived, made, discovered or written
jointly or singly on WSI time or on Executive's time, providing the
invention, improvement, discovery, writing or other work is capable of
being used by WSI in the normal course of business, and all such
inventions, improvements, discoveries, writings and works are hereby
assigned to, and belong solely and exclusively to WSI.
(b) Assignment. Executive will sign and execute all instruments of
assignment and other papers to evidence vestiture of the entire right,
title, and interest in such inventions, improvements, discoveries,
writings, or works in WSI, and will do all acts and sign all papers that
WSI may reasonably request, relating to applications for patents, to
patents, to copyrights, and to the enforcement and protection thereof. If
such acts are requested and performed when Executive is not a WSI employee,
WSI will pay a fee, determined by WSI, covering authorized time and
expenses of Executive but no others.
(c) Limitations. Notwithstanding anything in this Section 7 to the
contrary, Executive is hereby given NOTICE that the assignment and
statement of WSI ownership does not apply to any INVENTION for which no
equipment, supplies, facility or trade secret information of WSI was used
and which was developed entirely on Executive's own time, and (1) which
does not relate (i) directly to the business of WSI or (ii) to WSI's actual
or demonstrably anticipated research or development, or (2) which does not
result from any work performed by Executive for WSI.
(d) Survival of Obligations.
(i) The obligations of this Section 7 survive the expiration or
termination of this Agreement.
(ii) This Agreement, or any termination hereof, has no effect on
any other Employee Agreement previously executed by Executive which
remains in full force and effect. To the extent there are any
conflicts between this Agreement and such other Agreement, this
Agreement prevails.
(iii) Upon termination of employment, Executive will not take or
retain, and will return to WSI all WSI property of any nature or kind.
8. Successors; Binding Agreement.
(a) WSI will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of WSI to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that WSI
would be required to perform it if no such succession had taken place.
Failure of WSI to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, successors, heirs and
designated beneficiaries. If Executive should die while any amount would
still be payable to Executive hereunder if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's designated
beneficiaries, or, if there is no such designated beneficiary, to the
Executive's estate.
9. Notice. For the purpose of this Agreement, notices and all other
communications provided for shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States first class mail, postage
prepaid, addressed to the last known residence address of the Executive or in
the case of WSI, to its principal office to the attention of its then Chief
Executive Officer, with a copy to its Secretary, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt.
10. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the parties. No waiver by either party hereto at any time
of any breach by the other party to this Agreement of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Minnesota. The invalidity or
unenforceability or any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
By /s/ William J. Lucke
Its Vice President
EXECUTIVE
/s/ Michael J. Pudil
Michael J. Pudil
EXHIBIT 23
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 27, 1995.
DELOITTE & TOUCHE, LLP
Minneapolis, Minnesota
November 15, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-27-1995
<PERIOD-END> AUG-27-1995
<CASH> 1,260,053
<SECURITIES> 0
<RECEIVABLES> 3,790,457
<ALLOWANCES> (55,000)
<INVENTORY> 624,237
<CURRENT-ASSETS> 6,031,177
<PP&E> 28,139,456
<DEPRECIATION> 20,906,132
<TOTAL-ASSETS> 13,265,026
<CURRENT-LIABILITIES> 3,290,765
<BONDS> 4,852,216
<COMMON> 238,465
0
0
<OTHER-SE> 4,472,367
<TOTAL-LIABILITY-AND-EQUITY> 13,265,026
<SALES> 30,409,471
<TOTAL-REVENUES> 30,409,471
<CGS> 27,534,616
<TOTAL-COSTS> 27,534,616
<OTHER-EXPENSES> 1,306,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 645,314
<INCOME-PRETAX> 922,851
<INCOME-TAX> (22,222)
<INCOME-CONTINUING> 945,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 945,073
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.00
</TABLE>
