EXHIBIT 99(a)
METZ BAKING COMPANY AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Metz Baking Company:
We have audited the accompanying consolidated balance sheets
of Metz Baking Company and subsidiaries as of December 31,
1999 and 1998 and the related consolidated statements of
operations and cash flows for the years then ended. These
consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosure in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall consolidated
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 Metz Baking Company and
subsidiaries as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for the
years then ended, in conformity with generally accepted
accounting principles.
/S/ KPMG LLP
KPMG LLP
February 17, 2000, except
as to note 15 which is as
of March 20, 2000
<PAGE>
METZ BAKING COMPANY AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999 and December 31, 1998
Index
----------------------------------------
Consolidated Financial Statements:
Independent Auditors' Report 1
Consolidated Balance Sheets as of
December 31, 1999 and December 31,
1998 2
Consolidated Statements of
Operations for the Years Ended
December 31, 1999 and December 31,
1998 3
Consolidated Statements of Cash
Flows for the Years Ended December
31, 1999 and December 31, 1998 4
Notes to Consolidated Financial
Statements 5
<PAGE>
<TABLE>
METZ BAKING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands)
<CAPTION>
Assets 1999 1998
------ ------
<S> <C> <C>
Current assets:
Accounts receivable, less
allowance for doubtful accounts
of $936 in 1999 and $636 in
1998 . . . . . . . . . . . . . . $ 39,402 $ 33,883
Inventories . . . . . . . . . . . 15,467 11,188
Other current assets. . . . . . . 3,123 2,185
-------- --------
Total current assets. . . . . $ 57,992 $ 47,256
======== ========
Property, plant and equipment,
net. . . . . . . . . . . . . . . 172,622 162,817
Goodwill. . . . . . . . . . . . . 44,247 16,320
Other intangible assets, net. . . 465 422
Other noncurrent assets . . . . . 489 925
-------- --------
Total assets. . . . . . . . . $275,815 $227,740
======== ========
Liabilities and Equity
Current liabilities:
Accounts payable. . . . . . . . . $ 30,469 $ 24,753
Accrued expenses. . . . . . . . . 31,446 28,414
-------- --------
Total current liabilities . . 61,915 53,167
Revolving credit facility . . . . 97,801 75,000
Other noncurrent liabilities. . . 14,545 17,471
Equity -
Special Foods equity
investment . . . . . . . . . . 101,554 82,102
-------- --------
Total liabilities and equity. $275,815 $227,740
======== ========
</TABLE>
<PAGE>
<TABLE>
METZ BAKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999 and 1998
(In thousands)
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Net sales $561,216 $501,908
Cost of sales 281,874 254,067
-------- --------
Gross profit 279,342 247,841
Marketing, distribution and
administrative expenses 249,763 224,278
-------- --------
Operating income 29,579 23,563
Other expense, net:
Interest, net (9,825) (2,751)
Gain on disposal of property
and equipment 238 63
-------- --------
Income before income taxes 19,992 20,875
Provision for income taxes 8,563 8,468
-------- --------
Net income $ 11,429 $ 12,407
======== ========
</TABLE>
<PAGE>
<TABLE>
METZ BAKING COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
(In thousands)
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . $ 11,429 $ 12,407
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization. . . . 26,836 19,752
Related party noncash charges. . . . 11,224 10,038
Gain on disposal of property and
equipment . . . . . . . . . . . . . (238) (63)
Changes in operating assets and
liabilities
Accounts receivable . . . . . . . (2,915) (5,374)
Inventories . . . . . . . . . . . (2,642) 378
Other current assets. . . . . . . (117) 1,942
Accounts payable. . . . . . . . . 1,358 (6,369)
Accrued expenses and other
noncurrent liabilities . . . . . (4,303) (2,524)
-------- --------
Net cash provided by operating
activities . . . . . . . . . . 40,632 30,187
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash
acquired . . . . . . . . . . . . . . . (37,481) (17,884)
Purchase of property, plant and
equipment. . . . . . . . . . . . . . . (22,060) (72,260)
Cash restricted for the purchase of
property, plant and equipment. . . . . --- (898)
Proceeds from sales of property, plant
and equipment. . . . . . . . . . . . . 571 235
Other . . . . . . . . . . . . . . . . . (1,129) (823)
-------- --------
Net cash used in investing
activities. . . . . . . . . . . (60,099) (91,630)
-------- --------
Increase in revolving credit. . . . . . . 22,801 75,000
Net advances to parent. . . . . . . . . . (3,324) (13,424)
Other . . . . . . . . . . . . . . . . . . (10) (133)
-------- --------
Net cash provided by financing
activities. . . . . . . . . . . 19,467 61,443
-------- --------
Net increase in cash . . . . . . --- ---
Cash at beginning of year . . . . . . . . --- ---
-------- --------
Cash at end of year . . . . . . . . . . . $ --- $ ---
-------- --------
Supplemental disclosures of cash flow
information:
Interest paid . . . . . . . . . . . . . $ 9,995 $ 2,630
Income taxes paid . . . . . . . . . . . 473 21
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Company Background
Metz Baking Company (Company), an Iowa Corporation, is
a direct wholly owned subsidiary of Metz Holdings Inc.
(MHI), which is an indirect wholly owned subsidiary of
Specialty Foods Corporation (SFC). The Company and its
subsidiaries operate principally in one industry segment,
that being the production and distribution of bakery
products. The Company is a leading wholesale baking company
servicing the Midwestern United States. Its product lines
include breads, buns, rolls and sweet goods. The Company's
raw materials are readily available, and the Company is not
dependent on a single supplier or only a few suppliers.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries,
Metz Baking Company, Clear Lake Bakery, Inc, Grocers Baking
Company, and Blue Bird Products, Inc. The Company's
accounting policies conform to generally accepted accounting
principles. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Use of Estimates in the Preparation of
Consolidated Financial Statements
The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
(c) Reclassifications
Certain amounts included in the 1998 financial
statements have been reclassified to conform to the manner
in which the 1999 financial statements have been presented.
(d) Inventories
Inventories are stated at the lower of cost or
market. Cost is determined using the first in, first out
(FIFO) method. Inventories include the cost of materials,
direct labor and manufacturing overhead. Obsolete or
unsaleable inventories are reflected at their estimated
realizable values.
<PAGE>
(e) Goodwill and Intangible Assets
Goodwill and other intangible assets, which
represent the excess of purchase price over fair value of
net assets acquired, are amortized on a straight-line basis
over the expected periods to be benefited, which range from
five to forty years. As of December 31, 1999, there was
$15,728 of unamortized goodwill being amortized over forty
years and $28,303 being amortized over 25 years.
Amortization expense charged to earnings related to goodwill
amounted to $1,110 and $102 in 1999 and 1998, respectively.
Amortization expense charged to earnings related to other
intangible assets amounted to $992 and $824 in 1999 and
1998, respectively. The Company reviews long-lived assets
and goodwill whenever events or changes in business
circumstances indicate that the carrying amounts may not be
fully recoverable. The Company assesses the recoverability
by determining whether the amortization of the asset balance
over its remaining life can be recovered through
undiscounted future operating cash flows. The assessment of
the recoverability of the asset will be impacted if
estimated future operating cash flows are not achieved.
<PAGE>
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets. Amortization of
leasehold improvements is provided over the estimated useful
lives of the property or over the term of the lease,
whichever is shorter. The lives of the assets range from
three to forty years.
Expenditures for maintenance, repairs and minor
replacements are charged to current operations.
Expenditures for major replacements and betterments are
capitalized.
The cost and related accumulated depreciation of
property and equipment retired or sold is eliminated from
the property and equipment accounts at the time of
retirement or sale, and the resulting gain or loss is
reported in the consolidated statements of operations.
(g) Concentrations of Credit Risk
The Company grants credit to its customers, who
are primarily in the grocery, food service, restaurant and
fast-food markets. The Company performs ongoing credit
evaluations of its customers' financial condition and
generally requires no collateral from its customers. The
Company does not have a material concentration of accounts
receivable or credit risk.
<PAGE>
(h) Workers' Compensation and Fleet Insurance
The Company's workers' compensation and fleet
liabilities are recorded at the net present value of
estimated future cash flows. The discount rate used in
determining these liabilities was 7 1/2% for 1999 and 1998.
The discount amounted to $2,822 and $2,920 for the years
ended December 31, 1999 and 1998, respectively.
(i) Income Taxes
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the consolidated 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 in effect for the years in
which those temporary differences are expected to be
recovered. 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.
The Company files a consolidated federal tax
return with SFC. SFC does not have a federal tax liability
due to net operating losses. Under a tax sharing agreement
between the Company and SFC, the Company has agreed to pay
(receive from) SFC the amount of federal and other combined
tax filings computed on a separate return basis.
(j) Revenue Recognition
Revenue is recognized upon shipment of product to
customers. Sales discounts, returns and allowances are
included in net sales, and the provision for doubtful
accounts is included in selling, general and administrative
expenses in the consolidated statement of operations.
(k) Comprehensive Income
During 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting
Comprehensive Income. This statement requires that an
entity classify items of other comprehensive income by their
nature in a financial statement and display the accumulated
balance of other comprehensive income separately from
retained earnings and paid-in capital in the equity section
of the balance sheet. At December 31, 1999, the Company has
no items of accumulated other comprehensive income and,
therefore, comprehensive income is equal to net earnings for
the years ended December 31, 1999 and 1998.
(l) Advertising Costs
Advertising costs are expensed as incurred.
Advertising costs were $6,030 and $5,707 for the years ended
December 31, 1999 and 1998, respectively.
<PAGE>
(m) Systems Development Costs
The Company capitalizes certain systems
development costs as allowed in accordance with established
criteria. Amounts capitalized are amortized over a three-
year period. In March 1998, the American Institute of
Certified Public Accountants (AICPA) issued Statement of
Position (SOP) No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.
This statement requires that certain internal and external
costs associated with the purchase and/or development of
internal use software be capitalized rather than expensed.
(3) Acquisitions
On June 4, 1999, the Company acquired all of the outstanding
stock of Grocers Baking Company for $33,481. Grocers Baking
Company, located in Grand Rapids, Michigan, bakes and
distributes a variety of bread, buns, sweet goods, cookie
dough and other frozen products throughout Michigan. On
July 9, 1999, the Company acquired all of the outstanding
stock of Blue Bird Products, Inc. for $4,000. Blue Bird
Products, Inc., located in Detroit, Michigan, bakes a
variety of fresh bread, buns and rolls that are distributed
throughout the Detroit area. During 1998, the Company
acquired three bakeries in separate transactions for a total
aggregate consideration of $17,884. The 1998 acquisitions
consisted of: Clear Lake Bakery, Inc., located in Clear
Lake, Iowa, which bakes and distributes a variety of bread,
buns, rolls, doughnuts and sweet rolls throughout Iowa;
Grandma Sycamore's, located in Pleasant Grove, Utah, which
distributes its brand name bread throughout Utah and
neighboring states; and Eagle Bakery, located in Rock
Island, Illinois, which produces private label bread and
buns that are distributed in Iowa and Illinois.
All of the 1999 and 1998 acquisitions have been accounted
for as purchases and, accordingly, the respective purchase
prices have been allocated to the applicable assets and
liabilities based upon their estimated fair values as of the
acquisition date. On a combined basis, the excess of the
purchase price over the fair values of the net assets
acquired was $28,943 in 1999 and $16,423 in 1998 and has
been recorded as goodwill. The acquisitions were funded by
a combination of cash and borrowings under the existing
revolving credit facility. Operating results of the acquired
businesses have been included in the consolidated statements
of operations since their respective acquisition dates.
<PAGE>
The allocation of the total purchase price for the 1999 and
1998 acquisitions are shown in the table below:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Current assets $ 4,991 $ 1,573
Property, plant, and equipment 12,559 2,513
Excess cost over fair value of
net assets acquired 28,943 16,423
Current liabilities (8,251) (2,429)
Noncurrent liabilities (761) (196)
------- -------
$37,481 $17,884
======= =======
</TABLE>
The following unaudited pro forma consolidated results of
operations are presented as if the above acquisitions had
been made at the beginning of the periods presented. These
results include certain adjustments, including amortization
of goodwill, increased interest expense on debt related to
the acquisitions, and related income tax effects. The
consolidated pro forma information does not necessarily
reflect the results of the combined operations had the
acquisitions been in effect at the beginning of each period
or which may be attained in the future.
<TABLE>
<CAPTION>
1999 1998
------ ------
(Unaudited)
<S> <C> <C>
Net sales $624,061 $623,438
Net income 16,913 16,421
======== ========
</TABLE>
(4) Acquisition and Restructuring Liabilities
In connection with the formation of the Company and
subsequent acquisitions, estimated liabilities were recorded
for the expected costs to consolidate facilities, streamline
operations, and settle environmental, legal and tax matters,
of which most were cash expenditures. As of December 31,
1998, there were $4,577 of remaining acquisition
liabilities, of which $2,390 was classified as current. As
a result of the 1999 and 1998 acquisitions, $2,663 and
$1,251, respectively, of additional estimated acquisition
liabilities were recorded. Cash expenditures associated with
acquisition liabilities were $2,672 and $1,464 for 1999 and
1998, respectively. As of December 31, 1999, there are
$3,657 of remaining acquisition liabilities, of which $1,965
is classified as current. Excess reserves of $875 were
reversed and recorded as a reduction of administrative
expense for the year ended December 31, 1999.
Additionally, reserves had been previously established to
restructure existing operations. The reserves were
primarily for employee severance benefits. There were $159
and $700 of remaining restructuring reserves which were
classified as current for the years ended December 31, 1999
and 1998, respectively. Cash expenditures associated with
the restructuring reserves were $577 and $160 for 1999 and
1998, respectively.
<PAGE>
A reconciliation of activity with respect to the Company's
acquisitions and restructuring is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1997 $ 6,318
Cash payments (1,624)
Acquisition-related reserves 1,251
Noncash charges (668)
-------
Ending balance, December 31, 1998 5,277
Cash payments (3,249)
Acquisition-related reserves 2,663
Reversal realized as income (875)
-------
Ending balance, December 31, 1999 $ 3,816
=======
</TABLE>
(5) Inventories
The components of inventories as of December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Ingredients and packaging $ 9,567 $ 6,973
Finished goods 4,200 2,785
Other 1,700 1,430
------- -------
$15,467 $11,188
======= =======
</TABLE>
(6) Property, Plant and Equipment
The components of property, plant and equipment as of
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Land $ 10,036 $ 10,128
Buildings and improvements 57,368 53,353
Machinery and equipment 128,766 109,616
Office equipment, furniture,
and vehicles 70,315 61,296
-------- --------
266,485 234,393
Less accumulated depreciation 93,863 71,576
-------- --------
$172,622 $162,817
======== ========
</TABLE>
<PAGE>
Depreciation expense in 1999 and 1998 was $24,734 and
$18,826, respectively.
(7) Accrued Expenses
The components of accrued expenses as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Accrued payroll $ 6,312 $ 4,454
Other taxes payable 3,661 3,129
Workers' Compensation 9,298 9,797
Compensated absences 6,389 5,244
Acquisition liabilities 1,965 2,390
Other 3,821 3,400
------- -------
$31,446 $28,414
======= =======
</TABLE>
(8) Operating Leases
The Company leases buildings, warehouse and distribution
space, and certain office and transportation equipment under
various noncancelable operating leases. Rent expense for
all operating leases was approximately $8,562 and $10,219 in
1999 and 1998, respectively. During 1999 and 1998, the
Company reacquired certain fleet and production equipment
which it previously had been leasing. These purchases
totaled $6,374 in 1999 and $33,120 in 1998; of which $2,972
in 1998 was with Specialty Foods Leasing L.L.C., a party
related by common ownership.
Future minimum lease payments under noncancelable operating
leases are as follows:
2000 $ 7,690
2001 6,861
2002 5,894
2003 4,765
2004 3,955
Thereafter 22,650
-------
Total minimum lease payments $51,815
=======
<PAGE>
(9) Specialty Foods Equity Investment
The following analyzes SFC's investment in the Company for
the years presented:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Balance at the beginning of the year $ 82,102 $ 72,979
Net income 11,429 12,407
Net transactions with SFC 8,023 (3,284)
-------- --------
Balance at end of the year $101,554 $ 82,102
======== ========
</TABLE>
SFC's equity investment includes the original investment in
the Company and net intercompany payable from the Company
reflecting transactions described in note 13, including net
cash management services, settlement of income taxes
payable/receivable amounts as described in note 1(i), and
certain general and administrative services.
(10) Long-term Debt
The Revolving Credit Facility (Revolver), which has a
maturity date of January 31, 2001, can be used to finance
working capital requirements and is available for other
corporate purposes, including acquisitions.
The Revolver bears an interest rate of LIBOR plus 325 basis
points. The weighted average interest rate was 8.2% and
9.2% for 1999 and 1998, respectively. The borrowing rate on
the Revolver was 9.7% at 12/31/99. The Revolver is secured
by the assets of SFC's operating subsidiaries, including the
Company. The Revolver provides for borrowings up to
$122,801 and is reduced by letters of credit totaling
$10,977 as of December 31, 1999. The Revolver contains
customary covenants, including maintenance of interest
coverage ratio and certain other restrictions.
The Company's stock, as well as the stock of SFC's other
operating subsidiaries, is pledged as collateral for certain
other debts of SFC.
(11) Income Taxes
The provision for income taxes consists of the following
amounts for the periods ended:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Current tax provision:
Federal $7,578 $7,494
State and local 985 974
------ ------
Provision for income taxes $8,563 $8,468
====== ======
</TABLE>
<PAGE>
The deferred tax assets and deferred tax liabilities as of
the end of each period are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Deferred tax liabilities-
Plant, equipment, and intangibles $ 21,263 $ 17,511
-------- --------
Deferred tax assets:
Postretirement benefits (3,775) (3,829)
Insurance (1,722) (1,257)
Vacation and incentive pay (1,706) (1,589)
Pension (3,339) (3,523)
Acquisition liabilities (1,462) (2,315)
Workers' compensation (1,539) (2,087)
Net operating losses and credits (24,102) (19,381)
Allowance for doubtful accounts (370) (252)
Other (185) (258)
-------- --------
Total deferred tax assets (38,200) (34,491)
-------- --------
Valuation allowance 16,937 16,980
-------- --------
Net deferred tax assets $ --- ---
======== ========
</TABLE>
A reconciliation between the statutory rate and the
effective rate is presented below:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Tax at statutory rate $6,997 $7,306
State income taxes, net of federal
benefit 891 897
Amortization of goodwill 389 36
Other 286 229
------ ------
Provision for income taxes $8,563 $8,468
====== ======
</TABLE>
As of December 31, 1999, the Company had a net operating
loss carryforward for federal income tax purposes of $52,051
and state income tax purposes of $49,412. Also, as of
December 31, 1999, the Company had $2,402 of state tax
credit carryforward. Net operating loss and credit
carryforwards expire in varying amounts beginning in 2000
through 2019. The operating losses are a result of SFC
allocating interest expense to the Company for income tax
purposes. For income tax purposes, SFC allocated interest
expense to the Company in the amount of $36,139 and $43,293
for the years ended December 31, 1999 and 1998,
respectively. Such allocated interest expense is not
included in the accompanying consolidated statement of
operations. Cumulative interest expense allocated to the
Company for income tax purposes was $123,374 through
December 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits $ 3,341 $ 3,388
Insurance 1,197 787
Vacation and incentive pay 1,669 1,566
Pension 1,294 2,048
Acquisition liabilities 1,361 1,847
Workers' compensation 2,955 3,118
Net operating losses and credits 24,102 19,381
Other 164 228
------- -------
Total gross deferred tax assets 36,083 32,363
Less valuation allowance 17,123 16,867
------- -------
Net deferred tax assets 18,960 15,496
Deferred tax liabilities-plant,
equipment, and intangibles 18,960 15,496
------- -------
Net deferred taxes $ --- $ ---
======= =======
</TABLE>
<PAGE>
(12) Employee Benefits
The Company sponsors two qualified pension plans for certain
union and non-union employees. Effective December 31, 1995,
the Company's defined benefit pension plan for non-union
employees was merged into the Mother's Cake & Cookie Company
plan (a related party by common ownership) and is now known
as the Metz-Mother's Cake & Cookie Company Consolidated
Pension Plan. Benefits for employees are based on various
factors including length of service and average
compensation. Contributions are funded to the extent
deductible for federal income tax purposes.
The Company also sponsors defined benefit health care plans
that provide post retirement medical and life benefits to
certain full-time employees who meet minimum age and service
requirements. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-
sharing features such as deductibles and co-insurance. The
accounting for the plans anticipates future cost-sharing
changes to the written plans that are consistent with the
Company's expressed intent to increase the retiree
contribution rate annually for the expected general
inflation rate for the year.
The following table provides a reconciliation of the changes
in the plans' benefit obligations and fair value of assets
during the years ended December 31, 1999 and 1998 and a
summary of the funded status as of December 31, 1999 and
1998. The figures in the table below represent only the
amounts recognized in the Company's consolidated balance
sheet.
<TABLE>
<CAPTION>
Postretirement
Pension Plans Medical
--------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <S> <S> <S> <S>
Change in benefit obligation:
Benefit obligation at beginning
of year $55,555 $50,997 $ 6,125 $5,955
Service cost 1,892 1,646 392 291
Interest cost 3,831 3,480 451 386
Plan amendments 1,308 35 --- ---
Benefits paid (2,635) (2,595) (1,060) (504)
Participant contributions --- --- 288 ---
Actuarial (gain) loss (7,862) 1,992 440 (3)
------- ------- ------- ------
Benefit obligation at end of year $52,089 $55,555 $ 6,636 $6,125
======= ======= ======= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Postretirement
Pension Plans Medical
--------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Change in plan assets:
Fair value of plan assets at
beginning of year $59,757 $54,367 $ --- $ ---
Actual return on plan assets 14,517 6,957 --- ---
Benefits paid (2,635) (2,595) --- ---
Other --- 1,028 --- ---
------- ------- ------- -------
Fair value of plan assets
at end of year $71,639 $59,757 $ --- ---
======= ======= ======= =======
Summary of funded status:
Funded status $19,550 $ 4,202 $(6,636) $(6,125)
Unrecognized prior service cost 2,178 1,068 --- ---
Unrecognized gain (25,284) (11,122) (2,910) (3,556)
------- ------- ------- -------
Accrued benefit cost $(3,556) $(5,852) $(9,546) $(9,681)
======= ======= ======= =======
Amounts recognized in the
Company's consolidated balance
sheet:
Accrued expenses --- --- 250 250
Other noncurrent liabilities 3,556 5,852 9,296 9,431
------- ------- ------- -------
$ 3,556 $ 5,852 $ 9.546 $ 9,681
======= ======= ======= =======
</TABLE>
The Company's qualified pension plan for bargaining unit
employees included above had a projected benefit obligation
in excess of plan assets as of December 31, 1998. The
projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for this plan were $12,621,
$12,621 and $15,075, respectively, as of December 31, 1999
and $13,815, $13,815 and $12,676, respectively, as of
December 31, 1998.
<PAGE>
The following table provides the components of net periodic
benefit cost for the plans for the years ended December 31,
1999 and 1998. The figures in the table below represent
only the amounts recognized in the Company's consolidated
statement of operations.
<TABLE>
<CAPTION>
Postretirement
Pension Plans Medical
--------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Service cost - benefits earned
during the period $ 1,892 $ 1,646 $ 392 $ 291
Interest cost on the benefit
obligation 3,831 3,480 451 386
Expected return on plan assets (6,125) (5,402) --- ---
Net amortization and deferral:
Prior service costs 198 96 --- ---
Gain (399) (470) (412) (805)
------- ------- ------- -------
Net periodic benefit
(income) expense $ (603) $ (650) $ 431 $ (128)
======= ======= ======= =======
</TABLE>
Gains and losses in excess of 10% of the greater of the
benefit obligation or the market-related value of assets are
amortized over five years for both the pension and post
retirement medical plans.
The assumptions used in the measurement of the Company's
benefit obligations are shown in the following table:
<TABLE>
<CAPTION>
Postretirement
Pension Plans Medical
--------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Discount rate 8.00% 6.75% 8.00% 6.75%
Salary scale 4.00% 4.00% N/A N/A
Long-term rate of return on
assets 10.50% 10.00% N/A N/A
</TABLE>
For measurement purposes, an 8.0% annual rate of increase in
the per capita cost of covered health care benefits was
assumed for 1999. The rate is assumed to decrease gradually
to 5.0% for 2002 and remain at that level thereafter.
<PAGE>
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan.
Increasing the assumed health care trend rate by 1% would
increase the post retirement benefit obligation as of
December 31, 1999 and 1998 approximately $714 and $664,
respectively, and the aggregate of the service and interest
cost components of net retiree health care expense
approximately $126 and $97 for the years ended December 31,
1999 and 1998, respectively. Decreasing the assumed health
care trend rate by 1% would reduce the post retirement
benefit obligation as of December 31, 1999 and 1998
approximately $614 and $547, respectively, and the aggregate
of the service and interest cost components of net retiree
health care expense approximately $103 and $79 for the years
ended December 31, 1999 and 1998.
The Company also has a defined contribution incentive
savings program covering nonunion and certain union
employees. Contributions to this plan were $1,269 and
$1,074 for the years ended December 31, 1999 and 1998,
respectively.
In addition to the Company-sponsored plans described above,
the Company also made contributions of $13,522 and $12,914
in 1999 and 1998, respectively, to various union pension
plans controlled by the respective plan trustees, some of
which are multi-employer plans. Contributions are made in
accordance with the terms of the various labor agreements
with those unions. Under several of the multi-employer
pension plans, the Company is considered a substantial
employer. Should such plans be terminated (a possibility
which the Company's management considers to be remote) and a
liability incurred, the Company believes that such
additional liability could be significant in total; however,
the Company believes such liability would be payable over an
extended period.
(13) Related Party Transactions
SFC utilizes a centralized cash management system to finance
its operations. Cash deposits from the Company are
transferred to SFC on a daily basis and SFC funds the
Company's disbursement bank accounts as required.
SFC provided certain general and administrative services to
the Company, including tax, treasury, risk management and
insurance, legal and human resources. A management fee of
$11,224 and $10,038, approximating 2% of net sales, has been
assessed by SFC for the years ended December 31, 1999 and
1998, respectively and included in administrative expense.
(14) Contingencies
In the ordinary course of business activities, the Company
is involved in various legal matters. At the present time,
the Company's management and legal counsel believe that such
matters will not have a material adverse effect on the
Company's financial position.
<PAGE>
The operations of the Company, like those of similar
businesses, are subject to various Federal, state and local
laws and regulations with respect to environmental matters,
including air and water quality, underground fuel storage
tanks, and other regulations intended to protect public
health and the environment. Although it is difficult to
quantify with certainty the financial impact of actions
related to environmental matters, based on the information
currently available it is management's opinion that the
ultimate liability arising from such matters, taking into
consideration established reserves, should not have a
material effect on the Company's results of operations or
financial position.
(15) Pending Sale
On March 18, 2000, SFC completed the transaction to sell the
stock of MHI to The Earthgrains Company for $625,000.
<PAGE>
