<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JANUARY 30, 1995
[CAMPBELL SOUP COMPANY LOGO]
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY
STATE OF INCORPORATION
1-3822
(COMMISSION FILE NUMBER)
21-0419870
I.R.S. EMPLOYER IDENTIFICATION NO.
CAMPBELL PLACE
CAMDEN, NEW JERSEY 08103-1799
PRINCIPAL EXECUTIVE OFFICES
TELEPHONE NUMBER: (609) 342-4800
================================================================================
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired: See pages F1 through F28 of this
Report.
(b) Pro Forma Financial Information:
The following unaudited pro forma financial statements give effect to the
acquisition by Campbell Soup Company of Pace Foods, Ltd. in a transaction to
be accounted for as a purchase. The unaudited pro forma balance sheet is based
on the individual balance sheets of Campbell Soup Company and Pace Foods, Ltd.
and has been prepared to reflect the acquisition by Campbell Soup Company of
Pace Foods, Ltd. as of October 30, 1994. The unaudited pro forma statements of
earnings are based on the individual statements of earnings of Campbell Soup
Company and Pace Foods, Ltd; and combine the results of operations of Campbell
Soup Company and Pace Foods, Ltd. (acquired by Campbell Soup Company as of
January 30, 1995) for the year ended July 31, 1994 and for the three months
ended October 30, 1994 as if the acquisition had occurred on August 1, 1993 and
July 31, 1994, respectively. These unaudited pro forma financial statements
should be read in conjunction with the historical financial statements and
notes thereto of Campbell Soup Company and Pace Foods, Ltd.
CAMPBELL SOUP COMPANY
PRO FORMA COMBINED BALANCE SHEET
as of October 30, 1994
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
CSC Pace Adjustments Combined
--- ---- ----------- --------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 88 $ 8 $ (36) (f) $ 60
Other temporary investments 14 19 33
Accounts receivable 783 51 834
Inventories 888 8 896
Prepaid expenses 157 1 158
- -------------------------------------------------------------------------------------------------------------------
Total current assets 1,930 87 (36) 1,981
- -------------------------------------------------------------------------------------------------------------------
Plant assets, net of depreciation 2,462 25 20 (a) 2,507
Intangible assets, net of amortization 681 4 992 (b) 1,677
Other assets 456 6 462
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 5,529 $ 122 $ 976 $6,627
===================================================================================================================
Current Liabilities
Notes payable $ 644 $ 30 $ 740 (c) $1,414
Payable to suppliers and others 491 9 500
Accrued liabilities 626 5 631
Dividend payable 71 - 71
Accrued income taxes 169 5 174
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,001 49 740 2,790
- -------------------------------------------------------------------------------------------------------------------
Long-term debt 574 - 300 (d) 874
Nonpension postretirement benefits 411 - 411
Other liabilities 388 9 397
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 3,374 58 1,040 4,472
- -------------------------------------------------------------------------------------------------------------------
Shareowners' equity
Capital stock 20 60 (60) (e) 20
Capital surplus 159 - 159
Retained earnings 2,487 4 (4) (e) 2,487
Treasury stock (555) (555)
Currency translation adjustment 44 44
- -------------------------------------------------------------------------------------------------------------------
Total shareowner's equity 2,155 64 (64) 2,155
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareowners' equity $ 5,529 $ 122 $ 976 $6,627
===================================================================================================================
</TABLE>
<PAGE> 3
CAMPBELL SOUP COMPANY
PRO FORMA COMBINED BALANCE SHEET
As of October 30, 1994
(in millions)
NOTE 1: The pro forma balance sheet has been prepared to reflect the
acquisition of Pace Foods, Ltd. by Campbell Soup Company for an
aggregate price of $1,076.
NOTE 2: The Company is in the process of obtaining appraisals of certain
assets acquired from Pace Foods, Ltd. A final allocation of the
purchase price will be determined after completion of the
appraisals and other studies.
The pro forma adjustments are made to reflect the following:
(a) The net assets of Pace at estimated fair value at the
acquisition date
(b) The excess of acquisition cost over the fair value of net
assets acquired
(c) The issuance of commercial paper necessary to complete the
purchase acquisition
(d) $300 in 7.75% Euronotes maturing on February 27, 1997
(e) The elimination of shareowners' equity accounts of Pace
(f) Reduction of acquisition debt from $1,076 to $1,040
<PAGE> 4
CAMPBELL SOUP COMPANY
PRO FORMA COMBINED STATEMENT OF EARNINGS
for the Year Ended July 31, 1994
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
CSC Pace Adjustments Combined
--- ---- ----------- --------
<S> <C> <C> <C> <C>
Net sales $6,690 $225 $6,915
Costs and expenses
Cost of products sold 3,978 113 2 (a) 4,093
Marketing and selling expenses 1,269 59 1,328
Administrative expenses 297 13 (6) (b) 304
Research and development 78 - 78
Interest expense 74 2 74 (c) 150
Interest income (10) (4) (14)
Other expense 41 - 25 (d) 66
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 5,727 183 95 6,005
- ------------------------------------------------------------------------------------------------------------------
Earnings before taxes 963 42 (95) 910
Taxes on earnings 333 15 (37) (e) 311
- ------------------------------------------------------------------------------------------------------------------
Net earnings $630 $ 27 $(58) $599
==================================================================================================================
Earnings per share $2.51 $2.39
==================================================================================================================
Shares outstanding 251 251
==================================================================================================================
</TABLE>
Note 1: The above statement gives effect to the
following pro forma adjustments necessary to
reflect the acquisition outlined in Note 1 to
the pro forma balance sheet.
The pro forma adjustments are made to reflect
the following:
(a) Additional annual depreciation resulting
from increased basis of plant assets
(b) Nonrecurring executive compensation
(c) Annual interest charges on $300 7.75%
Euronotes and on $740 in 6.9% commercial
paper
(d) Annual amortization of goodwill on a
straight-line basis
(e) Reduction of federal and state income taxes
relating to above adjustments
<PAGE> 5
CAMPBELL SOUP COMPANY
PRO FORMA COMBINED STATEMENT OF EARNINGS
for the Three Months Ended October 30, 1994
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
CSC Pace Adjustments Combined
--- ---- ----------- --------
<S> <C> <C> <C> <C>
Net sales $1,864 $66 $1,930
Costs and expenses
Cost of products sold 1,088 32 1 (a) 1,121
Marketing and selling expenses 339 16 355
Administrative expenses 78 3 81
Research and development 19 - 19
Interest expense 28 1 19 (b) 48
Interest income (2) (1) (3)
Other expense 17 (1) 6 (c) 22
- ----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,567 50 26 1,643
- ----------------------------------------------------------------------------------------------------------------------
Earnings before taxes 297 16 (26) 287
Taxes on earnings 100 6 (10) (d) 96
- ----------------------------------------------------------------------------------------------------------------------
Net earnings $197 $10 $(16) $191
======================================================================================================================
Earnings per share $.79 $.77
======================================================================================================================
Shares outstanding 249 249
======================================================================================================================
</TABLE>
Note 1: The above statement gives effect to the
following pro forma adjustments necessary to
reflect the acquisition outlined in Note 1 to
the pro forma balance sheet.
The pro forma adjustments are made to reflect
the following:
(a) Additional quarterly depreciation resulting
from increased basis of plant assets
acquired
(b) Quarterly interest charges on $300 7.75%
Euronotes and on $740 6.9% commercial paper
issued in connection with acquisition
(c) Quarterly amortization of goodwill on a
straight-line basis
(d) Reduction of federal and state income taxes
relating to above adjustments
<PAGE> 6
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT
OF 1934, CAMPBELL SOUP COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED HEREUNTO DULY AUTHORIZED.
CAMPBELL SOUP COMPANY
Date: April 4, 1995
BY: /s/ JOHN J. FUREY
------------------------------
JOHN J. FUREY
CORPORATE SECRETARY
<PAGE> 7
Pace Foods, Inc.
Financial Statements
Years Ended December 31, 1992 and 1993
and the Nine-Month Periods Ended
September 30, 1993 and 1994 (Unaudited)
with Report of Independent Auditors
F1
<PAGE> 8
Pace Foods, Inc.
Financial Statements
Years Ended December 31, 1992 and 1993
and the Nine-Month Periods Ended
September 30, 1993 and 1994 (Unaudited)
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Shareholder's and Partners' Equity . . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
F2
<PAGE> 9
Report of Ernst & Young LLP, Independent Auditors
General Partner of
Pace Foods, Ltd.
We have audited the accompanying balance sheets of Pace Foods, Inc. as of
December 31, 1992 and 1993, and the related statements of income, shareholder's
and partners' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pace Foods, Inc. at December
31, 1992 and 1993, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Antonio, Texas
February 25, 1994
F3
<PAGE> 10
Pace Foods, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1992 1993 1994
------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 295,545 $ 945,597 $ 6,480,387
Investments 27,143,618 -- 17,412,937
Trade accounts receivable 13,355,913 12,944,862 15,074,770
Inventories 7,027,681 6,067,873 7,662,029
Prepaid expenses 358,780 298,732 324,233
Current portion of note receivable
from shareholder 4,091,000 4,091,000 32,727,000
Advances to growers 1,395,691 1,910,286 308,824
Other receivables 2,329,759 39,565 950,443
------------------------------------------------------
Total current assets 55,997,987 26,297,915 80,940,623
Intangible assets, net 3,551,293 3,396,708 3,344,163
Property, plant, and equipment, net 22,147,005 26,230,905 25,163,664
Other assets:
Long-term investments 1,073,028 1,033,072 1,040,877
Notes receivable from shareholder 36,818,000 32,727,000 --
Notes receivable principally from
officers and employees 957,247 1,271,305 1,015,647
Notes receivable -- growers -- -- 1,111,633
Other 263,483 367,245 49,733
------------------------------------------------------
39,111,758 35,398,622 3,217,890
------------------------------------------------------
Total assets $ 120,808,043 $ 91,324,150 $ 112,666,340
======================================================
</TABLE>
F4
<PAGE> 11
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1992 1993 1994
------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S AND
PARTNERS' EQUITY
Current liabilities:
Accounts payable $ 6,585,943 $ 8,141,586 $ 8,491,009
Accrued expenses 6,174,606 5,681,372 4,556,416
Payable to securities broker 519,918 -- --
State income taxes payable 1,501,398 -- --
Revolving line of credit -- -- 30,000,000
Current portion of long-term debt 4,091,000 -- --
------------------------------------------------------
Total current liabilities 18,872,865 13,822,958 43,047,425
Other accrued liabilities 5,344,486 5,821,318 8,616,006
Long-term debt 36,818,000 -- --
Shareholder's and partners' equity:
Common stock, par value, $.01 per
share; authorized 1,000 shares;
issued and outstanding 100 shares 1 1 --
Retained earnings 59,772,691 71,679,873 --
Unrealized holding gain on investments -- -- 623,225
General partner's capital -- -- 3,005,657
Limited partner's capital -- -- 57,374,027
------------------------------------------------------
Total shareholder's and
partners' equity 59,772,692 71,679,874 61,002,909
------------------------------------------------------
Total liabilities and shareholder's
and partners' equity $ 120,808,043 $ 91,324,150 $ 112,666,340
======================================================
</TABLE>
See accompanying notes.
F5
<PAGE> 12
Pace Foods, Inc.
Statements of Income
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
1992 1993 1993 1994
--------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 195,621,023 $ 211,977,203 $ 158,597,424 $ 176,651,446
Cost of sales 99,384,109 108,557,940 81,016,260 88,028,845
--------------------------------------------------------------------
Gross profit 96,236,914 103,419,263 77,581,164 88,622,601
Operating expenses:
Selling 43,246,896 51,284,854 37,975,533 44,678,362
General and administrative 14,918,290 17,946,332 13,218,673 9,299,870
--------------------------------------------------------------------
Operating profit 38,071,728 34,188,077 26,386,958 34,644,369
Other income (expense):
Amortization expense (206,135) (206,135) (153,957) (159,169)
Interest expense (4,310,008) (3,697,764) (2,893,218) (778,186)
Interest income -- note receivable 4,285,894 3,817,209 2,867,305 2,550,661
Investment income 715,105 1,183,686 885,730 363,883
Unrealized loss on short accounts (2,525) (24,259) (20,336) (3,740)
Equity in income of long-term
investments 5,185 -- 3,690 7,805
Gain (loss) on sale of investments 350 89,425 -- (8,379)
Miscellaneous income 103,634 38,488 17,573 147,830
--------------------------------------------------------------------
Income before taxes and
extraordinary item 38,663,228 35,388,727 27,093,745 36,765,074
State income taxes 1,298,487 1,020,045 1,111,666 127,092
--------------------------------------------------------------------
Income before extraordinary item 37,364,741 34,368,682 25,982,079 36,637,982
Extraordinary item:
Loss on early extinguishment
of debt (less applicable state
income taxes of $105,935) -- 2,248,170 -- --
--------------------------------------------------------------------
Net income $ 37,364,741 $ 32,120,512 $ 25,982,079 $ 36,637,982
====================================================================
</TABLE>
See accompanying notes.
F6
<PAGE> 13
Pace Foods, Inc.
Statements of Shareholder's and Partners' Equity
<TABLE>
<CAPTION>
C.A.G. C.A.G.
MANAGEMENT, HOLDING, TOTAL
UNREALIZED INC. INC. SHAREHOLDER'S
COMMON STOCK HOLDING GENERAL LIMITED AND
----------------- RETAINED GAIN ON PARTNER PARTNER PARTNERS'
SHARES AMOUNT EARNINGS INVESTMENTS CAPITAL CAPITAL EQUITY
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1992 100 $1 $ 49,060,736 $ -- $ -- $ -- $ 49,060,737
Cash distributions paid -- -- (26,652,786) -- -- -- (26,652,786)
Net income -- -- 37,364,741 -- -- -- 37,364,741
-------------------------------------------------------------------------------------------------
Balance at
December 31, 1992 100 1 59,772,691 -- -- -- 59,772,692
Cash distributions paid -- -- (20,173,374) -- -- -- (20,173,374)
Noncash distribution -- -- (39,956) -- -- -- (39,956)
Net income -- -- 32,120,512 -- -- -- 32,120,512
-------------------------------------------------------------------------------------------------
Balance at
December 31, 1993 100 1 71,679,873 -- -- -- 71,679,874
Reorganization and
capital restructuring
on January 1, 1994
(unaudited) (100) (1) (71,679,873) -- 3,030,300 71,679,874 3,030,300
Unrealized holding gain on
investments (unaudited) -- -- -- 623,225 -- -- 623,225
Cash distributions paid
(unaudited) -- -- -- -- (391,023) (50,577,449) (50,968,472)
Net income for the nine-
month period (unaudited) -- -- -- -- 366,380 36,271,602 36,637,982
--------------------------------------------------------------------------------------------------
Balance at
September 30, 1994
(unaudited) -- $-- $ -- $ 623,225 $ 3,005,657 $ 57,374,027 $ 61,002,909
=================================================================================================
</TABLE>
See accompanying notes.
F7
<PAGE> 14
Pace Foods, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
1992 1993 1993 1994
--------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 37,364,741 $ 32,120,512 $ 25,982,079 $ 36,637,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,794,356 4,255,374 2,892,082 3,254,321
Loss on sale of property, plant, and
equipment 4,030 12,056 6,085 122,820
Equity in income of long-term
investments (5,185) -- (3,690) (7,805)
Loss (gain) on sale of investments (350) (89,425) -- 8,379
Changes in operating assets and
liabilities:
Decrease (increase) in trade
accounts receivables (980,097) 411,051 1,355,599 (2,129,908)
Decrease (increase) in (1,137,649) 959,808 1,568,176 (1,594,156)
inventories
(Increase) decrease in prepaid
expenses 52,210 60,048 67,558 (25,501)
(Decrease) increase in advances
to growers (1,395,691) (514,595) 609,482 489,829
Decrease (increase) in other
receivables and other assets (431,014) 2,186,432 5,173,237 (593,366)
Increase in accounts payable and
accrued expenses 1,041,755 1,539,241 1,790,887 2,019,155
Increase (decrease) in state
income taxes payable 1,501,398 (1,501,398) (401,163) --
--------------------------------------------------------------
Net cash provided by operating activities 38,808,504 39,439,104 39,040,332 38,181,750
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (6,616,138) (8,186,475) (5,858,561) (2,163,111)
Proceeds from sale of property, plant, and equipment 13,445 41,280 1,000 12,380
Decrease (increase) in notes receivable principally
from officers and employees (149,028) (314,058) (261,110) 255,658
Decrease in long-term receivables 45,813 -- -- --
(Decrease) increase in payable to broker 519,918 (519,918) (519,918) --
Principal payments on note receivable from shareholder 8,182,000 4,091,000 -- 4,091,000
Purchases of investments (51,806,985) (70,666,738) (56,093,185) (30,755,966)
Proceeds from sale of investments 41,815,718 97,899,781 43,353,336 13,957,875
Purchase of intangible -- (51,550) -- (106,624)
--------------------------------------------------------------
Net cash provided by (used in) investing activities (7,995,257) 22,293,322 (19,378,438) (14,708,788)
</TABLE>
F8
<PAGE> 15
Pace Foods, Inc.
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
1992 1993 1993 1994
---------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Principal payments on long-term debt $ (9,091,000) $(40,909,000) $ (4,091,000) $ --
Proceeds from draw on revolving line of credit -- -- -- 30,000,000
Capital contribution by general partner -- -- -- 3,030,300
Cash distributions paid (26,652,786) (20,173,374) (15,506,170) (50,968,472)
---------------------------------------------------------------
Net cash used in financing activities (35,743,786) (61,082,374) (19,597,170) (17,938,172)
---------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (4,930,539) 650,052 64,724 5,534,790
Cash and cash equivalents at beginning
of year 5,226,084 295,545 295,545 945,597
---------------------------------------------------------------
Cash and cash equivalents at end of period $ 295,545 $ 945,597 $ 360,269 $ 6,480,387
===============================================================
SUPPLEMENTAL DISCLOSURES
Interest paid $ 4,443,876 $ 4,577,308 $ 2,981,175 $ 745,242
State income taxes paid -- 2,521,443 1,512,829 19,092
NONCASH TRANSACTIONS
Investing activities:
Unrealized holding gain on investments $ -- $ -- $ -- $ 623,225
Distribution of long-term investment -- 39,956 -- --
Transfer of farmer advances to long-term
notes receivable -- -- -- 1,111,633
</TABLE>
See accompanying notes.
F9
<PAGE> 16
Pace Foods, Inc.
Notes to Financial Statements
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CAPITAL RESTRUCTURING
Pace Foods, Inc., a Delaware corporation (the Company), was incorporated on
November 13, 1991. Effective January 1, 1994, the Company changed its name to
C.A.G. Holding, Inc., a Delaware corporation, and simultaneously transferred
all of its assets and liabilities to Pace Foods, Ltd., a Texas limited
partnership (the Company, Ltd.), in consideration for a 99% limited
partnership interest in the Company, Ltd. Additionally, C.A.G. Management,
Inc., a Delaware corporation, purchased a 1% general partnership interest in
the Company, Ltd. for cash consideration of $3,030,300. Pursuant to the
General Conveyance, Transfer and Assignment dated January 1, 1994, the
audited balance sheet of the Company as of December 31, 1993 became the
beginning balance sheet of the Company, Ltd. C.A.G. Holding, Inc. and C.A.G.
Management, Inc. are owned 100% by the same sole shareholder who was the
previous sole shareholder of the Company prior to the reorganization. The
reorganization has not been retroactively reported in the financial
statements as the assets, liabilities, and operations after the
reorganization and capital restructuring are still owned 100% by the previous
sole shareholder of the Company.
The nine-month period ended September 30, 1994 represents 100% of the
operations of the Company, Ltd. from January 1, 1994 to September 30, 1994 and
the assets and liabilities of the Company, Ltd. at September 30, 1994. The
accompanying unaudited financial statements include all adjustments consisting
of only normal recurring adjustments that, in the opinion of management, are
necessary for a fair presentation.
All references to the "Company" for 1992 and 1993 and "Company, Ltd."
for 1994 relate to the same operating assets, liabilities, and operations of
Pace Foods. The capital restructuring had no effect on the ultimate ownership
by the sole shareholder other than legal structure and taxing entities.
F10
<PAGE> 17
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF BUSINESS
The Company is a food products manufacturer specializing in tomato-based
products with jalapenos. The Company currently has two primary products: Pace
Picante Sauce, the original product, and Pace Thick & Chunky Salsa.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency on hand, money market
accounts, demand deposits with financial institutions, and all highly liquid
financial instruments purchased with an original maturity of three months or
less.
INVESTMENTS
Management determines the appropriate classification of marketable
equity and debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. At September 30, 1994, all of the
Company's marketable equity and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity. The cost of securities sold is based on the
specific identification method. Dividends on securities classified as
available-for-sale are included in "investment income."
TRADE ACCOUNTS RECEIVABLE
Accounts receivable are recorded on an accrual basis in the period in
which the product is shipped. Trade accounts receivable is shown, less
allowance for doubtful accounts of $82,439 and $81,290 for the years ended
December 31, 1992 and 1993, respectively, and $81,290 as of September 30,
1994. Management has estimated and recorded an allowance for sales discounts
on an accrual basis to recognize unearned discounts. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral.
F11
<PAGE> 18
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
The Company's inventories are stated at the lower of cost or market.
Costs are determined using a standard cost method based on a first-in,
first-out (FIFO) basis.
ADVANCES TO GROWERS
Advances to growers represent cash advances to third party growers to
be utilized by such growers in farming operations for the Company. These
growers, located in the U.S. (55% based on pounds to be provided) and in Mexico
(45% based on pounds to be provided) at December 31, 1993 and September 30,
1994, grow and harvest field and row crops for the Company under a contract.
Terms of the contract include a specific price per pound that the Company will
pay upon harvest and delivery of these crops to the Company. There were no
reserves for uncollectible advances for the fiscal years ended December 31,
1992 and 1993. Advances to growers is shown less reserves for uncollectible
advances of $228,600 as of September 30, 1994.
Advances to growers are recovered when delivery of these crops are made to the
Company. The recovery is based on a contractual agreement with the individual
growers (see Note 12 for purchase commitments). The Company performs periodic
reviews of its growers and determines whether any advances to growers may not
be collectible, and at the time of this determination an allowance is
established with a corresponding charge to expense. The advances to growers
are uncollateralized.
INTANGIBLES
Intangibles consist of the excess of purchase price over the fair value
of net assets acquired, formula and process costs, and trademark and trade name
costs. All trademark and trade name costs relate to Territorial House.
Amortization is computed on a straight-line basis over the useful lives of the
assets.
F12
<PAGE> 19
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost. The Company provides
for depreciation of property, plant, and equipment using primarily accelerated
cost recovery and modified accelerated cost recovery methods that approximate a
double declining method acceptable under generally accepted accounting
principles. Major renewals and betterments are charged to the property accounts
while replacements, maintenance, and repairs which do not improve or extend the
lives of the respective assets are expensed currently.
LONG-TERM INVESTMENTS
Long-term investments consist primarily of investments in limited
partnerships and other long-term investments for which no active secondary
market exists. The Company's investments in limited partnerships are accounted
for on the equity basis of accounting.
INCOME TAXES
Federal
For federal income tax purposes, the Company's shareholder elected to
be taxed under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, the Company did not pay federal income taxes; rather, its income
was passed directly through to its shareholder for the years ended December 31,
1992 and 1993.
As a result of the reorganization and capital restructuring discussed
above, the Company, Ltd., a Texas limited partnership, does not pay federal
income taxes; rather, its income is passed directly through to its general and
limited partners for the period of January 1, 1994 to September 30, 1994.
F13
<PAGE> 20
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's federal income tax returns are subject to examination by
taxing authorities. Because the application of tax laws and regulations to many
types of transactions is susceptible to varying interpretations, amounts
reported in the financial statements could be changed at a later date as a
result of examination by taxing authorities.
State
The state of Texas has a provision in its franchise tax statute to
include a tax based on income. Under the law, the amount of franchise tax owed
by a corporation is the greater of .25% of total capital or 4.5% of the net
taxable earned surplus apportioned to Texas sales. Net taxable earned surplus
is a term defined by the tax statute and is based on federal taxable income.
As a result of the law, the Company has recorded the earned surplus portion of
the tax in its financial statements as state income taxes for the years ended
December 31, 1992 and 1993.
As a result of the reorganization discussed above, the Company, Ltd., a
Texas limited partnership, does not pay state income taxes; rather, its income
is passed directly through to its general and limited partners for state income
tax purposes for the period of January 1, 1994 to September 30, 1994.
REVENUE RECOGNITION
Product revenue is recognized when the product is shipped. Sales are
solicited throughout the year, with a concentration in the fall and continuing
through early winter. Sales carry cash, volume, and promotional discounts in
conjunction with volumes purchased and payment terms. Revenue from these sales
are recorded net of a provision for cash discounts that are anticipated to be
earned and deducted at the time of payment by the customer. Additionally,
volume and promotional discounts that are anticipated to be earned and deducted
at the time of payment by the customer are estimated and reserved for as an
accrued liability with a corresponding charge to selling expense. The estimated
discounts represent an average of historical amounts taken and are adjusted as
program terms are changed.
F14
<PAGE> 21
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
Advertising costs of the Company include costs related to broadcast and
print media advertising expenses. Total advertising expense amounted to
approximately $19,169,000 and $24,920,000 for the years ended December 31, 1992
and 1993, respectively, and $17,898,000 and $22,024,000 for the nine-month
periods ended September 30, 1993 and 1994, respectively. For all periods
presented, advertising costs are expensed as incurred.
EARNINGS AND DISTRIBUTIONS PER SHARE
Earnings and distributions per share have not been calculated in the
accompanying financial statements. For the years ended December 31, 1992 and
1993, all outstanding shares were owned by a sole shareholder. For the period
ended September 30, 1994, the sole shareholder owned 100% interest in both the
general partner and limited partner of the Company, Ltd.
2. INVESTMENTS
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," effective for fiscal years beginning after
December 15, 1993. Under the new rules, debt securities that the Company, Ltd.
has both the positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that the Company, Ltd. does not have the
positive intent and ability to hold to maturity and all marketable equity
securities are classified as available-for-sale or trading are carried at fair
value. Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a separate component of shareholders' equity.
Unrealized holding gains and losses on securities classified as trading are
reported in earnings.
F15
<PAGE> 22
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
2. INVESTMENTS (CONTINUED)
The Company, Ltd. adopted the provisions of the new standard for
investments held as of January 1, 1994. In accordance with the Statement,
prior period financial statements have not been restated to reflect the change
in accounting principle. There was no cumulative effect upon adoption in
accordance with the new rules.
The following is a summary of available-for-sale securities held
by the Company at September 30, 1994:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of
states and
governmental
subdivisions
$ 16,789,712 $ 623,225 $ -- $ 17,412,937
-----------------------------------------------------
$ 16,789,712 $ 623,225 $ -- $ 17,412,937
=====================================================
</TABLE>
The gross realized loss on the sales of available-for-sale securities
totaled $8,379 for the nine months ended September 30, 1994. The net
adjustment to unrealized holding gains on available-for-sale securities
included as a separate component of partners' equity totaled $623,225.
The amortized cost of estimated fair value of debt securities at
September 30, 1994, by contracting maturity, are shown below:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
--------------------------------
<S> <C> <C>
AVAILABLE-FOR-SALE
Due in one year or less $ 9,425,074 $ 9,895,431
Due after one year through five years 7,364,638 7,517,506
--------------------------------
$ 16,789,712 $ 17,412,937
================================
</TABLE>
F16
<PAGE> 23
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
2. INVESTMENTS (CONTINUED)
At December 31, 1992, the current portfolio of marketable securities was
carried at the lower of aggregate cost or market. Marketable securities
included in current assets had a cost of $27,143,618 at December 31, 1992. All
investments held at December 31, 1992 were sold in 1993 and a net realized gain
of $89,425 on the sale of all marketable securities was included in the
determination of net income for 1993.
No valuation allowance was recorded in 1992 since the marketable
securities portfolio had an aggregate market value equal to or in excess of
aggregate cost.
A net realized gain of $350 on the sale of marketable securities
was included in the determination of net income for 1992.
The cost of marketable securities sold was based on the first-in,
first-out basis of the shares of each security held at the time of the sale.
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1992 1993 1994
--------------------------------------------
<S> <C> <C> <C>
Raw materials $ 1,711,537 $ 1,796,371 $ 1,925,002
Packaging materials 716,531 706,800 697,458
Finished goods 4,599,613 3,564,702 5,039,569
--------------------------------------------
$ 7,027,681 $ 6,067,873 $ 7,662,029
============================================
</TABLE>
F17
<PAGE> 24
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
4. NOTE RECEIVABLE FROM SHAREHOLDER
Subsequent to December 31, 1993, the Company transferred its note
receivable in the original amount of $55,000,000 to the Company, Ltd. as a part
of the reorganization discussed in Note 1. The Company, Ltd. renewed the note
receivable to the shareholder for advances of up to an aggregate of
$45,000,000. Terms of the new note include interest at 10.32% on the
outstanding balance, payable quarterly on the 15th day of April, July, October,
and January, and a principal payment of $4,091,000 due on January 15, 1994. The
remaining unpaid principal and interest is due on January 15, 1995. There are
certain options of extension to the shareholder to repay the unpaid principal
balance beyond 1995.
Interest income in the amount of approximately $4,285,894 and
$3,817,209 for the years ended December 31, 1992 and 1993, respectively, and
$2,867,305 and $2,550,661 for the nine months ended September 30, 1993 and
1994, respectively, has been recognized on the note receivable from
shareholder.
5. INTANGIBLES
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1992 1993 1994 USEFUL LIVES
------------------------------------------------------
<S> <C> <C> <C> <C>
GOODWILL $ 4,575,249 $ 4,575,249 $ 4,575,249 40 YEARS
Accumulated amortization (1,180,149) (1,294,531) (1,380,317)
-----------------------------------------
Book value 3,395,100 3,280,718 3,194,932
LICENSING AGREEMENT 1,060,000 1,060,000 1,060,000 12 YEARS
Accumulated amortization (912,773) (1,001,105) (1,060,000)
-----------------------------------------
Book value 147,227 58,895 --
PACKAGING 12,814 64,364 170,988 5 YEARS
Accumulated amortization (3,848) (7,269) (21,757)
-----------------------------------------
Book value 8,966 57,095 149,231
-----------------------------------------
Total net book value $ 3,551,293 $ 3,396,708 $ 3,344,163
=========================================
</TABLE>
F18
<PAGE> 25
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1992 1993 1994 USEFUL LIVES
-----------------------------------------------------
<S> <C> <C> <C> <C>
Land $ 5,312,826 $ 5,312,826 $ 5,312,826 --
Building and plant 6,874,417 7,262,408 7,507,922 31.5 Years
Furniture and fixtures 1,230,915 1,522,492 1,478,528 7 Years
Leasehold improvements 926,833 926,833 1,026,617 31.5 Years
Machinery and equipment 14,737,257 22,352,848 23,371,650 5 - 7 Years
Automobiles 130,315 130,315 130,315 5 Years
Projects in process 2,297,182 2,029,273 2,737,050 --
---------------------------------------
31,509,745 39,536,995 41,564,908
Less accumulated
depreciation 9,362,740 13,306,090 16,401,244
---------------------------------------
$22,147,005 $ 26,230,905 $ 25,163,664
=======================================
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses shown in the current liabilities section of the
financial statements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1992 1993 1994
------------------------------------------
<S> <C> <C> <C>
Accrued salaries, benefits,
and related expenses $ 1,772,861 $ 2,385,835 $ 1,114,115
Accrued selling expenses 3,345,398 2,756,719 2,727,694
Accrued interest payable 879,544 -- 42,944
Other 176,803 538,818 671,663
------------------------------------------
$ 6,174,606 $ 5,681,372 $ 4,556,416
==========================================
</TABLE>
F19
<PAGE> 26
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
8. OTHER ACCRUED LIABILITIES
Other accrued liabilities represents an executive incentive bonus
program. The incentive bonus is calculated on an annual basis as a multiple of
adjusted company earnings. The incentive bonus is expensed as earned although
payout of earned incentive bonus amounts does not occur until a future period
and is in accordance with the plan's payout provisions.
9. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT
At December 31, 1992 and 1993, the Company had a $10,000,000 revolving
line of credit at prime or LIBOR plus .75%, expiring on January 15, 1994. As of
December 31, 1992 and 1993, the Company had $10,000,000 available. In addition,
the Company had $2,000,000 available for standby letters of credit, of which
$742,000 and $1,193,000 were outstanding as of December 31, 1992 and 1993,
respectively. Each year's available amounts expired in June of the following
year.
In January 1994, the Company, Ltd. refinanced the Company's original
$10,000,000 revolving line of credit to $12,000,000, at prime or LIBOR plus
.75%, of which $5,000,000 could be used for standby letters of credit. In March
of 1994, the Company entered into a new $40,000,000 credit agreement which
expires on May 1, 1997. Under the new credit agreement, the Company must
maintain a $20,000,000 promissory note with the financial institution to have
an additional $20,000,000 committed by the financial institution. The credit
agreement provides an interest rate of prime or LIBOR plus .75%. Loans drawn
on the additional $20,000,000 commitment are subject to bid from other
financial institutions thereby causing these interim bid loans to charge
interest at or below prime or LIBOR plus .50%. Interim bid loans accepted from
other financial institutions reduce the additional $20,000,000 committed by the
financial institution. Amounts outstanding with the primary financial
institution cannot exceed $30,000,000. At September 30, 1994, the Company,
Ltd. had available $10,000,000 under the $40,000,000 credit agreement.
Commitment fees are paid by the Company, Ltd. for unused committed funds
available at the financial institution at a rate of .25%. The credit agreement
has restrictive loan covenants. Loan covenants restrict the Company's
F20
<PAGE> 27
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
9. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
indebtedness to the general and limited partners, defines acceptable
investments, and limits capital expenditures as well as distributions.
Covenants also include certain covenant calculations based on financial
results. As of September 30, 1994, the Company, Ltd. has $30,000,000
outstanding under its credit agreement. The outstanding principal balance is
due on May 1, 1997, with interest payable quarterly and all unpaid interest due
at maturity.
Additionally, with the new credit agreement, the Company, Ltd. replaced
the $12,000,000 line of credit with a new $8,000,000 line of credit, which
expires on March 22, 1995, at prime or LIBOR plus .75%, of which $2,000,000 can
be used for standby letters of credit. The outstanding principal balance is due
on March 22, 1995, with interest payable quarterly and all unpaid interest due
at maturity. As of September 30, 1994, the Company, Ltd. had not utilized the
$8,000,000 line of credit other than for approximately $1,032,000 in
outstanding letters of credit.
The Company had long-term debt agreements with financial institutions
amounting to $36,818,000, as well as a current portion of $4,091,000 as of
December 31, 1992, which were subsequently paid in full during 1993. The early
extinguishment of debt resulted in prepayment penalty interest of $2,248,170,
net of state income taxes of $105,935. The note agreements contained
restrictive covenants which the Company met or had waived by the lender. In
addition, the shareholder was restricted to cash withdrawals based on certain
financial ratios and a percentage of net earnings as defined by the note
agreements.
10. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company has a defined benefit pension plan (Pension Plan) covering
substantially all of its associates. The benefits are based upon a formula
utilizing years of service and a percentage of monthly income in relationship
to projected Social Security Compensation at age 65. The Company's funding
policy is to contribute amounts to the plan sufficient
F21
<PAGE> 28
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional amount as the
Company may determine to be appropriate from time to time.
Contributions provide for benefits attributed to service to date and
also for those expected to be earned in the future.
The following table sets forth the Pension Plan's funded status and
amounts recognized in the Company's balance sheet at 1992, 1993, and 1994:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1992 1993 1993 1994
-------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit
obligation, including
vested benefits of
$229,571 and $1,462,194 at
December 31, 1992 and 1993
and $1,051,839 and
$1,342,095 at September
30, 1993 and 1994,
respectively $ 1,139,361 $ 1,758,909 $ 1,317,254 $ 1,754,001
=================================================
Projected benefit obligation
for service rendered to
date $ 2,483,864 $ 3,521,347 $ 2,871,680 $ 2,951,650
Plan assets at fair value,
primarily cash equivalents,
marketable securities, and
bonds 1,367,455 1,425,954 1,501,644 2,121,628
-------------------------------------------------
Plan assets deficient of
projected benefit
obligations 1,116,409 2,095,393 1,370,036 830,022
Unrecognized net gain from
past experience different
from that assumed and
effects of changes
in assumptions 964,393 1,560,273 937,120 741,234
-------------------------------------------------
Current pension obligation
accrued $ 152,016 $ 535,120 $ 432,916 $ 88,788
=================================================
</TABLE>
F22
<PAGE> 29
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
DECEMBER 31 SEPTEMBER 30
1992 1993 1993 1994
------------------------------------------
<S> <C> <C> <C> <C>
Net pension cost included the following
components:
Service cost -- benefits earned during
the period $ 303,300 $ 405,441 $ 304,081 $ 306,381
Interest cost on projected benefit
obligations 143,056 196,487 147,365 142,538
(Gain) on plan assets (42,390) (56,982) (96,400) (122,069)
Net amortization and deferral (75,220) (35,188) 27,273 31,760
------------------------------------------
Net periodic pension cost $ 328,746 $ 509,758 $ 382,319 $ 358,610
==========================================
</TABLE>
The discount rate was 8.0%, 7.25%, 8.0% and 7.5% at December 31, 1992
and 1993, and September 30, 1993 and 1994, respectively. The expected long-term
rate of return on plan assets was 8.5% in 1992, 1993, and 1994.
ASSOCIATE SAVINGS PLAN
The Company has an Associate Savings Plan covering all eligible
associates of the Company who have completed one year of service. The Company
matches up to 75% of the associates' contributions with a ceiling on the
matching of 4% of the participant's compensation. The Company contributed
approximately $116,000 and $71,085 for the years ended 1992 and 1993,
respectively, and $44,893 and $68,865 for the nine-month periods ended September
30, 1993 and 1994, respectively. The associate contribution limitations are
determined by formulas which limit the upper one-third of the plan members from
contributing amounts that would cause the Plan to be top-heavy. The overall
contribution is limited to 14% of the associate's compensation.
F23
<PAGE> 30
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
11. RELATED PARTY TRANSACTIONS
The Company had loans to officers amounting to approximately $599,542,
$951,000 and $1,016,000 for the periods ended December 31, 1992 and 1993 and
September 30, 1994, respectively Additionally, the Company has a receivable due
from its shareholder (see Note 4).
12. COMMITMENTS
As of December 31, 1993, the Company had outstanding purchase
commitments of $35,012,243 and $265,241, respectively, for raw materials and
machinery and equipment expiring at various dates through 1994. At September
30, 1994, purchase commitments were $37,337,392 and $384,281, respectively, for
raw materials and machinery and equipment expiring at various dates through 1994
and 1995.
In addition, at December 31, 1993, the Company had outstanding purchase
commitments expiring at various dates in 1994 of $12,510,005 to growers for the
purchase of field and row crops to be harvested and delivered to the Company
after December 31, 1993. Outstanding purchase commitments to growers at
September 30, 1994 amounted to $19,725,277 and expire at various dates in 1994
and 1995.
The Company leases certain of its inventory warehouses and office space
under operating leases expiring at various dates through 1994. Terms of these
agreements generally range from 1 -- 5 years and may include renewal options for
various terms of up to 10 years. Total rental expense for operating leases
amounted to $860,238 and $651,278 for the years ended December 31, 1992 and
1993, respectively, and $583,159 and $1,106,887 for the nine-month periods ended
September 30, 1993 and 1994, respectively.
F24
<PAGE> 31
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
12. COMMITMENTS (CONTINUED)
The minimum rental commitments under all operating leases with initial
or remaining terms of more than one year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1993 1994
------------------------------
<S> <C> <C>
1994 $ 1,026,531 $ --
1995 968,283 1,028,228
1996 803,806 856,382
1997 664,430 666,154
1998 527,198 137,232
1999 and thereafter -- --
------------------------------
$ 3,990,248 $ 2,687,996
==============================
</TABLE>
13. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to administrative expenses
amounted to $2,281,580 and $1,386,204 for the years ended December 31, 1992 and
1993, respectively, and $1,008,981 and $960,925 for the nine-month periods ended
September 30, 1993 and 1994, respectively.
14. CONTINGENCIES
At December 31, 1992 and 1993 and September 30, 1994, the Company was
involved in certain claims. Management believes that the ultimate outcome of
these claims is not determinable at December 31, 1993 and September 30, 1994, if
settled, would not have a materially adverse effect on the Company's financial
statements.
F25
<PAGE> 32
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
15. PRO FORMA TAX INFORMATION (UNAUDITED)
For federal income tax purposes, the Company was taxed under the
provisions of Subchapter S of the Internal Revenue Code for the years ended
December 31, 1992 and 1993. Accordingly, the Company did not pay federal income
taxes; rather, its income was passed directly through to its sole shareholder.
As a result of a reorganization, the Company became a Texas limited partnership
on January 1, 1994. For the period of January 1, 1994 to September 30, 1994, the
Company, Ltd.'s income is passed through to its general and limited partners for
federal income tax purposes. Therefore, no provision for federal income taxes
has been provided in the financial statements.
The following table represents the taxes that would have resulted had
the Company been organized under the provisions of Subchapter C of the Internal
Revenue Code for the years ended December 31, 1992 and 1993, and the nine months
ended September 30, 1993 and 1994. Taxes have been computed in accordance with
FASB Statement 109, "Accounting for Income Taxes."
Under Statement 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Significant
components of the Company's deferred tax liabilities consist of depreciation and
prepaid insurance. Significant components of the Company's deferred tax assets
consist of executive incentive bonus program accruals, bad debt reserve, state
tax accrual, and the reserve for coupon redemptions.
F26
<PAGE> 33
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
15. PRO FORMA TAX INFORMATION (UNAUDITED) (CONTINUED)
Assuming the Company was organized under Subchapter C of the Internal
Revenue Code, the current and deferred income tax provisions (benefits) would be
as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1992 1993 1993 1994
------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 13,643,299 $ 10,301,103 $ 8,339,797 $ 13,814,508
State 1,298,487 1,125,980 1,111,666 127,092
------------------------------------------------------------
14,941,786 11,427,083 9,451,463 13,941,600
Deferred:
Federal (1,057,277) 637,474 543,398 (1,081,421)
------------------------------------------------------------
$ 13,884,509 $ 12,064,557 $ 9,994,861 $ 12,860,179
============================================================
</TABLE>
The reconciliation between the federal statutory tax rate and what the
Company's effective tax rate would be is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1992 1993 1993 1994
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before
income taxes $ 38,663,228 $ 33,246,492 $ 27,093,745 $ 36,765,074
Statutory rate 34% 35% 35% 35%
----------------------------------------------------------------
13,145,498 11,636,272 9,482,811 12,867,776
Less permanent
difference for:
State income taxes,
net of federal
benefit 857,001 731,887 722,583 82,610
Tax-exempt municipal
interest (235,298) (387,179) (292,072) (145,845)
</TABLE>
F27
<PAGE> 34
Pace Foods, Inc.
Notes to Financial Statements (continued)
December 31, 1992 and 1993
Information as to September 30, 1994 and for the
Nine Months Ended September 30, 1993 and 1994 is Unaudited
15. PRO FORMA TAX INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1992 1993 1993 1994
----------------------------------------------------------
<S> <C> <C> <C> <C>
Amortization of
goodwill $ 39,327 $ 40,034 $ 30,025 $ 30,025
Nondeductible research
and development
expenses
77,573 -- -- --
Other, net 408 43,543 51,514 25,613
----------------------------------------------------------
Provision for
income tax $ 13,884,509 $ 12,064,557 $ 9,994,861 $ 12,860,179
==========================================================
</TABLE>
F28
