Date: Thu, 20 Nov 1997 21:27:49 GMT Server: Apache/1.2b8 Last-Modified: Sat, 21 Jun 1997 00:01:36 GMT ETag: "26b21-32c4-33ab19e0" Content-Length: 12996 Accept-Ranges: bytes Connection: close Content-Type: text/html Wynn's International, Inc.

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Letter to Stockholders

To the Stockholders of Wynn's International, Inc.John Huber and Jim Carroll

We are pleased to report that Wynn's International, Inc. had another very successful year in 1996. In addition to achieving record financial results for the fifth consecutive year, we also strengthened the future prospects of Wynn's through an acquisition and a disposition. Our efforts have drawn a very favorable reaction from the investment community. The price of a common share at December 31, 1996 increased 60% over the share price at the end of 1995, which itself was a 35% improvement over the price at the end of 1994. Our share price performance compared to the general stock market and to our industry peer group has been impressive over the past several years (see Financial Highlights section for a graph showing total return to investors).

During the fourth quarter of 1996, the Board of Directors authorized a three-for-two stock split, which is the third three-for-two split in less than four years. This split is part of a continuing series of actions by the Board to enhance the attractiveness of Wynn's common stock to institutional and individual investors.

In last year's letter we stated our belief that Wynn's stock was undervalued in the marketplace. Despite the substantial appreciation in the price of Wynn's common stock in 1996, we feel that the stock is still undervalued because of the fundamental strengths of Wynn's. Underlying Wynn's success is a continuing devotion to our primary corporate strategy detailed in our Annual Reports in earlier years. We combine the use of technology to develop new and better products with outstanding service to sell those products. Our dedicated work force is attuned to the needs of our customers, but remains focused on being the low cost producer. The Company's solid foundation provides the basis for our optimistic outlook.

After a review of the 1996 financial results, we will describe in more detail our accomplishments and other developments during the past year and discuss our plans for the future.

1996 FINANCIAL HIGHLIGHTS

In May 1996, we sold substantially all of the operating assets of Wynn's Climate Systems' air conditioning business. Due to this sale, we have recast our financial statements into continuing and discontinued operations.

The focus of my comments will be on continuing operations which provides better comparability between the current and historical performance of our continuing businesses.

Income from continuing operations in 1996 was $21,301,000, a 28% gain over 1995's strong performance. Earnings per share from continuing operations were $1.50, an increase of 24% compared to $1.21 in 1995. All per share amounts have been adjusted to reflect the three-for-two stock split to stockholders of record in December 1996. The earnings growth in our continuing operations was driven by another record year of revenues and profits at our two main business units, Wynn Oil Company (Wynn Oil) and Wynn's-Precision, Inc. (Precision). We also had a significant increase in interest income (net of interest expense) in 1996 due to the substantial reduction of debt in 1995 and the growth of short-term investments in 1996.

Net income for the year ended December 31, 1996 was $20,438,000, an all-time record and a 32% increase over 1995's net income. Included in the 1996 net income is the $863,000 after-tax loss realized on the sale of Wynn's Climate Systems' operating assets. On a per share basis, net income in 1996 rose to $1.44 per share, a 29% jump over the $1.12 reported in 1995.

Consolidated revenues from continuing operations in 1996 were $288,531,000, a 10% increase over 1995 revenues of $262,584,000. We're pleased to have achieved one of our principal goals which was double digit revenue growth in 1996. The continuing rapid growth of the Wynn Oil Product Warranty Division and the Precision composite gasket product line were the major factors behind the increased sales. Our gross margin in 1996 was 39.5%, only slightly below the 40.1% margin achieved in 1995. The small decline in gross margin was due mainly to the change in mix of products sold in 1996 compared to 1995. The mix change also led to a beneficial decline in operating expenses as a percentage of revenues, which fell to 28.3% in 1996 from 29.8% in 1995. The decline in operating expenses reflects the operating leverage of our business units, as we were able to increase our revenues without a proportionate increase in costs.

Results in the fourth quarter of 1996 were similar to the full year results. Net sales from continuing operations for the quarter were $74,631,000, a 14% increase over the fourth quarter of 1995. Revenues for the fourth quarter benefited from Precision's September 30, 1996 acquisition of an automotive plastic sealing business.

Income from continuing operations in the fourth quarter of 1996 was $5,631,000 or $.40 per share, a 31% increase over the 1995 fourth quarter. Net income for the fourth quarter of 1996, including discontinued operations, was $6,057,000 or $.43 per share, a 58% increase over the prior year. In the fourth quarter of 1995, the discontinued air conditioning business recorded a loss of $488,000.

Our consolidated financial position strengthened again in 1996 due to the earnings and cash flow generated by our operating units and the cash received from the sale of the air conditioning business. Cash balances at December 31, 1996 were $53,304,000, which represents an increase of over $30 million during 1996. The year-end cash balances are net of the approximately $8.3 million used for the Precision acquisition in September 1996. We ended 1996 again with virtually no interest-bearing debt, unchanged from the beginning of the year.

Stockholders' equity rose to $132,952,000 at December 31, 1996. Return on average equity, which has been steadily increasing, reached a very impressive 16.4% in 1996.

Our long standing dividend payment record now covers 88 consecutive quarters. At the February 5, 1997 Board of Directors meeting, the Board declared a quarterly dividend of $.08 per share, representing a 20% increase over the previous dividend rate and the fourth increase in the dividend rate in the past four years. The dividend increases and stock splits since 1993 reflect the Board of Directors' belief in the strength of the Company and its continued commitment to enhance stockholder value.

THE YEAR IN REVIEW

Many of our efforts proved successful in 1996. Among the most notable was Precision's September 1996 niche acquisition of an automotive sealing business that manufactures and sells plastic seals to automotive original equipment manufacturers and Tier 1 suppliers. Through this acquisition, Precision boosted its production capabilities and marketing prowess for these products. We expect many positive returns from this acquisition in the years ahead.

In May 1996, we sold the operating assets of our former automotive air conditioning business, Wynn's Climate Systems, Inc. This division's spotty results were masking the strengths of the other Wynn's operating units. The sale enables us to devote more resources to the higher margin businesses of Precision and Wynn Oil which, in turn, should generate more cash for future growth, both internally and through acquisitions. We expect to receive approximately $29 million of cash (of which we have received $26.1 million at December 31) from all sources in connection with the Wynn's Climate Systems disposition.

The Wynn Oil Product Warranty Division and Precision's composite gasket operations were the leaders in internal growth in 1996. Through innovative product development and marketing, these very different businesses produced strong results in 1996 and are expected to continue growing in 1997.

Wynn Oil continues to generate more than half of its revenues outside of the United States. Wynn Oil's well developed infrastructure in Western Europe was further enhanced through reorganization of its Italian, Belgian and Netherlands distributor base and its operations in France. Earlier management changes in the U.K. resulted in positive swings in financial results in 1996.

We also made some significant changes at the corporate level in December 1996 to ensure strong continuity of management. Wesley E. Bellwood, our outstanding Chairman of the Board since 1982, was named Chairman Emeritus, capping a 45-year career with the Company. James Carroll was elected Chairman of the Board while continuing as Chief Executive Officer. John W. Huber, formerly President of Precision, was appointed to the new position of President and Chief Operating Officer of Wynn's International, Inc. Replacing John Huber as President of Precision is John J. Halenda, the former President of Wynn's Climate Systems, Inc. Also, James F. Barlow was appointed Treasurer of Wynn's International, Inc.

OUTLOOK

We are very comfortable with the outlook for Wynn's International. We have two successful businesses, Precision and Wynn Oil, that are performing extremely well. Precision is a high technology leader in the OEM sealing business in the United States, with excellent opportunities to expand internationally. In contrast, Wynn Oil is a leader in the international aftermarket for specialty chemicals but still sees multiple opportunities emerging worldwide.

Your Company has an excellent balance sheet which provides the foundation for planned growth for 1997 and future years. As part of this growth plan, Precision, through technology, dynamic new product development and acquisitions, is positioned to increase its share of the U.S. sealing market. The European marketplace, in which Precision has little present market share, also offers excellent opportunities for expansion as many of Precision's existing customers are very active in Europe.

Wynn Oil, with 14 subsidiaries worldwide and product distribution in approximately 100 countries, is targeting China, South Korea, Japan and other key countries in Asia, Europe and the Eastern Bloc for future expansion.

Wynn's motivated management team, pursuing core philosophies, is dedicated to achieving double digit revenue and profit growth in 1997 and further increases in stockholder value. We thank you for your continued support.

James Carroll

James Carroll
Chairman of the Board
and Chief Executive Officer



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