<PAGE>
UNITED STATES
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 MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission File Number: 0-24556
MKR HOLDINGS
(Exact name of registrant as specified in its charter)
UTAH 87-0372759
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 WEST 2300 SOUTH
SALT LAKE CITY, UTAH 84119
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 972-2100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
COMMON STOCK, PAR VALUE $.01 PER SHARE
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. [x]
The aggregate market value of voting stock held by non-affiliates of
the Registrant as of June 30, 2000 (based upon the average of closing bid and
ask prices as of such date) was $946,209.
The number of shares of Common Stock outstanding as of June 30, 2000
was 11,120,577.
Documents incorporated by reference: FORM 10-Q FILED ON NOVEMBER 15, 1999.
<PAGE>
FORM 10-K
MKR HOLDINGS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
PAGE
----
<S> <C>
ITEM 1 Business .................................................................... 3
ITEM 2 Properties .................................................................. 5
ITEM 3 Legal Proceedings ........................................................... 5
ITEM 4 Submission of Matters to a Vote of Security Holders ......................... 5
PART II
ITEM 5 Market for the Registrant's Common Equity
and Related Stockholder Matters ...................................... 6
ITEM 6 Selected Consolidated Financial Data ........................................ 8
ITEM 7 Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ........................ 9
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk .................. 14
ITEM 8 Consolidated Financial Statements and
Supplementary Data ................................................... 14
ITEM 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............................... 14
PART III
ITEM 10 Directors and Executive Officers of the Registrant .......................... 15
ITEM 11 Executive Compensation ...................................................... 17
ITEM 12 Security Ownership of Certain Beneficial
Owners and Management ................................................ 19
ITEM 13 Certain Relationships and Related Transactions .............................. 19
PART IV
ITEM 14 Exhibits, Consolidated Financial Statement
Schedules and Reports on Form 8-K .................................... 21
SIGNATURES ............................................................................ 26
</TABLE>
<PAGE>
PART I
THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THAT TERM IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
(SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934). ADDITIONAL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS
MAY BE MADE BY THE COMPANY FROM TIME TO TIME, IN FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION OR OTHERWISE. STATEMENTS CONTAINED HEREIN THAT ARE
NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS MADE PURSUANT TO THE SAFE
HARBOR PROVISIONS REFERENCED ABOVE. FORWARD-LOOKING STATEMENTS MAY INCLUDE,
BUT ARE NOT LIMITED TO, PROJECTIONS OF REVENUE, INCOME OR LOSS AND CAPITAL
EXPENDITURES, STATEMENTS REGARDING FUTURE OPERATIONS, FINANCING NEEDS,
COMPLIANCE WITH FINANCIAL COVENANTS IN LOAN AGREEMENTS, PLANS FOR ACQUISITION
OR SALE OF ASSETS OR BUSINESSES AND CONSOLIDATION OF OPERATIONS OF NEWLY
ACQUIRED BUSINESSES, AND PLANS RELATING TO PRODUCTS OR SERVICES OF THE
COMPANY, ASSESSMENTS OF MATERIALITY, PREDICTIONS OF FUTURE EVENTS AND THE
EFFECTS OF PENDING AND POSSIBLE LITIGATION, AS WELL AS ASSUMPTIONS RELATING
TO THE FOREGOING. IN ADDITION, WHEN USED IN THIS DISCUSSION, THE WORDS
"ANTICIPATES," "BELIEVES," "ESTIMATES," "EXPECTS," "INTENDS," "PLANS" AND
VARIATIONS THEREOF AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND
UNCERTAINTIES, SOME OF WHICH CANNOT BE PREDICTED OR QUANTIFIED BASED ON
CURRENT EXPECTATIONS. CONSEQUENTLY, FUTURE EVENTS AND ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN, CONTEMPLATED BY, OR UNDERLYING THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K.
STATEMENTS IN THIS ANNUAL REPORT, PARTICULARLY IN "ITEM 1. BUSINESS," "ITEM
3. LEGAL PROCEEDINGS," THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," DESCRIBE CERTAIN FACTORS, AMONG OTHERS, THAT COULD
CONTRIBUTE TO OR CAUSE SUCH DIFFERENCES. OTHER FACTORS THAT COULD CONTRIBUTE
TO OR CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, UNANTICIPATED
DEVELOPMENTS IN ANY ONE OR MORE OF THE FOLLOWING AREAS: ABILITY TO SECURE
FINANCING, THE RATE AND CONSUMER ACCEPTANCE OF NEW PRODUCT INTRODUCTIONS,
COMPETITION, THE NUMBER AND NATURE OF CUSTOMERS AND THEIR PRODUCT ORDERS,
PRICING, FOREIGN MANUFACTURING, SOURCING AND SALES (INCLUDING FOREIGN
GOVERNMENT REGULATION, TRADE AND IMPORTATION CONCERNS AND FLUCTUATION IN
EXCHANGE RATES), BORROWING COSTS, CHANGES IN TAXES DUE TO CHANGES IN THE MIX
OF U.S. AND NON-U.S. REVENUE, PENDING OR THREATENED LITIGATION, THE
AVAILABILITY OF KEY PERSONNEL AND OTHER RISKS FACTORS WHICH MAY BE DETAILED
FROM TIME TO TIME IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE
HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT
OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNEXPECTED EVENTS.
2
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ITEM 1. BUSINESS
Prior to November 30, 1999, MKR Holdings, formerly Marker
International (the "Company") was a holding company which operated its
business through its subsidiaries, Marker Deutschland GmbH ("Marker
Germany"), Marker USA, Inc. ("Marker USA"), Marker Ltd., Marker Japan Co.
Ltd. ("Marker Japan"), Marker Austria GmbH ("Marker Austria") and Marker
Canada, Ltd. ("Marker Canada"). The Company and its subsidiaries were a
leading designer, developer, manufacturer and marketer of alpine ski bindings
in North America, Europe and Asia. Substantially all of the Company's ski
bindings were manufactured by Marker Germany which also distributed bindings
in Germany, to subsidiaries of the Company, and to independent distributors
in countries where the Company did not have a distribution subsidiary.
On November 30, 1999 (the "Closing Date"), the Company sold
substantially all of its assets (including the equity securities of its
subsidiaries) to Marker International GmbH, a GmbH organized under the laws
of Switzerland ("Newco"), pursuant to an asset purchase agreement (as amended
by the Amendment to the Asset Purchase Agreement dated as of September 20,
1999, the "Purchase Agreement") between the Company and Newco. In exchange,
Newco assumed substantially all of the liabilities of the Company and the
Company received a 15% equity interest in Newco. The remaining 85% equity
interest in Newco is held by CT Sports Holding AG ("CT"), a joint venture
between Tecnica S.p.A. and H.D. Cleven, the principal shareholder of the
Volkl Group. Pursuant to the Purchase Agreement, CT was required to
contribute to Newco $15,000,000 in cash for its 85% equity interest in Newco.
After taking into account CT's purchase of 66.66% of Marker Canada in June
1999 for $1,025,501, CT contributed $13,974,499 to Newco in a combination of
debt and equity.
In connection with the Purchase Agreement, the Company and CT
entered into an operating agreement which, among other things, grants CT an
option (the "Option") to purchase the Company's 15% equity interest in Newco
at any time on or after November 30, 2001, at the then fair market value,
subject to reduction in an amount equal to the sum of: (a) any indemnity
obligations of the Company to Newco, (b) all unreimbursed advances from Newco
for operating and administrative expenses (currently estimated to be
approximately $300,000 per year) and costs of defending indemnifiable claims,
if any, incurred by Newco, together with interest thereon, (c) all advances
by Newco to the Company to pay any income tax liability, together with
interest thereon, plus (d) $775,000. Thereafter, the Company will be
liquidated and the net proceeds of the exercise of the Option will be
distributed to the shareholders of the Company in liquidation. In determining
fair market value, all of CT's $15,000,000 transfer has been considered
equity.
In connection with the Purchase Agreement, the Company reached
agreements-in-principle regarding the restructuring of its debt and the
treatment of such debt under a Plan of reorganization with substantially all
of its creditors that were impaired under the Plan of reorganization. On
August 19, 1999, the Company, DNR North America, Inc. and DNR USA, Inc.
(collectively, the "Debtors") filed voluntary petitions for relief under
Chapter 11 of the
3
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United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On September 22, 1999, the
Debtors filed the First Amended Joint Chapter 11 Plan of Reorganization (as
amended by the Amendment to the First Amended Joint Chapter 11 Plan of
Reorganization, dated as of October 25, 1999, the "Plan") and a related
disclosure statement (the "Disclosure Statement"). By order dated September
22, 1999, the Bankruptcy Court approved the Disclosure Statement as
containing adequate information. The Disclosure Statement and the Plan were
subsequently distributed to the Debtors' creditors and shareholders for
approval, which approval was subsequently obtained. On October 27, 1999, the
Plan was confirmed by order of the Bankruptcy Court (the "Confirmation
Order"). Pursuant to the Confirmation Order, the Bankruptcy Court approved
the Plan and the Purchase Agreement on October 27, 1999. The Company did not
distribute any securities in connection with the Plan.
As a result of the events described above, the Company is no longer
engaged in the conduct of business and operates for the sole purpose of
holding and subsequently liquidating its assets (which consists almost
entirely of its equity interest in Newco). The Company is required to
dissolve and liquidate all of its assets no earlier than November 30, 2002,
and no later than November 30, 2004. If the Option is not exercised prior to
liquidation, then upon liquidation, the shareholders of the Company will
receive an equity interest in Newco equal to each shareholder's pro rata
share of the Company's 15% equity interest in Newco.
As of March 31, 2000, the Company's 15% equity interest in Newco
(the "Investment") was valued at approximately $2.8 million ($3.6 million
less the $775,000 that will be deducted from the purchase price if CT
exercises the Option). The liquidation value has been determined by
management based upon an independent fair market valuation of the Company's
15% equity interest in Newco. The valuation of the Company's Investment will
be updated on an annual basis and the Investment valuation will be adjusted
accordingly. The actual liquidation value of the Company's 15% equity
interest in Newco, when such liquidation occurs, may materially differ from
the value contained herein.
The Company was incorporated in 1981 under the laws of the State of
Utah. The Company's principal executive offices are located at 1070 West 2300
South, Salt Lake City, Utah 84119 and its telephone number is (801) 972-2100.
WORKING CAPITAL
Effective November 30, 1999, the Company can borrow up to $300,000
annually from Newco to fund the costs inherent in liquidating the Company.
4
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EMPLOYEES AND LABOR RELATIONS
As of March 31, 2000, the Company had one employee. Kevin Hardy
serves as the Company's President and Chief Financial Officer.
Pursuant to the Plan, as of November 30, 1999, the business and
affairs of the Company have been managed by and under the direction of the
Company's Board of Directors, which consists of the following three members:
Kevin Hardy, Henry E. Tauber and Louis M. Alpern. In addition to being a
director and an officer of the Company, Mr. Hardy serves as the Chief
Financial Officer, Secretary and as a director of Marker USA, a subsidiary of
Newco.
REGULATIONS
Federal, state and local environmental regulations have not had, and
are not expected to have, any material adverse effect upon the expenditures
of the Company.
ITEM 2. PROPERTIES
The Company currently uses the headquarters building for Marker USA
(located in Salt Lake City, Utah) to coordinate the liquidation of the
Company.
ITEM 3. LEGAL PROCEEDINGS
A description of the Company's voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court is
qualified in its entirety by reference to Part II, Item 1 of the Quarterly
Report on Form 10-Q filed on November 15, 1999, and is herein incorporated by
reference.
The Company is not currently a party to or subject to any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered in this report.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock traded on the Nasdaq National Market
under the symbol "MRKR" until October 28, 1998. The following table sets
forth the high and low closing sale prices of the common stock, as reported
by the Nasdaq National Market, for the calendar periods indicated, in dollars:
<TABLE>
<CAPTION>
QUARTER OR PERIOD ENDED 1998 HIGH LOW
----------------------------- ----- ---
<S> <C> <C>
June 30 $3.69 $1.63
September 30 2.13 .38
October 1 - October 28 1.12 .43
</TABLE>
From October 29, 1998, until the date hereof, the Company's common
stock has been quoted on the over-the-counter bulletin board. The following
table sets forth the high and low closing prices of the common stock, as
quoted on the over-the-counter bulletin board, for the calendar periods
indicated, in dollars.
<TABLE>
<CAPTION>
QUARTER OR PERIOD ENDED HIGH LOW
----------------------- ---- ---
<S> <C> <C>
1998
----
October 29 - December 31 $ .93 $ .42
1999
----
March 31 .78 .42
June 30 .59 .25
September 30 .48 .19
December 31 .59 .17
2000
----
March 31 .35 .20
June 30 .24 .16
</TABLE>
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
Based upon information available from the Company's registrar and
transfer agent, the Company estimates that at June 30, 2000, there were
approximately 1,800 holders of record of the Company's common stock.
The Company was recently notified by NASDAQ that it must apply for a
different ticker symbol due to the name change of the Company. The Company
intends to comply with such request.
6
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DIVIDEND POLICY
No dividends have been declared on the Company's common stock since
1984 and the Company does not anticipate paying any dividends.
SALES OF UNREGISTERED SECURITIES
Except for the sale of 1,000,000 shares of the Company's Series B
Preferred stock to Henry E. Tauber, a director of the Company (see Note 4 to
the financial statements), the Company has not sold any unregistered
securities in the previous three years.
7
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated financial information is provided for the
last five fiscal years. The information is qualified in its entirety by, and
should be read in conjunction with, the Consolidated Financial Statements and
Notes thereto included herein (in thousands, except notes).
<TABLE>
<CAPTION>
April 1,1999 For Fiscal Years Ended March 31,
CONSOLIDATED INCOME STATEMENT DATA to November --------------------------------------------------
30, 1999 1999 1998 1997 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 34,140 $ 74,167 $ 81,401 $ 83,076 $ 87,911
Cost of sales 21,635 54,638 54,460 50,441 52,608
--------- --------- --------- --------- ---------
Gross profit 12,505 19,529 26,941 32,635 35,303
--------- --------- --------- --------- ---------
Operating expenses:
Selling 5,305 15,275 13,065 14,730 14,592
General and administrative 5,468 15,401 7,475 8,616 10,559
Research and development 1,170 2,756 3,003 2,996 2,762
Warehousing and shipping 1,160 2,020 1,660 1,617 1,566
--------- --------- --------- --------- ---------
Total operating expenses 13,103 35,452 25,203 27,959 29,479
--------- --------- --------- --------- ---------
Operating (loss) income (598) (15,923) 1,738 4,676 5,824
--------- --------- --------- --------- ---------
Other income (expense):
Interest expense (2,392) (6,637) (5,746) (5,109) (5,193)
Other, net (796) 1,508 33 2,814 2,072
---------- --------- --------- --------- ---------
Total other income (expense) (3,188) (5,129) (5,713) (2,295) (3,121)
--------- --------- --------- --------- ---------
(Loss) income from continuing operations before
reorganization items, income taxes and cumulative
effect of accounting change (3,786) (21,052) (3,975) 2,381 2,703
Reorganization items:
Gain on sale of substantially all assets 16,537 - - - -
Professional Fees (1,367) - - - -
Other general and administrative expenses (119) - - - -
--------- --------- --------- --------- ---------
15,051 - - - -
--------- --------- --------- --------- ---------
(Loss) income from continuing operations before
income taxes and cumulative effect of accounting
change 11,265 (21,052) (3,975) 2,381 2,703
Provision for income taxes (12) (1,458) (1,158) (700) (609)
--------- --------- --------- --------- ---------
(Loss) income from continuing operations before
cumulative effect of accounting change 11,253 (22,510) (5,133) 1,681 2,094
Cumulative effect of accounting change, net of tax - - - - (266)
--------- --------- --------- -------- ---------
(Loss) income from continuing operations 11,253 (22,510) (5,133) 1,681 1,828
--------- --------- --------- --------- ---------
Discontinued operations:
(Loss) income from operations of discontinued
snowboard business, net of income taxes - (1,484) (12,196) 2,921 1,595
Gain (loss) on disposal of snowboard business 1,634 (24,024) - - -
--------- --------- --------- --------- ---------
(Loss) income from discontinued operations 1,634 (25,508) (12,196) 2,921 1,595
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item 12,887 (48,018) (17,329) 4,602 3,423
--------- --------- --------- --------- ---------
Extraordinary item - Gain on restructuring of debt
(net of income tax benefit of $0) 15,422 - - - -
--------- --------- --------- --------- ---------
Net (loss) income $ 28,309 $ (48,018) $ (17,329) $ 4,602 $ 3,423
========= ========= ========= ========= =========
Net (loss) income applicable to common shares $ 28,309 $ (48,187) $ (17,329) $ 4,602 $ 3,423
========= ========= ========= ========= =========
</TABLE>
8
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<TABLE>
<CAPTION>
For Fiscal Years Ended March 31,
-----------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA 1999 1998 1997 1996
------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Current assets $ 47,082 $ 77,614 $ 78,271 $ 64,592
Total assets 58,973 105,120 117,140 87,265
Current liabilities 81,941 70,868 57,146 51,045
Long-term debt, net of
current maturities 3,821 14,898 16,487 5,452
Series A Bonds, net of
current maturities - 5,500 10,000 10,000
Minority interest - 1,447 1,810 -
Redeemable preferred stock 3,000 - - -
Total shareholders'
equity (deficit) (29,789) 12,407 31,697 20,768
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS IN LIQUIDATION AS OF MARCH 31, 2000
-----------------------------------------------------------
MARCH 31, 2000
--------------
<S> <C>
Total assets in liquidation $ 2,906
Total liabilities in liquidation 238
Net assets in liquidation $ 2,668
Net assets in liquidation per common share (based on $ .24
11,120,577 common shares outstanding)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
PURCHASE AGREEMENT WITH NEWCO - On November 30, 1999 (the "Closing
Date"), the Company sold substantially all of its assets (including the
equity securities of its subsidiaries) to Marker International GmbH, a GmbH
organized under the laws of Switzerland ("Newco"), pursuant to an asset
purchase agreement (as amended by the Amendment to the Asset Purchase
Agreement dated as of September 20, 1999, the "Purchase Agreement") between
the Company and Newco. In exchange, Newco assumed substantially all of the
liabilities of the Company and the Company received a 15% equity interest in
Newco. The remaining 85% equity interest in Newco is held by CT Sports
Holding AG ("CT"), a joint venture between Tecnica S.p.A. and H.D. Cleven,
the principal shareholder of the Volkl Group. Pursuant to the Purchase
Agreement, CT was required to contribute to Newco $15,000,000 in cash for its
85% equity interest in Newco. After taking into account CT's purchase of
66.66% of Marker Canada in June 1999 for $1,025,501, CT contributed
$13,974,499 to Newco in a combination of debt and equity.
In connection with the Purchase Agreement, the Company and CT
entered into an operating agreement which, among other things, grants CT an
option (the "Option") to purchase the Company's 15% equity interest in Newco
at any time on or after November 30, 2001 at the then fair market value,
subject to reduction in an amount equal to the sum of: (a) any indemnity
9
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obligations of the Company to Newco, (b) all unreimbursed advances from Newco
for operating and administrative expenses (currently estimated to be
approximately $300,000 per year) and costs of defending indemnifiable claims,
if any, incurred by Newco, together with interest thereon, (c) all advances
by Newco to the Company to pay any income tax liability, together with
interest thereon, plus (d) $775,000. Thereafter, the Company will be
liquidated and the net proceeds of the exercise of the Option will be
distributed to the shareholders of the Company in liquidation. In determining
fair market value, all of CT's $15,000,000 transfer has been considered
equity.
In connection with the Purchase Agreement, the Company reached
agreements-in-principle regarding the restructuring of its debt and the
treatment of such debt under a plan of reorganization with substantially all
of its creditors that were impaired under the Plan of reorganization. On
August 19, 1999, the Company, DNR North America, Inc. and DNR USA, Inc.
(collectively, the "Debtors") filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On
September 22, 1999, the Debtors filed the First Amended Joint Chapter 11 Plan
of Reorganization (as amended by the Amendment to the First Amended Joint
Chapter 11 Plan of Reorganization, dated as of October 25, 1999, the "Plan")
and a related disclosure statement (the "Disclosure Statement"). By order
dated September 22, 1999, the Bankruptcy Court approved the Disclosure
Statement as containing adequate information. The Disclosure Statement and
the Plan were subsequently distributed to the Debtors' creditors and
shareholders for approval, which approval was subsequently obtained. On
October 27, 1999, the Plan was confirmed by order of the Bankruptcy Court
(the "Confirmation Order"). Pursuant to the Confirmation Order, the
Bankruptcy Court approved the Plan and the Purchase Agreement on October 27,
1999. The Company did not distribute any securities in connection with the
Plan.
As a result of the events described above, the Company is no longer
engaged in the conduct of business and operates for the sole purpose of
holding and subsequently liquidating its assets (which consists almost
entirely of its equity interest in Newco). The Company is required to
dissolve and liquidate all of its assets no earlier than November 30, 2002,
and no later than November 30, 2004. If the Option is not exercised prior to
liquidation, then upon liquidation, the shareholders of the Company will
receive an equity interest in Newco equal to each shareholder's pro rata
share of the Company's 15% equity interest in Newco.
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT - The Company
recognized an extraordinary gain of $15.4 million from the Company's
restructuring of debt with Manufacturers and Traders Trust Company ("M&T
Bank"), KeyBank National Association ("KeyBank"), the holder of the Company's
Series A bonds and Hypo Vereinsbank (New York branch). As of the Closing
Date, Marker Germany had debts outstanding with Hypo Vereinsbank and Deutsche
Bank totaling $53.4 million. Pursuant to the Purchase Agreement, Marker
Germany was acquired by Newco and is no longer a subsidiary of the Company.
10
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GAIN ON SALE OF ASSETS AND INVESTMENT IN NEWCO - The Company
recognized a gain of $16.5 million from the sale to Newco of substantially
all of the Company's assets and the assumption by Newco of certain of the
Company's liabilities pursuant to the Purchase Agreement.
The Company has valued and accounted for its 15% equity interest in
Newco (the "Investment") based the estimated liquidation value. Based upon
the sales price of substantially all of the assets, the initial liquidation
value was approximately $1.9 million. Changes in liquidation value to date
are recorded as unrealized gains or losses in each period. As of March 31,
2000, based on a report by an independent appraiser, the Investment was
valued at approximately $2.8 million ($3.6 million less the $775,000 that
will be deducted from the purchase price if CT exercises the Option) which
resulted in an unrealized gain of $968,000 to the Company. Such appraisal of
the value of the Investment will be updated going forward on at least an
annual basis and the accounting of the Investment will be adjusted
accordingly. The actual liquidation value of the Company's 15% equity
interest in Newco, when such liquidation occurs, may differ materially from
the estimated value recorded herein. The financial statements of Newco will
be filed by an amendment to this Form 10-K within 180 days of March 31, 2000.
RESULTS OF CONTINUING OPERATIONS
THE PERIOD FROM APRIL 1, 1999 TO NOVEMBER 30, 1999 COMPARED TO FISCAL YEAR
1999
Comparisons of the results of operations and related cash flows set
forth below for the period from April 1, 1999 to November 30, 1999, to the
prior fiscal year are not meaningful due to the consummation of the
transactions contemplated in the Purchase Agreement. As discussed in Note 1
to the financial statements, the Company is no longer engaged in the conduct
of business and operates for the sole purpose of holding and subsequently
liquidating its assets. Since December 1, 1999, the Company's financial
reporting is being made in accordance with the liquidation basis of
accounting. The following discussion relates to the results of operations
prior to December 1, 1999 (April 1, 1999 to November 30, 1999), which are
presented on a going concern basis.
Net sales for the period from April 1, 1999 to November 30, 1999
decreased to $34.1 million, compared to $74.2 million in fiscal year 1999.
The decrease in sales is primarily due to: (i) the sale of substantially all
of the Company's assets (including the equity securities of its subsidiaries)
to Newco on November 30, 1999, (ii) the licensing of soft good sales to Ski
and Sports Recreation Company, L.L.C. ("SSRC"), the licensee of Marker
clothing and other soft goods, effective April 1, 1999, and (iii) lower sales
in the United States due to unseasonably warm weather and lower market share.
Gross profit for the period from April 1, 1999 to November 30, 1999
was $12.5 million, or 36.6% of net sales, compared to $19.5 million, or 26.3%
of net sales, for fiscal year 1999. The decrease in gross profit amount is
due to the decrease in sales, as
11
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explained above. The increase in the gross profit percentage is due to (i)
personnel reductions at the manufacturing plant in Germany and (ii) the
shutdown of the factory for a total of nineteen weeks of the prior year which
lowered the gross margin percentage for the prior year due to unabsorbed
overhead. The personnel reductions were a result of the implementation of
production efficiencies.
Operating expenses for April 1, 1999 to November 30, 1999 decreased
to $13.1 million, compared to $35.5 million for fiscal year 1999. The
decrease in operating expenses is primarily due to: (i) the sale of
substantially all of the assets (including the equity securities of its
subsidiaries) of the Company to Newco on November 30, 1999, (ii) the
licensing of soft good sales to SSRC, the licensee of Marker clothing and
other soft goods, effective April 1, 1999, and (iii) cost reductions.
Interest expense for the period from April 1, 1999 to November 30,
1999 decreased to $2.4 million, compared to $6.6 million for fiscal year
1999. This decrease was attributable to lower borrowing requirements due to
the sale of substantially all of the Company's assets and the assumption of
substantially all of the Company's liabilities by Newco on November 30, 1999,
and the restructuring of company debt pursuant to the Plan.
Other income (loss) for period from April 1, 1999 to November 30,
1999 decreased to $(0.8) million, compared to $1.5 million for fiscal year
1999. The decrease in other income (loss) is primarily due to realized and
unrealized foreign exchange losses of $(0.6) million for fiscal year 2000,
compared to the realized and unrealized foreign exchange gains of $2.9
million for fiscal year 1999.
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Net sales decreased 8.9% in fiscal year 1999 to $74.2 million,
compared to $81.4 million in fiscal year 1998. The decrease in sales is
primarily attributable to unseasonably warm weather in the United States
during the fall and winter months and lower sales to independent distributors
in Asia and Europe due to an overall market decline in demand.
Gross profit for fiscal year 1999 decreased to $19.5 million, and
decreased as a percentage of sales to 26.3%, compared to $26.9 million, or
33.1% of sales, for fiscal year 1998. The decrease in gross profit percentage
primarily resulted from (i) unabsorbed fixed costs related to the temporary
shutdown of the production line in Germany, (ii) increased inventory reserves
for closeout inventory, and (iii) lower margins from the sale of the
Company's clothing and soft goods products. The decrease in clothing and soft
goods margins resulted from an increase in closeout product sales, which
typically produce lower margins.
Operating expenses increased to $35.5 million for fiscal year 1999,
compared to $25.2 million for fiscal year 1998. The increase resulted
primarily from; (i) legal and advisory fees
12
<PAGE>
paid to assist the Company in developing and implementing restructuring plans
and negotiating with lenders, (ii) operation costs of a new distribution
subsidiary in Canada, which began its operations in January 1998, and (iii)
accrued severance costs due to a reduction in the labor force at the
production facility in Germany.
Interest expense increased to $6.6 million for fiscal year 1999,
compared to $5.7 million for fiscal year 1998. The increase was attributable
to an increased average borrowing level which was required to satisfy higher
working capital requirements due to the Company's historical losses and a
higher interest rate which was applied to the U.S. credit line in 1999.
Other income increased to $1.5 million in fiscal year 1999, compared
to $33,000 in fiscal year 1998. The increase in other income was primarily
the result of realized and unrealized net gains on forward foreign currency
contracts and the result of realized and unrealized net gains on unhedged
payables denominated in foreign currencies.
The provision for income taxes increased from $1.2 million in fiscal
1998 to $1.4 million in fiscal 1999. The increase in the provision for income
taxes is attributable to the increase in the valuation allowance for deferred
tax assets since management believes that none of the deferred tax assets
will be realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for its payroll and for the
professional fees incurred in preparing the Company's monthly financial
statements and in connection with its required SEC filings.
The Company's sole source of working capital is monthly advances
from Newco. Pursuant to the Purchase Agreement, Newco is obliged to lend up
to $300,000 annually to the Company for its operations and associated
expenses. This obligation extends until November 30, 2001, the second
anniversary of the Closing Date. The Company currently has no commitments to
fund its operations subsequent to November 30, 2001. As of March 31, 2000,
the Company had received $55,000 in advances from Newco. The Company believes
that $300,000 should be adequate to fund the required activities of the
Company on an annual basis until November 30, 2001, absent unanticipated or
extraordinary circumstances. The funds advanced from Newco to the Company
will reduce the value to be received by the Company upon its liquidation. The
interest rate for advances from Newco is 5%.
OTHER MATTERS
Pursuant to the Plan, the Company changed its name to MKR Holdings.
Pursuant to the Confirmation Order, the Company amended its articles of
incorporation and by-laws to satisfy the provisions of the Purchase
Agreement, the Plan and the Confirmation Order.
13
<PAGE>
Pursuant to the Plan, as of November 30, 1999, the business and
affairs of the Company have been managed by, and under the direction of, a
Board of Directors, which consists of Kevin Hardy, Henry E. Tauber and Louis
M. Alpern. In addition to being a director and an officer of the Company, Mr.
Hardy serves as the Chief Financial Officer and Secretary and a director of
Marker USA, a subsidiary of Newco.
Effective October 27, 1999, the Company canceled all 1,531,800
outstanding stock options. Since such time, the Company has not granted stock
options in the Company.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk, including various interest
rate and foreign currency exchange rate risks.
FOREIGN CURRENCY RISK - The functional currency of Newco is the
Euro. As a result, the value of the Company's Investment in Newco is subject
to foreign currency fluctuations between the U.S. Dollar and the Euro which
could have a material impact on the fair value of the Company's Investment.
INTEREST RATE RISK - The Company no longer has any significant
exposure to market risks for changes in interest rates since the Company's
borrowings from Newco is at a fixed rate of 5%.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to Consolidated Financial Statements included separately
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Due to the sale of substantially all of the assets of the Company,
including the common stock of all its subsidiaries, all of the Company's
employees were terminated on November 30, 1999. However, the majority of the
Company's employees continued their employment with the subsidiaries of Newco
by whom they were previously employed. The following table sets forth
information with respect to the executive officers and directors of the
Company during fiscal year 2000:
<TABLE>
<CAPTION>
Date
Appointed
to Present Other Business Experience
Name Title Age Position During Past Five Years
---------------------------- ------------------- --- ------------ --------------------------------
<S> <C> <C> <C> <C>
Kevin Hardy President and a 36 1999 Chief Financial Officer Marker USA 1991
Director of MKR - Present and Marker Ltd. 1991 - 1998
Holdings
Peter C. Weaver (1) President, Chief 51 1998 President of Easton Technical Products
Executive Officer 1991-1998
and a Director of
Marker
International
Eiichi Isomura (2) Chairman of Marker 63 1981 President of Isomura Sangyo Kaisha Ltd.
Japan and President of Isomura Seisakusho
KK. Director of Marker International
1990 - 1998
Dr. Wilhelm Fahrngruber (3) Chairman and 59 1990 Chairman and Managing Director of
Managing Director Marker Germany
of Marker Germany
Otto H. Harsanyi (2) Director of Marker 52 1992 Patent Engineer and General Manager of
Germany and Group Bernard Tapie, 1986-1992
Assistant
Secretary of
Marker
International
Daryl P. Santos (4) Vice President of 48 1985 Vice President of Marker International
Marker
International
Kirk S. Langford (2) Executive Vice 45 1994 Vice President of Marker USA,
President of 1992-1994; Director of Sales of Marker
Marker USA USA, 1990-1992
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Premek Stepanek (2) Managing Director 63 1991 Managing Director of Marker Germany
of Marker Germany
Henry E. Tauber Director of MKR 59 1999 Chief Executive Officer and President
Holdings of Marker International, 1984-1998
Louis M. Alpern Director of MKR 52 1999 Eye Surgeon & Physician (1978 -
Holdings present) and Medical Director of Vista
Entre Las Fronteras (1985 - present)
Graham S. Anderson (5) Director of Marker 67 1985 Chairman and Chief Executive Officer of
International Pettit-Morry Co. (1987-1994). Director
of Commerce Bank Corporation, Gray
Harbor Paper Company (1992-1998),
Acordia Northwest, Inc. (1994-1997) and
Tully's Coffee Company Corporation.
Chairman of the National Association of
Insurance Brokers (1997) and Alberg
Holding Company (1990-1995).
John G. McMillian (5) Chairman of the 74 1998 Director of Marker International, 1990
Board of Marker - 1999. Chairman of the Board,
International President and Chief Executive Officer
of Allegheny & Western Energy
Corporation, 1987-1995; Director of
SunBank Miami N.A. (Sun Trust).
Vinton H. Sommerville (5) Director of Marker 63 1990 Chief Executive Officer and Chairman of
International the Board of Slim Sommerville, Inc.,
1988-present.
</TABLE>
-------------------
(1) Resigned as the Company's Chief Executive Officer, President and a
Director of its Board of Directors in fiscal year 2000. Mr. Weaver now
serves as Chief Executive Officer of Newco.
(2) Resigned as an officer of the respective subsidiary of the Company by
which he was employed during fiscal year 2000 in connection with the
sale of substantially all of the assets of the Company, as explained
above.
(3) Resigned as the Chairman and Managing Director of Marker Germany on
July 1, 1999.
(4) Resigned as a Vice President of Marker International on April 1, 1999.
(5) Resigned as a Director of the Company, during fiscal year 2000 in
connection with the sale of substantially all of the assets of the
Company, as explained above.
Each executive officer is appointed by the Board of Directors and
serves at the request of the Board of Directors. Each member of the Board of
Directors is reimbursed by the Company for any expenses he incurs as a result
of attending Board and committee meetings.
16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by
the Company to, or on behalf of, its Chief Executive Officer and its four
other most highly compensated executive officers who earned over $100,000
annually for services rendered during the period from April 1, 1999 through
November 30, 1999 and the fiscal years 1999 and 1998 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
ANNUAL COMPENSATION Compensation
-------------------------------- Awards
Other Annual ------------
Name and Principal Fiscal Salary Bonus Compensation Options All Other (3)
Position Year $ $ $ # Compensation
--------------------------- ------ ------- ------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter C. Weaver 2000 200,000 - (4) - 4,000
President and Chief 1999 144,423 50,000 (4) 900,000 1,500
Executive Officer of 1998 - - (4) - -
Marker International (1)
Premek Stepanek 2000 79,150 - (4) - -
Managing Director of 1999 163,451 - (4) - -
Marker Germany (2) 1998 157,785 - (4) - -
Dr. Wilhelm Fahrngruber 2000 118,246 - (4) - -
Chairman and Managing 1999 210,088 - (4) - -
Director of Marker Germany 1998 198,258 - (4) - -
(2)
Kevin Hardy 2000 80,364 14,000 (4) - 4,164
President and Chief 1999 167,137 - (4) - 3,250
Financial Officer of MKR 1998 159,134 - (4) - 2,890
Holdings
Kirk S. Langford 2000 100,000 - (4) - 583
Executive Vice President 1999 150,000 - (4) - 1,333
Marker USA 1998 143,750 35,000 (4) - 3,375
Eiichi Isomura 2000 74,771 - (4) - -
President Marker Japan (2) 1999 118,925 - (4) - -
1998 193,925 - (4) - -
</TABLE>
(1) During fiscal year 2000, Peter C. Weaver resigned as the Company's
President and Chief Executive Officer. As of December 1, 2000, Mr.
Weaver became President of Newco. Mr. Weaver also retained his
positions as President of Marker USA and Managing Director of Marker
Germany, each of which became subsidiaries of Newco as of November 30,
1999 under the terms of the Purchase Agreement.
(2) The Company pays salaries to its employees in the applicable local
currency. The above salaries are translated into US Dollars based on
exchange rates of US $1 for DM 2.09 and US $1 for Yen 106 with respect
to the employees employed by Marker Germany and Marker Japan,
respectively.
(3) The amount of perquisites and other personal benefits received by the
indicated officer did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus for the year.
(4) Amounts indicated pertain to Company contributions to the Company's
401(k) retirement plan.
17
<PAGE>
The Company had entered into employment agreements with Premek
Stepanek, Managing Director of Marker Germany, and Dr. Wilhelm Fahrngruber,
Chairman and Managing Director of Marker Germany. Mr. Stepanek and Dr.
Fahrngruber received base salaries of $108,113 and $162,198, respectively
(based on an exchange of the German Mark to the US Dollar of US $1 to DM
2.09). Dr. Fahrngruber's contract expires in 2000 and Mr. Stepanek's contract
expires in 2002. These employment agreements were assumed by Newco under the
terms of the Purchase Agreement.
On October 8, 1998, the Company entered into a five year employment
agreement with Mr. Weaver providing for an annual base salary of $300,000. In
addition, on October 23, 1998, Mr. Weaver received options to purchase
900,000 shares of common stock of the Company at an exercise price of $0.50
per share, the per share fair market value of the Company's common stock on
that date. The Company's employment agreement with Mr. Weaver was
renegotiated by Newco as part of the terms of the Purchase Agreement.
The Board of Directors has a Compensation Committee consisting of
Henry E. Tauber and Louis M. Alpern. The Compensation Committee's
responsibilities are: (a) to determine and approve compensation arrangements
for the executive officer of the Company and (b) to review and recommend
director and officer nominees for election by the Company's shareholders or
the Board of Directors, as the case may be. The Compensation Committee does
not have a procedure for considering nominees to the Board of Directors who
have been recommended by the shareholders.
AGGREGATED STOCK OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
VALUES
Effective October 27, 1999, the Company canceled all 1,531,800
outstanding stock options. From April 1, 1999 until such time, none of the
Named Executive Officers exercised stock options to acquire shares of the
Company's Common Stock.
18
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
the beneficial ownership of the Company's Common Stock as of June 30, 2000
by: (i) each person known by the Company to be the beneficial owner of five
percent or more of the Company's Common Stock, (ii) each of the Company's
Directors, (iii) each of the Named Executive Officers and (iv) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address of Beneficial Owner Beneficially Owned Class
------------------------------------ ------------------ -------------
<S> <C> <C>
Ralano Family Partners, Ltd.
Attention: Louis M. Alpern
2201 N Stanton 1,537,800 13.8%
El Paso, TX 79902-3211
Directors and Executive Officers
--------------------------------
Henry E. Tauber 4,326,055 38.9%
All directors and officers as a group 4,326,055 38.9%
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from April 1, 1999 through November 30, 1999, and
the fiscal years 1999 and 1998, Marker Japan purchased ski bindings and
services totaling approximately $56,000, $66,000, and $92,000, respectively,
from Isomura Seisakusho KK ("Isomura Seisakusho"), a company of which Eiichi
Isomura, a shareholder and former director of the Company, is the president,
director and owner of more than ten percent of the outstanding stock.
Marker Japan leased office space in Tokyo, Japan, and received
distribution services from Isomura Sangyo, a company of which Eiichi Isomura,
a shareholder and former director of the Company, is the president, director
and owner of more than ten percent of the outstanding stock. In connection
therewith, for the period from April 1, 1999 to November 30, 1999 and for the
fiscal years 1999 and 1998, Marker Japan made payments to Isomura Sangyo
totaling approximately $138,000, $238,000 and $280,000, respectively.
The Company purchased insurance through an insurance broker, Acordia
Northwest Inc., of which Graham S. Anderson, a former director of the
Company, was also a director. The Company incurred approximately $684,000 and
$748,000 of premiums for such insurance for the fiscal years 1999 and 1998,
respectively.
DNR Sportsystem, Ltd., a former subsidiary of the Company, purchased
snowboards from an affiliated entity, of which Gregor Furrer & Partner
Holding AG, a former minority
19
<PAGE>
shareholder of DNR Sportsystem, Ltd., was a partner. Snowboards purchased
from the related party totaled approximately $900,000 and $5.9 million during
1999 and 1998, respectively.
On August 24, 1998, Henry E. Tauber, former president and chief
executive officer of Marker and a member of Marker's board of directors,
purchased 1,000,000 shares of the Company's Series B Preferred Stock, $0.01
par value (the "Preferred Stock"), for a purchase price of $3,000,000. Allen
& Company Incorporated, an investment banking firm, provided a report on the
transaction to the Board of Directors, concluding that the terms of the sale
of the Preferred Stock were fair and reasonable, and no less favorable to the
Company than those that could be obtained from an unrelated third party
making a similar investment in the Company.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements required by
Part II, Item 8, are included in Part IV of this report.
MKR HOLDINGS
Report of Independent Public Accountants F-1
Statement of Net Assets in Liquidation as of March 31, 2000 F-2
Statement of Changes in Net Assets in Liquidation for the Period from
December 1, 1999 to March 31, 2000 F-2
Consolidated Balance Sheet as of March 31, 1999 F-3
Consolidated Balance Sheet (Continued) as of March 31, 1999 F-4
Consolidated Statements of Operations for the Years Ended March 31, 1999
and 1998 and for the Period from April 1, 1999 to November 30, 1999 F-5
Consolidated Statements of Shareholders' (Deficit) Equity
for the Years Ended March 31, 1999 and 1998 and for the
Period from April 1, 1999 to November 30, 1999 F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999 and 1998 and for the Period from April 1,
1999 to November 30, 1999 F-7
Notes to Financial Statements F-8
MARKER INTERNATIONAL GmbH
The Financial Statements of Newco will be filed through an
Amendment to this Form 10-K within 180 days of March 31,
2000.
2. FINANCIAL STATEMENT SCHEDULE
Report of Independent Public Accountants on Schedule 24
Schedule II - Valuation and Qualifying Accounts 25
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
3. LIST OF EXHIBITS
3.1 Third Amended and Restated Articles of Incorporation of
Marker International, accepted on December 7, 1999 by
the Secretary of State of Utah, changing name to MKR
Holdings (Filed as exhibit 3.1 to the Company's Form
10-Q filed on February 14, 2000 and incorporated herein
by reference).
3.2 Second Amended and Restated Bylaws of Marker
International, adopted on December 7, 1999, changing
name to MKR Holdings (Filed as exhibit 3.2 to the
Company's Form 10-Q filed on February 14, 2000 and
incorporated herein by reference).
4.1 Form of Certificate representing Common Stock (filed as
Exhibit 4.1 to the Company's Form S-1 Registration
Statement, Amendment No. 1 dated July 14, 1994 (File
No. 33-80100) and incorporated herein by reference).
10.33 Shareholders Agreement between CT Sports Holding AG and
Marker International and Marker Canada dated June 18,
1999 (Filed as exhibit 10.1 to Form 8-K filed on July
2, 1999).
10.34 Asset Purchase Agreement dated as of July 30, 1999
between Marker International and Marker International
GmbH (Filed as exhibit 2.1 to the Company's Form 8-K
filed August 6, 1999 and incorporated herein by
reference).
10.35 Amendment to the Asset Purchase Agreement, dated as of
September 20, 1999, by and between Marker
International, as seller, and Marker International
GmbH, as buyer (Filed as exhibit 10.1 to the Company's
Form 8-K filed on November 12, 1999 and herein
incorporated by reference).
10.36 Petition for relief under Chapter 11 of the United
States Bankruptcy Code by Marker International, DNR
USA, Inc. and DNR North America, Inc. filed on August
19, 1999 with the United States Bankruptcy Court for
the District of Delaware
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
10.37 Confirmation of the petition for relief under Chapter
11 of the United States Bankruptcy Code by Marker
International, DNR USA Inc. and DNR North America, Inc. on
October 27, 1999 by the United States Bankruptcy Court
for the District of Delaware (Filed as exhibit 2.1 to
the Company's Form 8-K filed on November 12, 1999 and
incorporated herein by reference).
10.38 Operating Agreement dated as of November 30, 1999
between Marker International GmbH, CT Sports Holding AG
and Marker International (Filed as exhibit 4.1 to the
Company's Form 8-K/A filed on December 13, 1999 and
incorporated herein by reference).
10.39 First Amended Joint Chapter 11 Plan of Reorganization
of Marker International, DNR USA, Inc. and DNR North
America, Inc., dated September 22, 1999 (Filed as
exhibit 2.2 to the Company's Form 8-K filed on November
12, 1999 and incorporated herein by reference).
10.40 Amendment to First Amended Joint Chapter 11 Plan of
Reorganization dated as of October 25, 1999 (Filed as
exhibit 2.6 of the Company's Form 10-Q filed on
November 12, 1999 and incorporated herein by
reference).
10.41 Disclosure Statement for the Plan dated September 22,
1999 (Filed as exhibit 2.5 of the Company's Form 10-Q
filed on November 12, 1999 and incorporated herein by
reference).
21.1 Subsidiaries of the Registrant.*
27 Financial Data Schedule.*
</TABLE>
(b) REPORTS FILED ON FORM 8-K:
None
-------------------
* filed herewith
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To MKR Holdings:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of MKR Holdings
included in this Form 10-K, and have issued our report thereon dated July 7,
2000. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
July 7, 2000
24
<PAGE>
MKR HOLDINGS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at
Beginning of Amounts Balance at End
Period Provisions Written Off Other (1) of Period
------------ -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD FROM
APRIL 1, 1999 TO
NOVEMBER 30, 1999
Allowance for doubtful
accounts $ 1,721 $ 166 $ (134) $ (1,753) $ 0
FOR THE YEAR ENDED
MARCH 31, 1999
Allowance for doubtful
accounts $ 1,697 $ 1,847 $ (1,691) $ (132) $ 1,721
FOR THE YEAR ENDED
MARCH 31, 1998
Allowance for doubtful
accounts $ 2,139 $ 813 $ (1,176) $ (79) $ 1,697
</TABLE>
(1) The allowance for doubtful accounts is translated to U.S. Dollars at the
exchange rate at the end of a reporting period. The provision and amounts
written off are translated at the weighted-average rates of exchange
prevailing during the reporting period. Amounts classified as "other"
represent the effects of foreign currency translation on the allowance
amount for the period. For the period from April 1, 1999 through November
30, 1999, the amount classified as "other" is primarily due to the transfer
of the balances of the allowance for doubtful accounts for the subsidiaries
to Newco.
25
<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 in
the City of Salt Lake and the State of Utah on July 17, 2000.
MKR HOLDINGS
By: /s/ Kevin Hardy
-------------------------------------
Kevin Hardy
President and Chief Financial Officer
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.
Signature Title Date
--------- ----- ----
/s/ Kevin Hardy President (Principal Executive July 17, 2000
------------------------- Officer) and Chief Financial -------------
Kevin Hardy Officer (Principal Financial and
Accounting Officer)
/s/ Henry E. Tauber Director July 17, 2000
------------------------- -------------
Henry E. Tauber
/s/ Louis M. Alpern Director July 17, 2000
------------------------- -------------
Louis M. Alpern
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MKR Holdings:
We have audited the statement of net assets in liquidation of MKR Holdings (a
Utah corporation) (the "Company") as of March 31, 2000 and the related
statement of changes in net assets in liquidation for the period from
December 1, 1999 to March 31, 2000. In addition, we have audited the
consolidated balance sheet as of March 31, 1999 and the related consolidated
statements of operations, shareholders' (deficit) equity and cash flows for
the years ended March 31, 1999 and 1998 and for the period from April 1, 1999
to November 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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.
As described in Note 1 to the financial statements, the shareholders approved
a plan of liquidation on November 30, 1999, in connection with the sale of
substantially all of its operating assets. As a result, the Company has
changed its basis of accounting for periods subsequent to November 30, 1999
from the going concern basis to the liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, MKR Holdings' net assets in liquidation as of March
31, 2000, and the changes in the net assets in liquidation for the period
from December 1, 1999 to March 31, 2000 and its financial position as of
March 31, 1999, and the results of its operations and its cash flows for the
years ended March 31, 1999 and 1998 and for the period from April 1, 1999 to
November 30, 1999 in conformity with accounting principles generally accepted
in the United States on the bases described in the preceding paragraph.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
July 7, 2000
F-1
<PAGE>
MKR HOLDINGS
STATEMENT OF NET ASSETS IN LIQUIDATION
MARCH 31, 2000
(Dollars in Thousands)
<TABLE>
<S> <C>
Assets:
Cash and cash equivalents $ 66
Investment in Marker International GmbH 2,840
--------------
Total assets in liquidation 2,906
--------------
Liabilities:
Accounts payable and accrued liabilities 183
Advances payable to Marker International GmbH 55
--------------
Total liabilities in liquidation 238
--------------
Net assets in liquidation $ 2,668
==============
Net assets in liquidation per common share
(based on 11,120,577 common shares outstanding) $ .24
===============
</TABLE>
MKR HOLDINGS
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE PERIOD FROM DECEMBER 1, 1999 THROUGH MARCH 31, 2000
(Dollars in Thousands)
<TABLE>
<S> <C>
Unrealized gains on investment in Marker International GmbH $ 968
----------------
General and administrative expenses (196)
----------------
Net change in net assets for the period 772
Net assets at December 1, 1999 1,896
----------------
Net assets at March 31, 2000 $ 2,668
================
</TABLE>
See accompanying notes.
F-2
<PAGE>
MKR HOLDINGS
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(Dollars in Thousands)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,547
Accounts receivable, net of allowance for doubtful
accounts of $1,721 22,392
Inventories 18,752
Prepaid and other current assets 391
----------
Total current assets 47,082
----------
PROPERTY, PLANT AND EQUIPMENT:
Land 386
Building and improvements 4,645
Machinery and equipment 20,096
Furniture, fixtures and office equipment 4,797
----------
29,924
Less accumulated depreciation (18,725)
----------
Net property, plant and equipment 11,199
----------
INTANGIBLE ASSETS, net of accumulated amortization 244
----------
OTHER ASSETS 448
----------
$ 58,973
==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
MKR HOLDINGS
CONSOLIDATED BALANCE SHEET (Continued)
AS OF MARCH 31, 1999
(Dollars in Thousands, Except Per Share Amounts)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
1999
----------
<S> <C>
CURRENT LIABILITIES:
Notes payable to banks $ 46,062
Current maturities of long-term debt 5,595
Current maturities of Series A Bonds, issued to a
related party 11,399
Accounts payable 5,948
Other current liabilities 12,937
----------
Total current liabilities 81,941
----------
LONG-TERM DEBT, net of current maturities 3,821
----------
REDEEMABLE SERIES B PREFERRED STOCK, $0.01 par value, 2,000,000 shares
authorized, 1,000,000 shares issued and outstanding 3,000
----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 2 and 8)
SHAREHOLDERS' DEFICIT:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized and none issued -
Common stock, $0.01 par value, 30,000,000
shares authorized and issued, shares outstanding
11,140,577 111
Additional paid-in capital 36,311
Accumulated deficit (64,658)
Accumulated other comprehensive loss (1,553)
----------
Total shareholders' deficit (29,789)
----------
$ 58,973
==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
MKR HOLDINGS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
April 1,1999 ---------------------------
To November March 31, March 31,
30,1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
NET SALES $ 34,140 $ 74,167 $ 81,401
COST OF SALES 21,635 54,638 54,460
---------- ---------- ----------
GROSS PROFIT 12,505 19,529 26,941
---------- ---------- ----------
OPERATING EXPENSES:
Selling 5,305 15,275 13,065
General and administrative 5,468 15,401 7,475
Research and development 1,170 2,756 3,003
Warehousing and shipping 1,160 2,020 1,660
---------- ---------- ----------
13,103 35,452 25,203
---------- ---------- ----------
OPERATING (LOSS) INCOME (598) (15,923) 1,738
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (2,392) (6,637) (5,746)
Other, net (796) 1,508 33
---------- ---------- ----------
(3,188) (5,129) (5,713)
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE REORGANIZATION ITEMS AND
INCOME TAXES (3,786) (21,052) (3,975)
REORGANIZATION ITEMS:
Gain on sale of substantially all assets 16,537 - -
Professional fees (1,367) - -
Other general and administrative expenses (119) - -
---------- ---------- ----------
15,051 - -
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 11,265 (21,052) (3,975)
PROVISION FOR INCOME TAXES (12) (1,458) (1,158)
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 11,253 (22,510) (5,133)
---------- ---------- ----------
DISCONTINUED OPERATIONS:
Loss from operations of discontinued snowboard business,
net of income taxes - (1,484) (12,196)
Gain (loss) on disposal of snowboard business 1,634 (24,024) -
---------- ---------- ----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 1,634 (25,508) (12,196)
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 12,887 (48,018) (17,329)
----------- ----------- -----------
EXTRAORDINARY ITEM - GAIN ON RESTRUCTURING OF DEBT (net of income
taxes of $0) 15,422 - -
---------- ---------- ----------
NET INCOME (LOSS) $ 28,309 $ (48,018) $ (17,329)
========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
MKR HOLDINGS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM APRIL 1, 1999 TO NOVEMBER 30, 1999, AND THE FISCAL YEARS
ENDED MARCH 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Accumulated Other Total
------------ Paid-in Earnings Comprehensive Shareholders'
Shares Amount Capital (Deficit) Income (Loss) Equity (Deficit)
----------- ----------- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997 11,129,127 $ 111 $ 36,293 $ 858 $ (5,565) $ 31,697
Comprehensive Loss:
Net loss -- -- -- (17,329) -- (17,329)
Foreign currency translation -- -- -- -- (1,967) (1,967)
Total comprehensive loss -- -- -- -- -- (19,296)
Common stock options exercised 1,450 -- 6 -- -- 6
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1998 11,130,577 111 36,299 (16,471) (7,532) 12,407
Comprehensive Loss:
Net loss -- -- -- (48,018) -- (48,018)
Foreign currency translation -- -- -- -- 5,979 5,979
Total comprehensive loss -- -- -- -- -- (42,039)
Preferred stock dividends -- -- -- (169) -- (169)
Common stock issued for services 10,000 -- 12 -- -- 12
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1999 11,140,577 111 36,311 (64,658) (1,553) (29,789)
Comprehensive Income:
Net loss -- -- -- (3,298) -- (3,298)
Foreign currency translation -- -- -- -- 1,553 1,553
Sale of 66.66% of Marker Canada -- -- 425 -- -- 425
Gain on sale of substantially all assets -- -- -- 16,537 -- 16,537
Elimination of Preferred Stock -- -- 1,500 -- -- 1,500
Extraordinary gains -- -- -- 15,422 -- 15,422
Total comprehensive income -- -- -- -- -- 32,139
Preferred stock dividends -- -- -- (102) -- (102)
Common stock cancelled (20,000) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, NOVEMBER 30, 1999 11,120,577 $ 111 $ 38,236 $ (36,099) $ -- $ 2,248
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
MKR HOLDINGS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
April 1,1999 ----------------------------
To November March 31, March 31,
30, 1999 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 28,309 $ (48,018) $ (17,329)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Extraordinary gain on debt restructuring (15,422) - -
Gain on sale of substantially all assets (16,537) - -
Minority interest - - (183)
Depreciation and amortization 2,956 5,151 5,200
Loss from write down of goodwill and intangibles - 8,000 8,000
Loss (gain) on sale of property, plant and equipment 175 959 (92)
Change in assets and liabilities (net of amounts acquired):
Accounts receivable, net (20,945) 9,912 (6,302)
Inventories (817) 19,464 (5,721)
Prepaid and other assets (182) 5,521 131
Accounts payable 1,191 214 842
Other current liabilities 3,897 3,756 (369)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (17,375) 4,959 (15,823)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,209) (3,635) (7,138)
Proceeds from disposition of equipment 170 4,579 3,898
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,039) 944 (3,240)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on notes payable to banks 13,340 (1,912) 11,860
Issuance of preferred stock - 3,000 -
Issuance of common stock, net of issuance costs - 12 -
Proceeds from common stock options exercised - - 6
Proceeds from issuance of long-term debt - 393 3,094
Principal payments on long-term debt - (10,443) (3,299)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 13,340 (8,950) 11,661
---------- ---------- ----------
Effect of foreign exchange rate changes on cash (439) 4,353 (1,889)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (5,513) 1,306 (9,291)
Cash and cash equivalents at beginning of period 5,547 4,241 13,532
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34 $ 5,547 $ 4,241
========== ========== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is no longer engaged in the conduct of business and
operates for the sole purpose of holding and subsequently liquidating its
assets (which consist almost entirely of its equity interest in Marker
International GmbH ("Newco"). Prior to November 30, 1999, MKR Holdings,
formerly Marker International (the "Company") was a holding company which
operated through its subsidiaries, Marker Germany, Marker USA, Marker Ltd.,
Marker Japan, Marker Austria, and Marker Canada.
On November 30, 1999 (the "Closing Date"), the Company sold
substantially all of its assets (including the equity securities of its
subsidiaries) to Newco, a GmbH organized under the laws of Switzerland,
pursuant to an asset purchase agreement (as amended by the Amendment to the
Asset Purchase Agreement dated as of September 20, 1999, the "Purchase
Agreement") between the Company and Newco. In exchange, Newco assumed
substantially all of the liabilities of the Company and the Company received
a 15% equity interest in Newco. The remaining 85% equity interest in Newco is
held by CT Sports Holding AG ("CT"), a joint venture between Tecnica S.p.A.
and H.D. Cleven, the principal shareholder of the Volkl Group. Pursuant to
the purchase agreement, CT was required to contribute to Newco $15,000,000 in
cash for its 85% equity interest in Newco. After taking into account CT's
purchase of 66.66% of Marker Canada in June 1999 for $1,025,501, CT
contributed $13,974,499 to Newco in a combination of debt and equity.
In connection with the Purchase Agreement, the Company and CT
entered into an operating agreement which, among other things, grants CT an
option (the "Option") to purchase the Company's 15% equity interest in Newco
at any time on or after November 30, 2001 at the then fair market value,
subject to reduction in an amount equal to the sum of: (a) any indemnity
obligations of the Company to Newco, (b) all unreimbursed advances from Newco
for operating and administrative expenses (currently estimated to be
approximately $300,000 per year) and costs of defending indemnifiable claims,
if any, incurred by Newco, together with interest thereon, (c) all advances
by Newco to the Company to pay any income tax liability, together with
interest thereon, plus (d) $775,000. Thereafter, the Company will be
liquidated and the net proceeds of the exercise of the Option will be
distributed to the shareholders of the Company in liquidation. In determining
fair market value, all of CT's $15,000,000 transfer has been considered
equity.
In connection with the Purchase Agreement, the Company reached
agreements-in-principle regarding the restructuring of its debt and the
treatment of such debt under a plan of reorganization with substantially all
of its creditors that were impaired under the Plan of reorganization. On
August 19, 1999, the Company, DNR North America, Inc. and DNR USA, Inc.
(collectively, the "Debtors") filed voluntary petitions for relief under
Chapter 11 of the
F-8
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On September 22, 1999, the
Debtors filed the First Amended Joint Chapter 11 Plan of Reorganization (as
amended by the Amendment to the First Amended Joint Chapter 11 Plan of
Reorganization, dated as of October 25, 1999, the "Plan") and a related
disclosure statement (the "Disclosure Statement"). By order dated September
22, 1999, the Bankruptcy Court approved the Disclosure Statement as
containing adequate information. The Disclosure Statement and the Plan were
subsequently distributed to the Debtors' creditors and shareholders for
approval, which approval was subsequently obtained. On October 27, 1999, the
Plan was confirmed by order of the Bankruptcy Court (the "Confirmation
Order"). Pursuant to the Confirmation Order, the Bankruptcy Court approved
the Plan and the Purchase Agreement on October 27, 1999. The Company did not
distribute any securities in connection with the Plan.
As a result of the events described above, the Company is no longer
engaged in the conduct of business and operates for the sole purpose of
holding and subsequently liquidating its assets (which consist almost
entirely of its equity interest in Newco). The Company is required to
dissolve and liquidate all of its assets no earlier than November 30, 2002,
and no later than November 30, 2004. If the Option is not exercised prior to
liquidation, then upon liquidation, the shareholders of the Company will
receive an equity interest in Newco equal to each shareholder's pro rata
share of the Company's 15% equity interest in Newco.
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT - The Company
recognized an extraordinary gain of $15.4 million from the Company's
restructuring of debt with Manufacturers and Traders Trust Company ("M&T
Bank"), KeyBank National Association ("KeyBank"), the holder of the Company's
Series A bonds and Hypo Vereinsbank (New York branch). As of the Closing
Date, Marker Germany had debts outstanding with Hypo Vereinsbank and Deutsche
Bank totaling $53.4 million. Pursuant to the Purchase Agreement, Marker
Germany was acquired by Newco and is no longer a subsidiary of the Company.
GAIN ON SALE OF ASSETS AND INVESTMENT IN NEWCO - The Company
recognized a gain of $16.5 million from the sale to Newco of substantially
all of the Company's assets and the assumption by Newco of certain of the
Company's liabilities pursuant to the Purchase Agreement.
The Company has valued and accounted for its 15% equity interest in
Newco (the "Investment") based on the estimated liquidation value. Based upon
the sales price of substantially all of the assets, the initial liquidation
value was approximately $1.9 million. Changes in liquidation value to date
are recorded as unrealized gains or losses in each period. As of March 31,
2000, based on a report by an independent appraiser, the Investment was
valued at approximately $2.8 million ($3.6 million less the $775,000 that
will be deducted from the purchase price if CT exercises the Option) which
resulted in an unrealized gain of $968,000 to the Company. Such appraisal of
the value of the Investment will be updated going forward on at least an
annual basis and the accounting of the Investment will be adjusted
accordingly. The actual liquidation value of the Company's 15% equity
interest in Newco, when such liquidation occurs, may differ materially from
the estimated value herein recorded. The liquidation value
F-9
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
going forward will be reduced by the amount of general and administrative
expenses that have yet to be incurred by the Company. The financial
statements of Newco will be filed through an amendment to this Form 10-K
within 180 days of March 31, 2000.
BASIS OF PRESENTATION
In connection with the sale of the Company's assets, the Company
adopted the liquidation basis of accounting effective December 1, 1999. Under
this basis of accounting assets and liabilities are stated at their estimated
net realizable value. The financial statements prior to December 1, 1999 were
presented on a going concern basis.
DISCONTINUED OPERATIONS
On September 10, 1998, the Board of Directors authorized the
disposition of the snowboard operations of the Company. On December 14, 1998,
the Company sold its 80% interest in DNR Sportsystem Ltd. for nominal
consideration and the elimination of all outstanding intercompany balances.
On December 31, 1998, the Company sold the building and land that housed the
Company's snowboard manufacturing operations for $3.1 million. On January 14,
1999, the Company's leased snowboard manufacturing equipment was disposed of
through an auction and the net proceeds of the auction were paid to the
equipment lessor. As of September 30, 1999, the Company had substantially
completed the process of exiting the snowboard business.
The components of net assets of discontinued operations included in
the consolidated balance sheets at March 31, 1999, were as follows (in
thousands):
<TABLE>
<S> <C>
Accounts receivable, net $ 171
Prepaid and other current assets 9
Accounts payable (8)
Other current liabilities (2,032)
-----------
Net current liabilities $ (1,860)
===========
</TABLE>
The net losses from discontinued operations prior to September 1998
are included in the consolidated statements of operations under "loss from
operations of discontinued snowboard business." Revenues from the
discontinued operations were approximately $3.3 million and $12.9 million for
the fiscal years ended 1999 and 1998, respectively. The loss from operations
of discontinued snowboard business has been reflected net of income taxes of
$0, $134,000 and $636,000 for the period from April 1, 1999 to November 30,
1999 and the fiscal years ended 1999 and 1998, respectively. The loss on
disposal of the snowboard business reflected in the consolidated statements
of operations includes the write-down of assets and the costs of disposing of
these operations. The significant components of this loss include the
write-off of intangible assets, the loss on the sale of the Company's
investment in DNR Sportsystem Ltd., realization of foreign currency
translation losses, write-down of inventories and receivables,
F-10
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
losses on terminating non-cancelable operating leases and write-down of
property and equipment.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of MKR
Holdings and its subsidiaries through November 30, 1999, at which time
substantially all of the assets of the Company, including all of the stock of
the subsidiaries, were sold to Newco. All material inter-company accounts and
transactions have been eliminated in consolidation as of November 30, 1999.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations which
were sold on November 30, 1999 (see "Purchase Agreement with Newco" above)
was the applicable local currency: Marker Germany - Deutsche Marks, Marker
Japan -Japanese Yen, Marker Canada - Canadian Dollars, and Marker Austria -
Austrian Schillings. The financial statements of foreign subsidiaries were
translated into U.S. Dollars in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52. Assets and liabilities of foreign
subsidiaries were translated into U.S. Dollars at the applicable rates of
exchange at the end of the reporting period. Income and expense items were
translated at the weighted average rates of exchange prevailing during the
period. Translation gains and losses are reflected as a separate component of
shareholders' (deficit) equity as "accumulated other comprehensive loss."
F-11
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES
Inventories included direct materials, direct labor and
manufacturing overhead costs and were recorded at the lower of cost (using
the first-in, first-out method) or market. The major classes of inventories
at March 31, 1999 were as follows (in thousands):
<TABLE>
<S> <C>
Raw materials $ 542
Work in process 1,821
Finished goods 16,389
----------
$ 18,752
==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were recorded at cost. Major additions
and improvements were capitalized, while costs for minor replacements,
maintenance and repairs that did not increase the useful life of an asset
were expensed as incurred.
For financial reporting purposes, the provision for depreciation and
amortization was determined using the straight-line method based on the
expected remaining economic useful lives of the assets as follows:
<TABLE>
<CAPTION>
Description Useful Lives
----------- ------------
<S> <C>
Machinery and equipment 2 - 10 years
Furniture, fixtures and office equipment 2 - 10 years
Building and improvements 2 - 40 years
</TABLE>
INTANGIBLE ASSETS
As of March 31, 1999, intangible assets consisted of the
distribution rights for Tecnica and Volkl products that were purchased in
January 1998 as part of the process of establishing a new distribution entity
in Canada. These assets were amortized using the straight-line method over
three years. At March 31, 1999, accumulated amortization on intangible assets
was approximately $173,000.
During fiscal year 1998, the Company recorded an impairment loss of
$8.0 million related to the intangible assets of its snowboard business. In
addition, as part of the Company's exit from the snowboard business in fiscal
year 1999, the Company wrote-off the remaining intangible assets of $8.0
million. These write-offs have been classified as part of the loss on
discontinued operations.
F-12
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Revenue was recognized when products were shipped to the customer.
ADVERTISING
The Company expensed advertising costs when the advertising first
occurred. For the period from April 1, 1999 to November 30, 1999, and the
fiscal years ended 1999 and 1998, advertising expenses totaled approximately
$0.5 million, $3.9 million and $4.4 million, respectively
INCOME TAXES
The Company recognizes deferred income tax assets or liabilities for
expected future tax consequences of events that have been recognized in the
financial statements or tax returns in different periods. Under this method,
deferred income tax assets or liabilities are determined based upon the
difference between the financial and income tax bases of assets and
liabilities using enacted tax rates expected to apply when differences are
expected to be settled or realized.
FOREIGN EXCHANGE CONTRACTS
The Company entered into foreign exchange contracts to reduce the
potential impact of unfavorable fluctuations in foreign exchange rates.
Contracts that were intended to hedge firm commitments were deferred and
recognized as part of the cost of the underlying transaction being hedged.
Gains and losses on foreign exchange contracts that did not qualify as hedges
were reported in the determination of net income. During fiscal year 1999,
given the financial position of the Company, the Company determined that all
gains and losses on foreign exchange contracts should be reported in the
determination of net income.
NOTE 2. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT
The Company's sole source of working capital is monthly advances
from Newco. Pursuant to the Purchase Agreement, Newco is obliged to lend up
to $300,000 annually to the Company for its operations and associated
expenses. This obligation extends until November 30, 2001, the second
anniversary of the Closing Date. The Company currently has no commitments to
fund its operations subsequent to November 30, 2001. As of March 31, 2000,
the Company had received $55,000 in advances from Newco. The Company believes
that $300,000 should be adequate to fund the required activities of the
Company on an annual basis until November 30, 2001, absent unanticipated or
extraordinary circumstances. The funds advanced from Newco to the Company
will reduce the value to be received by the Company upon its liquidation. The
interest rate for advances from Newco is 5.0%.
For the years ended March 31, 1999 and 1998, the weighted average
interest rate on short-term borrowings outstanding at year end was 5.4
percent and 6.5 percent, respectively; the
F-13
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
maximum short-term borrowing amount outstanding during such years was $78.9
million and $74.2 million, respectively; the average amount outstanding
during the years was $64.4 million and $58.8 million; respectively; and the
weighted average interest rate during such years was 6.3 percent and 6.1
percent, respectively.
Total cash paid for interest during the period ended November 30,
1999, and the fiscal years ended 1999 and 1998, was approximately $2,022,000,
$6,358,000, and $5,492,000, respectively. Included in total cash payments for
interest are Series A Bond (see Note 3) interest payments which totaled
approximately $0, $472,000 and $936,000 for the period ended November 30,
1999, and the fiscal years ended 1999 and 1998, respectively.
NOTE 3. SERIES A BONDS
All of the Company's outstanding Series A Bonds were held by
Isomura Sangyo Kaisha Ltd., a Japanese corporation ("Isomura Sangyo" or the
"Bondholder"), controlled by Eiichi Isomura, a former director of the
Company, and his family.
The Company did not make the required interest payments of $125,000
(due in October 1998) and $125,000 (due in April 1999) on the Series A Bonds.
As a result, the bondholder had the right to declare the Series A Bonds in
default and accelerate the entire outstanding balance of $12.0 million, plus
accrued interest thereon. On March 26, 1999, CT entered into a restructuring
agreement with the bondholder. Under the agreement, as amended, the Series A
Bonds were reduced to an aggregate principal amount of $5,750,000, payable in
four equal annual installments of $750,000, with the remaining balance of
$2,750,000 payable after 5 years. The agreement required interest payments at
2% per annum during the first four years, and thereafter at a variable rate
not exceeding the prime rate on commercial loans in Japan plus 0.5%. Pursuant
to the Plan, in full satisfaction and release of the Isomura Claim, on
November 30, 1999, Newco assumed the Isomura Claim and will pay, when due,
the Isomura Payment Obligations, as defined and more particularly described
in the Plan and Disclosure Statement.
NOTE 4. SERIES B PREFERRED STOCK
Henry E. Tauber ("Tauber"), former president and chief executive
officer of the Company and a member of the Company's Board of Directors, was
the record and beneficial owner of 1,000,000 shares of the Company's Series B
Preferred Stock (the "Preferred Stock Interests") which were acquired for
$3.00 per share in cash, for a total purchase price of $3,000,000. Tauber and
Newco entered into an Agreement of Understanding dated as of July 13, 1999
(the "Tauber Agreement"), regarding the treatment of Tauber's Preferred Stock
Interests (as defined in the Plan) under the Plan. Pursuant to the Tauber
Agreement, Tauber was given an Allowed Claim (as defined in the Plan) in the
principal amount of $1,500,000 on account of the Preferred Stock Interests
(the "Tauber Claim"). Pursuant to the Plan, in full satisfaction and release
of the Tauber Claim, on November 30, 1999, Newco assumed the Tauber Claim and
will pay, when due, the Tauber Payment Obligations, as more particularly
described in the Plan and Disclosure Statement.
F-14
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAXES
The Company's U.S. and foreign subsidiaries and certain assets and
liabilities of the Company were transferred to Newco effective November 30,
1999 as described in Note 1. The Company filed a U.S. consolidated federal
return with its U.S. subsidiaries for the year ended March 31, 1999. For the
year ended March 31, 2000, the Company will file a U.S. consolidated federal
return containing the Company's financial results through March 31, 2000 and
the Company's U.S. subsidiaries' financial results through November 30, 1999.
The U.S. subsidiaries will file separate U.S. tax returns for subsequent
periods beginning December 1, 1999.
For U.S. tax purposes, the transfer of the Company's U.S. and
foreign subsidiaries and certain assets and liabilities has been treated as a
tax-free exchange of the assets transferred for the 15 percent interest in
Newco received by the Company. For financial reporting purposes, the transfer
has been treated as a sale. Additionally, for U.S. tax purposes, Newco is
treated as a foreign partnership and as a result, the Company includes its
percentage share of Newco's income or loss each year in its U.S. tax return.
A difference between the tax and the financial reporting basis of the
Company's investment in Newco has been reflected as a component of the net
deferred tax assets of the Company. This difference in basis consists of (1)
the original differences in basis as of November 30, 1999, (2) the increase
or decrease in book basis attributable to the mark-to-market adjustment made
each year to the investment for financial reporting purposes, and (3) the
increase or decrease in tax basis attributable to the Company's percentage
share of Newco's income or loss reportable each year in the Company's U.S.
tax return.
The Company's foreign subsidiaries filed tax returns in their
applicable jurisdictions. U.S. income tax was not provided on unrepatriated
foreign earnings because management considered such amounts to be permanently
invested abroad. Management has deemed it impracticable to determine the
amount of unrecognized deferred tax liability on earnings that are considered
permanently invested abroad. No unrepatriated foreign earnings exist as of
March 31, 2000 as a result of the disaffiliation of the Company's foreign
subsidiaries effective November 30, 1999.
As a result of the disaffiliation of the Company's U.S. and foreign
subsidiaries during the year ended March 31, 2000, the Company's income tax
accounts as of March 31, 2000 reflect only items attributable to the Company
on a standalone basis including its 15 percent investment in Newco.
The Company's provision or (benefit) for income taxes has been
allocated between continuing operations and discontinued operations for the
period from April 1, 1999 through November 30, 1999 and the fiscal years 1999
and 1998 as follows (in thousands):
F-15
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
April 1, 1999 Fiscal Year Ended
to November -------------------------
30, 1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Continuing Operations $ - $ 1,458 $ 1,158
Discontinued Operations - (134) (636)
------------ ---------- ----------
$ - $ 1,324 $ 522
============ ========== ==========
</TABLE>
The portion of the provision or (benefit) for income taxes allocable
to discontinued operations has been netted against the income or loss from
discontinued operations in the financial statements.
The domestic and foreign components of income (loss) from continuing
operations before income taxes for the period from April 1, 1999 through
November 30, 1999 and the fiscal years 1999 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
April 1, 1999 Fiscal Year Ended
to November -------------------------
30, 1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Domestic $ 11,262 $ (10,497) $ (2,865)
Foreign 3 (10,555) (1,110)
----------- ----------- --------
$ 11,265 $ (21,052) $ (3,975)
=========== =========== ========
</TABLE>
The Company's provision for income taxes related to income (loss)
from continuing operations for the period from April 1, 1999 through November
30, 1999 and the fiscal years 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
April 1, 1999 Fiscal Year Ended
to November -------------------------
30, 1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - 4 4
Foreign 3 108 261
---------- -------- ---------
3 112 265
Deferred 9 1,346 893
---------- -------- ---------
$ 12 $ 1,458 $ 1,158
========== ======== =========
</TABLE>
The (benefit) provision for income taxes as a percentage of income
(loss) from continuing operations before provision for income taxes differed
from the statutory federal rate due to the following:
F-16
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
April 1, 1999 Fiscal Year Ended
to November -------------------------
30, 1999 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% (34.0%) (34.0%)
State income taxes net of federal income taxes - - 0.1
Change in deferred tax asset valuation allowance (34.0) 38.7 56.6
Foreign earnings taxed at different rates - - 4.7
Other - 2.2 1.7
----- ----- -----
-% 6.9% 29.1%
===== ===== =====
</TABLE>
The components of the net deferred tax assets and liabilities at
March 31, 2000 and 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- ------
<S> <C> <C>
Deferred tax assets:
Intercompany profit $ - $ 735
Domestic net operating loss carryforwards 7,300 15,245
Unrealized foreign exchange loss - 1,214
Foreign net operating loss carryforwards - 4,398
Allowance for doubtful accounts - 662
Accrued expense reserves 26 1,516
Foreign tax credits and tax attribute carryforwards 110 296
Basis difference in Newco Investment 6,834 -
Other - 286
--------- ----------
Total deferred tax assets 14,270 24,352
Valuation allowance (14,270) (24,233)
--------- ----------
- 119
--------- ----------
Deferred tax liabilities:
Other - (119)
--------- ----------
Total deferred tax liabilities - (119)
--------- ----------
Net deferred tax assets $ - $ -
========= ==========
</TABLE>
The recognition of deferred tax assets is based upon judgments
regarding the potential realization of such assets in the future.
As of March 31, 2000, the Company has domestic tax net operating
loss carryforwards of approximately $19.0 million which begin to expire in
2018. This amount reflects: (1) a reduction for domestic net operating loss
carryforwards that the Company's U.S. subsidiaries succeeded to upon leaving
the U.S. consolidated group, and (2) required reductions under U.S. tax law
for debt forgiveness income recognized by the Company in connection with
bankruptcy. Additionally, as of March 31, 2000, the Company has domestic
foreign tax credits, general business credits, charitable contribution
carryforwards and alternative minimum tax credits of $26,000, $4,000, $21,000
and $72,000, respectively.
F-17
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Cash paid for income taxes for the period from April 1, 1999 to
November 30, 1999 and fiscal years 1999 and 1998 was approximately $300,
$70,000 and $1,569,000, respectively.
NOTE 6. STOCK OPTIONS
For the period from April 1, 1999 through November 30, 1999, options
to purchase 1,531,800 shares of common stock were not included in the
computation of net assets available in liquidation per common share because
pursuant to the Confirmation Order, all outstanding options of the Company
were cancelled on October 27, 1999.
NOTE 7. RELATED PARTY TRANSACTIONS
During the period from April 1, 1999 through November 30, 1999, and
the fiscal years 1999 and 1998, Marker Japan purchased ski bindings and
services totaling approximately $56,000, $66,000, and $92,000, respectively,
from Isomura Seisakusho KK ("Isomura Seisakusho"), a company of which Eiichi
Isomura, a shareholder and former director of the Company, is the president,
director and owner of more than ten percent of the outstanding stock.
Marker Japan leased office space in Tokyo, Japan and received
distribution services from Isomura Sangyo, a company of which Eiichi Isomura,
a shareholder and former director of the Company, is the president, director
and owner of more than ten percent of the outstanding stock. In connection
therewith, for the period from April 1, 1999 to November 30, 1999 and for the
fiscal years 1999 and 1998, Marker Japan made payments to Isomura Sangyo
totaling approximately $138,000, $238,000 and $280,000, respectively.
The Company purchased insurance through an insurance broker, Acordia
Northwest Inc., of which Graham S. Anderson, a former director of the
Company, was also a director. The Company incurred approximately $684,000,
and $748,000 of premiums for such insurance for fiscal years 1999 and 1998,
respectively.
DNR Sportsystem Ltd. purchased snowboards from an affiliated entity,
of which Gregor Furrer & Partner Holding AG, a former minority shareholder of
DNR Sportsystem Ltd., was a partner. Snowboards purchased from the related
party totaled approximately $0.9 and $5.9 million during 1999 and 1998,
respectively.
On August 24, 1998, Henry E. Tauber, former president and chief
executive officer of Marker and a member of Marker's board of directors,
purchased 1,000,000 shares of the Company's Series B Preferred Stock, $0.01
par value (the "Preferred Stock"), for a purchase price of $3,000,000. Allen
& Company Incorporated, an investment banking firm, provided a report on the
transaction to the Board of Directors, concluding that the terms of the sale
of the Preferred Stock were fair and reasonable, and no less favorable to the
Company than those that could be obtained from an unrelated third party
making a similar investment in the Company.
F-18
<PAGE>
MKR HOLDINGS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. BENEFIT PLAN
Until November 30, 1999, the Company sponsored a qualified
retirement plan under Section 401(k) of the Internal Revenue Code which
covered substantially all eligible domestic employees. Under the terms of the
plan, each participant could elect to defer up to the annual statutory limit
of eligible compensation. The Company matched 50 percent of each
participant's contribution up to 4 percent of the participant's eligible
compensation. During the period from April 1, 1999 to November 30, 1999, and
the fiscal years ended 1999 and 1998, employer contributions totaled
approximately $18,000, $51,000 and $56,000, respectively. This plan was
assumed by Newco under the terms of the Purchase Agreement.
F-19
