<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 014699
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MARIETTA CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-1074992
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 Huntington Street, Cortland, New York 13045
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(607) 753-6746
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and former fiscal year
if changed since last report)
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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As of February 1, 1996 there were outstanding 3,596,049 shares of the
registrant's Common Stock, par value $.01 per share.
<PAGE>
INTRODUCTORY NOTE
Marietta Corporation ("Marietta" or the "Company") entered into an Agreement
and Plan of Merger, dated as of August 26, 1995, with BFMA Holding Corporation
("Parent"), and BFMA Acquisition Corporation ("Newco"), which provides for the
merger (the "Merger"), of Newco, a wholly-owned subsidiary of Parent, with and
into the Company, with the result that the Company will become a wholly-owned
subsidiary of Parent. Parent is a corporation controlled by Barry W. Florescue,
a director of the Company since August 31, 1995, and the beneficial owner of
approximately 8.7% of the issued and outstanding shares of common stock, par
value $.01 per share (the "Common Stock"). If the Merger is consummated, Mr.
Florescue and his affiliates will acquire the entire equity interest in the
Company and shareholders of the Company (other than Mr. Florescue and his
affiliates) will receive $10.25 per share in cash. The closing of the
transaction is subject to several conditions, including: Mr. Florescue obtaining
the financing necessary to approve the transaction; and approval of the
transaction by holders of at least 66 2/3% of the Common Stock. There can be no
assurance that the conditions will be satisfied.
<PAGE>
MARIETTA CORPORATION
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FORM 10-Q
INDEX
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Marietta Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 30, December 31,
1995 1994
<S> <C> <C>
Net sales $19,010,972 $13,108,956
Cost of sales 14,015,600 9,404,265
----------- -----------
Gross profit 4,995,372 3,704,691
Selling, general, and
administrative expenses 4,386,464 3,413,644
----------- -----------
Operating income 608,908 291,047
Other income (expense), net 106,333 47,423
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Income before income taxes 715,241 338,470
Income tax provision 307,399 151,459
----------- -----------
Net income $ 407,842 $ 187,011
=========== ===========
Earnings per share $0.11 $0.05
=========== ===========
Weighted average shares and common
share equivalents 3,621,516 3,592,702
=========== ===========
</TABLE>
See accompanying notes to condensed, consolidated financial statements.
<PAGE>
Marietta Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,141,619 $ 4,384,686
Accounts receivable, net 10,494,299 13,668,876
Inventories 15,134,166 12,626,817
Refundable income taxes 325,000 548,792
Other current assets 319,819 433,887
Deferred tax asset 682,787 601,952
----------- -----------
Total current assets 34,097,690 32,265,010
Property, plant and equipment, net 22,462,876 23,162,584
Restricted cash 2,800,000 2,700,000
Marketable securities 1,276,598 2,432,050
Excess of cost over net assets acquired, net 3,168,193 3,202,052
Other assets 353,143 368,888
----------- -----------
Total assets $64,158,500 $64,130,584
=========== ===========
LIABILITY AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,330,341 $ 4,528,147
Accrued payroll 1,275,068 1,708,637
Accrued rebates 465,911 483,653
Accrued expenses 2,027,934 1,448,565
Current maturities of long-term debt 300,906 336,699
Income taxes payable 241,211 137,541
----------- -----------
Total current liabilities 8,641,371 8,643,242
Long-term debt, less current maturities 6,316,438 6,514,335
Convertible subordinated note 279,120 278,040
Deferred tax liability 2,144,617 2,197,228
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Total liabilities 17,381,546 17,632,845
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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 40,109
Additional paid-in capital 36,762,049 36,762,049
Common stock notes receivable (607,500) (607,500)
Treasury stock, at cost (3,877,333) (3,877,333)
Retained earnings 15,164,189 14,756,349
Equity adjustment from foreign currency translation (812,620) (702,505)
Marketable securities net unrealized holding gain 108,060 126,570
----------- -----------
Total shareholders' equity 46,776,954 46,497,739
----------- -----------
Total liabilities and shareholders' equity $64,158,500 $64,130,584
=========== ===========
</TABLE>
See accompanying notes to condensed, consolidated financial statements.
<PAGE>
Marietta Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 30, December 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $407,842 $187,011
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 852,335 861,528
Provision for loss on accounts receivable 59,031 58,902
Provision for inventory obsolescence 162,256 160,902
Loss on disposal of assets 8,630 0
Deferred income taxes (136,090) (66,700)
Restricted cash (100,000) (100,000)
Other assets 0 (4,443)
Stock bonuses 0 61,040
Changes in working capital:
Accounts receivable 3,091,444 1,987,347
Inventories (2,705,075) (2,734,291)
Other current assets 113,476 104,645
Accounts payable and accrued expenses (64,279) (704,683)
Income taxes 327,849 (199,778)
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Net cash provided by (used in ) operating activities 2,017,419 (388,520)
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Cash flows from investing activities:
Capital expenditures (135,381) (938,317)
Sales of marketable securities 1,136,942 0
Purchases of marketable securities 0 (26,061)
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Net cash provided by (used in) investing activities 1,001,561 (964,378)
---------- ----------
Cash flows from financing activities:
Payments on long-term debt (233,690) (221,137)
Purchase of treasury stock 0 (55,800)
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Net cash used in financing activities (233,690) (276,937)
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Effect of foreign currency translation (28,357) (76,622)
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Net decrease in cash and cash equivalents 2,756,933 (1,706,457)
Cash and cash equivalents, beginning of period 4,384,686 7,476,101
---------- ----------
Cash and cash equivalents, end of period $7,141,619 $5,769,644
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $152,314 $138,493
Income taxes 59,491 421,374
</TABLE>
See accompanying notes to condensed, consolidated financial statements.
<PAGE>
MARIETTA CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The statements for the periods ended December 30, 1995 and December 31, 1994 are
unaudited. In the opinion of the Company the statements include all adjustments
necessary for a fair presentation of the results for the periods. The results
of operations for the period ended December 31, 1995 are not necessarily
indicative of the results of operations to be expected for the year ending
September 28, 1996.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements be read in
conjunction with the audited financial statements and notes thereto for the year
ended September 30, 1995 included in the Company's Annual Report.
Note 2. Inventories
Inventories are stated at lower of cost or market. Cost is determined on the
first-in, first-out method. Inventories consisted of the following:
December 30, September 30,
1995
1995 ----
----
Raw materials and $ 6,264,829 $ 4,568,609
supplies
Finished goods 8,869,337 8,058,208
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$15,134,166 $12,626,817
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Note 3. Legal Proceedings
As previously reported, an action has been commenced by a former owner of
Marietta American, Inc. (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, Inc., 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.
Note 4. Fair Value of Financial Instruments
The Company will adopt Statement of Financial Accounting Standard No. 107,
"Disclosures About Fair Value of Financial Instruments" in the current fiscal
year. The Company has not yet determined the effect that this Standard will have
on the Company's financial statements.
<PAGE>
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Net sales increased in the quarter ended December 30, 1995 by 45.0% to
$19,011,000 from $13,109,000 in the prior year's first quarter. The increase of
$5,902,000 was attributable to an increase in guest amenity sales of $2,088,000
(22.9% over the prior year's first quarter) and an increase in custom packaging
sales of $3,814,000 (95.4% over the prior year's first quarter). Guest amenity
sales were positively affected by the price increase put into effect in August
1995 and the continued improvement in hotel occupancy rates. The increase in
custom packaging sales was the result of large orders from two consumer
products companies.
For the first quarter of fiscal 1996 the Company's gross profit decreased to
26.3% of sales from 28.3% during the same period of fiscal 1995. This was
primarily a result of the product mix and the higher custom packaging sales
which carried a lower gross profit percentage. Although the gross profit
percentage decreased from the first quarter of 1995, the gross profit percentage
compares favorably to the gross profit percentage of 23.0% achieved during
fiscal 1995. This improvement is primarily attributable to the improvement in
the custom packaging business and the absorption of manufacturing overhead.
Selling, general and administrative expenses as a percentage of sales decreased
to 23.1% in the first quarter of fiscal 1996 from 26.1% in the first quarter of
1995. This percentage decrease is attributable to the significant increase in
sales. During the first quarter of fiscal 1996 the Company expensed $375,000 in
respect of the fee to Goldman, Sachs & Co. in connection with its retention as
the Company's financial advisor.
Other income (expense), net represents the netting of interest expense,
investment income and other miscellaneous income and expense. For the first
quarter of fiscal 1996 interest and other expense of $173,000 was comparable to
$161,000 for the first quarter of fiscal 1995. Investment income in the first
quarter of fiscal 1996 was $238,000 compared to $126,000 in the first quarter of
1995. This increase was due to an increase in interest income and to
significant gains from the sale of marketable securities. Other miscellaneous
income, which is primarily profit on the sale of inventory components, decreased
to $41,000 in the first quarter of fiscal 1996 as compared to $82,000 in the
first quarter of 1995.
Marietta's effective tax rate for federal, state and foreign income taxes was
43.0% in the first quarter of fiscal 1996 compared to 44.7% for the first
quarter of fiscal 1995. Both the 1996 and 1995 tax rates were increased by
state and provincial franchise/equity taxes.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital increased to $25,456,000 at December 30, 1995 from
$23,622,000 at September 30, 1995. Cash provided by operating activities for
the first quarter of fiscal 1996 was $2,017,000 compared to $389,000 being used
in operations for the first quarter of fiscal 1995. The increase in cash
provided by operating activities was primarily attributable to the following
factors: an increase in net income, a decrease in accounts receivable, an
increase in accrued expenses, an increase in income taxes payable and a decrease
in refundable taxes. The decrease in accounts receivable is primarily
attributable to collections in the first quarter of fiscal 1996 of the elevated
accounts receivable balance at the end of fiscal 1995 that had resulted from an
increase in sales in the last two months of fiscal 1995. Cash provided from
investing activities of $1,002,000 in the first quarter of fiscal 1996 was the
result of lower capital expenditures and the proceeds received from the sale of
marketable securities. This is contrasted with $964,000 used in investing
activities in the first quarter of fiscal 1995 primarily in connection with
capital expenditures.
The provision made by the Company for loss on accounts receivable is adjusted
each period based upon actual write-offs charged and recoveries credited to the
allowance for doubtful
<PAGE>
accounts receivable at the end of a fiscal period.
The Company has a $12,000,000 Revolving Credit Facility which 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. There
are currently no borrowings under the facility. In addition, the Company is
currently not in compliance with a financial covenant contained in such
facility. Accordingly, the Company is not permitted to make borrowings under
such facility without obtaining an appropriate waiver from its bank.
Management believes that the Company is in sound financial condition as
evidenced by its total shareholders' equity of $46,777,000 versus its long-term
debt of $6,896,000. Management believes that its current assets plus funds
provided by operations and the Company's 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.
Shareholders' equity was negatively affected by approximately $110,000 as a
result of a reduction in the Canadian exchange rate from 74.5% to 73.3%.
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 totaling 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 event discussed in Note 3 of the Financial
Statements.
Seasonality
- -----------
The Company's guest amenity business is subject to some fluctuation in results
reflecting the seasonal nature of the travel and lodging industry. As a
consequence the revenues from the Company's guest amenity business in its third
and fourth fiscal quarters tend to be slightly higher than during the rest of
the year.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No.
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27 Financial Data Schedule
(b) None.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
MARIETTA CORPORATION
Date: February 5, 1996
By: /s/ Stephen D. Tannen
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Stephen D. Tannen
President and Chief Executive Officer
By: /s/ Philip A. Shager
----------------
Philip A. Shager
Vice President, Chief Accounting
Officer and Treasurer
<PAGE>
EXHIBIT INDEX
Filed
Exhibit Herewith
No. Description Page No.
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27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL HISTORY EXTRACTED FROM FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE IN THE FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 7141619
<SECURITIES> 0
<RECEIVABLES> 10824165
<ALLOWANCES> (329866)
<INVENTORY> 15134166
<CURRENT-ASSETS> 34097690
<PP&E> 42227619
<DEPRECIATION> (19764743)
<TOTAL-ASSETS> 64158500
<CURRENT-LIABILITIES> 8641371
<BONDS> 6595558
40109
0
<COMMON> 0
<OTHER-SE> 46736845
<TOTAL-LIABILITY-AND-EQUITY> 64158500
<SALES> 19010972
<TOTAL-REVENUES> 19010972
<CGS> 14015600
<TOTAL-COSTS> 14015600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 59031
<INTEREST-EXPENSE> 138914
<INCOME-PRETAX> 715241
<INCOME-TAX> 307399
<INCOME-CONTINUING> 407842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 407842
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
