-----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, QP4rIOszTMeQ1VaUGu5NR0cInUb0AN9gylmjwXoqgcYbF7gS2xxFNBF/SyCV6Fm7 AuLYMQ7OvBb0G9ji5bUh7w== 0001095811-00-000785.txt : 20000411 0001095811-00-000785.hdr.sgml : 20000411 ACCESSION NUMBER: 0001095811-00-000785 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 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: 10-K405 SEC ACT: SEC FILE NUMBER: 001-07200 FILM NUMBER: 583215 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 10-K405 1 FORM 10-K405 YEAR ENDED DECEMBER 31, 1999 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1999; or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______________________ to __________________________ COMMISSION FILE NUMBER 1-7200 WYNN'S INTERNATIONAL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-2854312 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 NORTH STATE COLLEGE BOULEVARD SUITE 700 ORANGE, CALIFORNIA 92868 ---------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 938-3700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered - -------------------------------------- ----------------------------------------- Common Stock, par value $.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The aggregate market value of voting stock held by non-affiliates of the Registrant was $236,751,924 as of March 15, 2000. All outstanding shares of voting stock, except for shares held by executive officers and members of the Board of Directors of Registrant, are deemed to be held by non-affiliates. On March 15, 2000, Registrant had 18,650,810 shares of Common Stock outstanding. Parts I and II incorporate information by reference from the Annual Report to Stockholders for the year ended December 31, 1999. Part III incorporates information by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 10, 2000. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] ================================================================================ 2 PART I ITEM 1. BUSINESS Wynn's International, Inc., through its subsidiaries, is engaged primarily in the automotive and industrial components business and the specialty chemicals business. The Company designs, produces and sells O-rings and other seals and molded elastomeric and thermoplastic polymer products. The Company also formulates, produces and sells specialty chemical products, vehicle service contract programs and automotive service equipment and distributes, primarily in southern California, locks and hardware products manufactured by others. Prior to the sale in May 1996 of the principal operating assets of its wholly-owned subsidiary, Wynn's Climate Systems, Inc. ("Wynn's Climate Systems"), the Company designed, produced and sold automotive air conditioning systems and components. In 1998, the Company began selling vehicle service contract programs for new and used automobiles and light trucks. In December 1999, the Company acquired all of the outstanding capital stock of Goshen Rubber Companies, Inc., an Indiana-based developer, manufacturer and marketer of O-rings, Tetraseals(R), gaskets and other rubber, plastic and urethane products. The Company markets its O-rings and other molded polymer products under the trade name "Wynn's-Precision" and under the trademark TETRASEALS(R). The Company markets its specialty chemical products, automotive service equipment, and vehicle service contract programs under various trademarks, including WYNN'S(R), FRICTION PROOFING(R), X-TEND(R), SPIT FIRE(R), CHARGE(R), DU-ALL(R), TRANSERVE(R), POWERFLUSH(R), WYNN'S PRODUCT WARRANTY(R), WYNN'S EXTENDED CARE(TM) and WYNN'S PLUS(TM). The Company's executive offices are located at 500 North State College Boulevard, Suite 700, Orange, California 92868. Its telephone number is (714) 938-3700. The terms "Wynn's International, Inc.," "Wynn's," "Company" and "Registrant" as used in this report refer to Wynn's International, Inc. and its subsidiaries unless the context indicates otherwise. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC DATA The Company's operations are conducted in two industry segments: Automotive and Industrial Components, and Specialty Chemicals. Financial information relating to the Company's business segments for the three years ended December 31, 1999 is incorporated by reference from Note 15 of "Notes to Consolidated Financial Statements" on pages 40 and 41 of the Company's Annual Report to Stockholders for the year ended December 31, 1999 (the "1999 Annual Report"). 3 AUTOMOTIVE AND INDUSTRIAL COMPONENTS The Automotive and Industrial Components Division consists of Wynn's-Precision, Inc. ("Precision"), Goshen Rubber Companies, Inc. ("Goshen") and Robert Skeels & Company ("Skeels"). On December 17, 1999, the Company acquired all of the outstanding capital stock of Goshen. The acquisition has been accounted for as a purchase, and Goshen's assets and liabilities are included in the Company's balance sheet as of December 31, 1999. In accordance with the terms of the acquisition agreement, Goshen's results of operations will be consolidated with the Company beginning January 1, 2000. The Automotive and Industrial Components Division also included Wynn's Climate Systems prior to the sale of its principal operating assets in May 1996. During 1999, sales from continuing operations of the Automotive and Industrial Components Division were $186,802,000, or 52% of the Company's total net sales, as compared with $175,823,000 and 52% in 1998. The pretax profit from continuing operations of the division in 1999 was $31,722,000, as compared with $29,234,000 in 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Operating Segments and Related Information" on pages 19 through 24 and 40 through 41, respectively, of the 1999 Annual Report, which are hereby incorporated by reference. See also "Other Factors Affecting the Business" on pages 6 through 13 below. WYNN'S-PRECISION, INC. (O-RINGS, ENGINEERED SEALS AND OTHER MOLDED ELASTOMERIC AND THERMOPLASTIC POLYMER PRODUCTS) PRODUCTS Precision and its affiliated companies design, manufacture and market a variety of static and dynamic sealing products. Precision's principal products are O-rings, composite gaskets and seals, engineered seals, and convoluted boots, bellows and seals that are reinforced with plastic, metal and fabric. These products are made from elastomeric and thermoplastic polymers. The products are used for a variety of sealing applications that include engines, transmissions, steering pumps and assemblies, fuel handling, suspension/brake systems, refrigeration and electronics. Precision's primary customers are manufacturers of automobiles, trucks, off-highway vehicles, fluid handling equipment, aircraft/aerospace components, and the military. DISTRIBUTION Precision sells its products primarily through a direct sales force to original equipment manufacturer ("OEM") customers and component suppliers to OEMs. Precision also markets its products throughout the United States through independent distributors and through Company-operated regional service centers located in California, Illinois, Indiana, Michigan, Minnesota, New York, North Carolina, Ohio, Texas and Wisconsin. Precision's Canadian operation distributes products principally through a direct sales force to OEM customers, through independent distributors and through Precision-operated service centers in Canada and England. 2 4 PRODUCTION Precision's manufacturing facilities are located in Arizona, Kentucky, Tennessee, Texas, Virginia and Ontario, Canada. Precision added a manufacturing facility in China after entering into a joint venture with a Chinese company in the fourth quarter of 1998. Precision's administrative headquarters are located at the site of its main manufacturing facility in Lebanon, Tennessee. Also located in Lebanon, Tennessee are Precision's own tool production facility and a facility dedicated exclusively to injection molding. Precision's Plastics Division maintains a 76,375 square foot facility in Springfield, Kentucky dedicated to injection molding, injection blow molding and extrusion blow molding of various thermoplastic polymers. Over the past several years, Precision has made significant investments in modern computerized production equipment and facilities. In 1999, Precision continued to invest in new production equipment to expand production capacity primarily in its Tennessee, Virginia, and Kentucky facilities. In 1999, Precision also commenced building a technologically advanced rubber mixing facility at its Lebanon, Tennessee production center scheduled to be completed in the second quarter of 2000. The principal raw materials used by Precision are elastomeric and thermoplastic polymers. These raw materials generally have been available from numerous suppliers in sufficient quantities to meet Precision's requirements. Adequate supplies of raw materials were available in 1999 and are expected to continue to be available in 2000. GOSHEN RUBBER COMPANIES, INC. (O-RINGS, ENGINEERED SEALS AND OTHER MOLDED ELASTOMERIC AND THERMOPLASTIC POLYMER PRODUCTS) PRODUCTS Goshen develops, manufactures and markets a variety of rubber, plastic and urethane products. Goshen's principal rubber products are O-rings and Tetraseals(R), precision-molded products such as specialized seals, gaskets and diaphragms, and elastomeric balls, boots and drive belts. These products are used in a variety of hydraulic, pneumatic and fluid handling systems to seal air, oil or water. Goshen's principal thermoplastic products are exterior trim components for automobiles and disposable diagnostic medical and consumer products. Goshen also manufactures urethane, PTFE and silicone products such as energy absorbing automotive parts. Goshen's primary customers are OEMs, component suppliers to OEMs, customers in the automotive aftermarket and manufacturers of fluid handling equipment. DISTRIBUTION Goshen sells its products through a variety of distribution channels, including a direct sales force, independent sales representatives and distributors, and telemarketers. Goshen supports its sales and marketing efforts with inside sales personnel and engineers. PRODUCTION Goshen operates 22 manufacturing facilities located in Indiana, Ohio, Illinois, Nebraska, Florida, South Carolina, North Carolina, Wisconsin and Ontario, Canada. Of the 22 manufacturing facilities, 3 5 13 are operated by the Rubber Division and nine are operated by the Thermoplastics Division. The principal raw materials used by Goshen are elastomeric and thermoplastic polymers. These raw materials generally have been available from suppliers in sufficient quantities to meet Goshen's requirements. Adequate supplies of raw materials were available in 1999 and are expected to continue to be available in 2000. ROBERT SKEELS & COMPANY Skeels is a wholesale distributor of builders hardware products, including lock sets and locksmith supplies. Skeels' main facility is located in Compton, California. In addition, Skeels has a leased satellite sales facility located in Fullerton, California. Skeels supplies approximately 35,000 items to retail hardware, locksmith and lumberyard outlets in southern California, Arizona, and Nevada. Skeels also sells directly to large institutional customers. Most of Skeels' sales are derived from replacement items used by industry, institutions and in-home remodeling and repair. Skeels has been a distributor of Schlage lock products since 1931. Skeels also distributes other well-known brands such as Lawrence, Kwikset and Master. Skeels' distributorship arrangements generally are cancelable by the manufacturers without cause. SPECIALTY CHEMICALS The Specialty Chemicals Division consists of Wynn Oil Company and its subsidiaries ("Wynn Oil"). During 1999, net sales at Wynn Oil were $173,497,000, or 48% of the Company's total net sales, as compared to $161,052,000 and 48% for 1998. The pretax profit of the division during 1999 was $17,449,000, compared with $17,736,000 for 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Operating Segments and Related Information" on pages 19 through 24 and 40 through 41, respectively, of the 1999 Annual Report, which are hereby incorporated by reference. See also "Other Factors Affecting the Business" on pages 6 through 13 below. PRODUCTS Wynn Oil develops, manufactures and markets a wide variety of specialty chemical car care and industrial products and related service programs. These products include professional chemical products, programs and equipment for automobile service technicians and automobile chemical products for consumers. Wynn Oil's premium automotive chemical product line is the Wynn's Product Warranty program. Wynn Oil also sells chemical products for metalworking and machining operations. Wynn Oil formulates its products to provide preventive or corrective maintenance for various parts of an automobile, including the engine, transmission, steering system, fuel system, differential, 4 6 cooling system and certain other parts. Wynn Oil also manufactures equipment designed to work with Wynn Oil chemical products to assist automobile service technicians with routine tasks, such as flushing cooling and transmission systems. For example, the patented DU-ALL machine is a portable machine used with Wynn's chemicals to flush and refill antifreeze in a vehicle and to recycle the used antifreeze. The DU-ALL system has been approved by General Motors, Ford, DaimlerChrysler, Nissan, Mitsubishi, Isuzu and Hyundai. The TRANSERVE II+ automatic transmission flush equipment consists of portable machines used with Wynn's chemicals to flush, refill and treat the transmission fluid in a vehicle. The TRANSERVE II+ equipment has been approved by General Motors, Ford, DaimlerChrysler, Nissan, Mitsubishi and Isuzu. Wynn Oil's industrial specialty chemical products include forging compounds, cleaners, release agents, lubricants, cutting and drawing fluids and multipurpose coolants. These chemical products are used in precision metal forming and machining operations. They are a mix of full synthetic, semi-synthetic and petroleum-based fluids that address specific functions and levels of operation severity. Wynn Oil also markets the Wynn's Product Warranty program. The Wynn's Product Warranty program consists of kits of a premium line of automotive treatment products that are accompanied by a special product warranty. The kits are typically sold through car dealers to purchasers of used automobiles and light trucks. The kits contain proprietary treatment products that have been specially formulated to help prevent damage to various internally lubricated parts and systems of the automobile. The products include an engine oil treatment, a fuel system conditioner, a transmission fluid treatment, a power steering supplement, a differential treatment, a cooling system conditioner and an air conditioning system treatment. The product warranty accompanying the products states, in effect, that if the vehicle owner (i) treats the vehicle as directed, (ii) specified components of the vehicle are damaged during the warranty period, and (iii) the damage is the type of damage that the products are designed to help prevent, then Wynn Oil will provide reimbursement for the damage, up to the limits of liability and subject to certain conditions and exceptions. The items reimbursed include the costs of certain parts and labor and, in some instances, the costs of towing and a rental car. See "Other Factors Affecting the Business" on pages 6 through 13 below. In 1998, Wynn's Extended Care, Inc. ("Wynn's Extended Care"), a wholly-owned subsidiary of Wynn Oil, launched the Wynn's Extended Care vehicle service contract program. The program features vehicle service contracts that cover virtually every major system of a car. In 1999, Wynn's Extended Care introduced additional service contract programs, including the Wynn's Plus vehicle service contract program, which provides more limited coverage for used vehicles. Wynn's Extended Care sells its vehicle service contracts primarily through a network of independent distributors and sales representatives to new and used car dealers who, in turn, sell to purchasers of new and used cars. The Wynn's Extended Care program is backed by a contractual liability insurance policy. DISTRIBUTION Wynn Oil's car care products are sold in the United States and in approximately 100 foreign countries. See "Foreign Operations" on pages 12 and 13 below. Wynn Oil distributes its products through a wide range of distribution channels. Domestically, Wynn Oil distributes its products primarily through independent distributors and sales representatives. 5 7 Wynn Oil also uses internal sales management personnel to sell and distribute its products. In addition, Wynn Oil distributes the Wynn's Product Warranty program through new and used car dealers and, on a limited basis, certain auto auctions. Wynn Oil also markets the Wynn's Product Warranty program in the United States and Canada through cooperative arrangements with national and regional automobile finance companies. Although these automobile finance companies have played an increasing role in the marketing of the Wynn's Product Warranty program in recent years, in 1998 and 1999 Wynn Oil experienced a decline in revenue generated by these arrangements. No assurance can be given that such finance companies will continue to market the Wynn's Product Warranty program. Wynn's Extended Care markets its service contract programs in the United States primarily through new and used car dealers, auto auctions and national and regional finance companies. Foreign sales of Wynn Oil products are made principally through wholly-owned subsidiaries, which sell primarily through independent distributors, warehouse distributors or manufacturers' representative organizations, with a direct sales force in France and the Netherlands. Wynn Oil also engages in direct export sales from the U.S. to independent distributors in Asia and Latin America, and from Belgium to independent distributors in certain European countries, North Africa, the Middle East and the former republics of the USSR. See "Other Factors Affecting the Business" on pages 6 through 13 below. PRODUCTION Wynn Oil has manufacturing facilities in California and Belgium. Other foreign subsidiaries either purchase products directly from the Company's manufacturing facilities in the United States and/or Belgium or have the products manufactured locally by outside contract suppliers according to Wynn Oil's specifications and formulae. Wynn Oil periodically reviews its production and sourcing locations in light of fluctuating foreign currency rates in order to ensure the best product cost and quality. Wynn Oil uses a large number of chemicals to produce its various specialty chemical products. Primary raw materials necessary for the production of these products, as well as the finished products, generally have been available from several sources. An adequate supply of materials was available in 1999 and is expected to continue to be available for the foreseeable future. OTHER FACTORS AFFECTING THE BUSINESS COMPETITION All phases of the Company's business have been and remain highly competitive. The Company's products and services compete with those of numerous companies, some of which have financial resources greater than those of the Company. Sales by the Automotive and Industrial Components Division are in part related to the sales of vehicles by its OEM customers. Precision and Goshen have a large number of competitors in the market for static and dynamic sealing products, some of which competitors are substantially larger than Precision and Goshen. The markets in which Precision and Goshen compete are also sensitive to price changes. Requests for price reductions are not uncommon. Precision and Goshen both attempt to work with their customers to identify ways to lower costs and prices. Precision focuses on high technology, high quality sealing 6 8 devices and has made significant investments in advanced equipment and other means to raise productivity. In 1999, Precision invested approximately $14.1 million in new production equipment and facilities to expand its production capacity primarily at its Tennessee, Virginia and Kentucky facilities. Precision's major focus is to be the low cost producer of superior quality products within its industry. Goshen emphasizes the superior quality of its products and its customer service. Goshen's multi-plant capacity and ability to manufacture a range of diverse products enable it to meet a wide array of customer needs, especially when a customer is considering new products. Precision and Goshen both believe that they must expand into additional areas of sealing technology in order to continue to be effective competitors. Competition with respect to Wynn Oil's specialty chemical and equipment products consists principally of other automotive aftermarket chemical, service equipment and industrial fluid companies. Some major oil companies also market their own additive products through retail service stations, independent dealers and garages. Certain national retailers and car manufacturers market private label brands of specialty chemical products. Wynn Oil's DU-ALL antifreeze recycling equipment and chemicals compete against other antifreeze recycling processes, some of which also have received OEM approval. Similarly, Wynn Oil's TRANSERVE II+ transmission fluid flush and fill equipment and chemicals compete against other transmission flush equipment. The Wynn's Product Warranty program and Wynn's Extended Care compete with service contract and extended warranty programs offered by other service contract providers and insurance companies. The principal methods of competition vary by geographic locale and by the relative market share held by the Company compared to other competitors. Skeels continues to face intense price competition from numerous cash-and-carry discount retailers. Skeels also has observed some manufacturers selling directly to retailers to increase volume. KEY CUSTOMERS No customer represented more than 10% of total net sales of the Company in 1999. GOVERNMENT REGULATIONS The number of governmental rules and regulations affecting the Company's business and products continues to increase. Wynn Oil markets the Wynn's Product Warranty program in 48 states in the U.S. and also in Canada. Questions have been raised by certain state and Canadian provincial regulators as to whether the product warranty that accompanies the kit is in the nature of insurance or a regulated service contract. Wynn Oil attempts to resolve these questions to the satisfaction of each such regulator. On occasion, it has elected not to sell the Wynn's Product Warranty program in certain jurisdictions. No assurance can be given that governmental regulations will not significantly affect the marketing of the Wynn's Product Warranty program in the United States or other countries in the future. Over the past few years, sales of the Wynn's Product Warranty program have been an important element of Wynn Oil's domestic business. Wynn's Extended Care markets the Wynn's Extended Care vehicle service contract programs in 48 states in the U.S. Many states have laws and regulations that govern the sale of vehicle service 7 9 contracts. These laws and regulations dictate, for example, the types of disclosures that must be included in the Wynn's Extended Care service contracts, and in some cases require that Wynn's Extended Care be licensed as a vehicle service contract provider. Wynn's Extended Care endeavors to comply with these laws and regulations. No assurance can be given that government laws and regulations will not significantly affect the marketing of the Wynn's Extended Care contracts in the future. ENVIRONMENTAL MATTERS The Company is involved in certain environmental proceedings and potential proceedings principally arising out of the past or present use of various substances that have been or may be deemed to be hazardous. At December 31, 1999, the Company had recorded consolidated accrued reserves of approximately $10.4 million relating to environmental matters. In establishing such reserves, the Company evaluates the nature and extent of the underlying contamination to the extent known for each matter, the estimated cost of the likely remedy, the number and financial strength of other potentially responsible parties, and the evidence against the various potentially responsible parties. During this evaluation process, the Company makes its best estimate of its likely exposure with respect to each matter based on information known to the Company at that time. Such estimates may involve a range of exposures for each matter. The Company provides aggregate reserves for no less than the minimum amount of the aggregate range of outcomes established by the Company. The Company lacks sufficient information at this time to provide an estimate of its "reasonably possible" (as such term is defined in Statement of Financial Accounting Standard No. 5) potential liability from all environmental matters. In establishing reserves for environmental matters, the Company assumes that it has appropriately evaluated key factors, such as expected remedy costs, the likely degree of responsibility and ability to pay of other potentially responsible parties, and the Company's probable allocable share. It is reasonably possible that regulatory or technical developments or subsequently developed information could cause the Company to reevaluate its present range of outcomes and to record additional liabilities for existing environmental matters. However, based upon information presently known to the Company, the Company believes that any such additional liabilities should not materially affect the Company's consolidated financial position, annual results of operations or cash flow. See Note 12 of "Notes to Consolidated Financial Statements" on page 38 of the 1999 Annual Report, which is hereby incorporated by reference. All potentially significant environmental matters presently known to the Company are described below. (a) In July 1990, Wynn Oil received a general notice letter from the United States Environmental Protection Agency (the "EPA") stating that it may be a potentially responsible party ("PRP") with respect to the San Gabriel Valley, California Superfund Sites regional groundwater problem. In March 1994, the EPA issued its Record of Decision with respect to the Baldwin Park Operable Unit ("BPOU") of the San Gabriel Valley Superfund Sites. Wynn Oil's Azusa facility (the "Azusa Facility") is located within the BPOU. On May 15, 1997, EPA issued Special Notice letters to nineteen companies and entities, including Wynn Oil, with respect to the BPOU. The Special Notice letters initiated an administrative process in which 8 10 the recipients were given sixty days to submit a good faith offer to undertake the requested work and another sixty days to reach agreement with the EPA as to the terms of a consent decree. EPA has indicated that it considered Wynn Oil to be one of the four largest contributors of volatile organic compounds to the regional groundwater problem in the BPOU. Wynn Oil disagrees with the views expressed by the EPA. In early June 1997 pursuant to a newly developed test method, perchlorates were detected in certain groundwater wells in the BPOU in excess of the State of California provisional action level of 18 parts per billion. Perchlorates are ions of ammonium perchlorate or potassium perchlorate, which are most commonly associated with the manufacturing of solid rocket fuel, fireworks and explosives. After the discovery of perchlorate and also using newly-developed test methods, N-nitrosodimethylamine ("NDMA") was discovered in the groundwater in the BPOU in quantities in excess of the detection limit of 30 parts per trillion. NDMA is associated with the manufacture of rocket fuel, among other processes. As a result of issues arising from the discovery of perchlorate and NDMA in certain BPOU groundwater wells, EPA extended the deadline for submission of a good faith offer. In September 1999, eleven Special Notice recipients, including Wynn Oil, submitted a good faith offer (the "GFO") to perform the remedy. EPA accepted the GFO as a basis for entering into negotiations toward an acceptable consent decree. Shortly thereafter, the GFO participants entered into internal negotiations whereby one of the GFO participants would assume responsibility for performance of the Interim Remedial Action, subject to certain limitations and reopeners, in exchange for a cash payment from the other ten GFO participants, including Wynn Oil. As of March 15, 2000, the GFO participants had not yet concluded an internal settlement. Wynn Oil's ultimate share of the total remedial costs for the BPOU cannot be estimated with certainty at this time. In establishing appropriate reserves for this matter, the Company has assumed that Wynn Oil and nine other GFO participants will be able to reach a negotiated settlement with the GFO participant that will perform the Interim Remedial Action. (b) In late 1999, the California Regional Water Quality Control Board - Los Angeles Region (the "RWQCB") issued cleanup and abatement orders (a "CAO") to certain facilities in the BPOU, including Wynn Oil, requiring the CAO recipients to (i) perform additional investigation and sampling work at their sites, (ii) enter into cost recovery agreements with the RWQCB to reimburse the RWQCB for oversight costs and (iii) develop plans to mitigate impaired groundwater resources or compensate water purveyors for past and current costs of replacing impaired water supplies. Wynn Oil believes that elements of the CAO exceed the legal authority of the RWQCB and, along with other CAO recipients, has appealed those portions of the CAO to the State Water Resources Control Board. The Regional Board has scheduled a hearing to consider the matters raised in the appeals. Wynn Oil is complying with the vadose zone investigation and groundwater monitoring aspects of the CAO. (c) In February 1995, the owner (the "Property Owner") of certain real property (the "Richter Site") formerly leased by Alkid Corporation ("Alkid"), an inactive subsidiary of the Company, filed a lawsuit in federal court against Alkid, Wynn's International, Inc. and Wynn Oil (collectively the "Wynn Defendants") and another former lessee and its principal. The complaint 9 11 alleged that the defendants stored solid and hazardous wastes at the Richter Site and that the storage devices for the wastes leaked, causing contamination of the soils and groundwater. The complaint sought relief under CERCLA, the Resource Conservation Recovery Act of 1976 and common law, including an unspecified amount of damages and an injunction to compel the defendants to clean up the Site. After the Wynn Defendants were served with the lawsuit in June 1995, the parties filed various cross-claims and counterclaims against each other. Subsequent to the filing of the responsive pleadings, all parties to the litigation agreed to fund portions of additional investigations of the Richter Site with each party paying roughly one-third of the cost. During the pendency of these investigations, the litigation, including all discovery, was stayed. In 1999, the parties entered into an interim settlement pursuant to which (i) the litigation was dismissed without prejudice, (ii) the parties agreed to fund equally certain additional investigation activities at the Richter Site and (iii) the parties agreed to certain non-binding alternative dispute resolution mechanisms. At this time, the Company does not have sufficient information to estimate the cost of cleanup at the Richter Site or its ultimate liability for the Richter Site. (d) In January 1991, Wynn's Climate Systems received a letter from the Texas Natural Resource Conservation Commission (the "TNRCC") alleging that soil adjacent to one of its leased manufacturing facilities was contaminated with hazardous substances. The TNRCC directed Wynn's Climate Systems to determine the extent of such contamination and then take appropriate remedial measures. Wynn's Climate Systems retained environmental consultants to conduct soil sampling and otherwise comply with the directive of the TNRCC. Between 1991 and 1997, consultants for Wynn's Climate Systems performed various investigations of the former facility and submitted certain reports to the TNRCC, including a proposed remedial action plan for the site. In 1998, the TNRCC approved the proposed remedial action plan and the remedial work was completed in the first quarter of 1999. Wynn's Climate Systems submitted a final site closure report to the TNRCC in the second quarter of 1999 and is awaiting the TNRCC's approval of the closure report. (e) Wynn's Climate Systems is one of approximately 100 hazardous waste generators that have been identified as potentially responsible parties for the Chemical Recycling, Inc. ("CRI") site in Wylie, Texas (the "CRI Site"). A PRP Steering Committee (the "CRI Committee") was formed to negotiate with EPA on behalf of its members an agreement to take remedial measures voluntarily at the CRI Site. Approximately 85 PRPs, including Wynn's Climate Systems, have agreed to participate in the CRI Committee and have signed Consent Agreements with the EPA with respect to the CRI Site. Remediation efforts have begun at the CRI Site under the guidance of the CRI Committee. No significant developments have occurred in the last three years. Wynn's Climate Systems' proportionate share of the total volume of waste contributed to the CRI Site by CRI Committee members was approximately two-tenths of one percent (0.2%). The foregoing "Environmental Matters" section and Note 12 of "Notes to Consolidated Financial Statements" on page 38 of the 1999 Annual Report (which is incorporated by reference herein) contain various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the 10 12 Company's expectations or beliefs concerning future events, including statements regarding estimates of the Company's liabilities associated with identified environmental matters and the likelihood that any liability in excess of reserves for such matters will not materially affect the Company's financial position or annual results of operations or cash flows. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including, without limitation, the following: (i) the actual nature and extent of the contamination, (ii) the remedial action selected, (iii) the cleanup level required, (iv) changes in regulatory requirements, (v) the identification or discovery of new contaminants of concern, (vi) development of new or additional remedial technologies, (vii) with respect to the San Gabriel Valley Superfund Sites, whether Wynn Oil and other GFO participants will be able to reach a settlement with the GFO participant that will implement the Interim Remedial Action and the nature of reopeners in such a settlement, (viii) the amount of EPA past costs required to be paid by Wynn Oil with respect to the San Gabriel Superfund Sites, (ix) the ability of other potentially responsible parties, if any, to pay their respective shares, and (x) the amount of any insurance recoveries. Results actually achieved thus may differ materially from expected results included in these and any other forward looking statements contained herein. FOREIGN CURRENCY FLUCTUATIONS In 1999, the United States dollar generally increased in value compared to 1998 in the currencies of most countries in which the Company does business. This increase in the value of the U.S. dollar caused aggregate foreign sales and pretax profit to be translated into lower dollar values than what would have been reported if exchange rates had remained the same as in 1998. Accumulated Other Comprehensive Income on the Consolidated Balance Sheet includes equity adjustments from foreign currency translation. In 1999, the equity adjustments from foreign currency translation decreased by $1,873,000, which caused a corresponding decrease in total Stockholders' Equity. See "Foreign Operations" on pages 12 and 13 below. PATENTS AND TRADEMARKS The majority of the Specialty Chemicals Division's products are sold under the WYNN'S and WYNN'S PRODUCT WARRANTY trademarks. The Company has registered these and its other important trademarks in the relevant jurisdictions. The Company knows of no material pending or threatened challenges to its trademarks. See "Other Litigation" under "Item 3 - Legal Proceedings" on page 21 below for a discussion of a lawsuit filed by Wynn Oil against an infringer on one of its trademarks. The Company holds a number of patents that are used in the operation of its businesses. The Company is not aware of any pending or threatened challenges to any of its patents that could have a material adverse effect on the Company's business or results of operations. SEASONALITY OF THE BUSINESS Although sales at the Company's various businesses are somewhat seasonal, the consolidated results of operations generally do not reflect seasonality. 11 13 RESEARCH AND DEVELOPMENT Precision maintains research and engineering facilities in Tennessee, Virginia, Kentucky and Canada. Research and development is an important aspect of Precision's business as Precision has developed and continues to develop numerous specialized compounds to meet the specific needs of its various customers. Precision also has technical centers in Tennessee, Virginia, Kentucky and Canada to design sealing solutions, construct prototype products and to perform comprehensive testing of materials and products. Precision maintains extensive research, development and engineering facilities to meet the needs of its customers. Goshen operates three research and development laboratories at two facilities in Indiana and one facility in North Carolina. Two of the laboratories concentrate on long-term material development projects, including new and experimental materials developed by Goshen's major raw material suppliers. Goshen's laboratories continue to develop products and refine technology in order to meet the specific needs of its customers. Wynn Oil maintains research and product performance centers in California, Belgium, France and South Africa. The main activities of the research staff are the development of new specialty chemicals and other products, improvement of existing products, including finding new applications for their use, evaluation of competitive products and performance of quality control procedures. FOREIGN OPERATIONS The following table shows sales to foreign customers for the years 1999, 1998 and 1997:
1999 1998 1997 ----------- ----------- ----------- Total Sales Outside the United States: $128,745,000 $126,366,000 $120,201,000 Percent of Net Sales 35.7% 37.5% 37.5% Sales by Foreign Subsidiaries $97,643,000 $98,191,000 $96,184,000 Percent of Net Sales 27.1% 29.1% 30.0% Export Sales by Domestic Subsidiaries $31,102,000 $28,175,000 $24,017,000 Percent of Net Sales 8.6% 8.4% 7.5%
Consolidated operating results are reported in United States dollars. Because the Company's foreign subsidiaries conduct operations in the currencies of the countries in which they are based, all financial statements of the foreign subsidiaries must be translated into United States dollars. As the value of the United States dollar increases or decreases relative to these foreign currencies, the United States dollar value of items on the financial statements of the foreign subsidiaries is reduced or increased, respectively. Consequently, changes in dollar sales of the foreign subsidiaries from year to year are not necessarily indicative of changes in actual sales recorded in local currency. See Note 15 of "Notes to Consolidated Financial Statements" on pages 40 and 41 of the 1999 Annual Report, which are hereby incorporated by reference. The value of any foreign currency relative to the United States dollar is affected by a variety of factors. It is exceedingly difficult to predict what such value may be at any time in the future. 12 14 Consequently, the ability of the Company to control the impact of foreign currency fluctuations is limited. A material portion of the Company's business is conducted outside the United States. Consequently, the Company's ability to continue such operations or maintain their profitability is to some extent subject to control and regulation by the United States government and foreign governments. EMPLOYEES At December 31, 1999, the Company had 4,411 employees. A majority of the production and maintenance employees at the Lebanon, Tennessee plant of Precision are represented by a local lodge of the International Association of Machinists and Aerospace Workers. The collective bargaining agreement for this facility will expire in April 2001. The production and maintenance employees at the Orillia, Ontario, Canada plant of Precision are represented by a local unit of the Amalgamated Steelworkers of America. The collective bargaining agreement for this facility will expire in January 2003. A majority of the production and maintenance employees at the Lynchburg, Virginia plant of Dynamic Seals, Inc. are represented by a local of the International Chemical Workers Union. The collective bargaining agreement for this facility will expire in February 2002. A majority of the production and maintenance employees at Precision's Springfield, Kentucky plant are represented by a local unit of the International United Paperworkers Union. The collective bargaining agreement for this facility will expire in March 2001. A majority of the production and maintenance employees at Goshen's South Tenth Street plants in Goshen, Indiana are represented by a local unit of the International Steelworkers Union. The collective bargaining agreement for the facility will expire in June 2002. A majority of the production and maintenance employees at the Waukesha, Wisconsin plant of Waukesha Rubber Company, Inc. are represented by a local unit of the International Association of Machinists and Aerospace Workers. The collective bargaining agreement for the facility will expire in December 2000. A majority of the production and maintenance employees at the Ladd, Illinois plant of Waukesha Rubber Company, Inc. are represented by a local unit of the United Steel Workers of America. The collective bargaining agreement for the facility will expire in January 2001. The Company considers its relations with its employees to be good. 13 15 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, who are appointed annually, are as follows:
Executive Officer Since Age ------------- --- James Carroll Chairman of the Board and Chief Executive 1988 70 Officer John W. Huber President and Chief Operating Officer 1996 56 Seymour A. Schlosser Vice President-Finance and Chief Financial 1989 54 Officer Gregg M. Gibbons Vice President-Corporate Affairs and General 1986 47 Counsel
The principal occupations of Messrs. Carroll, Schlosser and Gibbons for the past five years have been their current respective positions with the Company. In addition, Mr. Gibbons was Secretary of the Company until December 1997. Mr. Huber was named President and Chief Operating Officer of the Company in December 1996. For the five years immediately preceding his appointment as President and Chief Operating Officer of the Company, Mr. Huber was President and Chief Executive Officer of Wynn's-Precision, Inc., a wholly-owned subsidiary of the Company. There is no arrangement or understanding between any executive officer and any other person pursuant to which he was selected as an officer. There is no family relationship between any executive officers of the Company. 14 16 ITEM 2. PROPERTIES The following is a summary description of the Company's facilities, all of which the Company believes to be of adequate construction, as of March 15, 2000:
Square If Lease, Held in Fee Footage Year of Location or by Lease (Approximate) Termination Present Use -------- ----------- ------------- ----------- ----------- WYNN'S INTERNATIONAL, INC. Orange, California Lease 6,894 2003 Administrative AUTOMOTIVE AND INDUSTRIAL COMPONENTS: WYNN'S-PRECISION, INC. Domestic -------- Lebanon, Tennessee Fee 140,000 -- Manufacturing, Warehouse, Administrative Lebanon, Tennessee Fee 31,500 -- Manufacturing Lebanon, Tennessee Fee 78,000 -- Manufacturing Lebanon, Tennessee Fee 35,000 -- Manufacturing Lebanon, Tennessee Fee 2,650 -- Manufacturing Livingston, Tennessee Fee 40,200 -- Manufacturing, Warehouse Tempe, Arizona Fee 32,572 -- Manufacturing, Warehouse Springfield, Kentucky Fee 76,375 -- Manufacturing, Warehouse, Administrative Rancho Cucamonga, California Lease 2,880 2004 Warehouse Huntley, Illinois Lease 4,400 2001 Warehouse Peoria, Illinois Lease 10,000 2000 Warehouse Indianapolis, Indiana Lease 1,800 2001 Warehouse Bloomfield Hills, Michigan Lease 3,050 2003 Administrative
15 17
Square If Lease, Held in Fee Footage Year of Location or by Lease (Approximate) Termination Present Use -------- ----------- ------------- ----------- ----------- Grand Rapids, Michigan Lease 2,000 2000 Warehouse Maple Grove, Minnesota Lease 3,600 2004 Warehouse West Seneca, New York Lease 2,934 2000 Warehouse Charlotte, North Carolina Lease 3,675 2002 Warehouse Dayton, Ohio Lease 6,193 2004 Warehouse Arlington, Texas Lease 2,400 2002 Warehouse Milwaukee, Wisconsin Lease 2,700 2002 Warehouse Foreign ------- Orillia, Ontario, Canada Fee 48,000 -- Manufacturing, Warehouse, Administrative Concord, Ontario, Canada Lease 3,455 2000 Warehouse Edmonton, Alberta, Canada Lease 2,700 2000 Warehouse Calgary, Alberta, Canada Lease 3,200 2001 Warehouse Boucherville, Quebec, Canada Lease 3,403 2000 Warehouse Aldershot, Hampshire, U.K. Lease 2,300 2000 Warehouse, Administrative DYNAMIC SEALS, INC. Lynchburg, Virginia Fee 129,000 -- Manufacturing, Warehouse, Administrative Houston, Texas Lease 14,000 2000 Manufacturing, Warehouse, Administrative Houston, Texas Lease 14,000 2000 Warehouse
16 18
Square If Lease, Held in Fee Footage Year of Location or by Lease (Approximate) Termination Present Use -------- ----------- ------------- ----------- ----------- GOSHEN RUBBER COMPANIES, INC. Domestic -------- Goshen, Indiana Lease 31,780 2008 Administrative Goshen, Indiana Lease 6,400 2021 Hangar Goshen, Indiana Fee 165,372 -- Manufacturing, Administrative Goshen, Indiana Lease 144,169 2008 Manufacturing Goshen, Indiana Lease 5,000 Month-to-Month Administrative Goshen, Indiana Lease 15,000 2008 Manufacturing, Warehouse Goshen, Indiana Lease 21,864 2008 Manufacturing Goshen, Indiana Lease 40,000 2008 Manufacturing, Administrative Syracuse, Indiana Fee 114,709 -- Manufacturing, Administrative Laketon, Indiana Fee 14,463 -- Manufacturing Columbia City, Indiana Fee 11,862 -- Manufacturing Englewood, Ohio Lease 15,000 2008 Manufacturing Englewood, Ohio Lease 27,000 2000 Manufacturing, Administrative Englewood, Ohio Lease 15,000 2008 Manufacturing Englewood, Ohio Lease 6,000 2004 Administrative Dayton, Ohio Lease 52,550 2007 Manufacturing Lewiston, Ohio Lease 57,600 2000 Manufacturing, Administrative Ladd, Illinois Fee 40,780 -- Manufacturing Gothenburg, Nebraska Fee 55,000 -- Manufacturing
17 19
Square If Lease, Held in Fee Footage Year of Location or by Lease (Approximate) Termination Present Use -------- ----------- ------------- ----------- ----------- Largo, Florida Lease 5,331 Month-to-Month Manufacturing Wilson, North Carolina Fee 74,000 -- Manufacturing Snow Hill, North Carolina Fee 40,278 -- Manufacturing Bishopville, South Carolina Lease 27,500 2010 Manufacturing, Administrative Waukesha, Wisconsin Fee 50,000 -- Manufacturing, Administrative Waukesha, Wisconsin Lease 3,000 Month-to-Month Warehouse Foreign ------- Brampton, Ontario, Canada Lease 15,592 Month-to-Month Manufacturing, Administrative Mt. Forest, Ontario, Canada Fee 19,956 -- Manufacturing ROBERT SKEELS & COMPANY Compton, California Fee 59,019 -- Warehouse, Administrative Fullerton, California Lease 1,600 Month-to-Month Warehouse, Administrative SPECIALTY CHEMICALS: WYNN OIL COMPANY Domestic -------- Azusa, California Fee 122,630 -- Manufacturing, Warehouse, Administrative Foreign ------- Frenchs Forest, Lease 24,224 2004 Warehouse, New South Wales, Australia Administrative
18 20
Square If Lease, Held in Fee Footage Year of Location or by Lease (Approximate) Termination Present Use -------- ----------- ------------- ----------- ----------- Carrington, New South Wales, Lease 13,175 2004 Warehouse, Australia Administrative St. Niklaas, Belgium Fee 82,600 -- Manufacturing, Warehouse, Administrative Mississauga, Ontario, Canada Lease 32,798 2001 Warehouse, Administrative Mississauga, Ontario, Canada Lease 2,536 2002 Service Center Reading, Berkshire, U.K. Lease 3,154 2004 Administrative Strasbourg, France Lease 557 2000 Administrative Paris, France Lease 9,513 2001 Administrative Pessac, France Lease 7,424 2002 Administrative Lyon, France Lease 465 2000 Administrative Abbeville, France Lease 660 2000 Administrative Thiers, France Lease 465 2000 Administrative Toulouse, France Lease 485 2000 Administrative Zoeterwoude, Netherlands Lease 4,917 2003 Administrative Ratingen, Germany Lease 1,808 2000 Administrative Chennai, India Lease 6,456 Month-to Month Manufacturing, Warehouse, Administrative Mexico City, Mexico Lease 2,500 2000 Warehouse, Administrative Wynberg, Sandton, South Africa Fee 32,280 -- Warehouse, Administrative Edenvale, Transvaal, South Africa Fee 10,921 -- Leased to Third Party Caracas, Venezuela Lease 1,615 Month-to-Month Administrative Parnell, New Zealand Lease 7,725 2002 Administrative, Warehouse
19 21 The Company believes that all of its operating properties are adequately maintained, fully utilized and suitable for the purposes for which they are used. With respect to those leases expiring in 2000 and 2001, the Company believes it will be able to renew such leases on acceptable terms or find suitable alternate facilities. ITEM 3. LEGAL PROCEEDINGS Various claims and actions, considered normal to Registrant's business, have been asserted and are pending against Registrant and its subsidiaries. Registrant believes that such claims and actions should not have any material adverse effect upon the consolidated results of operations, cash flows or the financial position of Registrant based on information presently known to Registrant. See also "Environmental Matters" at pages 8 through 11 above, and Note 12 of "Notes to Consolidated Financial Statements" on page 38 of the 1999 Annual Report, which is hereby incorporated by reference. Toxic Tort Litigation Since late July 1997, eight toxic tort lawsuits have been filed against certain local water producers and industrial companies (including Wynn Oil) located in San Gabriel Valley, California. The lawsuits are captioned (i) Santamaria, et al. v. Suburban Water Systems, et al. (Superior Court of California for the County of Los Angeles, Case No. KC 025-995), (ii) Adler, et al. v. Southern California Water Company, et al. (Superior Court of the State of California for the County of Los Angeles, Case No. BC 169892), (iii) Boswell, et al. v. Suburban Water Systems, et al. (Superior Court of the State of California for the County of Los Angeles, Case No. KC 027318), (iv) Celi, et al. v. San Gabriel Valley Water Company, et al. (Superior Court of the State of California for the County of Los Angeles, Case No. GC 020622), (v) Criner, et al. v. San Gabriel Valley Water Company, et al. (Superior Court of the State of California for the County of Los Angeles, Case No. GC 021658), (vi) Demciuc, et al. v. Suburban Water Systems, et al. (Superior Court of the State of California for the County of Los Angeles, Case No. KC 028732), (vii) Dominguez, et al. v. Southern California Water Company, et al. (Superior Court of the State of California for the County of Los Angeles, Case No. GC 021657, and (viii) Anderson, et al. v. Suburban Water Systems, et al. (Superior Court of the State of California for the County of Los Angeles, Case No. KC O2854). The lawsuits, which collectively include hundreds of plaintiffs, allege that the plaintiffs received contaminated drinking water and suffered personal injury and property damage as a consequence thereof. The plaintiffs are seeking an unspecified amount of compensatory and punitive damages and other relief. Several defendants moved to stay or dismiss these cases on the grounds that either primary or exclusive jurisdiction for these matters rests with the California Public Utilities Commission ("PUC"). The issue was first argued in the Boswell case and the court stayed the case pending the outcome of the PUC investigation described below. The plaintiffs sought appellate court review of the trial court's decision in Boswell. In the Santamaria case, the court dismissed the plaintiffs' complaint as to the regulated water utilities only but not as to the non-regulated defendants such as Wynn Oil. The plaintiffs and the non-regulated defendants appealed that decision. The Court of Appeals ruled in 1999 that the cases should be dismissed as to the regulated water utilities only, but could proceed against the non-regulated water company defendants and the industrial company defendants. The plaintiffs and the 20 22 defendants, other than the regulated water companies, appealed the Court of Appeals decision to the California Supreme Court, which agreed to hear the appeal. Initial briefs were filed in early 2000, but no schedule has been established for oral argument. All of the cases are now stayed pending the hearing before and the ruling of the California Supreme Court. As a result of these cases and other toxic tort cases filed elsewhere in the State of California, on March 12, 1998, the PUC announced an Order Initiating Investigation into drinking water quality in California. Four industrial companies, including Wynn Oil, intervened and participated in the PUC's proceedings. The PUC's investigation is not yet completed. The PUC Commissioner has issued a preliminary decision and has invited all intervening parties to comment on that decision. The Company has reported these cases to its insurers and intends to defend the litigation identified in the first paragraph above vigorously. Proposition 65 Claims In 1999, the Company received two 60-day notices under California's Proposition 65 (California Health & Safety Code ss. 25249.5 et seq.) related to the above-described toxic tort litigation. Both 60-day notices allege that Wynn Oil violated the provisions of Proposition 65 in connection with the alleged discharge of listed chemicals to the groundwater. These notices were sent by one of the law firms involved in certain of the toxic tort cases described above. No Proposition 65 lawsuit has yet been filed against Wynn Oil. If a lawsuit is filed, the Company intends to defend the claims vigorously. Other Litigation In 1994, the United States District Court for the Eastern District of Michigan, Southern Division, in the case of Wynn Oil Company v. American Way Service Corporation and Thomas A. Warmus, Case No. 89-CV-71777-DT, awarded Wynn Oil approximately $3.2 million in damages and attorneys' fees in an action brought by Wynn Oil in 1989 asserting trademark infringement by the defendants. Subsequently, the defendants filed a timely appeal to the United States Court of Appeals for the Sixth Circuit, but did not file a bond to stay execution of the judgment. Between May and December 1994, Wynn Oil sought out assets of the defendants to satisfy the judgment. Prior to Wynn Oil executing upon the defendants' assets, the defendants filed bankruptcy petitions in late 1994 in Florida. The bankruptcy filings resulted in an automatic stay of all pending collection efforts. In July 1995, the Court of Appeals upheld the District Court's finding of liability, but held that the District Court erred in the calculation of certain portions of the damages award and remanded the case to the District Court for a final determination of the damage award. On remand, the District Court awarded Wynn Oil total damages and attorneys' fees of approximately $2,400,000. The defendants did not appeal the revised judgment of the District Court. To date, Wynn Oil has received from the trustees for the bankruptcy estates interim distributions of approximately $1,250,000, which reduced the balance of the uncollected judgment to approximately $1,150,000. Wynn Oil and its counsel are continuing to work through the bankruptcy proceedings in Florida to maximize Wynn Oil's ultimate recovery against the defendants. No portion of the balance of the uncollected judgment has been included in the results of operations of the Company and all of the Company's costs relating to this case have been expensed as incurred. 21 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information appearing under "Common Stock Prices and Cash Dividends Per Share: 1999-1998" on page 45 of the 1999 Annual Report and "Number of Stockholders" and "Stock Exchange Listing" on page 45 of the 1999 Annual Report is hereby incorporated by reference. On February 16, 2000, the Board of Directors of Registrant declared a cash dividend of $0.07 per share payable March 31, 2000 to stockholders of record on March 15, 2000. Registrant currently expects that it will continue to pay dividends in the future, in amounts per share at least comparable to dividends paid during the past two years. Registrant has not sold any unregistered securities during the past three years. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference from page 18 of the 1999 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference from pages 19 through 24 of the 1999 Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Incorporated by reference from page 22 of the 1999 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated financial statements of Registrant at December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 (including unaudited supplementary data) and the report of independent auditors thereon are incorporated by reference from pages 25 through 43 of the 1999 Annual Report. 22 24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information on Registrant's directors appearing on pages 4 and 5, and the information appearing under "Stock Ownership of Directors and Executive Officers" on page 8 of Registrant's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 10, 2000 ("Registrant's 2000 Proxy Statement") is hereby incorporated by reference. Information regarding Registrant's executive officers is provided on page 14 of this report. ITEM 11. EXECUTIVE COMPENSATION The information appearing under "Board of Directors and Committees of the Board--Compensation of Directors" on page 6 and "Executive Compensation" on pages 9 through 12 of Registrant's 2000 Proxy Statement is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing under "Security Ownership of Certain Beneficial Owners and Management" on pages 7 and 8 of Registrant's 2000 Proxy Statement is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under "Board of Directors and Committees of the Board--Certain Relationships and Related Transactions" on page 6 of Registrant's 2000 Proxy Statement is hereby incorporated by reference. 23 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) See Index to Financial Statements and Financial Statement Schedule Covered By Report of Independent Auditors. (2) See Index to Financial Statements and Financial Statement Schedule Covered By Report of Independent Auditors. (3) See Index to Exhibits. (b) On December 30, 1999, Registrant filed a Report on Form 8-K disclosing its acquisition of the outstanding capital stock of Goshen on December 17, 1999. As of the date Registrant filed the Form 8-K, it was impracticable for Registrant to provide the financial statements and the financial information required by Items 7(a) and 7(b) of Form 8-K. Accordingly, on February 25, 2000, Registrant filed a Form 8-K/A with the following financial statements: (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; (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; and (8) unaudited statements of cash flows of Waukesha for the nine months ended July 31, 1999 and 1998. 24 26 WYNN'S INTERNATIONAL, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE COVERED BY REPORT OF INDEPENDENT AUDITORS (ITEM 14(a))
Page References ------------------------- 1999 Annual Form 10-K Report --------- ----------- Consolidated Statements of Income for each of the three years in the period ended December 31, 1999......................... 25 Consolidated Balance Sheets at December 31, 1999 and 1998...................... 26 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1999.................. 27 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999..................... 28 Notes to Consolidated Financial Statements..................................... 29-42 Consolidated schedule for each of the three years in the period ended December 31, 1999: II - Valuation and Qualifying Accounts............................ F-2
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements, including the notes thereto. The consolidated financial statements listed in the above index, which are included in the 1999 Annual Report, are hereby incorporated by reference. With the exceptions of the pages listed in the above index and the items referred to in Items 1, 5, 6, 7 and 8, the 1999 Annual Report is not deemed to be filed as part of this report. F-1 27 WYNN'S INTERNATIONAL, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1999
Allowance for doubtful accounts deducted from Balance at Additions accounts beginning charged to Deductions Other Balance at receivable of year income (1) (2) end of year ----------------- ---------- ---------- ---------- ----- ----------- 1999 $904,000 $559,000 $(299,000) $112,000 $1,276,000 ======== ======== ========= ======== ========== 1998 $959,000 $281,000 $(336,000) $ -- $ 904,000 ======== ======== ========= ======== ========== 1997 $870,000 $307,000 $(218,000) $ -- $ 959,000 ======== ======== ========= ======== ==========
- -------------------- (1) Represents accounts written off against the reserve and translation adjustments. (2) Acquisition of business. F-2 28 POWER OF ATTORNEY Each person whose signature appears below hereby authorizes each of James Carroll, John W. Huber, Seymour A. Schlosser and Gregg M. Gibbons as attorney-in-fact to sign on his behalf, individually and in each capacity stated below, and to file all amendments and/or supplements to this Annual Report on Form 10-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 27, 2000. WYNN'S INTERNATIONAL, INC. By: /s/ JAMES CARROLL ---------------------------------------- James Carroll Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date ---- March 27, 2000 By: /s/ JAMES CARROLL ---------------------------------------- James Carroll Chairman of the Board Chief Executive Officer Director March 27, 2000 By: /s/ SEYMOUR A. SCHLOSSER ---------------------------------------- Seymour A. Schlosser Vice President-Finance (Principal Financial and Accounting Officer) II-1 29 Date ---- March 27, 2000 By: /s/ BARTON BEEK -------------------------------------------- Barton Beek Director March 27, 2000 By: /s/ BRYAN L. HERRMANN -------------------------------------------- Bryan L. Herrmann Director March 27, 2000 By: /s/ ROBERT H. HOOD, JR. -------------------------------------------- Robert H. Hood, Jr. Director March 27, 2000 By: /s/ RICHARD L. NELSON -------------------------------------------- Richard L. Nelson Director March 27, 2000 By: /s/ DONALD C. TRAUSCHT -------------------------------------------- Donald C. Trauscht Director March 27, 2000 By: /s/ JAMES D. WOODS -------------------------------------------- James D. Woods Director II-2 30 WYNN'S INTERNATIONAL, INC. INDEX TO EXHIBITS (Item 14(a)) Exhibit Number Description - ------ ----------- 3.1 Certificate of Incorporation, as amended, of Registrant (incorporated herein by reference to Exhibit 3.1 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1997) 3.2 Certificate of Amendment to Certificate of Incorporation of Registrant, dated April 30, 1998 (incorporated herein by reference to Exhibit 3.2 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 3.3 Certificate of Designations of Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4.2 to Registrant's Report on Form 8-K dated March 3, 1989) 3.4 By-Laws, as amended, of Registrant (incorporated herein by reference to Exhibit 3.3 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1996) 4.1 Shareholder Rights Agreement, dated as of March 3, 1989, between Registrant and First Interstate Bank of California, as Rights Agent (incorporated by reference to Exhibit 4.1 to Registrant's Report on Form 8-K dated March 3, 1989) 4.2 Amendment No. 1 to Shareholder Rights Agreement, dated June 11, 1990 (incorporated by reference to Exhibit 28.2 to Registrant's Report on Form 8-K dated June 11, 1990) 4.3 Letter Agreement, dated March 24, 1997, between Registrant and ChaseMellon Shareholder Services, L.L.C. as successor Rights Agent, amending the Shareholder Rights Agreement (incorporated herein by reference to Exhibit 4.3 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1997) 4.4 Second Amended Rights Agreement, dated as of October 22, 1998, by and between Registrant and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (incorporated herein by reference to Exhibit 2.1 to Amendment No. 2 on Form 8-A/A dated November 5, 1998) II-3 31 Exhibit Number Description - ------ ----------- 10.1 Employment Agreement, dated January 1, 1999, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 10.2 Employment Agreement, dated January 1, 1999, between Registrant and John W. Huber (incorporated herein by reference to Exhibit 10.3 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 10.3 Employment Agreement, dated January 1, 1999, between Registrant and Seymour A. Schlosser (incorporated herein by reference to Exhibit 10.5 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 10.4 Employment Agreement, dated January 1, 1999, between Registrant and Gregg M. Gibbons (incorporated herein by reference to Exhibit 10.7 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 10.5 Wynn's International, Inc. Amended and Restated 1980 Stock Option and Appreciation Rights Plan (incorporated herein by reference to Exhibit 4.1 to Registrant's Registration Statement on Form S-8, Registration No. 2-68157) 10.6 Wynn's International, Inc. Amended and Restated 1982 Incentive Stock Option Plan (incorporated herein by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-8, Registration No. 2-68157) 10.7 Wynn's International, Inc. Stock-Based Incentive Award Plan (incorporated herein by reference to Exhibit 28.1 to Registrant's Registration Statement on Form S-8, Registration No. 33-30296) 10.8 Amendment No. 1 to Wynn's International, Inc. Stock-Based Incentive Award Plan (incorporated herein by reference to Exhibit 28.2 to Registrant's Registration Statement on Form S-8, Registration No. 33-64090) 10.9 Amendment 1996-1 to Wynn's International, Inc. Stock-Based Incentive Award Plan (incorporated herein by reference to Exhibit 10.8 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1996) II-4 32 Exhibit Number Description - ------ ----------- 10.10 Amendment 1997-1 to Wynn's International, Inc. Stock-Based Incentive Award Plan (incorporated herein by reference to Exhibit 4.4 to Registrant's Registration Statement on Form S-8, Registration No. 333-39045) 10.11 Wynn's International, Inc. 2000 Corporate Management Incentive Plan 10.12 Executive Deferred Compensation Agreement, dated February 18, 1997, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.10 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1996) 10.13 First Amendment to Executive Deferred Compensation Agreement, dated December 1, 1997, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.13 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1997) 10.14 Second Amendment to Executive Deferred Compensation Agreement, dated February 26, 1998, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.14 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1997) 10.15 Third Amendment to Executive Deferred Compensation Agreement, dated January 6, 1999, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.19 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 10.16 Form of Indemnification Agreement between Registrant and a director of Registrant (incorporated herein by reference to Exhibit 10.11 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993) 10.17 Form of Indemnification Agreement between Registrant and an officer of Registrant (incorporated herein by reference to Exhibit 10.12 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1996) 10.18 Wynn's International, Inc. Non-Employee Directors' Stock Option Plan (incorporated herein by reference to Exhibit C of Registrant's Definitive Proxy Statement relating to its Annual Meeting of Stockholders held on May 11, 1994, filed with the Commission on March 25, 1994) II-5 33 Exhibit Number Description - ------ ----------- 10.19 1998 Supplemental Retirement Income Plan of Wynn's International, Inc. and Subsidiaries (incorporated herein by reference to Exhibit 10.23 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 10.20 The CORPORATEplan for Retirement Select Plan Deferred Compensation Plan of Wynn's International, Inc. (incorporated herein by reference to Exhibit 10.24 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 10.21 Amendment No. 1 to The CORPORATEplan for Retirement Select Plan Deferred Compensation Plan of Wynn's International, Inc. (incorporated herein by reference to Exhibit 10.25 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998) 10.22 Amendment 1996-1 to Wynn's International, Inc. Non-Employee Directors' Stock Option Plan (incorporated herein by reference to Exhibit 10.14 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1996) 10.23 Wynn's International, Inc. 1999 Stock Awards Plan (incorporated herein by reference to Exhibit A to Registrant's Proxy Statement to stockholders regarding the Annual Meeting of Stockholders held on April 28, 1999) 10.24 Amendment No. 1 to Wynn's International, Inc. 1999 Stock Awards Plan 10.25 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 (incorporated herein by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated December 30, 1999) 13 Portions of Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1999 that have been expressly incorporated by reference as a part of this Annual Report on Form 10-K 21 Subsidiaries of Registrant 23 Consent of Independent Auditors 27 Financial Data Schedule for Fiscal Year ended December 31, 1999 II-6 EX-10.11 2 MATERIAL CONTRACT 1 EXHIBIT 10.11 WYNN'S INTERNATIONAL, INC. 2000 CORPORATE MANAGEMENT INCENTIVE PLAN Section 1. The purpose of this 2000 Corporate Management Incentive Plan (the "2000 Plan") is to provide a reward for performance and an incentive for the future endeavors of the Corporate Management Employees who contribute to the success of the enterprise by their ability, industry, loyalty, or exceptional service, through making them participants in that success. Section 2. (a) Wynn's International, Inc. (the "Company") shall establish a reserve for bonus payments for Corporate Management Employees for the year 2000 (the "Corporate Bonus Pool") with a corresponding charge to income for the year 2000 in an amount which the independent public accountants of the Company verify and report to be equal to ten percent (10%) of the amount by which the Consolidated Pretax Earnings of the Company exceed a twenty percent (20%) return on Beginning Equity, provided, however, that (i) the maximum amount of the Corporate Bonus Pool shall be Two Million One Hundred Thousand Dollars ($2,100,000), and (ii) no amounts shall be earned hereunder if the Consolidated Pretax Earnings of the Company for the year ended December 31, 2000 are less than Forty One Million Four Hundred Forty Thousand Dollars ($41,440,000). (b) Before the payment of bonus awards for the year 2000, the independent accountants of the Company shall verify and report to the Board of Directors of the Company (the "Board") the total amount of the Corporate Bonus Pool. Bonus awards to be paid shall not exceed the Corporate Bonus Pool as verified and reported by the independent public accountants. Bonus awards under the 2000 Plan shall be charged to income for 2000. Section 3. (a) The term "Consolidated Pretax Earnings" as used in the 2000 Plan shall mean, for calendar year 2000, the Company's income before taxes based on income as shown on the Consolidated Statements of Income section of the Company's 2000 Consolidated Financial Statements after making adequate provision for the Corporate Bonus Pool in the 2000 Consolidated Financial Statements, subject to Section 3(e) below. (b) The term "Beginning Equity" shall mean the total stockholders' equity of the Company and subsidiaries at December 31, 1999, as reported in the Consolidated Balance Sheets section of the Company's 2000 Consolidated Financial Statements, subject to Section 3(e) below. 2 (c) The term "2000 Consolidated Financial Statements" as used in the 2000 Plan shall mean those financial statements of the Company and its subsidiaries contained in the Company's annual report to stockholders for the year ended December 31, 2000 and upon which an opinion has been expressed by the independent public accountants of the Company, subject to Section 3(e) below. (d) The term "Corporate Management Employee" shall mean any person employed as Chairman of the Board and Chief Executive Officer, President and Chief Operating Officer, Vice President-Finance and Chief Financial Officer, Vice President-Corporate Affairs and General Counsel, Secretary and Assistant General Counsel, Treasurer and Controller, Assistant Secretary, Tax Manager, Employee Benefits and Risk Manager, Corporate Counsel and any other management employees of the Company designated by the Chief Executive Officer. (e) For purposes of the 2000 Plan, the terms "Consolidated Pretax Earnings" and "Consolidated Beginning Equity" shall exclude the results of operations of, and acquisition charges relating to, Goshen Rubber Companies, Inc. and subsidiaries in calendar years 1999 and 2000. Section 4. Full power and authority to construe, interpret, and administer the 2000 Plan shall be vested in the Board as from time to time constituted pursuant to the By-Laws of the Company. Decisions of the Board shall be final, conclusive, and binding. The Board shall rely upon and be bound by the amount of Consolidated Pretax Earnings, Beginning Equity and the Corporate Bonus Pool, all as verified and reported by the independent public accountants of the Company. The foregoing shall include, but shall not be limited to, all determinations by the Board as to (i) the eligibility of a Corporate Management Employee for consideration for a bonus, and (ii) the amount, if any, of the bonus award paid to a Corporate Management Employee. Any person who accepts any benefit hereunder agrees to accept as final, conclusive, and binding, the determinations of the Board. Section 5. The Board shall have discretion with respect to the determination of individual bonus awards to the executive officers of the Company. Individual bonus awards to other Corporate Management Employees shall be at the discretion of the Chief Executive Officer of the Company. The total Corporate Bonus Pool shall be distributed to the 2000 Plan participants, subject to the following two limitations. First, the total Corporate Bonus Pool shall not be distributed if such distribution would cause the limits on the maximum amounts payable to executive officers set forth Section 6 to be exceeded. Second, regardless of whether such limits on bonus awards to executive officers are reached, the balance of the Corporate Bonus Pool need not be distributed to Corporate Management Employees 2 3 who are not executive officers. The recommendations for bonus awards under the 2000 Plan for executive officers of the Company shall be made to the Compensation Committee of the Board (the "Committee") by the Chief Executive Officer under such procedure as may from time to time be approved by the Board, except that no such recommendations shall be made with respect to the Chief Executive Officer, but such bonus shall be dealt with exclusively by the Committee under such procedures as it may determine. Nothing contained herein shall entitle any Corporate Management Employee to any bonus award or to a bonus award for any specific amount, as a matter of right, for services rendered in 2000. Section 6. Notwithstanding the provisions of Sections 2 and 5, the Committee shall have the authority to recommend to the Board, and the Board shall have the power to authorize in accordance with the recommendations of the Committee, the payment of additional bonus awards to any or all executive officers for outstanding performance in 2000, provided, however, that the amount of any such additional bonus award, together with any amounts paid pursuant to Sections 2 and 5, shall not exceed one hundred percent (100%) of such executive officer's base salary in 2000. Section 7. Bonus awards under the 2000 Plan will be paid to each recipient no later than March 31, 2001 in one installment in cash, restricted stock of the Company, or any combination thereof. Any award of the Company's restricted stock is subject to the approval of the Committee. Section 8. Upon termination of a Corporate Management Employee's employment during the calendar year 2000 other than by death, such participant shall not be entitled as a matter of right to any bonus award for services rendered in 2000, provided, however, the Board may award a bonus as a matter of discretion pursuant to Section 9 below. Section 9. Notwithstanding Section 8 above, a Corporate Management Employee whose employment terminates during the year or who is granted a leave of absence during the year, and who at the time of such termination of employment or granting of leave is eligible for consideration of a bonus, may, at the discretion of the Board, and under such rules as the Board may from time to time approve, be awarded a bonus with respect to the period of his/her services during the year 2000. Section 10. Upon the death of a Corporate Management Employee during 2000, there shall be paid (as a death benefit and in lieu of any payment pursuant to Section 5 which would otherwise have been payable after the death of such Corporate Management Employee) to such beneficiaries as the Corporate Management Employee shall have designated in writing and on forms prescribed by and filed with the Board, or, if no such 3 4 designation of beneficiaries has been made, to such Corporate Management Employee's legal representatives or to the persons entitled thereto as determined by a court of competent jurisdiction, an amount equal to the bonus award, if any, that would have been paid to the deceased Corporate Management Employee had such participant remained employed by the Company through December 31, 2000. Any bonus which may be awarded to such deceased participant shall be paid at the time awards are paid to other participants pursuant to the 2000 Plan. Section 11. The 2000 Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware and construed accordingly. Section 12. The 2000 Plan is effective as of January 1, 2000. 4 EX-10.24 3 MATERIAL CONTRACT 1 EXHIBIT 10.24 AMENDMENT NO. 1 TO WYNN'S INTERNATIONAL, INC. 1999 STOCK AWARDS PLAN WHEREAS, Wynn's International, Inc. (the "Company") maintains the Wynn's International, Inc. 1999 Stock Awards Plan (the "Plan"); and WHEREAS, pursuant to Section 6.5(a) of the Plan, the Board of Directors of the Company (the "Board") has the authority to amend the Plan; and WHEREAS, the Company desires to amend the Plan to reflect recent resolutions adopted by the Board of Directors; NOW, THEREFORE, the Plan is hereby amended, effective as of April 28, 1999, as follows: 1. Section 4.1 of the Plan is deleted in its entirety and replaced with the following new Section 4.1: "4.1 GRANTS. "The Committee may, in its discretion, grant one or more Restricted Stock Awards to any Eligible Employee. Each Restricted Stock Award Agreement shall specify the number of Shares to be issued to the Participant, the date of such issuance, the consideration for such Shares to be paid by the Participant (which consideration shall be an amount that is not less than the par value of the Shares), the extent (if any) to which and the time (if ever) at which the Participant shall be entitled to dividends, voting and other rights in respect of the Shares prior to vesting, and the restrictions (which may 2 be based on performance criteria, passage of time or other factors or any combination thereof) imposed on such Shares and the conditions of release or lapse of such restrictions. Except as permitted by Section 4.4, such restrictions shall not lapse earlier than (i) three (3) years after the Award Date in the case of Restricted Stock Awards that have restrictions based solely on the passage of time, and (ii) one (1) year after the Award Date in the case of Restricted Stock Awards that have restrictions based on performance criteria. Stock certificates evidencing Restricted Shares shall bear a legend making appropriate reference to the restrictions imposed hereunder and shall be held by the Corporation or by a third party designated by the Committee until the restrictions on such Shares shall have lapsed and the Shares shall have vested in accordance with the provisions of the Award and Section 1.7. Upon issuance of the Restricted Stock Award, the Participant may be required to provide such further assurance and documents as the Committee may require to enforce the restrictions." 2. There shall be added to the Plan a new Section 4.4 as follows: "4.4 CERTAIN RESTRICTED STOCK AWARDS. "For so long as the Committee is comprised solely of `outside directors' under Section 162(m) of the Code and `non-employee directors' within the meaning of Rule 16b-3, the Committee shall be authorized to: (i) Notwithstanding Section 4.1, grant Restricted Stock Awards that have restrictions that lapse earlier than three (3) years after the Award Date in the case of Restricted Stock Awards that have restrictions based solely on the passage of time, and earlier than one (1) year after the Award Date in the case of Restricted Stock Awards that have restrictions based on performance criteria, or (ii) Notwithstanding Section 6.5(c), waive any condition of or limitation on any Restricted Stock Award, provided that the aggregate number of Shares subject to such Restricted Stock Awards as to which the Committee exercises such authority does not exceed 10% of the total number of Shares authorized to be issued under the Plan as of the date the Committee exercises such authority." 3. Section 6.5(b) is deleted in its entirety and replaced with the following new Section 6.5(b): 2 3 "(b) STOCKHOLDER APPROVAL. To the extent then required under Sections 162, 422 or 424 of the Code or any other applicable law, or deemed necessary or advisable by the Board, any amendment to this Plan shall be subject to stockholder approval. In addition, stockholder approval shall be required for any and all amendments to the Plan that would (i) materially increase the benefits to Participants under the Plan, (ii) increase the aggregate number of Shares issuable under the Plan, or (iii) modify the requirements as to eligibility to participate in the Plan." 4. Section 6.5(c) is deleted in its entirety and replaced with the following new Section 6.5(c): "(c) AMENDMENTS TO AWARDS. Without limiting any other express authority of the Committee under (but subject to) the express limits of this Plan, the Committee by agreement or resolution may waive conditions of or limitations on Awards to Participants that the Committee in the prior exercise of its discretion has imposed, without the consent of a Participant, and may make other changes to the terms and conditions of Awards that do not affect in any manner materially adverse to the Participant, the Participant's rights and benefits under an Award. Notwithstanding the foregoing, neither the Committee nor the Board shall be authorized to waive any condition of or limitation on any Restricted Stock Award, except as permitted by Section 4.4." IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Amendment No. 1 as of April 28, 1999. WYNN'S INTERNATIONAL, INC. By: /s/ WENDY K. NISHIKAWA -------------------------------- Secretary 3 EX-13 4 ANNUAL REPORT 1 EXHIBIT 13 This exhibit consists of the following portions of the 1999 Annual Report to Stockholders of Wynn's International, Inc.: the Report of Independent Auditors on page 43, the consolidated financial statements of Registrant on pages 25 through 42, the Selected Financial Data section on page 18, the Management's Discussion and Analysis of Financial Condition and Results of Operations section on pages 19 through 24, and the information appearing under "Common Stock Prices and Cash Dividends Per Share: 1999-1998" on page 45 and "Number of Stockholders" and "Stock Exchange Listing" on page 45. 2 Selected Financial Data - -------------------------------------------------------------------------------- Wynn's International, Inc.
Five years ended December 31, 1999 ----------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- CONTINUING Net sales $360,299 $336,875 $320,953 $288,531 $262,584 OPERATIONS ------------------------------------------------------------------------------------------------------------- Income before taxes based on income 43,313 42,641 41,233 33,918 26,500 Provision for taxes based on income 15,549 15,351 15,339 12,617 9,799 ------------------------------------------------------------------------------------------------------------- Income from continuing operations 27,764 27,290 25,894 21,301 16,701 - --------------------------------------------------------------------------------------------------------------------------------- DISCONTINUED Income (loss) from OPERATIONS discontinued operations, net of income tax -- -- -- 16 (1,258) Income (loss) on disposal of discontinued operations, net of income tax -- -- 319 (879) -- - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 27,764 $ 27,290 $ 26,213 $ 20,438 $ 15,443 ================================================================================================================================= DILUTED EARNINGS From continuing operations $1.46 $1.39 $1.28 $1.01 $.81 PER SHARE OF Discontinued operations: COMMON STOCK Income (loss) from operations -- -- -- -- (.06) Income (loss) on disposal -- -- .01 (.04) -- ------------------------------------------------------------------------------------------------------------- $1.46 $1.39 $1.29 $ .97 $.75 ================================================================================================================================= WEIGHTED AVERAGE 19,057,726 19,678,498 20,304,933 21,116,739 20,735,385 COMMON SHARES OUTSTANDING (DILUTED) ================================================================================================================================= CASH DIVIDENDS $.28 $.24 $.2133 $.1778 $.1541 PER COMMON SHARE ================================================================================================================================= SELECTED BALANCE Current assets $209,149 $163,882 $147,883 $149,552 $128,565 SHEET ITEMS Current liabilities 111,849 66,425 61,386 56,942 47,837 Working capital 97,300 97,457 86,497 92,610 80,728 Current ratio 1.87 to 1 2.47 to 1 2.41 to 1 2.63 to 1 2.69 to 1 Total assets $358,972 $225,596 $207,091 $205,105 $177,822 Long-term debt due after one year 48,287 -- -- -- 75 Stockholders' equity 155,181 140,850 127,523 132,952 116,233 Book value per common share $8.33 $7.49 $6.63 $6.48 $5.71 - --------------------------------------------------------------------------------------------------------------------------------- NUMBER OF Continuing operations 4,411 2,121 2,073 1,962 1,769 EMPLOYEES =================================================================================================================================
All share and per share amounts have been adjusted to reflect the 3 for 2 stock splits effected in 1997, 1996 and 1995. The above Selected Financial Data for the five years ended December 31, 1999 is not reported upon herein by independent auditors. See Management's Discussion and Analysis of Financial Condition and Results of Operations. 18 3 Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Wynn's International, Inc. GOSHEN ACQUISITION - -------------------------------------------------------------------------------- On December 17, 1999, the Company acquired all of the outstanding capital stock of Goshen Rubber Companies, Inc. ("Goshen"). Goshen is an Indiana-based developer, manufacturer and marketer of O-rings, tetraseals(R), gaskets and other rubber, plastic and urethane products. The total purchase price for the shares of Goshen was approximately $46 million, subject to certain future adjustments. In addition, the Company paid off approximately $42 million of indebtedness of Goshen at the closing. The acquisition has been accounted for as a purchase, and in accordance with the terms of the agreement, assets and liabilities of Goshen are included in the Company's balance sheet as of December 31, 1999. Goshen's results of operations will be consolidated with the Company beginning January 1, 2000. RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- 1999 COMPARED TO 1998 The Company's net sales in 1999 were $360.3 million compared to $336.9 million in 1998, an increase of 7 percent. Sales increased 8 percent at the Specialty Chemicals Division in 1999 compared to 1998. Sales increased 6 percent at the Automotive and Industrial Components Division, which is comprised of Wynn's-Precision, Inc. ("Precision"), a Lebanon, Tennessee-based supplier of O-rings, seals and molded rubber products, and Robert Skeels & Company ("Skeels"), a small regional wholesale distributor of builders hardware products. Precision recorded a 7 percent increase in sales in 1999. Precision's growth in sales was due primarily to higher sales to the U.S. automotive original equipment manufacturers ("OEMs") and to off-road vehicle manufacturers, and the introduction of new products. Precision's composite gaskets product line posted another increase in 1999 compared to the prior year, and Precision expects this trend to continue with the next generation of "push-in-place" gaskets. In 1998, Precision's sales were negatively impacted by a three-week labor strike at two of its major plants in Tennessee during the second quarter and by the eight-week labor strike at General Motors in the summer of 1998. In 1999, Precision continued to receive requests for price freezes or price reductions from customers in many markets that it serves. Precision expects this trend to continue in 2000. Higher revenues at Precision generally resulted from an increase in the number of units sold as opposed to price increases. Skeels' sales in 1999 were slightly less than the prior year. Sales at the Specialty Chemicals Division, consisting principally of car care products, increased 8 percent on a worldwide basis in 1999 compared to 1998. Reported sales were adversely affected by changes in foreign exchange rates in 1999 compared to 1998. Excluding the impact of foreign exchange rate fluctuations, total revenues in 1999 would have increased 10 percent compared to 1998. The revenue increase was due principally to increased sales in the U.S., Australia and New Zealand. In the U.S., revenues in 1999 increased 17 percent compared to 1998, mainly due to growth in sales from the Division's recently launched vehicle service contract programs and growth in sales to the U.S. professional market. Revenue from vehicle service contracts is deferred and recognized in proportion to the expected claims incurred under the contracts. Deferred revenues, to be recognized in future years, were $39.3 million at December 31, 1999 and $3.3 million at December 31, 1998. Export sales from the U.S. to Asian distributors increased substantially in 1999 compared to 1998, but sales to Latin American distributors decreased during the same period. Foreign subsidiary sales decreased 1 percent in 1999 over 1998, but would have increased 3 percent if foreign exchange rates in 1999 had remained unchanged from 1998 rates. Sales increased in Australia, New Zealand and Germany, but sales declined in France, Belgium, South Africa and Venezuela. Interest income in 1999 was $3.0 million compared to $2.4 million in 1998. The increase was due to higher average cash and cash equivalent balances in 1999 than in the prior year, partially offset by lower average interest yields. Interest income in 2000 is expected to decline significantly compared to 1999 due to the use of cash balances in December 1999 to fund the acquisition of Goshen. On a consolidated basis, total cost of sales in 1999 was 61.9 percent of sales compared to 61.5 percent in 1998. Precision achieved higher gross margins due to the higher sales volumes and a 19 4 Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Wynn's International, Inc. change in sales mix, but gross margins declined at the Specialty Chemicals Division. Precision's gross margin increased due to higher sales at its Tennessee operation, which manufactures and sells primarily O-rings, and to improved production efficiencies at its Kentucky operation, which produces plastic boots and bellows for the automotive industry. Partially offsetting these margin increases were higher labor costs in 1999, mainly in the fourth quarter, at Precision's Lynchburg, Virginia gasket operation due principally to some inefficiencies experienced in connection with the introduction of certain new products. The decrease in gross margin at the Specialty Chemicals Division was due primarily to the growth in sales of the new vehicle service contract programs, introduced in 1998, which have a lower gross margin than the Division's other products. Selling, general and administrative ("SG&A") expenses increased in 1999 to $96.6 million, or 26.8 percent of sales, compared to $89.3 million, or 26.5 percent of sales. The increase during 1999 in SG&A expenses was mainly due to higher selling costs associated with vehicle service contracts at the Specialty Chemicals Division and the higher sales at Precision. As a percentage of sales, SG&A expenses increased at Precision, but decreased at the Specialty Chemicals Division. The increase at Precision was due to higher selling and research and development costs, primarily due to increased personnel and related expenses. The decrease in SG&A expenses as a percentage of sales at the Specialty Chemicals Division was due to a change in sales mix. Corporate expenses increased in 1999 compared to 1998 due primarily to higher salary and incentive compensation costs, pension expenses, consulting fees, intercompany interest expense and other Corporate items. In 1999, environmental-related expenses included in total SG&A increased slightly compared to 1998. The Company closely monitors legal and factual developments in the environmental area to evaluate the adequacy of present reserves. Income before taxes from continuing operations was $43.3 million in 1999 compared to $42.6 million in 1998. In the Automotive and Industrial Components Division, pretax profit increased 9 percent in 1999 due to Precision's higher revenue levels. Precision's profitability is sensitive to changes in volume. Pretax profit decreased slightly at Skeels in 1999 compared to 1998 due to the lower revenues. Pretax profit of the Specialty Chemicals Division decreased 2 percent in 1999 compared to 1998 due to weak results in Europe, South Africa and Canada, partially offset by improvements in the U.S. and the Pacific Rim. Within the U.S., pretax profit at this division's product warranty and vehicle service contract business increased 17 percent compared to the prior year. The effective tax rate in 1999 was 35.9 percent, down slightly from the 36.0 percent tax rate in the prior year. The effective tax rate for the year ending December 31, 2000 is expected to increase to approximately 37.5 percent due primarily to the anticipated nondeductible amortization of goodwill related to the acquisition of Goshen. Basic earnings per share in 1999 was $1.48 compared to $1.43 in 1998. Diluted earnings per share from continuing operations in 1999 was $1.46 compared to $1.39 in 1998. The increase in per share results in 1999 was due to the increase in net income and a decrease in shares outstanding. The number of shares used in the calculation of basic earnings per share decreased 2 percent in 1999 compared to 1998, primarily as a result of repurchases of the Company's outstanding stock during 1999 pursuant to the Company's share repurchase program. This decrease in outstanding shares was partially offset by the exercise of stock options to purchase 420,183 shares of common stock. The number of shares used in the calculation of diluted earnings per share decreased 3 percent in 1999 compared to 1998 due to the share repurchases and fewer outstanding stock options required to be included in the diluted shares calculation. FINANCIAL CONDITION Working capital at December 31, 1999 was $97.3 million, slightly less than $97.5 million working capital at December 31, 1998. The current ratio was 1.87 to 1 at December 31, 1999 compared to 2.47 to 1 at December 31, 1998. The decline in the current ratio was due to the use of approximately $37.5 million of cash toward the acquisition of Goshen. Cash and cash equivalents were $12.1 million at December 31, 1999 compared to $44.3 million at December 31, 1998. The decrease in cash and cash equivalents was primarily due to cash provided 20 5 Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Wynn's International, Inc. by all operating activities of $37.1 million, $40.0 million of borrowings from long-term debt and $2.5 million of proceeds from the exercise of stock options, offset by the acquisition of Goshen of $77.5 million, capital expenditures of $17.0 million, dividends paid of $5.1 million and $10.5 million used for repurchases of the Company's common stock. Cash and cash equivalents restricted for vehicle service contract obligations increased $23.6 million to $25.8 million at December 31, 1999 from $2.2 million at December 31, 1998. This increase was due to the growth in sales of vehicle service contracts during 1999. Accounts receivable increased $28.0 million to $92.9 million at December 31, 1999 from $64.9 million at December 31, 1998. This increase was due principally to the inclusion at December 31, 1999 of Goshen's accounts receivable and higher sales at Precision in the fourth quarter of 1999 compared to the quarter ended December 31, 1998. Inventories were $49.7 million at the end of 1999, an increase of $15.4 million from $34.3 million at December 31, 1998. The increase in inventories was due to the inclusion of Goshen's inventory at December 31, 1999, partially offset by a decline in inventory levels at the Specialty Chemicals Division. Total current liabilities increased $45.4 million to $111.8 million at December 31, 1999 from $66.4 million at December 31, 1998. The increase was due primarily to the inclusion of Goshen's current liabilities. Also affecting current liabilities at December 31, 1999 were an increase in a note payable of $6.2 million, an increase in deferred vehicle service contract revenue and product warranty program reserves of $13.7 million and an increase in other accrued liabilities. Income taxes paid in 1999 were $11.7 million, a decrease of $4.7 million compared to 1998. Net property, plant and equipment increased $48.7 million to $98.9 million in 1999, consisting of $40.2 million from the acquisition of Goshen, $17.0 million in additions (principally at Precision and the Specialty Chemicals Division), offset by an annual depreciation charge of $8.2 million, as well as retirements and foreign exchange adjustments. Costs in excess of fair value of net assets of businesses acquired increased $31.7 million to $34.6 million at December 31, 1999 from $2.9 million at December 31, 1998 due to the acquisition of Goshen. Other liabilities were $34.5 million at December 31, 1999 compared to $10.7 million at December 31, 1998. The increase in other liabilities of $23.8 million was primarily due to an increase in noncurrent deferred vehicle service contract revenue of $20.4 million and the inclusion at December 31, 1999 of Goshen's noncurrent other liabilities. At December 31, 1999, the Company has a $60.0 million unsecured domestic committed bank line of credit. Under the terms of the line of credit agreement, the Company may borrow up to an aggregate principal amount not to exceed $60 million from the date of the agreement through October 31, 2002; $50 million from November 1, 2002 through October 31, 2003; and $40 million from November 1, 2003 through October 31, 2004, the expiration date of the agreement. At December 31, 1999, $40 million was borrowed under this line of credit. The Company also has one domestic uncommitted credit line and various foreign uncommitted lines. At December 31, 1999, no borrowings were outstanding under these uncommitted lines. The Company believes that additional lines of credit could be obtained if necessary. Under present circumstances, neither additional lines of credit nor additional long-term financing are required to supplement working capital requirements. Stockholders' equity at the end of 1999 was $155.2 million compared to $140.9 million at the end of 1998. The increase of $14.3 million is attributable primarily to net income of $27.8 million, $3.8 million from the exercise of stock options, including the related tax benefits, and $.3 million from the issuance of restricted stock, reduced by $10.5 million of total repurchases of the Company's common stock (including stock received as part of the exercise price of certain employee stock options), dividends declared of $5.2 million and a $1.9 million decrease in accumulated other comprehensive income. During 1999 the Company purchased $9.0 million of its outstanding common stock pursuant to a three-year, $15 million share purchase agreement authorized by the Board of Directors in December 1998. At December 31, 1999, pursuant to such authorization, an additional $6 million of common stock can be purchased by the Company. The Company expects total capital expenditures in 2000 to be approximately $23 million, 21 6 Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Wynn's International, Inc. which will be funded from current operations. As previously announced, the Company is continuing to explore possible niche acquisitions. IMPACT OF CHANGING PRICES ON SALES AND INCOME The Company attempts to minimize the impact of inflation on production and operating costs through cost control programs and productivity improvements. Over the past three years the inflation rate has been relatively low. Nonetheless, the Company has continued to face increases in the cost of labor and some materials, despite requests for price reductions from many customers. Due to intense competition, the Company in 1999 generally was not able to raise prices to its customers to pass along the cost increases experienced. MARKET RISKS The Company conducts a significant portion of its operations in foreign jurisdictions. Because the Company's foreign subsidiaries conduct operations in the currencies of the countries in which they are based, all financial statements of the foreign subsidiaries must be translated into U.S. dollars. As a result, the Company's reported financial results could be significantly affected by changes in foreign currency exchange rates. The Company's financial results could also be affected by other factors including weak economic conditions in the foreign markets in which the Company operates. The Company's future operating results are exposed primarily to changes in the Euro currency ("Euro"), a common currency shared by 11 European nations, the Australian dollar, the South African rand, the Canadian dollar and the British pound. The Company currently does not hedge any significant amounts related to its foreign subsidiaries' budgeted sales, results of operations or net investments. The Company's interest income is most sensitive to changes in the general level of U.S. short-term interest rates and to some extent foreign short-term interest rates, especially in France, Belgium and Australia. Changes in U.S. and foreign interest rates affect the interest earned on the Company's cash and cash equivalents. The Company generally maintains its investments in short-term securities, which have maturities of three months or less, and does not hedge the potential effect from changes in interest rates. The Company's policy is to maintain and ultimately use its cash in excess of operating requirements for planned expansions, potential acquisitions, debt repayments, dividends and share repurchases. EURO CURRENCY CONVERSION The Euro was introduced on January 1, 1999, and the 11 participating European Monetary Union member countries established irrevocable fixed conversion rates between their local currencies and the Euro. However, the local currencies in those countries will continue to be used as legal tender through January 1, 2002. Thereafter, the local currencies will be canceled and Euro bills and coins will be used for cash transactions in the participating countries. From January 1, 1999 to December 31, 2001, companies will be allowed to transact noncash transactions in either Euro or the local currency. The Company and certain of its European subsidiaries are currently evaluating the Euro conversion and the potential impact on their operations. At the present time, the Company believes the necessary changes and costs incurred thus far, and expected to be incurred in the future, are not significant. YEAR 2000 MATTERS In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. As a result of the Year 2000 date change, the Company did not experience any significant disruptions to its business operations, nor has any customer or vendor of the Company reported any significant effects related to the date change. Management will continue to monitor its own systems and its customers' and vendors' reports regarding Year 2000 issues. The costs incurred by the Company thus far, and expected to be incurred in the future, are not significant. Management does not expect any future significant effects on its customers or vendors or disruptions to the Company's business operations resulting from Year 2000 issues. 22 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Wynn's International, Inc. FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report may be "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, in that they express the Company's expectations or beliefs concerning future events. The statements include the following: the expected continued growth in sales of Precision's composite gasket product line; the demand by Precision's customers for price freezes or price reductions; the expected increase in the effective tax rate; the sufficiency of working capital; the availability of new lines of credit if needed by the Company; the anticipated level of capital expenditures; the lack of impact of the Year 2000 problem on the Company's customers, vendors or its business operations; the lack of impact of the Euro conversion on the Company's business operations; and the effect of potential changes in market risks. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including the following: the impact of the December 1999 acquisition of Goshen on the Company's future results of operations and cash flows; sales of new and used cars in the U.S.; automotive and off-road construction vehicle production rates in North America; currency exchange rates relative to the U.S. dollar; short-term domestic and international interest rates; the impact of competitive products and pricing; attempts by state governments to regulate the product warranty program or change existing regulation of vehicle service contract programs; termination of one or more of the warranty division's alliances with automobile finance companies or a significant slowdown in the business of these companies; regulatory or technical developments or subsequently developed information causing an increase in the Company's estimated liability for environmental matters and related litigation; the ability of the Company's vendors and customers to successfully resolve any Euro currency conversion issues in their respective businesses; and general economic conditions, especially in North America, Western Europe and the Asia/Pacific area. The Company's actual results thus may differ materially from the expected results expressed or implied by the forward-looking statements. RESULTS OF CONTINUING OPERATIONS - -------------------------------------------------------------------------------- 1998 COMPARED TO 1997 Net sales in 1998 were $336.9 million compared to $321.0 million in 1997, an increase of 5 percent. Sales increased 5 percent at the Specialty Chemicals Division and increased 4 percent at the Automotive and Industrial Components Division in 1998 compared to 1997. Precision recorded a 5 percent increase in sales in 1998. Precision's growth in sales was due primarily to higher sales to the U.S. automotive OEMs and the introduction of new products. Precision's composite gaskets product line posted another strong increase in 1998 compared to the prior year, and Precision expected this trend to continue. Precision's sales growth in 1998 was negatively impacted by a three-week labor strike at two of its major plants in Tennessee during the second quarter of 1998. Precision's sales were also impacted by the eight-week labor strike at General Motors, Precision's largest customer, in the summer of 1998. Precision continued to receive requests in 1998 for price freezes or price reductions from customers in many markets that it serves. Precision expected this trend to continue in 1999. Higher revenues at Precision generally resulted from an increase in the number of units sold as opposed to price increases. Skeels' sales increased 2 percent in 1998 compared to 1997. Sales at the Specialty Chemicals Division, consisting principally of car care products, increased 5 percent on a worldwide basis in 1998 compared to 1997. Reported sales were adversely affected by changes in foreign exchange rates in 1998 compared to 1997. Excluding the impact of foreign exchange rate fluctuations, total revenues in 1998 would have increased 8 percent compared to 1997. The revenue increase was due principally to increased sales in the U.S., France, Belgium and U.K. In the U.S., revenues in 1998 increased 9 percent compared to 1997, mainly due to growth in sales to the U.S. professional market and higher sales from the division's product warranty and newly launched vehicle service contract programs. Export sales from the U.S. to Latin American distributors increased slightly in 1998 compared to 1997, but sales to Asian distributors decreased substantially during the same period. Foreign subsidiary sales increased 3 percent in 1998 over 1997, but would have increased 7 percent if foreign 23 8 Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Wynn's International, Inc. exchange rates in 1998 had remained unchanged from 1997 rates. Sales increased in France, Belgium, U.K., Canada and Mexico, but sales declined in Australia, New Zealand, South Africa, Germany and Venezuela. Interest income in 1998 was $2.4 million compared to $2.1 million in 1997. The increase was due to higher average cash and cash equivalent balances in 1998 than in the prior year, partially offset by lower average interest yields. On a consolidated basis, total cost of sales in 1998 was 61.5 percent of sales compared to 62.3 percent in 1997. The Specialty Chemicals Division and Precision achieved higher gross margins due to the higher sales volumes and a change in sales mix. Precision's gross margin increased principally due to higher sales at its Tennessee operation, which manufactures and sells primarily O-rings. The increase in gross margin at the Specialty Chemicals Division was due primarily to the growth in sales of product warranty and new vehicle service contract programs. Selling, general and administrative expenses increased in 1998 to $89.3 million, or 26.5 percent of sales, compared to $81.5 million, or 25.4 percent of sales. The increase during 1998 in SG&A expenses was mainly due to higher selling costs associated with product warranty programs and vehicle service contracts at the Specialty Chemicals Division and the higher sales at Precision, partially offset by lower corporate expenses. As a percentage of sales, SG&A expenses increased at the Specialty Chemicals Division due primarily to a change in sales mix, but remained approximately the same at Precision. Corporate expenses decreased in 1998 compared to 1997 due primarily to lower executive incentive compensation expenses. In 1998, environmental-related expenses included in total SG&A decreased compared to 1997. The Company closely monitors legal and factual developments in the environmental area to evaluate the adequacy of present reserves. Income before taxes from continuing operations was $42.6 million in 1998 compared to $41.2 million in 1997. In the Automotive and Industrial Components Division, pretax profit increased 11 percent in 1998 due to Precision's higher revenue levels. Precision's profitability is sensitive to changes in volume. Pretax profit increased slightly at Skeels in 1998 compared to 1997 due to the higher revenues and improved gross margins. Pretax profit of the Specialty Chemicals Division decreased 12 percent in 1998 compared to 1997 due to weak results in the U.S., Asia/Pacific area, France, Belgium and Latin America, partially offset by improvements in the U.K., South Africa and Canada. Despite the revenue growth, pretax profit in the U.S. declined 13 percent due to the higher level of SG&A expenses. Excluding the impact of foreign exchange rate changes, the Specialty Chemicals Division's pretax profit would have decreased only 8 percent in 1998. The effective tax rate in 1998 was 36.0 percent, down from the 37.2 percent tax rate in the prior year. The decline in the effective tax rate was due primarily to changes in estimated provisions for the repatriation of foreign earnings. Income from continuing operations in 1998 was $27.3 million compared to $25.9 million in 1997. The improvement in 1998 compared to 1997 was attributable primarily to the higher pretax profit at Precision and lower corporate expenses, partially offset by the lower pretax profit at the Specialty Chemicals Division. Basic earnings per share from continuing operations in 1998 was $1.43 compared to $1.32 in 1997. Diluted earnings per share from continuing operations in 1998 was $1.39 compared to $1.28 in 1997. The increase in per share results in 1998 was due to the increase in net income and a 3 percent decrease in shares outstanding. The number of shares outstanding decreased primarily as a result of the repurchase in April 1997 of 1,650,000 shares of the Company's outstanding stock pursuant to a Dutch Auction self-tender offer and repurchases of the Company's outstanding stock during 1998 pursuant to the Company's share repurchase program. This decrease in outstanding shares was partially offset by the exercise of stock options to purchase 136,152 shares of common stock. RESULTS OF DISCONTINUED OPERATIONS - -------------------------------------------------------------------------------- On May 23, 1996, the Company sold the principal operating assets of Wynn's Climate Systems, Inc., the automotive air conditioning subsidiary, which was formerly part of the Automotive and Industrial Components Division. In 1997, income on disposal of discontinued operations was attributable to adjustments to certain estimated reserves arising from the May 1996 sale. 24 9 Consolidated Statements of Income - --------------------------------------------------------------------- Wynn's International, Inc.
Year ended December 31 ---------------------------------- (Dollars in thousands, except per share amounts) 1999 1998 1997 - ------------------------------------------------------------------------------------------------- REVENUES Net sales $360,299 $336,875 $320,953 Interest income 2,994 2,356 2,106 ----------------------------------------------------------------------------- 363,293 339,231 323,059 - ------------------------------------------------------------------------------------------------- COSTS AND Cost of sales 223,132 207,088 200,069 EXPENSES Selling, general and administrative 96,638 89,252 81,520 Interest expense 210 250 237 ----------------------------------------------------------------------------- 319,980 296,590 281,826 - ------------------------------------------------------------------------------------------------- INCOME FROM Income from continuing operations CONTINUING before taxes based on income 43,313 42,641 41,233 OPERATIONS Provision for taxes based on income 15,549 15,351 15,339 ----------------------------------------------------------------------------- Income from continuing operations 27,764 27,290 25,894 - ------------------------------------------------------------------------------------------------- DISCONTINUED Discontinued operations, net of income OPERATIONS taxes of $195 -- -- 319 - ------------------------------------------------------------------------------------------------- NET INCOME $ 27,764 $ 27,290 $ 26,213 ================================================================================================= EARNINGS Basic: PER SHARE OF Continuing operations $1.48 $1.43 $1.32 COMMON STOCK Discontinued operations -- -- .01 ----------------------------------------------------------------------------- Total $1.48 $1.43 $1.33 ============================================================================= Diluted: Continuing operations $1.46 $1.39 $1.28 Discontinued operations -- -- .01 ----------------------------------------------------------------------------- Total $1.46 $1.39 $1.29 =================================================================================================
See accompanying notes. 25 10 Consolidated Balance Sheets - --------------------------------------------------------------------- Wynn's International, Inc.
December 31 ------------------------ (Dollars in thousands, except per share amounts) 1999 1998 - -------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 12,134 $ 44,329 Cash and cash equivalents restricted for vehicle service contract obligations 25,820 2,182 Accounts receivable, less $1,276 allowance for doubtful accounts ($904 in 1998) 92,879 64,880 Refundable income taxes 2,267 -- Inventories 49,704 34,347 Prepaid expenses and other current assets (including deferred tax assets of $10,078 in 1999 and $12,162 in 1998) 26,345 18,144 ------------------------------------------------------------------------------ Total current assets 209,149 163,882 Property, plant and equipment, at cost less accumulated depreciation and amortization 98,931 50,197 Costs in excess of fair value of net assets of businesses acquired, less accumulated amortization of $2,266 ($2,121 in 1998) 34,570 2,902 Other assets 16,322 8,615 - -------------------------------------------------------------------------------------------------- $358,972 $225,596 ================================================================================================== LIABILITIES Current liabilities: AND Note payable $ 6,200 $ -- STOCKHOLDERS' Accounts payable 36,280 23,360 EQUITY Dividends payable 1,303 1,129 Taxes based on income -- 100 Deferred vehicle service contract revenue and product warranty program reserves 33,683 19,994 Accrued liabilities: Salaries and other compensation 14,479 9,719 Other 19,558 12,123 Long-term debt due within one year 346 -- ------------------------------------------------------------------------------ Total current liabilities 111,849 66,425 Long-term debt due after one year 48,287 -- Deferred taxes based on income 9,182 7,607 Other liabilities 34,473 10,714 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 219 219 Capital in excess of par value 22,732 24,286 Retained earnings 182,692 160,170 Accumulated other comprehensive income (6,973) (5,100) Unearned compensation (48) (56) Common stock held in treasury 3,265,577 shares, at cost (3,095,809 in 1998) (43,441) (38,669) ------------------------------------------------------------------------------ Total stockholders' equity 155,181 140,850 ------------------------------------------------------------------------------ $358,972 $225,596 ==================================================================================================
See accompanying notes. 26 11 Consolidated Statements of Stockholders' Equity - -------------------------------------------------------------------------------- Wynn's International, Inc.
Three years ended December 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated Common Common stock Capital in other stock ---------------------- excess of Retained comprehensive Unearned held in (Dollars in thousands) Shares Amount par value earnings income compensation treasury Total - ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1997 21,819,615 $218 $24,706 $115,418 $(1,985) $(139) $ (5,266) $132,952 Net income -- -- -- 26,213 -- -- -- 26,213 Adjustments from foreign currency translation, net -- -- -- -- (3,048) -- -- (3,048) ---------- Comprehensive income -- -- -- -- -- -- -- 23,165 ---------- Cash dividends -- -- -- (4,174) -- -- -- (4,174) Purchase of treasury stock at cost -- -- -- -- -- -- (28,056) (28,056) Stock options exercised, including tax benefits 40,896 1 (741) -- -- (92) 4,295 3,463 Amortization of unearned compensation -- -- -- -- -- 173 -- 173 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 21,860,511 219 23,965 137,457 (5,033) (58) (29,027) 127,523 Net income -- -- -- 27,290 -- -- -- 27,290 Adjustments from foreign currency translation, net -- -- -- -- (67) -- -- (67) ---------- Comprehensive income -- -- -- -- -- -- -- 27,223 ---------- Cash dividends -- -- -- (4,577) -- -- -- (4,577) Purchase of treasury stock at cost -- -- -- -- -- -- (10,752) (10,752) Stock options exercised, including tax benefits 37,824 -- 321 -- -- (19) 1,110 1,412 Amortization of unearned compensation -- -- -- -- -- 21 -- 21 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 21,898,335 219 24,286 160,170 (5,100) (56) (38,669) 140,850 Net income -- -- -- 27,764 -- -- -- 27,764 Adjustments from foreign currency translation, net -- -- -- -- (1,873) -- -- (1,873) ---------- Comprehensive income -- -- -- -- -- -- -- 25,891 ---------- Cash dividends -- -- -- (5,242) -- -- -- (5,242) Purchase of treasury stock at cost -- -- -- -- -- -- (10,530) (10,530) Stock options exercised, including tax benefits -- -- (1,539) -- -- (33) 5,423 3,851 Restricted stock issued in connection with acquisition of business -- -- (15) -- -- -- 335 320 Amortization of unearned compensation -- -- -- -- -- 41 -- 41 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 21,898,335 $219 $22,732 $182,692 $(6,973) $ (48) $(43,441) $155,181 ===================================================================================================================================
See accompanying notes. 27 12 Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- Wynn's International, Inc.
Year ended December 31 ------------------------------------ (Dollars in thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- OPERATING Income from continuing operations $27,764 $27,290 $25,894 ACTIVITIES Adjustments: Depreciation and amortization 8,812 8,365 8,283 Provision for uncollectible accounts 559 281 307 Amortization of stock compensation 46 21 173 Loss (gain) on fixed asset disposals 15 (31) (1) Provision (benefit) for deferred income taxes 2,603 (207) 18 Change in operating assets and liabilities, net of the effect of acquisition: Cash and cash equivalents restricted for vehicle service contract obligations (23,638) (2,182) -- Accounts receivable-net (4,093) (8,811) (8,289) Refundable income taxes (1,092) -- -- Inventories 813 (3,302) (105) Prepaid expenses and other current assets (8,096) (973) (327) Other assets (5,788) (1,102) (611) Accounts payable (1,217) 2,664 2,559 Deferred vehicle service contract revenue and product warranty program reserves 13,689 4,456 3,793 Taxes based on income 1,237 (879) (848) Accrued liabilities 4,171 (1,016) 459 Other liabilities 21,359 357 2,886 -------------------------------------------------------------------------------------------------- Net cash provided by continuing operations 37,144 24,931 34,191 -------------------------------------------------------------------------------------------------- Net cash provided by discontinued operations -- -- 319 -------------------------------------------------------------------------------------------------- Net cash provided by all operating activities 37,144 24,931 34,510 - ------------------------------------------------------------------------------------------------------------------- INVESTING Additions to property, plant and equipment (17,011) (9,935) (11,811) ACTIVITIES Acquisition of business, net of cash acquired (77,508) -- -- Other cash receipts-net 137 78 333 -------------------------------------------------------------------------------------------------- Net cash used in investing activities (94,382) (9,857) (11,478) - ------------------------------------------------------------------------------------------------------------------- FINANCING Borrowings on long-term debt 40,000 -- -- ACTIVITIES Dividends paid (5,068) (4,478) (4,060) Proceeds from exercise of stock options 2,509 1,127 1,882 Purchase of treasury stock (10,530) (10,752) (28,056) Other cash disbursements-net -- -- (73) -------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 26,911 (14,103) (30,307) - ------------------------------------------------------------------------------------------------------------------- NET CHANGE Effect of exchange rate changes (1,868) 92 (2,763) IN CASH -------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (32,195) 1,063 (10,038) Cash and cash equivalents at beginning of year 44,329 43,266 53,304 -------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $12,134 $44,329 $43,266 ===================================================================================================================
Supplemental disclosure of interest and income taxes paid, and noncash investing and financing activities: Interest paid in 1999, 1998 and 1997 was $63,000, $76,000 and $108,000, respectively. Income taxes paid in 1999, 1998 and 1997 were $11,692,000, $16,437,000 and $16,364,000, respectively. Effective December 31, 1999, the Company purchased all of the capital stock of Goshen Rubber Companies, Inc. for $46,186,000. In connection with the acquisition, the Company issued restricted common stock with a fair market value of $320,000 and issued a short-term note payable for $6,200,000 and a long-term note payable for $4,500,000. The Company also paid $42,342,000 to retire Goshen Rubber Companies, Inc.'s then outstanding bank debt. In connection with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $120,819,000 Amount paid for stock, net of cash acquired (46,186,000) Amount paid to retire bank debt (42,342,000) ------------------------------------------------------------- Liabilities assumed $ 32,291,000 =============================================================
See accompanying notes. 28 13 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. 1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES - -------------------------------------------------------------------------------- BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Wynn's International, Inc. ("Wynn's" or the "Company") and its wholly-owned subsidiaries and two majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Certain reclassifications have been made to the prior years' amounts to conform with the 1999 presentation. On May 23, 1996, the Company sold the principal operating assets of Wynn's Climate Systems, Inc. ("WCS"), a manufacturer and marketer of automotive air conditioning systems and components. Income on disposal of WCS' principal net operating assets has been classified on the statements of income as discontinued operations. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing net income by the weighted average number of diluted shares outstanding during the year and assumes the exercise of stock options. See Note 3 for a computation of basic and diluted earnings per share for the three years ended December 31, 1999. CASH AND CASH EQUIVALENTS The Company's policy is to invest cash in excess of operating requirements in short-term interest bearing investments. Cash equivalents of $10,726,000 in 1999 and $42,325,000 in 1998 include commercial paper, guaranteed investment contracts, certificates of deposit, municipal securities and money market accounts which have maturities of three months or less when purchased and are stated at cost, which approximates fair market value. CASH AND CASH EQUIVALENTS RESTRICTED FOR VEHICLE SERVICE CONTRACT OBLIGATIONS Cash and cash equivalents restricted for vehicle service contract obligations are funds held in a separate trust account in conjunction with a vehicle service contract insurance agreement (the "Agreement") between the Company and a risk retention group that insures the liability of the Company and its dealers with respect to various vehicle service contract programs marketed by the Company. Funds in the trust account are to be used primarily for the benefit of holders of the Company's various vehicle service contracts, and any residual funds and all investment income or loss accrue to the benefit of the Company. The funds are managed by the Company under guidelines approved by both parties to the Agreement and include money market accounts, commercial paper and municipal securities which have maturities of three months or less when purchased and are stated at cost, which approximates fair market value. CONCENTRATIONS OF CREDIT RISK The Company places its temporary cash investments in high credit quality financial institutions and investment grade short-term investments and limits the amount of credit exposure to any one entity. Substantially all of the Company's accounts receivable are due from customers in the original equipment and aftermarket automotive industries, both in the U.S. and internationally. The Company performs periodic credit evaluations of its customers and generally does not require collateral. The Company does not believe significant credit risks exist at December 31, 1999 with respect to its temporary cash investments or accounts receivable. INVENTORIES Inventories are stated at the lower of cost (principally first-in, first-out) or market. DEPRECIATION AND AMORTIZATION Depreciation and amortization of property, plant and equipment are calculated principally using the straight-line method over the estimated useful lives of the respective assets. See Note 8. 29 14 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED Costs in excess of fair value of net assets of businesses acquired are amortized using the straight-line method over a period of ten to twenty years (up to forty years for pre-1997 acquisitions). LONG-LIVED ASSETS The Company reviews long-lived assets and certain identifiable intangibles held and used by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is based on estimates of undiscounted future cash flows. Based upon the Company's analysis, the Company believes that no impairment of the carrying value of its long-lived assets or intangibles (including costs in excess of fair value of net assets of businesses acquired) existed at December 31, 1999. DEFERRED VEHICLE SERVICE CONTRACT REVENUE AND DEFERRED ACQUISITION COSTS Revenue from vehicle service contracts is deferred and recognized in income over the contract period in proportion to expected claims incurred over the life of the contracts. Costs that are directly related to the acquisition of vehicle service contracts are deferred and charged to expense in proportion to the revenue recognized. Total deferred vehicle service contract revenue included in the Company's Consolidated Balance Sheets at December 31, 1999 and 1998 was $39.3 million and $3.3 million, respectively. Total deferred acquisition costs included in the Company's Consolidated Balance Sheet at December 31, 1999 were $9.1 million. PRODUCT WARRANTY PROGRAM RESERVES Product warranty program reserves consist primarily of accrued liabilities for product warranty claims which are estimated to be payable over the useful life of the products. Reserves included in the Company's Consolidated Balance Sheets at December 31, 1999 and 1998 are $14.8 million and $16.7 million, respectively. INCOME TAXES The Company provides for income taxes utilizing the liability method and provides taxes on the undistributed earnings of foreign subsidiaries, except for certain subsidiaries where the undistributed earnings are considered by the Company to be permanently reinvested. OTHER LIABILITIES Noncurrent other liabilities consist primarily of deferred vehicle service contract revenue, accrued reserves for environmental matters, pension liabilities, deferred compensation and post employment benefits. Total noncurrent deferred vehicle service contract revenue and reserves for environmental matters at December 31, 1999 were $20.4 million and $8.5 million, respectively. (See Note 12 for a discussion of contingencies.) FOREIGN CURRENCY TRANSLATION Gains and losses resulting from balance sheet translation of foreign operations where a foreign currency is the functional currency are included as a component of comprehensive income in the statements of stockholders' equity and as accumulated other comprehensive income in stockholders' equity. FOREIGN EXCHANGE CONTRACTS The Company enters into foreign exchange contracts to hedge certain intercompany transactions with its foreign subsidiaries. These contracts reduce currency risk from exchange rate movements. Gains and losses are deferred and accounted for as part of the underlying transactions. The contractual amounts and related deferred gains and losses from these contracts are immaterial. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement 133 standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the balance sheet and measure them at fair market value. Under certain conditions, an entity may elect to designate a derivative instrument as a hedge of certain commitments, forecasted transactions and net investments in foreign operations. As amended by Statement 137 issued in June 1999, Statement 133 30 15 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. is effective for quarterly financial statements for fiscal years beginning after June 15, 2000, and therefore the Company will adopt the new requirements beginning January 1, 2001. The Company is in the process of evaluating the impact of Statement 133 on the Company's financial statements. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the intrinsic value method. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Compensation cost for performance shares is recorded over the vesting period from the date the underlying stock options are exercised based on the fair market value of the Company's stock. COMPREHENSIVE INCOME Accumulated other comprehensive income reported on the Company's Consolidated Balance Sheets consists of cumulative equity adjustments from foreign currency translation. The Company reports comprehensive income in its Consolidated Statements of Stockholders' Equity. The reported amounts for total comprehensive income differ from net income due to foreign currency translation adjustments. The tax effect related to foreign currency translation adjustments is immaterial and has not been recognized as part of comprehensive income or in accumulated other comprehensive income. 2. ACQUISITION AND STOCK SPLIT - -------------------------------------------------------------------------------- ACQUISITION On December 17, 1999, the Company purchased all of the outstanding stock of Goshen Rubber Companies, Inc. ("Goshen"), a privately owned company. Goshen develops, manufactures and markets O-rings, tetraseals(R), gaskets and other rubber, plastic and urethane products for the North American automotive industry and other industrial markets. The acquisition is being accounted for as a purchase. The total purchase price for the shares of Goshen was equal to $24 million plus the net book value of Goshen, subject to certain adjustments, as of December 31, 1999 (the "Cut-Off Date"). In addition, the Company paid off approximately $42 million of bank indebtedness of Goshen at the closing and issued restricted stock with a fair market value of approximately $320,000 to certain Goshen employees. The aggregate estimated purchase price at closing, including the Goshen debt repaid at closing and estimated transaction costs, was approximately $89 million. Results of operations for Goshen will be included in the Company's consolidated results of operations beginning after the Cut-Off Date. Any costs in excess of fair value of net assets acquired will be amortized using the straight-line method over a period of 20 years. Under the terms of the stock purchase agreement, $34.9 million of the purchase price, net of $.3 million cash acquired, was paid in cash to the Goshen Shareholders at the closing; $42.3 million was used to repay outstanding Goshen indebtedness; $6.2 million consisted of a promissory note of the Company delivered at the closing and payable on January 3, 2000; and the balance of the purchase price (approximately $4.5 million) was deferred. The deferred amount will be paid out over a five-year period, subject to offset based on indemnification claims, if any, made during the five-year period. Transaction costs paid were approximately $.3 million. The Company funded the purchase by utilizing its existing working capital and new borrowings of $40.0 million to pay the purchase price at the closing to the Goshen shareholders and to pay off the outstanding bank debt of Goshen. The estimated fair value of assets acquired and liabilities assumed relating to the Goshen acquisition, subject to certain adjustments, is summarized below (in thousands): - ------------------------------------------------------------------------------- Current assets $46,355 Property, plant and equipment 40,229 Costs in excess of fair value of net assets of business acquired 31,813 Other assets 2,422 Liabilities assumed (32,291) - ------------------------------------------------------------------------------- $88,528 ===============================================================================
31 16 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. Unaudited pro forma operating results for the Company, assuming the acquisition of Goshen occurred on January 1, 1999 and 1998, respectively, are as follows:
(In thousands, except per share amounts) 1999 1998 - -------------------------------------------------------------------------------- Net sales $545,659 $517,432 Net income $25,665 $25,836 Basic earnings per share $1.37 $1.35 Diluted earnings per share $1.34 $1.31 ================================================================================
STOCK SPLIT On December 10, 1997, the Board of Directors authorized a 3 for 2 stock split effected in the form of a stock dividend payable to stockholders of record on December 22, 1997. All references in the consolidated financial statements to average number of shares outstanding and related prices, per share amounts and stock option plan data have been restated retroactively to reflect the stock split. 3. COMPUTATION OF NET INCOME PER COMMON SHARE - -------------------------------------------------------------------------------- Basic and diluted earnings per share for the three years ended December 31, 1999 are calculated as follows:
1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Income from continuing operations $27,764,000 $27,290,000 $25,894,000 Income from discontinued operations -- -- 319,000 - -------------------------------------------------------------------------------------------------------------------------- Net income $27,764,000 $27,290,000 $26,213,000 ========================================================================================================================== Weighted average number of shares outstanding 18,725,222 19,109,308 19,649,234 Net shares assumed issued using the treasury stock method for stock options outstanding during each period based on average market price 325,558 562,258 648,065 Net shares assumed issued for performance shares pending issuance based on satisfaction of vesting requirements 6,946 6,932 7,634 - -------------------------------------------------------------------------------------------------------------------------- Diluted shares 19,057,726 19,678,498 20,304,933 ========================================================================================================================== Income per common share: Basic: Continuing operations $1.48 $1.43 $1.32 Discontinued operations -- -- .01 - -------------------------------------------------------------------------------------------------------------------------- Total $1.48 $1.43 $1.33 ========================================================================================================================== Diluted: Continuing operations $1.46 $1.39 $1.28 Discontinued operations -- -- .01 - -------------------------------------------------------------------------------------------------------------------------- Total $1.46 $1.39 $1.29 ==========================================================================================================================
32 17 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. 4. INVENTORIES - -------------------------------------------------------------------------------- Inventories consist of the following at December 31, 1999 and 1998:
(In thousands) 1999 1998 - -------------------------------------------------------------------------------- Finished goods $30,305 $21,922 Raw materials and work in process 19,399 12,425 - -------------------------------------------------------------------------------- $49,704 $34,347 ================================================================================
5. TAXES BASED ON INCOME - -------------------------------------------------------------------------------- The provision for taxes based on income from continuing operations consists of the following elements for the three years ended December 31, 1999:
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------- Current: Federal $ 8,921 $10,408 $11,137 State 1,781 2,029 1,714 Foreign 2,534 3,520 3,691 - ------------------------------------------------------------------------------- Total current 13,236 15,957 16,542 - ------------------------------------------------------------------------------- Deferred: Federal 1,687 (362) (1,133) State 452 (1) (120) Foreign 174 (243) 50 - ------------------------------------------------------------------------------- Total deferred 2,313 (606) (1,203) - ------------------------------------------------------------------------------- Total $15,549 $15,351 $15,339 ===============================================================================
Pretax income from continuing operations for domestic and foreign operations for the three years ended December 31, 1999 is as follows:
(In thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Domestic $37,239 $34,830 $32,369 Foreign 6,074 7,811 8,864 - -------------------------------------------------------------------------------- $43,313 $42,641 $41,233 ================================================================================
A reconciliation of the statutory federal income tax rate to the effective tax rate, as a percentage of income from continuing operations before taxes based on income for the three years ended December 31, 1999, follows:
1999 1998 1997 - ------------------------------------------------------------------------------ Statutory federal income tax rate 35.0% 35.0% 35.0% State taxes, net of federal tax benefit 3.4 3.1 2.5 Other-net (2.5) (2.1) (0.3) - ------------------------------------------------------------------------------ Effective tax rate 35.9% 36.0% 37.2% ==============================================================================
At December 31, 1999, the Company had the following carryforwards for tax purposes available for future utilization with the indicated expiration periods (in thousands):
Net Alternative Operating Minimum Tax Year Losses Credits - ------------------------------------------------------------------------------ 2000 $ 67 $ -- 2001 78 -- 2002 81 -- 2003 166 -- 2004 and after 1,938 -- Unlimited 1,095 1,454 - ------------------------------------------------------------------------------ $3,425 $1,454 ==============================================================================
A valuation allowance of $4,609,000 has been recognized to offset these and other deferred tax assets. The valuation allowance against deferred tax assets increased by $3,013,000 during 1999 due primarily to the stock acquisition of Goshen Rubber Companies, Inc. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1999 and 1998 are as follows:
(In thousands) 1999 1998 - ------------------------------------------------------------------------------- Deferred tax liabilities: Foreign earnings $ 1,800 $ 1,906 Accelerated depreciation and amortization 8,603 3,589 Pension plan 1,965 1,339 Other 4,099 2,933 - ------------------------------------------------------------------------------- Total deferred tax liabilities 16,467 9,767 - ------------------------------------------------------------------------------- Deferred tax assets: Accrued expenses 11,880 7,392 Inventory valuation 189 629 Deferred revenue 5,024 6,515 Tax attributes carryover 4,879 1,382 - ------------------------------------------------------------------------------- Subtotal 21,972 15,918 Valuation allowances (4,609) (1,596) - ------------------------------------------------------------------------------- Total deferred tax assets 17,363 14,322 - ------------------------------------------------------------------------------- Net deferred tax assets $ 896 $ 4,555 ===============================================================================
33 18 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. 6. LINES OF CREDIT; NOTE PAYABLE - -------------------------------------------------------------------------------- The Company has one domestic committed unsecured line of credit with a commercial bank for $60.0 million, and various domestic and foreign uncommitted credit lines. The domestic committed credit line provides that the Company may borrow up to an aggregate principal amount not to exceed $60 million through October 31, 2002, $50 million from November 1, 2002 through October 31, 2003, and $40 million from November 1, 2003 through October 31, 2004. Amounts borrowed under the line of credit may be for terms of one to 30 days and bear interest at the bank's prime rate (8.5% at December 31, 1999) less 0.25% or for terms of one month to 12 months and bear interest at LIBOR plus 0.60% (6.87% at December 31, 1999) or the bank's money market funds rate (adjusted for reserves) plus an applicable margin determined on the basis of the Company's leverage ratio. After October 31, 2000, the line provides for the payment of an annual commitment fee of 0.10% of the average unused commitment. The domestic committed credit line also includes a $15.0 million unsecured multicurrency and trade finance facility which provides for standby and commercial letters of credit. The Company's policy is to classify borrowings under its revolving credit facility as long-term debt since the Company has the ability under the credit agreement, and the intent, to maintain obligations for longer than one year. This facility is subject to normal banking terms and conditions and does not materially restrict the Company's activities. At December 31, 1999, the Company had $40.0 million of borrowings and one standby letter of credit for $300,000 outstanding under the domestic committed credit line. At December 31, 1999, the Company has a note payable to the former shareholders of Goshen Rubber Companies, Inc. ("Goshen") in the amount of $6,200,000. The note was issued by the Company as part of the acquisition of Goshen on December 17, 1999. This note is due January 3, 2000 and bears interest at 6.75%. 7. LONG-TERM DEBT - -------------------------------------------------------------------------------- Long-term debt consists of the following obligations at December 31, 1999:
(In thousands) 1999 - ------------------------------------------------------------------------------- To commercial bank, due 2004, plus interest at 6.87%, payable monthly $40,000 To former shareholders of Goshen Rubber Companies, Inc., due in annual installments of $1,500,000 in 2003 and $3,000,000 in 2004, plus interest at 5.5%, payable semi-annually 4,500 Other 4,133 - ------------------------------------------------------------------------------- 48,633 Less current maturities (346) - ------------------------------------------------------------------------------- $48,287 ===============================================================================
The obligations payable to the commercial bank require, among other things, certain tangible net worth, leverage and earnings ratios be maintained. Other long-term debt consists of various obligations for plant and equipment purchases. The Company estimates that at December 31, 1999 the fair market value of its long-term debt obligations is $48,287,000. The estimation of fair value is based upon prevailing interest rates for similar maturities, risk factors and terms of the obligations. Maturities of long-term debt due after one year are: 2001-$347,000; 2002-$333,000; 2003-$1,810,000; 2004-$43,325,000; 2005-$352,000 and $2,120,000 after 2005. Interest expense for long-term debt amounted to $125,000 for 1999. 34 19 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. 8. PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------------------------- Property, plant and equipment consists of the following at December 31, 1999 and 1998:
(In thousands) 1999 1998 - ------------------------------------------------------------------------------- Land and land improvements $ 3,028 $ 1,520 Buildings and improvements 36,741 25,873 Equipment, furniture and fixtures 122,838 79,776 - ------------------------------------------------------------------------------- 162,607 107,169 Less accumulated depreciation and amortization (63,676) (56,972) - ------------------------------------------------------------------------------- $ 98,931 $ 50,197 ===============================================================================
Estimated useful lives used to calculate depreciation and amortization of property, plant and equipment are as follows: Land improvements 10 - 20 years Buildings and improvements 10 - 40 years Equipment, furniture and fixtures 3 - 10 years ================================================================================
9. RETIREMENT PLANS - -------------------------------------------------------------------------------- Wynn's and its domestic subsidiaries have five qualified defined benefit retirement plans, which cover the majority of their U.S. employees. One plan is a compulsory noncontributory defined benefit pension plan that covers the employees of the parent company and two domestic subsidiaries. Another plan is a contributory defined benefit plan that covers the salaried employees of one domestic subsidiary. Three other plans, which were collectively bargained with the unions, cover hourly employees of two domestic subsidiaries. Benefits under these plans are based on employees' earnings and length of service with the Company. The funding policy for these plans is to make the annual contribution required by applicable regulations, which are intended to provide only for benefits attributed to service-to-date. One domestic subsidiary also participates in two multiemployer defined contribution pension plans covering its union employees. Contributions to these plans are based upon hours worked for one plan and days worked for the other plan. Beginning in 2000, the Company will make contributions to these plans as required by the union agreements. During 1998, Wynn's adopted an unfunded non-qualified supplemental retirement plan for certain key executives of the Company. Benefits under this plan are based upon the participants' base compensation and years of service with the Company. Benefits under the supplemental retirement plan are reduced by employer-provided benefits under Wynn's qualified defined benefit and defined contribution plans and social security benefits. Net periodic pension costs (income) for the Company's U.S. pension plans for the three years ended December 31, 1999 included the following components:
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------- Service cost $ 1,228 $ 971 $ 766 Interest cost 1,808 1,632 1,503 Expected return on assets (2,755) (2,631) (2,232) Amortization of transition assets (249) (249) (249) Amortization of prior service cost 300 211 167 Amortization of gain (4) (164) (89) - ------------------------------------------------------------------------------- $ 328 $ (230) $ (134) ===============================================================================
All of the qualified pension plans have plan assets that exceed accumulated benefit obligations. Plan assets include government bonds and securities, money market accounts, mutual funds, corporate bonds and corporate stocks. The following tables set forth the plans' funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1999 and 1998 and provide a reconciliation of the changes in projected benefit obligations 35 20 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. and plan assets for the two years ended December 31, 1999 for the Company's U.S. pension plans:
(In thousands) 1999 1998 - ------------------------------------------------------------------------------- Funded Status - ------------------------------------------------------------------------------- Accumulated benefit obligation $ 29,383 $(23,146) =============================================================================== Projected benefit obligation $(32,318) $(26,604) Plan assets at fair market value 39,280 31,008 - ------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 6,962 4,404 Unrecognized transition assets amortized over various periods of time (392) (641) Unrecognized prior service cost 2,599 2,245 Unrecognized net gain (4,223) (2,730) - ------------------------------------------------------------------------------- Prepaid pension cost $ 4,946 $ 3,278 ===============================================================================
(In thousands) 1999 1998 - ------------------------------------------------------------------------------- Change in Projected Benefit Obligation - ------------------------------------------------------------------------------- Projected benefit obligation at January 1 $(26,604) $(22,397) Service cost (1,124) (928) Interest cost (1,769) (1,627) Employee contributions (144) (151) Plan amendments (749) (1,208) Assumption change 1,466 (1,057) Gains (losses) 1,613 (955) Benefits paid 1,949 1,719 Acquisition of business (6,956) -- - ------------------------------------------------------------------------------- Projected benefit obligation at December 31 $(32,318) $(26,604) ===============================================================================
(In thousands) 1999 1998 - ------------------------------------------------------------------------------- Change in Plan Assets - ------------------------------------------------------------------------------- Fair market value of plan assets at January 1 $31,008 $29,542 Actual return on plan assets 1,246 3,140 Employer contributions -- 14 Employee contributions 144 151 Benefits paid (1,949) (1,719) Plan expenses (121) (120) Acquisition of business 8,952 -- - ------------------------------------------------------------------------------- Fair market value of plan assets at December 31 $39,280 $31,008 ===============================================================================
Assumptions used as of December 31, 1999, 1998 and 1997 were:
1999 1998 1997 - ------------------------------------------------------------------------------- Discount or settlement rate 7.75% 6.75% 7.25% Rate of increase in compensation level 5.25% 4.5% 5.0% Expected long-term rate of return on assets 9.0% 9.0% 9.0% ===============================================================================
Non-U.S. employees are generally enrolled in pension plans in their country of domicile. The effect of the Company's foreign plans is considered to be immaterial and has not been included in the above tables. Applicable expenses for these plans have been included in consolidated net income. The Company believes that these plans are adequately funded in accordance with local actuarial principles and laws. The Company has two defined contribution plans for eligible U.S. based employees. One plan covers the employees of the parent company and three domestic subsidiaries (the "Wynn's Plan"). The other plan covers one domestic subsidiary (the "Goshen Plan"). Eligible employees in the Wynn's Plan are entitled to contribute from 1% to 10% of their base pay into an investment trust, and the Company matches, at the rate of $.50 for each $1.00 contributed, up to 3% of the employee's base pay. In addition, eligible employees at December 31 each year receive an additional 1% of their base pay contributed by the Company into the plan. The Company's total contributions into the Wynn's Plan for 1999, 1998 and 1997 were $572,000, $504,000 and $443,000, respectively. Eligible employees in the Goshen Plan may contribute from 1% to 14% of their base pay into an investment trust, and the Company's contributions are discretionary. The Company did not contribute any amounts into this plan during 1999. The Company provides postretirement medical benefits for certain retired employees at the U.S. operations of Wynn's-Precision, Inc. At January 1, 1993, the accumulated postretirement benefit obligation (before tax benefit) was $3.2 million, which the Company elected to amortize over 20 years as part of the annual benefit cost. The net periodic postretirement benefit costs were $128,000, $119,000 and $145,000 in 1999, 1998 and 1997, respectively. The Company does not prefund this benefit program. No additional benefits are being earned with respect to this program by any active employees. The following tables set forth the program's status and amounts recognized in 36 21 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. the Company's consolidated balance sheets at December 31, 1999 and 1998 and provide a reconciliation of the changes in accumulated postretirement benefit obligation for the two years ended December 31, 1999:
(In thousands) 1999 1998 - ------------------------------------------------------------------------------- Program Status - ------------------------------------------------------------------------------- Unfunded accumulated post- retirement benefit obligation $(1,181) $(1,439) Unrecognized net gain (resulting from reduction in estimated health care cost trend rates) (1,366) (1,260) Unrecognized net transition obligation 2,080 2,240 - ------------------------------------------------------------------------------- Accrued postretirement benefit cost $ (467) $ (459) ===============================================================================
(In thousands) 1999 1998 - ------------------------------------------------------------------------------- Change in Accumulated Benefit Obligation - ------------------------------------------------------------------------------- Accumulated benefit obligation at January 1 $(1,439) $(1,436) Interest cost (91) (98) Benefits paid 120 150 Actuarial gain (loss) 229 (55) - ------------------------------------------------------------------------------- Accumulated benefit obligation at December 31 $(1,181) $(1,439) ===============================================================================
The weighted average discount rates used to determine the accumulated postretirement benefit obligation for 1999 and 1998 were 7.75% and 6.75%, respectively. The assumed annual health care cost trend rate was 8.5% for 2000, gradually decreasing to 4.5% in 2008 and remaining at that level thereafter. If the health care cost trend rate were increased or decreased 1%, the accumulated postretirement benefit obligation would increase $51,000 or decrease $47,000, respectively, and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost would increase $5,000 or decrease $4,000, respectively. 10. COMMITMENTS - -------------------------------------------------------------------------------- Wynn's rents certain facilities and equipment under various noncancellable operating leases. Rental commitments under these leases, exclusive of property taxes and insurance, are as follows:
Year (In thousands) - ------------------------------------------------------------------------ 2000 $ 3,276 2001 2,331 2002 1,766 2003 1,284 2004 1,186 2005 and after 2,811 - ------------------------------------------------------------------------ $12,654 ========================================================================
Rental expenses for all operating leases were $2,786,000 in 1999 ($2,589,000 in 1998 and $2,296,000 in 1997). 11. RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- Pursuant to the acquisition of Goshen Rubber Companies, Inc. ("Goshen"), the Company leases seven buildings and is financing the purchase of two buildings and related equipment from a Company employee who was a former major shareholder of Goshen. The leases are classified as operating leases. Rental commitments, net of sublease income, under the operating leases, exclusive of property taxes and insurance, are as follows:
Year (In thousands) - ------------------------------------------------------------------------ 2000 $ 641 2001 660 2002 680 2003 701 2004 721 2005 and after 2,583 - ------------------------------------------------------------------------ $5,986 ========================================================================
The amount of debt for financing the two buildings and related equipment at December 31, 1999 is $3,845,000 and has been included in the Company's consolidated balance sheet as other long-term debt. Payments under these debt obligations are due monthly through 2010 and include interest at an effective rate of 8.5%. 37 22 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. 12. CONTINGENCIES - -------------------------------------------------------------------------------- Various claims and actions, considered normal to the Company's business, have been asserted and are pending against the Company and its subsidiaries. The Company believes that such claims and actions should not have any material adverse effect upon the consolidated results of operations, cash flows, or the financial position of the Company based upon information presently known to the Company. The Company is also involved in certain proceedings and potential proceedings relating to environmental matters. At December 31, 1999, included in current other accrued liabilities and noncurrent other liabilities are consolidated accrued reserves of approximately $10.4 million relating to environmental matters. In establishing such reserves, the Company evaluates to the extent known for each matter the nature and extent of the underlying contamination, the estimated cost of the likely remedy, the number and financial strength of other potentially responsible parties, and the evidence against the various potentially responsible parties. During this evaluation process, the Company makes its best estimate of its likely exposure with respect to each matter based on information known to the Company at that time. Such estimates may involve a range of exposures for each matter. The Company provides aggregate reserves for no less than the minimum amount of the aggregate range of outcomes established by the Company. The Company lacks sufficient information at this time to provide an estimate of its "reasonably possible" (as such term is defined in Statement of Financial Accounting Standards No. 5) potential liability from all environmental matters. In establishing reserves for environmental matters, the Company assumes that it has appropriately evaluated key factors, such as expected remedy costs, the likely degree of responsibility and ability to pay of other potentially responsible parties, and the Company's probable allocable share. It is reasonably possible that regulatory or technical developments or subsequently developed information could cause the Company to reevaluate its present range of outcomes and to record additional liabilities for existing environmental matters. However, based upon information presently known to the Company, the Company believes that any such additional liabilities should not materially affect the Company's consolidated annual results of operations, cash flows, or financial position. 13. STOCK PLANS - -------------------------------------------------------------------------------- The Company has two stock-based plans pursuant to which current grants of options to purchase common stock of Wynn's may be made. The 1999 Stock Awards Plan ("1999 Plan") authorizes the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock and performance shares to officers and key employees of the Company. The Non-Employee Directors' Stock Option Plan ("1994 Plan") provides for the grant of nonqualified stock options to non-employee directors of the Company. In addition, the Stock-Based Incentive Award Plan ("1989 Plan"), which expired in May 1999, authorized the grant of incentive stock options, nonqualified stock options, restricted stock and performance shares. Under the 1989 Plan, the aggregate number of options granted could not exceed 1,870,312 shares. Under the 1999 and 1994 Plans, the aggregate number of stock related awards may not exceed 1,668,750 shares. In addition, the 1999 Plan contains special provisions that prohibit the Company from granting options under the 1999 Plan if the number of shares subject to options outstanding under all stock plans of the Company would exceed 10% of the number of shares issued and outstanding on the date of grant. At December 31, 1999, the aggregate number of options available for future grants was 1,078,673. All options granted under the three plans have been made at prices not less than 100% of the fair market value of the stock at the date of grant. Options granted under the three plans are exercisable at various dates over a ten-year period. However, under the three plans, no options may be exercised until at least one year after the date of grant. The Company grants performance shares in connection with certain stock options granted to officers and other key employees. Performance shares are issuable to recipients of these grants who exercise the underlying stock options, hold the shares of stock received for a three-year vesting period and remain continuously employed by the Company during the vesting period. The Company records unearned 38 23 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. compensation at the date of exercise of the underlying stock options based on the market value of the performance shares. Unearned compensation is amortized to expense over the three-year vesting period. Pursuant to the 1999 acquisition of Goshen Rubber Companies, Inc. ("Goshen"), the Company issued 25,225 shares of restricted stock under the 1999 Plan to certain employees of Goshen. The restricted stock award vests over a three-year period. Recipients of restricted stock grants are entitled to cash dividends and voting rights on their respective shares. Restrictions limit the sale or transfer of shares during the vesting period. The fair market value of the restricted stock on the date issued was $320,000 and has been included as part of the purchase price for Goshen. During 1999, 21,400 performance shares were granted under the 1999 and 1989 Plans. At December 31, 1999, grants for 96,656 performance shares were outstanding, including 5,689 shares pending issuance based on satisfaction of vesting requirements. During 1999, 2,756 shares of the Company's common stock were issued pursuant to performance share grants. No stock appreciation rights were outstanding at December 31, 1999. The following tabulation summarizes certain information related to options for common stock:
Weighted Average Exercise Options Price - -------------------------------------------------------------------------------- Outstanding options at January 1, 1997 1,344,713 $ 5.20 Granted during the year 80,625 13.74 Surrendered, forfeited or expired (17,063) 13.22 Exercised (398,764) 3.95 - -------------------------------------------------------------------------------- Outstanding at December 31, 1997 1,009,511 6.24 Granted during the year 172,875 21.96 Surrendered, forfeited or expired (16,139) 15.05 Exercised (98,284) 6.85 - -------------------------------------------------------------------------------- Outstanding at December 31, 1998 1,067,963 8.60 Granted during the year 122,875 18.71 Surrendered, forfeited or expired (32,451) 18.97 Exercised (387,353) 4.95 - -------------------------------------------------------------------------------- Outstanding at December 31, 1999 771,034 $11.61 ================================================================================
Exercisable options outstanding at December 31, 1999, 1998 and 1997 and the related weighted average exercise prices were 592,326, 856,654 and 866,784 and $9.40, $5.86 and $5.50, respectively. The following tabulation summarizes certain information concerning outstanding and exercisable options at December 31, 1999:
Range of Exercise Prices - -------------------------------------------------------------------------------- $3.46 $6.13 $ 9.72 to to to $3.90 $6.89 $22.31 - -------------------------------------------------------------------------------- Outstanding options: Number outstanding 118,970 272,061 380,003 Weighted average exercise price $3.62 $6.19 $17.99 Weighted average remaining contrac- tual life in years 1.4 3.9 8.0 Exercisable options: Number exercisable 118,970 272,061 201,295 Weighted average exercise price $3.62 $6.19 $17.15
If the Company had elected to recognize compensation cost based on the fair value of the options granted at the grant date, net income and earnings per share would have been reduced to the pro forma amounts shown below:
(In thousands, except per share amounts) 1999 1998 1997 - -------------------------------------------------------------------------------- Pro forma: Net income $27,233 $26,629 $25,913 Earnings per share: Basic $1.45 $1.39 $1.32 Diluted $1.43 $1.35 $1.28 ================================================================================
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:
1999 1998 1997 - ------------------------------------------------------------------------------- Risk free interest rate 4.95% 5.48% 6.22% Expected life in years 4.5 4.5 4.5 Expected volatility .269 .276 .276 Expected dividend yield 1.50% 1.10% 1.56% ===============================================================================
The weighted average fair value of options granted during 1999, 1998 and 1997 was $4.97, $6.40, and $3.98 per share, respectively. The Company has an Employee Stock Purchase Plan (the "Plan") under which there are authorized and available for sale to employees, at a 15% 39 24 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. discount, an aggregate of 1,350,000 shares of the Company's common stock. For the Plan year ended December 31, 1999, 45,727 shares were issued at $12.01 per share in January 2000. At December 31, 1999, 1,143,797 shares were available under the Plan for future sales to employees. 14. SHAREHOLDER RIGHTS PLAN - -------------------------------------------------------------------------------- The Company maintains a Shareholder Rights Plan. The plan provides for a dividend distribution of rights (the "Rights") with respect to outstanding shares of common stock of the Company issued prior to the earliest of March 3, 2009, the redemption date of the Rights or certain takeover events. In the event the Company is acquired under certain circumstances in a merger in which the Company is not the surviving corporation, the Rights become rights to purchase the acquiring company's common stock at a 50% discount (the "flip-over feature"). In the event of certain acquisitions of 25% or more of the Company's common stock, the Rights become rights to purchase the Company's common stock at a 50% discount (the "flip-in feature"). The flip-in feature does not apply to tender or exchange offers for all outstanding common stock determined by nonmanagement directors of the Company to be fair and in the best interests of the Company and its stockholders (a "Qualified Offer"). The flip-over feature does not apply to a merger following a Qualified Offer which provided the same or a higher value to the remaining stockholders. The Rights may be redeemed by the Company at a nominal price under certain circumstances. The Rights will expire on March 3, 2009 or on such later date to which the Rights may be extended by the Company, unless earlier redeemed. 15. OPERATING SEGMENTS AND RELATED INFORMATION - -------------------------------------------------------------------------------- The Company has two reportable segments, Automotive and Industrial Components and Specialty Chemicals. These reportable segments are each managed separately because they manufacture and distribute distinct products with different production processes and distribution channels. Operations in the Automotive and Industrial Components segment involve the development, manufacturing and marketing of O-rings and other static and dynamic seals principally for the automotive industry, and other rubber, plastic and urethane products. In addition, operations for Robert Skeels & Company, which are not significant, are included in the Automotive and Industrial Components segment. Operations in the Specialty Chemicals segment involve the development, production and marketing of a wide variety of car care products, automotive chemicals for the consumer, specialty chemicals and equipment for professional automotive service centers and product warranty and vehicle service contract programs for automotive dealerships, as well as industrial coolants, specialty fluids and cutting fluids used in metal-working. The Corporate and Other segment includes business activities for corporate operations. The Company evaluates segment performance based on pretax profit or loss from operations, including intercompany interest income and expense allocations and other intercompany charges, but excluding certain expenses for goodwill amortization, litigation and environmental matters and nonrecurring gains and losses. Excluded items are generally considered part of corporate activities. Segment assets are those assets used in the operations of each segment and include amounts for intercompany cash advances, accounts receivable and notes receivable. In 1999, the amounts for assets and expenditures for long-lived assets for the automotive and industrial components segment include the December 1999 acquisition of Goshen Rubber Companies, Inc. The Company does not allocate certain items to its segments, such as various goodwill and tax assets. Assets included in the Corporate and Other category include corporate assets which are principally cash and cash equivalents, prepaid expenses, other receivables and intercompany cash advances, accounts receivable and notes receivable. Assets exclude investments in consolidated subsidiaries. Sales to the largest customer of the Automotive and Industrial Components segment were 7.8% of consolidated net sales during 1999 (10.0% in 1998 and 10.1% in 1997). Net sales included in the geographic information are attributed to countries based on the location of the business unit reporting the sales. The Company does not have any significant intersegment sales. 40 25 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc.
Automotive and Industrial Specialty Corporate Segment Consolidated (In thousands) Components Chemicals and Other Totals Eliminations Totals - -------------------------------------------------------------------------------------------------------------------------- 1999 Net sales $186,802 $173,497 $ -- $360,299 $ -- $360,299 Interest income 169 2,106 1,903 4,178 (1,184) 2,994 Interest expense 17 62 1,315 1,394 (1,184) 210 Depreciation and amortization 7,115 1,665 32 8,812 -- 8,812 Pretax profit (loss) 31,722 17,449 (5,858) 43,313 -- 43,313 Assets 213,237 143,472 31,578 388,287 (29,315) 358,972 Expenditures for long-lived assets 54,447 2,712 81 57,240 -- 57,240 ========================================================================================================================== 1998 Net sales $175,823 $161,052 $ -- $336,875 $ -- $336,875 Interest income 223 980 1,789 2,992 (636) 2,356 Interest expense 12 73 801 886 (636) 250 Depreciation and amortization 6,583 1,739 43 8,365 -- 8,365 Pretax profit (loss) 29,234 17,736 (4,329) 42,641 -- 42,641 Assets 106,281 101,971 34,916 243,168 (17,572) 225,596 Expenditures for long-lived assets 8,745 1,673 17 10,435 -- 10,435 ========================================================================================================================== 1997 Net sales $168,266 $152,687 $ -- $320,953 $ -- $320,953 Interest income 149 730 1,604 2,483 (377) 2,106 Interest expense 3 105 506 614 (377) 237 Depreciation and amortization 6,562 1,681 40 8,283 -- 8,283 Pretax profit (loss) 26,446 20,095 (5,308) 41,233 -- 41,233 Assets 100,051 87,258 37,434 224,743 (17,652) 207,091 Expenditures for long-lived assets 9,896 1,850 65 11,811 -- 11,811 ==========================================================================================================================
Interest income and expense eliminations include amounts for intercompany interest. Asset eliminations primarily include amounts for intercompany accounts receivable and notes receivable, and the reclassification of current deferred tax liabilities against current deferred tax assets. The following table presents net sales by country based on the location of the subsidiary:
(In thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- United States $262,656 $238,684 $224,769 France 40,050 41,334 38,710 Other foreign 57,593 56,857 57,474 - -------------------------------------------------------------------------------- Total $360,299 $336,875 $320,953 ================================================================================
The following table presents long-lived assets by country based on the location of the assets:
(In thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- United States $103,165 $53,555 $50,886 Foreign 7,362 5,257 5,273 - -------------------------------------------------------------------------------- Total $110,527 $58,812 $56,159 ================================================================================
41 26 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Wynn's International, Inc. 16. QUARTERLY INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- Quarterly information is as follows for the two years ended December 31, 1999:
First Second Third Fourth Total (Dollars in thousands, except per share amounts) Quarter Quarter Quarter Quarter Year - ---------------------------------------------------------------------------------------------------------------------- 1999 Net sales $88,538 $92,770 $91,120 $87,871 $360,299 Gross profit 35,060 36,289 35,472 30,346 137,167 Net income 7,453 7,587 6,866 5,858 27,764 Earnings per share: Basic $.40 $.40 $.37 $.31 $1.48 Diluted $.39 $.40 $.36 $.31 $1.46 ====================================================================================================================== 1998 Net sales $85,809 $85,589 $79,835 $85,642 $336,875 Gross profit 33,683 33,864 30,350 31,890 129,787 Net income 7,494 7,149 6,124 6,523 27,290 Earnings per share: Basic $.39 $.37 $.32 $.35 $1.43 Diluted $.38 $.36 $.31 $.34 $1.39 ======================================================================================================================
42 27 Report of Independent Auditors - -------------------------------------------------------------------------------- The Board of Directors and Stockholders, Wynn's International, Inc. We have audited the accompanying consolidated balance sheets of Wynn's International, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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 consolidated financial position of Wynn's International, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Los Angeles, California January 27, 2000 43 28 Corporate Information - -------------------------------------------------------------------------------- Wynn's International, Inc. NUMBER OF STOCKHOLDERS - -------------------------------------------------------------------------------- There were 897 stockholders of record at March 9, 2000. STOCK EXCHANGE LISTING - -------------------------------------------------------------------------------- New York Stock Exchange Ticker Symbol: WN COMMON STOCK PRICES AND CASH DIVIDENDS PER SHARE: 1999-1998 - -------------------------------------------------------------------------------- The stock price and cash dividends of the Company's Common Stock for the past two years are shown in the following table:
Quarter 1st 2nd 3rd 4th - -------------------------------------------------------------------------------- 1999 HIGH $ 22 1/16 $ 19 5/16 $ 20 1/4 $ 16 7/16 LOW 16 1/8 16 1/2 15 1/2 12 11/16 DIVIDENDS $.07 $.07 $.07 $.07 ================================================================================ 1998 High $ 25 3/4 $ 25 1/16 $ 20 3/8 $ 22 3/4 Low 20 18 11/16 15 5/8 15 1/16 Dividends $.06 $.06 $.06 $.06 ================================================================================
45 EX-21 5 SUBSIDIARIES 1 EXHIBIT 21 WYNN'S INTERNATIONAL, INC. SUBSIDIARIES OF REGISTRANT
State or other Jurisdiction of Name Incorporation - ---- --------------- Wynn Oil Company............................................. California Medallion Warranty Services, Inc....................... California WECI Warranty Services, Inc............................ Florida Wynn's Extended Care, Inc.............................. California Wynn's Australia Pty. Limited.......................... Australia Wynn's Belgium N.V..................................... Belgium Wynn's Italia SpA................................. Italy Wynn's Mekuba India Private Limited............... India Wynn's Nederland B.V.............................. Netherlands Wynn's Canada, Ltd..................................... Canada Wynn's Deutschland GmbH................................ Germany Wynn's Espana, S.A..................................... Spain Wynn's France, S.A..................................... France Wynn's Automotive France S.A...................... France Wynn's Automotive France (Professional)........... France Wynn's Reseau S.A............................ France Wynn's Industrie S.N.C............................ France Wynn's Friction Proofing de Mexico S.A. de C.V......... Mexico Wynn Oil (N.Z.) Limited................................ New Zealand Wynn Oil (South Africa) (Pty.) Limited................. South Africa Wynn Oil (U.K.) Limited................................ England Wynn Oil Venezuela, S.A................................ Venezuela Wynn's Export, Inc........................................... U.S. Virgin Islands Alkid Corporation............................................ California Robert Skeels & Company...................................... California Wynn's Climate Systems, Inc.................................. Texas Lone Star Manufacturing Co., Inc....................... Texas Guidedetail Limited.......................................... England Wynn's Fluid Power, Inc...................................... Delaware Wynn's-Precision, Inc.................................. Delaware PRPC, Inc......................................... Tennessee Wynn's-Precision Canada Ltd....................... Canada Wynn's-Precision (U.K.) Ltd.................. England PRP Seals, Ltd............................... Canada Dynamic Seals, Inc..................................... Delaware Goshen Rubber Companies, Inc................................. Indiana Bower Manufacturing Corp............................... Indiana GRB Enterprises, Inc................................... Indiana ETI, Incorporated...................................... Florida Goshen Rubber of Canada, Ltd........................... Canada
1 2
State or other Jurisdiction of Name Incorporation - ---- --------------- Goshen Rubber International, Ltd....................... U.S. Virgin Islands Syracuse Rubber Products, Inc.......................... Indiana Waukesha Rubber Company, Inc........................... Wisconsin Goshen Rubber Co., Inc................................. Indiana Bond-Flex Rubber Co., Inc......................... Indiana GRN Corporation................................... Nebraska GNC Corporation................................... North Carolina GR Plastics, Inc............................ Indiana
Except for Wynn Oil Venezuela, S.A. ("Wynn's Venezuela") and Wynn's Mekuba India Private Limited ("Wynn's India"), all of the above-named subsidiaries are 100% owned by Registrant. Wynn's Venezuela and Wynn's India are each 51% owned by Registrant. 2 EX-23 6 CONSENT OF EXPERTS AND COUNSEL 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Wynn's International, Inc. of our report dated January 27, 2000, included in the 1999 Annual Report to Stockholders of Wynn's International, Inc. Our audits also included the financial statement schedule of Wynn's International, Inc. in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 2-68157) pertaining to the Amended and Restated 1980 Stock Option and Appreciation Rights Plan and the 1982 Incentive Stock Option Plan of Wynn's International, Inc., the Registration Statements (Form S-8 Nos. 33-30296, 33-64090, 333-39045 and 333-93699) pertaining to the Wynn's International, Inc. Stock-Based Incentive Award Plan and the Wynn's International, Inc. 1999 Stock Awards Plan, the Registration Statement (Form S-8 No. 33-53917) pertaining to the Wynn's International, Inc. Non-Employee Directors' Stock Option Plan, the Registration Statement (Form S-8 No. 33-53921) pertaining to the Wynn's International, Inc. Employee Stock Purchase Plan, and in the related Prospectuses of our report dated January 27, 2000, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in the Annual Report (Form 10-K) of Wynn's International, Inc. for the year ended December 31, 1999. /s/ ERNST & YOUNG LLP Los Angeles, California March 24, 2000 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS CONTAINED IN FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 37,954 0 94,155 1,276 49,704 209,149 162,607 63,676 358,972 111,849 48,287 0 0 219 154,962 358,972 360,299 363,293 223,132 223,132 96,079 559 210 43,313 15,549 27,764 0 0 0 27,764 1.48 1.46 Includes Cash and Cash Equivalents Restricted For Vehicle Service Contract Obligations of $25,820.
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