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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, 1997; 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 $1 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 $442,634,693 as of March 12, 1998. 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 12, 1998, Registrant had 19,301,381 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, 1997. Part III incorporates
information by reference from the Proxy Statement for the Annual Meeting of
Stockholders to be held on April 29, 1998.
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]
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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, service 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.
The Company markets its O-rings and other molded polymer products under
the trade name "Wynn's-Precision." The Company markets its specialty
chemical products and automotive service equipment under various trademarks,
including WYNN'S-Registered Trademark-, FRICTION PROOFING-Registered
Trademark-, X-TEND-Registered Trademark-, SPIT FIRE-Registered Trademark-,
CHARGE-Registered Trademark-, DU-ALL-Registered Trademark-,
TRANSERVE-Registered Trademark-, POWERFLUSH-TM- and WYNN'S PRODUCT
WARRANTY-Registered Trademark-.
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 five years ended
December 31, 1997 is incorporated by reference from Note 13 of "Notes to
Consolidated Financial Statements" on pages 33 through 35 of the Company's
Annual Report to Stockholders for the year ended December 31, 1997 (the "1997
Annual Report").
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AUTOMOTIVE AND INDUSTRIAL COMPONENTS
The Automotive and Industrial Components Division consists of
Wynn's-Precision, Inc. ("Precision"), and Robert Skeels & Company ("Skeels").
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 1997, sales from continuing operations of the Automotive and
Industrial Components Division were $168,266,000, or 52% of the Company's
total net sales, as compared with $140,513,000 and 49% in 1996. The
operating profit from continuing operations of the division in 1997 was
$26,408,000, or 58% of the Company's total operating profit, as compared with
$23,124,000 and 60% in 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business Segment and
Geographical Information" on pages 17 through 21 and 33 through 35,
respectively, of the 1997 Annual Report, which are hereby incorporated by
reference. See also "Other Factors Affecting the Business" on page 6 below.
WYNN'S-PRECISION, INC.
(O-RINGS, 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. Precision also markets
its products throughout the United States through independent distributors
and through Company-operated regional service centers located in California,
Illinois, Indiana, Kansas, 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.
PRODUCTION
Precision's manufacturing facilities are located in Arizona, Kentucky,
Tennessee, Texas, Virginia and Ontario, Canada. 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. Over the past several years, Precision has made significant
investments in modern computerized production equipment and
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facilities. In 1997, Precision continued to invest in new production
equipment, which expanded production capacity primarily at Precision's
Lebanon, Tennessee and Virginia facilities. In 1996, Precision purchased from
Lawson Mardon Wheaton Inc. the operating assets of its automotive plastics
business located in Springfield, Kentucky. As a result of the transaction,
Precision acquired a 76,375 square foot manufacturing facility and equipment
dedicated to injection molding, injection blow molding and extrusion blow
molding.
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 1997 and
are expected to continue to be available in 1998.
ROBERT SKEELS & COMPANY
(BUILDERS HARDWARE)
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.
WYNN'S CLIMATE SYSTEMS, INC.
(AUTOMOTIVE AIR CONDITIONING SYSTEMS AND COMPONENTS)
Prior to the sale of its principal operating assets in May 1996, Wynn's
Climate Systems designed, manufactured and marketed automotive air conditioning
systems and components for both automotive OEMs and the automotive aftermarket.
Wynn's Climate Systems also operated installation centers in Arizona,
California, Colorado and North Carolina that installed air conditioners and
accessories for automobile dealers and retail customers.
Wynn's Climate Systems sold its air conditioning components to OEM
customers and distributors. It sold its air conditioning systems to OEM
customers and their distributors and dealers, and to distributors in the
automotive aftermarket. In addition, through its installation centers, Wynn's
Climate Systems sold air conditioning systems and accessories to automobile
dealers and retail customers.
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Wynn's Climate Systems manufactured its products in its 185,000 square
foot facility located in Fort Worth, Texas. Wynn's Climate Systems manufactured
many of the components that it used in the production of its air conditioning
systems. Outside vendors supplied certain finished components such as
compressors, accumulators and receiver/dryers.
SPECIALTY CHEMICALS
The Specialty Chemicals Division consists of Wynn Oil Company and its
subsidiaries ("Wynn Oil"). During 1997, net sales at Wynn Oil were
$152,687,000, or 48% of the Company's total net sales, as compared to
$148,018,000 and 51% for 1996. The operating profit of the division during 1997
was $19,490,000, or 42% of the Company's total operating profit, compared with
$15,627,000 and 40% for 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business Segment and
Geographical Information" on pages 17 through 21 and 33 through 35,
respectively, of the 1997 Annual Report, which are hereby incorporated by
reference. See also "Other Factors Affecting the Business" on page 6 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 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, 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, Chrysler and
Hyundai. The TRANSERVE and TRANSERVE II automatic transmission flush systems
are portable machines used with Wynn Oil chemicals to flush, refill and treat
the transmission fluid in a vehicle.
Wynn Oil's industrial specialty chemical products include forging
compounds, cleaners, solvents, 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
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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 page 6 below.
DISTRIBUTION
Wynn Oil's car care products are sold in the United States and in
approximately 100 foreign countries. See "Foreign Operations" on page 12 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. Wynn Oil also uses internal
sales management to sell and distribute its products. In addition, Wynn Oil
distributes the Wynn's Product Warranty program through new and used car dealers
and a few 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. In recent years, these
automobile finance companies have played an increasing role in the marketing of
the Wynn's Product Warranty program. No assurance can be given that such
finance companies will continue to market the Wynn's Product Warranty program.
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 page 6 below.
PRODUCTION
Wynn Oil has manufacturing facilities in California and Belgium. Other
foreign subsidiaries either purchase products directly from the 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.
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 1997 and is
expected to continue to be available for the foreseeable future.
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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 vehicle manufacturer (also known as
"OEM") customers.
Precision has a large number of competitors in the market for static and
dynamic sealing products, some of which competitors are substantially larger
than Precision. The markets in which Precision competes are also sensitive to
price changes. Requests for price reductions are not uncommon. Precision
attempts to work with its customers to identify ways to lower costs and prices.
Precision focuses on high technology, high quality sealing devices and has made
significant investments in advanced equipment and other means to raise
productivity. In 1997, Precision invested approximately $9.8 million in new
production equipment and facilities, which expanded its production capacity
primarily at its Lebanon, Tennessee and Virginia facilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 17 through 21 of the 1997 Annual Report, which is hereby incorporated by
reference. Precision's major focus is to be the low cost producer of superior
quality products within its industry. Precision believes it must expand into
additional areas of sealing technology in order to continue to be an effective
competitor.
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 transmission fluid flush and fill equipment and chemicals compete
against other transmission flush equipment. The Wynn's Product Warranty program
competes with programs offered by other companies that feature lubricant kits
backed by product warranties. The Wynn's Product Warranty program also competes
with service contract and extended warranty programs offered by 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
Sales to General Motors constituted approximately 10.1% of the total net
sales of the Company in 1997. No other customer represented more than 10% of
total net sales of the Company in 1997.
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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 approximately
forty-four 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 in the United States or
other countries in the future. Over the past few years, sales of the Wynn's
Product Warranty program have become an increasingly important element of
Wynn Oil's domestic business.
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 which have been or may be deemed to be hazardous. At
December 31, 1997, the Company had recorded consolidated accrued reserves of
approximately $9.2 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 10 of "Notes
to Consolidated Financial Statements" on page 31 of the 1997 Annual Report,
which is hereby incorporated by reference.
All potentially significant environmental matters presently known to
the Company are described below.
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(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 ("ROD") 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. In the ROD, the EPA selected an interim remedial
action to treat the contaminated groundwater (the "Interim Remedial
Action") for the BPOU that is estimated to cost $47 million in capital and
non-recurring costs and $4 million to $5 million in annual operating costs.
Wynn Oil has joined the BPOU Steering Committee (the "Steering
Committee") which is working toward the development of a "Consensus Plan."
In general, the Consensus Plan is a cooperative effort among the Steering
Committee members, certain water supply entities and the Federal Bureau of
Reclamation to integrate the Interim Remedial Action with a water supply
project. Under this approach, federal funding would be available for 25%
of the project's capital costs, and revenues from the sale of the treated
water would help defray the project's annual operating costs. If agreement
is reached among these entities, the Steering Committee's costs of
implementing the Interim Remedial Action reportedly could be reduced
substantially. This conclusion is based on the assumption that the
Steering Committee members would pay minimal past costs of the EPA and that
the treated water would not be subject to supplemental nitrate removal.
However, no assurance can be given that such assumptions will prove to be
correct or that the Consensus Plan will be implemented. In furtherance of
the Consensus Plan, the Steering Committee has already funded certain
pre-design costs and other costs on an interim basis subject to
reallocation among all of the PRPs which ultimately share the costs of
implementing the Interim Remedial Action.
On May 15, 1997, the 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 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. The EPA has indicated that it
considers Wynn Oil to be one of the four largest contributors 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. It is unclear whether any
present treatment technology can practicably remove perchlorate to the
State provisional action level.
In response to issues arising from the discovery of perchlorate in
certain BPOU groundwater wells, the BPOU Steering Committee has requested a
series of extensions to the due date for submission of a good faith offer
pursuant to the Special Notice process. The EPA has
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extended the deadline for submission of a good faith offer to April 30,
1998 and is expected to provide one additional extension to allow
perchlorate treatability studies to be completed.
The Steering Committee had begun the process of allocating among its
members the cost for implementing the Consensus Plan, but deferred further
negotiation following the discovery of perchlorate in the BPOU groundwater
in June 1997. There is no assurance that a negotiated allocation of
responsibility will be reached. Wynn Oil's ultimate share of the total
remedial costs cannot be estimated with certainty at this time. In
establishing appropriate reserves for this matter, the Company has assumed
that the Consensus Plan ultimately will be adopted and that a consensual
allocation will be reached among the BPOU Steering Committee members.
(b) The California Regional Water Quality Control Board-Los Angeles
Region (the "RWQCB") sent letters to Wynn Oil and certain other facilities
in the BPOU asking them to submit remedial action plans for vadose zone
remediation at their respective facilities. In December 1995, Wynn Oil's
consultants responded to the RWQCB stating that such remediation was
neither warranted nor cost effective at the Azusa Facility. In August
1997, Wynn Oil received a letter from the RWQCB which did not dispute Wynn
Oil's response with respect to remediation of the shallow vadose zone at
the Azusa Facility. The RWQCB asked for additional monitoring well data
before reaching a conclusion as to the deep soil vapor at the Azusa
Facility. Representatives of Wynn Oil subsequently have met with
representatives of the RWQCB to discuss the issue further. Wynn Oil may at
some later date elect or be required to take specific remedial actions with
respect to soils conditions at the Azusa Facility.
(c) In February 1995, the owner (the "Property Owner") of certain
real property (the "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 alleges that the defendants stored solid and hazardous wastes at
the Site and that the storage devices for the wastes leaked, causing
contamination of the soils and groundwater. The complaint seeks 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, the Property Owner and the Wynn Defendants agreed to
fund a joint investigation of the Site with each paying one-half of the
cost. After this investigation was completed, all parties to the
litigation agreed to fund two rounds of additional investigation of the
Site with each paying one-third of the cost. During the pendency of these
investigations, the litigation, including all discovery, has been stayed.
After completion of the current investigation, the parties expect to hold a
joint status conference with the trial judge. The Company does not have
sufficient information to estimate the cost of cleanup at the 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
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appropriate remedial measures. Wynn's Climate Systems retained
environmental consultants to conduct soil sampling and otherwise comply
with the directive of the TNRCC. Performance of this work was completed in
late 1991 and the consultants' report was submitted to the TNRCC in
February 1992. In 1994, Wynn's Climate Systems received a request from the
TNRCC for additional information. Wynn's Climate Systems furnished the
requested information to the TNRCC and then voluntarily conducted
additional investigation activities at this facility. Wynn's Climate
Systems' lease of this facility expired in December 1994. Due to a dispute
with the property owner following expiration of the lease, Wynn's Climate
Systems was unable to perform any additional work at the site in 1995 or
early 1996. In April 1996, the property owner notified Wynn's Climate
Systems that it would grant access to Wynn's Climate Systems for further
investigation of the site. Wynn's Climate Systems submitted a report to the
TNRCC recommending a remedial action plan for the site and met with the
TNRCC to receive their comments. Shortly thereafter, Wynn's Climate
Systems submitted a revised plan and is awaiting final approval of the plan
from the TNRCC.
(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 the 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 occurred in
1997. As of March 1998, 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 10 of "Notes to
Consolidated Financial Statements" on page 31 of the 1997 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 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, the Steering Committee costs
of implementing the Interim Remedial Action and the water supply project and the
amount of EPA past costs required to be paid by the Steering Committee members,
(viii) the ability of other potentially responsible parties, if any, to pay
their respective shares, and (ix) any insurance recoveries. Results actually
achieved thus may differ materially from expected results included in these and
any other forward looking statements contained herein.
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FOREIGN CURRENCY FLUCTUATIONS
In 1997, the United States dollar generally increased in value compared to
1996 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
operating profit to be translated into lower dollar values than what would have
been reported if exchange rates had remained the same as in 1996. In 1997, the
Equity Adjustment from Foreign Currency Translation account on the Consolidated
Balance Sheet decreased by $3,048,000, which caused a corresponding decrease in
Total Stockholders' Equity. See "Foreign Operations" on page 12 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 "Item 3 - Legal Proceedings" on page 17 below for a discussion of a lawsuit
filed by Wynn Oil against an infringer on one of its trademarks.
The Company also 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 which 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.
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.
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.
11
<PAGE>
FOREIGN OPERATIONS
The following table shows sales to foreign customers for the years 1997,
1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total Sales Outside the United States: $120,201,000 $113,609,000 $101,389,000
Percent of Net Sales 37.5% 39.4% 38.6%
Sales by Foreign Subsidiaries $96,184,000 $93,949,000 $91,946,000
Percent of Net Sales 30.0% 32.6% 35.0%
Export Sales by Domestic
Subsidiaries $24,017,000 $19,660,000 $9,443,000
Percent of Net Sales 7.5% 6.8% 3.6%
</TABLE>
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 3 and Note 13 of "Notes to
Consolidated Financial Statements" on page 28 and 33 through 35,
respectively, of the 1997 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. 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, 1997, the Company had 2,073 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 1998 and the Company
expects to be able to reach a new collective bargaining agreement with the
union.
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 the unit will
expire in January 2000.
12
<PAGE>
A majority of the production and maintenance employees at the Lynchburg,
Virginia plant of Dynamic Seals, Inc., an affiliate of Precision, are
represented by a local of the International Chemical Workers Union. The
collective bargaining agreement for this facility expires in February 1999.
A majority of the production and maintenance employees at the Springfield,
Kentucky plant of Precision are represented by a local unit of the International
United Paperworkers Union. Precision did not assume the collective bargaining
agreement for this facility when Precision acquired the plant in 1996.
Precision recently concluded negotiations with the union for a new collective
bargaining agreement, which the employees approved. The collective bargaining
agreement will expire in March 2001.
The Company considers its relations with its employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, who are appointed annually, are as
follows:
<TABLE>
<CAPTION>
Executive
Officer Since Age
------------- ---
<S> <C> <C> <C>
James Carroll Chairman of the Board and Chief 1988 68
Executive Officer
John W. Huber President and Chief Operating 1996 54
Officer
Seymour A. Schlosser Vice President-Finance and Chief 1989 52
Financial Officer
Gregg M. Gibbons Vice President-Corporate Affairs 1986 45
and General Counsel
</TABLE>
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.
13
<PAGE>
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 12, 1998:
<TABLE>
<CAPTION>
Square If Lease,
Held in Fee Footage Year of
Location or by Lease (Approximate) Termination Present Use
-------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
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 78,000 -- Manufacturing
Lebanon, Tennessee Fee 35,000 -- Manufacturing
Lebanon, Tennessee Fee 2,650 -- Manufacturing
Livingston, Tennessee Fee 33,000 -- Manufacturing
Tempe, Arizona Fee 32,572 -- Manufacturing,
Warehouse
Springfield, Kentucky Fee 80,000 -- Manufacturing,
Warehouse,
Administrative
Rancho Cucamonga, California Lease 2,880 1999 Warehouse
Elgin, Illinois Lease 4,762 1998 Warehouse
Peoria, Illinois Lease 10,000 2000 Warehouse
Indianapolis, Indiana Lease 1,800 2001 Warehouse
Lenexa, Kansas Lease 2,089 1998 Warehouse
Bloomfield Hills, Michigan Lease 3,050 2002 Administrative
14
<PAGE>
<CAPTION>
Square If Lease,
Held in Fee Footage Year of
Location or by Lease (Approximate) Termination Present Use
-------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Wyoming, Michigan Lease 2,000 2000 Warehouse
Golden Valley, Minnesota Lease 3,800 1999 Warehouse
West Seneca, New York Lease 2,934 2000 Warehouse
Charlotte, North Carolina Lease 3,675 1999 Warehouse
Dayton, Ohio Lease 6,193 1998 Warehouse
Fort Worth, Texas Lease 3,600 1998 Warehouse
Milwaukee, Wisconsin Lease 2,700 1999 Warehouse
Foreign
-------
Orillia, Ontario, Canada Fee 48,000 -- Manufacturing,
Warehouse,
Administrative
Concord, Ontario, Canada Lease 3,455 1999 Warehouse
Edmonton, Alberta, Canada Lease 2,700 1999 Warehouse
Calgary, Alberta, Canada Lease 1,600 1998 Warehouse
Boucherville, Quebec, Canada Lease 3,403 1999 Warehouse
Aldershot, England Lease 2,300 Month-to-Month 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
15
<PAGE>
<CAPTION>
Square If Lease,
Held in Fee Footage Year of
Location or by Lease (Approximate) Termination Present Use
-------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ROBERT SKEELS & COMPANY
Compton, California Fee 59,019 -- Warehouse,
Administrative
Fullerton, California Lease 1,600 1998 Warehouse,
Administrative
SPECIALTY CHEMICALS:
WYNN OIL COMPANY
Domestic
--------
Azusa, California Fee 122,630 -- Manufacturing,
Warehouse,
Administrative
Foreign
-------
Frenchs Forest, Lease 24,224 2000 Warehouse,
New South Wales, Australia Administrative
Carrington, New South Wales, Lease 13,175 1999 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, England Lease 3,154 2004 Administrative
Strasbourg, France Lease 557 1999 Administrative
Paris, France Lease 9,513 2001 Administrative
Cestas, France Lease 18,669 1999 Warehouse,
Administrative
Lyon, France Lease 465 2000 Administrative
16
<PAGE>
<CAPTION>
Square If Lease,
Held in Fee Footage Year of
Location or by Lease (Approximate) Termination Present Use
-------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Abbeville, France Lease 660 1998 Administrative
Thiers, France Lease 465 1998 Administrative
Toulouse, France Lease 485 1998 Administrative
Ratingen, Germany Lease 1,808 1999 Administrative
Chennai, India Lease 13,123 Month-to Month Manufacturing,
Warehouse,
Administrative
Mexico City, Mexico Lease 2,500 1998 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
</TABLE>
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 1998 and 1999, 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" and Note 10 of "Notes to
Consolidated Financial Statements" on page 31 of the 1997 Annual Report, which
is hereby incorporated by reference.
In late July 1997, a lawsuit captioned KRISTIN SANTAMARIA V. SUBURBAN
WATER SYSTEMS, INC., ET. AL. (Superior Court of California for the County of Los
Angeles, Case No. KC 025-995) was filed by approximately one hundred persons
against five water producers and the nineteen companies and entities (including
Wynn Oil) which received the May 15, 1997 Special Notice letters from the EPA
with respect to the BPOU. In February 1998, a second amended complaint was
filed naming approximately 350 plaintiffs and two additional water producers as
defendants. The lawsuit alleges 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
17
<PAGE>
damages and other relief. The Company received service of process on March
17, 1998 and intends to defend the action vigorously.
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 $2.4 million. 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 $530,000 which reduced
the balance of the uncollected judgment to approximately $1.9 million. 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 Registrant and all of Registrant's costs relating to
this case have been expensed as incurred.
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 1997.
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: 1997-1996" on page 37 of the 1997 Annual Report and "Number of
Stockholders" and "Stock Exchange Listing" on page 37 of the 1997 Annual Report
is hereby incorporated by reference.
On February 11, 1998, the Board of Directors of Registrant declared a cash
dividend of $0.06 per share payable March 31, 1998 to stockholders of record on
March 12, 1998.
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.
18
<PAGE>
Registrant has not sold any unregistered securities during the past three
years.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from page 16 of the 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from the 1997 Annual Report, pages 17 through
21.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Registrant does not own any market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Registrant at December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997
(including unaudited supplementary data) and the report of independent auditors
thereon are incorporated by reference from the 1997 Annual Report, pages 21
through 36.
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 7 and 8, and
the information appearing under "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 15 of Registrant's definitive proxy statement for the Annual
Meeting of Stockholders to be held on April 29, 1998 ("Registrant's 1998 Proxy
Statement") is hereby incorporated by reference. Information regarding
Registrant's executive officers is provided on page 13 of this report.
19
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Board of Directors and Committees of the
Board--Compensation of Directors" on page 9 and "Executive Compensation" on
pages 12 through 15 of Registrant's 1998 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 10 and 11 of Registrant's 1998 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 9 of Registrant's
1998 Proxy Statement is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) See Index to Financial Statements and Financial Statement
Schedules Covered By Report of Independent Auditors.
(2) See Index to Financial Statements and Financial Statement
Schedules Covered By Report of Independent Auditors.
(3) See Index to Exhibits.
(b) No Reports on Form 8-K were filed by Registrant during the last
quarter of 1997.
20
<PAGE>
WYNN'S INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES COVERED BY REPORT OF INDEPENDENT AUDITORS
(ITEM 14(a))
<TABLE>
<CAPTION>
Page References
----------------------
1997 Annual
Form 10-K Report
--------- -----------
<S> <C> <C>
Consolidated Statements of Income for each of the
three years in the period ended December 31, 1997........ 22
Consolidated Balance Sheets at December 31, 1997 and 1996. 23
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended December 31, 1997. 24
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997........ 25
Notes to Consolidated Financial Statements................ 26 - 36
Consolidated schedule for each of the three years in
the period ended December 31, 1997:
VIII - Valuation and Qualifying Accounts................ F-2
</TABLE>
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 1997 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 1997 Annual Report is not deemed to
be filed as part of this report.
F-1
<PAGE>
WYNN'S INTERNATIONAL, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Allowance for
doubtful accounts
deducted from Balance at Charged to
accounts beginning costs and Deductions Other Balance at
receivable of year expenses (1) (2) end of year
- ----------------- ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
1997 $870,000 $307,000 $(218,000) $ -- $959,000
---------- ---------- ---------- -------- -----------
---------- ---------- ---------- -------- -----------
1996 $710,000 $312,000 $(256,000) $104,000 $870,000
---------- ---------- ---------- -------- -----------
---------- ---------- ---------- -------- -----------
1995 $884,000 $244,000 $(418,000) $ -- $710,000
---------- ---------- ---------- -------- -----------
---------- ---------- ---------- -------- -----------
</TABLE>
- ------------------
(1) Represents accounts written off against the reserve.
(2) Acquisition of business.
F-2
<PAGE>
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 26,
1998.
WYNN'S INTERNATIONAL, INC.
By 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 26, 1998 By JAMES CARROLL
------------------------------------
James Carroll
Chairman of the Board
Chief Executive Officer
Director
March 26, 1998 By SEYMOUR A. SCHLOSSER
------------------------------------
Seymour A. Schlosser
Vice President-Finance
(Principal Financial and
Accounting Officer)
II-1
<PAGE>
DATE
----
March 26, 1998 By WESLEY E. BELLWOOD
------------------------------------
Wesley E. Bellwood
Director/Chairman Emeritus
March 26, 1998 By BARTON BEEK
------------------------------------
Barton Beek
Director
March 26, 1998 By BRYAN L. HERRMANN
------------------------------------
Bryan L. Herrmann
Director
March 26, 1998 By ROBERT H. HOOD, JR.
------------------------------------
Robert H. Hood, Jr.
Director
March 26, 1998 By RICHARD L. NELSON
------------------------------------
Richard L. Nelson
Director
March 26, 1998 By JAMES D. WOODS
------------------------------------
James D. Woods
Director
II-2
<PAGE>
WYNN'S INTERNATIONAL, INC.
INDEX TO EXHIBITS
(Item 14(a))
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation, as amended, of Registrant
3.2 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)
3.3 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 succesor Rights
Agent, amending the Shareholder Rights Agreement
10.1 Employment Agreement, dated December 10, 1997, between
Registrant and James Carroll
10.2 Employment Agreement, dated December 11, 1996, between
Registrant and John W. Huber (incorporated herein by reference
to Exhibit 10.2 to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1996)
II-3
<PAGE>
Exhibit
Number Description
------- -----------
10.3 Employment Agreement, dated January 1, 1997, between Registrant
and Seymour A. Schlosser (incorporated herein by reference to
Exhibit 10.3 to Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1996)
10.4 Employment Agreement, dated January 1, 1997, between Registrant
and Gregg M. Gibbons (incorporated herein by reference to
Exhibit 10.4 to Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1996)
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)
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. 1998 Corporate Management Incentive
Plan
II-4
<PAGE>
Exhibit
Number Description
------- -----------
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
10.14 Second Amendment to Executive Deferred Compensation Agreement,
dated February 26, 1998, between Registrant and James Carroll
10.15 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)
10.16 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)
10.17 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)
10.18 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)
10.19 Asset Purchase Agreement, dated as of May 23, 1996, by and
between Moog Automotive, Inc. and Wynn's Climate Systems, Inc.,
Wynn's Climate Equipment Company and Wynn's (UK) Limited
(incorporated herein by reference to Exhibit 2.1 to Registrant's
Current Report on Form 8-K dated May 23, 1996)
11 Computation of Net Income Per Common Share - Basic and Assuming
Dilution
II-5
<PAGE>
Exhibit
Number Description
------- -----------
13 Portions of Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1997 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
27.1 Financial Data Schedule for Fiscal Year ended December 31, 1997
27.2 Financial Data Schedule for Fiscal Years ended December 31, 1995
and 1996, and the three, six and nine month periods ended March
31, 1996, June 30, 1996 and September 30, 1996, respectively
27.3 Financial Data Schedule for the three, six and nine month
periods ended March 31, 1997, June 30, 1997 and September 30,
1997, respectively
II-6
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
WYNN'S INTERNATIONAL, INC.
AS AMENDED THROUGH MAY 7, 1997
FIRST: The name of the corporation is
WYNN'S INTERNATIONAL, INC.
SECOND: Its registered office in the State of Delaware is located at 32
Loockerman Square, Suite L-100, Kent County, Dover, Delaware. The name and
address of its registered agent if The Corporation Trust Company, 32 Loockerman
Square, Suite L-100, Dover, Delaware.
THIRD: The nature of the business or purposes to be transacted or
promoted by the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The corporation shall be authorized to issue two classes of
shares of stock to be designated, respectively, "Common" and "Preferred," the
total number of shares which the corporation shall have authority to issue shall
be forty million five hundred thousand (40,500,000); the total number of shares
of Common Stock shall be forty million (40,000,000) and the par value of each
share of Common Stock shall be one dollar ($1.00); and the total number of
shares of Preferred Stock shall be five hundred thousand (500,000) and the par
value of each share of Preferred Stock shall be one dollar ($1.00).
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby expressly vested with authority to fix by
resolution or resolutions the designations and the powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, including, without limitation, the voting
powers, if any, the dividend rate, conversion rights, redemption price, or
liquidation preference, of any series of Preferred Stock, and to fix the number
of shares constituting any such series, and to increase or decrease the number
of shares of any such series (but not below the number of shares thereof then
outstanding). In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series. The number of authorized shares of
any class or classes of stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the stock of the corporation entitled to vote.
FIFTH: In furtherance and not in limitation of the powers conferred by
law, the Board of Directors is expressly authorized to make, alter or repeal the
By-Laws of the corporation.
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SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 201 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
SEVENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate in any manner now or
hereafter prescribed by law, except as may be limited by paragraph TENTH; and
all rights herein conferred upon the shareholders are granted subject to this
reservation.
EIGHTH: The number of directors of the corporation shall be such number
as may be fixed from time to time by the By-Laws of the corporation. The
directors shall be classified with respect to the time for which they shall
severally hold office by dividing them into three classes, each consisting as
nearly as possible of one-third of the whole number of the Board of Directors.
All directors of the corporation shall hold office until their successors are
duly elected and qualified. The directors of the first class shall hold office
until the annual meeting of the stockholders of the corporation to be held in
1974 and until their successors are duly elected and qualified; the directors of
the second class shall hold office until the annual meeting of the stockholders
of the corporation to be held in 1975 and until their successors are duly
elected and qualified; and the directors of the third class shall hold office
until the annual meeting of stockholders of the corporation to be held in 1976
and until their successors are duly elected and qualified. At each annual
meeting of stockholders of the corporation, the successors to the directors
whose term shall expire in that year shall be elected to hold office for a term
of three (3) years, so that the term of office of one class of directors shall
expire in each year.
NINTH: In the event that it is proposed that this corporation enter into
a merger or consolidation with any other corporation and such other corporation
and/or its affiliates singly or in the aggregate own or control directly or
indirectly shares representing ten percent (10%) or more of the voting power of
this corporation, or that this corporation sell, lease or exchange substantially
all of its assets or business to or with such other corporation or any affiliate
of it, or that such other corporation or any affiliate of it sell, lease or
exchange substantially all of its assets or business to or with this
corporation, the affirmative vote of the holders of shares
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representing not less than seventy-five percent (75%) of the voting power of
this corporation shall be required for the approval of any such proposal;
provided, however, that the foregoing shall not apply to any such merger,
consolidation or sale of assets or business which was approved by resolutions
of the Board of Directors of this corporation prior to the acquisition of the
ownership or control of shares representing at least ten percent (10%) of the
voting power of this corporation by such other corporation and/or its
affiliates, nor shall it apply to any such merger, consolidation or sale of
assets or business between this corporation and another corporation of which
shares representing fifty percent (50%) or more of the voting power is owned
by this corporation. For the purposes hereof, an "affiliate" is any person
(including a corporation, partnership, trust, estate or individual) who
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified; and
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction or management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise.
TENTH: The amendment of Paragraphs EIGHTH, NINTH and/or TENTH of the
Certificate of Incorporation and/or the inclusion in this Certificate of
Incorporation of a provision calling for cumulative voting shall require the
approval of the holders of shares representing at least seventy-five percent
(75%) of the voting power of this corporation.
ELEVENTH: Meetings of stockholders may be held outside the State of
Delaware, if the By-Laws so provide. The books of the corporation may be kept
(subject to any provisions of law) outside of the State of Delaware. Elections
of directors need not be by ballot unless the By-Laws of the corporation shall
so provide.
TWELFTH: The name and mailing address of the incorporator is Robert L.
Pike, 611 West Sixth Street, Los Angeles, California 90017.
THIRTEENTH: To the fullest extent permitted by the General Corporation
Laws of the State of Delaware as the same exists or may hereafter be amended, a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this Article THIRTEENTH shall not
result in any liability for a director with respect to any action or omission
occurring prior to such repeal or modification.
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Exhibit 4.3
March 24, 1997
ChaseMellon Shareholder Services, L.L.C., as Rights Agent,
As successor to First Interstate Bank, Ltd.
400 South Hope Street
Los Angeles, CA 90071
Ladies and Gentlemen:
Reference is hereby made to that certain Rights Agreement, dated as of March 3,
1989 and amended as of June 11, 1990 (the "Rights Agreement"), by and between
Wynn's International, Inc. and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (the "Successor Agent"), as successor to First Interstate Bank,
Ltd. The Rights Agreement is hereby amended by deleting in its entirety the
fifth sentence of Section 21 and replacing it with the following sentence:
"Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be either (a) a corporation organized and doing
business under the laws of the United States or of any state of the
United States, in good standing, which is authorized under such laws
to exercise corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of
its appointment as Rights Agent a combined capital and surplus of at
least $100,000,000 or (b) an affiliate of such a corporation."
In executing and delivering this amendment, the Successor Agent shall be
entitled to all the privileges and immunities afforded to the Rights Agent under
the terms and conditions of the Rights Agreement, as hereby amended.
WYNN'S INTERNATIONAL, INC.
By: GREGG M. GIBBONS
----------------------------------
Title: Vice President - Corporate Affairs
----------------------------------
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.,
as successor Rights Agent
By: DEREK R. LENNINGTON
-------------------------------------
Title: Vice President
-------------------------------------
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
the 10th day of December, 1997, by and between WYNN'S INTERNATIONAL, INC., a
Delaware corporation with its principal offices in Orange, California
("Corporation"), and JAMES CARROLL, an individual residing in Lebanon, Tennessee
("Executive").
W I T N E S S E T H :
WHEREAS, Executive presently serves as Chairman of the Board and Chief
Executive Officer of Corporation pursuant to an employment agreement dated as of
January 1, 1995 between Corporation and Executive (the "Prior Employment
Agreement"); and
WHEREAS, Corporation desires to continue to retain the services of
Executive, whose experience, knowledge and abilities with respect to the
business and affairs of Corporation and its subsidiaries are extremely valuable
to Corporation; and
WHEREAS, the Board of Directors of Corporation (the "Board of Directors")
and the Compensation Committee (the "Committee") of the Board of Directors
recognize that the continuing possibility of an unsolicited tender offer or
other takeover bid for Corporation is unsettling to Executive and other senior
executives of Corporation and, therefore, to enhance the value of Corporation
for the benefit of its stockholders, desire to make arrangements to help assure
the continuing dedication by Executive to Executive's duties to Corporation,
notwithstanding the occurrence of a tender offer or takeover bid; and
WHEREAS, in particular, the Board of Directors and the Committee believe it
is important, should Corporation receive proposals from third parties with
respect to its future, to enable Executive, without being influenced by the
uncertainties of Executive's own situation, to assess and advise the Board of
Directors whether such proposals would be in the best interests of Corporation
and its stockholders, and to take such other action regarding such proposals as
the Board of Directors might determine to be appropriate; and
WHEREAS, the Board of Directors and the Committee also wish to demonstrate
to Executive and other senior executives of Corporation that Corporation is
concerned with the welfare of its executives and intends to see that loyal
executives are treated fairly; and
WHEREAS, in view of the foregoing and in further consideration of
Executive's employment with Corporation, the Board of Directors and the
Committee have determined that it is in the best interests of Corporation and
its stockholders for
<PAGE>
Corporation to agree to pay Executive termination compensation in the event
Executive should leave the employ of Corporation under certain circumstances;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
and promises of the parties set forth below, the parties hereby agree as
follows:
1. DUTIES.
(a) Corporation hereby continues to employ Executive as Chairman of
the Board and Chief Executive Officer of Corporation during the term of
this Agreement, with powers and duties consistent with such positions.
Executive, during the term of this Agreement, shall perform such additional
or different duties, and accept the election or appointment to such other
offices or positions, as may be mutually agreeable to Executive and the
Board of Directors. Executive agrees to serve in such executive offices
and directorships in other subsidiaries or affiliated companies of
Corporation as he may be requested to do throughout the term of this
Agreement without additional fixed compensation.
(b) Executive shall be employed at Corporation's headquarters in
Orange County, California, and shall devote substantially his full time and
efforts to perform his duties faithfully, diligently and to the best of his
ability to advance the interests of Corporation; subject, however, to
reasonable working hours, conditions and vacations as are consistent with
his position and with due regard to the preservation of his good health.
Nothing herein shall be deemed to preclude or prohibit Executive from
performing during regular business hours services within the business and
civic community which are customary for persons in similar capacities,
including, without limitation, serving on boards of other companies,
advisory groups, committees and panels, but only in furtherance of and not
to the detriment of his principal duties hereunder. Further, Corporation
shall give Executive a reasonable opportunity to perform his duties and
shall not expect Executive to devote more time hereunder, nor assign duties
or functions to Executive, other than as may be customary and reasonable
for an executive in Executive's position.
2. COMPENSATION.
(a) Effective as of December 29, 1997, and during the entire term of
this Agreement, Corporation shall pay to Executive an annual salary of not
less than Five Hundred Sixty-Six Thousand Five Hundred Dollars
($566,500.00), payable in equal installments on Corporation's regular
payroll dates, for any and all services which Executive may render to
Corporation.
(b) The Board of Directors annually shall review the amount of
Executive's salary, and shall, when the Board of Directors in its sole
judgment
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<PAGE>
deems it appropriate, make adjustments in the amount of such
salary. Any such adjustments shall take effect on the date established by
the Board of Directors. Nothing herein shall be construed to authorize or
empower any reduction of Executive's salary below his then current rate of
salary by the Board of Directors or otherwise during the term of this
Agreement. The Committee, in accordance with customary policy, shall make
such recommendations to the Board of Directors as it believes are
appropriate with respect to salary adjustments hereunder.
3. EXPENSES. Corporation will reimburse Executive for all usual,
reasonable and necessary expenses paid or incurred by him in the performance of
his duties hereunder, subject to the right of Corporation at any time to place
reasonable limitations on expenses thereafter to be incurred or reimbursed.
4. EMPLOYEE BENEFITS. Executive shall be entitled to and shall receive
all other benefits of employment generally available to other executives of
Corporation, including, among other things, participation in any hospital,
surgical, medical or other group health and accident benefit plans, life
insurance benefits, and Corporation's annual vacation plan. In addition,
Executive will be entitled to participate in all incentive compensation, stock
option, profit sharing, pension, retirement or bonus plans as from time to time
may be in existence during the term of this Agreement in accordance with their
respective terms and provisions, but, to the extent participation or the amount
of participation is at the discretion of the Board of Directors or any committee
thereof, then Executive's participation shall likewise be solely subject to such
discretion.
5. TERM AND TERMINATION.
(a) The term of this Agreement shall commence on the date hereof and
shall terminate upon the first to occur of the following events:
(i) December 31, 1999 (the "Last Day of the Stated Term");
(ii) The death or permanent disability of Executive;
(iii) The 30th day following written notice from Corporation
to Executive; or
(iv) Executive is discharged for Cause.
(b) If Executive dies or becomes permanently disabled during the term
of this Agreement, this Agreement shall terminate on the last day of the
month during which his death or permanent disability, as the case may be,
occurred. Commencing thirty (30) days after the date of such termination,
there shall be paid to Executive or Executive's representative in the event
of permanent disability, or to his executor or estate in the event of
death, an amount equal to
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one year of Executive's then current salary, payable in twelve (12) equal
monthly installments. If Executive is absent from employment or unable to
render services hereunder on a full-time basis by reason of physical or
mental illness or disability for six (6) months or more in the aggregate in
any twelve (12) month period during the term of this Agreement, Executive
shall be considered permanently disabled.
(c) If Corporation should terminate this Agreement pursuant to
Section 5(a)(iii):
(i) Executive shall immediately cease to be Chairman of the
Board and Chief Executive Officer of Corporation, and each ch other
office or position Executive then holds, and if requested by a
majority of the Board of Directors of Corporation, shall
immediately resign from the Board of Directors and from any of the
Boards of Directors of any of Corporation's subsidiaries of which
Executive may be a member.
(ii) Corporation shall be obligated and shall continue to pay
Executive an amount equal to his then current salary but at a rate
of not less than Five Hundred Sixty-Six Thousand Five Hundred
Dollars ($566,500.00) per annum from the date of such termination
until the Last Day of the Stated Term. Such payments shall be made
in installments payable as provided in Section 2(a) hereof.
Corporation also immediately shall pay Executive in a lump sum an
amount equal to the amount of the remaining unpaid portion of any
yearly incentive compensation award, and the amount, if any, of any
forfeiture of Executive's interest in any profit sharing plan in
which Executive is a participant.
(iii) For the purposes of participation in any hospital,
surgical, medical or other group health and accident insurance and
group life insurance plans maintained by Corporation, Executive
shall continue to be an employee of Corporation through the Last
Day of the Stated Term. Except for such purposes, unless the Board
of Directors otherwise determines by resolution, Executive shall
not continue to be an employee of Corporation for any other
purposes and shall not be entitled to continue to participate in
Corporation's Retirement Plan or 401(k) Plan, or in any other
plans, programs and benefits of Corporation; provided, however,
nothing herein shall preclude Executive from any vested rights or
benefits he may have in such plans on the effective date of
termination. If a contrary determination is made by the Board of
Directors, the duties of Executive shall be only as mutually agreed
upon by Executive and Corporation, and may be refused by Executive
without penalty hereunder.
(iv) If termination shall be without Cause under Section
5(a)(iii), all stock options granted to Executive prior to the date
of this
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Agreement under any stock option plan of Corporation (other than
Corporation's Employee Stock Purchase Plan), notwithstanding the
provisions of any stock option plan or agreement, shall vest
immediately and become exercisable by Executive. Nothing herein shall
otherwise affect the obligations of Corporation or Executive under the
terms of such stock option agreement, which, except for the provisions
hereof, shall be otherwise enforceable in accordance with its terms.
(v) Any benefits of indemnification provided by the By-Laws
of Corporation or in any Indemnification Agreement between
Corporation and Executive shall be continued for the benefit of
Executive, and any officers' and directors' liability insurance
which may be maintained by Corporation and outstanding on the date
of termination shall be continued for the benefit of Executive for
such reasonable period of time as may be determined by the Board of
Directors to afford protection to Executive.
(d) Corporation agrees that its obligations for the continuation of
Executive's salary and other benefits in accordance with Sections 5(c)(ii)
through 5(c)(v) above shall be absolute and unconditional, and the amounts
due under Sections 5(c)(ii) and 5(c)(iii) above or Section 15 shall not be
subject to offset, reduction or mitigation for any reason whatsoever;
provided, however, that if Executive should breach any other provision of
this Agreement while he is receiving benefits pursuant to Sections 5(c)(ii)
through 5(c)(v) above, all obligations of Corporation hereunder shall cease
to be effective on the actual date of such breach.
(e) "Cause" as used in Section 5(a)(iv) shall mean only gross
negligence, dishonesty, incompetence, a willful breach of this Agreement,
or violation of any reasonable rule or regulation of the Board of
Directors, the violation of which results in significant damage to
Corporation and with respect to which, except in the case of incompetence
or dishonesty, Executive fails to correct or make reasonable efforts to
correct within a reasonable time after receipt of written notice thereof.
"Cause" shall be determined only by the affirmative vote of a majority of
the authorized number of the Board of Directors (excluding, for this
purpose, Executive) at a meeting for which notice has been given that it is
proposed to consider the issue of "Cause" or at a meeting occurring not
less than seven (7) days after a meeting at which one or more directors
indicate an intention to present a motion to such effect.
(f) If Corporation should terminate this Agreement pursuant to
Section 5(a)(iv), this Agreement shall terminate immediately or at such
later date as shall be designated by the Board of Directors and all of
Executive's rights hereunder shall terminate effective upon such
termination. Except as otherwise specified in any notice of termination,
Executive shall not continue thereafter to
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<PAGE>
be an employee of Corporation for any purpose and all rights Executive
might thereafter have as an employee pursuant to any plan or
understanding shall cease.
6. CONFIDENTIAL INFORMATION. Executive agrees that he will not at any
time, both during and after the term of this Agreement, divulge, furnish or make
accessible to any party (except to an entity which shall succeed to the business
of Corporation or its subsidiaries, and except as may be required in the conduct
of the regular course of business of Corporation or its subsidiaries, or as
specifically authorized by the Board of Directors or as may be required by law)
any trade secrets, patents, patent applications, inventions or customers of
Corporation or of any subsidiary of Corporation until such time as such
information has been disclosed to the public otherwise than by Executive.
7. RESTRICTIVE COVENANT DURING TERM. Executive agrees that until the
Last Day of the Stated Term, he will neither directly nor indirectly engage in a
business competing with any of the businesses conducted by Corporation or any of
its subsidiaries, nor without the prior written consent of the Board of
Directors, directly or indirectly, have any interest in, own, manage, operate,
control, be connected with as a stockholder, joint venturer, officer, employee,
partner or consultant, or otherwise engage, invest or participate in any
business which shall be competitive with any of the businesses conducted by
Corporation, or by any subsidiary of Corporation; provided, however, nothing
contained in this Section 7 shall prevent Executive from investing or trading in
stocks, bonds, commodities, securities, real estate, or other forms of
investment for his own benefit (directly or indirectly), so long as such
investment activities do not significantly interfere with Executive's services
to be rendered hereunder and, to the extent that such investment activities
would, but for this proviso, be prohibited hereby, would not be material either
to Executive or the concern in which such investment is made.
8. APPROVAL BY CORPORATION. This Agreement has been approved by the
Board of Directors in accordance with the authority granted and restrictions
imposed by action of the Board of Directors. It shall be executed by the
President and Chief Operating Officer or other duly qualified officer.
9. WAIVER OR MODIFICATION. Any waiver, alteration or modification of any
of the provisions of this Agreement or cancellation or replacement of this
Agreement shall not be valid unless made in writing and signed by the parties
hereto.
10. CONSTRUCTION. Except as to matters of internal corporate policy and
regulation, which shall be governed by the laws of the State of Delaware (the
state of incorporation of Corporation), this Agreement shall be governed by the
laws of the State of California. If any litigation shall occur between
Executive and Corporation which litigation arises out of or as a result of this
Agreement or the acts of the parties hereto pursuant to this Agreement, or which
seeks an interpretation of this Agreement, the prevailing party shall be
entitled to recover all costs and expenses of such litigation, including
reasonable attorneys' fees and costs.
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<PAGE>
11. BINDING EFFECT.
(a) The rights and obligations of Corporation under this Agreement
shall be binding upon any successor or assigns of Corporation. In the
event of any consolidation or merger of Corporation into or with another
corporation, such other corporation shall assume this Agreement and shall
become obligated to perform all of the terms and conditions hereof, and
Executive's obligations hereunder shall continue in favor of such other
corporation.
(b) If Corporation shall adopt a plan of liquidation or be or become
a party to any action which has the substantive effect of finally
terminating its business and affairs, all sums which would have been
payable to Executive during the remaining term of this Agreement (assuming
the continuation of Executive's then salary through the Last Day of the
Stated Term) shall become due and payable to Executive not later than the
effective date of such plan or action; except in the case of a liquidation
of Corporation into an acquiring company or subsidiary of such acquiring
company after a consolidation or merger of Corporation into or with another
corporation, and the rights and obligations of Corporation under this
Agreement are expressly assumed by the acquiring company as part of the
plan of liquidation.
(c) This Agreement supersedes all prior and contemporaneous
agreements, amendments, memoranda or understandings, express or implied and
written or oral, between Corporation and Executive.
12. WAIVER. Waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of any other provision of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, each of which shall be construed as an original for all
purposes, but all of which taken together shall constitute one and the same
Agreement.
14. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to be effective (i) upon
receipt if delivered in person, (ii) upon receipt if sent by registered or
certified United States mail, return receipt requested and postage and fees
prepaid, to the addresses of the parties set forth below, or such other address
as shall be furnished by notice hereunder by any such party or (iii) twenty-four
hours after having been sent by Federal Express or other overnight delivery
service to such address:
Corporation: 500 North State College Boulevard
Suite 700
Orange, California 92868
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Executive: 680 Palmer Road
Lebanon, Tennessee 37090
No failure or refusal to accept delivery of any envelope containing such notice
shall affect the validity of such notice or the giving thereof.
15. TERMINATION AFTER CHANGE IN CONTROL.
(a) Cumulative to any other provision of this Agreement, if, within
two years after a change in control of Corporation, Executive's employment
with Corporation terminates for any reason, either voluntarily or
involuntarily, other than by death, permanent disability or retirement at
or after Executive's normal retirement date under Corporation's Retirement
Plan, Corporation promptly will pay Executive, upon Executive's request, as
termination compensation, a lump sum amount, determined as provided in
subsection (b) of this Section 15, and such other amounts as are provided
in subsection (c) of this Section 15. For purposes of this Section, a
"change in control of Corporation" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"); provided that, without
limitation, such a change in control of Corporation shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly
or indirectly, of securities of Corporation representing 40% or more of the
combined voting power of Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of Corporation
cease for any reason to constitute at least a majority thereof unless the
election of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning
of the period.
(b) The lump sum compensation payable to Executive (the "Severance
Payment") shall be equal to the average annual compensation (including
salary and bonuses under the Corporate Management Incentive Compensation
Plan or any predecessor or successor annual incentive compensation plan)
paid or payable by Corporation to Executive during the five most recent
calendar years ending before the date of the change in control of
Corporation (the "Base Amount") multiplied by 2.99; provided, however, if
Executive voluntarily terminates his employment with Corporation, except
after (i) any material adverse change in Executive's duties, location of
employment or benefits, or (ii) any material adverse change to Executive in
the application of the formula of the Corporate Management Incentive
Compensation Plan or any modification in Corporation's accounting methods
or practices materially adverse to Executive, including the assessment of a
management fee, then the Severance Payment shall be equal to
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the highest annual compensation (including salary and bonuses under the
Corporate Management Incentive Compensation Plan or any successor annual
incentive compensation plan) paid or payable by Corporation to Executive
for services rendered in any one of the three calendar years ending with
the year of such termination.
(c) In addition, if Executive's employment with Corporation so
terminates within two (2) years after such a change in control of
Corporation:
(i) any bonus awards previously made to Executive and not
previously paid immediately shall vest upon such termination and
shall be paid;
(ii) Executive's participation in, and terminating
distributions and vested rights under, any applicable retirement
plan, profit sharing plan and stock incentive plan of Corporation
or any of its subsidiaries shall be governed by the terms of those
respective plans; and
(iii) In the event of termination of employment under the
circumstances described in subsection (a) of this Section 15, the
arrangements provided for by this Section 15, by any stock option
or other agreement between Corporation and Executive in effect at
the time and by any other applicable plan of Corporation shall
constitute the entire obligation of Corporation to Executive and
performance thereof shall constitute full settlement of any claim
that Executive might otherwise assert against Corporation on
account of such termination, provided, however, that this provision
and this Agreement shall have no impact on the obligations of
Corporation under that certain Indemnification Agreement dated
August 4, 1993 between Corporation and Executive.
(d) Notwithstanding any provision in this Agreement to the contrary,
in the event that any payment or benefit received or to be received by
Executive in connection with a change in control of Corporation or the
termination of Executive's employment, whether payable pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with
Corporation (collectively the "Total Payments"), would not be deductible
(in whole or part) as a result of Section 280G of the Code, the Severance
Payment shall be reduced until no portion of the Total Payments is not
deductible as a result of Section 280G of the Code, or the Severance
Payment is reduced to zero. For purposes of this limitation, (i) no
portion of the Total Payments, the receipt or enjoyment of which Executive
shall have effectively waived in writing prior to the date of payment of
the Severance Payment, shall be taken into account, (ii) no portion of the
Total Payments shall be taken into account which, in the opinion of tax
counsel selected by Corporation's independent auditors and acceptable to
Executive, does not constitute a "parachute payment" within the meaning of
Section 280G(b)(2) of the
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Code, (iii) the Severance Payment shall be reduced only to the extent
necessary so that the Total Payments (excluding payments referred to
in clause (i) or (ii)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code, in the opinion of the tax counsel
referred to in clause (ii); and (iv) the value of any non-cash benefit or
any deferred payment or benefit included in the Total Payments shall be
determined by Corporation's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
16. CANCELLATION OF PRIOR EMPLOYMENT AGREEMENT. Corporation and Executive
agree that the Prior Employment Agreement hereby is canceled as of the date
hereof and shall be of no further force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CORPORATION:
WYNN'S INTERNATIONAL, INC.
By: JOHN W. HUBER
-------------------------------------
John W. Huber
President and Chief Operating Officer
EXECUTIVE:
JAMES CARROLL
-----------------------------------------
JAMES CARROLL
10
<PAGE>
Exhibit 10.11
WYNN'S INTERNATIONAL, INC.
1998 CORPORATE MANAGEMENT INCENTIVE PLAN
SECTION 1. The purpose of this 1998 Corporate Management Incentive Plan
(the "1998 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 1998 (the
"Corporate Bonus Pool") with a corresponding charge to income for the year 1998
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-three percent (23%) return on
Beginning Equity, provided, however, that (i) the maximum amount of the
Corporate Bonus Pool shall be One Million Eight Hundred Fifty Thousand Dollars
($1,850,000), and (ii) no amounts shall be earned hereunder if the Consolidated
Pretax Earnings of the Company for the year ended December 31, 1998 are less
than Thirty-Eight Million One Hundred Twelve Thousand Dollars ($38,112,000).
(b) Before the payment of bonus awards for the year 1998, 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 1998
Plan shall be charged to income for 1998.
SECTION 3.
(a) The term "Consolidated Pretax Earnings" as used in the 1998 Plan shall
mean, for calendar year 1998, the Company's income before taxes based on income
as shown on the Consolidated Statements of Income section of the Company's 1998
Consolidated Financial Statements after making adequate provision for the
Corporate Bonus Pool in the 1998 Consolidated Financial Statements.
(b) The term "Beginning Equity" shall mean the total stockholders' equity
of the Company and subsidiaries at December 31, 1997, as reported in the
Consolidated Balance Sheets section of the Company's 1998 Consolidated Financial
Statements.
(c) The term "1998 Consolidated Financial Statements" as used in the 1998
Plan shall mean those financial statements of the Company and its subsidiaries
contained
<PAGE>
in the Company's annual report to stockholders for the year ended December
31, 1998 and upon which an opinion has been expressed by the independent
public accountants of the Company.
(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.
SECTION 4. Full power and authority to construe, interpret, and
administer the 1998 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 1998 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 who are not executive officers. The
recommendations for bonus awards under the 1998 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 1998.
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
2
<PAGE>
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 1998, 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 1998.
SECTION 7. Bonus awards under the 1998 Plan will be paid to each
recipient no later than March 31, 1999 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 1998 other than by death, such participant
shall not be entitled as a matter of right to any bonus award for services
rendered in 1998, 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 1998.
SECTION 10. Upon the death of a Corporate Management Employee during
1998, 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 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, 1998. 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 1998 Plan.
SECTION 11. The 1998 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 1998 Plan is effective as of January 1, 1998.
3
<PAGE>
Exhibit 10.13
FIRST AMENDMENT TO
EXECUTIVE DEFERRED COMPENSATION AGREEMENT
WHEREAS, Wynn's International, Inc. (the "Company") and James Carroll (the
"Executive") entered into an executive deferred compensation agreement in
February 1997 (the "Revised Agreement") which superseded a series of prior
deferred compensation agreements pursuant to which the Executive elected to
defer certain portions of his compensation from the Company (the "Deferrals");
and
WHEREAS, the Company and the Executive desire to amend the Revised
Agreement; and
WHEREAS, the Executive has no ability to demand payment of the Deferrals at
the present time pursuant to this First Amendment or the Revised Agreement; and
WHEREAS, the Company believes that the adoption of this Amendment is in the
best interests of the Company;
NOW, THEREFORE, it is hereby declared as follows:
1. Section 4 of the Revised Agreement is amended to read in its entirety
as follows:
"4. DISTRIBUTION.
(a) The Deferrals (and interest thereon) shall be paid to the
Executive in the form of quarterly (January 1, April 1, July 1, October 1)
cash installments over a period of ten years. Installments shall be in
substantially equal amounts. The unpaid declining balance of the Deferrals
shall continue to bear interest as set forth in Section 3.
(b) Payment of the Deferrals (and interest thereon) shall
commence as of the first day of the calendar quarter commencing after the
later of (i) the occurrence or event which results in the Executive no
longer serving as the Chairman of the Board of the Company (including, but
not limited to, the death, disability, resignation, retirement, or
termination of the Executive), or (ii) the date of execution of this
Agreement.
(c) In the event that the Executive dies prior to the time all
amounts have been paid pursuant to the terms of this Agreement, payment of
such amounts shall be made at the time and in the form set forth above to
the Executive's spouse (as of his date of death, if she is then living).
If the Executive has no living spouse at such time, payment shall be made
at the time and in the manner set forth above to the Executive's estate."
2. Except as expressly amended in this First Amendment, the provisions of
the Revised Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in the
County of Orange, California on the 1st day of December, 1997.
WYNN'S INTERNATIONAL, INC.
By: SEYMOUR A. SCHLOSSER
-----------------------------------
Its: Vice President - Finance
-----------------------------------
JAMES CARROLL
JAMES CARROLL
---------------------------------------
2
<PAGE>
Exhibit 10.14
SECOND AMENDMENT TO
EXECUTIVE DEFERRED COMPENSATION AGREEMENT
WHEREAS, Wynn's International, Inc. (the "Company") and James Carroll (the
"Executive") entered into an executive deferred compensation agreement in
February 1997 (the "Revised Agreement") which superseded a series of prior
deferred compensation agreements pursuant to which the Executive elected to
defer certain portions of his compensation from the Company; and
WHEREAS, the Company and the Executive amended the Revised Agreement on
December 1, 1997 (the "First Amendment"); and
WHEREAS, the Company and the Executive desire to amend the Revised
Agreement again to reflect their prior agreement with respect to additional
compensation deferrals by Executive; and
WHEREAS, the Executive has no ability at the present time to demand payment
of any amounts pursuant to this Second Amendment or the Revised Agreement; and
WHEREAS, the Company believes that the adoption of this Amendment is in the
best interests of the Company;
NOW, THEREFORE, it is hereby declared as follows:
1. Section 1 of the Revised Agreement is amended to read in its entirety
as follows:
"1. AMOUNT OF DEFERRALS.
The Deferrals under this Agreement shall be (i) $1,465,141.26
representing the sum of Executive's compensation deferrals under the Prior
Agreements, plus interest thereon through December 31, 1996, and (ii) any
compensation deferred by Executive for services rendered after December 31,
1996 plus interest thereon pursuant to the terms of this Agreement."
2. Section 2 of the Revised Agreement is amended to read in its entirety
as follows:
"2. CREDITING OF EARNINGS.
The Executive's Deferrals shall bear interest at the lesser of
(i) the rate of 15% per annum, or (ii) the prime rate as quoted by Bank of
America, NT&SA on the last business day of each calendar quarter, as
follows:
<PAGE>
(a) The Deferrals made prior to January 1, 1997 shall bear
interest from January 1, 1997; and
(b) Any Deferrals made after December 31, 1996 shall bear
interest from the date the deferral is credited to the account of
Executive."
3. Except as expressly amended in this Second Amendment, the provisions
of the Revised Agreement, as amended by the First Amendment, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in the
County of Orange, California on the 26th day of February, 1998.
WYNN'S INTERNATIONAL, INC.
By: SEYMOUR A. SCHLOSSER
-----------------------------------
Its: Vice President - Finance
-----------------------------------
JAMES CARROLL
JAMES CARROLL
---------------------------------------
2
<PAGE>
EXHIBIT 11
WYNN'S INTERNATIONAL, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE - BASIC
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income from continuing $25,894,000 $21,301,000 $16,701,000
operations
Discontinued operations:
Income (loss) from operations -- 16,000 (1,258,000)
Income (loss) on disposal 319,000 (879,000) --
----------- ----------- -----------
Net income $26,213,000 $20,438,000 $15,443,000
----------- ----------- -----------
----------- ----------- -----------
Weighted average number
of shares outstanding 19,649,234 20,462,702 20,059,265
Income per common share:
Continuing operations $1.32 $1.04 $.83
Discontinued operations:
Income (loss) from operations -- -- (.06)
Income (loss) on disposal .01 (.04) --
----------- ----------- -----------
Net income per common share $1.33 $1.00 $.77
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
II-7
<PAGE>
EXHIBIT 11
(Continued)
COMPUTATION OF NET INCOME PER COMMON SHARE -
ASSUMING DILUTION
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income from continuing operations $25,894,000 $21,301,000 $16,701,000
Net interest expense from
convertible bonds -- -- 44,000
----------- ----------- -----------
Net earnings from continuing
operations for purposes of dilution 25,894,000 21,301,000 16,745,000
Discontinued operations:
Income (loss) from operations -- 16,000 (1,258,000)
Net interest expense from
convertible bonds -- -- 15,000
----------- ----------- -----------
Net earnings from discontinued
operations for purposes of dilution -- 16,000 (1,243,000)
Income (loss) on disposal 319,000 (879,000) --
----------- ----------- -----------
Net income $26,213,000 $20,438,000 $15,502,000
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of shares
outstanding 19,649,234 20,462,702 20,059,265
Net shares assumed issued using the
treasury stock method for stock
options outstanding during each
period based on average market price
648,065 654,037 440,415
Net shares assumed issued for
performance shares pending issuance
based on satisfaction of vesting
requirements 7,634 -- --
Dilutive effect of assumed
conversion of bonds outstanding -- -- 235,705
----------- ----------- -----------
Diluted shares 20,304,933 21,116,739 20,735,385
----------- ----------- -----------
----------- ----------- -----------
Income per common share:
Continuing operations $1.28 $1.01 $.81
Discontinued operations:
Income (loss) from operations -- -- (.06)
Income (loss) on disposal .01 (.04) --
----------- ----------- -----------
Net income $1.29 $.97 $.75
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Note: The above calculations reflect for all periods the three-for-two stock
splits to stockholders of record in December 1997, December 1996 and December
1995.
II-8
<PAGE>
EXHIBIT 13
This exhibit consists of the following portions of the 1997 Annual
Report to Stockholders of Wynn's International, Inc.: the Report of
Independent Auditors on page 21, the consolidated financial statements of
Registrant on pages 22 through 36, the Selected Financial Data section on
page 16, the Management's Discussion and Analysis of Financial Condition and
Results of Operations section on pages 17 through 21, and the information
appearing under "Common Stock Prices and Cash Dividends Per Share: 1997-1996"
on page 37 and "Number of Stockholders" and "Stock Exchange Listing" on page
37.
<PAGE>
WYNN'S INTERNATIONAL, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE YEARS ENDED DECEMBER 31, 1997
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Continuing operations:
Net sales $320,953 $288,531 $262,584 $234,659 $201,522
- -----------------------------------------------------------------------------------------------------------------------------
Income before taxes based on income 41,233 33,918 26,500 20,843 12,327
Provision for taxes based on income 15,339 12,617 9,799 8,461 5,481
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 25,894 21,301 16,701 12,382 6,846
Income (loss) from discontinued operations,
net of income tax --- 16 (1,258) (561) 2,135
Income (loss) on disposal of discontinued operations,
net of income tax 319 (879) --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 26,213 $ 20,438 $ 15,443 $ 11,821 $ 8,981
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share of common stock (a):
From continuing operations $1.32 $1.04 $.83 $.66 $.37
Discontinued operations:
Income (loss) from operations --- --- (.06) (.03) .12
Income (loss) on disposal .01 (.04) --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------
Total $1.33 $1.00 $.77 $.63 $.49
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 19,649,234 20,462,702 20,059,265 18,741,338 18,356,075
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $.2133 $.1778 $.1541 $.1304 $.1244
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Selected balance sheet items:
Current assets $147,883 $149,552 $128,565 $116,022 $113,896
Current liabilities 61,386 56,942 47,837 54,056 53,305
Working capital 86,497 92,610 80,728 61,966 60,591
Current ratio 2.41 to 1 2.63 to 1 2.69 to 1 2.15 to 1 2.14 to 1
Total assets $207,091 $205,105 $177,822 $176,472 $167,799
Long-term debt due after one year --- --- 75 14,948 23,389
Stockholders' equity 127,523 132,952 116,233 95,440 84,442
Book value per common share $6.63 $6.48 $5.71 $5.08 $4.52
- -----------------------------------------------------------------------------------------------------------------------------
Number of employees--continuing operations 2,073 1,962 1,769 1,729 1,579
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR CERTAIN PER
SHARE INFORMATION. ALL PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE 3
FOR 2 STOCK SPLITS EFFECTED IN 1997, 1996, 1995 AND 1993.
The above Selected Financial Data for the five years ended December 31, 1997
is not reported upon herein by independent auditors. See Management's
Discussion and Analysis of Financial Condition and Results of Operations.
16
<PAGE>
WYNN'S INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
1997 COMPARED TO 1996 -- Net sales in 1997 were $321.0 million compared to
$288.5 million in 1996, an increase of 11 percent. Sales increased 20
percent at the Automotive and Industrial Components Division, which is
comprised principally 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. Sales increased 3 percent at the Specialty
Chemicals Division in 1997 compared to 1996.
Precision recorded a 20 percent increase in sales in 1997. Precision's
growth was primarily due to higher sales to the U.S. automotive original
equipment manufacturers ("OEMs") and the off-road construction industry and
the introduction of new products. Precision's sales in 1997 also increased
relative to 1996 due to the September 30, 1996 acquisition of an automotive
plastic sealing business. Excluding this acquisition, Precision's sales
increased 12 percent in 1997 over 1996. Sales of Precision's innovative
composite gaskets continued to grow in 1997 compared to the prior year, and
Precision expects this trend to continue as new applications are developed
and approved by major automotive OEMs and other vehicle manufacturers.
Precision continued to receive requests in 1997 for price freezes or price
reductions from customers in many markets that it serves. Precision expects
this trend to continue in 1998. Higher revenues at Precision generally
resulted from an increase in the number of units sold as opposed to price
increases.
Skeels' sales increased 3 percent in 1997 compared to 1996, principally
due to improved economic conditions in the southern California building
industry.
Sales at the Specialty Chemicals Division, principally car care products,
increased 3 percent on a worldwide basis compared to 1996. Reported sales
were adversely affected by changes in foreign exchange rates in 1997 compared
to 1996. Excluding the impact of foreign exchange rate fluctuations, total
revenues in 1997 would have increased 9 percent compared to 1996. The
revenue increase was due principally to increased sales in the United States,
Canada and Belgium. In the U.S., revenues in 1997 increased 7 percent
compared to 1996, mainly due to growth in sales by the Division's Azusa,
California-based operations to the U.S. professional market and growth in
export sales to Asian and Latin American distributors. Sales from the Wynn's
product warranty division increased 6 percent in 1997, which was below the
growth rate experienced in each of the four years preceding 1997. The lower
growth rate was due to the general slowdown in used car sales in 1997,
primarily caused by subprime lenders being more selective in granting new
credit for auto loans. A significant portion of sales by the Wynn's product
warranty division are through relationships established with certain subprime
lenders. Foreign subsidiary sales in 1997 were slightly higher than 1996,
but would have increased 11 percent if foreign exchange rates in 1997 had
remained unchanged from 1996 rates. On a local currency basis, sales grew in
all major foreign subsidiary operations. The most significant sales growth
in local currency occurred in Belgium, France and Canada.
Interest income in 1997 was $2.1 million compared to $1.8 million in 1996.
The increase was due to higher average cash and cash equivalent balances in
1997 than in the prior year.
On a consolidated basis, total cost of sales in 1997 was 62.3 percent of
sales compared to 60.5 percent in 1996. Both Precision and the Specialty
Chemicals Division generated higher gross profit due to the higher sales
volumes, but gross margins declined as a percentage of sales. Precision's
gross margin declined due to higher sales of its lower margin plastics
products and general price pressures. The decrease in gross margin at the
Specialty Chemicals Division was due primarily to the growth in sales of
product warranty programs and the professional equipment product line, which
generally have lower gross margins than other products of the Division.
Selling, general and administrative ("SG&A") expenses decreased in 1997 to
$81.5 million, or 25.4 percent of sales, compared to $81.7 million, or 28.3
percent of sales. The significant decline during 1997 in SG&A expenses as a
percentage of sales was mainly due to the growth in sales at Precision, which
traditionally has a lower level of operating expenses as a percentage of
sales than the Specialty Chemicals Division. Both Precision and the
Specialty Chemicals Division were able to reduce SG&A expenses as a
percentage of their respective sales due to the higher sales volumes achieved
and constant monitoring of costs. The 1997 SG&A expenses at the Specialty
Chemicals Division also benefited from $.5 million of proceeds from the
partial recovery of a judgment in a trademark infringement lawsuit and the
nonrecurrence of certain 1996 expenses for relocation and severance costs at
two foreign locations. Corporate expenses increased in 1997 compared to 1996
due to the addition of one senior executive position and higher incentive
compensation costs. In 1997, environmental-related expenses included in
total SG&A increased compared to 1996. These costs
17
<PAGE>
WYNN'S INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
have been allocated to the segment to which the underlying property is most
closely associated. 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 $41.2 million in 1997
compared to $33.9 million in 1996. In the Automotive and Industrial
Components Division, operating profits increased 14 percent in 1997 due to
Precision's higher revenue levels. Precision's profitability is sensitive to
changes in volume. Operating profits of the Specialty Chemicals Division
increased 25 percent in 1997 due to the small increase in revenues and lower
operating costs as a percentage of sales. Excluding the impact of foreign
exchange rate changes, the Specialty Chemicals Division's operating profit
would have increased 32 percent in 1997.
The effective tax rate in 1997 was 37.2 percent, unchanged from the prior
year.
Income from continuing operations in 1997 was $25.9 million compared to
$21.3 million in 1996. The improvement in 1997 compared to 1996 was
primarily attributable to the higher operating profit at both the Specialty
Chemicals Division and Precision, partially offset by higher corporate
expenses.
Basic earnings per share from continuing operations in 1997 was $1.32
compared to $1.04 in 1996. Diluted earnings per share from continuing
operations in 1997 was $1.28 compared to $1.01 in 1996. The Company adopted
Statement of Financial Accounting Standards No. 128, Earnings per Share, in
December 1997. See Note 2 of Notes to Consolidated Financial Statements for
a discussion of the 3 for 2 stock splits in 1997, 1996 and 1995. The
increase in per share results in 1997 was due to the increase in net income
and the 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. This decrease was partially offset by the exercise of
stock options to purchase 439,699 shares of common stock.
FINANCIAL CONDITION
Working capital at December 31, 1997 was $86.5 million compared to $92.6
million at December 31, 1996. The current ratio was 2.41 to 1 at December
31, 1997 compared to 2.63 to 1 at December 31, 1996. The Company has
adequate cash and cash equivalents and lines of credit to meet foreseeable
working capital requirements.
On March 26, 1997, the Company commenced a Dutch Auction self-tender offer
(the "Self-Tender Offer") to purchase for cash up to 1,650,000 shares of its
issued and outstanding common stock. Pursuant to the Self-Tender Offer,
which terminated on April 22, 1997, the Company purchased 1,650,000 shares of
its common stock at a purchase price of $16.17 per share. The aggregate cost
to the Company of the Self-Tender Offer, including expenses, was
approximately $27 million, which was funded from cash and cash equivalents.
The shares purchased in the Self-Tender Offer were treated as treasury shares
and the aggregate cost has been reported as a reduction in the equity of the
Company as the cost of treasury shares.
Cash and cash equivalents were $43.3 million at December 31, 1997 compared
to $53.3 million at December 31, 1996. Although cash provided by all
operating activities was $34.5 million, the Company's normal investing and
financing activities, combined with the $28.1 million used for repurchases of
the Company's common stock during the year, resulted in a $10.0 million
decrease in cash and cash equivalents.
Accounts receivable increased $8.0 million to $56.4 million at December
31, 1997 from $48.3 million at December 31, 1996. This increase was
principally due to the higher sales at Precision and the Specialty Chemicals
Division in the fourth quarter of 1997 compared to the quarter ended December
31, 1996 and the offering of extended terms to certain large customers of the
Specialty Chemicals Division. Inventories were $31.0 million at the end of
1997, a slight increase from $30.9 million at December 31, 1996. The
increase in inventories was due to higher inventory levels at the Specialty
Chemicals Division, primarily in the U.S. professional products division,
partially offset by lower inventories at Precision.
Total current liabilities increased $4.4 million to $61.4 million at
December 31, 1997 from $56.9 million at December 31, 1996. The increase was
primarily due to an increase in accounts payable, higher accruals for product
warranty programs, and a general increase in other accrued liabilities,
partially offset by a decrease in the amount payable for taxes based on
income. Income taxes paid in 1997 were $16.4 million compared to $9.6 million
in 1996. The increase in income taxes paid in 1997 was primarily due to the
higher income before taxes in 1997 compared to 1996 and the $2.6 million tax
benefit in 1996 attributable to the deductibility of goodwill associated with
the disposal of the operating assets of Wynn's Climate Systems, Inc.
18
<PAGE>
WYNN'S INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property, plant and equipment increased $3.6 million to $48.3 million in
1997, consisting of $11.8 million in additions (principally at Precision and
the Specialty Chemicals Division), offset by the annual depreciation charge
of $7.7 million, as well as retirements and foreign exchange adjustments.
Noncurrent other liabilities increased $2.9 million to $10.4 million at
December 31, 1997 from $7.5 million at December 31, 1996. The increase was
primarily due to higher accrued reserves relating to environmental matters.
At December 31, 1997, the Company had two separate $15.0 million unsecured
domestic committed bank lines of credit, which permit borrowings through June
2000, and one uncommitted domestic line of credit. The Company also has
various other foreign uncommitted credit lines. At December 31, 1997, no
borrowings were outstanding under any of these 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 is required to supplement working capital
requirements.
Stockholders' equity at the end of 1997 was $127.5 million compared to
$133.0 million at the end of 1996, a decrease of $5.4 million. Although net
income in 1997 was $26.2 million, the decrease in stockholders' equity was
primarily attributable to repurchases of $28.1 million of the Company's
common stock, dividends declared of $4.2 million and a $3.0 million decrease
in the foreign currency translation account.
The Company expects total capital expenditures in 1998 to be approximately
$13 million, funded from current operations. As previously announced, the
Company is continuing to explore possible niche acquisitions.
YEAR 2000 MATTERS
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. In 1996 the Company began
the necessary change-over of computer systems at its major locations, and
anticipates the changes will be substantially completed in 1998. Certain
smaller foreign locations are also presently working toward timely
implementation of necessary changes. The costs incurred thus far, and
expected to be incurred in the future, are not significant. The Company is
also working with customers and vendors to determine their ability to make
the necessary conversions. Management presently expects that the necessary
corrections will be completed before the Year 2000 with no effect on
customers or disruption to business operations.
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 1997 generally was not
able to raise prices to its customers to pass along the cost increases
experienced.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report may be "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, in that they express the Company's expectations or beliefs
concerning future events. The statements include the following: the expected
continued growth of sales of the product warranty division and Precision's
composite gasket product line; the sufficiency of working capital; the
availability of new lines of credit if needed by the Company; the anticipated
level of capital expenditures; and the lack of impact of the Year 2000
problem on the Company's business operations.
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: sales of
new and used cars in the United States; automotive and off-road construction
vehicle production rates in North America; currency exchange rates relative
to the U.S. dollar; the impact of competitive products and pricing; attempts
by state governments to regulate the product warranty program; termination of
one or more of the product 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; the ability of the Company's vendors and customers to
successfully resolve any Year 2000 issues in their respective businesses; and
general economic conditions, especially in North America and Western Europe.
The Company's actual results thus may differ materially from the expected
results expressed or implied by the forward-looking statements.
19
<PAGE>
WYNN'S INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
1996 COMPARED TO 1995 -- Net sales in 1996 were $288.5 million compared to
$262.6 million in 1995, an increase of 10 percent. Sales increased 12
percent at the Specialty Chemicals Division and 8 percent for the Automotive
and Industrial Components Division.
Sales at the Specialty Chemicals Division, principally car care products,
increased 12 percent on a worldwide basis compared to 1995. Excluding the
impact of foreign exchange rate fluctuations, total revenues in 1996 would
have increased 14 percent compared to 1995. The revenue increase was due
principally to increased sales in the United States, Canada, the United
Kingdom and Belgium. In the United States, revenues in 1996 increased 27
percent compared to 1995, mainly due to strong sales of the division's
product warranty programs, higher sales to the U.S. professional market and
growth in export sales from the U.S. to Asian distributors. The Wynn's
product warranty division experienced strong revenue growth again in 1996,
with sales increasing 45 percent over 1995, principally because of increased
business with national account customers and the continued high level of used
car sales in the U.S. during the year. Foreign subsidiary sales increased 2
percent in 1996 over 1995, but would have increased 6 percent if foreign
exchange rates in 1996 had remained unchanged from 1995 rates. Sales
increased in France (industrial products), Canada, the United Kingdom,
Belgium and Australia, but sales decreased in the French automotive
subsidiaries and in South Africa.
Precision recorded an 8 percent increase in sales in 1996. Precision's
growth was primarily due to higher sales to the United States automotive OEMs
and the off-road construction industry, and the introduction of new products.
Precision's sales in 1996 also increased due to the September 30, 1996
acquisition of an automotive plastic sealing business. Excluding this
acquisition, sales increased 6 percent in 1996 over 1995. Sales of
Precision's recently developed composite gasket increased in 1996 compared to
1995. Higher revenues at Precision generally resulted from an increase in
the number of units sold as opposed to price increases.
Skeels' sales increased 5 percent in 1996 compared to 1995, principally
due to improved economic conditions in southern California and continued
efforts to implement new sales and marketing programs.
Interest income in 1996 was $1.8 million compared to $.9 million in 1995.
The increase was due to higher cash and cash equivalent balances in 1996 than
in the prior year.
On a consolidated basis, total cost of sales in 1996 was 60.5 percent of
sales compared to 59.9 percent in 1995. The small decrease in the
consolidated gross margin was due primarily to the growth in sales of the
product warranty programs in the Specialty Chemicals Division which generally
have lower gross margins than other products of the Division. The Specialty
Chemicals Division's gross profit increased in absolute dollars due to higher
sales. Precision's gross margin was virtually the same in 1996 compared to
1995.
Selling, general and administrative expenses increased to $81.7 million in
1996 from $78.3 million in 1995, but as a percentage of sales declined from
29.8 percent in 1995 to 28.3 percent in 1996. The increase in SG&A expenses
was principally attributable to the higher sales at the Specialty Chemicals
Division and Precision, partially offset by lower corporate expenses.
Operating expenses of the Specialty Chemicals Division declined as a
percentage of sales due to the change in revenue mix, constant monitoring of
costs and lower accruals for environmental claims. Precision's operating
expenses in absolute dollars also increased over 1995 levels due to the
higher revenues, but remained approximately the same as a percentage of
Precision's revenues. During 1996, corporate expenses decreased compared to
1995 levels primarily because of lower expenses for employee severance and
environmental matters. The Company closely monitors legal and factual
developments in the environmental area to evaluate the adequacy of present
reserves.
Interest expense in 1996 declined to $.2 million from $1.4 million in 1995
due to the lack of virtually any interest bearing indebtedness in 1996.
During 1995 the Company repaid nearly all of its indebtedness and remained
virtually debt free through 1996.
Income before taxes from continuing operations was $33.9 million in 1996
compared to $26.5 million in 1995. In the Automotive and Industrial
Components Division, operating profits increased 6 percent in 1996 due to
Precision's higher revenue levels. Precision's profitability is sensitive to
changes in volume. Operating profits of the Specialty Chemicals Division
increased 36 percent in 1996 due to increased revenues and lower operating
costs as a percentage of sales. Excluding the impact of foreign exchange
rate changes, the Specialty Chemicals Division's operating profit would have
increased 40 percent in 1996.
The effective tax rate in 1996 increased slightly to 37.2 percent compared
to the effective tax rate of 37.0 percent in 1995.
Income from continuing operations in 1996 was $21.3 million compared to
$16.7 million in 1995. The improvement in 1996 compared to 1995 was primarily
20
<PAGE>
WYNN'S INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
attributable to the higher operating profit at both the Specialty Chemicals
Division and Precision, the increase in interest income and the decrease in
interest expense.
Basic earnings per share from continuing operations in 1996 was $1.04
compared to $.83 in 1995. Diluted earnings per share from continuing
operations in 1996 was $1.01 compared to $.81 in 1995. The increase in per
share results in 1996 was due to the increase in net income, partially offset
by an increase in shares outstanding. The number of shares outstanding
increased primarily as a result of the exercise of stock options to purchase
298,851 shares of common stock and an increase in the number of outstanding
stock options required to be included in the outstanding shares calculation.
These increases were offset by the repurchase in 1996 of 153,225 shares of
the Company's common stock pursuant to a $15 million share repurchase program
authorized in December 1995.
RESULTS OF DISCONTINUED OPERATIONS
1997 COMPARED TO 1996 AND 1995 -- On May 23, 1996, the Company sold the
principal operating assets of Wynn's Climate Systems, Inc., ("WCS"), the
automotive air conditioning subsidiary which was formerly part of the
Automotive and Industrial Components Division.
The results of operations for WCS and the income (loss) on disposal of
WCS' principal net operating assets have been classified on the statements of
income as discontinued operations. Revenues from discontinued operations for
the period January 1 to May 23, 1996 and for the twelve months ended December
31, 1995 were $20,353,000 and $41,203,000, respectively. The loss on
disposal of the principal operating assets of WCS for the year ended December
31, 1996 included a $2.6 million tax benefit attributable to the
deductibility of goodwill associated with the original acquisition of WCS in
1978. Such goodwill had been previously expensed for financial statement
purposes with no tax benefit.
In 1997, income on disposal of discontinued operations was attributable to
adjustments to certain estimated reserves arising from the May 1996 sale. At
December 31, 1997 the remaining net reserves attributable to the sale of WCS'
assets were not significant.
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, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. 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 consolidated financial position of Wynn's
International, Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
January 27, 1998
21
<PAGE>
WYNN'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $320,953 $288,531 $262,584
Interest income 2,106 1,763 943
- --------------------------------------------------------------------------------------------------------------
323,059 290,294 263,527
- --------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 200,069 174,440 157,398
Selling, general and administrative 81,520 81,719 78,279
Interest expense 237 217 1,350
- --------------------------------------------------------------------------------------------------------------
281,826 256,376 237,027
- --------------------------------------------------------------------------------------------------------------
Income from continuing operations before taxes based on income 41,233 33,918 26,500
Provision for taxes based on income 15,339 12,617 9,799
- --------------------------------------------------------------------------------------------------------------
Income from continuing operations 25,894 21,301 16,701
- --------------------------------------------------------------------------------------------------------------
Discontinued operations:
Income (loss) from discontinued operations, net of income
taxes (benefits) of $14 and $(691), respectively --- 16 (1,258)
Income (loss) on disposal of discontinued operations, net of
income taxes (benefits) of $195 and $(4,643), respectively 319 (879) ---
- --------------------------------------------------------------------------------------------------------------
Net income $ 26,213 $ 20,438 $ 15,443
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) per share of common stock:
Basic:
Continuing operations $1.32 $1.04 $.83
Discontinued operations:
Income (loss) from operations --- --- (.06)
Income (loss) on disposal .01 (.04) ---
- --------------------------------------------------------------------------------------------------------------
Total $1.33 $1.00 $.77
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Diluted:
Continuing operations $1.28 $1.01 $.81
Discontinued operations:
Income (loss) from operations --- --- (.06)
Income (loss) on disposal .01 (.04) ---
- --------------------------------------------------------------------------------------------------------------
Total $1.29 $ .97 $.75
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
WYNN'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 43,266 $ 53,304
Accounts receivable, less $959 allowance
for doubtful accounts ($870 in 1996) 56,355 48,347
Inventories 31,045 30,940
Prepaid expenses and other current assets
(including deferred tax assets
of $12,208 in 1997 and $12,025 in 1996) 17,217 16,707
Net assets of discontinued operations --- 254
- -----------------------------------------------------------------------------------------------
Total current assets 147,883 149,552
Property, plant and equipment, at cost less
accumulated depreciation and amortization 48,341 44,719
Costs in excess of fair value of net assets of businesses acquired,
less accumulated amortization of $1,975 ($1,829 in 1996) 3,049 3,194
Other assets 7,818 7,640
- -----------------------------------------------------------------------------------------------
$207,091 $205,105
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,696 $ 18,137
Dividends payable 1,030 916
Taxes based on income 1,264 3,676
Accrued liabilities:
Product warranty programs 14,407 12,434
Salaries and other compensation 10,282 9,642
Other 13,707 12,068
Long-term debt due within one year --- 69
- -----------------------------------------------------------------------------------------------
Total current liabilities 61,386 56,942
Deferred taxes based on income 7,825 7,740
Other liabilities 10,357 7,471
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value; 500,000 shares authorized, none issued --- ---
Common stock, $1 par value; 40,000,000 shares authorized,
21,860,511 shares issued (14,546,540 in 1996) 21,861 14,547
Capital in excess of par value 2,323 10,377
Retained earnings 137,457 115,418
Equity adjustment from foreign currency translation (5,033) (1,985)
Unearned compensation (58) (139)
Common stock held in treasury 2,623,087 shares,
at cost (869,962 in 1996) (29,027) (5,266)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 127,523 132,952
- -----------------------------------------------------------------------------------------------
$207,091 $205,105
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
23
<PAGE>
WYNN'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1997
EQUITY
ADJUSTMENT COMMON
COMMON STOCK CAPITAL IN FROM FOREIGN STOCK
(DOLLARS IN THOUSANDS, -------------------- EXCESS OF RETAINED CURRENCY UNEARNED HELD IN
EXCEPT PER SHARE AMOUNTS) SHARES AMOUNT PAR VALUE EARNINGS TRANSLATION COMPENSATION TREASURY TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 5,918,692 $ 5,919 $ 9,871 $ 86,250 $ (2,238) $(781) $ (3,581) $ 95,440
Net income --- --- --- 15,443 --- --- --- 15,443
Cash dividends --- --- --- (3,074) --- --- --- (3,074)
Stock options exercised 31,900 32 521 --- --- --- --- 553
Tax benefits related to
stock option exercises
and stock awards --- --- 146 --- --- --- --- 146
Conversion of $6,250
convertible notes 426,135 426 5,824 --- --- --- --- 6,250
Adjustments from foreign
currency translation, net --- --- --- --- 1,068 --- --- 1,068
Amortization of unearned
compensation --- --- --- --- --- 408 --- 408
3 for 2 stock split 3,188,271 3,188 (3,188) --- --- --- --- ---
Cash paid for fractional
shares at time of split --- --- (1) --- --- --- --- (1)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 9,564,998 9,565 13,173 98,619 (1,170) (373) (3,581) 116,233
Net income --- --- --- 20,438 --- --- --- 20,438
Cash dividends --- --- --- (3,639) --- --- --- (3,639)
Purchase of treasury stock at cost --- --- --- --- --- --- (1,767) (1,767)
Stock options exercised 132,823 133 1,457 --- --- --- 37 1,627
Restricted stock issued
to employee --- --- 107 --- --- (152) 45 ---
Tax benefits related to
stock option exercises
and stock awards --- --- 493 --- --- --- --- 493
Adjustments from foreign
currency translation, net --- --- --- --- (815) --- --- (815)
Amortization of unearned
compensation --- --- --- --- --- 386 --- 386
3 for 2 stock split 4,848,719 4,849 (4,849) --- --- --- --- ---
Cash paid for fractional
shares at time of split --- --- (4) --- --- --- --- (4)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 14,546,540 14,547 10,377 115,418 (1,985) (139) (5,266) 132,952
Net income --- --- --- 26,213 --- --- --- 26,213
Cash dividends --- --- --- (4,174) --- --- --- (4,174)
Purchase of treasury stock at cost --- --- --- --- --- --- (28,056) (28,056)
Stock options exercised 27,264 27 (2,348) --- --- (92) 4,295 1,882
Tax benefits related to
stock option exercises
and stock awards --- --- 1,585 --- --- --- --- 1,585
Adjustments from foreign
currency translation, net --- --- --- --- (3,048) --- --- (3,048)
Amortization of unearned
compensation --- --- --- --- --- 173 --- 173
3 for 2 stock split 7,286,707 7,287 (7,287) --- --- --- --- ---
Cash paid for fractional
shares at time of split --- --- (4) --- --- --- --- (4)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 21,860,511 $21,861 $ 2,323 $137,457 $ (5,033) $ (58) $(29,027) $127,523
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE>
WYNN'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Income from continuing operations $25,894 $21,301 $16,701
Adjustments:
Depreciation and amortization 8,283 7,405 6,840
Provision for uncollectible accounts 307 312 244
Amortization of stock compensation 173 386 408
Gain on fixed asset disposals (1) (11) (59)
Provision (benefit) for deferred income taxes 18 (3,381) (1,351)
Decrease (increase) in:
Accounts receivable-net (8,289) (2,721) (3,649)
Inventories (105) (1,492) (710)
Prepaid expenses and other current assets (327) (883) (355)
Other assets (611) (540) (518)
Increase (decrease) in:
Accounts payable 2,559 (116) 2,332
Product warranty program reserves 1,973 3,259 3,764
Income taxes payable (848) 1,754 1,224
Accrued liabilities 2,279 3,504 511
Other liabilities 2,886 713 1,647
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 34,191 29,490 27,029
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations --- 16 (1,258)
Income (loss) on disposal of discontinued operations 319 (879) ---
Net items providing cash from (used in) discontinued operations --- (269) 4,630
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) discontinued operations 319 (1,132) 3,372
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by all operating activities 34,510 28,358 30,401
- ---------------------------------------------------------------------------------------------------------------
Investing Activities:
Additions to property, plant and equipment (11,811) (9,059) (6,755)
Acquisition of business --- (8,255) ---
Net proceeds from disposition of net assets
of discontinued operations 254 23,631 ---
Other cash receipts-net 79 73 1,465
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (11,478) 6,390 (5,290)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings under lines of credit-net --- --- (239)
Payments on long-term debt (69) (97) (16,693)
Dividends paid (4,060) (3,512) (2,899)
Proceeds from exercise of stock options 1,882 1,627 553
Purchase of treasury stock (28,056) (1,767) ---
Other cash disbursements-net (4) (4) (1)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (30,307) (3,753) (19,279)
- ---------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes (2,763) (818) 849
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (10,038) 30,177 6,681
Cash and cash equivalents at beginning of year 53,304 23,127 16,446
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $43,266 $53,304 $23,127
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Supplemental disclosure of interest and income taxes paid and noncash
investing and financing activities:
Interest paid in 1997, 1996 and 1995 was $108,000, $107,000 and $2,484,000,
respectively. Income taxes paid in 1997, 1996 and 1995 were $16,364,000,
$9,615,000 and $9,235,000, respectively. In 1995 additional common stock
was issued upon the conversion of $6,250,000 of long-term debt.
SEE ACCOMPANYING NOTES.
25
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 one majority-owned subsidiary. All significant
intercompany transactions have been eliminated. Certain reclassifications
have been made to the prior years' amounts to conform with the 1997
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. The results of
operations for WCS and the income (loss) on disposal of WCS' principal net
operating assets have been classified on the statements of income as
discontinued operations. At December 31, 1997 the remaining net reserves
attributable to the sale of WCS' assets were not significant. All years
presented have been recast to reflect the effect of the 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.
STOCK SPLITS
The Company effected a 3 for 2 stock split in the fourth quarter of 1997
and similar 3 for 2 stock splits in the fourth quarters of 1996 and 1995.
Share amounts presented in the Consolidated Balance Sheets and Consolidated
Statements of Stockholders' Equity reflect the actual share amounts
outstanding for each period presented. All references elsewhere in the
financial statements to share and per share amounts have been restated
retroactively for the three stock splits. See Note 2.
EARNINGS PER SHARE
During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings per Share. In accordance with Statement 128,
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 (adjusted for the interest in 1995
on the convertible debt) by the weighted average number of diluted shares
outstanding during the year, and assumes the conversion in 1995 of the
convertible debt and the exercise of stock options. The weighted average
number of shares outstanding used to calculate earnings per share in 1997,
1996 and 1995 for basic purposes were 19,649,234, 20,462,702 and 20,059,265,
respectively, and for diluted purposes were 20,304,933, 21,116,739 and
20,735,385, respectively. (See Note 2 for a discussion of the stock splits
effected in 1997, 1996 and 1995.)
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 $39,368,000
in 1997 and $50,344,000 in 1996 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.
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, 1997 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
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 7).
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 forty years.
26
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Based upon the Company's analysis, the Company believes that no
impairment of the carrying value of its long-lived assets existed at December
31, 1997.
INCOME TAXES
The Company provides for income taxes utilizing the liability method and
provides taxes on the undistributed earnings of all foreign subsidiaries.
OTHER LIABILITIES
Noncurrent other liabilities consist primarily of accrued reserves for
environmental matters, pension liabilities and post employment benefits. Total
noncurrent reserves for environmental matters at December 31, 1997 are $7.9
million. (See Note 10 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 separate component of 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.
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 on the option exercise date.
2. DISCONTINUED OPERATIONS; ACQUISITION; STOCK SPLITS
DISCONTINUED OPERATIONS
On May 23, 1996, the Company sold the principal operating assets of Wynn's
Climate Systems, Inc. The assets acquired by the buyer included substantially
all of WCS' property, plant and equipment and its intellectual property. The
buyer assumed certain liabilities, contracts and leases of WCS. The buyer
entered into a consignment agreement to sell, on a reasonable best-efforts
basis, WCS' inventory during the twelve months ended May 22, 1997 and to
collect on behalf of WCS all outstanding accounts receivable. As of December
31, 1997, the Company has received from all sources approximately $29.5 million
from the transaction.
Revenues from discontinued operations for the period January 1 to May 23,
1996 and for the twelve months ended December 31, 1995 were $20,353,000 and
$41,203,000, respectively.
ACQUISITION
On September 30, 1996, the Company purchased substantially all of the assets
of the automotive plastics business of Lawson Mardon Wheaton Inc. The purchase
price was $8,255,000. The acquisition has been accounted for using the
purchase method of accounting. The business is located in Springfield,
Kentucky and manufactures plastic seals for automotive original equipment
manufacturers and Tier 1 suppliers. The business had annual sales of
approximately $14 million. Operating results from the business are included in
the Automotive and Industrial Components Division beginning in the fourth
quarter of 1996.
STOCK SPLITS
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. Previously, on December 11, 1996 and November 29,
1995, the Board of Directors authorized 3 for 2 stock splits also effected in
the form of stock dividends payable to stockholders of record on December 23,
1996 and December 15, 1995. Share amounts presented in the Consolidated
Balance Sheets and Consolidated Statements of Stockholders' Equity reflect the
actual share amounts outstanding for each period presented. All references
elsewhere in the
27
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. DISCONTINUED OPERATIONS; ACQUISITION; STOCK SPLITS (CONTINUED)
Consolidated Financial Statements, Notes to Consolidated Financial Statements,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and Selected Financial Data to average number of shares outstanding
and related prices, per share amounts and stock option plan data have been
restated retroactively to reflect the three stock splits.
3. FOREIGN OPERATIONS
Condensed combined financial information of Wynn's foreign subsidiaries (the
operations of which are located in Australia, Belgium, Canada, France, Germany,
Holland, Mexico, New Zealand, South Africa, Spain, United Kingdom and
Venezuela) at December 31, 1997 and 1996 and for the three years ended December
31, 1997 before eliminations of intercompany balances and profits and any
provision for taxes on repatriation of foreign earnings, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current assets $47,289 $44,099
Property, plant and equipment 4,856 5,055
Other noncurrent assets 2,822 2,983
- --------------------------------------------------------------------------------
$54,967 $52,137
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Current liabilities $22,392 $21,115
Deferred taxes based on income 659 689
Stockholders' equity 31,916 30,333
- --------------------------------------------------------------------------------
$54,967 $52,137
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $96,184 $93,949 $91,946
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net income $ 6,508 $ 5,357 $ 4,941
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Transaction gains and losses resulting from changes in foreign currency
exchange rates have been charged to operations and are immaterial.
4. INVENTORIES
Inventories consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $19,821 $19,789
Raw materials and work in process 11,224 11,151
- --------------------------------------------------------------------------------
$31,045 $30,940
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
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, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $11,137 $ 9,535 $ 7,653
State 1,714 1,488 1,412
Foreign 3,691 3,845 3,897
- --------------------------------------------------------------------------------
Total current 16,542 14,868 12,962
- --------------------------------------------------------------------------------
Deferred:
Federal (1,133) (650) (2,154)
State (120) (373) (502)
Foreign 50 (1,228) (507)
- --------------------------------------------------------------------------------
Total deferred (1,203) (2,251) (3,163)
- --------------------------------------------------------------------------------
Total $15,339 $12,617 $ 9,799
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Pretax income from continuing operations for domestic and foreign operations
for the three years ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $32,369 $26,444 $18,450
Foreign 8,864 7,474 8,050
- --------------------------------------------------------------------------------
$41,233 $33,918 $26,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
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, 1997, follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income
tax rate 35.0% 35.0% 35.0%
State taxes, net of federal
tax benefit 2.5 2.1 2.2
Other-net (0.3) 0.1 (0.2)
- --------------------------------------------------------------------------------
Effective tax rate 37.2% 37.2% 37.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1997, the Company had the following carryforwards for tax
purposes available for future utilization with the indicated expiration periods
(in thousands):
<TABLE>
<CAPTION>
FOREIGN NET
YEAR OPERATING LOSS
- -------------------------------------------------------------------------------
<S> <C>
2001 $ 34
2002 61
2003 39
2004 37
2005 74
2006 46
2007 1
Unlimited 1,107
- -------------------------------------------------------------------------------
$1,399
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
A valuation allowance of $1,613,000 has been recognized to offset these
and other deferred tax assets. The valuation allowance against deferred tax
assets decreased by $4,000 during 1997 due to a net decrease in tax attribute
carryovers.
Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Foreign earnings $ 2,019 $ 2,031
Accelerated depreciation
and amortization 3,166 2,878
Pension plan 1,260 1,160
Other 3,525 3,780
- -------------------------------------------------------------------------------
Total deferred tax liabilities 9,970 9,849
- -------------------------------------------------------------------------------
Deferred tax assets:
Accrued expenses 13,733 12,053
Inventory valuation 834 2,295
Tax attributes carryover 1,399 1,403
- -------------------------------------------------------------------------------
Subtotal 15,966 15,751
Valuation allowances (1,613) (1,617)
- -------------------------------------------------------------------------------
Total deferred tax assets 14,353 14,134
- -------------------------------------------------------------------------------
Net deferred tax assets $ 4,383 $ 4,285
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The provisions (benefits) for income taxes for discontinued operations in
1996 differ from those amounts computed by applying the statutory federal
income tax rates due principally to deductible goodwill and federal tax
credits.
6. LINES OF CREDIT
The Company has two domestic committed unsecured lines of credit for $15.0
million each which permit borrowings through June 2000 and various domestic and
foreign uncommitted credit lines. The lines provide for borrowings at interest
rates of prime (8.5% at December 31, 1997) and/or various other prevailing
rates. One of the domestic committed credit lines also includes a $4.0 million
unsecured multicurrency and trade finance facility which provides for standby
and commercial letters of credit. The Company is required to pay a commitment
fee varying from 0.125% to 0.15% per annum on its committed lines of credit.
At December 31, 1997, the Company had no outstanding amounts under any of these
lines of credit.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 1,500 $ 1,495
Buildings 23,664 21,256
Leasehold improvements 641 703
Equipment, furniture and fixtures 72,314 65,653
- -------------------------------------------------------------------------------
98,119 89,107
Less accumulated depreciation
and amortization (49,778) (44,388)
- -------------------------------------------------------------------------------
$48,341 $44,719
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Estimated useful lives used to calculate depreciation and amortization of
property, plant and equipment are as follows:
<TABLE>
<S> <C>
Land improvements 10 - 20 years
Buildings 10 - 40 years
Leasehold improvements 2 - 10 years
Equipment, furniture and fixtures 3 - 10 years
</TABLE>
8. RETIREMENT PLANS
Wynn's and its domestic subsidiaries have four qualified defined benefit
retirement plans, which cover substantially all 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. Two other plans, which were
collectively bargained with the
29
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RETIREMENT PLANS (CONTINUED)
unions, cover hourly employees of one domestic subsidiary. Substantially all
domestic employees are eligible to participate in one of the plans. 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.
Net periodic pension costs (income) for the three years ended December 31,
1997 included the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the
period $ 766 $ 808 $ 707
Interest cost on projected
benefit obligation 1,503 1,464 1,310
Actual return on assets (5,958) (3,642) (4,496)
Net amortization and
deferral 3,555 1,473 2,609
- -------------------------------------------------------------------------------
$ (134) $ 103 $ 130
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The above table includes net periodic pension costs charged to discontinued
operations of $56,000 and $164,000 in 1996 and 1995, respectively.
All of the 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
table sets forth the plans' funded status and amounts recognized in the
Company's consolidated balance sheets at December 31, 1997 and 1996 for its
U.S. pension plans:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $(18,116) $(16,985)
- -------------------------------------------------------------------------------
Accumulated benefit
obligation $(19,079) $(17,893)
- -------------------------------------------------------------------------------
Projected benefit obligation $(22,397) $(20,421)
Plan assets at fair market value 29,542 25,049
- -------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 7,145 4,628
Unrecognized transition assets
amortized over various
periods of time (890) (1,138)
Unrecognized prior service cost 1,248 1,330
Unrecognized net gain (4,470) (2,029)
- -------------------------------------------------------------------------------
Prepaid pension cost $ 3,033 $ 2,791
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Assumptions used as of December 31, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount or settlement rate 7.25% 7.5% 7.5%
Rate of increase in
compensation level 5.0% 5.0% 5.0%
Expected long-term rate
of return on assets 9.0% 9.0% 9.0%
</TABLE>
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 a defined contribution plan for all full-time U.S. based
employees with at least 12 months of consecutive service. Eligible employees
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 this plan for 1997, 1996 and 1995 were $443,000, $408,000 and $370,000,
respectively.
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 $145,000, $124,000 and $153,000 in 1997, 1996 and 1995, 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 table sets forth the program's status and amounts recognized in the
Company's consolidated balance sheets at December 31, 1997 and 1996:
30
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Unfunded accumulated post-
retirement benefit obligation $(1,436) $(1,519)
Unrecognized net gain (resulting
from reduction in estimated
health care cost trend rates) (1,453) (1,506)
Unrecognized net transition
obligation 2,400 2,560
- -------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (489) $ (465)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The weighted average discount rates used to determine the accumulated
postretirement benefit obligation for 1997 and 1996 were 7.25% and 7.5%,
respectively. The assumed annual health care cost trend rate was 8.5% for
1998, gradually decreasing to 4.5% in 2006 and remaining at that level
thereafter. If the health care cost trend rate were increased 1%, the
accumulated postretirement benefit obligation would increase $68,000 and the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost would increase $5,000.
9. COMMITMENTS
Wynn's rents certain facilities and equipment under various noncancelable
operating leases. Rental commitments under these leases, exclusive of property
taxes and insurance, are as follows:
<TABLE>
<CAPTION>
YEAR (IN THOUSANDS)
- -------------------------------------------------------------------------------
<S> <C>
1998 $1,628
1999 1,216
2000 702
2001 443
2002 168
2003 and after 117
- -------------------------------------------------------------------------------
Total $4,274
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Rental expenses for all operating leases were $2,296,000 in 1997
($2,236,000 in 1996 and $2,027,000 in 1995).
10. 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, 1997,
included in current other accrued liabilities and noncurrent other
liabilities are consolidated accrued reserves of approximately $9.2 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.
11. 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 Stock-Based
Incentive Award Plan ("1989 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
31
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK PLANS (CONTINUED)
nonqualified stock options to non-employee directors of the Company. In
addition, the 1982 Incentive Stock Option Plan ("1982 Plan"), which expired in
April 1992, authorized the grant of incentive stock options. Under the 1982
Plan, the aggregate number of options granted could not exceed 1,012,500
shares. Under the 1989 and 1994 Plans, the aggregate number of stock related
awards may not exceed 2,039,062 shares. At December 31, 1997, the aggregate
number of options available for future grants was 360,215. All options granted
under the three plans have been made at prices not less than 100 percent 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.
During 1996, 11,250 shares of restricted stock were awarded under the 1989
Plan. The restricted stock award vested over a one-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. Unearned compensation of $152,000 was
recorded at the date of the award in 1996 based on the market value of
shares. Unearned compensation was amortized to expense over the vesting
period.
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 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.
During 1997, 14,100 performance shares were granted under the 1989 Plan.
At December 31, 1997, grants for 86,079 performance shares were outstanding,
including 7,115 shares pending issuance based on satisfaction of vesting
requirements. No shares of the Company's common stock have been issued
pursuant to performance share grants. No stock appreciation rights were
outstanding at December 31, 1997. The following tabulation summarizes
certain information related to options for common stock:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding options at
January 1, 1995 1,547,607 $ 4.72
Granted during the year 97,875 6.32
Surrendered, forfeited or expired (29,870) 4.75
Exercised (107,662) 5.14
- --------------------------------------------------------------------------
Outstanding at December 31, 1995 1,507,950 4.80
Granted during the year 137,250 10.68
Surrendered, forfeited or expired (41,516) 8.47
Exercised (258,971) 5.23
- --------------------------------------------------------------------------
Outstanding at December 31, 1996 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
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
Exercisable options outstanding at December 31, 1997, 1996 and 1995 and
the related weighted average exercise prices were 866,784, 1,136,663 and
1,277,926 and $5.50, $4.56 and $4.54, respectively.
The following tabulation summarizes certain information concerning
outstanding and exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES
- --------------------------------------------------------------------------
$3.46 $5.35 $9.72
to to to
$4.87 $6.89 $16.00
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding options:
Number outstanding 354,376 479,635 175,500
Weighted average
exercise price $3.65 $6.07 $11.94
Weighted average
remaining contractual
life in years 3.1 5.3 8.7
Exercisable options:
Number exercisable 354,376 435,236 77,172
Weighted average
exercise price $3.65 $6.05 $10.91
</TABLE>
If the Company had elected to recognize compensation cost based on the fair
value of the options
32
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
granted at the grant date, net income and earnings per share would have been
reduced to the pro forma amounts shown below:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma:
Net income $25,913 $20,266 $15,328
Earnings per share:
Basic $1.32 $.99 $.76
Diluted $1.28 $.96 $.74
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk free interest rate 6.22% 5.38% 7.23%
Expected life in years 4.5 4.5 4.5
Expected volatility .276 .274 .289
Expected dividend yield 1.56% 1.70% 2.44%
</TABLE>
The weighted average fair value of options granted during 1997, 1996 and
1995 was $3.98, $2.91 and $1.81 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% discount,
an aggregate of 1,350,000 shares of the Company's common stock. For the Plan
year ended December 31, 1997, 37,545 shares were issued at $11.95 per share
in January 1998. At December 31, 1997, 1,222,677 shares were available under
the Plan for future sales to employees.
12. SHAREHOLDER RIGHTS PLAN
In March 1989, the Board of Directors adopted 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, 1999, 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, 1999 or on such later date to which the Rights may be
extended by the Company, unless earlier redeemed.
13. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION
Wynn's operations are principally in two industry segments: Automotive
and Industrial Components, and Specialty Chemicals. Operations in the
Automotive and Industrial Components segment involve the manufacturing and
marketing of O-rings and other static and dynamic seals principally for the
automotive industry. In addition, Wynn's operations in the Builders Hardware
industry, which are not significant, are included in the Automotive and
Industrial Components segment. Operations in the Specialty Chemicals
industry 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 programs for automotive dealerships, as well as industrial
coolants, specialty fluids and cutting fluids used in metal-working. Product
sales in the Specialty Chemicals Division are made primarily through domestic
and foreign distributors.
Industry segment net sales include sales to unaffiliated customers.
Operating profit from segments represents net sales less operating expenses
before income taxes. Corporate expenses include normal corporate items.
Identifiable assets are those assets of Wynn's that are used in the
operations of each industry segment. Corporate assets are principally cash
and cash equivalents, prepaid expenses and other receivables. Intercompany
loans and advances and the related accrued interest thereon are excluded from
identifiable assets.
Sales to the largest customer of the Automotive and Industrial Components
segment were 10.1% of consolidated net sales during 1997 (10.1% in 1996 and
11.2% in 1995).
33
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUMMARY BY INDUSTRY SEGMENTS YEAR ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES
Automotive and Industrial Components $168,266 $140,513 $130,411 $123,792 $103,204
Specialty Chemicals 152,687 148,018 132,173 110,867 98,318
- -----------------------------------------------------------------------------------------------------------------------------
Total net sales $320,953 $288,531 $262,584 $234,659 $201,522
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT
Automotive and Industrial Components $ 26,408 $ 23,124 $ 21,828 $ 19,799 $ 12,466
Specialty Chemicals 19,490 15,627 11,526 8,501 5,953
- -----------------------------------------------------------------------------------------------------------------------------
Total operating profit of segments 45,898 38,751 33,354 28,300 18,419
Corporate expenses (6,031) (5,824) (5,996) (5,412) (3,482)
Corporate interest income 1,603 1,208 492 320 366
Interest expense (237) (217) (1,350) (2,365) (2,976)
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes based on income $ 41,233 $ 33,918 $ 26,500 $ 20,843 $ 12,327
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Automotive and Industrial Components $ 91,478 $ 87,859 $ 71,927 $ 69,955 $ 59,147
Specialty Chemicals 75,500 68,118 62,770 53,837 49,371
- -----------------------------------------------------------------------------------------------------------------------------
Identifiable assets of segments 166,978 155,977 134,697 123,792 108,518
Corporate assets 40,113 48,874 19,509 18,665 23,157
Discontinued operations ---- 254 23,616 34,015 36,124
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $207,091 $205,105 $177,822 $176,472 $167,799
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Automotive and Industrial Components $ 6,562 $ 5,628 $ 5,098 $ 4,380 $ 3,937
Specialty Chemicals 1,681 1,743 1,705 1,679 1,656
Corporate 40 34 37 31 36
- -----------------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 8,283 $ 7,405 $ 6,840 $ 6,090 $ 5,629
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Automotive and Industrial Components $ 9,896 $ 7,515 $ 5,291 $ 9,780 $ 4,365
Specialty Chemicals 1,850 1,527 1,409 1,759 921
Corporate 65 17 55 37 17
- -----------------------------------------------------------------------------------------------------------------------------
Total capital expenditures $ 11,811 $ 9,059 $ 6,755 $ 11,576 $ 5,303
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUMMARY BY GEOGRAPHICAL AREAS YEAR ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES
United States:
Sales to unaffiliated customers $224,769 $194,582 $170,638 $152,920 $125,180
Intercompany sales between
geographical areas 4,999 3,846 3,855 3,802 3,730
Europe:
Sales to unaffiliated customers 58,699 59,352 57,985 48,304 44,707
Intercompany sales between
geographical areas 475 514 485 529 376
Other foreign:
Sales to unaffiliated customers 37,485 34,597 33,961 33,435 31,635
Intercompany sales between
geographical areas 1,955 2,064 1,418 1,239 832
Eliminate intercompany sales (7,429) (6,424) (5,758) (5,570) (4,938)
- -----------------------------------------------------------------------------------------------------------------------------
Total net sales $320,953 $288,531 $262,584 $234,659 $201,522
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT
United States $ 33,912 $ 27,472 $ 22,233 $ 20,097 $ 12,047
Europe 5,688 5,286 5,433 3,704 2,610
Other foreign 6,329 5,984 5,678 4,511 3,799
Eliminate change during year in
intercompany profit in inventories (31) 9 10 (12) (37)
- -----------------------------------------------------------------------------------------------------------------------------
Total operating profit of segments 45,898 38,751 33,354 28,300 18,419
Corporate expenses (6,031) (5,824) (5,996) (5,412) (3,482)
Corporate interest income 1,603 1,208 492 320 366
Interest expense (237) (217) (1,350) (2,365) (2,976)
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before taxes based on income $ 41,233 $ 33,918 $ 26,500 $ 20,843 $ 12,327
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States $116,786 $107,689 $ 85,982 $ 82,521 $ 71,469
Europe 34,445 33,881 35,270 28,896 26,262
Other foreign 19,069 17,424 15,837 15,214 13,576
Eliminate intercompany profit in inventory and
intercompany trade accounts receivable (3,322) (3,017) (2,392) (2,839) (2,789)
- -----------------------------------------------------------------------------------------------------------------------------
Identifiable assets of segments 166,978 155,977 134,697 123,792 108,518
Corporate assets 40,113 48,874 19,509 18,665 23,157
Discontinued operations ---- 254 23,616 34,015 36,124
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $207,091 $205,105 $177,822 $176,472 $167,799
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
WYNN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. QUARTERLY INFORMATION (UNAUDITED)
Quarterly information is as follows for the two years ended December 31, 1997:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Net sales $77,887 $81,040 $79,356 $82,670 $320,953
Gross profit 30,272 30,776 29,512 30,324 120,884
Income from continuing operations 6,302 6,499 6,416 6,677 25,894
Income from discontinued operations --- 319 --- --- 319
Net income 6,302 6,818 6,416 6,677 26,213
Earnings per share:
Continuing operations:
Basic $.31 $.33 $.33 $.35 $1.32
Diluted $.30 $.32 $.32 $.34 $1.28
Discontinued operations:
Basic --- $.02 --- --- $.01
Diluted --- $.02 --- --- $.01
Net income:
Basic $.31 $.35 $.33 $.35 $1.33
Diluted $.30 $.34 $.32 $.34 $1.29
- -----------------------------------------------------------------------------------------------------------------------------
1996
Net sales $71,463 $71,826 $70,611 $74,631 $288,531
Gross profit 28,896 28,643 27,734 28,818 114,091
Income from continuing operations 4,723 5,528 5,419 5,631 21,301
Income (loss) from discontinued operations 35 (1,504) 180 426 (863)
Net income 4,758 4,024 5,599 6,057 20,438
Earnings (loss) per share:
Continuing operations:
Basic $.23 $.27 $.26 $.27 $1.04
Diluted $.22 $.26 $.26 $.27 $1.01
Discontinued operations:
Basic --- $(.07) $.01 $.03 $(.04)
Diluted $.01 $(.07) $.01 $.02 $(.04)
Net income:
Basic $.23 $.20 $.27 $.30 $1.00
Diluted $.23 $.19 $.27 $.29 $.97
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The total of the quarterly per share amounts may not equal the total
earnings (loss) per share for the year because the calculations are based on
the weighted average number of shares outstanding during the periods.
The above tables reflect retroactively the 3 for 2 stock splits effected in
1997 and 1996 (see Note 2).
36
<PAGE>
WYNN'S INTERNATIONAL, INC.
CORPORATE INFORMATION
NUMBER OF
STOCKHOLDERS
- -----------------------
There were 732 stockholders of record at March 5, 1998.
STOCK EXCHANGE
LISTING
- -----------------------
New York Stock Exchange
Ticker Symbol: WN
COMMON STOCK PRICES AND
CASH DIVIDENDS PER SHARE: 1997-1996
The stock price and cash dividends of the Company's Common
Stock for the past two years are shown in the following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
QUARTER 1st 2nd 3rd 4th
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 HIGH $ 16 1/16 $19 5/16 $ 23 1/4 $ 24 1/8
LOW 12 13/16 14 3/4 17 15/16 20 7/16
DIVIDENDS $ .0533 $ .0533 $ .0533 $ .0533
- ----------------------------------------------------------------------------------------
1996 High $ 10 1/2 $13 5/16 $13 $ 14 3/8
Low 8 10 3/8 10 3/16 12
Dividends $ .0444 $ .0444 $ .0444 $ .0444
- ----------------------------------------------------------------------------------------
</TABLE>
The above table reflects retroactively the 3 for 2 stock splits effected in
1997 and 1996 (see Note 2).
37
<PAGE>
EXHIBIT 21
WYNN'S INTERNATIONAL, INC.
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
State or other
Jurisdiction of
Name Incorporation
- ---- ---------------
<S> <C>
Wynn Oil Company California
Wynn's Sales Corporation California
Wynn Marketing Company California
Wynn's Australia Pty. Limited Australia
Wynn's Belgium N.V. Belgium
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 France
Wynn's Automotive France Professional France
Wynn's Reseau France
Wynn's Industrie France
Wynn's Friction Proofing 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
Wynn's (UK) 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
</TABLE>
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.
<PAGE>
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,
1998, included in the 1997 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 and 333-39045) pertaining to the
Wynn's International, Inc. Stock-Based Incentive Award 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, 1998, 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 schedules included in the
Annual Report (Form 10-K) of Wynn's International, Inc. for the year ended
December 31, 1997.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS CONTAINED IN FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 43,266
<SECURITIES> 0
<RECEIVABLES> 57,314
<ALLOWANCES> 959
<INVENTORY> 31,045
<CURRENT-ASSETS> 147,883
<PP&E> 98,119
<DEPRECIATION> 49,778
<TOTAL-ASSETS> 207,091
<CURRENT-LIABILITIES> 61,386
<BONDS> 0
0
0
<COMMON> 21,861
<OTHER-SE> 105,662
<TOTAL-LIABILITY-AND-EQUITY> 207,091
<SALES> 320,953
<TOTAL-REVENUES> 323,059
<CGS> 200,069
<TOTAL-COSTS> 200,069
<OTHER-EXPENSES> 81,213
<LOSS-PROVISION> 307
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> 41,233
<INCOME-TAX> 15,339
<INCOME-CONTINUING> 25,894
<DISCONTINUED> 319
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,213
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.29
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS CONTAINED IN FORM 10-K FOR THE FISCAL YEARS ENDED DECEMBER 31, 1995
AND 1996, AND IN FORM 10-Q FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1996,
JUNE 30, 1996 AND SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 23,127 53,304 18,059 29,775 40,078
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 51,934 49,217 61,020 49,270 51,658
<ALLOWANCES> 1,344 870 1,389 789 892
<INVENTORY> 37,845 30,940 38,210 27,123 28,442
<CURRENT-ASSETS> 126,702 154,002 132,249 138,426 142,449
<PP&E> 105,837 89,107 49,107<F1> 39,350<F1> 44,389<F1
>
<DEPRECIATION> 57,288 44,388 0 0 0
<TOTAL-ASSETS> 181,765 205,105 187,800 184,020 193,369
<CURRENT-LIABILITIES> 58,538 64,413 60,676 54,006 59,394
<BONDS> 75 0 49 24 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 9,565 14,547 9,614 9,652 9,691
<OTHER-SE> 106,668 118,405 110,513 113,470 117,288
<TOTAL-LIABILITY-AND-EQUITY> 181,765 205,105 187,800 184,020 193,369
<SALES> 303,787 288,531 83,085 143,289 213,900
<TOTAL-REVENUES> 304,783 290,294 83,359 143,863 215,012
<CGS> 194,440 174,440 52,464 85,750 128,627
<TOTAL-COSTS> 194,440 174,440 52,464 85,750 128,627
<OTHER-EXPENSES> 84,048 81,407 23,064 41,330 60,791
<LOSS-PROVISION> 104 312 92 117 236
<INTEREST-EXPENSE> 1,640 217 52 105 165
<INCOME-PRETAX> 24,551 33,918 7,687 16,561 25,193
<INCOME-TAX> 9,108 12,617 2,929 6,310 9,523
<INCOME-CONTINUING> 15,443 21,301 4,758 10,251 15,670
<DISCONTINUED> 0 (863) 0 (1,469) (1,289)
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 15,443 20,438 4,758 8,782 14,381
<EPS-PRIMARY> .77 1.00 .23 .43 .70
<EPS-DILUTED> .75 .97 .23 .42 .68
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT, AT COST LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS CONTAINED IN FORM 10-Q FOR THE QUARTERLY PERIODS ENDED MARCH 31,
1997, JUNE 30, 1997 AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 47,845 26,912 34,823
<SECURITIES> 0 0 0
<RECEIVABLES> 56,327 57,855 59,140
<ALLOWANCES> 867 940 1,096
<INVENTORY> 31,967 30,884 30,075
<CURRENT-ASSETS> 157,334 137,599 145,875
<PP&E> 45,855<F1> 46,667<F1> 48,392<F1>
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 209,466 190,473 200,359
<CURRENT-LIABILITIES> 64,402 66,560 71,943
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 14,574 14,574 14,574
<OTHER-SE> 122,911 101,799 106,567
<TOTAL-LIABILITY-AND-EQUITY> 209,466 190,473 200,359
<SALES> 77,887 158,927 238,283
<TOTAL-REVENUES> 78,554 160,051 239,854
<CGS> 47,615 97,879 147,723
<TOTAL-COSTS> 47,615 97,879 147,723
<OTHER-EXPENSES> 20,727 41,510 61,004
<LOSS-PROVISION> 74 163 344
<INTEREST-EXPENSE> 55 115 183
<INCOME-PRETAX> 10,083 20,384 30,600
<INCOME-TAX> 3,781 7,583 11,383
<INCOME-CONTINUING> 6,302 12,801 19,217
<DISCONTINUED> 0 319 319
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6,302 13,120 19,536
<EPS-PRIMARY> .31 .65 .99
<EPS-DILUTED> .30 .63 .96
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT, AT COST LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION.
</FN>
</TABLE>
