United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K/A
June 15, 1999
(March 31, 1999)
(Date of Earliest Event Reported)
----------------
INDUSTRIAL RUBBER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 333-46643 41-1550505
(State or other Commission file (I.R.S. Employer
jurisdiction of number Identification No.)
incorporation or
organization)
3804 13th Avenue East
Hibbing, MN 55746
(Address of principal executive offices) (Zip Code)
(218) 263-8831
(Registrant's telephone number, including area code)
Not applicable
(Former, name, former address and former fiscal year,
if changed since last report)
Item 7. Financial Statements and Exhibits.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The ITW Irathane Systems (a Division of Illinois
Tool Works, Inc.) Statement of Divisional Net Assets as
of March 31, 1999 (unaudited), and December 31, 1998 and
1997, and the related Statements of Divisional Operating
Profit, Statements of Divisional Comprehensive Income,
Statements of Divisional Equity and Statements of
Divisional Cash Flows, all for the three months ended
March 31, 1999 and 1998 (unaudited) and the years ended
December 31, 1998, and 1997, and the report of McGladrey
& Pullen, LLC, independent auditor, thereon, together
with the notes thereto, are located at pages 3 through 7
of this Report.
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma condensed financial statements (unaudited) as of December 31,
1998 and March 31, 1999 and the notes thereto are located at pages 8 through 12
of this Report.
ITW Irathane Systems
(a Division of Illinois Tool Works, Inc.)
FINANCIAL REPORT
INDEX TO FINANCIAL STATEMENTS
Report of independent auditors 3
Statements of Division Net Assets as of December 31, 1997, 4
and 1998, and as of March 31, 1999 (unaudited)
Statements of Division Operating Profit for the years ended 5
December 31, 1997, and 1998 and the three months ended
March 31, 1998 and 1999 (unaudited).
Statements of Divisional Comprehensive Income for the years 5
ended December 31, 1997 and 1998 and the three months
ended March 31, 1998 and 1999 (unaudited)
Statements of Divisional Equity for the years ended 5
December 31, 1997 and 1998 and the three months
ended March 31, 1998 and 1999 (unaudited)
Statements of Divisional Cash Flows for the years ended 6
December 31, 1997 and 1998 and the three months
ended March 31, 1998 and 1999 (unaudited)
Notes to financial statements 7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Industrial Rubber Products, Inc.
Hibbing, Minnesota
We have audited the accompanying statements of divisional net assets of ITW
Irathane Systems (Division of Illinois Tool Works, Inc.) as of December 31, 1997
and 1998, and the related statements of divisional operating profit, divisional
comprehensive income, divisional equity, and divisional cash flows for each of
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ITW Irathane Systems (Division
of Illinois Tool Works, Inc.) as of December 31, 1997 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As described in Note 9 to the financial statements, subsequent to year end
the Division sold its assets to another company.
McGLADREY & PULLEN, LLP
Duluth, Minnesota
April 30, 1999
<PAGE>
ITW IRATHANE SYSTEMS
(DIVISION OF ILLINOIS TOOL WORKS, INC.)
STATEMENTS OF DIVISIONAL NET ASSETS
December 31, March 31,
-------------------------------------
ASSETS 1997 1998 1999
- --------------------------------------------------------------------------------
Current Assets (Unaudited)
Trade receivables, less allowance for doubtful accounts
1997 $14,000; 1998 $177,200 $ 1,505,261 $ 1,152,002 $ 1,348,745
Inventories (Note 3) 1,177,982 1,163,099 1,246,248
Prepaid expenses 21,758 12,291 75,914
-------------------------------------------------
Total current assets 2,705,001 2,327,392 2,670,907
-------------------------------------------------
Prepaid Pension (Note 4) 1,678 3,488 3,488
-------------------------------------------------
Property and Equipment
Land and land improvements 314,483 305,851 307,823
Buildings and improvements 1,772,311 1,781,246 1,782,327
Automotive equipment 230,997 178,900 175,409
Machinery and equipment 4,823,178 4,842,085 4,888,345
-------------------------------------------------
7,140,969 7,108,082 7,153,904
Less accumulated depreciation 5,177,777 5,187,603 5,247,884
-------------------------------------------------
1,963,192 1,920,479 1,906,020
-------------------------------------------------
$ 4,669,871 $ 4,251,359 $ 4,580,415
=================================================
LIABILITIES AND NET ASSETS
Current Liabilities
Excess of outstanding checks
over bank balance $ 155,717 $ 333,374 $ 9,135
Accounts payable 422,540 291,380 574,496
Accrued expenses 357,826 334,021 341,526
-------------------------------------------------
Total current liabilities 936,083 958,775 925,157
-------------------------------------------------
Commitments and Contingencies (Notes 6 , 7 and 8)
Net Assets
Divisional equity 7,729,597 8,805,916 9,031,054
Due from parent company (3,981,072) (5,465,303) (5,322,495)
Accumulated other
comprehensive income (14,737) (48,029) (53,301)
-------------------------------------------------
3,733,788 3,292,584 3,655,258
-------------------------------------------------
$ 4,669,871 $ 4,251,359 $ 4,580,415
=================================================
See Notes to Financial Statements.
<PAGE>
ITW IRATHANE SYSTEMS
(DIVISION OF ILLINOIS TOOL WORKS, INC.)
STATEMENTS OF DIVISIONAL OPERATING PROFIT
Three Months Ended
Years Ended December 31, March 31,
------------------------ ------------------------------
1997 1998 1998 1999
- --------------------------------------------------------------------------------
(Unaudited)
Net Sales $11,035,194 $ 9,589,584 $ 2,542,783 $ 2,318,854
Cost of Sales 7,735,066 6,848,288 1,861,699 1,711,343
-------------------------------------------------------------
Gross profit 3,300,128 2,741,296 681,084 607,511
Operating Expenses
(Note 5) 1,586,626 1,645,799 363,374 382,373
-------------------------------------------------------------
Operating income 1,713,502 1,095,497 317,710 225,138
Loss on Disposal of Equipment - (19,178) - -
-------------------------------------------------------------
Operating profit $ 1,713,502 $ 1,076,319 $ 317,710 $ 225,138
=============================================================
STATEMENTS OF DIVISIONAL COMPREHENSIVE INCOME
Three Months Ended
Years Ended December 31, March 31,
------------------------ ------------------------------
1997 1998 1998 1999
- --------------------------------------------------------------------------------
(Unaudited)
Operating Profit $ 1,713,502 $ 1,076,319 $ 317,710 $ 225,138
Other Comprehensive
Income, foreign
currency translation
adjustment (14,266) (33,292) 11,612 (5,272)
-----------------------------------------------------------
Comprehensive income $ 1,699,236 $ 1,043,027 $ 392,322 $ 219,866
===========================================================
STATEMENTS OF DIVISIONAL EQUITY
Three Months Ended
Years Ended December 31, March 31,
----------------------------- ---------------------------
1997 1998 1998 1999
- --------------------------------------------------------------------------------
(Unaudited)
Beginning balance $ 6,016,095 $ 7,729,597 $ 7,729,597 $ 8,805,916
Operating profit 1,713,502 1,076,319 317,710 225,138
-------------------------------------------------------------
Ending balance $ 7,729,597 $ 8,805,916 $ 8,047,307 $ 9,031,054
=============================================================
See Notes to Financial Statements.
<PAGE>
ITW IRATHANE SYSTEMS
(DIVISION OF ILLINOIS TOOL WORKS, INC.)
STATEMENTS OF DIVISIONAL CASH FLOWS
Three Months Ended
Years Ended December 31, March 31,
------------------------------ ---------------------------
1997 1998 1998 1999
- --------------------------------------------------------------------------------
(Unaudited)
Cash Flows from Operating Activities
Operating profit $ 1,713,502 $ 1,076,319 $ 317,710 $ 225,138
Adjustments to reconcile operating profit to
net cash provided by (used in) operating
activities:
Depreciation 225,247 212,462 63,998 60,281
Provision for bad debts - 164,533 1,200 -
Loss on disposal of
equipment - 19,178 - -
Changes in working
capital components:
(Increase) decrease in
trade receivables (194,098) 188,726 (200,482) (196,743)
(Increase) decrease
in inventories (132,830) 14,883 (35,677) (83,149)
(Increase) decrease
in prepaid expenses (15,590) 7,657 (210,948) (63,623)
Increase (decrease)
in accounts payable
and accrued expenses (12,558) (154,965) 28,826 290,621
------------------------------------------------------------
Net cash provided by (used in)
operating activities
1,583,673 1,528,793 (35,373) 232,525
------------------------------------------------------------
Cash Flows from Investing Activities
Purchase of property
and equipment (163,710) (188,927) (6,996) (45,822)
-------------------------------------------------------------
Net cash used in investing
activities (163,710) (188,927) (6,996) (45,822)
-------------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in
excess of outstanding
checks over bank balance
(371,675) 177,657 39,740 (324,239)
(Increase) decrease
in due from parent company
(1,034,022) (1,484,231) (8,983) 142,808
-------------------------------------------------------------
Net cash provided by
(used in)financing
activities (1,405,697) (1,306,574) 30,757 (181,431)
-------------------------------------------------------------
(Increase) Decrease in Foreign Currency
Translation Adjustment (14,266) (33,292) 11,612 (5,272)
-------------------------------------------------------------
Net change in cash - - - -
Cash:
Beginning - - - -
-------------------------------------------------------------
Ending $ - $ - $ - $ -
=============================================================
Supplemental Disclosures of Cash Flow Information
Cash payments for
interest $ - $ - $ - $ -
=============================================================
See Notes to Financial Statements.
<PAGE>
ITW Irathane Systems
(Division of Illinois Toolworks, Inc.)
Note 1. Nature of Business and Significant Accounting Policies Nature of
business: ITW Irathane Systems (the Division) produces liquid urethanes,
urethane moldings and rubber and urethane linings for the mineral processing,
aggregate, transportation, and power industries to customers located near its
manufacturing facilities in Hibbing, Minnesota, Colorado Springs, Colorado, and
Sudbury Ontario, Canada. The Division extends credit to its customers, all on an
unsecured basis, on terms that it establishes for individual customers.
A summary of the Division's significant accounting policies follows:
Basis of presentation: ITW Irathane Systems is a division of Illinois Tool
Works, Inc., a public entity headquartered in Chicago, Illinois. The
accompanying statements of net assets and statements of divisional operating
profit, divisional comprehension income, divisional equity, and divisional cash
flows have been prepared from the books and records maintained by ITW Irathane
Systems. The financial statements may not necessarily be indicative of the
results of operations that would have been obtained if the Division had been
operated as an independent entity. The statements of divisional operating profit
include allocation of corporate services which are material in amount. See Note
5. The financial statements do not include any provision for federal and state
income taxes as it is the parent's policy not to allocate income taxes to its
Divisions.
Cash: The Division's cash accounts are maintained by the parent company.
The Division records its cash receipts and disbursements in the parent's
accounts. Balances are recorded as cash in the accompanying statement of net
assets.
Due from parent company: The amount due from the parent company represents
cumulative cash distributions to the parent. This amount is reported as an
equity offset in the statements of divisional net assets.
Inventories: Inventories are stated at the lower of cost or market and
consist of raw materials and finished goods. Cost is determined by the first-in,
first-out method.
Property and equipment: Property and equipment is stated at cost.
Depreciation is computed by the straight-line and accelerated methods over the
estimated useful lives of the individual assets.
Revenue recognition: The Division recognizes revenue upon shipment of
product. Returns and allowances are recorded in the period the need for such is
identified.
Research and development: Research and development costs are expensed as
incurred and amounted to approximately $73,000 and $78,000 for the years ended
December 31, 1997 and 1998, respectively.
Foreign currency: The Division's Canadian assets and liabilities are
translated into US. dollars at end-of-period exchange rates. Revenues and
expenses are translated at average rates for the period. Translation adjustments
are not included in income but are reported as a separate component of
divisional equity.
Comprehensive income: During 1998 the Division adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No.
130). which established standards for reporting and displaying comprehensive
income and its components in a separate financial statement. Comprehensive
income is defined as the changes in equity during a period from transactions and
other events during a period except those resulting from investment by owners
and distributions to owners. The adoption of SFAS No. 130 did not have an effect
on the Division's financial position or results of operations. The Division's
only component of other comprehensive income is foreign currency translation
adjustments.
Disclosures about fair value of financial instruments: The carrying amount
of current assets and liabilities approximates fair value because of the short
maturity of those instruments.
Segment information: The Financial Accounting Standards Board issued FASB
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information. Statement No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement No.
131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. All of the Division's revenue
is attributed to a single reportable segment; therefore, the adoption of
Statement No. 131 had no effect on the financial statements.
Use of estimates in the preparation of financial statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Interim financial information: The financial statements at March 31, 1999
and for the three-month periods ended March 31, 1999 and 1998 are unaudited but
in the management's opinion reflect all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation. The operating results
for the interim periods are not necessarily indicative of the operating results
to be expected for a full year. The interim financial statements as of and for
the year ended March 31, 1999 are before any adjustment related to the sale of
substantially all the Division's assets as described in Note 9.
Note 2. Revenue by Products and Services
The Division's revenue results from the sale of products or services which
consist of liquid urethanes, urethane moldings and rubber and urethane linings
for the mineral processing, aggregate, transportation, and power industries.
The following table presents net sales from external customers for each of the
Company's groups of products and services for the years ended December 31, 1997
and 1998:
1997 1998
- --------------------------------------------------------------------------------
Urethane cast parts $ 8,053,948 $ 7,726,466
Pipe and pipe lining products 1,380,986 707,595
Coatings 1,162,778 816,771
Other 437,482 338,752
----------------------------------
$ 11,035,194 $ 9,589,584
==================================
The Division's revenue (based on location of the customer) for the years
ended December 31, 1997 and 1998 is as follows:
1997 1998
- --------------------------------------------------------------------------------
United States $ 7,128,024 $ 6,477,159
Canada 2,640,438 2,301,379
Other countries 1,266,732 811,046
----------------------------------
$ 11,035,194 $ 9,589,584
==================================
No single customer provided revenue of 10 percent or more of net sales.
The Division's long-lived assets as of December 31, 1997 and 1998 are located as
follows:
1997 1998
- --------------------------------------------------------------------------------
United States $ 1,682,132 $ 1,642,181
Canada 281,060 278,298
----------------------------------
$ 1,963,192 $ 1,920,479
==================================
Note 3. Inventories
Inventories consist of the following as of December 31, 1997 and 1998:
1997 1998
- --------------------------------------------------------------------------------
Raw materials $ 738,770 $ 835,983
Finished goods 555,718 481,060
----------------------------------
1,294,488 1,317,043
Less reserve for obsolete inventories 116,506 153,944
----------------------------------
$ 1,177,982 $ 1,163,099
==================================
Note 4. Retirement Plans
The Division maintains a defined benefit pension plan for its union
employees. Information relative to the Division's defined benefit pension plans
is presented below:
1997 1998
- --------------------------------------------------------------------------------
Changes in benefit obligations:
Obligations at beginning of year $ 174,230 $ 221,569
Service cost 11,510 13,583
Interest cost 12,196 14,180
Benefits paid (792) (14,582)
Actuarial losses (gains) 24,425 -
---------------------------------
Obligations at end of year $ 221,569 $ 234,750
=================================
1997 1998
- --------------------------------------------------------------------------------
Changes in plan assets:
Fair value of assets at beginning of year $ 149,501 $ 189,680
Actual return on assets 10,184 10,261
Division contributions 30,787 19,096
Benefits paid (792) (14,582)
--------------------------------
Fair value of assets at end of year $ 189,680 $ 204,455
=================================
Funded status at end of years:
Plan assets in excess of (less than) obligations$ (31,889) $ (30,295)
Unrecognized losses (gains) (22,828) (19,384)
Unrecognized transition obligation 56,395 53,167
---------------------------------
Prepaid asset on statements of net assets $ 1,678 $ 3,488
=================================
Costs recognized during the years:
Service cost $ 11,510 $ 13,583
Interest cost 12,196 14,180
Expected return on plan assets (10,184) (13,666)
Amortization of transition obligation 422 3,189
--------------------------------
Total costs recognized in expense $ 13,944 $ 17,286
================================
1997 1998
- --------------------------------------------------------------------------------
Assumptions used in computations:
In computing ending obligations:
Discount rate 6.5% 6.5%
Rate of compensation increase None None
In computing expected return on plan assets 7.0% 6.5%
The Division's parent maintains defined benefit and defined contribution
pension plans for nonunion employees and provides postretirement health
care benefits. The Division recorded its share of expense for these plans
(exclusive of the union defined benefit plan described above) which
amounted to approximately $54,700 and $59,700 for the years ended December
31, 1997 and 1998, respectively.
Note 5. Related Party Transactions
The Division is allocated certain expenses from its parent. Corporate
overhead charges included operating expenses in the statements of income
for the years ended December 31, 1997 and 1998 consist of the following:
1997 1998
------------------------------------
Insurance $ 20,500 $ 20,000
Pension plans and postretirement health care
benefits 54,700 59,700
Professional services 20,300 16,500
Management and royalties fees 88,500 77,000
--------------------------------------
$184,000 $ 173,200
======================================
Net sales to affiliated companies amounted to $76,932 and $43,932 for
the years ended December 31, 1997 and 1998, respectively. Accounts
receivable balances from affiliated companies totaled $97,149 and
$80,250 as of December 31, 1997 and 1998.
Note 6. Self-Insurance
The Division self-insures for certain insurable risks consisting
primarily of employee health insurance programs. Amounts charged to income for
such losses, including a provision for incurred but not reported claims,
were approximately $113,000 and $121,000 for the years ended December 31,
1997 and 1998, respectively.
Note 7. Leases
The Division leases manufacturing and office facilities in Hibbing, Minnesota
under the terms of a three year operating lease expiring December 1999. The
Division has an option to extend the lease for an additional 2 years. Lease
payments mounted to approximately $9,100 per month at December 31, 1998. The
lease provides that the Division pay all utilities, property taxes and insurance
The Division also leases a warehouse and machinery and equipment under
short-term operating leases.
Total rent expense amounted to approximately $133,000 in 1997 and $131,000 in
1998.
Note 8. Litigation
The Division is a defendant in a lawsuit wherein substantial amounts are
claimed relating to an employment issue. In the opinion of the Division's
outside legal counsel, this lawsuit is without substantial merit and should
not result in judgments which in the aggregate would have a material adverse
effect on the Division's financial statements.
Note 9. Subsequent Event
On March 31, 1999, Illinois Tool Works, Inc. entered into an agreement to
sell all of the Division's accounts receivable, inventories, property and
equipment for approximately $8,000,000.
<PAGE>
Unaudited Pro Forma Condensed Financial Statements
The unaudited pro forma condensed financial statements presented on the
following pages are based on the historical financial statements of the Company
and reflect the pro forma effects of the acquisition of Sonwil Products, Inc.,
d/b/a TJ Products, Inc., on January 20, 1999 and the acquisition of ITW Irathane
Systems on March 31, 1999.
The pro forma adjustments have been applied to the historical statement of
income of the Company for the year ended December 31, 1998 and three months
ended March 31, 1999. The acquisitions will be accounted for using the purchase
method of accounting. For purposes of the pro forma statements, the purchase
price of $2,259,040 relating to the assets of Sonwil Products, Inc. has been
allocated to the acquired net assets based on information currently available
with regards to the values of such assets. The cost of property and equipment
has been allocated based on a current appraisal. For purposes of the pro forma
statements, the net purchase price of $7,547,200 relating to the assets acquired
and liabilities assumed of ITW Irathane Systems has been allocated to the
acquired net assets and liabilities assumed based on information currently
available with regards to the values of such assets and liabilities. An
appraisal of the property and equipment of the assets acquired of ITW Irathane
Systems has not yet been completed. As such, final adjustments to recorded
amounts may differ from the pro forma adjustments presented herein.
The unaudited pro forma statement of income for the year ended December 31,
1998, was prepared as if the acquisition had occurred on January 1, 1998.
Interim unaudited pro forma condensed statement of income for the three months
ended March 31, 1999 is also provided.
These pro forma financial statements are not necessarily indicative of the
financial position or results of operations that might have occurred had the
acquisitions taken place at the beginning of the period or as of December 31,
1998 or March 31, 1999, or to project the Company's financial position or
results of operations at any future date or for any future period. The pro forma
statements should be read in connection with the notes thereto.
Sonwil Products, Inc. which was acquired on January 20, 1999 was previously
reported on Form 8-K and Form 8-K/A on February 4, 1999 and April 2, 1999,
respectively, and is included as part of the pro forma financial statements
included herein. INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARY
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF INCOME
Year Ended December 31, 1998
Industrial
Rubber Sonwil ITW Irathane Purchase
Products, Inc. Products, Inc. Systems Price
Historical Historical Historical Adjustments Pro Forma
- --------------------------------------------------------------------------------
Sales $ 9,981,268 $ 2,929,162 $ 9,589,584 $ - $ 22,500,014
Cost of
Sales 7,784,754 2,523,852 6,848,288 304,389 (1) 17,461,283
-------------------------------------------------------------------------
Gross
profit 2,196,514 405,310 2,741,296 (304,389) 5,038,731
27,635 (2)
Operating
Expenses
2,552,434 575,065 1,645,799 30,000 (3) 4,830,933
-------------------------------------------------------------------------
Operating
income
(loss) (355,920) (169,755) 1,095,497 (362,024) 207,798
------------------------------------------------------------------------
Non-operating Income (Expense)
Interest
and other
income 245,713 7,052 (19,178) (90,052) (5a) 143,535
Interest
expense (138,247) (67,670) - 67,670 (4)
(73,620) (5b)
(584,908) (5c) (796,755)
------------------------------------------------------------------------
107,466 (60,618) (19,178) (680,910) (653,240)
------------------------------------------------------------------------
Income (loss) before
income taxes
(248,454) (230,373) 1,076,319 (1,042,934) (445,442)
(80,000) (6a)
432,000 (6a)
Federal and
State Income
Taxes (337,000) - - (417,000) (6b) (402,000)
------------------------------------------------------------------------
Net income
(loss) $ 88,546 $ (230,373) $ 1,076,319 $ (977,934) $ (43,442)
========================================================================
Unaudited Pro Forma Information
Income (loss)
before income
taxes $(248,454) $ (230,373) $ 1,076,319 $ (1,042,934) $ (445,442)
Provision
for income
taxes (80,000) (80,000) 432,000 (417,000) (145,000)
------------------------------------------------------------------------
Net income
(loss)$(168,454) $ (150,373) $ 644,319 $ (625,934) $ (300,442)
======================================================================
Basic Loss
Per Share $ (0.04) $ (0.08)
======== ============
Diluted
Loss Per
Share $ (0.04) $ (0.08)
======== ============
Weighted Average Shares
Outstanding
3,803,651 3,803,651
========= ==========
See Notes to Unaudited Pro Forma Statements of Income.
<PAGE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
Year Ended December 31, 1998
Sonwil ITW Irathane
Products, Inc. Systems Total
Adjustments were made as follows:
(1) Eliminate depreciation applicable to
historical operations $ (190,026) $(212,462) $ (402,488)
Add:
Building depreciated over 30 to 39 years - 52,646 -
Machinery and equipment depreciated over
8 to 10 years 270,568 368,704 639,272
Office furniture and equipment depreciated
over 7 years 16,534 5,993 22,527
Automotive equipment depreciated over
5 to 6 years 32,120 11,858 43,978
Leasehold improvements depreciated
over 10 years 1,100 - 1,100
-------------------------------------
320,322 386,555 706,877
-------------------------------------
Net increase in depreciation $ 130,296 $ 174,093 $ 304,389
=====================================
(2) Record amortization of intangible
of $414,525 over 15 years $ 27,635 $ - $ 27,635
======================================
(3) Record payment of five year
noncompete agreement with previous
owner at $30,000 per year $ 30,000 $ - $ 30,000
=====================================
(4) Eliminate interest expense
applicable to historical operations $ 67,670 $ - $ 67,670
=====================================
(5) Record interest expense and
reduction of interest income
on proceeds used for purchase
(a) Record reduction on interest income
on cash used in financing purchase
price of acquisition $ 90,052 $ - $ 90,052
=====================================
(b) Record interest expense on amount
financed for purchase to date proceeds
from IPO received $ 73,620 $ - $ 73,620
====================================
(c) Record interest expense on
short-term borrowings to finance purchase $ - $ 584,908 $ 584,908
====================================
(6) Adjust income taxes
(a) Record income taxes for the year ended
Pretax income (loss) $(230,373)$1,076,319 $ 845,946
==============
Tax expense (benefit) (80,000) 432,000 352,000
====================================
(b) Adjustment income taxes on the Company
Pretax loss as adjusted $ (283,933) $(759,001) $ (1,042,934)
===============
Tax benefit $ (417,000)
===============
<PAGE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA STATEMENT OF INCOME
Three Months Ended March 31, 1999
Industrial
Rubber
Products, Inc. ITW Irathane Purchase
& Subsidiary Systems Price
Historical Historical Adjustments Pro Forma
- --------------------------------------------------------------------------------
Sales $ 1,631,671 $ 2,318,854 $ - 3,950,525
Cost of Sales 1,490,967 1,711,343 43,000 (1) 3,245,310
------------------------------------------------------------
Gross profit 140,704 607,511 (43,000) 705,215
Operating Expenses 530,542 382,373 - 912,915
------------------------------------------------------------
Operating income
(loss) (389,838) 225,138 (43,000) (207,700)
------------------------------------------------------------
Nonoperating Income
(Expense)
Interest and
other income 23,214 - - 23,214
Interest expense (10,730) - (146,227) (2) (156,957)
------------------------------------------------------------
12,484 - (146,227) (133,743)
-------------------------------------------------------------
Income (loss)
before income taxes (377,354) 225,138 (189,227) (341,443)
71,000 (3a)
Federal and State
Income Taxes (150,988) - (57,000) (3b) (136,988)
-------------------------------------------------------------
Net income (loss) $ (226,366) $ 225,138 $ (203,277) $ (204,455)
==============================================================
Basic Loss Per
Share $ (0.05) $ (0.05)
=========== ============
Diluted Loss Per
Share $ (0.05) $ (0.05)
=========== =============
Weighted Average Shares
Outstanding 4,185,200 4,185,200
=========== =============
See Notes to Unaudited Pro Forma Statements of Income.
<PAGE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
Three Months Ended March 31, 1999
Amount
- --------------------------------------------------------------------------------
Adjustments were made as follows:
(1) Estimated additional depreciation $ 43,000
==========
(2) Record interest expense on short-term borrowings
to finance purchase $ 146,227
==========
(3) Adjust income taxes:
(a) Record subsidiary income taxes for the period ended
Pretax income $ 225,138
Tax expense 71,000
==========
(b) Income tax effect on purchase price adjustments
Additional expenses $(189,227)
Tax benefit (57,000)
==========
(c) EXHIBITS
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDUSTRIAL RUBBER PRODUCTS, INC.
(Registrant)
Date: June 15, 1999 /s/ John M. Kokotovich
--------------------------------
John M. Kokotovich
Chief Financial Officer
