1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------
For the fiscal year ended March 31, 1996 Commission file number 1-7305
ROCKWOOD NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2752896
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5690 EASTOVER DRIVE
NEW ORLEANS, LOUISIANA 70128-3633
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 241-4400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered under to Section 12(g) of the Act:
Common Stock $.25 par value 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 (Section 229.405 of this Chapter) 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)
As of June 14, 1996, 13,569,468 shares of common stock were outstanding. The
aggregate market value of the common shares held by non-affiliates of Rockwood
National Corporation on June 14, 1996 was $126,015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended March 31,
1996 are incorporated by reference into Parts I and II and IV.
Portions of the Proxy Statement for the 1996 Annual Meeting of Shareholders
are incorporated by reference into Part III.
Page 1 of 41 Pages
2
CONTENTS
Annual Report To Stockholders:
Business..................................................... 3
Common Stock Market Prices and Dividends..................... 4
Selected Financial Data...................................... 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 6
Quarterly Results of Operations - Unaudited.................. 9
Independent Auditors' Report................................. 11
Consolidated Financial Statements............................ 13
Notes to Consolidated Financial Statements................... 17
Board of Directors........................................... 32
Officers and Other Information............................... 32
Annual Report on Form 10-K:
Items 1 - 14................................................. 33
Financial Statement Schedules and Exhibits................... 37
Page 2 of 41 Pages
3
BUSINESS
Rockwood National Corporation (the "Company"), through its
subsidiaries, is engaged in the real estate business. The Company's primary
assets are approximately 234 acres of undeveloped commercial land in New
Orleans, Louisiana and approximately 15 acres of residential land in New
Orleans that are under option agreements.
The Company was incorporated in Delaware on July 20, 1972.
Administration
On June 27, 1994, by unanimous consent of the Board of Directors, a
change in the control of the Company occurred which resulted in new officers
and directors. Donald E. Pate became the Chairman, President and Chief
Executive Officer, along with other officers of Eastover Development
Corporation (EDC) and its affiliated entities. EDC administers the day-to-day
business affairs of the Company for an annual fee of $196,000. All personnel
required for the Company's affairs, including the Company's salaried officers,
receive their compensation from EDC and its affiliated companies.
Page 3 of 41 Pages
4
COMMON STOCK MARKET PRICES AND DIVIDENDS
Rockwood National Corporation's common stock is traded on the
over-the-counter market under the symbol RNTL. The following table shows the
high and low share prices for each fiscal quarter during the past two years.
Bid Price Bid Price
--------- ---------
Quarter Ended High Low Quarter Ended High Low
- ------------- ---- --- ------------- ---- ---
June 30, 1995 $ .015 .010 June 30, 1994 (a)(b) $ .020 .010
September 30, 1995 .015 .010 September 30, 1994 .021 .010
December 31, 1995 .010 .010 December 31, 1994 .020 .005
March 31, 1996 .0125 .010 March 31, 1995 .015 .005
(a) Effective July 10, 1992, the Company's stock was no longer quoted on
the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), therefore reliable quotations were unavailable.
(b) Effective December 8, 1992, the Company's stock was suspended on the
Pacific Stock Exchange and de-listed effective February 18, 1993.
As of June 20, 1996, there were 5,354 shareholders of record of the
Company's shares of common stock. No dividends were declared or paid during
the last two fiscal years. Agreements with the Company's bank lenders prohibit
the payment of dividends.
Page 4 of 41 Pages
5
SELECTED FINANCIAL DATA
Year Ended March 31
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ---------- --------- --------- ---------
(In thousands, except per share data)
Revenues:
Real estate operations $ 330 1,621 2,839 1,794 1,981
Interest and other income 31 109 260 227 280
-------- ------- ------- ------- -------
361 1,730 3,099 2,021 2,261
-------- ------- ------- ------- -------
Cost of real estate
operations 207 1,164 2,921 1,841 1,872
Losses on real estate - - 2,620 800 572
Loss on disposition of
note receivable 108 - - - -
Other expenses 877 880 888 996 1,726
-------- ------- ------- ------- -------
Net loss $ (831) (314) (3,330) (1,616) (1,909)
======== ======= ======= ======= =======
Total assets 7,771 8,936 12,567 18,104 20,819
======== ======= ======= ======= =======
Long-term obligations
not in technical
default $ 1,350 177 1,466 1,636 141
======== ======= ======= ======= =======
Per share data:
Net loss per share $ (.06) (.02) (.25) (.16) (.19)
======== ======= ======= ======= =======
No dividends were declared or paid during any of the above years.
Page 5 of 41 Pages
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
Total assets decreased $1,165,000 to $7,771,000 during the fiscal year ended
March 31, 1996. This decrease is due primarily to the assignment, at a
discount, of an affiliated company note receivable for $699,000 and the sale of
two multi-family parcels and a residential lot.
Total liabilities decreased $334,000 to $6,226,000 during the fiscal year ended
March 31, 1996. The decrease is primarily due to the restructuring of the
related bank debt which allowed the company to pay-off the Parkway and Congress
Street Properties' notes and interest and to pay real estate taxes owed.
Stockholder's equity decreased $831,000 reflecting the net loss for the twelve
months ended March 31, 1996.
Results of Operations
1996 Compared to 1995
The Company's real estate activities during the fiscal year ended March 31,
1996 were primarily limited to two transactions. The Company sold a residential
lot for $55,000, recognizing $25,000 in gross profit on the sale. The
proceeds were used primarily to pay a lien on the property sold. Eastover
Properties, Inc. (EPI), an affiliate, exercised its options to purchase two
multi-family parcels with the Company for $166,000. The exercise of the
options did not result in a gain or loss to the Company. The remaining
outstanding options were scheduled to mature in 1996, but an extension has been
granted on the remaining options outstanding to EPI.
Page 6 of 41 Pages
7
1995 Compared to 1994
Effective June 16, 1994, the Business Industrial Park, a 32,000 square foot
office/warehouse building in New Orleans, was sold to Wink/Parkway Partnership,
a partnership in which Wink Leasing, Inc. and Parkway each has a 50% interest.
The purchase price was $1,500,000 and proceeds were used to repay the debt on
the building. Prior to the sale, the Business Industrial Park was owned by
4949 Partnership in which Lake Forest, Inc., a subsidiary of the Company, and
Wink Leasing, Inc. each had a 50% interest. A gain of approximately $400,000
was recorded as a result of this transaction during 1995.
On June 1, 1994, the Company sold one residential lot for $49,000 cash. The
Company recognized a loss of $1,000 on this sale, and the proceeds were used to
pay operating expenses.
General, selling and administrative expenses decreased $46,000 compared to the
prior year, primarily the result of a decrease in property tax, audit expenses
and Louisiana franchise taxes, net of increases in management fees.
Liquidity and Capital Resources
During 1996, in order to make the required payments on its TMNB mortgage debt
and avoid foreclosure on real estate properties, the Company attempted to
obtain financing through various financial institutions and real estate
developers. The Company was not able to obtain financing or sell an interest
in the real estate to outside parties, therefore an affiliate agreed to provide
the necessary financing.
During the fiscal year, the Company refinanced its debt through a series of
transactions involving the Company, EPI, Eastover Mortgage Company, LLC (EMC),
and Trustmark National Bank (TMNB). EMC, an affiliate, loaned to the Company
$1,350,000 with an interest rate of 1% over the Chase Manhattan prime rate,
9.25% at March 31, 1996, for a period of three years. See notes 6 and 7 to the
Company's consolidated financial statements for further discussion of the
refinancing of the Trustmark note and the extension of credit from EMC.
Page 7 of 41 Pages
8
For the year ended March 31, 1996, the Company had marginal cash flow because
of limited real estate sales and various expenses incurred for such items as
interest expense, property taxes and the cost of operating a public company.
At March 31, 1996, substantially all of the Company's assets and a portion of
the Company's subsidiaries stock are pledged as collateral on indebtedness and
the Company is not in compliance with debt covenants.
Included in accounts payable and other liabilities are amounts totaling
approximately $900,000 related to claims and other liabilities which have
remained unresolved for several years and which ultimately may not be paid.
Net cash from operating activities decreased $550,000 in 1996 from 1995, and
decreased $745,000 in 1995 from 1994. The decrease between 1996 and 1995 is
primarily attributed to a decline in real estate sales and the decline in other
income. The decrease between 1995 and 1994 was attributable to a decline in
real estate sales and a decrease in real estate rental revenues with the
disposition of the Companies' rental properties.
Net cash flows from investing activities decreased $2,426,000 in 1996 from 1995,
and increased $2,274,000 in 1995 from 1994. The decrease between 1996 and 1995
and the increase between 1995 and 1994 is primarily attributed to the payments
received on notes receivables outstanding and mortgage loans outstanding during
1995.
Net cash flows used in financing activities decreased $3,002,000 in 1996 from
1995, and increased $1,602,000 in 1995 from 1994. The decrease between 1996 and
1995 is primarily attributed to the lower amount of principal payments on bank
notes offset by proceeds from a loan from an affiliate in the amount of
$1,350,000. The increase between 1995 and 1994 was attributable to an incrase
in principal payments on bank notes of $1,385,000 and a net decline in
principal payments on notes payable to affiliated company of $217,000.
During 1995, the Company entered into a series of transactions that
restructured the debts and changed control of the Company.
The parties involved are the Company, Eastover Properties, Inc. ("EPI") and
Eastover Realty, Inc. ("ERI"). Effective at closing, persons designated by EPI
and ERI ("Purchaser Designees") became directors and officers of the Company.
The transaction pursuant to which EPI's and ERI's designees became directors
and officers of the Company consists of several related parts which happened
simultaneously. These parts are described below.
The first portion was a purchase by EPI of the following assets from the
Company for $890,000 payable in the form of a promissory note bearing interest
at a rate of six percent (6%) and payable in annual installments of $135,868
until all principal and accrued interest are paid (the "Purchase Promissory
Note"):
(i) a promissory note payable to Lake Forest, Inc. ("LFI") from
EPI in the present principal amount of $366,960 (this
promissory note was originally issued in connection with the
April 16, 1991 sale);
(ii) the undeveloped residential land in New Orleans, Louisiana
known as Phase II of the Eastover Development (EPI had an
option, granted in 1991, to purchase this land for $750,000),
and
(iii) the undeveloped residential land in New Orleans, Louisiana
known as Phase III of the Eastover Development (EPI had an
option, granted in 1991, to purchase this land for $750,000).
Page 8 of 41 Pages
9
In connection with the options that EPI was granted to purchase Phases II and
III in 1991, EPI agreed to pay LFI 20% of the "net sales proceeds" (as defined)
from Phases II and III. LFI transferred this obligation to Eastover
Development Corp. ("EDC") for a payment of $100. The Purchase Promissory Note
is secured by a pledge of item (i) above and a mortgage on items (ii) and (iii)
above. The Purchase Promissory Note will be non-recourse, except that EPI is
personally liable for all post-default interest. The Company recorded a loss
of $800,000 in the year ended March 31, 1994 for financial reporting purposes
as a result of this transfer to reduce the carrying value of the assets to net
realizable value.
Secondly, Parkway prepaid its promissory note in the principal amount of
$2,274,000 that was established in December 1990 with the purchase of 80 acres
of undeveloped commercial land. The Company used these proceeds to reduce bank
debt, pay property taxes on bank debt collateral through December 1993, and
reduce notes payable to affiliates. After the above payment on bank debt, the
Company's bank debt was restructured as a one-year promissory note bearing
interest at a rate of prime plus 1-1/2% and has additional collateral of a
first mortgage on approximately 60 acres of undeveloped land in New Orleans and
an assignment of the Purchase Promissory Note. The bank will receive 90% of
the sales proceeds from any sale of its collateral and will extend the maturity
date by one year for every $500,000 in principal payments it receives. The
Company still owes Parkway $177,000 pursuant to a revolving credit promissory
note which was restructured into a note secured by real property consisting of
ERI's sales office and approximately 15 acres of undeveloped land.
The interest rate is prime plus 1-1/2%. Parkway also was granted a second
mortgage on all land on which the bank has a first mortgage. Thirdly, Parkway
and Congress Street, who own 2,358,151 and 930,135 shares of the Company,
respectively, granted EDC an option to purchase those shares during the period
beginning June 28, 1994 and ending on June 16, 1997. The exercise price is the
average of the closing sales price for shares for the five days before the
effective date of the exercise of the option. If the shares are not traded on
an exchange (which includes NASDAQ), then the purchase price shall be $.05 per
share, adjusted for any stock split, stock dividend, merger, share exchange or
other similar transaction.
QUARTERLY RESULTS OF OPERATIONS - UNAUDITED
The following is a summary of the quarterly results of operations for the
years ended March 31, 1996 and 1995.
1996
---------------------------------------------------------
Three Months Ended
------------------
June 30 Sept. 30 Dec. 31 March 31
---------- ----------- ---------- ----------
(In thousands, except per share data)
Revenues $ 27 168 57 109
Expenses 212 305 213 462
-------- -------- -------- --------
Net income (loss) $ (185) (137) (156) (353)
======== ======== ======== ========
Net income (loss) per share $ (.02) (.01) (.01) (.02)
======== ======== ======== ========
Page 9 of 41 Pages
10
1995
---------------------------------------------------------------
Three Months Ended
------------------
June 30 Sept. 30 Dec. 31 March 31
----------- ----------- ------------ ------------
(In thousands, except per share data)
Revenues $ 1,686 18 18 18
Expenses 1,441 234 187 191
----------- --------- -------- --------
Net income (loss) $ 245 (216) (169) (173)
=========== ========= ======== ========
Net income (loss) per share $ .02 (.02) (.01) (.01)
=========== ========= ======== ========
Page 10 of 41 Pages
11
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Rockwood National Corporation:
We have audited the accompanying consolidated balance sheets of Rockwood
National Corporation and subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1996. In
connection with our audit of the consolidated financial statements, we have
also audited the financial statement schedules listed in the Index at Item
14(a). These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rockwood National
Corporation and subsidiaries at March 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Rockwood National Corporation will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the Company
incurred net losses of $831,000, $314,000 and $3,330,000 for the years ended
March 31, 1996, 1995 and 1994, has encountered difficulties in generating
adequate cash flows and obtaining external financing for the operation, future
development and completion of its real estate activities and is not in
compliance with debt covenants. These matters raise substantial doubt about
Page 11 of 41 Pages
12
the entity's ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 2. The consolidated financial
statements and financial statement schedules do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
June 10, 1996
Page 12 of 41 Pages
13
ROCKWOOD NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31
------------------------
1996 1995
--------- ---------
(In thousands)
Assets
Real estate assets $ 5,475 8,566
Cash and cash equivalents - 16
Accounts, notes and other receivables 100 225
Prepaid expenses 92 92
Deferred debt issuance costs 2,068 -
Other assets 36 37
-------- -------
$ 7,771 8,936
======== =======
Liabilities and Stockholders' Equity
Liabilities:
Note payable to banks 1,580 2,882
Notes payable to affiliated companies 1,350 233
Accounts payable and other liabilities 2,881 2,907
Deferred gain 415 538
-------- -------
Total liabilities 6,226 6,560
-------- -------
Stockholders' equity:
Common stock ($.25 par value per share)
Authorized 20,000,000 shares; issued and
outstanding 13,569,468 3,392 3,392
Additional paid-in capital 49,837 49,837
Accumulated deficit (51,684) (50,853)
-------- -------
Total stockholders' equity 1,545 2,376
Contingencies, commitments and other matters
-------- -------
Total liabilities and stockholders' equity $ 7,771 8,936
======== =======
See accompanying notes to consolidated financial statements.
Page 13 of 41 Pages
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ROCKWOOD NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31
------------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands, except per share data)
Revenues:
Real estate sales $ 330 1,549 2,637
Real estate rentals - 72 202
Interest and other 31 109 260
-------- -------- --------
361 1,730 3,099
-------- -------- --------
Costs and expenses:
Real estate sales 207 1,093 2,650
Real estate rentals - 71 271
General, selling and administrative
expenses 514 536 582
Interest expense and financing charges 363 344 306
Loss on disposition of note receivable 108 - -
Losses on real estate - - 2,620
-------- -------- --------
1,192 2,044 6,429
-------- -------- --------
Net loss $ (831) (314) (3,330)
======== ======== ========
Net loss per share $ (.06) (.02) (.25)
======== ======== ========
Weighted average shares of common stock
outstanding 13,569 13,569 13,543
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 14 of 41 Pages
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ROCKWOOD NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 31, 1996, 1995 and 1994
(In thousands)
Common stock Additional Total
------------------------ paid-in Accumulated stockholders'
Shares Amount capital deficit equity
-------- -------- ---------- ----------- ------------
Balance at March 31, 1993 9,853 $ 2,463 50,766 (47,209) 6,020
Issuance of stock 3,715 929 (929) - -
Net loss - - - (3,330) (3,330)
------ ------- ------ ------- ------
Balance at March 31, 1994 13,568 3,392 49,837 (50,539) 2,690
Conversion of predecessor
company stock certificates 1 - - - -
Net loss - - - (314) (314)
------ ------- ------ ------- ------
Balance at March 31, 1995 13,569 3,392 49,837 (50,853) 2,376
Net loss - - - (831) (831)
------ ------- ------ ------- ------
Balance at March 31, 1996 13,569 $ 3,392 49,837 (51,684) 1,545
====== ======= ====== ======= ======
See accompanying notes to consolidated financial statements.
Page 15 of 41 Pages
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ROCKWOOD NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31
------------------------------------
1996 1995 1994
------- ------ ------
(In thousands)
Operating activities:
Net loss $ (831) (314) (3,330)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 60 - 80
Loss on disposition of note receivable 108 - -
Real estate held for sale:
Losses (gains) on sales (188) (456) 13
Net proceeds from sales 920 1,540 1,933
Losses on real estate - - 2,620
Changes in operating assets and
liabilities:
Decrease in accounts, notes and
other receivables, prepaid
expenses and other assets 126 79 303
Decrease in accounts payable and
accrued and other liabilities (26) (130) (155)
------- ------ ------
Net cash provided by operating
activities 169 719 1,464
------- ------ ------
Investing activities:
Payments received on mortgage loans - 152 116
Payments received on note receivable - 2,274 -
Proceeds from sale of investment in
partnership - - 36
------- ------ ------
Net cash provided by
investing activities - 2,426 152
------- ------ ------
Financing activities:
Principal payments on bank notes (1,302) (2,495) (1,110)
Proceeds from notes payable to affiliated
company 1,350 56 503
Principal payments on notes payable to
affiliated company (233) (748) (978)
------- ------ ------
Net cash used by financing
activities (185) (3,187) (1,585)
------- ------ ------
Increase (decrease) in cash and cash
equivalents (16) (42) 31
Cash and cash equivalents at beginning
of year 16 58 27
------- ------ ------
Cash and cash equivalents at end of year $ - 16 58
======= ====== ======
See accompanying notes to consolidated financial statements.
Page 16 of 41 Pages
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ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(1) Summary Of Significant Accounting Policies
(a) Description of the Business
Rockwood National Corporation (the "Company"), through its
subsidiaries, is engaged in the real estate business. The
Company's primary asset is an undivided interest in approximately
234 acres of undeveloped commercial land in New Orleans,
Louisiana, and approximately 15 acres of residential land in New
Orleans that are under option agreements. At March 31, 1996, the
Company's principal activities are conducted by Lake Forest, Inc.
(LFI), a wholly-owned subsidiary engaged in the real estate
business.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Rockwood National Corporation (Rockwood) and its
subsidiaries (the Company). Intercompany transactions and
balances have been eliminated in consolidation.
(c) Statements of Cash Flows
The Company considers bank overdrafts and all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents.
Year Ended March 31
---------------------------------------
1996 1995 1994
--------- -------- --------
Supplemental cash flow
information -
interest paid $ 302,000 267,000 424,000
========= ======= =======
(d) Real Estate Operations
Land held for sale and development and rental properties are
carried at the lower of cost or net realizable value, including
development costs and improvements. Interest, property taxes and
other carrying costs incurred during the development phase are
capitalized. The costs of direct improvements to a tract of real
estate are allocated to that tract. In general, costs of land,
common improvements and capitalized carrying costs are allocated
to tracts based upon the relative sales values of the tracts.
The Company capitalizes interest on the average amount of
accumulated expenditures for property being developed using the
effective interest rate based on the related debt. Interest
capitalization continues until the assets are ready for sale or
until development of the property is suspended. No interest was
capitalized for the years ended March 31, 1996, 1995 and 1994.
(Continued)
Page 17 of 41 Pages
18
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
Profits from sales of real estate are recognized upon closing,
the transfer of ownership rights to the purchaser and receipt
from the purchaser of an adequate cash down payment and adequate
continuing investment by the purchaser. If the required cash
down payment has not been received, except for transactions where
the deposit method of accounting is used, the sale and related
costs are recorded, but any gross profit is deferred and
recognized using the installment method of accounting as
collections are received.
Revenue on real estate rentals is recognized and accrued as
earned.
All of the Company's rental properties were sold to a related
entity during 1995, as discussed in Note 11(d).
(e) Rental Properties and Furniture, Fixtures and Equipment
Rental properties and furniture, fixtures and equipment are
depreciated over their estimated useful lives using the
straight-line method, as follows:
Years
-----
Land improvements 15-20
Buildings and improvements 5-40
Vehicles, equipment and other 3-10
The cost of maintenance, repairs and minor renovations is charged
to expense in the year incurred; major renovations and
betterments are capitalized.
(f) Debt Issuance Costs
Debt issuance costs incurred in connection with the issuance of
the Company's notes to affiliates are being amortized over the
term of the related debt. Unamortized costs are charged to
expense upon prepayment of the financing.
(g) Loss Per Share
Common stock equivalents include the Company's stock options,
warrants, and stock issuable in connection with Rockwood Computer
Corporation's plan of reorganization (see Note 8). The
computation of the loss per share for 1996, 1995, and 1994 does
not give effect to common stock equivalents which would decrease
the loss per share amount otherwise computed.
(Continued)
Page 18 of 41 Pages
19
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(h) Income Taxes
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", the Company
accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(i) Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". The statement is required
to be adopted no later than fiscal years beginning after December
15, 1995. Management of the Company does not expect this
statement to have any effect on the consolidated financial
statements of the Company.
(j) Reclassifications
Certain reclassifications have been made in the 1995 and 1994
financial statements to conform to the 1996 presentation.
(k) Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those
estimates.
(Continued)
Page 19 of 41 Pages
20
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(l) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts,
notes and other receivable, accounts payable, and other
liabilities approximate fair value because of the short maturity
of these items. The carrying amounts of notes payable to banks
and affiliated company approximate fair value because the
interest rates of these instruments change with market interest
rates.
(2) Liquidity
The Company incurred net losses of $831,000 in 1996, $314,000 in 1995
and $3,330,000 in 1994 and, at March 31, 1996, the Company had
borrowed all amounts available under its loan agreement with a bank.
Notes payable to banks totaling $1,580,000 become due on February 15,
1999. Management is of the opinion that a significant portion of the
cash flow required for the Company's fiscal 1997 operations must come
from real estate sales. At March 31, 1996, substantially all of the
Company's assets are pledged as collateral on indebtedness and the
Company is not in compliance with debt covenants (see note 7).
(3) Accounts, Notes and Other Receivables and Prepaid Expenses
March 31
---------------------
1996 1995
--------- -------
Accounts, notes and other receivables
consist of:
Refundable utility installation costs $ 16,000 57,000
Note receivable due from affiliate 16,000 112,000
Other 68,000 56,000
--------- -------
$ 100,000 225,000
========= =======
Prepaid expenses consist of -
prepaid real estate taxes $ 92,000 92,000
========= =======
(4) Real Estate Assets
March 31
-----------------------
1996 1995
----------- ---------
Land held for sale and development $ 5,475,000 7,799,000
Mortgage note receivable (see note 9(f)) - 767,000
----------- ---------
$ 5,475,000 8,566,000
=========== =========
(Continued)
Page 20 of 41 Pages
21
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
During the 1994 fiscal year, management reduced the carrying value of
its real estate assets by recording a loss of $2,620,000 to reflect
the impact of an exclusive listing agreement and the transaction
discussed in Note 9. A summary of activity in the allowance for
possible losses follows:
Year Ended March 31
------------------------------------------
1996 1995 1994
------- ---- --------
Balance at beginning of year $ - - 806,000
Provision for possible losses - - -
Amounts charged to allowance - - (806,000)
------- --- --------
Balance at end of year $ - - -
======= === ========
(5) Accounts Payable and Other Liabilities
March 31
--------------------------
1996 1995
----------- ---------
Accounts payable and other
liabilities consist of:
State income taxes payable $ 491,000 491,000
Litigation settlement payable 525,000 525,000
Real estate taxes payable 280,000 338,000
Legal fees payable 296,000 296,000
Accrued management fees 343,000 174,000
Accrued interest 20,000 214,000
Utility refunds payable 173,000 173,000
Principal and interest payable
on retired debentures 132,000 139,000
Accrued director's fees 127,000 127,000
Accrued taxes - other 90,000 87,000
Other 404,000 343,000
----------- ---------
$ 2,881,000 2,907,000
=========== =========
(6) Notes Payable to Banks
March 31
--------------------------
1996 1995
----------- ---------
Note payable to banks consist of:
Mortgage note payable, interest due
semi-annually at prime rate plus
1-1/2% (9.75% at March 31, 1996),
due February 15, 1999, secured by
commercial acreage $ 1,580,000 2,882,000
=========== =========
(Continued)
Page 21 of 41 Pages
22
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
In August 1995, the Company assigned the balance remaining on the EPI
note receivable (note 9(f)) to Trustmark National Bank (TMNB) as a
reduction to the mortgage note outstanding with TMNB in the amount of
$699,000. A $108,000 loss on the assignment of the notes receivable
was recognized. The related deferred gain, resulting from the
property sale which created the note receivable, was recognized in the
current year.
Affirmative covenants related to the above mortgages require, among
other things, that the Company not be delinquent in the payment of
property taxes on the mortgaged properties. The Company was in
technical default with this covenant at March 31, 1996, 1995 and 1994.
Agreements made with the Company's bank lenders prohibit the payment
of dividends.
(7) Notes Payable to Affiliated Companies
Notes payable to affiliated companies consist of:
March 31
--------------------------
1996 1995
----------- -------
Note payable to Eastover Mortgage Company,
L.L.C., principal and interest due
in full on March 7, 1999, interest
based on 1% over the Chase Manhattan
prime rate (9.25% at March 31, 1996),
secured by commercial real estate
and certain subsidiaries' stock $ 1,350,000 -
Note payable, interest due quarterly at
prime (9% at March 31, 1995), principal
payments of $118,000 and $59,000 due on
June 27, 1995 and 1996, respectively - 177,000
Note payable, interest due quarterly at
prime (9% at March 31, 1995), principal
due on June 27, 1996 - 56,000
----------- -------
$ 1,350,000 233,000
=========== =======
(Continued)
Page 22 of 41 Pages
23
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
On March 7, 1996, Lake Forest, Inc., a wholly owned subsidiary of the
Company, borrowed an aggregate amount of $1,350,000 (the EMC Loan)
under two notes payable to Eastover Mortgage Company, L.L.C., (EMC)
whose members are the Chief Executive Officer and a director of the
Company. Proceeds from the issuance of the notes to EMC were used by
the Company to pay interest and principal on the Company's note
payable to TMNB, to pay delinquent real estate taxes, for costs and
expenses of the transaction and to provide working capital to the
Company and Lake Forest. Lake Forest was in default of its loan with
TMNB, with a balance then outstanding of approximately $2,200,000. In
conjunction with the payment of interest and principal, TMNB renewed
its note outstanding to Lake Forest and extended the terms as
described in note 6. The loan with TMNB is secured by a first mortgage
on substantially all of the Company's property in eastern New Orleans,
Louisiana and is guaranteed by Rockwood.
In consideration of EMC extending the EMC Loan and its speculative
nature, pursuant to a related agreement effective March 7, 1996,
between the Company and its subsidiaries (NEI Properties, Inc. and
Lake Forest, Inc.) and EMC, Lake Forest transferred to EMC a 28%
undivided interest in all property owned by Lake Forest in Orleans
Parish, Louisiana (the Eastover Transfer). The carrying value of the
undivided interest transferred to EMC of $2,128,000 has been recorded
as deferred debt issuance costs and will be amortized over the term of
the loan.
The terms of the agreement provide that the Eastover Transfer will not
be recorded in the conveyance records of Orleans Parish except in the
event that Lake Forest defaults on the TMNB loan (see note 6) or in
the event that Donald E. Pate is terminated as President of Rockwood.
At any time prior to recordation of the conveyance, the parties have
agreed that either Rockwood or EMC shall have the right, privilege and
option to amend the Eastover Transfer to provide for a transfer of 28%
of the issued and outstanding common stock of Rockwood at the time the
option is exercised.
EMC has agreed to loan additional funds to Lake Forest, to the extent
needed to pay interest payments on the TMNB Loan. Such loans
will be evidenced by notes, will bear interest at 1% over prime and
will be due and payable on February 15, 1999. Loans made by EMC under
this commitment shall be secured by a collateral mortgage on a parcel
of the Company's real estate and 100% of the stock of Lake Forest and
NEI.
Further, EMC has agreed to loan sufficient funds to Lake Forest to pay
the balance of the TMNB note, in the event Lake Forest or
Rockwood does not have funds available to pay the note when due
according to its terms.
(Continued)
Page 23 of 41 Pages
24
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
EMC loans to pay principal on the TMNB note at its maturity are
conditioned upon Rockwood's transferring an additional 23% undivided
interest in the Company's real estate or the Company's issuance of
sufficient Rockwood common stock to EMC to grant EMC an additional 23%
ownership of the outstanding shares of common stock of the Company. At
March 31, 1996, the Company does not have the requisite number of
shares authorized for issuance to grant the ownership interest to EMC,
in order for the Company to obtain the loan proceeds.
The Company's ability to meet its obligations to TMNB and EMC when due
is dependent on the Company's success in marketing its real estate
properties, obtaining alternative financing or obtaining additional
equity capital. It is the intention of the Company to sell sufficient
real estate to liquidate all of its liabilities. EMC has agreed,
however, that as long as reasonable efforts are made by Rockwood to
sell the real estate owned by Lake Forest, and so long as the Company
is not in bankruptcy or receivership, EMC shall renew and extend all
loans made to the Company, at the same rates and terms, for additional
three year periods.
(8) Capital Stock
Since 1985, the Company has been a defendant in various lawsuits
regarding debentures issued by its former subsidiary, Rockwood
Computer Corporation ("Computer"). In early 1992, the Company was
held liable as successor to Computer under the terms of the unpaid
debentures. The previously disclosed settlement agreements with the
plaintiffs in the lawsuits against the Company were approved by the
court and are final. The Company settled the lawsuits in exchange for
securities of the Company and a small amount of cash. Under the terms
of the settlement, the Company agreed to issue an aggregate of up to
5,500,000 shares of common stock and paid $85,000 in cash to the class
members. The terms of the settlement agreement also called for
debenture holders to tender their debentures within one year of the
court approval date of February 21, 1993, to claim their common stock
certificates. Certificates not claimed after one year revert to the
Company. During the year ended March 31, 1994, 3,715,434 shares of
common stock were issued pursuant to the settlement of the lawsuit.
At March 31, 1996, 574,393 certificates have been reverted to the
Company and 1,210,173 certificates are pending additional information
before issuance.
(Continued)
Page 24 of 41 Pages
25
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
As an inducement for The Parkway Company, an affiliated entity and
owner of approximately 17% of the outstanding common stock of the
Company, to purchase 80 acres of land from the Company in December
1990, Rockwood issued to Parkway a warrant to purchase 800,000 shares
of Rockwood common stock exercisable at $.375 per share during the
period beginning June 17, 1991 and ending December 18, 1995. No
warrants were exercised during the year and all outstanding warrants
expired on December 18, 1995.
On August 17, 1979, the stockholders approved the 1979 Stock Option
Plan for Officers, Directors and Key Employees ("1979 Key Plan").
Under the 1979 Key Plan, the Company was authorized to grant options
to purchase up to 360,000 shares of the Company's common stock, at not
less than the fair market value of the Company's common stock on the
date of grant. Options granted under the Plan are generally
exercisable six months after and expire ten years from the date of
grant. On June 9, 1982, the 1979 Key Plan was amended to conform to
IRS regulations for Incentive Stock Option Plans.
The Company's Incentive Stock Purchase Plan (the "Stock Plan"), dated
April 30, 1982, authorized the sale of a maximum of 500,000 shares of
the Company's common stock to certain officers at a price of $.85 per
share. Ten percent of the purchase price was payable in cash and the
balance was represented by an 8-year promissory note bearing interest
at the prevailing broker's loan rate of interest up to 15% per year.
Principal was payable on the earlier of the eighth anniversary of the
note or pro rata upon the earlier sale of any of the shares. On May
14, 1982, 480,000 shares were issued under the Stock Plan. A special
committee of the Company's Board determined that the establishment of
the Stock Plan was improper and that the shares were issued for
inadequate consideration. Stock certificates for 90,000 shares have
been returned to the Company and canceled, and principal and interest
payments made on the notes for these shares were returned and the
notes were canceled. The Company has authorized the Company's stock
transfer agent to place stop transfer notations in its books with
respect to the remaining 390,000 shares. Since, in the opinion of
management, the shares were not validly issued, the Company has
deducted the 390,000 shares from the total shares outstanding and
canceled the unpaid portion of the incentive stock purchase agreements
($298,000); however, there is no assurance that the Company will
prevail with respect to its position that these shares were invalidly
issued.
(Continued)
Page 25 of 41 Pages
26
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
On August 22, 1991, the stockholders approved the 1991 Incentive Plan
and the 1991 Directors Stock Option Plan. The Incentive Plan provides
for the issuance of an aggregate of 492,261 options to key employees
or officers of the Company. The options include provisions for stock
appreciation rights which provide for the payment of an amount of cash
to the employee equal to the excess of the fair market value of the
shares over the option price. The Directors' Plan provides for the
issuance of an aggregate of 150,000 options to directors who are not
employees.
An analysis of activity in options under the Plans is as follows:
1991 1991
1979 Key Plan Incentive Plan Directors Plan
--------------------------- ----------------------- -------------------
Price Per Price Per Price Per
Shares Share Shares Share Shares Share
-------- --------------- ------- ----------- ------ ---------
Outstanding,
March 31, 1993 82,000 $ 1.3125 - 3.25 435,750 $ .25 - .28 90,000 $ .28
Relinquished - - (5,000) $ .25 - -
-------- ------- ------
Outstanding,
March 31, 1994 82,000 $ 1.3125 - 3.25 430,750 $ .25 - .28 90,000 $ .28
Issued - - - - - -
-------- ------- ------
Outstanding,
March 31, 1995 82,000 $ 1.3125 - 3.25 430,750 $ .25 - .28 90,000 $ .28
Issued - - - - - -
Relinquished (26,000) $ 1.3125 - 3.25 - -
-------- ------- ------
Outstanding,
March 31, 1996 $ 56,000 $ 1.3125 - 3.25 430,750 $ .25 - .28 90,000 $ .28
======== ======= ======
At March 31, 1996 and 1995, options for 576,750 and 602,750 shares
were exercisable, respectively. The 1979 options outstanding expire
in 1998. The 1991 options expire in 2001 and 2002.
(Continued)
Page 26 of 41 Pages
27
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(9) Other Related Party Transactions
(a) Administrative Services Fees
During 1994, the Company entered into an administrative services
agreement with Eastover Properties, Inc. (EPI), an affiliate of
the Company owned in part by the President of the Company and
certain of the Company's officers and members of the Board of
Directors. Under the agreement, the fee paid by the Company for
administrative services is fixed at $196,000 annually. The amount
charged to the Company and included in general and administrative
expenses totaled $196,000, $196,000 and $153,000 in 1996, 1995 and
1994, respectively. All personnel required for the Company's
affairs, including the Company's salaried officers, receive their
compensation from EPI or affiliates thereof.
(b) Management Fees
Effective March 1, 1990, the Company sold its realty corporation,
Eastover Realty, Inc. (ERI), to Donald E. Pate, who was an
officer of Lake Forest, Inc. from December 1983 to September 1988.
Effective June 27, 1994, Mr. Pate was elected Chairman of the
Board of the Company and appointed President and Chief Executive
Officer. Mr. Pate is also the general partner in the partnership
that purchased the Country Club and a shareholder in EPI which
purchased the residential land in New Orleans. The Company paid
ERI a monthly management fee of $27,100 through March 31, 1991,
and a monthly management fee of $10,000 through June 30, 1993.
Effective June 29, 1993, the Company will pay a decreasing
management fee of $5,833 per month through July 31, 1994, $4,167
per month through July 31, 1995, and $1,667 per month through July
31, 1996. ERI is responsible for the management and marketing
efforts of the Eastover development and surrounding commercial
real estate.
(c) Eastover and Lake Bullard Sale
On April 16, 1991, the Company sold 184 developed residential
building lots and four golf villas in the Eastover and Lake
Bullard Developments in New Orleans, Louisiana to EPI. EPI was
also granted an option to purchase the remaining undeveloped Phase
II and III residential land and seven of the multi-family parcels
in Phase I in the Eastover Development.
(Continued)
Page 27 of 41 Pages
28
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
The consideration received from EPI for the 184 lots and the
option was $4,347,350 consisting of $135,000 cash down payment, a
seven-year note for $865,000, bearing interest at 8%, and a
seven-year note for $3,347,350, bearing interest at 6%. The sales
price for the golf villas was the repayment of three golf villa
mortgages for $420,000 and a wraparound mortgage for a fourth golf
villa for $142,000.
The option price for the Phase II and Phase III residential land
was $750,000 for each phase plus a 20% future net profit
participation. The Phase II and Phase III residential land was
subsequently sold to EPI in a transaction discussed further in
Note 9(f). The option price for the seven multi-family parcels in
Phase I is $315,000. The original option expired on April 16,
1996 and was extended in 1996 for an additional five years to
April 16, 2001. At March 31, 1996, options have been exercised
for the purchase of 4 parcels.
For financial reporting purposes, the sale of the above lots and
one golf villa was deferred using the deposit method of
accounting. Under the agreement with EPI, the Company released
lots from liens securing the notes based on payment by EPI of
stipulated release prices to the Company. Sales were recorded as
these individual lots were sold by EPI and the related release
prices were paid. The sales amounts and the related cost of sales
were determined based on the carrying amount of individual lots
sold. Inasmuch as these lots were reduced to their net realizable
value by recording an allowance for possible losses of $4,650,000
in fiscal 1991, no gross profits were realized on the sales.
On June 29, 1993, the Company sold the remaining balance on the
$3,347,350 note taken in the April 16, 1991 sale. As a result of
the sale of the note, the remaining 123 lots qualified for sales
recognition in the amount of $2,350,000 net of the allowance for
possible losses.
(d) Sale of Lake Kenilworth Apartments
On July 1, 1993, the Company sold its 1% general partnership
interest in Lake Kenilworth Apartments (LKA) to ERI for $15,000
cash and a note receivable of $135,000 bearing interest at 7%. The
Company's investment in LKA had been written to zero in 1982. A
gain of $150,000 on this transaction was deferred to be recognized
as the note was collected. Subsequent to July 1, 1993, the
Company received $23,000 in principal reductions. In accordance
with the terms of the sale agreement, the note receivable was
cancelled in the current year upon the Department of Housing and
Urban Development's foreclosure on the property's mortgage.
Accordingly, the note balance and related deferred gain were
written off.
(Continued)
Page 28 of 41 Pages
29
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(e) Sale of Business Industrial Park
Effective June 16, 1994, the Business Industrial Park, a 32,000
square foot office/warehouse building in New Orleans, which
constituted the Company's rental property, was sold to
Wink/Parkway Partnership, a partnership in which Wink Leasing,
Inc. and Parkway each has a 50% interest. The purchase price was
$1,500,000 and proceeds were used to repay the mortgage note
secured by the building. Prior to the sale, the Business
Industrial Park was owned by 4949 Partnership in which Lake
Forest, Inc. a subsidiary of the Company, and Wink Leasing, Inc.
each had a 50% interest. A gain of approximately $456,000 was
recorded as a result of this transaction during 1995.
(f) Sale of Property to EPI
Effective June 28, 1994, EPI purchased from the Company a
promissory note payable to LFI by EPI in the principal amount of
$366,960 and two parcels of undeveloped residential land (Phase II
and Phase III) in the Eastover Development for $890,000.
Consideration for the purchase was a promissory note which bears
interest at 6% and is due in annual installments of $135,868
beginning June 27, 1995 until all principal and interest is paid
in 2002. In March 1996, the note receivable with a balance
outstanding of $807,000, was assigned to a bank, at a discount,
for a corresponding reduction in debt outstanding of $699,000.
The deferred gain related to the sale of the land was recognized
in addition to the loss on the assignment of the discounted note.
(10) Income Taxes
The Company has not recorded any income tax benefit for the years
ended March 31, 1996, 1995 and 1994 because net operating loss
carryforwards could not be utilized and a valuation allowance has been
provided to fully offset deferred tax assets.
(Continued)
Page 29 of 41 Pages
30
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
The tax effects of significant items comprising the Company's net
deferred tax asset (liabilities) are as follows (in thousands):
March 31,
----------------------------
1996 1995
-------- ------
Deferred tax assets (liabilities):
Differences in book and tax basis of real
estate assets $ (351) (728)
Accrued directors fees 51 51
Reserve for litigation settlement 89 89
Operating loss carryforwards 6,852 6,553
-------- ------
6,641 6,342
Valuation allowance (6,641) (6,342)
-------- ------
Net deferred tax asset $ - -
======== ======
At March 31, 1996 and 1995, the net deferred tax asset is entirely
offset by a valuation allowance because management of the Company does
not expect the net deferred tax asset to be realized.
The Company files a consolidated federal income tax return. At March
31, 1996, the Company has net operating loss carryforwards for federal
income tax purposes of approximately $17,559,000 which expire as
follows:
March 31:
1998 $ 453,000
2000 137,000
2001 1,516,000
2002 72,000
2004 1,976,000
2005 3,453,000
2006 568,000
2007 4,852,000
2008 669,000
2009 1,516,000
2010 1,576,000
2011 771,000
------------
$ 17,559,000
============
(Continued)
Page 30 of 41 Pages
31
ROCKWOOD NATIONAL CORPORATION
Notes to Consolidated Financial Statements
(11) Commitments, Contingencies and Other Matters
During fiscal years 1990 and 1991, twelve mortgage notes receivable in
the principal amount of $2,877,000 were sold to a bank. Gains related
to the real estate sold were deferred because Lake Forest is obligated
to buy back the mortgages if the mortgagors default. As of March 31,
1996, one mortgage remains outstanding with an unpaid principal
balance of $611,000 and related deferred gain of $388,000. This
mortgage, which matured in August 1995, is in default and the bank has
proceeded with legal action against the mortgagee and the Company as
guarantors. The loan is collateralized by approximately six acres of
undeveloped real estate in New Orleans. Management believes that no
additional provision for possible loss is required with respect to
this note. Accordingly, no provision for possible loss on this
recourse obligation has been reflected in the March 31, 1996 financial
statements.
The Company has pending several claims incurred in the normal course
of business which, in the opinion of management and legal counsel, can
be disposed of without significant effect on the accompanying
financial statements.
Page 31 of 41 Pages
32
BOARD OF DIRECTORS
A. Wayne Buras, age 45, is an attorney with the Louisiana law firm of Jones,
Fussell, Buras & Kern. Mr. Buras has practiced law in Louisiana for twenty
years and is a fifty percent (50%) owner of Eastover Mortgage Co., LLC, an
affiliated entity.
Donald E. Pate, age 46, has served as President of Eastover Properties, Inc.
(EPI) and Eastover Realty, Inc. (ERI), affiliated entities of the Company,
since 1990. In this capacity, Mr. Pate manages and markets all remaining
residential and commercial properties owned by Lake Forest, Inc. (LFI), a
subsidiary of the Company. From 1978 to 1981, Mr. Pate served as Treasurer and
Vice President of the Eastover Corporation, which position involved handling
all of the Eastover Group's accounting and financial activities. From 1981 to
1983, Mr. Pate served as President of Golf Properties, Inc., which is a
subsidiary of two of the Eastover Group of Companies. Mr. Pate was employed as
President of LFI from 1983 to 1988. From 1988 to 1990, he served as General
Manager of Tammany Highlands, Inc. a proposed real estate and golf course
development company. Mr. Pate is also a limited partner in Eastover Country
Club, a Partnership in Commendam (ECC) and an affiliate of the Company.
Mr. Joseph C. Wink, Jr., age 64, is the owner, President and Chief Executive
Officer of Wink Engineering Company which has been located in northeastern
Louisiana for twenty years. Mr. Wink is also Chief Executive Officer of Wink
Leasing, Inc., and Universal Consolidated Services, Inc., a corporation
providing personnel services. In addition to being a shareholder in EPI, Mr.
Wink is a limited partner in ECC.
T.K. Winingder, age 55, is President of Jazzland Development Corporation, a
major land owner near Eastover. From 1988 to 1990, Mr. Winingder was President
of LFI and is thus intimately familiar with the entire operation of the
Company. At various times, Mr. Winingder has also served as President of
Thomas K. Winingder Real Estate and as a Director of Development at Joseph
Canizaro Interest and as Project Manager and Partner of Crow, Pope & Carter, a
real estate development company.
Frederick C. Young, Jr., age 52, is President of the Methodist Hospital and is
also President of East New Orleans Properties, Inc., which is the co-general
partner with EDC in ECC. Further, Mr. Young is also a shareholder in EPI.
OFFICERS
Donald E. Pate
Chairman of the Board,
President and
Chief Executive Officer
David L. Steel
Vice President
Donald R. Sampson
Vice President
Charles A. Saucier
Treasurer/Controller
OTHER INFORMATION
ADDRESS
5690 Eastover Drive
New Orleans, Louisiana 70128-3633
(504) 241-4400
TRANSFER AGENT AND REGISTRAR
Society National Bank
P.O. Box 6477
Cleveland, Ohio 44101
AUDITORS
KPMG Peat Marwick LLP
Suite 3500, One Shell Square
New Orleans, Louisiana 70139
SHARES
Rockwood National Corporation shares are traded on the over-the-counter market
under the symbol RNTL.
Page 32 of 41 Pages
33
PART I
Item 1. Business
"Business" on page 3 of the Annual Report to Shareholders of Rockwood National
Corporation ("the Company") for the year ended March 31, 1996 is incorporated
herein by reference.
Item 2. Properties
The operations of the Company are conducted from approximately 5,000 square
feet of space owned by Eastover Realty, Inc. located at 5690 Eastover Drive,
New Orleans, Louisiana. "Business" on page 3 of the Annual Report to
Shareholders for the year ended March 31, 1996 are incorporated herein by
reference. Details of other properties owned by the Company are found on
Schedule XI on page 37.
Item 3. Legal Proceedings
Note 11 "Commitments, Contingencies and Other Matters" on page 31 of Annual
Report to Shareholders for the year ended March 31, 1996, is incorporated
herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
"Common Stock Market Price and Dividends" on page 4 of the Annual Report to
Shareholders for the year ended March 31, 1996, is incorporated herein by
reference.
Item 6. Selected Financial Data
"Selected Financial Data" on page 5 of the Annual Report to Shareholders for
the year ended March 31, 1996, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 6 through 10 of the Annual Report to Shareholders for the
year ended March 31, 1996, is incorporated herein by reference.
Page 33 of 41 Pages
34
Item 8. Financial Statements and Notes and Supplementary Data
The Company's Consolidated Balance Sheets as of March 31, 1996 and 1995, and
its Consolidated Statements of Operations, Stockholders' Equity and Cash Flows
and Notes to Financial Statements for the years ended March 31, 1996, 1995 and
1994, and the independent auditors' report thereon included in the Company's
1996 Annual Report to Shareholders are incorporated herein by reference. The
section entitled "Quarterly Results of Operations" on page 9 of the Company's
1996 Annual Report to Shareholders is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting Financial
Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Company's
fiscal year is incorporated herein by reference.
Item 11. Executive Compensation
The Company's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Company's
fiscal year is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Company's
fiscal year is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The Company's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Company's
fiscal year is incorporated herein by reference.
Page 34 of 41 Pages
35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The following financial statements of Rockwood National
Corporation included in the Annual Report of the Company to its
shareholders for the year ended March 31, 1996 are incorporated by
reference in Item 8:
Independent Auditors' Report.
Consolidated Balance Sheets - March 31, 1996 and 1995.
Consolidated Statements of Operations - Years ended March 31,
1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - Years ended
March 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended March 31,
1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
(2) The following financial statement schedules of Rockwood National
Corporation are filed herewith pursuant to Item 8:
Schedule XI - Real Estate and Accumulated Depreciation
Schedule XII - Mortgage Loans on Real Estate.
(3) Exhibits required by Item 601 of Regulation S-K:
(a) Articles of Incorporation (incorporated by reference to
Registration Statement on Form 8-B filed on July 19, 1973).
(b) Amendment to Articles of Incorporation dated August 27, 1986,
(incorporated by reference to Exhibit 3(b) of the Registrant's
1987 Annual Report on Form 10-K)
(c) By-laws (incorporated by reference to Exhibit 3(b) of the
Registrant's 1983 Annual Report on Form 10-K).
(d) Amendment to By-laws dated May 15, 1986 (incorporated by
reference to Exhibit 3(d) of the Registrant's 1987 Annual Report
on Form 10-K).
(e) Amendment to By-laws dated March 22, 1988 (incorporated by
reference to Exhibit 3(e) of the Registrant's
1988 Annual Report on Form 10-K).
(10)(a) Form of Indemnification Agreement between the Registrant and each
of the Registrant's directors and officers (incorporated by
reference to Exhibit B of the Registrant's Proxy Statement dated
July 22, 1986).
(b) Amended and Restated Administration Agreement dated as of April 1,
1993 between the Registrant and Congress Street Properties, Inc.
(incorporated by reference to Exhibit 10(b) of the Registrant's
1993 Annual Report on Form 10-K).
(c) Registrant's 1991 Incentive Plan (incorporated by reference to
Exhibit H to Registrant's Proxy Material dated July 22, 1991).
(d) Registrant's 1991 Director's Stock Option Plan (incorporated by
reference to Exhibit B to Registrant's Proxy Material dated July
22, 1991).
(e) Purchase and Sale Agreement dated June 24, 1990. (1)
(f) Purchase Agreement dated as of the 18th day of December 1990 by
and among The Parkway Company and Lake Forest, Inc. (2)
(g) Promissory Note of The Parkway Company dated December 18, 1990.
(h) Security Agreement by Lake Forest, Inc. in favor of Trustmark
National Bank dated December 18, 1990. (2)
Page 35 of 41 Pages
36
Item 14. (continued)
(i) Agreement between Trustmark National Bank, Lake Forest, Inc., and
The Parkway Company regarding partial releases and protection of
The Parkway Company and terms of Lake Forest and Trustmark loan
dated December 18, 1990. (2)
(j) Warrant Agreement dated December 18, 1990. (2)
(k) Agreement of Purchase and Sale dated April 16, 1991. (3)
(l) Credit Sale dated April 16, 1991. (3)
(m) Promissory Note dated April 16, 1991. (3)
(n) Agreement of Purchase and Sale, Option and Loan Agreement dated
April 16, 1991. (3)
(o) Credit Sale dated April 16, 1991. (3)
(p) Promissory Note dated April 16, 1991. (3)
(q) Act of Sale and Assumption of Mortgage dated April 16, 1991. (3)
(r) Amended and Restated Promissory Note between Lake Forest, Inc. and
Deposit Guaranty National Bank dated April 16, 1991. (3)
(s) $450,000 Promissory Note and Collateral Mortgage Note from Lake
Forest, Inc. to The Parkway Company (incorporated by reference to
Exhibit 10(v) of the Registrant's 1992 Annual Report on Form
10-K).
(t) $450,000 Continuing Guaranty of Registrant (incorporated by
reference to Exhibit 10(w) of the Registrant's 1992 Annual Report
on Form 10-K).
(u) $250,000 Promissory Note to The Parkway Company dated July 14,
1993.
(v) Act of Pledge and Pawn of Mortgage Note to The Parkway Company
dated July 14, 1993.
(11) Statement re: Computation of earnings per share, filed herewith.
(13) Annual report to security holders for year ended March 31, 1996,
filed herewith.
(22) Subsidiaries of the Company, filed herewith.
(25) Powers of Attorney.
(27) Financial Data Schedule, filed herewith.
(28) Agreement of the Company to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28 of the Registrant's 1986
Annual Report on Form 10-K).
(b) None.
(1) Incorporated by reference to exhibits to Registrant's Form 8-K
dated August 14, 1990.
(2) Incorporated by reference to exhibits to Registrant's Form 8-K
dated January 31, 1991.
(3) Incorporated by reference to exhibits to Registrant's Form 8-K
dated April 30, 1991.
Page 36 of 41 Pages
37
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
March 31, 1996
(In thousands)
Cost Capitalized
Initial Cost Subsequent to
Description Encumbrances to Company Acquisition
- ----------- ------------ ------------ ---------------
Land held for sale and
development:
New Orleans, Louisiana (1) $ 1,341 $ 4,134(5)
(1) See Note 6 to the financial statements.
(2) Changes in real estate were as follows:
March 31
------------------------------------------
1996 1995 1994
------- ------ ------
Balance at beginning of year $ 8,566 10,458 16,585
Additions during year -
foreclosures - - 44
Deductions during year:
Real estate sold (963) (1,892) (2,648)
Amounts charged to allowance - - (806)
Writedown of real estate - - (2,620)
Reduction in estimated future
development costs - - -
Assignment as consideration for
debt issuance 2,128 - -
Other - - (97)
------- ------ ------
Balance at end of year $ 5,475 8,566 10,458
======= ===== ======
(3) Changes in accumulated depreciation were as follows:
March 31
------------------------------------------
1996 1995 1994
------- ---- ----
Balance at beginning of year $ - 708 630
Depreciation expense - - 78
Depreciation retired upon
sale of office/warehouse
building - (708) -
------- ---- ---
Balance at end of year $ - - 708
======= ==== ===
(4) The cost for federal income tax purposes is approximately $4,759.
(5) Costs capitalized, net of a writedown of $1,893.
Page 37 of 41 Pages
38
Life on Which
Depreciation
Gross Amount at In Latest Income
Which Carried Accumulated Date of Date Statement
At Close of Period Depreciation Construction Acquired Is Computed
------------------ ------------ ------------ -------- ----------------
$ 5,475 $ - - 1965 -
(2) (4) (3)
Page 38 of 41 Pages
39
Schedule XII - Mortgage Loans on Real Estate
March 31, 1996
(In thousands)
Final Periodic
Interest Maturity Payment
Description Rate Date Terms
- ----------- -------- ------------- ------------
Land - New Orleans 6% June 27, 2001 Interest and
principal of
$135,868 due
annually
(1) Changes in mortgage loans were as follows:
March 31
-----------------------------------
1996 1995 1994
----- ------ -----
Balance at beginning of year $ 890 2,326 2,484
Collection of principal (83) (2,326) (116)
Sale of land to related party - 890 -
Other (4) (807) - (42)
----- ------ -----
Balance at end of year $ - 890 2,326
===== ====== =====
(2) See notes 4 and 11 to consolidated financial statements.
(3) The aggregate amount for federal income tax purposes is $890,000.
(4) See note 9(f) to consolidated financial statements.
Page 39 of 41 Pages
40
Face Amount Carrying Principal Amount
Prior of Mortgages Amount of of Loan Subject to
Liens March 31, 1996 Mortgages Delinquent Principal
----- -------------- --------- --------------------
- $ - - (1)(2)(3) -
==== ===
Page 40 of 41 Pages
41
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.
ROCKWOOD NATIONAL CORPORATION /s/ DONALD E. PATE
Registrant --------------------------------------
Donald E. Pate, Chairman of the Board,
President and Chief Executive Officer
July 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ CHARLES A. SAUCIER /s/ A. WAYNE BURAS
- ------------------------------------ -----------------------------------
Charles A. Saucier, Treasurer A. Wayne Buras, Director
and Chief Financial Officer July 12, 1996
July 12, 1996
/s/ DONALD E. PATE /s/ JOSEPH C. WINK, JR.
- ------------------------------------ -----------------------------------
Donald E. Pate, Director Joseph C. Wink, Jr., Director
July 12, 1996 July 12, 1996
/s/ FREDERICK C. YOUNG, JR. /s/ THOMAS K. WININGDER
- ------------------------------------ ----------------------------------
Frederick C. Young, Jr. Director Thomas K. Winingder, Director
July 12, 1996 July 12, 1996
Page 41 of 41 Pages
42
INDEX TO EXHIBITS
3(a) Articles of Incorporation (incorporated by reference to
Registration Statement on Form 8-B filed on July 19, 1973).
3(b) Amendment to Articles of Incorporation dated August 27, 1986,
(incorporated by reference to Exhibit 3(b) of the Registrant's
1987 Annual Report on Form 10-K)
3(c) By-laws (incorporated by reference to Exhibit 3(b) of the
Registrant's 1983 Annual Report on Form 10-K).
3(d) Amendment to By-laws dated May 15, 1986 (incorporated by
reference to Exhibit 3(d) of the Registrant's 1987 Annual Report
on Form 10-K).
3(e) Amendment to By-laws dated March 22, 1988 (incorporated by
reference to Exhibit 3(e) of the Registrant's
1988 Annual Report on Form 10-K).
10(a) Form of Indemnification Agreement between the Registrant and each
of the Registrant's directors and officers (incorporated by
reference to Exhibit B of the Registrant's Proxy Statement dated
July 22, 1986).
10(b) Amended and Restated Administration Agreement dated as of April 1,
1993 between the Registrant and Congress Street Properties, Inc.
(incorporated by reference to Exhibit 10(b) of the Registrant's
1993 Annual Report on Form 10-K).
10(c) Registrant's 1991 Incentive Plan (incorporated by reference to
Exhibit H to Registrant's Proxy Material dated July 22, 1991).
10(d) Registrant's 1991 Director's Stock Option Plan (incorporated by
reference to Exhibit B to Registrant's Proxy Material dated July
22, 1991).
10(e) Purchase and Sale Agreement dated June 24, 1990. (1)
10(f) Purchase Agreement dated as of the 18th day of December 1990 by
and among The Parkway Company and Lake Forest, Inc. (2)
10(g) Promissory Note of The Parkway Company dated December 18, 1990.
10(h) Security Agreement by Lake Forest, Inc. in favor of Trustmark
National Bank dated December 18, 1990. (2)
10(i) Agreement between Trustmark National Bank, Lake Forest, Inc., and
The Parkway Company regarding partial releases and protection of
The Parkway Company and terms of Lake Forest and Trustmark loan
dated December 18, 1990. (2)
10(j) Warrant Agreement dated December 18, 1990. (2)
10(k) Agreement of Purchase and Sale dated April 16, 1991. (3)
10(l) Credit Sale dated April 16, 1991. (3)
10(m) Promissory Note dated April 16, 1991. (3)
10(n) Agreement of Purchase and Sale, Option and Loan Agreement dated
April 16, 1991. (3)
10(o) Credit Sale dated April 16, 1991. (3)
10(p) Promissory Note dated April 16, 1991. (3)
10(q) Act of Sale and Assumption of Mortgage dated April 16, 1991. (3)
10(r) Amended and Restated Promissory Note between Lake Forest, Inc. and
Deposit Guaranty National Bank dated April 16, 1991. (3)
10(s) $450,000 Promissory Note and Collateral Mortgage Note from Lake
Forest, Inc. to The Parkway Company (incorporated by reference to
Exhibit 10(v) of the Registrant's 1992 Annual Report on Form
10-K).
10(t) $450,000 Continuing Guaranty of Registrant (incorporated by
reference to Exhibit 10(w) of the Registrant's 1992 Annual Report
on Form 10-K).
10(u) $250,000 Promissory Note to The Parkway Company dated July 14,
1993.
10(v) Act of Pledge and Pawn of Mortgage Note to The Parkway Company
dated July 14, 1993.
11 Statement re: Computation of earnings per share, filed herewith.
13 Annual report to security holders for year ended March 31, 1996,
filed herewith.
22 Subsidiaries of the Company, filed herewith.
24 Powers of Attorney.
27 Financial Data Schedule, filed herewith.
99 Agreement of the Company to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28 of the Registrant's 1986
Annual Report on Form 10-K).
-----------
(1) Incorporated by reference to exhibits to Registrant's Form 8-K
dated August 14, 1990.
(2) Incorporated by reference to exhibits to Registrant's Form 8-K
dated January 31, 1991.
(3) Incorporated by reference to exhibits to Registrant's Form 8-K
dated April 30, 1991.