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