ITEM 1. BUSINESS
Prior to November 30, 1999, MKR Holdings, then 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 contribution 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 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 and the payment of the Company's outstanding obligations, the shareholders of the Company will receive an equity interest in Newco equal to each shareholder's pro rata share of the Company's remaining equity interest in Newco.
Each year, Newco's fair market value is estimated by an independent appraiser engaged by the Company. Based on the appraiser's valuation of Newco, management then determines the liquidation value of the Company by taking 15% of Newco's fair market value and subtracting amounts computed pursuant to items (a) through (d) set forth above under "Item 1 - Business." As of March 31, 2001, Newco was valued by the Company's independent appraiser at approximately $21.7 million. Based on this valuation, the Company's 15% equity interest in Newco (the "Investment") is approximately $3.255 million (i.e., 15% of Newco's appraised fair market value). Management thus estimates that as of March 31, 2001, the liquidation value of the Company was no more than approximately $2.115 million, or $3.255 million less $775,000 and the $365,000 in funds previously advanced by Newco to the Company. If Newco advances additional sums to the Company, or if the appraisal of Newco changes in a subsequent annual valuation, the liquidation value of the Company will be changed accordingly. The foregoing discussion is set forth herein as an estimate only. The actual liquidation value of the Company, when such liquidation occurs, may differ materially from the current estimated 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, for a period of two years, the Company can borrow up to $300,000 annually from Newco to fund the Company's expenses.
EMPLOYEES AND LABOR RELATIONS
As of March 31, 2001, the Company had one employee, Kevin Hardy, who serves as the Company's President and Chief Financial Officer.
Pursuant to the Plan, since 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. Until September 15, 2000, in addition to being a director and an officer of the Company, Mr. Hardy served 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.
ITEM 2. PROPERTIES
The Company currently rents space in the western office of Marker USA (located in Salt Lake City, Utah) to coordinate the liquidation of the Company.
ITEM 3.
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.
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.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades under the symbol "MKRH" 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.
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, 2001, there were approximately 1,800 holders of record of the Company's common stock.
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 5 to the financial statements), the Company has not sold any unregistered securities in the previous three years.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated financial information is provided for the four fiscal periods indicated below. 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). Financial information is not provided for any period after November 30, 1999, when the Company sold substantially all of its assets to Newco and ceased operating as a going-concern. Since December 1999, the Company has reported its financial statements on a liquidation basis. As such, comparisons of periods prior to November 30, 1999 to periods occurring after November 30, 1999 would not be meaningful.
STATEMENT OF NET ASSETS IN LIQUIDATION AS OF MARCH 31, 2001 AND MARCH 31, 2000
ITEM 7.
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 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 contribution 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 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 remaining equity interest in Newco.
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT - For the period April 1, 1999 to November 30, 1999, 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 - For the period April 1, 1999 to November 30, 1999, 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 $2.840 million ($3.615 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.
As of March 31, 2001, based on a report by the same independent appraiser, the Investment was valued at approximately $2.480 million ($3.255 million less the $775,000 that will be deducted from the purchase price if CT exercises the Option) which resulted in an unrealized loss of $360,000 to the Company. Such appraisal of the value of the Investment will continue to be updated going forward on at least an annual basis and the accounting for the Investment will be changed 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 as of March 31, 2001 will be filed by an amendment to this Form 10-K within 180 days of March 31, 2001.
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 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 the period from April 1, 1999 to November 30, 1999, compared to realized and unrealized foreign exchange gains of $2.9 million for fiscal year 1999.
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 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, at an interest rate of 5%. This obligation extends until November 30, 2001, the second anniversary of the Closing Date. As of March 31, 2001, the Company had received $365,000 in advances from Newco. The Company believes that it will have adequate financing to fund the required activities of the Company on an annual basis until November 30, 2001, absent unanticipated or extraordinary circumstances. As discussed in "Item 1
- - Business," the funds advanced from Newco to the Company will reduce the amount to be received by the Company upon the exercise of the Option, if the Option is exercised. The Company currently has no commitments from any other party to fund the Company's operations after November 30, 2001. If CT does not exercise its Option on November 30, 2001, or shortly thereafter, the Company will be forced to obtain capital to fund its operations from third parties other than Newco. The Company may not be able to obtain the required funds on as favorable terms as Newco's, or at all. If the Company is unable to obtain financing, there is no guarantee it will be able to sustain its operations.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in the financial statements. SAB 101 must be applied to the financial statements no later than the fourth quarter of fiscal years ending after December 15, 2000. The Company adopted SAB 101 during the year ended March 31, 2001, and it had no impact on the Company's financial position.
In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of APB No. 25 for (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 2, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. During the year ended March 31, 2001, the Company adopted FIN 44 in accounting for stock options, and it had no impact on the Company's financial position.
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.
Pursuant to the Plan, since 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. Until September 15, 2000, in addition to being a director and an officer of the Company, Mr. Hardy served 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 of its 1,531,800 outstanding stock options. Since such time, the Company has not granted stock options in the Company.
ITEM 7a.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk, including various foreign currency exchange rate and interest rate risks.
FOREIGN CURRENCY EXCHANGE RATE 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 are at a fixed rate of 5%.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to Consolidated Financial Statements included separately herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On April 20, 2001, Arthur Andersen LLP ("Andersen") resigned as the Company's independent auditor. The decision to change auditors was approved by the Company's Board of Directors.
Andersen's report on the financial statements of the Company for each of the past two fiscal years did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that: (i) for the consolidated financial statements for the fiscal year ended March 31, 1999, the Company received an opinion with an explanatory fourth paragraph as to the uncertainty regarding the Company's ability to continue as a going concern; and (ii) for the fiscal year ended March 31, 2000, the Company's basis of accounting changed from a going-concern basis of accounting to a liquidation basis of accounting.
During the Company's two most recent fiscal years, and the subsequent interim period through December 31, 2000, there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Andersen, would have caused Andersen to make reference to the subject matter of the disagreements in connection with its audit report with respect to financial statements of the Company.
During the Company's two most recent fiscal years, and the subsequent interim period through December 31, 2000, there was no disagreement or difference of opinion with Andersen regarding any "reportable event," as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
PART III
ITEM 10.
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 2001:
- ---------------------------------
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.
ITEM 11.
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 fiscal years 2001, 2000 and 1999 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
(1) 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.
(2) Amounts indicated pertain to Company contributions to the Company's 401(k) retirement plan.
During 1995, the Company 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 during fiscal year 2000. Dr. Fahrngruber's contract expired in 2000 and Mr. Stepanek's contract expires in 2002. These employment agreements were assumed by Newco on November 30, 1999 under the terms of the Purchase Agreement. The Company is no longer a party to these agreements.
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 assumed by and subsequently 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 Kevin Hardy, the sole 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 of its 1,531,800 outstanding stock options. Accordingly, from April 1, 1999 until October 27, 1999, none of the Named Executive Officers exercised stock options to acquire shares of the Company's Common Stock.
ITEM 12.
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, 2001 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.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from April 1, 1999 through November 30, 1999, and the fiscal year 1999, Marker Japan purchased ski bindings and services totaling approximately $56,000 and $66,000, 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 year 1999, Marker Japan made payments to Isomura Sangyo totaling approximately $138,000 and $238,000, 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 of premiums for such insurance for fiscal year 1999.
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 shareholder of DNR Sportsystem, Ltd., was a partner. Snowboards purchased from the related party totaled approximately $900,000 during 1999.
On August 24, 1998, Henry E. Tauber, former president and chief executive officer of the Company and a member of the Company'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.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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 and incorporated herein by reference).
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 incorporated herein 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 and incorporated herein by reference.
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.*
(b) REPORTS FILED ON FORM 8-K: -------------------------- Current report on Form 8-K filed on April 27, 2001, reporting change in Company's independent auditors
- ----------------------------- * filed herewith
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, certain 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
MKR HOLDINGS SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
(1) The allowance for doubtful accounts is translated to U.S. Dollars at the exchange rate at the end of a reporting period. The provisions 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.
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 16, 2001.
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.
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, 2001 and the related statement of changes in net assets in liquidation for the fiscal year ended March 31, 2001. 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 audit 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 audit provides 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, 2001, and the changes in the net assets in liquidation for the fiscal year ended March 31, 2001 in conformity with accounting principles generally accepted in the United States on the bases described in the preceding paragraph.
BDO SEIDMAN, LLP
Los Angeles, CA June 25, 2001
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 statements of operations, shareholders' (deficit) equity and cash flows for the year ended March 31, 1999 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 stockholders 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 a 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 the results of their operations and their cash flows for the year ended March 31, 1999 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
MKR HOLDINGS STATEMENTS OF NET ASSETS IN LIQUIDATION AS OF MARCH 31, 2001 and 2000 (Dollars in Thousands, except per share data)
MKR HOLDINGS STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (Dollars in Thousands)
The accompanying notes are an integral part of these statements.
MKR HOLDINGS CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands)
The accompanying notes are an integral part of these statements.
MKR HOLDINGS CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY FOR THE PERIOD FROM APRIL 1, 1999 TO NOVEMBER 30, 1999 AND THE FISCAL YEAR ENDED MARCH 31, 1999 (Dollars in Thousands)
The accompanying notes are an integral part of these statements.
MKR HOLDINGS CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Dollars in Thousands)
The accompanying notes are an integral part of these statements.
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
MKR Holdings 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, then Marker International (the "Company") was a holding company which operated its business 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 contribution 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
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 remaining equity interest in Newco.
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT
For the period April 1, 1999 to November 30, 1999, 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
For the period April 1, 1999 to November 30, 1999, 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 $2.840 million ($3.615 million less the $775,000 that will be deducted from the
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
purchase price if CT exercises the Option) which resulted in an unrealized gain of $968,000 to the Company.
As of March 31, 2001, based on a report by the same independent appraiser, the Investment was valued at approximately $2.480 million ($3.255 million less the $775,000 that will be deducted from the purchase price if CT exercises the Option) which resulted in an unrealized loss of $360,000 to the Company. Such appraisal of the value of the Investment will continue to 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 as of March 31, 2001 will be filed by an amendment to this Form 10-K within 180 days of March 31, 2001.
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.
Revenues from the discontinued operations were approximately $3.3 million for the fiscal year ended 1999. The loss from operations of discontinued snowboard business has been reflected net of income taxes of $0 and $134,000 for the period from April 1, 1999 to November 30, 1999 and the fiscal year ended March 31, 1999, 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, losses on terminating non-cancelable operating leases and write-down of property and equipment.
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 intercompany 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 statements of operations of foreign subsidiaries were translated into U.S. Dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52. 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."
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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:
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.
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.
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in the financial statements. SAB 101 must be applied to the financial statements no later than the fourth quarter of fiscal years ending after December 15, 2000. The Company adopted SAB 101 during the year ended March 31, 2001, and it had no impact on the Company's financial position.
In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of APB No. 25 for (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 2, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. During the year ended March 31, 2001, the Company adopted FIN 44 in accounting for stock options, and it had no impact on the Company's financial position.
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 year ended March 31, 1999, advertising expenses totaled approximately $0.5 million and $3.9 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.
NOTE 2. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT
The Company's sole source of working capital is 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, 2001, the Company had received $365,000 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
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 year ended March 31, 1999, the weighted-average interest rate on short-term borrowings outstanding at year end was 5.4 percent; the maximum short-term borrowing amount outstanding during such year was $78.9 million; the average amount outstanding during the year was $64.4 million; and the weighted-average interest rate during such year was 6.3 percent.
Total cash paid for interest during the period ended November 30, 1999, and the fiscal year ended 1999, was approximately $2,022,000 and $6,358,000, respectively.
NOTE 3. 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 filed 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 filed separate U.S. tax returns for subsequent periods beginning December 1, 1999. As a result of the disaffiliation of the Company's U.S. and foreign subsidiaries as of November 30, 1999, for the year ended March 31, 2001 (and all subsequent years), the Company will file a U.S. federal tax return containing only the Company's financial results.
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% 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,
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2000 or as of March 31, 2001 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 and as of March 31, 2001 reflect only items attributable to the Company on a standalone basis including its 15% 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 year 1999, as follows (in thousands):
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 year 1999, were as follows (in thousands):
The Company's provisions for income taxes related to income (loss) from continuing operations for the period from April 1, 1999 through November 30, 1999 and the fiscal year 1999, were as follows (in thousands):
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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:
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred tax assets and liabilities at March 31, 2001 and 2000 were as follows (in thousands):
The recognition of deferred tax assets is based upon judgments regarding the potential realization of such assets in the future.
As of March 31, 2001, the Company has domestic tax net operating loss carryforwards of approximately $20.8 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, 2001, 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.
Cash paid for income taxes for the period from April 1, 1999 to November 30, 1999 and fiscal year 1999 was approximately $300 and $70,000, respectively.
NOTE 4. 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 canceled on October 27, 1999.
MKR HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. RELATED PARTY TRANSACTIONS
During the period from April 1, 1999 through November 30, 1999, and the fiscal year 1999, Marker Japan purchased ski bindings and services totaling approximately $56,000 and $66,000, 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 year 1999, Marker Japan made payments to Isomura Sangyo totaling approximately $138,000 and $238,000, 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 of premiums for such insurance for fiscal year 1999.
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 million during 1999.
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.
NOTE 6. 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% of each participant's contribution up to 4% of the participant's eligible compensation. During the period from April 1, 1999 to November 30, 1999, and the fiscal year ended 1999, employer contributions totaled approximately $18,000 and $51,000, respectively. This plan was assumed by Newco under the terms of the Purchase Agreement.