<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 25, 1999
Favorite Brands International, Inc.
and the Guarantors identified in Footnote (1) below
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
Delaware 333-67221 75-2608980
- -----------------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer Identification No.)
Incorporation)
</TABLE>
2121 Waukegan Road, Bannockburn, Illinois 60015
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
1) The following domestic direct subsidiaries of Favorite Brands International,
Inc. are Guarantors of the Company's Senior Notes and are Co-Registrants, each
of which is incorporated in the jurisdiction and has the I.R.S. Employer
Identification Number indicated: Trolli Inc., a Delaware corporation (52-
1716800) and Sather Trucking Corp., a Delaware corporation (41-1849044).
Registrant's telephone number, including area code: (847) 405-5800
Item 5. Other Events
On September 25, 1999 Favorite Brands International, Inc. (the "Company") filed
in the United States Bankruptcy Court for the District of Delaware the monthly
operating report for its August 1999 fiscal period which is attached hereto as
Exhibit 99.2.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired. Not applicable.
(b) Pro Forma Financial Information. Not applicable.
(c) Exhibits.
99.2 Monthly Operating Report
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Favorite Brands International, Inc.
Dated: September 30, 1999 By: /s/ Steven F. Kaplan
-------------------------------------------
President,
Chief Operating Officer and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- --------------------------------------------------------------------------------
99.2 Monthly Operating Report
<PAGE>
EXHIBIT 99.2
TRANSMITTAL OF FINANCIAL REPORTS AND
CERTIFICATION OF COMPLIANCE WITH
UNITED STATES TRUSTEE OPERATING REQUIREMENTS
FOR THE PERIOD ENDED August 21, 1999
Debtors: Favorite Brands International Holding Corp., Favorite Brands
International, Inc., Trolli Inc., and Sather Trucking Corporation
(the "Debtors")
Case Numbers: 99-726 (PJW) through 99-729 (PJW)
As President of the Debtors, I affirm to the best of my knowledge, information
and belief:
1) That I have reviewed the financial statements attached hereto, consisting
of:
For the period ended August 21, 1999:
[X] Consolidated Statement of Operations
[X] Consolidated Balance Sheet
[X] Consolidated Statement of Cash Flows
[X] Statement of Cash Receipts and Disbursements
[X] Accounts Receivable and Postpetition Accounts Payable Aging Statements
[X] Statement of Payments to Professionals
For the period ended July 24, 1999:
[X] Consolidated Statement of Operations
[X] Consolidated Balance Sheet
[X] Consolidated Statement of Cash Flows
For the fiscal year ended June 26, 1999:
[X] Audited Financial Statements
and that they have been prepared in accordance with normal and customary
accounting practices, and fairly and accurately reflect the debtors financial
activity for the period stated.
2) That the insurance as described in Section 3 of the Operating Instructions
and Reporting Requirements for Chapter 11 cases are current and have been
paid in the normal course of business.
3) That all postpetition taxes as described in Section 4 of the Operating
Instructions and Reporting Requirements for Chapter 11 cases are current
and have been paid in the normal course of business.
4) That no payments have been made to officers and directors of the Debtors
except as authorized pursuant to orders of the Bankruptcy Court including
the Order Under 11 U.S.C. (S)(S)105, 363 and 365 Authorizing (A)
Implementation of Key Employee Retention Program, (B) Implementation of
Severance Program, (C) Modification of Retirement Plans, (D) Assumption of
or Entry Into Certain Employment Agreements With Key Executives, and (E)
Granting Other Relief (approved on April 30, 1999).
<PAGE>
5) That no professional fees (attorney, accountant, etc.) have been paid
except as provided in the (1) Order Authorizing Retention of Professionals
by Debtors in the Ordinary Course of Business (entered on March 31, 1999)
or (2) Administrative Order 11 U.S.C. (S)(S)105(a) and 331 Establishing
Procedures for Interim Compensation and Reimbursement of Expenses of
Professionals (entered on March 31, 1999).
The attached monthly report was prepared by the Debtors under my direction and
supervision. The Debtors verify that to the best of its knowledge, the
information provided herein is true and correct.
/S/ Steven F. Kaplan
Dated: ____________ __________________________
Debtors in Possession
Steven F. Kaplan
President, Chief Operating Officer,
and Chief Financial Officer
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
August 21,
ASSETS 1999
------ -----------
(Unaudited)
<S> <C>
Current Assets:
Cash and cash equivalents.......................................... $ 19,879
Accounts receivable, less allowance of $17,800..................... 49,735
Inventories........................................................ 79,506
Deferred income taxes.............................................. -
Prepaid expenses and other current assets.......................... 18,452
--------
Total current assets............................................. 167,572
--------
Property, Plant and Equipment, at Cost:
Land............................................................... 5,200
Buildings.......................................................... 72,002
Machinery and equipment............................................ 213,720
Construction in progress........................................... 34,306
--------
325,228
Less accumulated depreciation...................................... 78,635
--------
246,593
--------
Other Assets:
Intangible assets, net............................................. 268,521
Prepaid expenses and other assets.................................. 1,475
Deferred income taxes.............................................. -
--------
269,996
--------
$684,161
========
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, Except Per Share Data)
t<TABLE>
<CAPTION>
August 21,
LIABILITIES AND STOCKHOLDER'S EQUITY 1999
------------------------------------ -----------
(Unaudited)
<S> <C>
Current Liabilities:
Accounts payable and accrued liabilities............... $ 74,937
Other current liabilities.............................. 1,491
---------
Total current liabilities........................... 76,428
---------
Noncurrent Liabilities:
Other long-term liabilities............................ 1,875
---------
Total noncurrent liabilities........................ 1,875
---------
Prepetition Secured Debt..................................... 200,500
Liabilities subject to compromise............................ 464,687
Commitments and Contingencies................................ -
---------
Total liabilities................................... 743,490
---------
Stockholder's Equity:
Common Stock, $.01 par value; 1,000 shares authorized,
issued and outstanding.............................. -
Additional paid-in capital............................. 195,751
Accumulated deficit.................................... (255,080)
---------
Total stockholder's equity.......................... (59,329)
---------
$ 684,161
=========
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED STATEMENT
OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Four Weeks
Ended
August 21, 1999
---------------
(Unaudited)
<S> <C>
Net sales.............................................. $49,330
Costs and expenses:
Cost of sales.................................... 32,151
Selling, marketing and administrative............ 14,559
Amortization of intangible assets................ 984
Restructuring and business integration costs..... -
-------
47,694
Income from operations................................. 1,636
Interest expense................................. 1,186
Reorganization charges under Chapter 11.......... 1,211
-------
Loss before income taxes............................... (761)
Benefit for income taxes............................. -
-------
Net loss............................................... $ (761)
=======
Reconciliation to Adjusted EBITDA:
Net Loss............................................. $ (761)
Interest expense................................. 1,186
Benefit for income taxes......................... -
-------
EBIT................................................. 425
Depreciation..................................... 2,350
Amortization..................................... 984
-------
Reported EBITDA...................................... 3,759
Reorganization charges under Chapter 11.......... 1,211
Restructuring and business integration costs..... -
-------
Adjusted EBITDA...................................... $ 4,970
=======
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Four Weeks Ended
August 21,
1999
----------------
(Unaudited)
<S> <C>
Cash Flows from Operating Activities:
Net Loss.......................................................................... $ (761)
Adjustments:
Depreciation and amortization............................................... 3,334
Gain on disposition of property, plant & equipment.......................... (33)
Deferred income taxes....................................................... -
Changes in operating assets and liabilities:
Accounts receivable................................................... (4,216)
Inventories........................................................... (3,794)
Prepaid expenses and other assets..................................... (187)
Accounts payable, accrued liabilities and
liabilities subject to compromise................................... (4,883)
Income taxes payable.................................................. -
Other liabilities..................................................... (88)
--------
Net cash used in operating activities............................. (10,628)
--------
Cash Flows from Investing Activities:
Proceeds on the sale of assets.................................................... -
Capital expenditures.............................................................. (169)
--------
Net cash used in investing activities............................. (169)
--------
Cash Flows from Financing Activities:
Net borrowings on revolving credit loans.......................................... -
Proceeds from loans............................................................... -
Repayments of term loan........................................................... -
Payments for debt issuance costs.................................................. -
Repayment of other long-term debt................................................. -
Proceeds from capital contributions............................................... -
--------
Net cash provided by financing activities......................... -
--------
Decrease in cash and cash equivalents................................................... (10,797)
Cash and cash equivalents, beginning of period.......................................... 30,676
--------
Cash and cash equivalents, end of period................................................ $ 19,879
========
Supplemental Cash Flow Information:
Income taxes paid................................................................. $ -
========
Interest paid..................................................................... $ 1,607
========
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL HOLDING CORP.
Statement of Cash Disbursements
For the Period
(Thousands of Dollars)
Debtors: Favorite Brands International Holding Corp., Favorite Brands
International, Inc., Trolli Inc., and Sather Trucking Corporation
(the "Debtors")
Case Numbers: 99-726PJW through 99-729PJW
DISBURSEMENTS DURING PERIOD
(deconsolidated and excluding intradebtor transfers):
<TABLE>
<CAPTION>
<S> <C>
Favorite Brands Holding Corp. $ -
Favorite Brands International, Inc. $73,789
Trolli Inc. $ 7,974
Sather Trucking Corporation $ 1,361
-------
Total $83,124
=======
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL HOLDING CORP.
Statement of Cash Receipts and Disbursements
For the Period
(Thousands of Dollars)
Debtors: Favorite Brands International Holding Corp., Favorite Brands
International, Inc., Trolli Inc., and Sather Trucking Corporation
(the "Debtors")
Case Numbers: 99-726PJW through 99-729PJW
Cash Receipts and Disbursements Detail
(consolidated)
<TABLE>
<CAPTION> Favorite Brands International, Inc.
---------------------------------------------------------
Holdings FBI FBI FBI FBI FBI
1st National Bank of Bank of Campbell & Chase/ Kidd
BANK NAME: Bank of Chicago America America Fetter Investment
ACCOUNT #: 55-61787 81887-00953 58552174 50742-6 323-845851
--------------- ----------- -------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning Bank Ledger Balance $ - $ 3,515 $ 2 $ 115 $ 26,521 $ -
Receipts for Period 49,010 9 450,855
Disbursements for Period 49,203 - 460,935
-------- -------- ---- -------- -------- ----
Ending Bank Ledger Balance $ - $ 3,322 $ 2 $ 124 $ 16,441 $ -
======== ======== ==== ======== ======== ====
RECONCILIATION TO GENERAL LEDGER
- --------------------------------
Ending Bank Ledger Balance $ - $ 3,322 $ 2 $ 124 $ 16,441 $ -
Outstanding Checks 2,551 - (6)
Deposits in Transit -
Other Reconciling Items 1,938 44 - 40
-------- -------- ---- -------- -------- ----
Total Cash $ - $ 2,709 $ 46 $ 124 $ 16,481 $ (6)
======== ======== ==== ======== ======== ====
</TABLE>
<TABLE>
<CAPTION> Favorite Brands International, Inc.
--------------------------------------------------------------------------------------
FBI Farley Farley Farley Farley Farley
Petty Cash Bank of Bank of Bank of Merrill Lynch
America America America Petty
8188-4-00945 8765-7-60790 8765-0-60789 626-95S Cash
---------- ------------ ------------ ------------ -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Beginning Bank Ledger Balance $ - $ - $ - $ - $ 225 $ 6
Receipts for Period 26,046 2,442 6,589
Disbursements for Period 26,046 2,442 6,589
------- ------- ------ ------- -------- ------
Ending Bank Ledger Balance $ - $ - $ - $ - $ 225 $ 6
======= ======= ====== ======= ======== ======
RECONCILIATION TO GENERAL LEDGER
- --------------------------------
Ending Bank Ledger Balance $ - $ - $ - $ - $ 225 $ 6
Outstanding Checks 496 3,754
Deposits in Transit
Other Reconciling Items 55 496 -
------- ------- ------ ------- -------- ------
Total Cash $ 55 $ - $ - $(3,754) $ 225 $ 6
======= ======= ====== ======= ======== ======
</TABLE>
(1) Amounts are held in individual bank accounts specific for each
owner/operators' deposit to Sather Trucking.
(2) Amount does not agree to cash per the August 21, 1999 balance sheet due to
reclassifications of book overdrafts to paybles in accordance with
Generally Accepted Accounting Principles. Additionally, Favorite Brands
International Holding Corp's cash is not included on the attached balance
sheet.
<PAGE>
FAVORITE BRANDS INTERNATIONAL HOLDING CORP.
Statement of Cash Receipts and Disbursements
For the Period
(Thousands of Dollars)
Debtors: Favorite Brands International Holding Corp., Favorite Brands
International, Inc., Trolli Inc., and Sather Trucking Corporation
(the "Debtors")
Case Numbers: 99-726PJW through 99-729PJW
Cash Receipts and Disbursements Detail
(consolidated)
<TABLE>
<CAPTION>
Favorite Brands International, Inc. Sather Trucking Corporation
--------------------------------------------- ------------------------------
Sathers Sathers Sathers STC STC
United Prairie United Prairie Norwest United Prairie United Prairie
BANK NAME: Bank Bank Bank Bank
ACCOUNT #: 40619 40897 273-0015886 040037 Various(1)
-------------- -------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Bank Ledger Balance $ 136 $ 2 $ -- $ 74 $ 208
Receipts for Period 8,035 -- 438 1,350
Disbursements for Period 7,991 1 438 1,361
---------- --------- --------- --------- ---------
Ending Bank Ledger Balance $ 179 $ 1 $ -- $ 63 $ 208
========== ========= ========= ========= =========
RECONCILIATION TO GENERAL LEDGER
- --------------------------------
Ending Bank Ledger Balance $ 179 $ 1 $ -- $ 63 $ 208
Outstanding Checks 1,052 -- 81
Deposits in Transit -- -- 1
Other Reconciling Items 1 --
---------- --------- --------- --------- ---------
Total Cash $ (872) $ 1 $ -- $ (17) $ 208
========== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Trolli Inc.
---------------------------------------------------------------------------------
Trolli Trolli Trolli Trolli Trolli
Bank of Bank of Bank of First Union 1st National
BANK NAME: America America America Bank in Creston
ACCOUNT #: 8765-7-62355 8765-9-62354 8765-5-61583 2651901387172 375162
------------ ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Bank Ledger Balance $ -- $ -- $ -- $ -- Account closed
Receipts for Period 7,296 678 4 As of 4/30/99
Disbursements for Period 7,296 678
---------- --------- ---------- --------- -----------
Ending Bank Ledger Balance $ -- $ -- $ -- $ 4 $ --
========== ========= ========== ========= ===========
RECONCILIATION TO GENERAL LEDGER
- --------------------------------
Ending Bank Ledger Balance $ -- $ -- $ -- $ 4 $ --
Outstanding Checks 805 182 16
Deposits in Transit
Other Reconciling Items -- 1
---------- --------- ---------- --------- -----------
Total Cash $ (805) $ (182) $ (15) $ 4 $ --
========== ========= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Trolli Inc.
-------------------------------------------------------------------------------
Trolli Trolli Trolli Trolli
1st National 1st National Nova Scotia Total(2)
BANK NAME: Bank in Creston Bank in Creston Petty Cash Bank
ACCOUNT #: 2025443 2025450 1113212
--------------- --------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning Bank Ledger Balance Account Closed $ -- $ -- $ 17 $ 30,820
Receipts for Period As of 6/30/99 2 552,754
Disbursements for Period 562,980
---------- --------- ---------- --------- -----------
Ending Bank Ledger Balance $ -- $ 2 $ -- $ 17 $ 20,594
========== ========= ========== ========= ===========
RECONCILIATION TO GENERAL LEDGER
- --------------------------------
Ending Bank Ledger Balance $ -- $ 2 $ -- $ 17 $ 20,594
Outstanding Checks (2) 8,935
Deposits in Transit (5)
Other Reconciling Items 1 2,576
---------- --------- ---------- --------- -----------
Total Cash $ -- $ 4 $ 1 $ 17 $ 14,230
========== ========= ========== ========= ===========
</TABLE>
(1) Amounts are held in individual bank accounts specific for each
owner/operator's deposit to Sather Trucking.
(2) Amount does not agree to cash per the August 21, 1999 balance sheet due to
reclassifications of book overdrafts to payables in accordance with
Generally Accepted Accounting Principles. Additionally, Favorite Brands
International Holding Corp's cash is not included on the attached balance
sheet.
<PAGE>
FAVORITE BRANDS INTERNATIONAL HOLDING CORP.
Aging of Accounts Receivable and Postpetition Accounts Payable
For the Period
(Thousands of Dollars)
Debtors: Favorite Brands International Holding Corp., Favorite Brands
International, Inc., Trolli Inc., and Sather Trucking Corporation
(the "Debtors")
Case Numbers: 99-726PJW through 99-729PJW
AGING OF ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
AGING OF ACCOUNTS RECEIVABLE
----------------------------
<S> <C>
0 - 30 days old $ 44,184
31 - 60 days old 3,714
61 - 90 days old 811
+ 91 days old 1,359
Other A/R 17,467
--------
Total Accounts Receivable 67,535
Allowance for doubtful accounts 17,800
--------
Accounts Receivable (Net) $ 49,735
========
AGING OF POSTPETITION ACCOUNTS PAYABLE
--------------------------------------
0 - 30 days old $ 15,477
31 - 60 days old 1,406
61 - 90 days old 153
+ 91 days old 231
--------
Total Post Petition Accounts Payable $ 17,267
========
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL HOLDING CORP.
Statement of Payments to Professionals
For the Period
(Thousands of Dollars)
Debtors: Favorite Brands International Holding Corp., Favorite Brands
International, Inc., Trolli Inc., and Sather Trucking Corporation
(the "Debtors")
Case Numbers: 99-726PJW through 99-729PJW
<TABLE>
<CAPTION>
Date of Court
Type of Order Authorizing Amount Amount Total Paid
Professional Payment Approved Paid to Date
- ---------------------------------------- --------------------------- ----------------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Skadden, Arps, Slate, Meagher & Flom debtor attorney N/A N/A $ -- $ 601
Wasserstein Perella & Co. debtor financial advisors N/A N/A 120 283
Paul, Weiss, Rifkind, Wharton & Garrison creditor committee attorney N/A N/A 119
Houlihan & Lokey financial advisors N/A N/A 123 123
--------- -------- -----------
Total Payments to Professionals $ -- $ 243 $ 1,126
========= ======== ===========
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
July 24,
ASSETS 1999
- ------ -----------
(Unaudited)
<S> <C>
Current Assets:
Cash and cash equivalents............................... $ 30,676
Accounts receivable, less allowance of $18,364.......... 45,519
Inventories............................................. 75,712
Deferred income taxes................................... --
Prepaid expenses and other current assets............... 18,266
----------
Total current assets.................................. 170,173
----------
Property, Plant and Equipment, at Cost:
Land.................................................... 5,200
Buildings............................................... 71,119
Machinery and equipment................................. 212,878
Construction in progress................................ 35,862
----------
325,059
Less accumulated depreciation........................... 76,318
----------
248,741
----------
Other Assets:
Intangible assets, net.................................. 269,505
Prepaid expenses and other assets....................... 1,474
Deferred income taxes................................... --
----------
270,979
----------
$ 689,893
==========
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
July 24,
LIABILITIES AND STOCKHOLDER'S EQUITY 1999
------------------------------------ -----------
(Unaudited)
<S> <C>
Current Liabilities:
Accounts payable and accrued liabilities............ $ 78,571
Other current liabilities........................... 1,537
-----------
Total current liabilities......................... 80,108
-----------
Noncurrent Liabilities:
Other long-term liabilities......................... 1,917
-----------
Total noncurrent liabilities...................... 1,917
-----------
Prepetition Secured Debt................................ 200,500
Liabilities subject to compromise....................... 465,936
Commitments and Contingencies........................... --
-----------
Total liabilities................................. 748,461
-----------
Stockholder's Equity:
Common Stock, $.01 par value; 1,000 shares authorized,
issued and outstanding........................... --
Additional paid-in capital.......................... 195,751
Accumulated deficit................................. (254,319)
-----------
Total stockholder's equity........................ (58,568)
-----------
$ 689,893
</TABLE> ===========
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED STATEMENT
OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Four Weeks
Ended
July 24, 1999
-------------
(Unaudited)
<S> <C>
Net sales.......................................... $ 48,774
Costs and expenses:
Cost of sales................................... 30,621
Selling, marketing and administrative........... 15,329
Amortization of intangible assets............... 1,508
Restructuring and business integration costs.... --
----------
47,458
Income from operations............................. 1,316
Interest expense................................ 1,741
Reorganization charges under Chapter 11......... 918
----------
Loss before income taxes........................... (1,343)
Benefit for income taxes.......................... --
----------
Net Loss........................................... $ (1,343)
==========
Reconciliation to EBITDA:
Net Loss.......................................... $ (1,343)
Interest expense................................ 1,741
Benefit for income taxes........................ --
----------
EBIT.............................................. 398
Depreciation.................................... 2,269
Amortization.................................... 1,508
----------
Reported EBITDA................................... 4,175
Reorganization charges under Chapter 11......... 918
Restructuring and business integration costs.... --
----------
Adjusted EBITDA................................... $ 5,093
==========
</TABLE>
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Four Weeks Ended
July 24,
1999
----------------
(Unaudited)
<S> <C>
Cash Flows from Operating Activities:
Net loss............................................... $ (1,343)
Adjustments:
Depreciation and amortization....................... 3,777
Loss on disposition of property, plant & equipment.. 1,391
Deferred income taxes............................... --
Changes in operating assets and liabilities:
Accounts receivable............................. (113)
Inventories..................................... (4,561)
Prepaid expenses and other assets............... (1,307)
Accounts payable, accrued liabilities and
liabilities subject to compromise............. 5,254
Income taxes payable............................ --
Other liabilities............................... 83
---------------
Net cash provided by operating activities.... 3,181
---------------
Cash Flows from Investing Activities:
Proceeds on the sale of assets......................... --
Capital expenditures................................... (1,169)
---------------
Net cash used in investing activities........ (1,169)
---------------
Cash Flows from Financing Activities:
Net borrowings (repayments) on revolving credit loans.. --
Proceeds from loans.................................... --
Repayments of term loan................................ --
Payments for debt issuance costs....................... (608)
Repayment of other long-term debt...................... --
Proceeds from capital contributions.................... --
---------------
Net cash used in financing activities........ (608)
---------------
Increase in cash and cash equivalents....................... 1,404
Cash and cash equivalents, beginning of period.............. 29,272
---------------
Cash and cash equivalents, end of period.................... $ 30,676
===============
Supplemental Cash Flow Information:
Income taxes paid...................................... $ --
===============
Interest paid.......................................... $ 1,305
===============
</TABLE>
<PAGE>
ARTHUR ANDERSEN LLP
Favorite Brands International, Inc.
and Subsidiaries
Consolidated Financial
Statements
For the Years Ended June 26, 1999,
June 27, 1998, and June 28, 1997
<PAGE>
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
----------------------------------------
To the Board of Directors and Stockholder of Favorite Brands International,
Inc.:
We have audited the accompanying consolidated balance sheet of Favorite Brands
International, Inc. and Subsidiaries, a wholly-owned subsidiary of Favorite
Brands International Holding Corp., as of June 26, 1999, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the year then ended. The consolidated balance sheet of Favorite Brands
International, Inc., as of June 27, 1998, and the related consolidated
statements of operations, stockholder's equity and cash flows for the years
ended June 27, 1998, and June 28, 1997, were audited by other auditors, whose
report dated August 21, 1998, except as to Note 17 to the June 27, 1998,
consolidated financial statements, which was as of February 3, 1999, expressed
an unqualified opinion on those statements. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Favorite Brands International,
Inc. as of June 26, 1999, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, on March 30, 1999, the Company filed a
voluntary petition seeking to reorganize under Chapter 11 of the United States
Bankruptcy Code. The Chapter 11 filing was the result of recurring losses from
operations and a leveraged capital structure. Although the Company is currently
operating as a Debtor-In-Possession under the jurisdiction of the United States
Bankruptcy Court ("the Court"), the continuation of the business as a going
concern is contingent upon, among other things, the ability to formulate a plan
of reorganization which will gain approval of the creditors and shareholders
and confirmation by the Court and the success of future operations. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result should the Company be unable to continue as a going concern.
As explained in Note 19 to the consolidated financial statements, effective June
28, 1998, the Company adopted the provisions of Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities."
Arthur Andersen LLP
Chicago, Illinois
September 7, 1999
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Shae Data)
<TABLE>
<CAPTION>
June 27, June 26,
ASSETS 1998 1999
------ -------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 6,440 $ 29,272
Accounts receivable, less allowance of $14,600
and $18,710, respectively......................... 48,999 45,406
Inventories........................................ 98,232 71,151
Deferred income taxes.............................. 17,846 --
Prepaid expenses and other current assets.......... 3,363 16,959
-------- --------
Total current assets............................. 174,880 162,788
-------- --------
Property, Plant and Equipment, at Cost:
Land............................................... 5,200 5,200
Buildings.......................................... 67,123 71,499
Machinery and equipment............................ 200,145 216,454
Construction in progress........................... 15,561 34,794
-------- --------
288,029 327,947
Less accumulated depreciation...................... 49,129 76,715
-------- --------
238,900 251,232
-------- --------
Other Assets:
Intangible assets, net............................. 355,617 270,405
Deferred income taxes.............................. 31,845 --
Other long-term assets............................. 1,619 1,474
-------- --------
389,081 271,879
-------- --------
Total assets..................................... $802,861 $685,899
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
FAVORITE BRANDS, INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
June 27, June 26,
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1999
------------------------------------ --------- ---------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued liabilities....... $ 110,485 $ 73,891
Current portion of long-term debt.............. 2,440 --
Other current liabilities...................... 916 1,569
--------- ---------
Total current liabilities.................... 113,841 75,460
--------- ---------
Noncurrent Liabilities:
Long-term debt................................. 554,950 --
Other long-term liabilities.................... 3,020 1,802
--------- ---------
Total noncurrent liabilities................. 557,970 1,802
--------- ---------
Prepetition Secured Debt........................... -- 200,500
Liabilities subject to compromise.................. -- 465,362
Commitments and Contingencies...................... -- --
--------- ---------
Total liabilities............................ 671,811 743,124
--------- ---------
Stockholder's Equity:
Common Stock, $.01 par value; 1,000 shares
authorized, issued and outstanding.......... -- --
Additional paid-in capital..................... 195,324 195,751
Accumulated deficit............................ (64,274) (252,976)
--------- ---------
Total stockholder's equity................... 131,050 (57,225)
--------- ---------
$ 802,861 $ 685,899
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED STATEMENTS
OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 28, 1997 June 27, 1998 June 26, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Net sales.......................................... $ 652,538 $ 763,921 $ 733,327
Costs and expenses:
Cost of sales................................. 433,707 493,095 460,362
Selling, marketing and administrative......... 176,506 237,147 269,055
Amortization of intangible assets............. 14,612 19,756 18,488
Restructuring and business integration costs.. - 39,689 1,320
Goodwill write-off ........................... - - 50,000
------------- ------------- -------------
624,825 789,687 799,225
Income (loss) from operations...................... 27,713 (25,766) (65,898)
Interest expense ............................. 33,463 54,581 50,180
Reorganization charges under Chapter 11....... - - 20,191
------------- ------------- -------------
Loss before income taxes .......................... (5,750) (80,347) (136,269)
(Benefit) provision for income taxes.............. (1,069) (29,853) 48,151
------------- ------------- -------------
Loss before extraordinary charge and cumulative
effect of change in accounting principle.......... (4,681) (50,494) (184,420)
Extraordinary charge - early debt extinguishment,
net of income tax benefit..................... - 8,591 -
Cumulative effect of change in accounting
principle...................................... - - 4,282
------------- ------------- -------------
Net loss........................................... $ (4,681) $ (59,085) $ (188,702)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars In Thousands)
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Total
Number of Paid-In Accumulated Stockholder's
Shares Amount Capital Deficit Equity
--------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 29, 1996...... 1,000 $ -- $ 60,000 $ (508) $ 59,492
Capital contribution......... -- -- 119,058 -- 119,058
Net loss..................... -- -- -- (4,681) (4,681)
---------- -------- ---------- ----------- -------------
Balance at June 28, 1997...... 1,000 -- 179,058 (5,189) 173,869
Capital contribution......... -- -- 16,266 -- 16,266
Net loss..................... -- -- -- (59,085) (59,085)
---------- -------- ---------- ----------- -------------
Balance at June 27, 1998...... 1,000 -- 195,324 (64,274) 131,050
Capital contribution......... -- -- 427 -- 427
Net loss..................... -- -- -- (188,702) (188,702)
---------- -------- ---------- ----------- -------------
Balance at June 26, 1999...... 1,000 $ -- $ 195,751 $ (252,976) $ (57,225)
========== ======== ========== =========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 28, June 27, June 26,
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.............................................. $ (4,681) $ (59,085) $ (188,702)
Adjustments:
Depreciation and amortization....................... 34,161 47,383 46,355
Loss on disposition of property, plant & equipment.. -- -- 326
Goodwill write-off.................................. -- -- 50,000
Write-off of deferred financing fees................ -- -- 13,218
Deferred income taxes............................... (4,879) (30,473) 49,691
Extraordinary charge................................ -- 8,591 --
Non-cash restructuring and business integration costs -- 13,847 --
Cumulative effect of change in accounting principle. -- -- 4,282
Changes in operating assets and liabilities, net of
effects from purchase of confections businesses:
Accounts receivable............................... 9,316 18,631 3,593
Inventories....................................... 8,876 (10,788) 27,081
Prepaid expenses and other assets................. 3,994 278 (11,970)
Accounts payable, accrued liabilities and
liabilities subject to compromise............... (13,014) 23,144 16,845
Income taxes payable.............................. (1,079) 564 --
Other liabilities................................. (144) 467 (215)
--------- --------- -----------
Net cash provided by operating activities........ 32,550 12,559 10,504
--------- --------- -----------
Cash Flows from Investing Activities:
Purchase of confections businesses, net of cash
acquired............................................. (336,191) (303) --
Proceeds on the sale of assets........................ -- -- 1,604
Capital expenditures.................................. (31,018) (27,010) (42,129)
--------- --------- -----------
Net cash used in investing activities............ (367,209) (27,313) (40,525)
--------- --------- -----------
Cash Flows from Financing Activities:
Net borrowings (repayments) on revolving credit loans. 31,800 (25,150) 40,050
Proceeds from loans................................... 380,500 545,000 17,000
Repayments of term loan............................... (14,613) (495,387) (1,500)
Payments for debt issuance costs...................... (11,330) (21,006) (2,257)
Repayment of assumed debt............................. (139,457) -- --
Repayment of other long-term debt..................... -- (440) (440)
Proceeds from capital contributions................... 90,000 15,000 --
--------- --------- -----------
Net cash provided by financing activities........ 336,900 18,017 52,853
--------- --------- -----------
Increase in cash and cash equivalents.................... 2,241 3,263 22,832
Cash and cash equivalents, beginning of period........... 936 3,177 6,440
--------- --------- -----------
Cash and cash equivalents, end of period................. $ 3,177 $ 6,440 $ 29,272
========= ========= ===========
Supplemental Cash Flow Information:
Income taxes paid..................................... $ 4,996 $ 493 $ 78
========= ========= ===========
Interest paid......................................... $ 31,585 $ 44,228 $ 48,948
========= ========= ===========
Purchase of confections businesses, net of cash acquired:
Assets Acquired....................................... $(586,920) $ (1,447) $ --
Liabilities Assumed................................... 221,671 1,144 --
Capital Contribution.................................. 29,058 -- --
--------- --------- -----------
Cash Consideration.................................... $(336,191) $ (303) $ --
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
Favorite Brands International, Inc. (including its wholly owned
subsidiaries Trolli, Inc. and Sather Trucking Corporation) (the "Company"), a
wholly-owned subsidiary of Favorite Brands International Holding Corp.
("Holdings"), manufactures and distributes candy and confection products
primarily in North America. The Company was incorporated in Delaware on July
7, 1995, and commenced operations on September 25, 1995, when it acquired
certain tangible and intangible assets of a confections manufacturer and
distributor for $200 million, plus the assumption of certain liabilities.
During fiscal 1997, the Company made five acquisitions for a total purchase
price, including assumed debt, of approximately $500 million:
<TABLE>
<CAPTION>
Purchase Price
Name Acquisition Date (Dollars in Millions)
-------- ---------------- ---------------------
<S> <C> <C>
Farley Candy Company August 30, 1996 $204
Sathers Inc. and Sather
Trucking Corporation August 30, 1996 107
Kidd & Company, Inc. August 30, 1996 30
Dae Julie, Inc. January 27, 1997 43
Mederer Corporation April 1, 1997 117
</TABLE>
All acquisitions have been accounted for as purchases and, accordingly, the
purchase prices were allocated to the specific assets and liabilities based
upon their fair market values, with the exception of the Kidd & Company, Inc.
("Kidd") acquisition. In June 1996, Holdings' controlling stockholder
acquired the stock of Kidd for approximately $30 million. The Company
acquired the stock of Kidd from the controlling stockholder on August 30,
1996. Accordingly, Kidd's net assets were recorded by the Company on August
30, 1996 at the controlling stockholder's net book value of $30 million.
Unaudited pro forma information with respect to the Company as if the
acquisitions had occurred at the beginning of fiscal 1997 is as follows
(dollars in thousands):
(Unaudited)
Year Ended
June 28, 1997
-----------------
Net sales........ $812,831
Net income....... (234)
Holdings contributed $119.1 million of additional capital to the Company
during fiscal 1997 in connection with these acquisitions. This amount includes
$29.1 million of Holdings stock issued to the seller of Farley Candy Company.
6
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Proceedings Under Chapter 11 of the Bankruptcy Code
On March 30, 1999, the Company and Holdings filed in the United States
Bankruptcy Court (the "Court") for the District of Delaware voluntary
petitions for reorganization under Chapter 11 of the United States Code
(the "Bankruptcy Code"), case number 99-726(PJW) (the "Chapter 11 Filing").
The Company continues in possession of its properties and is operating and
managing its businesses as debtor-in-possession subject to Court approval
for certain actions.
The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course
of business. However, as a result of the Chapter 11 Filing and
circumstances relating to this event, including the Company's leveraged
capital structure and losses from operations, such realization of assets
and liquidation of liabilities is subject to significant uncertainty. The
appropriateness of preparing the accompanying financial statements on a
going concern basis is dependent upon, among other things, confirmation of
a plan of reorganization, the success of future operations, the ability to
comply with the terms of the debtor-in-possession financing agreement and
the ability to generate sufficient cash from operations and financing
arrangements to meet on-going obligations. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result
should the Company be unable to continue as a going concern.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness
are stayed and other pre-petition contractual obligations against the
Company may not be enforced. In addition, under the Bankruptcy Code,
subject to approval of the Court, the Company may assume or reject
executory contracts, including lease obligations. Parties affected by these
rejections may file claims with the Court for damages resulting from a
rejection (subject to certain limitations in the Bankruptcy Code).
Substantially all pre-petition liabilities are subject to settlement under
a plan of reorganization to be voted upon by creditors and approved by the
Court. Although the Company expects to file a reorganization plan or plans
that provide for emergence from Chapter 11 in fiscal 2000 or fiscal 2001,
there can be no assurance that a reorganization plan or plans will be
proposed by the Company or confirmed by the Court, or that any such plan(s)
will be consummated.
3. Significant Accounting Policies
Fiscal Year End
The Company's fiscal year ends on the Saturday immediately preceding
June 30 and each of fiscal years 1997, 1998, and 1999 include 52 weeks of
operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
7
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenues are recognized when products are shipped, and are shown net of
discounts (other than trade spending), returns and unsalables.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with an initial maturity of
three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined using the first in,
first out (FIFO) method, or market. Cost includes material, labor and
overhead.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
computed using the straight-line method and the following estimated useful
lives:
Buildings......................................... 35-40 years
Machinery and equipment .......................... 3-20 years
Intangible Assets
Intangible assets consist primarily of goodwill and deferred financing
fees. Goodwill is amortized on a straight-line basis over 15 to 40 years and
deferred financing fees are amoritized over the terms of the related
indebtedness, which range from 2 to 7 years.
Long-Lived Assets
In the event that facts and circumstances indicate that the Company's long-
lived assets may be impaired, an evaluation of recoverability is performed.
The Company makes such evaluations by comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying
amount to determine if a write down to market value or discounted cash flow is
required.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax assets arising from temporary
differences and net operating losses will not be realized.
8
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Risks and Uncertainties
The Company operates primarily in the United States and is subject to
varying degrees of risk and uncertainty. The Company insures its business and
assets against insurable risks in a manner that it deems appropriate. The
Company believes that the risk of loss from noninsurable events would not have
a material adverse effect on its operations as a whole.
Sugar, corn syrup, gelatin, starch, and packaging are the Company's
principal raw materials. The prices of these items vary and may influence the
Company's financial results.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheet for current
assets and liabilities approximate fair value due to the immediate or short-
term maturity of these financial instruments.
The estimated fair value of the Company's debt at June 27, 1998 was $541.8
million which differed from the carrying amount of $557.4 million. The carrying
amount of debt at June 26, 1999 was $612.5 million, the fair value of which was
not available due to the Chapter 11 Filing.
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," in
fiscal 1999. The Company operates predominately in one industry segment, that
being candy and confection products, and accordingly reports as a single
industry segment.
In 1998, the Financial Accounting Standards Board issued Statement 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
Statement 137, which requires adoption in fiscal 2001. Statement 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Company believes that the adoption of Statement 133
will not have a material impact on its financial statements.
9
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Inventories
Inventories consist of (dollars in thousands):
<TABLE>
<CAPTION>
June 27, June 26,
1998 1999
-------- -------
<S> <C> <C>
Raw materials ............. $22,748 $19,797
Work-in-process ........... 19,521 12,394
Finished goods ............ 55,963 38,960
------- -------
$98,232 $71,151
======= =======
</TABLE>
5. Intangibles Assets
Intangible assets, which are shown net of accumulated amortization of $40.2
million and $58.7 million, respectively, consist of (dollars in thousands):
<TABLE>
<CAPTION>
June 27, June 26,
1998 1999
-------- --------
<S> <C> <C>
Goodwill ................. $331,353 $263,443
Deferred financing fees .. 19,824 6,092
Other .................... 4,440 870
-------- --------
$355,617 $270,405
======== ========
</TABLE>
As discussed in Note 9, during fiscal 1999, the Company wrote down the
carrying value of goodwill by $50 million to reflect the estimated fair value
of the Company's net assets.
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of (dollars in
thousands):
<TABLE>
<CAPTION>
June 27, June 26,
1998 1999
-------- -------
<S> <C> <C>
Accounts payable ................... $45,654 $20,314
Accrued liabilities:
Payroll and related taxes ........ 13,616 12,657
Trade promotions ................. 17,958 23,539
Interest ......................... 10,749 1,393
Other ............................ 22,508 15,988
-------- -------
$110,485 $73,891
======== =======
</TABLE>
10
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Debtor-in-Possession Financing Agreement
On March 30, 1999, the Company entered into a Revolving Credit and
Guaranty Agreement, as amended, (the "DIP Facility"). Borrowings, including
letters of credit, may not exceed the borrowing base consisting of certain
eligible accounts receivable, certain eligible inventory and a property
plant and equipment component, all of which are defined in the DIP
Facility. In no case may the borrowings exceed $100 million. As of June 26,
1999, no borrowings were outstanding under the DIP Facility and outstanding
letters of credit aggregated $2.25 million. The Company had $89.2 million
of borrowing availability under the DIP Facility at June 26, 1999.
Borrowings under the DIP Facility are secured by a first priority priming
lien upon all property of the Company.
The Company may designate borrowings as either Alternate Base Rate Loans
or Eurodollar Loans (as defined in the DIP Facility). Each type of loan
bears interest, payable monthly, at the rate designated in the DIP Facility
plus an applicable margin. A commitment fee of one half of one percent is
payable monthly based on the unused amount of the facility. The DIP
Facility expires on the earlier of March 30, 2001, the date of the
substantial consummation of a plan of reorganization or upon an
acceleration of the loans as a result of a default.
The DIP Facility contains covenants that require the Company to satisfy
a monthly cumulative EBITDA measure and limit capital expenditures. In
addition, the DIP Facility contains covenants relating to, among other
things, (i) the incurrence of additional indebtedness, (ii) consolidations
or mergers, (iii) the incurrence of any super-priority claim which is equal
or senior to the DIP Facility's claim, (iv) the payment of dividends, (v)
investments, (vi) sales of assets, and (vii) transactions with affiliates.
As of June 26, 1999, the Company was in compliance with the covenants.
8. Pre-Petition Secured Debt and Liabilities Subject to Compromise
Pre-petition secured debt consists of Senior Secured bank debt
outstanding as of the Chapter 11 Filing. Liabilities subject to compromise
refer to liabilities (other than pre-petition secured debt) incurred prior
to the Chapter 11 Filing. These liabilities consist primarily of amounts
outstanding under long-term unsecured debt agreements and also include
accounts payable, accrued interest, and other accrued expenses. These
amounts represent the Company's best estimate of known claims.
As part of the Chapter 11 reorganization process, the Company has
attempted to notify all known potential creditors of the Chapter 11 Filing
for the purpose of identifying all pre-petition claims against the Company.
Generally, creditors whose claims arose prior to the petition date have
until September 30, 1999 to file claims or be barred from asserting claims
in the future. Claims arising from the rejection of executory contracts and
leases by the Company and claims related to certain other items are
permitted to be filed by other dates set by the Court. Differences between
amounts shown by the Company and claims filed by creditors will be
investigated and will either be consensually resolved or adjudicated. The
ultimate amount of such liabilities are subject to further negotiation and
adjudication by the Court, and accordingly, are not presently determinable
and may differ materially from the amounts of such liabilities reported in
the financial statements. Payment
11
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
terms and the amounts, which are considered long-term liabilities at this
time, will be established in connection with the plan of reorganization.
The Company received approval from the Court to pay pre-petition
employee wages, salaries, benefits and other employee obligations, certain
shipping, warehousing and distribution charges, trade promotions, broker
fees and amounts due for imported products. Amounts unpaid at June 26, 1999
relating to these pre-petition liabilities are classified as other current
liabilities and are therefore not included in liabilities subject to
compromise.
The principal categories of claims classified as pre-petition secured
debt or liabilities subject to compromise under reorganization proceedings
are identified below. The June 27, 1998 amounts are presented below for
comparative purposes. Such amounts were classified as long-term debt in the
prior year financial statements. (Dollars are in thousands.)
<TABLE>
<CAPTION>
Pre-petition Secured Debt
June 27, June 26,
1998 1999
-------- --------
<S> <C> <C>
Secured Revolving Credit Loans....................... $ 11,950 $ 52,000
Secured Senior term loan payable ("Term B Loans") ... 150,000 148,500
Other (unsecured).................................... 440 ---
--------- -------
162,390 200,500
Less current portion ................................ 2,440 ---
-------- --------
$159,950 $200,500
======== ========
Liabilities Subject to Compromise
June 27, June 26,
1998 1999
--------- --------
Long-term debt:
10.75% Senior Notes ............................... $200,000 $200,000
11.25% Senior Subordinated Notes .................. 195,000 195,000
10.0% Sponsor Loan ................................ --- 17,000
-------- --------
395,000 412,000
Accounts payable .................................... --- 40,308
Accrued expenses .................................... --- 2,466
Accrued interest .................................... --- 10,588
-------- --------
$395,000 $465,362
======== ========
</TABLE>
In May 1998, the Company entered into a credit agreement, as amended,
("Senior Secured Credit Agreement") which provided for $150 million of Term
B Loans and $75 million of Revolving Credit Loans, and sold $200 million of
Senior Unsecured Notes ("Senior Notes") in a private offering pursuant to
an indenture ("Indenture"). In addition, Holdings sold 166,667 shares of
common stock for $15 million at the time of these borrowings and
contributed these proceeds to the Company.
12
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Collectively, these transactions are referred to as (the "Refinancing").
Funds from the Refinancing were used to prepay all indebtedness outstanding
under the Company's then existing senior credit agreements plus accrued
interest, and for general corporate purposes. As a result of this early
debt extinguishment, the Company recorded a $4.4 million extraordinary
charge, net of $2.9 million in income tax benefits. During fiscal 1998, the
Company recorded an additional $4.2 million extraordinary charge, net of
$2.7 million in income tax benefits, relating to other early debt
extinguishments.
The Company's Senior Secured Credit Agreement was amended in October
1998. Concurrently with the amendment, Holdings' controlling stockholder
agreed to loan the Company $17.0 million (the "Sponsor Loan"). The Sponsor
Loan is unsecured, but is senior in priority to the Senior Subordinated
Notes. In connection with the Sponsor Loan, Holdings' controlling
stockholder also received a ten-year warrant ($3.9 million estimated fair
market value at the time of issuance) to purchase 77,500 shares of
Holdings' common stock at $0.01 per share.
Pursuant to the terms of an Exchange and Registration Agreement entered
into in connection with the Indenture, the Company was obligated to offer
to exchange the original Senior Notes for registered notes with
substantially identical terms. In February 1999, the Company's Registration
Statement relating to this exchange offer was declared effective and the
exchange offer was completed in March 1999.
As a result of the Chapter 11 Filing, no principal or interest payments
will be made on any pre-petition debt without Court approval or until a
reorganization plan defining the repayment terms has been approved. The
Company is paying interest monthly at the contractual rates on the debt
outstanding under the Senior Secured Credit Agreement as authorized by the
Court. Contractual interest expense not recorded on the Senior Notes,
Senior Subordinated Notes and the Sponsor Loan aggregated $11.3 million for
fiscal 1999.
The Company terminated several existing interest rate swap agreements in
connection with the Refinancing. As a result, a $1.5 million termination
charge was recorded as interest expense during the fiscal year ended June
27, 1998. The remaining two interest rate swap agreements were marked-to-
market at the time of the Refinancing which resulted in an additional $0.9
million charge to interest expense during the year ended June 27, 1998.
Interest rate swap agreements outstanding as of June 26, 1999 are
summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Fixed Variable
Present Interest Interest
Notional Rate Rate
Date Termination Amount Paid Received
---- ----------- ------- -------- --------
<S> <C> <C> <C> <C>
December 1996.... September 1999 $121,784 6.26% 5.00%
</TABLE>
13
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The variable rate is adjusted quarterly based on 3-month LIBOR
rates. The Company anticipates the counterparties to the swap agreement
will fully perform on their obligations. The Company accounts for these
agreements as hedges.
9. Goodwill Write-Off
As discussed in Note 2, the Company has filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. In connection therewith, the
Company has engaged an investment banker (the "advisor") to advise it with
respect to various financial matters and restructuring alternatives
including reviewing offers received from third parties and assisting in
structuring any potential sale of all or part of the Company. Based upon
evaluations by the advisor, the Company has written down the carrying value
of its goodwill by $50 million to reflect the estimated fair value of the
Company's net assets. This charge is reflected as a write-off of goodwill
in the consolidated statement of operations. The Company continues to
evaluate its restructuring alternatives. No assurance can be made that any
alternative will be acted upon or that the amounts will not change.
10. Reorganization Charges under Chapter 11
The Company records reorganization expenses under Chapter 11 in
accordance with AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code." Reorganization
expenses for fiscal 1999 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended
June 26, 1999
-------------
<S> <C>
Write-off of deferred financing fees ........... $ 13,218
Legal fees ...................................... 2,152
Provision for rejected executory contracts ...... 1,876
Financial advisory fees ......................... 1,676
Employee retention program ...................... 1,375
Interest income ................................. (106)
-------
$ 20,191
========
</TABLE>
In connection with the Chapter 11 Filing, the Company wrote-off the
unamortized deferred financing fees relating to the Senior Notes and Senior
Subordinated Notes. The Company incurred legal and financial advisory fees
for Chapter 11 activities and reorganization efforts. These professional
fees were for services provided to the Company, the Unofficial Committee of
Unsecured Creditors and the lenders under the Company's Senior Secured
Credit Agreement. Included in the provision for rejected executory
contracts is a charge of $1.1 million relating to the rejection of a
distribution facility operating agreement in June 1999. The charge included
termination fees as well as costs incurred in connection with the closure
of the facility. Also included in reorganization costs for fiscal 1999 are
charges of $1.4 million for a court approved employee retention program,
including amounts to be paid periodically to certain key employees which
are accrued on a current
14
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
basis, and amounts due to certain senior executives upon approval of a plan
of reorganization which are being accrued over 18 months. During fiscal
1999, cash payments relating to Chapter 11 reorganization expenses
aggregated $1.7 million.
11. Restructuring and Business Integration Costs
The Company recorded a $39.7 million and $1.3 million charge for
restructuring and business integration costs during the years ended June
27, 1998 and June 26, 1999, respectively. The nature of these costs is
discussed below.
During fiscal 1998, the Company began to integrate the acquired
companies through various initiatives including consolidation of production
facilities, reorganization of certain supply chain functions, integration
of certain sales, marketing, and customer service functions, and
integration of certain information systems. As a result of these
activities, the Company incurred the following business integration charges
(dollars in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
June 27, 1998 June 26, 1999
------------- --------------
<S> <C> <C>
Staff consolidation and related costs...... $ 7,372 $ --
Manufacturing integration costs............ 4,902 --
Distribution and warehouse
consolidation costs....................... 6,594 1,066
SKU rationalization costs.................. 1,858 28
Technology licensing costs................. 1,685 (174)
Strategic acquisitions not pursued......... 1,284 --
------- --------
$23,695 $ 920
======= ========
</TABLE>
In addition to the integration activities discussed above, the Company
implemented a restructuring plan during fiscal year 1998. The restructuring
included (i) rationalizing certain production facilities and outsourcing
production of certain candy products and (ii) further consolidating the
distribution network by reducing the number of distribution centers used by
the Company. In connection with these activities, the Company recorded the
following restructuring charges (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
June 27, 1998 June 26, 1999
------------- -------------
<S> <C> <C>
Loss on impairment of property,
plant, and equipment.................... $ 13,847 $ --
Termination benefits for plant employees.. 1,250 384
Plant closing costs....................... 897 16
-------- ---------
$ 15,994 $ 400
======== =========
</TABLE>
As of June 27, 1998 and June 26, 1999, business integration and
restructuring charges of $12.1 million and $0.8 million, respectively, were
unpaid.
15
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Commitments and Contingencies
Operating Leases
Certain land, buildings, and equipment are leased under noncancelable
operating leases. Certain leases for facilities contain renewal options and
require additional payments for maintenance charges and are subject to
periodic escalation charges.
Total minimum rental commitments under noncancelable operating leases
at June 26, 1999 are: 2000 - $8.1 million; 2001 - $7.0 million; 2002 - $6.0
million; 2003 - $5.6 million; 2004 - $4.8 million; and thereafter - $8.3
million.
Rental expense amounted to $6.3 million , $6.6 million and $9.1
million for the fiscal years ended June 28, 1997, June 27, 1998 and June
26, 1999, respectively.
Litigation
From time to time, the Company and its subsidiaries are named as
defendants in various lawsuits resulting from the ordinary course of
business. Although the outcome of any legal proceeding cannot be predicted
with certainty, the Company does not expect these lawsuits to materially
impact its financial condition.
13. Benefit Plans
The Company has a 401(k) defined contribution benefit plan ("Plan")
for certain salaried and hourly employees. In order to participate in the
Plan, employees must be at least 21 years old and have worked at least
1,000 hours during the first 12 months of employment. Each employee may
contribute from 1% to 15% of eligible wages into the Plan. The Company
matches 50% of each employee's contributions to the Plan up to a maximum
matching contribution of 3% of the employee's eligible wages. In addition,
the Company may make an annual discretionary contribution to the Plan.
Total contributions to the Plan were $1.9 million, $3.2 million and $2.9
million for the fiscal years ended June 28, 1997, June 27, 1998 and June
26, 1999, respectively.
14. Income Taxes
The Company is included in the consolidated income tax return filed by
Holdings. There is no tax sharing agreement between the Company and
Holdings. For financial reporting purposes, the Company has computed its
provision for income taxes on a separate return basis in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company has a $78.5 million deferred tax asset recorded as of
June 26, 1999, reflecting the benefit of $198.4 million in net operating
loss carryforwards which expire in varying amounts between 2011 and 2019.
This benefit will be realized to the extent the Company generates
sufficient taxable income prior to the expiration dates of the loss
carryforwards.
16
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Due to the uncertainty of the realization of the loss carryforwards and
other deferred tax assets, the Company has established a valuation allowance
against the net deferred tax asset of $95.3 million as of June 26, 1999.
The (benefit) provision for income taxes consists of the following (dollars
in thousands):
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
June 28, June 27, June 26,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal ............................................. $ (129) $ --- $ ---
State ............................................... 123 620 300
------- -------- -------
(6) 620 300
------- -------- -------
Deferred:
Federal ............................................. (1,184) (26,968) 41,870
State ............................................... 121 (3,505) 5,981
------- -------- -------
(1,063) (30,473) 47,851
------- -------- -------
Total (benefit) provision for income taxes........... $(1,069) $(29,853) $48,151
======= ======== =======
</TABLE>
Deferred income taxes consist of (dollars in thousands):
<TABLE>
<CAPTION>
June 27, June 26,
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................ $ 365 $ 309
Accrued promotions..................................... 2,343 6,441
Accrued expenses....................................... 8,045 7,581
Restructuring reserves................................. 5,622 885
Goodwill amortization.................................. --- 8,330
Net operating loss carryforwards....................... 43,176 78,481
Other.................................................. 2,564 9,434
------- --------
Deferred tax assets................... 62,115 111,461
------- --------
Deferred tax liabilities:
Accelerated depreciation............................... 8,449 16,145
Goodwill amortization.................................. 2,396 ---
Other.................................................. 1,579 ---
------- --------
Deferred tax liabilities.............. 12,424 16,145
------- --------
Net deferred tax assets........................................ 49,691 95,316
Valuation allowance............................................ --- (95,316)
------- --------
Net deferred taxes............................................. $49,691 $ ---
======= ========
</TABLE>
17
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The (benefit) provision for income taxes differs from the amount computed by
applying the United States federal income tax rate to the loss before income
taxes. A reconciliation of the differences is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 28, 1997 June 27, 1998 June 26, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Computed statutory tax provision......................... $(2,266) $(28,425) $(49,193)
Increase (decrease) resulting from:
Nondeductible depreciation and
amortization......................................... 1,006 47 9,960
State and local taxes.................................. 112 (1,813) (6,859)
Nondeductible meals and
entertainment........................................ 79 88 235
Valuation allowance.................................... --- --- 95,316
Other, net............................................. --- 250 (1,308)
------- -------- --------
(Benefit) provision for income taxes..................... $(1,069) $(29,853) $ 48,151
======= ======== ========
</TABLE>
15. Stock Option Plan
Holdings has a stock option plan pursuant to which its Board of
Directors is authorized to grant options to employees to purchase up to
400,000 shares of Holdings' common stock. These options generally expire 10
years from grant (5 years for stockholders with aggregate holdings of 10% or
greater) and generally vest ratably over four years. Options are granted at
fair value.
Information with respect to options granted under this plan is as follows:
<TABLE>
<CAPTION>
Number of
Option Price per Share Shares
---------------------- ---------
<S> <C> <C> <C>
Balance at June 29, 1996................................. $ 50.25 to $ 50.25 71,500
-------
Granted............................................. $ 89.57 to $105.00 108,736
Exercised........................................... $ 50.25 to $ 89.57 (5,186)
Forfeited........................................... $ 50.25 to $ 89.57 (9,814)
-------
Balance at June 28, 1997................................. $ 50.25 to $105.00 165,236
-------
Granted............................................. $105.00 to $105.00 99,982
Exercised........................................... $ 50.25 to $ 89.57 (9,723)
Forfeited........................................... $ 50.25 to $105.00 (15,655)
-------
Balance at June 27, 1998................................. $ 50.25 to $105.00 239,840
-------
Granted............................................. $ 70.00 to $ 70.00 158,248
Exercised........................................... $ --- to $ --- ---
Forfeited........................................... $ 50.25 to $105.00 (89,000)
-------
Balance at June 26, 1999................................. $ 50.25 to $105.00 309,088
=======
Exercisable at June 26, 1999 ....................... $ 50.25 to $105.00 155,374
=======
Exercisable at June 27, 1998........................ $ 50.25 to $105.00 103,715
=======
</TABLE>
The weighted average fair values of options granted was $26.02, $25.95
and $16.01 for 1997, 1998 and 1999, respectively. The minimum value of the
options at the date-of-grant was estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions: expected
life - 5 years; interest rate - 6.5% for 1997, 1998 and 5.2% for 1999; and
no dividend yield.
18
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company applied Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its stock option plan. No compensation expense has been
recognized for all options granted. If compensation cost for the stock plan
had been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss would have been (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 28, 1997 June 27, 1998 June 26, 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Net loss - as reported ......................... $(4,681) $(59,085) $(188,702)
Net loss - pro forma ........................... $(5,633) $(59,775) $(189,130)
</TABLE>
16. Related Party Transactions
From time to time, the Company engages certain stockholders and other
related parties to provide acquisition, financing and other related
services. During fiscal years 1997, 1998 and 1999, such fees totaled
approximately $4.8 million, $6.6 million and $3.4 million, respectively.
In fiscal 1999, the Company entered into an agreement with a consulting
firm to issue Holdings' common stock in exchange for services rendered.
Pursuant to the agreement, during fiscal 1999, 4,722 shares of stock with a
value of $427,000 were issued to the consulting firm. This transaction was
reflected as a capital contribution to the Company.
17. Concentration of Credit Risk and Major Customer
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash equivalents with
high-quality financial institutions which are federally insured up to
prescribed limits. The Company monitors the credit quality of its customers
and maintains an allowance for potential credit losses which, historically,
has been adequate.
A single customer and its affiliates accounted for approximately 17% of
net sales for both the fiscal years ended June 28, 1997 and June 27, 1998
and 16% for the fiscal year ended June 26, 1999. This customer accounted for
approximately 10% and 7% of accounts receivable at June 27, 1998 and June
26, 1999, respectively.
18. Supplemental Guarantor Information
Sather Trucking Corp. and Trolli, Inc. (collectively, the "Guarantors"),
wholly-owned subsidiaries of the Company, have unconditionally guaranteed,
jointly and severally, the payment of principal, interest, and premium, if
any, on the Senior Notes, Senior Subordinated Notes, and all other
obligations under the respective Indentures. Sather Trucking Corp. and
Trolli, Inc. were acquired on
19
<PAGE>
FAVORITE BRANDS INTERNATIONAL, INC.
AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Favorite Brands International Holding Corp.)
(Debtor-In-Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
August 30, 1996 and April 1, 1997, respectively. The selected summarized
financial information for the Guarantors presented below reflects the fiscal
periods subsequent to the dates each guarantor was acquired (dollars in
thousands):
<TABLE>
<CAPTION>
June 27, June 26,
1998 1999
--------- --------
<S> <C> <C>
Net sales ................................................ $106,922 $127,941
Income from operations ................................... 10,679 14,465
Net (loss) income......................................... (2,648) 6,680
Current assets ........................................... $ 38,605 $ 60,798
Property, plant and equipment, net........................ 38,289 47,959
Other assets ............................................. 85,888 79,367
-------- --------
Total assets ............................................. $162,782 $188,124
======== ========
Current liabilities ...................................... $ 42,195 $ 60,858
Noncurrent liabilities ................................... 104,578 104,577
-------- --------
Total liabilities ........................................ 146,773 165,435
Stockholder's equity ..................................... 16,009 22,689
-------- --------
Total liabilities and stockholder's equity ............... $162,782 $188,124
======== ========
</TABLE>
19. Cumulative Effect of Change in Accounting Principle
During fiscal 1999, the Company adopted the provisions of Statement of
Position 98-5 "Reporting on the Costs of Start-Up Activities" which
required the Company to write off unamortized start-up costs of $4.3
million.
20. Restated Fiscal 1997 and 1998 Financial Statements
In fiscal 1996, the Company determined that the goodwill resulting from
the acquisition of a certain confections manufacturer and distributor had a
useful life of 15 years. During fiscal 1997, the Company revised the
amortization period of this goodwill prospectively using 40 years to
determine the related amortization expense in fiscal 1997 and 1998.
In fiscal 1999, the Company determined that it should have continued to
amortize this goodwill over a 15 year period. Accordingly, the Company
restated the amortization expense for fiscal years 1997 and 1998 by $5.1
million and $6.1 million, respectively. As a result, the net losses for
fiscal years 1997 and 1998 were increased by $3.0 million and $3.7 million,
respectively. The change in the amortization expense in fiscal years 1997
and 1998 did not impact net cash flows.
20
