The financial statements and notes of ZETA Corporation are as follows:

1

The financial statements and notes of ZETA Corporation are as follows:

ZETA CORPORATION

Consolidated Balance Sheet

As of Decenmber 31, 2011 and 2010

($ thousands) 2011 2010

Assets

Current assets

Cash. $ 2,000 2,000

Receivables.. 25,000 20,000

Inventories (notes 1 and 2).. 56,000 38,000

Prepaid expenses. 1,000 1,000

Total current assets.. 84,000 61,000

Investment in associated companies. 14,000 11,000

Property, plant, and equipment. 61,000 52,000

Less: Accumulated depreciation (23,000) (19,000)

Net property, plant, and equipment.. 38,000 33,000

Goodwill 2,000 0

Total assets 138,000 105,000

Liabilities and Stockholders' Equity

Current liabilities

Notes payable to banks. $ 16,000 14,000

Accounts payable and accruals. 29,000 23,000

Income tax payable.. 7,000 2,000

Current portion of long-term debt (note 6).. 2,000 1,000

Total current liabilities.. 54,000 40,000

Long-term debt (note 6).. 25,000 15,200

Deferred income taxes (note 5). 3,600 2,000

Minority Interest 1,400 800

Stockholders' equity (note 7)

Common stock, $5 par value.. 5,500 5,000

Paid-in capital.. 24,500 15,000

Retained earnings. 24,000 27,000

Total stockholders' equity 54,000 47,000

Total liabilites and stockholders' equity. 138,000 105,000

ZETA CORPORATION

Consolidated Income Statement

For Years Ended December 31, 2011 and 2010

($ thousands) 2011 2010

Net sales... $ 186,000 155,000

Equity in income (loss) of associated companies. 2,000 (1,000)

Expenses

Cost of sales 120,000 99,000

2

Selling and administrative expenses

37,000

33,000

Interest expenses.

10,000

6,000

Total costs and expenses.. 167,000

138,000

Income before taxes and minority interest..

21,000

16,000

Income tax expense (note 5)

10,000

7,800

Income before minority interest 11,000

8,200

Minority interest 200

0

Income from continuing operations.

10,800

8,200

Discontinued operations (note 4)

Operations, net of tax..

(1,100)

(1,200)

Loss on disposal, net of tax.. (700)

0

Total gain (loss) from discontinued operations (1,800)

(1,200)

Income before cumulative effect of accounting change..

9,000

7,000

Cumulative effect of change in accounting, net of tax (note 1) 1,000

0

Net income 10,000

7,000

ZETA CORPORATION

Consolicated Statement of Cash Flows

For Years Ended December 31, 2011 and 2010

($ thousands) 2011 2010

Cash provided from (used for) operations

Net income. .... $ 10,000

7,000

Add (deduct) adjustments to cash basis:

Depreciation. .... 6,000

4,000

Deferred income taxes. .... 1,600

1,000

Minority interest.. .... 200

0

Undistributed income of associated companies.. .... (1,400)

1,300

Loss on discontinued operations. .... 700

0

Increase in accounts receivable (5,000-2,000

)..

.... (3,000)

(2,400)

Increase in inventories (18,000+100*-2,200

)

.... (15,900)

(6,000)

Increase in prepaid expenses .... 0

(200)

Increase in accounts payable and accruals

(6,000-300*-3,200

)

.... 2,500

2,000

Increase in income taxes payable (5,000+700)*. .... 5,700

1,000

Net cash provided from (used for) operations. .... 6,400

7,700

Cash provided from (used for) investing activities

Additions to property, plant, and equipment. .... (6,500)

(5,800)

Acquisition of TRO Company (excluding cash of $4,200)

Property, plant, and equipment.. (6,000)

Goodwill. (2,000)

Long-term debt 4,800

Minority interest.. 400

Current assets (receivables and inventories) (4,200)

Current liabilities.. 3,200

(3,800)

0

Investment in associated companies. .... (1,600)

0

3

Proceeds from disposal of equipment .... 500

0

Net cash used for investing activities. .... (11,400)

(5,800)

Cash provided from (used for) financing activities

Issuance of long-term debt. .... 7,500

5,000

Reduction in long-term debt.. .... (1,500)

(1,000)

Dividends paid .... (3,000)

(2,000)

Increase (decrease) in notes payable to bank. .... 2,000

(3,500)

Net cash provided from (used for) financing activities.. .... 5,000

(1,500)

Net increase (decrease) in cash.. .... 0

400

* Adjustments of noncash transactions arising from discontinued operations (see note 4)

Adjustments relating to acquisition of TRO Co (note 3)

Supplemental disclosures of cash flow information 2011 2010

Cash paid for interest 10,000

6,000

Cash paid for income taxes 2,600

4,800

Schedule of noncash activities:

Capital lease of $1,000 incurred on the lease of equipment

ZETA CORPORATION

Notes to Consolidated Financial Statements ($ thousands)

Note1: Change in accounting principle

During 2011 the company broadened its definition of overhead costs to be included in the

determination of inventories to more properly match costs with revenues. The effect of the change in 2011 is

to increase income from continuing operations by $400. The adjustment of $1,000 (after reduction for

income taxes of $1,000) for the cumulative effect for prior years is shown in the net income for 2011.

Note 2: Inventories

Inventories are priced at cost (principally last-in, first-out [LIFO] method of determination) not in

excess of replacement market. If the first-in, first-out (FIFO) method of inventory accounting had been used,

inventories would have been $6,000 and $4,500 higher than reported at December 31, 2011 and December

31, 2010 respectively.

Note 3: Acquisition of TRO Company

Effective December 31, 2011, the company purchased most of the outstanding common stock of TRO

Company for $8,000 in cash. The excess of the acquisition cost over fair value of the net assets acquired

$2,000 will be recorded as goodwill and not amortized. The following unaudited supplemental pro forma

information shows the condensed results of operations as though TRO Company had been acquired as of

January 1, 2010.

4

2011

2010

Revenues. $ 205,000 172,000

Net income.. 10,700 7,400

Details of acquisition (resources and obligations assumed):

Cash $ 4,200

Accounts Receivable.. 2,000

Inventories.

2,200

Property,Plant & Equipment.. 6,000

Long-Term Debt 4,800

Accounts Payable & Accruals 3,200

Note 4: Discontinued operations

As of October 31, 2011, the board of directors adopted a plan authorizing the disposition of the assets

and business of its wholly owned subsidiary, Zachary Corporation. The Loss on Disposal is $700 (net of

income tax credits of $700) and is based upon the estimated realizable value of the assets to be sold plus a

provision for costs of $300 for operating the business until its expected disposition in early 2012. Property,

plant and equipment is reduced by $1,000 and inventories are reduced by $100 to net realizable value. The

provision for costs of $300 is included in Accounts payable and accruals" and is reduced to $200 at year-end.

Net sales of the operations to be discontinued are $18,000 in 2011 and $23,000 in 2010.

Note 5: Income taxes

The income tax expense consists of the following

2011

2010

Current. $ 8,400 6,800

Deferred 1,600

1,000

Total.. 10,000

7,800

The effective tax rates of 47.6% and 48 8% for 2011 and 2010, respectively, differ from the statutory

federal income tax rate of 50% due to research and development tax credits of $500 in 2011 and $200 in

2010. Deferred taxes result from the use of accelerated depreciation methods for income tax reporting and

the straight-line method for financial reporting.

Note 6: Long-term debt

2011

2010

10% promissory notes to institutional investors payable

in annual installments of $900 through $ 13,000

13,900

5

2015..

Unsecured notes to banks-interest 1% over prime 4,000

0

Capitalized lease obligations-payable to 2014 with an

average interest rate of 8%.........................................

1,000

0

11% subordinated note payable in annual installments of

$500 from 2012 through

2021

5,000

0

Other mortages and notes.. 4,000

2,300

27,000

16,200

Less current

maturities..

2,000

1,000

Total long-term debt.. 25,000

15,200

The various loan agreements place certain restrictions on the corporation including the payment of cash

dividends on common stock and require the maintenance of working capital as defined of not less than $18,

000. Approximately $10,000 of retained earnings is available for payment of cash dividends on common

stock at December 31, 2011. The corporation entered into several long-term noncancelable leases of

equipment during 2011which have been capitalized for financial reporting. There are no other significant

lease arrangements.

Note 7: Stockholders' equity

The corporation has 5 million shares of authorized common stock, par value $5. There are 1 million

shares outstanding at December 31, 2010 and this is increased by a 10% dividend payable in common stock

during 2011. The changes in retained earnings are as follows:

2011 2010

Beginning

balance.

$ 27,000

22,000

Add net income 10,000

7,000

Less cash dividends.. (3,000)

(2,000)

Less 10% stock dividend.. (10,000)

0

Ending balance. 24,000

27,000

Required:

1. What is the dividend per share of this company