-----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, OztWJXS2axw30q6420o+m5jhZQ88nPqWJUkQWZG17WpzddSUcl0O4ctQ6yr2pzSH BXSMLZQVFlQ3pJMVsO4p2Q== 0001095811-00-000399.txt : 20000228 0001095811-00-000399.hdr.sgml : 20000228 ACCESSION NUMBER: 0001095811-00-000399 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991217 ITEM INFORMATION: FILED AS OF DATE: 20000225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYNNS INTERNATIONAL INC CENTRAL INDEX KEY: 0000108721 STANDARD INDUSTRIAL CLASSIFICATION: GASKETS, PACKAGING AND SEALING DEVICES & RUBBER & PLASTIC HOSE [3050] IRS NUMBER: 952854312 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-07200 FILM NUMBER: 553846 BUSINESS ADDRESS: STREET 1: 500 NORTH STATE COLLEGE BLVD STREET 2: SUITE 700 CITY: ORANGE STATE: CA ZIP: 92868 BUSINESS PHONE: 7149383700 MAIL ADDRESS: STREET 1: 500 NORTH STATE COLLEGE BLVD STREET 2: SUITE 700 CITY: ORANGE STATE: CA ZIP: 92868-1607 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------- Date of Report (Date of earliest event reported) December 17, 1999 WYNN'S INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 1-7200 95-2854312 (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation) Identification No.) 500 North State College Boulevard, Suite 700, Orange, CA 92868 (Address of principal executive offices) (Zip Code) -------------------- Registrant's telephone number, including area code 714-938-3700 Not applicable (Former name or former address, if changed since last report.) 2 Wynn's International, Inc., a Delaware corporation ("Registrant"), filed with the Commission on December 30, 1999, a Current Report on Form 8-K (the "Current Report") describing Registrant's acquisition of all of the outstanding capital stock of Goshen Rubber Companies, Inc., an Indiana corporation ("Goshen"), on December 17, 1999. In accordance with the instructions to paragraphs (a)(4) and (b)(2) of Item 7 of Form 8-K, the Current Report omitted the financial statements of businesses acquired and the pro forma financial information required by such paragraphs. Accordingly, Registrant hereby amends the Current Report by deleting Item 7 thereof and replacing it in its entirety with the following: ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of businesses acquired. (1) Audited consolidated financial statements of Goshen for the years ended June 30, 1999 and 1998 (2) Unaudited consolidated balance sheet of Goshen at September 30, 1999 (3) Unaudited consolidated statements of income of Goshen for the three months ended September 30, 1999 and 1998 (4) Unaudited consolidated statements of cash flows of Goshen for the three months ended September 30, 1999 and 1998 (5) Audited financial statements of Waukesha Rubber Company, Inc. ("Waukesha") for the years ended October 31, 1998 and 1997 (see discussion below concerning Goshen's acquisition of Waukesha) (6) Unaudited balance sheet of Waukesha at July 31, 1999 (7) Unaudited statements of income of Waukesha for the nine months ended July 31, 1999 and 1998 (8) Unaudited statements of cash flows of Waukesha for the nine months ended July 31, 1999 and 1998 3 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 4 CONTENTS
PAGE(S) ------- Report of Independent Accountants 1 Financial Statements: Consolidated Balance Sheets 2 Consolidated Statements of Income 3 Consolidated Statements of Shareholders' Equity 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6-23
5 [PRICEWATERHOUSECOOPERS LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Goshen Rubber Companies, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Goshen Rubber Companies, Inc. and its subsidiaries at June 30, 1999 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As more fully described in Note 1 to the consolidated financial statements, effective July 1, 1998 the Company changed its method of accounting for internal and external costs incurred to develop internal-use computer software. /s/ PricewaterhouseCoopers LLP Mishawaka, Indiana September 3, 1999 Page 1 6 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1999 and 1998 ($ in thousands)
1999 1998 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 297 $ 1,345 Trade accounts receivable, less allowance for doubtful receivables of $128 in 1999 and $97 in 1998 27,941 20,775 Receivables - related party and other 852 554 Refundable income taxes 431 395 Inventories 11,741 12,184 Prepaid expenses and other 2,712 2,628 Deferred income taxes 2,150 1,451 -------- -------- TOTAL CURRENT ASSETS 46,124 39,332 Property, plant and equipment, net 28,568 23,252 Investments in and advances to affiliates 448 859 Investment in life insurance contracts, net of policy loans of $10,354 in 1999 and $9,389 in 1998 1,597 1,893 Other assets 1,084 991 -------- -------- TOTAL ASSETS $ 77,821 $ 66,327 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 2,497 $ 2,341 Accounts payable 14,823 16,723 Accrued income taxes 1,197 390 Accrued wages, taxes and other 7,780 5,961 -------- -------- TOTAL CURRENT LIABILITIES 26,297 25,415 Long-term debt 25,520 17,813 Deferred compensation 1,678 1,657 Deferred income taxes 1,826 691 Other long-term liabilities 60 83 -------- -------- TOTAL LIABILITIES 55,381 45,659 -------- -------- Minority interest -- 1,250 -------- -------- Commitments and contingencies (Notes 12 and 13) SHAREHOLDERS' EQUITY: Capital stock 1,858 1,860 Retained earnings 20,797 17,797 Accumulated other comprehensive loss (215) (239) -------- -------- TOTAL SHAREHOLDERS' EQUITY 22,440 19,418 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,821 $ 66,327 ======== ========
The accompanying notes are a part of the consolidated financial statements. Page 2 7 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME for the years ended June 30, 1999 and 1998 ($ in thousands, except per share amounts)
1999 1998 --------- --------- NET SALES $ 172,597 $ 168,813 Cost of sales 144,722 144,707 --------- --------- Gross profit 27,875 24,106 Selling, general and administrative expenses 21,037 20,638 --------- --------- INCOME FROM OPERATIONS 6,838 3,468 --------- --------- Other nonoperating income (expense): Interest expense (2,679) (2,381) Interest income 68 173 Equity in losses of affiliates (364) (609) Other income (expense), net 1,517 (9) --------- --------- Other nonoperating expense, net (1,458) (2,826) --------- --------- INCOME BEFORE INCOME TAXES 5,380 642 Income taxes 2,188 432 --------- --------- NET INCOME $ 3,192 $ 210 ========= ========= EARNINGS PER SHARE: Basic $ 37.43 $ 1.05 Diluted 37.43 1.05
The accompanying notes are a part of the consolidated financial statements. Page 3 8 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended June 30, 1999 and 1998 ($ in thousands, except per share amounts)
ACCUMULATED CAPITAL OTHER TOTAL STOCK COMPREHENSIVE SHARE- CAPITAL RETAINED TO BE INCOME HOLDERS' STOCK EARNINGS REDEEMED (LOSS) EQUITY --------- --------- -------- ------------ --------- Balance, July 1, 1997 $ 1,864 $ 17,866 $(2,960) $ (99) $ 16,671 -------- Net income -- 210 -- -- 210 Change in cumulative translation adjustment -- -- -- (140) (140) -------- Comprehensive income 70 Repurchase and cancellation of Class B shares (4) (156) -- -- (160) Termination of stock repurchase agreements -- -- 2,960 -- 2,960 Dividends on preferred stock ($8.50 per share) -- (123) -- -- (123) ------- -------- ------- ----- -------- Balance, June 30, 1998 1,860 17,797 -- (239) 19,418 -------- Net income -- 3,192 -- -- 3,192 Change in cumulative translation adjustment -- -- -- 24 24 -------- Comprehensive income -- -- -- -- 3,216 Repurchase and cancellation of Class B shares (2) (69) -- -- (71) Dividends on preferred stock ($8.50 per share) -- (123) -- -- (123) ------- -------- ------- ----- -------- Balance, June 30, 1999 $ 1,858 $ 20,797 $ -- $(215) $ 22,440 ======= ======== ======= ===== ========
The accompanying notes are a part of the consolidated financial statements. Page 4 9 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended June 30, 1999 and 1998 ($ in thousands)
1999 1998 -------- --------- Cash flows from operating activities: Net income $ 3,192 $ 210 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,323 4,462 Gain on acquisition of minority interest (1,010) -- Minority interest -- 141 Equity in losses of affiliates 364 609 Deferred income taxes 436 (23) Other (373) (201) Changes in operating assets and liabilities, net of effect of business dispositions: Trade accounts receivable (7,605) 685 Receivables - related party and other (369) (284) Refundable income taxes (36) 60 Inventories 165 (1,824) Prepaid expenses and other assets (97) (112) Accounts payable (1,490) 5,452 Accrued income taxes 807 (168) Other accrued liabilities 1,909 (1,758) -------- -------- Total adjustments (2,976) 7,039 -------- -------- Net cash provided by operating activities 216 7,249 -------- -------- Cash flows from investing activities: Additions to property, plant and equipment (6,843) (5,658) Proceeds from sale of assets 614 312 Premium payments for investments in life insurance contracts (402) (354) Investment in affiliate -- (500) Purchase of minority interest (240) -- Other 80 (200) -------- -------- Net cash (used in) investing activities (6,791) (6,400) -------- -------- Cash flows from financing activities: Proceeds from revolving line of credit and other long-term debt 72,174 60,218 Repayments of revolving line of credit and other long-term debt (67,105) (61,145) Borrowings on cash value of life insurance, net 965 917 Deferred financing costs (152) -- Payments of deferred compensation (232) (231) Cash dividends paid (123) (123) -------- -------- Net cash provided by (used in) financing activities 5,527 (364) -------- -------- Increase (decrease) in cash and cash equivalents (1,048) 485 Cash and cash equivalents, beginning of year 1,345 860 -------- -------- Cash and cash equivalents, end of year $ 297 $ 1,345 ======== ======== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 2,760 $ 2,394 Income taxes, net of refunds 593 563 Noncash investing and financing activities: Assets acquired through capital leases or financing arrangements 3,118 97 Repurchase of Class B common shares in exchange for shareholder note receivable 71 160 Termination of stock repurchase agreements -- 2,860
The accompanying notes are a part of the consolidated financial statements. Page 5 10 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) 1. SIGNIFICANT ACCOUNTING POLICIES. Goshen Rubber Companies, Inc. and its subsidiaries (collectively referred to as the "Company") manufacture molded and extruded rubber products, which accounted for approximately 70% and 72% of net sales in fiscal years 1999 and 1998, respectively, and also manufacture thermoplastic and urethane products. The Company has seventeen manufacturing plants in the United States and two plants in Canada. In fiscal years 1999 and 1998, approximately 73% and 72%, respectively, of the Company's products are sold to customers in the automotive industry with the remaining sales spread over a number of industries including appliance, aerosol, aerospace and a wide variety of smaller equipment manufacturers. Export sales are less than 10% of total net sales. The following is a summary of the accounting policies adopted by the Company which have a significant effect on the consolidated financial statements: PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Goshen Rubber Companies, Inc. and its majority owned subsidiaries. The Company's investments in associated companies owned 20% or more are accounted for using the equity method. Under the equity method, original investments are recorded at cost and adjusted by the Company's share of undistributed earnings or losses of these companies. As of June 30, 1999 and 1998, the Company had 50% ownership interests in G.K.I. Corporation ("G.K.I.") and Prolon, Inc. ("Prolon") (see Note 5). BUSINESS SEGMENTS - Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", requires public enterprises to report selected financial information about its operating segments. The Company has one reportable segment, manufacturing molded and extruded rubber, thermoplastic and urethane products, which includes three product lines: rubber, thermoplastics and urethane. Net sales by product line are as follows:
1999 1998 -------- -------- Rubber $132,266 $133,140 Thermoplastics 33,443 30,226 Urethane 6,888 5,447 -------- -------- Total $172,597 $168,813 ======== ========
CHANGE IN ACCOUNTING PRINCIPLE - Effective July 1, 1998, the Company adopted American Institute of Certified Public Accountants' Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer Software." SOP 98-1 requires internal and external costs incurred to develop internal-use computer software during the application development stage to be capi- talized and amortized over the software's useful life. As permitted by SOP 98-1, the Company early adopted the provisions of SOP 98-1 which are effective for fiscal years beginning after December 15, 1998. During the year ended June 30, 1999, the Company capitalized Page 6 11 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED. $281 of internal costs which previously would have been expensed under generally accepted accounting principles. These capitalized internal costs are related to the Company's new computer system which is currently being implemented. The effect of this change in accounting principle for the year ended June 30, 1999 was to increase net income by approximately $167. FOREIGN CURRENCY TRANSLATION - The financial statements of the Company's Canadian subsidiary are translated into U.S. dollars at current exchange rates for all assets and liabilities and average exchange rates for the year for revenues and expenses. Translation gains and losses are included in the "accumulated other comprehensive income (loss)" component of shareholders' equity. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVENTORIES - Inventories are valued at the lower of cost or market, with cost determined using the last-in, first-out ("LIFO") method for substantially all domestic inventories of the rubber operations and the first-in, first-out ("FIFO") method for inventories of the Canadian and plastic operations. FACTORY SUPPLIES - The Company inventories factory supplies and charges these items to expense when used in production. Factory supplies are valued at cost on the FIFO method. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost. Depreciation expense, including amortization of assets under capital leases, is computed primarily on the straight-line method over 20 to 40 years for buildings and improvements, 3 to 10 years for machinery and equipment and 5 to 7 years for computer hardware and software. CAPITAL LEASES - At the inception of a capital lease, the Company records the equipment under the capital lease and the related obligation at the net present value of future minimum lease payments, excluding executory costs, discounted using the rate specified in the lease or the Company's incremental borrowing rate. INVESTMENTS IN LIFE INSURANCE CONTRACTS - The Company has purchased life insurance contracts to insure the lives of certain key executives and also to fund obligations under deferred compensation agreements. The Company uses the cash surrender value method to value its investments in life insurance contracts, except for certain split-dollar life insurance contracts where the carrying value equals the cumulative amount of premiums paid. DEFERRED INCOME TAXES - Deferred income taxes are provided for differences between the tax basis of an asset or liability and its reported amount in the financial statements using the liability method. DEFERRED FINANCING COSTS - Certain costs incurred in connection with obtaining bank financing are deferred and amortized over the term of the related debt using the straight-line or interest methods. Page 7 12 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 1. SIGNIFICANT ACCOUNTING POLICIES, CONCLUDED. ACCUMULATED OTHER COMPREHENSIVE INCOME - Accumulated other comprehensive income (loss) consists of cumulative foreign currency translation adjustments. CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade receivables. The majority of the Company's customers are in the domestic automotive industry. The Company customarily grants credit during the ordinary conduct of its business and performs ongoing credit evalu- ations of its customers to minimize credit risk. The Company does not require collateral as a basis for granting credit. 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash and cash equivalents, receivables and accounts payable approximated fair values at June 30, 1999 and 1998 because of the short maturities of these financial instruments. The carrying amount of long-term debt, including current maturities, approximated fair value at June 30, 1999 and 1998, based upon terms and conditions currently available to the Company in comparison to terms and conditions of the existing long-term debt. The Company has investments in life insurance contracts to fund obligations under deferred compensation agreements (see Note 8). At June 30, 1999 and 1998, the carrying amount of the investments in life insurance contracts approximated their fair value. RECLASSIFICATIONS - Certain amounts in the 1998 financial statements have been reclassified to conform with the 1999 presentation. The reclassifications had no effect on total assets, total shareholders' equity or net income as previously reported. 2. INVENTORIES. Inventories consist of the following:
1999 1998 ------- ------- At current costs: Raw materials $ 3,602 $ 3,458 Work in process 3,840 3,041 Finished goods 6,990 8,456 ------- ------- 14,432 14,955 Less, Excess of current cost over LIFO inventory value 2,691 2,771 ------- ------- Total $11,741 $12,184 ======= =======
Page 8 13 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 2. INVENTORIES, CONCLUDED. Inventories are stated net of allowances for obsolescence of $1,466 and $993 at June 30, 1999 and 1998, respectively. Inventories of the Canadian and plastic operations are valued at FIFO and aggregated $3,447 and $3,548 at June 30, 1999 and 1998, respectively. 3. PREPAID EXPENSES. Prepaid expenses consist of the following:
1999 1998 ------- ------- Prepaid factory supplies $ 1,129 $ 1,149 Prepaid customer tooling and molds 791 1,052 Other 792 427 ------- ------- Total $ 2,712 $ 2,628 ======= =======
4. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment consist of the following:
1999 1998 ------- ------- Land and improvements $ 814 $ 814 Buildings and improvements 13,431 13,324 Machinery and equipment 61,690 57,346 Construction in progress 6,884 3,353 ------- ------- 82,819 74,837 Less, Accumulated depreciation and amortization 54,251 51,585 ------- ------- Property, plant and equipment, net $28,568 $23,252 ======= =======
Depreciation and amortization of property, plant and equipment aggregated $4,273 and $4,094 for the years ended June 30, 1999 and 1998, respectively. Page 9 14 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 5. INVESTMENTS IN AFFILIATES. Investments in and advances to affiliates consist of the following:
1999 1998 ------- ------- Investment in G.K.I. $ 172 $ 573 Investment in and advances to Prolon 273 236 Other 3 50 ------- ------- Total $ 448 $ 859 ======= =======
The Company has a 50% ownership interest in G.K.I. Subsequent to June 8, 1998 and as of June 30, 1998, Keeper Co., Ltd. ("Keeper"), a Japanese company, owns the other 50% of G.K.I. Prior to June 8, 1998, Keeper owned 43% and Sumitomo Corporation ("Sumitomo") owned 7%. G.K.I. manufactures and sells rubber and plastic products to the automotive industry. Unaudited condensed operating results and financial position of G.K.I. is as follows:
YEARS ENDED JUNE 30, ----------------------- 1999 1998 ------- -------- Net sales $ 8,903 $ 9,638 Costs and expenses 9,440 10,697 ------- ------- Operating loss (537) (1,059) Nonoperating income (expense), net (290) 717 ------- ------- Net loss $ (827) $ (342) ======= =======
AS OF JUNE 30, ----------------------- 1999 1998 ------ ------ Current assets $2,572 $2,402 Property, plant and equipment, net 3,116 2,630 Other assets 72 92 ------ ------ $5,760 $5,124 ====== ====== Current liabilities $4,522 $2,642 Long-term debt 847 1,264 Shareholders' equity 391 1,218 ------ ------ $5,760 $5,124 ====== ======
Page 10 15 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 5. INVESTMENTS IN AFFILIATES, CONCLUDED. In June 1998, the Company and Keeper completed a series of transactions to restructure G.K.I.'s debt and equity: - Keeper acquired Sumitomo's 7% ownership interest in G.K.I. - The Company and Keeper each contributed $500 to G.K.I. in exchange for ten (10) shares each of G.K.I.'s common stock. - The Company and Keeper forgave $500 and $180, respectively, of receivables due from G.K.I. The Company's $500 loss on forgiveness of debt is included with the Company's equity in losses of affiliates for 1998. As discussed in Note 13, the Company has also guaranteed certain bank debt of G.K.I. The Company also has a 50% ownership interest in Prolon, a manufacturer of Teflon products for the automotive industry. For the year ended June 30, 1999, unaudited net sales and net income of Prolon were $1,631 and $74, respectively. For the year ended June 30, 1998, unaudited net sales and net income of Prolon were $1,627 and $98, respectively. 6. DEBT. Long-term debt consists of the following:
1999 1998 ------- ------- Revolving line of credit $24,629 $16,725 Term loan -- 1,800 Equipment and computer notes payable -- 199 Related party capitalized lease obligations, net (see Note 12) 2,988 192 Other capitalized lease obligations 400 1,238 ------- ------- Total 28,017 20,154 Less, Current maturities 2,497 2,341 ------- ------- Long-term debt $ 25,520 $17,813 ======== =======
The Company's cash management system is designed to maintain zero cash balances and, accordingly, checks outstanding in excess of bank balances are classified as additional borrowings under the revolving line of credit. Checks outstanding in excess of bank balances aggregated $429 at June 30, 1999. Page 11 16 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 6. DEBT, CONTINUED. At June 30, 1999 and 1998, the revolving line of credit (and the term loan at June 30, 1998) were part of a Credit and Guaranty Agreement (the "Credit Agreement"), as amended on September 25, 1998, which provided for a revolving line of credit facility, including letters of credit, up to the lesser of $27 million ($20 million at June 30, 1998), or a borrowing base, which consisted of qualified receivables and inventories, as defined in the Credit Agreement. The term loan at June 30, 1998 was payable in quarterly installments of $300 plus interest and was repaid in full in fiscal year 1999. The Credit Agreement, which had a termination date of September 25, 2001, was terminated on July 20, 1999 and all borrowings under the Credit Agreement were repaid with proceeds from a new credit facility. At June 30, 1999 and 1998, outstanding letters of credit under the Credit Agreement aggregated $430 and $550, respectively. At June 30, 1999 and 1998, outstanding borrowings under the Credit Agreement (including the term loan at June 30, 1998) accrued interest at a blend of LIBOR and the bank's prime rate (an average rate of 7.8% at June 30, 1999 and 8.5% at June 30, 1998). The Company was also required to pay an annual commitment fee of 1/4 of 1% of the unused portion of the revolving credit facility. Outstanding borrowings under the Credit Agreement were collateralized by receivables, inventories and equipment. On June 22, 1998, the Company and the shareholders who were parties to the obligation to repurchase common shares mutually agreed to terminate the stock repurchase agreements. NEW CREDIT AGREEMENT -------------------- On July 20, 1999, the Company entered into a Loan and Security Agreement (the "New Credit Agreement") with a new financial institution which is a lender and agent for a group of lenders (the "Lender"). The New Credit Agreement, which expires July 20, 2006, provides for a $56 million credit facility which includes: (i) revolving credit loans (the "Revolv- er") up to $25 million, which includes up to $1 million of letters of credit, (ii) a $21 million seven-year term loan (the "Term Loan") and (iii) a capital expenditure facility ("Capex Loans") to fund the Company's purchase of new and used equipment in an aggregate amount up to the lesser of $10 million or 90% of the purchase price for such equipment. On July 20, 1999, outstanding borrowings under the prior Credit Agreement were repaid with the proceeds from the Term Loan and the Revolver. The Term Loan is payable in increasing quarterly installments, with a final maturity in July 2006. Capex Loans shall be payable interest only until the second anniversary of the New Credit Agreement, at which time the then outstanding balance of the Capex Loans will be converted to promissory notes which are payable in equal quarterly installments of principal over five years. In addition to the scheduled principal payments, on an annual basis, commencing subsequent to the fiscal year ending June 30, 2000, the Company is required to prepay principal balances in an amount equal to 50% of the Company's excess cash flows, as that term is defined in the New Credit Agreement. Such prepayments will be applied in inverse order of maturity of scheduled payments under the Term Loan and/or Capex Loans until paid in full and then to the remaining obligations under the New Credit Agreement. Page 12 17 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 6. DEBT, CONCLUDED. Interest on the Revolver, the Term Loan and Capex Loans is payable monthly and all borrowings bear interest at a fluctuating rate per annum equal to (i) the Lender's base rate plus an applicable margin or (ii) certain basis points above LIBOR, depending on the pricing option selected and the Company's leverage ratio, as defined. At closing of the New Credit Agreement, the Company paid a closing fee of $650 and an agency fee of $25 to the Lender. The closing and agency fees, plus $152 of deferred financing costs as of June 30, 1999 (included in other assets at June 30, 1999) and other related financing costs incurred subsequent to June 30, 1999 will be capitalized and amortized using the interest method over the seven-year term of the New Credit Agreement. In connection with obtaining the New Credit Agreement, the Lender received warrants to purchase shares of the Company's Class A and Class B common shares (see Note 10). The Company will ascribe a value to the warrants which will be recorded as additional paid-in capital and as a discount from the face value of the Term Loan and will be amortized using the straight-line method over its seven-year term. All borrowings under the New Credit Agreement are collateralized by substantially all assets of the Company and a pledge of all issued and outstanding shares of capital stock of the subsidiaries of Goshen Rubber Companies, Inc. The New Credit Agreement contains, among other provisions, certain restrictive covenants including maintenance of a minimum fixed charge coverage ratio, a maximum total senior debt to EBITDA (earnings before interest, taxes, depreciation and amortization), maximum total indebtedness to EBITDA ratio, a limitation on capital expenditures and restrictions on the payment of cash dividends. ANNUAL MATURITIES OF DEBT ------------------------- As of June 30, 1999, the annual maturities of long-term debt (calculated under the terms of the New Credit Agreement which repaid existing long-term debt) and future minimum lease payments under the capitalized lease obligations are as follows:
CAPITAL DEBT LEASES ------- -------- 2000 $ 1,929 $ 785 2001 2,375 406 2002 2,875 393 2003 3,225 372 2004 3,300 362 Thereafter 10,925 2,272 ------- ------ $24,629 4,590 ======= Less, Amount representing interest 1,202 ------ $3,388 ======
Page 13 18 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 7. ACCRUED WAGES, TAXES AND OTHER. Accrued wages, taxes and other consist of the following:
1999 1998 ------- ------- Salaries and wages $ 4,935 $3,634 Taxes, other than income taxes 1,133 1,031 Workers' compensation and group insurance 367 854 401(k) contribution 1,213 -- Other 132 442 ------- ------ Total $ 7,780 $5,961 ======= ======
8. EMPLOYEE BENEFIT PLANS. DEFINED CONTRIBUTION PLAN ------------------------- The Company has a 401(k) savings plan which covers eligible employees of the Company and its subsidiaries and affiliates. Participants may voluntarily contribute a percentage of their compensation and the Company's contributions are discretionary. The Company's expense under the 401(k) plan was $1,213 and $-0- for the years ended June 30, 1999 and 1998, respectively. DEFINED BENEFIT PLAN -------------------- The Company has a defined benefit pension plan which covers hourly employees who are members of the collective bargaining unit. The Company's funding policy is to contribute amounts within acceptable ranges provided by the Employee Retirement Income Security Act of 1974. To the extent that these requirements are fully covered by the plan's assets, a contribution may not be required in a particular year. The following table sets forth selected financial information regarding the Company's pension plan as of and for the years ended June 30, 1999 and 1998 in accordance with the provisions of Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." Page 14 19 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ In Thousands) 8. EMPLOYEE BENEFIT PLANS, CONTINUED.
1999 1998 ------- ------- Changes in benefit obligation: Benefit obligation, beginning of year $ 6,749 $ 6,062 Service cost 357 261 Interest cost 457 438 Benefits paid (454) (447) Actuarial loss 68 435 ------- ------- Benefit obligation, end of year 7,177 6,749 ------- ------- Changes in plan assets: Assets, at fair value, beginning of year 7,077 6,624 Actual return on assets 1,257 900 Benefits paid (454) (447) ------- ------- Assets, at fair value, end of year 7,880 7,077 ------- ------- Reconciliation of prepaid benefit cost: Funded status of the plan 703 328 Unrecognized prior service cost 123 136 Unrecognized net (gain) or loss (197) 343 Unrecognized transition asset (95) (127) ------- ------- Prepaid benefit cost, at June 30 $ 534 $ 680 ======= ======= Net pension expense for the Company's defined benefit pension plan includes the following components: 1999 1998 ----- ----- Service cost - benefits earned during the year $ 357 $ 261 Interest cost on projected benefit obligation 457 438 Expected return on plan assets (651) (609) Net amortization and deferral (17) (17) ----- ----- Total $ 146 $ 73 ===== ===== Assumptions: Discount rate 7.00% 7.00% Expected long-term rate of return on plan assets 9.50% 9.50%
Page 15 20 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 8. EMPLOYEE BENEFIT PLANS, CONCLUDED. EXECUTIVE SUPPLEMENTAL BENEFIT PLANS ------------------------------------ The Company provides supplemental retirement benefits and death benefits for certain executives. As a method of funding a portion of the benefits under this plan, the Company purchased and is the beneficiary of life insurance policies with a cash surrender value of $108 and $181, net of policy loans of $5,442 and $4,864, with a face value of $6,605 and $6,349 at June 30, 1999 and 1998, respectively. Provisions for these benefits are charged to operations ratably over each employee's expected term of employment. The Company measures its obligation under the plan using an assumed discount rate of 7%. At June 30, 1999 and 1998, the accumulated benefit obligation relating to this plan was $1,678 and $1,657, respectively. Deferred compensation expense was $253 and $223 for the years ended June 30, 1999 and 1998, respectively. 9. MINORITY INTEREST. On August 25, 1998, the minority shareholder of Syracuse Rubber Products, Inc. ("SRP"), a majority-owned subsidiary of the Company, agreed to sell and the Company agreed to purchase all of the issued and outstanding shares of SRP owned by the minority shareholder. The $240 purchase price was paid in cash, and the redemption resulted in a $1,010 gain which is included in other income in the consolidated statement of income for the year ended June 30, 1999. 10. CAPITAL STOCK AND EARNINGS PER SHARE. CAPITAL STOCK ------------- Following is a summary of capital stock outstanding ($ in thousands, except per share amounts):
1999 1998 ------ ------ Class A voting common shares, $5.00 par value; authorized 15,000 shares; issued and outstanding 10,513 shares $ 52 $ 52 Class B non-voting common shares, $5.00 par value; authorized 90,000 shares; issued and outstanding 71,247 shares in 1999 and 71,481 shares in 1998 356 358 Class C 8.5% cumulative preferred shares, $100.00 par value; authorized 15,000 shares; issued and outstanding 14,496 shares 1,450 1,450 ------ ------ $1,858 $1,860 ====== ======
Page 16 21 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 10. CAPITAL STOCK AND EARNINGS PER SHARE, CONCLUDED. During the years ended June 30, 1999 and 1998, the Company acquired 234 and 823 Class B common shares in exchange for the cancellation of $71 and $160 advances to shareholders, respectively. The excess cost over par value of the acquired Class B common shares, which were retired and canceled, was charged to retained earnings. In connection with the New Credit Agreement, the Company granted the Lender a Common Stock Purchase Warrant to purchase, at a purchase price of $5.00 per share, 215 shares of the Company's Class A voting common shares and 1,454 shares of the Company's Class B non-voting common shares which could equal 1% or up to 2% of the Company's Class A and B common shares when exercised, as set forth in the Common Stock Purchase Warrant. The warrant expires on July 20, 2006. EARNINGS PER SHARE ------------------ Earnings per share for the years ended June 30, 1999 and 1998 is computed as follows ($ in thousands, except per share amounts):
1999 1998 ------- ------- Numerator: Net income $ 3,192 $ 210 Less, Preferred stock dividends 123 123 ------- ------- Numerator for basic and diluted earnings per share - income available to common shareholders $ 3,069 $ 87 ======= ======= Denominator: Denominator for basic and diluted earnings per share - weighted average shares outstanding 81,992 82,815 ======= ======= Earnings per share: Basic $ 37.43 $ 1.05 Diluted 37.43 1.05
Page 17 22 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 11. INCOME TAXES. Income taxes (credit) consist of:
1999 1998 -------- ------- Current: United States $1,118 $ 58 Canadian 270 233 State 364 164 ------ ------ 1,752 455 ------ ------ Deferred: United States 172 (91) Canadian 25 38 State 239 30 ------ ------ 436 (23) ------ ------ Income taxes $2,188 $ 432 ====== ======
Pre-tax income (loss) of U.S. and Canadian operations was as follows:
1999 1998 -------- ------ United States $4,586 $ (131) Canadian 794 773 ------ ------ Pre-tax income $5,380 $ 642 ====== ======
A reconciliation of the provision for income taxes to the amount computed by applying the statutory Federal income tax rate (34%) to pre-tax income is as follows:
1999 1998 -------- ------ Income taxes at statutory rate $ 1,829 $ 218 State income taxes, net of federal tax effect 398 128 Alternative minimum tax credit carryforwards generated as a result of tax net operating loss carryback -- (512) Increase (decrease) in valuation allowance (62) 587 Other 23 11 -------- ------ Total $ 2,188 $ 432 ======== ======
Page 18 23 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 11. INCOME TAXES, CONCLUDED. Deferred income tax assets and liabilities consist of the following:
1999 1998 ------- ------- Current deferred tax asset (liability): Alternative minimum tax credit carryforwards $ 400 $ 100 Receivables 170 209 Inventories 549 338 Accrued vacation 576 588 Other accrued liabilities 444 161 Other 11 55 ------- ------- Total $ 2,150 $ 1,451 ======= ======= Long-term deferred tax asset (liability): Net operating loss carryforwards $ 1,800 $ 1,798 Alternative minimum tax credit carryforwards 225 1,000 Receivables (168) (64) Property, plant and equipment (2,192) (1,941) Investments in unconsolidated affiliate 747 611 Prepaid pension (206) (262) Deferred compensation 648 640 Other (133) 136 ------- ------- 721 1,918 Valuation allowance (2,547) (2,609) ------- ------- Total $(1,826) $ (691) ======= =======
At June 30, 1999 and 1998, the valuation allowance for deferred tax assets is attributable to state net operating losses, federal net operating loss carryforwards subject to separate return limitation rules, investment in unconsolidated affiliate (G.K.I. Corporation) and a $200 valuation allowance at June 30, 1998 for alternative minimum tax credit carryforwards. Accumulated undistributed earnings of the Canadian subsidiary were approximately $3,246 at June 30, 1999. No provision has been made for the U.S. income taxes on these earnings since they are considered to be permanently invested in the Canadian operation. At June 30, 1999, the Company had alternative minimum tax credit carryforwards of $625 which can be carried forward indefinitely, and federal net operating loss carryforwards of $1,291 which are subject to separate return limitation year rules and expire in 2000 through 2005. In addition, at June 30, 1999, the Company has approximately $19 million of various state net operating loss carryforwards which expire in 2000 through 2013. Page 19 24 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 12. RELATED PARTY TRANSACTIONS. Through 1998 and a portion of 1999, the Company purchased raw material at cost from G.K.I. After converting this material to strip stock, the Company sold G.K.I. the processed material at or near the Company's cost. During the years ended June 30, 1999 and 1998, respectively, purchases from G.K.I. were approximately $10 and $548 and sales to G.K.I. were approximately $2,160 and $3,488. The Company also recorded $202 and $164 of income from G.K.I. in 1999 and 1998, respectively, for certain sales, technical and administrative services. At June 30, 1999 and 1998, respectively, the Company had trade accounts receivable from G.K.I. of $1,380 and $777 and accounts payable to G.K.I. of $417 and $254. At June 30, 1999 and 1998, receivables - related party and other include notes receivable of $105 and $99, respectively, due from a shareholder of the Company. The current note bears interest at 6% and is due June 30, 2000. Also at June 30, 1999 and 1998, the Company has a $46 and $62 note receivable, respectively, from a company owned by shareholders of the Company. The note, which is classified in other assets, bears interest at 5% and is payable in monthly installments through April 30, 2002. The Company leases an office building under a lease agreement with a related party which is accounted for as an operating lease. The lease, which requires monthly rental payments with an annual escalation provision, extends through June 2008. The Company has subleased a portion of this building to an unrelated party under a sublease agreement which expires in June 2004. Sublease income was $62 for each of the years ended June 30, 1999 and 1998. The Company has other lease agreements with shareholders of the Company to lease certain of its manufacturing facilities which are also accounted for as operating leases. The lease periods extend through June 2008. Annual monthly rental payments vary in accordance with changes in the Consumer Price Index and the Company is also required to pay taxes, insurance and maintenance. Total rent expense under these related party leases aggregated $558 and $432 for the years ended June 30, 1999 and 1998, respectively. As of June 30, 1999, future minimum lease payments, net of sublease income, under all operating leases having noncancelable lease terms in excess of one year, including leases with unrelated parties, aggregate $6,963 and are payable in fiscal years ending June 30, 2000 - $1,050; 2001 - $813; 2002 - $744; 2003 - $694; 2004 - $710 and thereafter - $2,952. In December 1998, the Company entered into a lease agreement with a partnership, which is owned by certain of the Company's shareholders, to lease a building and manufacturing equipment for a new manufacturing facility in South Carolina. The lease agreement extends through November 2010 and requires monthly lease payments of $29. For financial reporting purposes, the lease has been classified as a capital lease. The cost of the capitalized lease facility ($3,000) is included in property, plant and equipment. For the year ended June 30, 1999, there was no amortization of the capitalized leased assets since the building is under construction and is expected to be operational in August, 1999. Page 20 25 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 12. RELATED PARTY TRANSACTIONS, CONCLUDED. The Company also leases a building and surrounding land located at its Goshen plant complex from a partnership comprised of certain of the Company's shareholders. The lease agreement extends through December 31, 2000 and requires a monthly rental of $15 exclusive of taxes, insurance and maintenance. For financial reporting purposes the lease has been classified as a capital lease. The cost of the capitalized leased facility ($1,190) and the related accumulated amortization ($1,012 in 1999 and $958 in 1998) are included in property, plant and equipment. This leased property was originally owned by the Company and was sold to the partnership. The terms of the sale/leaseback arrangement required the Company to finance a portion of the transaction for the partnership. The receivable due from the partnership bears interest at a rate of 6% and aggregated $147 and $172 at June 30, 1999 and 1998, respectively. Following is a summary of the future minimum lease payments under this capitalized lease obligation agreement at June 30, 1999: Future minimum lease payments for fiscal years 2000 - 2001 $ 270 Less, Amount representing interest 35 ----- Present value of net minimum lease payments 235 Less, Receivable due from the partnership 147 ----- Net related party lease obligation (included in related party capitalized leased obligations - see Note 6) $ 88 =====
13. COMMITMENTS AND CONTINGENCIES. CONTINGENT LIABILITIES ---------------------- The Company has guaranteed certain bank debt of G.K.I. (see Note 5). G.K.I.'s outstanding bank debt, which is collateralized by substantially all assets of G.K.I. and a corporate guaranty of the Company, aggregated $501 and $728 at June 30, 1999 and 1998, respectively. Keeper has entered into an Indemnity Agreement with the Company which provides that Keeper will share in any liabilities under the Company's corporate guaranty and Keeper will indemnify and hold the Company harmless to the extent of fifty percent (50%) of the bank indebtedness. Page 21 26 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ($ in thousands) 13. COMMITMENTS AND CONTINGENCIES, CONCLUDED. SELF-INSURANCE -------------- The Company is primarily self insured for workers' compensation claims. The Company maintains a "stop loss" insurance policy with an insurance carrier to fund individual claims in excess of $150 and total claims in excess of $1 million per year. As of June 30, 1999, the Company's insurance policy required the Company to maintain $730 of standby letters of credits of which a $430 letter of credit was outstanding under the Credit Agreement (see Note 6) and the balance was outstanding under a separate letter of credit. In addition, the Company is self-insured for group health claims. The Company maintains a "stop-loss" insurance policy with an insurance carrier to fund individual claims in excess of $200, and there is no aggregate "stop-loss" limit. Self-insurance costs are accrued based upon the aggregate liability for reported claims and a management-determined estimated liability for claims incurred but not reported. STATE TAX AUDIT --------------- During the year ended June 30, 1999, the Indiana Department of Revenue ("IDR") completed an examination of the Company's Indiana income tax returns for fiscal years ended June 30, 1992 - 1996 and challenged the Company's unitary tax filings. The Company does not agree with the IDR's conclusions and pursuant to a notice of assessment issued in August 1999 will protest and/or litigate this matter. The August 1999 notice of assessment requires the Company to pay the assessed taxes and interest, which aggregate $388. At June 30, 1999, the Company has accrued this liability (included in accrued income taxes) and a corresponding receivable (included in refundable income taxes) which will be collected if the Company is successful with the protest and/or litigation. LITIGATION ---------- There are various other claims, lawsuits, disputes with third parties, investigations and pending actions involving various allegations against the Company incident to the operation of its business. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. Management believes that the ultimate outcome of these matters and liabilities, if any, will not have a material adverse impact on the Company's consolidated financial position. Page 22 27 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONCLUDED ($ in thousands) 14. SUBSEQUENT EVENTS. DEBT REFINANCING ---------------- As discussed in Note 6, on July 20, 1999 the Company entered into a new lending agreement which repaid existing bank debt and provided for increased credit facilities. ACQUISITION ----------- On August 31, 1999, the Company acquired all the issued and outstanding shares of common stock of Waukesha Rubber Company, Inc. ("Waukesha Rubber"), a custom rubber molder servicing primarily appliance, transportation, industrial and agricultural markets. The purchase price approximated $14.9 million plus the assumption of $918 of liabilities. The purchase price was financed with bank borrowings, net of $3.9 million of acquired cash. The acquisition cost will be allocated to the acquired assets. The excess of acquisition cost over fair value of acquired assets ("goodwill") is estimated to approximate $7.5 million and will be amortized over twenty years using the straight-line method. The acquisition will be accounted for as a purchase and the operations of Waukesha Rubber will be included in the Company's consolidated financial statements from the date of acquisition. 15. SALE OF THE COMPANY (UNAUDITED). On October 21, 1999, the Company, its shareholders and Wynn's International, Inc. ("Wynn's") entered into a Stock Purchase Agreement whereby at closing Wynn's will acquire from the Company's shareholders all the issued and outstanding shares of capital stock of the Company. The closing of the transaction is subject to a number of customary conditions and the closing is expected to occur in mid-December 1999. Upon completion of the transaction, the Company will become a wholly owned subsidiary of Wynn's. Page 23 28 Goshen Rubber Companies, Inc. and Subsidiaries Consolidated Balance Sheet September 30, 1999 ($ in thousands)
(unaudited) ASSETS 1999 ----------- CURRENT ASSETS: Cash and cash equivalents $ 1,060 Trade accounts receivable, less allowance for doubtful receivables of $293 27,511 Receivables - related party and other 1,056 Refundable income taxes 596 Inventories 12,348 Prepaid expenses and other 2,994 Deferred income taxes 2,055 -------- TOTAL CURRENT ASSETS 47,620 Property, plant and equipment, net 33,260 Investments in and advances to affiliates 115 Investments in life insurance contracts, net of policy loans of $10,354 1,717 Excess of acquisition cost over fair value of acquired net assets, less accumulated amortization 7,433 Other assets 2,017 -------- TOTAL ASSETS $ 92,162 ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 1,804 Accounts payable 17,015 Accrued income taxes 962 Accrued wages, taxes, and other 8,459 -------- TOTAL CURRENT LIABILITIES 28,240 Long-term debt 38,135 Deferred compensation 1,628 Deferred income taxes 2,191 Other long-term liabilities 59 -------- TOTAL LIABILITIES 70,253 -------- SHAREHOLDERS' EQUITY: Capital stock 1,858 Additional paid in capital 158 Retained earnings 20,093 Accumulated other comprehensive loss (200) -------- TOTAL SHAREHOLDERS' EQUITY 21,909 -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 92,162 ========
See accompanying note. 29 Goshen Rubber Companies, Inc. and Subsidiaries Consolidated Statements of Income for the three months ended September 30, 1999 and 1998 ($ in thousands)
(unaudited) ------------------------- 1999 1998 -------- -------- NET SALES $ 43,295 $ 40,565 Cost of sales 37,432 35,252 -------- -------- Gross profit 5,863 5,313 Selling, general and administrative expenses 5,459 4,984 -------- -------- INCOME FROM OPERATIONS 404 329 Other nonoperating income (expense): Interest expense (767) (620) Interest income 24 19 Equity in losses of affiliates (332) (30) Other income (expense), net 66 1,104 -------- -------- Other nonoperating income (expense), net (1,009) 473 -------- -------- INCOME BEFORE INCOME TAXES (605) 802 Income taxes 68 320 -------- -------- NET INCOME $ (673) $ 482 ======== ========
See accompanying note. 30 Goshen Rubber Companies, Inc. and Subsidiaries Consolidated Statements of Cash Flows for the three months ended September 30, 1999 and 1998 ($ in thousands)
(unaudited) -------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net income (loss) $ (673) $ 482 -------- -------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,343 1,048 Gain on acquisition of minority interest -- (1,022) Equity in losses of affiliates 332 30 Deferred income taxes -- (4) Other (319) 207 Changes in operating assets and liabilities, net of effect of business acquisitions: Trade accounts receivable 1,571 (3,809) Receivables - related party and other (196) 51 Inventories (92) 272 Prepaid expenses and other assets (279) (146) Accounts payable 1,842 919 Accrued income taxes (384) 215 Other accrued liabilities 554 (531) -------- -------- Total adjustments 4,372 (2,770) -------- -------- Net cash provided by (used in) operating activities 3,699 (2,288) Cash flows from investing activities: Acquisition of business, net of $3,933 of acquired cash (10,938) -- Purchase of minority interest -- (240) Additions to property, plant and equipment (2,941) (1,313) Premium payments for investments in life insurance contracts (121) (7) -------- -------- Net cash used in investing activities (14,000) (1,560) -------- -------- Cash flows from financing activities: Proceeds from revolving line of credit and other long-term debt 50,658 18,795 Repayments of revolving line of credit and other long-term debt (38,577) (16,210) Deferred financing costs (935) -- Payments of deferred compensation (51) (51) Cash dividends paid (31) (31) -------- -------- Net cash provided by financing activities 11,064 2,503 -------- -------- Increase (decrease) in cash and cash equivalents 763 (1,345) Cash and cash equivalents, beginning of period 297 1,345 -------- -------- Cash and cash equivalents, end of period $ 1,060 $ -- ======== ========
See accompanying note. 31 GOSHEN RUBBER COMPANIES, INC. AND SUBSIDIARIES NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999 and 1998 1. Basis of Presentation and Significant Accounting Policies The unaudited consolidated balance sheet as of September 30, 1999 and the unaudited consolidated statements of income and cash flows for the three months ended September 30, 1999 and 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information and with Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the information for the interim periods herein reported have been included. Operating results for the three month period ended September 30, 1999 are not necessarily indicative of the results that might be expected for the fiscal year. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in Item 7(a)(1) above. 32 FINANCIAL STATEMENTS WAUKESHA RUBBER COMPANY, INC. Years ended October 31, 1998 and 1997 33 Waukesha Rubber Company, Inc. Financial Statements Years ended October 31, 1998 and 1997 CONTENTS Report of Independent Auditors .......................................................1 Financial Statements Balance Sheets .......................................................................2 Statements of Income and Retained Earnings ...........................................3 Statements of Cash Flows .............................................................4 Notes to Financial Statements ........................................................5
34 Report of Independent Auditors The Board of Directors Waukesha Rubber Company, Inc. We have audited the accompanying balance sheets of Waukesha Rubber Company, Inc. (the Company) as of October 31, 1998 and 1997, and the related statements of income and retained earnings and cash flows for the years then ended. 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 financial statements referred to above present fairly, in all material respects, the financial position of Waukesha Rubber Company, Inc. at October 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Milwaukee, Wisconsin December 4, 1998 1 35 Waukesha Rubber Company, Inc. Balance Sheets
OCTOBER 31 ---------------------------------- 1998 1997 ---------- ---------- ASSETS Current assets: Cash $3,446,102 $2,535,922 Accounts receivable (less allowance for doubtful accounts of $5,400 in both years) 1,446,486 1,471,210 Inventories (Note 2) 574,134 452,947 Prepaid expenses and other 1,375 1,375 Deferred income taxes (Note 6) 50,000 40,000 ---------- ---------- Total current assets 5,518,097 4,501,454 Property, plant and equipment: Land and improvements 125,459 125,459 Buildings and improvements 529,903 529,903 Machinery and equipment 5,807,692 5,705,149 ---------- ---------- 6,463,054 6,360,511 Less accumulated depreciation 3,870,205 3,701,601 ---------- ---------- Net property, plant and equipment 2,592,849 2,658,910 ---------- ---------- $8,110,946 $7,160,364 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 376,278 $ 218,933 Income taxes 153,140 116,827 Accrued liabilities 276,015 278,046 Dividends payable 60,000 60,000 ---------- ---------- Total current liabilities 865,433 673,806 Deferred income taxes (Note 6) 390,000 394,000 Stockholders' equity: Common stock, par value $10 per share; 15,000 shares authorized; 8,000 shares issued (Note 4) 80,000 80,000 Retained earnings 9,113,148 8,350,193 ---------- ---------- 9,193,148 8,430,193 Less common stock held in treasury, at cost, 6,800 shares 2,337,635 2,337,635 ---------- ---------- Total stockholders' equity 6,855,513 6,092,558 ---------- ---------- $8,110,946 $7,160,364 ========== ==========
See accompanying notes 2 36 Waukesha Rubber Company, Inc. Statements of Income and Retained Earnings
YEAR ENDED OCTOBER 31 ----------------------------- 1998 1997 ------------ ----------- Net sales $ 12,614,322 $12,432,356 Operating costs and expenses: Cost of sales 9,172,109 9,126,432 Selling and administrative expenses 2,042,647 1,876,792 ------------ ----------- 11,214,756 11,003,224 ------------ ----------- Income from operations 1,399,566 1,429,132 Other income: Interest income 143,469 106,179 Other, net 67,820 60,542 ------------ ----------- 211,289 166,721 ------------ ----------- Income before income taxes 1,610,855 1,595,853 Provision for income taxes: Current: Federal 518,000 487,200 State 103,900 97,300 Deferred (14,000) 27,150 ------------ ----------- 607,900 611,650 ------------ ----------- Net income 1,002,955 984,203 Retained earnings at beginning of year 8,350,193 7,605,990 ------------ ----------- 9,353,148 8,590,193 Cash dividends declared on common stock--$200 per share in 1998 and 1997 240,000 240,000 ------------ ----------- Retained earnings at end of year $ 9,113,148 $ 8,350,193 ============ ===========
See accompanying notes. 3 37 Waukesha Rubber Company, Inc. Statements of Cash Flows
YEAR ENDED OCTOBER 31 ------------------------------------ 1998 1997 ----------- ----------- OPERATING ACTIVITIES Net income $ 1,002,955 $ 984,203 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 420,808 423,276 Deferred income taxes (14,000) 27,150 Gain on sale of equipment (20,566) (2,570) Changes in current assets and liabilities: Accounts receivable 24,724 (486,241) Inventories (121,187) (114,647) Accounts payable 157,345 (52,046) Income taxes 36,313 69,511 Accrued liabilities (2,031) 64,059 ----------- ----------- Cash provided by operating activities 1,484,361 912,695 INVESTING ACTIVITIES Additions to property, plant and equipment (358,181) (205,763) Proceeds from sale of equipment 24,000 49,500 ----------- ----------- Cash used in investing activities (334,181) (156,263) FINANCING ACTIVITY Dividends paid (240,000) (240,000) ----------- ----------- Net increase in cash 910,180 516,432 Cash at beginning of year 2,535,922 2,019,490 ----------- ----------- Cash at end of year $ 3,446,102 $ 2,535,922 =========== =========== Supplemental disclosure of cash flows information: Cash paid during the year for - Income taxes $ 585,588 $ 514,989
See accompanying notes. 4 38 Waukesha Rubber Company, Inc. Notes to Financial Statements October 31, 1998 1. SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Waukesha Rubber Company, Inc. (the Company) is a custom molder of mechanical rubber products, operating principally in the U.S. market. Approximately two thirds of the sales volume is generated from customer-designed components for customer-assembled end products. Approximately one third of the sales volume is derived from the direct marketing of a line of products for the poultry processing industry. INVENTORIES Inventories are valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market. If the inventories had been valued on the first-in, first-out (FIFO) basis, they would have been approximately $1,165,000 and $1,153,000 higher at October 31, 1998 and 1997, respectively. PROPERTY, PLANT AND EQUIPMENT Additions and improvements are capitalized at cost. The capitalized assets are depreciated using the straight-line method over the following estimated useful lives:
Years -------- Land improvements 10 Buildings and improvements 14 - 33 Machinery and equipment 3 - 14
INCOME TAXES The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 5 39 Waukesha Rubber Company, Inc. Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SIGNIFICANT CUSTOMERS The Company periodically evaluates the financial condition of its customers to whom credit is granted and, generally, does not require collateral. During 1998 and 1997, sales to the Company's three largest customers amounted to 29% and 24%, respectively, of total net sales. At October 31, 1998 and 1997, 30% and 25%, respectively, of accounts receivable relate to the Company's three largest customers. 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 these financial statements and accompanying notes. Actual results could differ from those estimates. 2. INVENTORIES A summary of inventories at October 31, 1998 and 1997, is as follows:
1998 1997 ----------------------- Raw materials $249,308 $208,434 Work in progress 90,726 75,635 Finished goods 234,100 168,878 ----------------------- $574,134 $452,947 =======================
3. LINE OF CREDIT AND NOTE PAYABLE TO BANK As of October 31, 1998, the Company has a $1,000,000 line of credit with a bank. Borrowings under this line bear interest at the bank's prime rate and are unsecured. There were no borrowings under this line at October 31, 1998 or 1997. No interest was paid during the years ended October 31, 1998 or 1997. 6 40 Waukesha Rubber Company, Inc. Notes to Financial Statements (continued) 4. STOCK TRANSFER RESTRICTIONS All stock issued by the Company contains restrictions on the sale thereof. The restrictions require that a stockholder desiring to sell any shares (including any stockholder whose employment is terminated) must first offer to sell the shares to the Company. The price will be their initial cost plus a proportionate share of the retained earnings since issuance of the shares. The Company shall have ten days to accept the stockholder's offer. In the event that the Company refuses to purchase the offered shares within this time limitation, the stockholder shall be free to dispose of or retain the shares that were offered without any future restriction on such shares. 5. PENSION PLANS The Company participates in two multiemployer defined contribution pension plans covering its union employees. Contributions are based upon hours worked for one plan and days worked for the other plan. The Company's contributions to these plans and pension expense for the years ended October 31, 1998 and 1997, were $151,098 and $142,424, respectively. 6. INCOME TAXES Significant components of the Company's deferred tax liabilities and assets at October 31 are as follows:
1998 1997 -------- -------- Deferred tax liability - accelerated tax-basis depreciation $390,000 $394,000 Deferred tax assets: Vacation accrual 31,000 25,000 Inventory valuation 17,000 13,000 Bad debt allowance 2,000 2,000 -------- -------- Total deferred tax assets 50,000 40,000 -------- -------- Net deferred tax liability $340,000 $354,000 ======== ========
7. COMMITMENTS The Company has entered into commitments to purchase approximately $160,000 of raw rubber over the next year, at prices ranging from $0.49 to $0.51 per pound, as compared to the approximate price in October 1998 of $0.55 per pound. 7 41 Waukesha Rubber Company, Inc. Notes to Financial Statements (continued) 8. YEAR 2000 ISSUE--UNAUDITED The Company has developed a plan to modify its internal information technology to be ready for the year 2000 and has begun converting critical data processing systems. The transformation of internal systems is expected to be substantially complete by April 30, 1999. The project also includes determining whether third parties have reasonable plans in place to become Year 2000 compliant. In the event that the remediation plans are unsuccessful, the Company has a contingency plan in place for continuing operations. The Company does not expect this project to have a significant impact on either results of operation or business operations. 8 42 Waukesha Rubber Company, Inc. Balance Sheet ($ in thousands, except per share amounts)
(unaudited) July 31 1999 ----------- ASSETS Current assets: Cash and cash equivalents $3,933 Accounts receivable (less allowance for doubtful accounts of $5) 1,141 Receivables - other 8 Inventories 515 Prepaid expenses and other 2 Deferred income taxes 31 ------ Total current assets 5,630 Property, plant and equipment, net 2,742 ------ $8,372 ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 302 Income taxes 12 Accrued liabilities - other 253 ------ Total current liabilities 567 Deferred income taxes 382 ------ Stockholders' equity: Common stock, par value $10 per share; 15,000 shares authorized; 8,000 shares issued 80 Retained earnings 7,343 ------ Total stockholders' equity 7,423 ------ $8,372 ======
See accompanying note. 43 Waukesha Rubber Company, Inc. Statements of Income Nine Months Ended July 31, 1999 and 1998
(unaudited) ---------------- 1999 1998 ------ ------ Net sales $9,021 $9,271 Operating costs and expenses: Cost of sales 6,710 6,990 Selling and administrative expenses 1,260 1,418 ------ ------ Income from operations 1,051 863 Other income: Interest income 126 102 Other, net 19 57 ------ ------ Income before income taxes 1,196 1,022 Provision for income taxes 458 388 ------ ------ Net income $ 738 $ 634 ====== ======
See accompanying note. 44 Waukesha Rubber Company, Inc. Statements of Cash Flows Nine Months Ended July 31, 1999 and 1998 ($ in thousands)
(unaudited) ------------------- 1999 1998 ------- ------- OPERATING ACTIVITIES: Net income $ 738 $ 634 ------- ------- Adjustments to reconcile net income to cash provided by operating activities: Depreciation 326 369 Changes in current assets and liabilities: Accounts receivable 263 154 Receivables - other 34 (35) Inventories 59 17 Deferred income taxes 11 22 Accounts payable (103) 113 Income taxes (141) (95) Accrued liabilities - other (54) 254 ------- ------- Cash provided by operating activities 1,133 1,433 INVESTING ACTIVITY Additions to property, plant and equipment (475) (227) FINANCING ACTIVITY Dividends paid (171) (120) ------- ------- Net increase in cash and cash equivalents 487 1,086 Cash and cash equivalents at beginning of period 3,446 2,536 ------- ------- Cash and cash equivalents at end of period $ 3,933 $ 3,622 ======= =======
See accompanying note. 45 WAUKESHA RUBBER COMPANY, INC. NOTE TO UNAUDITED FINANCIAL STATEMENTS July 31, 1999 and 1998 1. Basis of Presentation and Significant Accounting Policies The unaudited balance sheet as of July 31, 1999 and the unaudited statements of income and cash flows for the nine month periods ended July 31, 1999 and 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information and with Article 10 of Regulation S-X. Accordingly, the unaudited financial statements do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the information for the interim periods herein reported have been included. Operating results for the nine month period ended July 31, 1999 are not necessarily indicative of the results that might be expected for the year ended October 31, 1999. The unaudited financial statements should be read in conjunction with the audited financial statements included in Item 7(a)(5) above. 46 (b) Pro forma financial information. (1) Unaudited pro forma combined condensed statement of income of the Company (also sometimes referred to herein as "Wynn's"), Goshen and Waukesha for the nine months ended September 30, 1999, as if the acquisition had occurred on the first day of the period presented. (2) Unaudited pro forma combined condensed statement of income of Wynn's, Goshen and Waukesha for the year ended December 31, 1998, as if the acquisition had occurred on the first day of the period presented. (3) Notes to unaudited pro forma combined condensed statements of income. (4) Unaudited pro forma combined condensed balance sheet of Wynn's and Goshen at September 30, 1999, as if the acquisition had occurred on that date. (5) Notes to unaudited pro forma combined condensed balance sheet. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS As described in Item 2 above, the Company acquired on December 17, 1999 all of the outstanding capital stock of Goshen (the "Goshen Stock"), a developer, manufacturer and marketer of rubber, plastic and urethane products. Prior to that date, on August 31, 1999, Goshen acquired all of the outstanding capital stock of Waukesha, a manufacturer of custom molded rubber products. The following unaudited pro forma combined condensed statements of income for the nine months ended September 30, 1999 and the year ended December 31, 1998 present unaudited pro forma operating results for the Company as if the Company had acquired Goshen as of the first day of the periods presented. Beginning August 1, 1999, Goshen's results of operations included Waukesha's results of operations. Prior to August 1, 1999, Waukesha's results of operations were separately reported. Therefore, the unaudited pro forma combined condensed statement of income for the nine months ended September 30, 1999 includes two months (August 1, 1999 through September 30, 1999) of Waukesha's results of operations that are reflected in Goshen's results of operations, and seven months (January 1, 1999 through July 31, 1999) of Waukesha's results of operations that are reported separately. 47 The following unaudited pro forma combined condensed balance sheet as of September 30, 1999 also presents the unaudited pro forma financial condition of the Company as if the Company had acquired Goshen as of September 30, 1999. The excess of the purchase price of the Goshen Stock over the net identifiable assets and liabilities of Goshen is reported as goodwill, and is assumed to be amortized over 20 years. The carrying values of Goshen's net assets are assumed to equal their fair values for purposes of these unaudited pro forma financial statements, unless indicated otherwise in the notes to the unaudited pro forma combined condensed balance sheet. These values are subject to revision. However, management believes that any resulting adjustments will not have a material effect on the financial position or results of operations of the Company. Certain reclassifications have been made to Goshen's and Waukesha's financial information to conform with the Company's financial statement presentations. The unaudited pro forma financial statements were prepared assuming: (i) the acquisition of the Goshen Stock (the "Acquisition") is accounted for under the purchase method of accounting and (ii) the Company's current revolving credit agreement would have been consummated prior to the pro forma acquisition dates with substantially the same terms and conditions. The unaudited pro forma adjustments represent the Company's preliminary determination of the necessary adjustments and are based upon certain assumptions that the Company considers reasonable under the circumstances. Final amounts may differ from those set forth below. The unaudited pro forma financial information presented does not consider any future events that may occur after the date of the Acquisition. The unaudited pro forma financial information presented does not attempt to quantify any operating expense synergies or cost reductions of the combined operations of the Company and Goshen that may be realized after the date of the Acquisition. Nor does the unaudited pro forma financial information consider the incremental expense or capital costs that may be incurred as a result of the Acquisition. THE UNAUDITED PRO FORMA FINANCIAL INFORMATION IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING RESULTS OR FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE ACQUISITION BEEN CONSUMMATED AT THE DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF FUTURE OPERATING RESULTS OR FINANCIAL POSITION OF THE COMPANY FOLLOWING THE ACQUISITION. The unaudited pro forma combined condensed financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical financial statements of the Company in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1999, the Company's annual report on Form 10-K for the year ended December 31, 1998, and the audited and unaudited financial statements of Goshen and Waukesha presented in Item 7(a) above. The Company believes that the accompanying unaudited pro forma financial statements contain all adjustments necessary to fairly present the results of operations of the combined company for the nine months ended September 30, 1999, the year ended December 31, 1998 and the combined financial position of the Company at September 30, 1999. 48 WYNN'S INTERNATIONAL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (Dollars In Thousands, Except Per Share Amounts)
WAUKESHA PRO FORMA PRO FORMA WYNN'S GOSHEN (f) ADJUSTMENTS WYNN'S -------- -------- -------- ----------- --------- Revenues: Net sales $272,428 $133,579 $ 7,183 $ -- $413,190 Interest income 1,965 53 98 (1,406)(a) 710 -------- -------- ------- --------- -------- 274,393 133,632 7,281 (1,406) 413,900 -------- -------- ------- --------- -------- Costs and expenses: Cost of sales 165,607 112,351 5,303 (113)(b) 283,148 Selling, general and administrative 74,498 16,684 977 886 (c) 93,045 Interest expense 60 2,127 -- 766 (d) 2,953 -------- -------- ------- --------- -------- 240,165 131,162 6,280 1,539 379,146 -------- -------- ------- --------- -------- Income before taxes based on income 34,228 2,470 1,001 (2,945) 34,754 Provision for taxes based on income 12,322 1,379 384 (717)(e) 13,368 -------- -------- ------- --------- -------- Net Income $ 21,906 $ 1,091 $ 617 $ (2,228) $ 21,386 ======== ======== ======= ========= ======== Earnings per share of common stock: Basic $ 1.17 $ 1.14 ======== ======== Diluted $ 1.15 $ 1.12 ======== ======== Average shares outstanding: Basic 18,753 25 (g) 18,778 ======== ========= ======== Diluted 19,108 25 (g) 19,133 ======== ========= ========
See accompanying notes to unaudited pro forma combined condensed income statements. 49 WYNN'S INTERNATIONAL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (Dollars In Thousands, Except Per Share Amounts)
WAUKESHA PRO FORMA PRO FORMA WYNN'S GOSHEN (f) ADJUSTMENTS WYNN'S -------- -------- -------- ----------- --------- Revenues: Net sales $336,875 $167,943 $ 12,614 $ -- $517,432 Interest income 2,356 144 144 (1,921)(a) 723 -------- -------- -------- --------- -------- 339,231 168,087 12,758 (1,921) 518,155 -------- -------- -------- --------- -------- Costs and expenses: Cost of sales 207,088 143,078 9,172 765 (b) 360,103 Selling, general and administrative 89,252 19,559 1,975 1,514 (c) 112,300 Interest expense 250 2,575 -- 1,286 (d) 4,111 -------- -------- -------- --------- -------- 296,590 165,212 11,147 3,565 476,514 -------- -------- -------- --------- -------- Income before taxes based on income 42,641 2,875 1,611 (5,486) 41,641 Provision for taxes based on income 15,351 1,385 608 (1,539)(e) 15,805 -------- -------- -------- --------- -------- Net Income $ 27,290 $ 1,490 $ 1,003 $ (3,947) $ 25,836 ======== ======== ======== ========= ======== Earnings per share of common stock: Basic $ 1.43 $ 1.35 ======== ======== Diluted $ 1.39 $ 1.31 ======== ======== Average shares outstanding: Basic 19,109 25 (g) 19,134 ======== ========= ======== Diluted 19,678 25 (g) 19,703 ======== ========= ========
See accompanying notes to unaudited pro forma combined condensed income statements. 50 Basis of Consolidation - ---------------------- Wynn's fiscal year ends on December 31. Goshen's fiscal year ended on June 30, and Waukesha's fiscal year ended on October 31. For purposes of the unaudited pro forma combined condensed statement of income for the nine months ended September 30, 1999, results of operations for Goshen are for the nine months ended September 30, 1999, which include the operations of Waukesha from August 1 to September 30, 1999, and results of operations for Waukesha are for the seven months ended July 31, 1999. For purposes of the unaudited pro forma consolidated condensed statement of income for the year ended December 31, 1998, results of operations for Goshen are for the year ended December 31, 1998, and results of operations for Waukesha are for the year ended October 31, 1998. Notes To Unaudited Pro Forma Combined Condensed Income Statements - ----------------------------------------------------------------- (a) Reflects the decrease in interest income from investment activities due to the use of corporate cash and cash equivalents to fund the purchase price for Goshen. (b) Reflects the effect on cost of goods sold resulting from the adjustments below (in thousands):
Nine Months Ended Year Ended September 30, 1999 December 31, 1998 ------------------ ----------------- Elimination of change in LIFO reserves due to conversion to FIFO method for valuing inventories at Goshen and Waukesha $ 97 $ 120 Harmonization of accounting policies with regard to accounting for inventory supplies (205) 561 Reduction of losses incurred on certain long-term supply contracts for which specific reserves have been established (600) (801) Increase in depreciation and amortization expenses due to net write-up of property, plant and equipment 595 885 ----- ----- $(113) $ 765 ===== =====
51 (c) Reflects the effect on selling, general and administrative expenses resulting from the adjustments below (in thousands):
Nine Months Ended Year Ended September 30, 1999 December 31, 1998 ------------------ ----------------- Amortization of Goodwill $ 1,131 $ 1,596 Change in amortization of capitalized bank commitment fees and recurring bank fees under Wynn's revolving line of credit versus Goshen's former debt agreements (181) (24) Decrease in pension costs due to actuarial remeasurement of pension assets and liabilities (74) (73) Increase in depreciation and amortization expenses due to net write-up of property, plant and equipment 10 15 ------- ------- $ 886 $ 1,514 ======= =======
(d) Reflects the effect on interest expense resulting from the adjustments below (in thousands):
Nine Months Ended Year Ended September 30, 1999 December 31, 1998 ------------------ ----------------- Net increase in interest expense under Wynn's new debt agreements versus Goshen's former debt agreements $ 604 $ 1,052 Increase in interest expense due to revaluations of Goshen's other nonbank long-term debt 179 244 Elimination of Goshen's former recurring line of credit fees (17) (10) ------- ------- $ 766 $ 1,286 ======= =======
(e) Reflects the decrease in provision for taxes based on income resulting from the combined pro forma adjustments at an estimated incremental tax rate of 39.55%, adjusted for the nondeductibility of goodwill amortization for tax purposes. (f) On August 31, 1999, Goshen purchased Waukesha. Waukesha's results of operations have been included in Goshen's results of operations beginning August 1, 1999. For purposes of the unaudited pro forma combined condensed statement of income for the nine months ended September 30, 1999, Waukesha's results of operations for the period January 1, 1999 to July 31, 1999 have been included as a separate column in the combined results. For purposes of the unaudited pro forma combined condensed statement of income for the year ended December 31, 1998, Waukesha's results of operations for the year ended October 31, 1998 have been included as a separate column in the combined results. (g) Reflects the issuance of 25,225 shares of restricted stock pursuant to the Acquisition. 52 WYNN'S INTERNATIONAL, INC. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET FOR THE PERIOD ENDED SEPTEMBER 30, 1999 (Dollars In Thousands, Except Per Share Amounts)
PRO FORMA PRO FORMA WYNN'S GOSHEN ADJUSTMENTS WYNN'S --------- -------- ----------- --------- ASSETS Current assets: Cash and cash equivalents $ 61,880 $ 1,060 $ (35,625) $ 27,315 Accounts receivable, less allowance for doubtful accounts 69,418 28,567 (1,690) 96,295 Inventories 32,522 12,348 2,051 46,921 Prepaid expenses and other current assets 20,282 5,645 978 26,905 --------- -------- --------- --------- Total current assets 184,102 47,620 (34,286) 197,436 Property, plant and equipment, at cost less accumulated depreciation and amortization 56,000 33,260 6,703 95,963 Other assets 12,341 11,282 23,881 47,504 --------- -------- --------- --------- $ 252,443 $ 92,162 $ (3,702) $ 340,903 ========= ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ -- $ -- $ 6,200 $ 6,200 Accounts payable 20,239 17,015 -- 37,254 Taxes based on income 2,003 962 -- 2,965 Product warranty program and vehicle service contract reserves 33,120 -- -- 33,120 Accrued liabilities 28,520 8,459 2,745 39,724 Long-term debt due within one year -- 1,804 (5) 1,799 --------- -------- --------- --------- Total current liabilities 83,882 28,240 8,940 121,062 Long-term debt due after one year -- 38,135 5,644 43,779 Deferred taxes based on income 6,616 2,191 2,553 11,360 Other liabilities 11,333 1,687 750 13,770 Commitments and contingencies Stockholders' equity: Preferred stock, $1 par value; 500,000 shares authorized, none issued -- -- -- -- Common stock, $0.01 par value; 40,000,000 shares authorized, 21,898,335 shares issued 219 1,858 (1,858) 219 Capital in excess of par value 21,405 158 (173) 21,390 Retained earnings 178,139 20,093 (20,093) 178,139 Accumulated other comprehensive income (6,256) (200) 200 (6,256) Unearned compensation (53) -- -- (53) Common stock held in treasury 3,229,729 shares, at cost (3,204,504 pro forma) (42,842) -- 335 (42,507) --------- -------- --------- --------- Total stockholders' equity 150,612 21,909 (21,589) 150,932 --------- -------- --------- --------- $ 252,443 $ 92,162 $ (3,702) $ 340,903 ========= ======== ========= =========
See accompanying notes to unaudited pro forma combined condensed balance sheet. 53 Notes To Unaudited Pro Forma Combined Condensed Balance Sheet - ------------------------------------------------------------- The following schedule reflects a detailed breakdown of the pro forma adjustments in the unaudited pro forma combined condensed balance sheet: SCHEDULE OF UNAUDITED PRO FORMA ADJUSTMENTS TO COMBINED CONDENSED BALANCE SHEET (Dollars In Thousands, Except Per Share Amounts)
ADJUSTMENTS TO GOSHEN'S TRANSACTION PURCHASE CARRYING VALUES COSTS PRO FORMA (A) (B) (C) ADJUSTMENTS -------- --------------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $(35,209) $ -- $ (416) $(35,625) Accounts receivable, less allowance for doubtful accounts -- (1,690) -- (1,690) Inventories -- 2,051 -- 2,051 Prepaid expenses and other current assets -- 903 75 978 -------- ------- ------- -------- Total current assets (35,209) 1,264 (341) (34,286) Property, plant and equipment, at cost less accumulated depreciation and amortization -- 6,703 -- 6,703 Other assets 24,320 (880) 441 23,881 -------- ------- ------- -------- $(10,889) $ 7,087 $ 100 $ (3,702) ======== ======= ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 6,200 $ -- $ -- $ 6,200 Accounts payable -- -- -- -- Taxes based on income -- -- -- -- Product warranty program and vehicle service contract reserves -- -- -- -- Accrued liabilities -- 2,645 100 2,745 Long-term debt due within one year -- (5) -- (5) -------- ------- ------- -------- Total current liabilities 6,200 2,640 100 8,940 Long-term debt due after one year 4,500 1,144 -- 5,644 Deferred taxes based on income -- 2,553 -- 2,553 Other liabilities -- 750 -- 750 Commitments and contingencies Stockholders' equity: Preferred stock, $1 par value; 500,000 shares authorized, none issued -- -- -- -- Common stock, $0.01 par value; 40,000,000 shares authorized, 21,898,335 shares issued (1,858) -- -- (1,858) Capital in excess of par value (173) -- -- (173) Retained earnings (20,093) -- -- (20,093) Accumulated other comprehensive income 200 -- -- 200 Unearned compensation -- -- -- -- Common stock held in treasury 3,229,729 shares, at cost (3,204,504 pro forma) 335 -- -- 335 -------- ------- ------- -------- Total stockholders' equity (21,589) -- -- (21,589) -------- ------- ------- -------- $(10,889) $ 7,087 $ 100 $ (3,702) ======== ======= ======= ========
54 (A) Reflects the purchase of all outstanding Goshen common stock at a purchase price equal to Goshen's estimated net book value at September 30, 1999 plus $24 million, and the issuance to certain Goshen employees of restricted stock with a fair market value of $320,000. A portion of the purchase price was financed with a $6,200,000 note payable to Goshen's former shareholders payable on January 3, 2000, plus interest at LIBOR plus 0.60%. Additionally, $4,500,000 of the purchase price, subject to certain adjustments, is payable to Goshen's former shareholders in annual installments of $1,500,000 in 2003 and $3,000,000 in 2004, plus interest at 5.5%. The Company also agreed to repay all of Goshen's outstanding bank debt and assume Goshen's other nonbank long-term debt at the time of closing. To fund the purchase price and repay the outstanding bank debt, the Company used a portion of its cash and cash equivalents and borrowed the balance required under its long-term revolving credit facility with Wells Fargo Bank. For purposes of this pro forma statement, the amount of debt borrowed by the Company under its revolving credit facility with Wells Fargo Bank and the amount of other long-term debt assumed by the Company are equal to Goshen's long-term debt as reported in Goshen's balance sheet at September 30, 1999. Additional goodwill (included in other assets) in the amount of $24,320,000 was recorded as part of the purchase price for Goshen. This amount, combined with goodwill of $7,433,000 already on Goshen's balance sheet at September 30, 1999, resulted in total goodwill of $31,753,000 recorded as part of the purchase of Goshen, prior to adjustments to the carrying values of Goshen's net assets to equal their estimated fair values noted in footnote (B) below. (B) Reflects adjustments to the carrying values of Goshen's net assets to equal their estimated fair values. These values are subject to revision. However, management believes that any resulting adjustments will not have a material effect on the financial position or results of operations of the Company. Receivables reflect a write-down of $1.7 million based on management's estimates of net realizable value. Inventories were adjusted to reflect a valuation based on the first-in, first-out method, whereas Goshen previously used the last-in, first-out method of valuation. Prepaid expenses and other current assets reflect adjustments to deferred tax assets of $.9 million related to the adjustments to the carrying values of Goshen's current net assets. Property, plant and equipment reflects a net write-up to land and buildings, based on independent appraisals, and to equipment, based upon management's best estimate of the fair market value. The adjustment to other assets reflects a reduction in goodwill of $2.2 million due to the net adjustments to the carrying values of Goshen's other net assets, partially offset by a write-up in prepaid pension costs of $1.3 million based on actuarial remeasurements. 55 Accrued liabilities reflect an accrual for estimated losses from long-term supply contracts and reserves for cancellation of certain long-term operating leases. Adjustments to long-term debt reflect revaluations based upon current market interest rates and certain amended terms that were amended as part of the Acquisition. Deferred taxes based on income reflect adjustments related to the carrying values of Goshen's noncurrent net assets. Other liabilities include estimated reserves for environmental matters related to Goshen's 22 manufacturing locations. (C) Reflects actual and estimated costs associated with the purchase of Goshen. Such costs include various legal, accounting, appraisal, consulting, bank and regulatory fees. * * * * (c) Exhibits. The following exhibits are filed as a part of this report: Exhibit No. Description - ----------- ----------- 2.1 Stock Purchase Agreement, dated October 20, 1999, among Wynn's International, Inc., Goshen Rubber Companies, Inc. and the shareholders of Goshen, and Amendment No. 1 to Stock Purchase Agreement, dated as of December 17, 1999* 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.2 Consent of Ernst & Young LLP, Independent Auditors * Previously filed as Exhibit 2.1 on Form 8-K filed on December 30, 1999. 56 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WYNN'S INTERNATIONAL, INC. By: /s/ SEYMOUR A. SCHLOSSER ------------------------------ Seymour A. Schlosser Date: February 25, 2000 Vice President - Finance and Chief Financial Officer 57 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1 Stock Purchase Agreement, dated October 20, 1999, among Wynn's International, Inc., Goshen Rubber Companies, Inc. and the shareholders of Goshen, and Amendment No. 1 to Stock Purchase Agreement, dated as of December 17, 1999* 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.2 Consent of Ernst & Young LLP, Independent Auditors * Previously filed as Exhibit 2.1 on Form 8-K filed on December 30, 1999. EX-23.1 2 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 2-68157, 33-30296, 33-64090, 333-39045, 33-53917, 33-53921 and 333-93699) of Wynn's International, Inc. of our report dated September 3, 1999 on our audits of the consolidated financial statements of Goshen Rubber Companies, Inc. and subsidiaries for the years ended June 30, 1999 and 1998, which report is included in this Form 8-K/A. /s/ PricewaterhouseCoopers LLP Mishawaka, Indiana February 25, 2000 EX-23.2 3 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 2-68157, 33-30296, 33-64090, 333-39045, 33-53917, 33-53921 and 333-93699) of Wynn's International, Inc. (Wynn's) of our report dated December 4, 1998 with respect to the financial statements of Waukesha Rubber Company, Inc. for the years ended October 31, 1998 and 1997 included in Wynn's Current Report on Form 8-K/A filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Milwaukee, Wisconsin February 23, 2000 -----END PRIVACY-ENHANCED MESSAGE-----