<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 8-K/A
-----------
AMENDMENT TO REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
CPC INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K filed
on October 30, 1995 as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Audited financial statements of Kraft Foods Bakery Companies,
Inc. as of and for the forty-one week period ended October 2,
1995, required to be filed pursuant to Item 7 of Form 8-K
filed October 30, 1995.
(b) Pro Forma Financial Information.
Pro forma financial information, reflecting the acquisition of
Kraft Foods Bakery Companies, Inc., required to be filed
pursuant to Item 7 of Form 8-K filed October 30, 1995.
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.
CPC INTERNATIONAL INC.
BY: /s/ Konrad Schlatter
--------------------------------
NAME: Konrad Schlatter
TITLE: Senior Vice President
Chief Financial Officer
Date: December 18, 1995
Page 1 of 7
<PAGE> 2
Item 7. (a) Financial Statements of Business Acquired.
The following are the audited financial statements of Kraft Foods Bakery
Companies, Inc. for the forty-one week period ended October 2, 1995 which was
acquired by CPC International Inc. on October 2, 1995.
2
<PAGE> 3
Item 7. (b) Pro Forma Financial Information.
The following pro forma condensed combined financial statements give effect to
the acquisition of the Kraft Foods Bakery business on October 2, 1995 by CPC
International Inc., the "Company". These pro forma financial statements are
based on estimates and assumptions set forth below and in the notes to such
statements which include pro forma adjustments. The pro forma financial
statements have been prepared utilizing the historical financial statements of
CPC International Inc. and Kraft Foods Bakery Companies, Inc. and should be
read in conjunction with historical financial statements and accompanying notes
included in the Company's 1994 Annual Report on Form 10-K and other financial
information filed on Form 10-Q for the third quarter of 1995 and Item 7. (a).
The pro forma condensed combined financial statements do not reflect any
changes in sales which may result from the combinations, the substantial cost
savings the company expects to achieve from the combination of the Kraft Foods
Bakery business with its own, principally resulting from the reductions in
duplicate production, warehouse, and administrative facilities; the
consolidation of redundant business systems, and the reduction in personnel
performing duplicate tasks. Accordingly, these pro forma condensed combined
financial statements do not purport to be indicative of the results which
actually would have been obtained if this acquisition had been effected on the
date indicated or of those results which may be obtained in the future.
The pro forma condensed combined financial statements are based on the
purchase method of accounting for the acquisition. The pro forma condensed
combined balance sheet assumes the acquisition of the Kraft Foods Bakery
business occurred on September 30, 1995. The pro forma condensed combined
statement of income assumes that the acquisition of the Kraft Foods Bakery
business had occurred on December 17, 1994, incorporating forty-one weeks of
operating results with the results of CPC International Inc. for the nine
months ended September 30, 1995.
Although the Company has not completed an assessment of current information
as to the fair market values of the individual assets and liabilities, an
estimate of the allocation of the purchase price was made on the basis of
available information. The final allocation of the purchase price may be
different from that reflected in the condensed combined pro forma financial
statements. Such differences would result from changes in the fair assessment
of values of the net assets of the Kraft Foods Bakery business.
3
<PAGE> 4
CPC INTERNATIONAL INC.
WITH THE ACQUIRED BAKING BUSINESS
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
($MILLIONS)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------- -----------------------
Kraft Adjust- Combined
CPC Bakery ments Companies
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $ 6,041 $ 959 $ (55) (g) $ 6,945
Cost of sales 3,639 471 (3) (h) 4,107
-------- --------- ----- --------
Gross profit 2,402 488 (52) 2,838
Operating expenses 1,641 442 (51) (i) 2,032
-------- --------- ----- --------
Operating income 761 46 (1) 806
-------- --------- ----- --------
Financing costs 85 41 (j) 126
-------- --------- ----- --------
Income (loss) before income taxes 676 46 (42) 680
Provision for income taxes 260 9 (17) (k) 262
-------- --------- ----- --------
416 27 (25) 418
Minority stockholders'
interest 21 21
-------- --------- ----- --------
Net income $ 395 $ 27 $ (25) $ 397
======== ========= ===== ========
Average common shares
outstanding 146,175 146,175
Earnings per common
share based on net income
reduced by "ESOP" preferred
stock dividends, net of taxes $2.64 $2.65
</TABLE>
See accompanying notes.
4
<PAGE> 5
CPC INTERNATIONAL INC.
WITH THE ACQUIRED BAKING BUSINESS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
($MILLIONS)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------- -----------------------
Kraft Adjust- Combined
CPC Bakery ments Companies
------- -------- ------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 183 $ $ $ 183
Notes and accounts receivable, net 1,128 79 1,207
Deferred income taxes 14 14
Inventories 1,032 51 1,083
Prepaid expenses 71 4 75
------- ------- ------- -------
Total current assets 2,414 148 2,562
------- ------- ------- -------
Investments in unconsolidated
affiliates 99 99
------- ------- ------- -------
Plant and properties - net 2,369 362 53 (b) 2,784
------- ------- ------- -------
Excess cost over net assets of
businesses acquired and other
intangible assets - net 1,057 216 279 (c) 1,552
------- ------- ------- -------
Other assets 145 -- 145
------- ------- ------- -------
$ 6,084 $ 726 $ 332 $ 7,142
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and drafts payable $ 573 $ $ 300 (d) $ 873
Accounts payable and accrued items 1,335 86 1,421
Income taxes payable 136 136
Dividends payable 55 55
------- ------- ------- -------
Total current liabilities 2,099 86 300 2,485
------- ------- ------- -------
Non-current liabilities 871 39 67 (f) 977
------- ------- ------- -------
Long-term debt 972 1 565 (d) 1,538
------- ------- ------- -------
Deferred taxes on income 7 56 (56)(e) 7
------- ------- ------- -------
Minority interest 163 163
------- ------- ------- -------
Total stockholders' equity 1,972 544 (544) 1,972
------- ------- ------- -------
$ 6,084 $ 726 $ 332 $ 7,142
======= ======= ======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
CPC INTERNATIONAL INC. WITH
THE ACQUIRED KRAFT FOODS BAKERY BUSINESS
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) CPC International Inc. expects to achieve substantial cost savings from
the combination of the Kraft Foods Bakery business with its own. Such cost
savings will principally result from reductions in duplicate production,
warehouse, and administrative facilities, the consolidation of redundant
business systems, and the reduction of personnel performing duplicate tasks.
Such anticipated cost savings have not been reflected in the accompanying pro
forma condensed combined financial statements. In addition, the pro forma
condensed combined statement of income does not reflect any sales increase which
may result from the combination of the businesses.
The pro forma condensed combined balance sheet has been adjusted to
reflect the effect of the acquisition using estimates of the individual assets
and liabilities acquired. The actual allocation of the purchase price may be
different than that reflected in the pro forma statements based on refinement of
the estimated values.
(b) Adjustment to reflect an increase in identifiable net asset values,
primarily plant and properties-net, based a preliminary estimate of fair
values.
(c) Adjustment to reflect additional increase in unidentifiable net asset
values goodwill of $495 million and to eliminate existing goodwill of the
Kraft Foods Bakery business of $216 million.
(d) Adjustment to reflect short and long-term debt incurred to finance
the acquisition.
(e) Adjustment to eliminate deferred tax liabilities of the Kraft Foods
Bakery business no longer needed based on the tax deductibility of the
step-up in plants and properties values.
(f) Adjustment to reflect a reserve for anticipated costs related to the
closing of duplicate facilities, reduction in personnel of the acquired
business and the recognition of certain employee post-retirement
obligations acquired as part of the acquisition.
(g) Adjustment to conform Kraft Foods Bakery business with CPC
International Inc., for accounting treatment of trade deals - ($38) million,
distributor allowances - ($29) million and transportation - $14 million and the
elimination of intercompany sales - ($2) million.
(h) Adjustment to conform Kraft Foods Bakery business with CPC
International Inc. for accounting treatment of the Federal Tax Credit for
charitable food contributions - $1 million and the elimination of intercompany
sales - $2 million.
6
<PAGE> 7
CPC INTERNATIONAL INC. WITH
THE ACQUIRED KRAFT FOODS BAKERY BUSINESS
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(i) Adjustment to reflect the offset of items noted above for confirming
the Kraft Foods Bakery business with CPC International Inc., minus the
additional amortization expense for goodwill of $4 million (based on the
elimintion of the Kraft Foods Bakery business amortization of $6 million and
the recognition of new amortization of $10 million), plus the benefit from
lower depreciation of $2 million.
(j) Adjustment to reflect the increase in interest expense resulting from
the increase in the acquisition debt at a weighted average interest rate of
6.10%
(k) Adjustment required to tax effect the items in (i) and (j) noted above.
7
<PAGE> 8
KRAFT FOODS BAKERY
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1995
<PAGE> 9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Philip Morris Companies Inc.
We have audited the accompanying consolidated balance sheet of Kraft Foods
Bakery (the "Company"), as defined in Note 1, as of October 2, 1995, and the
related consolidated statements of earnings and cash flows for the 41 week
period ended October 2, 1995. 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 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 consolidated financial position of Kraft Foods Bakery
as of October 2, 1995, and the consolidated results of its operations and cash
flows for the 41 weeks ended October 2, 1995, in conformity with generally
accepted accounting principles.
New York, New York
December 7, 1995
<PAGE> 10
KRAFT FOODS BAKERY
CONSOLIDATED BALANCE SHEET
October 2, 1995
(in thousands)
ASSETS
<TABLE>
<S> <C>
Current assets:
Trade accounts receivable, net of allowances for doubtful accounts
and product returns of $4,846 $ 76,782
Inventories, net 50,571
Deferred income taxes 13,837
Other receivables 2,086
Prepaid expenses 4,303
--------
Total current assets 147,579
Property, plant and equipment, net 362,189
Goodwill and other intangible assets, net of accumulated amortization of $61,649 216,379
Other assets 319
--------
Total assets $726,466
========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 29,432
Accrued employee liabilities 28,414
Accrued advertising and promotions 8,011
Accrued workers' compensation, auto, general, property and excess liabilities 11,492
Other accrued liabilities 8,625
--------
Total current liabilities 85,974
Accrued long-term workers' compensation, auto, general, property and excess liabilities 34,578
Deferred income taxes 56,062
Other long-term liabilities 5,517
--------
Total liabilities 182,131
Commitments and contingencies (Notes 6 and 10)
Consolidated Company Equity 544,335
--------
Total liabilities and consolidated company equity $726,466
========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 11
KRAFT FOODS BAKERY
CONSOLIDATED STATEMENT OF EARNINGS
For the 41 weeks ended October 2, 1995
(in thousands)
<TABLE>
<S> <C>
Net sales $959,269
Costs and expenses
Cost of goods sold 470,711
Operating expenses 436,505
Amortization of goodwill and
other intangible assets 5,513
Interest expense, net 490
--------
Total costs and expenses 913,219
--------
Earnings before income taxes 46,050
Provision for income taxes 18,516
--------
Net earnings $ 27,534
========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 12
KRAFT FOODS BAKERY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the 41 weeks ended October 2, 1995
(in thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings $ 27,534
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 31,120
Loss on sales of fixed assets 244
Provisions for receivables and inventory 366
Provision for deferred income taxes 4,942
Changes in assets and liabilities:
Decrease in receivables 1,604
Increase in inventories (3,212)
Increase in deferred income tax liabilities 4,942
Decrease in prepaid expenses 969
Decrease in other assets 45
Decrease in accounts payable (4,573)
Increase in accrued employee liabilities 8,028
Decrease in accrued advertising and promotions (2,591)
Increase in accrued workers' compensation, auto, (959)
general, property and excess liabilities
Decrease in other accrued liabilities (4,123)
Decrease in other long-term liabilities 435
--------
Net cash provided by operating activities 64,771
Cash flows from investing activities:
Capital expenditures (22,207)
Proceeds from sales of fixed assets 410
--------
Net cash used in investing activities (21,797)
Cash flows from financing activities:
Payment of capital lease obligations (1,011)
Intercompany account with affiliates included in company equity (41,963)
--------
Net cash used in financing activities (42,974)
Net (decrease) increase in cash 0
Cash, beginning of period 0
--------
Cash, end of period $ 0
========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 13
KRAFT FOODS BAKERY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. BASIS OF PRESENTATION AND CONSOLIDATION:
On October 2, 1995 CPC International, Inc. ("CPC") acquired the Kraft
Foods Bakery, as described below from Kraft Foods, Inc. ("Kraft") and
Kraft Foods Bakery Companies, Inc. ("KFBC").
The accompanying consolidated financial statements include the accounts
of Boboli Co., Charles Freihofer Baking Company, Inc., Entenmann's, Inc.,
Oroweat Bakers, Ltd., and Hudson Processing, Inc. (together the
"Subsidiaries"), which are direct or indirect subsidiaries of Kraft and
its wholly-owned subsidiary, KFBC relating to the manufacturing,
marketing and distribution of fresh sweet baked goods, variety breads,
Italian bread shells and the distribution of fresh bagels. The
consolidated entity as described above is referred to as "Kraft Foods
Bakery" or the "Company".
KFBC, Kraft and the Subsidiaries are wholly-owned indirect or direct
subsidiaries of Philip Morris Companies Inc. ("PM").
The consolidated financial statements present the historical financial
position, results of operations and cash flows of the Company, as
described above. The Company has excluded from the consolidated balance
sheet assets and liabilities related to its employees' participation in
the Kraft pension, postretirement and postemployment benefit plans. (See
note 2.) Current federal and state income taxes, state sales and use
taxes, franchise taxes and health and welfare claims payable for
non-union employees and performance incentives payable have been
recorded as a component of consolidated company equity as they will be
settled by Kraft. (See notes 2, 7, 8, 9 and 11.)
The consolidated statement of earnings reflects an allocation of certain
costs and expenses from Kraft and PM for services provided. (See notes 2,
7 and 9.) However, the consolidated financial position, results of
operations and cash flows of the Company as presented herein, may not be
the same as had the Company been independent of Kraft and PM.
All intercompany items and significant transactions within the
consolidated group have been eliminated.
CONTINUED 5
<PAGE> 14
KRAFT FOODS BAKERY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
CASH
Kraft provides a centralized cash management function to the Company.
Accordingly, substantially all of the Company's cash disbursements and
collections are settled through consolidated company equity on a daily
basis. All net charges from Kraft and other affiliates (including PM) for
various services are settled through consolidated company equity.
Intercompany transactions and consolidated company equity are
non-interest bearing and are not subject to payment terms. These
transactions are considered to be the equivalent of cash transactions for
purposes of the consolidated statements of cash flows.
TRADE ACCOUNTS RECEIVABLE
Revenue is recognized as shipments are delivered to customers, less a
provision for estimated product returns.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined principally by the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are carried at cost. Depreciation is
recorded using the straight-line method over the following time periods:
buildings, 40 years; land improvements, 30 years; and machinery and
equipment, including trucks and trailers, up to 20 years. Assets recorded
under capital leases and leasehold improvements are amortized over the
shorter of their useful lives or the term of the related leases.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist primarily of goodwill
allocable to the Company arising from PM's acquisition of General Foods
Corporation, including Entenmann's Inc., in 1985 and the excess of cost
over fair value of tangible net assets acquired subsequent to 1985.
Goodwill and other intangible assets are being amortized principally over
40 years using the straight-line method.
PENSION, POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
Substantially all non-union Company employees participate in Kraft
pension, postemployment and postretirement plans. The Company has
accounted for its participation in the Kraft plans as a participation in
multi-employer plans. Accordingly, no assets and liabilities have been
reflected in the consolidated balance sheet related to these plans since
it is not practicable to segregate these amounts. Additionally, the
consolidated statement of earnings includes an allocation from Kraft for
the costs associated with Company employees who participate in these
CONTINUED 6
<PAGE> 15
KRAFT FOODS BAKERY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
plans that is comparable to the Company's required contribution for the
period. The Company records, as expense, contributions made to
multi-employer benefit plans.
INCOME TAXES
The Company is included in the consolidated tax return of PM. The Company
has no tax sharing agreement, formal or informal, with PM. Taxes are
determined on a separate company basis in the consolidated financial
statements. The consolidated financial statements reflect the application
of Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, for the period presented.
SELF-INSURANCE
The Company participates in PM's self-insurance programs for workers'
compensation, auto, general, property and excess risks. The estimated
liability for these risks is based upon incurred losses by the Company
and PM loss development factors. The related expense for the 41 week
period ended October 2, 1995 is based upon the most recent three years
experience for workers' compensation, auto and general insurance, an
allocation based upon fixed assets, inventories and business interruption
values for property insurance, and an allocation based on net sales for
excess liabilities.
ADVERTISING
Advertising costs are expensed as incurred. Advertising costs for the 41
week period ended October 2, 1995 were $14,431.
3. INVENTORIES:
Inventories consist of:
<TABLE>
<S> <C>
Raw and packaging materials $ 30,926
Finished and semi-finished goods 10,119
Supplies 12,246
Less: reserve for excess and obsolete raw and packaging
materials and LIFO adjustment (2,720)
--------
Inventories, net $ 50,571
========
</TABLE>
The cost for approximately $3,300 of the above inventories is determined
by the last-in, first out ("LIFO") method. The current cost of inventory
accounted for by the LIFO method exceeded its corresponding LIFO cost by
approximately $200.
Supplies inventory consists primarily of machinery and vehicle spare
parts kept on hand for use in the repair and maintenance of production
machinery and distribution vehicles.
CONTINUED 7
<PAGE> 16
KRAFT FOODS BAKERY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
4. PROPERTY, PLANT, AND EQUIPMENT:
<TABLE>
<S> <C>
Property, plant, and equipment consists of:
Land $ 31,678
Buildings and land improvements 123,445
Machinery and equipment, including trucks and trailers 420,046
Construction in progress 28,487
---------
603,656
Accumulated depreciation and amortization (241,467)
---------
Property, plant, and equipment, net $ 362,189
=========
</TABLE>
5. ACCRUED EMPLOYEE LIABILITIES:
<TABLE>
<S> <C>
Accrued employee liabilities consists of:
Accrued multi-employer plan contributions $ 1,283
Accrued salaries and wages 8,683
Accrued employee benefits 5,340
Accrued vacation pay 13,108
---------
Total accrued employee liabilities $ 28,414
=========
</TABLE>
6. COMMITMENTS:
Capital lease obligations related to the Chicago Bakery are included in
the buildings and land improvements caption of property, plant and
equipment. The net book value of this leased facility is $ 4,869.
The Company rents certain facilities and equipment under noncancelable
long-term operating leases which expire at various dates. Rental expense
for such leases for the 41 week period was $15,007. Certain of these
leases require additional payments for taxes, insurance and maintenance
and in certain cases, provide for renewal options.
CONTINUED 8
<PAGE> 17
KRAFT FOODS BAKERY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
The Company had the following minimum rental commitments under leases at
October 2, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1995 $ 153 $ 4,299
1996 613 13,911
1997 613 11,350
1998 613 9,038
1999 613 7,183
Thereafter 204 12,917
------ -------
Total minimum lease payments 2,809 $58,698
=======
Less amounts representing interests and executory costs (365)
------
Present value of minimum lease payments $ 2,444
=======
</TABLE>
At October 2, 1995, the Company had contractual take-or-pay commitments
to purchase electricity from co-generation plants in Bay Shore, New York
and Northlake, Illinois. Based on the contract provisions these
commitments are estimated as follows:
<TABLE>
<S> <C>
1995 (October 2 through December 16) $ 1,002
1996 2,643
1997 2,726
1998 2,843
1999 2,920
Thereafter 37,016
-------
$49,150
=======
</TABLE>
Purchases of electricity pursuant to these commitments were approximately
$1,377 during the 41 week period ended October 2, 1995.
7. EMPLOYEE BENEFITS:
PENSION PLANS
Substantially all of the Company's salaried and non-union hourly
employees participate in defined benefit pension plans sponsored by
Kraft. The plans provide retirement benefits for salaried employees based
generally on years of service and compensation during the last years of
employment. Retirement benefits for hourly employees generally are a flat
dollar amount for each year of service.
CONTINUED 9
<PAGE> 18
KRAFT FOODS BAKERY
NOTES TO CONSOLIDATED STATEMENTS
(in thousands)
The Company recognized pension cost of $3,755 for the 41 week period
ended October 2, 1995. This cost represents an allocation of service cost
based on the ratio of the Company's pensionable earnings to the total
pensionable earnings for the Kraft plans.
The Company also recognized pension cost of $16,924 for the 41 week
period ended October 2, 1995, related to its contributions to
multi-employer pension plans.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides health care and other benefits to substantially all
retired salaried and non-union hourly employees, their covered dependents
and beneficiaries. Generally, employees who have attained age 55 and who
have rendered 10 years of service are eligible for these benefits.
The Company recognized postretirement health care expense of $3,154 for
the 41 week period ended October 2, 1995. This expense represents an
allocation of the service cost components of the Kraft plans' total
service costs based on the ratio of the number of eligible Company
employees to the total number of eligible employees for the Kraft plans.
DEFINED CONTRIBUTION PLANS
Kraft and the Company maintain a defined contribution plan. The total
expense of this plan was $1,606 for the 41 week period ended October 2,
1995.
8. INCOME TAXES:
The provision for income taxes for the 41 week period ended October 2,
1995 is comprised of the following amounts:
<TABLE>
<S> <C>
Provision for income taxes:
Federal:
Current $10,297
Deferred 4,942
-------
15,239
State and local 3,277
-------
Total provision for income taxes $18,516
=======
</TABLE>
CONTINUED 10
<PAGE> 19
KRAFT FOODS BAKERY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
The effective income tax rate on earnings before income taxes differed
from the federal statutory rate for the following reasons:
<TABLE>
<S> <C>
U.S. federal statutory rate 35.0%
State and local income taxes, net of federal benefit 4.6
Charitable contributions (3.1)
Goodwill amortization 4.2
Other (0.5)
----
Provision for income taxes 40.2%
====
</TABLE>
The tax effects of temporary differences which gave rise to deferred
income tax assets and liabilities consisted of the following:
<TABLE>
<S> <C>
Deferred income tax assets:
Accrued marketing expenses $ 1,309
Allowance for doubtful accounts 1,185
Accrued employee liabilities 4,650
Strategic and environmental reserves 2,905
Other 3,788
--------
Total deferred income tax assets 13,837
--------
Deferred income tax liabilities:
Excess tax over book depreciation and amortization (55,958)
Other (104)
--------
Total deferred income tax liabilities (56,062)
--------
Net deferred income tax liability $(42,225)
========
</TABLE>
9. TRANSACTIONS WITH RELATED PARTIES:
Kraft and PM provide the Company with various services, including
purchasing, central research, marketing services, systems, legal and
human resource administration. The amount allocated to the Company for
such services and included in the results of operations was $3,365 for
the 41 week period ended October 2, 1995. The allocation is based on
historical or actual usage of services relative to the usage of the other
participating affiliated companies. Kraft and PM also provide other
services such as real estate administration, corporate communications,
CONTINUED 11
<PAGE> 20
KRAFT FOODS BAKERY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
insurance administration, internal audit, and certain legal, treasury and
lockbox services which are not billed to the Company.
The Company purchased fresh bagels from an affiliate at the affiliate's
fully absorbed manufactured cost. Inventory purchased under this
arrangement was $17,993 for the 41 week period ended October 2, 1995.
An amount payable to this affiliate at October 2, 1995 of $189 is
recorded as a component of consolidated company equity.
See Note 7 for a discussion of the Kraft employee benefit plans in which
the Company's employees participate. In addition, certain Company
employees participate in various Kraft and PM performance incentive
programs. The amount allocated to the Company for such programs and
included in the results of operations was approximately $4,500 for the 41
week period ended October 2, 1995.
10. CONTINGENCIES:
Various legal actions and claims are pending or may be instituted or
asserted in the future against the Company, including those arising out
of labor matters, environmental matters, and other matters. Management
believes that the ultimate outcome of all pending litigation matters
should not have a material adverse effect on the Company's financial
position or results of operations.
11. CONSOLIDATED COMPANY EQUITY:
Consolidated Company equity is comprised of the following components at
October 2, 1995:
<TABLE>
<S> <C>
Capital $161,007
Retained earnings 322,287
Intercompany accounts with affiliates 61,041
--------
$544,335
========
</TABLE>
As discussed in Notes 1 and 2, the intercompany account with affiliates
includes substantially all the Company's cash disbursements and
collections as well as all net charges from Kraft and PM for various
services and cost allocations. In addition, the intercompany account with
affiliates includes liabilities relating to federal and state income
taxes, state sales and use taxes, health and welfare claims related to
non-union employees and performance incentives.
12