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Policy & Guidance

Interim Economic Guidance for Water Quality Standards

Exhibit 3-1

XYZ, inc.
CONSOLIDATED
STATEMENTS OF
INCOME AND
RETAINED EARNINGS
(DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1988, 1987, 1986

1988 1987 1986
Net sales $42,389,957 $33,294,962 $30,730,768
Cost of sales 35,981,363 26,405,930 24,972,185
Gross profit 6,408,594 6,889,032 5,758,583
Selling, general and administrative expenses 3,957,771 3,876,206 3,824,226

Income from operations

2,450,823

3,012,826

1,934,357
Other income (deductions)
Interest income 441,891 347,613 362,295
Interest expense

(10,985)

 (22,513) (46,467)
Other investment income - net 134,690
Miscellaneous 55,066 48,660 93,654
Total other income (deductions) - net 485,972 373,760 544,172
Income before income taxes 2,936,795 3,386,586 2,478,529
Provision for income taxes 1,139,118 1,620,012 1,150,949

Net income

1,797,677

1,766,574

1,327,580
Retained earnings, beginning of year 1,157,528 1,726,292 1,983,007
Stock dividend

(2,610,888)

 (1,952,645)

(1,365,590)
Cash dividend ($.11 per share, 1988; $.08 per share, 1987; $.06 per share, 1986)

(391,960)

 (300,693)

(218,705)
Common stock acquired and retired

(2,591)

 (82,000)

---
Retained earnings (deficit), end of year $ (50,234) $ 1,157,528

$ 1,726,292
Weighted average number of shares outstanding 3,593,048 3,630,652

3,637,798

Earnings per common share

$.50

$.49

$.36
See accompanying Notes to Financial Statements

INDEPENDENT
AUDITORS'
REPORT

To the Shareholders of XYZ, Inc.:



We have audited the consolidated balance sheets of XYZ, Inc. at September 30, 1988 and 1987, and the related consolidated statements of income and retained earnings (deficit), and cash flows for each of the three years in the period ended September 30, 1988. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 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 accompanying consolidated financial statements present fairly, in all material respects, the financial position of the companies at September 30, 1988 and 1987, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1988 in conformity with generally accepted accounting principles.
DELOITTE HASKINS & SELLS
Minneapolis, Minnesota
December 5, 1988

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