================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
DATE OF REPORT: September 30, 1999
CATALYTICA, INC.
(Exact name of Registrant as specified in its charter)
0-20966
(Commission File Number)
Delaware 94-2262240
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
430 Ferguson Drive
Mountain View, California 94043
(Address of principal executive offices)
(650) 960-3000
(Registrant's telephone number, including area code)
1
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 20, 1999, Catalytica, Inc., a Delaware corporation (the
"Registrant"), pursuant to that certain Agreement and Plan of Reorganization
(the "Reorganization Agreement") dated July 14, 1999 by and among the
Registrant, Pilot Acquisition Corporation, a Michigan corporation and wholly
owned subsidiary of the Registrant ("Merger Sub") and Wyckoff Chemical Company,
Inc., a Michigan corporation ("Wyckoff"), acquired Wyckoff through the merger of
Merger Sub with and into Wyckoff (the "Merger"). Wyckoff survived the Merger as
a wholly-owned subsidiary of the Registrant.
Pursuant to the Merger, each outstanding share of Wyckoff Common Stock was
converted into the right to receive 14.157928 of a share of the Registrant's
Common Stock and accompanying Preferred Share Purchase Rights ("Rights")
pursuant to that certain Preferred Shares Rights Agreement dated as of October
23, 1996 by and between the Registrant and Chasemellon Shareholder Services,
L.L.P., one such right to accompany each share of the Registrant's Common Stock
issued in the Merger. As a result, approximately 284,633 shares of Wyckoff
Common Stock outstanding immediately prior to the Merger were converted into
approximately 4,029,813 registered shares of the Registrant's Common Stock. In
addition, options and other rights to acquire approximately 32,962 shares of
Wyckoff Common Stock outstanding under Wyckoff's employee benefit plans were
assumed by the Registrant and converted into options to purchase approximately
466,674 shares of the Registrant's Common Stock. An additional Registration
Statement on Form S-8 with respect to the shares of the Registrant's Common
Stock underlying such options was filed by the Registrant on September 24, 1999.
The summary of the provisions of the Reorganization Agreement set forth above
is qualified by reference to the Reorganization Agreement, which is incorporated
herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4
of the Registrant (File No. 333-84615), declared effective by the Securities and
Exchange Commission (the "Commission") on August 20, 1999.
2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
FINANCIAL STATEMENTS OF WYCKOFF CHEMICAL COMPANY, INC.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Wyckoff Chemical Company, Inc.
South Haven, Michigan
We have audited the consolidated balance sheets of Wyckoff Chemical Company,
Inc. and Subsidiary (the Company) as of June 30, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1999. Our audits also
included the financial statement schedule listed in the Index to the Financial
Statements. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wyckoff
Chemical Company, Inc. and Subsidiary, at June 30, 1999 and 1998, and the
results of its operations and its cash flows for the three years in the period
ended June 30, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ BDO Seidman LLP
July 23, 1999
Kalamazoo, Michigan
3
WYCKOFF CHEMICAL COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
1999 1998
------------ -----------
Assets (Notes 4 and 5)
Current:
Cash $ 290,000 $ 305,000
Accounts receivable, less allowance of $34,000 and $22,000 8,240,000 5,618,000
Inventories (Note 3) 7,513,000 6,307,000
Prepaid expenses 127,000 164,000
----------- -----------
Total Current Assets 16,170,000 12,394,000
Property and equipment:
Land and improvements 1,139,000 1,104,000
Buildings and improvements 11,276,000 8,208,000
Machinery and equipment 34,261,000 25,399,000
Construction projects in progress (estimated cost to complete
$4,096,000 as of June 30, 1999) 1,286,000 3,878,000
----------- -----------
47,962,000 38,589,000
Less accumulated depreciation 20,503,000 17,589,000
----------- -----------
Net Property and Equipment 27,459,000 21,000,000
Other - Bond issue costs (net of accumulated amortization of $66,000
and $30,000) 153,000 178,000
----------- -----------
$43,782,000 $33,572,000
=========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
4
WYCKOFF CHEMICAL COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - (Continued)
June 30, June 30,
1999 1998
----------- ------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,644,000 $ 1,853,000
Line-of-credit (Note4) 1,000,000 500,000
Accruals:
Compensation and taxes thereon 858,000 345,000
Profit sharing 213,000 145,000
Taxes other than income taxes 50,000 61,000
Other 220,000 75,000
Income taxes 819,000 311,000
Interest 32,000 42,000
Current portion of long-term debt (Note 5) 2,464,000 1,340,000
----------- -----------
Total Current Liabilities 8,300,000 4,672,000
Long-Term Debt, less current portion (Note 5) 10,822,000 7,109,000
Postretirement Benefits (Note 9) 388,000 349,000
Deferred Income Taxes (Note 7) 2,598,000 2,358,000
----------- -----------
Total Liabilities 22,108,000 14,488,000
Commitments (Notes 8 and 9)
Shareholders' Equity:
Common stock (5,000,000 shares authorized; 283,929 shares
outstanding at June 30, 1999 and 283,488 shares outstanding at
June 30, 1998) (Note 6) 284,000 283,000
Additional paid-in capital 2,095,000 2,060,000
Retained earnings 19,295,000 16,741,000
----------- -----------
Total Shareholders' Equity 21,674,000 19,084,000
----------- -----------
$43,782,000 $33,572,000
=========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
5
WYCKOFF CHEMICAL COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
-----------------------------------------------------
1999 1998 1997
------------ ----------- -----------
Net Sales $36,524,000 $31,429,000 $29,041,000
Cost of Sales 24,951,000 21,454,000 19,678,000
----------- ----------- -----------
Gross profit 11,573,000 9,975,000 9,363,000
Research and Development Expenses 1,810,000 1,451,000 1,163,000
Selling and Administrative Expenses 4,974,000 4,004,000 3,595,000
----------- ----------- -----------
Operating profit 4,789,000 4,520,000 4,605,000
Interest Expense, net of interest income of
$51,000, $111,000 and $120,000 608,000 584,000 607,000
----------- ----------- -----------
Income before taxes on income 4,181,000 3,936,000 3,998,000
Taxes on Income (Note 7) 1,290,000 1,066,000 1,296,000
----------- ----------- -----------
Net Income $ 2,891,000 $ 2,870,000 $ 2,702,000
=========== =========== ===========
Net Income per Share (Note 11)
Basic $10.19 $10.09 $9.47
=========== =========== ===========
Diluted $10.08 $10.00 $9.39
=========== =========== ===========
Number of shares used in computing net income
per share:
Basic 283,614 284,324 285,317
=========== =========== ===========
Diluted 286,835 287,045 287,793
=========== =========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
6
WYCKOFF CHEMICAL COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional Total
------------ Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
Balance, June 30, 1996 285,185 $285,000 $2,234,000 $11,853,000 $14,372,000
Issuance of common stock 269 -- 21,000 -- 21,000
Net income -- -- -- 2,702,000 2,702,000
Dividends, $1.20 per share -- -- -- (342,000) (342,000)
------- -------- ---------- ----------- -----------
Balance, June 30, 1997 285,454 285,000 2,225,000 14,213,000 16,753,000
Issuance of common stock 76 -- 7,000 -- 7,000
Repurchase of common stock (2,042) (2,000) (202,000) -- (204,000)
Net income -- -- -- 2,870,000 2,870,000
Dividends, $1.20 per share -- -- -- (342,000) (342,000)
------- -------- ---------- ----------- -----------
Balance, June 30, 1998 283,488 283,000 2,060,000 16,741,000 19,084,000
Issuance of common stock 441 1,000 35,000 -- 36,000
Net income -- -- -- 2,891,000 2,891,000
Dividends, $1.20 per share -- -- -- (337,000) (337,000)
------- -------- ---------- ----------- -----------
Balance, June 30, 1999 283,929 284,000 2,095,000 19,295,000 21,674,000
See accompanying summary of accounting policies and notes to consolidated
financial statements.
7
WYCKOFF CHEMICAL COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Operating Activities (Note 10):
Net income $ 2,891,000 $ 2,870,000 $ 2,702,000
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 3,440,000 2,965,000 2,688,000
Bad debts 12,000 10,000 (33,000)
(Gain) loss on sale of assets 20,000 (2,000) 1,000
Stock option expense 10,000 -- 7,000
Stock compensation plan expense 25,000 7,000 14,000
Postretirement benefit expense 39,000 83,000 45,000
Deferred income taxes 240,000 208,000 284,000
Changes in assets and liabilities:
Accounts receivable (2,634,000) (832,000) 719,000
Inventories (1,206,000) (112,000) (1,200,000)
Prepaid expenses and other assets (61,000) (41,000) (274,000)
Accounts payable 207,000 (211,000) 39,000
Accruals 1,213,000 (44,000) 386,000
----------- ----------- -----------
Cash Provided by Operating Activities: 4,196,000 4,901,000 5,378,000
Investing Activities:
Capital expenditures (9,217,000) (4,251,000) (3,534,000)
Proceeds from sale of property and equipment 5,000 4,000 5,000
----------- ----------- -----------
Cash Used in Investing Activities: (9,212,000) (4,247,000) (3,529,000)
Financing Activities:
Dividends paid (337,000) (342,000) (342,000)
Net receipts/payments under line-of-credit agreement 500,000 500,000 (1,278,000)
Principal payments of long-term debt (1,339,000) (1,269,000) (8,334,000)
Issuance of long-term debt 6,176,000 -- 8,627,000
Issuance of common stock 1,000 -- --
Purchase of common stock -- (204,000) --
----------- ----------- -----------
Cash Provided by (Used in) Financing Activities: 5,001,000 (1,315,000) (1,327,000)
Increase (Decrease) in Cash (15,000) (661,000) 522,000
Cash, beginning of year 305,000 966,000 444,000
----------- ----------- -----------
Cash, end of year $ 290,000 $ 305,000 $ 966,000
=========== =========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
8
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Wyckoff and its
subsidiary, Wyckoff Chemical Foreign Sales Corporation. All material
intercompany accounts and transactions are eliminated.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, Wyckoff considers
all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Estimates
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by the straight-line method for financial
reporting purposes and by accelerated methods for income tax purposes.
Revenue Recognition
Revenue consists of product sales and is recognized upon shipment of products.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising costs expensed
during the years ended June 30, 1999, 1998 and 1997, were $43,000, $102,000 and
$56,000, respectively.
Employee Benefit Plan
Wyckoff has established an employee benefit plan under Internal Revenue Code
Section 501(c)(9) to provide accident and health insurance benefits to all of
its eligible employees. During the year ended June 30, 1997, Wyckoff changed its
employee benefit plan from a self-funded plan to a fully insured plan whereby
monthly premiums are paid to an insurance carrier.
See accompanying notes to consolidated financial statements.
9
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES--(Continued)
Taxes on Income
Wyckoff has adopted Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. SFAS No. 109 requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amount and the tax basis of
assets and liabilities.
Earnings Per Share
Earnings per share is presented in accordance with SFAS No. 128, Earnings Per
Share ("EPS"). This statement requires the presentation of EPS to reflect both
Basic EPS and Diluted EPS on the face of the consolidated statements of income.
In general, Basic EPS excludes dilution created by common stock equivalents.
Diluted EPS reflects the potential dilution created by common stock equivalents.
All periods presented herein have been adjusted to reflect the calculation of
EPS in accordance with SFAS No. 128. See Note 11 for reconciliation of the
numerators and denominators for the Basic EPS and Diluted EPS calculations.
Stock Based Compensation
In 1995, the Financial Accounting Standards Board issued Statement No. 123,
Accounting for Stock-Based Compensation, which provides an alternative to APB
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
stock-based compensation to employees. The Company has elected to account for
stock-based compensation to employees in accordance with APB Opinion 25.
Comprehensive Income
Effective April 1, 1998, Wyckoff adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires that all items recognized under accounting
standards as components of comprehensive earnings be reported in an annual
financial statement that is displayed with the same prominence as other annual
financial statements. As Wyckoff has no components of other comprehensive
income, there are no disclosure requirements involved in Wyckoff's adoption of
SFAS No. 130.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 2000. Management does
not anticipate that the adoption of SFAS No. 133 will have a significant effect
on results of operations or the financial position of Wyckoff.
See accompanying notes to consolidated financial statements.
10
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES--(Concluded)
Segment Information
Wyckoff adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, in fiscal 1999. SFAS No. 131 supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, and establishes
standards for reporting information about operating segments. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or group, in deciding how to allocate resources and in assessing
performance. Wyckoff has determined that under SFAS No. 131, it operates in one
segment of pharmaceutical manufacturing. Wyckoff's customers and operations are
primarily in the United States.
See accompanying notes to consolidated financial statements.
11
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Wyckoff develops, manufactures and markets a broad range of active
pharmaceutical ingredients and advanced fine chemical ingredients. Wyckoff and
its subsidiary Wyckoff Chemical Foreign Sales Corporation sells products and
custom synthesis services worldwide to a number of pharmaceutical companies that
sell both branded and generic products, as well as to cosmetic companies and
other fine chemical end-users.
2. Concentrations of Credit Risk
A significant portion of Wyckoff's business activity is comprised of sales to
a relatively few number of customers.
One customer in 1999, one customer in 1998 and three customers in 1997,
accounted for 10% or more of Wyckoff's revenues as follows:
Year ended June 30,
-------------------
Customer 1999 1998 1997
-------- ---- ---- ----
A 12% 8% 10%
B 8% 15% 19%
C 3% 7% 11%
Concentrations of credit risk with respect to accounts receivable are limited
due to performance of on-going customer credit evaluations. Historically,
Wyckoff has not experienced large losses related to trade receivables from
individual customers or from groups of customers in any geographic areas.
Wyckoff also has a significant portion of its business activity in sales to
foreign customers. Foreign sales for the years ended June 30, 1999, 1998 and
1997, comprise 13%, 16% and 10% of total sales, respectively. Historically,
Wyckoff has not experienced losses related to trade receivables from foreign
sales.
3. Inventories
Inventories are summarized as follows:
At June 30,
-----------
1999 1998
---- ----
Finished products $3,108,000 $3,893,000
Work-in-process 2,102,000 990,000
Raw Materials 2,303,000 1,424,000
---------- ----------
Total Inventories $7,513,000 $6,307,000
========== ==========
4. Line-of-Credit to Bank
At June 30, 1999, Wyckoff has a $2,500,000 working capital line-of-credit
agreement with interest charged at the bank's prime rate (effectively 7.75%).
The outstanding borrowings at June 30, 1999 and
12
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1998, were $1,000,000 and $500,000, respectively. The working capital line-of-
credit expires on October 31, 1999.
5. Long-Term Debt
Long-term debt consists of the following:
At June 30,
-----------
1999 1998
---- ----
Variable Rate Demand Notes, Series 1997, monthly principal
payments of $109,167, with variable interest based on the
market rate for similar bonds, (5.11% at June 30, 1999), due
February 1, 2004 $ 7,110,000 $8,449,000
$7,500,000 revolving secured term loan agreement with interest
charged at the bank's prime rate (effectively 7.75%) at June
30, 1999. The term loan is secured by substantially all assets
of Wyckoff except real estate. At October 31, 1999, the
agreement provides for the ability to convert to a long-term
loan with principal and interest payments over five years 6,176,000 --
------------ ----------
13,286,000 8,449,000
Less current portion 2,464,000 1,340,000
----------- ----------
Total Long-Term Debt $10,822,000 $7,109,000
=========== ==========
On February 1, 1997, Wyckoff issued, through First of America Brokerage
Service, Inc. (which subsequently became NatCity Investments, Inc.), variable
rate demand notes, series 1997, to pay off its existing debt obligations. The
notes are secured by substantially all of Wyckoff's assets and a letter of
credit from National City Bank for $10,454,000. The funds are available to
Wyckoff for certain capital projects as defined in the financing agreement. The
remaining proceeds from the 1997 bond issuance were spent during the fiscal year
ended June 30, 1998 on qualified capital projects detailed in the financing
agreement. Interest is payable at alternative interest rate options and Wyckoff
has the option to convert the variable interest rate to a fixed rate under
certain conditions defined in the financing agreement. The agreement places
certain restrictions on Wyckoff relating to, among other things, working
capital, net worth, dividends and capital expenditures. Wyckoff was in violation
of the capital expenditure covenants at June 30, 1999, but received a waiver
from the bank.
During the fiscal year ended June 30, 1999 Wyckoff entered into a $9,000,000
interest rate swap, derivative transaction to reduce Wyckoff's exposure to
fluctuations in short-term interest rates. This interest rate swap transaction
effectively fixed the benchmark rate (based on the weighted average daily rate
of 30-day commercial paper) used to calculate Wyckoff's borrowing cost at 4.96%
for four and one-half years on $9,000,000 of the variable rate demand notes,
series 1997. Wyckoff accounts for this interest rate swap as a hedge, and
accrues the interest rate differential as an adjustment to interest expense on a
monthly basis.
13
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate amounts of long-term debt due in each of the next five years are
as follows (current maturities related to the revolving secured term loan have
been assumed based on the five-year conversion option):
Revolving
Variable Rate Secured
Demand Notes Term Loan
------------ ---------
2000 $1,411,000 $1,053,000
2001 1,455,000 1,136,000
2002 1,530,000 1,228,000
2003 1,615,000 1,326,000
2004 1,705,000 1,433,000
---------- ----------
7,716,000 6,176,000
Less: Bond sinking fund (606,000) --
---------- ----------
$7,110,000 $6,176,000
========== ==========
Wyckoff is required to make monthly payments to a bond sinking fund held in a
trust to retire the bonds. The payments are based on a principal amount and
variable rate of interest. The aggregate amounts of payments to the bond sinking
fund due in each of the next five years are equal to the long-term debt amounts
noted above.
6. Stock Option Plans
During the fiscal year ended June 30, 1993, Wyckoff established the Wyckoff
Chemical Company, Inc. 1993 Stock Option Plan (the "Plan"). Shares reserved for
the issuance of options under the Plan total 35,000. The Plan is administered by
a committee appointed by the board of directors. Under the Plan, the committee
may grant stock options which are Incentive Stock Options ("ISOs") as defined in
the Internal Revenue Code or options which do not qualify as ISOs to outside
directors of Wyckoff.
The exercise price of options granted under the Plan may not be less than 100%
of the fair market value of the common stock on the date the option is granted.
The grantee's right to exercise these options vests at a rate of 33 1/3% per
year for the first three years as follows: 1/3 on and after six months following
the date of grant, 2/3 on and after one year from the date of grant and the
final 1/3 on and after two years from the date of grant. These options may be
exercised at any time, in whole or in part during their term, to the extent
vested. The options expire 10 years from date of grant.
14
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISO Nonqualified
--------------------------------------- -------------------------------------
Option Option
Price per Price per
Date Granted Shares Share Shares Share
- ----------------------------- ------------------ ------------------ ----------------- ----------------
June 30, 1997 25,915 $ 81.75 3,780 $82.00
Granted 3,375 85.00 -- --
Exercised -- -- -- --
Lapsed (315) (81.75) -- --
------ ------- ----- ------
June 30, 1998 28,975 82.13 3,780 82.00
Granted 2,180 85.00 -- --
Exercised (185) 78.00 -- --
Lapsed (1,260) (82.13) -- --
------ ------- ----- ------
June 30, 1999 29,710 $ 81.43 3,780 $82.00
====== ======= ===== ======
At June 30, 1999, there were 1,510 shares of common stock reserved for future
grants.
The fair value of these options was estimated at the date of grant using a
Black-Scholes multiple option pricing model using the following assumptions: (a)
risk free interest rate: 6%; (b) dividend yield: $1.30; (c) volatility factor:
0; and (d) weighted average expected life: five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option models require the input of highly
subjective assumptions including the expected stock price volatility. Because
Wyckoff's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
Had compensation cost for Wyckoff's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the related effects would not
be material.
7. Taxes on Income
Provisions for federal income taxes in the consolidated statements of income
are comprised of the following components:
Year Ended June 30,
------------------------------------------------------
1999 1998 1997
----------------- ----------------- ----------------
Current, net of business tax credits,
utilization of alternative minimum tax (AMT)
credit card carryforwards, and foreign sales
corporation tax savings $1,050,000 $ 858,000 $1,012,000
Deferred 240,000 208,000 284,000
---------- ---------- ----------
Total Taxes on Income $1,290,000 $1,066,000 $1,296,000
========== ========== ==========
15
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS--(Continued)
Deferred taxes result from temporary differences in the recognition of
revenues and expenses for tax and financial reporting purposes. The sources of
these differences and their tax effects are as follows:
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Depreciation $ 435,000 $165,000 $268,000
Property taxes 20,000 13,000 --
Legal accrual (51,000) -- --
Inventory:
Uniform Capitalization Rules -- 26,000 --
Obsolescence reserve (115,000) -- --
Other (49,000) 4,000 16,000
--------- -------- --------
Temporary Differences $ 240,000 $208,000 $284,000
========= ======== ========
Net deferred income tax liabilities are comprised of the following:
1999 1998
---- ----
Depreciation $2,887,000 $2,452,000
Property taxes 112,000 92,000
Other (103,000) (64,000)
Legal accrual (51,000) --
Inventory
Obsolescence reserve (115,000) --
Postretirement benefits (132,000) (122,000)
---------- ----------
Long-Term Deferred Income Taxes $2,598,000 $2,358,000
========== ==========
The effective tax rate on income was different than the federal statutory tax
rate. The following summary reconciles federal taxes at the statutory tax rate
with the effective tax rate:
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Statutory federal rate 34% 34% 34%
Decreases in taxes resulting from research and development credit (2) (6) (2)
Tax benefit derived from foreign sales corporation (1) (1) --
---- ---- ----
Taxes on Income - Effective Rate 31% 27% 32%
==== ==== ====
8. Profit-Sharing and 401(k) Plan
Wyckoff has a profit-sharing and 401(k) plan covering all qualified employees.
Wyckoff matches employee contributions at a rate of 100% up to 4.6% of the
employee's base salary. Wyckoff's contributions to the plan are discretionary
and are determined annually by the board of directors. Amounts paid or accrued
amounted to $294,000 in 1999, $293,000 in 1998 and $191,000 in 1997.
16
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS--(Continued)
9. Postretirement Benefits
Wyckoff provides postretirement healthcare benefits to eligible retirees. To
qualify, the retiree must have provided at least 10 years of service with
Wyckoff, and be at least 65 years of age.
During the fiscal year ended June 30, 1999, Wyckoff adopted SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. SFAS
No. 132 supersedes SFAS No. 106, which Wyckoff used in prior years to report
postretirement benefits.
Wyckoff has recorded a long-term liability at June 30, 1999 and 1998, of
$388,000 and $349,000, respectively, for postretirement benefits. During the
years ended June 30, 1999, 1998 and 1997, Wyckoff made cash expenditures of
approximately $8,000, $4,000 and $9,000, respectively, to fund benefits for
current retirees.
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Change in Benefit Obligation:
Benefit obligation at beginning of year $349,000 $266,000 $175,000
Service cost 63,000 58,000 54,000
Interest cost 23,000 17,000 13,000
Actuarial gain 6,000 -- --
Benefits paid (8,000) (4,000) (9,000)
Other (45,000) 12,000 33,000
-------- -------- --------
Benefit Obligation at End of Year $388,000 $349,000 $266,000
======== ======== ========
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Change in Plan Assets:
Fair value of plan assets at beginning of year $ -- $ -- $ --
Employer contribution 8,000 4,000 9,000
Benefits paid (8,000) (4,000) (9,000)
-------- -------- --------
Fair Value of Plan Assets at End of Year $ -- $ -- $ --
======== ======== ========
Funded status $388,000 $349,000 $266,000
Unrecognized net actuarial loss 16,000 54,000 --
-------- -------- --------
Accrued Benefit Cost $404,000 $403,000 $266,000
======== ======== ========
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Weighted-Average Assumptions as of June 30:
Discount Rate 7.50% 7.50% 7.50%
Expected return on plan assets N/A N/A N/A
Rate of compensation increase N/A N/A N/A
17
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For measurement purposes, the following annual percentage increases apply:
Annual
Year Ended June 30, Factor
------------------- ------
2000 9.00%
2001 8.25%
2002 7.50%
2003 6.75%
2004 and thereafter 6.50%
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Components of Net Periodic Benefit Cost:
Service cost $63,000 $58,000 $54,000
Interest cost 23,000 17,000 13,000
Recognized net actuarial loss 3,000 -- --
------- ------- -------
Net Periodic Benefit Cost $89,000 $75,000 $67,000
Wyckoff has a non-contributory postretirement healthcare benefit plan. The
accounting for the healthcare plan anticipates future cost increases that may
impact the plan and are expected to be funded by Wyckoff.
Assumed healthcare cost trend rates have a significant effect on the amounts
reported for the healthcare plan. A one-percentage-point change in assumed
healthcare cost trend rates would have the following effects:
One-Percentage One-Percentage
Point increase Point increase
----------------- -----------------
Effect on total of service and interest cost components $101,000 $ 72,000
======== ========
Effect on postretirement benefit obligation $442,000 $341,000
======== ========
10. Supplemental Disclosure of Cash Flow Information
Supplemental information on cash paid for interest and income taxes during
each of the following years is as follows:
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Income taxes paid $1,798,000 $615,000 $1,055,000
========== ======== ==========
Interest paid $ 546,000 $701,000 $ 659,000
========== ======== ==========
18
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Several fixed asset purchases remained in accounts payable at year-end, and is
considered a non-cash investing activity, as follows:
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Fixed Assets $584,000 $ -- $ --
======== ================ ===============
11. Calculation of Earnings per Share
A reconciliation of the numerators and denominators for the Basic and Diluted
EPS calculations is as follows:
Year Ended June 30,
-------------------
1999 1998 1997
---- ---- ----
Numerator:
Numerator for Basic and Diluted EPS--
Income available to common shareholders $2,891,000 $2,870,000 $2,702,000
Denominator:
Denominator for Basic EPS--
Weighted-average shares 283,614 284,324 285,317
Effect of dilutive securities--
Employee stock options 3,221 2,721 2,476
---------- ---------- ----------
Denominator for Adjusted Weighted-Average Shares 286,835 287,045 287,793
========== ========== ==========
Basic earnings per share $ 10.19 $ 10.09 $ 9.47
Diluted earnings per share $ 10.08 $ 10.00 $ 9.39
12. Litigation
Wyckoff has been named as a defendant in a lawsuit arising in the normal
course of business. Wyckoff disputes the validity of it being named as a
defendant in the lawsuit and management believes that a resulting liability, if
any, will not have a material adverse effect on Wyckoff's financial statements.
13. Subsequent Event
Subsequent to year-end June 30, 1999, Wyckoff entered into a merger agreement
with Catalytica, Inc. The merger, if approved by Wyckoff's shareholders, will
result in the issuance of Catalytica common stock to Wyckoff's current
shareholders in exchange for their Wyckoff stock.
19
WYCKOFF CHEMICAL COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Quarterly Financial Data (Unaudited)
The following table summarizes Wyckoff's quarterly results of operations for
the years ended June 30, 1999 and 1998:
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------------- ---------------------- ---------------------- -----------------------
1999 1998 1999 1998 1999 1998 1999 1998
----------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
Net sales $6,749,000 $6,401,000 $8,178,000 $8,653,000 $7,886,000 $8,148,000 $13,711,000 $8,227,000
Gross profit 1,233,000 1,774,000 2,698,000 2,933,000 2,015,000 2,889,000 5,627,000 2,379,000
Net income (loss) (184,000) 305,000 625,000 952,000 208,000 860,000 2,242,000 753,000
Basic earnings per share $ (0.65) $ 1.07 $ 2.20 $ 3.35 $ 0.73 $ 3.03 $ 7.90 $ 2.64
Diluted earnings per share $ (0.65) $ 1.06 $ 2.18 $ 3.31 $ 0.72 $ 3.00 $ 7.81 $ 2.63
20
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements have
been prepared to give effect to the merger, using the pooling-of-interests
method of accounting.
The unaudited pro forma condensed combined statement of operations gives
effect to the merger as if it occurred as of the beginning of the earliest year
presented and combines the historical consolidated statements of operations of
Catalytica for each of the three years ended December 31, 1998, 1997 and 1996
and the six-month periods ended June 30, 1999 and 1998, with the historical
consolidated statements of operations of Wyckoff for the 12 months ended
December 31, 1998, each of the two years ended June 30, 1998 and the six-month
periods ended June 30, 1999 and 1998.
The unaudited pro forma condensed combined consolidated balance sheet combines
the unaudited condensed consolidated balance sheet of Catalytica and the
unaudited condensed consolidated balance sheet of Wyckoff as of June 30, 1999.
Catalytica and Wyckoff estimate that they will incur transaction costs of
approximately $1.0 million associated with the merger, which will be charged to
operations when incurred. There can be no assurance that the combined company
will not incur additional charges to reflect costs associated with the merger or
that management will be successful in its efforts to integrate the operations of
the two companies.
The unaudited pro forma condensed combined financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma condensed combined financial statements
are based upon the historical consolidated financial statements of Catalytica
and Wyckoff and should be read in conjunction with the consolidated financial
statements and notes thereto included in this proxy statement/prospectus, and do
not incorporate, nor do they assume, any benefits from cost savings or synergies
of operations of the combined company.
21
Unaudited Pro Forma Condensed Combined Statement of Operations
Reflecting Catalytica, Inc. After Giving Effect to the Merger
(In thousands, except per share amounts)
For the Year Ended December 31, Six Months Ended June 30,
----------------------------------- ---------------------------
1998 1997 (1) 1996 (1) 1999 1998
---------- ---------- --------- ------------ ------------
Revenues:
Product sales $390,175 $205,776 $ 38,854 $203,766 $200,421
Research revenues 16,284 6,599 6,501 10,314 4,165
-------- -------- -------- -------- --------
Total revenues 406,459 212,375 45,355 214,080 204,586
Costs and expenses:
Cost of sales 316,820 176,546 28,751 157,939 165,915
Research and development 32,366 11,007 10,870 18,994 10,910
Selling, general and administrative 21,029 11,306 8,047 13,422 9,413
-------- -------- -------- -------- --------
Total costs and expenses 370,215 198,859 47,668 190,355 186,238
Operating income (loss) 36,244 13,516 (2,313) 23,725 18,348
Interest income 2,894 1,450 1,179 1,322 1,555
Interest expense (9,569) (6,006) (960) (4,160) (5,312)
Gain on sale of assets -- -- 900 -- --
Loss on joint ventures (3,827) (4,355) -- (975) (2,307)
-------- -------- -------- -------- --------
Income (loss) before income taxes 25,742 4,605 (1,194) 19,912 12,284
Provision for income taxes (2,925) (1,425) (1,296) (4,015) (1,387)
Net income (loss) before common stock
redemption 22,817 3,180 (2,490) 15,897 10,897
Less premium paid on redemption of class
B common stock -- (3,750) -- -- --
-------- -------- -------- -------- --------
Net income (loss) attributable to common
shareholders $ 22,817 $ (570) $ (2,490) $ 15,897 $ 10,897
======== ======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.40 $ (0.02) $ (0.10) $ 0.27 $ 0.19
======== ======== ======== ======== ========
Diluted $ 0.34 $ (0.02) $ (0.10) $ 0.23 $ 0.16
======== ======== ======== ======== ========
Number of shares used in computing net
income (loss) per share:
Basic 57,605 37,744 23,779 57,973 57,489
======== ======== ======== ======== ========
Diluted 63,692 37,744 23,779 63,674 63,432
======== ======== ======== ======== ========
(1) See Note 2 to Notes to Catalytica's Consolidated Financial Statements.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
22
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet
Reflecting Catalytica, Inc. After Giving Effect to the Merger
As of June 30, 1999
(in thousands)
Catalytica Wyckoff Pro Forma
----------- --------- ------------
Actual Actual Adjustments Total
----------- --------- ------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $ 46,441 $ 290 $ 46,731
Short-term investments 5,116 -- 5,116
Accounts receivable, net 23,306 8,240 31,546
Accounts receivable from joint venture 572 -- 572
Notes receivable from employees 305 -- 305
Inventory:
Raw materials 38,230 2,303 40,533
Work in process 42,335 2,102 44,437
Finished goods 11,573 3,108 14,681
-------- -------- --------
92,138 7,513 99,651
Deferred tax asset 2,867 -- 2,867
Prepaid expenses and other assets 4,199 127 4,326
-------- -------- --------
Total current assets 174,944 16,170 191,114
Property, plant and equipment:
Land 5,391 1,139 6,530
Equipment 135,785 34,261 170,046
Buildings and leasehold improvements 67,901 12,562 80,463
-------- -------- --------
209,077 47,962 257,039
Less accumulated depreciation and amortization (34,770) (20,503) (55,273)
-------- -------- --------
174,307 27,459 201,766
Other assets 2,529 153 2,682
-------- -------- --------
$351,780 $ 43,782 $395,562
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,080 $ 2,644 $ 21,724
Accrued payroll and related expenses 14,077 858 14,935
Deferred revenue 4,069 -- 4,069
Other accrued liabilities 13,855 515 1,000 15,370
Current portion of long-term debt 8,201 1,000 9,201
Current portion of bonds -- 2,464 2,464
Income taxes payable 438 819 (180) 1,077
-------- -------- ----------- --------
Total current liabilities 59,720 8,300 820 68,840
Long-term debt 59,500 6,176 65,676
Long-term portion of bonds -- 4,646 4,646
Non-current deferred revenue 1,414 -- 1,414
Deferred tax liability -- 2,598 2,598
Other liabilities 1,125 388 1,513
Minority interest 41,000 -- 41,000
Class A and B common stock 97,079 -- 97,079
Stockholders' equity:
Common stock 28 284 (284) 28
Additional paid-in capital 105,810 2,095 284 108,189
Deferred compensation (219) -- (219)
Retained earnings (accumulated deficit) (13,677) 19,295 (820) 4,798
-------- -------- ----------- --------
Total stockholders' equity 91,942 21,674 (820) 112,796
-------- -------- ----------- --------
$351,780 $ 43,782 -- $395,562
======== ======== =========== ========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
23
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements
Note 1. Pro Forma Basis of Presentation
Since the fiscal years of Catalytica and Wyckoff differ, the financial
statements of Wyckoff have been recast for the most recently completed fiscal
year of Catalytica and are presented for the 12-month period ended December 31,
1998. The periods combined for purposes of the unaudited pro forma condensed
financial statements are as follows:
Catalytica Wyckoff
---------- -------
Fiscal year ended December 31, 1998 Twelve months ended December 31, 1998
Fiscal year ended December 31, 1997 Fiscal year ended June 30, 1998
Fiscal year ended December 31, 1996 Fiscal year ended June 30, 1997
Six months ended June 30, 1999 Six months ended June 30, 1999
Six months ended June 30, 1998 Six months ended June 30, 1998
Wyckoff's results of operations for the six-month period ended June 30, 1998,
have been included in the unaudited pro forma results of operations for the year
ended December 31, 1997 and December 31, 1998.
These unaudited pro forma condensed combined financial statements assume the
issuance of 4,496,487 shares of Catalytica common stock in exchange for
Wyckoff's common stock and options outstanding in connection with the merger,
based on the exchange ratio:
Number of shares of Catalytica common stock exchanged 4,496,487
Number of shares of Catalytica common stock and equivalents
outstanding as of June 30, 1999 53,607,085
----------
Number of shares of combined company common stock
outstanding after the completion of the merger at June 30, 1999 58,103,572
==========
Note 2. Unaudited Pro Forma Condensed Combined Balance Sheet
Catalytica and Wyckoff estimate it will incur direct transaction costs of
approximately $1.0 million associated with the merger, consisting primarily of
transaction fees for attorneys, accountants, financial printing and other
related charges. These nonrecurring transaction costs will be charged to
operations as incurred. These charges have been reflected in the unaudited pro
forma condensed combined balance sheet, but they are not reflected in the
unaudited pro forma condensed combined statements of operations.
It is expected that following the merger, the combined company will incur
significant additional costs or charges, which are not currently reasonably
estimable, to reflect costs associated with integrating the two companies.
These costs or charges have not been reflected in the unaudited pro forma
condensed combined balance sheet or statements of operations as such costs
cannot be estimated accurately at this time pending finalization of operating
decisions by management as to the manner and timing of consolidating the
operations. There can be no assurance that the combined company will not incur
24
additional merger-related costs or charges or that management will be successful
in its efforts to integrate the operations of the two companies.
Note 3. Unaudited Pro Forma Net Income (Loss) Per Share
The following table reconciles the number of shares used in the pro forma per
share calculations to the numbers set forth in Catalytica's and Wyckoff's
historical statements of operations:
Shares used in Pro Forma Per Share Calculations
(in thousands)
Fiscal Year Ended Six Months Ended
December 31, June 30,
1998 1997 1996 1999 1998
Shares used in Basic per share calculations
Historical - Catalytica 53,109 33,248 19,283 53,477 52,993
Historical Wyckoff 284 284 285 284 284
As converted - Wyckoff 4,496 4,496 4,496 4,496 4,496
Pro forma combined 57,605 37,744 23,779 57,973 57,489
Shares used in Diluted per share calculations
Historical - Catalytica 59,196 33,248 19,283 59,178 58,936
Historical Wyckoff 287 287 288 287 286
As converted - Wyckoff 4,496 4,496 4,496 4,496 4,496
Pro forma combined 63,692 37,744 23,779 63,674 63,432
25
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) EXHIBITS
2.1 Agreement and Plan of Reorganization, dated as of July 14, 1999, by
and among the Registrant, Pilot Acquisition Corporation, a Michigan
corporation and wholly owned subsidiary of the Registrant and
Wyckoff Chemical Company, Inc., a Michigan corporation. (1)
23.1 Consent of BDO Seidman LLP
(1) Incorporated by reference to Exhibit 2.1 to the Registrant's
Registration Statement on Form S-4 (File No. 333-84615) declared
effective August 20, 1999.
26
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.
Date: September 30, 1999
CATALYTICA, INC.
(Registrant)
By: /s/ Lawrence W. Briscoe
-----------------------------------
Lawrence W. Briscoe
Vice President and Chief
Financial Officer
27