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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
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-OR-
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file Number
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Tom's Foods Inc.
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(Exact name of registrant as specified in its charter)
Delaware 58-1516963
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization Number)
900 8th Street, Columbus, Georgia 31902
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (706) 323-2721
----------------------------
TOM'S FOODS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1516963
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
900 8TH STREET
COLUMBUS, GEORGIA 31902
(706) 323-2721
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
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(Title of class)
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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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] 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 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]
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PART I
ITEM 1. BUSINESS
Tom's Foods is a regional snack food manufacturing and distribution
company. The Company has manufactured and sold snack food products since 1925
under the widely recognized "Tom's" brand name. The Company's distribution
network serves a variety of customers, including independent retailers, vending
machines, retail supermarket chains, convenience stores, mass merchandisers,
food service companies and military bases.
PRODUCTS AND PACKAGING
The Company sells a wide variety of products in five principal
categories: chips, sandwich crackers, baked goods, nuts and candy. The Company
sells its products under the "Tom's" brand name and also manufactures products
for delivery directly to national accounts and for other companies on a contract
sales basis. The Company also promotes the sale of certain snack foods,
confection products and hot and cold beverages of several companies for which it
receives promotional allowances.
DISTRIBUTION NETWORK
The Company's products are primarily marketed through the Company's
network of independent distributors and Company owned routes: (i) directly to
the public through vending machines; and (ii) to retail outlets through a direct
store delivery system. The Company ships freshly-made merchandise each day
directly to its distributor network located throughout the United States. The
network of distributors, in turn, delivers products to retail outlets and
vending machines in 43 states.
CONTRACT SALES AND DIRECT SALES
The Company manufactures products for other food companies and large
retail customers under contract packaging agreements.
COMPETITION
The snack food industry is highly competitive. The Company competes on
the basis of overall customer satisfaction which includes price, flavor,
freshness and quality. The Company's major competitors include Frito-Lay and
Lance, Inc. both of which the Company views as "full-line" snack food
competitors in the salty snack segment. The Company defines a "full-line"
participant as a snack food company which has products in all the Company's
major snack categories, including nuts, candy, sandwich crackers, baked goods,
potato chips, corn/tortilla chips and extruded snacks, such as cheese puffs.
Other industry participants such as Golden Flake Snack Foods Inc., Wise Potato
Chip Co., Nabisco, and Interstate Bakeries Corporation (Dolly Madison/Hostess
brands) maintain a presence in the markets served by the Company in a limited
number of these product categories, such as chips or baked goods.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal raw materials used in the production of the Company's
snack food products are: packaging materials; potatoes, nuts and other
agricultural products; and flour, corn, vegetable oils, and other milled or
refined products. These raw materials are generally available in adequate
quantities in the open market. In most cases, there are readily available
alternative suppliers for these raw materials.
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GOVERNMENT REGULATION
As a manufacturer and marketer of food items, the Company is subject to
regulation by various government agencies, including the USDA and the United
States Food and Drug Administration. Under various statutes and regulations,
such agencies prescribe requirements and establish standards for quality and
purity. The Company believes that it is in compliance in all material respects
with all presently applicable governmental laws and regulations and that the
cost of administration of compliance with existing laws and regulations does not
have, and is not expected to have, a material adverse effect on the Company's
financial condition or results of operations.
INTELLECTUAL PROPERTY
The Company operates under the trademark, service mark and trade name
"TOM'S" and uses various marks and logos containing "TOM'S" (collectively, the
"Company Marks"). The Company's products are sold under a number of trademarks.
Most of these trademarks, including the widely recognized "TOM'S" brand name,
are owned by the Company.
Pursuant to distributorship agreements, distributors are granted a
non-exclusive license to use certain of the Company Marks. Such distributorship
agreements otherwise provide that distributors shall make no use of the Company
Marks, nor engage in any program or activity, which makes use of or contains any
reference to the Company, its products or the Company Marks, except with written
consent of the Company.
The Company has and will continue to maintain and vigorously defend its
intellectual property rights, including policing its trademark rights by
pursuing trademark infringers.
ITEM 2. PROPERTIES
The Company owns and operates seven plants in five states. Sandwich
crackers, baked goods, nuts and candy products are produced in three plants
located in Columbus, Georgia, which is also the location of the Company's
headquarters (the aggregate area of the Columbus facilities is approximately
580,000 SF). Chip products are manufactured in four plants located in Fresno,
California (47,000 SF); Perry, Florida (111,000 SF); Knoxville, Tennessee
(116,000 SF); and Corsicana, Texas (84,000 SF). The key markets in the
southeastern and southwestern United States are served by the Perry, Columbus,
Knoxville and Corsicana plants. The Fresno plant primarily services Arizona,
California and Nevada and to a lesser extent Oregon and Washington. All of the
Company's facilities have sufficient additional capacity, some of which is used
to package products on a contract basis for other companies. The Company also
leases certain properties in connection with its field sales activities and
Company owned distribution routes.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to any
such litigation cannot be determined, in the opinion of management, such
liability is not expected to have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are certain summary historical financial data for the
Company as of fiscal years 1999, 1998, 1997, 1996 and 1995. The selected
historical financial information for the Company as of and for the full fiscal
years indicated were derived from the financial statements for the Company
which were audited by Arthur Andersen LLP, independent public accountants. The
summary historical financial information set forth below should be read in
conjunction with the financial statements of the Company and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included below.
Selected historical financial data below.
TOM'S FOODS INC.
HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------------
(dollars in thousands) Jan. 1, 2000 Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996 Dec. 30, 1995
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 203,559 $ 202,380 $ 212,648 $ 205,856 $ 198,340
Cost of goods sold (124,632) (123,228) (131,454) (133,624) (125,396)
--------- --------- --------- --------- ---------
Gross profit 78,927 79,152 81,194 72,232 72,944
Expenses and other income:
Selling and administrative expenses (72,379) (73,701) (75,954) (69,735) (75,783)
Amortization of goodwill and intangible
assets (2,178) (2,177) (1,792) (1,678) (1,678)
Other income, net 828 1,902 1,138 1,309 3,296
Restructuring and nonrecurring charges 0 (3,224)(a) (500)(b) (3,793)(c) (9,570)(d)
--------- --------- --------- -------- ---------
(73,729) (77,200) (77,108) (73,897) (83,735)
--------- --------- --------- -------- ---------
Income from operations 5,198 1,952 4,086 (1,665) (10,791)
Interest expense, net (7,817) (8,129) (9,978) (9,402) (7,870)
--------- --------- --------- -------- ---------
Income (loss) before income taxes and
cumulative effect of accounting change (2,619) (6,177) (5,892) (11,067) (18,661)
--------- --------- --------- -------- ---------
Provision for income taxes 134 50 50 0 (400)
Net loss before cumulative
effect of accounting change (2,753) (6,227) (5,942) (11,067) (18,261)
Cumulative effect of accounting change 0 1,050 0 0 0
--------- --------- --------- -------- ---------
Net loss $ (2,753) $ (5,177) $ (5,942) $(11,067) $ (18,261)
========= ========= ========= ======== =========
Other Data:
Operating cash flow $ 9,708 $ 2,153 $ 10,506 $ 8,829 $ (4,825)
Investing cashflow (7,260) (6,917) (3,213) (5,376) (7,304)
Financing cashflow (144) 364 (1,923) (3,047) 7,115
EBITDA(c) 14,455 11,227 13,128 6,291 (1,196)
Adjusted EBITDA(f) 14,455 14,444 13,628 10,084 8,374
Cash interest expense(g) 7,460 7,874 2,566 2,512 6,765
Depreciation and amortization 9,257 9,268 9,042 7,956 9,595
Capital expenditures 7,523 6,323 3,419 5,798 7,304
Ratio of Adjusted EBITDA to net interest
expense(h) 1.85 1.54 1.37 1.07 1.06
Ratio of Adjusted EBITDA to cash interest
expense(h) 1.94 1.83 5.31 4.01 1.24
Ratio of earnings to fixed charges(i) 0.71 0.36 0.48 -- --
Balance Sheet Data (as of End of Period):
Working capital $ 12,630 $ 13,069 $ 12,792 $ 7,362 $ (11,565)
Total assets 134,080 135,506 141,045 139,790 138,500
Total debt 70,597 70,741 70,324 88,981 72,297
Class A preferred stock 8,811 7,911 7,167 -- --
Total shareholders' equity 25,402 28,155 32,832 16,519 27,586
</TABLE>
Footnotes on following page.
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Footnotes from previous page.
(a) In 1998, the Company recorded a nonrecurring charge $(3.2 million) for
certain restructuring charges and nonrecurring expenses and a bonus
paid to management in connection with refinancing of the Company's debt
in 1997 but deferred until 1998. See the Restructuring and Nonrecurring
Charges Section under Item 7.
(b) In 1997, the Company recorded a nonrecurring charge $(500,000) for a
bonus paid by the Company to management in connection with the
refinancing of the Company's debt. See the Restructuring and
Nonrecurring Charges section under Item 7.
(c) In 1996, the Company recorded a non-recurring charge $(3.8 million) for
expenses associated with the refinancing of the Company's debt.
(d) During 1995, the Company recorded restructuring and non-recurring
charges totaling $9.6 million. The charges included the following: (i)
a non-recurring charge related to the reorganization of and reduction
in workforce and the administrative and sales functions $(4.2 million);
(ii) write-off of certain impaired assets $(8.6 million); (iii) a
restructuring charge related to its distribution system $(6.5 million);
and (iv) the reversal of the remainder of a prior restructuring reserve
originally established in 1991 $(9.7 million).
(e) Earnings before interest, taxes, depreciation and amortization
("EBITDA") represents the sum of income (loss) before income taxes plus
interest expense, depreciation and amortization. EBITDA is a widely
accepted measure of a company's ability to incur and service debt, to
undertake capital expenditures, and to meet working capital
requirements. EBITDA is not a measure of financial performance under
generally accepted accounting principles ("GAAP") and should not be
considered an alternative either to net income as an indicator of the
Company's operating performance or as an indicator of the Company's
liquidity.
(f) "Adjusted EBITDA" is EBITDA excluding restructuring and nonrecurring
charges of $3.2 million for fiscal 1998, $500,000 for fiscal 1997, $3.8
million for fiscal 1996, and $9.6 million for fiscal 1995. There were
no restructuring and nonrecurring charges in fiscal 1999.
(g) Cash interest expense is net interest expense less amounts not paid in
cash for the period indicated including, among other things, interest
accrued on the TFH Debt of $6.4 million in fiscal 1997 and $7.8 million
in fiscal 1996.
(h) Ratio of Adjusted EBITDA to interest expense or cash interest expense
represents Adjusted EBITDA divided by net interest expense or cash
interest expense.
(i) For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consists of operating income (loss) before income taxes plus
fixed charges, and "fixed charges" consists of net interest expense and
the portion of rental expense deemed representative of the interest
factor of $1.2 million for 1999, $1.5 million for 1998, and $1.4
million for fiscal 1997. (See Exhibit 12).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 1, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY
2, 1999
The following table sets forth certain historical income statement data
for the periods indicated derived from the Company's statements of operations
expressed in dollars and as a percentage of net sales.
TOM'S FOODS INC.
FISCAL YEAR ENDED JANUARY 1, 2000 COMPARED
TO FISCAL YEAR ENDED JANUARY 2, 1999
(in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------
JAN. 1, 2000 JAN. 2, 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net Sales $ 203,559 100.0% $ 202,380 100.0%
Cost of Goods Sold (124,632) (61.2) (123,228) (60.9)
--------- ----- --------- -----
Gross Profit 78,927 38.8 79,152 39.1
Selling and administrative expenses (72,379) (35.6) (73,701) (36.4)
Amortization of goodwill, intangible assets
and refinancing costs (2,178) (1.1) (2,177) (1.1)
Other Income, net 828 0.4 1,902 0.9
Restructuring and nonrecurring charges 0 0.0 (3,224) (1.6)
--------- ----- --------- -----
Income from Operations 5,198 2.5 1,952 0.9
Interest Expense, net (7,817) (3.8) (8,129) (4.0)
--------- ----- --------- -----
Loss before income taxes and cumulative
effect of accounting change (2,619) (1.3) (6,177) (3.1)
Provision for income taxes 134 0.1 50 0.0
--------- ----- --------- -----
Net loss before cumulative effect
of accounting change $ (2,753) (1.4) $ (6,227) (3.1)
Cumulative effect of accounting change 0 0.0 1,050 0.5
--------- ----- --------- -----
Net loss $ (2,753) (1.4)% $ (5,177) (2.6)%
========= ===== ========= =====
Adjusted EBITDA $ 14,455 7.1% $ 14,444 7.1%
Depreciation and amortization $ 9,257 4.5 $ 9,268 4.6
</TABLE>
Net Sales
Net sales for fiscal 1999 were $203.6 million, an increase of $1.2
million, or 0.6%, compared to $202.4 reported for the 1998 comparable period
largely due to an increase in contract sales.
Gross Profit
Gross Profit for fiscal 1999 was down slightly by $0.2 million, or
0.3%, compared to fiscal 1998 due to a shift in sales mix.
Selling and Administrative Expenses
Selling and administrative expenses decreased $1.3 million, or 1.8%,
for fiscal 1999 compared to the comparable 1998 period due to continued cost
reduction efforts.
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Amortization of Goodwill and Intangible Assets
Goodwill and intangible assets arose during the acquisition of the
Company in May 1993. The Company has attributed the goodwill and intangible
assets to its distribution system, an assembled staff, various trademarks and
goodwill. These items are being amortized using the straight-line method over
their estimated useful life. The amortization expense for both fiscal 1999 and
1998 was $1.7 million in each period.
In connection with the October 1997 debt refinancing, the Company
incurred $3.5 million in transaction costs which were capitalized and are being
amortized over the seven year term of the new Senior Notes. The amortization
expense of these costs was $500,000 for both years ended January 1, 2000 and
January 2, 1999, respectively.
Other Income (Expense)
Other income (expense) decreased $1.1 million for fiscal 1999 over the
comparable period in 1998 due to lower commission income derived from the sales
of affiliated products manufactured by others and a one-time fee recovery gain
in 1998.
Restructuring and Nonrecurring Charges
In 1998, the Company recorded approximately $3.2 million in
nonrecurring charges comprised of the following items. The Company incurred
$960,000 in legal, accounting, and other expenses related to an unsuccessful
acquisition attempt and the write-off of a company research project which was
begun in 1997. Also in 1998, the Company incurred several one-time nonrecurring
charges related to restructuring its Company owned route distribution system
resulting in a charge of $683,000 in related severance and reorganization costs.
Other 1998 nonrecurring charges included $800,000 of additional depreciation
expense for a change in the estimated useful life of certain handheld computer
equipment, $216,000 for the write-down in inventory value at certain field
locations and $65,000 for the write-off of unusable handheld computer software.
Also included in the nonrecurring charges were bonuses of $500,000 paid by the
Company to management in connection with the Offering in each of 1998 and 1997.
Adjusted EBITDA
EBITDA for fiscal 1999 was $14.5 million, a slight increase over the
adjusted EBITDA of $14.4 million for fiscal 1998. Reported EBITDA for fiscal
1998 was $11.2 million including nonrecurring charges of $3.2 million discussed
above which, if added back produces an Adjusted EBITDA (exclusive of
nonrecurring charges) of $14.4 million.
Interest Expense
Interest expense, net of interest income, decreased to $7.8 million for
fiscal 1999 from $8.1 million for fiscal 1998. Average outstanding borrowings
for fiscal 1999 were lower than 1998's average borrowings, however, the average
effective interest rate of 10.3% for fiscal 1999 increased 0.5 percentage points
from 1998's average effective interest rate of 9.8%.
Provision for Federal and State Income Taxes
For fiscal 1999 and 1998, the Company estimated that it would have no
Federal tax obligation due to loss carryforwards from prior years, however, the
Company did provide for certain state income and franchise tax obligations in
both years. At the end of fiscal 1999, the Company had a net operating loss
carryforward of approximately $51.3 million which begins to expire in fiscal
2008.
Net Loss Before Cumulative Effect of Accounting Change
As a result of the above, the Company recorded a fiscal 1999 net loss
before the effect of an accounting change of $2.8 million, compared to a net
loss of $6.2 million for the comparable period in 1998.
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Cumulative Effect of Accounting Change
In 1998, the Company changed its accounting policy to record
maintenance spare parts in inventory and to later expense the parts when taken
from inventory (rather than when purchased as was the previous policy) to
provide greater matching of maintenance expense with revenue recognition as well
as better overall control for spare parts inventory. This change in accounting
method led to a one-time gain of $1.0 million in 1998.
Net Loss
As a result of the above, the Company recorded a net loss for fiscal
1999 of $2.8 million compared to a net loss of $5.2 million for the comparable
period in 1998.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 2, 1999 COMPARED TO FISCAL YEAR ENDED JANUARY
3, 1998
The following table sets forth certain historical income statement data
for the periods indicated derived from the Company's statements of operations
expressed in dollars and as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
JAN. 2, 1999 JAN. 3, 1998
----------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales $ 202,380 100.0% $ 212,648 100.0%
Cost of goods sold (123,228) (60.9) (131,454) (61.8)
--------- ----- --------- -----
Gross profit 79,152 39.1 81,194 38.2
Selling and administrative expenses (73,701) (36.4) (75,954) (35.7)
Amortization of goodwill and
intangible assets (2,177) (1.1) (1,792) (0.8)
Other income (expense) 1,902 0.9 1,138 0.5
Restructuring and nonrecurring charges (3,224) (1.6) (500) (0.3)
--------- ----- --------- -----
Income (loss) from operations 1,952 0.9 4,086 1.9
Interest expense, net (8,129) (4.0) (9,978) (4.7)
--------- ----- --------- -----
Loss before income taxes and cumulative
effect of accounting change (6,177) (3.1) (5,892) (2.8)
Provision for income taxes 50 0.0 50 0.0
--------- ----- --------- -----
Net loss before cumulative effect
of accounting change (6,227) (3.1) (5,942) (2.8)
Cumulative effect of accounting change 1,050 0.5 0 0.0
--------- ----- --------- -----
Net loss $ (5,177) (2.6)% $ (5,942) (2.8)%
========= ===== ========= =====
Adjusted EBITDA $ 14,444 7.1% $ 13,628 6.4%
Depreciation and amortization 9,268 4.6 9,042 4.3
</TABLE>
Net Sales
Net sales for fiscal 1998 (a 52 week fiscal year) were $202.4 million,
a decrease of $10.3 million, or 4.8%, compared to $212.6 million reported for
the 1997 comparable period (which was a 53 week fiscal year). In addition to the
shorter year, sales declined due to lower national account and contract sales
compared to 1997.
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Gross Profit
Gross Profit for fiscal 1998 was down $2.0 million, or 2.5%, compared
to fiscal 1997 due to the lower sales volume, however, the gross profit percent
increased 0.9 percentage points due to continued emphasis on operational cost
efficiencies and a favorable mix shift between distribution channels.
Selling and Administrative Expenses
Selling and administrative expenses decreased $2.3 million, or 3.0%,
for fiscal 1998 compared to the comparable 1997 period due to cost reduction
efforts and lower incentive compensation payments.
Amortization of Goodwill and Intangible Assets
Goodwill and intangible assets arose during the acquisition of the
Company in May 1993. The Company has attributed the goodwill and intangible
assets to its distribution system, an assembled staff, various trademarks and
goodwill. These items are being amortized using the straight-line method over
their estimated useful life. The amortization expense for both fiscal 1998 and
1997 was $1.7 million in each period.
In connection with the October 1997 debt refinancing, the Company
incurred $3.5 million in fees and expenses which were capitalized and are being
amortized over the seven year term of the new Senior Notes. The amortization
expense of these costs was $500,000 and $115,000 for the years ended January 2,
1999 and January 3, 1998, respectively.
Other Income (Expense)
Other income (expense) increased $764,000 for fiscal 1998 over the
comparable period in 1997 due primarily to the one-time recovery of fees
previously paid by the Company for consulting work.
Restructuring and Nonrecurring Charges
In 1998, the Company recorded approximately $3.2 million in
nonrecurring charges comprised of the following items. The Company incurred
$960,000 in accounting, legal and other expenses related to an unsuccessful
acquisition attempt and the write-off of a company research project which was
begun in 1997. Also in 1998, the Company incurred several one-time nonrecurring
charges related to restructuring its Company owned route distribution system
resulting in a charge of $683,000 in related severance and reorganization costs.
Other 1998 nonrecurring charges included $800,000 of additional depreciation
expense for a change in the estimated useful life of certain handheld computer
equipment, $216,000 for the write-down in inventory value at certain field
locations and $65,000 for the write-off of unusable handheld computer software.
Also included in the nonrecurring charges were bonuses of $500,000 paid by the
Company to management in connection with the Offering in each of 1998 and 1997.
Adjusted EBITDA
Reported EBITDA for fiscal 1998 was $11.2 million including
nonrecurring charges of $3.2 million discussed above which, if added back,
produces an Adjusted EBITDA (exclusive of nonrecurring charges) of $14.4
million. Similarly, a nonrecurring charge of $500,000 was incurred in fiscal
1997 for bonus expenses associated with the October 1997 Offering which, if
added back to the fiscal 1997 EBITDA of $13.1 million, produces an Adjusted
EBITDA of $13.6 million.
Interest Expense
Interest expense, net of interest income, decreased to $8.1 million for
fiscal 1998 from $10.0 million for fiscal 1997 due to a lower effective interest
rate related to the Offering placed in late 1997. 1998's average borrowings,
with an average effective interest rate of 9.8% represented a decrease of 1.4
percentage points from 1997's average effective interest rate of 11.2%.
Provision for Federal and State Income Taxes
For fiscal 1998 and 1997, the Company estimated that it would have no
Federal tax obligation due to loss carryforwards from prior years, however, the
Company did provide for certain state income and
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franchise tax obligations in both years. At the end of fiscal 1998, the Company
had a net operating loss carryforward of approximately $52.0 million which
begins to expire in fiscal 2008.
Net Loss Before Cumulative Effect of Accounting Change
As a result of the above, the Company recorded a net loss before the
effect of an accounting change for fiscal 1998 of $6.2 million, compared to a
net loss of $5.9 million for the comparable period in 1997.
Cumulative Effect of Accounting Change
In 1998, the Company changed its accounting policy to record
maintenance spare parts in inventory and to later expense the parts when taken
from inventory (rather than when purchased as was the previous policy) to
provide greater matching of maintenance expense with revenue recognition as well
as better overall control for spare parts inventory. This change in accounting
method led to a one-time gain of $1.0 million in 1998.
Net Loss
As a result of the above, the Company recorded a net loss for fiscal
1998 of $5.2 million compared to a net loss of $5.9 million for the comparable
period in 1997.
Liquidity and Capital Resources
On October 14, 1997, the Company issued (the "Offering") $60 million of
its 10.5% Senior Secured Notes (the "Notes") due November 1, 2004. The Notes are
secured by a first lien on and security interest in substantially all of the
assets and properties owned by the Company, except those that are security for
other debt obligations. The indenture governing the Notes has certain covenants
including, without limitation, covenants limiting the incurrence of additional
indebtedness, assets sales, investments, restricted payments and liens. Except
in certain circumstances, the Company may not redeem the Notes prior to November
1, 2001, and following that date, the Company may redeem the Notes in whole or
in part at redemption prices, as defined. In connection with the Offering, the
Company incurred $3.5 million in fees and expenses which were capitalized and
are being amortized over the seven year term of the Notes. As of January 1,
2000, the accumulated amortization of these costs equaled approximately
$1,115,000.
On January 31, 2000, the Company entered into a new revolving credit
facility which matures on January 31, 2004 providing for a $17,000,000 revolving
loan facility and letter-of-credit accommodations. Under the new loan agreement,
the revolving loan is based on 85% of all eligible accounts, plus 55% of the
value of eligible inventory, plus 10% of packaging materials, all as defined.
The initial interest rate for the new revolving facility is the prime rate of
interest or, at the Company's option, LIBOR plus 2.25%. The new revolving credit
agreement requires the Company to maintain certain financial ratios relating to
working capital and minimum borrowing availability, as defined. The Company's
revolving loan facility is secured by a first lien on and security interest in
the inventory and receivables of the Company and certain related Collateral.
As of January 1, 2000, the Company had $10 million outstanding under
certain industrial development revenue bonds related to its plants located in
Florida and Tennessee. The industrial development revenue bonds are secured by
certain real property and equipment of the Company and are due in various
amounts beginning in 2000 through 2009 at fixed interest rates ranging from 6
1/2% to 6 3/4% per annum. The bonds begin to mature in 2000 with a principal
payment of $1.0 million due September 1, 2000.
As of January 1, 2000, the Company also had $597,000 outstanding under
several long term notes due to former distributors who sold their businesses to
the Company. These notes are due in various amounts, typically paid monthly,
with $130,000 due in fiscal 2000.
The Company's cash flow requirements are for working capital, capital
expenditures and debt service. The Company has met its liquidity needs to date
through internally generated funds and a revolving line of credit. As of January
1, 2000, the Company had no outstanding loans and $2.1 million outstanding in
letters of credit under the revolving line and had $9.0 million in borrowing
availability thereunder.
10
<PAGE> 11
The Company's working capital decreased to $12.6 million as of January
1, 2000 from $13.1 million in the same period in 1998. Except for the
classification of the $1.0 million principal payment of the industrial
development revenue bonds due September 1, 2000 as a current liability, working
capital actually improved by $500,000 for fiscal 1999. The Company's working
capital improved to $13.1 million at January 2, 1999 from $12.8 million at
January 3, 1998.
Net cash provided by operating activities was $9.7 million for fiscal
1999 as compared to $2.2 million for fiscal 1998 due largely to reductions in
receivables and inventory levels and the favorable overall operating performance
of the Company for fiscal 1999. The $10.5 million in cash provided by operating
activities for fiscal 1997 was supported by lower cash interest expense as
compared to fiscal 1998 and 1999.
Capital expenditures were $7.5 million, $6.3 million and $3.4 million
in fiscal 1999, 1998, and 1997, respectively. For fiscal 1999, 1998 and 1997,
respectively, the Company spent $4.2 million, $3.1 million and $3.3 million on
its manufacturing facilities, and $3.2 million, $3.2 million and $200,000 on
distributor acquisitions and distribution equipment. The Company also utilizes
operating leases for capital equipment, primarily for over the road trucks and
trailers, route delivery trucks used on Company owned routes and passenger
vehicles. All operating leases are treated as operating expenses and the related
cash flow impact is reflected in cash flows from operating activities.
Net cash (used in) provided by financing activities was $(144,000),
$364,000 and $(1.9 million) for fiscal 1999, 1998, and 1997, respectively. In
fiscal 1997, the Company sold $60.0 million of Senior Secured Notes to fund
repayment of certain long term debt obligations. As noted above, the Company has
a principal payment of $1.0 million on the industrial development revenue bonds
due September 1, 2000.
The Company believes that internally generated funds and amounts which
will be available to it under the revolving line of credit are and will continue
to be sufficient to satisfy its operating cash requirements, planned capital
expenditures, and long term debt obligations as they come due.
YEAR 2000 ISSUES
All planned modifications for Year 2000 compliance were completed by
the targeted date. Contingency plans for Year 2000 related interruptions were
developed and include, but are not limited to replacing electronic applications
with manual processes and the identification of alternate raw material
suppliers. To date, the Company has experienced no significant Year 2000
compliance related problems.
CAUTIONARY STATEMENTS RELATED TO FORWARD-LOOKING STATEMENTS
The statements contained in the foregoing "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere which
are not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements. There can be no assurance that any
forward-looking statement will be realized or that actual results will not be
significantly higher or lower than set forth in such forward-looking statement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Raw materials used by the Company are subject to price volatility
caused by weather, government farm programs, global supply and demand, and other
unpredictable factors. To manage potential volatility in raw material prices,
the Company from time to time enters into commodity future and option contracts,
which are less than one year in duration. The Company's Board-approved policy is
to use such commodity derivative financial instruments only to the extent
necessary to manage these raw material price exposures. The Company does not use
these financial instruments for speculative purposes. These commodity
instruments are marketable exchange traded contracts designated as hedges, and
the changes in the market value of such contracts have a high correlation to the
price changes of the hedged commodity. As of January 1, 2000, the Company had no
futures contracts in wheat, soybean oil or corn.
11
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements as of January 1, 2000, January 2, 1999, and
January 3, 1998 together with the auditor's report are in Exhibit 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Michael E. Heisley, Sr. 63 Director
Rolland G. Divin 53 President, Chief Executive Officer and Director
Stanley H. Meadows(a) 55 Assistant Secretary and Director
Thomas C. Mattick 60 Director
Emily Heisley Stoeckel 36 Director
Andrew G. C. Sage II(a) 74 Director
Timothy J. Healy(a) 52 Director
S. Albert Gaston 40 Senior Vice President and Chief Financial Officer
Gerald R. Barker 53 Senior Vice President -- Marketing
Wyatt F. Hearp 53 Senior Vice President -- Manufacturing
Paul C. Serff 61 Senior Vice President -- Human Resources
</TABLE>
(a) Member of the Compensation Committee.
Michael E. Heisley, Sr. Mr. Heisley has been a Director of the Company
since May 1993. Since 1988, Mr. Heisley has been the Manager, President and
Chief Executive Officer of The Heico Companies, L.L.C., a holding company in
Chicago, Illinois which acquires or invests in and operates a diverse group of
businesses. Mr. Heisley also serves as the Chief Executive Officer of various of
The Heico Companies, L.L.C.'s subsidiaries and is a Director of Robertson-Ceco
Corp. and Environdyne Industries, Inc., both of which are publicly-held
companies. Mr. Heisley received a bachelor's degree in business administration
from Georgetown University in 1960. Mr. Heisley is the father of Emily Heisley
Stoeckel.
Rolland G. Divin. Mr. Divin has been the President, Chief Executive
Officer and a Director of the Company since January 1995. From December 1991 to
January 1995, Mr. Divin was the President and Chief Executive Officer of Chun
King, Inc., a national brand food business based in Cambridge, Maryland. Prior
to joining Chun King, Mr. Divin was the President, Chief Executive Officer and a
Director of Orange Co., Inc., a publicly-held national brand food/beverage
company based in Bartow, Florida from 1989 to 1991. Mr. Divin graduated from
Kansas State University in 1970 with a multi-discipline bachelor of science
degree in business/pre-veterinary studies and has pursued graduate studies in
finance at the University of Minnesota-St. Paul.
Stanley H. Meadows. Mr. Meadows has been the Assistant Secretary and a
Director of the Company since May 1993. Since 1980 he has been a partner
(through a professional corporation) of McDermott, Will & Emery, a law firm
based in Chicago, Illinois which provides legal services to the Company, TFH and
TFCC. Mr. Meadows is also a Director of Robertson-Ceco Corp., a publicly-held
company. Mr. Meadows received a bachelor of science degree from the University
of Illinois in 1966 and a law degree from the University of Chicago in 1970.
Thomas C. Mattick. Mr. Mattick has been a Director of the Company since
May 1993. Mr. Mattick is a CPA and has been Managing Director of Heico
Acquisitions, Inc., an acquisition company in Chicago, Illinois, since January
1992. Mr. Mattick received a bachelor's degree in business administration from
the University of Wisconsin in 1962.
Emily Heisley Stoeckel. Ms. Stoeckel has been a Director of the Company
since August 1996. She has held various positions with Heico Acquisitions, Inc.
in Chicago, Illinois since January 1989 and has been
12
<PAGE> 13
Vice President since January 1996. Ms. Stoeckel received a bachelor of arts
degree in economics from Northwestern University in 1987 and a master's degree
in business administration from the University of Chicago in 1991. Ms. Stoeckel
is the daughter of Michael E. Heisley, Sr.
Andrew G. C. Sage II. Mr. Sage has been a Director of the Company since
1993. Mr. Sage held various positions with Shearson Lehman Brothers, Inc. and
its predecessors, Lehman Brothers and Lehman Brothers Kuhn Loeb, Inc., since
joining the investment bank in 1948, including General Partner from 1960-1970,
President from 1970-1973, Vice Chairman from 1973-1977, Managing Director from
1977-1987, and Senior Consultant from 1987-1990. Since 1990, Mr. Sage has been a
consultant in general business and financial management. Mr. Sage is a Director
of Robertson-Ceco Corp. and Computervision Corporation, both of which are
publicly-held companies.
Timothy J. Healy. Mr. Healy has been a Director of the Company since
April 1998. He currently works as a Managing Director with J.W. Childs and
Associates where he has been employed since July 1998. Prior to this, he was the
Chairman of the Board, President, and Chief Executive Officer of Select
Beverages, Inc. in Chicago, IL where he had worked from 1991 until 1998. Mr.
Healy received a bachelor of science degree from Iowa State University in 1970
and a master of business administration degree from Cornell University in 1972.
S. Albert Gaston. Mr. Gaston has been the Senior Vice President and
Chief Financial Officer of the Company since April 1995. From November 1989 to
April 1995, Mr. Gaston was the Vice President and Chief Financial Officer of
Apache Products Company, a building materials manufacturer and distributor
headquartered in Meridian, Mississippi. Mr. Gaston is a CPA and received his
bachelor's degree in business administration from Millsaps College in 1981 and
his masters degree in business administration from Southern Methodist University
in 1987.
Gerald R. Barker. Mr. Barker has been the Senior Vice President --
Marketing of the Company since August 1995. Prior to joining the Company, Mr.
Barker served as a marketing officer for Borden Inc., a national brand food
company, in Atlanta, Georgia from September 1987 through June 1995. Mr. Barker
has a bachelor's degree in economics degree from State University of New York in
1969 and a masters degree in business administration from Arizona State
University in 1974.
Wyatt F. Hearp. Mr. Hearp has been Senior Vice President --
Manufacturing of the Company since 1995. Prior to becoming an officer, Mr. Hearp
held various positions with the Company or its predecessor businesses since
1972, including manager of the Company's chip division from 1990 to 1995. Mr.
Hearp received a bachelor's degree in biology from High Point University in 1969
and a master's of science degree in food technology from Auburn University in
1977.
Paul C. Serff. Mr. Serff has been the Senior Vice President -- Human
Resources of the Company or its predecessor businesses since August 1987. Mr.
Serff received a bachelor's degree in industrial management from the Georgia
Institute of Technology in 1961 and a master's degree in business administration
from Emory University in 1964.
TERM OF OFFICE
Each member of the Board of Directors of the Company is elected
annually. All officers serve at the pleasure of the Board of Directors.
DIRECTOR COMPENSATION
All directors may be reimbursed for certain expenses in connection with
attendance at Board and committee meetings. Messrs. Sage and Healy receive
$20,000 annually as compensation for their services as Directors. Other than
with respect to the reimbursement of expenses and the fees noted above for
Messrs. Sage and Healy, directors do not receive additional compensation for
service as a director.
13
<PAGE> 14
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to all
compensation paid or earned for services rendered to the Company in 1999 by the
Company's chief executive officer and the Company's next four most highly
compensated executive officers (each, a "Named Officer"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
NAME PRINCIPAL POSITION SALARY COMPENSATION BONUS *
- ---- ------------------------- ------------ -------
<S> <C> <C> <C>
Rolland G. Divin President, Chief Executive Officer
and Director $390,000 $231,050
S. Albert Gaston Senior Vice President and Chief
Financial Officer 174,900 92,419
Wyatt F. Hearp Senior Vice President --
Manufacturing/Distribution 168,500 71,135
Gerald R. Barker Senior Vice President -- Marketing 153,500 83,457
Paul C. Serff Senior Vice President --
Human Resources 137,300 74,664
</TABLE>
* These payments are estimated for the 1999 Management Incentive Compensation
Plan to be paid prior to 3/31/00.
DEFINED BENEFIT RETIREMENT PLANS
The Company has two noncontributory defined benefit retirement plans
(the "Hourly Plan" and the "Salaried Plan") which cover substantially all
full-time employees who are at least 21 years of age. The Company also has an
non-qualified pension plan ("non-qualified Plan") covering only certain salaried
employees. The plans provide for payment of monthly benefits to participants
upon their reaching normal retirement dates. Benefit amounts are determined by a
benefit formula which considers length of service and average salary for the
Salaried Plan and the non-qualified Plan and length of service multiplied by a
fixed rate, as determined by the Company, for the Hourly Plan.
Salaried Plan. For those employees participating in the Salaried Plan,
the Company estimates that the following annual benefits would be payable upon
retirement at or after age 60 to persons at the following compensation and
year-of-service classifications, less amounts received as social security
benefits:
TOM'S FOODS INC. PENSION PLAN FOR SALARIED EMPLOYEES
SUPPLEMENTAL RETIREMENT PLAN TABLE
Annual Pension Payable at Age 65
<TABLE>
<CAPTION>
YEARS OF SERVICES
-----------------
COMPENSATION(A) 5 10 15 20 25 30 OR MORE
- --------------- - -- -- -- -- ----------
<S> <C> <C> <C> <C> <C> <C>
$100,000 6,674 13,347 20,021 26,694 33,368 40,041
$125,000 8,549 17,097 25,646 34,194 42,743 51,291
$150,000 10,424 20,847 31,271 41,694 52,118 62,541
$200,000 11,174 22,347 33,521 44,694 55,868 67,041
$300,000 11,174 22,347 33,521 44,694 55,868 67,041
$500,000 11,174 22,347 33,521 44,694 55,868 67,041
</TABLE>
(a) Compensation is assumed to be constant. Table is based on covered
compensation of $33,060 for a participant turning 65 in 1999. The IRC
Section 401(a)(17) limit on compensation is assumed constant at the 1999
level of $160,000.
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<PAGE> 15
The compensation used to determine a person's benefits under the
Salaried Plan and the non-qualified Plan includes such person's salary and
annual bonus, whether or not deferred. The current compensation for each of the
Named Officers is identical to the amounts listed in the Summary Compensation
Table. The estimated credited years of service at the end of fiscal 1999 for
each of the Named Officers are 5.0 years for Mr. Divin, 4.7 years for Mr.
Gaston, 4.3 years for Mr. Barker, 12.4 years for Mr. Serff and 26.6 years for
Mr. Hearp.
Non-qualified Plan. The Supplemental Employee Retirement Plan of Tom's
Foods Inc. (the "SERP") provides employees designated by the Company with
certain pension benefits upon retirement on or after age 58 (55 for certain
employees) in order to supplement benefits provided under the Company's
qualified plans and Social Security. The SERP generally provides for lifetime
benefits of 50.0% of average monthly compensation less 50.0% of primary Social
Security, reduced for service less than 30 years and receipt prior to age
62 1/2, and further offset by the actuarial value of prior cash payments. Of the
five Named Officers, only Mr. Serff participates in the SERP. The Company
estimates that the annual benefits payable to Mr. Serff at normal retirement age
pursuant to the SERP would be $20,518.
Hourly Plan. The Hourly Plan provides hourly employees with certain
pension benefits upon retirement on or after age 55 if the employees worked five
or more years prior to termination. Generally, the plan provides for monthly
pension benefits based only on a participant's years of service. None of the
Named Officers participate in this plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Divin, the
Company's President and Chief Executive Officer, and Mr. Serff, the Company's
Vice President -- Human Resources. The employment agreement with Mr. Divin
provides for an ongoing 12-month term and is terminable by the Company upon 60
days prior notice. If the Company terminates the agreement without cause, if Mr.
Divin resigns because of a material breach by the Company or if Mr. Divin's
responsibilities are materially diminished after a change in control of the
Company, the Company will be required to pay Mr. Divin severance payments of up
to a maximum of 12 months of salary. The employment agreement with Mr. Serff
provides for an ongoing 24-month term. Should the Company terminate Mr. Serff's
employment without cause, the Company is required to pay Mr. Serff severance
payments for the remainder of the term, or a minimum of 24 months based on his
then-current salary. Each of Mr. Divin's and Mr. Serff's employment agreements
contains a covenant not to compete with the Company within certain geographic
areas for up to one year following the respective officer's resignation or
termination. Mr. Gaston and Mr. Barker also are entitled to severance payments
of up to a maximum of 12 months salary in certain circumstances.
INCENTIVE COMPENSATION PLANS
Management Incentive Compensation Plan. The Company's Management
Incentive Compensation Plan (the "Management Incentive Plan") is administered by
the Compensation Committee of the Board of Directors and applies to those key
employees designated by the President and Chief Executive Officer. The terms and
conditions upon which awards become payable are determined by the Compensation
Committee and subject to approval by the Board of Directors. Target incentive
amounts are expressed as a percentage of the key employees' salary and actual
incentive amounts are provided based on the Company's achievement of certain
criteria, including manufacturing profit and sales performance objectives. Each
of the Named Officers, as well as other key employees, participated in the
Management Incentive Plan in fiscal 1999.
Executive Incentive Plan. In addition, the Company's Executive
Incentive Plan (the "Executive Incentive Plan") applies to Mr. Divin, Mr. Gaston
and Mr. Barker (collectively, the "Participants"). Each of the Participants has
an option to acquire his allocated share of 20.0% of the Preferred Stock
(including any liquidation preferences accruing thereon) issued to TFH Corp.
("TFH"), the Company's parent, in satisfaction of the TFH Debt. The options,
which are allocated 60.0% to Mr. Divin, 20.0% to Mr. Gaston and 20.0% to Mr.
Barker, will expire if not exercised by December 31, 2002. The options to
acquire Preferred Stock will vest, for those Participants then employed by the
Company, upon: (i) a sale of the Company or substantially all its assets; (ii)
an exchange of the outstanding Preferred Stock for Common Stock of the Company;
(iii) a Public Equity Offering; or (iv) a redemption of or sale to a third party
of the Preferred Stock (collectively, the "Exercise Events"). In addition, the
options to acquire Class A Preferred Stock may be exercised at any time prior to
December 31, 2002 if the Class A Preferred Stock becomes exchangeable for
15
<PAGE> 16
Exchange Notes. The options to acquire Preferred Stock shall apply to any
partial exchanges under clause (ii) above, to partial redemptions or sales under
clause (iv) above and partial exchangeability of the Class A Preferred Stock, to
the extent of 20.0% of the amount exchanged, redeemed, sold or exchangeable. The
aggregate exercise price for the options will be $1,000. The options vest as
follows: (i) 33.33%, one year after consummation of the Offering; (ii) 66.67%,
two years after consummation of the Offering; and (iii) 100.0%, three years
after consummation of the Offering. The grant of the options described herein
will result in a charge to compensation expense upon an Exercise Event equal to
the dollar amount of such options less the amount paid by Mr. Divin, Mr. Gaston
and Mr. Barker.
The Executive Incentive Plan further provided the Participants with a
cash payment in an aggregate amount of $1.0 million. 50.0% of such amount was
paid upon consummation of the October 1997 Offering and 50.0% was paid on
December 31, 1998 to Participants then employed by the Company. TFH had an
obligation to pay $1.0 million to the Participants in cash from such amount,
with $500,000 paid at consummation of the October 1997 Offering and $500,000 due
on December 31, 1998, subject to continued employment by the Company (which is
included in the compensation table set forth herein). The first payment resulted
in a $500,000 charge to compensation expense of the Company upon consummation of
the October 1997 Offering. The second payment was made as scheduled resulting in
a $500,000 charge to compensation expense in 1998.
All obligations to the Participants pursuant to the Executive Incentive
Plan are obligations solely of TFH, not of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The issued and outstanding Common Stock of the Company consists of
5,000 shares, 4,000 of which (80.0%) are held by TFH and 1,000 of which (20.0%)
are held by TFCC. All of the outstanding shares of Preferred Stock of the
Company, which are non-voting, are held by TFH. Under the terms of a
Stockholders' Agreement among all of the stockholders of TFH (the "TFH
Stockholders' Agreement"), Heico Holding, Inc. ("Heico Holding") is entitled to
elect a majority of the Boards of Directors of each of TFH and the Company.
Michael E. Heisley, Sr. a Director of the Company, holds substantially all of
the voting securities of Heico Holding. Under the terms of a Stockholders'
Agreement among all of the Stockholders of TFCC (the "TFCC Stockholders'
Agreement"), Mr. Heisley is entitled to designate a majority of the Board of
Directors of TFCC. As a result of the foregoing, Mr. Heisley has beneficial
ownership of all of the outstanding capital stock of the Company.
Heico Holding holds 55.0% of the shares of common stock of TFH. The
remaining shares of common stock of TFH are held by Gerald D. Hosier ("Hosier")
(20.0%), Allstate Insurance Company ("Allstate") (15.0%) and TCW Shared
Opportunity Fund L.P. ("TCW") (10.0%). Pursuant to the TFH Stockholders'
Agreement, the consent of Heico Holding and one of Allstate, Hosier or TCW is
required in order to approve (a) a merger resulting in the sale of the Company,
(b) any sale of substantially all of the Company's assets, (b) asset sales, by
the Company in any fiscal year exceeding, in the aggregate, $7.5 million, (c)
acquisitions by the Company of assets in any fiscal year exceeding $7.5 million
in the aggregate, (d) capital expenditures by the Company in any fiscal year
exceeding $7.5 million in the aggregate, (e) certain issuance of capital stock
of the Company and (f) the incurrence by the Company of indebtedness for
borrowing money exceeding $7.5 million in the aggregate. In addition, each of
Allstate, TCW and Hosier has the right to designate one member of the Boards of
Directors of each of TFH and the Company.
The capitalization of TFCC consists of 30,750 shares of Class A 6%
Cumulative Convertible Preferred Stock (the "TFCC Class A Preferred Stock"), 867
shares of Class B Preferred Stock, 2,225.35 shares of Class C 6% Cumulative
Convertible Preferred Stock (the "TFCC Class C Preferred Stock"), 8,750 shares
of Class D 6% Cumulative Convertible Preferred Stock (the "TFCC Class D
Preferred Stock") and 410,734 shares of common stock (the "TFCC Common Stock").
Each share of TFCC Class A Preferred Stock, TFCC Class C Preferred Stock and
TFCC Class D Preferred Stock is convertible into 34.9895 shares of TFCC Common
Stock and has a liquidation preference of $1,000 plus unpaid dividends which
have accrued since May 13, 1993. TFCC Class A Preferred Stock and TFCC Class D
Preferred Stock rank pari passu and senior to all other TFCC preferred stock.
The TFCC Class A Preferred Stock and TFCC Class C Preferred Stock are entitled
to 34.9895 votes per share and vote together with TFCC Common Stock in all
matters upon which such holders are entitled to vote. TFCC Class B Preferred
Stock and TFCC Class D Preferred Stock are generally not voting. Allstate and
its affiliates hold 20,000 shares of TFCC
16
<PAGE> 17
Class A Preferred Stock with 44.7% of the voting power of the outstanding voting
securities of TFCC. Hosier holds 8,750 shares of TFCC Class A Preferred Stock
with 19.6% of the voting power of the outstanding voting securities of TFCC.
Heico Holding holds 2,000 shares of TFCC Class A Preferred Stock and 160,596
shares of TFCC Common Stock and TF Partners, an affiliate of Mr. Heisley, holds
150,862 shares of TFCC Common Stock. Heico Holding and TF Partners together hold
voting securities with 24.4% of the voting power of the outstanding voting
securities of TFCC. In addition, Allstate is entitled to designate two members
of the Board of Directors of TFCC.
Of the Named Officers, each of Rolland G. Divin, S. Albert Gaston and
Paul C. Serff beneficially owns 48,664, 9,733 and 11,680 shares of TFCC Common
Stock, respectively, or 3.1%, 0.6% and 0.7%, respectively, of the voting power
of the outstanding voting securities of TFCC. In accordance with the Executive
Incentive Plan, each of Messrs. Divin, Gaston and Barker has the option to
acquire 12.0%, 4.0% and 4.0%, respectively, of the Preferred Stock issued to
TFH. See "Executive Compensation -- Incentive Compensation Plans -- Executive
Incentive Plan."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Beginning with fiscal 1994, the Company has entered into consulting
arrangements with Michael E. Heisley, Sr. and Thomas C. Mattick, Directors of
the Company, for provision of consulting services to the Company. In respect of
such consulting services, Mr. Heisley and Mr. Mattick each received $100,000 per
year.
As a result of TFH's ownership of 80.0% of the Common Stock of the
Company, TFH and the Company are required to file a consolidated return for
federal income tax purposes. As the common parent of the consolidated group, TFH
is responsible for the payment of any consolidated tax liabilities. TFH and the
Company have entered into a tax sharing agreement which provides that, in
connection with the filing of the consolidated federal income tax return and the
filing of state income tax returns in those states in which the operations of
the Company are consolidated or combined with TFH, the Company shall be required
to pay to TFH an amount equal to the Company's federal and state tax liabilities
that the Company and its subsidiaries would have had to pay had the Company and
its subsidiaries filed their own separate, consolidated or combined tax returns.
In December 1999, the stockholders of TFH renewed their letters of credit posted
in the aggregate face amount of $10.0 million in support of the Company's
outstanding industrial development revenue bonds. The letters of credit replaced
previous letters of credit that expired at the end of 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14 (A) DOCUMENT LIST
1. Financial Statements
<TABLE>
<CAPTION>
Description
Page
<S> <C>
Report of Independent Public Accounts 20
Balance Sheets as of January 2, 1999 and January 1, 2000 21
Statements of Operations for the years ended January 3,
1998, January 2, 1999 and January 1, 2000 23
Statements of Changes in Shareholders' Equity for the years
ended January 3, 1998, January 2, 1999 and January 1, 2000 24
Statements of Cash Flows for the years ended January 3,
1998, January 2, 1999 and January 1, 2000 25
Notes to Financial Statements 26
</TABLE>
17
<PAGE> 18
2. Financial Statement Schedules
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
Report of Independent Public Accountants on Financial
Statement Schedule 37
Valuation and Qualifying Accounts 38
</TABLE>
All other schedules are omitted because they are not required, are
inapplicable or the information is otherwise shown in the financial statements
or notes thereto.
3. Exhibits Required by Item 601 of Regulation S-K
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
3.1 The Second Restated Certificate of Incorporation of the Company, as
amended, and the Certificate of Designations of the Series A and Series
B Preferred Stock of the Company, filed as Exhibit 3.1 to the
Registration Statement on Form S-4, Registration No. 333-38853 (the
"Registration Statement"), are incorporated herein by reference.
3.2 The By-laws of the Company, filed as Exhibit 3.2 to the Registration
Statement, are incorporated herein by reference.
4.1 The Indenture, dated as of October 14, 1997, by and between the Company
and IBJ Schroder Bank & Trust Company, as Trustee, filed as Exhibit 4
to the Registration Statement, is incorporated herein by reference.
4.2 The First Supplemental Indenture, dated as of February 27, 1998, by and
between the Company and IBJ Schroder Bank & Trust Company, as Trustee,
filed as Exhibit 4.2 to the Company's 1997 Form 10-K, is incorporated
herein by reference.
10.1 The Registration Rights Agreement, dated as of October 14, 1997, by and
between the Company and PaineWebber Incorporated, filed as Exhibit 10.1
to the Registration Statement, is incorporated herein by reference.
10.2 The Amended and Restated Loan and Security Agreement, dated as of
October 14, 1997, by and between the Company and Congress Financial
Corporation (Southern), filed as Exhibit 10.2 to the Registration
Statement, is incorporated herein by reference.
10.3 The Guarantee from Tom's Foods Capital Corporation to Congress
Financial Corporation (Southern), dated as of August 30, 1996, filed as
Exhibit 10.3 to the Registration Statement, is incorporated herein by
reference.
10.4 The Confirmation and Acknowledgement of Guarantee and General Security
Agreement from Tom's Foods Capital Corporation to Congress Financial
Corporation (Southern), dated as of October 14, 1997, filed as Exhibit
10.4 to the Registration Statement, is incorporated hereby by
reference.
10.5 The Industrial Revenue Bond Documents for Knox County, Tennessee, filed
as Exhibit 10.5 to the Registration Statement, are incorporated herein
by reference.
10.6 The Industrial Revenue Bond Documents for Taylor County, Florida, filed
as Exhibit 10.6 to the Registration Statement, are incorporated herein
by reference.
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
10.7 The Intercreditor Agreement, dated as of October 14, 1997, by and
between Congress Financial Corporation (Southern) and IBJ Schroder Bank
& Trust Company, filed as Exhibit 10.7 to the Registration Statement,
is incorporated herein by reference.
10.8 The form of the Company's Distributor Agreement, filed as Exhibit 10.8
to the Registration Statement, is incorporated herein by reference.
10.9 The Subordination Agreement, dated as of October 14, 1997, by and
between IBJ Schroder Bank & Trust Company and TFH Corp., filed as
Exhibit 10.9 to the Registration Statement, is incorporated herein by
reference.
10.10 The Guarantee from TFH Corp. to Congress Financial Corporation
(Southern), dated as of August 30, 1996, filed as Exhibit 10.10 to the
Registration Statement, is incorporated herein by reference.
10.11 The Confirmation and Acknowledgement of Guarantee and general Security
Agreement from TFH Corp. to Congress Financial Corporation (Southern),
dated as of October 14, 1997, filed as Exhibit 10.11 to the
Registration Statement, is incorporated herein by reference.
10.12 The Employment Agreement, dated as of January 6, 1995, by and between
the Company and Rolland G. Divin, filed as Exhibit 10.12 to the
Registration Statement, is incorporated herein by reference.
10.13 The Employment Agreement, dated as of May 16, 1991 and as amended July
9, 1992, by and between the Company and Paul C. Serff, filed as Exhibit
10.13 to the Registration Statement, is incorporated herein by
reference.
10.14 The Employment Agreement, dated as of October 14, 1997, by and between
the Company and Gerald Barker, filed as Exhibit 10.14 to the
Registration Statement, is incorporated herein by reference.
10.15 The Employment Agreement, dated as of October 14, 1997, by and between
the Company and S. Albert Gaston, filed as Exhibit 10.15 to the
Registration Statement, is incorporated herein by reference.
10.16 The Registration Rights Agreement, dated as of October 14, 1997, by and
between the Company and TFH Corp., filed as Exhibit 10.16 to the
Registration Statement, is incorporated herein by reference.
10.17 The Company's "Executive Incentive Plan", filed as Exhibit 10.17 to the
Registration Statement, is incorporated herein by reference.
10.18 The Letters of Credit of the shareholders of TFH Corp., filed as
Exhibit 10.18 to the Registration Statement, is incorporated herein by
reference.
10.19 Extensions and amendments of the Letters of Credit of the shareholders
of TFH Corp., each dated as of December 22, 1999 or December 23, 1999,
are filed herewith as Exhibit 10.19.
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
is filed herewith as Exhibit 12.
27 The Financial Data Schedule is filed herewith as Exhibit 27.
</TABLE>
14 (B) REPORTS
No Current Report on Form 8-K was required to be filed by the Company
during the last quarter of the period covered by this report.
19
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tom's Foods Inc.:
We have audited the accompanying balance sheets of TOM'S FOODS INC. (a Delaware
corporation) as of January 1, 2000 and January 2, 1999 and the related
statements of operations, changes in shareholders' equity, and cash flows for
each of the three years in the period ended January 1, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tom's Foods Inc. as of January
1, 2000 and January 2, 1999 and the results of its operations and its cash flows
for each of the three years in the period ended January 1, 2000 in conformity
with generally accepted accounting principles.
Atlanta, Georgia
February 11, 2000
20
<PAGE> 21
TOM'S FOODS INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 5,391 $ 3,087
Accounts and notes receivable, net 14,285 16,073
Inventories:
Raw materials 2,564 2,383
Packaging materials 2,135 2,916
Finished goods and work in progress 5,103 5,657
Spare parts inventories 2,574 1,300
Other current assets 1,491 1,559
--------- ---------
Total current assets 33,543 32,975
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT:
Land and land improvements 5,744 5,690
Buildings 16,887 14,358
Machinery, equipment, and vehicles 49,496 46,733
Vending and other distribution equipment 9,961 10,121
Furniture and fixtures 10,280 9,834
Construction in progress 4,761 4,497
--------- ---------
Total property, plant, and equipment 97,129 91,233
Accumulated depreciation (46,363) (40,449)
--------- ---------
Net property, plant, and equipment 50,766 50,784
--------- ---------
NONCURRENT ACCOUNTS AND NOTES RECEIVABLE, NET 493 505
OTHER ASSETS 1,837 1,770
DEFERRED DEBT ISSUE COSTS, NET OF ACCUMULATED AMORTIZATION
OF $1,115 AND $615 AT JANUARY 1, 2000 AND JANUARY 2, 1999,
RESPECTIVELY 2,385 2,885
GOODWILL AND INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $11,116 AND $9,438 AT JANUARY 1, 2000 AND
JANUARY 2, 1999, RESPECTIVELY 45,056 46,587
--------- ---------
Total assets $ 134,080 $ 135,506
========= =========
</TABLE>
21
<PAGE> 22
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 10,984 $ 11,473
Accrued liabilities 8,799 8,277
Current portion of long-term debt obligations 1,130 156
--------- ---------
Total current liabilities 20,913 19,906
--------- ---------
LONG-TERM DEBT:
Senior secured notes 60,000 60,000
Industrial development revenue bonds 9,000 10,000
Other debt obligations 467 585
--------- ---------
Total long-term debt 69,467 70,585
--------- ---------
OTHER LONG-TERM OBLIGATIONS 37 37
ACCRUED PENSION COST 7,671 7,115
ACCRUED POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 1,779 1,797
EXCHANGEABLE PREFERRED STOCK, $.01 PAR VALUE; CLASS A,
7,000 SHARES AUTHORIZED; 7,000 SHARES ISSUED AND OUTSTANDING AT
JANUARY 1, 2000 AND JANUARY 2, 1999 8,811 7,911
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000 shares authorized, 5,000 shares
issued and outstanding at January 1, 2000 and January 2, 1999 0 0
Preferred stock, $.01 par value, Class B, 21,737 shares authorized,
21,737 shares issued and outstanding at January 1, 2000 and
January 2, 1999 26,810 24,316
Additional paid-in capital 43,725 43,725
Accumulated deficit (45,133) (39,886)
--------- ---------
Total shareholders' equity 25,402 28,155
--------- ---------
Total liabilities and shareholders' equity $ 134,080 $ 135,506
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
22
<PAGE> 23
TOM'S FOODS INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, January 2, January 3,
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
NET SALES $ 203,559 $ 202,380 $ 212,648
COST OF GOODS SOLD (124,632) (123,228) (131,454)
--------- --------- ---------
Gross profit 78,927 79,152 81,194
--------- --------- ---------
EXPENSES AND OTHER INCOME:
Selling and administrative expenses (72,379) (73,701) (75,954)
Amortization of goodwill and intangible assets (2,178) (2,177) (1,792)
Other income, net 828 1,902 1,138
Restructuring and nonrecurring charges 0 (3,224) (500)
--------- --------- ---------
(73,729) (77,200) (77,108)
--------- --------- ---------
INCOME FROM OPERATIONS 5,198 1,952 4,086
INTEREST EXPENSE, NET OF INTEREST INCOME OF $83,
$110, AND $166 FOR 1999, 1998, AND 1997, RESPECTIVELY (7,817) (8,129) (9,978)
--------- --------- ---------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (2,619) (6,177) (5,892)
PROVISION FOR INCOME TAXES 134 50 50
--------- --------- ---------
NET LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE (2,753) (6,227) (5,942)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 0 1,050 0
--------- --------- ---------
NET LOSS $ (2,753) $ (5,177) $ (5,942)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 24
TOM'S FOODS INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK PREFERRED STOCK ADDITIONAL
---------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996 5,000 $0 0 $ 0 $42,725 $(26,206)
Issuance of Class B preferred stock 0 0 21,737 21,755 0 0
Contribution from TFH Corporation 0 0 0 0 500 0
Dividends accrued 0 0 0 471 0 (471)
Net loss 0 0 0 0 0 (5,942)
----- -- ------ ------- ------- --------
BALANCE AT JANUARY 3, 1998 5,000 0 21,737 22,226 43,225 (32,619)
Contribution from TFH Corporation 0 0 0 0 500 0
Dividends accrued 0 0 0 2,090 0 (2,090)
Net loss 0 0 0 0 0 (5,177)
----- -- ------ ------- ------- --------
BALANCE AT JANUARY 2, 1999 5,000 0 21,737 24,316 43,725 (39,886)
Dividends accrued 0 0 0 2,494 0 (2,494)
Net loss 0 0 0 0 0 (2,753)
----- -- ------ ------- ------- --------
BALANCE AT JANUARY 1, 2000 5,000 $0 21,737 $26,810 $43,725 $(45,133)
===== == ====== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 25
TOM'S FOODS INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,753) $(5,177) $ (5,942)
-------- ------- --------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 9,257 9,268 9,042
Accrued interest on TFH term loan 0 0 6,358
Restructuring and nonrecurring charges 0 2,881 0
Cumulative effect of accounting change 0 (1,050) 0
Provision for income taxes 134 50 50
Dividends accrued 900 744 167
(Gain) loss on disposal of property, plant, and equipment (70) (265) 96
Changes in operating assets and liabilities:
Accounts and notes receivable, net 1,998 (277) 3,067
Inventories 1,154 (1,409) 219
Other assets (1,349) 301 (96)
Accounts payable (489) 403 (3,200)
Accrued liabilities 388 (3,586) 454
Accrued pension cost 556 528 478
Accrued postretirement benefits other than pensions (18) (258) (187)
-------- ------- --------
Total adjustments 12,461 7,330 16,448
-------- ------- --------
Net cash provided by operating activities 9,708 2,153 10,506
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (7,523) (6,323) (3,419)
Proceeds from disposal of property, plant, and equipment 263 256 206
Unsuccessful acquisition and related costs 0 (850) 0
-------- ------- --------
Net cash used in investing activities (7,260) (6,917) (3,213)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (144) (136) (59,763)
Proceeds from issuance of long-term debt 0 0 60,840
Debt issuance costs 0 0 (3,500)
Capital contribution from TFH Corporation 0 500 500
-------- ------- --------
Net cash (used in) provided by financing activities (144) 364 (1,923)
-------- ------- --------
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 2,304 (4,400) 5,370
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF YEAR 3,087 7,487 2,117
-------- ------- --------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 5,391 $ 3,087 $ 7,487
======== ======= ========
SUPPLEMENTAL DISCLOSURES:
Interest paid during the year $ 7,460 $ 7,874 $ 2,566
======== ======= ========
Income taxes paid during the year $ 91 $ 37 $ 27
======== ======= ========
Issuance of exchangeable preferred stock, Class A, for debt (Note 5) $ 0 $ 0 $ 7,000
======== ======= ========
Issuance of preferred stock, Class B, for debt (Note 5) $ 0 $ 0 $ 21,755
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE> 26
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000, JANUARY 2, 1999, AND JANUARY 3, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Tom's Foods Inc. (the "Company") manufactures and distributes snack
food products. The principal markets for these products are the
southeastern and southwestern United States. The Company operates in
one segment, as defined by Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosure About Segments of an Enterprise and
Related Information." Additionally, the Company does not have any
significant foreign operations.
RESTRUCTURING AND REFINANCING
On August 30, 1996, the Company restructured its debt obligations
(Note 4). In connection with the debt restructuring, TFH Corporation
("TFH") was formed. TFH was capitalized by various parties having
common control of Tom's Foods Capital Corporation, the prior parent.
TFH used the capital proceeds to purchase outstanding senior and
subordinated debt obligations of the Company of $52,828,000, inclusive
of accrued interest. In return for subordinating its purchased debt
claims and a deferral of interest and principal payments, TFH received
80% of the stock of the Company, making TFH the Company's new parent.
Therefore, no change in the basis of assets and liabilities was
required.
In 1997, the Company completed a refinancing of the Company's debt
obligations, including the debt due to TFH (the "Offering") (Note 4).
FISCAL YEAR
The Company's fiscal year is the 52- or 53-week period ending the
Saturday nearest to December 31. The years ended January 1, 2000 and
January 2, 1999 contained 52 weeks. The year ended January 3, 1998
contained 53 weeks.
CASH AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investment instruments with an
original maturity of three months or less to be cash equivalents.
These investments are stated at cost, which approximates market value.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and are depreciated
using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Land improvements 20 years
Buildings 32 years
Machinery, equipment, and vehicles 3 to 12 years
Vending and other distribution equipment 5 to 10 years
Furniture and fixtures 3 to 10 years
</TABLE>
26
<PAGE> 27
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the average cost for raw materials, packaging materials, and work in progress.
Finished goods cost is determined using the first-in, first-out method. Cost
elements include the cost of raw materials, direct labor, and overhead incurred
in the manufacturing process.
HEDGING TRANSACTIONS
The Company has limited involvement with derivative financial instruments and
does not use them for speculative purposes. The Company enters into various
futures contracts and futures options to reduce the impact of volatility in raw
material prices. These transactions meet the current requirements for hedge
accounting including designation to specific inventory amounts and high
correlation. Amounts payable or receivable under these transactions are
recognized as deferred gains or losses and are included in other assets or other
liabilities. The deferred amounts are charged or credited to cost of sales as
the related raw materials are charged to operations. If the Company were to ever
have a derivative transaction that did not meet the requirement for hedges, it
would recognize the unrealized gains and losses as they occur. At January 1,
2000 and January 2, 1999, the net gains and losses deferred or expensed are
included in operating income, and there are no material commitments outstanding
relating to derivative financial instruments.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for the fiscal year ending December 29, 2001 and will require the
Company to recognize all derivative instruments as assets or liabilities and to
measure those instruments at fair value. The Company has not determined the
effect on its financial statements for the adoption of this standard.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets arose during the acquisition of the Company on
May 13, 1993. These items are being amortized using the straight-line method
over the estimated useful lives as follows:
<TABLE>
<S> <C>
Assembled staff 20 years
Trademarks 40 years
Distribution system 35 years
Goodwill 40 years
</TABLE>
The Company periodically reviews the value assigned to goodwill and intangible
assets to determine whether events and circumstances have occurred which
indicate that the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. The
Company uses an estimate of undiscounted operating income over the remaining
life of the goodwill in measuring whether the goodwill is recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and short-term
investments, trade receivables, notes receivable, accounts payable, purchase
commitments, senior secured notes, industrial development revenue bonds, other
long-term obligations, and capital lease obligations. In management's opinion,
the carrying amounts of these financial instruments approximate their fair
values at January 1, 2000 and January 2, 1999.
ACCOUNTING CHANGE
Effective January 4, 1998, the Company changed its accounting policy to
capitalize in current assets all maintenance spare parts. The Company's previous
policy was to expense these items as purchased. The Company believes this new
method is preferable because it provides a better matching of costs and related
revenues as well as provides better overall control for spare parts inventory.
The Company purchased parts during 1998 and expensed them when placed in the
manufacturing process. The net effect of items capitalized and expensed in
27
<PAGE> 28
1998 was to capitalize an additional $250,000 that would have been
expensed under the previous method used by the Company. The Company
recorded a cumulative effect relating to this accounting change as
of January 4, 1998 of $1,050,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
TRANSACTIONS WITH RELATED PARTIES
The Company has entered into consulting agreements with two of its
directors for providing consulting services to the Company. In
return for such consulting services, each received $100,000 for each
of the years ended January 1, 2000, January 2, 1999, and January 3,
1998.
In connection with the term loan from TFH prior to the Offering
(Note 4), and the accrued interest thereon, the Company recognized
interest expense of $6,358,000 for the year ended January 3, 1998.
As part of the August 30, 1996 refinancing, the stockholders of TFH
caused letters of credit to be posted in the aggregate face amount
of $10,000,000 to replace the letters of credit posted by the
Company to back the industrial development revenue bonds discussed
in Note 4. As of January 3, 1998, TFH had waived its rights to
reimbursement through December 31, 2005. After this date and subject
to the terms of the subordination, the Company will be obligated to
reimburse TFH for any draws which have been or are subsequently made
on the TFH shareholders' letters of credit.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. RESTRUCTURING AND NONRECURRING CHARGES
Following are the components of amounts classified as restructuring
and nonrecurring charges in the accompanying statements of
operations for the years ended January 1, 2000, January 2, 1999, and
January 3, 1998 (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Write-down of assets to realizable $ 0 $1,191 $ 0
values and change in estimates
Unsuccessful acquisition and related costs 0 850 0
Restructuring of portions of the sales and 0 683 0
distribution functions
Payment of nonrecurring management
bonuses related to the Offering 0 500 500
--- ------ ----
$ 0 $3,224 $500
=== ====== ====
</TABLE>
At January 1, 2000, January 2, 1999, and January 3, 1998, all
amounts related to these charges had been paid.
28
<PAGE> 29
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable as of January 1, 2000 and January 2,
1999 consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
---------- ----------
<S> <C> <C>
Notes receivable from distributors $ 1,897 $ 3,122
Trade accounts receivable 14,701 15,739
Less allowance for doubtful accounts (1,820) (2,283)
-------- --------
14,778 16,578
Less current portion (14,285) (16,073)
-------- --------
Noncurrent accounts and notes receivable, net $ 493 $ 505
======== ========
</TABLE>
Notes receivable from distributors are due in varying amounts over
periods of up to ten years and bear interest at stated rates from 0%
to 16.25%. The notes are secured by certain distributor assets and
guarantees.
4. DEBT
Long-term debt as of January 1, 2000 and January 2, 1999 consists of
the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
---------- ----------
<S> <C> <C>
10.5% senior secured notes due in 2004 $60,000 $60,000
------- -------
6.75% Taylor County, Florida, industrial development revenue bonds; payable in
five annual installments beginning September 1, 2000, secured by property with a
net book value of $3,774 and $4,158 in 1999 and 1998, respectively 5,800 5,800
6.5% Industrial Development Board of the County of Knox, Tennessee, industrial
development revenue bonds; payable in five equal annual installments beginning
October 1, 2005, secured by property with a net book value of $2,556 and $2,657
in 1999 and 1998, respectively 4,200 4,200
------- -------
Industrial development revenue bonds 10,000 10,000
------- -------
Other debt obligations 597 741
------- -------
70,597 70,741
Less current portion (1,130) (156)
------- -------
Total long-term debt $69,467 $70,585
======= =======
</TABLE>
On October 14, 1997, the Company sold $60,000,000 of 10.5% Senior
Secured Notes (the "Notes") due November 1, 2004. The Notes are secured
by a first lien on and security interest in substantially all of the
assets and properties owned by the Company, except those that are
security for other debt obligations. The indenture relating to the
Offering has certain covenants, as defined. The Company may not redeem
the Notes prior to November 1, 2001 and, following that date, the
Company may redeem the Notes in whole or in part at redemption prices,
as defined. In connection with the Offering, the Company incurred
$3,500,000 in fees and expenses which were capitalized and are being
amortized over the seven year term of the Notes. Amortization expense
of these costs was $500,000 for each of the years ended January 1, 2000
and January 2, 1999. In addition, the Company
29
<PAGE> 30
paid a bonus of $500,000 to management in connection with the Offering
in both 1998 and 1997, which is included in nonrecurring charges in the
accompanying statements of operations.
The proceeds of the Offering were used to pay certain of the Company's
debt obligations. Amounts paid include $40,000,000 to TFH, $8,336,000
to the lender under the senior credit agreement, and $10,000,000 to
satisfy the note payable and outstanding amounts relating to the
Company's guarantee obligations with a financial institution. After the
Offering, the remaining portions of the TFH obligations, including
accrued interest thereon, were converted to $7,000,000 of Class A
preferred stock and $21,755,000 of Class B preferred stock (Note 5).
The payment of $8,336,000 satisfied all outstanding term and equipment
loan amounts under the senior credit agreement which the Company had
entered into on August 30, 1996. Prior to the Offering, the senior
credit agreement provided for a revolving loan, letter-of-credit
accommodations, a term loan, and additional equipment loans. After the
payment, as part of the Offering, the senior credit agreement was
amended to include only letter-of-credit accommodations and a revolving
loan facility.
Under the senior credit agreement, the revolving loan is based on 85%
of all eligible accounts, plus 50% of the value of eligible inventory,
as defined. Interest is payable on the revolving loan at a rate of
1.375% above the prime rate of interest. The maximum borrowing amount
under the revolving loan and the letter-of-credit accommodations is
$17,000,000. Standby letters of credit relating to insurance coverages
and inventory purchases were outstanding under the revolving loan as of
January 1, 2000 and January 2, 1999 in the amounts of $2,127,000 and
$2,057,000, respectively. For the years ended January 1, 2000 and
January 2, 1999, the weighted average interest rates under the
revolving loan were 10.3% and 9.8%, respectively. At January 1, 2000
and January 2, 1999, there were no outstanding balances other than the
letters of credit under the revolving loan and the Company was in
compliance with all of the revolving loan agreement's financial ratios
and restrictive covenants.
The senior credit agreement matured January 31, 2000. Effective January
31, 2000, the Company replaced the senior credit agreement with a new
loan from a financial institution maturing January 31, 2004 and
providing for a $17,000,000 revolving loan facility and
letter-of-credit accommodations. Under the new loan agreement, the
revolving loan is based on 85% of all eligible accounts, plus 55% of
the value of eligible inventory, plus 10% of the value of eligible
packaging materials, all as defined. The initial interest rate will be
the institution's prime rate of interest or, at the Company's option,
the London InterBank Offer Rate plus 2.25%. The new senior credit
agreement requires the Company to maintain certain financial ratios
relating to working capital and minimum borrowing availability, as
defined.
The scheduled maturities of all Company debt obligations are $1,130,000
in 2000, $1,134,000 in 2001, $1,146,000 in 2002, $1,073,000 in 2003,
$61,850,000 in 2004, and $4,264,000 in the years thereafter.
5. SHAREHOLDERS' EQUITY
On October 14, 1997, in connection with the Offering, the Company
issued 7,000 shares of Class A preferred stock and 21,737 shares of
Class B preferred stock. The Class A preferred stock has an aggregate
liquidation preference of $7,000,000 and was issued in exchange for
$7,000,000 of the outstanding term loan from TFH, as discussed in Note
4. The Class A preferred stock is exchangeable at the option of the
Company upon certain events, and is therefore classified outside of
shareholders' equity in the accompanying balance sheets. As the Class A
preferred stock has characteristics that are similar to debt, dividends
are accrued to interest expense. The Class B preferred stock has an
aggregate liquidation preference of $21,755,000 and was issued in
exchange for the remaining outstanding term loan from TFH, as discussed
in Note 4. The Class A and Class B preferred stock are nonvoting,
except in certain circumstances. The Class A preferred stock ranks
senior to the Class B preferred stock. Dividends on the Class A
preferred stock and the Class B preferred stock accrue at a rate of
10.5% and 9.5%, respectively. Unpaid dividends increase the liquidation
preference of the respective shares. Upon a change in control, holders
of up to $10,000,000 of Class A preferred stock will be entitled to
require the Company to purchase these shares at 100% of the liquidation
preference at the date of purchase. On or after January 1, 1999, up to
an aggregate of $10,000,000 of Class A preferred stock may be
exchangeable at the Company's option for an equal amount of
subordinated debt if the Company meets certain financial targets, as
defined. No preferred stock was exchanged under this provision during
the year ended January 1, 2000. Dividends of $900,000, $744,000, and
30
<PAGE> 31
$167,000 were accrued to the Class A preferred stock for fiscal 1999,
1998, and 1997, respectively, and are included in interest expense in
the accompanying statements of operations. Dividends of $2,494,000,
$2,090,000, and $471,000 for fiscal 1999, 1998, and 1997, respectively,
were accrued to the Class B preferred stock and are included in the
accumulated deficit.
6. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," and files a consolidated federal income
tax return with TFH.
The components of the deferred tax assets and liabilities as of January
1, 2000 and January 2, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant, and equipment $ 3,265 $ 3,723
Other 1,188 1,152
-------- --------
Total deferred tax liabilities 4,453 4,875
-------- --------
Deferred tax assets:
Operating loss carryforwards (20,017) (20,303)
Accounts and notes receivable (739) (912)
Pensions and employee benefits (3,330) (3,032)
Workers' compensation (680) (599)
Discount on industrial development revenue bonds (452) (517)
-------- --------
Total deferred tax assets (25,218) (25,363)
-------- --------
Net deferred tax assets (20,765) (20,488)
Less valuation allowance (20,765) (20,488)
-------- --------
Net deferred tax assets $ 0 $ 0
======== ========
</TABLE>
The Company has operating loss carryforwards of approximately
$51,300,000, which begin to expire in 2008.
The provision for income taxes consisted of the following as of January
1, 2000, January 2, 1999, and January 3, 1998 (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes:
Current $ 0 $ 0 $ 0
Deferred 0 0 0
State and franchise taxes 134 50 50
---- --- ---
Provision for income taxes $134 $50 $50
==== === ===
</TABLE>
For the years ended January 1, 2000, January 2, 1999, and January 3, 1998,
the provision for income taxes at the Company's effective rate differed
from the provision for income taxes at the statutory rate, as follows (in
thousands):
31
<PAGE> 32
<TABLE>
<CAPTION>
JANUARY 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Income tax benefit at federal statutory rate $(890) $(1,743) $(2,020)
State income taxes, net of federal effect (105) (205) (237)
Interest expense on TFH term loan 0 0 2,480
Change in valuation allowance 277 1,169 (1,220)
Intangibles amortization 347 347 347
Other 505 482 700
----- ------- -------
Provision for income taxes $ 134 $ 50 $ 50
===== ======= =======
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has two noncontributory defined benefit retirement plans
(the "Hourly Plan" and the "Salaried Plan") which cover substantially
all full-time employees who are at least 21 years of age. The Company
also has an unqualified pension plan ("Unqualified Plan") covering only
certain salaried employees. The plans provide for payment of monthly
benefits to participants upon their reaching normal retirement age.
Benefit amounts are determined by a benefit formula which considers
length of service and average salary for the Salaried Plan and the
Unqualified Plan and length of service multiplied by a fixed rate, as
determined by the Company, for the Hourly Plan. The pension cost for
the Hourly Plan and the Salaried Plan is funded at amounts equal to the
minimum funding requirements of the Employee Retirement Income Security
Act of 1974. Assets of the Hourly Plan and the Salaried Plan include
common stocks, U.S. government securities, and corporate bonds. The
Unqualified Plan is not funded.
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The statement
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable.
On a weighted average basis, the following assumptions were used in
accounting for the net periodic benefits costs and for the Plans:
<TABLE>
<CAPTION>
JANUARY 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Discount rate 7.75% 6.75% 7.00%
Expected return on plan assets 9.00 9.00 9.00
Rate of compensation increase 5.75 4.75 5.00
</TABLE>
The amount of net periodic benefit cost recognized includes the
following components (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Components of periodic benefits costs:
Service cost $ 1,251 $ 1,175 $ 979
Interest cost 3,501 3,412 3,219
Expected return on assets (4,358) (3,989) (3,661)
Amortization of:
Actuarial gain (81) (73) (126)
Prior service cost 68 68 68
------- ------- -------
Total net periodic benefit cost $ 381 $ 593 $ 479
======= ======= =======
</TABLE>
32
<PAGE> 33
The reconciliation of the beginning and ending balances of the benefits
obligation for the Plans and the fair value of plan assets were as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
---------- ----------
<S> <C> <C>
Change in benefit obligation:
Net benefit obligation at the beginning of year $ 51,928 $ 47,873
Service cost 1,251 1,175
Interest cost 3,501 3,412
Actuarial (gain) loss (4,537) 2,392
Gross benefits paid (3,074) (2,924)
-------- --------
Net benefit obligation at end of year $ 49,069 $ 51,928
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year $ 54,429 $ 51,384
Actual return on plan assets 4,829 5,963
Gross benefits paid (3,070) (2,918)
-------- --------
Fair value of plan assets at end of year $ 56,188 $ 54,429
======== ========
</TABLE>
The funded status of the Plans and the amounts recognized in the
accompanying consolidated balance sheets were as follows (in
thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2
2000 1999
---------- ---------
<S> <C> <C>
Reconciliation of funded status:
Funded status at end of year $ 7,119 $ 2,501
Unrecognized net actuarial gain (15,091) (9,985)
Unrecognized prior service cost 301 369
-------- -------
Net amount recognized at end of year $ (7,671) $(7,115)
======== =======
Amounts recognized in the consolidated balance sheets:
Accrued benefit cost $ (7,671) $(7,115)
======== =======
</TABLE>
The Company also has a defined contribution plan which covers
substantially all employees who are eligible at the start of the
quarter after their hire date. The Company may match a portion of an
employees contribution up to a maximum amount. For the years ended
January 1, 2000, January 2, 1999, and January 3, 1998, the Company
contributed approximately $201,000, $214,000, and $195,000,
respectively, to this plan.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits
for certain retired employees. The Company may also provide certain
health care and life insurance benefits for employees electing early
retirement in the future until they reach normal retirement age. The
liability for these benefits is not funded. The Company accounts for
these benefits in accordance with SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions."
33
<PAGE> 34
The components of the accumulated benefit obligation as of January 1,
2000 and January 2, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
---------- ----------
<S> <C> <C>
Current retirees $ 669 $ 726
Active employees 481 513
------ ------
Accumulated benefit obligation 1,150 1,239
Unrecognized net gain 629 558
------ ------
Accrued postretirement benefit cost $1,779 $1,797
====== ======
</TABLE>
Net costs of the plan for the years ended January 1, 2000, January 2,
1999, and January 3, 1998 included the following components (in
thousands):
<TABLE>
<CAPTION>
JANUARY 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Service cost of benefits earned during the $ 4 $ 4 $ 4
period
Interest cost on projected benefit obligation 52 58 129
--- --- ----
Net postretirement benefit costs $56 $62 $133
=== === ====
</TABLE>
A 7% annual rate of increase in the per capita cost of covered health
care benefits is assumed for all future years for certain grandfathered
retirees; for all other current and future retirees, no increase was
assumed due to a fixed payment schedule. A 1% increase or a 1% decrease
in the assumed health care cost trend rate per year would increase the
accumulated postretirement benefit obligation by 3.3% or 3.2%,
respectively, as of January 1, 2000. The weighted average discount
rates used in determining the accumulated postretirement benefit
obligation were 7.75%, 6.75%, and 7% as of January 1, 2000, January 2,
1999, and January 3, 1998, respectively.
9. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases vehicles and warehouse space under certain
noncancelable operating leases. Noncancelable future minimum operating
lease commitments as of January 1, 2000 were as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 4,078
2001 3,774
2002 1,105
2003 542
2004 302
Thereafter 263
-------
$10,064
=======
</TABLE>
The rental expense for all operating leases for the years ended January 1, 2000,
January 2, 1999, and January 3, 1998 was approximately $3,704,000, $4,450,000,
and $4,196,000, respectively.
34
<PAGE> 35
LITIGATION
The Company is a party to a number of claims and lawsuits incidental to its
business. In the opinion of management, after consultation with outside counsel,
the ultimate outcome of these matters, in the aggregate, will not have a
material adverse effect on the financial position or results of operations of
the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain executive
officers which guarantee benefits.
DISTRIBUTOR PURCHASE REQUIREMENT
Subject to certain conditions, the Company has the right of first refusal to
purchase, for either cash or a note at the Company's option, distributorships or
distributorship assets from certain distributors at a multiple of the amount of
the average annual net cash flow, as adjusted, of the distributorship, measured
over the preceding three years. This exit strategy will only be available to
successful distributors who have remained in full compliance with their
contracts for a minimum of three years, including meeting certain growth
requirements, and thus enhances the value of successful distributorships and the
distribution network as a whole. Because the Company does not know which
distributors will avail themselves of this provision and when they might do so
after becoming eligible, the Company believes that it is not possible to
determine any future contingency requirement. Any potential purchase obligation
is, however, based on a multiple of net cash flow. Any purchase is, therefore,
funded primarily through the stream of future cash flows from the purchased
distributorship, which is enhanced by the capture of integrated margins.
LETTERS OF CREDIT
The Company has outstanding stand-by letters of credit (Note 4).
35
<PAGE> 36
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.
TOM'S FOODS INC.
By: /s/ Rolland G. Divin
------------------------------
Rolland G. Divin
President, Chief Executive Officer
and Director
Dated: March 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities indicated on March 13, 2000.
/s/ Rolland G. Divin
- -----------------------------------------
Rolland G. Divin, President, Chief
Executive Officer and Director
/s/ S. Albert Gaston
- -----------------------------------------
S. Albert Gaston, Senior Vice
President and Chief Financial
Officer
/s/ Michael E. Heisley
- -----------------------------------------
Michael E. Heisley, Director
/s/ Stanley H. Meadows
- -----------------------------------------
Stanley H. Meadows, Assistant
Secretary and Director
/s/ Thomas C. Mattick
- -----------------------------------------
Thomas C. Mattick, Director
/s/ Emily Heisley Stoeckel
- -----------------------------------------
Emily Heisley Stoeckel, Director
/s/ Andrew C.G. Sage II
- -----------------------------------------
Andrew C.G. Sage II, Director
/s/ Timothy J. Healy
- -----------------------------------------
Timothy J. Healy, Director
36
<PAGE> 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL
STATEMENT SCHEDULE
To Tom's Foods Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Tom's Foods Inc. included in this Form 10-K and have
issued our report thereon dated February 11, 2000. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The foregoing schedule is the responsibility of the company's management
and is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
37
<PAGE> 38
Schedule II
TOM'S FOODS INC.
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at
Balance at Charged to End of
Beginning Cost and Charged to the
of the Period Expenses Other Accounts Deductions Period
------------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997 $8,680 $ 530 $ 74(A) $4,800(B) $4,484
1998 4,484 276 0 2,477(B) 2,283
1999 2,283 932 508(A) 1,903(B) 1,820
</TABLE>
- -------------
(A) Represents amounts recovered.
(B) Represents amounts charged against the reserve.
38
<PAGE> 1
EXHIBIT 10.19
Date: December 23, 1999
Amendment to Irrevocable Standby Credit Number: 7320476
Applicant Reference Number: Heico Tom's Food
Amendment Number 5
Beneficiary Applicant
Pettibone Corporation
4225 Naperville Road
Nestle UK Ltd. Lisle, IL 60532
St. George's House
Croydon, Surrey CR9 1NR, England
Attn: Nigel Roffey/Nigel Green
This Amendment is to be considered an integral part of the above-mentioned
Letter of Credit issued on February 26, 1997 and amended on December 23, 1997
and must be attached thereto.
The above-mentioned Letter of Credit is amended as follows:
The Letter of Credit No. C7320476 is amended to read 7320476.
"Expiration" and "Stated Expiry Date" are each amended to: December 31, 2004.
Attachment (1) (Certificate of Demand For Payment), the second option for
Section (B) is deleted in its entirety and replaced by the following words:
"(B) The Beneficiary is making a demand for payment in lawful money of
the United States of America under the Letter of Credit in the amount
of $______________, which is the entire stated amount of the Letter of
Credit as in effect on the date hereof, following the account party's
failure to provide the Beneficiary on or before December 1, 2004, with
an Irrevocable Letter of Credit expiring October 1, 2009 or an
unconditional guarantee, in each case in form and substance
satisfactory to the Beneficiary (effective on or before the
termination of the Letter of Credit) from a satisfactory bank (as
defined in Section 6.05 of the Stock Purchase Agreement dated as of
April 26, 1988 between Rowntree Inc. and TF Acquisition Corporation)
discharging the Beneficiary from, or indemnifying the Beneficiary with
respect to its obligations under that certain guarantee, dated July
12, 1983, by the Beneficiary in favor of General Mills, Inc. or CPG
Products Corp. the date of this Demand For Payment shall not be on or
prior to December 1, 2004."
39
<PAGE> 2
Section (C) of Attachment (1) (Certificate of Demand for Payment) is hereby
deleted entirely and Section "(D)" is re-named "(C)" and Section "(E)" is
re-named "(D)".
If you agree to the above, please sign and return the enclosed copy of this
letter to us. This Amendment will take effect upon your transmission of a copy
of this Amendment, signed by you, by facsimile to our office at 231 South
LaSalle Street, IL1-231-17-00, Fax Number 312-974-0142. Upon receipt by us of
such copy, we shall forthwith courier to you the original executed Amendment.
For and on behalf of Bank of America, N.A.
- ---------------------------------- ----------------------------------
Authorized Signature Authorized Signature
We agree to the above
NESTLE UK LIMITED
By
--------------------------------
Authorized Signature
40
<PAGE> 3
Date: December 23, 1999
Amendment to Irrevocable Standby Credit Number 7319993
Amendment Number 5
Beneficiary Applicant
Allstate Insurance Company
Nestle UK Ltd. 3075 Sanders Road
St. George's House Suite G5D
Northbrook, Illinois 60062-7127
Croydon, Surrey CR9 1NR, England
Attn: Nigel Roffey/Nigel Green
This Amendment is to be considered an integral part of the above-mentioned
Letter of Credit issued on February 26, 1997 and amended on December 15, 1998
and must be attached thereto.
The above-mentioned Letter of Credit is amended as follows:
The Letter of Credit No. C7319993 is amended to read 7319993.
"Expiration" and "Stated Expiry Date" are each amended to: December 31, 2004.
Attachment (1) (Certificate of Demand for Payment), the second option for
Section (B) is deleted in its entirety and replaced by the following words:
"(B) the Beneficiary is making a demand for payment in lawful money of
the United States of America under the Letter of Credit in the amount
of $_______________, which is the entire stated amount of the Letter
of Credit as in effect on the date hereof, following the Account
Party's failure to provide the Beneficiary on or before December 1,
2004, with an Irrevocable Letter of Credit expiring October 1, 2009 or
an unconditional guarantee, in each case in form and substance
satisfactory to the Beneficiary (effective on or before the
termination of the Letter of Credit) from a satisfactory bank (as
defined in Section 6.05 of the Stock Purchase Agreement dated as of
April 26, 1988 between Rowntree, Inc. and TF Acquisition Corporation)
discharging the Beneficiary from, or indemnifying the Beneficiary with
respect to its obligations under that certain guarantee, dated July
12, 1983, by the Beneficiary in favour of General Mills, Inc. or CPG
Products Corporation the date of this Demand for Payment shall not be
on or prior to December 1, 2004."
Section (C) of Attachment (1) (Certificate of Demand for Payment) is hereby
deleted entirely, and Section "(D)" is re-named "(C)" and Section "(E)" is
re-named "(D)".
41
<PAGE> 4
If you agree to the above, please sign and return the enclosed copy of this
letter to us. This Amendment will take effect upon your transmission of a copy
of this Amendment, signed by you, by facsimile to our office at 231 South
LaSalle Street, IL1-231-17-00, fax number 312-974-0142. Upon receipt by us of
such copy, we shall forthwith courier to you the original executed Amendment.
For and on behalf of Bank of America, N.A.
- ---------------------------------- ----------------------------------
Authorized Signature Authorized Signature
We agree to the above
NESTLE UK LIMITED
By
--------------------------------
Authorized Signature
42
<PAGE> 5
AMENDMENT TO IRREVOCABLE STANDBY LETTER OF CREDIT NO. N-97-0095
BENEFICIARY: APPLICANT:
NESTLE UK LTD. TCW SHARED OPPORTUNITY FUND II, L.P.
ST. GEORGE HOUSE TRUST COMPANY OF THE WEST
CROYDON 11100 SANTA MONICA BLVD., SUITE 2000
SURREY CR9 1NR LOS ANGELES, CA 90025
ENGLAND
ATTN: MR. NIGEL ROFFEY/
MR. NIGEL GREEN
EFFECTIVE: DECEMBER 23, 1999
THIS AMENDMENT IS TO BE CONSIDERED AN INTEGRAL PART OF THE ABOVE REFERENCED
LETTER OF CREDIT ISSUED ON FEBRUARY 27, 1997 AND AMENDED ON DECEMBER 22, 1998
AND MUST BE ATTACHED THERETO.
THE ABOVE-MENTIONED LETTER OF CREDIT IS HEREBY FURTHER AMENDED AS FOLLOWS:
1. THE DEFINITION OF "STATED EXPIRY DATE" IS HEREBY DELETED ENTIRELY AND
REPLACED WITH THE FOLLOWING: "STATED EXPIRY DATE MEANS OCTOBER 1,
2009.
2. ATTACHMENT (1) (CERTIFICATE OF DEMAND FOR PAYMENT), THE SECOND OPTION
FOR SECTION (B) IS DELETED ENTIRELY AND REPLACED BY THE FOLLOWING
WORDS:
"(B)" THE BENEFICIARY IS MAKING A DEMAND FOR PAYMENT IN LAWFUL MONEY OF THE
UNITED STATES OF AMERICA UNDER THE LETTER OF CREDIT IN THE AMOUNT OF
__________, WHICH IS THE ENTIRE STATED AMOUNT OF THE LETTER OF CREDIT
AS IN EFFECT ON THE DATE HEREOF, FOLLOWING THE ACCOUNT PARTY'S FAILURE
TO PROVIDE THE BENEFICIARY ON OR BEFORE SEPTEMBER 1, 2009 WITH AN
IRREVOCABLE LETTER OF CREDIT OR AN UNCONDITIONAL GUARANTEE, IN EACH
CASE IN FORM AND SUBSTANCE SATISFACTORY TO THE BENEFICIARY (EFFECTIVE
ON OR BEFORE THE TERMINATION OF THE LETTER OF CREDIT) FROM A
SATISFACTORY BANK (AS DEFINED IN SECTION 6.05 OF THE STOCK PURCHASE
AGREEMENT DATED AS OF APRIL 26, 1988 BETWEEN ROWNTREE INC, AND TF
ACQUISITION CORPORATION) DISCHARGING THE BENEFICIARY FROM, OR
INDEMNIFYING THE BENEFICIARY WITH RESPECT
43
<PAGE> 6
TO ITS OBLIGATIONS UNDER THAT CERTAIN GUARANTEE DATED JULY 12,1983, BY
THE BENEFICIARY IN FAVOUR OF GENERAL MILLS, INC. OR CPG PRODUCTS CORP.
THE DATE OF THIS DEMAND FOR PAYMENT SHALL NOT BE ON OR PRIOR TO
SEPTEMBER 1, 2009."
3. SECTION C OF ATTACHMENT (1) (CERTIFICATE OF DEMAND FOR PAYMENT) IS
HEREBY DELETED ENTIRELY, AND SECTION (D) IS RENAMED "C" AND SECTION
(B) IS RENAMED "(D)."
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
IF YOU AGREE TO THE ABOVE, PLEASE SIGN AND RETURN THE ENCLOSED COPY OF THIS
LETTER OF CREDIT TO US. THIS AMENDMENT WILL TAKE EFFECT UPON YOUR TRANSMISSION
OF A COPY OF THIS AMENDMENT, SIGNED BY YOU, BY FACSIMILE TO OUR OFFICE AT TWO
PACES WEST, SUITE 1200, 2727 PACES FERRY ROAD, ATLANTA, GEORGIA 30339 FAX
NUMBER (770) 319-4950. UPON RECEIPT BY US OF SUCH COPY, WE SHALL FORTHWITH
COURIER TO YOU THE ORIGINAL EXECUTED AMENDMENT.
FOR AND ON BEHALF OF CANADIAN IMPERIAL BANK OF COMMERCE
- ---------------------------------- ------------------------------
COUNTERSIGNED AUTHORIZED SIGNATURE
WE AGREE TO THE ABOVE
NESTLE UK LTD.
BY
--------------------------------
AUTHORIZED SIGNATORY
44
<PAGE> 7
Date: December 22, 1999
Irrevocable Standby Letter of Credit Number: 3021622
Beneficiary Applicant
Nestle UK Ltd Gerald D. Hosier
St. George's House 8904 Canyon Springs Drive
Croydon, Surrey CR9 1NR Las Vegas, NV 89117
England,
Attention: Company Secretary
Amount
$2,000,000.00
Two Million and No/100 U.S. Dollars
Expiration
December 31, 2004
At Our Counters
Gentlemen:
At the request and on the instructions of our customer, Gerald D. Hosier (the
"Account Party"), we hereby establish in your favor this Irrevocable Standby
Nontransferable Letter of Credit in the original amount of USD $2,000,000.00
(Two Million United States Dollars only).
Section 1 Definitions. The following terms when used in this Letter of Credit
shall have the following meanings:
"Account Party" is defined in the First Paragraph.
"Additional Letters of Credit" shall mean each of the
following Letters of Credit: C7320476 issued by Bank of America
Illinois for the account of Pettibone Corporation, C7319993 issued by
Bank of America Illinois for the account of Allstate Insurance
Company, and N-97-0095 issued by Canadian Imperial Bank of Commerce
for the account of TCW Shared Opportunity Fund II L.P.
"Authorized Officer" shall mean any of your Directors.
"Business Day" shall mean any day on which we are open for
the purpose of conducting banking business at our payment office.
"Local Time" means "New York Time".
45
<PAGE> 8
"Payment Office" is defined in Section 2.
"Stated Amount" means, at any time, the original amount of
this Letter of Credit set forth in the First Paragraph, as such amount
has at such time been reduced in accordance with Section 4.
"Stated Expiry Date" means December 31, 2004, or, upon our
advice to you at least five (5) Business days prior to such date that
we are extending this Letter of Credit, October 1, 2009, provided,
however, that, in the event that all the principal of, premium, if
any, and interest on the Industrial Revenue Bonds issued pursuant to
the Trust Indenture dated as of October 1, 1979, between the
Industrial Development Board of the County of Knox and the First
National Bank of Columbus and the Trust Indenture dated as of
September 1, 1979, between Taylor County, Florida and the First
National Bank of Columbus, shall have been paid in full prior to
December 31, 1998, we may instead extend the Stated Expiry Date to
September 1, 2004.
Section 2 Presentation. Funds under this Letter of Credit will be made
available to you, in lawful currency of the United States of America, against
receipt by us of your written certificate in the form of Attachment 1 hereto,
appropriately completed and signed by an authorized officer accompanied by a
photocopy of this Letter of Credit. Presentation of each such Certificate shall
be made at our office located at 333 S. Beaudry, 19th Floor, Los Angeles, CA,
90017 Attention: Standby Letter of Credit Department. (Our "Payment Office").
Section 3 Payments. Demand for payment in lawful money of the United States of
America of all or any portion of the stated amount may be made by you under
this Letter of Credit at any time during our business hours at our payment
office on any Business Day. If any such demand for payment is made by you
hereunder at or prior to 10:00 A.M. (Local Time) on a Business Day, and
provided that such demand for payment and the documents presented in connection
therewith conform to the terms and conditions hereof. Payment will be made to
you, of the amount demanded, in same day funds, at our payment office not later
than 11:00 A.M. (Local Time) on the third succeeding Business Day. If such
demand for payment is made by you hereunder after 10:00 A.M. (Local Time) on a
Business Day, and provided that such demand for payment and the documents
presented in connection therewith conform to the terms and conditions hereof,
payment shall be made to you, of the amount demanded, in same day funds, at our
payment office not later than 11:00 A.M. (Local Time), on the fourth succeeding
Business Day. If requested by you, payment under this Letter of Credit will be
made by wire transfer of same day funds to the account specified in your Demand
for Payment. If a Demand for Payment made by you hereunder does not, in any
instance, conform to the terms and conditions of this Letter of Credit, we
shall give you prompt notice that the Demand for Payment was not effected in
accordance with the terms and conditions of this Letter of Credit, stating the
reasons therefor, and that we will (subject to your further instructions) hold
any documents which have been delivered to us by you. Upon being notified that
the Demand for Payment was not effected in conformity with this Letter of
Credit, you
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<PAGE> 9
may attempt to correct any such non-conforming Demand for Payment to the extent
that you are then entitled and able to do so.
Section 4 Reduction of Stated Amount. Each payment made by us hereunder shall
permanently reduce the stated amount by the amount of such payment, and no
Demand for Payment hereunder shall exceed the stated amount in effect of such
time. The stated amount of this Letter of Credit shall also be permanently
reduced from time to time upon our receipt of your certification in the form of
Attachment 2 hereto, appropriately completed and signed by an authorized
officer.
Section 5 Discharge. Only you may make a demand for payment under this Letter
of Credit. Upon the payment to you, to your designee, or to your account of the
amount demanded hereunder, we shall be fully discharged of our obligations
under this Letter of Credit to the extent of such demand for payment, and, to
the extent of such payment, we shall not thereafter be obligated to make any
further payments under this Letter of Credit. By paying to you, or to your
account any amount demanded in accordance herewith, we make no representation
as to the correctness of the amount demanded.
Section 6 Termination. Upon the earliest of:
(A) The making by us of the final payment available to be made
hereunder.
(B) The close of business at our payment office on the Stated
Expiry Date, provided that the Issuer shall honor in
accordance with the terms hereof any Demand for Payment made
on the Stated Expiry Date in compliance with the terms
hereof; or
(C) Receipt by us of a certificate signed by an authorized
officer stated that all obligations to which this Letter of
Credit relates have been terminated, paid or otherwise
satisfied in full.
This Letter of Credit shall automatically terminate. Upon its termination, you
shall promptly deliver this Original Letter of Credit to us for cancellation.
Section 7 Notices, Etc. Communications with respect to this Letter of Credit
shall be in writing and shall be addressed to us at our payment office,
Attention: Standby Letter of Credit, specifically referring thereon to this
Letter of Credit by number, followed by copies to the Account Party at 8904
Canyon Springs Drive, Las Vegas, NV 89117 and Tom's Foods, Inc. at 900 Eighth
Street, Columbus, GA 31902, Attention: S. Albert Gaston.
Section 8 Governing Law. This Letter of Credit shall be deemed to be a contract
under, and shall be governed by, the internal laws of the State of New York,
including Article 5 of the Uniform Commercial Code as in effect in the State of
New York (the "UCC"), provided, however, that to the extent of any
inconsistency between the terms of this Letter of Credit and the UCC, the terms
of this Letter of Credit shall govern.
Section 9 Miscellaneous. This Letter of Credit may not be transferred or
assigned, either in whole or in part. This Letter of Credit sets forth in full
our undertaking, and such undertaking shall not in
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<PAGE> 10
any way be modified, amended, amplified, or limited by reference to any
document, instrument, or agreement referred to herein.
This Letter of Credit replaces the Letter of Credit dated February 26,
1997, issued by the Chase Manhattan Bank Letter of Credit No. P-372671 which is
itself one of four letters of credit which replaced the Letter of Credit dated
August 31, 1993 issued by Canadian Imperial Bank of Commerce, Letter of Credit
Number SYN-93-10030 which itself replaced the Letter of Credit dated June 27,
1988 as amended on May 13, 1993 issued by Canadian Imperial Bank of Commerce,
Letter of Credit Number 114.88/9006.
BANK OF AMERICA, N.A.
BY: BY:
------------------------------- -------------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
------------------------- -------------------------
We agree to the above
NESTLE UK LIMITED
By:
-------------------------------
Authorized Signature
48
<PAGE> 11
ATTACHMENT 1
CERTIFICATE OF DEMAND FOR PAYMENT
Date:_______________
Bank of America, N.A.
333 South Beaudry Avenue, 19th Floor
Los Angeles, CA 90017
Attention: Standby Letter of Credit Department
Re: Irrevocable Standby Letter of Credit No. 3021622
The undersigned, a duly authorized office of Nestle UK Ltd. (the
"Beneficiary"), hereby certifies to Bank of America, N.A. (the "Issuer") that:
(A) Unless otherwise defined, all capitalized terms used herein have
the meanings assigned thereto in the Irrevocable Standby Letter of
Credit No. 3021622 (the "Letter of Credit"), dated December 22, 1999,
issued by the Issuer on the application of Gerald D. Hosier (the
"Account Party").
__/ (B) The Beneficiary is making a Demand for Payment in lawful money of
the United States of America under the Letter of Credit in the amount
of $_____________, which will be applied to payment of the obligations
of the Beneficiary to General Mills, Inc. ("GM") or CPG Products
Corporation ("CPG") under that certain Guarantee, dated July 12, 1983,
by the Beneficiary in favor of GM and CPG (the "Guarantee"). Demand
was made on the Beneficiary by GM or CPG under the Guarantee to pay
the amount requested herein. The amount demanded hereby does not on
the date hereof and will not on the date payment hereunder is required
to be made after giving effect to all other amounts demanded but then
unpaid under the Letter of Credit, exceed the stated amount of the
Letter of Credit.
__/ (B) The Beneficiary is making a Demand for Payment in lawful money of
the United States of America under the Letter of Credit in the amount
of $_____________, which is the entire stated amount of the Letter of
Credit as in effect on the date hereof. Following the Account Party's
failure to provide the Beneficiary on or before December 1, 2004 with
an Irrevocable Letter of Credit expiring October 1, 2009, or an
unconditional guarantee, in each case in form and substance
satisfactory to the Beneficiary (effective on or before the
termination of the Letter of Credit) from a satisfactory bank (as
defined in Section 6.05 of the Stock Purchase Agreement dated as of
April 26, 1988 between Rowntree, Inc. and TF Acquisition Corporation)
discharging the Beneficiary from, or indemnifying the Beneficiary with
respect to its obligations under that certain Guarantee dated July 12,
1983, by the Beneficiary in favour of General Mills, Inc. or CPG
Products Corporation the date of this Demand for Payment shall not be
on or prior to December 1, 2004.
(C) Upon its receipt of the amount demanded under this Letter of
Credit, the Beneficiary will:
__/ (I) Apply such amount directly to the payment of the Beneficiary's
obligations to GM and CPG under the Guarantee; and
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<PAGE> 12
__/ (I) Hold such amount for application of the payment of the
Beneficiary's obligations to General Mills, Inc. and CPG Product
Corporation under that certain Guarantee dated July 12, 1983; and
(II) If after the payment of such amounts the Letter of Credit is
terminated, deliver to you the Original Letter of Credit and all
Releases as you may reasonably request.
(D) [Insert disbursement instructions]
In Witness Whereof, the Beneficiary has caused its authorized officer to
execute and deliver this Certificate as of the ___ day of _______________.
NESTLE UK LIMITED
By:
----------------------------
Title:
__/ Select appropriate alternative. The second form of clause (1) should only
be used if the second form of clause (b) is used and no Demand for Payment has
been made under the Guarantee.
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<PAGE> 13
ATTACHMENT 2
CERTIFICATE
Re: Irrevocable Letter of Credit No. 3021622
The undersigned, a duly authorized officer of Nestle UK Limited (the
"Beneficiary") hereby certifies to Bank of America, N.A. ("Issuer") as follows
with respect to the above related Letter of Credit (the "Letter of Credit"
terms defined therein and not otherwise defined herein being used herein as
therein defined) in favor of Beneficiary, that:
(1) The Beneficiary hereby consents to a reduction of the stated amount of
the Letter of Credit by $_____________.
(2) The Issuer is hereby instructed and authorized to reduce the stated
amount of the Letter of Credit No. 3021622 by the amount set forth in
Paragraph (1) above.
(3) Each of the additional Letters of Credit are also being reduced
concurrently herewith on a pro rata basis.
In Witness Whereof, the Beneficiary has executed and delivered this Certificate
as of the _____ day of _________________.
NESTLE UK LIMITED
By:
--------------------------------
Name:
---------------------------
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<PAGE> 1
EXHIBIT 12
TOM'S FOODS INC.
Statement Regarding Computation of Ratio of Earnings to Fixed Charges
(in thousands, except ratios)
<TABLE>
<CAPTION>
January 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Earnings
Loss before Income Taxes
and cumulative effect of accounting change $(2,619) $(6,177) $(5,892)
Fixed Charges 9,050 9,611 11,375
------- ------- -------
6,431 3,434 5,483
Fixed Charges:
Interest Expense 7,817 8,129 9,978
Preferred Stock Dividends -- -- --
Interest factor relating to rentals(a) 1,233 1,482 1,397
------- ------- -------
9,050 9,611 11,375
Ratio of Earnings to Fixed Charges 0.71 0.36 0.48
======= ======= =======
</TABLE>
(a) Represents interest expense factor related to rental expense.
52
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TOM'S FOODS FOR THE YEAR ENDED JANUARY 1, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 5,391
<SECURITIES> 0
<RECEIVABLES> 16,598
<ALLOWANCES> (1,820)
<INVENTORY> 9,803
<CURRENT-ASSETS> 33,543
<PP&E> 97,129
<DEPRECIATION> 46,363
<TOTAL-ASSETS> 134,080
<CURRENT-LIABILITIES> 20,913
<BONDS> 69,000
8,811
26,810
<COMMON> 0
<OTHER-SE> 43,725
<TOTAL-LIABILITY-AND-EQUITY> 134,080
<SALES> 203,559
<TOTAL-REVENUES> 203,559
<CGS> 124,632
<TOTAL-COSTS> 73,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,817)
<INCOME-PRETAX> (2,619)
<INCOME-TAX> 134
<INCOME-CONTINUING> (2,753)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,753)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
