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