SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000 Commission File Number 33-383149
------------- ---------
SFAC New Holdings, Inc.
----------------------------------------------
(Exact name of registrant as specified in its charter)
State of Delaware 52-2173534
-----------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
520 Lake Cook Road, Suite 550, Deerfield, IL 60015
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 405-5300
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of the Registrant's common stock as of
August 14, 2000 was 319,250 shares of common stock.
<PAGE> 1
SFAC NEW HOLDINGS, INC AND SUBSIDIARIES
INDEX
-----
PART I - FINANCIAL INFORMATION Page No.
--------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations for
the three- and six-month periods
ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for
the six-month periods
ended June 30, 2000 and 1999 5
Notes to Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-10
PART II - OTHER INFORMATION 11
SIGNATURE 12
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
SFAC NEW HOLDINGS, INC AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ In thousands)
<TABLE>
June 30, December 31,
2000 1999
---- ----
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,806 $ 28,545
Accounts receivable, net 31,983 15,826
Inventories 14,031 10,895
Net assets of discontinued operations - 169,980
Other current assets 21,084 8,680
------ -------
Total current assets 99,904 233,926
Property, plant, and equipment, net 63,566 67,248
Intangible assets, net 112,208 96,954
Other noncurrent assets 28,315 33,310
------- -------
Total assets $ 303,993 $ 431,438
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 351 $ 2,867
Accounts payable 14,600 12,999
Accrued expenses 33,161 44,700
------ ------
Total current liabilities 48,112 60,566
Long-term debt (Note 5) 731,315 1,176,027
Due to Specialty Foods Acquisition
Corporation 7,491 7,507
Other noncurrent liabilities 12,734 22,615
------ ------
Total liabilities 799,652 1,266,715
------- ---------
Stockholders' equity (495,659) (835,277)
--------- ----------
Total liabilities and $ 303,993 431,438
Stockholders' equity ========= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
SFAC NEW HOLDINGS, INC AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
($ In thousands)
<TABLE>
Three months ended June 30, Six months ended June 30,
---------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 74,937 $ 76,067 $ 144,554 $ 145,424
Cost of sales 31,026 31,711 61,082 61,955
------ ------ ------ ------
Gross profit 43,911 44,356 83,472 83,469
------ ------ ------ ------
Operating expenses:
Selling, distribution, general
and administrative 40,117 43,380 78,942 83,474
Amortization of intangibles 818 706 1,522 1,405
------ ------ ------ ------
Total operating
expenses 40,935 44,086 80,464 84,879
------ ------ ------ ------
Operating profit
(loss) 2,976 270 3,008 (1,410)
Other expenses:
Interest expense, net 24,647 36,182 61,323 72,927
Third-party financing fees - 8,405 - 8,405
Other expense, net 949 2,580 1,583 3,063
------ ------ ------ ------
Loss before income
taxes (22,620) (46,897) (59,898) (85,805)
Provision for income taxes 96 38 183 60
------ ------ ------ ------
Loss from continuing
operations (22,716) (46,935) (60,081) (85,865)
Discontinued operations:
Net income (loss) - 11,798 (454) 17,585
Gain (loss) on
disposal, net (3,434) 29,826 410,876 29,826
-------- ------ -------- ------
(3,434) 41,624 410,422 47,411
-------- ------ -------- ------
Income (loss) before
extraordinary item (26,150) (5,311) 350,341 (38,454)
Extraordinary item (7,870) - (10,723) -
-------- ------ -------- -------
Net income (loss) $ (34,020) $ (5,311) $ 339,618 $ (38,454)
========== ======= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
SFAC NEW HOLDINGS, INC AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
($ In thousands)
<TABLE>
Six months ended June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (60,081) $ (85,865)
Adjustments to reconcile to net
cash used by continuing operating
activities
Depreciation and amortization 9,883 7,992
Debt issuance cost amortization 4,159 5,716
Accretion of interest 22,760 26,350
Changes in operating assets and
liabilities, net of effects from
businesses acquired or sold (36,479) (3,966)
-------- -------
Net cash used by continuing
operating activities (59,758) (49,773)
Net cash used by
discontinued operations (8,979) (12,311)
-------- -------
Net cash used by operating
activities (68,737) (62,084)
Cash flows from investing activities:
Proceeds from divestitures of
businesses 567,381 117,886
Acquisition of business (22,464) -
Capital expenditures (2,980) (4,232)
Other 1,048 2,098
-------- --------
Net cash provided by
investing activities 542,985 115,752
Cash flows from financing activities:
Increase (decrease) in revolving
credit (97,801) 22,801
Refinancing costs - (18,011)
Payments on long-term debt (372,186) (2,156)
Other - 215
--------- --------
Net cash provided (used)
by financing activities (469,987) 2,849
Increase in cash and cash equivalents 4,261 56,517
Cash and cash equivalents -
beginning of period 28,545 5,715
-------- -------
Cash and cash equivalents - end of
period $ 32,806 $ 62,232
========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
NOTE 1 - General
In the opinion of management, the accompanying unaudited
interim condensed financial information of the Company
contains all adjustments, consisting only of those of a
normal recurring nature, except as otherwise indicated,
necessary to present fairly the Company's financial position
and results of operations. All significant intercompany
accounts, transactions and profits have been eliminated.
These financial statements are for interim periods and do not
include all information normally provided in annual financial
statements and should be read in conjunction with the
financial statements of the Company for the year ended
December 31, 1999 included in the annual report filed on Form
10-K and any reports on Form 8-K filed during the current
fiscal year. The results of operations for interim periods
are not necessarily indicative of the results that may be
expected for the full year.
Certain amounts in the 1999 financial statements have been
reclassified to conform to the manner in which the 2000
financial statements have been presented.
NOTE 2 - Inventories
The components of inventories are as follows:
<TABLE>
June 30, December 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Raw materials and packaging $ 6,575 $ 5,275
Work in progress 206 190
Finished goods 5,992 4,158
Other 2,057 1,742
------- -------
14,830 11,365
Less obsolescence and other
allowances (799) (470)
------- -------
$14,031 $ 10,895
======= =======
</TABLE>
Inventories are stated at the lower of cost or market. Cost
is determined principally by the first-in first-out ("FIFO")
method.
<PAGE> 6
NOTE 3 -Divestitures
During March 2000, SFC New Holdings, Inc., a subsidiary of
SFAC New Holdings, Inc., completed the sale of its
subsidiary, Metz Baking Company ("Metz"), to the Earthgrains
Company. In addition, in April 1999, the Company sold its
subsidiary, H&M Food Systems Company, Inc. ("H&M"), to IBP.
These divestitures have been reported as discontinued
operations in the accompanying financial statements in
accordance with Accounting Principles Board Opinion No. 30.
The net gain on disposal of discontinued businesses reported
in the Condensed Consolidated Statements of Operations
relates to the sale of these subsidiaries.
The net assets of Metz are reported as a single line item in
the Company's Condensed Consolidated Balance Sheet for
December 31, 1999 and the pre-divestiture operating results
of Metz and H&M are reported in the discontinued operations
section of the accompanying Condensed Consolidated Statements
of Operations. No interest expense has been allocated to
discontinued operations.
NOTE 4 - Acquisition
On January 20, 2000, the Company completed the acquisition of
the Lew-Mark Baking Company for $23,100. Lew-Mark Baking
held the exclusive license to the Archway brand in the states
of New York and New Jersey. Its 1999 sales approximated
$25,000.
NOTE 5 - Debt
Concurrent with the Metz closing, the Company paid in full
amounts outstanding under the Revolving and Term Loan
facilities totaling $265,611 and terminated these
arrangements. Additionally, in April 2000, the Company
commenced offers to purchase, in two separate offers, (i) any
and all of its $150,000 issue of 12 1/8% Senior Notes and
(ii) $54,000 of its 11 1/4% Senior Notes. On May 15, 2000,
the Company completed the tender offers and paid the
following amounts: (i) $149,905 of the 12 1/8% Senior Notes
and (ii) $54,000 of the 11 1/4% Senior Notes on a pro rata
basis. Any notes not tendered or returned in the tender
offers remain obligations of the Company and continue to
accrue interest and retain the contractual rights of the
indenture pursuant to which such notes were issued.
Due to the early extinguishment of this debt, the Company
wrote off deferred debt issuance costs related to these debt
instruments of $7,870 and $10,723, respectively, for the
three and six-month periods ended June 30, 2000. These write-
offs were reported as an extraordinary item in the
accompanying financial statements.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Seasonality
The Company's businesses are moderately seasonal with lower
sales, operating profit, and cash flows generally occurring in
the first quarter of the year. This seasonality is due primarily
to higher cookie and specialty bread/cafe sales in the summer
months as well as in the winter holiday season.
Results of Operations
COMPARISON OF SECOND QUARTER 2000 TO SECOND QUARTER 1999
Consolidated net sales from continuing operations decreased 1.6%
to $74.9 million in 2000 compared to $76.1 million in 1999. The
decrease in net sales was primarily due to the Company's exit
from non-core cookie product lines.
The Company's gross profit margin percentage increased to 58.6%
in 2000 from 58.3% in 1999 principally due to favorable
commodities and product mix at Mother's/Archway.
Selling, distribution, and general and administrative ("SDG&A")
expenses decreased $3.3 million in 2000 to $40.1 million
primarily due to lower employee benefit and trade promotion cost
levels.
Interest expense, net decreased $11.6 million in 2000 to $24.6
million. The decrease resulted from: (i) the payoff of the
revolver and term loan and payments made on the 12 1/8% and 11
1/4% Senior Note tender offers as discussed in Note 5; (ii)
decreased interest expense on previously outstanding 11% Senior
Subordinated debentures as a result of the debt exchange in 1999;
and (iii) increased interest income in 2000.
As a result of the above factors, net loss from continuing
operations decreased to $22.7 million in 2000 compared to $46.9
million in 1999.
The Company reports minimal state income tax and no federal
income tax due to its net operating loss position for tax
purposes.
<PAGE> 8
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Consolidated net sales from continuing operations decreased 0.6%
to $144.6 million in 2000 compared to $145.4 million in 1999. The
decrease in net sales was primarily due to the Company's exit
from non-core cookie product lines.
The Company's gross profit margin percentage increased to 57.8%
in 2000 from 57.4% in 1999 primarily due to lower commodity costs
and favorable product mix at Mother's/Archway.
Selling, distribution, and general and administrative expenses
decreased $4.6 million in 2000 to $78.9 million primarily due to
lower employee benefit and trade promotion cost levels.
Interest expense, net decreased $11.6 million to $61.3 million
for 2000. The decrease resulted from: (i) the payoff of the
revolver and term loan and payments made on the 12 1/8% and 11 1/4%
Senior Note tender offers as discussed in Note 5; (ii) decreased
interest expense on previously outstanding 11% Senior
Subordinated Debentures resulting from the 1999 debt exchange;
and (iii) increased interest income in 2000.
As a result of the above factors, net loss from continuing
operations decreased to $60.1 million in 2000 compared to $85.9
million in 1999.
The Company reports minimal state income tax and no federal
income tax due to its net operating loss position for tax purposes.
Because of the highly leveraged status of the Company, earnings
before interest, taxes, depreciation, and amortization ("EBITDA")
is an important performance measure used by the Company and its
stakeholders. The Company believes that EBITDA provides
additional information for determining its ability to meet future
debt service requirements. However, EBITDA is not indicative of
operating income or cash flow from operations as determined under
generally accepted accounting principles. The Company's EBITDA
from continuing operations for the three and six-month periods
ended June 30, 2000 and 1999 is calculated as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Operating Profit $ 2,976 $ 270 $ 3,008 $ (1,410)
Depreciation and
amortization 5,018 4,334 9,883 7,992
----- ----- ----- ------
EBITDA $ 7,994 $ 4,604 $ 12,891 $ 6,582
===== ===== ====== ======
</TABLE>
<PAGE> 9
Liquidity and Capital Resources
Net cash used in operating activities for the six months ended
June 30, 2000 totaled $68.7 million. Net cash used by continuing
operating activities included seasonally high levels of cash pay
interest, the termination of the accounts receivable facility and
the related repurchase of Mother's and Archway's receivables, the
legal settlement with respect to the ongoing Cacique case and
amounts required to collateralize remaining letters of credit.
In 1999, cash used by operating activities of $62.1 million was
principally driven by interest, working capital requirements and
the cash requirements for discontinued operations.
Net cash provided by investing activities totaled $543.0 million
in 2000 and is primarily due to the proceeds from the sale of
Metz, offset by the cost of the Lew-Mark Baking Company
acquisition and planned capital expenditures. Net cash provided
by investing activities totaled $115.8 million in 1999 and is
primarily due to the proceeds from the sale of H&M, offset by
planned capital expenditures.
Net cash used in financing activities totaled $470.0 million in
2000 due to payments made to terminate the Revolving Credit and
Term Loan facilities and payments made on the 12 1/8% and 11 1/4%
Senior Note tender offers. Net cash provided by financing
activities totaled $2.8 million in 1999 principally due to
increased revolver borrowings, offset by payments of debt
refinancing costs.
Based upon the above, the net increase in cash in 2000 and 1999
was $4.3 million and $56.5 million, respectively.
As of June 30, 2000 the Company had a cash balance of $32.8
million. Management believes that available funds should be
adequate for near-term operating needs. However, there can be no
assurances that available funds will be adequate to meet such
needs.
As reported in the Form 8-K filed June 16, 2000, the Company
announced an agreement (the "Agreement") with the holders
("Holders") of a major portion of its 13 1/4% Senior Subordinated
Discount Debentures, 13% Senior Secured Discount Debentures and
11% Senior Subordinated Discount Debentures in order to
facilitate certain strategic options that the Company is
currently exploring. The Agreement does not require the Company
to pursue any particular course of action but provides a
methodology for the allocation of sale proceeds and other assets
to its stakeholders in the event of a sale of the Company's
remaining assets and the receipt of customary approvals. The
Agreement provides that under certain circumstances, Holders may
not receive the full par value of their notes and that under
certain circumstances other stakeholders may receive less than
full value. The Agreement is binding on current Holders who have
signed the Agreement and subsequent transferees of those Holders'
notes. The Company believes that this Agreement will enhance its
ability to pursue options that will maximize the value for its
businesses for all of its stakeholders.
Cautionary Statement for Purposes of the "Safe Harbor" Provision
of the Private Securities Litigation Reform Act of 1995
This Form 10-Q contains statements that constitute forward-
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. When used in this Form 10-Q, the
words "anticipates", "intends", "plans", "believes", "estimates",
"expects", and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements
involve known and unknown risks,
uncertainties and other factors which may cause actual results,
performance or achievements of the Company to be materially
different from any future results, performance or achievements
expressed or
implied by such forward-looking statements. Such factors
include, but are not limited to: the Company's highly leveraged
capital structure, its substantial principal repayment
obligations, weather, economic and market conditions, cost and
availability of raw materials, competitive activities or other
business conditions. Further, any forward-looking statement
speaks only as of the date on which such statement is made, and
the Company undertakes no obligation to update any forward-
looking statement or statements to reflect events or
circumstances after the date on which such statement is made or
to reflect the occurrence of unanticipated events. New factors
<PAGE> 10
emerge from time to time, and it is not possible for management
to predict all of such factors. Further, management cannot
assess the impact of each such factor on the Company's actual
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on
June 14, 2000 in Deerfield, Illinois. The stockholders of the Company
took the following actions at the annual meeting:
1. The stockholders elected the following directors of the Company to serve
for the term expiring on the date of the next annual meeting or until
their respective successors are duly elected and qualified:
Messrs. Thomas J. Baldwin, Lawrence S. Benjamin, J. Taylor Crandall,
Robert B. Haas, Jerry M. Meyer, Andrew J. Nathanson, David G. Offensend,
Marc A. Particelli, Anthony P. Scotto and Douglas D. Wheat. An aggregate
of 59,848,733 shares were cast in favor of the election of each of the
directors: none were cast against.
2. The stockholders ratified and approved the appointment of KPMG Peat
Marwick LLP as the Company's independent auditors for the Company's 2000
fiscal year. An aggregate of 59,848,733 shares were cast in favor of the
action: none were cast against.
Item 6: Exhibits and Reports on Form 8-K
(a) See Exhibit Index filed herewith.
(b) On May 26, 2000, the Company filed a report on Form 8-K
regarding the escrow related to the H&M sale.
(c) On June 16, 2000, the Company filed a report on Form 8-K
discussing an agreement with the holders of a major portion of
its 13 1/4% Senior Subordinated Notes, 13% Senior Secured Discount
Debentures and 11% Senior Subordinated Discount Debentures in
order to facilitate certain strategic options that the Company is
currently exploring.
(d) On July 10, 2000, the Company filed a report on Form 8-K
regarding the settlement of the claim submitted by the buyer of
H&M Food Systems, Inc.
(e) On July 24, 2000, the Company filed a report on Form 8-K
regarding operating results for the period ended June 30, 2000.
<PAGE> 11
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 thereunto duly authorized.
SFAC NEW HOLDINGS, INC.
-----------------------
(Registrant)
------------
By:
Date: August 14, 2000 /s/ Robert L. Fishbune
----------------------
Robert L. Fishbune
Vice President and Chief
Financial Officer
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
10.56* Form of 2000 Specialty Foods Corporation Annual Bonus Plan
10.57* Archway - Mother's Cake & Cookie Co. Amended and Restated
Annual Bonus Plan, 2000
10.58* Andre-Boudin Amended and Restated Annual Bonus Plan, 2000
10.59* Mother's Cake & Cookie Co. Second Amended and Restated
Supplemental Long Term Incentive Plan for Key Employees
27* Financial Data Schedule
___________
*Filed herewith.
<PAGE> 12
