SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
Date of Report (date of earliest event reported) January 31, 1996
RAYTECH CORPORATION
DELAWARE 1-9298 06-1182033
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File No.) Identification No.)
Incorporation)
One Corporate Drive, Shelton, Connecticut 06484
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 203-925-8023
<PAGE>
Item 7(a) Financial Statements of Business Acquired
Historical Financial Statements of Advanced
Friction Materials Company (d/b/a AFM), AFM
Management Company and the Land and Building
at 44650 Merrill, Sterling Heights, Michigan
("Combined AFM")
The Registrant has filed combined financial
statements of the business acquired because it
represents a more meaningful historical presentation
of the financial position and results of operations
of the assets and businesses acquired.
(i) Combined AFM Balance Sheet as at
January 31, 1996 (unaudited)
(ii) Combined AFM Statement of Operations
for the Nine Months ended January 31, 1996
(unaudited)
(iii) Combined AFM Statement of Cash Flows as
at January 31, 1996 (unaudited)
(iv) Notes to Combined AFM Financial Statements
as at January 31, 1996 (unaudited)
(v) Combined AFM Balance Sheet as at April 30, 1995
(vi) Combined AFM Statement of Income and Equity
for the fiscal year ended April 30, 1995
(vii) Combined AFM Statement of Cash flows as at
April 30, 1995
(viii) Notes to Combined AFM Financial Statements
as at April 30, 1995
Item 7(b) Pro Forma Financial Information
Pro Forma Financial Information
(i) Pro Forma Consolidated Condensed Balance Sheet
as at December 31, 1995
(ii) Pro Forma Consolidated Condensed Statement of
Operations for the Fiscal Year ended
December 31, 1995
<PAGE>
Pro Forma Consolidated Condensed
Financial Data
(Unaudited)
General
The following unaudited Pro Forma Condensed Consolidated
Financial Data are based upon the 1995 Consolidated Balance Sheet
and Consolidated Statement of Operations of Raytech Corporation
("Raytech") included in its 1995 Form 10-K and the unaudited
Combined Balance Sheet of Advanced Friction materials (d/b/a
AFM), AFM Management Company and The Land and Building at 44650
Merrill, Sterling Heights, Michigan ("Combined AFM") as of
January 31, 1996 and the Combined Statement of Operations and
Equity of Combined AFM for the twelve months then ended, adjusted
to give effect to the Transactions (as defined below).
The unaudited Pro Forma Condensed Consolidated Balance Sheet
assumes the Transactions were completed on December 31, 1995.
The unaudited Pro Forma Condensed Statement of Operations assumes
the Transactions were completed as of January 1, 1995.
The unaudited Pro Forma Condensed Financial Data do not purport
to be indicative of the results that would actually have been
obtained if the Transactions had occurred on the dates indicated
or of the results that may be obtained in the future. The
unaudited Pro Forma Condensed Financial Data are presented for
comparative purposes only. The pro forma adjustments, as
described in the accompanying data, are based on available
information and certain assumptions that management believes are
reasonable.
The accompanying unaudited Pro Forma Financial Data assumes
allocation of purchase price to assets acquired based upon the
stated values included in the various agreements between the
parties. Such amounts are preliminary and are subject to
revision based upon independent appraisal and other valuation
studies.
The Transactions
On January 31, 1996, Raytech Composites, Inc. ("Composites"), a
subsidiary of Raytech, and Raybestos Products Company ("RPC"), a
subsidiary of Composites, entered into a series of related
transactions with Advanced Friction Materials ("AFM") and related
entities and persons as follows: Composites acquired a 47%
minority share of the common stock of AFM for $9.4 million cash
at closing; RPC acquired 100% of the common stock of AFM
Management Company, which leases employees to AFM, for $1.0
million, to be paid for on January 31, 1997; RPC acquired the
machinery and equipment and certain other operating assets of AFM
<PAGE>
for $3.5 million cash at closing; RPC committed to acquire land
and building utilized in AFM's manufacturing operations (land and
building located at 44650 Merrill, Sterling Heights, Michigan)
from a principal owner of AFM for $6.6 million, to be consummated
on January 31, 1997; RPC loaned AFM $1.3 million cash at closing
bearing interest at the prime rate and maturing on January 31,
2003; RPC agreed to acquire AFM's inventory at cost subsequent to
closing for approximately $3.0 million. In addition, the parties
entered into various other agreements, including supply and
technology exchange agreements. Subsequent to the transaction,
RPC will supply AFM with products (automobile transmission
component parts) manufactured at the Sterling Heights facility.
Sales prices between RPC and AFM are established under the terms
of the supply agreement entered into at closing. AFM will bear
responsibility principally for sales and marketing of the
products to original equipment manufacturers. Composites 47%
common stock interest in AFM will be accounted for under the
equity method.
<PAGE>
<TABLE>
Raytech Corporation
Pro Forma Consolidated Condensed Balance Sheet
(In thousands)
(Unaudited)
<CAPTION>
Raytech
December 31, Raytech,
1995 Adjustments As Adjusted
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $19,597 ($3,500) (2) $2,397
(9,400) (4)
(1,300) (5)
(3,000) (6)
Trade accounts receivable 17,553 17,553
Inventories 23,573 3,000 (6) 26,573
Other current assets 5,390 5,390
Total current assets 66,113 (14,200) 51,913
Net property, plant and equipment 42,202 5,595 (1) 51,297
3,500 (2)
Investment in equity affiliate - 914 (3) 10,314
9,400 (4)
Other assets 6,121 1,300 (5) 7,421
Total assets $114,436 $6,509 $120,945
LIABILITIES:
Current liabilities:
Notes payable and current portion
of long-term debt $31,026 $31,026
Accounts payable 9,388 9,388
Accrued liabilities 20,376 5,595 (1) 26,885
914 (3)
Total current liabilities 60,790 6,509 67,299
Long-term due to Raymark 18,476 18,476
Long-term debt 242 242
Postretirement benefits other than pensions 8,253 8,253
Other long-term liabilities 7,995 7,995
Total liabilities 95,756 6,509 102,265
SHAREHOLDERS' EQUITY:
Total shareholders' equity 18,680 18,680
Total liabilities and shareholders' equity $114,436 $6,509 $120,945
</TABLE>
<PAGE>
Notes to Pro Forma Consolidated Balance Sheet (in thousands):
General:
Preliminary amounts allocated to the assets acquired are based upon the
acquisition agreements and are subject to revision based upon completion of
independent appraisal and other valuation studies.
(1) Purchase of land and building at 44650 Merrill, Sterling Heights, Michigan
(AFM's manufacturing facility) on first anniversary of the Transactions.
Represents present value of purchase price of $6,120 using a 9% interest
factor.
(2) Purchase of AFM machinery, equipment and other fixed assets at closing of
the Transactions for cash.
(3) Purchase of 100% of the common stock of AFM Management Company for $1,000
discounted using a 9% interest factor to be paid on the first anniversary
of the Transactions.
(4) Purchase of 47% common stock interest in AFM at closing of the
Transactions for cash to be accounted for as an equity method investment.
(5) Seven-year interest bearing (prime rate) loan to AFM.
(6) Purchase of AFM inventory at AFM cost subsequent to closing of the
Transactions.
<PAGE>
<TABLE>
Raytech Corporation ("Raytech")
Pro Forma Consolidated Condensed Statement of Operations
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Raytech Combined AFM
Year Ended Year Ended Pro Forma Raytech,
December 31, 1995 January 31, 1996 Adjustments As Adjusted
<S> <C> <C> <C> <C> <C>
Net sales $177,498 $28,383 ($2,838)(1) $203,043
Cost of sales 128,799 24,338 (247)(5) 152,890
Gross profit 48,699 4,045 (2,591) 50,153
Selling, general and administrative
expenses (25,994) (3,200) 2,767 (2) (27,064)
(352)(5)
(285)(6)
Other operating expenses, net (1,746) (1,746)
Operating profit 20,959 845 (461) 21,343
Interest expense, net (2,647) (1,098) 1,098 (3) (3,258)
(611)(8)
110 (9)
Other income (expense), net 5,874 5,874
Income (loss) before provision
for income taxes 24,186 (253) 136 24,069
(Provision) benefit for income taxes (9,009) 83 (130)(7) (9,056)
Loss from equity affiliate (483)(4) (483)
Minority interest (840) (840)
Net income (loss) $14,337 ($170) $(477) $13,690
Earnings per common share $4.26 $4.06
Weighted average shares outstanding 3,369,003 3,369,003
<FN>
Notes to Pro Forma Consolidated Condensed Statement of Operations:
(1) Portion of net sales to original equipment manufacturers to be retained by AFM for
selling and marketing activities.
(2) Selling, general and administrative expenses to be retained by AFM in connection
with selling and marketing activities.
(3) Interest expense of AFM to be retained by AFM.
(4) Raytech's equity method interest (47%) in pro forma net loss of AFM. The pro forma loss
assumes no reduction in AFM interest expense or tax benefit on pretax losses.
(5) Net adjustment to depreciation expense to reflect Raytech's cost to acquire AFM's machinery
and equipment and real property and application of revised useful lives.
(6) Amortization of excess purchase price included in Raytech's equity investment in AFM over a
forty-year period.
(7) To eliminate AFM tax benefit and provide Raytech tax expense at a 40% effective rate
on pro forma adjustments to Raytech's operations (excluding equity in AFM losses and
amortization of excess purchase price).
(8) Accretion of interest expense on amounts payable for AFM Management Company and land
and building on the first anniversary of the Transactions.
(9) Interest income on $1,300 interest bearing advance to AFM.
</FN>
</TABLE>
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY AND
THE LAND AND BUILDING AT 44650 MERRILL,
STERLING HEIGHTS, MICHIGAN
________
COMBINED FINANCIAL STATEMENTS
UNAUDITED
________
JANUARY 31, 1996
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS,
MICHIGAN
________
COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
________
JANUARY 31, 1996
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS,
MICHIGAN
- CONTENTS -
PAGE
NUMBER
Financial Statements:
Combined Balance Sheet 1
Combined Statement of Operations and Equity 2
Combined Statement of Cash Flows 3 & 4
Notes to Combined Financial Statements 5 - 10
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
COMBINED BALANCE SHEET
JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 192,096
Accounts receivable:
Trade (Note 2) $ 6,708,183
Less allowance for doubtful accounts (32,133) 6,676,050
Note receivable - related company, due
March 30, 1998 196,429
Inventories (Notes 1, 2 and 9):
Raw materials 3,332,799
Work in process 678,631
Finished goods 230,546 4,241,976
Refundable income tax (Note 7) 42,000
Prepaid expenses 269,897
Total current assets 11,618,448
PROPERTY AND EQUIPMENT - At cost
(Notes 1, 2 and 9):
Machinery and equipment 7,731,339
Laboratory equipment 547,212
Data processing equipment 105,624
Furniture and fixtures 217,289
Transportation equipment 119,258
Leasehold improvements 885,476
Land and building 3,184,417
12,790,615
Less accumulated depreciation and
amortization 5,387,000 7,403,615
OTHER ASSETS:
Perishable tools 278,742
Stock subscription receivable 1,000
Patents - net of amortization 3,962
Memberships 6,750
Deposits 169,839 460,293
$19,482,356
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Note payable - bank (Note 2) $ 4,833,755
Current portion of long-term debt (Note 5) 1,129,988
Current portion of note payable - officer
(Note 3) 40,000
Accounts payable:
Trade (Note 4) $ 2,779,023
Employees' withheld taxes 281,596
Related company (Note 4) 1,146,556 4,207,175
Accrued expenses:
Wages 332,516
Vacation pay 34,000
Interest and other 396,552
Taxes other than income taxes 233,699 996,767
Total current liabilities 11,207,685
NOTE PAYABLE - Officer (Note 3) 1,290,000
LONG-TERM DEBT (Note 5) 6,145,883
DEFERRED INCOME TAX (Note 7) 470,000
STOCKHOLDERS' EQUITY:
Common stock - $1 par value:
Authorized - 50,000 shares
Issued and outstanding - 1,000 shares 1,000
Common stock - $1 par value:
Authorized - 50,000 shares
Issued and outstanding - 4,488 shares 4,488
Capital in excess of par value 49,240
Distribution in excess of recorded
capital (Note 6) (2,019,112)
Retained earnings/owners' equity 2,333,172 368,788
$19,482,356
</TABLE>
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
SALES $20,788,059
COST OF SALES 18,267,031
GROSS PROFIT 2,521,028
GENERAL AND ADMINISTRATIVE EXPENSES 2,495,492
OPERATING INCOME 25,536
OTHER INCOME (EXPENSE) - Interest (845,617)
LOSS BEFORE INCOME TAX BENEFIT (820,081)
INCOME TAX BENEFIT (Note 7) (196,000)
NET LOSS $ (624,081)
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $20,848,013
Cash paid to suppliers and employees (20,274,185)
Interest paid (555,055)
Income taxes paid (100,000)
Net cash to operating activities $ (81,227)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and perishable tools (1,321,832)
Decrease in deposits (130,239)
Net cash to investing activities (1,452,071)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - net 1,799,067
Distribution of equity (86,750)
Net cash from financing activities 1,712,317
NET DECREASE IN CASH 179,019
CASH BALANCE:
Balance - May 1, 1995 13,077
Balance - January 30, 1996 $ 192,096
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
COMBINED STATEMENT OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS ENDED JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RECONCILIATION OF NET LOSS TO NET CASH TO OPERATING ACTIVITIES
<S> <C> <C>
NET LOSS $ (624,081)
Adjustments to reconcile net loss to net cash
to operating activities -
Depreciation and amortization $ 709,478
Changes in assets and liabilities:
Decrease in accounts receivable 59,954
Increase in inventory (927,405)
Increase in prepaid expenses (218,900)
Increase in accounts payable 810,170
Decrease in federal income taxes (400,000)
Increase in deferred taxes 104,000
Increase in accrued expenses 405,557 542,854
NET CASH TO OPERATING ACTIVITIES $ (81,227)
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 31, 1996
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Advanced Friction
Materials Company (d/b/a AFM), AFM Management Company and the Land and
Building at 44650 Merrill, Sterling Heights, Michigan is presented to
assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's
management which is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
Business Activity
The companies apply a process which adheres friction material to metal
machine parts. These parts are mainly used in the automotive industry.
Equipment and Improvements
Equipment and improvements are carried at cost. Major replacements and
refurbishings are charged to the property accounts while replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed currently.
Depreciation and Amortization
Depreciation and amortization of buildings, leasehold improvements and
automobiles is calculated by use of straight-line and accelerated
methods over useful lives of 3 to 39 years.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market value.
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
Income Taxes
Effective May 1, 1993, the Company adopted SFAS No. 109, Accounting for
Income Taxes, which requires an asset and liability approach to
financial accounting and reporting for income taxes. The difference
between the financial statement and tax bases of assets and liabilities
is determined annually. Deferred income tax assets and liabilities are
computed for those differences that have future tax consequences using
the currently enacted tax laws and rates that apply to the periods in
which they are expected to affect taxable income. Valuation allowances
are established, if necessary, to reduce the deferred tax asset to the
amount that will more likely than not be realized. Income tax expense
is the current tax payable or refundable for the period plus or minus
the net change in the deferred tax assets and liabilities. Income
taxes are based on income reported for financial statement purposes
which differs from income reported for tax purposes principally because
of the methods of recognizing depreciation expense and vacation
expense. Deferred income taxes have been provided for timing
differences.
Research and Development Costs
The Company maintains the policy of charging research and development
costs to expense as they occur.
NOTE 2 - NOTE PAYABLE - BANK:
Note payable - bank, due on demand under a line of credit agreement.
Interest only payments are due monthly at the prevailing prime rate.
A security interest in all assets of the Company including, but not
limited to, accounts receivable, contract rights, general intangibles,
inventory, equipment and proceeds thereof, have been pledged as
collateral.
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE 2 - NOTE PAYABLE - BANK - CONTINUED:
Per a security agreement dated December 5, 1985, the line of credit can
be accelerated should the Company or the Company's stockholders, who
own the facilities being leased to the Company, default under any
present or future loan agreements with the bank.
NOTE 3 - NOTE PAYABLE - OFFICER:
Note payable - officer, interest is stated at prime rate plus 1%. A
principal payment of $40,000, plus interest, is due at April 30, 1996.
Beginning April 30, 1997, annual payments of $250,000 are payable, plus
interest. The entire amount of principal and interest is due in full
by April 30, 2001. The note is secured by a security agreement and
subordinated to note payable - bank.
NOTE 4 - RELATED PARTY TRANSACTIONS:
The Company sells and purchases a portion of its materials to/from an
entity related through common ownership. Sales for the period ended
January 30, 1996, were approximately $325,000. Purchases for the period
ended January 30, 1996, were approximately $1,255,000. Amounts due to
the entity at year end were $1,144,712.
NOTE 5 - LONG-TERM DEBT:
Note payable - bank, term loans, principal and
interest payments of $30,189 are due monthly.
Interest is stated at the bank's prime rate.
The notes mature July 1997 and are secured by
land and building. $2,483,899
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE 5 - LONG-TERM DEBT - CONTINUED:
Note payable - bank, term loan dated April 1995.
Principal payments of $13,333, plus interest at
prime, due monthly. The note matures May 2000,
and is secured by heat treat equipment. 729,123
Note payable - bank, term loan dated February
1995. Principal payments of $35,714, plus
interest at 1/2% above prime, due monthly, due
through February 2000. 2,627,414
Notes payable - bank, various term loans.
Principal payments of approximately $27,000,
plus interest at 1/2% above prime, due monthly,
due through 2000. 1,435,435
7,275,871
Less current portion 1,129,988
Long-term debt $6,145,883
Maturities of long-term debt are as follows:
Year ending January 30:
1996 $1,129,988
1997 1,149,988
1998 3,245,923
1999 1,164,000
2000 and thereafter 585,972
$7,275,871
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE 6 - STOCK REPURCHASE:
On February 16, 1990, the Company redeemed the stock of a 49%
stockholder. For purposes of the redemption, the Board of Directors
valued the assets and liabilities of the Corporation at "fair
valuation", as permitted under the Michigan Business Corporation Act.
While the amount of stockholders' equity exceeded the cost of the
stock, based on the valuation permitted by the Michigan Business
Corporation Act, the amount of the redemption exceeded the
stockholders' equity as recorded under generally accepted accounting
principles at the time of the redemption. The amount shown as retained
earnings is the amount accumulated since the date of the redemption.
NOTE 7 - INCOME TAXES:
Deferred income taxes are provided for timing differences between
financial statements and income tax reporting. The deferred income tax
asset arises principally from the use of the straight-line depreciation
method for financial reporting purposes and the accelerated cost
recovery depreciation method for income tax purposes and nondeductible
accrued vacation pay.
The provision for federal income taxes consists of the following:
Taxes currently refundable $(300,000)
Deferred tax expense 104,000
$(196,000)
NOTE 8 - MERGER OF SSW HOLDINGS, INC.:
On April 1, 1995, the Company completed a merger with its parent
company, SSW Holdings, Inc. (SSW). Stockholders of SSW exchanged their
stock for an equal number of shares of Company stock, which was held
by SSW. The transaction was accounted for as a purchase and was not
material to the financial position or results of operations of the
Company as of January 30, 1996.
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE 9 - AGREEMENT TO SELL ASSETS:
On January 31, 1996, all machinery and equipment, furniture and
fixtures and leasehold improvements were sold to another corporation
for $3,800,000. The agreement also calls for the inventory to be sold
to the same corporation at cost.
On January 31, 1996, an agreement was signed to sell the land and
building for $6,600,000 to another corporation. The agreement calls
for the closing to take place January 30, 1997.
On January 31, 1996, the stockholders sold 47% of their stock to a
corporation for $9,400,000.
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY AND
THE LAND AND BUILDING AT 44650 MERRILL,
STERLING HEIGHTS, MICHIGAN
________
COMBINED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
________
APRIL 30, 1995
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS,
MICHIGAN
________
COMBINED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
________
APRIL 30, 1995
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS,
MICHIGAN
- CONTENTS -
PAGE NUMBER
Independent Auditors' Report 1
Financial Statements:
Combined Balance Sheet 2
Combined Statement of Income and Equity 3
Combined Statement of Cash Flows 4 & 5
Notes to Combined Financial Statements 6 - 10
<PAGE>
Independent Auditors' Report
To the Board of Directors
Advanced Friction Materials Company (d/b/a AFM),
AFM Management Company and
the Land and Building at 44650 Merrill, Sterling Heights, Michigan
Sterling Heights, Michigan
We have audited the accompanying balance sheet of ADVANCED FRICTION
MATERIALS COMPANY (D/B/A AFM) AFM MANAGEMENT COMPANY AND THE LAND
AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN as of
April 30, 1995, and the related statements of income and
stockholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audit provides 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
ADVANCED FRICTION MATERIALS COMPANY (D/B/A AFM) AFM MANAGEMENT
COMPANY AND THE LAND AND BUILDING AT 44650 MERRILL, STERLING
HEIGHTS, MICHIGAN at April 30, 1995, and the results of its
operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
PERRIN, FORDREE & COMPANY, P.C.
March 25, 1996
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
COMBINED BALANCE SHEET
APRIL 30, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 13,077
Accounts receivable:
Trade (Note 2) $ 6,916,219
Less allowance for doubtful accounts (32,133) 6,884,086
Note receivable - related company, due
March 31, 1998 48,347
Inventories (Notes 1 and 2):
Raw materials 1,751,517
Work in process 1,327,498
Finished goods 235,556 3,314,571
Prepaid expenses 50,997
Total current assets 10,311,078
PROPERTY AND EQUIPMENT - At cost
(Notes 1 and 2):
Machinery and equipment 6,488,660
Laboratory equipment 547,212
Data processing equipment 105,624
Furniture and fixtures 196,181
Transportation equipment 119,258
Land, building and leasehold improvements 4,011,848
11,468,783
Less accumulated depreciation and
amortization 4,680,672 6,788,111
OTHER ASSETS:
Perishable tools 278,742
Stock subscription receivable 1,000
Patents - net of amortization 7,112
Memberships 6,750
Deposits 39,600 333,204
$17,432,393
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Note payable - bank (Note 2) $ 4,000,000
Current portion of long-term debt (Note 6) 779,808
Current portion of note payable - officer
(Note 3) 40,000
Accounts payable:
Trade (Note 4) $ 2,921,820
Employees' withheld taxes 255,811
Related company (Note 4) 219,374 3,397,005
Accrued expenses:
Wages 146,060
Vacation pay 82,845
Interest and other 158,264
Federal income taxes 358,000
Taxes other than income taxes 204,041 949,210
Total current liabilities 9,166,023
NOTE PAYABLE - Officer (Note 3) 1,290,000
LONG-TERM DEBT (Note 6) 5,530,751
DEFERRED INCOME TAX (Note 8) 366,000
STOCKHOLDERS' EQUITY:
Common stock - $1 par value:
Authorized - 50,000 shares
Issued and outstanding - 1,000 shares 1,000
Common stock - $1 par value:
Authorized - 50,000 shares
Issued and outstanding - 4,488 shares 4,488
Capital in excess of par value 49,240
Distribution in excess of recorded
capital (Note 7) (2,019,112)
Retained earnings/owners' equity 3,044,003 1,079,619
$17,432,393
</TABLE>
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
COMBINED STATEMENT OF INCOME AND EQUITY
FOR THE TWELVE MONTHS ENDED APRIL 30, 1995
<TABLE>
<S> <C> <C>
SALES $29,072,951
COST OF SALES 23,782,542
GROSS PROFIT 5,290,409
GENERAL AND ADMINISTRATIVE EXPENSES 2,996,008
OPERATING INCOME 2,294,401
OTHER INCOME (EXPENSE):
Interest $ (916,588)
Gain on the sale of fixed assets 14,228 (902,360)
INCOME BEFORE INCOME TAXES 1,392,041
INCOME TAXES (Note 8) 436,420
NET INCOME 955,621
RETAINED EARNINGS/OWNERS' EQUITY:
Balance - May 1, 1994 2,088,382
Balance - April 30, 1995 $ 3,044,003
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED APRIL 30, 1995
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $28,551,206
Cash paid to suppliers and employees (25,687,141)
Interest paid (859,009)
Income taxes paid (577,097)
Net cash from operating activities $ 1,427,959
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 16,358
Purchases of equipment and perishable tools (2,259,021)
Decrease in deposits 15,900
Net cash to investing activities (2,226,763)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - bank, net 1,340,000
Payment of long-term debt (4,534,754)
Proceeds from long-term debt 3,800,000
Merger of SSW Holdings, Inc. 952
Net cash from financing activities 606,198
NET DECREASE IN CASH (192,606)
CASH BALANCE:
Balance - May 1, 1994 205,683
Balance - April 30, 1995 $ 13,077
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
COMBINED STATEMENT OF CASH FLOWS - CONTINUED
YEAR ENDED APRIL 30, 1995
<TABLE>
<CAPTION>
RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING ACTIVITIES
<S> <C> <C>
NET INCOME $ 955,621
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization $ 732,899
Gain on the sale of assets (14,228)
Changes in assets and liabilities:
Increase in accounts receivable (521,745)
Increase in inventory (736,099)
Decrease in prepaid expenses 59,766
Increase in accounts payable 1,110,595
Decrease in federal income taxes (203,677)
Increase in deferred taxes 63,000
Decrease in accrued expenses (18,173) 472,338
NET CASH FROM OPERATING ACTIVITIES $ 1,427,959
SCHEDULE OF NONCASH TRANSACTIONS
NOTE RECEIVABLE ASSUMED UNDER MERGER OF SSW HOLDINGS, INC. $ 47,347
LIABILITY ASSUMED UNDER MERGER OF SSW HOLDINGS, INC. $ 37,832
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS
APRIL 30, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Advanced
Friction Materials Company (d/b/a AFM), AFM Management Company
and the Land and Building at 44650 Merrill, Sterling Heights,
Michigan is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management which is responsible
for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial
statements.
Business Activity
The companies apply a process which adheres friction material to
metal machine parts. These parts are mainly used in the
automotive industry.
Equipment and Improvements
Equipment and improvements are carried at cost. Major
replacements and refurbishings are charged to the property
accounts while replacements, maintenance and repairs which do
not improve or extend the life of the respective assets are
expensed currently.
Depreciation and Amortization
Depreciation and amortization of buildings, office furniture,
leasehold improvements, automobiles and equipment is calculated
by use of straight-line and accelerated methods over useful
lives of 3 to 39 years.
Inventories
Inventories are valued at the lower of cost (first-in, first-out)
or market value.
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
Income Taxes
Effective May 1, 1993, the Company adopted SFAS No. 109,
Accounting for Income Taxes, which requires an asset and
liability approach to financial accounting and reporting for
income taxes. The difference between the financial statement
and tax bases of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for
those differences that have future tax consequences using the
currently enacted tax laws and rates that apply to the periods
in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce the deferred
tax asset to the amount that will more likely than not be
realized. Income tax expense is the current tax payable or
refundable for the period plus or minus the net change in the
deferred tax assets and liabilities. Income taxes are based on
income reported for financial statement purposes which differs
from income reported for tax purposes principally because of the
methods of recognizing depreciation expense and vacation
expense. Deferred income taxes have been provided for timing
differences.
Research and Development Costs
The Company maintains the policy of charging research and
development costs to expense as they occur.
NOTE 2 - NOTE PAYABLE - BANK:
Note payable - bank, due on demand under a line of credit
agreement. Interest only payments are due monthly at the
prevailing prime rate. A security interest in all assets of the
Company including, but not limited to, accounts receivable,
contract rights, general intangibles, inventory, equipment and
proceeds thereof, have been pledged as collateral.
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 1995
NOTE 2 - NOTE PAYABLE - BANK - CONTINUED:
Per a security agreement dated December 5, 1985, the line of
credit can be accelerated should the Company or the Company's
stockholders, who own the facilities being leased to the
Company, default under any present or future loan agreements
with the bank.
NOTE 3 - NOTE PAYABLE - OFFICER:
Note payable - officer, interest is stated at prime rate plus
1%. Principal payments of $40,000, plus interest, are due at
April 30, 1995 and 1996. Beginning April 30, 1997, annual
payments of $250,000 are payable, plus interest. The entire
amount of principal and interest is due in full by April 30,
2001. The note is secured by a security agreement and
subordinated to note payable - bank.
NOTE 4 - RELATED PARTY TRANSACTIONS:
The Company purchases outside manufacturing processing and
services from a supplier owned 50% by the Company's majority
stockholder. The Company had approximately $350,000 of
purchases from the related party during the year. Amounts due
to the related party included in accounts payable at April 30,
1995, were $170,392.
In addition, the Company sells and purchases a portion of its
materials to/from an entity related through common ownership.
Sales for the year ended April 30, 1995, were approximately
$1,580,000. Purchases for the year ended April 30, 1995, were
approximately $1,660,000. Amounts due to the entity at year end
were $217,530.
NOTE 5 - PROFIT SHARING PLAN:
The Company had a profit sharing plan covering salaried
employees in 1994. The Plan was terminated and the employees'
balances were distributed in June 1994.
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 1995
NOTE 6 - LONG-TERM DEBT:
Note payable - bank, term loan dated April 1995.
Principal payments of $13,333, plus interest at
prime, due monthly. The note matures May 2000,
and is secured by heat treat equipment. $ 796,578
Note payable - bank, term loan, principal
payments of $22,003, plus interest at prime,
due monthly. The note matures July 1997 and
is secured by land and building. 2,585,409
Note payable - bank, term loan dated February
1995. Principal payments of $35,714, plus
interest at 1/2% above prime, due monthly, due
through February 2000. 2,928,572
6,310,559
Less current portion 779,808
Long-term debt $5,530,751
Maturities of long-term debt are as follows:
Year ending April 30:
1996 $ 779,808
1997 848,432
1998 3,058,084
1999 835,614
2000 788,621
$6,310,559
<PAGE>
ADVANCED FRICTION MATERIALS COMPANY (d/b/a AFM),
AFM MANAGEMENT COMPANY
AND
THE LAND AND BUILDING AT 44650 MERRILL, STERLING HEIGHTS, MICHIGAN
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
APRIL 30, 1995
NOTE 7 - STOCK REPURCHASE:
On February 16, 1990, the Company redeemed the stock of a 49%
stockholder. For purposes of the redemption, the Board of
Directors valued the assets and liabilities of the Corporation
at "fair valuation", as permitted under the Michigan Business
Corporation Act. While the amount of stockholders' equity
exceeded the cost of the stock, based on the valuation permitted
by the Michigan Business Corporation Act, the amount of the
redemption exceeded the stockholders' equity as recorded under
generally accepted accounting principles at the time of the
redemption. The amount shown as retained earnings is the amount
accumulated since the date of the redemption.
NOTE 8 - INCOME TAXES:
Deferred income taxes are provided for timing differences
between financial statements and income tax reporting. The
deferred income tax liability arises principally from the use of
the straight-line depreciation method for financial reporting
purposes and the accelerated cost recovery depreciation method
for income tax purposes.
The provision for federal income taxes consists of the
following:
Current provision $358,000
Deferred provision 78,420
$436,420
NOTE 9 - MERGER OF SSW HOLDINGS, INC.:
On April 1, 1995, the Company completed a merger with its parent
company, SSW Holdings, Inc. (SSW). Stockholders of SSW
exchanged their stock for an equal number of shares of Company
stock, which was held by SSW. The transaction was accounted for
as a purchase and was not material to the financial position or
results of operations of the Company as of April 30, 1995.
<PAGE>
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 thereto duly authorized.
RAYTECH CORPORATION
By: /s/LEGRANDE L. YOUNG
Vice President, Secretary
and General Counsel
Dated: April 12, 1996
