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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 June 30, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - - - - - - --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4596
GROW GROUP, INC.
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(Exact name of registrant as specified in its charter)
New York 11-1665588
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Park Avenue, New York, NY 10166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 599-4400
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.10 par value, New York Stock Exchange
and related Common Stock
Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / X /
The aggregate market value of the Common Stock of the Company
outstanding as of July 29, 1994 held by non-affiliates of the Company was
approximately $181,400,000 calculated on the basis of the closing price of the
Common Stock on the New York Stock Exchange Composite Transactions Tape on that
date, as reported in The Wall Street Journal. For purposes of this
calculation, the Company has excluded the market value of the shares of its
Common Stock beneficially owned by Corimon C.A. S.A.C.A. and the directors and
executive officers of the Company as a group. Such exclusion is not an
admission that such persons are "affiliates" of the Company. The aggregate
market value of these excluded shares as of July 29, 1994 was approximately
$74,300,000.
The number of shares of Common Stock of the Company outstanding as of
July 29, 1994 was 16,105,838.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated
by reference into the parts of this report indicated below:
Proxy Statement for the Company's Part III
1994 Annual Meeting of Shareholders
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Item 1 Business
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GENERAL
The Company was organized under the laws of the State of New
York in 1950. The Company's principal executive offices are located at 200
Park Avenue, New York, New York 10166, and its telephone number is (212)
599-4400. The term "Company", as used herein, refers to Grow Group, Inc. and
its subsidiaries and divisions, unless the context otherwise requires.
The Company is one of the leading producers of coatings and
paints and is also a producer of household products. The Company believes that
it is one of the ten largest manufacturers of architectural and special purpose
paints and coatings and one of the two largest manufacturers of marine coatings
in the United States.
The Company operates through two groups: the Coatings and
Chemicals Group and the Consumer and Professional Products Group. The Coatings
and Chemicals Group produces and markets a complete line of architectural
coatings, a broad line of special purpose coatings designed for industrial
maintenance and maritime uses and a diverse line of specialty chemical products
for the automotive industry. The Consumer and Professional Products Group,
whose restructuring began during the fiscal year ended June 30, 1992 and was
completed during fiscal 1993, produces and markets a line of laundry,
maintenance and cleaning products for household, professional and industrial
use.
DEVELOPMENTS DURING AND SUBSEQUENT TO THE FISCAL YEAR
Business
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On August 3, 1993, the Company purchased all of the issued and
outstanding capital stock of Zynolyte Products Company, a California
corporation ("Zynolyte"), for approximately $16,300,000 in cash. Zynolyte was
affiliated with Standard Brands Paint Company which emerged from a Chapter 11
proceeding on June 14, 1993. Zynolyte is a leading producer of aerosol paint
products and a distributor of brush-applied products. Zynolyte's line of
products is sold under recognized company-owned brand names and private labels
domestically and internationally through mass merchandisers, hardware
distributors and exporters.
As of August 1, 1994, the Company, through a wholly-owned
subsidiary, completed the acquisition of substantially all of the assets of
Sinclair Paint Company ("Sinclair"), a division of Insilco Corporation, for
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approximately $51,000,000 in cash, subject to post-closing adjustments. The
purchase price was paid in full at the closing and was funded through a
combination of cash and borrowings under an increased credit facility provided
by the Company's banks. In addition, the Company's subsidiary assumed certain
obligations of Sinclair. Sinclair is engaged in the manufacture and sale,
through 49 company-operated stores in California, Nevada, Arizona and Hawaii,
of architectural paints. Sinclair generated over $95,000,000 in revenues in
calendar 1993.
Financial
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On August 7, 1992, the Company sold 2,312,000 newly issued
shares of the Company's Common Stock at a price of $16.75 per share, or an
aggregate of $38,726,000, to Corimon Corporation, a subsidiary of Corimon C.A.
S.A.C.A., an industrial company in Venezuela (collectively, "Corimon"). The
shares represented approximately 16.6% of the Company's then outstanding Common
Stock. Under the agreements pursuant to which Corimon purchased the shares,
three designees of Corimon have been elected to the Company's Board of
Directors. As of August 31, 1994, Corimon owned 4,025,341 shares, constituting
approximately 25% of the Company's Common Stock. Corimon has agreed to certain
"standstill" provisions which will continue in effect until, in general,
October 1995. During the standstill period, Corimon will be permitted to
increase its ownership position to a maximum of 28% of the Company's Common
Stock.
CERTAIN FINANCIAL INFORMATION
Certain financial information concerning the Company's
industry segments is contained in Note J of "Notes to Consolidated Financial
Statements" in Item 8 of this Report. For each of the Company's last three
fiscal years, foreign operations and export sales have not been significant.
COATINGS AND CHEMICALS GROUP
Architectural Coatings
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The Company produces and markets a full line of protective and
decorative water and solvent thinnable trade or general purpose paints and
coatings (enamels, varnishes and stains) for use by painting contractors,
industrial and commercial users and the general public for the interior and
exterior of homes, buildings and other structures. Architectural coatings are
formulated for brush, roller and spray application. The Company also produces
a specialty line of architectural coatings in aerosol dispensers. In addition,
the Company is engaged in the production and marketing of interior and exterior
waterproofing coatings. The Company also sells a variety of
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brushes, rollers, wallpaper and other decorating and painting equipment items
purchased from others.
The Company's architectural coatings primarily are marketed
domestically through in excess of 1,000 independent retail dealers and 158
Company-operated outlets (including the 49 company-operated stores of Sinclair
Paint Company, substantially all of the assets of which were acquired by a
wholly-owned subsidiary of the Company as of August 1, 1994). See
"Developments During and Subsequent to the Fiscal Year", above. The Company's
trade paint customers are primarily dealers and painting contractors, with
additional sales to retail consumers and industrial, institutional, commercial
maintenance and private label accounts. The Company's architectural coatings
are sold in most of the United States under such trademarks as AMERITONER,
DEVOER, ZYNOLYTER, KLENK'SR and, since August 1, 1994, SINCLAIRR.
Architectural coatings and sundries contributed 56%, 52% and
42% of the Company's consolidated revenues during fiscal 1994, 1993 and 1992,
respectively.
Maintenance and Marine Coatings
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The Company produces and sells heavy duty, high performance
coatings for industrial maintenance and marine applications, domestically and
internationally.
In industrial maintenance applications, these coatings are
used for rust prevention, corrosion resistance and protective finishes on,
among other things, industrial plants, mining equipment, water and sewage
treatment facilities, pipelines, pulp and paper mills, bridges and storage
tanks. Industrial maintenance coatings are sold by the Company's salaried and
commissioned sales representatives and through independent distributors.
In marine markets, these coatings are used for ship exteriors
and interiors, drilling rigs and other heavy marine purposes, including
antifouling coatings for ship bottoms. Marine coatings products are sold to
shipowners, ship operators, shipyards and government agencies by the Company's
salaried and commissioned sales representatives and through independent
distributors.
Maintenance and marine coatings contributed 18%, 19% and 20%
of the Company's consolidated revenues during fiscal 1994, 1993 and 1992,
respectively.
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Automotive Products
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The Company's automotive products include solvents, thinners,
paint strippers, coatings, adhesives and sealants used primarily by automotive
manufacturers, their suppliers of component parts, the automotive after-market
and, to a lesser extent, non-automotive customers. These products are marketed
primarily by the Company's salaried sales representatives.
The Company blends some virgin solvents and solvents from
recycled materials for sale to automotive and other manufacturers for purging
and cleaning specialized paint application equipment. The Company also blends
solvents and produces thinning agents for the automotive industry, primarily
for use in applying coatings to automobile and truck bodies and parts.
In order to comply with environmental regulations, the
automotive industry has continued to move towards high solids coatings which
require smaller volumes of thinners. Such regulations have resulted in a
decrease in the market for thinning agents. However, many coatings now in use
require significant volumes of solvents for cleaning specialized paint
application equipment. Water-based topcoats that do not require thinners and
also require less purge solvents are now being used at four automotive assembly
plants which utilize the Company's products.
The Company also produces a broad line of adhesives, sound
deadeners, and plastisol sealants which were developed by the Company to meet
specific needs of its automotive and industrial customers. The adhesives are
used by automotive manufacturers and their suppliers of component parts for
bonding fiber flock as well as cloth and vinyl fabric to hardboard or plastic
substrates to produce composites, such as automotive door panels, headliners
and trim components. The sound deadeners provide corrosion and abrasion
resistance and vibration dampening to automotive underbody structures. The
sealants are used to protect vehicles against corrosion and road abrasion, to
prevent air and water from entering automobiles, and to effect a cosmetically
acceptable appearance for sheet metal joints.
CONSUMER AND PROFESSIONAL PRODUCTS GROUP
The Company's Consumer and Professional Products Group
manufactures and sells a line of household cleaning and laundry products,
professional maintenance products and aerosol products.
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Household Cleaning and Professional Products: The
Consumer and Professional Products Group produces and sells household and
professional cleaning and laundry products, including soaps, detergents, floor
finishes, furniture polishes, waxes, aerosol fresheners, spray disinfectants
and other chemicals and products for cleaning, waxing, buffing, stripping and
maintaining clothing, walls, windows, floors and furniture. The Company
recently introduced Foam & FreshTM, a kitchen sink garbage disposal
deodorizer/cleaner. These products are sold by a direct sales force and
through food brokers and distributors under various Company trade names and
under private labels to warehouse and club stores, hardware and drug stores,
supermarkets, mass merchandisers, specialty home care centers and convenience
stores.
Aerosol Products: In addition, the Company produces and
sells a wide line of paint products and adhesives and specialty products in
aerosol spray dispensers, which are sold under the Company's own trade names
and under private labels by the Company's direct sales force and commissioned
sales representatives to mass merchandisers, paint dealers, automotive
aftermarket outlets and specialty shops.
Restructuring Program
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From April 1991 through May 1993, the Company was engaged in a
restructuring of its Consumer and Professional Products Group to eliminate
unprofitable West Coast operations and concentrate resources on its profitable
professional maintenance and consumer products. The major components of the
Restructuring Program were in place by the end of the 1992 fiscal year and have
positively impacted the operations of the Consumer and Professional Products
Group.
Under the Restructuring Program:
Detergent Production: The Company expanded and upgraded the
powder detergent production capability in its Ft. Worth, Texas facility. This
expansion provides capacity to allow the Company to grow with this portion of
its business and to absorb the production of its former facilities on the West
Coast which were closed as part of the Restructuring Program. In addition, the
expanded capacity in Ft. Worth provides a more centrally located distribution
point for this product line.
Restructured Consumer and Professional Products Group: The
restructured Consumer and Professional Products Group continues to serve its
remaining business elements from its Company-owned plants in Ft. Worth, Texas
and Havre de Grace, Maryland and its leased plant in Los Angeles, California.
It provides a wide variety of household cleaning and laundry
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products, professional janitorial products and aerosol products to customers.
Asset Sales: In late fiscal 1991, the Company sold the
plastic injection molding production equipment located in its Commerce, CA
manufacturing facility. In connection with this sale, the Company entered into
a contract to purchase certain minimum requirements for certain types of pails
over a five year period at competitive prices. The Company ceased all
manufacturing at the Commerce facility on September 1, 1991.
On September 20, 1991, in connection with the sale of certain
assets at its Phoenix, Arizona facility, the Company ceased all operations at
that facility.
On January 29, 1992, the Company sold certain assets used in
connection with the manufacture, marketing and sale of consumer bleach,
ammonia, fabric rinse and bulk bleach at the Company's Ft. Worth, Texas
facility.
From February 1992 through May 1992, the Company sold certain
assets and ceased all operations at its facilities in Auburn, Washington, Santa
Fe Springs, California and Montebello, California.
On May 3, 1993, the Company sold substantially all of the
assets of its Aqua Chem Division.
COMPETITIVE CONDITIONS
Each of the fields in which the Company operates is highly
competitive and the Company expects to continue to encounter strong competition
in every phase of its business. The Company is one of the principal suppliers
in the United States of solvents and thinners for the automotive original
equipment market and of maintenance and marine coatings products. In all other
product areas of its business, except for architectural coatings, the Company
is not, in terms of sales, a major factor. In each of the fields in which the
Company operates, it faces significant competition from other companies, some
of which have greater assets and technical and financial resources than the
Company.
The architectural coatings market is extremely competitive,
not only among manufacturers and distributors, but also with respect to
unpainted structural and decorative materials, such as aluminum siding, brick,
stone, plastic, glass, ceiling tile, prefinished wood and wall coverings. In
addition to large manufacturers who offer a complete product line, there are
hundreds of regional and local manufacturers and distributors which compete
with the Company's architectural coatings in specific geographic
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areas. Competition in the architectural coatings market in which the Company
operates is based, to a large extent, on quality and service at a competitive
price and, to a lesser extent, on the promotion of recognizable trade names.
In general, the Company competes in the automotive, marine and maintenance
products areas through service, quality, product offering and product
performance, and, to a lesser extent, by price.
Competition in the markets for the Company's household
cleaning and laundry products, professional maintenance products and aerosol
products is based principally on price, quality of products, breadth of product
line and customer service. In addition, these products compete with those of
companies marketing nationally advertised brands.
SEASONALITY
The Company's sales of architectural coatings are seasonal in
nature, peaking in the early summer months, and are affected by the general
level of economic activity, including activity in the construction industry,
and the general level of redecoration and renovation by companies and
homeowners. The Company's sales of products to the automotive industry are
directly tied to the production level of automobiles. At times, particularly
during the late summer and year-end holidays, automotive manufacturers have
reduced or temporarily ceased production for vacations and model changeovers.
Such cessations have, in turn, caused reduced sales of the Company's automotive
products during such periods. Although sales of marine and maintenance
coatings are generally higher during periods of more optimum weather
conditions, because of the global nature of the sales of these products, and
the Company's technological leadership in coatings that cure at low
temperatures, the impact of seasonality on this product line is not believed to
be material.
WORKING CAPITAL PRACTICES
In accordance with trade practices in the various businesses
in which it operates, the Company maintains higher levels of inventories,
particularly with respect to architectural coatings, at certain times of the
year and allows extended payment terms for receivables. These needs have not
had a material effect on the Company's operations or financial position.
CUSTOMERS
While no customer accounted for more than 10% of the Company's
consolidated gross revenues for the fiscal year ended June 30, 1994, certain
major customers of both of
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the Company's industry segments account for a significant amount of sales.
RAW MATERIALS
Most of the raw materials used by the Company are readily
available in the open market. A substantial portion of the raw materials used
for the production of the Company's products is based on petrochemicals, and
there have been occasional shortages of petrochemicals which have resulted in
increased prices. The Company has generally been able to procure such raw
materials in quantities sufficient for its operations. Any significant
shortages of petroleum in the future could affect the availability and price of
petrochemical based raw materials and thus adversely affect the Company's
operations.
The Company is dependent upon several suppliers for certain of
the raw materials used in the production of most paints, including titanium
dioxide and other pigments, resins, solvents and packaging materials. The
Company has entered into supply agreements with a number of suppliers of these
raw materials. Suppliers of certain of these raw materials, including
suppliers to the Company, have in the past been subject to an allocation of
product. Allocations have resulted in occasional and temporary shortages and
increased prices of such raw materials which have affected the Company's gross
profit margins. Such raw materials are currently in adequate supply, with no
allocation system in effect. If the Company were unable to procure one or more
of such raw materials from such suppliers, the Company's paint manufacturing
operations might be adversely affected if alternate sources of such raw
materials were not found.
Most of the raw materials used by the Company's Consumer and
Professional Products Group are readily available in the open market.
PATENTS, LICENSES AND TRADEMARKS
The Company owns a number of patents and patent applications
but does not consider any to be material to its present business. In many
areas of its business, the Company relies upon formulas developed by it and its
experience in meeting customer requirements to retain its market position.
The Company is a party to several license agreements under
which it has the right to use certain chemical formulations. The Company has
granted licenses to use its formulas, know-how and technology in the
manufacture of certain coatings and trade paints, in certain instances on an
exclusive basis and in other instances on a
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non-exclusive basis, to certain foreign and domestic manufacturers under
various license arrangements.
During the 1993 fiscal year, the Company entered into a
license agreement with a major international chemical company granting such
company exclusive worldwide rights, subject to certain rights retained by the
Company and its affiliates, to make, use and sell certain resins and waterborne
coatings. The Company also entered into license agreements with Corimon
granting it rights to use the Company's architectural coatings technology and
marine and industrial maintenance coatings technology.
During the 1994 fiscal year, the Company executed a letter of
intent with a wholly-owned subsidiary of Corimon for the distribution of the
Company's industrial maintenance and marine products in most of South America,
with an option to purchase the right to sublicense certain Corimon subsidiaries
to make, use and sell such products.
The Company owns a number of registered trademarks,
principally AMERITONE(R), DEVOE(R), ZYNOLYTE(R) and KLENK'S(R) and has a
perpetual royalty-free license to use the trademark HARRISR in the United
States. Those trademarks are considered to be of value principally in
identifying the Company and its products. In August 1994, one of the
Company's wholly-owned subsidiaries purchased substantially all of the assets
of Sinclair Paint Company, including the SINCLAIRR trademark. See
"Developments During and Subsequent to the Fiscal Year", above.
Revenues for the 1994 fiscal year include royalty income of
$2,912,000 compared to $3,309,000 for the 1993 fiscal year.
RESEARCH, PRODUCT DEVELOPMENT AND QUALITY CONTROL
The Company maintains laboratory facilities for quality
control and special formulation of products required to meet its customers'
needs, as well as for product improvement and new product and process
development in related fields. During its fiscal years ended June 30, 1994,
1993 and 1992, the Company spent approximately $4,760,000, $4,393,000 and
$4,301,000, respectively, for product improvement and product development
activities.
ENVIRONMENTAL MATTERS
The Company is endeavoring to comply with the Federal, state
and local environmental laws, rules and regulations which affect various
aspects of its businesses. Compliance may include making capital expenditures
at Company
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facilities and/or paying its proportionate share of costs associated with site
cleanups where the Company has been identified as a potentially responsible
party. Typically, the Company is identified as one of many companies that sent
materials to these sites for treatment, disposal or recycling.
While the Company believes that the level of its
responsibility at many of these sites is "de minimis", the Company cannot
estimate the total costs for cleanup at a number of the sites or its share of
such costs where it is found to be a responsible party. Where a minimum cost
or a reasonable estimate of the total costs of cleanup or compliance has been
established, the applicable amount has been accrued. Based upon management's
present belief as to its relative involvement at these sites, other viable
entities' responsibilities for cleanup, potential insurance coverage and the
extended period over which many costs would be incurred, the Company presently
believes that these matters will not have a material adverse effect on the
Company's consolidated financial position.
In instances where governmental agencies have alleged that a
Company practice violates environmental regulations, the Company has met, or
will meet, with the agency to discuss mutually acceptable methods of modifying
or limiting the alleged offending practice. In the past, the Company has been
able to reach agreement with the relevant agencies on steps to be taken for
compliance with the applicable regulations in a manner which has not materially
adversely affected the Company's consolidated financial position or required a
material capital outlay.
Compliance with current laws concerning environmental
protection is not expected to have a material adverse effect on the Company's
consolidated financial position. However, in view of the frequent changes in
environmental laws, rules and regulations, the Company cannot predict the
effect, if any, on its earnings, financial position and capital expenditures of
compliance with environmental laws in the future.
See "Legal Proceedings" in Item 3 of this Report,
"Management's Discussion and Analysis" in Item 7 of this Report and Note I of
"Notes to Consolidated Financial Statements" in Item 8 of this Report.
EMPLOYEES
As of August 1, 1994, the Company employed approximately 2,800
persons, including those who joined the Company with the acquisition of
Sinclair. The Company considers its relationship with its employees to be
satisfactory. The Company has not had any significant work stoppage during the
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last five years.
Item 2 Properties
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As of June 30, 1994, the Company owned or leased a total of 16
manufacturing facilities, many of which include warehouse, sales and
administrative facilities. Fourteen of such facilities, encompassing
approximately 825,000 square feet, are owned by the Company. Four of these
Company-owned facilities are located in California, two owned facilities are
located in each of Michigan and Texas, and one owned facility is located in
each of Florida, Louisiana, Maryland, New Jersey, Oregon and The Netherlands.
One of the owned facilities, located in Maryland, is subject to a mortgage on
the property. The two remaining manufacturing facilities, encompassing
approximately 120,000 square feet, are subject to leases with expiration dates
in September 1996 and December 1996, respectively. One of these leased
facilities is located in California and one is located in Kentucky. Neither
leased facility is believed material.
In addition, as of June 30, 1994, the Company had offices and
operated warehouses (encompassing approximately 894,000 square feet of leased
space and 243,000 square feet of Company-owned space), which included 109
Company-operated sales outlets. The Company, through its Devoe & Raynolds Co.
and Devoe Coatings Company Divisions, also operates a technical center
(encompassing approximately 196,000 square feet of owned space).
In connection with the acquisition of Sinclair, as of August
1, 1994, the Company acquired an additional manufacturing facility in
California which encompasses approximately 90,000 square feet of Company-owned
space, and offices, warehouses and 49 Company-operated sales outlets
(encompassing approximately 315,000 square feet of leased space and 343,000
square feet of Company-owned space). See "Developments During and Subsequent
to the Fiscal Year", above.
Item 3 Legal Proceedings
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(a) Litigation Matters
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There are various legal proceedings and claims
pending against the Company arising out of its business. The Company
vigorously defends the actions and claims against it. In the opinion of
management, these actions and claims are either without merit, protected by
insurance coverage or rights to indemnification, or, based in part on opinions
of counsel, will not have a material adverse effect on the Company's
consolidated financial position.
On April 13, 1994, the Company commenced an action in the
Supreme Court of the State of New York, County of New York,
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against its former subsidiary, Perrigo Company, former executive officers of
Perrigo Company and two banks for damages. The action involves claims arising
from a sale of Perrigo Company to the management group in 1988.
(b) Environmental and Regulatory Matters
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(i) The Company is involved in a number of
environmentally related matters, the costs of which are not considered to be
material or for which an accrual based on a minimum cost or a reasonable
estimate of the total cost of cleanup or compliance has been made. Among these
matters are:
(A) In November 1987, a division and a subsidiary of
the Company were named by the United States Environmental Protection Agency
("EPA") as "potentially responsible parties" ("PRPs"), along with numerous
other parties, with respect to certain hazardous waste disposals at a site in
California. The EPA and various PRPs, including the Company, have executed
certain Consent Decrees with respect to financing certain stages of remedial
action at the site. On September 20, 1994, the Company was served with a
complaint in an action commenced in the Superior Court of the State of
California for the County of Los Angeles against the PRPs at the site by a
group of individuals residing near the site. The complaint alleges that the
defendants are responsible for personal and property damages to the plaintiffs
arising in connection with the site.
(B) On August 5, 1987, the Florida Department of
Environmental Regulation submitted to the Company a proposed Consent Order
concerning certain alleged groundwater contamination at the Company's Tampa,
Florida paint manufacturing facility. The Company has engaged environmental
consultants and continues to investigate groundwater conditions. To date, no
Consent Order has been signed.
(C) On July 14, 1988, the Texas Natural Resource
Conservation Commission ("TNRCC") notified the Company and several other
companies, that they were PRPs for the cleanup of a site in Texas to which the
Company sent certain solvents for recycling. The Company and three other PRPs
as a Task Force have hired an engineering consultant to perform an
investigation and remediation at this site. A waste removal action has been
completed and reported to the TNRCC. In September 1994, the TNRCC notified the
Company and all other PRPs at the site that they had ninety (90) days to submit
to the TNRCC a good faith offer to conduct the remedial
investigation/feasibility study at the site.
(D) In August 1991, Cello Corp. ("Cello"), a
subsidiary of the Company, and the State of Maryland entered
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into a Settlement Agreement with respect to charges brought by the Maryland
Department of the Environment in April 1990 alleging violations of the Maryland
water pollution control laws and a 1989 Consent Order between the State of
Maryland and Cello. Under the terms of the Settlement Agreement, Cello,
without any admission of liability, agreed to pay a civil penalty of $25,000
and to make certain capital improvements to its Havre de Grace, Maryland
facility at an estimated cost of $360,000. All improvements have been
completed. Cello has also performed groundwater studies at that facility
pursuant to the terms of the 1989 Consent Order and reported the findings and
recommendations to the State in 1992. To date, there has been no response.
(E) The EPA has notified the Company that it is one
of hundreds of PRPs with respect to a cleanup of allegedly hazardous waste at a
site in Maryland. The Company settled a portion of this claim, relating to the
removal of drums and other material left on the site by the operator, for
approximately $31,600. Further investigations at the site revealed the
presence of soil and groundwater contamination, the cost of cleanup of which,
and the Company's share of which, if any, is presently unknown.
(F) The Company understands that the State of
Kentucky is investigating possible soil and groundwater contamination at a site
to which waste solvents of the Company were transported.
(G) Following a determination by the Company that
certain underground storage tanks containing certain solvents may have leaked
at the Company's Riverside, California facility, the Company closed-in-place
such storage tanks and initiated discussions with the California Regional Water
Quality Control Board ("CRWQCB") and with the Riverside County Department of
Health. The Company has defined the extent of soil and groundwater
contamination at its Riverside, CA facility and has completed the design for
the vapor extraction of solvents from contaminated soils. The Company has
authorized its consultant to install the soil contamination remediation system
which became operational in September 1994. Semi-annual groundwater monitoring
continues with the approval of the CRWQCB.
(H) In April 1986, the EPA advised the Company that
it may be a PRP at a site in Indiana because a recycler used by a former
affiliate allegedly sent materials to the site between 1969 and 1974. In June
1994, the EPA and the Indiana Dept. of Environmental Management made a de
minimis settlement offer to approximately 2,000 PRPs, including the Company.
The Company accepted the settlement and signed an Administrative Order on
Consent reflecting such settlement.
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(I) In late 1990, the EPA advised the Company that
it is considered one of many PRPs at a site in Michigan. The Company and
certain other PRPs signed a Consent Decree with the EPA for the performance of
remedial action at the site. As part of an allocation process, the Company has
been allocated .48% share of responsibility for the site. The Company's final
share of the costs will depend upon the actual costs of the cleanup and the
amounts paid by other PRPs. In June 1994, the Company and certain other PRPs
signed an Administrative Order by Consent for the payment of past costs to the
Michigan Dept. of Natural Resources.
(J) In June 1991, the Company and approximately
twenty other PRPs received a letter from the New Jersey Department of
Environmental Protection demanding that they pay the costs of removing
materials at a site from which surplus building materials were sold. The
Company had previously voluntarily removed from the site materials which bore
its labels or otherwise indicated that they might have been manufactured by the
Company.
(K) At the Company's Detroit, Michigan facilities,
all out-of-service underground tanks have either been removed or
closed-in-place in accordance with all applicable laws and regulations.
Accessible soil contamination has been removed, treated and replaced. Certain
additional, limited soil contamination that cannot be feasibly removed is being
further investigated. No groundwater contamination has been identified.
Documentation of all tank closure activities is in process.
(L) The Company and other PRPs are engaged in the
cleanup of a solvent reclamation/fuel blending site in Arkansas to which a
former division of the Company sent certain wastes.
(M) The Company is in the process of implementing
state approved measures at one of its former divisions in Missouri to remediate
soil contamination at such site. Groundwater quality will be monitored.
(N) In connection with the Company's former leased
manufacturing facility in Commerce, California, the Company submitted a Closure
Plan to the appropriate authorities which addressed, among other things,
remediation of soil contamination at such site. The Closure Plan has been
approved and the Company is in the process of implementing the Plan's
provisions.
(O) In connection with the Company's leased facility
in Montebello, California, the Company has removed certain underground storage
tanks and has recommended to State authorities that accessible soil
contamination be excavated and
16
<PAGE> 17
treated or disposed. One excavation will be backfilled and paved prior to the
expiration of the lease in December 1994.
(P) The Company is presently conducting an
investigation to determine the extent and source of soil and groundwater
contamination at one of its former plants in Emeryville, California in
connection with the closure of a formerly used underground storage tank. A
report was filed with the appropriate agency in March 1994; a response is
awaited.
(Q) The Company has begun a phased program to
replace and remove the underground storage tanks with aboveground units at its
facility in Pennsauken, New Jersey. The above ground replacement tanks have
been installed and placed in service. The closure process for the
out-of-service underground storage tanks has begun by initiating the site
assessment phase of work. While some soil contamination has been identified,
the extent of contamination is being investigated. At present, the Company
believes groundwater contamination is unlikely.
(R) In November 1992, the Company received a letter
from the EPA advising that it is a PRP at a site in Connecticut based on
approximately 8,000 gallons of waste solvents processed at the site in October
and November 1981. The Company expects to resolve its alleged liability
through a de minimis settlement.
(S) In March 1990, the Company received an
Administrative Unilateral Order from the EPA directed to it and approximately
35 others designated by the EPA as PRPs at a landfill in Kentucky. The Company
believes that it arranged only for the disposal of a limited quantity of
non-hazardous substances at this site, but is nevertheless continuing to work
with other PRPs in an effort to negotiate a settlement with the EPA.
(T) The Company received a letter from the EPA in
March 1990, informing it that it is considered to be a PRP at a site in New
Jersey. The Company believes it ceased using the services of the transporter
of hazardous wastes to the site prior to the beginning of the time period in
question.
(U) The Company and other third party defendants
have entered into a Court approved Consent Agreement settling their alleged
liability in a third party action brought in October 1991 by five original
defendants in an action instituted by the EPA in the United States District
Court for the Central District of Illinois. The Company and the other PRPs
continue to be defendants in related litigation brought by the State of
Illinois to resolve its claims for past costs at the site at which wastes were
allegedly disposed.
17
<PAGE> 18
(V) In December 1991, the Company received a letter
from the EPA requesting information regarding a facility in Utah previously
leased by a subsidiary of the Company. On September 20, 1993, the Company
received a General Notice Letter from the EPA notifying the Company of
potential liability in connection with past and possible future cleanup
activities at the site.
(W) In May 1992, the Company was served with a
complaint in an action commenced in the Superior Court of New Jersey Law
Division Camden County, by the owners of certain property in New Jersey which
has been identified by the EPA as a superfund site. This action was
subsequently dismissed. On or about February 3, 1993, the Company received a
third party complaint in an action involving the same site, which was commenced
in the United States District Court for the District of New Jersey by the EPA.
The Company and the defendants and third party defendants have to date been
unsuccessful in attempting to determine and allocate responsibility at the site
through mediation.
(X) In October 1993, a subsidiary of the Company
received a letter from counsel for another party alleging that some of the
subsidiary's hazardous wastes may have been taken to a superfund site in
Maryland.
(Y) In October 1993, a division of the Company
received an Information Request from the Michigan Department of Natural
Resources with respect to wastes allegedly disposed of at a site in the State
of Michigan.
(Z) The Company is participating with other parties
in the investigation of a site in the State of Illinois to which wastes from a
recycling facility were transported. The Company has previously resolved its
liability with respect to the recycling site.
(AA) The Company was notified in January 1994 that it
is considered a PRP at a former drum recycling facility in Michigan as a result
of the use of this facility by a former subsidiary of the Company. The Company
and other PRPs have signed a Consent Order resolving past costs of the State of
Michigan and agreeing to take appropriate response actions to address
contamination at the site.
(BB) In April 1994, the Company received a complaint
naming it and numerous other parties as defendants in litigation pending in the
United States District Court for the District of New Jersey, Camden Vicinage.
The complaint alleges that the Company and other defendants are liable for
cleanup at a site in the State of New Jersey by virtue of the transport to,
treatment, or disposal of wastes at the site.
18
<PAGE> 19
(ii) In addition:
(A) In September 1989, the Company received a notice
from the Illinois EPA that a former subsidiary was identified as a PRP at a
landfill site in Illinois. In June 1992 and July 1994, further notices were
received stating that the Illinois EPA had information indicating that the
Company may be liable for costs of remedial action at the site. At a meeting
in August 1994, the Illinois EPA indicated that the Company would be expected
to pay a substantial amount to resolve its alleged liability at the site. The
Company has not agreed to accept any determination of liability and is
presently exploring the extent of its exposure and expects to continue
discussions with the Illinois EPA.
(B) In May 1990, the EPA notified the Company that a
subsidiary had been connected with a landfill site in Maryland. The Company
has no records showing disposals at this site. However, at least one of the
subsidiary's waste haulers is alleged to have transported waste materials to
the site. In August 1993, the Company received and subsequently responded to a
letter from the EPA requesting additional information regarding products
manufactured and waste disposal practices.
(C) In August 1990, the Company was notified by the
Department of Environmental Resources of Pennsylvania that it is a PRP at a
site in Pennsylvania. The Company was one of the two largest users of the site
in terms of volume of materials sent to the site for recycling. The Company
and other PRPs have completed waste characterization of substances contained in
tanks and drums at the site and have commenced removal and disposal.
(D) In July 1991, the Company received a letter from
the EPA advising that the Company is a PRP at a landfill site in Florida. In
January 1993, the Company and 17 other PRPs entered into an Administrative
Order by Consent pursuant to which the PRPs have agreed to perform a remedial
investigation and feasibility study at the site.
(E) In November 1992, the Company received a letter
from the EPA requesting information regarding the Company's use of a drum
reconditioner in Florida. The Company responded to this letter and has heard
nothing further from the EPA.
(F) A subsidiary of the Company has sued the prior
owner of its production facility in connection with soil and groundwater
contamination at that facility. The prior owner has denied responsibility.
19
<PAGE> 20
The Company cannot estimate the total costs of cleanup at the
above sites or its share of costs where it is found to be a responsible party.
Where a minimum cost of cleanup has been established, the applicable amount has
been accrued. Based upon management's present belief as to its relative
involvement at these sites, other viable entities' responsibilities for
cleanup, potential insurance coverage and the extended period over which many
costs would be incurred, the Company presently believes that these matters will
not have a material adverse effect on the Company's consolidated financial
position.
Item 4 Submission of Matters to a Vote of Security Holders
- - - - - - - ------ ---------------------------------------------------
Not applicable.
Executive Officers of the Registrant
- - - - - - - ------------------------------------
The following information is furnished with respect to each of
the executive officers of the Company:
<TABLE>
<CAPTION>
Year First
Positions Presently Elected an
Name and Age with Company Officer
- - - - - - - ------------ ------------------- ----------
<S> <C> <C>
Russell Banks (75) President, Chief 1961
Executive Officer and
Director
Joseph M. Quinn (57) Executive Vice 1981
President, Chief
Operating Officer and
Director
John F. Gleason (65) Executive Vice 1976
President and Director
Stephen L. Dearborn (39) Senior Vice President, 1994
Strategic Planning and
Operations
Henry W. Jones (46) Vice President, 1994
Regulatory Affairs
Frank V. Esser (55) Treasurer, Chief 1981
Financial and Principal
Accounting Officer
Lloyd Frank (69) Secretary and Director 1963
</TABLE>
20
<PAGE> 21
Russell Banks has been President and Chief Executive Officer
of the Company since 1962. Mr. Banks has served as a Director of the Company
since 1960.
Joseph M. Quinn has been an executive officer of the Company
since 1981 and was elected Executive Vice President and Chief Operating Officer
in August 1991. Since January 1989, Mr. Quinn has served as Executive Vice
President in charge of the Coatings and Chemicals Group and, for more than the
five years prior thereto, Mr. Quinn served as Group Vice President of the
Company and President of the Company's Devoe Marine Coatings Co. Division. He
also served as President of the Company's Devoe & Raynolds Co. Division from
January 1988 until August 1992. Mr. Quinn has served as a Director of the
Company since 1989.
John F. Gleason has been an executive officer of the Company
since 1976 and has, for more than the past five years, served as an Executive
Vice President of the Company. Mr. Gleason has served as a Director of the
Company since 1976.
Stephen L. Dearborn was appointed Senior Vice President,
Strategic Planning and Operations of the Company in June 1994. For the 17
years prior thereto, Mr. Dearborn served in a number of management capacities
at PPG Industries, Inc. involving international and domestic strategic business
planning, marketing and operations.
Henry W. Jones was appointed Vice President, Regulatory
Affairs of the Company in June 1994. For one year prior thereto, Mr. Jones
served as Director, Environmental Safety and Health Compliance of the Company.
He also served as Corporate Manager, Environmental Affairs of the Company from
August 1985 to April 1993.
Frank V. Esser has been an executive officer of the Company
since 1981 and was elected Treasurer and Chief Financial Officer of the Company
in 1989. Mr. Esser is a certified public accountant.
Lloyd Frank has served as Secretary of the Company since 1963.
Mr. Frank is an attorney admitted to practice in the State of New York and has
been a member of the law firm of Parker Chapin Flattau & Klimpl for more than
the past five years. Mr. Frank has served as a Director of the Company since
1987.
There are no family relationships among any of the Company's
executive officers or directors. There are no arrangements or understandings
between any executive officer
21
<PAGE> 22
and any other person pursuant to which such person was selected as an officer
(although certain executive officers are parties to employment agreements with
the Company). Each executive officer is to hold office until the 1994 Annual
Meeting of Directors (which is to be held immediately after the 1994 Annual
Meeting of Shareholders), at which time the Board of Directors will elect
officers for the ensuing year.
PART II
Item 5 Market for the Registrant's Common Equity
- - - - - - - ------ and Related Stockholder Matters
-----------------------------------------
The Company's Common Stock is listed and traded on the New
York Stock Exchange (stock symbol "GRO"). As of June 30, 1994, there were
approximately 4,000 holders of record of the Company's Common Stock. The
quarterly market prices for the past two years are presented in the
accompanying table. The Company declared dividends of $.07 per share in each
quarter of fiscal 1994 and $.06 per share in each quarter of fiscal 1993. In
determining whether future dividends will be paid, the Board of Directors will
consider a number of factors, including the Company's results of operations,
financial condition, capital requirements and projected cash flow. As
indicated in Note E of the "Notes to Consolidated Financial Statements",
approximately $7.0 million was available for the payment of dividends
subsequent to June 30, 1994.
Quarterly Common Stock Data
<TABLE>
<CAPTION>
Market Price Dividends
- - - - - - - ---------------------------- Declared
1994 High Low Per Share
- - - - - - - -----------------------------------------
<S> <C> <C> <C>
1st Quarter 17-3/8 13-1/2 $.07
2nd Quarter 16-3/4 13-3/4 $.07
3rd Quarter 18-7/8 15 $.07
4th Quarter 19-3/4 14-7/8 $.07
- - - - - - - ----------------------------------------
1993
- - - - - - - ----------------------------------------
1st Quarter 14 11-3/4 $.06
2nd Quarter 14-1/2 11-3/8 $.06
3rd Quarter 14-3/4 11-3/4 $.06
4th Quarter 17-7/8 13-1/4 $.06
</TABLE>
22
<PAGE> 23
Item 6 Selected Financial Data
- - - - - - - ------ -----------------------
<TABLE>
<CAPTION>
Year Ended June 30,
- - - - - - - -----------------------------------------------------------------
1994 1993 1992 1991 1990
- - - - - - - -----------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues $401,818 $365,464 $374,202 $368,376 $367,088
Income (loss)
from continu-
ing operations
before
extraordinary
item (a) 14,056 10,842 7,502 (11,071) 9,933
Income (loss)
from discon-
tinued
operations 2,080 1,630 (2,317) (1,400)
Net income
(loss) (a)(b) 14,056 12,472 9,132 (13,111) 8,025
Total assets 247,921 233,869 233,491 228,933 229,232
Long-term debt,
including
current
installments 3,184 3,215 72,469 76,037 82,191
Stockholders'
equity 138,683 128,569 54,955 47,272 58,200
Per common
share-primary
Income (loss)
from
continuing
operations
before
extra-
ordinary item .87 .78 .64 (.98) .87
Net income
loss (c) .87 .90 .78 (1.16) .69
Cash dividends
declared .28 .24 .05 .10 --
Book value 8.61 8.03 4.73 4.03 5.15
Weighted average
shares 16,116 13,850 11,705 11,342 11,361
=================================================================
</TABLE>
(a) Includes unusual item gain of $600,000 (1993), $840,000 (1992), costs
of restructuring of $11,100,000 (1991) and gain on sale of U.S. Paint
of $10,000,000 (1990).
(b) Includes extraordinary charge of $450,000 in 1993, $277,000 gain in
1991, and $425,000 gain in 1990.
(c) $.87 fully diluted in 1993 and $.76 fully diluted in 1992.
23
<PAGE> 24
Item 7 Management's Discussion and Analysis of
- - - - - - - ------ Financial Condition and Results of Operations
---------------------------------------------
Fiscal 1994 Compared to Fiscal 1993:
Revenues: Revenues from continuing operations increased
$36,354,000 (10%). Approximately 61% of the increase was related to the
inclusion of the sales of the Zynolyte Products Company acquired effective
August 2, 1993.
Excluding the sales of Zynolyte, revenues of the Coatings and
Chemicals segment increased $13,395,000 (4.6%). Royalty income recorded in
this segment decreased to $2,782,000 from $3,069,000 in 1993. This decrease
was related to a higher level of initial royalties related to new licensing
agreements in 1993. Within the Coatings and Chemicals segment, revenues
related to architectural paint products increased $11,812,000 (6.2%)
principally due to higher unit volume which was offset somewhat by lower net
pricing.
For Marine and Maintenance Products the revenue increase was
$2,440,000 (3.5%), which was primarily attributable to increased unit volume of
9.2% offset partially by lower contracting revenue. Automotive revenues
decreased $857,000 (2.9%), principally due to lower unit volume.
Consumer and Professional Products segment revenues were
approximately equal to the prior year's. A lower level of shipments and lower
pricing of detergents sold to club stores and lower sales of professional
cleaning products were offset by increases in unit volume of household products
sold to mass retailers, grocery and drug chains and others. The lower volume
of shipments of detergents to club stores was caused in part by a reformulation
of the product which increased the number of washes per unit.
Costs of Product Sold: Consolidated gross profit as a
percentage of revenues decreased from 36.8% to 36.3%. The inclusion of
Zynolyte which has somewhat lower gross profit margin percentages than the
other components in fiscal 1994, had the effect of decreasing the overall gross
profit percentage by 3/10%.
Excluding Zynolyte, the gross profit percentage for the
Coatings and Chemicals segment decreased slightly from 38.1% to 37.8%.
Promotional pricing (for architectural paint products), particularly in the
fourth quarter of the year, was the primary reason for the lower gross profit
percentage.
In the Consumer and Professional Products Group, the gross
profit percentage remained at approximately the same level as the prior year
(2/10% increase).
24
<PAGE> 25
Competitive pricing adjustments and formula changes (which
resulted in higher material costs) in the second half of the year resulted in
somewhat lower gross margin percentages (a decrease of 7/10%) in the "club
store" product line. These reductions were offset by higher gross profit
percentages in the other components of the Consumer and Professional Products
Group.
Storage and Delivery: Storage and delivery costs increased
$3,269,000 (25.7%). Excluding Zynolyte, these costs increased by 9.0%,
principally reflecting the higher unit volume, particularly in the
architectural paint operations, and changes in the delivery pattern in the
Consumer and Professional Products Group.
Selling and Administrative: Selling and administrative
expenses increased $5,153,000 (5.4%). Excluding Zynolyte, these expenses
increased 2.6%, which is a lower rate of increase than the increase in
revenues. Among the factors having an impact on Selling and Administrative
expenses are higher volume related expenses due to new branch openings and the
acquisition of certain assets of Havco Paint Company (four stores), new product
introduction costs, higher employee costs and higher environmental and
corporate costs. These increases were offset in part by lower casualty
insurance expense and lower incentive compensation expense.
Interest Expense: Interest expense decreased from $5,701,000
to $897,000, principally due to lower debt levels in 1994 caused by the
redemption of approximately $43 million of 12-1/2% notes and the conversion of
approximately $26 million of 8-1/2% debentures.
Income Tax Expense: The change in the effective tax rate from
40.0% to 42.0% is primarily the result of the retroactive change in the Federal
income tax rate to 35% from 34% enacted by Congress in August 1993.
Net Income: In addition to the factors enumerated above, the
change in net income of $1,584,000 was impacted by an unusual gain in 1993
related to insurance of $600,000 (after tax), discontinued operations in 1993
of $2,080,000 (after tax) and an extraordinary charge in 1993 related to the
redemption of debt of $450,000.
In connection with the acquisition of Sinclair Paint Company
("Sinclair") (see Note B) and with another contemplated acquisition, certain
restructure charges are expected to be charged to earnings in fiscal 1995 or
thereafter. The amount of such charges may range from $2,000,000 to $4,000,000
before tax.
25
<PAGE> 26
Fiscal 1993 Compared to Fiscal 1992:
Revenues: Revenues from continuing operations decreased
$8,738,000. However, after adjusting fiscal 1992 for revenues related to
product lines disposed of, revenues from continuing operations increased
$7,601,000 (2.1%).
Revenues of the Coatings and Chemicals segment decreased by
$665,000 (less than 1%). Royalty income recorded in this segment increased
from $1,097,000 in 1992 to $3,069,000 in 1993 principally due to new licensing
agreements including initial royalties. A decrease in revenue of the Devoe
Coatings maintenance and marine product line of $12,547,000 (15.2%) was largely
offset by an increase of $11,806,000 (6.7%) in revenues of architectural paint
products. In architectural coatings, unit volume was responsible for 53.4% of
the increase with price/mix and royalty income increases accounting for the
remaining 46.6%. The decrease in the Devoe Coatings revenues was principally
due to lower unit volume as a result of a substantial reduction in drydockings
and other maintenance by the U.S. Navy and major oil and chemical companies.
Consumer and Professional Products segment revenues, adjusted
for the revenues of product lines disposed of during fiscal 1992, increased
$8,266,000 (12.0%), primarily as a result of increased shipments of detergents
and other products to mass merchants.
Costs of Product Sold: Consolidated gross profit as a
percentage of revenues increased from 34.8% to 36.8%. The higher revenues
related to architectural products, which are sold at higher gross margin
percentages than maintenance and marine products, decreased environmental
charges, increased royalty income and lower raw material costs, were the
primary factors contributing to the increase.
In the Coatings and Chemicals segment, the gross profit
percentage increased from 37.2% to 38.1% primarily due to the change in mix
between architectural products and maintenance and marine coatings, decreased
environmental charges, lower raw material prices and higher royalty income.
In the Consumer and Professional Products segment, gross
profit percentage increased from 30.9% to 31.8% after adjusting for the lower
gross profit percentages related to product lines disposed of during fiscal
1992. The gross profit percentage in the segment was principally impacted by
the beneficial production efficiencies of higher volume somewhat offset by
product mix and price changes.
Storage and Delivery: Storage and delivery costs decreased
$2,544,000. The change in this category of expense is
26
<PAGE> 27
related primarily to changes in the product mix and restructuring in the
Consumer and Professional Products segment.
Selling and Administrative: Selling and administrative
expenses increased $5,357,000. Higher levels of volume related and employee
costs related in part to increased company operated store locations were
experienced in the architectural operations and the Consumer and Professional
Products segment. These increases were offset somewhat by lower environmental
costs, slightly lower selling and administrative costs in the maintenance and
marine coatings product line and lower corporate expenses including reduction
in legal costs.
Interest Expense: Interest expense decreased from $9,026,000
to $5,701,000 principally due to lower debt levels in 1993. Total long-term
debt as of June 30, 1993 is $3,215,000. See "Liquidity" for a discussion of
the changes in debt.
Unusual Items: In fiscal 1993, based on a settlement with an
insurance carrier, an accrual previously provided was adjusted and an unusual
gain of $1,000,000 was recorded.
Income Taxes (Expense) Credit: The change in the effective
tax rates from 46.2% to 40.0% is the result of, among other factors,
differences in the percentage effect of non-deductible expenses, the tax basis
of assets sold (or reserved for) and state income taxes. See Note D of the
"Notes to Consolidated Financial Statements."
-------------------------------
Environmental Matters: The Company continues to incur and
accrue its share of costs at Superfund and other sites related to compliance
with environmental laws, rules and regulations. The provision for such costs
amounted to $2,769,000 and $2,092,000 for the years ended June 30, 1994 and
1993, respectively. The Company periodically reviews its estimates of, and
accrues appropriate amounts for, costs of compliance with environmental laws
and the cleanup of various sites, including sites as to which governmental
agencies have designated the Company (or have indicated a possibility of
designating the Company) a potentially responsible party. The provision for
environmental costs is not necessarily indicative of future provisions for such
costs.
Where a minimum cost or a reasonable estimate of the total
costs of cleanup or compliance has been established, the applicable amount has
been accrued. The related accrued liability totalled $10,841,000 as of June
30, 1994. An anticipated $207,000 ($1,900,000 as of June 30, 1993) refund of
remediation costs from a State agency is included in receivables as of June 30,
1994. In certain instances, estimates cannot be
27
<PAGE> 28
made of the total costs of cleanup or compliance, the Company's share, if any,
of such costs, nor the timing thereof; accordingly, the Company is unable to
predict the effect thereof on future results of operations. In the event of
one or more adverse determinations in any annual or interim period, the impact
on results of operations for those periods could be material. However, based
upon management's present belief as to its relative involvement at these sites,
other viable entities' responsibilities for cleanup, potential insurance
coverage and the extended period over which any costs would be incurred, the
Company presently believes that these matters will not have a material adverse
effect on the Company's consolidated financial position.
Liquidity: During the year, the Company's net income, plus
depreciation, amortization and provision for doubtful accounts, contributed
$21,753,000 to cash flows. Changes in operating assets and liabilities and
other items used $7,354,000 in cash flow principally related to increased
accounts receivable and inventories. Payment of a loan against the cash
surrender value of life insurance and cash dividends were the principal factors
in the use of $8,672,000 for financing activities.
The acquisition of the stock of Zynolyte Products Company and
the purchase of certain assets of Havco Paint Company for an aggregate of
$17,339,000 in cash and net purchases of fixed assets resulted in a use of cash
for investing activities of $22,926,000.
The Company renegotiated (effective August 1, 1994), its
credit facility, which expires in March 1996 with Chemical Bank, New Jersey and
two other banks. The credit line entitles the Company to borrow, at prime (or,
at the Company's option, LIBOR plus 2%) up to $60 million less the amount of
outstanding letters of credit ($13,693,000 at June 30, 1994). In connection
with the acquisition of Sinclair subsequent to year-end, effective August 1,
1994, the Company borrowed $26,000,000 under its line of credit and expended
approximately $25,000,000 of its cash balances. It is expected that further
borrowings under the line of credit will be made to cover expenditures in
connection with Sinclair during fiscal 1995 and 1996. Future short-term and
long-term liquidity requirements are expected to be satisfied from cash flow
for operations, borrowings from banks or other lenders and/or equity sources.
28
<PAGE> 29
Item 8 Financial Statements and Supplementary Data
- - - - - - - ------ -------------------------------------------
The following consolidated financial statements
of the Company and its subsidiaries are presented below:
Report of Independent Auditors
Consolidated Statement of Income - Years Ended
June 30, 1994, 1993 and 1992
Consolidated Statement of Stockholders' Equity -
Years Ended June 30, 1994, 1993 and 1992
Consolidated Balance Sheet - June 30, 1994 and 1993
Consolidated Statement of Cash Flows - Years Ended
June 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements.
29
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Grow Group, Inc. and Subsidiaries.
We have audited the accompanying consolidated balance sheets of Grow Group,
Inc. as of June 30, 1994 and 1993, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended June 30, 1994. Our audits also included the financial statement
schedules listed in the Index at 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements listed in the accompanying index to
financial statements (Item 14(a)) present fairly, in all material respects, the
consolidated financial position of Grow Group, Inc. and subsidiaries at June
30, 1994 and 1993, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended June 30, 1994, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
August 8, 1994
30
<PAGE> 31
GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except per Share Amounts)
<TABLE>
<CAPTION>
Year Ended
June 30,
- - - - - - - --------------------------------------------------------------
1994 1993 1992
- - - - - - - --------------------------------------------------------------
<S> <C> <C> <C>
Revenues from continuing
operations $401,818 $365,464 $374,202
Costs and expenses:
Cost of products sold 255,875 230,928 243,943
Research and development 4,760 4,393 4,301
Storage and delivery 16,007 12,738 15,282
Selling and administrative 101,071 95,918 90,561
Interest expense 897 5,701 9,026
Corporate interest income (1,027) (1,284) (1,162)
Unusual item - Note C (1,000) (2,000
- - - - - - - ----------------------------------------------------------------
Total costs and expenses 377,583 347,394 359,951
- - - - - - - ----------------------------------------------------------------
Income from continuing
operations before income taxes 24,235 18,070 14,251
Income taxes (expense) credit -
Note D
Federal - current (8,977) (4,628) (3,709)
- deferred 842 (1,146) (1,693)
State and local (1,587) (1,289) (903)
Foreign (457) (165) (444)
- - - - - - - -----------------------------------------------------------------
Income taxes (10,179) (7,228) (6,749)
- - - - - - - -----------------------------------------------------------------
Income from continuing
operations 14,056 10,842 7,502
Discontinued operations (less
applicable taxes) 2,080 1,630
- - - - - - - -----------------------------------------------------------------
Income from operations
before extraordinary item 14,056 12,922 9,132
Extraordinary item (less
applicable taxes) (450)
- - - - - - - -----------------------------------------------------------------
Net income $14,056 $12,472 $9,132
=================================================================
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
Net income per common and
common equivalent share:
(primary)
Income from continuing
operations $.87 $.78 $.64
Discontinued operations (less
applicable taxes) .15 .14
Extraordinary item (less
applicable taxes) (.03)
- - - - - - - -------------------------------------------------------------
Net income $.87 $.90 $.78
=============================================================
Net income per common and
common equivalent share:
(fully diluted)
Income from continuing
operations $.87 $.77 $.64
Discontinued operations (less
applicable taxes) .13 .12
Extraordinary item (less
applicable taxes) (.03)
- - - - - - - -------------------------------------------------------------
Net income $.87 $.87 $.76
=============================================================
Average number of shares 16,116,000 13,850,000 11,705,000
================================================================
Cash dividends declared on
common stock per share $.28 $.24 $.05
=============================================================
</TABLE>
See notes to financial statements.
32
<PAGE> 33
GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Re-
Three Years De- tained
Ended Treas- Equity ferred Earn-
June 30, 1994 Common ury Paid-in Adjust- Compen- ings
(In thousands) Stock Stock Capital ments sation (Deficit)
- - - - - - - -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1991 1,191 (1,136) 60,174 (263) (2,935) (9,759)
- - - - - - - -----------------------------------------------------------------------
Common Stock
issued upon
exercise of
stock options 95 (35)
Cash dividends -
Common Stock (581)
Loan to ESOP
for purchase of
Common Stock (110)
Reduction of
ESOP loan 260
Purchase of
Treasury Stock (1,254)
Equity adjustments
from foreign
currency
translation 176
Net income 9,132
Balance at
June 30, 1992 1,191 (2,295) 59,558 (87) (2,785) (627)
- - - - - - - ----------------------------------------------------------------------
Common Stock
issued upon
exercise of
stock options 243 62
Cash dividends -
Common Stock (3,470)
Loan to ESOP
for purchase of
Common Stock (316)
Reduction of
ESOP loan 487
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Issuance of
Common Stock
to Corimon 231 37,769
Conversion of
Convertible
Debentures 205 25,848
Equity adjustments
from foreign
currency translation 83
Net income 12,472
Balance at
June 30, 1993 $1,627 $(2,052) $123,237 $ (4) $(2,614) $ 8,375
- - - - - - - -------------------------------------------------------------------------
Common Stock
issued upon
exercise of
stock options 707 191
Cash dividends -
Common Stock (4,502)
Loan to ESOP
for purchase of
Common Stock (293)
Equity adjustments
from foreign
currency translation (45)
Net income 14,056
Balance at
June 30, 1994 $1,627 $1,345 $123,428 $(49) $(2,907) $17,929
=========================================================================
</TABLE>
See notes to financial statements
34
<PAGE> 35
GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
- - - - - - - --------------------------------------------------------------
1994 1993
- - - - - - - --------------------------------------------------------------
(In thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $38,816 $56,015
Accounts receivable less allowance for
doubtful accounts of $3,667,000 and
$3,341,000
69,622 61,852
Inventories, at lower of cost or market:
Finished and in-process products 48,490 40,938
Materials, containers and supplies 14,413 12,437
- - - - - - - ----------------------------------------------------------------
62,903 53,375
Prepaid expenses and other current assets 16,052 16,532
- - - - - - - ----------------------------------------------------------------
Total Current Assets 187,393 187,774
- - - - - - - ----------------------------------------------------------------
Property, Plant and Equipment, at cost
Land 9,785 2,202
Buildings and improvements 26,039 22,329
Machinery and equipment 63,507 60,419
Less allowance for depreciation (48,524) (45,121)
- - - - - - - -----------------------------------------------------------------
50,807 39,829
Other Assets
Cost in excess of net assets of acquired
businesses 1,677 1,125
Deferred finance, patents and other assets 8,044 5,141
- - - - - - - ----------------------------------------------------------------
9,721 6,266
- - - - - - - ----------------------------------------------------------------
Total Assets $247,921 $233,869
================================================================
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $37,532 $34,582
Payroll and related taxes 7,266 7,080
Accrued expenses 21,770 22,233
Income taxes - Note D 10,180 10,918
Dividend payable 1,128 961
Current installments on long-term debt 2,270 1,080
- - - - - - - ----------------------------------------------------------------
Total Current Liabilities 80,146 76,844
- - - - - - - ----------------------------------------------------------------
Deferred Income Taxes and Other Liabilities 28,178 26,321
Long-term debt
Notes payable 914 2,135
- - - - - - - ----------------------------------------------------------------
Total Long-Term Debt 914 2,135
Stockholders' Equity - Notes E, F, G and H
Preferred stock - Authorized 1,000,000
shares, none issued
Common stock par value $.10 per share:
Authorized 50,000,000 shares; issued
16,271,831 and 11,909,085 shares 1,627 1,627
Less treasury stock at cost (168,493 and
258,538 shares) (1,345) (2,052)
Paid-in capital 123,428 123,237
Equity adjustments (49) (4)
Deferred compensation (related to ESOP
loan) (2,907) (2,614)
Retained earnings 17,929 8,375
- - - - - - - -----------------------------------------------------------------
138,683 128,569
- - - - - - - -----------------------------------------------------------------
Total Liabilities and Stockholders' Equity $247,921 $233,869
=================================================================
</TABLE>
See notes to financial statements.
36
<PAGE> 37
GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
- - - - - - - ---------------------------------------------------------------
1994 1993 1992
- - - - - - - ---------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating Activities
Net income $14,056 $12,472 $ 9,132
Adjustments to reconcile net
income to net cash
provided (used) by operating
activities:
Depreciation 5,285 5,059 5,370
Amortization of deferred charges 1,165 1,663 1,353
Deferred income taxes (842) 1,146 1,693
Provision for doubtful accounts 2,089 2,586 2,622
Gain on sale of AquaChem (2,003)
Changes in operating assets and
liabilities-net:
(Increase) in accounts
receivable (4,702) 3,512 (3,556)
(Increase) in inventories
and prepaid expenses
and other current assets (4,027) (5,082) (4,280)
(Decrease) increase in accounts
payable and other current
liabilities (1,098) 7,211 4,965
Other 2,473 (462) (1,149)
- - - - - - - -----------------------------------------------------------------
Net cash provided by operating
activities 14,399 11,680 16,150
- - - - - - - ----------------------------------------------------------------
Investing Activities
Purchase of property, plant and
equipment (5,717) (4,098) (7,265)
Disposals of plant and equipment 130 1,500 2,550
Sale of AquaChem 22,638
Acquisition of Zynolyte and Havco (17,339)
- - - - - - - -----------------------------------------------------------------
Net cash provided (used) by
investing activities (22,926) 20,040 (4,715)
- - - - - - - -----------------------------------------------------------------
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
Financing Activities
Proceeds from borrowing 829 145
Payments of debt (5,068) (44,222) (8,713)
Proceeds from issuance of
Common Stock 898 39,030 60
Purchase of Common Stock (1,254)
Cash dividends (4,502) (3,470) (581)
- - - - - - - -----------------------------------------------------------------
Net cash (used) by
financing activities (8,672) (7,833) (10,343)
- - - - - - - -----------------------------------------------------------------
(Decrease) increase in cash
and cash equivalents (17,199) 23,887 1,092
Cash and cash equivalents at
beginning of year 56,015 32,128 31,036
- - - - - - - ----------------------------------------------------------------
Cash and cash equivalents at end
of year $38,816 $56,015 $32,128
================================================================
Note: Interest and income taxes
paid were as follows:
Interest 332 $8,333 $9,464
- - - - - - - ----------------------------------------------------------------
Income taxes $11,759 $7,225 $ 272
================================================================
</TABLE>
See notes to financial statements.
38
<PAGE> 39
Note A. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the Company and
all subsidiary companies. Significant intercompany transactions and accounts
have been eliminated in consolidation. Cost in excess of net assets of
acquired businesses is being amortized principally over 40 years.
Plant and Equipment:
The cost of plant and equipment is depreciated principally on the straight-line
method over the estimated useful lives of the assets. For income tax purposes,
certain assets are depreciated on an accelerated basis. The cost of leasehold
improvements is amortized over the life of the leases.
Inventories:
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Environmental Costs:
The Company periodically reviews its estimates of costs of compliance with
environmental laws and the cleanup of various sites, including sites as to
which governmental agencies have designated the Company (or have indicated a
possibility of designating the Company) a potentially responsible party. Where
a minimum cost or a reasonable estimate of the cost of compliance has been
established, the applicable amount has been accrued. As of June 30, 1994, the
Company has accrued $10,841,000 ($9,985,000 at June 30, 1993) related to
environmental matters and the provision for such costs amounted to $2,769,000
($2,092,000 for fiscal 1993) for the year then ended. An anticipated $207,000
($1,900,000 as of June 30, 1993) refund of remediation costs from a state
agency is included in receivables as of June 30, 1994).
Income Taxes:
The Company has adopted Financial Accounting Standard Board Statement No. 109
which mandates accounting for income taxes on the liability method. (See Note
D).
39
<PAGE> 40
Net Income Per Share:
Net income (loss) per common and common equivalent share has been
computed based on the average number of shares of Common Stock
outstanding during the year and the common share equivalents applicable to
stock options. Supplementary net income per share (primary) would approximate
fully diluted amounts if the conversion of the convertible debentures had
occurred at the beginning of the year.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Restated Balance Sheet:
As of June 30, 1994, certain accrued liabilities related to insurance claims
and environmental matters were reclassified and are included in other long-term
liabilities. Prior year's amounts have been restated to conform to this
treatment.
Note B. Acquisitions and Dispositions
Subsequent to year-end and effective August 1, 1994, the Company acquired
substantially all of the assets and assumed certain liabilities of Sinclair
Paint Company ("Sinclair"), a division of Insilco Corporation in a purchase
transaction for approximately $51,000,000 in cash (subject to adjustment based
on closing audit). Sinclair's revenues for calendar year 1993 amounted to
approximately $95,000,000. The transaction will result in approximately
$15,000,000 in cost in excess of net assets acquired. A portion of the funds
required were obtained from the Company's revolving credit line with a group of
banks (see Note E).
In connection with the acquisition of Sinclair and with another proposed
acquisition, certain restructure charges are expected to be charged to earnings
in fiscal 1995. The amount of such charges may range from $2,000,000 to
$4,000,000 pre-tax.
On August 2, 1993, the Company acquired the stock of Zynolyte Products Company
("Zynolyte"), a producer and marketer of paint products (principally aerosols)
headquartered in Carson, California. The purchase price was approximately
$16,300,000 in cash.
40
<PAGE> 41
On May 3, 1993, the Company sold its AquaChem pool products division. The
terms included a net cash payment of $10,371,000 and the assumption of current
liabilities of $12,267,000 by the buyer. The Company retained the accounts
receivable of $4,653,000 and has collected that balance. In addition, the
Company is entitled to receive future payments based on percentage of certain
net revenues generated by AquaChem for an additional period. Details of
discontinued operations are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
- - - - - - - ------------------------------------------------------------
<S> <C> <C>
Revenues $19,746 $42,040
Costs and expenses (19,618) (39,323)
Gain on sale 4,805
- - - - - - - ------------------------------------------------------------
4,933 2,717
Income tax (expense) credit (2,853) (1,087)
- - - - - - - ------------------------------------------------------------
Income (loss) from discontinued
operations $2,080 $1,630
============================================================
</TABLE>
The income tax provision in 1993 varied from the statutory rate because the
basis of certain assets was different for tax purposes.
Note C. Unusual Items
In fiscal 1993, based on settlement with an insurance carrier, the Company
adjusted an accrual previously provided in connection with the settlement of a
lawsuit and has recorded an unusual gain of $1,000,000.
In the second quarter of fiscal 1992, the Company recorded an unusual item
related to recoveries of insurance claims net of provisions for other unusual
items.
41
<PAGE> 42
Note D. Federal Income Taxes
The reasons for the difference between total tax (expense) and the amount
computed by applying the statutory federal income tax rate to income from
continuing operations before income taxes are as follows (in thousands except
percentages):
<TABLE>
<CAPTION>
1994 1993 1992
- - - - - - - --------------------------------------------------------------
Amount % Amount % Amount %
- - - - - - - --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax
(expense)
credit at
statutory
rate $(8,482) (35.0) $(6,144) (34.0) $4,682 34.0
State and
local
taxes,
net of
federal
income tax
benefit (1,032) (4.3) (851) (4.7) (896) (5.3)
Other (665) (2.7) (233) (1.3) (1,171) (6.9)
- - - - - - - ---------------------------------------------------------------
Total $(10,179) (42.0) $(7,228) (40.0) $(6,749) (46.2)
===============================================================
</TABLE>
Deferred tax expense credit from continuing operations results from timing
differences between financial statement income and taxable income and includes
(in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
- - - - - - - ------------------------------------------------------------
<S> <C> <C> <C>
Accelerated depreciation $(177) $(2,160) $1,294
Accrued restructuring reserve 229 877 (4,705)
Other accrued liabilities 720 (478) 1,381
Other timing differences 70 615 337
- - - - - - - ------------------------------------------------------------
Total $842 $(1,146) $(1,693)
=============================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of June 30, 1994 are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities
Depreciation $6,420
Other 1,658
- - - - - - - ------------------------------------------------------
Total deferred tax liabilities 8,078
Deferred tax assets:
Accrued restructuring 1,601
Insurance reserves 3,907
Accrued employee benefits 1,376
Accounts receivable allowance 1,176
Other 1,427
- - - - - - - ------------------------------------------------------
Total deferred tax assets 9,487
- - - - - - - ------------------------------------------------------
Net deferred tax assets $1,409
======================================================
</TABLE>
42
<PAGE> 43
Fiscal years from 1984 forward are undergoing examination by the IRS; however,
management believes that the ultimate outcome will not have a material effect
on the Company's financial position.
Effective July 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109 "Accounting for Income Taxes" which requires companies
to change the method of accounting for income taxes from the deferred to the
liability method. The effect was not material.
Note E. Long-Term Debt and Credit Agreements
Subordinated Debt:
During fiscal 1993, the Company redeemed all of its remaining 12-1/2% Senior
Subordinated Notes ($20 million at 102% of par and the remainder at par). The
charge (representing the redemption premium and write off of deferred costs and
discount) is included in extraordinary items. During 1992, the Company
repurchased $2,500,000 in principal amount of 12-1/2% Notes. During fiscal
1993, the Company called for redemption all of its 8-1/2% Convertible
Subordinated Debentures. This resulted in redemption of $145,000 and
conversion of $25,861,000 into approximately 2,050,000 shares of Common Stock.
On March 31, 1993, the Company entered into a Credit Agreement with three banks
providing a three year revolving loan facility for an aggregate of $40 million
less the amount of outstanding letters of credit ($13,693,000 at June 30, 1994)
under a $17 million letter of credit sub-facility that is available for the
Company's insurance program. In connection with the acquisition of Sinclair
(see Note B) effective August 1, 1994, the revolving loan facility was
increased to $60,000,000 and $26,000,000 was borrowed thereunder.
Loans under the facility will bear interest at prime or, at the Company's
option, at the LIBOR rate plus 2% and the facility is secured by the Company's
accounts receivable.
The Credit Agreement requires the Company to maintain consolidated tangible net
worth (as defined) of not less than $82 million on the last day of each quarter
and defined levels of working capital, leverage and interest coverage; and
provides for limits on cash dividends, stock repurchases and other restricted
payments (as defined). The most restrictive covenant would limit restricted
payments made subsequent to June 30, 1994 to $7,028,000 (before consideration
of subsequent earnings or other changes).
43
<PAGE> 44
Note F. Shareholders' Equity
Deferred compensation in the Stockholders' Equity section represents the
unamortized portion of loans to the Company's Employee Stock Ownership Plan
(ESOP). The loans are being amortized over 5 to 15 years. As of June 30,
1994, the ESOP owns 560,592 shares of Common Stock.
On August 7, 1992, pursuant to an agreement signed on July 21, 1992, Corimon
C.A. (an industrial company in Venezuela) purchased 2,312,000 newly issued
shares of the Company's Common Stock at a price of $16.75 per share, or an
aggregate of $38,726,000. As of June 30, 1994, Corimon owns approximately 25%
of the Company's outstanding Common Stock, three of Corimon's designees have
joined the Company's Board of Directors. Corimon has also agreed to customary
"standstill" provisions which will continue in effect until, in general,
October 1995. During the standstill period, Corimon is permitted to increase
its ownership position to a maximum of 28% of the Company's stock. See Note G
with respect to the Company's Shareholder Rights Plan. The Company has entered
into certain immaterial arms length license and distribution agreements and
other commercial transactions with Corimon.
During fiscal 1993, holders of $25,861,000 principal amount of 8-1/2%
Convertible Subordinated Debentures elected to convert to approximately
2,050,000 shares of Common Stock. This resulted in an increase in Common Stock
of $205,000 and an increase in paid-in capital of $25,848,000 after adjustments
for deferred costs, accrued interest and expenses of the transaction.
Note G. Stock Options and Reserved Shares
In October 1990, the Stockholders approved the 1990 Stock Option Incentive Plan
which provides that options may be designated as "Incentive Stock Options"
under the Internal Revenue Code. Under the Plan (which authorizes a total of
500,000 shares), options are granted at not less than the greater of market
price on the date of grant or book value. Presently, outstanding options are
for ten years from the date of grant and become exercisable in annual
installments of 16-2/3% beginning two years after grant. Options remain
outstanding under a prior plan for the purpose of exercise only.
44
<PAGE> 45
Transactions during the three years are summarized as follows:
<TABLE>
<CAPTION>
Option Number
Price of
Per Share Shares
- - - - - - - -----------------------------------------------------------
<S> <C> <C>
Outstanding (154,000 exercisable)
at June 30, 1991 $4.44 to $12.69 257,000
Granted 9.81 25,000
Exercised 4.44 to 4.50 (13,000)
Terminated or expired 4.50 (1,000)
- - - - - - - ------------------------------------------------------------
Outstanding (154,000 exercisable)
at June 30, 1992 $7.25 to $12.69 268,000
Granted 11.81 to 12.00 20,000
Exercised 7.25 to 10.94 (31,000)
Terminated or expired 9.19 to 10.15 (10,000)
- - - - - - - ------------------------------------------------------------
Outstanding (147,000 exercisable)
at June 30, 1993 $7.25 to$12.69 247,000
Granted 14.00 to 18.13 30,000
Exercised 9.19 to 11.56 (93,000)
Terminated or expired 8.33 (10,000)
- - - - - - - ------------------------------------------------------------
Outstanding (65,000 exercisable)
at June 30, 1994 $7.25 to $18.13 174,000
============================================================
</TABLE>
At June 30, 1994, 124,000 outstanding options have been designated as
"Incentive Stock Options."
The Company adopted a Shareholder Rights Plan in February 1988 providing for
the issuance of one Right for each share of the Company's Common Stock issued
and outstanding. Holders of Rights would be entitled, if certain events occur,
to purchase Common Stock of the Company (or, in certain cases, Common Stock of
an "Acquiring Person", who in general is a person or a group of affiliated or
associated persons having beneficial ownership of 20% or more of the
outstanding shares of the Company's Common Stock) at a 50% discount. These
events include, among others, the acquisition by an Acquiring Person of 30% or
more of the then outstanding shares of Common Stock of the Company. The
Company is entitled to redeem the Rights at $ .01 per Right under certain
circumstances and, if not redeemed, the Rights will expire on February 26,
1998. Pursuant to the terms of the agreement between the Company and Corimon
described in Note F, the Company has amended the Shareholder Rights Plan to
increase from 20% to 30% the beneficial ownership percentage threshold in the
definition of "Acquiring Person" and to include a new "flip-in" provision (or
Triggering Event) which would allow the Board of Directors of the Company to
trigger a "flip-in" event if the Board declared a person with beneficial
ownership of at least 20% of the Company's Stock to be an "Adverse Person."
The Company has agreed that it will not declare Corimon or its affiliates to be
an "Adverse Person" if their beneficial ownership is less than 30%.
45
<PAGE> 46
At June 30, 1994, the Company had reserved shares of Common Stock for issuance
as follows:
<TABLE>
<S> <C>
Issuance of stock related to rights 17,000,000
Options 546,000
- - - - - - - ----------------------------------------------------------------
17,546,000
================================================================
</TABLE>
Note H. Employee Plans
The Company and its domestic subsidiaries presently have trusteed
non-contributory defined benefit pension plans covering non-union employees and
union employees whose unions have bargained to be covered. Benefits are based
on years of service and average final compensation. The funding policy is
normally to pay at least the minimum amounts required by the Employee
Retirement Income Security Act of 1974.
The Company also has an Employee Stock Ownership Plan (ESOP) which covers most
of its domestic employees (see Note F). The Board of Directors decided not to
make a contribution to the plan for fiscal 1994. Expense under this plan was
$318,000 (1993) and $260,000 (1992).
The net pension expense for the Company's domestic pension plans includes the
following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
- - - - - - - --------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $816 $667 $724
Interest cost on projected
benefit obligation 1,025 873 837
Less actual return on plan assets (812) (813) (918)
Net amortization and deferral 140 142 283
- - - - - - - --------------------------------------------------------------
$1,169 $869 $926
===============================================================
</TABLE>
The weighted average discount rate and rate of increase in future compensation
used in determining the actuarial present value of the projected benefit
obligation are 7.6% and 5% (1994), respectively, and 8.5% and 5% (1993),
respectively. The expected long-term rate of return is 8.0% (1994) and 8.5%
(1993).
The following table sets forth the funded status and amount recognized for the
Company's domestic pension plans in the consolidated balance sheet at June 30,
1994 and 1993 (in thousands):
46
<PAGE> 47
<TABLE>
<CAPTION>
1994 1993
- - - - - - - -------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
plan benefits, including vested benefits
of $11,056 and $8,972 $11,256 $9,147
- - - - - - - -------------------------------------------------------------
Plan assets at fair value, primarily
marketable securities $ 9,828 $9,588
Projected benefit obligation for service
rendered to date (14,470) (11,733)
- - - - - - - --------------------------------------------------------------
Projected benefit obligation in excess
of plan assets (4,642) (2,145)
Unrecognized net loss 3,581 1,709
Unrecognized net liability
(transition amount) being recognized
over approximately 18 years (245) (255)
- - - - - - - --------------------------------------------------------------
Accrued pension liability (primarily
noncurrent) $(1,306) $(691)
==============================================================
</TABLE>
The Company has a retirement benefits program for certain directors who are not
employees of the Company and a supplemental retirement benefits program for
certain senior executive officers. The Company funds obligations thereunder by
life insurance contracts. Expense under these programs amounted to $77,000
(1994) and $296,000 (1993) and $260,000 (1992). The amount of accrued
liability was $2,042,000 and $2,108,000 as of June 30, 1994 and 1993,
respectively.
Note I. Commitments and Contingencies
Rental expense for continuing operations for all leases was $9.4 million, $8.8
million and $8.9 million in 1994, 1993 and 1992, respectively.
The future minimum rental commitment as at June 30, 1994 for all
non-cancellable leases (principally buildings) is $28.8 million, which includes
$7.7 million - 1995, $6.7 million - 1996, $5.4 million - 1997, $3.6 million -
1998 and $1.7 million - 1999.
Litigation Matters
There are various legal proceedings and claims pending against the Company
arising out of its business. The Company vigorously defends the actions and
claims against it. In the opinion of management, these actions and claims are
either without merit, protected by insurance coverage or rights to
indemnification, or, based in part on opinions of counsel, will not have a
material adverse effect on the Company's consolidated financial position.
47
<PAGE> 48
Environmental
(a) The Company is involved in a number of environmentally related matters, the
costs of which are not considered to be material or for which an accrual based
on a minimum cost or a reasonable estimate of the total cost of cleanup or
compliance has been made.
(b) In addition:
In September 1989, the Company received a notice from the Illinois EPA that a
former subsidiary was identified as a potentially responsible party ("PRP") at
a landfill site in Illinois. In June 1992 and July 1994, further notices were
received stating that the Illinois EPA had information indicating that the
Company may be liable for costs of remedial action at the site. At a meeting
in August, 1994, the Illinois EPA indicated that the Company would be expected
to pay a substantial amount to resolve its alleged liability at the site. The
Company has not agreed to accept any determination of liability and is
presently exploring the extent of its exposure and expects to continue
discussions with the Illinois EPA.
In May 1990, the EPA notified the Company that a subsidiary had been connected
with a landfill site in Maryland. The Company has no records showing disposals
at this site. However, at least one of the subsidiary's waste haulers is
alleged to have transported waste materials to the site. In August 1993, the
Company received and subsequently responded to a letter from the EPA requesting
additional information regarding products manufactured and waste disposal
practices.
In August 1990, the Company was notified by the Department of Environmental
Resources of Pennsylvania that it is a PRP at a site in Pennsylvania. The
Company was one of the two largest users of the site in terms of volume of
materials sent to the site for recycling. The Company and other PRPs have
completed waste characterization of substances contained in tanks and drums at
the site and have commenced removal and disposal.
In July 1991, the Company received a letter from the EPA advising that the
Company is a PRP at a landfill site in Florida. In January 1993, the Company
and 17 other PRPs entered into an Administrative Order by Consent pursuant to
which the PRPs have agreed to perform a remedial investigation and feasibility
study for the site.
In November 1992, the Company received a letter from the EPA requesting
information regarding the Company's use of a drum reconditioner in Florida.
The Company responded to this letter, and has heard nothing further from the
EPA.
A subsidiary of the Company has sued the prior owner of its production facility
in connection with soil and ground-water contamination at that facility. The
prior owner has denied responsibility.
48
<PAGE> 49
The Company cannot estimate the total costs of cleanup at the above sites or
its share of costs where it is found to be a responsible party. Where a
minimum cost of cleanup has been established, the applicable amount has been
accrued. Based upon management's present belief as to its relative involvement
at these sites, other viable entities' responsibilities for cleanup, potential
insurance coverage and the extended period over which many costs would be
incurred, the Company presently believes that these matters will not have a
material adverse effect on the Company's consolidated financial position.
49
<PAGE> 50
Note J. Industry Segment Data
<TABLE>
<CAPTION>
Year Ended June 30
- - - - - - - ---------------------------------------------------------------
1994 1993 1992
- - - - - - - ---------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Revenues from continuing
operations (a)
Coatings and chemicals $324,203 $288,523 $289,188
Consumer and professional products 77,615 76,941 68,675
---------------------------
Sub total 401,818 365,464 357,863
Consumer and professional products
Product lines disposed of 16,339
---------------------------
Total revenues $401,818 $365,464 $374,202
===========================
Operating income
Coatings and chemicals (b) $23,784 $19,929 $23,047
Consumer and professional products 9,225 8,739 5,703
--------------------------
Total operating income 33,009 28,668 28,750
Corporate expenses (8,904) (7,181) (8,635)
Corporate interest income 1,027 1,284 1,162
Unusual items (c) 1,000 2,000
Interest expense (897) (5,701) (9,026)
--------------------------
Income (loss) from continuing $24,235 $18,070 $14,251
operations before income taxes ==========================
</TABLE>
(a) Revenues include royalty income of $2,912,000 (1994), $3,309,000
(1993) and $1,310,000 (1992).
(b) Includes $186,000 (1994), $157,000 (1993) and $972,000 (1992) related
to foreign operations.
(c) See Note C to financial statements.
50
<PAGE> 51
<TABLE>
<CAPTION>
Identifiable Assets 1994 1993 1992
- - - - - - - ---------------------------------------------------------------
(In thousands)
- - - - - - - ---------------------------------------------------------------
<S> <C> <C> <C>
Coatings and chemicals $156,914 $126,126 $125,280
Consumer and professional
products (a) 31,554 31,989 58,996
- - - - - - - ----------------------------------------------------------------
188,468 158,115 184,276
Corporate 59,453 75,754 49,215
- - - - - - - ----------------------------------------------------------------
$247,921 $233,869 $233,491
================================================================
Depreciation
- - - - - - - ----------------------------------------------------------------
Coatings and chemicals $3,870 $3,328 $3,690
Consumer and professional
products (a) 1,333 1,548 1,595
- - - - - - - ----------------------------------------------------------------
5,203 4,876 5,285
Corporate 82 183 85
- - - - - - - ----------------------------------------------------------------
$5,285 $5,059 $5,370
================================================================
Capital Expenditures
- - - - - - - ----------------------------------------------------------------
Coatings and chemicals $4,760 $2,964 $4,778
Consumer and professional
products (a) 941 1,027 2,471
- - - - - - - ----------------------------------------------------------------
5,701 3,991 7,249
Corporate 16 107 16
- - - - - - - ----------------------------------------------------------------
$5,717 $4,098 $7,265
================================================================
</TABLE>
(a) Includes discontinued operations (AquaChem) in 1992.
Product lines amounting to 10% or more of consolidated revenues from continuing
operations were:
<TABLE>
<S> <C> <C> <C>
Architectural coatings 56% 52% 42%
Maintenance and marine coatings 18% 19% 20%
</TABLE>
Refer to "Industry Segment Data" on page 12 in this annual report for
additional information relating to revenues and income (loss) before income
taxes of the Company's principal business segments for the three years ended
June 30, 1994 which is incorporated as part of the notes hereto.
51
<PAGE> 52
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994
Three Months Ended
Sept. 30 Dec.31 March 31 June 30
--------------------------------------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues from
continuing
operations $103,928 $93,458 $91,180 $113,252
-----------------------------------------
Cost of products
sold 65,633 59,066 59,436 71,740
-----------------------------------------
Income from
continuing
operations 4,099 1,916 1,278 6,763(a)
-----------------------------------------
Discontinued
operations
Extraordinary item
Net income $4,099 $1,916 $1,278 $6,763
=========================================
Per share
- primary:
Income from
continuing
operations $.25 $.12 $.08 $.42
------------------------------------
Discontinued
operations
Extraordinary item
Net income $.25 $.12 $.08 $.42
====================================
</TABLE>
52
<PAGE> 53
<TABLE>
<CAPTION>
1993
Three Months Ended
Sept. 30 Dec.31 March 31 June 30
--------------------------------------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues from
continuing
operations $96,813 $82,383 $82,787 $103,481
--------------------------------------------
Cost of products
sold 60,591 52,599 52,590 65,148
--------------------------------------------
Income
from continuing
operations 3,173 (b) 917 (c) 1,464 5,288
--------------------------------------------
Discontinued
operations 122 (391) 346 2,003
--------------------------------------------
Extraordinary
item (349) (97) (4)
--------------------------------------------
Net income $2,946 $429 $1,810 $7,287
============================================
Per share
- primary:
(Income from
continuing
operations $.23 (b) $.07 (c) $.11 $.37
------------------------------------------
Discontinued
operations $.01 ($.03) $.02 $.15
------------------------------------------
Extraordinary item ($.02) ($.01)
------------------------------------------
Net income $.22 $.03 $.13 $.52
==========================================
</TABLE>
(a) Includes a credit related to an actuarial revision of prior quarters
insurance expense of $746,000 ($.05 per share).
(b) Includes unusual (after tax) gain of $150,000 ($.01 per share).
(c) Includes unusual (after tax) gain of $450,000 ($.03 per share).
53
<PAGE> 54
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
---------------------------------------------
Not applicable.
PART III
The information called for by Part III (Items 10, 11, 12, and
13) of Form 10-K (except information as to the Company's executive officers,
which information follows Item 4 in this Report) is incorporated herein by
reference to such information which is to be contained in the Company's Proxy
Statement to be used in connection with the Company's 1994 Annual Meeting of
Shareholders, which Proxy Statement will be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
- - - - - - - ------- on Form 8-K
---------------------------------------------------
(a)(1) The following consolidated financial statements of
the Company and its subsidiaries are presented in Item 8 of this Report:
Report of Independent Auditors
Consolidated Statement of Income - Years Ended
June 30, 1994, 1993 and 1992
Consolidated Statement of Stockholders' Equity -
Years Ended June 30, 1994, 1993 and 1992
Consolidated Balance Sheet Income - June 30, 1994 and 1993
Consolidated Statement Income of Cash Flows - Years Ended
June 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
(a)(2) The following Financial Statement Schedules are presented on
pages F-1 through F-2 of this Report:
Schedule VIII -- Valuation and Qualifying Accounts
Schedule IX -- Short-Term Borrowings
54
<PAGE> 55
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been omitted.
55
<PAGE> 56
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
3(a)(1) Restated Certificate of Incorporation of the Company filed with the New York Department of State on October 18,
1965. (Exhibit 2.2 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(2) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on August 12, 1966. (Exhibit 2.3 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(3) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on August 19, 1968. (Exhibit 2.4 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(4) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on November 20, 1968. (Exhibit 2.5 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(5) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on August 18, 1969. (Exhibit 2.6 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(6) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on February 1, 1972. (Exhibit 2.7 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(7) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on May 14, 1973. (Exhibit 3(a)(7) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1987, File No. 1-4596.)
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
3(a)(8) Certificate of Merger of Grow Chemical Company into the Company filed with the New York Department of State on
January 14, 1975. (Exhibit 3(a)(8) to the Company's Form 10-K Annual Report for the fiscal year ended June 30,
1987, File No. 1-4596.)
3(a)(9) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on June 1, 1976. (Exhibit 3(a)(9) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1987, File No. 1-4596.)
3(a)(10) Certificate of Merger of Midland Adhesive and Chemical Corporation into the Company filed with the New York
Department of State on June 29, 1976. (Exhibit 3(a)(10) to the Company's Form 10-K Annual Report for the fiscal
year ended June 30, 1987, File No. 1-4596.)
3(a)(11) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on December 20, 1976. (Exhibit 2.10 to Amendment No. 2 to the Company's Form S-7 Registration Statement,
File No. 2-57632.)
3(a)(12) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on January 17, 1977. (Exhibit 2.11 to Amendment No. 2 to the Company's Form S-7 Registration Statement, File
No. 2-57632.)
3(a)(13) Certificate of Correction filed with the New York Department of State on January 17, 1977. (Exhibit 2.12 to
Amendment No. 2 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(14) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on November 2, 1977. (Exhibit 3(a)(14) to the Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1987, File No. 1-4596.)
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
3(a)(15) Certificate of Merger of Devoe & Raynolds Company, Inc., Grow Chemical Sealants Corp., Harris Paint Company and
U.S. Paint, Lacquer & Chemical Company into the Company filed with the New York Department of State on June 26,
1978. (Exhibit 2.16 to the Company's Form S-7 Registration Statement, File No. 2-67686.)
3(a)(16) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on April 20, 1979. (Exhibit 3(a)(16) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1988, File No. 1-4596.)
3(a)(17) Certificate of Amendment of Certificate of Incorporation of the Company filed with the New York Department of
State on June 27, 1979. (Exhibit 3(a)(17) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1988, File No. 1-4596.)
3(a)(18) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on October 31, 1979. (Exhibit 3(a)(18) to the Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1988, File No. 1-4596.)
3(a)(19) Certificate of Merger of Trewax Company into the Company filed with the New York Department of State on June 17,
1980. (Exhibit 4(a)(19) to the Company's Form S-16 Registration Statement, File No. 2-72089.)
3(a)(20) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on June 25, 1980. (Exhibit 3(a)(20) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1990, File No. 1-4596.)
3(a)(21) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on February 6, 1986. (Exhibit 3(a)(21) to the Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1986, File No. 1-4596.)
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
3(a)(22) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State in October 1986. Exhibit 3(a)(22) to Amendment No. 1 to the Company's Form 10-K Annual Report for the fiscal
year ended June 30, 1987, File No. 1-4596.)
3(a)(23) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on November 9, 1987. (Exhibit 4 to the Company's Form 10-Q Quarterly Report for the quarter ended September
30, 1987, File No. 1-4596.)
3(b) By-Laws of the Company, as amended. (Exhibit 3.2 to the Company's Current Report on Form 8-K, dated July 12, 1990,
File No. 1-4596.)
4(a) Amended and Restated Rights Agreement, dated as of August 7, 1992, between the Company and The Bank of New York, as
Rights Agent. (Exhibit 1.1 to Amendment No. 1 to the Company's Registration Statement on Form 8-A, dated February
23, 1988, File No. 1-4596.)
4(b)(1) Credit Agreement (the "Credit Agreement"), dated as of March 31, 1993, by and among the Company, Grow Group
Insurance, Ltd., Chemical Bank New Jersey, N.A., Fleet Bank, PNC Bank, Kentucky, Inc. and Chemical Bank. (Exhibit
4.1 to the Company's Current Report on Form 8-K, date of earliest event reported: March 31, 1993, File No.
1-4596).
4(b)(2) Amendment No. 1, dated August 6, 1993, to the Credit Agreement, by and among the Company, Cello Corp., Ameritone
Paint Corporation, Zynolyte Products Company, Chemical Bank New Jersey, N.A., Fleet Bank and PNC Bank, Kentucky,
Inc. (Exhibit 4.1(b) to the Company's Current Report on Form 8-K, date of earliest event reported: August 3, 1994,
File No. 1-4596).
</TABLE>
59
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
4(b)(3) Waiver, Consent and Amendment No. 2, dated August 3, 1994, to the Credit Agreement, by and among the Company, Grow
Group Insurance, Ltd., Cello Corp., Sinclair Acquisition Corp. (formerly known as Ameritone Paint Corporation),
Zynolyte Products Company, Chemical Bank New Jersey, N.A., Fleet Bank and PNC Bank, Kentucky, Inc. (Exhibit 4.1(c)
to the Company's Current Report on Form 8-K, date of earliest event reported: August 3, 1994, File No. 1-4596).
**+10(a)(1) Employment Agreement dated and effective as of October 31, 1992 between the Company and Russell Banks.
+10(a)(2) Amended and Restated Employment Agreement dated effective as of September 15, 1988 between the Company and John F.
Gleason. (Exhibit 10(a)(2) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File
No. 1-4596.)
+10(a)(3)(i) Amended and Restated Employment Agreement dated effective as of September 15, 1988 between the Company and Joseph
M. Quinn. (Exhibit 10(a)(3) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File
No. 1-4596.)
+10(a)(3)(ii) Amendment No. 1 effective as of July 1, 1991 to Amended and Restated Employment Agreement dated effective as of
September 15, 1988 between the Company and Joseph M. Quinn. (Exhibit 10(a)(3)(ii) to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1992, File No. 1-4596.)
+10(a)(4) Amended and Restated Employment Agreement dated effective as of September 15, 1988 between the Company and Lloyd
Frank. (Exhibit 10(a)(5) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File
No. 1-4596.)
</TABLE>
60
<PAGE> 61
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
+10(a)(5) Employment Agreement effective as of September 15, 1988 between the Company and Frank V. Esser. (Exhibit 10(a)(7)
to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File No. 1-4596.)
+10(b)(1) Amended and Restated 1976 Stock Option Incentive Plan. (Exhibit 10(b) to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1989, File No. 1-4596.)
+10(b)(2)(i) 1990 Stock Option Incentive Plan. (Exhibit 28 to the Company's Form S-8 Registration Statement, File No.
33-41274.)
**+10(b)(2)(ii) 1990 Stock Option Incentive Plan, as amended through August 18, 1994, which amendments are subject to shareholder
approval.
+10(c)(1) Form of Amended and Restated Supplemental Retirement and Death Benefit Agreement dated effective as of September
15, 1988 between the Company and each of Russell Banks, John F. Gleason, Joseph M. Quinn and Lloyd Frank, together
with a schedule setting forth the material details in which each such agreement differs from the form filed
herewith. (Exhibit 10(c) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File
No. 1-4596.)
+10(c)(2) Supplemental Retirement and Death Benefits Agreement dated as of January 12, 1990, between the Company and Leslie
Stott. (Exhibit 10(c)(2) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1990, File
No. 1-4596.)
+10(d) Amended and Restated Non-Employee Director Fee Continuation Plan. (Exhibit 10(d) to the Company's Form 10-K Annual
Report for the fiscal year ended June 30, 1989, File No. 1-4596.)
+10(e) Fee Continuation Agreement dated as of September 15, 1988, between the Company and Robert J. Milano. (Exhibit
10(e)(ii) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1992, File No. 1-4596.)
</TABLE>
61
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
+10(f) Grow Group, Inc. Management Incentive Compensation Program. (Exhibit 10(i) to the Company's Form 10-K Annual
Report for the fiscal year ended June 30, 1984, File No. 1-4596.)
10(g)(1) Stock Purchase Agreement dated July 21, 1992 by and among the Company, Corimon C.A. S.A.C.A. and Corimon
Corporation. (Exhibit 10(j)(i) to the Company's Current Report on Form 8-K dated July 27, 1992, File No. 1-4596.)
10(g)(2) Registration Rights Agreement dated August 7, 1992 by and between the Company and Corimon C.A. S.A.C.A. (Exhibit
10(j)(ii) to the Company's Current Report on Form 8-K dated August 12, 1992, File No. 1-4596.)
10(g)(3) Standstill Agreement dated July 21, 1992 by and among the Company, Corimon C.A. S.A.C.A. and Corimon Corporation.
(Exhibit 10(j)(iii) to the Company's Current Report on Form 8-K dated July 27, 1992, File No. 1-4596.)
10(g)(4) Amendment dated May 24, 1993 to the Standstill Agreement. (Exhibit 10(j)(iv) to the Company's Current Report on
Form 8-K dated May 24, 1993, File No. 1-4596.)
**10(h) Coatings License Agreement dated as of March 24, 1993 by and between the Company and Montana, C.A.
**10(i) Coatings License Agreement dated as of April 21, 1993 by and between the Company and Montana, C.A.
*11 Computation of Earnings Per Share.
*22 Subsidiaries of Grow Group, Inc.
*23 Consent of Independent Auditors.
*27 Financial Data Schedule.
**28 Grow Group, Inc. Employee Stock Ownership and Savings Plan Annual Report on Form 11-K for the year ended June 30,
1992.
</TABLE>
- - - - - - - -----------------------------
* Filed herewith.
** To be filed by amendment.
+ Management contract or compensatory plan or arrangement.
62
<PAGE> 63
All exhibits, other than those filed herewith or to
be filed by amendment, are incorporated herein by reference
to the exhibit indicated in parenthetical references.
(b) Reports on Form 8-K
-------------------
During the fourth quarter of the Company's fiscal year ended
June 30, 1994, the Company filed a Current Report on Form 8-K, date of earliest
event reported: May 7, 1994, reporting under Item 5, "Other Events." No
financial statements were filed with that Report.
UNDERTAKING
The Company hereby undertakes to furnish to the Securities and
Exchange Commission, upon request, all constituent instruments defining the
rights of holders of long-term debt of the Company and its consolidated
subsidiaries not filed herewith. Such instruments have not been filed since
none are, nor are being, registered under Section 12 of the Securities and
Exchange Act of 1934 and the total amount of securities authorized under any of
such instruments does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis.
63
<PAGE> 64
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GROW GROUP, INC.
Dated: September 21, 1994 By: RUSSELL BANKS
------------------------
Russell Banks, President
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 dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - - - - - - --------- ----- ----
<S> <C> <C>
RUSSELL BANKS President (Principal Executive September 21, 1994
- - - - - - - ------------- Officer and Director)
Russell Banks
FRANK V. ESSER Treasurer (Chief Financial September 21, 1994
- - - - - - - -------------- Officer)
Frank V. Esser
HAROLD G. BITTLE Director September 21, 1994
- - - - - - - ----------------
Harold G. Bittle
ARTHUR W. BROSLAT Director September 21, 1994
- - - - - - - -----------------
Arthur W. Broslat
PHILIPPE ERARD Director September 21, 1994
- - - - - - - --------------
Philippe Erard
LLOYD FRANK Director September 21, 1994
- - - - - - - -----------
Lloyd Frank
JOHN F. GLEASON Director September 21, 1994
- - - - - - - ---------------
John F. Gleason
PETER L. KEANE Director September 21, 1994
- - - - - - - --------------
Peter L. Keane
ANGUS MACDONALD Director September 21, 1994
- - - - - - - ---------------
Angus MacDonald
ROBERT J. MILANO Director September 21, 1994
- - - - - - - ----------------
Robert J. Milano
TULLY PLESSER Director September 21, 1994
- - - - - - - -------------
Tully Plesser
JOSEPH M. QUINN Director September 21, 1994
- - - - - - - ---------------
Joseph M. Quinn
WILLIAM H. TURNER Director September 21, 1994
- - - - - - - -----------------
William H. Turner
</TABLE>
64
<PAGE> 65
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
GROW GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - - - - - - --------------------------------------------------------------------
Col A Col B Col C Col D Col E
- - - - - - - --------------------------------------------------------------------
ADDITIONS
-----------------------------------
Description Balance at Charged to Charged to Deductions Balance
Beginning Costs and Other Describe End of
of Period Expenses Accounts- Period
Describe
- - - - - - - --------------------------------------------------------------------
(a)
<S> <C> <C> <C> <C> <C>
Deducted from
accounts
receivable:
Allowance for
doubtful
accounts:
Year ended
June 30, 1994 $3,341 $2,089 $272 (b) ($2,035) $3,667
====================================================================
Year ended
June 30, 1993 $3,441 $2,586 ($100)(c) ($2,586) $3,341
====================================================================
Year ended
June 30, 1992 $3,962 $2,622 ($464)(d) ($2,679) $3,441
====================================================================
</TABLE>
(a) Write-off of uncollectible accounts receivable less recoveries.
(b) Allowance for doubtful accounts of acquired company at acquisition
date.
(c) Reclassification to other accounts.
(d) Allownace for doubtful accounts of assets disposed of at disposal
date.
F-1
<PAGE> 66
SCHEDULE IX - SHORT-TERM BORROWINGS
GROW GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - - - - - - --------------------------------------------------------------------
Col. A Col B Col C Col D Col E(2) Col F(3)
- - - - - - - --------------------------------------------------------------------
Category of Balance at Weighted Maximum Average Weighted
Aggregate End of Average Amount Amount Average
Short-Term Period Interest Out- Out- Interest
Borrowings Rate standing standing Rate
During During During
the the the
Period Period Period
- - - - - - - --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended
June 30, 1994
Loan payable
to Bank $0 $0 $0
====================================================================
Year Ended
June 30, 1993
Loan payable
to Bank $0 $0 $0
====================================================================
Year Ended
June 30, 1992
Loan payable
to Bank(1) $0 $5,000,000 $232,877 9.0%
====================================================================
</TABLE>
1) The loan payable to bank was repaid July 17, 1991 and represented
borrowings under prior credit arrangements.
2) The average amount outstanding during the period was computed by
dividing the total daily outstanding principal balances by 365.
3) The weighted average interest rate during the period was computed by
dividing the actual interest expense by the average short-term
borrowings outstanding.
F-2
<PAGE> 67
File No. 1-4596
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
ANNUAL REPORT
on
FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1994
under
THE SECURITIES AND EXCHANGE ACT OF 1934
--------------------------
GROW GROUP, INC.
(Exact name of registrant as specified in its charter)
EXHIBITS
--------
<PAGE> 68
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
3(a)(1) Restated Certificate of Incorporation of the Company filed with the New York Department of
State on October 18, 1965. (Exhibit 2.2 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(2) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on August 12, 1966. (Exhibit 2.3 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(3) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on August 19, 1968. (Exhibit 2.4 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(4) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on November 20, 1968. (Exhibit 2.5 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(5) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on August 18, 1969. (Exhibit 2.6 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(6) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on February 1, 1972. (Exhibit 2.7 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(7) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on May 14, 1973. (Exhibit 3(a)(7) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1987, File No. 1-4596.)
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
3(a)(8) Certificate of Merger of Grow Chemical Company into the Company filed with the New York Department of State on
January 14, 1975. (Exhibit 3(a)(8) to the Company's Form 10-K Annual Report for the fiscal year ended June 30,
1987, File No. 1-4596.)
3(a)(9) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on June 1, 1976. (Exhibit 3(a)(9) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1987, File No. 1-4596.)
3(a)(10) Certificate of Merger of Midland Adhesive and Chemical Corporation into the Company filed with the New York
Department of State on June 29, 1976. (Exhibit 3(a)(10) to the Company's Form 10-K Annual Report for the fiscal
year ended June 30, 1987, File No. 1-4596.)
3(a)(11) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on December 20, 1976. (Exhibit 2.10 to Amendment No. 2 to the Company's Form S-7 Registration Statement,
File No. 2-57632.)
3(a)(12) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on January 17, 1977. (Exhibit 2.11 to Amendment No. 2 to the Company's Form S-7 Registration Statement, File
No. 2-57632.)
3(a)(13) Certificate of Correction filed with the New York Department of State on January 17, 1977. (Exhibit 2.12 to
Amendment No. 2 to the Company's Form S-7 Registration Statement, File No. 2-57632.)
3(a)(14) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on November 2, 1977. (Exhibit 3(a)(14) to the Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1987, File No. 1-4596.)
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
3(a)(15) Certificate of Merger of Devoe & Raynolds Company, Inc., Grow Chemical Sealants Corp., Harris Paint Company and
U.S. Paint, Lacquer & Chemical Company into the Company filed with the New York Department of State on June 26,
1978. (Exhibit 2.16 to the Company's Form S-7 Registration Statement, File No. 2-67686.)
3(a)(16) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on April 20, 1979. (Exhibit 3(a)(16) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1988, File No. 1-4596.)
3(a)(17) Certificate of Amendment of Certificate of Incorporation of the Company filed with the New York Department of
State on June 27, 1979. (Exhibit 3(a)(17) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1988, File No. 1-4596.)
3(a)(18) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on October 31, 1979. (Exhibit 3(a)(18) to the Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1988, File No. 1-4596.)
3(a)(19) Certificate of Merger of Trewax Company into the Company filed with the New York Department of State on June 17,
1980. (Exhibit 4(a)(19) to the Company's Form S-16 Registration Statement, File No. 2-72089.)
3(a)(20) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on June 25, 1980. (Exhibit 3(a)(20) to the Company's Form 10-K Annual Report for the fiscal year ended June
30, 1990, File No. 1-4596.)
3(a)(21) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on February 6, 1986. (Exhibit 3(a)(21) to the Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1986, File No. 1-4596.)
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
3(a)(22) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State in October 1986. Exhibit 3(a)(22) to Amendment No. 1 to the Company's Form 10-K Annual Report for the fiscal
year ended June 30, 1987, File No. 1-4596.)
3(a)(23) Certificate of Amendment of the Certificate of Incorporation of the Company filed with the New York Department of
State on November 9, 1987. (Exhibit 4 to the Company's Form 10-Q Quarterly Report for the quarter ended September
30, 1987, File No. 1-4596.)
3(b) By-Laws of the Company, as amended. (Exhibit 3.2 to the Company's Current Report on Form 8-K, dated July 12, 1990,
File No. 1-4596.)
4(a) Amended and Restated Rights Agreement, dated as of August 7, 1992, between the Company and The Bank of New York, as
Rights Agent. (Exhibit 1.1 to Amendment No. 1 to the Company's Registration Statement on Form 8-A, dated February
23, 1988, File No. 1-4596.)
4(b)(1) Credit Agreement (the "Credit Agreement"), dated as of March 31, 1993, by and among the Company, Grow Group
Insurance, Ltd., Chemical Bank New Jersey, N.A., Fleet Bank, PNC Bank, Kentucky, Inc. and Chemical Bank. (Exhibit
4.1 to the Company's Current Report on Form 8-K, date of earliest event reported: March 31, 1993, File No.
1-4596).
4(b)(2) Amendment No. 1, dated August 6, 1993, to the Credit Agreement, by and among the Company, Cello Corp., Ameritone
Paint Corporation, Zynolyte Products Company, Chemical Bank New Jersey, N.A., Fleet Bank and PNC Bank, Kentucky,
Inc. (Exhibit 4.1(b) to the Company's Current Report on Form 8-K, date of earliest event reported: August 3, 1994,
File No. 1-4596).
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
4(b)(3) Waiver, Consent and Amendment No. 2, dated August 3, 1994, to the Credit Agreement, by and among the Company, Grow
Group Insurance, Ltd., Cello Corp., Sinclair Acquisition Corp. (formerly known as Ameritone Paint Corporation),
Zynolyte Products Company, Chemical Bank New Jersey, N.A., Fleet Bank and PNC Bank, Kentucky, Inc. (Exhibit 4.1(c)
to the Company's Current Report on Form 8-K, date of earliest event reported: August 3, 1994, File No. 1-4596).
**+10(a)(1) Employment Agreement dated and effective as of October 31, 1992 between the Company and Russell Banks.
+10(a)(2) Amended and Restated Employment Agreement dated effective as of September 15, 1988 between the Company and John F.
Gleason. (Exhibit 10(a)(2) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File
No. 1-4596.)
+10(a)(3)(i) Amended and Restated Employment Agreement dated effective as of September 15, 1988 between the Company and Joseph
M. Quinn. (Exhibit 10(a)(3) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File
No. 1-4596.)
+10(a)(3)(ii) Amendment No. 1 effective as of July 1, 1991 to Amended and Restated Employment Agreement dated effective as of
September 15, 1988 between the Company and Joseph M. Quinn. (Exhibit 10(a)(3)(ii) to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1992, File No. 1-4596.)
+10(a)(4) Amended and Restated Employment Agreement dated effective as of September 15, 1988 between the Company and Lloyd
Frank. (Exhibit 10(a)(5) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File
No. 1-4596.)
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
+10(a)(5) Employment Agreement effective as of September 15, 1988 between the Company and Frank V. Esser. (Exhibit 10(a)(7)
to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File No. 1-4596.)
+10(b)(1) Amended and Restated 1976 Stock Option Incentive Plan. (Exhibit 10(b) to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1989, File No. 1-4596.)
+10(b)(2)(i) 1990 Stock Option Incentive Plan. (Exhibit 28 to the Company's Form S-8 Registration Statement, File No.
33-41274.)
**+10(b)(2)(ii) 1990 Stock Option Incentive Plan, as amended through August 18, 1994, which amendments are subject to shareholder
approval.
+10(c)(1) Form of Amended and Restated Supplemental Retirement and Death Benefit Agreement dated effective as of September
15, 1988 between the Company and each of Russell Banks, John F. Gleason, Joseph M. Quinn and Lloyd Frank, together
with a schedule setting forth the material details in which each such agreement differs from the form filed
herewith. (Exhibit 10(c) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1989, File
No. 1-4596.)
+10(c)(2) Supplemental Retirement and Death Benefits Agreement dated as of January 12, 1990, between the Company and Leslie
Stott. (Exhibit 10(c)(2) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1990, File
No. 1-4596.)
+10(d) Amended and Restated Non-Employee Director Fee Continuation Plan. (Exhibit 10(d) to the Company's Form 10-K Annual
Report for the fiscal year ended June 30, 1989, File No. 1-4596.)
+10(e) Fee Continuation Agreement dated as of September 15, 1988, between the Company and Robert J. Milano. (Exhibit
10(e)(ii) to the Company's Form 10-K Annual Report for the fiscal year ended June 30, 1992, File No. 1-4596.)
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - ------- -----------
<S> <C>
+10(f) Grow Group, Inc. Management Incentive Compensation Program. (Exhibit 10(i) to the Company's Form 10-K Annual
Report for the fiscal year ended June 30, 1984, File No. 1-4596.)
10(g)(1) Stock Purchase Agreement dated July 21, 1992 by and among the Company, Corimon C.A. S.A.C.A. and Corimon
Corporation. (Exhibit 10(j)(i) to the Company's Current Report on Form 8-K dated July 27, 1992, File No. 1-4596.)
10(g)(2) Registration Rights Agreement dated August 7, 1992 by and between the Company and Corimon C.A. S.A.C.A. (Exhibit
10(j)(ii) to the Company's Current Report on Form 8-K dated August 12, 1992, File No. 1-4596.)
10(g)(3) Standstill Agreement dated July 21, 1992 by and among the Company, Corimon C.A. S.A.C.A. and Corimon Corporation.
(Exhibit 10(j)(iii) to the Company's Current Report on Form 8-K dated July 27, 1992, File No. 1-4596.)
10(g)(4) Amendment dated May 24, 1993 to the Standstill Agreement. (Exhibit 10(j)(iv) to the Company's Current Report on
Form 8-K dated May 24, 1993, File No. 1-4596.)
**10(h) Coatings License Agreement dated as of March 24, 1993 by and between the Company and Montana, C.A.
**10(i) Coatings License Agreement dated as of April 21, 1993 by and between the Company and Montana, C.A.
*11 Computation of Earnings Per Share.
*22 Subsidiaries of Grow Group, Inc.
*23 Consent of Independent Auditors.
*27 Financial Data Schedule.
**28 Grow Group, Inc. Employee Stock Ownership and Savings Plan Annual Report on Form 11-K for the year ended June 30,
1992.
</TABLE>
- - - - - - - -----------------------------
* Filed herewith.
** To be filed by amendment.
+ Management contract or compensatory plan or arrangement.
<PAGE> 1
Exhibit 11
GROW GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
Primary:
Average shares outstanding 16,061,000 13,781,000 11,686,000
Dilutive stock options
based on the treasury
stock method using the
average market price 45,000 69,000 19,000
------------------------------------
16,106,000 13,850,000 11,705,000
====================================
Income (loss) from
continuing operations $14,056,000 $10,842,000 $7,502,000
Discontinued operations 2,080,000 1,630,000
Extraordinary item (450,000)
------------------------------------
income (loss) $14,056,000 $12,472,000 $9,132,000
====================================
Per share:
Income (loss) from
continuing operations $.87 $.78 $.64
Discontinued operations .15 .14
Extraordinary item (.03) .00
------------------------------------
Net income (loss) $.87 $.90 $.78
====================================
Fully diluted:
Average shares outstanding 13,781,000 11,686,000
dilutive stock options
based on the treasury
stock method using the
higher of period-end or
average market price 100,312 57,000
Assumed conversion of
convertible subordinated
debt 1,974,000 2,062,000
------------------------------------
15,855,312 13,805,000
====================================
Income (loss) before $10,842,000 $ 7,502,000
extraordinary item
Add back interest and
finance charges net of
taxes on subordinated
debt 1,307,000 1,357,000
------------------------------------
Income (loss) from
continuing operations 12,149,000 8,859,000
Discontinued operations 2,080,000 1,630,000
Extraordinary item (450,000) 0
------------------------------------
Net income (loss) $13,779,000 $10,489,000
====================================
Per share:
Income (loss) from
continuing operation $.77 $.64
Discontinued operation .13 .12
Extraordinary item (.03) .00
------------------------------------
Net income (loss) $.87 $.76
====================================
</TABLE>
<PAGE> 1
EXHIBIT 22
Subsidiaries of Grow Group, Inc.
Set forth below is a list of active subsidiaries of Grow Group, Inc.
and their jurisdictions of incorporation. All of these subsidiaries are
wholly-owned. All are included in the consolidated financial statements of the
Company filed with this Report. Certain other subsidiaries have been omitted
as they do not, if considered in the aggregate as a single subsidiary,
constitute a significant subsidiary.
<TABLE>
<CAPTION>
Jurisdiction
Name of Subsidiary of Incorporation
- - - - - - - ------------------------------------ ---------------------------
<S> <C>
Sinclair-Ameritone Paint Corporation,
(formerly known as Ameritone Paint
Corporation) California
Cello Corp. Maryland
Devoe Coatings B.V. Netherlands
Zynolyte Products Company California
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
33-41274, 33-25754 (the Prospectus which also relates to Registration Statement
No. 2-65961), 33-25755 (the Prospectus which also relates to Registration
Statement No. 2-91262) and 33-22923 (the Prospectus which also relates to
Registration Statement Nos. 2-62814 and 2-58185) on the related Forms S-8 filed
by Grow Group, Inc. on June 18, 1991, November 23, 1988, November 23, 1988 and
July 11, 1988, respectively, of our report on the consolidated financial
statements and schedules of Grow Group, Inc. for the year ended June 30, 1994.
ERNST & YOUNG LLP
New York, New York
September 23, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 38,816,000
<SECURITIES> 0
<RECEIVABLES> 73,289,000
<ALLOWANCES> 3,667,000
<INVENTORY> 62,903,000
<CURRENT-ASSETS> 187,393,000
<PP&E> 99,331,000
<DEPRECIATION> 48,524,000
<TOTAL-ASSETS> 247,921,000
<CURRENT-LIABILITIES> 80,146,000
<BONDS> 0
<COMMON> 1,627,000
0
0
<OTHER-SE> 137,056,000
<TOTAL-LIABILITY-AND-EQUITY> 247,921,000
<SALES> 401,818,000
<TOTAL-REVENUES> 401,818,000
<CGS> 255,875,000
<TOTAL-COSTS> 377,583,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,089,000
<INTEREST-EXPENSE> 897,000
<INCOME-PRETAX> 24,235,000
<INCOME-TAX> 10,179,000
<INCOME-CONTINUING> 14,056,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,056,000
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
