<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file numbers 333-50305 and 333-50305-01
----------------
Eagle Family Foods Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3983598
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
Eagle Family Foods, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3982757
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
220 White Plains Road 10591
Tarrytown, NY (Zip Code)
(Address of principal executive offices)
Registrants' telephone number, including area code: (914) 631-3100
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes [X] No[_]
As of May 10, 2000, there were 1,066,460 shares of Common Stock, par value
$.01 per share, of Eagle Family Foods Holdings, Inc. and 10,000 shares of Common
Stock, par value $.01 per share, of Eagle Family Foods, Inc. outstanding,
respectively.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I - Financial Information
Item 1. Financial Statements Page
----
<S> <C>
Eagle Family Foods, Inc.
Eagle Family Foods, Inc. Statements of Operations and Comprehensive Loss for the thirteen and thirty-nine
week periods ended April 1, 2000 and the thirteen and forty week periods ended April 3, 1999....................... 3
Eagle Family Foods, Inc. Balance Sheets as of April 1, 2000 and July 3, 1999...................................... 4
Eagle Family Foods, Inc. Statements of Cash Flows for the thirty-nine week period ended April 1, 2000
and the forty week period ended April 3, 1999...................................................................... 5
Eagle Family Foods, Inc. Statement of Changes in Stockholder's Equity for the thirty-nine week period
ended April 1, 2000................................................................................................ 6
Eagle Family Foods Holdings, Inc.
Eagle Family Foods Holdings, Inc. Consolidated Statements of Operations and Comprehensive Loss for the
thirteen and thirty-nine week periods ended April 1, 2000 and the thirteen and forty week periods 7
ended April 3, 1999................................................................................................
Eagle Family Foods Holdings, Inc. Consolidated Balance Sheets as of April 1, 2000 and July 3, 1999................ 8
Eagle Family Foods Holdings, Inc. Consolidated Statements of Cash Flows for the thirty-nine week period
ended April 1, 2000 and the forty week period ended April 3, 1999................................................. 9
Eagle Family Foods Holdings, Inc. Consolidated Statement of Changes in Stockholders' Deficit for the
thirty-nine week period ended April 1, 2000........................................................................ 10
Notes to the Financial Statements.................................................................................. 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................ 23
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders....................................................... 24
Item 5. Other Information......................................................................................... 24
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 24
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
EAGLE FAMILY FOODS, INC.
Statements of Operations and Comprehensive Loss
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-Nine Forty
Week Period Week Period Week Period Week Period
Ended Ended Ended Ended
April 1, 2000 April 3, 1999 April 1, 2000 April 3, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales................................................ $ 29,975 $ 35,183 $ 183,493 $ 187,069
Cost of goods sold....................................... 15,091 17,531 85,889 86,003
----------- ----------- ----------- ----------
Gross margin.......................................... 14,884 17,652 97,604 101,066
Distribution expense..................................... 2,886 2,318 10,356 9,036
Marketing expense........................................ 8,173 13,153 50,929 49,644
General and administrative expense....................... 3,686 3,312 10,004 9,434
Other operating income................................... 709 -- 1,212 --
Amortization of intangibles.............................. 2,789 4,231 8,367 18,460
----------- ----------- ----------- ----------
Operating income (loss)............................... (1,941) (5,362) 19,160 14,492
Interest expense, net.................................... 7,574 6,550 23,633 20,769
----------- ----------- ----------- ----------
Loss before income taxes.............................. (9,515) (11,912) (4,473) (6,277)
Income tax benefit....................................... (4,660) (4,172) (2,875) (2,205)
----------- ----------- ----------- ----------
Net loss.............................................. $ (4,855) $ (7,740) $ (1,598) $ (4,072)
=========== =========== =========== ==========
Other comprehensive income (loss):
Foreign translation adjustment........................... (10) 195 (221) (21)
----------- ----------- ----------- ---------
Comprehensive loss.................................... $ (4,865) $ (7,545) $ (1,819) $ (4,093)
=========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
EAGLE FAMILY FOODS, INC.
Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
April 1, 2000 July 3, 1999
--------------- --------------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents............................................................... $ 809 $ 972
Accounts receivable..................................................................... 12,106 21,825
Inventories, net........................................................................ 27,808 41,757
Other current assets.................................................................... 2,195 5,269
--------------- ------------
Total current assets................................................................... 42,918 69,823
Property and equipment, net.............................................................. 31,689 33,798
Notes receivable from related parties.................................................... 726 728
Intangibles, net......................................................................... 274,524 282,880
Deferred income taxes.................................................................... 24,924 22,006
Other noncurrent assets.................................................................. 7,668 8,051
--------------- ------------
Total assets............................................................................. $ 382,449 $ 417,286
=============== ============
Liabilities and Stockholder's Equity
Current liabilities
Current portion of long-term debt....................................................... $ 1,000 $ 1,000
Accounts payable........................................................................ 8,193 16,070
Other accrued liabilities............................................................... 6,192 12,793
Accrued interest........................................................................ 6,038 8,128
--------------- ------------
Total current liabilities.............................................................. 21,423 37,991
Long-term debt........................................................................... 311,050 337,500
Commitments and contingencies
Stockholder's equity
Common stock, $0.01 par value, 250,000 shares authorized, 10,000 shares
issued and outstanding................................................................. 1 1
Additional paid-in capital............................................................... 92,500 82,500
Accumulated deficit...................................................................... (42,527) (40,929)
Accumulated other comprehensive income................................................... 2 223
--------------- ------------
Total stockholder's equity............................................................. 49,976 41,795
--------------- ------------
Total liabilities and stockholder's equity............................................... $ 382,449 $ 417,286
=============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
EAGLE FAMILY FOODS, INC.
Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Forty
Week Period Week Period
Ended Ended
April 1, 2000 April 3, 1999
-------------- --------------
Cash flows from (used in) operating activities:
<S> <C> <C>
Net loss.................................................................................... $ (1,598) $ (4,072)
Adjustments to reconcile net loss to net cash from (used in) operating activities:
Depreciation and amortization.............................................................. 13,595 21,383
Amortization of deferred financing costs................................................... 1,356 690
Loss on retirement of fixed assets......................................................... 35 --
Deferred taxes............................................................................. (2,918) (2,270)
Net change in assets and liabilities
Accounts receivable........................................................................ 9,719 (1,616)
Inventories, net........................................................................... 13,949 2,797
Accounts payable........................................................................... (7,877) 4,559
Other assets............................................................................... 2,901 (3,758)
Other liabilities.......................................................................... (8,935) (5,600)
-------------- -------------
Cash from operating activities............................................................. 20,227 12,113
Cash from (used in) investing activities:
Capital expenditures........................................................................ (3,131) (10,708)
Repayment of notes and interest receivable.................................................. 50 200
Acquisition costs........................................................................... -- (165)
-------------- -------------
Cash used in investing activities........................................................... (3,081) (10,673)
Cash from (used in) financing activities:
Payments under term loan facility........................................................... (750) (1,000)
Borrowings under revolving credit facility.................................................. 43,100 60,900
Payments under revolving credit facility.................................................... (68,800) (62,400)
Other financing costs....................................................................... (859) --
Capital contribution........................................................................ 10,000 --
-------------- -------------
Cash used in financing activities........................................................... (17,309) ( 2,500)
Decrease in cash and cash equivalents........................................................ (163) (1,060)
Cash and cash equivalents at beginning of period............................................. 972 1,812
-------------- -------------
Cash and cash equivalents at end of period................................................... $ 809 $ 752
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
EAGLE FAMILY FOODS, INC.
Statement of Changes in Stockholders' Equity
For the Thirty-Nine Week Period Ended April 1, 2000
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid Accumulated Comprehensive
Stock in Capital Deficit Income (Loss) Total
----------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, July 3, 1999............... $ 1 $ 82,500 $ (40,929) $ 223 $ 41,795
Net loss............................ -- -- (1,598) -- (1,598)
Capital contribution................ -- 10,000 -- -- 10,000
Other comprehensive loss:
Foreign translation adjustment.... -- -- -- (221) (221)
----------- ------------ ------------- --------------- -----------
Balance, April 1, 2000.............. $ 1 $ 92,500 $ (42,527) $ 2 $ 49,976
=========== ============ ============= =============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
EAGLE FAMILY FOODS HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Loss
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-Nine Forty
Week Period Week Period Week Period Week Period
Ended Ended Ended Ended
April 1, 2000 April 3, 1999 April 1, 2000 April 3, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 29,975 $ 35,183 $ 183,493 $ 187,069
Cost of goods sold................................. 15,091 17,531 85,889 86,003
-------------- -------------- -------------- --------------
Gross margin.................................... 14,884 17,652 97,604 101,066
Distribution expense............................... 2,886 2,318 10,356 9,036
Marketing expense.................................. 8,173 13,153 50,929 49,644
General and administrative expense................. 3,690 3,320 10,023 9,457
Other operating income............................. 709 -- 1,212 --
Amortization of intangibles........................ 2,789 4,231 8,367 18,460
-------------- -------------- -------------- --------------
Operating income (loss)......................... (1,945) (5,370) 19,141 14,469
Interest expense, net.............................. 7,574 6,550 23,633 20,769
-------------- -------------- -------------- --------------
Loss before income taxes........................ (9,519) (11,920) (4,492) (6,300)
Income tax benefit................................. (4,660) (4,172) (2,875) (2,205)
-------------- --------------- --------------- ---------------
Net loss........................................ $ (4,859) $ (7,748) $ (1,617) $ (4,095)
============== ============== ============== ==============
Other comprehensive income (loss):
Foreign translation adjustment..................... (10) 195 (221) (21)
-------------- -------------- -------------- --------------
Comprehensive loss.............................. $ (4,869) $ (7,553) $ (1,838) $ (4,116)
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
EAGLE FAMILY FOODS HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
April 1, 2000 July 3, 1999
-------------- --------------
(unaudited)
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents............................................................... $ 809 $ 972
Accounts receivable..................................................................... 12,106 21,825
Inventories, net........................................................................ 27,808 41,757
Other current assets.................................................................... 2,195 5,269
-------------- --------------
Total current assets................................................................... 42,918 69,823
Property and equipment, net.............................................................. 31,689 33,798
Intangibles, net......................................................................... 274,524 282,880
Deferred income taxes.................................................................... 24,924 22,006
Other noncurrent assets.................................................................. 7,668 8,051
-------------- --------------
Total assets............................................................................. $ 381,723 $ 416,558
============== ==============
Liabilities and Stockholders' Deficit
Current liabilities
Current portion of long-term debt....................................................... $ 1,000 $ 1,000
Accounts payable........................................................................ 8,193 16,070
Other accrued liabilities............................................................... 6,192 12,793
Accrued interest........................................................................ 6,038 8,128
-------------- --------------
Total current liabilities.............................................................. 21,423 37,991
Long-term debt........................................................................... 311,050 337,500
Commitments and contingencies
Redeemable preferred stock, 1,000,000 shares authorized:
Series A preferred stock, $100 stated value, 816,750 shares issued and
outstanding, at redemption value....................................................... 101,182 94,023
Subscription receivable................................................................. (719) (721)
-------------- --------------
100,463 93,302
Series B preferred stock, $100,000 stated value, 99 shares issued and
outstanding, at redemption value....................................................... 10,413 --
-------------- --------------
Total redeemable preferred stock....................................................... 110,876 93,302
Stockholders' deficit
Common stock $0.01 par value, 1,200,000 shares authorized, 1,066,760 and
975,980 shares issued and outstanding, respectively.................................... 11 10
Additional paid-in capital.............................................................. 1,004 966
Unearned compensation................................................................... (29) (109)
Accumulated deficit..................................................................... (62,607) (53,318)
Subscription receivable................................................................. (7) (7)
Accumulated other comprehensive income.................................................. 2 223
-------------- --------------
Total stockholders' deficit............................................................ (61,626) (52,235)
-------------- --------------
Total liabilities and stockholders' deficit.............................................. $ 381,723 $ 416,558
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
EAGLE FAMILY FOODS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Forty
Week Period Week Period
Ended Ended
April 1, 2000 April 3, 1999
--------------- --------------
Cash flows from (used in) operating activities:
<S> <C> <C>
Net loss................................................................................... $ (1,617) $ (4,095)
Adjustments to reconcile net loss to net cash from (used in) operating activities:
Depreciation and amortization............................................................. 13,614 21,405
Amortization of deferred financing costs.................................................. 1,356 690
Loss on retirement of fixed assets........................................................ 35 --
Deferred taxes............................................................................ (2,918) (2,270)
Net change in assets and liabilities
Accounts receivable....................................................................... 9,719 (1,616)
Inventories, net.......................................................................... 13,949 2,797
Accounts payable.......................................................................... (7,877) 4,560
Other assets.............................................................................. 2,901 (3,758)
Other liabilities......................................................................... (8,935) (5,600)
--------------- -------------
Cash from operating activities............................................................. 20,227 12,113
Cash from (used in) investing activities:
Capital expenditures....................................................................... (3,131) (10,708)
Repayment of subscription and interest receivable.......................................... 50 200
Acquisition costs.......................................................................... -- (165)
--------------- -------------
Cash used in investing activities.......................................................... (3,081) (10,673)
Cash from (used in) financing activities:
Payments under term loan facility.......................................................... (750) (1,000)
Borrowings under revolving credit facility................................................. 43,100 60,900
Payments under revolving credit facility................................................... (68,800) (62,400)
Other financing costs...................................................................... (859) --
Issuance of Series B Preferred Stock and Common Stock...................................... 10,000 --
--------------- -------------
Cash used in financing activities.......................................................... (17,309) (2,500)
Decrease in cash and cash equivalents....................................................... (163) (1,060)
Cash and cash equivalents at beginning of period............................................ 972 1,812
--------------- -------------
Cash and cash equivalents at end of period.................................................. $ 809 $ 752
=============== =============
Supplemental disclosure:
Non-cash financing activities included dividends accrued on redeemable
preferred stock........................................................................... $ 7,672 $ 6,643
=============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
EAGLE FAMILY FOODS HOLDINGS, INC.
Consolidated Statement of Changes in Stockholders' Deficit
For the Thirty-Nine Week Period Ended April 1, 2000
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid Unearned Accumulated
Stock In Capital Compensation Deficit
-------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Balance, July 3, 1999......... $ 10 $ 966 $ (109) $ (53,318)
Net loss...................... -- -- -- (1,617)
Preferred stock dividend...... -- -- -- (7,672)
Subscription receivable:
Interest income.............. -- -- -- --
Repayment on subscription
receivable...................
Infusion of capital........... 1 99 -- --
Cancellation of restricted
common stock grants.......... -- (61) 61 --
Amortization of unearned
compensation................. -- -- 19 --
Other comprehensive loss:
Foreign translation -- -- -- --
adjustment..................
-------- ------------ -------------- -------------
Balance, April 1, 2000........ $ 11 $ 1,004 $ (29) $ (62,607)
======== ============ ============== =============
<CAPTION>
Accumulated
Other
Subscription Comprehensive
Receivable Income (Loss) Total
-------------- ------------------- ---------
<S> <C> <C> <C>
Balance, July 3, 1999......... $ (7) $ 223 $ (52,235)
Net loss...................... -- -- (1,617)
Preferred stock dividend...... -- -- (7,672)
Subscription receivable:
Interest income.............. (5) -- (5)
Repayment on subscription
receivable................... 5 5
Infusion of capital........... -- -- 100
Cancellation of restricted
common stock grants.......... -- -- --
Amortization of unearned
compensation................. -- -- 19
Other comprehensive loss:
Foreign translation -- (221) (221)
adjustment..................
-------------- ------------------- ---------
Balance, April 1, 2000........ $ (7) $ 2 $ (61,626)
============== =================== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
Notes to the Financial Statements
(Unaudited)
1. Basis of Presentation:
The accompanying financial statements present the financial position,
results of operations and cash flows of Eagle Family Foods, Inc. ("Eagle") and
the consolidated financial position, results of operations and cash flows of
Eagle Family Foods Holdings, Inc. ("Holdings") and its wholly-owned subsidiary,
Eagle. Eagle and Holdings are collectively referred to as the "Company," unless
the context indicates otherwise. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform with the current year's presentation.
The financial statements as of April 1, 2000 and April 3, 1999 and for the
thirteen and thirty-nine week periods ended April 1, 2000 and the thirteen and
forty week periods ended April 3, 1999 are unaudited and are presented pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, these financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Annual Report on Form
10-K of Holdings and Eagle for the year ended July 3, 1999. In the opinion of
management, the accompanying financial statements reflect all adjustments (which
are of a normal recurring nature, except as noted in Note 6), necessary to
present fairly the financial position and results of operations and cash flows
for the interim periods, but are not necessarily indicative of the results of
operations for a full fiscal year.
2. Inventories:
Inventories are stated at the lower of cost or market at April 1, 2000 and
July 3, 1999 and consisted of the following (in thousands):
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
----------- -----------
<S> <C> <C>
Finished goods......................................................................... $ 22,916 $ 36,886
Raw materials.......................................................................... 4,892 4,871
----------- -----------
Total inventories.................................................................. $ 27,808 $ 41,757
=========== ===========
</TABLE>
Included in the amount at April 1, 2000 is a reserve of $0.6 million
representing a reserve for ReaLemonade inventories.
3. Property and Equipment:
Property and equipment is recorded at cost at April 1, 2000 and July 3, 1999
and consisted of the following (in thousands):
<TABLE>
<CAPTION>
April 1, July 3,
<S> <C> <C>
2000 1999
------------ -----------
Land.................................................................................... $ 470 $ 470
Buildings and improvements.............................................................. 7,688 6,653
Machinery and equipment................................................................. 21,663 19,907
Computers............................................................................... 11,238 10,531
Construction in progress................................................................ 1,518 1,913
------------ -----------
Total property and equipment........................................................ 42,577 39,474
Accumulated depreciation................................................................ (10,888) (5,676)
------------ -----------
Property and equipment, net......................................................... $ 31,689 $ 33,798
============ ===========
</TABLE>
11
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
Notes to the Financial Statements
(Unaudited)
4. Intangible Assets:
Intangible assets are amortized on a straight-line basis over their estimated
useful lives and consisted of the following (in thousands):
<TABLE>
<CAPTION>
April 1, July 3, Estimated
2000 1999 Useful Lives
-------------- -------------- -------------
<S> <C> <C> <C>
Tradenames.............................................................. $ 141,000 $ 141,000 40 years
Goodwill................................................................ 136,664 136,664 40 years
Covenant not to compete................................................. 21,000 21,000 5 years
Master customer services agreement...................................... -- 17,300 1 year
-------------- --------------
Total intangible assets............................................. 298,664 315,964
Accumulated amortization................................................ (24,140) (33,084)
-------------- --------------
Intangible assets, net.............................................. $ 274,524 $ 282,880
============== ==============
</TABLE>
5. Debt Obligations:
Debt obligations consisted of the following (in thousands):
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
-------------- --------------
<S> <C> <C>
Term loan facility due December 31, 2005................................ $ 172,750 $ 173,500
Senior subordinated notes due January 15, 2008.......................... 115,000 115,000
Revolving credit facility due December 31, 2004......................... 22,000 50,000
Revolving credit facility swingline loan due December 31, 2004.......... 2,300 --
-------------- --------------
Total debt obligations.............................................. 312,050 338,500
Less current portion of long-term debt.................................. (1,000) (1,000)
-------------- --------------
Long-term debt obligations.......................................... $ 311,050 $ 337,500
============== ==============
</TABLE>
Senior Credit Facilities
Eagle received senior bank financing from a group of lenders in an
aggregate principal amount of up to $245.0 million (the "Senior Credit
Facilities") on January 23, 1998. The Senior Credit Facilities consist of (i) a
$70.0 million seven-year revolving credit facility including a $10.0 million
swingline loan (the "Revolving Credit Facility") and (ii) a $175.0 million
eight-year term loan (the "Term Loan Facility"). The Revolving Credit Facility
bears interest at LIBOR plus 3.25%, with the swingline loan portion bearing
interest at Prime plus 2.25%. The Term Loan Facility bears interest at LIBOR
plus 3.50%. The Senior Credit Facilities are guaranteed by Holdings and all
future domestic subsidiaries of the Company.
The obligations of Eagle under the Senior Credit Facilities are
collateralized by (i) 100% of the capital stock of Eagle and each of its
subsidiaries and (ii) a first priority collateral interest in substantially all
assets and properties of Eagle and its future domestic subsidiaries. The fair
market value of the Senior Credit Facilities at April 1, 2000 approximated the
carrying value.
On April 22, 1998, the Company entered into interest rate swap agreements
in order to fix the interest rate on a portion of the Term Loan Facility. These
swap agreements commenced on July 23, 1998 and fixed the LIBOR rate at 5.905% on
$25.0 million and 5.955% on $75.0 million of the $175.0 million Term Loan
Facility. These swap agreements expire on December 29, 2000 and December 31,
2002, respectively. The estimated benefit to cancel the interest rate swap
agreements at April 1, 2000 was approximately $2.2 million based on current
interest rates for similar instruments.
12
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
Notes to the Financial Statements
(Unaudited)
Senior Subordinated Notes
Eagle issued $115.0 million of senior subordinated notes (the "Notes") and
received cash proceeds of approximately $112.0 million net of underwriting
discount on January 23, 1998. The Notes are due January 15, 2008 and bear
interest of 8.75% per annum payable on January 15 and July 15. The fair market
value of the Notes was approximately $80.5 million at April 1, 2000.
6. Income Taxes
During the third quarter of 2000, the Company revised its previous
estimates for state net operating loss carryforwards, and recorded an
accumulated tax benefit for state net operating loss carryforwards of $1.3
million.
7. Common Stock
On January 10, 2000, Holdings issued 52,500 additional shares of Common
Stock, par value $0.01 per share, of Holdings ("Common Stock") under the Eagle
Family Foods Holdings, Inc. 1998 Stock Incentive Plan (the "Plan") to certain
employees. These shares are subject to certain restrictions contained in the
Stockholders Agreement, dated January 23, 1998, by and among Holdings and the
stockholders named therein. On January 5, 2000 by written consent, the
stockholders ratified an amendment to the Plan authorizing the additional 52,500
shares of Common Stock to be issued under the Plan.
8. Subsequent Event
William A. Lynch resigned from his positions as Chairman, Chief Operating
Officer and as a member of the Board of Directors of Eagle and Holdings
effective as of March 3, 2000. In connection with such resignation, Holdings
purchased a portion of Mr. Lynch's Series A Non-Voting Preferred Stock of
Holdings, and Mr. Lynch repaid all amounts due under a promissory note issued by
him in favor of Eagle on January 23, 1998. These transactions were effective
April 10, 2000.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Set forth below is a discussion of the financial condition and results of
operations. The following discussion should be read in conjunction with the
financial statements of the Company and the notes thereto included elsewhere in
this Quarterly Report on Form 10-Q. The following table sets forth the results
of operations as a percentage of net sales for the thirteen and thirty-nine week
periods ended April 1, 2000 and thirteen and forty week periods ended April 3,
1999:
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-Nine Forty
Week Period Week Period Week Period Week Period
Ended Ended Ended Ended
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 50.4 49.8 46.8 46.0
----------- ------------ ----------- -----------
Gross margin 49.6 50.2 53.2 54.0
Distribution expense 9.6 6.6 5.6 4.8
Marketing expense 27.3 37.4 27.8 26.5
General and administrative expense 12.3 9.5 5.5 5.1
Other operating income 2.4 -- 0.7 --
Amortization of intangibles 9.3 12.0 4.6 9.9
----------- ------------ ----------- -----------
Operating income (6.5)% (15.3)% 10.4% 7.7%
=========== ============ =========== ===========
</TABLE>
Thirteen Week Period ended April 1, 2000 ("third quarter 2000") and Thirteen
Week Period ended April 3, 1999 ("third quarter 1999") (Unaudited)
Net Sales. The Company's net sales for third quarter 2000 were $30.0
million as compared to $35.2 million for third quarter 1999, a decrease of $5.2
million, or 14.8%. The decrease was partially due to $2.3 million of lower
Realemonade sales. ReaLemonade was launched in March 1999 and during third
quarter 1999, the shipments to customers represented an initial one-time build
of customer warehouse and retail shelf inventories of ReaLemonade. Net sales in
third quarter 2000 reflect seasonally low consumer demand. The Company continues
to evaluate consumer demand for this new product, as net sales of ReaLemonade in
third quarter 2000 were disappointing.
In addition, the decrease in non-dairy creamer net sales was due to $0.7
million of lower net sales of Cremora and Cremora Royale. Cremora and Cremora
Royale net sales in third quarter 1999 were higher than third quarter 2000 as a
result of significant trial-generating marketing efforts in third quarter 1999
including the issuance of coupons, in-store demonstrations, and television and
print advertising. In the second year of the launch, the Company reduced its
marketing investment to a level necessary for on-going support of the brands.
Also, net sales of non-dairy creamer to private label and industrial customers
were $0.4 million lower than third quarter 1999.
14
<PAGE>
The table below sets forth the Company's net sales data for each of the
Company's product lines for third quarter 2000 and third quarter 1999 (dollars
in millions):
<TABLE>
<CAPTION>
Net Sales Percentage Net Sales Percentage
Third of Third of
Quarter Total Quarter Total
Product Lines Company's Principal Brands 2000 Net Sales 1999 Net Sales
- -------------- -------------------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Sweetened condensed milk Eagle Brand, Meadow Gold,
Magnolia, Star and other....... $ 8.5 28.3% $ 9.1 25.8%
Lemon and lime juices ReaLemon and ReaLime 11.7 39.0 11.8 33.4
Lemonade liquid concentrate ReaLemonade.................... 0.2 0.7 2.5 7.0
Non-dairy creamer Cremora, Cremora Royale and
other.......................... 8.6 28.7 9.7 27.7
Shelf-stable eggnog Borden......................... * -- 0.7 2.0
Mincemeat pie filling None Such...................... 0.1 0.3 0.5 1.4
Acid neutralized coffee Kava........................... 0.9 3.0 0.9 2.7
------- ------- -------- -------
Total.......................... $ 30.0 100.0% $ 35.2 100.0%
======= ======= ======== =======
</TABLE>
___________
* Less than $0.1 million
The U.S. Retail net sales were $22.0 million for third quarter 2000 as
compared to $28.0 for third quarter 1999, a decrease of $6.0 million, or 21.4%.
The decrease was partially due to $2.3 million of lower Realemonade sales.
ReaLemonade was launched in March 1999 and during third quarter 1999, the
shipments to customers represented an initial one-time build of customer
warehouse and retail shelf inventories of ReaLemonade. Net sales in third
quarter 2000 reflect seasonally low consumer demand. The Company continues to
evaluate consumer demand for this new product, as net sales of ReaLemonade in
third quarter 2000 were disappointing.
In addition, the decrease in U.S. Retail non-dairy creamer net sales was due
to $0.7 million of lower net sales of Cremora and Cremora Royale. Cremora and
Cremora Royale net sales in third quarter 1999 were higher than third quarter
2000 as a result of significant trial-generating marketing efforts in third
quarter 1999 including the issuance of coupons, in-store demonstrations, and
television and print advertising. In the second year of the launch, the Company
reduced its marketing investment to a level necessary for on-going support of
the brands. Also, the net sales of non-dairy creamer to private label customers
were $0.3 million lower than third quarter 1999.
The $1.5 million decrease in U.S. Retail sweetened condensed milk and lemon
and lime juices product lines was primarily a result of the calendar shift in
the Easter holiday from the Company's third fiscal quarter to its fourth in
2000.
The U.S. Foodservice/Industrial net sales were $5.8 million for third quarter
2000 as compared to $5.6 million for third quarter 1999, an increase of $0.2
million, or 3.6%. The increase reflected growth in distribution to new customers
and increases in sales to existing customers of sweetened condensed milk and
lemon and lime juice product lines.
The International net sales were $2.2 million for third quarter 2000 compared
to $1.6 million for third quarter 1999, an increase of $0.6 million, or 37.5%.
The increase in net sales was primarily due to an additional $0.4 million of
Canada net sales of Eagle Brand sweetened condensed milk to support seasonal
consumer demand. The Company entered into a distribution agreement with a new
distributor for its Canadian business in August 1998, pursuant to which the
distributor purchased initial shipments in the first half of fiscal 1999 which
established sufficient inventory to support sales into third quarter 1999
resulting in less net sales in third quarter 1999 compared to third quarter
2000.
15
<PAGE>
The table below sets forth the Company's net sales data by sales channel for
third quarter 2000 and third quarter 1999 (dollars in millions):
<TABLE>
<CAPTION>
Net Sales Percentage Net Sales Percentage
Third of Third of
Quarter Total Quarter Total
2000 Net Sales 1999 Net Sales
------------ ------------ -------- ----------
<S> <C> <C> <C> <C>
U.S. Retail
Sweetened condensed milk................................. $ 5.7 19.0% $ 6.5 18.5%
Lemon and lime juices.................................... 8.0 26.7 8.7 24.7
Lemonade liquid concentrate.............................. 0.2 0.7 2.5 7.1
Branded non-dairy creamer................................ 6.1 20.3 6.8 19.3
Other products........................................... 0.9 3.0 2.1 6.0
Private label non-dairy creamer.......................... 1.1 3.7 1.4 4.0
U.S. Foodservice/Industrial............................... 5.8 19.3 5.6 15.9
International............................................. 2.2 7.3 1.6 4.5
------------ ------------ -------- --------
Total.................................................... $ 30.0 100.0% $ 35.2 100.00%
============ ============ ======== ========
</TABLE>
Cost of Goods Sold. Cost of goods sold was $15.1 million for third quarter
2000 as compared to $17.5 million for third quarter 1999, a decrease of $2.4
million, or 13.7%. Expressed as a percentage of net sales, cost of goods sold
for third quarter 2000 increased to 50.4% from 49.8% for third quarter 1999.
Cost of goods sold as a percentage of net sales increased by 0.6% due
to a change in sales mix, primarily lower sales volume of ReaLemonade.
Distribution Expense. Distribution expense was $2.9 million for third quarter
2000 as compared to $2.3 million for third quarter 1999, an increase of $0.6
million, or 21.7%. Expressed as a percentage of net sales, distribution expense
for third quarter 2000 increased to 9.6% from 6.6% for third quarter 1999. The
increase was driven by higher warehousing costs primarily associated with the
level of inventory maintained throughout third quarter 2000 and higher
transportation costs associated with the delivery to third party warehouses of
sweetened condensed milk product produced earlier in 2000 than in the prior year
in order to capture the benefit of lower raw material costs in third quarter
2000.
Marketing Expense. Marketing expense was $8.2 million for third quarter 2000
as compared to $13.2 million for third quarter 1999, a decrease of $5.0 million,
or 37.9%. Expressed as a percentage of net sales, marketing expense for third
quarter 2000 decreased to 27.3% from 37.4% for third quarter 1999. The decrease
was primarily due to higher marketing expense in third quarter 1999 related to
the launch of Cremora Royale and ReaLemonade.
General and Administrative ("G&A") Expense. Total G&A expense was $3.7
million for third quarter 2000 as compared to $3.3 million for third quarter
1999, an increase of $0.4 million, or 12.1%. Expressed as a percentage of net
sales, G&A expense for third quarter 2000 increased to 12.3% from 9.5% for third
quarter 1999. The increase was due to $0.2 million of higher depreciation
expense associated with the Company's computer systems implemented in January
1999 and $0.2 million of annual software maintenance costs.
Other Operating Income. The Company recognized $0.7 million during third
quarter 2000, of which $0.6 million related to a settlement from a supplier for
defective packaging materials.
Amortization of Intangibles. Amortization of intangibles was $2.8 million for
third quarter 2000 as compared to $4.2 million for third quarter 1999, a
decrease of $1.4 million. The decrease was primarily due to the expiration of
the one year master customer services agreement entered into between the Company
and Borden Foods Corporation ("BFC") in connection with the Company's January
23, 1998 acquisition of assets from BFC.
Operating Income. Operating loss was $2.0 million for third quarter 2000 as
compared to $5.4 million for third quarter 1999, a decrease of $3.4 million, or
63.0%. Excluding the impact of $2.8 million and $4.3 million of amortization
expense for intangibles for third quarter 2000 and third quarter 1999,
respectively, operating income was $0.8 million for third quarter 2000 as
compared to a loss of $1.1 million for third quarter 1999, an increase of $1.9
million. Together with other factors discussed above, the Company's operating
results were significantly improved by the impact of the lower marketing
investment required to support Cremora Royale and ReaLemonade after their fiscal
1999 launches.
16
<PAGE>
Interest Expense. Net interest expense was $7.6 million for third quarter
2000 as compared to net interest expense of $6.6 million for third quarter 1999,
an increase of $1.0 million. The increase was due to $0.1 million of higher
interest as a result of an increase in the average outstanding balance of the
Revolving Credit Facility, $0.7 million from higher interest rates during third
quarter 2000 compared to third quarter 1999, and $0.2 million of higher other
miscellaneous financing costs.
Income Taxes. The Company recorded an income tax benefit of $4.7 million for
third quarter 2000 as compared to a $4.2 million income tax benefit for third
quarter 1999. During third quarter 2000, the Company revised its previous
estimates for state net operating loss carryforwards, and recorded an
accumulated tax benefit for state net operating loss carryforwards of $1.3
million.
17
<PAGE>
Thirty-nine Week Period Ended April 1, 2000 ("year to date 2000") and Forty Week
Period Ended April 3, 1999 ("year to date 1999") (Unaudited)
Net Sales. The Company's net sales for year to date 2000 were $183.5
million as compared to $187.1 million for year to date 1999, a decrease of $3.6
million, or 1.9%. The decrease was due to $1.5 million in lower net sales of
Borden eggnog and None Such pie filling which were the result of the elimination
of low margin eggnog special packs and the introduction of new smaller case size
mincemeat pie filling to reduce seasonal returns, $2.1 million in lower net
sales from the discontinued Eagle Brand chocolate flavored sweetened condensed
milk, and $1.0 million for sweetened condensed milk products returned to
reclamation centers.
In addition, the decrease in non-dairy creamer net sales was partially due
to $0.9 million in lower net sales of Cremora and Cremora Royale. Cremora and
Cremora Royale net sales in year to date 1999 were higher than year to date 2000
as a result of significant trial-generating marketing efforts in year to date
1999 including the issuance of coupons, in-store demonstrations, and television
and print advertising. In the second year of the launch, the Company reduced its
marketing investment to a level necessary for on-going support of the brands.
The decrease in net sales of non-dairy creamer was also due to a temporary
disruption in production resulting from a June 2, 1999 fire at the Company's
Chester, South Carolina manufacturing plant. While all retail product sales and
some industrial product sales were unaffected by the fire due to the Company's
ability to have the products manufactured by a third party, certain industrial
products could not be outsourced during the production downtime. The Company
estimates that total lost sales associated with the fire were approximately $1.0
million. Production was resumed in mid-October 1999.
The decreases in net sales were partially offset by an increase of $1.7
million in net sales of ReaLemonade, resulting from the 1999 product launch, and
an increase of $1.7 million in net sales within the lemon and lime juice product
lines.
The table below sets forth the Company's net sales data for each of the
Company's product lines for year to date 2000 and year to date 1999 (dollars in
millions):
<TABLE>
<CAPTION>
Net Sales Percentage Net Sales Percentage
Year to of Year to of
Date Total Date Total
Product Lines Company's Principal Brands 2000 Net Sales 1999 Net Sales
- ------------------------------ -------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Sweetened condensed milk Eagle Brand, Meadow Gold,
Magnolia, Star and other........ $ 91.8 50.0% $ 95.0 50.8%
Lemon and lime juices ReaLemon and ReaLime............ 46.0 25.1 44.3 23.7
Lemonade liquid concentrate ReaLemonade..................... 4.2 2.3 2.5 1.3
Non-dairy creamer Cremora, Cremora Royale
and other....................... 28.9 15.8 31.0 16.6
Shelf-stable eggnog Borden.......................... 5.0 2.7 5.6 3.0
Mincemeat pie filling None Such....................... 4.8 2.6 5.7 3.0
Acid neutralized coffee Kava............................ 2.8 1.5 3.0 1.6
------- ------- ------- -------
Total........................... $183.5 100.0% $ 187.1 100.0%
======= ======= ======= =======
</TABLE>
18
<PAGE>
The U.S. Retail net sales were $154.2 million for year to date 2000 as
compared to $153.9 million for year to date 1999, an increase of $0.3 million,
or 0.2%. The increase was due to $1.6 million in net sales of ReaLemonade,
resulting from its 1999 product launch, and $1.9 million in additional net sales
within the lemon and lime juice product lines. The increase was partially offset
by decreases of $1.9 million in lower net sales of Borden eggnog, None Such pie
filling and Kava coffee, $1.0 million for sweetened condensed milk products
returned to reclamation centers, and $0.9 million in lower net sales of Cremora
and Cremora Royale non-dairy creamer, as discussed above.
The U.S. Foodservice/Industrial net sales were $18.0 million for year to date
2000 as compared to $18.4 million for year to date 1999, a decrease of $0.4
million, or 2.2%. The decrease was primarily a result of approximately $1.0
million of lower non-dairy creamer net sales, due to the plant fire, as
discussed above. The decrease was partially offset by $0.5 million of growth in
Foodservice distribution to new customers and increases in sales to existing
customers of sweetened condensed milk and lemon and lime juice product lines.
The International net sales were $11.3 million for year to date 2000 compared
to $14.8 million for year to date 1999, a decrease of $3.5 million, or 23.6%.
The decrease was primarily due to $2.9 million in lower Canadian net sales. The
Company entered into a distribution agreement with a new distributor for its
Canadian business in August 1998, pursuant to which the distributor purchased
initial shipments in the first half of fiscal 1999 to establish a base level of
inventory. This build up of inventory created a one time sales increase in year
to date 1999.
The table below sets forth the Company's net sales data by sales channel for
year to date 2000 and year to date 1999 (dollars in millions):
<TABLE>
<CAPTION>
Net Sales Percentage Net Sales Percentage
Year to of Year to of
Date Total Date Total
2000 Net Sales 1999 Net Sales
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Retail
Sweetened condensed milk................................. $ 78.1 42.6% $ 79.1 42.3%
Lemon and lime juices.................................... 34.3 18.7 32.4 17.3
Lemonade liquid concentrate.............................. 4.1 2.2 2.5 1.3
Branded non-dairy creamer................................ 20.8 11.3 21.7 11.6
Other products........................................... 12.4 6.8 14.3 7.6
Private label non-dairy creamer.......................... 4.5 2.4 3.9 2.1
U.S. Foodservice/Industrial............................... 18.0 9.8 18.4 9.9
International............................................. 11.3 6.2 14.8 7.9
--------- -------- --------- --------
Total.................................................... $ 183.5 100.0% $ 187.1 100.0%
========= ======== ========= ========
</TABLE>
Cost of Goods Sold. Cost of goods sold was $85.9 million for year to date 2000
as compared to $86.0 million for year to date 1999, a decrease of $0.1 million,
or 0.1%. Expressed as a percentage of net sales, cost of goods sold for year to
date 2000 increased to 46.8% from 46.0% for year to date 1999. The increase in
the percentage of cost of goods sold to net sales was partially due to a $4.8
million charge in the quarter ended October 2, 1999 for anticipated obsolescence
of ReaLemonade inventories. A certain portion of this ReaLemonade inventory was
sold at reduced prices at or above cost. The increase in cost of goods sold as a
percentage of net sales was also favorably offset by significantly lower raw
material costs for the sweetened condensed milk and lemon and lime juice product
lines.
Distribution Expense. Distribution expense was $10.4 million for year to date
2000 as compared to $9.0 million for year to date 1999, an increase of $1.4
million, or 15.6%. Expressed as a percentage of net sales, distribution expense
for year to date 2000 increased to 5.6% from 4.8% for year to date 1999. The
increase was driven partially by $0.5 million of higher warehousing costs
primarily associated with the level of inventory maintained to support the
launch of ReaLemonade, $0.5 million for costs reclassified from marketing
expense to distribution costs as a result of the change in the distribution
network for certain U.S. foodservice sales, and $0.3 million for transportation
costs associated with the delivery to third party warehouses of sweetened
condensed milk product produced earlier in 2000 than in the prior year in order
to capture the benefits of lower raw material costs in year to date 2000.
Marketing Expense. Marketing expense was $50.9 million for year to date 2000
as compared to $49.6 million for year to date 1999, an increase of $1.3 million,
or 2.6%. Expressed as a percentage of net sales, marketing expense for year to
date 2000 increased to 27.8% from 26.5% for year to date 1999. The increase was
driven by $6.2 million in year to date
19
<PAGE>
2000 for advertising, trade and consumer support related to the launch of
ReaLemonade, offset by a reduction of $4.9 million in year to date 2000 for
advertising, trade and consumer support related to Cremora Royale, which was
launched fiscal year 1999.
General and Administrative Expense. Total G&A expense was $10.0 million
for year to date 2000 as compared to $9.5 million for year to date 1999, an
increase of $0.5 million, or 5.3%. Expressed as a percentage of net sales, G&A
expense for year to date 2000 increased to 5.5% from 5.1% for year to date 1999.
The increase was primarily due to $1.2 million of higher depreciation expense
associated with the Company's computer systems implemented in January 1999 and
$0.2 million of annual software maintenance costs. This increase was partially
offset by a non-recurring $1.1 million charge in year to date 1999 for
transition services provided by BFC.
Other Operating Income. Other operating income was $1.2 million for year to
date 2000, of which $0.5 million related to a product diversion lawsuit
settlement against a wholesale customer and $0.6 million for settlement from a
supplier for defective packaging materials.
Amortization of Intangibles. Amortization of intangibles was $8.4 million
for year to date 2000, as compared to $18.5 million for year to date 1999, a
decrease of $10.1 million. The decrease was due to the expiration of the one
year master customer services agreement entered into between the Company and BFC
in connection with the Company's January 23, 1998 acquisition of assets from
BFC.
Operating Income. Operating income was $19.1 million for year to date 2000
as compared to $14.5 million for year to date 1999, an increase of $4.6 million,
or 31.7%. Excluding the impact of $8.4 million and $18.5 million of amortization
expense for intangibles for year to date 2000 and year to date 1999,
respectively, operating income was $27.5 million for year to date 2000 as
compared to $33.0 million for year to date 1999, a decrease of $5.5 million, or
16.7%. Together with other factors discussed above, the Company's operating
income was significantly affected by the lower marketing investment required to
support Cremora Royale after its fiscal 1999 launch.
Interest Expense. Net interest expense was $23.6 million for year to date
2000 as compared to net interest expense of $20.8 million for year to date 1999,
an increase of $2.8 million. The increase was primarily due to $0.6 million of
higher interest as a result of an increase in the average outstanding balance of
the Revolving Credit Facility, $1.6 million from higher interest rates during
year to date 2000 compared to year to date 1999, and $0.6 million of higher
other miscellaneous financing costs.
Income Taxes. The Company recorded an income tax benefit of $2.9 million
for year to date 2000 as compared to a $2.2 million income tax benefit for year
to date 1999. During third quarter 2000, the Company revised its previous
estimates for state net operating loss carryforwards, and recorded an
accumulated tax benefit for state net operating loss carryforwards of $1.3
million.
Liquidity and Capital Resources
Borrowings under the Senior Credit Facilities at April 1, 2000 and July 3,
1999 consisted of $172.8 million and $173.5 million, respectively, for the Term
Loan Facility maturing in 2005. The Term Loan Facility matures $0.3 million in
the remainder of fiscal year 2000 and $1.0 million, $0.8 million, $3.2 million,
$27.5 million, $80.0 million and $60.0 million in the fiscal years 2001 through
2006, respectively. In addition, the Senior Credit Facilities included the $70.0
million Revolving Credit Facility and $10.0 million swingline loan maturing in
2004, of which $24.3 million and $50.0 million were outstanding at April 1, 2000
and July 3, 1999, respectively. The decrease in the amount outstanding under
the Revolving Credit Facility was principally a result of the seasonal nature of
the business, with higher sales occurring in the second quarter of the Company's
fiscal year, and the collection of trade receivables staying current.
On September 27, 1999, GEI and Warburg (collectively, the "Equity
Sponsors") contributed $10.0 million of additional equity for capital stock of
Holdings. The capital contribution made by the Equity Sponsors was made in
connection with the significant marketing investment made by the Company in
launching Cremora Royale and ReaLemonade during the fiscal year ended July 3,
1999.
Interest payments on the Notes and interest and principal payments under
the Senior Credit Facilities represent significant cash requirements for the
Company. Borrowings under the Senior Credit Facilities bear interest at floating
rates
20
<PAGE>
and require interest payments on varying dates. However, on April 22, 1998, the
Company entered into interest rate swap agreements in order to fix the interest
rate on $100 million of the Term Note Facility. These swap agreements commenced
on July 23, 1998.
The Company's remaining liquidity needs are for capital expenditures and
operating requirements. The Company spent $3.1 million on capital projects
during the thirty-nine week period ended April 1, 2000 to fund expenditures in
existing facilities, management information systems initiatives, and
discretionary capital projects associated with new products. The Company
expects to spend an additional $2.4 to $3.0 million on capital projects in
fiscal year 2000 to fund expenditures in existing facilities, information system
initiatives and discretionary capital projects associated with new products. The
Company's primary sources of liquidity are cash flows from operations and
available borrowings under the Revolving Credit Facility.
Net cash provided from operating activities for year to date 2000 and year to
date 1999 was $20.2 million and $12.1 million, respectively. The increase of
$8.1 million was due primarily to the non-recurrence of certain marketing
expense and inventory costs in year to date 1999 that supported the launches of
Cremora Royale and ReaLemonade.
Cash used in financing activities in year to date 2000 and year to date 1999
was $17.3 million and $2.5 million, respectively. Net payments of $25.7 million
and $1.5 million for year to date 2000 and year to date 1999, respectively, were
applied against the Revolving Credit Facility. Additionally, the Company
received $10.0 million associated with the issuance of Holdings capital stock to
the Equity Sponsors.
Management believes that cash generated from operations and borrowings under
the Senior Credit Facilities will be sufficient to satisfy working capital
requirements and required capital expenditures. Further expansion of the
business through acquisitions may require the Company to incur additional
indebtedness or to issue additional equity securities.
Other Information
Plant Fire. On June 2, 1999, a fire destroyed several critical pieces of
equipment at the Chester, South Carolina powdered non-dairy creamer
manufacturing plant. The plant operated at modified levels until production
resumed in mid-October 1999. The Company had temporarily engaged another
manufacturer to produce powdered non-dairy creamer in bulk. The Chester, South
Carolina plant then packaged and shipped the finished product to its customers.
The Company estimates that total lost sales associated with the fire were
approximately $1.0 million.
The Company completed its insurance claim for property damage, other expenses
related to the fire and business interruption. The claim did not significantly
impact the Company's results of operations or financial position.
Seasonality
The Company's net sales, net income and cash flows are affected by a seasonal
bias toward the fourth quarter of the calendar year due to increased sales
during the holiday season. Three of the Company's six major product lines (Eagle
Brand and the Company's other sweetened condensed milk products, Borden eggnog
and None Such mincemeat pie filling) are consumed primarily during the November
and December holiday season. In recent years, approximately 43% of the Company's
net sales have occurred in the last quarter of the calendar year. As a result of
this seasonality, the Company's working capital needs have historically
increased throughout the year, normally peaking in the September/October period,
requiring the Company to draw additional amounts on its Revolving Credit
Facility during this period.
Recently Issued Accounting Statements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company expects to adopt this standard in the
first quarter of fiscal 2001. The Company is evaluating this pronouncement and
has not yet determined the ultimate impact of this pronouncement on future
financial statements.
21
<PAGE>
Impact of the Year 2000 Issue
The Company has not experienced any disruptions due to the Year 2000 issue,
but due to the general uncertainty inherent in the Year 2000 problem, including
the uncertainty associated with suppliers and customer's Year 2000 readiness,
which is beyond the Company's control, the potential effect on the financial
results and the condition of the Company cannot be measured.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements within this section may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which involve known and unknown risks and uncertainties. The Company's
actual results, performance or achievements in the future could differ
significantly from the results, performance or achievements discussed or implied
in such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, the effect on financial
performance of increased competition in the dry-grocery food industry, potential
future competition, competitive pricing for products, general economic and
business conditions, industry trends, raw material costs, dependence on the
Company's labor force, the success of new product innovations and changes in, or
the failure or inability to comply with, government rules and regulations,
including, without limitation, Food and Drug Administration and environmental
rules and regulations.
22
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates
The following table presents descriptions of the financial instruments and
derivative instruments that were held by the Company at April 1, 2000 and which
are sensitive to changes in interest rates, including interest rate swaps and
debt obligations. In the ordinary course of business, the Company enters into
derivative financial instrument transactions in order to manage or reduce market
risk. Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and floating
rate interest amounts calculated by reference to an agreed notional principal
amount. The Company does not enter into derivative financial instrument
transactions for speculative purposes.
For the liabilities, the table represents principal fiscal year cash flows
that exist by maturity date and the related average interest rate. For the
interest rate derivatives, the table presents the notional amounts and expected
interest rates that exist by contractual dates; the notional amount is used to
calculate the contractual payments to be exchanged under the contract. The
variable rates are estimated based upon the six month forward LIBOR rate.
All amounts are reflected in U.S. dollars (in thousands).
<TABLE>
<CAPTION>
Balance at
April 1, Fair
2000 2001 2002 2003 2004 Thereafter 2000 Value
--------- --------- -------- -------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Fixed rate..................... $ 115,000 $ 115,000 $ 80,500
Average interest rate.......... 8.75% 8.75%
Variable rate.................. $ 250 $ 1,000 $ 750 $ 3,250 $ 27,500 $ 164,300 $ 197,050 $197,050
Average interest rate.......... 10.003% 10.003% 10.003% 10.003% 10.003% 8.681% 9.946%
Interest-Rate Derivatives
Variable to fixed:
Notional amount at the
beginning of fiscal year...... $100,000 $ 100,000 $ 75,000 $ 75,000
Maturities..................... 25,000 75,000 $ 100,000 $ 2,198
Average pay rate............... 5.943% 5.943% 5.955% 5.955% 5.948%
Average receive rate........... 6.300% 6.300% 6.300% 6.300% 6.300%
</TABLE>
On April 22, 1998, the Company entered into interest rate swap agreements in
order to fix the interest rate on a portion of the Term Loan Facility. The Term
Loan Facility bears interest at LIBOR plus 3.50%. These swap agreements
commenced on July 23, 1998 and fixed the LIBOR rate at 5.905% on $25.0 million
and 5.955% on $75.0 million of the $175.0 million Term Loan Facility. These swap
agreements expire on December 29, 2000 and December 31, 2002, respectively, and
have been reflected in the table above. The estimated benefit to cancel the
interest rate swap agreements at April 1, 2000 was approximately $2.2 million
based on current interest rates for similar instruments.
Milk Hedging
The Company uses milk as a major ingredient in its sweetened condensed milk
product line and is subject to the risk of rising milk prices that increase
manufacturing costs and erode profit margins. By purchasing futures contracts,
however, the Company establishes a known price for future milk purchases in
order to protect against fluctuating milk prices. As of April 1, 2000, the
Company had 161 outstanding milk futures contracts expiring during various
months through June 2000. The Company has successfully hedged a portion of its
future production at an average cost of milk that is below the prior year's
average cost of milk. However, the current price for milk has continued to
decline and is now at or near historical lows. The aggregate market value of
these contracts was $3.2 million with an average cost of $3.7 million. The
unrealized loss on these contracts was $0.5 million as of April 1, 2000.
23
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Holdings solicited the written consent of its stockholders in lieu of
a meeting for ratification of an amendment to the Plan authorizing an additional
52,500 shares of Common Stock to be issued under the Plan. On January 5, 2000,
such written consent was adopted by holders representing 908,150 shares of
Common Stock, or 84.6% of the outstanding Common Stock.
Item 5. OTHER INFORMATION
William A. Lynch resigned from his positions as Chairman, Chief
Operating Officer and as a member of the Board of Directors of Eagle and
Holdings effective as of March 3, 2000. In connection with such resignation, on
April 10, 2000, Holdings purchased a portion of Mr. Lynch's Series A Non-Voting
Preferred Stock of Holdings, and Mr. Lynch repaid all amounts due under a
promissory note issued by him in favor of Eagle on January 23, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 1 to the Eagle Family Foods Holdings, Inc. 1998 Stock
Incentive Plan, effective January 5, 2000.
27.1 Financial Data Schedule of Eagle Family Foods Holdings, Inc.
27.2 Financial Data Schedule of Eagle Family Foods, Inc.
(b) Reports on Form 8-K
None.
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
EAGLE FAMILY FOODS HOLDINGS, INC.
EAGLE FAMILY FOODS, INC.
By: /s/ John O'C Nugent
--------------------------------------------
John O'C Nugent
President and Chief Executive Officer
By: /s/ Craig A. Steinke
--------------------------------------------
Craig A. Steinke
Vice President and Chief Financial Officer
Date: May 10, 2000
25
<PAGE>
EXHIBIT INDEX
10.1 Amendment No. 1 to the Eagle Family Foods Holdings, Inc.
1998 Stock Incentive Plan
27.1 Financial Data Schedule of Eagle Family Foods Holdings,
Inc.
27.2 Financial Data Schedule of Eagle Family Foods, Inc.
<PAGE>
Exhibit 10.1
Amendment No. 1
to the Eagle Family Foods Holdings, Inc.
1998 Stock Incentive Plan
This Amendment No. 1 to the Eagle Family Foods Holdings, Inc. 1998 Stock
Incentive Plan (the "Stock Plan") is effective January 5, 2000.
The second sentence of Article III of the Stock Plan is hereby amended to delete
the number "153,650" and to replace it with the number "206,150".
* * *
As adopted by the Board of Directors and the stockholders of Eagle Family Foods
Holdings, Inc. on January 5, 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EAGLE FAMILY FOODS HOLDINGS, INC. FOR THE THIRTY-NINE
WEEK PERIOD ENDING APRIL 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001054040
<NAME> EAGLE FAMILY FOODS HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JAN-02-2000
<PERIOD-END> APR-01-2000
<CASH> 809
<SECURITIES> 0
<RECEIVABLES> 12,274
<ALLOWANCES> 168
<INVENTORY> 27,808
<CURRENT-ASSETS> 42,918
<PP&E> 42,577
<DEPRECIATION> 10,888
<TOTAL-ASSETS> 381,723
<CURRENT-LIABILITIES> 21,423
<BONDS> 311,050
110,876
0
<COMMON> 11
<OTHER-SE> (61,637)
<TOTAL-LIABILITY-AND-EQUITY> 381,723
<SALES> 185,493
<TOTAL-REVENUES> 183,493
<CGS> 85,889
<TOTAL-COSTS> 85,889
<OTHER-EXPENSES> 78,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,633
<INCOME-PRETAX> (4,492)
<INCOME-TAX> (2,875)
<INCOME-CONTINUING> (1,617)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,617)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EAGLE FAMILY FOODS, INC. FOR THE THIRTY-NINE WEEK PERIOD
ENDED APRIL 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001059761
<NAME> EAGLE FAMILY FOODS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JAN-02-2000
<PERIOD-END> APR-01-2000
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<BONDS> 311,050
0
0
<COMMON> 1
<OTHER-SE> 49,975
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<TOTAL-REVENUES> 183,493
<CGS> 85,889
<TOTAL-COSTS> 85,889
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> (4,473)
<INCOME-TAX> (2,875)
<INCOME-CONTINUING> (1,598)
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<CHANGES> 0
<NET-INCOME> (1,598)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
