<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
</TABLE>
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 333-8379
KEEBLER CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-1894790
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
677 LARCH AVE.
ELMHURST, ILLINOIS 60126
(Address of principal executive (Zip Code)
offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 833-2900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
$125,000,000 OF ITS 10 3/4% SENIOR SUBORDINATED NOTES DUE 2006 WHICH
ARE FULLY AND UNCONDITIONALLY GUARANTEED BY THE RESTRICTED SUBSIDIARIES.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES /X/ NO / /
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. /X/
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF MARCH
27, 1997, WAS 1,000,000.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL BUSINESS DESCRIPTION
Keebler Corporation and its subsidiaries (the "Company") are engaged in the
manufacture, distribution and sale of consumer food products. The Company,
primarily through its Keebler Company ("Keebler") and Sunshine Biscuits, Inc.
("Sunshine") subsidiaries, produces and distributes a broad line of cookie and
cracker ("biscuit") products as well as other consumer food products.
The Company was organized under the laws of the State of Delaware as UB
Investments US Inc. ("UBIUS") on July 14, 1992. The Company was acquired from UB
Investments (Netherlands) B.V. on January 26, 1996 by INFLO Holdings Corporation
("INFLO"), a corporation jointly controlled by Artal Luxembourg S.A. ("Artal")
and Flowers Industries, Inc. ("Flowers"). In conjunction with the acquisition of
Keebler, INFLO sold 2.5% of its then outstanding shares of common stock, with a
par value of $.01 per share ("INFLO Common Stock"), to management. On June 4,
1996, the Company acquired Sunshine from G.F. Industries, Inc. ("GFI"). As part
of the consideration paid in the sale of Sunshine, GFI was issued $23.6 million
of INFLO Common Stock and warrants to purchase shares of INFLO Common Stock. In
addition, shares of INFLO Common Stock were sold to new members of management.
As of December 28, 1996, all issued and outstanding shares of INFLO Common Stock
are owned by Artal (45.1%), Flowers (45.1%), GFI (7.3%), and management (2.5%).
The Company competes in the U.S. retail biscuit market which in 1996
generated sales of more than $8 billion, of which $6.3 billion was through
supermarkets. The U.S. biscuit market is relatively stable and has experienced
slow but steady growth over the past twenty years. Since 1992, sales of private
label products have been growing faster than the biscuit market. The principal
reason for this growth has been the advent of brand-standard-equivalent private
label products, which are similar in quality to branded products but are often
available at significantly lower prices.
The Company is the second largest biscuit manufacturer in the U.S. as
measured by Information Resources, Inc. ("IRI") for the year ended December 28,
1996. The Company's principal product groups include branded and private label
biscuit products (which are sold in a variety of different flavors, shapes, fat
contents, sizes, weights, and packages), pie crusts and ice cream cones for
retail and foodservice markets, and custom-baked products for other marketers of
branded food products.
The Company has a number of well recognized brands that trade under the
Keebler and Sunshine labels. Major brands include: CHEEZ-IT, CHEEZ-IT PARTY MIX,
CHIPS DELUXE, CLUB, FUDGE SHOPPE, HI-HO, HYDROX, KRISPY, MUNCH'EMS, SANDIES,
SUNSHINE GOLDEN FRUIT, TOWN HOUSE, VIENNA FINGERS, WHEATABLES, and ZESTA, among
others. The Company imports and distributes the Carr's line of crackers and
manufactures and distributes Ready Crust pie crust products.
1
<PAGE>
In addition to its retail branded products, the Company also produces
private label biscuits, products for the foodservice market, and various baked
products for other branded food companies. The Company is the leading supplier
of private label cookie products to supermarkets as measured by IRI. The Company
is the largest supplier of biscuits to the foodservice market as reported by the
International Foodservice Manufacturers Association.
The Company's marketing strategy for its products is to consistently provide
a high quality product, maximize mass distribution and deliver the greatest
possible consumer value in terms of price and weight. The Company utilizes a
variety of promotion programs for customers as well as advertising and promotion
programs for consumers. Management believes that the critical factors for
success in the grocery store biscuit business are (i) a broad product line with
well recognized brand names and (ii) high levels of in-store display activity.
In private label and foodservice biscuits and custom-baked products, management
believes that the factors critical to success are quality products, high
customer service, and product innovation.
The Company recognizes that the mass distribution of its consumer food
products is an important element in maintaining sales growth and providing
service to its customers. The Company attempts to meet the changing demands of
its customers by planning optimum stock levels and reasonable delivery times
consistent with achieving the economics of distribution. In order to achieve
these objectives, the Company has developed a network from its manufacturing
plants, shipping centers and distribution warehouses strategically located
throughout the continental United States to provide high in-store presence. The
Company uses a combination of its own, public and contract carriers to deliver
its products from the distribution points to its customers.
The retail grocery stores are primarily served by the Company's national
direct store door sales and distribution system ("DSD system"). The Company's
DSD system distributes retail branded biscuit products directly to retail
stores, where the Company's own sales force then stocks and arranges the
products on the retailers' shelves and builds end-aisle and free standing
product displays within the stores. The Company is one of only two biscuit
companies with a national, wholly-owned DSD system.
The Company's DSD system (i) enables the Company to sell and promote a wide
variety of products and to introduce new products at a lower cost to the retail
customer, by eliminating the need for customer's warehouse space, transportation
and in-store labor, (ii) results in high display levels of the Company's
products and well stocked displays during major promotional periods through the
efforts of the Company's in-store sales force and (iii) enables the Company's
products to be available in supermarkets representing 99% of all grocery store
volume.
In addition to Keebler's DSD system, the Company uses a network of
independent distributors to sell and distribute its products through other major
trade channels, including convenience stores, club stores, vending distributors,
mass merchandisers, drug stores and foodservice companies. Also, the Company
uses a warehouse sales and distribution system to sell and distribute Ready
Crust pie crusts, Carr's crackers and
2
<PAGE>
private label biscuits to its customers, including grocery outlets otherwise
served by the Company's DSD system.
The Company's biscuit products are sold primarily to retail grocery stores,
mass merchandisers, chain drug stores, vending companies, wholesale clubs,
convenience stores and food distributors. The Company believes its biscuit
products are sold in approximately 55,000 retail grocery outlets.
SEASONALITY
The Company's net sales, net income, and cash flows are affected by the
timing of new product introductions, promotional activities, price increases,
and a seasonal sales bias toward the second half of the year due to events such
as back-to-school, Thanksgiving, and Christmas. The relative mix between cookie
and cracker sales varies throughout the year with stronger cracker sales in the
last quarter of the calendar year.
COMPETITION
The U.S. branded biscuit industry is led by two competitors accounting for
nearly 60% of volume sales, represented by the Company and Nabisco Biscuit
Company ("Nabisco"), a division of Nabisco Inc. Smaller competitors include
numerous national, regional and local manufacturers of both branded and private
label products. Manufacturers in the biscuit industry produce more than 2,100
major brands with over 5,000 products. Competition for shelf space and dollar
sales is based primarily on brand recognition, brand loyalty, price, and
quality.
Nabisco is the largest manufacturer and marketer in the U.S. biscuit
industry. According to the IRI Supermarket Scanner Performance report, the
Company has approximately a 24% share of the retail biscuit market in pounds
sold, while Nabisco has a 35% share. The remaining industry participants
primarily target niche markets and/or focus on certain geographical regions of
the U.S.
RAW MATERIALS
The primary raw materials used in the Company's food products consist of
flour, sugar, shortening, chocolate and milk. The Company uses corrugated
cardboard and plastics to package its products. Raw materials and packaging
supplies are readily available from various suppliers. There is no significant
reliance on any one supplier. In raw materials procurement (flour, sugar,
shortening, etc.), the Company uses hedging techniques to minimize the impact of
price fluctuations but not for speculative or trading purposes. There can be no
assurance, however, that such strategies will result in a reduction in the
Company's raw material costs.
PATENTS, TRADE SECRETS, TRADEMARKS, TRADENAMES AND COPYRIGHTS
The Company owns a number of patents, licenses and trademarks. In addition
to the registered brand names shown in the General Business Section of Item 1,
the Company's principal trademarks include
3
<PAGE>
Keebler-Registered Trademark-, Ernie the Keebler Elf, the Hollow Tree logo,
Sunshine-Registered Trademark-, the Representation of a Baker (design mark),
Cheez-It-Registered Trademark-, Chips Deluxe-Registered Trademark-,
Chip-A-Roos-Registered Trademark-, Club-Registered Trademark-, Elfin
Delights-Registered Trademark-, Fudge Shoppe-Registered Trademark-, Graham
Selects-Registered Trademark-, Hydrox-Registered Trademark-, Sunshine
Krispy-Registered Trademark-, Munch'ems-Registered Trademark-, Ready
Crust-Registered Trademark-, Sandies-Registered Trademark-, Soft
Batch-Registered Trademark-, Toasteds-Registered Trademark-, Town
House-Registered Trademark-, Vienna Fingers-Registered Trademark-,
Wheatables-Registered Trademark-, and Zesta-Registered Trademark-. The Company
is the exclusive licensee of the Carr's-Registered Trademark- brand name in the
U.S. Such brand names are considered to be of material importance to the
business of the Company since they have the effect of developing brand
identification and maintaining consumer loyalty. Management is not aware of any
fact that would have a materially adverse impact the continuing use of any of
its patents, licenses, trademarks or tradenames.
RESEARCH AND DEVELOPMENT
The Company engages in research activities, which principally involve
development of new products, improvement of the quality of existing products,
and improvement and modernization of production processes. The Company also
carries out development and evaluation of new processing techniques for both
current and proposed product lines. Identifiable research and development costs
are set forth on page F-14 of the Company's consolidated financial statements.
GOVERNMENTAL REGULATION
The Company is subject to regulation by the Food and Drug Administration,
the United States Department of Agriculture, the Federal Trade Commission, the
Environmental Protection Agency, the Interstate Commerce Commission, the
Department of Commerce, as well as by various state agencies with respect to the
production, packing, labeling and distribution of its food products. The Company
believes it is in compliance in all material respects with the applicable rules
and regulations of such agencies.
EMPLOYEES
The Company employs approximately 9,300 persons of which approximately 4,900
are represented by unions. The Company believes its relations with its employees
to be good.
ITEM 2. PROPERTIES
The Company owns and operates eleven manufacturing facilities in the U.S.
The largest of these facilities are located in Grand Rapids, Michigan;
Cincinnati, Ohio; Denver, Colorado; Macon, Georgia; Des Plaines, Illinois;
Kansas City, Kansas; Sayreville, New Jersey; and Columbus, Georgia. Keebler also
owns and operates a small bakery in Florence, Kentucky, which produces enrobed
cookies and frozen cakes; an ice cream cone plant in Chicago, Illinois, and a
co-packing operation in Athens, Georgia. Through the acquisition of Sunshine,
the Company also acquired, and now owns and operates, a dairy in Fremont, Ohio
that produces cheese that is used as an ingredient. As a result of capital
expenditures made by the Company over the past decade, management believes that
the Company's manufacturing facilities are modern and efficient. The Company's
manufacturing capacity towards the end of 1996 reached near optimal levels and
management believes it has sufficient capacity to meet foreseeable needs.
Keebler also owns two idle
4
<PAGE>
manufacturing facilities located in Atlanta, Georgia and Santa Fe Springs,
California that were held for sale at the end of the year.
The Company's distribution facilities consist of six separate bakery
shipping centers (two owned and four leased) and seventy-five distribution
centers (thirteen owned and sixty-two leased) throughout the U.S. Of the
seventy-five distribution centers, six were being subleased and thirteen were
idle at December 28, 1996. The thirteen idle facilities were included in the
plant and facility closing costs accrued as part of the cost of the acquisitions
of Keebler and Sunshine. The Company also leases thirty-one mini warehouses and
twenty depots that are located throughout the U.S. and are utilized by the sales
force in the distribution of the products.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation. The Company believes none of
the pending or threatened litigation would result in an outcome that would have
a material effect on the consolidated financial condition or the results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHARE OWNER
MATTERS
There is no established public trading market of the Company's common
equity.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data for the years ended January
1, 1994, December 31, 1994, and December 30, 1995; the four weeks ended January
26, 1996; and the forty-eight weeks ended December 28, 1996 were derived from,
and should be read in conjunction with the historical audited consolidated
financial statements of the Company and UBIUS, the predecessor company,
including respective notes thereto, included elsewhere herein. The distinction
between the Company's and the predecessor's selected financial data, as shown
below, has been made by inserting a double line. The acquisition of Keebler
occurred as of January 26, 1996, and as a result, the forty-eight weeks ended
December 28, 1996 is not comparable to the year ended December 30, 1995 due to
the strategic plan implemented by the new management team at the Company,
including several cost reductions which were implemented immediately following
the acquisition date as well as a new basis of accounting established as a
direct result of the acquisition.
5
<PAGE>
<TABLE>
<CAPTION>
UBIUS | Keebler
------------------------------------------------------ | Corporation
| -------------
Year Ended Four Weeks | Forty-Eight
----------------------------------------- Ended | Weeks Ended
January 1, December 31, December 30, January 26, | December 28,
1994 1994 1995 1996 | 1996(A)
----------- ------------- ------------- ----------- | -------------
(Dollars in millions) |
<S> <C> <C> <C> <C> <C> | <C>
OPERATING DATA: |
Net sales................................ $ 1,650.1 $ 1,599.7 $ 1,578.6 $ 101.7 | $ 1,645.5
Gross profit............................. 931.5 894.2 831.8 46.8 | 871.3
Restructuring charges.................... 120.1 -- -- -- | --
Income (loss) from operations............ (67.6) 46.4 (137.9) (25.5) | 70.1
Income tax expense (benefit)............. (22.3) (1.1) (0.5) -- | 14.9
Discontinued operations: |
Income from operations of discontinued |
Frozen |
Food businesses, net of tax............ 0.6 3.4 7.3 -- | --
Gain on disposal of Frozen Food |
businesses, net of tax................. -- -- -- 18.9 | --
Extraordinary item: |
Loss on early extinguishment of debt, net |
of tax................................. -- -- -- -- | 1.9
Net income (loss)........................ $ (147.2) $ (23.0) $ (158.3) $ (6.5) | $ 17.1
OTHER DATA: |
EBITDA--before restructuring charges |
(gains) (B)............................ $ 98.4 $ 89.5 $ (93.3) $ (23.5) | $ 119.6
Depreciation and amortization (excluding |
items related to discontinued |
operations)............................ 45.9 43.1 44.6 2.0 | 49.5
Capital expenditures (excluding |
expenditures related to discontinued |
operations)............................ $ 30.6 $ 54.6 $ 54.2 $ 3.2 | $ 29.4
|
</TABLE>
<TABLE>
<CAPTION>
As of
--------------------------------------------------------------------------------
January 1, December 31, December 30, January 26, | December 28,
1994 1994 1995 1996 | 1996
----------- ------------- ------------- ----------- | -------------
(Dollars in millions) |
<S> <C> <C> <C> <C> <C> | <C>
BALANCE SHEET DATA: |
Cash and cash equivalents................ $ 6.4 $ 12.5 $ 3.0 $ 2.1 | $ 11.4
Total assets............................. 1,019.0 1,001.2 926.9 847.4 | 1,101.5
Due to affiliate......................... 850.0 550.0 105.0 105.0 | --
Total debt............................... 233.2 333.2 437.6 371.4 | 431.3
Shareholders' equity (deficit)........... $ (511.9) $ (234.9) $ 51.8 $ 45.3 | $ 190.7
</TABLE>
- --------------------------
Note: Net sales and cost of sales were $1.7 billion and $735 million,
respectively, for the year ended January 2, 1993.
(A) Includes the operating results of Sunshine from the acquisition date of June
4, 1996 through December 28, 1996. Other matters affecting comparability are
detailed in Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 7.
(B) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, and restructuring charges (gains).
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SET FORTH BELOW IS A DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, AND
DECEMBER 28, 1996. THE YEAR ENDED DECEMBER 28, 1996 INCLUDES BOTH THE FOUR WEEKS
OF UBIUS UNDER FORMER MANAGEMENT AND THE FORTY-EIGHT WEEKS OF KEEBLER
CORPORATION UNDER CURRENT MANAGEMENT. THE 1994 AND 1995 FINANCIAL RESULTS AND
THE FIRST FOUR WEEKS OF 1996 INCLUDE THE FINANCIAL INFORMATION RELATING TO THE
SALTY SNACKS BUSINESS AND PRESENT THE FROZEN FOOD BUSINESSES AS A DISCONTINUED
OPERATION (BOTH DEFINED ON PAGE F-12 OF THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS), BOTH OF WHICH WERE SOLD OR LIQUIDATED BY UBIUS PRIOR TO THE
ACQUISITION OF UBIUS BY INFLO. SUBSEQUENT TO THE ACQUISITION, UBIUS CHANGED ITS
NAME TO KEEBLER CORPORATION. THE FOLLOWING DISCUSSION OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF KEEBLER CORPORATION AND UBIUS AND RELATED
NOTES THERETO APPEARING ELSEWHERE.
RESULTS OF OPERATIONS
MATTERS AFFECTING COMPARABILITY
The financial results of UBIUS include the results of operations of the
Salty Snacks business for the years ended December 31, 1994 and December 30,
1995. The Salty Snacks business, prior to the acquisition of Keebler by INFLO,
was divested or liquidated by prior management as a contractual condition of the
Keebler acquisition. The condensed results of operations of this business,
excluding allocations of fixed selling, distribution and general administrative
expenses, for these years were as follows:
<TABLE>
<CAPTION>
Years Ended
--------------------------------
December 31, December 30,
1994 1995
--------------- ---------------
(IN MILLIONS)
<S> <C> <C>
Net sales.................................... $ 185.6 $ 135.7
(Loss) income from operations................ 6.3 (25.6)
</TABLE>
The financial results of UBIUS included the results of operations of the
Frozen Food businesses for the years ended December 31, 1994 and December 30,
1995 as a discontinued operation.
The Company's results for the last forty-eight weeks ended December 28, 1996
have been combined with the operating results of the predecessor company for the
first four weeks ended January 26, 1996 to compare the years of 1996 and 1995.
The Company's results of operations for the year ended December 28, 1996 include
the operating results of Sunshine from the acquisition date of June 4, 1996 to
December 28, 1996. Results of operations expressed as a percentage of net sales
for the last three years ended December 31, 1994, December 30, 1995, and
December 28, 1996 are set forth below:
7
<PAGE>
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
--------------- -------------- --------------
NET SALES.............................. 100.0% 100.0% 100.0%
<S> <C> <C> <C>
COST AND EXPENSES:
Cost of sales........................ 44.1 47.3 47.4
Selling, marketing and administrative
expenses........................... 52.9 56.0 49.6
Loss on impairment of Salty Snacks
business........................... -- 5.5 --
Other................................ 0.1 (0.1) 0.4
----- ------- -------
INCOME (LOSS) FROM OPERATIONS.......... 2.9 (8.7) 2.6
INTEREST EXPENSE (INCOME), NET......... 4.7 1.8 2.1
----- ------- -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES....... (1.8) (10.5) 0.5
Income tax (expense) benefit......... 0.1 -- (0.9)
----- ------- -------
LOSS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES......... (1.7) (10.5) (0.4)
DISCONTINUED OPERATIONS:
Income from operations of Frozen Food
businesses, net of tax............. 0.2 0.5 --
Gain on disposal of Frozen Food
businesses, net of tax............. -- -- 1.1
----- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES.............................. (1.5) (10.0) 0.7
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of tax......................... -- -- (0.1)
----- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES................ (1.5) (10.0) 0.6
Cumulative effect of accounting
changes, net of tax................ 0.1 -- --
----- ------- -------
NET INCOME (LOSS)...................... (1.4)% (10.0)% 0.6%
----- ------- -------
----- ------- -------
</TABLE>
COMPARISON OF 1996 TO 1995
NET SALES. Net sales increased $168.6 million or 10.7% over 1995. Net sales
in 1996 included Sunshine revenues of $291.2 million, while net sales in 1995
included sales of the Salty Snacks business of $135.7 million. After adjusting
for these changes in the Company's business, the year-on-year sales increase was
up $13.1 million compared to a year ago. Along with achieving this growth, the
Company also shifted the sales focus to more profitable brands. The new focus
was accomplished through selected price increases on
8
<PAGE>
Keebler branded biscuit products, a more targeted marketing emphasis, new
products, and the discontinuation of weaker products. While volumes in 1996 were
relatively flat compared to volumes in 1995, higher revenues were achieved
through these changes in product mix and selected price increases. Temporary
volume decreases in sales to convenience stores associated with a change in the
selling organization and product discontinuations were offset by volume gains
from new products and broadened distribution.
GROSS PROFIT. Gross profit as a percentage of net sales for 1996 was 52.6%
compared to 52.7% in 1995. While gross margins, in the aggregate, were down
slightly year-on-year, this belies the significant improvements that were
achieved. The change in sales mix noted above, resulted in an emphasis on more
profitable volume after marketing spending. However, the value-added products
emphasized as part of the 1996 sales strategy carried higher production costs
than the products sold in 1995. The impact on gross profit of this change in
sales mix along with higher flour prices contributed to marginally higher cost
of sales in 1996 versus 1995. Gross profit margins in 1996 also reflect the
inclusion of Sunshine products, which historically carried a lower gross margin
than Keebler products. The impact of higher costs was more than fully offset by
increasing capacity utilization, cost reductions at the bakeries, as well as
lowering scrap levels and achieving a more balanced production. In addition,
reductions in bakery overhead staffing and a more efficient balancing of
internal and co-packing arrangements achieved a lower cost of production.
SELLING, MARKETING, AND ADMINISTRATIVE EXPENSES. Selling, marketing, and
administrative costs, decreased $18.3 million and improved by 6.4 percentage
points as a percent of net sales in 1996 compared to 1995. Included in 1996
expenses were selling, marketing, and administrative expenses of $132.4 million
directly attributable to the Sunshine business; while 1995 included expenses of
this nature that were directly associated with the Salty Snacks business of
$87.4 million (excludes allocation of fixed selling, distribution, and
administrative expenses). Excluding these influences; selling, marketing, and
administrative expenses decreased in 1996 compared to 1995 by $63.4 million. The
improvement was principally accomplished through a targeted marketing plan
behind Keebler products and the Company's cost reduction program to rationalize
the selling and administrative cost structure. The cost reductions in the
selling and administrative structures were mostly achieved through headcount
reductions of approximately 1,740 and changing from a relatively higher cost
step-van selling organization to independent distributors to serve the
convenience trade channel. The cost reductions more than offset increased
administrative expenses of management incentives and increased depreciation as a
result of the Keebler and Sunshine acquisitions.
OTHER. Other income and expense for 1996 was $7.2 million of expense
compared to $1.4 million of income for 1995. Other expense in 1996 consists of
$5.1 million of amortization resulting from both the Keebler and Sunshine
acquisitions and bank service charges. In 1995, other income and expense
consisted of $1.7 million of amortization expense, $1.4 million of miscellaneous
expenses and bank service charges, and other income of $4.5 million representing
the gain on the sale of interests in certain logos, tradenames, trademarks and
service marks registered or pending registration in Australia, New Zealand,
Asia, and Europe.
9
<PAGE>
INCOME FROM OPERATIONS. Income from operations was $44.7 million in 1996,
an improvement of $182.5 million over the loss from operations for 1995. After
adjusting the 1995 net operating loss of $137.9 million for the $25.6 million
loss in the Salty Snacks business and the impairment write down of $86.5 million
associated with that business, the earnings improvement in 1996 over 1995 was
$70.4 million. The turnaround resulted from improved gross margins on Keebler
brands, more efficient marketing expenditures, and cost savings achieved in
sales and distribution and in corporate overhead. The cumulative savings from
these initiatives more than offset incremental depreciation and amortization
expense totaling $9.5 million recorded as a result of the acquisition.
INTEREST EXPENSE. For 1996, net interest expense was $36.1 million compared
to $28.3 million in 1995. The increase was due to the amortization of debt
issuance costs and higher overall borrowings carrying a higher average interest
rate as compared to the prior year.
INCOME TAXES. The Company provided for income taxes at an effective tax
rate of 43.9% for the forty-eight weeks ended December 28, 1996. The predecessor
company did not provide for any income tax expense for the four weeks ended
January 26, 1996. The effective tax rate was higher than the statutory rate
because of nondeductible expenses (principally, amortization of intangibles
including trademarks, tradenames, and goodwill). As part of the Keebler
acquisition, the Company adjusted the valuation allowance on deferred taxes by
$25.1 million to reflect the elimination of certain deferred tax assets revalued
in the purchase price allocation. At December 28, 1996, the Company carried a
deferred tax valuation allowance of $84.4 million to provide for the uncertainty
in realizing the deductibility of deferred tax assets recognized. In 1995, there
was no provision for income taxes due to operating losses incurred and the
inability to carryback the losses to recover taxes paid in prior years. Income
tax carryforwards are set forth on page F-31 of the Company's consolidated
financial statements.
DISCONTINUED OPERATIONS. During 1995, the predecessor company decided to
dispose of the Frozen Food businesses and, therefore, presented the operations
of those businesses as a discontinued item in the statement of operations. In
the first four weeks of 1996, a gain of $18.9 million net of income taxes on the
disposal of the Frozen Food businesses was recognized.
EXTRAORDINARY ITEM NET OF INCOME TAXES. A before-tax extraordinary loss of
$3.2 million on the early extinguishment of debt was recorded in the second
quarter of 1996. The loss consisted primarily of the write-off of unamortized
bank fees incurred when the Company refinanced the Keebler acquisition bridge
loan with 10 3/4% Senior Subordinated Notes. The tax benefit on the
extraordinary loss was $1.3 million resulting in an after-tax loss of $1.9
million.
NET INCOME (LOSS). Net income of $10.6 million for 1996 represented a
substantial improvement over the $158.3 million net loss for the prior year. The
improvement was attributable to operating improvements, the divestiture of the
unprofitable Salty Snacks business, and the recognized gain of $18.9 million on
the disposition of the Frozen Food businesses.
10
<PAGE>
COMPARISON OF 1995 TO 1994
NET SALES. UBIUS net sales in 1995 were $1.579 billion, a 1.3% decrease
from net sales of $1.6 billion in 1994. Net sales, excluding sales of the Salty
Snacks business, in 1995 were $1.443 billion, which represented an increase of
2.0% over net sales of $1.414 billion in 1994. This increase resulted from
increased private label sales, increased sales of custom products and price
increases on certain Keebler products. Despite more than thirty new product
introductions and increased marketing support, combined branded biscuit sales
were essentially unchanged from sales in 1994. Sales of branded cookies
increased 3.2%, benefiting from price increases for certain products, new
products and line extensions. Branded cracker sales decreased 2.2% from 1994
because the restaging of both box snack crackers and graham crackers failed to
stimulate sales gains. Private label biscuit sales increased 7.7% primarily due
to both increased account penetration and expansion of the private label cracker
program. Sales of custom products increased as a result of increased demand by a
major customer.
GROSS PROFIT. UBIUS gross profit decreased to $831.8 million or 52.7% of
net sales in 1995 from $894.2 million or 55.9% of net sales in 1994. Gross
profit, excluding gross profit from the Salty Snacks business, decreased to
$770.1 million or 53.4% of net sales in 1995 and to $787.8 million or 55.7% of
net sales in 1994. Increased raw and packaging material prices in flour and
corrugated packaging, resulted in higher costs to Keebler of approximately $17
million (excluding costs related to the Salty Snacks business), or 1.2% of net
sales, which were not fully passed on to Keebler's customers. The restaging of
box snack crackers and cracker packs, which resulted in a net reduction in sales
price, and a shift to biscuit products with lower margins, such as private label
products and custom products, also reduced gross profits.
SELLING, MARKETING, AND ADMINISTRATIVE EXPENSES. UBIUS selling, marketing,
and administrative expenses were $884.6 million or 56.0% of net sales in 1995
compared to $845.7 million or 52.9% of net sales in 1994. Selling, marketing,
and administrative expenses, excluding expenses of the Salty Snacks business
were $797.2 million or 55.3% of net sales in 1995, compared to $745.6 million or
52.7% of net sales in 1994. Marketing spending, excluding spending related to
the Salty Snacks business, increased $39.4 million over 1994 expenditures
because Keebler followed a marketing plan designed to increase sales through
aggressive advertising and consumer spending to support new product
introductions and through increased trade spending. Selling and distribution
costs increased to 19.7% of net sales in 1995 from 19.1% in 1994, largely due to
the overcapacity of Keebler's direct store delivery system. Total administrative
spending was $58 million in 1995 compared to $52 million in 1994, principally
due to increases in spending on information systems.
LOSS ON IMPAIRMENT OF SALTY SNACKS BUSINESS. During 1995, the Company
recorded an impairment loss related to its anticipated sale and liquidation of
its Salty Snacks business amounting to $86.5 million.
(LOSS) INCOME FROM OPERATIONS. Loss from operations was $137.9 million in
1995, compared to income from operations of $46.4 million in 1994. This decrease
primarily resulted from the impairment loss
11
<PAGE>
related to the Salty Snacks business, the decline in gross profit and increased
marketing and selling distribution expenses. (Loss) income from operations as a
percentage of net sales was (8.7)% in 1995 and 2.9% in 1994.
INTEREST EXPENSE. Net interest expense in 1995 was $28.3 million, compared
to $74.4 million in 1994. This decrease was due to the full year impact of the
recapitalization of $300 million in intercompany debt in September 1994, as well
as the recapitalization of an additional $445 million of intercompany debt in
February 1995. The benefit of these recapitalizations was partially offset by
increased borrowings to finance operations.
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES. Loss from continuing operations before income taxes and
accounting changes was $166.1 million in 1995, compared to a loss of $28.1
million in 1994.
INCOME TAXES. The income tax benefits recorded in 1995 and 1994 were less
than the benefits computed using the federal and state statutory rates because
the Company provided an additional $70.4 million and $11.3 million,
respectively, for the valuation allowance against deferred tax assets as the
realization of these benefits is not likely. All tax net operating loss
carryforwards have been fully reserved due to the uncertainty of their
realization.
LOSS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGES AND NET LOSS. Loss before cumulative effect of accounting changes in
1995 was $165.7 million compared to a loss of $26.9 million in 1994. There were
no accounting changes in 1995. In 1994, the cumulative effect of accounting
changes was a net credit of $0.5 million. The net credit consisted of a $2.5
million after-tax charge upon the adoption of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," offset by a $3 million after-tax
benefit for a change in the method of accounting for spare machinery and
equipment parts. After the cumulative effect of accounting changes, the net loss
was $158.3 million in 1995, compared to a net loss of $23 million in 1994.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
A condensed cash flow statement follows:
<TABLE>
<CAPTION>
Years Ended
--------------------------------
December 30, December 28,
1995 1996
--------------- ---------------
(IN MILLIONS)
<S> <C> <C>
CASH PROVIDED FROM (USED BY):
Operating activities........................................ $ (61.6) $ 52.8
Investing activities........................................ (52.4) (66.0)
Financing activities........................................ 104.4 20.9
------- ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. $ (9.6) $ 7.7
------- ------
------- ------
</TABLE>
Cash provided from operating activities increased $114.4 million in 1996
over the cash used in operations in 1995. The significant increase reflects the
net earnings improvement along with improved working capital management.
Adjusting the 1995 net loss of $158.3 million by both the $86.5 million loss
recorded on the impairment of the Salty Snacks business and the Salty Snacks
operating loss of $25.6 million, yields a 1995 net loss of $46.2 million
compared to 1996 net income of $10.6 million. The net earnings improvement of
$56.8 million was achieved through increased revenues attributed to price
increases, a more profitable sales volume mix, and cost reductions. Lower costs
resulted from lower fixed overhead, reduced selling, distribution and
administrative expense resulting from headcount reductions, and more effective
marketing spending. The improved cash provided by working capital resulted from
a sustained improvement in cash collections of accounts receivable and higher
accounts payable. The additional cash provided from working capital more than
funded the combined $41.3 million of spending on plant and facility closing
costs and severance, as a result of actions in connection with the acquisitions
of Keebler and Sunshine. The spending on plant and facility closing costs and
severance is expected to be completed primarily over the next two years. Only
noncancellable lease obligations are expected to exceed the two-year time frame.
Cash used by investing activities was $66 million in 1996 as compared to
$52.4 in 1995. The cash used in 1996 was directly attributable to the $142.7
million used to finance the Company's acquisition of Sunshine. Offsetting this
use of cash was the receipt of a $32.6 million working capital adjustment paid
by UB Investments (Netherlands) B.V. in connection with INFLO's acquisition of
Keebler and a $67.7 million source of cash received by the predecessor company
resulting from the disposition of the Frozen Food businesses. Capital
expenditures were $56 million and $55.4 million in 1994 and 1995. In 1996,
current management spent $32.6 million on capital projects mostly designed to
generate near-term cost savings and to complete the investment in improved
management information systems. Capital expenditures were down from the prior
years reflecting the near completion of reinvestment in a more contemporary
information
13
<PAGE>
technology platform and tighter restrictions on additional capital spending by
new management. The Company expects to spend approximately $41 million on
capital expenditures in 1997 primarily to achieve near-term costs savings and
enable new product developments. Management expects that the capital expenditure
program will continue at a level sufficient to support the strategies and
operating needs of the Company.
Cash flow provided from financing activities decreased $83.5 million in 1996
from 1995. In 1996, the $20.9 million cash provided from financing activities
was comprised of $220 million in long-term debt borrowings of which $114 million
was used to finance the acquisition of Sunshine. An additional $125 million of
borrowings represents the issuing of the 10 3/4% subordinated notes which was
done to refinance the bridge loan used to finance the acquisition of Keebler.
Draw downs and repayments on the Company's Revolving Loan facility were $37.2
million of which $19 million was used to finance a portion of the acquisition of
Sunshine. The remaining $18.2 million was used to finance working capital
requirements. Offsetting these sources of cash was $63.3 million paid by the
predecessor company to settle commercial paper and revolving credit obligations
and $2.4 million of principal payments on equipment obligations. The cash
provided from financing activities of $104.4 million in 1995 was through
commercial paper borrowings used to finance operating losses, capital
expenditures, and cash spent on restructuring initiatives.
As of December 28, 1996, the Company's long-term debt was $431.3 million of
which current maturities were $18.6 million and available borrowings under the
Company's Revolving Loan facility were $155 million. The Company, as of December
28, 1996 had no balances outstanding on the Revolving Loan facility and had
approximately $11.4 million in cash and cash equivalents. The Company more than
adequately met all financial covenants contained in its financing agreements.
The Company's strong results, along with future expectations and favorable
current financing conditions have enabled the Company to enter into discussions
to re-finance its senior debt and Revolving Loan facility to achieve a lower
cost of capital. The Company expects that available cash as well as existing and
proposed short-term credit facilities will be sufficient to meet its normal
operating requirements for the foreseeable future.
SEASONALITY
The Company's net sales, net income, and cash flows are affected by the
timing of new product introductions, promotional activities, price increases,
and a seasonal sales bias toward the second half of the year due to events such
as back-to-school, Thanksgiving, and Christmas. The relative mix between cookie
and cracker sales varies throughout the year with stronger cracker sales in the
last quarter of the calendar year.
SELF INSURANCE
The Company purchases insurance coverage for worker's compensation, general,
product and vehicle liability maintaining certain levels of retained risk
(self-insured portion).
14
<PAGE>
Potential losses relating to claims under the self-insured portion of the
policies are accrued in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies".
There are no unasserted claims that require a reserve or disclosure in
accordance with SFAS No. 5.
FORWARD-LOOKING STATEMENTS
When used in this discussion, the words "believes" and "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, over which the Company has no
control, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligations to republish revised forward-looking statements to
reflect events or circumstances after the date thereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company, in this report, as
well as the Company's periodic reports filed with the Securities and Exchange
Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index to Financial Statements and Financial Statement Schedule
on F-1 for the required information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company:
SAM K. REED, 50 President, Chief Executive Officer and Director of the
Company since January 1996. Mr. Reed has participated in several leveraged
buyouts during his 21 years in the snack and baking industries. He served as CEO
of Specialty Foods Corporation's $450 million Western Bakery Group division
until January 1995. Prior to that, he was President and CEO of Mother's Cake and
Cookie Co. from 1991 to 1994, and held Executive Vice President positions at
Wyndham Bakery Products from 1988 to 1990 and Murray Bakery Products from 1985
to 1988. Mr. Reed managed a natural foods company from 1984 to 1985, which later
became Quaker Oats rice cake division. He started his career in 1975 with
Oroweat Foods Company where he spent 10 years in finance, manufacturing and
general management. Mr. Reed received a B.A. from Rice University and an M.B.A.
from Stanford University.
15
<PAGE>
DAVID B. VERMYLEN, 46 President-Keebler Brands since January 1996. Mr.
Vermylen manages Keebler's branded biscuits, pie crust and imported products
sector. He has 22 years experience in marketing consumer packaged goods
including cookies, cereals, beverages and convenience foods. He served as Vice
President-Marketing at Mother's Cake and Cookie Co. from 1991 to 1994, then
President and COO from 1994 to 1995, then in 1995 as Chairman/President/CEO of
Brothers Gourmet Coffee, a publicly traded specialty beverage manufacturer and
retailer. Mr. Vermylen spent 14 years in product management at General Foods
from 1974 to 1988 managing a diversity of businesses, including being Vice
President of Marketing for Post Cereals. Mr. Vermylen was also a founding
partner of a consulting firm specializing in food marketing and grocery
distribution. He holds a B.A. in economics from Georgetown University and an
M.B.A. from New York University.
E. NICHOL MCCULLY, 42 Chief Financial Officer and Senior Vice
President-Finance of the Company since January 1996. Mr. McCully has over nine
years experience as a senior financial executive in food industry leveraged
buyouts, most recently as group CFO for the Western Bakery Group division of
Specialty Foods Corporation from 1993 to 1995. Mr. McCully was Vice
President-Finance for Mother's Cake and Cookie Co. from 1991 until its
acquisition by Specialty Foods in 1993. From 1990 to 1991, he was Vice
President-Finance, and from 1988 to 1990, he was Controller for Spreckels Sugar
Co. Prior to entering the food industry, Mr. McCully held financial management
positions with Triad Systems Corporation and Wells Fargo Leasing Corporation,
and he has auditing experience with Arthur Andersen & Co. Mr. McCully received a
B.A. from UC Berkeley and an M.B.A. from UCLA. He is also a Certified Public
Accountant.
JACK M. LOTKER, 53 President-Specialty Products of the Company since
January 1996. Mr. Lotker has worked in the food industry for 20 years, most
recently at Homeland Stores of Oklahoma from 1988 to 1995. His experience in the
baking industry and with DSD systems includes two years at CPC International as
Vice President of Dry Products from 1986 to 1988 and eight years at Arnold Food
Company as Vice President & Group Executive from 1978 to 1986. Mr. Lotker headed
the American Bakers Association Industrial Relations Committee from 1983 to 1986
and has an extensive knowledge of the interaction among food retailing,
wholesale bakery distribution and unionized bakery operations as a manager in
three leveraged buyouts since 1983. Mr. Lotker received his B.A. from Queens
College and his M.B.A. from Long Island University.
JAMES T. WILLARD, 56 Senior Vice President-Operations of the Company since
July 1996. With 32 years experience in the food industry, Mr. Willard most
recently was Senior Vice President at Nabisco Biscuit Co. from 1993 to 1996 and
Senior Vice President Operations and Technical Services at Nabisco Specialty
Products Division from 1991 to 1993. From 1988 to 1991, Mr. Willard was Senior
Vice President-Operations at ALPO Pet Foods, Inc., and Mr. Willard was Senior
Vice President-North American Operations at Cadbury Schweppes, Inc. from 1986 to
1988. Prior to those assignments, Mr. Willard held various positions at Nestle
Foods Corporation from 1964 to 1986. These positions were Vice President-U.S.
Chocolate Manufacturing (1983 to 1986), General Manager-Chocolate Manufacturing
(1980 to 1983 and 1975 to 1978), General Manager-Fruits, Tomatoes & Meats (1978
to 1980), Division Manager-Manufacturing (1971 to 1975),
16
<PAGE>
Assistant Manager-Quality Control (1970 to 1972) and Microbiologist and
Chemist-Regional Laboratory (1964 to 1970). Mr. Willard received a B.S. from
Capital University and an M.S. from Ohio State University.
THOMAS E. O'NEILL, 42 Vice President, Secretary and General Counsel of the
Company since December, 1996. Mr. O'Neill has spent more than ten years in the
food industry, most recently serving as Vice President and Division Counsel for
the Worldwide Beverage Division of The Quaker Oats Company from December, 1994
to December, 1996. In that position, Mr. O'Neill was responsible for all legal
matters in both domestic and international markets concerning the $2 billion
division. Mr. O'Neill was Vice President and Division Counsel of the Gatorade
Worldwide division of The Quaker Oats Company from 1991 through 1994. Prior to
joining Quaker Oats in 1985, Mr. O'Neill spent three years with Winston &
Strawn, a law firm based in Chicago. Mr. O'Neill received both his B.A. and law
degree from the University of Notre Dame. He also completed additional work in
the executive management program at Harvard University's Graduate School of
Business.
HARRY J. WALSH, 41 Vice President, Corporate Planning & Development since
January, 1997 and Chief Operating Officer Sunshine Biscuits, Inc. since June,
1996. Mr. Walsh has sixteen years of experience with DSD baking and snack food
companies, most recently as Vice President for G.F. Industries, Inc. from 1995
to 1996. From 1994 to 1995, he was President and Chief Operating Officer, and
from 1993 to 1994, CFO for Granny Goose Foods, Inc. Mr. Walsh served as Vice
President-Operations for Bell Carter Distributing Company from 1992 to 1993, CFO
for San Francisco French Bread Co. from 1991 to 1992 and Vice President-Finance
for Mother's Cake and Cookie Co. from 1985 to 1991. From 1983 to 1985, he was
Vice President-Finance, and from 1981 to 1983, Controller for Salerno Megowen
Biscuit Company. Prior to entering the food industry, Mr. Walsh was an auditor
with Arthur Andersen & Co. He received a B.A. from the University of Notre Dame
and is a Certified Public Accountant.
All executive officers serve at the pleasure of the Board of Directors.
There is no family relationship between any of the executive officers of the
Company.
Members of the Compensation Committee include Robert P. Crozer, Raymond
Debbane and Sam K. Reed, who is an executive officer of the Company.
The following sets forth the names, ages, other positions and offices held
and a brief account of the business experience of each of the Company's
directors. Unless otherwise noted, no director of the Company serves as a
director of any company whose securities are registered under the Securities
Exchange Act of 1934. All directors serve until a successor is elected. All
directors of the Company also serve and have served as directors of INFLO since
January 1996, except for Mr. Debbane, who was appointed as a director of INFLO
in May 1996.
SAM K. REED, 50 See "Executive Officers", above.
ROBERT P. CROZER, 50 Director of the Company since March 1996. Mr. Crozer
has served as Vice Chairman of the Board of Flowers since 1989. He joined
Flowers in 1973, and has been a Director of Flowers
17
<PAGE>
since 1979. Mr. Crozer served as a Director of Marketing and Planning of Flowers
from 1979 to 1985, President and Chief Operating Officer, Convenience Products
Group of Flowers from 1979 to 1989, and Vice President-Marketing of Flowers from
1985 to 1989.(1)(2)
RAYMOND DEBBANE, 42 Director of the Company since May 1996. Mr. Debbane has
served as the President of The Invus Group, Ltd. ("INVUS") since 1985. From 1982
to 1985, Mr. Debbane was a Manager in the Paris office of The Boston Consulting
Group, where he was employed since 1979.(3)
SACHA LAINOVIC, 40 Director of the Company since March 1996. Mr. Lainovic
has served as an Executive Vice President of INVUS since 1985. Mr. Lainovic was
a Manager in the Paris office of The Boston Consulting Group from 1984 to 1985,
where he was employed since 1981.(3)
AMOS R. MCMULLIAN, 59 Director of the Company since March 1996. Mr.
McMullian has served as Chief Executive Officer of Flowers since April 1981 and
Chairman of the Board of Flowers since January 1985. Mr. McMullian joined
Flowers in 1963 and served as assistant controller, data processing coordinator,
assistant plant manager, plant manager, plant president, regional vice president
and President of the Bakery and Snack Groups of Flowers. In 1976, he was
appointed President and Chief Operating Officer of Flowers and was elected to
the Board of Directors of Flowers. He served as Vice Chairman of the Board of
Flowers from 1984 to 1985.(1)
CHRISTOPHER J. SOBECKI, 38 Director of the Company since March 1996, Mr.
Sobecki has served as a Managing Director of INVUS since 1993 after joining
INVUS in 1989.(3)
C. MARTIN WOOD, III, 53 Director of the Company since March 1996. Mr. Wood
has served as Senior Vice President and Chief Financial Officer of Flowers since
September 1978. Mr. Wood joined Flowers in 1970 as Director of New Product
Development. He was appointed Director of Marketing Services of Flowers the
following year, Director of Finance in 1973, and Vice President-Finance in 1976.
Mr. Wood has been a Director of Flowers since 1975.(1)(2)
(1) The address of Messrs. Crozer, McMullian and Wood is Flowers Industries,
Inc., 11796 U.S. Highway 19 South, Thomasville, Georgia 31792.
(2) Messrs. Crozer and Wood are brothers-in-law.
(3) The address of Messrs. Debbane, Lainovic and Sobecki is The Invus Group,
Ltd., 135 East 57th Street, 30th Floor, New York, New York 10022.
In addition, pursuant to the Stockholder's Agreement dated as of June 4,
1996, among GFI, INFLO, Artal, and Flowers, Bermore has designated Mr. Michael
R.B. Uytengsu as a non-voting, ex-officio representative to the Board of
Directors of INFLO. Mr. Uytengsu's address is G.F. Industries, Inc., 999 Baker
Way, Suite 200, San Mateo, California 94404.
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Company paid no remuneration to its current executive officers for the
fiscal year ended December 30, 1995. The following table sets forth the initial
annual cash compensation that was paid to the top five executive officers of the
Company and the number of shares of INFLO Common Stock underlying options to
purchase shares of INFLO Common Stock issued pursuant to the 1996 Stock Purchase
and Option Plan for Key Employees of INFLO Holdings Corporation and Subsidiaries
that have been granted to date for services in all capacities to be rendered to
the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term Compensation
-----------------------------------------------
Annual Compensation Awards
------------------------------------- ------------------------------
Other Securities Payouts
Annual Restricted Underlying ---------------
Name and Salary ($) Compensation Stock Awards Options/SARs LTIP Payouts
Principal Position Year (1) Bonus ($) ($) ($) (#) ($)
- ------------------------- --------- ----------- ----------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sam K. Reed ............. 1996 $ 650,000 $ 845,000 $ 167,818(2) -- 225,000 --
PRESIDENT, CHIEF
EXECUTIVE OFFICER
David B. Vermylen ....... 1996 $ 325,000 $ 300,000 $ 66,545(2) -- 52,500 --
PRESIDENT, KEEBLER BRANDS
E. Nichol McCully ....... 1996 $ 240,000 $ 250,000 $ 77,029(2) -- 52,500 --
SR. VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Jack M. Lotker .......... 1996 $ 240,000 $ 211,200 $ 87,650(2) -- 52,500 --
PRESIDENT, SPECIALTY
PRODUCTS
James T. Willard ........ 1996 $ 280,000 $ 271,581 $ 121,565(2) -- 52,500 --
SR. VICE PRESIDENT,
OPERATIONS
<CAPTION>
All Other
Name and Compensation
Principal Position ($)
- ------------------------- ---------------
<S> <C>
Sam K. Reed ............. --
PRESIDENT, CHIEF
EXECUTIVE OFFICER
David B. Vermylen ....... --
PRESIDENT, KEEBLER BRANDS
E. Nichol McCully ....... --
SR. VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Jack M. Lotker .......... --
PRESIDENT, SPECIALTY
PRODUCTS
James T. Willard ........ --
SR. VICE PRESIDENT,
OPERATIONS
</TABLE>
- ------------------------------
(1) Amounts listed for the named individuals are annual base salaries, including
amounts to be deferred in accordance with any deferred salary option plan of
the Company.
(2) Includes amounts reimbursed during the fiscal year for the payment of taxes
related to relocation reimbursements. For 1996 the amounts are: Mr. Reed,
$140,515; Mr. Vermylen, $42,330; Mr. McCully, $53,604; Mr. Lotker, $63,496;
and Mr. Willard, $95,964.
19
<PAGE>
The table below sets forth information as to options granted during 1996 to
the executive officers listed in the Summary Compensation Table.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration Grant Date
Name Granted (#) Fiscal Year ($/Sh) Date Value ($)
- ------------------------ ------------- ----------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Not
Sam K. Reed............. 225,000 18.3% $ 10.00 May 10, 2006 applicable.
Not
David B. Vermylen....... 52,500 4.3% $ 10.00 May 10, 2006 applicable.
Not
E. Nichol McCully....... 52,500 4.3% $ 10.00 May 10, 2006 applicable.
Not
Jack M. Lotker.......... 52,500 4.3% $ 10.00 May 10, 2006 applicable.
Not
James T. Willard........ 52,500 4.3% $ 10.00 May 10, 2006 applicable.
</TABLE>
The Company has no employment agreement with Mr. Reed. The Company has
entered into severance agreements ("Severance Agreements") with Messrs.
Vermylen, McCully, Lotker and Willard (the "Executives"). The Severance
Agreements provide for a term extending to 1999, which will automatically be
extended for successive one year periods unless either party gives at least 30
days written notice prior to the end of the term of their intent not to renew.
The Company or each Executive may terminate such Executive's employment for any
reason upon thirty days' written notice (other than a termination by the Company
for "Cause" as defined in each Severance Agreement or due to the Executive's
death or Permanent Disability). Each Severance Agreement provides for
continuation of salary and coverage under the Company's health plans for the
balance of the term, but not less than one year, in the event of the termination
of an Executive's employment by the Company without Cause. Mr. Willard's
Severance Agreement provides for certain retirement benefits which take into
account benefits he would have received had he remained in the employ of his
prior employer.
Directors of the Company receive no remuneration for serving as a director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a direct, wholly-owned subsidiary of INFLO. The following
table sets forth certain information regarding the beneficial ownership of INFLO
Common Stock by (i) all persons known by the Company to own beneficially more
than 5% of INFLO's Common Stock, (ii) each director who is a stockholder, (iii)
the Chief Executive Officer and all other executive officers and (iv) all
directors and executive officers as a group.
20
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of
Name and Address of Beneficial Owner Shares Common Stock
- -------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Artal Luxembourg S.A.(1) ........................................... 6,105,469 45.1%
39 Boulevard Royal
Luxembourg City, Luxembourg 2449
Flowers Industries, Inc.(2) ........................................ 6,105,469 45.1%
11796 U.S. Highway 19 South
P.O. Box 1338
Thomasville, Georgia 31792
Bermore Ltd.(3) .................................................... 990,076 7.3%
c/o G.F. Industries, Inc.
999 Baker Way, Suite 200
San Mateo, California 94404
Sam K. Reed......................................................... 100,000(4) 0.7%
David B. Vermylen................................................... 17,500(4) 0.1%
E. Nichol McCully................................................... 17,500(4) 0.1%
Jack M. Lotker...................................................... 17,500(4) 0.1%
James T. Willard.................................................... 17,500(4) 0.1%
All directors and executive officers as a group (consisting of
thirteen persons)................................................. 170,000 1.1%
</TABLE>
- ------------------------
(1) The parent entity of Artal Luxembourg S.A. is Artal Group S.A. ("Artal
Group"), a Luxembourg company. Approximately 45% of the issued and
outstanding capital stock of Artal Group is in the form of bearer shares and
the other 55% of the shares of capital stock is held by Stichting
Administratiekantoor Artal, a foundation organized under Dutch law (the
"Foundation"). The address of the Foundation is The Netherlands,
Zypendaalsweg 25, 6814 CC Arnhem. This Dutch foundation is a pass-through
entity that issues certificates of interest in the foundation to its
beneficial owners. All decisions with respect to the capital stock held by
the Foundation are made by the Foundation's board of directors. The members
of the board of directors of the Foundation are Eric Wittouck, Chairman;
Philippe M.J.B. Guillaume; Mrs. Astrid van der Meerschen-Ullens de Schooten;
Alain E.M. Jolly; Jean-Charles A. Ullens de Schooten; Emile Vogt; Mrs.
Brigitte P. Wittouck; Philippe Ch. J.M.E. Ullens de Schooten; Ravilex Trust
Reg., a legal entity, and Euramagro n.v., a legal entity.
(2) Flowers is currently subject to the periodic reporting and other information
requirements of the Securities Exchange Act of 1934. Flowers' common stock
is listed on the New York Stock Exchange.
(3) Bermore Ltd. is a privately held Bermuda limited company and the parent of
GFI. Bermore owns a warrant to purchase an additional 1,070,352 shares of
INFLO Common Stock which together with Bermore's existing shares would
represent approximately 13.2% of the shares of INFLO Common Stock on a fully
diluted basis.
(4) During 1996, Executive Officers were granted options to purchase INFLO
Common Stock. Options held are as follows: Mr. Reed, 225,000; Mr. Vermylen,
52,500; Mr. McCully, 52,500; Mr. Lotker, 52,500; and Mr. Willard, 52,500.
21
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The financial statements listed in the accompanying Index to Financial
Statements and Financial Statement Schedule are filed as part of this
report on pages F-2 to F-35.
2. The financial statement schedule listed in the accompanying Index to
Financial Statements and Financial Statement Schedule is filed as part of
this report on page S-2.
3. The exhibits listed in the accompanying Index to Exhibits are filed as
part of this Form 10-K unless noted otherwise.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index.
(d) Financial Statement Schedules
See Index to Financial Statements and Financial Statement Schedule at page
F-1.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
KEEBLER CORPORATION
(Registrant)
By: /s/ SAM K. REED
-----------------------------------------
Sam K. Reed
President and Chief Executive Officer
Date: March 28, 1997
</TABLE>
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.
<TABLE>
<S> <C>
/s/ SAM K. REED /s/ RAYMOND DEBBANE
- -------------------------------------- --------------------------------------
Sam K. Reed Raymond Debbane
President and Chief Executive Officer (Director)
(Principal Executive Officer)
Date: March 28, 1997 Date: March 28, 1997
/s/ E. NICHOL MCCULLY /s/ SACHA LAINOVIC
- -------------------------------------- --------------------------------------
E. Nichol McCully Sacha Lainovic
Senior Vice President and Chief (Director)
Financial Officer (Principal Financial
Officer)
Date: March 28, 1997 Date: March 28, 1997
/s/ JAMES T. SPEAR /s/ AMOS R. MCMULLIAN
- -------------------------------------- --------------------------------------
James T. Spear Amos R. McMullian
Vice President Finance and Corporate (Director)
Controller (Chief Accounting Officer)
Date: March 28, 1997 Date: March 28, 1997
/s/ ROBERT P. CROZER /s/ CHRISTOPHER J. SOBECKI
- -------------------------------------- --------------------------------------
Robert P. Crozer Christopher J. Sobecki
(Director) (Director)
Date: March 28, 1997 Date: March 28, 1997
/s/ C. MARTIN WOOD, III
--------------------------------------
C. Martin Wood, III
(Director)
Date: March 28, 1997
</TABLE>
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Keebler Corporation and UB Investments US Inc. and Subsidiaries
<TABLE>
<CAPTION>
Page
---
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants.................................................. F-2
Consolidated Balance Sheets at December 30, 1995 and December 28, 1996............. F-3
Consolidated Statements of Operations for the fifty-two weeks ended December 31,
1994 and December 30, 1995, the four weeks ended January 26, 1996, and the
forty-eight weeks ended December 28, 1996........................................ F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the fifty-two weeks
ended December 31, 1994 and December 30, 1995, the four weeks ended January 26,
1996, and the forty-eight weeks ended December 28, 1996.......................... F-6
Consolidated Statements of Cash Flows for the fifty-two weeks ended December 31,
1994 and December 30, 1995, the four weeks ended January 26, 1996, and the
forty-eight weeks ended December 28, 1996........................................ F-7
Notes to Consolidated Financial Statements......................................... F-8
FINANCIAL STATEMENT SCHEDULE:
Report of Independent Accountants.................................................. S-1
Schedule II--Valuation and Qualifying Accounts..................................... S-2
</TABLE>
Note: The consolidated financial statements of the Company listed in the above
index for Keebler Corporation include the financial statements of the
predecessor company for the years ended December 31, 1994 and December
30, 1995 and the four weeks ended January 26, 1996, the date on which
UBIUS was acquired by INFLO, and the successor company for the
forty-eight weeks ended December 28, 1996. The distinction between the
predecessor company's and successor company's consolidated financial
statements has been made by inserting a double line between such
consolidated financial statements.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of Keebler Corporation
We have audited the accompanying consolidated balance sheet of UB Investments US
Inc. and Subsidiaries as of December 30, 1995 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the fifty-two
week periods ended December 31, 1994 and December 30, 1995 and the four-week
period ended January 26, 1996. We have also audited the accompanying
consolidated balance sheet of Keebler Corporation and Subsidiaries as of
December 28, 1996 and, the related consolidated statement of operations,
shareholders' equity and cash flows for the forty-eight week period then ended.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of UB Investments US
Inc. and Subsidiaries at December 30, 1995 and of Keebler Corporation and
Subsidiaries at December 28, 1996 and the consolidated results of operations and
cash flows of UB Investments US Inc. for the fifty-two week periods ended
December 31, 1994 and December 30, 1995 and the four week period ended January
26, 1996 and the consolidated results of operations and cash flows of Keebler
Corporation for the forty-eight week period ended December 28, 1996 in
conformity with generally accepted accounting principles.
As described in the notes to the consolidated financial statements, in 1994 UB
Investments US Inc. changed its method of accounting for postemployment benefits
and spare machinery and equipment parts.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 28, 1997
F-2
<PAGE>
KEEBLER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
| KEEBLER
UBIUS | CORPORATION
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
ASSETS |
<S> <C> | <C>
CURRENT ASSETS: |
Cash and cash equivalents.................................. $ 2,978 | $ 11,404
Trade accounts and notes receivable, net................... 117,293 | 137,150
Recoverable income taxes................................... 1,791 | --
Receivables from affiliates................................ 8,073 | --
Inventories, net: |
Raw materials............................................ 10,646 | 25,296
Package materials........................................ 11,053 | 9,842
Finished goods........................................... 45,517 | 76,054
Other.................................................... 892 | 1,473
-------------| ---------------
68,108 | 112,665
|
Deferred income taxes...................................... 35,694 | 55,929
Other...................................................... 33,417 | 19,337
-------------| ---------------
Total current assets..................................... 267,354 | 336,485
|
PROPERTY, PLANT, AND EQUIPMENT, NET.......................... 392,727 | 486,080
|
TRADEMARKS AND TRADENAMES, NET............................... -- | 158,033
|
GOODWILL, NET................................................ 74,977 | 48,280
|
PREPAID PENSION.............................................. 23,836 | 43,359
|
NOTES RECEIVABLE FROM AFFILIATE.............................. 125,000 | --
|
ASSETS HELD FOR SALE......................................... 38,950 | 6,785
|
OTHER ASSETS................................................. 4,042 | 22,502
-------------| ---------------
Total assets............................................. $ 926,886 | $ 1,101,524
-------------| ---------------
-------------| ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
KEEBLER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
| KEEBLER
UBIUS | CORPORATION
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY |
<S> <C> | <C>
CURRENT LIABILITIES: |
Commercial paper and revolving credit facilities........... $ 284,000 | $ --
Current maturities of long-term debt....................... 2,475 | 18,570
Trade accounts payable..................................... 51,877 | 96,754
Other liabilities and accruals............................. 123,719 | 186,586
Restructuring reserves..................................... 38,168 | --
Plant and facility closing costs and severance............. -- | 19,860
Accounts payable to affiliate.............................. 3,016 | --
-------------| ---------------
Total current liabilities................................ 503,255 | 321,770
|
LONG-TERM DEBT............................................... 151,153 | 412,705
|
NOTES PAYABLE TO AFFILIATE................................... 105,000 | --
OTHER LIABILITIES: |
Deferred income taxes...................................... 43,806 | 64,957
Postretirement/postemployment obligations.................. 44,603 | 56,382
Plant and facility closing costs and severance............. -- | 16,124
Deferred compensation...................................... 16,281 | 18,205
Other...................................................... 11,031 | 20,708
-------------| ---------------
Total other liabilities.................................. 115,721 | 176,376
COMMITMENTS AND CONTINGENCIES |
SHAREHOLDERS' EQUITY: |
Common stock ($1 par value; |
1,000,000 shares authorized and issued).................. 1,000 | 1,000
Additional paid-in capital................................. 745,000 | 172,568
Retained earnings (deficit)................................ (694,243)| 17,105
-------------| ---------------
Total shareholders' equity............................... 51,757 | 190,673
-------------| ---------------
Total liabilities and shareholders' equity............... $ 926,886 | $ 1,101,524
-------------| ---------------
-------------| ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
KEEBLER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UBIUS |
---------------------------------------------------| KEEBLER CORPORATION
Fifty-Two Fifty-Two Four | -------------------
Weeks Ended Weeks Ended Weeks Ended | FORTY-EIGHT
December 31, December 30, January 26, | WEEKS ENDED
1994 1995 1996 | DECEMBER 28, 1996
---------------- ---------------- ---------------| -------------------
NET SALES........................ $1,599,675 $1,578,601 $ 101,656 | $ 1,645,532
<S> <C> <C> <C> | <C>
COSTS AND EXPENSES: |
Cost of sales.................. 705,464 746,754 54,870 | 774,198
Selling, marketing, and |
administrative expenses...... 845,704 884,591 71,427 | 794,837
Loss on impairment of Salty |
Snacks business.............. -- 86,516 -- | --
Other.......................... 2,115 (1,363) 857 | 6,347
---------------- ---------------- ---------------| -------------------
INCOME (LOSS) FROM OPERATIONS.... 46,392 (137,897) (25,498) | 70,150
|
p Interest (income) from |
affiliates................... (11,385) (11,376) (875) | --
Interest (income).............. (118) (151) (3) | (450)
Interest expense to |
affiliates................... 65,195 11,802 664 | --
Interest expense............... 20,751 27,976 98 | 36,679
---------------- ---------------- ---------------| -------------------
INTEREST EXPENSE (INCOME), NET... 74,443 28,251 (116) | 36,229
---------------- ---------------- ---------------| -------------------
INCOME (LOSS) FROM CONTINUING |
OPERATIONS BEFORE INCOME TAX |
EXPENSE (BENEFIT).............. (28,051) (166,148) (25,382) | 33,921
Income tax expense |
(benefit).................. (1,134) (459) -- | 14,891
---------------- ---------------- ---------------| -------------------
INCOME (LOSS) FROM CONTINUING |
OPERATIONS BEFORE EXTRAORDINARY |
ITEM AND CUMULATIVE EFFECT OF |
ACCOUNTING CHANGES............. (26,917) (165,689) (25,382) | 19,030
DISCONTINUED OPERATIONS: |
Income from operations of |
discontinued Frozen Food |
businesses, net of tax....... 3,362 7,344 -- | --
Gain on disposal of Frozen Food |
businesses, net of tax....... -- -- 18,910 | --
---------------- ---------------- ---------------| -------------------
INCOME (LOSS) BEFORE |
EXTRAORDINARY ITEM AND |
CUMULATIVE EFFECT OF ACCOUNTING |
CHANGES........................ (23,555) (158,345) (6,472) | 19,030
EXTRAORDINARY ITEM: |
Loss on early extinguishment of |
debt, net of tax............. -- -- -- | 1,925
---------------- ---------------- ---------------| -------------------
INCOME (LOSS) BEFORE CUMULATIVE |
EFFECT OF ACCOUNTING CHANGES... (23,555) (158,345) (6,472) | 17,105
Cumulative effect of accounting |
changes, net of tax.......... 535 -- -- | --
---------------- ---------------- ---------------| -------------------
NET INCOME (LOSS)................ $ (23,020) $ (158,345) $ (6,472) | $ 17,105
---------------- ---------------- ---------------| -------------------
---------------- ---------------- ---------------| -------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
KEEBLER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 (UBIUS)........ $ 1,000 $ -- $ (512,878) $ (511,878)
Net loss................................ -- -- (23,020) (23,020)
Capital contribution from UB Investments
(Netherlands) B.V..................... -- 300,000 -- 300,000
--------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1994 (UBIUS)...... 1,000 300,000 (535,898) (234,898)
Net loss................................ -- -- (158,345) (158,345)
Capital contribution from UB Investments
(Netherlands) B.V..................... -- 445,000 -- 445,000
--------- ----------- ----------- -----------
BALANCE AT DECEMBER 30, 1995 (UBIUS)...... 1,000 745,000 (694,243) 51,757
Net loss for the four weeks............. -- -- (6,472) (6,472)
--------- ----------- ----------- -----------
BALANCE AT JANUARY 26, 1996 (UBIUS)....... 1,000 745,000 (700,715) 45,285
Write-off of Predecessor Company
equity................................ (1,000) (745,000) 700,715 (45,285)
Purchase of Keebler Corporation by INFLO
Holdings Corporation effective January
26, 1996.............................. 1,000 148,418 -- 149,418
Issuance of INFLO common stock and
warrants to GFI....................... -- 23,600 -- 23,600
Captial contribution from INFLO Holdings
Corporation........................... -- 550 -- 550
Net income for the forty-eight weeks.... -- -- 17,105 17,105
--------- ----------- ----------- -----------
BALANCE AT DECEMBER 28, 1996
(KEEBLER CORPORATION)................... $ 1,000 $ 172,568 $ 17,105 $ 190,673
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
KEEBLER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
| KEEBLER
UBIUS | CORPORATION
----------------------------------------| -------------
Fifty-Two Fifty-Two Four Weeks | FORTY-EIGHT
Weeks Ended Weeks Ended Ended | WEEKS ENDED
December 31, December 30, January 26, | DECEMBER 28,
1994 1995 1996 | 1996
------------ ------------ ------------| -------------
CASH FLOWS PROVIDED FROM (USED BY) OPERATING |
ACTIVITIES |
<S> <C> <C> <C> | <C>
Net income (loss)............................... $ (23,020) $ (158,345) $ (6,472)| $ 17,105
Adjustments to reconcile net income (loss) to |
cash from operating activities: |
Depreciation and amortization................. 46,642 47,361 1,973 | 49,461
Deferred income taxes......................... 2,057 (1,985) -- | 13,143
Loss on impairment of the Salty Snacks |
business, |
net of tax.................................. -- 86,516 -- | --
Gain on the disposal of the Frozen Food |
businesses, |
net of tax.................................. -- -- (18,910)| --
Loss on early extinguishment of debt, net of |
tax......................................... -- -- -- | 1,925
Cumulative effect of accounting changes, net |
of tax...................................... (535) -- -- | --
Changes in assets and liabilities: |
Trade accounts and notes receivable, net...... 6,673 (11,716) 22,068 | 3,842
Accounts receivables/payables from affiliates, |
net......................................... (20,303) (4,737) (1,941)| --
Inventories, net.............................. (4,389) 6,605 4,353 | (9,809)
Recoverable income taxes and income taxes |
payable..................................... 22,137 (1,304) 25 | --
Other current assets.......................... (4,693) 3,772 1,192 | 1,644
Deferred debt issue costs..................... -- -- -- | (8,032)
Trade accounts payable and other current |
liabilities................................. (2,200) (13,304) 11,550 | 25,798
Restructuring reserves........................ (42,262) (24,122) (14,469)| --
Plant and facility closing costs and |
severance................................... -- -- -- | (41,279)
Other, net...................................... 2,525 9,702 246 | (553)
------------ ------------ ------------| -------------
Cash provided from (used by) operating |
activities................................ (17,368) (61,557) (385)| 53,245
|
CASH FLOWS (USED BY) PROVIDED FROM INVESTING |
ACTIVITIES |
Capital expenditures............................ (56,016) (55,386) (3,228)| (29,352)
Proceeds from property disposals................ 8,928 2,956 -- | 8,908
Disposition of Frozen Food businesses........... -- -- 67,749 | --
Working capital adjustment paid by UB Investment |
(Netherlands) B.V............................. -- -- -- | 32,609
Purchase of Sunshine Biscuits, Inc., net of cash |
acquired...................................... -- -- -- | (142,670)
Other........................................... 1,204 -- -- | --
------------ ------------ ------------| -------------
Cash (used by) provided from investing |
activities................................ (45,884) (52,430) 64,521 | (130,505)
|
CASH FLOWS (USED BY) PROVIDED FROM FINANCING |
ACTIVITIES |
Capital contributions........................... 300,000 445,000 -- | 550
Reduction of notes payable to affiliate......... (300,000) (445,000) -- | --
Long-term debt borrowings....................... -- -- -- | 220,000
Long-term debt repayments....................... (6,894) (30,078) (2,377)| (134,000)
Commercial paper and revolving credit |
facilities, net............................... 76,300 134,500 (63,300)| --
------------ ------------ ------------| -------------
Cash (used by) provided from financing |
activities.................................. 69,406 104,422 (65,677)| 86,550
------------ ------------ ------------| -------------
Increase (decrease) in cash and cash |
equivalents................................. 6,154 (9,565) (1,541)| 9,290
Cash and cash equivalents at beginning of |
period...................................... 6,389 12,543 2,978 | 2,114
------------ ------------ ------------| -------------
Cash and cash equivalents at end of period.... $ 12,543 $ 2,978 $ 1,437 | $ 11,404
------------ ------------ ------------| -------------
------------ ------------ ------------| -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY INCLUDE THE FINANCIAL
STATEMENTS OF THE PREDECESSOR COMPANY FOR THE YEARS ENDED DECEMBER 31, 1994 AND
DECEMBER 30, 1995 AND THE FOUR WEEK PERIOD ENDED JANUARY 26, 1996, THE DATE ON
WHICH UBIUS WAS ACQUIRED BY INFLO, AND THE SUCCESSOR COMPANY FOR THE FORTY-EIGHT
WEEK PERIOD ENDED DECEMBER 28, 1996. THE DISTINCTION BETWEEN THE PREDECESSOR
COMPANY AND SUCCESSOR COMPANY CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN MADE BY
INSERTING A DOUBLE LINE BETWEEN SUCH CONSOLIDATED FINANCIAL STATEMENTS AND
RELATED FOOTNOTES.
1. BASIS OF PRESENTATION
BUSINESS AND OWNERSHIP
Keebler Corporation ("the Company", "successor company"), a manufacturer and
distributor of food products, is a wholly-owned subsidiary of INFLO Holdings
Corporation ("INFLO"). INFLO is owned by Artal Luxembourg S. A. ("Artal"), a
private investment company, Flowers Industries, Inc. ("Flowers"), a New York
Stock Exchange-listed company, G.F. Industries, Inc. ("GFI"), a privately held
corporation headquartered in San Mateo, California, and certain members of the
Company's current management. Keebler Corporation is comprised of the following
wholly-owned subsidiaries: Keebler Company, Emerald Industries, Inc., Athens
Packaging, Inc., Shaffer, Clarke & Co., Inc., Bake-Line Products, Inc.,
Johnston's Ready Crust Company, Sunshine Biscuits, Inc., and Keebler Leasing
Corp.
The Company, formally UB Investments US Inc. ("UBIUS", "predecessor company"),
had previously been owned by UB Investments (Netherlands) B.V., a Dutch Company
(See Note 4). UB Investments (Netherlands) B.V. is a member of the worldwide
group of affiliated companies owned by United Biscuits (Holdings) plc., a
publicly held company in the United Kingdom.
FISCAL YEAR
Keebler Corporation's fiscal year consists of thirteen four week periods (52 or
53 weeks) and ends on the Saturday nearest December 31. The acquisition of
Keebler Corporation closed on the last day of the first four week period. As a
result of the acquisition, the 1996 fiscal year consists of the forty-eight
weeks ended December 28, 1996. The 1994 and 1995 fiscal years of the predecessor
company were comprised of 52 weeks.
PRINCIPLES OF CONSOLIDATION
All subsidiaries are wholly-owned and included in the consolidated financial
statements of the Company. Intercompany accounts and transactions have been
eliminated.
F-8
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION (CONTINUED)
GUARANTEES OF NOTES
The subsidiaries of the Company that are not Guarantors of the Company's Senior
Subordinated Notes are inconsequential (which means that the total assets,
revenues, income or equity of such non-guarantors, both individually and on a
combined basis, is less than 3% of the Company's consolidated assets, revenues,
income or equity), individually and in the aggregate, to the consolidated
financial statements of the Company. The Guarantees are full, unconditional, and
joint and several. Separate financial statements of the Guarantors are not
presented because management has determined that they would not be material to
investors in the Senior Subordinated Notes.
RECLASSIFICATIONS
Certain reclassifications of prior years' data have been made to conform with
the current year reporting.
2. ACQUISITION OF KEEBLER CORPORATION BY INFLO HOLDINGS CORPORATION
On January 26, 1996, UB Investments (Netherlands) B.V. sold all the stock of
UBIUS to INFLO. Subsequent to the acquisition, UBIUS changed its name to Keebler
Corporation. The sale specifically excluded the stock of the Frozen Food
businesses as well as the Salty Snacks business conducted by Keebler Company and
other subsidiaries of UBIUS, as well as the UBIUS finance companies of U.B.H.C.,
Inc. and U.B.F.C., Inc., also wholly-owned subsidiaries (See Note 4).
The aggregate gross purchase price of $487.5 million (excluding fees and
expenses paid at closing of approximately $15.3 million) was financed by $125
million in equity from INFLO, $200 million in Senior Term Notes, $125 million in
Increasing Rate Notes, the assumption of $20.3 million in existing senior
indebtedness of the Company and a note payable ("Seller Note") by INFLO to UB
Investments (Netherlands) B.V. for $32.5 million. The Seller Note does not bear
interest until January 26, 1999, and has been accounted for as a capital
contribution to Keebler Corporation at a discounted value of $24.4 million. In
addition, Keebler Corporation, subsequent to the purchase by INFLO, received a
working capital adjustment of $32.6 million from United Biscuits (Netherlands)
B.V. pursuant to the terms of the stock purchase agreement between INFLO and
United Biscuits (Netherlands) B.V.
The acquisition of Keebler Corporation by INFLO has been accounted for as a
purchase. The total purchase price and the fair value of liabilities assumed
have been allocated to the tangible and intangible assets of Keebler Corporation
based on the respective fair values.
F-9
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION OF KEEBLER CORPORATION BY INFLO HOLDINGS CORPORATION (CONTINUED)
The following provides an allocation of the purchase price:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Purchase Price............................................................. $ 487.5
Less: Net book value of assets acquired.................................... 329.5
Less: Asset purchase price allocation
- Working capital receivable from UB (Netherlands) B.V................... $ 32.6
-Inventories............................................................. 4.4
-Deferred income taxes................................................... 11.4
-Property, plant and equipment........................................... 45.7
-Prepaid pension......................................................... 33.1
-Other assets............................................................ (14.2)
-Trademarks and tradenames............................................... 104.0 217.0
---------
Plus: Liability purchase price allocation
-Other current liabilities and accruals.................................. 1.1
-Plant and facility closing costs and severance.......................... 55.3
-Deferred income taxes................................................... 13.8
-Postretirement/postemployment obligations............................... (17.5)
-Other................................................................... 6.3 59.0
--------- ---------
Unallocated excess purchase price over fair value of net assets acquired... $ 0.0
---------
---------
</TABLE>
3. ACQUISITION OF SUNSHINE BISCUITS, INC.
On June 4, 1996, the Company acquired Sunshine Biscuits, Inc. ("Sunshine") from
GFI for an aggregate consideration of $171.7 million (excluding related fees and
expenses paid at closing of approximately $2.2 million). The acquisition of
Sunshine was funded by $150.3 million in cash, of which $36.3 million was
provided by the Company's existing cash sources and $114 million in borrowings
under the Amended and Restated Credit Agreement (See Note 10). In addition,
approximately $23.6 million of INFLO common stock and warrants were issued to
GFI and was accounted for as a capital contribution. These shares and warrants
represent 13.2% of INFLO's common stock on a fully diluted basis.
The acquisition of Sunshine by the Company has been accounted for as a purchase.
The total purchase price and the fair value of liabilities assumed have been
allocated to the tangible and intangible assets of Sunshine
F-10
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF SUNSHINE BISCUITS, INC. (CONTINUED)
based on the respective fair values. The acquisition resulted in goodwill of
$48.8 million, which is being amortized over a 40-year period.
The following provides an allocation of the purchase price:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Purchase Price............................................................. $ 171.7
Less: Net book value of assets acquired.................................... 92.8
Less: Asset purchase price allocation
-Trade accounts receivable............................................... $ 0.3
-Inventories............................................................. 3.6
-Deferred income taxes................................................... 8.4
-Property, plant, and equipment.......................................... 9.5
-Other assets............................................................ (3.8)
-Trademarks and tradenames............................................... 57.0 75.0
---------
Plus: Liability purchase price allocation
-Other current liabilities and accruals.................................. 8.4
-Plant and facility closing costs and severance.......................... 22.1
-Deferred income taxes................................................... (8.3)
-Pension obligation...................................................... 5.0
-Postretirement/postemployment obligations............................... 17.8
-Other................................................................... (0.1) 44.9
--------- ---------
Unallocated excess purchase price over fair value of net assets acquired... $ 48.8
---------
---------
</TABLE>
Results of operations for Sunshine from the June 4, 1996 to December 28, 1996
have been included in the consolidated statements of operations. The following
unaudited pro forma information has been prepared assuming the acquisition had
taken place at January 1, 1995. The unaudited pro forma information includes
adjustments for interest expense that would have been incurred to finance the
purchase, additional depreciation of the property, plant, and equipment
acquired, and amortization of the trademarks, tradenames, and goodwill arising
from the acquisition. The unaudited pro forma consolidated results of operations
is not
F-11
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF SUNSHINE BISCUITS, INC. (CONTINUED)
necessarily indicative of the results that would have been had the acquisition
been effected on the assumed dates.
<TABLE>
<CAPTION>
-Unaudited-
For the Year Ended
----------------------------
December 30, December 28,
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net sales............................................. $ 2,213,574 $ 1,979,105
Loss from continuing operations before income taxes... $ (241,323) $ (8,652)
Net loss.............................................. $ (253,924) $ (5,440)
</TABLE>
4. PREDECESSOR COMPANY
UBIUS, the predecessor company to Keebler Corporation, was formed in 1992 as a
result of the legal restructuring of United Biscuit (Holdings) plc.'s operations
in the United States. UBIUS received the stock of the subsidiaries in exchange
for the $850 million in debt with UB Investments (Netherlands) B.V. as well as
all of the capital stock of UBIUS.
On May 20, 1995, the predecessor company adopted plans to sell the Salty Snacks
business. On January 24, 1996, the predecessor company sold to Kelly Food
Products, Inc. selected assets of the Salty Snacks business including the
production plant in Bluffton, Indiana, trademarks and other intangibles related
to the business, inventory and property, plant and equipment including selected
assets related to the convenience sales division.
During July, 1995, the predecessor company adopted plans to discontinue the
operations of its Frozen Food businesses. On January 9, 1996, UB Investments
(Netherlands) B.V. sold the assets and stock of Bernardi Italian Foods Co., The
Original Chili Bowl, Inc., Chinese Food Processing Corporation (wholly-owned
subsidiaries collectively known as the Frozen Food businesses) and certain
assets of Keebler Company to Windsor Food Company Ltd. The sale was effective as
of December 31, 1995.
On December 5, 1995, Shaffer, Clarke & Co., Inc. ("Shaffer, Clarke"), a
wholly-owned subsidiary, sold certain assets related Shaffer, Clarke's KA-ME
business to Liberty Richter, Inc. for a gain of $2.6 million. These assets
included inventory, contractual rights, and other intellectual property.
F-12
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
All highly liquid instruments purchased with an original maturity of three
months or less are classified as cash equivalents. The carrying amount of cash
equivalents approximates fair value due to the relatively short maturity of
these investments.
TRADE ACCOUNTS RECEIVABLE
Substantially all of the Company's trade accounts receivable are from retail
dealers and wholesale distributors. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Trade accounts receivable, as shown on the consolidated balance
sheets, were net of allowances of $3.6 million as of December 30, 1995 and $5.4
million as of December 28, 1996.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
principally by the last-in, first-out ("LIFO") method. Inventories stated under
the LIFO method represent approximately 84% of total inventories in 1995 and 91%
of total inventories in 1996. Because the Company has adopted a natural business
unit single pool approach to determining LIFO inventory cost, classification of
the LIFO reserve by inventory component is impractical. The excess of the
current production cost of inventories over LIFO cost was approximately $17.6
million at December 30, 1995. There was no reserve required at December 28, 1996
to state inventory on a LIFO basis.
At December 30, 1995 and December 28, 1996, inventories are shown net of an
allowance for slow-moving and aged inventory of $0.6 million and $5.5 million,
respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost at December 30, 1995. Property,
plant and equipment was adjusted to fair market value due to the acquisition of
Keebler Corporation and Sunshine. Depreciation expense is computed using the
straight-line method based on the estimated useful lives of the depreciable
assets. Certain facilities and equipment held under capital leases are
classified as property, plant, and equipment and amortized using the
straight-line method over the lease terms, and the related obligations are
recorded as liabilities. Lease amortization is included in depreciation expense.
F-13
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRADEMARKS AND TRADENAMES
Trademarks and tradenames are amortized on a straight-line basis over a period
of 40 years. Accumulated amortization of trademarks and tradenames was $0.1
million and $3.1 million as of December 30, 1995 and December 28, 1996,
respectively.
GOODWILL
Goodwill shown in the consolidated financial statements at December 30, 1995
related to the of excess cost over the fair value of tangible net assets
acquired in the purchases of Johnson Ready Crust, Bake-Line Products, Inc., and
the Frozen Food businesses. At December 28, 1996, goodwill reflects the excess
cost over the fair value of the tangible net assets acquired from the Sunshine
purchase. Goodwill is amortized on a straight-line basis over a period of 40
years. Accumulated amortization of goodwill was $31.4 million and $0.5 million
as of December 30, 1995 and December 28, 1996, respectively.
RESEARCH AND DEVELOPMENT
Activities related to new product development and major improvements to existing
products and processes are expensed as incurred and were $15.1 million in 1994,
$14.5 million in 1995, $0.6 million for the four weeks ended January 26, 1996
and $4.3 million for the forty-eight weeks ended December 28, 1996.
ADVERTISING AND CONSUMER PROMOTION
Advertising and consumer promotion costs are generally expensed when incurred.
Production costs for advertising are deferred until the first run of the
advertisement. There were no deferred advertising costs at December 30, 1995 and
December 28, 1996. Advertising and consumer promotion expense was $72.3 million
in 1994, $87.9 million in 1995, $5.1 million for the four weeks ended January
26, 1996 and $33.3 million for the forty-eight weeks ended December 28, 1996.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into derivative financial transactions to hedge existing or
future exposures to changes in commodity prices. The Company does not enter into
derivative transactions for speculative purposes. Gains and losses on commodity
futures and options transactions are deferred until the contracts are liquidated
(See Note 21).
F-14
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The consolidated financial statements reflect the application of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting For Income Taxes".
The Company files a consolidated federal income tax return.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of any
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.
6. CHANGES IN ACCOUNTING POLICIES
Effective January 2, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". The Company recorded a $4 million
pre-tax obligation as a cumulative effect of accounting change, resulting in an
after-tax charge of $2.5 million. Prior to this date, these expenses were
recognized on a pay-as-you-go basis.
As of December 31, 1994, the Company adopted a policy of capitalizing spare
machinery and equipment parts. Previously, spare machinery and equipment parts
were expensed when purchased. The new policy was adopted in order to bring the
Company in conformity with the predecessor company guidelines and to match the
cost with the associated benefit of these supplies. Expense is recognized as the
parts are used. Adoption of the new policy resulted in a pre-tax benefit of $5
million, $3 million net of income tax.
F-15
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment, including related accumulated
depreciation follows:
<TABLE>
<CAPTION>
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
(IN THOUSANDS)
<S> <C> | <C>
Land................................................ $ 12,899 | $ 16,344
Buildings........................................... 156,200 | 126,824
Machinery and equipment............................. 531,007 | 301,588
Office furniture and fixtures....................... 49,620 | 54,985
Delivery equipment.................................. 6,150 | 6,785
Construction in progress............................ 37,264 | 23,980
-------------| ---------------
793,140 | 530,506
Accumulated depreciation............................ (400,413)| (44,426)
-------------| ---------------
$ 392,727 | $ 486,080
-------------| ---------------
-------------| ---------------
</TABLE>
Property, plant and equipment is depreciated on a straight-line basis over the
estimated useful lives of the depreciable assets. Buildings are depreciated over
a useful life of ten to forty years. Machinery and equipment is depreciated over
a useful life of eight to twenty-five years. Office furniture and fixtures are
depreciated over useful lives of five to fifteen years. Delivery equipment is
depreciated over a twelve year life.
8. ASSETS HELD FOR SALE
During 1995, the predecessor company adopted plans to sell the Salty Snacks
business. The decision to sell the Salty Snacks business was based on the
overcapacity in a highly competitive industry. Late in 1995, it was determined
that the predecessor company would not be able to sell the three operating Salty
Snack plants as a single unit. A buyer was found for selected assets, which
included the production plant in Bluffton, Indiana. The remaining production
plants were closed down. The aggregate carrying amount of the net assets held
for sale was $116.5 million. The assets held for sale primarily included
inventory and property, plant, and equipment. The predecessor company recorded
an impairment loss of $86.5 million for the expected costs associated with
exiting the Salty Snacks business. The charge was comprised of $77.6 million
related to the write-down of the net assets to their net realizable value of
$38.9 million. In addition, $8.9 million was recorded for the estimated
severance and other costs associated with the liquidation of the Salty Snacks
business. The $38.9 million of Salty Snack assets held for sale were not
included on the net assets acquired by the Company as part of the acquisition.
F-16
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ASSETS HELD FOR SALE (CONTINUED)
Since the acquisition of Keebler Corporation, management has executed a
strategic plan to reduce inefficiencies. In June 1996, the Company, in an effort
to reduce excess capacity, closed the manufacturing facility in Atlanta,
Georgia. At December 28, 1996, the estimated fair value of land and buildings
held for sale was $3.2 million, net of $0.3 million for selling costs.
Similarly, after the acquisition of Sunshine, management decided to close the
production plant in Santa Fe Springs, California due to overcapacity. The fair
market value of land and buildings held for sale at December 28, 1996 was $3.6
million. The disposal of the Atlanta and Santa Fe Springs manufacturing
facilities is expected to occur before the end of 1997.
9. OTHER CURRENT LIABILITIES AND ACCRUALS
Other current liabilities and accruals consisted of the following at December
30, 1995 and December 28, 1996:
<TABLE>
<CAPTION>
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
(IN THOUSANDS)
<S> <C> | <C>
Self insurance reserves............................. $ 53,737 | $ 58,527
Employee compensation............................... 28,364 | 42,555
Marketing and consumer promotions................... 28,618 | 45,892
Taxes, other than income............................ 7,196 | 10,555
Interest............................................ 2,751 | 9,887
Postretirement/Postemployment benefit obligation.... 2,816 | 5,523
Reclamations........................................ -- | 4,321
Other............................................... 237 | 9,326
-------------| ---------------
$ 123,719 | $ 186,586
-------------| ---------------
-------------| ---------------
</TABLE>
The Company obtains insurance to manage potential losses and liabilities related
to worker's compensation, health and welfare claims, and general product and
vehicle liability. The Company has elected to retain a significant portion of
the expected losses through the use of deductibles and stop-loss limitations.
Provisions for losses expected under these programs are recorded based on the
Company's estimates of aggregate liability for claims incurred. These estimates
utilize the Company's prior experience and actuarial assumptions provided by the
Company's insurance carrier. The total estimated liability for these losses at
December 30, 1995 and December 28, 1996 was $53.7 million and $58.5 million,
respectively, and is included in
F-17
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. OTHER CURRENT LIABILITIES AND ACCRUALS (CONTINUED)
other current liabilities and accruals. The Company has secured its liability
for potential workers' compensation claims in several states by obtaining
standby letters of credit which aggregate to approximately $17 million.
10. DEBT AND LEASE COMMITMENTS
Long-term debt consisted of the following at December 30, 1995 and December 28,
1996:
<TABLE>
<CAPTION>
December 30, DECEMBER 28,
Interest Rate Final Maturity 1995 1996
------------- ---------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Term-A Loans................ 7.380-7.875% January 31, 2002 $ -- $ 132,875
Term-B Loans................ 7.880-8.375% July 31, 2003 -- 89,400
Term-C Loans................ 8.130-8.625% July 31, 2004 -- 64,575
Senior Subordinated Notes... 10.750% July 1, 2006 -- 125,000
Other Senior Debt........... various 2001-2005 16,416 14,290
Private Placement Notes..... 9.000% May 1, 2001 125,000 --
Capital Lease Obligations... various 1997-2008 6,800 5,135
Other....................... 5,412 --
------------- ---------------
153,628 431,275
Less: Current maturities.... 2,475 18,570
------------- ---------------
$ 151,153 $ 412,705
------------- ---------------
------------- ---------------
</TABLE>
The Company's primary credit financing as of December 28, 1996 was provided by a
$447.9 million. Amended and Restated Credit Agreement ("Credit Agreement")
consisting of a $155 million Revolving Loan facility and three Term Loans (Term
Loans A, B and C) of which the current outstanding balance aggregates to $286.9
million. Interest on the Revolving Loans and Term Loans is calculated based on a
Base Rate plus applicable margin. The Base Rate can, at the Company's option, be
1) the higher of the base domestic rate as established by the Administrative
Agent for the Lenders under the Credit Agreement, or the Federal Funds Rate plus
one-half of one-percent, or 2) a reserve percentage adjusted LIBO Rate as
offered by the Administrative Agent's office in London. Base Rate loan interest
rates fluctuate immediately based upon a change in the established Base Rate by
the Administrative Agent. The Credit Agreement requires the Company to meet
certain financial covenants including net worth; earnings before interest,
taxes, depreciation and amortization; and cash flow and interest coverage
ratios.
F-18
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DEBT AND LEASE COMMITMENTS (CONTINUED)
As of December 28, 1996, the Company had a Revolving Loan facility with an
available balance of $155 million. Actual available borrowings under the
Revolving Loan facility can be reduced by the level of qualifying working
capital as defined in the Company's Amended and Restated Credit Agreement. This
gross available balance is further reduced by certain letters of credit totaling
$10.9 million and outstanding borrowings. There were no amounts outstanding
under this facility as of December 28, 1996.
Any unused borrowings under the Revolving Loan facility are subject to a
commitment fee, which will vary from 0.25% - 0.5% based on the relationship of
debt to adjusted earnings.
On January 30, 1996, the Company entered into a swap transaction with the Bank
of Nova Scotia, who also serves as the Administrative Agent for the Lenders
under the Credit Agreement. The swap transaction had the effect of converting
the base rate on $170 million of the Term Loans to a fixed rate obligation of
5.0185% plus applicable margin through February 1, 1999. The maturity date on
the swap transaction can be extended to February 1, 2001 at the option of the
Bank of Nova Scotia on January 28, 1999.
The Increasing Rate Notes issued to finance the acquisition of Keebler
Corporation were repaid in June 1996 with the proceeds from a private placement
offering for new 10.75% Senior Subordinated Notes due 2006 ("the Private
Notes"). The Company recorded a before-tax extraordinary loss of $3.2 million on
the early extinguishment of the Increasing Rate Notes. The loss consists
primarily of bank fees incurred at the time the Increasing Rate Notes were
issued. The after-tax loss was $1.9 million.
On October 23, 1996, pursuant to an exchange and registration rights agreement,
the Company registered its 10.75% Senior Subordinated Notes due 2006 ("the
Notes") under the Securities Act of 1933 in exchange for the Private Notes. The
Notes were issued under an indenture dated June 15, 1996 between the Company,
the Company's Restricted Subsidiaries (as defined in the indenture), and the
U.S. Trust Company of New York, as trustee. The Notes are unsecured senior
subordinated obligations of the Company guaranteed by the Restricted
Subsidiaries. Interest on the Notes will be paid semi-annually on January 1 and
July 1 of each year, commencing January 1, 1997. At the Company's option, up to
35.0% of the aggregate original principal of the Notes can be redeemed at a
redemption price of 110.0% on or prior to July 1, 1999 following a public equity
offering.
In 1995, the predecessor company maintained a commercial paper program in the
United States supported by a line of credit agreement which was guaranteed by
United Biscuits (Holdings) plc. The line of credit agreement totaled $200
million as of December 30, 1995. The agreement could be canceled at any time.
The commercial paper had a weighted average interest rate of 5.9% during 1995.
The interest rate was 6.1% for
F-19
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DEBT AND LEASE COMMITMENTS (CONTINUED)
year-end 1995. The predecessor company had $184 million of outstanding
borrowings under this program as of December 30, 1995.
Furthermore, during 1995, the predecessor company, along with other United
Biscuits (Holdings) plc. affiliated companies, had access to a revolving credit
agreement in Europe which was guaranteed by United Biscuits (Holdings) plc.
Available borrowings under this agreement were limited by total United Biscuits
(Holdings) plc. borrowings. Maximum borrowings available under this agreement
were $300 million as of year-end 1995. This agreement had a weighted average
interest rate of 6.2% during 1995. The interest rate at year-end was 6.0% for
1995. The predecessor company had $100 million of outstanding borrowings under
this program as of December 30, 1995.
During 1995, the predecessor company prepaid $25.1 million of long-term debt.
Interest of $111.1 million, $37.6 million, $3.8 million, and $25.2 million was
paid on debt, including notes payable to affiliates (see Note 11), for the years
ended December 31, 1994 and December 30, 1995, the four weeks ended January 26,
1996, and the forty-eight weeks ended December 28, 1996, respectively.
Aggregate scheduled annual maturities of long-term debt as of December 28, 1996
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997.............................................. $ 18,570
1998.............................................. 22,940
1999.............................................. 29,175
2000.............................................. 33,865
2001.............................................. 42,255
2002 and thereafter............................... 284,470
--------------
$ 431,275
--------------
--------------
</TABLE>
F-20
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DEBT AND LEASE COMMITMENTS (CONTINUED)
Assets recorded under capitalized lease agreements and equipment purchase
obligations included in property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
(IN THOUSANDS)
<S> <C> | <C>
Land....................................... $ 1,246 | $ 1,209
Buildings.................................. 8,700 | 2,881
Machinery and equipment.................... 21,424 | 6,361
Other leased assets........................ 1,213 | 259
-------------| ---------------
32,583 | 10,710
Accumulated amortization................... (21,397) | (1,000)
-------------| ---------------
$ 11,186 | $ 9,710
-------------| ---------------
-------------| ---------------
</TABLE>
Future minimum lease payments under scheduled capital and operating leases that
have initial or remaining noncancellable terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
1997.................................................. $ 238 $ 23,858
1998.................................................. 258 19,375
1999.................................................. 278 16,567
2000.................................................. 349 14,523
2001.................................................. 366 11,924
2002 and thereafter................................... 5,813 30,753
--------- -----------
Total minimum payments................................ 7,302 $ 117,000
-----------
-----------
Amount representing interest.......................... (2,167)
---------
Obligations under capital lease....................... 5,135
Obligations due within one year....................... (25)
---------
Long-term obligations under capital leases............ $ 5,110
---------
---------
</TABLE>
F-21
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DEBT AND LEASE COMMITMENTS (CONTINUED)
Rent expense for all operating leases was $38.8 million, $37.4 million, $2.7
million and $30.1 million for the years ended December 31, 1994 and December 30,
1995, the four weeks ended January 26, 1996, and the forty-eight weeks ended
December 28, 1996, respectively.
11. NOTES RECEIVABLE AND PAYABLE TO AFFILIATE
At December 31, 1995, U.B.H.C., Inc. held $125 million in notes receivable from
UB Investments plc., an affiliated entity of United Biscuits (Holdings) plc.
These notes, which carried an interest rate of 9%, represented unsecured
obligations of UB Investments plc. and were due May 1, 2001. The note receivable
was settled as of the acquisition of Keebler Corporation.
As part of the 1992 reorganization of United Biscuits (Holdings) plc. operations
in the United States, UBIUS had received the stock of its subsidiaries in
exchange for two notes payable. There was a $300 million note payable to UB
Investments, plc. which carried an interest rate of 9.75% due on September 20,
2002 and a $550 million note payable due to UB Investments, plc. with a 8.24%
rate of interest due in seven annual installments with the final installment due
on September 20, 1999.
On September 7, 1994, the predecessor company received a capital contribution of
$300 million from U.B. Investments (Netherlands) B.V. and used the capital
contribution to repay the $300 million note. On February 1, 1995, the
predecessor company received a capital contribution of $445 million from U.B.
Investments (Netherlands) B.V. and was used by the predecessor company to make
payments against the $550 million note which would have been due in years 1995,
1996, 1997, 1998 and a portion of the payment due in 1999 leaving one payment
for the balance of $105 million note due September 1999. The remaining note
payable balance was settled as of the acquisition of Keebler Corporation.
12. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE
As part of acquiring Keebler Corporation and Sunshine, management adopted and
began executing a plan to reduce costs and inefficiencies. Certain exit costs
totaling $77.4 million were provided for in the allocation of the purchase price
of both the Keebler Corporation and Sunshine acquisition. Management's plan
included company-wide staff reductions, the closure of manufacturing,
distribution, and sales force facilities, and information system exit costs.
Severance, outplacement, and other related costs associated with staff
reductions were estimated at $30.7 million. Costs incurred related to closing
the Atlanta, Georgia and Santa Fe Springs, California manufacturing facilities,
which include primarily severance and carrying costs, are expected to total
$13.1 million. The carrying and lease termination costs associated with the
closure of distribution and sales force facilities were
F-22
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE (CONTINUED)
estimated at $26.8 million. In addition, the Company expects to incur $6.8
million in lease costs related to exiting legacy information systems. From the
date of acquisition, spending against reserves established totaled $41.4 million
resulting in a balance of $36.0 million at December 28, 1996.
Plans initiated by management are expected to be completed primarily over the
next two years. Only noncancellable contractual lease obligations are expected
to exceed the two year time frame.
13. EMPLOYEE BENEFIT PLANS
The Company maintains a trusteed, noncontributory pension plan covering certain
salaried and hourly-paid employees. Assets held by the plan consist primarily of
common stocks, collective trust funds, government securities, bonds, and
guaranteed insurance contracts. Benefits provided under the defined-benefit
pension plan are primarily based on years of service and the employee's final
level of compensation. The Company's funding policy is to contribute annually
not less than the ERISA minimum funding requirements. Effective September 30,
1996, the Sunshine Biscuits, Inc. Pension Plan was merged with the Retirement
Plan for Salaried and Certain Hourly-Paid Employees of Keebler Company.
Pension expense included the following components:
<TABLE>
<CAPTION>
Four Weeks | FORTY-EIGHT
Year Ended Year Ended Ended | WEEKS ENDED
December 31, December 30, January 26,| DECEMBER 28,
1994 1995 1996 | 1996
------------- ------------- -----------| ---------------
(IN THOUSANDS)
<S> <C> <C> <C> | <C>
Service cost..................... $ 7,888 $ 6,611 $ 599 | $ 7,711
Interest cost.................... 13,374 13,877 1,133 | 21,338
Actual return on plan assets..... (9,295) (43,661) (1,693)| (12,752)
Net amortization of transition |
obligation..................... 616 616 47 | --
Deferral of (gains) losses....... (10,407) 24,468 -- | (15,495)
Prior service cost............... (512) (155) (12)| --
Net gain......................... -- (437) -- | --
------------- ------------- -----------| ---------------
Pension expense.................. $ 1,664 $ 1,319 $ 74 | $ 802
------------- ------------- -----------| ---------------
------------- ------------- -----------| ---------------
</TABLE>
F-23
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the Company's pension plan and amounts recognized in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
(IN THOUSANDS)
<S> <C> | <C>
Actuarial present value of accumulated |
benefit obligation: |
Vested................................... $ (136,131)| $ (366,253)
Nonvested................................ (24,109)| (7,255)
-------------| ---------------
$ (160,240)| $ (373,508)
-------------| ---------------
-------------| ---------------
Projected benefit obligation............... $ (201,267)| $ (408,060)
Plan assets at fair value.................. 241,604 | 464,433
-------------| ---------------
Plan assets greater than projected benefit |
obligation............................... 40,337 | 56,373
Unrecognized transition obligation......... 3,682 | --
Unrecognized prior service................. (1,123)| --
Unrecognized net gain...................... (19,060)| (13,014)
-------------| ---------------
Prepaid pension............................ $ 23,836 | $ 43,359
-------------| ---------------
-------------| ---------------
</TABLE>
Assumptions used in accounting for the defined-benefit pension plan at each of
the respective period-ends are as follows:
<TABLE>
<CAPTION>
| FORTY-EIGHT
Year Ended Year Ended Four Weeks | WEEKS ENDED
December 31, December 30, Ended January | DECEMBER 28,
1994 1995 26, 1996 | 1996
------------- ------------- ------------- |---------------
(IN THOUSANDS)
<S> <C> <C> <C> |<C>
Discount rate.................... 7.75-8.5% 7.5% 7.5% | 7.5%
Rate of compensation level |
increases...................... 4.4-6.0% 4.0%-6.0% 4.0% | 4.0%
Expected long-term rate of return |
on plan assets................. 8.0-10.0% 8.0%-9.0% 10.0% | 8.57%
</TABLE>
F-24
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
As of December 31, 1995, included in plan assets were real estate investments of
$7.2 million in two distribution centers which are under two operating leases to
a subsidiary of UBIUS. The plan assets, as of December 28, 1996, include a real
estate investment of $3.1 million in a distribution center which is under an
operating lease to the Company.
The Company, in addition to the defined-benefit plan, also maintains an unfunded
supplemental retirement plan for certain highly compensated executives. Benefits
provided are based on years of service. Vesting is graduated depending on
termination after age 55.
The supplemental retirement plan expense includes the following components:
<TABLE>
<CAPTION>
Year Ended Year Ended Four Weeks | FORTY-EIGHT WEEKS
December 31, December 30, Ended January| ENDED DECEMBER
1994 1995 26, 1996 | 28, 1996
--------------- --------------- -------------| -----------------
(IN THOUSANDS)
<S> <C> <C> <C> | <C>
Service cost..................... $ 126 $ 452 $ 35 | $ --
Interest cost.................... 710 854 66 | 637
Net amortization of transition |
obligation..................... 110 111 8 | --
Prior service cost............... 134 170 13 | --
------- ------- ----- | ------
Plan expense..................... $ 1,080 $ 1,587 $ 122 | $ 637
------- ------- ----- | ------
------- ------- ----- | ------
</TABLE>
F-25
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The unfunded status of the supplemental retirement plan and the amounts
recognized in the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
(IN THOUSANDS)
<S> <C> | <C>
Actuarial present value of accumulated |
benefit obligation |
Vested................................... $ (11,301) | $ (10,028)
Nonvested................................ -- | --
-------------| ---------------
$ (11,301) | $ (10,028)
-------------| ---------------
-------------| ---------------
Projected benefit obligation............... $ (12,077) | $ (9,890)
Plan assets at fair value.................. -- | --
-------------| ---------------
Projected benefit obligation excess of plan |
assets................................... (12,077) | (9,890)
Unrecognized transition obligation......... 664 | --
Unrecognized prior service cost............ 1,307 | --
Unrecognized net (gain) loss............... 1,732 | (754)
-------------| ---------------
Plan obligation included in other |
liabilities.............................. $ (8,374) | $ (10,644)
-------------| ---------------
-------------| ---------------
</TABLE>
Assumptions used in accounting for the supplemental retirement plan at each of
the respective period-ends are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Four Weeks | FORTY-EIGHT WEEKS
December 31, December 30, Ended January| ENDED DECEMBER
1994 1995 26, 1996 | 28, 1996
--------------- --------------- -------------| -----------------
<S> <C> <C> <C> | <C>
Discount rate.................... 8.5% 7.5% 7.5% | 7.5%
Rate of compensation level |
increase....................... 4.5% 4.0% 4.0% | 4.0%
</TABLE>
Contributions are also made by the Company to a retirement program for Grand
Rapids union employees. Benefits provided under the plan are based on a flat
monthly amount for each year of service and are unrelated to compensation.
Contributions are made based on a negotiated hourly rate. In 1994, 1995, the
F-26
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
four weeks ended January 26, 1996, and the forty-eight weeks ended December 28,
1996, the Company expensed contributions of $2.3 million, $2.5 million, $0.2
million, and $2.3 million, respectively.
The Company contributes to various multiemployer union administered
defined-benefit and defined-contribution pension plans. Benefits provided under
the multiemployer pension plans are generally based on years of service and
employee age. Expense under these plans was $8.7 million, $9.6 million, $0.9
million, and $7.8 million in 1994, 1995, the four weeks ended January 26, 1996
and the forty-eight weeks ended December 28, 1996, respectively.
The Company also offers certain employees participation in the Keebler Company
Salaried Savings Plan, a defined-contribution plan. Prior to July 1, 1995,
certain nonunion employees who met length-of-service requirements could elect to
participate in the plan. Currently, participation in the plan can be elected
immediately. Contributions, made by participants with no company matching, are
based on an elected percentage of the participants' compensation within a
specified range. Expenses incurred by the Company to administer the plan are
nominal.
During 1996, the Company matched a portion of employee contributions to a
defined contribution savings plan for qualified salaried employees of Sunshine.
Contributions made by the Company were not to exceed 6% of gross wages. The
Company also provides a savings plan for certain hourly employees of Sunshine
which provides no matching company contributions. Expenses in 1996 for the plans
were nominal.
A Voluntary Employee Beneficiary Association ("VEBA") provides health and
welfare benefits for certain Sunshine employees. Payments made by the Company to
the VEBA relating to future employee benefits are included in other assets. The
Company's policy is to fund the VEBA based on actual expenses of the preceding
year to the extent deductible under current federal income tax laws. The Company
funded $10 million during the forty-eight weeks ended December 28, 1996.
The Company also makes contributions to a money purchase pension plan for
certain hourly and salaried employees of Bake-Line Products, Inc. Contributions
are based on 4% of employees' annual salary. Expenses paid by the Company to
administer the plan were nominal.
14. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides certain medical and life insurance benefits for eligible
retired employees. The medical plan, which covers nonunion employees with ten or
more years of service, is a comprehensive indemnity-type plan. The plan
incorporates up-front deductible, coinsurance payments, and employee
F-27
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
contributions which are based on length of service. The life insurance plan
offers a small amount of coverage versus the amount the employees had while
employed. The Company does not fund the Plan.
The net periodic postretirement benefit expense includes the following
components:
<TABLE>
<CAPTION>
| FORTY-EIGHT
Year Ended Year Ended Four Weeks | WEEKS ENDED
December 31, December 30, Ended January| DECEMBER 28,
1994 1995 26, 1996 | 1996
------------- ------------- -------------| ---------------
(IN THOUSANDS)
<S> <C> <C> <C> | <C>
Service cost..................... $ 1,669 $ 1,598 $ 123 | $ 2,142
Interest cost.................... 3,015 3,194 246 | 2,729
------------- ------------- ----- | ---------------
Net periodic postretirement |
benefit expense................ $ 4,684 $ 4,792 $ 369 | $ 4,871
------------- ------------- ----- | ---------------
------------- ------------- ----- | ---------------
</TABLE>
The funded status of the plan reconciled to the postretirement obligation in the
Company's consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 30, | DECEMBER 28,
1995 | 1996
------------- ---------------
(IN THOUSANDS)
<S> <C> | <C>
Accumulated postretirement benefit |
obligation: |
Retirees................................. $ (18,914) | $ (33,054)
Fully eligible active participants....... (3,522) | (8,579)
Other active participants................ (19,635) | (11,815)
-------------| ---------------
(42,071) | $ (53,448)
Unrecognized net gain...................... (1,048) | (3,857)
-------------| ---------------
Postretirement obligation.................. $ (43,119) | $ (57,305)
-------------| ---------------
-------------| ---------------
</TABLE>
The accumulated postretirement benefit obligation was determined using a
weighted-average discount rate of 8.5% for the year ended December 31, 1994, and
7.5% for the year ended December 30, 1995, the four weeks ended January 26,
1996, and the forty-eight weeks ended December 28, 1996.
The weighted-average annual assumed rate of increase in the cost of covered
benefits is 7.0% for 1996 declining gradually to an ultimate trend rate of 5.0%
by the year 1999. A 1% increase in the trend rate for
F-28
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
health care costs would have increased the accumulated benefit obligation as of
December 28, 1996 by $3.7 million and the net periodic benefit cost by $0.4
million.
The Company also provides postemployment medical benefits to employees on
long-term disability. The plan is a comprehensive indemnity-type plan which
covers nonunion employees on long-term disability. There is no length of service
requirement. The plan incorporates coinsurance payments and deductibles. The
Company does not fund the plan. The postemployment obligation included in the
consolidated balance sheets at December 30, 1995 and December 28, 1996 was $4.3
million and $4.6 million, respectively.
15. INCOME TAXES
The components of income tax expense (benefit) were as shown below:
<TABLE>
<CAPTION>
Four Weeks | FORTY-EIGHT
Year Ended Year Ended Ended | WEEKS ENDED
December 31, December 30, January 26,| DECEMBER 28,
1994 1995 1996 | 1996
------------- ------------- -----------| ---------------
(IN THOUSANDS)
<S> <C> <C> <C> | <C>
Current: |
Federal........................ $ (1,505) $ 1,526 $ -- | $ --
State.......................... 1,425 -- -- | --
------------- ------------- -----------| ---------------
Current provision (benefit) for |
income taxes................... (80) 1,526 -- | --
------------- ------------- -----------| ---------------
Deferred: |
Federal........................ (11,599) (63,212) 6,490 | 12,256
State.......................... (733) (9,215) 843 | 2,635
Valuation allowance (federal |
and state)................... 11,278 70,442 (7,333)| --
------------- ------------- -----------| ---------------
Deferred provision (benefit) for |
income taxes................... (1,054) (1,985) -- | 14,891
------------- ------------- -----------| ---------------
$ (1,134) $ (459) $ -- | $ 14,891
------------- ------------- -----------| ---------------
------------- ------------- -----------| ---------------
</TABLE>
F-29
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. INCOME TAXES (CONTINUED)
The differences between the income tax expense (benefit) calculated at the
federal statutory income tax rate and the company's consolidated income tax
expense (benefit) are as follows:
<TABLE>
<CAPTION>
| FORTY-EIGHT
Year Ended | WEEKS ENDED
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
(IN THOUSANDS)
<S> <C> | <C>
U.S. federal statutory rate................ $ (64,843) | $ 11,872
State income taxes (net of federal |
benefit)................................. (8,208) | 1,765
Deferred tax asset valuation adjustment.... 70,442 | --
Intangible amortization.................... 828 | 1,268
Non-taxable items.......................... 883 | --
All others................................. 439 | (14)
-------------| ---------------
$ (459) | $ 14,891
-------------| ---------------
-------------| ---------------
</TABLE>
F-30
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. INCOME TAXES (CONTINUED)
The deferred tax assets and deferred tax (liabilities) recorded on the
consolidated balance sheets consist of the following:
<TABLE>
<CAPTION>
December 30, | DECEMBER 28,
1995 | 1996
-------------| ---------------
(IN THOUSANDS)
<S> <C> | <C>
Depreciation............................... $ (92,573)| $ (91,860)
Prepaid pension............................ (9,207)| (17,050)
Capitalized interest....................... (1,010)| --
Inventory valuation........................ -- | (7,073)
Other...................................... (131)| (144)
-------------| ---------------
(102,921)| (116,127)
-------------| ---------------
Net operating loss carryforwards........... 81,922 | 94,659
Restructuring reserves..................... 63,998 | --
Postretirement/postemployment benefits..... 18,755 | 24,997
Workers' compensation...................... 18,375 | 16,703
Plant and facility closing costs and |
severance................................ -- | 14,232
Incentives and deferred compensation....... 10,084 | 11,658
Charitable contributions................... 9,204 | 10,067
Employee benefits.......................... 7,751 | 8,251
Other current assets....................... -- | 3,121
Other...................................... 1,537 | 7,761
-------------| ---------------
211,626 | 191,449
Valuation allowance........................ (116,817)| (84,350)
-------------| ---------------
$ (8,112)| $ (9,028)
-------------| ---------------
-------------| ---------------
</TABLE>
Net operating loss carryforwards total approximately $236 million through 1996
and expire in 2008 through 2011. These carryforwards have been fully reserved as
the realization is not certain.
Income taxes paid (refunded) were approximately $(22.8) million, $2.3 million,
and $1.6 million for the year ended December 31, 1994, December 30, 1995, and
the forty-eight weeks ended December 28, 1996, respectively. There were no taxes
paid or refunded during the four weeks ended January 26, 1996.
F-31
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SHAREHOLDERS' EQUITY
As a result of the Sunshine acquisition, INFLO issued GFI 990,076 shares of
INFLO common stock and a warrant to purchase 1,070,352 shares of INFLO common
stock. The shares of $.01 par value stock were valued at $18.50 per share. The
warrant is exercisable at $18.50 per share over a seven year period, beginning
June 4, 1996 and expiring June 4, 2003. At December 28, 1996, the warrant has
not been exercised. The total value of the stock and warrant held by GFI was
$23.6 million at December 28, 1996.
During the forty-eight weeks ended December 28, 1996, INFLO contributed excess
cash held to the Company resulting in a $0.6 million capital contribution.
17. STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for employee stock options. Under the Company's 1996 Stock Option
Plan 2,000,000 shares of the Company's stock were authorized for future grant.
Options granted to management personnel in 1996 were 1,226,550 shares of the
Company's common stock. All options granted have ten year terms and vest and
become exercisable over five years.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
---------- -------------------
<S> <C> <C>
Outstanding-January 26, 1996............... -- --
Granted.................................... 1,226,550 $ 11.35
Exercised.................................. -- --
Forfeited.................................. 39,900 $ 10.00
Outstanding at December 28, 1996........... 1,186,650 $ 11.02
Exercisable at December 28, 1996........... -- --
</TABLE>
Exercise prices for options as of December 28, 1996 for options outstanding
arising from the May 1996 grant (992,250 options) were $10.00 and for options
outstanding from the December 1996 grant (194,400 options) were $18.50. The
weighted average fair value for options granted in 1996 was $10.70. The weighted
average remaining contractual life of those options is nine years.
Pro forma information regarding net income is required by the SFAS No. 123.
"Accounting for Stock-Based Compensation", and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that Statement. The fair value for these options was estimated at the date of
grant using a present value approach with the following weighted-average
assumptions: risk-free interest rate
F-32
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. STOCK OPTION PLAN (CONTINUED)
of 6.0%; no expected dividend yield; volatility in the expected value of the
Company's common stock accounted for by a discount rate of 20% applied to the
valuation of the Company's stock based upon the present value of future cash
flows discounted at the weight average cost of capital of 19% after tax; and a
weighted-average expected life of the option of five years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income would have been approximately $15.4 million.
18. RESTRUCTURING CHARGE
In 1993, the predecessor company had recorded a operating charge of $122.7
million to restructure operations. In 1995, spending against the restructuring
reserves totaled $24.1 million. Restructuring reserves remaining as of December
30, 1995 were $38.2 million related primarily to future cash costs for
contractual obligations related to streamlining of the sales and distribution
network as well as related information system projects and a reserve to reduce a
manufacturing facility to its net realizable value. At December 28, 1996, there
were no restructuring reserves. The restructuring reserve balance of $38.2
million at December 30, 1995 was not a cost assumed as part of the Keebler
Corporation acquisition.
A summary of the restructuring reserve activity for the time the initial
restructuring reserve was recorded to the acquisition of Keebler Corporation
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Four Weeks
January 1, December 31, December 30, Ended January
1994 1994 1995 26, 1996
------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Beginning balance.................... $ 14.0 $ 104.6 $ 62.3 $ 38.2
Liabilities recorded in connection
with the 1993 acquisition of
Bake-Line Products Inc............. 5.5 -- -- --
Provision for continuing
operations......................... 120.1 -- -- --
Provision for discontinued
operations......................... 2.6 -- -- --
Charges.............................. (19.3) (42.3) (24.1) --
Reclassification of property, plant,
and equipment...................... (18.3) -- -- --
------------- ------- ------ ------
Ending balance....................... $ 104.6 $ 62.3 $ 38.2 $ 38.2
------------- ------- ------ ------
------------- ------- ------ ------
</TABLE>
F-33
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. DISCONTINUED OPERATIONS
During July 1995, the predecessor company adopted plans to discontinue the
operations of the Frozen Food businesses. On January 9, 1996, UB Investments
(Netherlands) B.V. sold the Frozen Food businesses to the Windsor Food Company
Ltd. for $70 million. A gain on sale of $18.9 million was recorded during the
four weeks ended January 26, 1996.
Net sales from these operations were $70.6 million and $70.9 million for the
years ended December 31, 1994 and December 30, 1995. Expenses charged against
discontinued operations include expenses associated with the costs of
production, marketing, and specific administrative expenses. Expenses do not
include an allocation of shared selling, distribution, and general
administrative costs. Income from discontinued operations relating to the Frozen
Food businesses was $3.4 million, net of $3.2 million of tax, for the year ended
December 31, 1994. For the year ended December 30, 1995, income from
discontinued operations was $7.3 million. Income tax expense was not recognized
for discontinued operations in 1995 due to the Company having a net loss on a
consolidated basis. There were no operating activities for the Frozen Food
businesses during the four weeks ended January 26, 1996 as the sale was
effective as of December 31, 1995. The net assets of the Frozen Food businesses
as of December 30, 1995 were $47.7 million. Included in the net assets were
primarily inventory, other current assets, property, plant, and equipment, and
certain current liabilities and accruals.
20. AFFILIATE TRANSACTIONS
In 1995, the predecessor company conducted business with various affiliated
companies that ultimately are under the control of United Biscuits (Holdings)
plc. Transactions with related parties included working capital financing and
the purchase of product for resale in the United States. Receivables from
affiliates and payables to affiliates are summarized in Note 11. Purchases of
product from affiliated companies for resale in the United States were $11.3
million for the year-ended 1995.
On November 30, 1995, Keebler Company sold to UB Group Ltd., ultimately United
Biscuits (Holdings) plc., for a $5 million affiliate receivable, the entire
rights, titles and interests in certain logos, tradenames, trademarks and
service marks registered or pending registration by Keebler Company in
Australia, New Zealand, Asia, and Europe. The proceeds of this transaction were
offset by certain legal fees and registration and licensing costs aggregating
$0.5 million. The net gain on the sale of these trademarks is included in other
costs and expenses for the year-ended December 30, 1995.
Near the end of 1995 and in consideration of completing various pending stock
and asset purchase agreements, as described in Note 4, the predecessor company
entered into several transactions with affiliated companies within United
Biscuits (Holdings) plc. The accompanying consolidated financial
F-34
<PAGE>
KEEBLER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. AFFILIATE TRANSACTIONS (CONTINUED)
statements have not been adjusted to reflect these transactions which are
summarized below, as it is the Company's policy to only give effect to
dispositions resulting in a gain on the completion of the transaction with the
ultimate third party acquirer.
On December 29, 1995, the predecessor company transferred certain assets and the
stock of the Frozen Food businesses to U.B. Investments (Netherlands) B.V. for
promissory notes that aggregated $70 million. On January 9, 1996, U.B.
Investments (Netherlands) B.V. sold both these assets and stock to Windsor Food
Company Ltd. for $70 million, effective December 31, 1995. The aggregate
carrying value of these businesses and assets reflected in the December 30, 1995
consolidated balance sheet is $47.7 million, consisting primarily of goodwill of
$22 million, property, plant and equipment of $21.2 million and inventory of
$7.6 million, which resulted in a pre-tax realized gain, net of a $3.4 million
charge for severance arising from the sale, of $18.9 million for UBIUS.
On December 29, 1995, the predecessor company sold the stock of both U.B.F.C.,
Inc. and U.B.H.C., Inc. to U.B. Investments plc. for $100 each which resulted in
no significant gain or loss.
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments, which includes short and
long-term borrowings, was estimated using discounted cash flow analyses based on
current interest rates which would be obtained for similar financial
instruments. The carrying amounts of these financial instruments approximate
fair value.
The Company often enters into exchange traded commodity futures and options
contracts to protect the Company against a portion of adverse raw material price
movements. Gains or losses realized from the liquidation or expiration of the
contracts are recognized as part of the cost of raw materials. Gains or losses
are deferred until realized. Cost of sales was reduced by gains on futures and
options transactions of $0.6 million in 1994, $3.4 million in 1995, and $0.8
million for the forty-eight weeks ended December 28, 1996. Operations for the
four weeks ended January 26, 1996, was unaffected by gains or losses on futures
and options as the $0.5 million loss was recorded as an adjustment to the
opening balance sheet. As of December 28, 1996, $3.3 million in unrealized
futures contracts losses have been deferred. There were no outstanding options
contracts at December 28, 1996. As of December 28, 1996 the notional amount of
open futures contracts was $45 million.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of Keebler Corporation
Our report on the consolidated financial statements of Keebler Corporation and
Subsidiaries and UB Investments US Inc. and Subsidiaries is included on page F-2
of this Form 10-K. In connection with our audits of such financial statements,
we have also audited the related financial statement schedule listed in the
index on page F-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 28, 1997
S-1
<PAGE>
ITEM 14 (D). FINANCIAL STATEMENT SCHEDULE
SCHEDULE II
KEEBLER CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (NOTE 1)
FIFTY-TWO WEEKS ENDED DECEMBER 31, 1994 AND DECEMBER 30, 1995, FOUR WEEKS
ENDED JANUARY 26, 1996, AND FORTY-EIGHT WEEKS ENDED DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. C
-----------------------
COL. B Additions COL. E
------------- ----------------------- ----------
COL. A Balance at Charged to Charged to COL. D Balance at
- ------------------------------ Beginning of Costs/ Other ------------- End of
Description Period Expenses Accounts Deductions Period
- ------------------------------ ------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Those valuation and qualifying
accounts which are deducted
in the balance sheet from
the assets to which they
apply:
FIFTY-TWO WEEKS ENDED DECEMBER
31, 1994
For discounts and doubtful
accounts.................. $ 2,790 $ 9,484 $-- $(10,527)(1) $ 1,747
------------- ---------- ---------- ------------- ----------
For deferred taxes.......... $ 35,097 $11,278 $-- $ -- $ 46,375
------------- ---------- ---------- ------------- ----------
For inventory reserves...... $ 1,632 $ -- $-- $ (496)(2) $ 1,136
------------- ---------- ---------- ------------- ----------
FIFTY-TWO WEEKS ENDED DECEMBER
30, 1995
For discounts and doubtful
accounts.................. $ 1,747 $13,801 $-- $(11,990)(1) $ 3,558
------------- ---------- ---------- ------------- ----------
For deferred taxes.......... $ 46,375 $70,442 $-- $ -- $ 116,817
------------- ---------- ---------- ------------- ----------
For inventory reserves...... $ 1,136 $ -- $-- $ (499)(2) $ 637
------------- ---------- ---------- ------------- ----------
FOUR WEEKS ENDED JANUARY 26,
1996
For discounts and doubtful
accounts.................. $ 3,558 $ 1,577 $-- $ (954)(1) $ 4,181
------------- ---------- ---------- ------------- ----------
For deferred taxes.......... $ 116,817 $(7,333) $-- $ -- $ 109,484
------------- ---------- ---------- ------------- ----------
For inventory reserves...... $ 637 $ 378 $-- $ -- $ 1,015
------------- ---------- ---------- ------------- ----------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
FORTY-EIGHT WEEKS ENDED
DECEMBER 28, 1996
For discounts and doubtful
accounts.................. $ 4,181 $14,399 $ 907(3) $(14,097)(1) $ 5,390
------------- ---------- ---------- ------------- ----------
For deferred taxes.......... $ 109,484 $ -- $-- $(25,134)(4) $ 84,350
------------- ---------- ---------- ------------- ----------
For inventory reserves...... $ 9,578(5) $ 3,370 $-- $ (7,440)(6) $ 5,508
------------- ---------- ---------- ------------- ----------
</TABLE>
- --------------------------
NOTE 1: Schedule II--Valuation and Qualifying Accounts includes certain
financial data of UBIUS, the predecessor company, for the years ended
December 31, 1994 and December 30, 1995, and the four weeks ended
January 26, 1996, the date on which UBIUS was acquired by INFLO, as well
as for the forty-eight weeks ended December 28, 1996 of the Company. The
distinction between the predecessor company's and the Company's
financial data has been made by inserting a double line.
(1) Primarily charges against reserves, net of recoveries.
(2) Adjustment to reduce reserve.
(3) Amount acquired in the acquisition of Sunshine Biscuits, Inc.
(4) Adjustment to reduce the valuation allowance as a result of the acquisition
of Keebler Corporation.
(5) Includes inventory reserves established in the acquisition of Keebler
Corporation.
(6) Inventory write-offs.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- ---------------------------------------------------------------------------------
<S> <C>
3.1* Articles of Incorporation of Keebler Corporation
3.2* Bylaws of Keebler Corporation
4.1* Indenture dated as of June 20, 1996 among Keebler Corporation, the guarantors
named therein and The U.S. Trust Company of New York
4.2* Form of 10 3/4% Senior Subordinated Note due 2006 (included in Exhibit 4.1)
10.1* Stockholders' Agreement dated as of January 26, 1996 among INFLO Holdings
Corporation, Artal Luxembourg S.A. and Flowers Industries, Inc.
10.2* Stock Purchase Agreement dated November 5, 1995 between INFLO Holdings
Corporation and UB Investments (Netherlands) B.V. regarding stock of Keebler
Corporation (formerly UB Investments US Inc.)
10.3* Amendment Agreement dated as of January 26, 1996 between INFLO Holdings
Corporation and UB Investments (Netherlands) B.V. regarding stock of Keebler
Corporation (formerly UB Investments US Inc.)
10.4* Form of $32,500,000 Promissory Note made by INFLO Holdings Corporation in favor
of UB Investments (Netherlands) B.V. (included in Exhibit 10.3)
10.5* Distribution Agreement dated as of January 26, 1996 between United Biscuits (UK)
Limited and Shaffer, Clarke & Co., Inc.
10.6* Trademark License Agreement dated as of January 26, 1996 between United Biscuits
(UK) Limited and Shaffer, Clarke & Co., Inc.
10.7* $447,875,000 Amended and Restated Credit Agreement dated as of June 4, 1996,
among Keebler Corporation (formerly Keebler Holding Corp.), as the Borrower,
Various Financial Institutions, as the Lenders, Various Financial Institutions,
as the Co-Agents for the Lenders and The Bank of Nova Scotia, as the
Administrative Agent for the Lenders
10.7(a)* Borrower Security Agreement dated as of January 26, 1996 made by Keebler
Corporation in favor of The Bank of Nova Scotia
10.7(b)* Subsidiary Security Agreement dated as of January 26, 1996 made by each of the
Keebler Corporation subsidiaries listed as parties thereto in favor of The Bank
of Nova Scotia
10.7(c)* Supplement to Subsidiary Security Agreement dated June 4, 1996 made by Sunshine
Biscuits, Inc. in favor of The Bank of Nova Scotia
10.7(d)* Holdings Pledge Agreement dated as of January 26, 1996 made by INFLO Holdings
Corporation in favor of The Bank of Nova Scotia
10.7(e)* Borrower Pledge Agreement dated as of January 26, 1996 made by Keebler
Corporation in favor of The Bank of Nova Scotia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- ---------------------------------------------------------------------------------
<S> <C>
10.7(f)* Acknowledgment and Supplement to Borrower Pledge Agreement dated June 4, 1996
made by Keebler Corporation in favor of The Bank of Nova Scotia
10.7(g)* Subsidiary Pledge Agreement dated as of January 26, 1996 made by each of the
Keebler Corporation subsidiaries listed as parties thereto in favor of The Bank
of Nova Scotia
10.7(h)* Subsidiary Guaranty dated as of January 26, 1996 made by each of the Keebler
Corporation subsidiaries listed as parties thereto in favor of The Bank of Nova
Scotia
10.7(i)* Supplement to Subsidiary Guaranty dated June 4, 1996 made by Sunshine Biscuits,
Inc. in favor of The Bank of Nova Scotia
10.7(j)* Holdings Guaranty dated as of January 26, 1996 made by INFLO Holdings Corporation
in favor of The Bank of Nova Scotia
10.7(k)* First Amendment to Holdings Guaranty dated June 4, 1996 made by INFLO Holdings
Corporation in favor of The Bank of Nova Scotia
10.7(l)* Form of Mortgage and Security Agreement between Keebler Corporation, Mortgagor,
and The Bank of Nova Scotia, Mortgagee
10.7(m)* Form of Mortgage and Security Agreement between Sunshine Biscuits, Inc.,
Mortgagor, and The Bank of Nova Scotia, Mortgagee
10.7(n)* Form of Revolving Note made by Keebler Corporation dated June 4, 1996
10.7(o)* Form of $20,000,000 Swing Line Note dated June 4, 1996 made by Keebler
Corporation to The Bank of Nova Scotia
10.7(p)* Form of Term A Note dated June 4, 1996 made by Keebler Corporation
10.7(q)* Form of Term B Note dated June 4, 1996 made by Keebler Corporation
10.7(r)* Form of Term C Note dated June 4, 1996 made by Keebler Corporation
10.7(s)* Form of Registered Note dated June 4, 1996 made by Keebler Corporation
10.8* Form of Management Stockholder's Agreement between INFLO Holdings Corporation and
Key Employees of INFLO Holdings Corporation and Subsidiaries
10.9* Form of Non-Qualified Stock Option Agreement between INFLO Holdings Corporation
and Key Employees of INFLO Holdings Corporation and Subsidiaries
10.10* Form of 1996 Stock Purchase and Option Plan for Key Employees of INFLO Holdings
Corporation and Subsidiaries
10.11* Form of Sale Participation Agreement among Artal Luxembourg S.A., Flowers
Industries, Inc. and Key Employees of INFLO Holdings Corporation and Subsidiaries
10.12* Stock Purchase Agreement dated June 4, 1996 among INFLO Holdings Corporation,
Keebler Corporation and G.F. Industries, Inc. regarding stock of Sunshine
Biscuits, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- ---------------------------------------------------------------------------------
<S> <C>
10.13* GFI Stockholder's Agreement dated June 4, 1996 among INFLO Holdings Corporation,
G.F. Industries, Inc., Artal Luxembourg S.A. and Flowers Industries, Inc.
10.14* Warrant to Purchase Shares of Common Stock of INFLO Holdings Corporation, No.
GFI-1
12 Computation of Ratio of Earnings to Fixed Charges
21* Subsidiaries of Keebler Corporation
27 Financial Data Schedule
</TABLE>
- ------------------------
*Incorporated by reference from the Registration Statement on Form S-4
previously filed with the Securities and Exchange Commission on October 23, 1996
(Registration No. 333-8379).
<PAGE>
EXHIBIT 12
KEEBLER CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FORTY-EIGHT
WEEKS ENDED
DECEMBER 28,
1996
-----------------
<S> <C>
Income from Continuing Operations before Income Tax Expense................ $ 33.9
------
------
Fixed Charges:
Interest expense (income), net (a)....................................... 36.2
Interest portion of rental expense....................................... 10.0
------
Total Fixed Charges.................................................... $ 46.2
------
------
Earnings before Fixed Charges.............................................. $ 80.1
------
------
Deficiency in Coverage of Fixed Charges by Earnings before Fixed Charges... $ --
------
------
Ratio of Earnings to Fixed Charges......................................... 1.7
------
------
</TABLE>
- ------------------------
(a) Includes interest expense for the amortization of debt issue costs of $1.5
million.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Keebler
Corporation Consolidated Balance Sheet at December 28, 1996 and Consolidated
Statement of Operations for the forty-eight weeks ended December 28, 1996 found
on pages F-3 through F-5 of the Company's Form 10-K, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> JAN-26-1996
<PERIOD-END> DEC-28-1996
<CASH> 11,404
<SECURITIES> 0
<RECEIVABLES> 142,540
<ALLOWANCES> 5,390
<INVENTORY> 112,665
<CURRENT-ASSETS> 336,485
<PP&E> 530,506
<DEPRECIATION> 44,426
<TOTAL-ASSETS> 1,101,524
<CURRENT-LIABILITIES> 321,770
<BONDS> 412,705
0
0
<COMMON> 1,000
<OTHER-SE> 189,673
<TOTAL-LIABILITY-AND-EQUITY> 1,101,524
<SALES> 1,645,532
<TOTAL-REVENUES> 1,645,532
<CGS> 774,198
<TOTAL-COSTS> 1,569,035
<OTHER-EXPENSES> 6,347
<LOSS-PROVISION> 14,399
<INTEREST-EXPENSE> 36,229
<INCOME-PRETAX> 33,921
<INCOME-TAX> 14,891
<INCOME-CONTINUING> 19,030
<DISCONTINUED> 0
<EXTRAORDINARY> (1,925)
<CHANGES> 0
<NET-INCOME> 17,105
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
