SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to ___________________
Commission file number 1-1915
DeSoto, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-1899490
(State of incorporation) (I.R.S. Employer Identification No.)
900 E. Washington Street, Joliet, Illinois 60433
(Address of principal executive offices) (Zip Code)
16750 South Vincennes Road, South Holland, Illinois 60473
(Former address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 815/727-4931
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $1 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 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 Regulations 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. [ X ]
At February 15, 1996, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was approximately $17,522,641.
At February 15, 1996, the registrant had 4,679,207 shares of common stock
outstanding.
Documents Incorporated by Reference
None
PART I
Item 1. Business
DeSoto, Inc. ("DeSoto" or the "Company") was incorporated in 1927 under
the laws of Delaware. The Company's principal executive offices are located
at 900 East Washington Street, Joliet, Illinois, 60433.
On July 21, 1995, the Company announced the transfer and assignment of
various operations and assets involved in its liquid detergent and fabric
softener dryer sheet businesses to two separate buyers. The Company assigned
the rights to certain customers with respect to these businesses. The
Company also sold other assets which included certain accounts receivable,
inventory and machinery and equipment. Both transactions also provide for
the Company to receive royalties and other earn-out opportunities over a
three-year period in one case and over a four-year period in the other case.
The proceeds of these transactions were utilized to reduce the Company's
senior secured debt owed to CIT. For additional information, see Note O of
the Notes to Consolidated Financial Statements.
Products
The Company operates primarily in only one industry segment, the
manufacturing and packaging of household cleaning products, including
powdered and liquid laundry detergents. The Company also performs contract
manufacturing and packaging of household cleaning products.
Customers
The Company divides its sales between private label sales (including
control brands) and contract manufacturing. The Company had four customers
that each accounted for greater than 10% of the Company's revenues in 1995:
Sears, Roebuck and Co. ("Sears"), Kmart, Procter and Gamble and Benckiser.
As a result of the disposition of the liquid laundry detergent and fabric
softener sheet businesses, Kmart and Benckiser are no longer customers of the
Company. The loss of either Sears or Procter and Gamble as a customer would
have a material adverse effect on the Company. In 1994, Sears, Kmart and
Procter and Gamble each accounted for greater than 10% of the Company's
revenues. In 1993, Sears, Lever Brothers Company ("Lever") and Kmart each
accounted for greater than 10% of the Company's revenues.
The Company has been a supplier of Sears branded home laundry products
for over 30 years. During the three years ended December 31, 1995, Sears
accounted for the following percentages of net revenues:
1995 1994 1993
20% 16% 14%
During 1995 and 1994 sales to Procter and Gamble accounted for the
following percentages of net revenues:
1995 1994
13% 10%
Sales to Procter and Gamble did not account for more than 10% of net
revenues in 1993.
The Company produces its contract manufacturing business on a make and
ship basis; therefore, minimal inventories are carried. The Company carries
a minimal buffer inventory for its private label accounts. Primarily, the
Company extends industry standard terms to its customers.
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Distribution
The Company's private label and control label products are sold in
retail stores, including mass merchants and service centers. The Company
primarily uses its own sales force to sell its products. Products produced
under contract manufacturing agreements are generally distributed under
arrangements made by the purchaser.
Raw Materials
The primary raw materials used in the Company's products include soda
ash, surfactants, brighteners, packaging materials. In 1995, in general, raw
materials were available in adequate quantities to meet the needs of the
business. It is believed that raw materials will, in general, be available
to meet the Company's anticipated requirements in 1996 and beyond. During
1995, energy resources were adequate to meet the needs of the business and it
is believed they will be adequate during 1996.
Competition
The Company competes nationally in all major markets in the household
detergent category. The Company faces significant competition. The Company
believes that there are 15 major domestic producers of household detergent
with substantial sales, five of which account for approximately 73% of
industry sales. The top five companies are the major national brand
detergent producers. The private label market represents approximately 3% of
the detergent market. The remaining major domestic producers compete within
this 3%. Several of these second tier companies also participate in the
contract packaging segment of the business. The Company believes that it is
the twelfth largest domestic manufacturer of household detergents. The
Company competes on the basis of price, service and product quality. The
Company believes there is a heavy emphasis on price in the marketplace.
Management believes that the Company has expertise in a broad array of
detergent products and offers experience in contract packaging with major
companies.
As part of its quality control program, the Company subjects raw
materials and packaging components to quality tests upon purchase. Company
products are made to predetermined specifications with quality tests
conducted during production.
Research and Development
The Company spent approximately $218,000, $345,000, and $665,000, during
1995, 1994 and 1993, respectively, on Company-sponsored research relating to
the development of new products or the improvement of existing products.
Patents, Licenses, Franchises and Concessions
The Company, in management's opinion, holds no material patents,
licenses, franchises or concessions. The Company has no licenses with
foreign manufacturers.
Export sales did not constitute a material portion of the Company's
business in 1995.
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Environmental Compliance
The Company believes that it is currently in compliance in all material
respects with all presently applicable federal, state and local provisions
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment. Capital expenditures of the
Company attributable to compliance with such provisions were immaterial in
1995 and the Company anticipates such expenditures to be immaterial in 1996.
For additional information regarding special accruals relating to
environmental compliance with respect to discontinued operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" under Item 7 hereof.
Backlog
The Company believes that the dollar amount of backlog orders for its
business is immaterial.
Seasonality
The Company does not believe the household cleaning product business is
seasonal; however, promotional activities of certain customers can result in
increased sales during specific time frames.
Employees
The Company had approximately 127 employees as of the close of business
on December 31, 1995.
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EXECUTIVE OFFICERS
The following table sets forth the names of the executive officers at
February 15, 1996, the positions and offices with the Company held by them,
the date they first became officers, and their ages at February 15, 1996:
First Became
Name Office an Officer Age
William Spier Director, Chairman of the Board, 1991 61
and Chief Executive Officer
Anders U. Schroeder Director and Vice Chairman 1991 45
Anne E. Eisele Director, President, and Chief
Financial Officer 1991 40
Fred J. Flaxmayer Corporate Controller and Chief
Accounting Officer 1995 39
Irving Kagan Secretary and Legal Counsel 1992* 59
Each executive officer was appointed to serve in the office or offices
indicated until the first meeting of the Board of Directors following the
annual meeting of stockholders in 1996 and until his or her successor is
elected and qualified.
No family relationships exist among the above named individuals and
any directors of the Company.
Messrs. Spier and Schroeder have held their positions as officers of
the Company since June 5, 1991. Mr. Spier has been President and Chairman
of Sutton Holding Corp. from 1989 to present and a private investor from
1982 to present. Mr. Schroeder has been Chief Executive Officer of Asgard
Ltd. since 1990; Chairman and Chief Executive Officer of Odin International
N.V. (a wholly owned subsidiary of Asgard Ltd.) since 1989; Executive Vice
President of Sutton Holding Corp. since 1989; Vice Chairman of The Holding
Company of 1867, Inc. since 1986. Ms. Eisele and Mr. Flaxmayer have held
the positions set forth above or served the Company in various executive or
administrative positions for at least the past five years.
* Mr. Kagan was the Company's Senior Vice President and
General Counsel from November 1992 to February 1994 and now serves as
legal consultant and special counsel to the Company. In September
1995, Mr. Kagan was appointed as Secretary of the Company. Mr. Kagan
was a director of GAF Corporation from 1989 to 1993.
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Item 2. Properties
As of December 1995, the Company's general offices are located in
Joliet, Illinois. In 1992, the Company sold three of its operating
facilities (buildings and land) to its Pension Plan (the "Plan") and entered
into 10-year leases by which the Company leased the facilities from the Plan.
This transaction included the plants in Joliet, Illinois, Columbus, Georgia,
and Union City, California. The Company ceased operations at the Columbus,
Georgia plant in March 1994 and the facility has been subleased to an
unrelated third party through September 30, 1997. In December 1994, the
Company sold its plant (building and land) in South Holland, Illinois, to the
Plan and leased it back. The Company ceased operations at the South Holland,
Illinois facility in October 1995. For further information regarding these
transactions, refer to Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note C of the Notes to
the Consolidated Financial Statements.
At December 31, 1995, the Company's manufacturing and warehousing
operations were located at the following facilities.
Approximate
Floor Area
Location in sq. ft. Nature of Operation
Union City, California 130,000(a) Production and distribution
of spray dried powder detergents
Joliet, Illinois 160,000(b) Production and distribution of
agglomerated powder detergents
and liquid detergents
---------
Total 290,000
Approximately 61% of the 290,000 sq. ft. of the floor area listed in the
table above is currently being used for warehousing and administrative
purposes. The properties are well maintained and in good operating
condition. In general, the Company's present manufacturing facilities are
adequate for current production as well as for a material increase in
production.
__________
(a)Includes approximately 57,000 sq. ft. which were sold to the Plan in 1992
and are now
leased by the Company and 73,000 sq. ft. which are leased from an
unrelated party.
(b) This facility was sold to the Plan in 1992 and is leased by the Company.
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Item 3. Legal Proceedings
(i) Lundman Development Corporation v. DeSoto, Inc.
As previously reported, the Company was served with a Summons and
Complaint filed in the United States District Court for the Eastern
District of Wisconsin. The Complaint alleges, inter alia, that DeSoto
violated the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") with respect to property the Company once owned
in Fredonia, Wisconsin. The Company has denied the allegations in the
Complaint and the matter is in the pre-trial discovery stage.
(ii) West County Landfill v. Raychem International et al
As previously reported, the Company was served with an Amended Complaint filed
in the United States District Court for the Northern District of
California. The Amended Complaint alleges, inter alia, that DeSoto
violated CERCLA with respect to the West County Landfill in California.
The Company has denied the allegations in the Amended Complaint and the
matter is in the pre-trial discovery stage.
(iii) Ninth Avenue Remedial Group et al v. Allis-Chambers Corporation et al
As previously reported, the Company was named in a complaint filed in
the United States District Court for the Northern District of Indiana.
The complaint alleges that DeSoto and numerous other parties are jointly
and severally responsible under CERCLA for the cleanup and future
cleanup of the site. Also, as previously reported, the U. S. EPA issued
an administrative order against the Company under Section 106(a) of
CERCLA demanding that the Company, inter alia, undertake the remediation
at the Ninth Avenue Site. DeSoto has responded that it intends to
comply with all terms of the order.
(iv) As previously reported, an insurance carrier to a third party has
asserted a claim against the Company for property damage allegedly
incurred when a fertilizer product manufactured by the third party,
containing a chemical sold to that party by one of the Company's
discontinued operations, allegedly caused or promoted a fungus infection
resulting in failure of certain tomato crops in the United Kingdom. The
damages alleged are approximately $1.4 million. The Company's defense
has been undertaken by one of its insurance carriers, with a reservation
of rights.
(v) In re DeSoto, Inc. Shareholder Litigation
As previously reported, there are several shareholder actions still
pending in the Delaware courts relating to various proposals of Sutton
Holding Corp. to acquire the Company in the period 1989 to 1991. These
actions, all of which were consolidated, have not been actively pursued
and it appears the case was removed from the court's calendar; however,
the plaintiffs recently served a discovery request upon the Company.
The Company believes that these actions are not material.
(vi) United States of America v. Akzo et. al.
As previously reported, the Company was named in a complaint filed in
the United States District Court for the Eastern District of Michigan.
The complaint, filed on behalf of the U.S. EPA, alleges, inter alia,
that the Company and four other parties are responsible under Section
107 CERCLA for costs the EPA incurred at the Metamora Landfill site in
Lapeer, Michigan. The complaint also seeks a declaration under Section
113 of CERCLA that the Company is liable for the EPA's future costs that
may be incurred at this site.
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The State of Michigan had also served a complaint upon the Company in
the United States District Court for the Eastern District of Michigan
paralleling the Federal action. The State has since dismissed the
action as to the Company.
The Company's defense in these actions has been assumed by the firm and
its principal shareholder from which the Company purchased certain
assets of the business which is alleged by the EPA to be partially
responsible for the alleged contamination at this site. The former
owners have also agreed to indemnify the Company with respect to the
claims asserted in the complaints.
(vii) As previously reported, the Company was named as a defendant in an
action brought by Liberty Mutual Insurance Company in the Circuit Court
of Cook County, Illinois, seeking declaratory relief with respect to
insurance coverage previously purchased by the Company from Liberty,
that Liberty had no insurance obligation to the Company with respect to
environmental sites and litigations where the Company has been named as
a defendant or been identified as a potentially responsible party. The
Company moved to dismiss on the grounds that the Company had previously
filed a more comprehensive action in the federal district court in New
Jersey. In December 1995, the state court ruled in favor of the Company
and dismissed the action. Liberty has recently filed a notice of appeal
seeking to overturn the court's ruling.
In August 1995, the Company commenced an action in the federal district
court in New Jersey, seeking contract and declaratory relief with
respect to insurance coverage that the Company purchased from Liberty.
Liberty moved to dismiss the complaint on the grounds that the District
of New Jersey is not a proper forum for the dispute. The motion is
pending and discovery has not yet commenced.
As previously reported, the Company, in 1993, had commenced an action in
the federal district court in New Jersey, which had sought contract and
declaratory relief with respect to certain insurance coverage purchased
from Liberty. That action was settled in July 1995 pursuant to a
confidential settlement agreement.
(viii) As previously reported, the Company received a unilateral
Administrative Order issued by the U. S. EPA under Section 106 of
CERCLA, alleging that the Company is a potentially responsible party in
connection with the Marina Cliffs Site in the South Milwaukee,
Wisconsin. The Company presently believes that it has no liability and
that any potential environmental damage at the site is the result of
activity by parties other than the Company.
(ix) As previously reported, Fort Dearborn Lithograph Co. has filed suit
against the Company in the Circuit Court of Cook County, Illinois,
seeking to collect allegedly unpaid invoices for goods and services, of
approximately $500,000. The disposition of this action has been stayed
by agreement of the parties, pending resolution of an overall trade
creditor arrangement.
(x) Liquid Container, L. P. has filed suit against the Company in the
Circuit Court of Cook County, Illinois, claiming breach of contract and
damages relating to a transaction involving, in part, the Company's
former blow molding operations. The Company has asserted a number of
defenses and counterclaims. The action is in the early stages of pre-
trial discovery.
(xi) Rooney v. DeSoto, Inc., et. al.
This action was filed in 1991 in the District Court of Tarrant County,
Texas, by various emergency health care providers against the Company,
among others, claiming damages for alleged personal injuries purportedly
related to an industrial accident involving a Company employee at its
former facility in Fort Worth, Texas. The case has been finally set for
trial in May 1996.
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(xii) Environmental Matters
The Company has been identified by government authorities as one of the
parties potentially responsible for the cleanup costs at a number of
waste disposal sites, several of which are on the U.S. EPA's Superfund
priority list. In addition, damages are being claimed against the
Company in private actions for alleged personal injury or property
damage in the case of certain other waste disposal sites.
For further information regarding environmental liabilities, refer to
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note I of the Notes to Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders was held on December 20, 1995.
Matters submitted to and approved by the stockholders included the
election of directors and the ratification of the appointment of Arthur
Andersen LLP as auditors.
Each nominee for election as a director was approved. 4,314,440 shares
of voting stock were voted for Anders U. Schroeder and 45,791 shares of
such stock were withheld; 4,314,413 shares of voting stock were voted
for David M. Tobey and 45,818 shares of such stock withheld.
4,346,754 shares of voting stock were voted for the ratification of the
appointment of Arthur Andersen LLP as independent auditors, 6,371 of
such shares were voted against the appointment and 7,106 shares of such
stock abstained.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The common stock of the Company and the associated preferred share
purchase rights are traded on the New York Stock Exchange. (The preferred
share purchase rights do not trade separately from the common stock and are
represented by certificates for the common stock.)
Information with respect to the high and low sales prices of the
Company's common stock and dividends is as follows:
1995 1994
Price Range Dividend Price Range Dividend
in Dollars Declared in Dollars Declared
High Low Per Share High Low Per Share
1st Quarter $5 3/8 $ 3 $ - $8 5/8 $6 3/4 $ -
2nd Quarter 6 1/4 4 3/4 - 7 3/8 5 1/2 -
3rd Quarter 5 3/8 4 1/4 - 6 7/8 4 -
4th Quarter 5 3/8 2 3/4 - 5 3/8 3 -
------ ------
$ - $ -
At a meeting of the Company's Board of Directors on March 11, 1992, a
resolution was approved eliminating the regular quarterly dividend on common
stock until further action by the Board. Terms of the senior preferred stock
prohibit the declaration of dividends on common stock while dividends are in
arrears on the senior preferred.
At March 5, 1996, there were 1,738 stockholders of record of the
Company's common stock.
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Item 6. Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
(in thousands of dollars except per share amounts)
OPERATING:
Net revenues(1)........................... $52,339 $87,182 $101,175 $ 59,799 $ 58,872
Loss from operations before income
taxes and accounting change (1)(2)...... (5,393) (2,284) (13,322) (3,542) (202)
Net loss (1)(2)(3)........................ (4,635) (1,635) (8,090) (2,318) (402)
YEAR-END POSITION:
Total assets (4).......................... $64,968 $ 83,112 $ 91,957 $ 95,634 $64,559
Long-term debt, less current portion (5).. - - 5,000 6,200 6,192
Redeemable preferred stock................ 4,288 3,569 3,052 2,566 -
PER SHARE OF COMMON STOCK:
Loss from operations
before accounting change (1)(2)......... $(1.10) $(0.42) $(1.83) $(0.54) $ (0.10)
Net loss (1)(2)(3)........................ (1.10) (0.42) (1.83) (0.58) (0.10)
Dividends declared during year............ - - - - 0.04
</TABLE>
(1) Operating results subsequent to November 12, 1992 include revenues and
results from operations of J. L. Prescott Company which was acquired on that
date. In July 1995, the Company sold the liquid laundry detergent and fabric
softener sheet businesses it had acquired from J. L. Prescott Company.
(2) The loss from operations before income taxes and accounting change
included net non-operating income of $6,361,000, $1,303,000 and $2,420,000
in 1995, 1994 and 1993, respectively; provision for restructuring of
operations of $3,100,000, $2,900,000 and $1,229,000 in 1995, 1993 and 1992,
respectively; and $3,059,000 and $3,025,000 of other non recurring charges in
1995 and 1993, respectively.
(3) Net loss included the cumulative effect of an accounting change of
$162,000 of expense ($0.04 per share) in 1992.
(4) In November 1992, the Company purchased J. L. Prescott Company. In July
1995, the Company sold its liquid laundry detergent and fabric softener sheet
businesses.
(5) In December 1994, the Company entered into a three-year revolving credit
facility with CIT. The characteristics of the arrangement were such that the
entire debt was classified as current. The long-term debt outstanding at the
commencement of the CIT credit facility was paid off as part of the
transaction. As of September 30, 1995, the Company completely repaid the
outstanding borrowings under the credit facility with CIT and the facility
was terminated; and the Company had no outstanding borrowing as of that date.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As discussed in Note B to the Consolidated Financial Statements, the
Company has continued to experience losses from operations and negative
operating and financing cash flows. As part of the Company's continuing
effort to manage its accounts payable and cash flow requirements, the Company
has been negotiating a Trade Composition Agreement and a related Security
Agreement with its trade creditors as represented by a committee of six major
creditors of the Company. The proposed agreements include a standstill
agreement related to accounts payable existing as of September 22, 1995.
Also, as part of the proposed Trade Composition Agreement, the Company
initiated the termination of its overfunded pension plan to be effective
contingent upon the receipt of appropriate governmental approvals. For
further information regarding the plan termination, refer to Note C to the
Consolidated Financial Statements. Under the standstill agreement, if
certain conditions are met, the creditors who sign the agreement agree not to
initiate litigation or other efforts to collect amounts owed to them. The
Company has agreed to pay each Qualified Trade Creditor (as defined) the
balance owed to that creditor within 10 days of receipt of the reverted
excess pension plan assets. If payment is not made by July 1, 1996, interest
would accrue from that date at 8% per annum on the outstanding balance. The
proposed Security Agreement would grant a security interest and lien on all
of the Company's assets to secure the obligations of the Company to the
Qualified Trade Creditors. The proposed Trade Composition Agreement further
stipulates that the Company may suspend efforts to terminate its pension plan
if the Company enters into a binding agreement for a merger, asset sale or
similar transaction, involving substantially all of the Company's assets,
which provides that all Qualified Trade Creditors will be paid in full. The
Company and most of its creditors have been operating within the
understanding outlined above. The final Trade Composition Agreement and
related documents were circulated for signatures on March 11, 1996 and
execution of the documents has not yet been completed. The Company is
continuing to pursue, with the assistance of its investment bankers, a
possible business combination; however, there can be no assurance as to the
outcome of such efforts. For further information regarding a possible
business combination, refer to Note P to the Consolidated Financial
Statements.
As a result of its liquidity situation, the Company is currently
operating on a C.O.D. or limited credit basis with respect to purchases of
supplies and raw materials. The Company has been able to operate within
these constraints and expects to be able to continue to do so for the
immediate future.
The Company continues to manufacture powdered laundry detergents at its
facilities in Joliet, Illinois and Union City, California. The Company also
continues to manufacture certain liquid detergents at its Joliet facility.
During July 1995, the Company completed the transfer and assignment to two
separate buyers of various operations and assets involved in its liquid
detergent and fabric softener sheet businesses. The assets involved included
certain customer rights, accounts receivable, inventory and machinery and
equipment. Both transactions provide for the Company to receive royalties
and other earn-out opportunities over a three-year period in one case and
over a four-year period in the other case.
Initial proceeds from these transactions were used to reduce the
Company's senior secured debt under its revolving credit agreement with CIT.
In September 1995, the Company completely repaid the outstanding borrowing
under its revolving credit agreement with CIT and the agreement was
terminated. The Company currently has no outstanding secured debt or
revolving credit arrangements.
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Cash flow from operations in 1995 was a positive $1.0 million. The
positive cash flow from operations included the cash proceeds of $6.1 million
from insurance settlements regarding the cost of cleanup at certain hazardous
waste sites. Cash flow from operations also reflects the impact of no longer
carrying receivables or inventory related to the liquid laundry detergent and
fabric softener sheets businesses. The disposition of these businesses and
the resulting shut-down of the Company's operating facilities in South
Holland, Illinois and Thornton, Illinois, are expected to reduce the cash
required to fund continuing operations on a going forward basis.
Accounts receivable at December 31, 1995, when compared to December 31,
1994, also reflects a reduction in trade accounts receivable due to the
impact of reduced sales. Inventory levels have declined during the same time
period due in part to lower requirements stemming from lower sales as well as
the continued impact of a product rationalization/inventory control program.
The decline in property, plant and equipment reflects the disposition
discussed above, the sale of equipment no longer used in operations as well
as the write-down to net realizable value of machinery and equipment at the
Company's South Holland facility. This equipment was sold as part of an
auction that took place in February 1996. In addition, the excess of
depreciation over capital expenditures in 1995 contributed to the reduction
in net property, plant and equipment.
The decline in other non-current assets during the year was largely due
to the write-off of approximately $3.3 million of goodwill related to the
liquid detergent and fabric softener sheet businesses in the third quarter.
This write-off was partially offset by the minimum long-term royalty of $1.5
million recorded as part of the sale of the liquid detergent and fabric
softener sheet businesses in July.
Reserves and liabilities related to restructuring programs increased
during 1995 primarily due to provision for expenses related to the
disposition of the liquid laundry detergent business and the related shutdown
of the South Holland facility. Significant components of this accrual
include future rental payments to the Company's pension plan and future real
estate taxes on the property.
The Company expects to fund operations in 1996 with proceeds from
insurance settlements and other settlements, proceeds from the sale of
machinery and equipment formerly utilized in the liquid business in South
Holland, Illinois and via spot factoring of accounts receivable. As reported
previously, the Company is evaluating various methods of maximizing the
economic benefit of its overfunded pension plan. However, there can be no
assurance as to the outcome of such efforts.
The Company has been identified by government authorities as one of the
parties potentially responsible for the cleanup costs at a number of waste
disposal sites and for certain alleged contamination. In addition, damages
are being claimed against the Company in private actions for alleged personal
injury or property damages in the case of some of the waste disposal sites.
Special accruals have been made for the estimated costs of the Company's
expected resulting liability. These estimates are subject to numerous
variables, the effects of which are difficult to measure, including the stage
of the investigations, the nature of potential remedies, the joint and
several liability with other potentially responsible parties and other
issues. Accordingly, the accruals represent the Company's best estimates of
its potential exposure at this time. It is the opinion of management, after
evaluating the variables discussed above as well as the anticipated time
frame for remediation, that the resolution of the waste-site liability will
not have a material adverse effect on the Company's financial position. Of
the $2.0 million accrued as a current liability for waste site cleanup,
$755,000 is fully funded by a trust fund which was included in restricted
investments as part of current assets on the Company's balance sheets. The
fund was established in 1990 as part of the sale of discontinued operations
and may be accessed by the Company and, in certain circumstances, a certain
purchaser of the discontinued operations. Another $29,000 of the current
waste site liability is covered by funds from an escrow which the Company
received in 1993 and placed in a restricted cash account to secure a certain
cleanup obligation. In 1995, the Company paid out approximately $2.3 million
on waste site related liabilities, excluding legal and administrative costs;
of this amount $1.1 million was disbursed from the trust discussed above and
$29,000 was disbursed from the restricted cash account discussed above.
Based upon currently available information, the Company is unable to
determine the timing of future payments for that portion of the liability
which has been classified as long-term. For additional information regarding
the waste site cleanup liability, refer to Note I of the Notes to
Consolidated Financial Statements.
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The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Company
has not yet determined what impact adoption of the new standard will have on
the Company's results of operations or financial position; however,
management does not believe the impact will be material. The Company ceased
operations at its South Holland facility in 1995. Machinery and equipment
that was located at the facility was written down to net realizable value as
of December 31, 1995. This value was based upon the proceeds received at an
auction of the equipment held in February 1996 when the equipment was
completely liquidated.
RESULTS OF OPERATIONS
1995 Versus 1994
Results of operations for 1995 reflect the disposition of the Company's
liquid detergent and fabric softener dryer sheet businesses as of July 14,
1995. These businesses accounted for approximately $27.2 million of net
revenues in 1995 versus $51.7 million of net revenues during 1994. The
Company continues to manufacture powdered laundry detergents.
Overall net revenues in 1995 decreased approximately 40% versus the prior
year. Net revenues from the continuing business (excluding liquid detergent
and fabric softener sheet revenues) decreased approximately 29% in 1995
versus 1994. This decline can be attributed largely to a decrease in sales
to two customers: Sears and Lever Brothers.
Sales to Sears in 1995 were approximately $3.5 million lower than last year;
a decrease of approximately 25%. This decline was partially attributable to
promotional activity in 1994 as well as competitive pressures that have had a
negative impact on sales in general.
Sales to Lever Brothers in 1994 included approximately $2.0 million of sales
of autodish gel and concentrated fabric softener and $1.3 million of sales of
fabric softener sheets. As previously reported, Lever transferred this
business out of DeSoto during the second and third quarters of 1994. The
Company no longer manufactures either product.
Sales to Kmart in 1995 were approximately $8.2 million lower than the
comparable period in 1994. Sales were made to Kmart as part of the liquid
laundry detergent operations which were sold in July. Approximately $3.4
million of the decline in sales to Kmart occurred before this business was
disposed of.
The decline in gross profit resulted from pricing pressures, product and
customer mix, reduced volume, increased packaging costs and unrecovered fixed
costs at certain of the Company's operating plants. In addition, the Company
continued to manufacture products for the buyer of its liquid detergent
business from July to October in 1995. These products were sold to the buyer
at prices that approximated cost.
Selling, general and administrative costs declined approximately 15% in 1995
versus 1994. This decline reflects the elimination of administrative
personnel subsequent to the business dispositions in 1995 as well as
continued efforts at cost containment. Selling, general and administrative
expenses in 1994 also included the operation of the Columbus, Georgia
facility, which closed in March 1994 and the Stone Mountain, Georgia
facility, which closed in July 1994.
Nonrecurring expense included a net loss on the sale of the liquid detergent
and fabric softener sheet businesses (including the write-off of related
goodwill) and a $3.1 million provision for costs associated with the
resulting closure of operating facilities due to these dispositions.
- 13 -
Interest expense in 1995 was lower than the prior year because the Company
had no outstanding borrowing subsequent to September 1995 when the Company
completely repaid the outstanding borrowing under its credit facility with
CIT. Nonoperating income in 1995 included approximately $6.1 million from
insurance settlements and approximately $244,000 of royalty income related to
technology sold by the Company in 1990.
In general, the effects of inflation have not been material to the Company.
1994 Versus 1993
Net revenues decreased approximately 14% from 1993. The decrease was
primarily the result of lower sales to Lever and the loss of a customer to
which the Company made $5.0 million in sales during 1993. Other losses and
gains of business for the most part offset each other. The 1993 revenues
also included approximately $3.1 million in sales related to Jean Sorelle,
the assets and business of which were sold on December 30, 1993. Sales to
Lever declined approximately $7.0 million versus 1993. During 1994, Lever
transferred its autodish gel business to one of Lever's own production
facilities and transferred its fabric sheet business to another company.
The decline in gross profit was attributable to customer and product
mix. Competitive pricing pressures in the marketplace continued to depress
pricing. While new business was obtained, in most cases it was at a lower
gross profit than the lost business it replaced. There was also continued
pressure to participate in advertising and promotional support of various
customers. This too negatively impacted gross profit.
Selling, general, and administrative costs were reduced significantly
from 1993. Approximately $1.2 million of the reduction related to the fact
that the 1993 results included an entire year of expenses related to Jean
Sorelle. This business was sold on December 30, 1993. The shutdown of the
two Georgia facilities also resulted in a reduction of approximately
$500,000. The disposition of the former headquarters facility in 1993
resulted in the elimination of approximately $750,000 in carrying costs in
1994. There was a significant reduction in 1994 with respect to legal fees
and outside professional fees resulting from the settlement of various
outstanding legal matters. The reduction also reflected the Company's
continued focus on cost control and containment across all functions of the
Company.
Nonoperating income in 1994 included the settlement of arbitration
related to a portion of the business sold in 1990. Other components of
nonoperating income included a settlement related to fees paid for
professional services and royalty income related to technology sold by the
Company in 1990.
Item 8. Financial Statements and Supplementary Data
The financial statements listed in the "Index to Financial Statements
and Financial Statement Schedule" are filed as a part of this report on page
S-1 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
- 14 -
PART III
Item 10. Directors and Executive Officers of the Registrant
BOARD OF DIRECTORS
Set forth below is certain information, as of February 15, 1996, about each
director of the Company. Unless otherwise provided, each director has served
in the capacity indicated (or in comparable administrative or executive
positions with the same corporation) for the past five years.
Terms Expiring at the 1996 Annual Meeting (Class II)
ANNE E. EISELE Director since 1994
President of the Company since September 1995;
Chief Financial Officer of the Company since Age: 40
November 1992; served the Company in various
executive or administrative positions since March 1984.
_______________
PAUL E. PRICE Director since 1988
Retired Senior Vice President of The Quaker Oats Company
(manufacturer of grocery products and pet foods) Age: 61
Director: Xytronyx, Inc.; and Eljer
Industries, Inc.
_______________
Terms Expiring at the 1997 Annual Meeting (Class III)
DANIEL T. CARROLL Director since 1991
Chairman of the Board and President of the Carroll Group,
Inc. (a management consulting firm). Age: 69
Director: Aon Corporation; Comshare, Inc.; Diebold, Inc.;
Wolverine World Wide, Inc.; A. M. Castle & Co.;
American Woodmark Corporation; Oshkosh Truck
Corp.; and Woodhead Industries, Inc.
_______________
WILLIAM P. LYONS Director since 1991
Chairman of JVL Corp., (a manufacturer of generic and over-
the-counter pharmaceutical products) since 1992; President Age: 54
and Chief Executive Office of William P. Lyons and Co., Inc.
(an investment firm) since 1975; Chairman and Chief Executive
Officer of Duro Test Corp. (a manufacturer of specialty lighting
products) from 1988 to 1991.
Director: Holmes Protection Group,
Inc.; Lydall, Inc.; and
Video Lottery Technologies, Inc.
_______________
-15-
WILLIAM SPIER Director since 1990
Chairman of the Company from 1991 to present; Chief Executive
Officer of the Company from 1991 to January 1994 and from Age: 61
September 1995 to present; President and Chairman of Sutton
Holding Corp. (a corporation formed for the purpose of acquiring
the Company) from 1989 to present, and a private investor from
1982 to present.
Director: Geotek Communications,
Inc.; Holmes Protection
Group, Inc.; and Video Lottery Technologies, Inc.
_______________
Terms Expiring at the 1998 Annual Meeting (Class I)
ANDERS U. SCHROEDER Director since 1990
Vice Chairman of the Company from 1991 to present; Chief
Executive Officer of Asgard Ltd. (real estate investments and Age: 45
corporate investments) since 1990; Executive Vice President
of Sutton Holding Corp. (a corporation formed for the purpose
of acquiring the Company) since 1989; partner in law firm of
O Bondo Svane from 1982 to 1992.
_______________
DAVID M. TOBEY Director since 1990
Managing Director of Parkway M&A Capital Corporation (a
company engaged in investments) since 1988. Age: 57
Director: Competitive Technologies, Inc.
_______________
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the
Company's equity securities, to file by specific dates with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity
securities of the Company on Forms 3, 4 and 5. Officers, directors and
greater than ten-percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. The
Company is required to report in this proxy statement any failure to file
by the relevant due date any of these reports based solely on the
Company's review of copies of such reports furnished to it and written
representations received by the Company that the filing of a Form 5 was
not required. Based upon this review, the Company is not aware of any
person, who at any time during 1995, was a director, officer or a
beneficial owner of more than ten percent of any class of equity
securities of the Company registered pursuant to the Exchange Act that
failed to file on a timely basis reports required by Section 16(a) of the
Exchange Act during 1995.
- 16 -
Item 11. Executive Compensation
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information for the years ended
December 31, 1993, 1994, and 1995 concerning the compensation of the Chief
Executive Officer and the one other most highly compensated executive
officer of the Company who was serving as an executive officer as of
December 31, 1995. The table also sets forth the compensation paid to two
other executive officers who left the Company during 1995 and who otherwise
would have been included in the table. In accordance with the rules and
regulations of SEC, the compensation of only three executive officers in
addition to the Chief Executive Officer is reported because no other
executive officer serving as such as of December 31, 1995 earned from the
Company $100,000 or more in salary for the year ended December 31, 1995.
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation (a) Long Term Compensation Awards
Other Stock
Name and Annual Stock Grants Options All Other
Principal Position Year Salary Compensation (Value) (Shares) (Shares) Compensation
William Spier (b) 1995 $ - $ - $ - - 10,000 $ -
Chairman of the Board 1994 - - - - 10,000 -
and Chief Executive Officer 1993 123,750 - - - 10,000 -
John R. Phillips (c) 1995 215,333 - - - - 15,512
President and 1994 275,301 - 174,375 30,000 70,000 2,235
Chief Executive Officer 1993 - - - - - -
Anne E. Eisele (d) 1995 143,539 1,292 12,813 2,500 10,000 2,153
President and 1994 130,000 - - - - 1,937
Chief Financial Officer 1993 115,000 - - - - -
N. Ron Bowen (e) 1995 62,500 - 25,625 5,000 - 83,654
Executive Vice President 1994 100,000 - - - 20,000 1,490
</TABLE>
________________________
(a) Includes participants' before tax deposits to the DeSoto
Stock Ownership Plus Plan.
(b) Mr. Spier served as Chief Executive Officer until
December 13, 1993; effective September 1, 1995, Mr. Spier was again
appointed Chief Executive Officer.
(c) Mr. Phillips first became an employee of the Company as
of December 13, 1993. Mr. Phillips' employment contract provided for the
grant on January 3, 1994 of an award of 30,000 shares of restricted stock
pursuant to the 1992 Stock Plan of which 15,000 vested on grant and the
remaining 15,000 shares vested on December 13, 1994. The value of Mr.
Phillips' 30,000 shares as presented in the table is based upon the stock
price on the dates the shares vested. The value of Mr. Phillips' 30,000
shares of stock at December 31, 1995 was $105,000. The amount under "All
Other Compensation" represents paid vacation of $12,740 and contributions
by the Company to Mr. Phillips' account in the DeSoto Stock Ownership
Plus Plan of $2,772 in 1995 and contributions by the Company to Mr.
Phillips' account in the DeSoto Stock Ownership Plus Plan in 1994. Mr.
Phillips resigned as President and Chief Executive Officer, effective
August 31, 1995. See "Employment Contracts".
(d) During 1993, Ms. Eisele was Vice President - Finance,
Chief Financial Officer and Secretary; Ms. Eisele was named Senior Vice
President in October 1993. As of September 1, 1995, Ms. Eisele was
appointed President and continued as Chief Financial Officer. The amount
under All Other Compensation represents contributions by the Company to
Ms. Eisele's account in the DeSoto Stock Ownership Plus Plan. Ms. Eisele
has been granted 10,000 shares of common stock under the 1992 Stock Plan
to be awarded in 2,500 share installments on each May 2 from 1995 through
1998. The value of Ms. Eisele's 2,500 shares as presented in the table
is based upon the stock price on the date the shares vested. The value
of Ms. Eisele's 2,500 shares of stock at December 31, 1995 was $8,750.
On November 8, 1995, Ms. Eisele was granted an option to purchase an
additional 10,000 shares of Common Stock.
- 17 -
(e) Mr. Bowen first became an employee of the Company as of
May 2, 1994. The amount under "All Other Compensation" represents paid
vacation of $8,654 and severance pay of $75,000 in 1995 and contributions
by the Company to Mr. Bowen's account in the DeSoto Stock Ownership Plus
Plan in 1994. Mr. Bowen had been granted 10,000 shares of common stock
under the 1992 Stock Plan to be awarded in 5,000 share installments on
each May 2 from 1995 through 1996. Mr. Bowen resigned as an employee of
the Company, effective May 31, 1995, and the second 5,000 share
installment has been forfeited. Additionally, the options grant for
20,000 shares has also been forfeited. The value of Mr. Bowen's 5,000
shares as presented in the table is based upon the stock price on the
date the shares vested. The value of Mr. Bowen's 5,000 shares of stock at
December 31, 1995 was $17,500.
Shown below is information with respect to stock options granted during
the year ended December 31, 1995 under the Company's 1992 Stock Plan, which
provides, among other things, for the grant of options to purchase shares of
Common Stock.
Option Grants, Exercises and Year-End Values - 1995 Option Grants
<TABLE>
Percentage Potential Realized
of Total Value at Assumed Rates
Options Options of Stock Price
Granted Granted Exercise Appreciation for Option
(in Common to Employees Price Expiration Term ($)(b)
Shares) (a) in 1995 Per Share Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
William Spier (c) 10,000 50.0% $4 3/8 November 8, 2005 $27,514 $69,740
John R. Phillips - - - - - -
Anne E. Eisele (c) 10,000 50.0% 4 3/8 November 8, 2005 27,514 69,740
N. Ron Bowen - - - - - -
</TABLE>
_______________________
(a) Stock appreciation rights may not be granted under the Company's 1992
Stock Plan.
(b) Under the rules and regulations of the SEC, the potential realizable
value of a grant is the product of (i) the difference between (x) the
product of the per share market price at the time of grant and the sum of
1 plus the adjusted stock price appreciation rate (the assumed rate of
appreciation compounded annually over the term of the option) and (y) the
per share exercise price of the option and (ii) the number of securities
underlying the grant at year-end. Assumed annual rates of stock price
appreciation of 5% and 10% are specified by the SEC and are not intended
to forecast possible future appreciation, if any, of the price of the
shares of Common Stock of the Company. (For example, if the price of
shares of Common Stock remained at the exercise price of the options,
(i.e. a 0% appreciation rate), the potential realized value of the grant
would be $0.) The actual performance of such shares may be significantly
different from the rates specified by the SEC.
(c) The grant was made as of November 8, 1995 with an exercise price equal
to the market price at that time. The options were immediately
exercisable.
The following table provides certain information with respect to the
number and value of unexercised options outstanding as of December 31,
1995.
Aggregated 1995 Option Exercises and December 31, 1995 Option Values
<TABLE>
Number of Unexercised Value of Unexercised
Shares Options (in Common Shares) In-the-Money Options at
Acquired on Value at December 31, 1995 December 31, 1995 (a)
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
William Spier - - 30,000 / 0 $ - / $ -
John R. Phillips - - 70,000 / 0 - / -
Anne E. Eisele - - 30,000 / 0 - / -
N. Ron Bowen - - 0 / 0 - / -
</TABLE>
(a) Calculated by determining the difference between the fair market
value of the Common Stock underlying the options on December 31, 1995
(3 1/2, the closing price on the New York Stock Exchange - Composite
Transactions) and the exercise price of the options on that date.
- 18 -
DEFINED BENEFIT PLAN
The following table presents the estimated annual benefits payable
upon retirement at age 65, after selected periods of continuous service,
under the DeSoto Employees' Retirement Plan (the "Pension Plan") and the
Salaried Employees' Pension Preservation Plan (the "Preservation Plan"):
Estimated Annual Pension Benefits at Age 65
Years of Service in DeSoto
Employee's Retirement Plan
Average Annual Cash
Compensation During
Five Consecutive 10 Years 20 Years 30 Years 35 Years
Years of Highest Pay Service Service Service Service
$100,000 $ 16,700 $ 33,300 $ 50,000 $ 58,500
125,000 20,850 41,650 62,500 73,000
150,000 25,000 50,000 75,000 87,500
175,000 29,150 58,350 87,500 102,000
200,000 33,300 66,700 100,000 116,500
225,000 37,500 75,000 112,500 131,250
250,000 41,650 83,350 125,000 145,850
275,000 45,850 91,650 137,500 160,400
300,000 50,000 100,000 150,000 175,000
325,000 54,150 108,350 162,500 189,600
The compensation covered by the Pension Plan and the Preservation
Plan is substantially the same as that reported under the "Salary" and
"Bonus" columns of the Summary Compensation Table, limited, however, to
$150,000 for 1995 (or such other amount provided by Section 401(a)(17) of
the Internal Revenue Code of 1986, as amended (the "Code")). As of
December 31, 1995, the estimated credited years of service of Messrs.
Spier and Phillips and Ms. Eisele are approximately 5,2 and 12,
respectively. Mr. Bowen was not vested in the Plan as of the date of his
resignation from the Company. Benefits are computed on the basis of a
straight life annuity and are subject to offset for Social Security
benefits (although the calculation of the offset under the Salaried
Pension Plan differs from the offset under the Preservation Plan). To the
extent an employee's benefit as computed under the Salaried Pension Plan
exceeds the limitations provided under the Code or an employee's service
exceeds 35 years, the benefit will be provided under the Preservation
Plan.
In a settlement of litigation which became effective in 1992 related,
among other things, to the Company's pension plans, employees of the
Company who were participants in the pension plans on or after March 1,
1989 and prior to June 10, 1991, in essence, will receive a 3% increase in
their accrued pension benefits as of June 10, 1991 under the plans, and
such participants who have completed ten years of service with DeSoto but
whose employment terminates or terminated prior to their attaining age 55
will be entitled to receive unreduced deferred vested benefits under the
plans beginning at age 63 instead of age 65, but if they commence
receiving such benefits prior to age 63, they will continue to receive
reduced benefits on the same terms and conditions as previously. (Messrs.
Spier, Phillips and Bowen are not eligible for these increased benefits;
Ms. Eisele is eligible.)
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid an annual
retainer fee of $6,000 and, in addition, receive $800 for each Board or
committee meeting attended and for each day such director is deposed for
litigation concerning the Company. In addition, in accordance with the
terms of the DeSoto, Inc. 1992 Stock Plan, which was approved by
stockholders at the 1992 Annual Meeting of Stockholders on May 27, 1992,
each non-employee director of the Company receives an initial grant of
options to purchase 3,000 shares of Common Stock upon the date the
individual becomes a non-employee director (directors serving on May 27,
1992 received the grant 30 days subsequent to stockholder approval) and,
thereafter, annual grants of options to purchase 500 shares of Common
Stock. Options granted to non-employee directors have an exercise price
equal to one hundred percent of the fair market value (as defined in the
Plan) of the Common Stock on the date the options are granted, have a term
of ten years, and are exercisable at any time after the date of grant.
- 19 -
EMPLOYMENT CONTRACTS
In connection with the employment of John R. Phillips by the Company
and as an incentive for Mr. Phillips to join the Company, the Company
entered into an employment contract, dated as of December 13, 1993, with
Mr. Phillips employing him as President and Chief Executive Officer and
appointing him as a member of the Board of Directors effective as of
January 3, 1994. The contract provided for an annual base salary of
$250,000, the provision of benefits including life insurance and medical
benefit plans and the use of a company car and, after 1994, participation
in bonus plans generally on the same terms as other senior officers of the
Company, the provision of $12,000 per year as a housing allowance, and
reimbursement of business expenses and a club membership. In addition,
the contract provided for the grant on January 3, 1994 of an award of
30,000 shares of restricted Common Stock pursuant to the 1992 Stock Plan,
of which 15,000 vested on grant and the remaining 15,000 shares vested on
December 13, 1994; and the grant, pursuant to the 1992 Stock Plan, on
March 31, 1994, of a non-statutory option to purchase 70,000 shares of
Common Stock with an exercise price equal to the "Fair Market Value" on
that date (as defined in the 1992 Stock Plan as the last sale price of
shares on that date), of which 14,000 shares would vest on each December
13 from 1994 through 1998. The contract had an initial term of two years
and, unless notice not to extend was given by the Company or Mr. Phillips,
as of June 13, 1994, would be automatically extended so that the unexpired
term as of any day would always be eighteen months. Under the contract,
Mr. Phillips agreed to certain confidentiality and other similar
provisions and to restrictions on his ability to compete with the Company.
Following a reported restructuring of the Company in July 1995, Mr.
Phillips resigned, effective as of August 31, 1995, as President and Chief
Executive Officer and as a member of the Company's Board of Directors; and
entered into an agreement with the Company, dated as of September 1, 1995,
providing for the termination of his employment contract, effective as of
August 31, 1995, and for his employment by the Company, for a six-month
period from September 1, 1995 through February 29, 1996, to assist the
Company during the transition following his resignation. Under the new
agreement with Mr. Phillips, Mr. Phillips will continue to receive, over
the aforesaid six-month period, an aggregate compensation of $62,500,
payable in equal installments in accordance with the Company's customary
payroll practices, corresponding to the salary he received under his
original employment contract. For the thirty months next following the
expiration of said six-month period, Mr. Phillips will receive the
aggregate sum of $312,500, in equal installments, also in accordance with
the Company's customary payroll practices, corresponding to the balance of
the amount otherwise due to Mr. Phillips, under his original employment
contract, upon the termination of that contract, Mr. Phillips' having
agreed to the extension of the payout of his severance entitlement
($325,000), under his original employment contract, from eighteen to
thirty-six months. Additionally, Mr. Phillips' options to purchase 70,000
shares of Common Stock were immediately vested, under the terms of his
original employment contract, upon the termination of that contract; and
Mr. Phillips has a period of nine months, from September 1, 1995 through
May 31, 1996, within which to exercise such options in whole or in part.
Under Mr. Phillips' new agreement, he will continue to receive the same
medical and other insurance benefits he had received under his original
employment contract, under the same conditions, until the earlier of
August 31, 1996 or his obtaining alternative coverage elsewhere; the
continued use of a company car through May 1996; and continued club
membership through 1996. Mr. Phillips also agreed to continue to abide by
the confidentiality and other similar provisions, and to restrictions on
his ability to compete with the Company, as contained in his original
employment contract.
In September 1993, the Company entered into an agreement with Anne E.
Eisele, then Senior Vice President and Chief Financial Officer, which
provided for certain payments to be made to her in the event of a change
in control of the Company, the amount of which depends on whether she
remains in the Company's employ. This arrangement was amended as of March
12, 1996, to provide for the payment of two years' severance based upon
her then current compensation in the event of a change in control of the
Company.
- 20 -
Item 12. Security Ownership of Certain Beneficial Owners and Management
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth certain information as of February 15,
1996 (except as otherwise indicated) regarding the beneficial ownership of
shares of voting stock of the Company held by (i) directors, (ii) each
person or entity known to the Company who beneficially owns more than 5%
of the outstanding Common Stock or Senior Preferred Stock, (iii) each
executive officer named in the Summary Compensation Table appearing in
"Compensation of Executive Officers", and (iv) all directors (including
nominees) and executive officers as a group. Except as otherwise
indicated, each person or entity has sole voting and investment power of
the shares listed. For purposes of this table, shares which are not
outstanding but which are subject to options or warrants are deemed to be
outstanding for purposes of computing the percentage of outstanding shares
of the class owned by the holder of the option or warrants but are not
deemed to be outstanding for the purpose of computing the percentage of
the class owned by other persons.
<TABLE>
Combined
Ownership of
Amount and Approximate Common and
Amount and Approximate Nature of Percent of Senior Preferred
Name of Individual Nature of Percent of Beneficial Outstanding Stock as
or Entity Beneficial Outstanding Ownership of Senior Approximate
or Number Ownership of Common Common Senior Preferred Preferred Percent of all
in Group Stock (Shares)(1) Stock Stock (Shares) Stock Voting Stock
<S> <C> <C> <C> <C> <C>
Sutton Holding Corp.(2) 1,797,089(3) 30.6% 583,333(4) 100.0% 36.8%(5)
William Spier 809,840(6) 15.4% 259,259(7) 44.4% 18.4%
The Gabelli Group(8) 617,800(8) 13.2% 0 0 11.7%
Anders U. Schroeder 638,970(9)(10) 12.5% 194,444(11) 33.3% 14.7%
Pioneering Management Corp.(12) 459,400(12) 9.8% 0 0 8.7%
LL Capital Partners, L.P. (13) 276,700(13) 5.9% 0 0 5.3%
Dimensional Fund Advisors Inc.(14) 242,300(14) 5.2% 0 0 4.6%
John R. Phillips 105,000(15) 2.2% 0 0 2.0%
Anne E. Eisele 33,703(16) * 0 0 *
William P. Lyons 29,500(9)(17) * 0 0 *
Daniel T. Carroll 8,000(9) * 0 0 *
David M. Tobey 7,500(9)(18) * 0(19) 0(19) *(20)
N. Ron Bowen 5,683(21) * 0 0 *
Paul E. Price 4,700(9)(22) * 0 0 *
All directors and executive officers
as a group (11 persons) 2,074,532(9)(23) 34.1% 583,333 100% 39.9%(9)(23)
_________________
* Denotes less than 1%
</TABLE>
(1) The information under this caption is based on representations made
to the Company by individual directors or nominees and/or filings
made with the Securities and Exchange Commission.
(2) Sutton Holding Corp., a New York corporation, is part of a group
filing a joint Schedule 13D with respect to ownership of shares of
Common Stock that includes Anders U. Schroeder, an affiliate of
William Spier, and parties having a business relationship with David
Tobey. Sutton is owned by, Asgard Ltd. (an affiliate of Anders U.
Schroeder), Parkway M&A Capital Corporation ("Parkway"), M&A
Investment Pte Ltd. ("M&A") (entities having a business relationship
with David Tobey), and an individual having no other relationship
with the Company. Messrs. Spier, Schroeder and Tobey are directors
and officers of Sutton. Sutton's address is 101 East 52nd Street,
11th Floor, New York, New York 10022.
- 21 -
(3) Sutton is the record owner of 100 shares of Common Stock. The stock
ownership reported in the table for Sutton also includes the stock
ownership of the other parties to the Schedule 13D referred to in
Note 2 as follows: Coatings Group, Inc. ("Coatings Group")
beneficially owns 779,840 shares of Common Stock, of which 246,507
shares are currently outstanding and 533,333 shares are issuable upon
warrants beneficially owned by Coatings Group; Anders U. Schroeder
and an affiliated entity beneficially own 618,970 shares of Common
Stock, of which 218,970 shares are currently outstanding and 400,000
are issuable upon warrants beneficially owned by the affiliate of Mr.
Schroeder (options granted to Mr. Schroeder pursuant to the 1992
Stock Plan have not been included in the foregoing or in the
ownership for Sutton reported in the table); Parkway beneficially
owns 350,811 shares of Common Stock, of which 84,144 are currently
outstanding and 266,667 are issuable upon exercise of warrants
beneficially owned by Parkway; and M&A beneficially owns 47,368
shares of Common Stock, all of which are currently outstanding.
Consequently, Sutton and these related parties currently beneficially
own an aggregate of 597,089 currently outstanding shares of Common
Stock and 1,200,000 shares of Common Stock issuable upon exercise
warrants having an exercise price of $7.00 per share, representing
the 1,797,089 shares of Common Stock reported in the table. (Options
granted pursuant to the 1992 Plan to affiliates of any of these
parties have not been included in these numbers.)
(4) Parties related to Sutton own all of the shares of Senior Preferred
Stock reported in the table. Coatings Group owns 259,259 of such
shares, an affiliate of Anders U. Schroeder owns 194,444 of such
shares, and Parkway owns 129,630 of such shares.
(5) Represents shares of Common Stock and Senior Preferred Stock
currently owned by parties referred to in Note 2 and 1,200,000 shares
of Common Stock issuable upon exercise of warrants owned by such
parties as described in Note 3.
(6) Mr. Spier's stock ownership includes 246,507 currently outstanding
shares of Common Stock and 533,333 shares of Common Stock issuable
upon exercise of warrants owned by Coatings Group, a corporation of
which Mr. Spier is President and Chairman of the Board, and options
to purchase 30,000 shares of Common Stock which are currently
exercisable and were granted pursuant to the 1992 Stock Plan. (The
Coatings Group stock ownership also has been included in the stock
ownership reported for Sutton. See Note 3.) The listed shares do
not include the 100 shares owned by Sutton or 100 shares held by Mr.
Spier's father-in-law, as to which Mr. Spier may be deemed the
beneficial owner.
(7) All such shares are owned by Coatings Group. See Note 3.
(8) As reported by Mario J. Gabelli and various entities which he
directly or indirectly controls and for which he acts as chief
investment officer (the "Gabelli Group") its members include the
following: Gabelli Funds, Inc. ("GFI"), GAMCO Investors, Inc.
("GAMCO"), Gabelli Securities, Inc. ("GSI"), Gabelli & Company, Inc.
("Gabelli & Company"), Gabelli Performance Partnership ("GPP"), GLI,
Inc. ("GLI"), The Gabelli Associates Fund ("Gabelli Associates"),
Gabelli Associates Limited ("GAL"), The Gabelli & Company, Inc.
Profit Sharing Plan; Gabelli International Limited ("GIL"), Gabelli
International II Limited ("GIL II"), Mario J. Gabelli ("Mr.
Gabelli"), Lynch, Safety Railway and Western New Mexico. The address
of Mario J. Gabelli and the Gabelli Group is c/o J. Hamilton
Crawford, Jr., Gabelli Funds, Inc., One Corporate Center, Rye, New
York 10580-1434. Based on information in Amendment No. 22 to
Schedule 13D, dated July 14, 1995, the Gabelli Group owns its shares
of Common Stock as follows: Mario J. Gabelli, 7,500 shares; GAMCO,
602,800 shares; GSI, 1,000 shares; and GIL II, 6,500 shares. Each of
the above persons or entities has sole voting and dispositive power
over its shares, except that GAMCO does not have authority to vote
62,900 reported shares.
(9) Does not include options not yet issued in 1996 under the 1992 Stock
Plan, but which under the terms of such Plan will be automatically
granted shortly to non-employee directors. Pursuant to the Plan, on
June 6, 1996, each of the non-employee directors will receive a grant
of options to purchase 500 shares of Common Stock.
(10) Mr. Schroeder's stock ownership includes stock owned by Asgard Ltd.
("Asgard"). Asgard, a corporation affiliated with Mr. Schroeder,
owns 218,970 currently outstanding shares of Common Stock, 194,444
shares of Senior Preferred Stock and beneficially owns 400,000 shares
of Common Stock issuable upon exercise of warrants. (Asgard's stock
ownership has been included in the stock ownership reported for
Sutton. See Note 3.) Also includes options to purchase 20,000
shares of Common Stock, which are currently exercisable and were
granted pursuant to the 1992 Stock Plan.
- 22 -
(11) All such shares are owned by Asgard Ltd., a corporation affiliated
with Mr. Schroeder.
(12) Based on information in Schedule 13G, dated as of January 26, 1996.
The address of Pioneering Management Corporation is 60 State Street,
Boston, Massachusetts 02109.
(13) Based on information in Amendment No. 3 to Schedule 13D filed jointly
by LL Capital Partners, L.P. and its general partner Lance Lessman,
dated as of December 1, 1995. The address of LL Capital Partners,
L.P. is 375 Park Avenue, New York, New York 10152.
(14) Based on information in Schedule 13G, dated as of February 7, 1996,
filed by Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, Dimensional is deemed to have beneficial
ownership of 242,300 shares of common stock, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, all of which Dimensional Fund
Advisors Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(15) Includes options to purchase 70,000 shares of Common Stock which are
currently exercisable and were granted pursuant to the 1992 Stock
Plan.
(16) Includes shares of Common Stock held in Ms. Eisele's account in the
DeSoto Stock Ownership Plus Plan and options to purchase 30,000
shares of Common Stock which are currently exercisable and were
granted pursuant to the 1992 Stock Plan. Does not include 2,500
shares of common stock to be awarded on May 2, 1996 under the 1992
Stock Plan.
(17) Includes 25,000 shares of Common Stock owned by the William P. Lyons
and Co., Inc. Pension Trust, the only participant and beneficiary of
which is Mr. Lyons. Also includes options to purchase 4,500 shares
of Common Stock, which are currently exercisable and were granted
pursuant to the 1992 Stock Plan.
(18) Includes options to purchase 4,500 shares of Common Stock, which are
currently exercisable and were granted pursuant to the 1992 Stock
Plan. Does not include the stock ownership of Parkway and M&A. See
Note 3.
(19) Does not include the 129,630 shares owned by Parkway.
(20) Does not include stock ownership of Parkway and M&A. See Note 3.
(21) Includes shares of Common Stock held in Mr. Bowen's account in the
DeSoto Stock Ownership Plus Plan.
(22) Includes options to purchase 4,500 shares of Common Stock which are
currently exercisable and were granted pursuant to the 1992 Stock
Plan.
(23) Includes 1,943 shares of Common Stock beneficially held in the DeSoto
Stock Ownership Plus Plan for the account of executive officers.
Also includes stock ownership of Sutton Holding Corp. to the extent
not otherwise included in the beneficial ownership of directors and
officers, stock options held by directors and officers if exercisable
within 60 days and shares issuable upon exercise of warrants.
(Without inclusion of such Sutton Holding Corp. stock ownership,
directors and officers, as a group, would own (i) 1,676,253 shares of
Common Stock, representing approximately 28.8% of the outstanding
shares of Common Stock, (ii) 453,703 shares of Senior Preferred
Stock, representing approximately 28.8% of all such shares, and (iii)
approximately 33.3% of all voting stock.)
Item 13. Certain Relationships and Related Transactions
Inapplicable.
- 23 -
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:
1. The financial statement schedule listed in
the "Index to Financial Statements and Financial
Statement Schedule" filed as a part of this report
on page S-1 hereof.
2. The exhibits listed in the "Index to
Exhibits" filed as a part of this report on pages E-
1 through E-3 hereof.
(b) Reports on Form 8-K
A current report on Form 8-K dated as of January 16,
1996 was filed to report under Item 5 that the Company
had notified the Pension Benefit Guaranty Corporation of
its intention to terminate its Employee Retirement Plan,
effective as of April 15, 1996, contingent upon the
receipt of appropriate governmental approvals.
A current report on Form 8-K dated as of March 13,
1996 was filed to report under Item 5 that the Company
was discussing a proposed merger with Keystone
Consolidated Industries, Inc.
- 24 -
SIGNATURES
Pursuant to the requirements of Section 13 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.
DeSoto, Inc.
(Registrant)
By Anne E. Eisele*
Anne E. Eisele
President
March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
William Spier* Director, Chief Executive Officer
and Chairman of the Board )
)
Anders U. Schroeder* Director and Vice Chairman )
)
)
Anne E. Eisele* Director, President and )
Chief Financial Officer ) March 29, 1996
)
Fred J. Flaxmayer* Corporate Controller and )
Chief Accounting Officer )
)
Daniel T. Carroll* Director )
)
William P. Lyons* Director )
)
Paul E. Price* Director )
)
David M. Tobey* Director )
*By Anne E. Eisele___________________________
Anne E. Eisele, Attorney-in-Fact
- 25 -
DeSOTO, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Year Ended December 31, 1995
Page
Report by management S-2
Report of Independent Public Accountants S-3
Consolidated statements of operations S-4
Consolidated statements of stockholders' equity S-5
Consolidated balance sheets S-6
Consolidated statements of cash flows S-7
Notes to consolidated financial statements S-8 to S-23
Quarterly revenues and earnings data (1995 versus 1994) S-24
The following financial statement schedule is furnished
herewith pursuant to the requirements of Form 10-K:
Schedule II - Valuation and Qualifying Accounts S-25
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included
in the consolidated financial statements or in notes thereto.
S-1
Report By Management
The management of the Company has prepared the accompanying financial
statements. The financial statements for the year ended December 31, 1995
have been audited by Arthur Andersen LLP. Arthur Andersen LLP's report
indicates that the 1995 financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows of the
Company in accordance with generally accepted accounting principles, but
raises matters that create doubt about the Company's ability to continue as a
going concern, and states that the financial statements do not include
adjustments that might result from the outcomes of the uncertainties.
The financial statements were prepared from the Company's accounting records,
books and accounts which, in reasonable detail, accurately and fairly reflect
all material transactions. To assure the accuracy of the Company's
accounting records, books and accounts, the Company maintains a system of
internal controls. These internal controls are designed to provide
reasonable assurance that transactions are executed and recorded in the
Company's books and records, and the Company's assets are maintained and
accounted for, in accordance with management's authorizations. The Company's
accounting records, policies and internal controls are reviewed by the
Company's internal audit staff.
The Audit Committee of the Board of Directors of the Company, which is
comprised of three outside directors, recommends for appointment by the Board
and approval by the stockholders the firm of independent public accountants
who are engaged on a yearly basis to audit the financial statements of the
Company. The Audit Committee meets with the independent auditors to review
the scope of the audit, the results of the audit and the recommendations made
by said accountants with respect to the Company's accounting methods and
system of internal controls.
Anne E. Eisele
President and Chief Financial Officer
William Spier
Chairman of the Board and
Chief Executive Officer
S-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of DeSoto, Inc.
We have audited the accompanying consolidated balance sheets of DeSoto, Inc.
(a Delaware corporation) and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. 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 the 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 audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of DeSoto, Inc. and
Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements for 1995 have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B to
the financial statements, the Company has suffered recurring losses from
operations and negative operating and financing cash flows, and has
contingent liabilities related to environmental matters, income taxes and the
1992 acquisition of J.L. Prescott Company, that collectively raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note B.
The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements and Financial Statement Schedule is the responsibility
of the Company's management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 25, 1996
S-3
CONSOLIDATED STATEMENTS OF OPERATIONS
DeSoto, Inc. and Subsidiaries
Year Ended December 31,
1995 1994 1993
(in thousands except per share amounts)
NET REVENUES............................ $52,339 $87,182 $101,175
COSTS AND EXPENSES:
Cost of sales........................ 54,069 84,800 96,309
Selling, administrative and general.. 10,164 11,889 18,794
Retirement security program.......... (6,846) (6,495) (4,753)
Nonrecurring expense................. 6,159 - 5,925
-------- -------- --------
TOTAL OPERATING COSTS AND EXPENSES...... 63,546 90,194 116,275
-------- -------- --------
LOSS FROM OPERATIONS.................... (11,207) (3,012) (15,100)
OTHER CHARGES AND CREDITS:
Interest expense..................... 546 575 642
Nonoperating expense................. - - 1,601
Nonoperating income.................. (6,360) (1,303) (4,021)
-------- -------- --------
Loss before Income Taxes................ (5,393) (2,284) (13,322)
Benefit for Income Taxes................ (758) (649) (5,232)
-------- -------- --------
NET LOSS................................ (4,635) (1,635) (8,090)
Dividends on Preferred Stock............ (507) (319) (302)
-------- -------- --------
Net Loss Available for Common Shares.... $(5,142) $(1,954) (8,392)
======== ======== ========
NET LOSS PER COMMON SHARE............... $ (1.10) $ (0.42) $ (1.83)
======== ======== ========
Average Common Shares Outstanding....... 4,677 4,657 4,598
======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
S-4
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DeSoto, Inc. and Subsidiaries
Common
Stock Retained Treasury
$1 par value Warrants Earnings Stock
(in thousands of dollars)
<S> <C> <C> <C> <C>
BALANCE, January 1, 1993.......................... $ 5,619 $ 1,000 $ 61,722 $(36,868)
Net loss........................................ - - (8,090) -
Accrued dividends - redeemable preferred stock.. - - (302) -
Accretion of redeemable preferred stock to
liquidation preference........................ - - (185) -
Shares issued under employee stock options...... - - (1,017) 1,262
------ ------ ------- -------
BALANCE, December 31, 1993........................ 5,619 1,000 52,128 (35,606)
Net loss........................................ - - (1,635) -
Accrued dividends - redeemable preferred stock.. - - (319) -
Accretion of redeemable preferred stock to
liquidation preference........................ - - (198) -
Shares issued under employee
stock options and other grants................ - - (1,182) 1,442
------ ------ ------- -------
BALANCE, December 31, 1994.................... 5,619 1,000 48,794 (34,164)
Net loss........................................ - - (4,635) -
Accrued dividends - redeemable preferred stock.. - - (507) -
Accretion of redeemable preferred stock to
liquidation preference........................ - - (212) -
Shares issued under employee
stock options and other grants................ - - (232) 271
------ ------ ------- -------
BALANCE, December 31, 1995........................ 5,619 $ 1,000 $ 43,208 $(33,893)
====== ====== ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
S-5
<TABLE>
CONSOLIDATED BALANCE SHEETS DeSoto, Inc. and Subsidiaries
December 31,
<S> <C> <C>
1995 1994
ASSETS (in thousands of dollars)
CURRENT ASSETS:
Cash.............................................................................. $ 51 $ 1,702
Restricted cash................................................................... 29 58
Restricted short-term investments, at cost (approximates market).................. 1,180 710
Trade accounts and notes receivable, less allowance for doubtful
accounts and notes of $367 in 1995 and $1,819 in 1994........................ 4,764 11,848
Inventories, net:
Finished goods................................................................ 405 4,331
Raw materials and work-in-process............................................. 380 4,182
------- -------
785 8,513
Deferred income taxes............................................................. 2,049 3,295
Prepaid expenses and other assets................................................. 231 215
------- -------
Total Current Assets.......................................................... 9,089 26,341
RESTRICTED INVESTMENTS, at cost (approximates market)............................. 3,770 4,666
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements............................................................. - -
Buildings and improvements........................................................ - 90
Machinery and equipment........................................................... 14,440 22,783
------- -------
14,440 22,873
Less accumulated depreciation.................................................... 11,830 14,905
------- -------
2,610 7,968
PREPAID PENSION COSTS............................................................. 46,913 39,319
OTHER NON-CURRENT ASSETS.......................................................... 2,586 4,818
------- -------
TOTAL ASSETS...................................................................... $64,968 $83,112
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................. $14,263 $14,961
Revolving credit agreement........................................................ - 8,381
Waste site cleanup................................................................ 2,025 2,522
Reserves and liabilities related to restructuring programs........................ 3,226 1,884
Other liabilities................................................................. 4,500 5,725
------- -------
Total Current Liabilities..................................................... 24,014 33,473
WASTE SITE CLEANUP - LONG-TERM.................................................... 5,269 6,744
DEFERRED INCOME TAXES............................................................. 11,461 13,392
CONTINGENCIES AND LITIGATION (Note J)............................................. - -
POST RETIREMENT AND POST-EMPLOYMENT BENEFITS...................................... 1,223 1,510
LONG-TERM DEFERRED GAIN........................................................... 2,779 3,175
REDEEMABLE PREFERRED STOCK; series B senior preferred, 583,333
shares authorized, issued and outstanding, $6 per share liquidation preference 4,288 3,569
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 20,000,000 shares authorized; issued --5,619,274...... 5,619 5,619
Warrants.......................................................................... 1,000 1,000
Retained earnings................................................................. 43,208 48,794
------- -------
49,827 55,413
Less treasury stock, at cost (940,067 shares in 1995 and 947,567 shares in 1994).. 33,893 34,164
------- -------
15,934 21,249
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................ $64,968 $83,112
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
S-6
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS DeSoto, Inc. and Subsidiaries
Year Ended December 31,
1995 1994 1993
(in thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $(4,635) $(1,635) $(8,090)
Non-cash items:
Net (gain) loss on disposal of assets - net of deferred credit.. 4,177 (457) (1,434)
Depreciation and amortization................................... 1,397 2,920 4,148
Pension income.................................................. (7,594) (7,101) (5,094)
Deferred income taxes........................................... (685) 1,390 407
Other non-cash items............................................ 38 174 -
------- ------- -------
Net non-cash items........................................... (2,667) (3,074) (1,973)
Changes in assets and liabilities resulting from
operating activities:
Net (increase) decrease in trade accounts
and notes receivable........................................ 5,719 (406) 5,666
Net (increase) decrease in inventories........................ 4,585 1,933 (3,195)
Net decrease in other non-current assets...................... 1,344 1,102 1,237
Net increase (decrease) in other liabilities.................. (2,142) (2,284) 2,930
Net increase (decrease) in accounts payable................... (698) (4,040) 2,422
Net (increase) decrease in other current assets............... (458) (185) 1,183
Net (increase) decrease in refundable income taxes............ - 6,697 (4,185)
Other......................................................... - 16 (1)
------- ------- -------
Net cash flows from (used in) operating activities................ 1,048 (1,876) (4,006)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of liquid laundry detergent and
fabric softener sheet businesses.............................. 5,305 - -
Proceeds from sale of assets.................................. 622 3,803 4,285
Additions to property, plant and equipment.................... (245) (1,021) (1,021)
Net cash from waste site escrow............................... - - 917
------- ------- -------
Net cash flows from investing activities.......................... 5,682 2,782 4,181
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions (payments) under revolving credit agreement........... (8,381) 681 1,500
Proceeds from shares issued from treasury stock................. - 70 245
Payment of mortgage loan........................................ - - (2,122)
------- ------- -------
Net cash flows from (used in) financing activities................ (8,381) 751 (377)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.............. (1,651) 1,657 (202)
Cash and cash equivalents at beginning of the year................ 1,702 45 247
------- ------- -------
Cash and cash equivalents at the end of the year.................. $ 51 $ 1,702 $ 45
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
S-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements
include the accounts of the company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Short-Term Investments. For purposes of the statements of cash
flows, the Company considers all investments purchased with a maturity of
three months or less to be cash equivalents.
Inventories. Inventories are valued at the lower of cost or market.
Cost is computed on the last-in, first-out (LIFO) method for all
inventories. The cost of products includes raw materials, direct labor
and operating overhead. If the first-in, first-out (FIFO) method of
inventory accounting had been used for all of the Company's inventories,
inventories would have been $1,493,000 and $1,889,000 higher than reported
at December 31, 1995 and 1994, respectively.
Property and Depreciation. Property is recorded at cost. Repairs
and maintenance are charged to expense. Depreciation of property, plant
and equipment is provided by charges to earnings based on the estimated
useful lives of the assets, computed primarily on accelerated methods.
Useful lives were 10-40 years for buildings and improvements and are 10
years for machinery and equipment.
Goodwill and Amortization. Goodwill represented the excess of cost
over the fair value of net assets acquired, and was being amortized by the
straight-line method over 40 years until the related businesses were sold
in 1995. This goodwill was written off in 1995 as a result of the
disposition of the liquid detergent and fabric softener sheet businesses
in 1995.
Reclassifications. Certain reclassifications have been made to the
1994 and 1993 financial statements and footnotes to conform with current
year presentation.
Revenue. Revenue is recognized at the time goods are shipped.
Research and Development. Research and development costs are charged
to expense. These charges were $218,000 in 1995, $345,000 in 1994, and
$665,000 in 1993.
Income Taxes. Income taxes are provided based on the liability
method of accounting pursuant to Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Deferred income
taxes are recorded to reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
S-8
B. LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements for the year ended December 31,
1995 have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in
the normal course of business. The Company has incurred operating losses
of $11.2 million, $3.0 million, and $15.1 million in 1995, 1994 and 1993,
respectively; and cash flows from operations have been $1.0 million,
$(1.9) million and $(4.0) million in 1995, 1994 and 1993, respectively.
Cash flows from operations in 1995, however, included the cash proceeds
from insurance settlements of $6.1 million, and $10.0 million from the
reduction of working capital.
In addition to operating and financing cash flow losses, the Company
continues to be party to environmental exposures as discussed in Note I,
has received a notice of tax deficiencies from the IRS as discussed in
Note F., and has a contingent liability related to the 1992 Prescott
acquisition as discussed in Note L. Although management has used the best
information available to record the estimated liabilities for these
matters, actual outcomes could differ from recorded amounts.
Additionally, the timing of cash required to satisfy these obligations
could significantly impact the Company's cash flows in 1996.
As part of the Company's continuing effort to manage its accounts
payable and cash flow requirements, the Company has been negotiating a
Trade Composition Agreement and a related Security Agreement with its
trade creditors as represented by a committee of six major creditors of
the Company. The proposed agreements include a standstill agreement
related to accounts payable existing as of September 22, 1995. Also, as
part of the proposed Trade Composition Agreement, the Company initiated
the termination of its overfunded pension plan to be effective contingent
upon the receipt of appropriate governmental approvals. For further
information regarding the plan termination, refer to Note C to the
Consolidated Financial Statements. Under the standstill agreement, if
certain conditions are met, the creditors who sign the agreement agree not
to initiate litigation or other efforts to collect amounts owed to them.
The Company has agreed to pay each Qualified Trade Creditor (as defined)
the balance owed to that creditor within 10 days of receipt of the
reverted excess pension plan assets. If payment is not made by July 1,
1996, interest would accrue from that date at 8% per annum on the
outstanding balance. The proposed Security Agreement would grant a
security interest and lien on all of the Company's assets to secure the
obligations of the Company to the Qualified Trade Creditors. The proposed
Trade Composition Agreement further stipulates that the Company may
suspend efforts to terminate its pension plan if the Company enters into a
binding agreement for a merger, asset sale or similar transaction,
involving substantially all of the Company's assets, which provides that
all Qualified Trade Creditors will be paid in full. The Company and its
creditors have been operating within the understanding outlined above.
The actual Standstill Agreement document was circulated for signatures on
March 11, 1996 and final execution of the documents has not yet been
completed. The Company is continuing to pursue, with the assistance of
its investment bankers, a possible business combination; however, there
can be no assurance as to the outcome of such efforts. For further
information regarding a possible business combination, refer to Note P to
the Consolidated Financial Statements.
S-9
C. PENSION AND EMPLOYEE INVESTMENT PLANS
The Company's retirement security program includes a noncontributory
defined benefit pension plan and an employee investment plan covering
substantially all employees except certain hourly-rated employees; the
Company also contributes to union sponsored plans. The Company's pension
plan benefits are principally based on the employee's compensation and
years of service. The Company's funding policy is to contribute annually
at a rate that is intended to remain at a level percentage of compensation
for the covered employees. The Company was not required to make
contributions to the Company sponsored pension plan in 1995, 1994 and 1993
due to the plan's overfunded status.
In January 1996, the Company announced that it had notified the
Pension Benefit Guaranty Corporation of its intention to terminate the
pension plan to be effective contingent upon the receipt of appropriate
governmental approvals. The Company further intends to use 25% of the
excess assets in the pension plan to fund a replacement plan and purchase
an annuity contract to cover accrued plan benefits. The remaining excess
plan assets will be subject to a 20% federal excise tax and federal and
state income taxes. If more than 75% of the excess assets were reverted to
the Company from the plan, such reversion would be subject to a 50% federal
excise tax and federal and state income taxes. The Company intends to
utilize the reversionary funds to satisfy, among other things, various
creditor obligations and stabilize ongoing operations. As an alternative
to termination of the pension plan, the Company is also continuing to
pursue a possible business combination, in its ongoing efforts to preserve
and maximize shareholder values; however, there can be no assurance as to
the outcome of such efforts. For further information regarding the
possible business combination, refer to Note P to the Consolidated
Financial Statements.
The Company makes contributions to the employee investment plan in
cash or Company stock in an amount equal to 30% of employee deposits up to
5% of such employee's gross pay.
The costs of the pension and employee investment plans are summarized
as follows:
<TABLE>
For the Years Ended December 31,
(in thousands of dollars)
1995 1994 1993
Noncontributory Retirement plans:
<S> <C> <C> <C>
Service cost - benefits earned
during the period ............................... $ 527 $ 671 $ 492
Interest cost on projected benefit obligation...... 5,089 4,978 5,012
Actual return on assets - (favorable) unfavorable.. (30,841) 3,962 (8,652)
Net amortization and deferral...................... 17,803 (16,824) (2,053)
--------- --------- ---------
(7,422) (7,213) (5,201)
Employee Investment Plan........................... 35 84 47
Contributions to Union Sponsored Plans............. 242 313 288
Total income from pension and --------- --------- ---------
employee investment plans........................ $ (7,145) $ (6,816) $ (4,866)
========= ========= =========
</TABLE>
The change in the net amortization and deferral from 1993 to 1994 and
from 1994 to 1995 was primarily due to the difference between the actual
return on Plan assets, which was favorable in 1995 and unfavorable in
1994, versus the expected return on Plan assets. Under Statement of
Financial Accounting Standards No. 87, the difference between the actual
and expected return on assets is deferred and amortized over subsequent
periods.
S-10
The pension plan's assets at December 31, 1995 are invested in United
States Treasury Notes, corporate bonds and notes, investment partnerships,
United States Treasury Securities, time deposits, commercial paper,
interest rate futures, forward exchange contracts, foreign currency,
certain real estate operated by the Company, various mutual funds invested
in bonds, equity and real estate, mortgages and other short-term
investments. The pension plan's funded status and amounts recognized in
the Company's balance sheets at December 31 are presented below:
1995 1994
(in thousands of dollars)
Actuarial present value of vested benefit obligation... $ 65,719 $ 57,540
======== ========
Accumulated benefit obligation......................... $ 65,877 $ 57,702
======== ========
Plan assets at fair value.............................. $162,017 $135,764
Actuarial present value of
projected benefit obligation......................... 66,832 59,471
-------- --------
Plan assets in excess of projected benefit obligation.. 95,185 76,293
Unrecognized net gain.................................. (40,595) (27,707)
Prior service costs.................................... 2,064 2,259
Unrecognized net asset................................. (9,741) (11,526)
-------- --------
Prepaid pension cost recognized on the balance sheet... $ 46,913 $ 39,319
======== ========
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% in 1995 and 8.9%
in 1994. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
was 5.0% in 1995 and 1994. The expected long-term rate of return on assets
used in determining pension income was 8.0% in 1995 and 7.0% in 1994.
In October 1992, the Company completed the sale of its real properties
in Joliet, Illinois, Columbus, Georgia, and Union City, California, to a
real property trust created by DeSoto's pension plan. This trust paid
approximately $6.5 million in cash for the properties and entered into a ten-
year lease of the properties to the Company. The Company's initial
annualized rental obligation was $707,000. The amount paid to the Company
by the trust and the Company's annual rental obligation were based upon an
independent appraisal and approved by the Company's Board of Directors.
Effective January 1, 1994, the DeSoto Salaried Plan, Hourly Plan and J.
L. Prescott Plan were merged into the DeSoto Employee Retirement Plan. This
action resulted in a combination of the assets of each of these plan into
one trust fund. The method of calculating benefits under each of these
plans remained unchanged.
In March 1994, the Company ceased operations at the Columbus, Georgia
facility. Effective October 1, 1994, the Company entered into an agreement
to sublease the facility for a term of three years. The subtenant makes
monthly rental payments directly to the pension trust; the Company continues
to make monthly rental payments to the pension trust for the amount by which
the Company's initial rental obligation exceeds the subtenant's rental
obligation.
In December 1994, the Company sold its real property located in South
Holland, Illinois, to the real property trust of the Company's pension plan.
The trust paid $4,117,000 in cash for the properties and has entered into a
ten-year lease of the properties to the Company. The Company's annualized
rental obligation (net of receipts from subtenants) is approximately
$898,000 including the South Holland facility. The amount paid to the
Company by the trust and the Company's annual rental obligation were based
upon an independent appraisal and approved by the Company's Board of
Directors.
S-11
D. POST RETIREMENT AND OTHER POST EMPLOYMENT BENEFITS
The Company provides certain health care and life insurance benefits
for retired employees on a contributory basis. Substantially all of the
Company's employees, except certain hourly-rated employees, may become
eligible for such benefits if they reach qualifying retirement age while
working for the Company. Such benefits and similar benefits for active
employees are administered by two outside companies whose administrative
fees are based upon number of participants and claims processed. The health
care program is self funded by the Company with purchased stop loss coverage
for claims over certain levels. Life insurance benefits are funded by
policies for which the Company pays premiums. In certain cases the
participants also contribute to the premium payment. The following table
presents the costs of accruing the postretirement insurance benefits in
1995, 1994, and 1993:
<TABLE>
<S> <C> <C>
1995 1994 1993
(in thousands of dollars)
Service cost - benefits attributed to service during the period $ 31 $ 14 $ 4
Interest cost on accumulated postretirement benefit obligation 289 130 109
Amortization of unrecognized net loss 115 7 -
---- ---- ----
Net periodic postretirement benefit cost $435 $151 $113
</TABLE>
The following table presents the components of the Company's post-
retirement benefit obligation and the amount recognized in the Company's
balance sheets at December 31,
1995 1994
(in thousands of dollars)
Accumulated post-retirement benefit obligation:
Current retirees $2,831 $2,819
Active plan participants 373 393
------ ------
Total 3,204 3,212
Unrecognized net loss 1,621 1,687
Accrued post-retirement liability ------ ------
recognized on the balance sheet $1,583 $1,525
====== ======
The assumed health care cost trend rate used to measure the expected
cost of benefits covered by the plan was 7% and 8% as of December 31, 1995
and 1994, respectively. The weighted average discount rate used to measure
the accumulated post-retirement insurance obligation was 7.5% for 1995 and
9.0% for 1994. A one percentage point increase in the assumed health care
cost trend rate for each future year would have resulted in additional
obligation of $288,000 at December 31, 1995 and would have increased the
aggregate service and interest cost by $29,000 in 1995.
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" effective January 1,
1994. The impact of adoption was not material to the Company's financial
position or results of operations.
S-12
E. REVOLVING CREDIT AGREEMENT AND OTHER DEBT
On November 12, 1992, in conjunction with the acquisition of J. L.
Prescott Company ("Prescott"), the Company entered into an amended credit
agreement with Harris Trust and Savings Bank and two additional banks. The
agreement had originally provided for a two-year revolving credit facility
of up to $20,000,000. Effective October 1, 1993, the credit facility was
reduced to $15,000,000 per conditions set in the November 12, 1992
amendment. The termination date of this amended agreement was originally
October 31, 1994. In March 1994, the facility was further amended setting
a termination date of January 1, 1995. Effective with the March 1994
amendment, the Company paid $2,700,000 of the outstanding debt upon the
receipt of its income tax refund for fiscal year 1993. Up to the March
1994 amendment, the revolver carried an interest rate equal to either the
prime rate of Harris Trust and Savings Bank plus 1 1/4% or the IBOR rate
plus 3 1/2% (as amended in the third quarter of 1993). Effective in March
1994, the interest rate became the prime rate of Harris Trust and Savings
plus 2%.
On December 7, 1994, the Company entered into a revolving credit
facility with CIT. The agreement provided for up to $14,000,000 under a
revolving credit facility. The funds available for borrowing were based on
a formula which included specified percents of accounts receivable and
inventory. The interest rate on the facility was prime plus 1 1/4%.
Commitment fees under the revolving credit facility were calculated at 1/4
of one percent per annum of the average unused and available portion of the
facility. The facility was collateralized by substantially all of the
Company's assets. A portion of the line of credit was available in the
form of letters of credit. As of September 30, 1995, the revolving credit
agreement was terminated and the Company had no outstanding borrowing as of
that date.
Cash payments for interest were $546,000 in 1995, $575,000 in 1994 and
$535,000 in 1993.
S-13
F. INCOME TAXES
1995 1994 1993
(in thousands of dollars)
The benefit for income taxes is comprised of:
Federal Income Taxes:
Currently Refundable........... $ - $ - $(4,808)
Deferred....................... (608) (493) 249
------ ------ --------
Federal Income Taxes........... (608) (493) (4,559)
State and Local Income Taxes... (150) (156) (673)
------ ------ --------
Total Income Tax Benefit....... $(758) $(649) $(5,232)
====== ====== ========
Net cash refunds of income taxes were $0 in 1995, $8,742,000 in 1994 and
$1,446,000 in 1993.
A reconciliation of the statutory federal income tax rate to the effective
tax rate is presented below:
1995 1994 1993
Statutory Federal Income Tax Rate............... (35.0)% (35.0)% (34.0)%
Effect of:
Write off of Goodwill......................... 22.0 - -
Effect of Tax Rate Changes on Deferred Taxes.. (0.9) 7.6 -
State Income Taxes, Net....................... (0.9) (3.6) (3.4)
E.P.A. Fine................................... - 0.3 0.3
Other......................................... 0.7 2.3 (2.2)
------ ------ ------
Effective Rate................................ (14.1)% (28.4)% (39.3)%
====== ====== ======
S-14
The components of the net deferred income tax asset and liability were as
follows:
December 31,
1995 1994
(in thousands of dollars)
Current Deferred Tax Asset:
Restructuring and Cost Containment....... $ 1,899 $ 917
Inventory................................ 531 1,989
Retirement Security Program.............. 272 315
Insurance................................ 210 441
Valuation Reserves....................... 144 844
Vacation Pay............................. 137 225
Other.................................... (1,144) (1,436)
-------- --------
Total Current Deferred Tax Asset........... $ 2,049 $ 3,295
======== ========
Long Term Deferred Tax Liability:
Prepaid Pension.......................... $18,390 $15,570
Other Reserves........................... 3,919 3,092
Restricted Investments................... 1,773 2,129
Depreciation............................. 1,287 2,413
Net Operating Loss Carryforward.......... (7,681) (3,889)
Waste Site Cleanup....................... (2,859) (3,669)
Deferred Gain - Sale of Assets........... (1,091) (1,255)
Post Retirement Insurance................ (658) (624)
State and Local Income Taxes............. (459) (480)
Valuation Reserves....................... (377) (404)
Other.................................... (783) 509
-------- --------
Total Long-Term Deferred Tax Liability..... $11,461 $13,392
======== ========
At December 31, 1995, the company had net operating loss carryforwards of
approximately $22.0 million. These carryforwards expire between 2007 and
2010.
The Company has received a Report of Tax Examination Changes from the
Internal Revenue Service that proposes adjustments resulting in additional
taxes due of $6.5 million and penalties of $1.4 million, as well as an
unspecified amount of interest for the years 1990 through 1993. The Company
has filed a formal appeal of the proposed adjustments. The Company believes
that the resolution of this matter will not have a material adverse effect
on the Company's financial position or results of operations, although the
timing of cash required to settle any amounts ultimately due could have a
significant impact on the Company's cash flows.
S-15
G. LEASE COMMITMENTS
The Company leases certain facilities and equipment under lease
agreements which are classified as operating leases. These leases are for
remaining periods ranging from one to ten years and in some instances
include renewal provisions at the option of the Company. Rental expense
was $1,592,000 in 1995, $1,652,000 in 1994 and $2,107,000 in 1993.
RENTAL COMMITMENTS
(in thousands of dollars)
Total
1996....................................................... $1,267
1997....................................................... 1,263
1998....................................................... 1,101
1999....................................................... 1,098
2000....................................................... 1,098
2001-2004.................................................. 2,978
------
$8,805
======
H. SEGMENT REPORTING
The Company operates in one industry segment, the manufacture of
detergent. The Company also performs contract manufacturing and packaging
of detergents. The Company's products are sold in retail stores, including
mass merchants and service centers, throughout the United States. The
Company's revenues are derived from several customers. There are five
customers which each have accounted for more than 10% of the Company's
revenues as indicated below. The Company no longer does business with Kmart
or Benckiser as a result of the transactions disclosed in Note O to the
Consolidated Financial Statements.
% of Consolidated Net Revenues
1995 1994 1993
Sears, Roebuck & Co. 20% 16% 14%
Kmart 10% 15% 10%
Procter & Gamble 13% 10% *
Benckiser 12% * *
Lever Brothers * * 11%
*Less than 10% of consolidated net sales.
From time to time, the Company enters into manufacturing and packaging
agreements with its contract packaging customers. These contracts include
product specifications, production procedures and other general terms. The
contracts do not obligate the customer to make any purchases.
S-16
I. ENVIRONMENTAL MATTERS
The Company has been identified by government authorities as one of the
parties potentially responsible for the cleanup costs of waste disposal
sites, many of which are on the U.S. EPA's Superfund priority list, and for
certain alleged contamination. In addition, damages are being claimed
against the Company in private actions for alleged personal injury or
property damage in the case of certain other waste disposal sites. The
waste disposal sites relate to the Company's discontinued operations. The
Company's potential responsibility in connection with these sites generally
depends upon, among other things, whether it, directly or through third
parties, engaged in the business of waste disposal or storage, shipped waste
to the sites and, in those cases in which the Company did so ship waste, the
relative amount and/or composition of waste material attributable to the
Company as compared to the waste material attributable to other solvent
parties. Typically, the Company is one of numerous parties involved in
actions or proceedings relating to these waste disposal sites and its
obligations in connection with its share of cleanup and other costs extend
over a number of years rather than being payable at one time.
The Company believes that it has made adequate provisions for the costs
it may incur with respect to the sites. The Company provides a reserve for
the lower end of an estimated range of total loss from $7.3 to $21.6 million
(after considering information provided by independent legal counsel).
These estimates are subject to numerous variables, the effects of which are
difficult to measure, including the stage of the investigations, the nature
of potential remedies, the joint and several liability with other
potentially responsible parties and other issues. Accordingly, the reserves
represent the Company's best estimates of its potential exposure at this
time. The reserve balance was $7.3 million as of December 31, 1995 and $9.3
million as of December 31, 1994. In 1995, the Company paid out
approximately $2.3 million on waste site related liabilities, excluding
legal and administrative costs; of this amount $1.1 million was disbursed
from the trust discussed below and $29,000 was disbursed from the restricted
cash account discussed below.
Actual costs to be incurred in future periods may vary from the
estimates. The Company's potential liability may be materially impacted in
the future as a result of final determinations of the extent of
environmental damage, the share of the cost of cleanup technology which is
ultimately chosen, the extent of the cleanup required, the solvency of other
potentially responsible parties, changes in law and unanticipated awards of
damages for personal injury or property damages. In addition, the Company
has not reduced its estimates of liability to reflect the possible proceeds
of insurance coverage which may be applicable to these costs. The Company
from time to time engages in discussions with insurance carriers regarding
Company claims in this regard and the Company may pursue litigation if no
satisfactory resolution of the claims is reached. The Company reached
settlements with two insurance carriers in 1995 regarding the cost of
cleanup at certain waste disposal sites. As a result of these settlements,
the Company received proceeds in 1995 totaling approximately $6.1 million.
In connection with the Company's acquisition of Prescott in November
1992, the Company assumed the cleanup obligations of Prescott under New
Jersey's Environmental Cleanup and Responsibility Act ("ECRA"). Pursuant to
an agreement with certain former owners of Prescott, the Company in 1993
received funds to offset the cost of the cleanup previously held in escrow
for the benefit of Prescott. (The Company has placed these funds in a
restricted cash account to secure its cleanup obligations.) The Company
currently expects that these funds will fully cover the costs of cleanup
required by New Jersey. The remaining liability related to this site is
included in the ranges above. The remaining funds are shown on the balance
sheet under the caption, restricted cash.
S-17
Under the terms of the 1990 consumer paint asset purchase agreement
with Sherwin-Williams, $6.0 million of the sale's proceeds were used to
establish a trust fund to fund potential clean-up liabilities. The trust
agreement expires on October 26, 2000, or when the trust is depleted,
whichever occurs first. A portion of the trust has been set aside with
respect to a specific site; the agreement governing that portion of the
trust expires on October 26, 2008. The Company has access to the trust fund,
subject to the other party's approval, for any expenses or liabilities
incurred by the Company regarding environmental claims relating to the sites
identified in the trust agreement. Sherwin-Williams has access to the trust
fund, subject to the other party's approval, for any expenses or liabilities
incurred as a result of DeSoto's failure to meet its obligations relating to
the sites identified in the agreement. The Company was reimbursed
$1,095,000 in 1995 and $145,000 in 1994 from the trust to cover waste site
payments. The balance in the trust fund, primarily invested in United
States Treasury securities and classified as a restricted investment on the
balance sheet, as of December 31, 1995 was $4,524,000. Of the estimated
range of total loss noted above, $2.3 to $5.0 million relate to sites which
are covered by the escrow account. The accrued waste site cleanup liability
that was covered by the trust at December 31, 1995 was $2,346,000 of which
$755,000 was classified as current.
Under the terms of the 1990 industrial coatings business purchase
agreement, the Company had delivered to the Valspar Corporation an
irrevocable standby letter of credit in the amount of $2.0 million. The
letter of credit was delivered to secure the Company's obligation to
indemnify Valspar for certain environmental matters. The Company reached a
settlement with Valspar in 1994 under which the letter of credit was
terminated.
In December 1993, the Company transferred approximately $9.0 million of
liabilities for certain of its clean-up costs and related expenses at
certain waste disposal sites to DeSoto Environmental Management, Inc.
(DEMI), a subsidiary of the Company. The Company remains liable for the
potential environmental clean-up costs if DEMI is unable to satisfy the
obligations. The purpose of DEMI is to provide focused, strategic
management of the environmental liabilities and the related clean-up costs.
The Company and certain members of the Company's management and consultants
are stockholders in DEMI. Refer to Note K of the Notes to Consolidated
Financial Statements for further information.
It is the opinion of management, after evaluating the variables
discussed above as well as the anticipated time frame for remediation, that
the resolution of the waste site liability will not have a material adverse
effect on the Company's financial position, cash flows or results of
operations.
J. CONTINGENCIES & LITIGATION
As previously reported, there are several shareholder actions still
pending in the Delaware courts relating to various proposals of Sutton
Holding Corp. to acquire the Company in the period 1989 to 1991. These
actions, all of which consolidated, have not been actively pursued and it
appears the case was removed from the courts calendar; however, the
plaintiffs recently served a discovery request upon the Company. The Company
believes that these actions are not material.
See Note L to the Consolidated Financial Statements for information
regarding the Contingent Value Rights ("CVR's") which were issued by the
Company to the sellers in connection with the Company's acquisition of J.L.
Prescott Company in November 1992.
The Company is also a party to other litigation arising out of the
ordinary conduct of its business or results of current and discontinued
operations.
The Company believes that the disposition of all such actions,
individually and in the aggregate, will not have a material adverse effect on
the Company's financial position, cash flows, or results of operations.
S-18
K. RELATED PARTY TRANSACTIONS
In December 1993, the Company completed a number of transactions
involving certain of its subsidiaries and officers and directors. J. L.
Prescott Company, a wholly-owned subsidiary of the Company, paid off a
portion of intercompany obligations to the Company by means of the issuance
of a ten-year, $9 million principal amount, promissory note. The Company
used this note to purchase 100 shares of a non-voting class of common stock
of another of its subsidiaries, DeSoto Environmental Management, Inc.
("DEMI"). (This class of common stock is entitled to 15% of the dividends or
other distributions made to all classes of common stock.) As part of the
sale of stock to the Company, DEMI assumed up to a maximum of $9 million of
certain of the Company's possible clean-up costs and related expenses at
waste disposal sites. The Company remains liable for these possible
environmental clean-up costs if DEMI is unable to satisfy these obligations.
The Company subsequently sold at a price of $1 per share the shares of non-
voting common stock of DEMI to Anders Schroeder (Vice Chairman) (33 shares),
William Spier (Chairman and Chief Executive Officer) (33 shares), Anne Eisele
(President and Chief Financial Officer) (20 shares), and Irving Kagan
(Special Counsel) (14 shares). Messrs. Schroeder and Spier subsequently sold
8 shares and 9 shares, respectively, of their common stock to John Phillips
upon his becoming President and Chief Executive Officer in 1994. Mr.
Phillips sold his shares back to Messrs. Spier and Schroeder upon his
resignation in 1995. Each of these persons agreed that upon complete
satisfaction of the Company's existing environmental clean-up liabilities or
when that person ceases to be an officer, director or consultant of the
Company, the DEMI shares held by that person would be repurchased by the
Company at the greater of $1 per share or the per share book value of DEMI.
As a general matter, the value of this DEMI stock will be dependent upon the
ability of DEMI, which has no other significant business or assets, to
satisfy the Company's existing environmental liabilities for less than $9
million, which was the approximate minimum amount included in the 1994
estimated range of environmental liability. Consequently, the holders of
this DEMI stock have a direct incentive to minimize the costs of satisfying
environmental liabilities. In any event, the Company will retain 85% of the
savings below the 1994 estimated minimum costs and savings which do not
reduce the liabilities below such estimated minimum will accrue entirely to
the Company. This transaction was approved by a unanimous vote of all
disinterested directors.
In November 1992, the Company announced the completion of the sale of
certain real properties to a trust created by the Company's Pension Plans.
In 1993, certain of these assets were repurchased from the Pension Plans by
the Company and then sold to an unrelated third party. In 1994, the
Company's facility in South Holland, Illinois, was sold to the real property
trust of the Company's Pension Plans. Refer to Note C of the Notes to
Consolidated Financial Statements for further information.
In July 1992, the Company entered into an agreement with parties related
to Sutton Holding Corp. ("Sutton"), which as of December 31, 1995 and in
conjunction with parties related to Sutton, owns 14% of the Company's
outstanding common stock and approximately 23% of all of the Company's
outstanding voting stock, providing for a cash purchase of newly issued
DeSoto securities. The investment resulted in Sutton's acquiring 583,333
shares of a new series of DeSoto senior preferred stock and warrants to
acquire 1.2 million shares of common stock. Refer to Note L of the Notes to
Consolidated Financial Statements, for further information regarding this
transaction.
L. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
As of December 31, 1995, there were 5,619,274 shares of common stock
issued of which 940,067 shares were held as treasury stock. The Company's
common stock has a $1 par value per share, and there are 20,000,000 shares
authorized.
In July 1992, the Company entered into an agreement with parties related
to Sutton Holding Corp. ("Sutton"), providing for a $3.5 million cash
purchase of newly issued DeSoto securities. The investment resulted in
Sutton's acquisition of 583,333 shares of a new series of DeSoto senior
preferred stock and warrants to acquire 1.2 million shares of common stock
per approval of the Company's stockholders at the 1993 Annual Meeting.
S-19
The DeSoto senior preferred pays 8% quarterly cumulative dividends
(which increase to 10% if dividends earned remain unpaid for more than one
year), has one vote per share (voting with common stock as a single class),
has a liquidation preference of $6.00 per share, must be redeemed by the
Company at liquidation preference after eight years and may be redeemed at
the Company's option after five years. The carrying amount of the preferred
shares on the balance sheet represents the proceeds received upon issuance
(net of related expenses) plus accretion to the redemption value of the
shares in five years. The carrying value has also been increased by
cumulative dividends not currently declared. The warrants have a term of six
years and are exercisable at $7.00 per share of common stock.
Dividends have not been paid on the preferred stock since the date of
issuance. In addition, dividends may not be declared on the common stock
while dividends on the preferred stock are in arrears. At December 31, 1995
unpaid dividends on the preferred totaled approximately $1,197,000.
The purchase price of $3.5 million for the new securities was allocated
by the Company, upon the advice of an independent financial advisor, as $2.5
million for the preferred stock and $1.0 million for the warrants. The
valuation took into account the terms of the purchase agreement and applied
customary financial analyses used in such transactions to those terms.
The agreement with Sutton resulted from negotiations between Sutton and
a Special Committee of the Company's Board of Directors comprised of
persons unaffiliated with Sutton. The Special Committee was represented by
independent legal counsel and received an opinion from an independent
financial advisor, selected by the Committee, that the arrangements with
Sutton are fair, from a financial point of view, to the stockholders of the
Company (other than those related to Sutton).
Sutton includes entities affiliated with William Spier, Chairman and
Chief Executive Officer of the Company, and Anders Schroeder, Vice Chairman
of the Company, and entities represented by David Tobey, a director of the
Company.
In 1992, the Company also amended the terms of its stockholder rights
plan to permit the parties related to Sutton to increase their ownership of
common shares and other voting securities to approximately 38.2% of the
Company's outstanding voting power (whether by exercise of warrants or
acquisitions of common shares in the market or otherwise). In addition, the
plan was amended to permit any stockholder to acquire up to 25% of the
Company's outstanding voting power (as compared to the previous 20% limit).
As a result of the $3.5 million purchase of senior preferred stock,
parties related to Sutton now hold securities representing approximately 23%
of the Company's currently outstanding voting securities. If securities
issuable upon exercise of warrants are included, parties related to Sutton
would own approximately 38% of the outstanding voting power of the Company.
In connection with the 1992 Prescott acquisition, the Company also
issued 522,775 shares of DeSoto common stock, which were held in treasury,
and agreed to make a per share payment at the end of three years equal to the
difference, if any, between $12 and the highest 60-day average trading price,
if lower than $12 per share, of DeSoto common stock during the second and
third years following the acquisition, with a maximum obligation of $6 per
share (the "Contingent Value Rights" or "CVR's'). The payment shall be
subject to reduction as provided by the Agreement which governs the payment
(the "Agreement"). Per the Agreement, the payment, if any, shall be made in
cash to the extent not prohibited (as defined in the Agreement). Any
payment not made in cash is to be made by issuance of DeSoto securities
and/or DeSoto common stock in that order. As of the measurement date of the
Agreement (November 12, 1995), the amount calculated as payable under the
terms of the Agreement, before the deduction of amounts the Company believes
are appropriate and permitted under the terms of the Agreement, is
$1,934,000; after applying such deductions the Company believes it is not
required to make any payment, although the CVR holders contend otherwise, and
accordingly, no obligation has been recorded related to the Agreement. The
Company intends to vigorously defend its position in this matter, which may
include additional claims by the Company.
S-20
M. STOCK OPTIONS AND STOCK GRANTS
Shares of stock and stock options have been granted to certain
employees, consultants, and nonemployee directors under the stock plan
adopted in 1992. The options granted to employees and consultants are
qualified stock options (ISO) and the options granted to non employee
directors are nonqualified options. The ISO options vest equally over the
three years subsequent to the first anniversary of the grant date and are
exercisable for a period of 10 years from the grant date. The nonqualified
options are exercisable immediately upon grant and are exercisable for a
period of 10 years from the grant date. All options have been granted at the
prices equal to the fair market value of the stock on the dates the options
were granted. At December 31, 1995, 50,500 of the 400,000 shares of stock
available for options or grants under the Company's stock option plan
remained available for grants. Options which are terminated, lapsed or
expired shall again become available for issuance under the stock option
plan.
Stock options have been granted and exercised as set forth below:
Outstanding Option Price Exercisable
Options Per Share-Range Options
December 31,1993 181,500 5.875 - 10.125 83,833
Options granted 122,000 5.50 - 7.00 27,000
Options that became exercisable - 7.00 - 9.00 60,333
Options exercised (10,000) 7.00 (10,000)
Options lapsed and canceled (29,000) 5.875 - 9.00 (19,000)
------- -------
December 31, 1994 264,500 5.50 - 10.125 142,166
Options granted 27,000 4.375 - 4.750 27,000
Options that became exercisable - 6.625 - 9.00 122,334
Options lapsed and cancelled (35,000) 6.625 - 9.00 (35,000)
------- -------
December 31, 1995 256,500 4.375 - 10.125 256,500
======= =======
During 1994, 30,000 shares of common stock were granted to an officer of
the Company at no cost. All granted shares vested in 1994. The average
market price of the common stock at the close of business on the vesting
dates in 1994 was $5.81. An additional 20,000 shares of common stock were
granted to officers of the Company in 1994. Of those shares, 7,500 shares
vested in 1995 and 5,000 shares were canceled in 1995; the remaining shares
vest over the period from 1996 to 1998. The average market price of the
common stock at the close of business on the vesting date in 1995 was $5.13.
S-21
N. OTHER INCOME AND EXPENSE
The following are components of the respective captions in the
statements of operations:
1995 1994 1993
(in thousands of dollars)
Nonrecurring expense:
Provision for restructuring due to
disposition of liquid laundry and
fabric softener sheet businesses $ 3,100 $ - $ -
Loss on disposition of liquid
laundry detergent and fabric
softener sheet businesses 3,059 - -
Provision for shutdown of
Columbus, Georgia Plant - - 2,000
Loss on disposition of
Jean Sorelle - - 1,331
Write-down of machinery and
equipment held for resale - - 1,194
Provision for manufacturing and
product rationalization - - 900
Settlement of lawsuit
(including plaintiff's legal fees) - - 369
Other - - 131
------- ------- -------
Total $ 6,159 $ - $ 5,925
======= ======= =======
Nonoperating expense:
Provision for waste site cleanup $ - $ - $ 1,467
Other - - 134
------- ------- -------
Total $ - $ - $ 1,601
======= ======= =======
Nonoperating income:
Insurance settlements $(6,067) $ - $ (232)
Royalties (244) (222) (53)
Arbitration settlement -
discontinued operations - (837) -
Reimbursement of legal fees - (244) -
Sale of land and building - - (3,235)
Pension settlement -
discontinued operations - - (454)
Other (49) - (47)
------- ------- -------
Total $(6,360) $(1,303) $(4,021)
======= ======= =======
O. DISPOSITIONS
On July 21, 1995, the Company announced the transfer and assignment of
various operations and assets involved in its liquid detergent and fabric
softener dryer sheet businesses to two separate buyers. The Company
assigned the rights to certain customers with respect to these businesses.
The Company also sold other assets which included certain accounts
receivable, inventory and machinery and equipment. The proceeds of these
transactions were utilized to reduce the Company's senior debt owed to
CIT. Both transactions also provide for the Company to receive royalties
and other earn-out opportunities over a three-year period in one case and
over a four-year period in the other case.
S-22
The Company recorded a net loss on the sale of the liquid detergent and
fabric softener sheet businesses (including the write-off of related
goodwill). The Company also recorded a charge of $3.1 million in the
third quarter relative to costs associated with the closure of operating
facilities relative to these transactions. Significant components of the
charge included severance, rent, real estate taxes and amounts to reduce
assets to their net realizable value. The non-recurring expense of
$6,159,000 reflects the net impact of these transactions.
The following information is provided on a pro forma basis to illustrate
the effect of certain adjustments to the historical consolidated financial
statements that would have resulted from the above dispositions if such
transactions had occurred on January 1, 1994. The results are not
necessarily indicative of actual results had the foregoing transactions
occurred as described above, nor do they purport to represent results of
future operations of the Company.
Twelve Months Ended
December 31,
1995 1994
(in thousands except per share
amounts - unaudited)
Net revenues $25,082 $35,424
======= =======
Net earnings $ 2,682 $ 1,037
======= =======
Net earnings per common share $ 0.47 $ 0.21
======= =======
The following table summarizes the non-cash aspects of the sale of the
liquid detergent and fabric softener sheet businesses:
Net selling prices of businesses sold $6,782
Minimum royalty to be paid over a four-year period 1,477
------
Cash received as part of the transactions $5,305
======
P. SUBSEQUENT EVENT
On March 13, 1996, the Company announced that it was discussing a
proposed merger with Keystone Consolidated Industries, Inc. which, as
presently contemplated, would involve an exchange of all of the Company's
shares of outstanding stock for 3.5 million shares of Keystone common stock,
in a tax-free transaction.
Merger discussions are ongoing, and are subject to mutual due diligence
by the parties, the negotiation and signing of a definitive agreement, the
approval of DeSoto's and Keystone's boards of directors and shareholders and
Keystone's primary lender, as well as the requisite governmental review.
Additionally, the prospective transaction would require a satisfactory
resolution of the payout plan with the Company's trade creditors.
The merger with Keystone would provide an alternative to the prospective
termination of the Company's overfunded pension plan. The termination will
not occur if the proposed merger is completed. Additionally, Keystone has an
underfunded pension plan with certain funding waivers relating to prior years
and has preliminarily discussed the possible merger with the Pension Benefit
Guaranty Corporation.
There can be no assurance as to the outcome of the merger discussions;
or, in this connection, the resolution of DeSoto's trade creditor plan.
Keystone, headquartered in Dallas, Texas, is engaged in the manufacture
and distribution of fencing and wire products, carbon steel rods, industrial
wire, nails and construction products.
S-23
QUARTERLY REVENUES AND EARNINGS DATA (1995 Versus 1994)
1995
______________________________________________________________
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
(in thousands of dollars except per share amounts)
Net Revenues $18,927 $16,314 $11,132 $ 5,966 $52,339
======= ======= ======= ======= =======
Gross Profit $ (516) $ (58) $(1,093) $ (63) $(1,730)
======= ======= ======= ======= =======
Net Earnings (Loss) $(1,022) $ 2,897 $(6,146) $ (364) $(4,635)
======= ======= ======= ======= =======
Net Earnings (Loss)
Per Common Share $ (0.24) $ 0.60 $ (1.33) $ (0.13) $(1.10)
======= ======= ======= ======= =======
1994
______________________________________________________________
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
(in thousands of dollars except per share amounts)
Net Revenues $23,640 $22,286 $21,394 $19,862 $87,182
======= ======= ======= ======= =======
Gross Profit $ 977 $ 639 $ 543 $ 223 $ 2,382
======= ======= ======= ======= =======
Net Earnings (Loss) $ 51 $ (744) $ (782) $ (160) $(1,635)
======= ======= ======= ======= =======
Net Earnings (Loss)
Per Common Share $ (0.01) $ (0.18) $ (0.19) $ (0.05) $ (0.42)
======= ======= ======= ======= =======
NOTES: In the third quarter of 1995, the Company completed the
transfer and assignment of various operations and assets
involved in its liquid detergent and fabric softener
dryer sheet businesses to two separate buyers.
The results for the second quarter of 1995 include $6.1
million of non-operating income.
The results for the fourth quarter of 1994 include $2.9
million of income from the Company's retirement plans.
The results for the first quarter of 1994 include $1.1
million of non-operating income.
The quarterly information presented above is unaudited.
S-24
Schedule II
DeSOTO, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(in thousands of dollars)
<TABLE>
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
ALLOWANCE FOR LOSSES ON
COLLECTION OF ACCOUNTS
RECEIVABLE
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995 $1,819 $ 1,609 $ 21 $3,082 (A) $ 367
====== ======= ===== ====== ======
Year Ended December 31, 1994 $1,058 $ 2,118 $ - $1,357 (A) $1,819
====== ======= ===== ====== ======
Year Ended December 31, 1993 $1,230 $ 1,126 $ 279 $1,577 (B) $1,058
====== ======= ===== ====== ======
RESERVES AND LIABILITIES RELATED
TO RESTRUCTURING PROGRAMS
Year Ended December 31, 1995 $1,884 $ 3,100 $ - $1,758 (C) $3,226
====== ======= ===== ====== ======
Year Ended December 31, 1994 $4,788 $ 352 $ - $3,256 (C) $1,884
====== ======= ===== ====== ======
Year Ended December 31, 1993 $1,396 $ 3,457 $ 749 (D) $ 814 (E) $4,788
====== ======= ===== ====== ======
</TABLE>
(A) Accounts written off and cash receipts on reserved accounts.
(B) Accounts written off during the respective year.
(C) Represents payment of expenses accrued and reclassifications to other
reserves.
(D) Reclassification of existing reserves and liabilities that now relate to
restructured operations.
(E) Represents payments of expenses accrued.
S-25
DeSOTO, INC.
INDEX TO EXHIBITS
3(a) - Certificate of Incorporation (Incorporated by reference to
Exhibit 3(a) to the Company's Form SE dated March 22, 1989*)
3(b) - By-Laws, as amended (Incorporated by reference to Exhibit 3
to the Company's Form SE dated March 25, 1992*).
4(a)(i) - Rights Agreement dated as of February 20, 1989 between the
Company and Harris Trust and Savings Bank (Incorporated by
reference to Exhibit 4 to the Company's Form SE dated February
22, 1989*).
4(a)(ii) - Series A Junior Participating Preferred Stock (Incorporated
by reference to Exhibit A to Exhibit 4 to the Company's Form SE
dated February 22, 1989*).
4(a)(iii) - Amendment to Rights Agreement (Incorporated by reference to
Exhibit 4 to the Company's Form SE dated November 27, 1989*).
4(a)(iv) - Amendment to Rights Agreement (Incorporated by reference to
Exhibit 4(a) to the Company's Form SE dated March 26, 1991*).
4(a)(v) - Amendment to Rights Agreement (Incorporated by reference to
Exhibit A to the Company's Form 8 dated October 1, 1992*).
4(b) - The registrant hereby agrees to furnish the Commission, upon
request, with the instruments defining the rights of holders of
each issue of long-term debt of the registrant.
4(c)(i) - Preferred Stock and Warrant Purchase Agreement dated as of
July 21, 1992 by and among the Company and Management Partners
I, L. P., Odin Asgard Overseas N.V. and Parkway M&A Capital
Corporation (Incorporated by reference to exhibit 4(b)(i) to the
Company's Form SE dated March 22, 1993*).
4(c)(ii) - Certificate of Designations of Series B Senior Preferred
Stock of the Company (Incorporated by reference to exhibit
4(b)(ii) to the Company's Form SE dated March 22, 1993.*)
4(c)(iii) - Certificate of Designations of Series C Junior Participating
Preferred Stock of the Company (Incorporated by reference to
exhibit 4(b)(iii) to the Company's Form SE dated March 22,
1993.*)
________________
*SEC File No. 1-1915
E-1
10(a)(i) - Employment Agreement, dated as of December 13, 1993, by and
between DeSoto, Inc. and a certain former officer of the Company
(Incorporated by reference to exhibit 10(d) to the Company's
Form SE dated March 25, 1994.*)
10(a)(ii) - Agreement between the Company and a former officer and former
director of the Company (Incorporated by reference to Exhibit 10
to the Company's Form SE dated March 25, 1996*).
10(b) - Agreement, dated April 5, 1990, with Sutton Holding Corp.
("Sutton") and affiliates of Sutton (Incorporated by reference
to Exhibit 1 to the Company's Form SE dated April 5, 1990*).
10(c)(i) - DeSoto Salaried Employees' Pension Preservation Plan
(Incorporated by reference to Exhibit 10(i) to the Company's
annual report on Form 10-K for the fiscal year ended December
31, 1985*).
10(c)(ii) - Form of DeSoto Employees Retirement Plan (Incorporated
by reference to Exhibit 10(a) to the Company's Form SE dated
March 25, 1994*).
10(d) - Loan and Security Agreement dated as of December 7, 1994 by
and between the Company and the CIT Group/Credit Finance, Inc.
(Incorporated by reference to Exhibit 10(a) to the Company's
Form SE dated March 24, 1995.*)
10(e)(i) - Plan and Agreement of Merger, dated as of August 21, 1992, by
and among DeSoto, Inc., DeSoto Subsidiary One Corp. and J. L.
Prescott Company (Incorporated by reference to Exhibit 2(a) to
the Company's Form SE dated August 28, 1992*)
10(e)(ii) - Stock Redemption Agreement, dated as of August 21, 1992, by
and among Narragansett/Prescott, Inc. DeSoto, Inc., and Matthew
Carroll (Incorporated by reference to Exhibit 2(b) to the
Company's Form SE dated August 28, 1992*)
10(e)(iii) - Letter Agreement, dated as of August 21, 1992, by and among
Narragansett/Prescott, Inc. and DeSoto, Inc., (Incorporated by
reference to Exhibit 2(c) to the Company's Form SE dated August
28, 1992*)
10(e)(iv) - Stockholders Agreement, dated as of August 21, 1992, by and
between Narragansett/Prescott, Inc. and DeSoto, Inc.,
(Incorporated by reference to Exhibit 2(c) to the Company's Form
SE dated August 28, 1992*)
10(f)(i) - Real Estate Sale Contract dated as of December 1, 1994
between DeSoto, Inc., a Delaware corporation ("DeSoto"), as
Seller, and John M. Gillen, not personally but as Trustee of the
DeSoto, Inc. Pension Plans Real Property Trust under Trust
Agreement dated October 1, 1992 (the "Trustee"), as Purchaser.
(Incorporated by reference to Exhibit 10(b) to the Company's
Form SE dated March 24, 1995.*)
________________
*SEC File No. 1-1915
E-2
10(f)(ii) - Industrial Building Lease dated December 7, 1994 between
Trustee as Landlord and DeSoto as Tenant relating to the
property at 16750 South Vincennes Road, South Holland, Illinois.
(Incorporated by reference to Exhibit 10(c) to the Company's
Form SE dated March 24, 1995.*)
10(g) - Letter Agreement dated August 6, 1993 between DeSoto, Inc.
and John Gillen, Trustee of The DeSoto, Inc. Pension Plans Real
Property Trust, dated August 6, 1993 (Incorporated by reference
to Exhibit 10(c)(ii) to the Company's Form SE dated March 25,
1994.*)
10(h)(i) - Purchase Agreement, dated as of July 18, 1995, by and among
Jennico, Inc. and DeSoto, Inc. (Omitted and filed separately
with the Commission requesting Confidential Treatment).
10(h)(ii) - Asset Purchase Agreement, dated as of July 14, 1995, by and
among Meridian Industries, Inc. (d/b/a Kleen Test Products) and
DeSoto, Inc. (Omitted and filed separately with the Commission
requesting Confidential Treatment).
11 - Computation of Fully Diluted Earnings Per Share.
21 - The subsidiaries of the Company are as follows:
Subsidiary State of Incorporation
J. L. Prescott Company New Jersey
DeSoto Subsidiary Two Corporation New Jersey
DeSoto Environmental Management, Inc. Delaware
23 - Consent of Arthur Andersen LLP
24 - Power of Attorney by directors and officers of the Company
(Incorporated by reference to Exhibit 24 to the Company's Form
SE dated March 25, 1996*).
27 - Financial Data Schedule
________________
*SEC File No. 1-1915
E-3
Exhibit 11
DeSOTO, INC. AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(in thousands except per share amounts)
Year Ended December 31,
1995 1994 1993
Net Loss Available for Common Shares $(5,142) $(1,954) $(8,392)
======= ======= =======
Net Loss Per Common Share $ (1.10) $ (0.42) $ (1.83)
======= ======= =======
Average Common Shares Outstanding (A) 4,677 4,657 4,598
======= ======= =======
Net Fully Diluted Loss Per Common Share (B) $ (1.10) $ (0.42) $ (1.72)
======= ======= =======
Average Common Shares Outstanding 4,677 4,657 4,598
Additional Shares Outstanding After
Application of the Treasury Stock Method 1 - 283
------- ------- -------
Total (B) 4,678 4,657 4,881
======= ======= =======
(A) Outstanding common stock options and common stock warrants have been
omitted because the effect is anti-dilutive.
(B) Reflecting the dilutive effect of outstanding common stock options and
common stock warrants under the treasury stock method.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated March 25, 1996, included in this Form 10-K, into the
Company's previously filed Form S-8 Registration Statement File Nos. 2-98318
and 2-68923.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December 31, 1995 and the Consolidated
Statement of Operations for the twelve months ended December 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 80
<SECURITIES> 1,180
<RECEIVABLES> 5,131
<ALLOWANCES> 367
<INVENTORY> 785
<CURRENT-ASSETS> 9,089
<PP&E> 14,440
<DEPRECIATION> 11,830
<TOTAL-ASSETS> 64,968
<CURRENT-LIABILITIES> 24,014
<BONDS> 0
<COMMON> 5,619
4,288
0
<OTHER-SE> 10,315
<TOTAL-LIABILITY-AND-EQUITY> 64,968
<SALES> 52,339
<TOTAL-REVENUES> 52,339
<CGS> 54,069
<TOTAL-COSTS> 63,546
<OTHER-EXPENSES> (6,360)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546
<INCOME-PRETAX> (5,393)
<INCOME-TAX> (758)
<INCOME-CONTINUING> (4,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,635)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
