-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jfr2qoIxqS+BPcIoscldFZpGujAyaEOdDo/QlSHRLNywc22YR0Io4wcAofJgGRLx Wwt0MabPdHCtmTKkw9euoQ== 0000950130-96-000211.txt : 19960124 0000950130-96-000211.hdr.sgml : 19960124 ACCESSION NUMBER: 0000950130-96-000211 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19960123 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARIETTA CORP CENTRAL INDEX KEY: 0000792969 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 161074992 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14699 FILM NUMBER: 96506080 BUSINESS ADDRESS: STREET 1: 37 HUNTINGTON ST CITY: CORTLAND STATE: NY ZIP: 13045 BUSINESS PHONE: 6077536746 MAIL ADDRESS: STREET 1: 37 HUNTINGTON STREET CITY: CORTLAND STATE: NY ZIP: 13045 10-K/A 1 AMENDMENT TO FORM 10-K FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Mark One [x] For the Fiscal Year Ended September 30, 1995 - -------------------------------------------- or [ ] For the transition period from ________ to ________ Commission File No. 0-14699 - --------------------------- MARIETTA CORPORATION (Exact name of registrant as specified in its charter) 16-1074992 ---------------------------------- (I.R.S. Employer Identification No.) 37 Huntington Street, Cortland, New York 13045 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (607) 753-6746 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the Registrant as of December 18, 1995 was approximately $24,801,200. As of December 18, 1995, there were outstanding 3,596,049 shares of the Registrant's Common Stock, par value $.01 per share. Documents Incorporated by Reference: None. The purpose of this Amendment is to amend Items 7 and 8. Page 1 of 65 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Net sales increased 6.1% in fiscal 1995 as compared to fiscal 1994. The increase of $4,176,000 was attributable to an increase in guest amenity sales of $5,095,000 partially offset by a decrease in custom packaging sales of $919,000. The increase in guest amenity sales was the result of increased sales volume. The decrease in custom packaging sales was attributable to a decrease in pricing and a change in product mix. Net sales increased 3.6% in fiscal 1994 compared to fiscal 1993. The increase of $2,386,000 was attributable to an increase in guest amenity sales of $2,468,000 with a slight decrease in custom packaging sales of $82,000. The increase in guest amenity sales from fiscal 1993 to 1994 was the result of increased sales volume. The Company's gross profit decreased to 23.0% of sales in fiscal 1995 from 28.0% in fiscal 1994. Material cost for guest amenities increased significantly in fiscal 1995 as compared to 1994. This increase was attributable to higher than anticipated component costs for tallow, corrugate, bottles and packing film. In order to offset the resulting decline in gross profit, a price increase was put into effect on August 15, 1995. In addition, the Company's gross profit percentage decreased slightly as a result of a mechanical breakdown of certain of its soap manufacturing equipment during the second quarter of fiscal 1995. This necessitated the purchase of soap chips on the open market at higher costs to the Company. The Company also experienced delays in receiving customer- supplied materials for custom packaging which caused delays in shipment of finished product and resulted in reduced overhead absorption. In addition, changes in the product mix negatively impacted gross profits. The Company's gross profit increased to 28.0% of sales in fiscal 1994 from 26.7% in fiscal 1993. The increase was primarily due to product mix and the Company's continued efforts in improving production efficiencies. In particular, the Company's Canadian subsidiary operated at significantly improved margins. Selling, general and administrative expenses, as a percentage of sales, increased to 23.4% in fiscal 1995 from 22.1% in fiscal 1994. During fiscal 1995 the Company expensed $1,000,000 in connection with its retention of Goldman, Sachs & Co. as the Company's financial advisor and incurred additional legal and professional fees of approximately $763,000, primarily in connection with matters relating to the unsolicited proposal by Dickstein Partners to acquire the Company. Excluding the fee of the financial advisor and the additional legal and professional fees, selling, general and administrative expense would have been 21.0% of sales, or 1.1% lower than in fiscal 1994. This decrease was mainly attributable to the increase in sales. Selling, general and administrative expenses were 22.1% of sales in 1994 compared to 21.1% in fiscal 1993. This 1993 percentage is before giving effect to a non-recurring charge of $1,333,333 resulting from the settlement of a litigation. The increase in fiscal 1994 was primarily due to an increase in freight out expense associated with guest amenity sales and an increase in marketing expense due to a renewed focus in marketing. Selling, general and administrative expense for 1993, including such non-recurring charge, was 23.1% of sales. Other expense (income), net represents the netting of interest expense, investment income and other income and expense items. Other expense (income), net resulted in net income of $185,000 in fiscal 1995 compared to a net expense of $520,00 in fiscal 1994. This change is primarily attributable to a charge in fiscal 1994 of $713,000 resulting from a decline in the market value of certain cash equivalents and marketable securities. Investment income of $661,000 in fiscal 1995 compares favorably with $544,000 in fiscal 1994. This 21.5% increase was attributable to both higher funds available for investment and to better yields. Interest expense increased to $514,000 in fiscal 1995 compared to $447,000 in fiscal 1994. This increase was attributable to interest paid in connection with the settlement of a state income tax audit and to higher rates on the Marietta American's Industrial Development Bonds. Net miscellaneous income in fiscal 1995 was $38,000 as compared to $96,000 in fiscal 1994. Other expense, net resulted in a net expense of $520,000 in fiscal 1994 compared to a net income of $92,000 in fiscal 1993. This change is Page 12 of 65 primarily attributable to a charge of $713,000 resulting from the decline in market value of certain cash equivalents and marketable securities. Investment income of $544,000 in fiscal 1994 compares favorably with $508,000 in fiscal 1993. Interest expense increased slightly in fiscal 1994 to $447,000 compared to $438,000 in fiscal 1993. This increase was attributable to an increase in interest rates. Net miscellaneous income in fiscal 1994 was $96,000 as compared to $22,000 in fiscal 1993. This increase is primarily attributable to the sale of excess inventory components. The Company's effective tax rate (benefit) for federal, state and foreign taxes was a 104.2% effective tax benefit in fiscal 1995 compared to an effective tax rate of 35.3% in 1994. In fiscal 1995 tax benefits were derived from the Company's foreign sales corporation, a change in the valuation allowance as relates to Marietta Canada, and Marietta Canada's net operating income not currently being taxed. The Company's effective tax rate was 41.1% in fiscal 1993. This rate was impacted by state and provincial franchise/equity taxes and the inability to utilize a foreign loss as a carryback. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased to $23,622,000 at September 30, 1995 from $25,142,000 at October 1, 1994. Cash provided by operating activities for 1995 and 1994 was $1,443,000 and $3,554,000 respectively. The $2,111,000 reduction in cash provided by operating activities in 1995 as compared to 1994 was caused primarily by the decrease in net income of $2,613,000 and an increase in accounts receivable in 1995 as compared to 1994, partially offset by the increase in accounts payable and accrued expenses. Such increase in accounts receivable is primarily attributable to an increase in sales during the last two months of fiscal 1995 as compared to fiscal 1994. The cash used in investing activities in 1995 is comparable to 1994 and results primarily from capital expenditures. The increase in cash used in financing activities in 1995 compared to 1994 was caused by the purchase of treasury stock in 1995 of $56,000 and the collection of a common stock note receivable in 1994 (with no corresponding collection 1995) partially offset by a decrease in payments on long-term debt of $73,000. The provision made by the Company for loss on accounts receivable is adjusted from year to year based upon actual write offs charged and recoveries credited to the allowance for doubtful accounts receivable at fiscal year end. The Company increased its reserve for obsolete inventory in fiscal 1995 by $269,000 as compared to fiscal 1994. This increase was primarily attributable to changes in guest amenity programs which made certain inventory held in connection with previous programs obsolete. The Company has a $12,000,000 revolving credit facility all of which was available as of September 30, 1995. The revolving credit portion of the facility expires in October 1996. Borrowings under the facility bear interest at the prime rate or, if elected by the Company, at an interest rate 1.1% above the LIBOR rate. Management believes that the Company is in sound financial condition as evidenced by its total shareholders' equity of $46,498,000 versus its long-term debt of $7,129,000. Management believes that its current assets plus funds provided by operations and the Company's existing lines of credit and debt capacity are adequate to meet its anticipated capital and short-term needs. Management also believes that inflation has not had a material effect on its business. It is the Company's practice to review on an on-going basis the marketability of its inventory and the Company makes provision for inventory obsolescence as it deems appropriate. In fiscal 1996 the Company expects to undertake capital improvements of approximately $3,000,000. In addition, the Company expects to enter into capital leases on a new computer system totalling approximately $1,500,000. The Company is unable to determine the impact upon the Company's financial condition of an adverse determination, if any, in any action, proceeding or investigation arising out of the events discussed in Note 15 of the Notes to Financial Statements. Page 13 of 65 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Page 14 of 65 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Marietta Corporation Cortland, New York We have audited the accompanying consolidated balance sheets of Marietta Corporation and its subsidiaries as of September 30, 1995 and October 1, 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Marietta Corporation and its subsidiaries as of September 30, 1995 and October 1, 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. As discussed in Note 15 to the consolidated financial statements, there are legal proceedings that exist. The outcome of these matters and their impact on the consolidated financial statements cannot presently be determined. Deloitte & Touche LLP Rochester, New York November 14, 1995 Page 15 of 65 F-1 MARIETTA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30, OCTOBER 1, 1995 1994 ---- ---- Current assets: Cash and cash equivalents $ 4,384,686 $ 7,476,101 Accounts receivable (net of allowance of $280,314 and $223,219, respectively) 13,668,876 10,074,495 Inventories 12,626,817 11,926,566 Refundable income taxes 548,792 341,735 Other current assets 433,887 770,475 Deferred tax asset 601,952 467,083 ----------- ----------- Total current assets 32,265,010 31,056,455 Property, plant and equipment, net 23,162,584 22,187,484 Restricted cash 2,700,000 2,300,000 Marketable securities 2,432,050 2,219,823 Excess of cost over net assets acquired (net of accumulated amortization of $807,976 and $682,127, respectively) 3,202,052 3,327,901 Other assets 368,888 744,773 ----------- ----------- Total assets $64,130,584 $61,836,436 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,528,147 $ 2,754,613 Accrued payroll 1,708,637 1,512,467 Accrued rebates 483,653 445,226 Accrued expenses 1,448,565 818,880 Current maturities of long-term debt 336,699 361,894 Income taxes payable 137,541 21,602 ----------- ----------- Total current liabilities 8,643,242 5,914,682 Long-term debt, less current maturities 6,514,335 6,851,034 Convertible subordinated note 278,040 273,720 Deferred tax liability 2,197,228 2,522,406 Commitments and contingencies ----------- ----------- Total liabilities 17,632,845 15,561,842 ----------- ----------- Shareholders' equity: Preferred stock, $0.01 par value, authorized 1,000,000 shares Common stock, $0.01 par value, authorized 10,000,000 shares 40,109 40,057 Additional paid-in capital 36,762,049 36,768,483 Common stock notes receivable (607,500) (607,500) Treasury stock, at cost (3,877,333) (3,923,993) Retained earnings 14,756,349 14,750,930 Equity adjustment from foreign currency translation (702,505) (753,383) Marketable securities net unrealized holding gain 126,570 ----------- ----------- Total shareholders' equity 46,497,739 46,274,594 ----------- ----------- Total liabilities and shareholders'equity $64,130,584 $61,836,436 =========== ===========
The accompanying notes are an integral part of the financial statements. Page 16 of 65 F-2 MARIETTA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30, October 1, October 2, 1995 1994 1993 ---- ---- ---- Net sales $72,407,349 $68,230,918 $65,844,814 Cost of sales 55,758,373 49,102,208 48,257,199 ----------- ----------- ----------- Gross profit 16,648,976 19,128,710 17,587,615 ----------- ----------- ----------- Litigation settlement 1,333,333 Selling, general and administrative expenses 16,964,554 15,083,615 13,895,746 ----------- ----------- ----------- Total operating expenses 16,964,554 15,083,615 15,229,079 ----------- ----------- ----------- Operating income (loss) (315,578) 4,045,095 2,358,536 Other expense (income), net (185,301) 520,058 (91,566) ----------- ----------- ----------- Income (loss) before income taxes and cumulative effect of a change in accounting principle (130,277) 3,525,037 2,450,102 Income tax provision (benefit) (135,696) 1,243,221 1,007,498 ----------- ----------- ----------- Income before cumulative effect of a change in accounting principle 5,419 2,281,816 1,442,604 Cumulative effect of a change in accounting for income taxes 336,596 ----------- ----------- ----------- Net income $ 5,419 $ 2,618,412 $ 1,442,604 =========== =========== =========== Earnings per share: Earnings before cumulative effect of a change in accounting principle $0.00 $0.64 $0.40 Cumulative effect of a change in accounting for income taxes 0.09 ----------- ----------- ----------- Earnings per share $0.00 $0.73 $0.40 =========== =========== =========== Weighted average shares and common share equivalents 3,609,638 3,585,573 3,572,415 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. Page 17 of 65 F-3
Marietta Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity September 30,1995, October 1,1994, and October 2, 1993 Additional Common Stock Paid-in Notes Common Stock Capital Receivable Treasury Stock ------------ ------- ---------- -------------- Shares Amount Shares Amount ------ ------ ------ ------ Balance, September 26, 1992 3,996,268 $39,962 $36,750,769 ($886,950) 426,096 ($4,038,167) Net income Employee stock purchase plan 4,273 43 22,391 Foreign currency translation adjustment ------------------------------------------------------------------------- Balance, October 2, 1993 4,000,541 40,005 36,773,160 (886,950) 426,096 (4,038,167) Net income Employee stock purchase plan 5,176 52 34,887 Employee stock bonus (12,500) (2,500) 29,374 Officers' stock bonus (27,064) (7,217) 84,800 Payment on common stock note receivable 279,450 Foreign currency translation adjustment ------------------------------------------------------------------------- Balance, October 1, 1994 4,005,717 40,057 36,768,483 (607,500) 416,379 (3,923,993) Net income Purchase of treasury stock 7,200 (55,800) Employee stock purchase plan 5,191 52 34,986 Officers' stock bonus (41,420) (8,720) 102,460 Foreign currency translation adjustment Marketable securities net unrealized holding gain ------------------------------------------------------------------------- Balance, September 30, 1995 4,010,908 $40,109 $36,762,049 ($607,500) 414,859 ($3,877,333) ========================================================================= Equity Adjustment From Foreign Marketable Securities Total Retained Currency Net Unrealized Shareholders' Earnings Translation Holding Gain Equity -------- ----------- ------------ ------ Balance, September 26, 1992 $10,689,914 ($317,289) $42,238,239 Net income 1,442,604 1,442,604 Employee stock purchase plan 22,434 Foreign currency translation adjustment (402,280) (402,280) ------------------------------------------------------------------ Balance, October 2, 1993 12,132,518 (719,569) 43,300,997 Net income 2,618,412 2,618,412 Employee stock purchase plan 34,939 Employee stock bonus 16,874 Officers' stock bonus 57,736 Payment on common stock note receivable 279,450 Foreign currency translation adjustment (33,814) (33,814) ------------------------------------------------------------------ Balance, October 1, 1994 14,750,930 (753,383) 46,274,594 Net income 5,419 5,419 Purchase of treasury stock (55,800) Employee stock purchase plan 35,038 Officers' stock bonus 61,040 Foreign currency translation adjustment 50,878 50,878 Marketable securities net unrealized holding gain 126,570 126,570 ------------------------------------------------------------------ Balance, September 30, 1995 $14,756,349 ($702,505) $126,570 $46,497,739 ==================================================================
The accompanying notes are an integral part of the financial statements. Page 18 of 65 F-4 ITEM 9 MARIETTA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED: SEPTEMBER 30, OCTOBER 1, OCTOBER 2, 1995 1994 1993 ---- ---- ---- Cash flows from operating activities: Net income $ 5,419 $ 2,618,412 $ 1,442,604 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of a change in accounting for income taxes (336,596) Depreciation and amortization 3,319,721 3,468,621 3,309,120 Provision for loss on accounts receivable 189,198 61,988 (34,190) Provision for inventory obsolescence 596,320 292,564 324,238 Unrealized loss on marketable securities 670,681 Deferred compensation 97,140 250,140 Deferred income taxes (521,549) (305,467) 414,392 Loss on sale of equipment 128,315 135,899 44,125 Other assets 196,979 97,179 (56,849) Restricted cash (400,000) (400,000) (400,000) Stock bonuses 61,040 74,610 Changes in working capital: Accounts receivable (3,779,832) (571,200) 2,991,926 Inventories (1,232,950) (933,606) (567,835) Other current assets 335,905 72,864 (458,453) Accounts payable and accrued expenses 2,635,483 (1,022,691) (721,363) Income taxes (91,144) (466,341) (476,004) ----------- ----------- ----------- Total adjustments 1,437,486 935,645 4,619,247 ----------- ----------- ----------- Net cash provided by operating activities 1,442,905 3,554,057 6,061,851 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of equipment 44,700 Sales of marketable securities 5,605 75,000 Purchases of marketable securities (26,060) (1,168,605) Reclassification of cash equivalents to non-current marketable securities (1,797,087) Capital expenditures (4,112,394) (3,098,703) (1,104,105) ----------- ----------- ----------- Net cash used in investing activities (4,132,849) (4,820,790) (2,228,010) ----------- ----------- ----------- Cash flows from financing activities: Principal payments on long-term debt (361,895) (435,002) (1,317,284) Purchase of treasury stock (55,800) Payment of common stock note receivable 279,450 Employee stock purchase plan 35,039 34,939 22,433 ----------- ----------- ----------- Net cash used in financing activities (382,656) 120,613 (1,294,851) ----------- ----------- ----------- Effect of foreign currency translation (18,815) 19,171 (89,979) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (3,091,415) (1,368,175) 2,449,011 Cash and cash equivalents, beginning of year 7,476,101 8,844,276 6,395,265 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 4,384,686 $ 7,476,101 $ 8,844,276 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $473,765 $419,708 $434,645 Income taxes 491,021 1,676,607 1,403,372
The accompanying notes are an integral part of the financial statements. Page 19 of 65 F-5 MARIETTA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS The Company specializes in the design, manufacture, packaging, marketing and distribution of guest amenity programs to the travel and lodging industry. The Company also provides customized sample-size and unit-of-use packaging products and services to major consumer products companies for such purposes as marketing promotions and retail sales. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Marietta Corporation and its subsidiary companies, all of which are wholly owned. All significant inter-company balances and transactions have been eliminated. FISCAL YEAR END The Company uses a 52-53 week fiscal year ending on the Saturday closest to September 30. Fiscal years for the financial statements included herein ended on September 30, 1995 (52 weeks), October 1, 1994 (52 weeks), and October 2, 1993 (53 weeks). FOREIGN CURRENCY TRANSLATION The balance sheet of Marietta Canada Inc. has been translated into U.S. dollars at year end exchange rates while its income statement has been translated at average rates in effect during the year. Adjustments resulting from financial statement translations are included as an equity adjustment from foreign currency translation in shareholders' equity. Gains and losses from foreign currency transactions are included in other income. CASH EQUIVALENTS AND MARKETABLE SECURITIES The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Effective October 2, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires that investments in debt and marketable equity securities be designated as held-to-maturity, trading, or available-for-sale. All of the Company's marketable securities are classified as available-for-sale and are carried at fair value with the unrealized holding gains and losses, net of tax, reported as a separate component of shareholders' equity. Cost is determined by the average cost method when computing realized gains or losses. There is no cumulative effect resulting from the adoption of Statement of Financial Accounting Standards No. 115. INVENTORIES Inventories are stated at lower of cost or market. Cost is determined on the first-in, first-out method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. When assets are retired or disposed of, the cost Page 20 of 65 F-6 of accumulated depreciation is removed from the accounts and any resulting gain or loss is recognized in the period of disposal. AMORTIZATION The Company is amortizing closing costs incurred relating to the Industrial Revenue Bonds, non-compete agreements with former officers of Marietta American Inc., direct acquisition costs, including the costs of certain licensing and distribution contracts associated with the purchase of Marietta Canada, and the excess of cost over net assets acquired associated with the purchases of Marietta American and Marietta Canada. These costs are being amortized on the straight-line method over their respective lives, with the excess of cost over net assets acquired being amortized over 35 years. Amortization expense charged to operations amounted to $306,080, $413,975 and $402,651 for the fiscal years 1995, 1994, and 1993, respectively. INCOME TAXES Effective October 3, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The cumulative effect of this accounting change for income taxes was to increase income by $336,596 ($0.09 per share) for the year ended October 1, 1994. Prior to fiscal 1994 the provision for income taxes, computed under APB Opinion 11, was based on earnings and expenses included in the accompanying consolidated statements of earnings. Deferred taxes were provided to reflect the tax effects of reporting earnings, expenses and tax credits in different periods for financial accounting purposes than for income tax purposes. Investment tax credits are recognized on the flow-through method in the year they are utilized. EARNINGS PER SHARE Earnings per share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods. No significant dilutive effect would result from the exercise of outstanding stock options, warrants, or convertible subordinated notes. 2. MARKETABLE SECURITIES Effective October 2, 1994, the Company adopted the provisions of Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires certain investments in marketable debt and equity securities to be classified as either held-to-maturity, trading or available- for-sale. At September 30, 1995, the Company's marketable securities were classified as available-for-sale and are stated at fair value with an unrealized holding gain of $191,772 less taxes of $65,202, included as a separate component of shareholders' equity until realized. The fair value of marketable securities is based on quoted market prices. At October 1, 1994, marketable securities were reflected at the lower of cost or market. As of October 1, 1994 marketable securities totaling $2,219,823 were reclassified from current to non-current since it was management's intention to hold these investments on a long term basis. The aggregate cost of these investments exceeded their aggregate market value by $670,681 at October 1, 1994 and, accordingly, the results of operations for 1994 include a net unrealized loss in that amount. Page 21 of 65 F-7 3. INVENTORIES Inventories consisted of the following: SEPTEMBER 30, 1995 OCTOBER 1, 1994 ------------------ --------------- Raw materials and supplies $ 4,568,609 $ 4,082,839 Finished goods 8,582,080 7,843,727 ----------- ----------- $12,626,817 $11,926,566 ----------- ----------- 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: SEPTEMBER 30, 1995 OCTOBER 1, 1994 ------------------ --------------- Land and land improvements $ 613,385 $ 604,935 Building and improvements 11,707,584 10,483,077 Computer and office equipment 3,555,721 3,383,597 Machinery and equipment 23,497,735 21,247,367 Molds 2,578,497 2,058,627 Vehicles 65,479 43,650 Construction in progress 174,396 558,466 ------------ ------------ 42,192,797 38,379,719 Accumulated depreciation and amortization 19,030,213 16,192,235 ------------ ------------ $ 23,162,584 $ 22,187,484 ------------ ------------ Depreciation expense charged to operations amounted to $3,010,358, $2,894,769, and $2,746,603 for the fiscal years 1995, 1994, and 1993, respectively. Computer and office equipment at September 30, 1995 and October 1, 1994 includes assets acquired under capital leases totaling $800,000. Accumulated depreciation relating to these assets was $680,000 and $520,000 respectively. 5. LONG-TERM DEBT Long-term debt consisted of the following: SEPTEMBER 30, 1995 OCTOBER 1, 1994 ------------------ --------------- Industrial Development Bonds, at various interest rates ranging from 5.5% to 7.35%, payable annually, due December 2001. $ 1,600,000 $ 1,775,000 Industrial Development Bond, interest at a percentage of prime (prime at October 1, 1994 was 7.75%), due December 2008. 4,875,000 4,875,000 New York State Urban Development loan, 3% interest rate, payable monthly through April 2001. 176,194 184,935 City of Cortland small cities community development block program, 6% interest rate, payable monthly through July 2011. 59,469 61,656 Hewlett Packard leases, early buyout option, interest rates ranging from 7.35% to 8.06% payable monthly through July 1996. 140,371 315,407 Other 0 930 - ----- ------------ ------------ 6,851,034 7,212,928 Less: Current maturities (336,699) (361,894) - -------------------------- ------------ ------------ Net long-term debt $ 6,514,335 $ 6,851,034 ------------ ------------ Page 22 of 65 F-8 As of September 30, 1995 the Company had available a $12,000,000 revolving line of credit facility. This facility charges an administrative fee of $15,000, and shall bear interest at the prime rate or, if elected by the Company, at an interest rate 1.1% above the London Interbank Offered Rate ("LIBOR"). The Company has, as of September 30, 1995, stand-by letters of credit outstanding with two banks for $1,734,019 and $5,125,428 which guarantee Industrial Development Bonds. The Company has pledged as collateral under its various debt obligations certain of its assets, primarily property, plant and equipment. The industrial revenue bonds and revolving credit loan agreement contain various restrictions which require the Company to obtain bank consent for capital acquisitions above certain levels and to maintain certain minimum ratios. Pursuant to the revolving credit loan agreement, the Company is limited in the amount of cash dividends it may declare. Relating to the Marietta American Industrial Development Bonds, the Company is required to deposit $100,000 quarterly with a bank. All amounts are restricted as to withdrawal by the Company until the $4,875,000 bonds have been repaid. The aggregate annual maturities on long-term debt are as follows:
YEAR AMOUNT 1996 $ 336,699 1997 206,746 1998 221,179 1999 237,340 2000 258,103 Thereafter 5,590,967
6. CONVERTIBLE SUBORDINATED NOTE In March 1989, in connection with the acquisition of Marietta American, the Company issued a 7% convertible subordinated note due March 17, 1999 in the principle amount of $300,000. The carrying value of the convertible subordinated note is $278,040 which represents the unamortized value of the original note discounted using an effective interest rate of 10%. The discount is being amortized over the life of the note using the interest method. Interest expense incurred on the note was $25,320 for each of fiscal years 1995, 1994, and 1993. Included in these amounts are amortization of bond discount of $4,320 in 1995, 1994 and 1993. The note is convertible into shares of common stock of the Company at $15 per share (subject to certain anti-dilution rights). If the note is not converted, the Company is required to make three equal annual installments of $100,000 in 1997, 1998 and 1999. 7. STOCK OPTIONS, WARRANTS AND PURCHASE PLANS The Company has in effect a 1986 Incentive Stock Option Plan, a 1986 Stock Option Plan and a 1986 Employee Stock Purchase Plan. Under the 1986 Incentive Stock Option Plan, grants may be made to key management employees prior to April 1996, and the term of each option granted shall not exceed ten years from the date of grant. Page 23 of 65 F-9 Under the 1986 Stock Option Plan, grants may be made to key employees and independent contractors of the Company prior to April 1996, and the term of each option granted shall not exceed ten years from the date of grant. Stock options are granted at prices not less than 100% of the fair market value of common shares at the date of grant. In the case of options granted to holders of 10% or more of the Company's voting stock, the price will not be less than 110% of the fair market value at the date of grant. The Company adopted the 1986 Employee Stock Purchase Plan for eligible employees of the Company. The purchase price of shares to employees will be 85% of the fair market value on the date the right to purchase is granted. The number of options granted, exercised and forfeited during each of the three years in the period ended September 30, 1995 and the number of options exercisable and available for grant under these plans at September 30, 1995 are as follows:
Incentive Stock Employee Stock Option Plan Stock Option Plan Purchase Plan ------------------ ----------------- ------------------- Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding September 26, 1992 - - 48,960 12.25 - - Granted - - 5,000 8.25 4,273 5.25 Exercised - - - - (4,273) - Outstanding September 26, 1993 - - 53,960 - - - Granted - - 4,500 6.75 5,176 6.75 Granted - - 37,386 8.00 - - Exercised - - - - (5,176) - Outstanding October 2, 1994 - - 95,846 - - - Granted - - 5,000 10.92 5,191 - Forfeited - - (16,320) 12.25 - - Forfeited - - (8,308) 8.00 - - Exercised - - - - (5,191) - Outstanding September 30, 1995 - - 76,218 - - - Currently available 100,000 - 23,782 - 77,379 - Currently exercisable - - 52,012 - - - - ------------------------------------------------------------------------------------------------------
Of the 52,012 shares currently exercisable under the 1986 Stock Option Plan, 32,640 shares are exercisable at $12.25 per share, 3,333 shares are exercisable at $8.25 per share, 14,539 shares are exercisable at $8.00 per share and 1,500 shares are exercisable at $6.75 per share. Pursuant to a "Cash Bonus Agreement," the Company granted to its Chief Executive Officer cash-only stock appreciation rights for 90,000 shares of Common Stock, having a term of 10 years, (expiring in November, 2004), and based on an increase in the market value of the Common Stock above $7.00 per share. The maximum amount payable to the Chief Executive Officer pursuant to the Rights is $630,000. The rights vest through November 1997. All of the Rights would become exercisable immediately upon the occurrence of certain events, including the termination by the Company of the Chief Executive Officer's employment without cause or by reason of his death or disability, or upon a Change in Control of the Company. During fiscal 1995, the Company expensed $53,663 related to these stock appreciation rights. Pursuant to a "Shareholders' Rights Plan," on September 11, 1989 the Board of Directors of the Company declared a dividend distribution of one Right for each outstanding share of the common Page 24 of 65 F-10 stock to shareholders of record at the close of business on September 11, 1989. In addition, new common stock certificates issued after September 11, 1989 will also have a Right attached to them. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A Participating Preferred Stock, par value $.01 per share (the "Series A Preferred"), at a Purchase Price of $110 per Unit, subject to certain anti-dilution provisions. The Rights will separate from the common stock only in the event it is determined an adverse person or group of affiliated or associated persons (as defined) has acquired, or obtained the right to acquire, beneficial ownership of a significant amount (as defined) of common stock of the Company. Each Right will then entitle the holder to receive, upon exercise, $220 worth of common stock (or in certain circumstances, cash, property or other securities of the Company). The Rights will expire on September 11, 1999 and may be redeemed by the Company in whole, but not in part, at a price of $.01 per Right. These Rights, which have a potentially dilutive effect, have been excluded from the weighted average shares computation since conditions related to the exercise of such Rights were not satisfied. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which requires adoption no later than fiscal years beginning December 15, 1995. The new standard defines a fair value method of accounting for stock options and similar equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to the new standard, companies are encouraged, but not required, to adopt the fair value method of accounting for employee stock-based transactions. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but would be required to disclose in a note to the financial statements pro forma net income and, if presented, earnings per share as if the company had applied the new method of accounting. The accounting requirements of the new method are effective for all employee awards granted after the beginning of the fiscal year of adoption. The Company has not yet determined if it will elect to change to the fair value method, nor has it determined the effect the new standard will have on net income and earnings per share should it elect to make such a change. Adoption of the new standard will have no effect on the Company's cash flows. 8. INCOME TAXES The components of income (loss) before income taxes and the provision for income taxes by taxing jurisdiction were as follows:
1995 1994 1993 --------- ---------- ---------- Income (loss): U.S. $(574,266) $3,488,839 $3,000,409 Canadian 443,989 36,198 (550,307) --------- ---------- ---------- Income (loss) before income taxes $(130,277) $3,525,037 $2,450,102 --------- ---------- ---------- Current tax provision: U.S. Federal $ 185,719 $1,077,342 $ 739,896 U.S. State 181,385 134,262 134,326 Canadian Provincial 22,449 27,391 28,576 --------- ---------- ---------- $ 389,553 $1,238,995 $ 902,798 --------- ---------- ----------
Page 25 of 65 F-11 Deferred tax provision (credit): U.S. Federal $(365,031) $ (4,226) $ (104,700) Canadian Federal (160,218) - - --------- ---------- ---------- (525,249) (4,226) (104,700) --------- ---------- ---------- Total income tax provision (credit) $(135,696) $1,243,221 $1,007,498 --------- ---------- ---------- Expenses in 1995, 1994 and 1993 for research and development costs were approximately $638,000, $682,000 and $1,098,000 respectively. The effective federal income tax differs from the statutory federal income tax as follows:
1995 1994 1993 ---- ---- ---- Income taxes computed at Federal statutory rate $ (44,294) $1,198,513 $ 833,035 Tax effects of: Foreign taxes in excess of (less than) income taxes at U.S. statutory rates 22,449 28,200 29,401 State income taxes, net 119,714 88,126 88,204 Tax exempt income (89,546) (77,551) (63,703) Acquisition intangibles with no tax benefit 90,378 52,876 U.S. benefits of foreign sales corporation (46,240) U.S. taxes on foreign subsidiaries, net of credits 21,405 (34,301) Change in valuation allowance (160,200) Foreign net operating (income) losses not currently (taxable) deductible (150,956) (10,575) 186,208 Adjustment of prior year's accrual 85,719 Non-deductible meals and entertainment expenses 20,641 10,575 9,800 Officer's life insurance premiums 7,359 Other, net (12,125) (46,943) (41,146) --------- ---------- ---------- $(135,696) $1,243,221 $1,007,498 --------- ---------- ----------
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," effective October 3, 1993. This statement supersedes APB No. 11, "Accounting for Income Taxes," which had been used by the Company since its inception. The cumulative effect of adopting SFAS No. 109 on the Company's financial statements was to increase income by $336,596 ($.09 per share) for the year ended October 1, 1994. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effect of significant items comprising the Company's net deferred tax liability as of September 30, 1995 and October 1, 1994 are as follows: Page 26 of 65 F-12
1995 1994 ---- ---- Current deferred tax assets (liabilities): Deferred compensation $ 188,020 $ 188,020 Inventory obsolescence reserve 247,569 168,814 Inventory uniform capitalization 48,786 44,011 Bad debt reserve 84,700 61,554 Insurance (108,313) (109,980) Other 112,196 114,664 Deferrals under foreign jurisdiction 69,366 64,740 Less: valuation allowance (40,372) (64,740) ----------- ----------- $ 601,952 $ 467,083 ----------- ----------- Non-current deferred tax assets (liabilities): Accelerated depreciation $(2,547,675) $(2,639,993) Securities valuation reserve 162,830 242,587 Capitalized professional Fees 81,411 - Non-deductible reserves (25,000) (125,000) Deferrals under foreign jurisdiction 315,730 665,693 Less: valuation allowance (184,524) (665,693) ----------- ----------- $(2,197,228) $(2,522,406) ----------- ----------- Net deferred tax liability $(1,595,276) $(2,055,323) ----------- -----------
The change in the valuation allowance for deferred tax assets was a decrease of $160,200 and relates to benefits of tax depreciation at Marietta Canada. Management believes that it is more likely than not that these benefits will be realized. The components of the deferred tax provision under APB No. 11 for 1993 are as follows: 1993 --------- Accelerated depreciation $(109,893) Inventory obsolescence reserve 267,030 Deferred compensation (85,046) Inventory uniform capitalization 46,896 Other, net (14,287) --------- Deferred tax provision: $ 104,700 --------- The Internal Revenue Service has examined U.S. Federal income tax returns for the years 1988 through 1992, agreements have been reached for all material adjustments, and such adjustments have been included in the provision for income taxes. At September 30, 1995, the Company had investment tax credit carryforwards for New York State purposes of approximately $775,000. These credits expire through September 2010. For fiscal 1995, Marietta Canada utilized loss carryforwards of approximately $150,000 for federal income tax purposes. In addition, it began recognizing tax depreciation expenses of approximately $530,000 which was deferred until a period where its use was beneficial. Undistributed earnings of the Canadian subsidiary will not be subject to U.S. tax until distributed as dividends. Since it is the intention of management that all earnings be indefinitely reinvested in the foreign subsidiary, no provision will be made for any income tax on any such earnings. Page 27 of 65 F-13 9. LEASES The future minimum lease payments for operating lease agreements as of September 30, 1995 are as follows: 1996 $347,579 1997 201,285 1998 107,340 1999 75,803 2000 16,490 Rent expense incurred under operating leases was $393,459, $584,655 and $766,306 for the fiscal years 1995, 1994, and 1993 respectively. 10. COMMITMENTS AND CONTINGENCIES The Company has employment agreements with certain officers and key employees which expire at various dates through December 1998. The aggregate commitment for future salaries at September 30, 1995, excluding bonuses, was approximately $1,965,000. Pursuant to an employment agreement between the Company and a former officer, the former officer was to have received $553,000 as additional compensation when the agreement expired on February 9, 1994. This amount was fully accrued for as of that date, and remains fully accrued as of September 30, 1995. The Company and the former officer continue to defer without prejudice the payment of such amount pending the conclusion of the review of certain matters by the Board of Directors. If such additional compensation is paid to the former officer, the Company has agreed to pay interest thereon at a variable rate per annum equal to 1.35% above the three-month LIBOR in effect on the first business day of each calendar quarter, from February 10, 1994 through the day of payment. For a period of five years ending in February 1994, the Company was required to make contingency payments to the former owners of Marietta American based upon Marietta American's profits on the sale of glycerine and its earnings before interest and taxes, in each case above certain threshold levels. Any payment would result in a direct increase in the amount of goodwill recorded in the transaction. No amounts were paid pursuant to these calculations for any of the last three years. In an action commenced by Donald M. Rowe, one of the former owners of Marietta American, and certain other persons, the calculations made by the Company are being contested. See Note 15 "Legal Proceedings". 11. OTHER EXPENSE (INCOME), NET Other expense consisted of: 1995 1994 1993 --------- --------- --------- Other expenses (income): Investment income $(658,726) $(543,481) $(508,386) Interest expense 514,074 446,549 437,627 Unrealized loss on marketable securities - 713,490 - Miscellaneous income (40,649) (96,500) (20,807) --------- --------- --------- $(185,301) $ 520,058 $ (91,566) --------- --------- --------- Page 28 of 65 F-14 12. COMMON STOCK - NOTES RECEIVABLE On February 9, 1989 the Company sold shares of common stock held in treasury to certain officers and directors of the Company. The price per share was $12.25 and was paid to Marietta primarily by the delivery of promissory notes bearing interest, payable semi-annually, at a rate of 9% per annum with principal payable in one installment on February 9, 1994. The Company has extended the maturity date of the promissory notes ($607,500) until February 9, 1996. Interest shall accrue on these promissory notes at a variable rate per annum equal to 1.35% above the three-month LIBOR in effect on the first business day of each calendar quarter. Interest on one note ($364,500 of principal) is payable in full on February 9, 1996, while interest on the other two notes ($243,000 of principal) is payable semi-annually. 13. FOREIGN OPERATIONS Information concerning the Company's domestic and Canadian operations after translation into U.S. dollars are summarized as follows for fiscal years 1995, 1994 and 1993:
1995 1994 1993 ----------- ----------- ----------- Net sales: United States $65,341,581 $61,790,703 $59,028,415 Canadian 7,065,768 6,440,215 6,816,399 ----------- ----------- ----------- $72,407,349 $68,230,918 $65,844,814 ----------- ----------- ----------- Operating income (loss): United States $ (752,265) $ 4,018,147 $ 2,738,560 Canadian 436,687 (26,948) (380,024) ----------- ----------- ----------- $ (315,578) $ 4,045,095 $ 2,358,536 ----------- ----------- ----------- Identifiable assets: United States $57,389,725 $55,727,910 $52,665,328 Canadian 6,740,859 6,108,526 5,996,004 ----------- ----------- ----------- $64,130,584 $61,836,436 $58,661,332 ----------- ----------- -----------
14. EMPLOYEE BENEFITS The Company and its subsidiaries have a defined contribution plan for their employees. The Plan provides for voluntary employee contributions with limited matching contributions. The Company's matching contributions to the Plan for the fiscal years 1995, 1994 and 1993 were approximately $73,100, $83,900, and $90,200 respectively. The Company does not provide post-retirement benefits to its employees. The Company and its subsidiaries have a Profit Sharing Incentive Program. Under the terms of this Program, which is based on net income before taxes, the Company's employees received approximately $0, $196,000 and $255,300 for the fiscal years 1995, 1994 and 1993 respectively. The Company was required to adopt Statement of Financial Accounting Standard NO. 112, "Employee's Accounting for Postemployment Benefits," for fiscal year 1995. This statement requires recognition of benefits provided by an employer to former or inactive employees after employment, but before retirement. The impact of adopting this standard did not have a material impact on the Company's financial position or results of operations. Page 29 of 65 F-15 15. LEGAL PROCEEDINGS An action has been commenced by a former owner of Marietta American (formerly American Soap Company, Inc.), and by California Soap, Inc. and two of its shareholders. This complaint alleges, among other things, misrepresentations and omissions in connection with the Company's acquisition of Marietta American, misrepresentations in and omissions from various financial and other statements made by the Company, breaches of contract and other violations of federal and state laws. This action seeks an unspecified amount of damages. No assurance can be given as to the outcome of this action, which could have a material adverse effect on the Company. On or about July 29, 1994, an action was commenced in the United States District Court for the Western District of Tennessee by Valley Products Co., Inc. ("Valley Products"), a vendor of guest amenity products, against Landmark, a division of Hospitality Franchise Systems, Inc., Hospitality Franchise Systems, Inc., ("HFS"), the Company, Guest Supply, Inc., Days Inn of America, Inc., Howard Johnson Franchise System, Inc., Ramada Franchise Systems, Inc., Super 8 Motels, Inc., Park Inns International, Inc., and TM Acquisitions, Inc. In the action it is alleged, among other things, that a preferred vendor agreement entered into by the Company and HFS (as the parent corporation of the franchisors named as defendants in the action) pursuant to which HFS agreed to recommend the Company to franchisees of such franchisors in the Western hemisphere as a preferred vendor of logoed guest amenity products, tortiously interfered with Valley Product's contracts and constituted an illegal tying and exclusive dealing arrangement in violation of federal and Tennessee state anti- trust laws, including Sections 1 and 2 of the Sherman Act and Sections 4 and 16 of the Clayton Act. The action seeks, among other things, a temporary injunction and a declaratory judgment prohibiting the enforcement of the preferred vendor agreement between the Company and HFS and money damages in an amount not less than $10 million dollars, to be trebled pursuant to Section 4 of the Clayton Act. On or about September 12, 1994, B.N.P. Industries, Inc. d/b/a Savannah Soaps, also a vendor of guest amenity products, filed an action, similar to the action commences by Valley Products, against the Company and the same other principle parties, in the United States District Court for the Southern District of Georgia, seeking money damages in an amount in excess of $100,000, to be trebled pursuant to Section 4 of the Clayton Act. This case was consolidated with the action commenced by Valley Products in the United States District Court for the Western District of Tennessee. A motion by the Company together with the other defendants to dismiss the action was granted by the District Court on or about December 22, 1994. The plaintiffs (Valley Products and Savannah Soaps), appealed the decision of the District Court. On or about July 27, 1995, Savannah Soap's motion to voluntary dismiss its appeal was granted. The remaining parties have submitted their respective briefs on the appeal. Oral argument has not yet been scheduled. On October 27, 1995, an employee of the Company filed an action against the Company alleging race and sex discrimination. In the complaint, the employee seeks reinstatement to employee's former position with full back pay and benefits in an amount to be determined at trial; actual and compensatory damages of $150,000; punitive damages of $150,000; and reimbursement of all reasonable costs related to this action. Since this action is in a preliminary stage, the Company is unable to predict its outcome. 16. MERGER AGREEMENT On January 17, 1995, Dickstein Partners, Inc. made an unsolicited proposal to acquire the Company. Following the announcement of this proposal, the Board of Directors retained Goldman Sachs & Co. to assist the Company in reviewing financial alternatives available to the Company. The agreement with Goldman Sachs & Co. requires the payment of at least $1,500,000. Of this amount, $1,000,000 has been expensed in fiscal 1995, $250,000 of which was paid upon signing and Page 30 of 65 F-16 $750,000 of which is accrued as of September 30, 1995. The remaining minimum amount due of $500,000 is not accrued as of September 30, 1995 and will be provided for in fiscal 1996. On August 26, 1995 the Company entered into an Agreement and Plan of Merger with corporations controlled by Barry W. Florescue. Under the terms of the agreement, all of the Company's outstanding stock (other than those shares beneficially owned by Mr. Florescue) will be acquired for $10.25 per share in cash. The closing of this transaction is subject to several conditions, including: Mr. Florescue obtaining the financing necessary to complete the transaction; approval of the transaction by holders of at least 66 2/3% of the Company's shares; and the Company having met certain specified levels of inventory and net current assets. As of September 30, 1995, this last condition has been satisfied. The agreement has a termination date of February 15, 1996. Page 31 of 65 F-17 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Marietta Corporation Cortland, New York We have audited the consolidated financial statements of Marietta Corporation and its subsidiaries as of September 30, 1995 and October 1, 1994 and for each of the three years in the period ended September 30, 1995, and have issued our report thereon dated November 14, 1995, which report includes an explanatory paragraph as to uncertainties because of legal proceedings; such report is included elsewhere in his Form 10-K. Our audits also included the consolidated financial statement schedule of Marietta Corporation and its subsidiaries, listed in Item 14(A)2. This financial statement schedule is the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion, such 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. Deloitte & Touche LLP Rochester, New York November 14, 1995 Page 32 of 65 F-18 MARIETTA CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 1995, OCTOBER 1, 1994 AND OCTOBER 2, 1993 _______
Col. A Col. B Col. C Col. D Col. E - ------------------------------------ -------------------- ------------------------------------- ---------- -------------- Additions ------------------------------------- Balance at Beginning Charged to Costs Charged to Deductions Balance at End Description of Period and Expenses Other Accounts Write-Offs of Period - ------------------------------------ -------------------- ---------------- ------------------ ---------- -------------- Year ended September 30, 1995: Allowance for doubtful accounts $ 223,219 $189,198 $ (237)(1) $ 131,866 $ 280,314 Reserve for inventory obsolescence 600,707 596,320 906 (1) 328,104 869,829 Year ended October 1, 1994: Allowance for doubtful accounts $ 205,518 $ 61,987 $ (49)(1) $ 44,237 $ 223,219 Reserve for inventory obsolescence 585,466 292,629 571 (1) 277,959 600,707 Year ended October 2, 1993: Allowance for doubtful accounts $ 257,468 $(34,187) $(2,407)(1) $ 15,356 $ 205,518 Reserve for inventory obsolescence 1,503,607 324,238 (6,820)(1) 1,235,559 585,466
(1) Change in Canadian exchange rate. Page 33 of 65 F-19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this report:
Page No. -------- 1. Financial Statements and Supplementary Data: Report of Deloitte & Touche LLP, Independent Certified Public Accountants......................................... F-1 Marietta Corporation's Consolidated Financial Statements: Consolidated Balance Sheets as of September 30, 1995 and October 1, 1994............................... F-2 Consolidated Statements of Operations for the Years ended September 30, 1995, October 1, 1994 and October 2, 1993.. F-3 Consolidated Statement of Shareholders' Equity for the Years Ended September 30, 1995, October 1, 1994 and October 2, 1993.. F-4 Consolidated Statements of Cash Flows for the Years ended September 30, 1995, October 1, 1994, October 2, 1993..... F-5 Notes to Financial Statements........................................ F-6 - F-17 2. Financial Statement Schedules: Report of Deloitte & Touche LLP, Independent Certified Public Accountants......................................... F-18 Schedule II - Valuation and Qualifying Accounts....................... F-19
Schedules other than those listed above have been omitted because they are not applicable or the required information is shown on the financial statements or the Notes thereto. 3. Exhibits: The Exhibit Index begins on page 50. (b) Reports on Form 8-K. The Company filed a Form 8-K on August 30, 1995, in which the Company disclosed (pursuant to Item 5) that (i) it had entered into an Agreement and Plan of Merger with affiliates of Barry W. Florescue, the beneficial owner of 8.7% of the Company's Common Stock, (ii) in an agreement relating to Mr. Florescue's joining the Board of Directors of the Company, Mr. Florescue and his affiliates agreed not to increase their ownership of the Company's shares above 14.99% or to take certain other actions for a period of two years, and (iii) the Company had consented to a final judgment and order in settlement of a Securities and Exchange Commission investigation. (c) See Exhibit Index on page 50. (d) NONE Page 48 of 65 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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. Dated: January 23, 1996 MARIETTA CORPORATION (Registrant) BY: \s\ ---------------------------------------- Stephen D. Tannen President and Chief Executive Officer BY: \s\ ---------------------------------------- Philip A. Shager Vice President, Chief Accounting Officer and Treasurer Page 49 of 65 -----END PRIVACY-ENHANCED MESSAGE-----