SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20579
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)March 17, 1994
Doskocil Companies Incorporated
(Exact name of registrant as specified in its charter)
Delaware 0-7803 13-2535513
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
2601 Northwest Expressway, Suite 1000W, Oklahoma City, OK 73112
(Address of principal executive offices) (Zip Code)
(405)879-5500
Registrant's telephone number, including area code:
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
On March 17, 1994, Doskocil Companies Incorporated (the
"Company") entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") with International Multifoods Corporation
("IMC") with respect to the purchase of the Frozen Specialty
Foods Division ("Frozen Specialty Foods") of IMC (the
"Acquisition"). The Company plans to continue to operate Frozen
Specialty Foods as a manufacturer of frozen specialty foods. The
Company may merge Frozen Specialty Foods with or into the Company
or one of the Company's affiliates. The Stock Purchase Agreement
is described in the Annual Report on Form 10-K of the Company for
the fiscal year ended January 1, 1994 and is attached thereto as
Exhibit 10.36 and is incorporated herein by reference.
Item 5. Other Events.
On March 18, 1994, the Company issued a press release
with respect to the Acquisition, a copy of which is attached
hereto as Exhibit 1 and is incorporated herein by reference. The
terms of the transaction described in such press release are
qualified in their entirety by reference to the Stock Purchase
Agreement.
The Company is contemplating entering into an
employment agreement with Robert S. Wright, President of the
Prepared Foods Division of IMC, with respect to Mr. Wright's
employment with the Company with responsibility for managing
Frozen Specialty Foods. Mr. Wright's employment with the Company
is subject to the negotiation and execution of a definitive
employment agreement.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The balance sheets of the Frozen Specialty Foods
Business (a unit of the Prepared Foods Division of International
Multifoods Corporation) as of November 27, 1993, February 27,
1993 and February 29, 1992 and the related statements of earnings
and cash flows for the nine months ended November 27, 1993 and
the years ended February 27, 1993 and February 29, 1992, together
with the Independent Auditors' Report of KPMG Peat Marwick
thereon, are attached hereto as Exhibit 2 and are incorporated
herein by reference.
(b) Pro Forma Financial Information.
The following pro forma condensed consolidated
balance sheet has been prepared assuming the Acquisition had been
consummated on January 1, 1994. The pro forma condensed
consolidated balance sheet includes the historical consolidated
accounts of the Company as of January 1, 1994 and Frozen
Specialty Foods as of November 27, 1993.
The following pro forma condensed consolidated
statement of operations for the fiscal year ended January 1, 1994
has been prepared assuming the Acquisition had been consummated
on January 3, 1993. The pro forma condensed consolidated
statement of operations includes the historical consolidated
results of operations of the Company for the fiscal year ended
January 1, 1994 and the historical results of Frozen Specialty
Foods for the twelve months ended November 27, 1993.
The pro forma combined results of operations are not
necessarily indicative of results of operations that would have
resulted had the Acquisition actually occurred on January 3, 1993
nor are the pro forma combined results of operations necessarily
indicative of future results of operations.
These statements should be read in conjunction with the
January 1, 1994 Consolidated Financial Statements of the Company
and the financial statements of Frozen Specialty Foods included
herewith.
<TABLE>
<CAPTION>
DOSKOCIL COMPANIES INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
Historical
Doskocil Frozen
Companies Specialty
Incorporated Foods
January November Pro Forma Adjustments Pro Forma
1, 1994 27, 1993 Increase Decrease Combined
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash
equivalents $ 6,203 $ 5 $ 6,208
Receivables 36,283 9,401 53(a) 45,631
Inventory 39,984 23,083 179(b) 62,888
Other current assets 2,101 2,450 1,836(c) 2,715
Total
current assets 84,571 34,939 117,442
Property, plant and
equipment, net 77,678 45,284 9,516(d) 132,418
Intangible and other
assets, net 154,632 29,820 62,757(e) 29,820(e) 220,038
4,185(f) 1,536(f)
Total assets $316,881 $110,043 $469,958
Liabilities and
Stockholders' Equity
Current liabilities: Decrease Increase
Current maturities
of long-term debt $ 2,330 $ 171 171(g) 14,600(h) 16,930
Accounts payable 10,357 5,429 15,786
Accrued liabilities 40,732 7,576 2,492(g) 45,816
Total current
liabilities 53,419 13,176 78,532
Long-term debt 127,906 172 172(g) 129,500(h) 257,406
Other long-term
liabilities 79,987 16,028 16,028(i) 79,987
Stockholders' equity:
Common stock 79 --- 79
Other stockholders'
equity 55,490 80,667 80,667(j) 53,954
1,536(f)
Total stockholders'
equity 55,569 80,667 54,033
Total liabilities
and stockholders'
equity $316,881 $110,043 $469,958
<FN> See accompanying notes to the Pro Forma Condensed Consolidated Balance Sheet
</TABLE>
DOSKOCIL COMPANIES INCORPORATED
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Note 1. Basis of Presentation
The pro forma condensed consolidated balance sheet has
been prepared assuming the Acquisition had been consummated on
January 1, 1994 and includes the historical consolidated
accounts of the Company as of January 1, 1994 and Frozen
Specialty Foods as of November 27, 1993. The Acquisition has
been accounted for as a purchase in accordance with the
provisions of Accounting Principles Board Opinion No. 16, and,
accordingly, the purchase price has been preliminarily
allocated to the assets acquired and liabilities assumed based
on information available to management and preliminary
estimates of fair value.
Note 2. Allocation of Purchase Price
The excess of purchase price over the net book value of
tangible assets acquired was calculated as follows (in
thousands):
Purchase price:
Cash to be paid (bank term loan) $138,100
Direct cost of acquisition 1,815
Liabilities assumed 10,513
Total purchase price 150,428
Less: Net book value of tangible
assets acquired (78,387)
Excess of purchase price over the
net book value of tangible
assets acquired $ 72,041
The excess of purchase price over the net book value of
assets acquired was allocated as follows (in thousands):
Accounts receivable $ (53)
Inventory (179)
Property, Plant and Equipment 9,516
Intangible assets (primarily goodwill) 62,757
$72,041
Note 3. Pro Forma Adjustments
(a) To reduce accounts receivable to estimated fair value
based on a preliminary valuation.
(b) To decrease inventory to estimated fair value based on a
preliminary valuation.
(c) To adjust for assets not acquired by the Company.
(d) To increase property, plant and equipment to estimated
fair value based on a preliminary valuation.
(e) To eliminate historical goodwill and to record the fair
value of identifiable intangible assets acquired and the
excess of cost over the fair value of tangible and
intangible assets acquired (goodwill).
(f) To record estimated debt issue cost relating to the term
loan and new revolving line of credit and write off
unamortized debt issue costs relating to the old revolving
line of credit.
(g) To adjust for liabilities not assumed by the Company.
(h) To record the additional bank debt to be incurred to
finance the Acquisition, and the estimated current
maturities of such debt.
(i) To eliminate deferred income taxes and liabilities not
assumed by the Company.
(j) To eliminate the acquired company's net equity.
DOSKOCIL COMPANIES INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DOSKOCIL COMPANIES INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
Historical
Frozen
Doskocil Specialty
Companies Foods
Incorporated 12 months
Year ended ended
January November Pro Forma Adjustments Pro Forma
1, 1994 27, 1993 Increase Decrease Combined
<S> <C> <C> <C> <C> <C>
Net sales $648,207 $183,330 $831,537
Cost of sales 537,530 129,802 1,465(a) 665,867
Gross profit 110,677 53,528 165,670
Selling expenses 60,930 34,457 9(a) 95,396
General and
administrative
expenses 26,567 5,475 277(a) 31,765
Amortization of
intangible assets 6,183 1,638 1,569(b) 1,638(b) 7,752
Provision for plant
closings 500 -- 500
Operating income 16,497 11,958 30,257
Other income (expense):
Interest and
financing costs (13,849) (28) 6,865(c) 28(c) (21,170)
698(d) 242(d)
Other, net 178 80 258
Income before income
taxes and cumulative
effect of changes in
accounting 2,826 12,010 9,345
Income taxes (419) (5,044) 2,196(e) (3,267)
Income before
cumulative effect of
changes in accounting $ 2,407 $ 6,966 $ 6,078
Earnings per share
(Income before
cumulative
effect of changes
in accounting) $ .32 $ .82
<FN>
See accompanying notes to the Pro Forma Condensed Consolidated Statement of Operations
</TABLE>
DOSKOCIL COMPANIES INCORPORATED
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Note 1. Basis of Presentation
The pro forma condensed consolidated statement of operations
for the fiscal year ended January 1, 1994 has been prepared
assuming the Acquisition had been consummated on January 3, 1993
and includes the historical consolidated results of operations of
the Company for the fiscal year ended January 1, 1994 and the
historical results of Frozen Specialty Foods for the twelve
months ended November 27, 1993. The pro forma combined results
of operations are not necessarily indicative of results of
operations that would have resulted had the Acquisition actually
occurred on January 3, 1993 nor are they necessarily indicative
of future results of operations.
The pro forma combined statement of operations does not give
effect to the loss on early extinguishment of debt resulting from
the consummation of a new bank term loan and revolving line of
credit and early extinguishment of the existing revolving line of
credit. The estimated loss of $3.1 million, which will be
reduced by income taxes (assuming a statutory (federal and state)
tax rate of 40%) of $1.2 million, resulting from the early
extinguishment of this debt, will be recorded as an extraordinary
item during the period the debt is extinguished (second quarter
of fiscal 1994).
Note 2. Pro Forma Adjustments
(a) To record the net change in depreciation based on the fair
value of depreciable assets over their historical cost,
using the straight line method over their estimated useful
lives.
(b) To record amortization of goodwill attributable to the
acquisition over a period of 30 years and eliminate
amortization of the historical goodwill.
(c) To record additional interest attributable to the increase
in bank debt to finance the acquisition and eliminate
interest on debt which will not be assumed by the Company
and debt which will be extinguished.
(d) To record amortization of debt issue costs over the term of
the new bank debt and eliminate amortization of debt issue
costs attributable to debt which will be extinguished.
(e) To record the tax benefit attributable to the net pro forma
adjustments based on the statutory (federal and state) tax
rate of 40%. The effective tax rate in future years is
expected to be in excess of the statutory rate due to non-
deductible amortization of previously recorded intangible
assets.
(f) The weighted average number of common and common equivalent
shares used in the pro forma earnings per share computation
were 7,419,000 (historical).
(c) Exhibits.
(1) Form of Press Release issued by the Company on
March 18, 1994.
(2) Financial Statements of the Frozen Specialty
Foods Business (A Unit of the Prepared Foods Division of
International Multifoods Corporation), November 27, 1993,
February 27, 1993 and February 29, 1992 (With Independent
Auditors' Report Thereon).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
DOSKOCIL COMPANIES INCORPORATED
By:/s/ William L. Brady
William L. Brady
Vice President and Controller
Dated April 1, 1994
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
NUMBER
1 Form of Press Release issued by 13
the Company on March 18, 1994
2 Financial Statements of the 16
Frozen Specialty Foods Business
(A Unit of the Prepared Foods
Division of International
Multifoods Corporation), November
27, 1993, February 27, 1993 and
February 29, 1992 (With
Independent Auditors' Report
Thereon)
Exhibit 1
OKLAHOMA CITY, Okla. -- March 18, 1994 -- Doskocil
Companies Incorporated (NASDAQ:DOSK) today announced the signing
of a definitive agreement to purchase the Frozen Specialty Foods
division of International Multifoods Corporation (NYSE:IMC) for
approximately $135 million, subject to customary purchase price
adjustments. The acquisition provides Doskocil with leading
market positions in fast-growing segments of the foodservice
market and furthers the company's strategy of gaining dominant
positions in the food processing industry.
The company has received a commitment from Chemical Bank to
provide financing for the transaction.
Frozen Specialty, with 1993 revenues of approximately $185
million, is a processor and marketer of prepared frozen food
products primarily for the foodservice and consumer markets.
These include ethnic foods, the fastest growing category within
the foodservice industry, as well as appetizers, entrees and
portion meats. Frozen Specialty's ethnic products include
Mexican and Italian foods such as burritos and pasta. The
majority of these products is sold to the foodservice industry; a
portion of the Mexican products is also sold to the retail
industry.
Robert S. Wright, president of Multifoods' Prepared Foods
division, will join Doskocil and will have responsibility for the
ongoing operation of the business.
Commenting on the acquisition, John T. Hanes, Chairman,
President and Chief Executive Officer, stated, "The addition of
Multifood's Frozen Specialty division enhances Doskocil's
foodservice business with leadership positions in the Mexican and
Italian segments and builds on our strengths in pepperoni and
pizza toppings. Further, Frozen Specialty's lines complement our
own leadership role within other products in the foodservice,
retail and deli markets. The acquisition marks an important step
in Doskocil's strategic transition from the meat processing
business to the broader food processing market."
Mr. Hanes continued, "Headed by strong senior management,
Frozen Specialty has essentially run on a stand-alone basis
within International Multifoods. We are pleased that Bob Wright
will remain at the helm, helping to ensure a smooth transition
and the continued growth and success of Frozen Specialty's
product-line."
Consummation of the acquisition is subject to certain
conditions including, among other things, the expiration of
termination of the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvement Act of 1976.
Separately, Doskocil confirmed that its search for a new
Chief Executive Officer continues and that John Hanes, who
announced his retirement in October 1993, will remain as CEO
until his successor has been identified and an orderly transition
plan established.
Doskocil produces, markets and distributes branded and
processed meat products under proprietary brand names that
include Wilson Foods(R), Corn King(R), Wilson's Continental
Deli(R), American Favorite (TM), Doskocil Foods(TM) and Jefferson
Meats(TM). The company's products include pepperoni, beef and
pork toppings marketed to the pizza industry as well as boneless
hams, sausage, bacon and other branded and processed meat
products for the foodservice, delicatessen and retail markets.
CONTACT: Doskocil Companies Incorporated, Oklahoma City
John Hanes, 405/879-5400
or
Morgen-Walke Associates Inc., New York
Naomi Rosenfeld/Eileen English
Media contact: Stephanie Ferrell, 212/850-5600
(END)
Exhibit 2
FROZEN SPECIALTY FOODS BUSINESS
(A UNIT OF THE PREPARED FOODS DIVISION
OF INTERNATIONAL MULTIFOODS CORPORATION)
Financial Statements
November 27, 1993, February 27, 1993
and February 29, 1992
(With Independent Auditors' Report Thereon)
[Letterhead of KPMG Peat Marwick]
Independent Auditors' Report
The Board of Directors
International Multifoods Corporation:
We have audited the accompanying balance sheets of the Frozen
Specialty Foods Business (a unit of the Prepared Foods Division
of International Multifoods Corporation) as of November 27, 1993,
February 27, 1993 and February 29, 1992 and the related
statements of earnings and cash flows for the nine months ended
November 27, 1993 and the years ended February 27, 1993 and
February 29, 1992. 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 the Frozen Specialty Foods Business (a unit of the Prepared
Foods Division of International Multifoods Corporation) as of
November 27, 1993, February 27, 1993 and February 29, 1992, and
the results of its operations and its cash flows for the nine
months ended November 27, 1993 and the years ended February 27,
1993 and February 29, 1992 in conformity with generally accepted
accounting principles.
As discussed in notes 1 and 11 to the financial statements, the
Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, in the nine months ended
November 27, 1993.
As discussed in note 9 to the financial statements, the Company
adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions, in the year ended February 29, 1992.
/s/KPMG Peat Marwick
Orange County, California
February 21, 1994
FROZEN SPECIALTY FOODS BUSINESS
(A UNIT OF THE PREPARED FOODS DIVISION
OF INTERNATIONAL MULTIFOODS CORPORATION)
Balance Sheets
(In thousands)
November February February
27, 1993 27, 1993 29, 1992
Assets
Current assets:
Cash $ 5 4 4
Trade accounts
receivable, net 9,401 10,281 10,911
Inventories 23,083 19,986 18,172
Other current assets 2,450 2,549 2,327
Total current assets 34,939 32,820 31,414
Property, plant and equipment,
net 45,284 46,990 48,747
Intangibles, net 29,820 31,049 32,681
Total assets $ 110,043 110,859 112,842
Liabilities and Investment and Advances by Parent
Current liabilities:
Current portion of long-term
debt $ 171 171 572
Accounts payable 5,429 5,919 6,500
Accrued expenses 7,576 7,008 8,193
Total current liabilities 13,176 13,098 15,265
Long-term debt, net of
current portion 172 172 343
Deferred income taxes 9,807 5,548 4,552
Employee benefits and other
non-current liabilities 6,221 6,943 7,502
Total liabilities 29,376 25,761 27,662
Investment and advances by
parent 80,667 85,098 85,180
Commitments and contingencies
Total liabilities and
investment and advances
by partent $ 110,043 110,859 112,842
See accompanying notes to financial statements.
FROZEN SPECIALTY FOODS BUSINESS
(A UNIT OF THE PREPARED FOODS DIVISION
OF INTERNATIONAL MULTIFOODS CORPORATION)
Statements of Earnings
(In thousands)
Nine
Months Year Ended
Ended
November February February
27, 1993 27, 1993 29, 1992
Net sales $ 138,329 187,610 184,311
Cost of Sales 96,796 132,557 130,838
Gross profit 41,533 55,053 53,473
Selling expenses 27,325 34,611 34,494
General and administrative
expenses 3,898 5,065 5,196
Amortization of intangibles 1,229 1,632 2,020
Other Income (60) (185) (280)
Interest expense 21 72 17
Earnings before income taxes
and cumulative effect
of accounting changes 9,120 13,858 12,026
3,841 5,488 4,921
Income taxes
Earnings before cumulative
effect of accounting changes 5,279 8,370 7,105
Cumulative effect of accounting
changes (net of income taxes of
$1,072 in fiscal 1992) 4,060 - 1,608
Net earnings $ 1,219 8,370 5,497
See accompanying notes to financial statements.
FROZEN SPECIALTY FOODS BUSINESS
(A UNIT OF THE PREPARED FOODS DIVISION
OF INTERNATIONAL MULTIFOODS CORPORATION)
Statements of Cash Flows
(In thousands)
Nine
Months Year Ended
Ended
November February February
27, 1993 27, 1993 29, 1992
Cash flows from operations:
Net earnings $ 1,219 8,370 5,497
Adjustments to reconcile net
earnings to net cash flows
from operations:
Depreciation and
amortization 5,102 6,778 5,918
Cumulative effect of
accounting changes 4,060 - 1,608
Deferred income tax expense
(benefit) 162 1,197 (1,974)
Gain on property disposals (22) (142) -
Changes in operating assets
and liabilities:
(Increase) decrease in
accounts receivable 880 630 (277)
(Increase) decrease in
inventories (3,097) (1,814) 742
(Increase) decrease in
other current assets 136 (423) (594)
Increase (decrease) in
accounts payable (490) (581) 2,143
Increase (decrease) in
accrued expenses 568 (1,185) (312)
Increase (decrease) in
employee benefits and
other non-current
liabilities (722) (559) (137)
Net cash flows provided
by operations 7,796 12,271 12,614
Cash flows from investing activities:
Capital expenditures (2,183) (3,417) (10,766)
Proceeds from property
disposals 38 170 26
Net cash flows used for
investing (2,145) (3,247) (10,740)
Cash flows from financing activities:
Decrease in intercompany
account (5,650) (8,452) (1,875)
Payments on long-term debt - (572) -
Net cash flows used for
financing (5,650) (9,024) (1,875)
Increase (decrease) in cash 1 - (1)
Cash at beginning of period 4 4 5
Cash and at end of period $ 5 4 4
See accompanying notes to financial statements.
FROZEN SPECIALTY FOODS BUSINESS
(A UNIT OF THE PREPARED FOODS DIVISION OF
INTERNATIONAL MULTIFOODS CORPORATION)
Notes to Financial Statements
November 27, 1993, February 27, 1993
and February 29, 1992
(In thousands)
(1) Summary of Significant Accounting Policies
General Information and Basis of Presentation
Frozen Specialty Foods Business ("Frozen Specialty" or the
"Company") is a unit of the Prepared Foods Business Division
(the "Division") of International Multifoods Corporation
("Multifoods" or the "Corporation"). Frozen Specialty is a
nationwide processor of prepared frozen foods products for
the United States foodservice and consumer markets.
The accompanying financial statements do not necessarily
reflect the financial position and results of operations of
Frozen Specialty in the future, or what the financial
position and results of operations would have been had it
been an independent entity during the periods presented.
Fiscal Period
The Company's fiscal periods end on the last Saturday of the
month.
Revenue Recognition
Revenue is recognized at the time of shipment to the
customer.
Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market (replacement or net realizable value).
Property, Plant and Equipment
Property, plant and equipment is stated at cost.
Depreciation on plant and equipment is computed using the
straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease terms or
estimated useful lives of the related assets.
Intangibles
Intangibles represents the excess of cost of business
acquired over the fair market value of net tangible and
identifiable intangible assets. Intangibles are amortized
on a straight-line basis over not more than a 40-year
period.
Income Taxes
In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). Under the asset and
liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those
temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The
Company adopted SFAS 109 March 1, 1993 which resulted in a
cumulative effect of a change in the method of accounting
for income taxes of $4,060 for the nine months ended
November 27, 1993.
Under the deferred method applied in prior years, deferred
taxes were recognized using the tax rate applicable to the
year of the calculation and were not adjusted for subsequent
changes in tax rates.
(2) Supplemental Asset and Liability Information
November February February
27, 1993 27, 1993 29, 1992
Accounts receivable, net:
Trade $ 9,507 10,384 11,014
Allowance for doubtful
accounts (106) (103) (103)
Total accounts
receivable, net $ 9,401 10,281 10,911
Inventories:
Raw materials $ 4,283 4,797 5,177
Finished and in-process
goods 15,745 12,005 9,871
Packaging and supplies 3,055 3,184 3,124
Total inventories $ 23,083 19,986 18,172
Property, plant and equipment, net:
Land $ 5,352 5,352 5,237
Buildings and improvements 28,110 27,903 26,796
Machinery and equipment 35,235 35,062 33,747
Improvements in progress 2,933 1,355 1,490
71,630 69,672 67,270
Accumulated depreciation
and amortization (26,346) (22,682) (18,523)
Total property, plant
and equipment, net $ 45,284 46,990 48,747
Accounts payable:
Trade $ 5,180 5,654 5,856
Other 249 265 644
Total accounts payable $ 5,429 5,919 6,500
Accrued expenses:
Accrued promotions $ 1,731 1,545 1,199
Accrued vacation 1,304 1,171 1,171
Casualty claims 1,702 1,944 3,051
Brokerage accruals 945 969 1,161
Accrued wages and salaries 793 582 556
Other accrued expenses 1,101 797 1,055
Total accrued expenses $ 7,576 7,008 8,193
(3) Long-term Debt
Long-term debt, net of current portion, consists of a $915
note payable issued in connection with the acquisition of
certain assets. Interest is payable quarterly and accrues
at 8% per annum. Principal was payable in three consecutive
annual installments through December 30, 1994 and one $400
payment on February 1, 1993.
(4) Investment and Advances by Parent
Investment and advances by parent represents Multifoods'
ownership interest in the recorded net assets of Frozen
Specialty. All cash transactions and intercompany
transactions flow through this account. A summary of the
activity is as follows:
November February February
27, 1993 27, 1993 29, 1992
Balance at beginning of
period $ 85,098 85,180 81,558
Net earnings 1,219 8,370 5,497
Net intercompany activity (5,650) (8,452) (1,875)
Balance at end of period $ 80,667 85,098 85,180
(5) Leases
The Company leases certain plant, office space and equipment
for varying periods. Management expects that, in the normal
course of business, leases will be renewed or replaced by
other leases.
The following is a schedule of future minimum lease payments
for operating leases that had initial or remaining
noncancelable lease terms in excess of one year as of
November 27, 1993:
Fiscal
1994 $ 197
1995 418
1996 168
1997 31
$ 814
Rental expense amounted to $1,633, $2,268 and $3,145 for the
nine months ended November 27, 1993 and the years ended
February 27, 1993 and February 29, 1992, respectively.
(6) Contingencies
There were no contingencies or litigation as of November 27,
1993 that, in the opinion of management, relate to and would
have had a material adverse effect on Frozen Specialty.
(7) Related Party Transactions
Transactions with Multifoods includes certain disbursements
by Multifoods made on behalf of Frozen Specialty and charges
for certain operating expenses.
Expenses are charged based upon the specific identification
of applicable costs, and in certain instances, a
proportional cost allocation. Management believes that the
basis of all such charges is reasonable. The amount of
operating expenses charged by Multifoods to Frozen Specialty
are as follows:
Nine
Months Year Ended
Ended
November February February
27, 1993 27, 1993 29, 1992
Cost of sales $ 1,443 2,059 3,003
Selling expenses 542 676 1,064
General and administrative 361 471 738
$ 2,346 3,206 4,805
Sales to and purchases from other Multifoods business units
amounted to the following for each period presented:
Nine
Months Year Ended
Ended
November February February
27, 1993 27, 1993 29, 1992
Sales $ 2,209 2,707 2,366
Purchases $ 1,219 461 589
(8) Retirement Plans
Multifoods has two defined benefit pension plans covering
substantially all employees of Frozen Specialty. Benefits
are based on the final average salary for salaried employees
and years of credited service for hourly employees. The
plans are generally funded by contributions to tax-exempt
trusts in amounts estimated sufficient to provide assets to
cover the plans' benefits. Plan assets consist principally
of listed equity securities, fixed income securities and
cash equivalents. The pension expense (benefit) recorded
for Frozen Specialty for the nine months ended November 27,
1993 and the years ended February 27, 1993 and February 29,
1992, was $(126), $(201) and $30, respectively. The
information required to determine the total amount of
accumulated benefits and net assets for Frozen Specialty is
not readily available.
Multifoods sponsors a defined contribution plan that covers
salaried, sales and certain hourly employees at Frozen
Specialty. Multifoods makes contributions equal to 50% of
the employee's contribution subject to certain limitations.
Employer contributions for Frozen Specialty employees
totaled $223, $221 and $155 for the nine months ended
November 27, 1993 and the years ended February 27, 1993 and
February 29, 1992, respectively.
(9) Postretirement Health and Life Insurance Benefits
The Company provides postretirement health and life
insurance benefits for retirees who meet minimum age and
service requirements. The costs of the life insurance
benefits are funded over the employees' active working lives
through contributions to an insurance continuation fund
maintained by an insurance company. Health care benefits
for retired employees are funded through an insurance
company, the funding of which is on a pay-as-you-go basis in
accordance with the actual claims paid plus administrative
expenses.
In fiscal 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, (SFAS 106).
SFAS 106 requires an employer to recognize the cost of
retiree health and life insurance benefits over the
employees' period of service. Prior to fiscal 1992, expense
was recognized equal to the funding of the plans. The
cumulative effect as of March 1, 1991 of adopting SFAS 106
was a one-time charge to net earnings of $1,608.
During fiscal 1993, certain of the Company's postretirement
health benefit plans were amended resulting in a decrease in
accumulated benefit obligations and service and interest
costs.
The periodic postretirement expense (benefit) under SFAS 106
was as follows:
Nine
Months Year Ended
Ended
November February February
27, 1993 27, 1993 29, 1992
Service costs $ 84 138 218
Interest costs 48 84 240
Amortization of unrecognized
effect from plan amendments (142) (131) -
Net postretirement
expense (benefit) $ (10) 91 458
The information required to determine the components of
accrued postretirement cost for Frozen Specialty is not
readily available. The total accrued postretirement cost at
November 27, 1993, February 27, 1993 and February 29, 1992
was $3,219, $3,229 and $3,138, respectively.
The assumed annual rate of future increases in per capita
cost of health care benefits ranged from 4% to 8% for each
of the next 10 years and 4% thereafter. These trend rates
reflect the Company's prior experience, plan provisions and
management's expectation of future rates. The weighted
average discount rates used in determining the accumulated
benefit obligation were 7.25%, 8.0% and 8.5% for the nine
months ended November 27, 1993 and for the years ended
February 27, 1993 and February 29, 1992, respectively. The
information to determine the impact on the accumulated
benefit obligation and the service and interest cost of a 1%
increase in the health care cost is not readily available
for Frozen Specialty.
(10) Concentration of Risks
At November 27, 1993, February 27, 1993 and February 29,
1992, receivables from a distributor totaled $1,449, $1,912
and $1,406, respectively. No single customer accounted for
more than 10% of total revenue for the nine months ended
November 27, 1993 and the years ended February 27, 1993 and
February 29, 1992.
(11) Income Taxes
The Company files a consolidated federal income tax return
with Multifoods and is allocated a federal tax provision as
if the Company filed a separate return. The state tax
praovision is allocated by applying a weighted-average state
tax rate to the Company's federal taxable income.
Additional tax provision items pertaining to the Company are
maintained in the Multifoods financial statements.
Income tax expense, excluding the tax on the cumulative
effect of an accounting change for the year ended February
29, 1992, was allocated as follows:
Federal State Total
Nine months ended November 27, 1993:
Current expense $ 2,931 595 3,526
Deferred expense 294 21 315
Total tax expense $ 3,225 616 3,841
Year ended February 27, 1993:
Current expense $ 3,590 734 4,324
Deferred expense 1,034 130 1,164
Total tax expense $ 4,624 864 5,488
Year ended February 29, 1992:
Current expense $ 3,294 673 3,967
Deferred expense $ 855 99 954
Total tax expense $ 4,149 772 4,921
As discussed in note 1, the Company adopted SFAS 109 as of
March 1, 1993, and the cumulative effect of this change is
reported in the statement of earnings for the nine months
ended November 27, 1993. Prior years' financial statements
have not been restated to apply the provisions of SFAS 109.
Deferred income tax expense for the nine months ended
November 27, 1993 reflects the impact of temporary
differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by
tax laws. These temporary differences are determined in
accordance with SFAS 109 and are more inclusive in nature
than timing differences as determined under previously
applicable accounting principles.
Temporary differences which give rise to deferred tax assets
and liabilities as of November 27, 1993 are as follows:
Deferred Deferred Tax
Tax Assets Liabilities
Depreciation and amortization $ - (12,566)
Inventory valuation methods 852 -
Casualty claims accrual 1,845 -
Postretirement health
and life insurance 1,262 -
Other accrued expenses 495 -
Other, not individually significant 147 (7)
Subtotal 4,601 (12,573)
Valuation allowance - -
Total deferred taxes $ 4,601 (12,573)
During fiscal 1993 and 1992 deferred income taxes were
provided for timing differences in recognition of revenue
and expenses for tax and financial statement purposes.
Principally, these items consisted of the following:
Fiscal 1993 Fiscal 1992
Depreciation and amortization $ 722 968
Inventory valuation methods (32) (63)
Casualty claims accrual 670 380
Postretirement health and life
insurance accrual (36) (183)
Other accrued expenses (33) (115)
Other, not individually significant (127) (33)
Total deferred tax expense $ 1,164 954
The effective tax rate varied from the U.S. federal
statutory tax rate as follows:
Nine
Months Year Ended
Ended
November February February
27, 1993 27, 1993 29, 1992
U.S. federal statutory
tax rate 35.0% 34.0 34.0
Differences:
State and local income tax 4.4 4.1 4.2
Efffect of intangibles 1.4 1.3 2.2
Tax rate change 2.0 - -
Other, not individually
significant (0.7) 0.2 0.5
Effective tax rate 42.1% 39.6 40.9
Payments for income taxes allocated through investment and
advances by parent totaled $3,500, $4,300 and $4,000 for the
nine months ended November 27, 1993 and for the years ended
February 27, 1993 and February 29, 1992, respectively.
