<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K/A
(AMENDMENT NO. 1)
----------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 8, 1999
---------------------
ARCHIBALD CANDY CORPORATION
(Exact name of registrant as specified in its charter)
ILLINOIS 333-33751 36-0743280
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File No.) Identification No.)
1137 WEST JACKSON BOULEVARD,
CHICAGO, ILLINOIS 60607
(Address, including Zip Code,
of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (312) 243-2700
-----------------------
No Change
-------------------------------------------------------------
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
On June 8, 1999, Archibald Candy (Canada) Corporation, a
wholly-owned subsidiary of Archibald Candy Corporation (the "Company"),
acquired (the "Acquisition") substantially all of the assets of the Laura
Secord retail business of Nestle Canada Inc. (the "Acquired Business"). The
Company reported the Acquisition on a Form 8-K dated June 8, 1999 and filed
June 23, 1999. At the time of filing, the Company determined that the
inclusion of the required financial statements and pro forma financial
information was impracticable. Under the requirements of Form 8-K, Item
7(a)(4) and Item 7(b)(2), the Company has 60 days from the date on which the
Form 8-K was required to be filed to file such financial statements and pro
forma financial information. This amendment provides the financial
statements and pro forma financial information required by Regulation S-X.
A. Financial Statements of Businesses Acquired.
The following Financial Statements of the Acquired Business are
attached as Exhibit 99.1:
(i) Auditors' Report;
(ii) Balance Sheets as of December 31, 1997 and December 31,
1998;
(iii) Statements of Operations for the years ended December 31,
1997 and December 31, 1998;
(iv) Statements of Cash Flows for the years ended December 31,
1997 and December 31, 1998; and
(v) Notes to Financial Statements.
The following Financial Statements of the Acquired Business are
attached as Exhibit 99.2:
(i) Balance Sheets as of May 2, 1998 and May 1, 1999
(unaudited);
(ii) Statements of Operations for the four months ended May 2,
1998 and May 1, 1999 (unaudited);
(iii) Statements of Cash Flows for the four months ended May 2,
1998 and May 1, 1999 (unaudited); and
(iv) Notes to Financial Statements (unaudited).
B. Pro Forma Financial Information.
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements of the Company are attached as Exhibit 99.3:
(i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of May 29, 1999;
(ii) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the fiscal year ended August 29, 1998;
(iii) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the nine-month period ended May 29, 1999; and
(iv) Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
1
<PAGE>
C. Exhibits. The following exhibits are filed as part of this report:
Exhibit No. Description
----------- -----------
99.1 Audited financial statements of the Acquired Business
as of December 31, 1997 and December 31, 1998 and for
the fiscal years ended December 31, 1997 and December
31, 1998, as previously filed with the Securities and
Exchange Commission as part of the Company's
registration statement on Form S-4 (Registration No.
333-84685) dated August 6, 1999.
99.2 Unaudited financial statements of the Acquired
Business as of May 2, 1998 and May 1, 1999 and
for the four months ended May 2, 1998 and May 1,
1999, as previously filed with the Securities and
Exchange Commission as part of the Company's
registration statement on Form S-4 (Registration No.
333-84685) dated August 6, 1999.
99.3 Unaudited pro forma condensed consolidated financial
statements of the Company as of May 29, 1999 and for
the fiscal year ended August 29, 1998 and the nine-
month period ended May 29, 1999, as previously filed
with the Securities and Exchange Commission as part of
the Company's registration statement on Form S-4
(Registration No. 333-84685) dated August 6, 1999.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARCHIBALD CANDY CORPORATION
(Registrant)
Dated: August 19, 1999 By: /s/ Donna M. Snopek
------------------------------------------
Name: Donna M. Snopek
Title: Vice President - Finance and Accounting
3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Audited financial statements of the Acquired Business as
of December 31, 1997 and December 31, 1998 and for the
fiscal years ended December 31, 1997 and December 31,
1998, as previously filed with the Securities and
Exchange Commission as part of the Company's registration
statement on Form S-4 (Registration No. 333-84685) dated
August 6, 1999.
99.2 Unaudited financial statements of the Acquired Business
as of May 2, 1998 and May 1, 1999 and for the four
months ended May 2, 1998 and May 1, 1999, as previously
filed with the Securities and Exchange Commission as part
of the Company's registration statement on Form S-4
(Registration No. 333-84685) dated August 6, 1999.
99.3 Unaudited pro forma condensed consolidated financial
statements of the Company as of May 29, 1999 and for the
fiscal year ended August 29, 1998 and the nine-month
period ended May 29, 1999, as previously filed with the
Securities and Exchange Commission as part of the
Company's registration statement on Form S-4
(Registration No. 333-84685) dated August 6, 1999.
4
<PAGE>
AUDITORS' REPORT
To Nestle Canada Inc.
We have audited the balance sheets of the Laura Secord Retail Business as at
December 31, 1997 and 1998 and the statements of operations and of cash flows
for the years then ended. These financial statements are the responsibility of
the management of Nestle Canada Inc. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Laura Secord Retail Business as at
December 31, 1997 and 1998 and the results of its operations and its cash flows
for the years then ended, in accordance with generally accepted accounting
principles in the United States.
Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario
May 14, 1999
1
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT
Store cash floats......................................................................... $ 81 $ 76
Inventories (Note 3)...................................................................... 4,415 2,578
Prepaid expenses.......................................................................... 790 637
--------- ---------
TOTAL CURRENT ASSETS........................................................................ 5,286 3,291
ACCRUED LIABILITIES (Note 4)................................................................ 1,151 468
--------- ---------
WORKING CAPITAL............................................................................. 4,135 2,823
INVESTMENT IN JOINT VENTURE (Note 5)........................................................ 2,746 2,640
PROPERTY, PLANT AND EQUIPMENT (Note 6)...................................................... 11,289 9,206
--------- ---------
NET ASSETS.................................................................................. $ 18,170 $ 14,669
--------- ---------
--------- ---------
</TABLE>
2
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 79,759 $ 78,803
--------- ---------
COST OF SALES, excluding depreciation....................................................... 40,525 38,086
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, excluding depreciation and amortization....... 35,538 35,334
DEPRECIATION AND AMORTIZATION............................................................... 2,049 2,787
SHARE OF JOINT VENTURE LOSS (Note 5)........................................................ 707 453
--------- ---------
78,819 76,660
--------- ---------
OPERATING INCOME............................................................................ 940 2,143
INTEREST EXPENSE............................................................................ 430 864
--------- ---------
INCOME BEFORE INCOME TAXES.................................................................. 510 1,279
PROVISION FOR INCOME TAXES.................................................................. 272 607
--------- ---------
NET INCOME.................................................................................. $ 238 $ 672
--------- ---------
--------- ---------
</TABLE>
3
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................. $ 238 $ 672
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization............................................................ 2,049 2,787
Loss on disposal of property, plant and equipment........................................ 6 678
Share of joint venture loss.............................................................. 707 453
--------- ---------
3,000 4,590
Changes in operating assets and liabilities
Accounts receivable...................................................................... (221) 189
Inventories.............................................................................. (3,300) 5,361
Prepaid expenses......................................................................... (562) 154
Accounts payable and accrued liabilities................................................. 571 (1,608)
Due to related parties................................................................... 1,395 1,386
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES........................................................ 883 10,072
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment.................................................. (5,558) (1,382)
Received from (contributed to) joint venture............................................... (916) 885
--------- ---------
CASH USED IN INVESTING ACTIVITIES............................................................ (6,474) (497)
--------- ---------
FINANCING ACTIVITY
Advanced from (repaid to) Nestle Canada.................................................... (803) 7,363
--------- ---------
NET (DECREASE) INCREASE IN CASH.............................................................. $ (6,394) $ 16,938
--------- ---------
--------- ---------
</TABLE>
4
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nestle Canada Inc. ("Nestle Canada") is proposing to sell its Laura Secord
Retail Business (the "Business"). The Business is a retailer and distributor of
chocolates, greeting cards, ice cream and other items primarily through 178
(1997--187) business-operated stores of which 18 (1997--16) stores, the "Combo"
stores, are in a joint venture between Nestle Canada and Hallmark Cards.
The Business comprises the following operations:
- The Laura Secord stores operated by Laura Secord Inc. (a wholly-owned
subsidiary of Nestle Canada);
- A 50% interest in the "Combo" stores;
- Sales by Laura Secord Inc. to distributors and retailers; and
- Sales by Nestle Canada to the "Combo" stores.
These financial statements have been prepared on the basis that the Business
has operated as a stand-alone entity.
The balance sheets include only those assets and liabilities which are
intended to be included in the sale. Accordingly, the following assets and
liabilities of Laura Secord Inc. have not been included in these financial
statements:
- Cash and bank balances, except for store cash floats;
- Accounts receivable;
- Inter-company balances;
- Inventory at the Nestle Canada warehouse;
- Accounts payable;
- Income tax balances.
The statements of operations and cash flows are complete portrayals of the
results of the Business and are not integrated with the balance sheets, as the
balance sheets include only specified assets and liabilities.
Trademarks relating to the Business, while being transferred as part of this
transaction, are not included in these financial statements as they are not
owned by Nestle Canada or Laura Secord Inc. but by a foreign affiliate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
While Nestle Canada maintains its accounting records and prepares its
financial statements in accordance with International Accounting Standards,
appropriate adjustments have been made in order to state the accompanying
financial statements in accordance with generally accepted accounting principles
in the United States.
5
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The significant accounting policies followed in the presentation of these
financial statements are as follows:
REVENUE RECOGNITION
Net sales are recognized when products are sold at Laura Secord stores or,
in the case of trade customers, when products are shipped.
INVENTORIES
Product held for sale is stated at the lower of cost (on a first-in,
first-out basis) and net realizable value. Shop supplies and sundries are stated
at the lower of average cost and replacement cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less depreciation and
amortization. Depreciation and amortization is recorded on the straight-line
basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Store equipment --5 to 15 years
Leasehold improvements --the term of the lease plus the first renewal term (generally
ten years)
Computer hardware --5 years
Operating software --3 years
</TABLE>
Store premises are leased under agreements which are accounted for as
operating leases.
PREPAID EXPENSES
Packaging design costs are written off over two or three years, depending on
the expected life of the packaging. The deferred costs are included in prepaid
expenses.
JOINT VENTURE
A number of shops (referred to as "Combo" Shops) are operated as a 50/50
joint venture with Hallmark Canada, with both parties contributing the financing
and sharing equally in profits and losses. This joint venture has been accounted
for on the equity basis.
INCOME TAXES
The provision for income taxes has been calculated as if the business was a
self-standing entity, following the principles of tax allocation using the
liability method.
6
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accounting principles requires management to make estimates and assumptions that
affect the amounts recorded in the financial statements. Actual results may
differ from these estimates.
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Product held for sale................................................... $ 3,664 $ 2,051
Shop supplies and sundries.............................................. 751 527
----------- -----------
$ 4,415 $ 2,578
----------- -----------
----------- -----------
</TABLE>
4. ACCRUED LIABILITIES
Included in accrued liabilities are the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Accrued wages........................................................... $ 496 $ --
Percentage rent......................................................... 220 249
</TABLE>
5. INVESTMENT IN JOINT VENTURE
The business has a 50% interest in a joint venture which operates 18 retail
stores (1997--16). Financial information for the joint venture as at December
31, 1997 and 1998, and for the years then ended, on the same basis as outlined
in Note 1 with respect to the Business, is as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Store cash floats....................................................... $ 8 $ 10
Inventories............................................................. 2,279 2,530
Prepaid expenses........................................................ 73 28
----------- ---------
Total current assets.................................................... 2,360 2,568
Accrued liabilities..................................................... 90 19
----------- ---------
Working capital......................................................... 2,270 2,549
Property, plant and equipment........................................... 3,118 2,628
----------- ---------
Net assets.............................................................. 5,388 5,177
----------- ---------
50% share of net assets................................................. 2,694 2,588
Additional contribution................................................. 52 52
----------- ---------
Investment in joint venture............................................. $ 2,746 $ 2,640
----------- ---------
----------- ---------
</TABLE>
7
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
5. INVESTMENT IN JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Net sales............................................................... $ 7,737 $ 11,660
----------- ---------
Cost of sales, excluding depreciation................................... 4,998 6,964
Selling, general and administrative expenses, excluding depreciation and
amortization.......................................................... 3,842 5,228
Depreciation and amortization........................................... 242 326
----------- ---------
9,082 12,518
----------- ---------
Operating loss.......................................................... 1,345 858
Interest expense........................................................ 69 48
----------- ---------
Joint venture loss...................................................... $ 1,414 $ 906
----------- ---------
----------- ---------
50% Share of loss....................................................... $ 707 $ 453
----------- ---------
----------- ---------
</TABLE>
Related party charges to the joint venture are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Trademark royalties..................................................... $ 70 $ 0
Purchases of inventory from Nestle Canada............................... 2,032 2,740
Purchases of inventory from Hallmark Canada............................. 2,063 2,883
Interest on financing from Nestle Canada................................ 29 46
Management fee from Laura Secord Inc.................................... 464 466
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
1997
------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ -----------
<S> <C> <C> <C>
Leasehold improvements.................................... $ 16,985 $ 10,724 $ 6,261
Store equipment........................................... 8,131 7,044 1,087
Computer equipment........................................ 4,567 626 3,941
--------- ------------ -----------
$ 29,683 $ 18,394 $ 11,289
--------- ------------ -----------
--------- ------------ -----------
</TABLE>
8
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
6. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
1998
------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ -----------
<S> <C> <C> <C>
Leasehold improvements.................................... $ 16,632 $ 11,124 $ 5,508
Store equipment........................................... 7,962 7,178 784
Computer equipment........................................ 5,052 2,138 2,914
--------- ------------ -----------
$ 29,646 $ 20,440 $ 9,206
--------- ------------ -----------
--------- ------------ -----------
</TABLE>
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Current
Federal............................................................... $ 157 $ 382
Provincial............................................................ 115 225
----- -----
$ 272 $ 607
----- -----
----- -----
</TABLE>
The following table reconciles the provision for income taxes to the amount
derived by applying the Canadian federal income tax rate to income before income
taxes.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Federal tax at statutory rate........................................... $ 148 $ 372
Increase resulting from:
Provincial income taxes............................................. 111 221
Permanent differences............................................... 13 14
----- -----
$ 272 $ 607
----- -----
----- -----
</TABLE>
8. BENEFIT PLANS
The Business provides pension benefits for its head office employees and
store managers as part of the Nestle Canada contributory defined benefit pension
plan (the "Plan") for salaried employees. Benefits are based on length of
service and rates of compensation. Employees of the Business represent
approximately 3% of the assets and obligations of the Plan. The market value of
the Plan assets exceeded the actuarial present value of the accumulated benefit
obligation by approximately 17% at December 31, 1998.
9
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
8. BENEFIT PLANS (CONTINUED)
Pension cost (credit) of the Business, based on a 3% allocation of Plan
costs, comprises the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Service cost............................................................ $ 69 $ 73
Interest cost........................................................... 280 288
Return on plan assets................................................... (314) (331)
Other................................................................... (13) (51)
----- -----
$ 22 $ (21)
----- -----
----- -----
</TABLE>
The significant actuarial assumptions used in valuing the Plan obligations
were:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Rate of return on assets................................................ 8.25% 8.25%
Discount rate........................................................... 8.25% 8.25%
Rate of compensation increase........................................... 5.25% 5.25%
</TABLE>
9. LEASE COMMITMENTS
The Laura Secord retail operations are conducted from leased premises under
operating leases which are generally for a five-year term with renewal options.
Under some of the agreements additional rent is payable based on sales levels.
The remaining minimum undiscounted rental obligation under these agreements
is $32,677 and $6,695 for the "Combo" stores, falling due as follows:
<TABLE>
<CAPTION>
LAURA SECORD "COMBO" STORES
STORES 100%
--------------- ---------------
<S> <C> <C>
1999....................................................... $ 8,015 $ 1,587
2000....................................................... 6,616 1,385
2001....................................................... 5,258 1,122
2002....................................................... 4,246 649
2003....................................................... 3,228 593
Thereafter................................................. 5,314 1,359
</TABLE>
Rental expense was as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Minimum rent............................................................ $ 6,860 $ 6,728
Rent based on percentage of sales....................................... 266 240
----------- -----------
$ 7,126 $ 6,968
----------- -----------
----------- -----------
</TABLE>
10
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
10. RELATED PARTY TRANSACTIONS
Nestle Canada is a wholly-owned Canadian operating subsidiary in the
world-wide Nestle Group. Laura Secord Inc. is a wholly-owned subsidiary of
Nestle Canada.
The following charges (credits) from related parties are included in the
statements of operations:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Purchases on inventory from Nestle Canada............................... $ 29,272 $ 24,054
Trademark royalties to a group company.................................. 2,103 2,234
Rent to Nestle Canada for office space.................................. 396 398
Central office expenses to Nestle Canada, relating primarily to human
resources, data processing, quality assurance, financial services and
compensation for the president of Laura Secord Inc.................... 1,782 1,865
Interest on financing from Nestle Canada................................ 461 835
Management fee charges by Laura Secord Inc. to "Combo" stores........... (464) (466)
</TABLE>
Purchases of inventory from Nestle Canada are at cost plus a mark-up of
4.17%. Central office expenses are an allocation of the costs of the respective
functions.
11. YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the ability of the Business to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
Business, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
11
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
BALANCE SHEETS
MAY 2, 1998 AND MAY 1, 1999
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
CURRENT
Store cash floats......................................................................... $ 60 $ 60
Inventories............................................................................... 2,799 2,023
Prepaid expenses.......................................................................... 46 232
--------- ---------
TOTAL CURRENT ASSETS........................................................................ 2,905 2,315
ACCRUED LIABILITIES......................................................................... 601 1,365
--------- ---------
WORKING CAPITAL............................................................................. 2,304 950
INVESTMENT IN JOINT VENTURE................................................................. 2,894 2,454
PROPERTY, PLANT AND EQUIPMENT............................................................... 10,947 8,428
--------- ---------
NET ASSETS.................................................................................. $ 16,145 $ 11,832
--------- ---------
--------- ---------
</TABLE>
1
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
STATEMENTS OF OPERATIONS
FOUR MONTHS ENDED MAY 2, 1998 AND MAY 1, 1999
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 29,243 $ 26,285
--------- ---------
COST OF SALES, excluding depreciation....................................................... 15,146 11,375
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, excluding depreciation and amortization....... 12,862 12,895
DEPRECIATION AND AMORTIZATION............................................................... 1,044 751
SHARE OF JOINT VENTURE LOSS................................................................. 239 202
--------- ---------
29,291 25,223
--------- ---------
OPERATING (LOSS) INCOME..................................................................... (48) 1,062
INTEREST EXPENSE............................................................................ 210 19
--------- ---------
(LOSS) INCOME BEFORE INCOME TAXES........................................................... (258) 1,043
INCOME TAX (RECOVERY) PROVISION............................................................. (120) 462
--------- ---------
NET (LOSS) INCOME........................................................................... $ (138) $ 581
--------- ---------
--------- ---------
</TABLE>
2
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
STATEMENTS OF CASH FLOWS
FOUR MONTHS ENDED MAY 2, 1998 AND MAY 1, 1999
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income......................................................................... $ (138) $ 581
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization........................................................... 1,044 751
Share of joint venture loss............................................................. 239 202
Loss on disposal of property, plant and equipment....................................... -- 28
--------- ---------
1,145 1,562
Changes in operating assets and liabilities
Accounts receivable..................................................................... 161 150
Inventories............................................................................. 3,045 1,299
Prepaid expenses........................................................................ 478 213
Accounts payable and accrued liabilities................................................ (3,207) (1,291)
Due to related parties.................................................................. (1,260) (306)
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES....................................................... 362 1,627
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment................................................. (475) --
Contributed to joint venture.............................................................. (256) (1,286)
--------- ---------
CASH USED IN INVESTING ACTIVITIES........................................................... (731) (1,286)
--------- ---------
FINANCING ACTIVITY
Advanced from (repaid to) Nestle Canada................................................... 1,430 (1,881)
--------- ---------
NET INCREASE (DECREASE) IN CASH............................................................. $ 1,061 $ (1,540)
--------- ---------
--------- ---------
</TABLE>
3
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS
MAY 2, 1998 AND MAY 1, 1999
(IN THOUSANDS OF CANADIAN DOLLARS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nestle Canada Inc. ("Nestle Canada") is proposing to sell its Laura Secord
Retail Business (the "Business"). The Business is a retailer and distributor of
chocolates, greeting cards, ice cream and other items primarily through 174
(1998--183) business-operated stores of which 18 stores, the "Combo" stores, are
in a joint venture between Nestle Canada and Hallmark Cards.
The Business comprises the following operations:
- The Laura Secord stores operated by Laura Secord Inc. (a wholly-owned
subsidiary of Nestle Canada);
- A 50% interest in the "Combo" stores;
- Sales by Laura Secord Inc. to distributors and retailers; and
- Sales by Nestle Canada to the "Combo" stores.
These financial statements have been prepared on the basis that the Business
has operated as a stand-alone entity.
The balance sheets include only those assets and liabilities which are
intended to be included in the sale. Accordingly, the following assets and
liabilities of Laura Secord Inc. have not been included in these financial
statements:
- Cash and bank balances, except for store cash floats;
- Accounts receivable;
- Inter-company balances;
- Inventory at the Nestle Canada warehouse;
- Accounts payable;
- Income tax balances.
The statements of operations and cash flows are complete portrayals of the
results of the Business and are not integrated with the balance sheets, as the
balance sheets include only specified assets and liabilities.
Trademarks relating to the Business, while being transferred as part of this
transaction, are not included in these financial statements as they are not
owned by Nestle Canada or Laura Secord Inc. but by a foreign affiliate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
While Nestle Canada maintains its accounting records and prepares its
financial statements in accordance with International Accounting Standards,
appropriate adjustments have been made in order to state the accompanying
financial statements in accordance with generally accepted accounting principles
in the United States.
4
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MAY 2, 1998 AND MAY 1, 1999
(IN THOUSANDS OF CANADIAN DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The significant accounting policies followed in the presentation of these
financial statements are as follows:
REVENUE RECOGNITION
Net sales are recognized when products are sold at Laura Secord stores or,
in the case of trade customers, when products are shipped.
INVENTORIES
Product held for sale is stated at the lower of cost (on a first-in,
first-out basis) and net realizable value. Shop supplies and sundries are stated
at the lower of average cost and replacement cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less depreciation and
amortization. Depreciation and amortization is recorded on the straight-line
basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Store equipment --5 to 15 years
Leasehold improvements --the term of the lease plus the first renewal term (generally
ten years)
Computer hardware --5 years
Operating software --3 years
</TABLE>
Store premises are leased under agreements which are accounted for as
operating leases.
PREPAID EXPENSES
Packaging design costs are written off over two or three years, depending on
the expected life of the packaging. The deferred costs are included in prepaid
expenses.
JOINT VENTURE
A number of shops (referred to as "Combo" Shops) are operated as a 50/50
joint venture with Hallmark Canada, with both parties contributing the financing
and sharing equally in profits and losses. This joint venture has been accounted
for on the equity basis.
INCOME TAXES
The provision for income taxes has been calculated as if the business was a
self-standing entity, following the principles of tax allocation using the
liability method.
5
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MAY 2, 1998 AND MAY 1, 1999
(IN THOUSANDS OF CANADIAN DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accounting principles requires management to make estimates and assumptions that
affect the amounts recorded in the financial statements. Actual results may
differ from these estimates.
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Product held for sale................................................... $ 2,265 $ 1,476
Shop supplies and sundries.............................................. 534 547
----------- -----------
$ 2,799 $ 2,023
----------- -----------
----------- -----------
</TABLE>
4. RELATED PARTY TRANSACTIONS
Nestle Canada is a wholly-owned Canadian operating subsidiary in the
world-wide Nestle Group. Laura Secord Inc. is a wholly-owned subsidiary of
Nestle Canada.
The following charges (credits) from related parties are included in the
statements of operations:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Purchases of inventory from Nestle Canada............................... $ 6,962 $ 5,749
Trademark royalties to a group company.................................. 581 529
Rent to Nestle Canada for office space.................................. 133 112
Central office expenses to Nestle Canada, relating primarily to human
resources, data processing, quality assurance, financial services and
compensation for the president of Laura Secord Inc.................... 732 855
Interest on financing from Nestle Canada................................ 210 19
Management fee charged by Laura Secord Inc. to "Combo" stores........... (141) (164)
</TABLE>
Purchases of inventory from Nestle Canada are at cost plus a mark-up of
4.17%. Central office expenses are an allocation of the costs of the respective
functions.
6
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements below
are based on our financial statements and the financial statements of Laura
Secord included elsewhere in this prospectus. The unaudited pro forma condensed
consolidated statements of operations for the year ended August 29, 1998 and the
nine-month period ended May 29, 1999 are based on our financial statements as
adjusted to give effect to the offering of the unregistered notes and the Laura
Secord acquisition as if they had occurred on August 31, 1997. Because the Laura
Secord financial statements are for the twelve-month period ended November 28,
1998 and as of and for the nine-month period ended May 1, 1999, the unaudited
pro forma condensed consolidated financial statements herein do not include
Laura Secord's results of operations for any period after May 1, 1999. In
addition, the unaudited pro forma condensed consolidated statements of
operations give effect to the Sweet Factory acquisition and related financing as
if they had occurred on August 31, 1997. During the periods presented, neither
our nor Laura Secord's statements of operations included any amounts related to
discontinued operations. We operate using a fiscal year ending the last Saturday
in August. Prior to the acquisition, Laura Secord operated using a fiscal year
ending December 31. Adjustments for the offering of the unregistered notes and
the Laura Secord acquisition are based upon historical financial information of
us and Laura Secord and certain assumptions that our management believes are
reasonable. The Laura Secord acquisition has been accounted for under the
purchase method of accounting. Under this method, the purchase price has been
allocated to the assets and liabilities acquired based on preliminary estimates
of fair value. The actual fair value may vary from the preliminary estimates.
The pro forma financial data does not necessarily reflect our results of
operations or financial position that actually would have resulted had the
offering of the unregistered notes and the Laura Secord acquisition occurred at
the date indicated or project our results of operations or financial position
for any future date or period.
For purposes of the unaudited pro forma condensed consolidated financial
data below, we have converted the Laura Secord balance sheet as of May 1, 1999
from Canadian dollars to U.S. dollars based on the currency exchange rate in
effect on May 1, 1999, and we have converted the Laura Secord statement of
operations for the twelve months ended November 28, 1998 and for the nine months
ended May 1, 1999 from Canadian dollars to U.S. dollars based on the average
currency exchange rate in effect during such periods.
The unaudited pro forma condensed consolidated financial data below should
be read together with our consolidated financial statements and the financial
statements of Laura Secord, and the accompanying notes, included elsewhere in
this prospectus.
1
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MAY 29, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
LAURA ADJUSTMENTS PRO FORMA
ARCHIBALD SECORD (SEE NOTE 1) CONSOLIDATED
--------- ------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 23,844 $ 41 $(6,700)(a) $ 17,185
Accounts receivable, net...................................................... 1,727 -- -- 1,727
Inventories................................................................... 27,591 1,389 -- 28,980
Other current assets.......................................................... 2,691 160 -- 2,851
--------- ------ ------------ ------------
Total current assets............................................................ 55,853 1,590 (6,700) 50,743
Property, plant, and equipment, net............................................. 47,211 5,787 -- 52,998
Goodwill, other intangibles, and deferred financing fees, net................... 39,183 -- 39,075(b) 78,258
Other assets.................................................................... 2,848 -- -- 2,848
Investment in joint venture..................................................... -- 1,685 -- 1,685
Deferred income taxes........................................................... 3,673 -- -- 3,673
--------- ------ ------------ ------------
Total assets.................................................................... $ 148,768 $9,062 $32,375 $190,205
--------- ------ ------------ ------------
--------- ------ ------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.............................................................. $ 4,624 $ -- $ -- $ 4,624
Accrued expenses.............................................................. 16,044 937 500(c) 17,481
Current portion of long-term debt and capital lease obligations............... 156 -- -- 156
--------- ------ ------------ ------------
Total current liabilities....................................................... 20,824 937 500 22,261
Due to affiliate................................................................ 604 -- -- 604
Long-term debt, less current portion............................................ 130,000 -- 40,000(d) 170,000
Capital lease obligations, less current portion................................. 84 -- -- 84
Deferred rent................................................................... 1,845 -- -- 1,845
Net assets...................................................................... -- 8,125 (8,125)(e) --
Shareholder's equity (deficit).................................................. (4,589) -- -- (4,589)
--------- ------ ------------ ------------
Total liabilities and shareholder's equity (deficit)............................ $ 148,768 $9,062 $32,375 $190,205
--------- ------ ------------ ------------
--------- ------ ------------ ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
2
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 29, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ARCHIBALD AND PRO FORMA
SWEET ADJUSTMENTS SWEET FACTORY LAURA ADJUSTMENTS PRO FORMA
ARCHIBALD FACTORY (SEE NOTE 2) CONSOLIDATED SECORD (SEE NOTE 3) CONSOLIDATED
--------- -------- ------------ ------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $126,742 $ 77,659 $ -- $204,401 $53,818 $ -- $258,219
Cost of sales, excluding
depreciation and
amortization................. 43,978 27,425 -- 71,403 25,770 (3,053)(a) 94,120
Selling, general, and
administrative expenses,
excluding depreciation and
amortization................. 63,478 45,538 (2,681)(a) 106,335 23,726 (1,507)(b) 128,554
Depreciation and
amortization................. 6,233 6,752 295(b) 13,280 1,860 2,262(c) 17,402
Management fees and other
fees......................... 514 -- -- 514 -- -- 514
Share of loss from joint
venture...................... -- -- -- -- 285 -- 285
--------- ------- ------------ ------------- ------- ------------ ------------
Operating income (loss)........ 12,539 (2,056) 2,386 12,869 2,177 2,298 17,344
Other (income) and expense:
Interest expense............... 10,346 844 2,298(c) 13,488 586 3,514(d) 17,588
Interest income................ (1,194) (31) 100(d) (1,125) -- 335(e) (790)
Other income and expense....... (192) -- -- (192) -- -- (192)
--------- ------- ------------ ------------- ------- ------------ ------------
Income (loss) before income
taxes........................ 3,579 (2,869) (12) 698 1,591 (1,551) 738
Provision (benefit) for income
taxes........................ 276 (1,099) 877(e) 54 725 (722) 57
--------- ------- ------------ ------------- ------- ------------ ------------
Net income (loss).............. $ 3,303 $ (1,770) $ (889) $ 644 $ 866 $ (829) $ 681
--------- ------- ------------ ------------- ------- ------------ ------------
--------- ------- ------------ ------------- ------- ------------ ------------
OTHER DATA:
Archibald and Sweet Factory EBITDA................................................................................ $ 26,341
Laura Secord EBITDA............................................................................................... 8,723
------------
EBITDA(1).................... $ 18,964 $ 4,696 $2,681 $ 26,341 $ 4,163 $ 4,560 $ 35,064
--------- ------- ------------ ------------- ------- ------------ ------------
--------- ------- ------------ ------------- ------- ------------ ------------
</TABLE>
- ------------------------------
(1) EBITDA consists of earnings before (i) interest, income taxes, depreciation
and amortization, and (ii) 50% of the interest and depreciation expense
incurred by the combo stores which is reflected in the share of loss from
joint venture, which amount is equal to $126, or approximately $186 (Cdn.).
3
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED MAY 29, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ARCHIBALD AND PRO FORMA
ADJUSTMENTS SWEET FACTORY LAURA ADJUSTMENTS PRO FORMA
ARCHIBALD SWEET FACTORY(1) (SEE NOTE 2) CONSOLIDATED SECORD (SEE NOTE 3) CONSOLIDATED
--------- ---------------- ------------ ------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $155,806 $18,791 $ -- $174,597 $41,347 $ -- $215,944
Cost of sales, excluding
depreciation and
amortization................. 56,039 6,773 -- 62,812 18,057 (2,066)(a) 78,803
Selling, general, and
administrative expenses,
excluding depreciation and
amortization................. 72,340 12,138 (1,564)(a) 82,914 18,402 (1,268)(b) 100,048
Depreciation and
amortization................. 8,396 1,754 74(b) 10,224 1,257 1,696(c) 13,177
Management fees and other
fees......................... 393 -- -- 393 -- -- 393
Share of loss from joint
venture...................... -- -- -- -- 132 -- 132
--------- ------- ------ ------------- ------- ------------ ------------
Operating income (loss)........ 18,638 (1,874) 1,490 18,254 3,499 1,638 23,391
Other (income) and expense:
Interest expense............... 9,373 237 611(c) 10,221 285 2,790(d) 13,296
Interest income................ (605) (4) 25(d) (584) -- 251(e) (333)
Other income and expense....... (209) -- -- (209) -- -- (209)
--------- ------- ------ ------------- ------- ------------ ------------
Income (loss) before income
taxes........................ 10,079 (2,107) 854 8,826 3,214 (1,403) 10,637
Provision (benefit) for income
taxes........................ (276) (845) 1,801(e) 680 1,412 (1,273)(f) 819
--------- ------- ------ ------------- ------- ------------ ------------
Net income (loss).............. $ 10,355 $(1,262) $ (947) $ 8,146 $ 1,802 $ (130) $ 9,818
--------- ------- ------ ------------- ------- ------------ ------------
--------- ------- ------ ------------- ------- ------------ ------------
OTHER DATA:
Archibald and Sweet Factory EBITDA................................................................................ $ 28,687
Laura Secord EBITDA............................................................................................... 8,174
------------
EBITDA(2).................... $ 27,243 $ (120) $1,564 $ 28,687 $ 4,840 $ 3,334 $ 36,861
--------- ------- ------ ------------- ------- ------------ ------------
--------- ------- ------ ------------- ------- ------------ ------------
</TABLE>
- ------------------------------
(1) Reflects results for Sweet Factory from August 30, 1998 through December 6,
1998.
(2) EBITDA consists of earnings before (i) interest, income taxes, depreciation
and amortization, and (ii) 50% of the interest and depreciation expense
incurred by the combo stores which is reflected in the share of loss from
joint venture, which amount is equal to $84, or approximately $128 (Cdn.).
4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
<TABLE>
<S> <C> <C>
(a) Adjustment to cash and cash equivalents as follows:
Proceeds from issuance of the unregistered notes.............................. $ 40,000
Laura Secord purchase price................................................... (42,200)
Payment of estimated fees and expenses of the offering of the unregistered
notes and the Laura Secord acquisition...................................... (4,500)
---------
$ (6,700)
---------
---------
(b) Adjustments to goodwill, other intangibles, and deferred financing fees as
follows:
Adjustment to goodwill for excess of net assets acquired over purchase
price....................................................................... $ 35,875
Adjustment to deferred financing fees for the financing fees incurred in
connection with the offering of the unregistered notes and the Laura Secord
acquisition................................................................. 3,200
---------
$ 39,075
---------
---------
(c) Adjustments to accrued liabilities for expenses associated with the purchase
of Laura Secord............................................................. $ 500
---------
---------
(d) Adjustment to long-term debt for issuance of the unregistered notes........... $ 40,000
---------
---------
(e) Adjustments to net assets for the elimination of the Laura Secord net
assets...................................................................... $ (8,125)
---------
---------
</TABLE>
5
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS ADJUSTMENTS
<TABLE>
<CAPTION>
FISCAL YEAR NINE-MONTH
ENDED PERIOD ENDED
AUGUST 29, 1998 MAY 29, 1999
--------------- -------------
<S> <C> <C> <C>
(a) Adjustments to selling, general, and administrative expenses as follows:
Reduction in salaries and payroll expenses related to the
consolidation of Sweet Factory's operations with Archibald
Candy's..................................................................... $ (1,909) $ (1,114)
Reduction in facility lease expenses due to the elimination of the San Diego
facilities.................................................................. (307) (179)
Reduction in general and administrative expenses due to the consolidation of
the Sweet Factory facilities into Archibald
Candy's..................................................................... (465) (271)
------- -------------
$ (2,681) $ (1,564)
------- -------------
------- -------------
(b) Adjustments to depreciation and amortization expense as follows:
Amortization of deferred financing fees as a result of the Sweet Factory
acquisition................................................................. $ 439 $ 110
Reduction of depreciation expense for purchase accounting adjustment to
property, plant and equipment............................................... (144) (36)
------- -------------
$ 295 $ 74
------- -------------
------- -------------
(c) Adjustments to interest expense as follows:
Interest expense incurred on the additional $30 million of Archibald Candy's
senior secured notes issued on December 7, 1998............................. $ 3,075 $ 769
Elimination of Sweet Factory working capital line interest expense............ (777) (158)
------- -------------
$ 2,298 $ 611
------- -------------
------- -------------
(d) Adjustment to interest income for cash outlay................................. $ 100 $ 25
(e) Adjustment to provision for income taxes as a result of all pro forma
adjustments................................................................. $ 877 $ 1,801
------- -------------
------- -------------
</TABLE>
6
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ADJUSTMENTS
<TABLE>
<CAPTION>
FISCAL YEAR NINE-MONTH
ENDED PERIOD ENDED
AUGUST 29, 1998 MAY 29, 1999
--------------- -------------
<S> <C> <C> <C>
(a) Adjustments to cost of sales as follows:
Elimination of royalty charges from Nestle.................................... $ (1,577) $ (1,151)
Elimination of intercompany charges from Nestle to reflect the co-pack
agreement with Nestle....................................................... (1,476) (915)
------- -------------
$ (3,053) $ (2,066)
------- -------------
------- -------------
(b) Adjustments to selling, general and administrative expenses for the
elimination of Nestle corporate overhead expenses........................... $ (1,507) $ (1,268)
------- -------------
------- -------------
(c) Adjustments to depreciation and amortization as follows:
Amortization of deferred financing fees as a result of the Laura Secord
acquisition................................................................. $ 468 $ 351
Amortization of goodwill that is generated as a result of the Laura Secord
acquisition................................................................. 1,794 1,345
------- -------------
$ 2,262 $ 1,696
------- -------------
------- -------------
(d) Adjustments to interest expense as follows:
Interest expense incurred on the unregistered notes........................... $ 4,100 $ 3,075
Elimination of Nestle intercompany interest expense charges................... (586) (285)
------- -------------
$ 3,514 $ 2,790
------- -------------
------- -------------
(e) Adjustment to interest income for cash outlay................................. $ 335 $ 251
------- -------------
------- -------------
(f) Adjustment to provision for income taxes as a result of all pro forma
adjustments................................................................. $ (722) $ (1,273)
------- -------------
------- -------------
</TABLE>
7
