UNITED STATES
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 23, 1999
(October 26, 1999)
WINTRUST FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Commission File Number 0-21923
Illinois 36-3873352
- ------------------------------------ ------------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation)
727 North Bank Lane
Lake Forest, Illinois 60045
-------------------------------------------------------
(Address of Principal Executive Offices)
(847) 615-4096
---------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements and pro forma financial information are being
filed in relation to the October 26, 1999 acquisition of Tricom, Inc. of
Milwaukee ("Tricom"), a financial and administrative service bureau to the
staffing industry.
(a) Financial Statements of Tricom.
Page
----
1) Audited Consolidated Financial Statements for the year
ended September 30, 1998. 3
2) Unaudited Consolidated Balance Sheet as of June 30, 1999. 19
3) Unaudited Consolidated Statement of Income for the nine
month period ended June 30, 1999. 20
4) Unaudited Consolidated Statement of Stockholders' Equity
(Deficit) for the nine month period ended June 30, 1999 21
5) Unaudited Consolidated Statement of Cash Flows for the
nine month period ended June 30, 1999. 22
- 2 -
Item 7(a)
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
Financial Statements
September 30, 1998
- 3 -
CONTENTS
Page
----
Independent Auditor's Report 5
FINANCIAL STATEMENTS:
Consolidated Balance Sheet 6
Consolidated Statement of Stockholders' Equity (Deficit) 7
Consolidated Statement of Income 8
Consolidated Statement of Cash Flows 9
Notes to Consolidated Financial Statements 10-18
- 4 -
INDEPENDENT AUDITOR'S REPORT
----------------------------
November 16, 1998
To the Board of Directors
Tricom, Inc. of Milwaukee and Subsidiary
We have audited the accompanying Consolidated Balance Sheet of Tricom, Inc. of
Milwaukee and Subsidiary as of September 30, 1998, and the related Consolidated
Statements of Stockholders' Equity (Deficit), Income and Cash Flows for the
fiscal year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tricom, Inc. of
Milwaukee and Subsidiary as of September 30, 1998 and the results of its
operations and its cash flows for the fiscal year then ended, in conformity with
generally accepted accounting principles.
Kolb Lauwasser & Co., S.C.
Milwaukee, Wisconsin
- 5 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
--------------------------
(With the auditor's report of November 16, 1998)
As of September 30, 1998
ASSETS
------
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 1,404,978
Finance receivables 10,411,172
Due from affiliates 310,549
Miscellaneous receivables 10,771
Prepaid expenses 87,246
Deposits 90,894
-----------------
Total Current Assets 12,315,610
FIXED ASSETS
- ------------
Equipment, furniture, improvements, and computer software 1,746,623
Less: Accumulated depreciation and amortization (346,706)
-----------------
Net Fixed Assets 1,399,917
-----------------
OTHER ASSETS
- ------------
Intangible assets 563,517
-----------------
Total Assets $ 14,279,044
=================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 188,524
Notes payable 10,945,165
-----------------
Total Current Liabilities 11,133,689
LONG-TERM LIABILITIES
- ---------------------
Notes payable 4,125,000
-----------------
Total Liabilities 15,258,689
-----------------
COMMITMENTS
- -----------
MINORITY INTEREST 11,034
- -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------
Common stock, no par value, 2,800 shares authorized,
95 shares issued and 43 shares outstanding 29,232
Retained earnings 3,257,089
Treasury stock - at cost, 52 shares (4,277,000)
-----------------
Total Stockholders' Equity (Deficit) (990,679)
-----------------
Total Liabilities and Stockholders' Equity (Deficit) $ 14,279,044
================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 6 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
Common Stock
------------------
Number
of Retained Treasury
Shares Amount Earnings Stock Total
---------- ----------- ------------ ----------- -----------
Balance at September 30, 1997 95 $ 29,232 $2,499,112 $(4,277,000) $(1,748,656)
Distributions - - (658,842) - (658,842)
Full recovery of minority deficit
in excess of minority
investment - - 7,917 - 7,917
Net income - - 1,408,902 - 1,408,902
---------- ----------- ------------ ----------- -----------
Balance at September 30, 1998 95 $29,232 $3,257,089 $(4,277,000) $(990,679)
========== =========== ============ =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 7 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
INTEREST INCOME
- ---------------
Interest and fees on finance receivables $ 2,803,002
Other interest income 44,248
------------
Total interest income 2,847,250
------------
INTEREST EXPENSE
- ----------------
Interest on notes payable 695,344
Interest on long-term debt 495,000
------------
Total interest expense 1,190,344
------------
Net Interest Income 1,656,906
NON-INTEREST INCOME
- -------------------
Contract services 3,771,748
Training and consulting 21,054
Miscellaneous income 6,565
------------
Total non-interest income 3,799,367
------------
NON-INTEREST EXPENSES
- ---------------------
Salaries and employee benefits 2,193,946
Advertising 75,891
Bad debt expense 56,821
Depreciation and amortization 187,770
Loss on disposal of fixed assets 2,898
Minority interest in subsidiary income 18,951
Office supplies 250,605
Other administrative expenses 127,346
Printing 83,611
Professional fees 103,151
Rent 184,589
Repairs and maintenance 103,181
Research and development 224,152
Service charges 103,530
Telephone and utilities 54,400
Third party fees 209,252
Travel and entertainment 67,277
-------------
Total non-interest expenses 4,047,371
------------
Net Income $ 1,408,902
=============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 8 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
Cash Increase
or (Decrease)
Cash Flows From Operating Activities -------------
- ------------------------------------
Net income $ 1,408,902
Adjustments to reconcile net income to net cash
(used) by operating activities:
Depreciation and amortization 187,770
Loss on disposal of fixed assets 2,898
Minority interest in subsidiary income 18,951
Decrease (increase) in
----------------------
Finance receivables (2,443,841)
Due from affiliates (67,219)
Miscellaneous receivables 33,488
Prepaid expenses (58,685)
Deposits 41,733
Increase in
-----------
Accounts payable and accrued expenses 76,545
-------------
Net Cash (Used) by Operating Activities (799,458)
=============
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of fixed assets (1,163,634)
Purchase of software licenses (36,367)
-------------
Net Cash (Used) by Investing Activities (1,200,001)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Distributions to stockholders (658,842)
Payment of loan fees (68,701)
Net proceeds from line of credit 3,865,094
Principal payments on short-term debt (75,000)
-------------
Net Cash Provided by Financing Activities 3,062,551
-------------
Net Increase in Cash and Cash Equivalents 1,063,092
Cash and Cash Equivalents - Beginning of Year 341,886
-------------
Cash and Cash Equivalents - End of Year $ 1,404,978
=============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 9 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- -----------------------------------------------------------------
A. NATURE OF BUSINESS
------------------
Tricom, Inc. of Milwaukee (TRICOM) and Subsidiary ("the
Company" when referring to the group) provides billing,
collection and payroll support services to clients in the
temporary help industry throughout the United States. As
part of its service to customers, TRICOM advances funds
for payroll and payroll taxes. These funds are
collateralized by customer receivables and personal
guarantees.
TRICOM owns 70% of the issued and outstanding common stock
of UpGrad Personnel Services, Inc. ("UpGrad" or
"subsidiary"), its sole subsidiary. UpGrad operates a
training, management consulting and funding brokerage
business for the staffing industry, located in Knoxville,
Tennessee.
B. METHOD OF ACCOUNTING
--------------------
The Company's assets, liabilities, revenues and expenses
are recognized on the accrual basis method of accounting.
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 these estimates.
C. CONSOLIDATION POLICY
--------------------
The consolidated financial statements for the fiscal year
ended September 30, 1998 are comprised of TRICOM's and
UpGrad's activity.
The subsidiary's financial statement activity has been
consolidated within the individual line item presentation
of the consolidated financial statements with the 30%
interest not owned by the shareholders of the Company
accounted for as a minority interest. All intercompany
profits and transactions occurring on or after the
acquisition date of the subsidiary have been eliminated in
the consolidation.
- 10 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- -----------------------------------------------------------------
(Cont'd)
C. CONSOLIDATION POLICY (Cont'd)
--------------------
The minority's share of the net income from the
subsidiary, $18,951 for the fiscal year ended September
30, 1998, was first credited to the retained earnings of
the parent Company in order to absorb losses previously
recorded. The cumulative net loss recorded in the parent
Company's retained earnings as of September 30, 1997
totaled $7,917. The minority's share of net income from
the subsidiary for the fiscal year ended September 30,
1998 in excess of the cumulative net loss has been
recorded on the balance sheet as minority interest in the
amount of $11,034.
D. CASH AND CASH EQUIVALENTS
-------------------------
For purposes of the Statement of Cash Flows, the Company
considers all short-term investments in interest-bearing
accounts, securities, and other instruments with an
original maturity of three months or less, to be
equivalent to cash.
The Company had funds on deposit at various financial
institutions as of September 30, 1998 that exceeded the
federally insured limit by $2,577,434.
E. ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------
Finance receivables are reviewed periodically by
management to determine the adequacy of the allowance for
doubtful accounts. Based upon management's evaluation, an
allowance for doubtful accounts is not required as of
September 30, 1998.
F. FIXED ASSETS
------------
Fixed assets are stated at cost. The Company provides for
depreciation of furniture and equipment by use of the
straight-line method over the estimated useful lives which
range from five to ten years. The cost of leasehold
improvements is amortized utilizing the straight-line
method over the term of the respective leases.
Depreciation expense for the fiscal year ended September
30, 1998 totaled $110,114. Included in fixed assets is
$933,608 of costs related to software that is in the
process of being developed but which had not been placed
in service or depreciated as of September 30, 1998.
- 11 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- -----------------------------------------------------------------
(Cont'd)
G. INTANGIBLE ASSETS
-----------------
Intangible assets represent costs attributable to the
following: purchased software rights and related support
manuals; loan fees; noncompetition agreement with a former
officer and shareholder; and goodwill related to the
acquisition of UpGrad. The following is a schedule of the
straight-line amortizable life of the asset, its cost,
accumulated amortization at September 30, 1998, and
amortization expense for the fiscal year ending September
30, 1998:
Useful
Life In Accumulated Current Year
Asset Years Cost Amortization Amortization
------- ------- ------ -------------- --------------
Software rights 2-5 $ 149,690 $ 81,168 $ 45,622
Loan Fees 3 68,701 9,542 9,542
Loan Fees 2 9,915 9,915 2,916
Noncompetition
Agreement 10 100,000 21,667 10,000
Goodwill 40 383,039 25,536 9,576
------------- ------------- -----------
Totals $ 711,345 $ 147,828 $ 77,656
============= ============= ===========
H. INCOME TAXES
------------
Pursuant to Section 1362(a) of the Internal Revenue Code,
TRICOM elected to be treated as an S Corporation, "small
business corporation," for income tax purposes. Under this
election, profits and losses are passed directly to the
shareholders for inclusions in their personal income tax
returns.
The Company does not pay corporate income taxes on its
taxable income. Accordingly, no liability or provision for
federal or state income taxes is included in the
accompanying statements.
Pursuant to Internal Revenue Code Sections 444 and 7519, S
Corporations electing a fiscal year are required to make
deposits to the IRS representing the estimated tax
deferral that results from the use of a fiscal year. The
Company received a refund of $41,733 for the fiscal year
ended September 30, 1998.
- 12 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- -----------------------------------------------------------------
(Cont'd)
H. INCOME TAXES (Cont'd)
------------
UpGrad has not elected to be treated as an S Corporation.
For the fiscal year ended September 30, 1998, UpGrad
realized net income of $63,171. For the fiscal year ended
September 30, 1998 the Company has not recorded income tax
expense due to prior year net operating loss carryovers,
which offset UpGrad taxable income. UpGrad's net operating
loss carryovers are not available to offset TRICOM's
taxable income and are expected to be fully utilized to
offset UpGrad's September 30, 1998 net income.
I. PROFIT-SHARING AND RETIREMENT PLANS
-----------------------------------
Effective October 1, 1996, TRICOM adopted a non-qualified
profit-sharing plan covering substantially all full-time
employees. Contributions to the plan for the fiscal year
ending September 30, 1998 were $210,000. Annual
contributions are not subject to Internal Revenue Code
limits applicable to qualified plans, and can be made at
the Company's discretion. There was no unfunded obligation
as of September 30, 1998.
Effective January 1, 1994, the Company adopted a 401(k)
savings plan which covers substantially all full-time
employees. Under the plan, employees may elect to
contribute up to 15% of their salary. Company
contributions to the plan are discretionary. No Company
contribution was made for the fiscal year ending September
30, 1998.
J. ADVERTISING
-----------
The Company expenses advertising costs as they are
incurred. Advertising expense for the fiscal year ended
September 30, 1998 was $75,891.
K. REVENUE RECOGNITION
-------------------
The majority of the revenue received by the Company is
related to fees earned for billing, collection and payroll
support services provided to clients as well as interest
and fees earned on finance receivables made to such
clients. Although the Company charges each client a
specific rate for all services provided to such client, it
is the customary practice of the Company to allocate such
revenue between interest income and service fees. Revenue
is recognized on the accrual basis of accounting.
- 13 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #2 NOTES PAYABLE
- ------- -------------
The Company is indebted on the following as of
September 30, 1998:
On April 24, 1998, TRICOM entered into a revolving
line of credit agreement for $11,000,000 with
Fleet Capital Corporation ("Fleet") which expires
on April 23, 2001. The line of credit will
increase after January 1, 1999 to $13,000,000 and
increase after January 1, 2000 to $15,000,000, as
long as TRICOM is meeting certain requirements by
the bank. Interest accrues at the bank's reference
rate plus .25%. The bank's reference rate was
8.25% at September 30, 1998. Additionally, TRICOM
is obligated to pay an annualized 0.5% unused line
of credit commitment fee and a 1% fee on each
increase in the line of credit. This line of
credit agreement replaces a line of credit
agreement with another bank. The line of credit is
secured by the assets of TRICOM and a limited
personal guarantee of the majority shareholder.
The line of credit agreement contains various
covenant provisions, including a requirement to
maintain a minimum tangible net worth, maximum
capital expenditures, performance ratios and
reporting requirements. $ 10,920,165
TRICOM is indebted to a former stockholder on a
five year secured promissory note dated August 23,
1996 bearing interest at 12%. TRICOM is required
to pay interest monthly with a final payment of
unpaid principal and accrued interest due on
August 23, 2001. TRICOM is obligated to make
accelerated principal payments in the event TRICOM
makes Subchapter S distributions in any fiscal
year to its shareholders in excess of the amount
distributed to the shareholders for payment of
their federal and state tax liabilities resulting
from ownership of TRICOM's stock. The debt is
secured by a general business security agreement,
a collateral pledge agreement for the shares
redeemed from the former shareholder and the
personal guarantee of the officers of TRICOM. In
addition, the loan agreement contains various
covenant provisions, including minimal tangible
net worth, limited salaries for the shareholders
of TRICOM, maximum capital expenditures and
minimum life insurance requirements. The debt is
subordinated to the Fleet revolving line credit
agreement. 4,125,000
- 14 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #2 NOTES PAYABLE (Cont'd)
- ------- -------------
TRICOM is indebted to a related company on an
unsecured demand note dated June 28, 1996 bearing
interest at 10%. $ 25,000
------------
Total Notes Payable 15,070,165
Less current maturities 10,945,165
------------
Amount due after one year $ 4,125,000
============
The following is a maturity schedule of notes payable as of
September 30, 1998:
1999 $10,945,165
2001 4,125,000
------------
Total $15,070,165
============
Interest paid during the fiscal year ended September 30, 1998 was
$1,121,055.
NOTE #3 COMMITMENTS
- ------- -----------
Effective October 1, 1994, TRICOM subleases its facilities from a
company affiliated by common ownership, for a period extending
through September 30, 1999. The lease provides for the payment of
real estate taxes and certain occupancy expenses. The base rent
is also subject to escalation. UpGrad had leased its facilities
under a lease agreement dated September 15, 1995 that expired on
September 14, 1998. The annual base rental was $16,200 and was
payable in monthly installments of $1,350. This lease was
extended until October 31, 1998. Effective November 1, 1998,
UpGrad leases its facilities, for a period extending through
October 31, 2001. The annual base rental of $18,600 is payable in
monthly installments of $1,550.
The following is a summary of rent expense included in the
financial statements related to these leases for the fiscal year
ended September 30, 1998:
Minimum lease payments $ 105,605
Common area maintenance and real
estate taxes 78,984
------------
Total rent expense $ 184,589
============
- 15 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #3 COMMITMENTS (Cont'd)
- ------- -----------
The Company also has an operating lease, dated July 5, 1997 for
an automobile with a term of 24 months, requiring monthly
payments of $240.
The following is a summary of the future minimum lease payments
for operating leases having remaining noncancelable lease terms
in excess of one year for the fiscal year ending September 30,
1998:
1999 $ 124,363
2000 18,600
2001 18,600
2002 1,550
-------------
Total future minimum lease payments $ 163,113
=============
NOTE #4 RELATED PARTY TRANSACTIONS
- ------- --------------------------
During fiscal 1998, the Company had various transactions with
four entities affiliated by common ownership, as follows:
Type of Transactions
--------------------
Due from affiliates - beginning of year (net) $ 243,330
Contract service or administrative fee revenue 319,482
Payroll and other advances 919,254
Administrative expense reimbursement (net) 309,369
Cash receipts (1,480,886)
-------------
Due from affiliates - end of year $ 310,549
=============
NOTE #5 STOCK REDEMPTION AGREEMENT
- ------- --------------------------
TRICOM has a stock redemption agreement with a shareholder to
provide for the orderly disposition of the corporate stock in the
event of the shareholder's desire to sell the shares, termination
of employment or death. In the event the shareholder desires to
sell the shares or the shareholder's employment expires or is
terminated, for any reason, the shareholder shall sell and the
Corporation must purchase all of the shares owned by the
shareholder. The purchase price shall be that part of the "full
value of TRICOM" that is equal to the shareholder's pro rata
ownership interest in TRICOM. The full value of TRICOM is defined
as six times the sum of TRICOM's pre-tax profits for the prior
twelve months ending on the first day of the month after
- 16 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #5 STOCK REDEMPTION AGREEMENT (Cont'd)
- ------- --------------------------
death, termination of employment or the receipt of notice of
intent to sell. If the shareholder terminates employment prior to
August 30, 2001 or TRICOM terminates shareholder's employment for
"good cause" at any time after August 30, 1996, the purchase
price shall be equal to three times pre-tax profits. The
agreement requires a payment of 10% of the purchase price at
closing or within 90 days of death with the balance paid in 10
equal annual installments plus interest at the prime rate,
beginning at the anniversary date of the closing or the date of
death of the shareholder.
NOTE #6 SUBSEQUENT EVENT
- ------- ----------------
On October 13, 1998, the Company entered into a $1,200,000
capital lease agreement for the financing of computer software
and hardware. This capital lease arrangement will be used to
finance the $933,608 already paid by the Company and included in
fixed assets, as well as other computer hardware and software
costs.
NOTE #7 YEAR 2000 READINESS DISCLOSURE (UNAUDITED)
- ------- ------------------------------------------
A critical issue has emerged for all industries that are heavily
reliant upon computers regarding how existing software
application programs and operating systems can accommodate the
date value for the "Year 2000." The Year 2000 issue is the result
of computer programs being written using two digits (rather than
four) to define the applicable year. As such, certain programs
that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. As a result, the year
1999 (i.e. `99') could be the maximum date value these systems
will be able to accurately process. Like most financial service
providers, the Company may be significantly affected by the Year
2000 problem due to the nature of financial information.
Furthermore, if computer systems are not adequately changed to
properly identify the Year 2000, many computer applications could
fail or generate erroneous reports.
During 1997, management began the process of working with its
outside software vendors to ensure that the Company is prepared
for the Year 2000. Management has been in frequent contact with
its vendors and has developed a testing strategy and Year 2000
plan with the knowledge and understanding of each of the vendors'
plans and timetables. Additionally, the critical in-house
hardware and related systems are being reviewed and upgraded, if
necessary, to be Year 2000 compliant. Testing of these critical
hardware systems, such as work stations, file servers, and local
area networks, is expected to be completed on or about September
30, 1999.
- 17 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(With the auditor's report of November 16, 1998)
For the fiscal year ended September 30, 1998
NOTE #7 YEAR 2000 READINESS DISCLOSURE (UNAUDITED) (Cont'd)
- ------- ------------------------------------------
Total estimated Year 2000 compliance costs are not expected to
exceed $100,000 and, accordingly, are not expected to be material
to the Company's financial position or results of operations in
either 1998 or 1999. This cost does not include internal salary
and employee benefit costs for persons that have
responsibilities, or are involved, with the Year 2000 project.
The above estimated dates and costs are based on management's
best estimates and include assumptions of future events,
including availability of certain resources, software vendor
plans, and other factors. In the event the Company does
experience Year 2000 systems failures or malfunctions and despite
the testing preparedness efforts, the Company's operations would
be disrupted until the systems are restored, and the Company's
ability to conduct its business may be adversely impacted in
connection with processing customer payrolls and transactions.
- 18 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1999
(In thousands)
=====================================================================================================
ASSETS:
Finance receivables $ 14,497
Due from affiliates 270
Prepaid and other current assets 539
- -----------------------------------------------------------------------------------------------------
Total current assets 15,306
Premises and equipment, at cost 2,559
Accumulated depreciation (524)
- -----------------------------------------------------------------------------------------------------
Net premises and equipment 2,035
Goodwill and other intangible assets, net 421
Other assets 42
- -----------------------------------------------------------------------------------------------------
Total assets $ 17,804
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
LIABILITIES:
Outstanding funds due to bank $ 1,188
Accounts payable and accrued expenses 2,111
Notes payable - revolving line of credit 10,275
- -----------------------------------------------------------------------------------------------------
Total current liabilities 13,574
Long-term debt 4,837
- -----------------------------------------------------------------------------------------------------
Total liabilities 18,411
- -----------------------------------------------------------------------------------------------------
Minority interest 16
STOCKHOLDERS' EQUITY (DEFICIT):
Capital stock 29
Treasury stock, at cost (4,277)
Retained earnings 3,625
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (623)
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 17,804
=====================================================================================================
- 19 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTH PERIOD ENDED JUNE 30, 1999
(In thousands)
=============================================================================================================
INTEREST INCOME
Interest and fees on finance receivables $ 2,338
- -------------------------------------------------------------------------------------------------------------
Total interest income 2,338
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on notes payable - revolving line of credit 575
Interest on long-term debt 447
- -------------------------------------------------------------------------------------------------------------
Total interest expense 1,022
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 1,316
Provision for possible loan losses -
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 1,316
- -------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Administrative services revenue 2,821
Other 27
- -------------------------------------------------------------------------------------------------------------
Total non-interest income 2,848
- -------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,604
Occupancy, net 198
Equipment expense 276
Data processing 23
Advertising and marketing 72
Professional fees 142
Other 597
- -------------------------------------------------------------------------------------------------------------
Total non-interest expense 2,912
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,252
=============================================================================================================
- 20 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE NINE MONTH PERIOD ENDED JUNE 30, 1999
(In thousands, except share amounts)
Common Stock
----------------------
Number Retained Treasury
of Shares Amount Earnings Stock Total
==================================================================================================================================
Balance at October 1, 1998 95 $ 29 $ 3,257 $ (4,277) $ (991)
Distributions - - (884) - (884)
Net income - - 1,252 - 1,252
----------------------------------------------------------------------------------
Balance at June 30, 1999 95 $ 29 $ 3,625 $ (4,277) $ (623)
==================================================================================================================================
- 21 -
TRICOM, INC. OF MILWAUKEE AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTH PERIOD ENDED JUNE 30, 1999
(In thousands)
==============================================================================================================
OPERATING ACTIVITIES:
Net income $ 1,252
Adjustments to reconcile net income to net cash used for,
or provided by, operating activities:
Minority interest in subsidiary income 4
Depreciation and amortization 45
Decrease in due from affiliates 41
Increase in prepaid and other assets (265)
Increase in accounts payable and accrued expenses 1,922
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,999
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net increase in finance receivables (4,086)
Purchases of premises and equipment, net (663)
- --------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (4,749)
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Decrease in notes payable, net (670)
Proceeds from issuance of long-term debt 892
Payments on long-term debt (180)
Distributions to S-Corporation stockholders (884)
- --------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (842)
- --------------------------------------------------------------------------------------------------------------
Net decrease in cash (2,593)
Cash at beginning of period 1,405
- --------------------------------------------------------------------------------------------------------------
Outstanding funds due to bank at end of period $ (1,188)
==============================================================================================================
- 22 -
(b) Pro Forma Financial Information.
Page
----
1) Pro Forma Condensed Balance Sheet as of June 30, 1999. 24
2) Pro Forma Condensed Statement of Income for the year
ended December 31, 1998. 25
3) Pro Forma Condensed Statement of Income for the six month
period ended June 30, 1999. 26
The accompanying unaudited pro forma condensed financial information ("pro forma
statements") illustrate the effect of the acquisition of Tricom on the financial
position and results of operations of Wintrust Financial Corporation
("Wintrust"). The unaudited pro forma condensed balance sheet assumes the
acquisition took place on June 30, 1999. The unaudited pro forma condensed
statement of income for the year ended December 31, 1998 is based on the
historical audited statement of income for Wintrust for the year ended December
31, 1998 and the historical audited statement of income for Tricom for the year
ended September 30, 1998 and has been prepared assuming the acquisition took
place on January 1, 1998. The unaudited pro forma condensed statement of income
for the six month period ended June 30, 1999 is based on that time period for
both Wintrust and Tricom and assumes the acquisition took place on January 1,
1999. These pro forma statements are not necessarily indicative of the results
of operations or financial position of Wintrust that would have actually
occurred, or which may occur in the future, had the acquisition been completed
on the dates noted above. For example, the expected favorable impact of lower
funding cost rates related to Tricom's revolving line of credit facility is not
reflected as a pro forma adjustment in the accompanying pro forma statements.
Subsequent to the transaction, Tricom's revolving line of credit facility with
an unaffiliated third party bank was replaced with a line of credit from a
Wintrust bank subsidiary. The interest rate on the unaffiliated bank line of
credit facility was based on a spread over that bank's prime lending rate plus
certain additional fees, whereas the funding cost of the new line of credit with
a Wintrust bank subsidiary would effectively approximate that bank subsidiary's
overall cost of funds rate.
Hinsdale Bank and Trust Company ("Hinsdale"), a wholly-owned subsidiary of
Wintrust, acquired 100% of the common stock of Tricom for $8.0 million,
consisting of $4.0 million in cash and 227,635 shares of the Company's common
stock. The transaction will be recorded using the purchase method of accounting.
Under purchase accounting, the total purchase price will be allocated to
tangible and intangible assets and liabilities of Tricom based on their
respective fair values as of October 1, 1999, the effective date of the
acquisition. A preliminary allocation of the purchase price has been made in the
accompanying pro forma statements based on available information and is subject
to change. The actual allocation of purchase price and the resulting effect on
net income may differ from the unaudited pro forma amounts included herein. The
accompanying pro forma statements should be read in conjunction with the
separate historical financial statements and notes thereto of both Wintrust and
Tricom.
- 23 -
ITEM 7(b) PRO FORMA FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1999
(In thousands)
PRO FORMA ADJUSTMENTS PRO FORMA
-----------------------
WINTRUST TRICOM REF. # AMOUNT WINTRUST
====================================================================================================================================
ASSETS
Cash and due from banks-non-interest bearing $ 40,170 $ (1,188) $ 38,982
Federal funds sold 56,640 - (2) $ (4,030) 52,610
Interest-bearing deposits with banks 3,047 - 3,047
Available-for-Sale securities, at fair value 185,233 - 185,233
Investment in Tricom, Inc. of Milwaukee - - (2) 8,227
(3) (8,227) -
Loans, net of unearned income 1,137,169 14,497 1,151,666
Less: Allowance for possible loan losses 7,677 - (1) 175 7,852
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 1,129,492 14,497 (175) 1,143,814
Premises and equipment, net 66,302 2,035 68,337
Accrued interest receivable and other assets 32,912 851 (3) (52) 33,711
Goodwill and organizational costs 1,343 421 (3) (421)
(3) 9,839 11,182
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,515,139 $ 16,616 $ 5,161 $ 1,536,916
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 124,642 - $ 124,642
Interest bearing 1,210,083 - 1,210,083
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,334,725 - - 1,334,725
Short-term borrowings 50,105 - 50,105
Notes payable 5,100 $ 10,275 15,375
Long-term debt 31,050 4,837 35,887
Accrued interest payable and other liabilities 14,977 2,111 (1) $ 181
(2) 198
(3) 175 17,642
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,435,957 17,223 554 1,453,734
- ------------------------------------------------------------------------------------------------------------------------------------
Minority interest - 16 (3) (16) -
Shareholders' equity:
Preferred stock - - -
Common stock 8,172 29 (3) (29)
(2) 228 8,400
Surplus 73,138 - (2) 3,772 76,910
Common stock warrants 100 - 100
Treasury stock, at cost - (4,277) (3) 4,277 -
Retained earnings (deficit) (1,778) 3,625 (1) (356)
(3) (3,269) (1,778)
Accumulated other comprehensive loss (450) - (450)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 79,182 (623) 4,623 83,182
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,515,139 $ 16,616 $ 5,161 $ 1,536,916
====================================================================================================================================
<FN>
PRO FORMA ADJUSTMENTS:
- ----------------------
(1) Pre-closing Tricom entry to record allowance for loan losses and accruals for profit sharing benefits and undistributed
current year earnings, in accordance with generally accepted accounting principles.
(2) To record $8,227 purchase price of Tricom including $197 of acquisition costs. A total of 227,635 Wintrust common shares
were issued.
(3) To record goodwill, write-down of certain assets, accrual of prepayment penalty for early termination of revolving credit
facility and elimination of equity interest in Tricom.
</FN>
- 24 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except per share data)
PRO FORMA ADJUSTMENTS PRO FORMA
---------------------
WINTRUST TRICOM REF. # AMOUNT WINTRUST
==================================================================================================================================
INTEREST INCOME
Interest and fees on loans $75,369 $2,847 $ 78,216
Interest bearing deposits with banks 2,283 - 2,283
Federal funds sold 2,327 - (3) $ (214) 2,113
Securities 8,000 - 8,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 87,979 2,847 (214) 90,612
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 49,069 - 49,069
Interest on short-term borrowings and notes payable 1,399 695 (4) 217 2,311
Interest on long-term debt 747 495 (4) (495) 747
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 51,215 1,190 (278) 52,127
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 36,764 1,657 65 38,486
Provision for possible loan losses 4,297 57 4,354
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 32,467 1,600 65 34,132
- ----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Fees on mortgage loans sold 5,569 - 5,569
Administrative services revenue - 3,793 3,793
Service charges on deposit accounts 1,065 - 1,065
Trust fees 788 - 788
Other 653 6 659
- ----------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 8,075 3,799 - 11,874
- ----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 18,944 2,194 21,138
Occupancy, net 2,435 239 2,674
Equipment expense 2,221 291 2,512
Data processing 1,676 224 1,900
Advertising and marketing 1,612 76 1,688
Professional fees 1,654 103 1,757
Other 7,291 863 (2) 503 8,657
- ----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 35,833 3,990 503 40,326
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,709 1,409 (438) 5,680
Income tax expense (benefit) (1,536) - (1) 383 (1,153)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,245 $ 1,409 $ (820) $ 6,834
==================================================================================================================================
NET INCOME PER COMMON SHARE - BASIC $ 0.77 N/A N/A $ 0.82
==================================================================================================================================
NET INCOME PER COMMON SHARE - DILUTED $ 0.74 N/A N/A $ 0.78
==================================================================================================================================
Weighted average common shares outstanding 8,142 N/A 228 8,370
Dilutive potential common shares 353 N/A - 353
- ----------------------------------------------------------------------------------------------------------------------------------
Average common shares and dilutive common shares 8,495 N/A 228 8,723
==================================================================================================================================
<FN>
PRO FORMA ADJUSTMENTS:
- ----------------------
(1) To record federal and state income taxes at the combined marginal rate of 39.4%.
(2) Amortization of goodwill over 20 years.
(3) Estimated loss of interest income related to the $4,030 cash portion of the purchase price.
(4) As a condition of the transaction, the $4,125 long-term debt to a former stockholder was paid-off and, accordingly, the
interest expense related to this long-term debt was eliminated. This payment was funded through an advance on the line
of credit facility, therefore, additional interest expense on short-term borrowings and notes payable was recorded
at an estimated new funding cost rate.
</FN>
- 25 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
(In thousands, except per share data)
Pro Forma Adjustments Pro Forma
---------------------
Wintrust Tricom Ref. # Amount Wintrust
================================================================================================================================
INTEREST INCOME
Interest and fees on loans $45,003 $1,709 $ 46,712
Interest bearing deposits with banks 121 - 121
Federal funds sold 570 - (3) $ (93) 477
Securities 4,698 - 4,698
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income 50,392 1,709 (93) 52,008
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 25,766 - 25,766
Interest on short-term borrowings and notes payable 743 359 (4) 98 1,200
Interest on long-term debt 1,469 303 (4) (248) 1,525
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense 27,978 662 (150) 28,490
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 22,414 1,047 57 23,518
Provision for possible loan losses 1,717 - 1,717
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 20,697 1,047 57 21,801
- --------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Fees on mortgage loans sold 2,217 - 2,217
Administrative services revenue - 1,718 1,718
Service charges on deposit accounts 681 - 681
Trust fees 475 - 475
Gain on sale of premium finance receivables 263 - 263
Other 790 21 811
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 4,426 1,739 - 6,165
- --------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 10,272 1,081 11,353
Occupancy, net 1,345 130 1,475
Equipment expense 1,330 205 1,535
Data processing 993 5 998
Advertising and marketing 732 46 778
Professional fees 586 98 684
Other 3,806 402 (2) 251 4,460
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 19,064 1,967 251 21,282
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 6,059 819 (194) 6,683
Income tax expense 1,965 - (1) 246 2,211
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,094 $ 819 $ (440) $ 4,472
================================================================================================================================
NET INCOME PER COMMON SHARE - BASIC $ 0.50 N/A N/A $ 0.53
================================================================================================================================
NET INCOME PER COMMON SHARE - DILUTED $ 0.48 N/A N/A $ 0.51
================================================================================================================================
Weighted average common shares outstanding 8,162 N/A 228 8,390
Dilutive potential common shares 330 N/A - 330
- --------------------------------------------------------------------------------------------------------------------------------
Average common shares and dilutive common shares 8,492 N/A 228 8,720
================================================================================================================================
<FN>
PRO FORMA ADJUSTMENTS:
- ----------------------
(1) To record federal and state income taxes at the combined marginal rate of 39.4%.
(2) Amortization of goodwill over 20 years.
(3) Estimated loss of interest income related to the $4,030 cash portion of the purchase price.
(4) As a condition of the transaction, the $4,125 long-term debt to a former stockholder was paid-off and, accordingly, the
interest expense related to this long-term debt was eliminated. This payment was funded through an advance on the line
of credit facility, therefore, additional interest expense on short-term borrowings and notes payable was recorded
at an estimated new funding cost rate.
</FN>
- 26 -
(c) Exhibit.
Exhibit 99 Consent of Kolb Lauwasser & Co., S.C..
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
Date: December 23, 1999 /s/ David A. Dykstra
--------------------
Executive Vice President
& Chief Financial Officer
- 27 -