SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
May 5, 1997
Date of Report
(Date of earliest event reported)
IBP, inc.
A Delaware Corporation Commission File IRS Employer
Number 1-6085 Identification
Number
42-0838666
IBP Avenue
Post Office Box 515
Dakota City, Nebraska 68731
Telephone 402-494-2061
ITEM 2 Acquisition or Disposition of Assets
In connection with the acquisition of Foodbrands America, Inc.
("Foodbrands"), a Delaware corporation, by IBP Foodservice, L.L.C, a Delaware
limited liability company whose sole members are the Registrant, Prepared
Foods, Inc., a Texas corporation and a wholly-owned subsidiary of the
Registrant, and IBP Caribbean Inc., a Cayman Islands company and a wholly-
owned subsidiary of the Registrant (all of which is disclosed more fully in
the Registrant's quarterly report on Form 10-Q for the 13 weeks ended March
29, 1997), the Registrant is filing herewith the appropriate historical and
pro forma financial statements relating to such acquisition.
ITEM 7 Financial Statements and Exhibits
Listed below are the financial statements and pro forma financial
information related to the acquisition mentioned above in item 2.
(a) Financial statements of Foodbrands are referenced below in subpart (c).
(b) Pro forma financial information:
Pro Forma Condensed Consolidated Balance Sheet (Unaudited) as of
March 29, 1997.
Pro Forma Condensed Consolidated Statement of Earnings (Unaudited)
for the 52 weeks ended December 28, 1996.
Pro Forma Condensed Consolidated Statement of Earnings (Unaudited)
for the 13 weeks ended March 29, 1997.
Notes to Pro Forma Condensed Consolidated Financial Statements.
(c) Financial statements of Foodbrands are attached hereto as exhibits
and are incorporated herein by reference:
Exhibit No.
(Referenced to
Item 601 of
Regulation S-K Description of Exhibit
- --------------
99.1 Consolidated Balance Sheets as of December 28, 1996 and
December 30, 1995.
99.2 Consolidated Statements of Operations for the years ended
December 28, 1996, December 30, 1995, and December 31, 1994.
99.3 Consolidated Statements of Stockholders' of Stockholders' Equity
for the years ended December 28, 1996, December 30, 1995, and
December 31, 1994.
99.4 Consolidated Statements of Cash Flows for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994.
99.5 Independent Accountants' Report of Coopers & Lybrand L.L.P.
99.6 Consolidated Balance Sheet as of March 29, 1997 (Unaudited).
99.7 Consolidated Statements of Operations for the quarters ended
March 29, 1997 and March 30, 1996 (Unaudited).
99.8 Consolidated Statements of Cash Flows for the quarters ended
March 29, 1997 and March 30, 1996 (Unaudited).
The pro forma balance sheet of the Company has been prepared as if the
acquisition had been consummated on March 29, 1997. The pro forma statements
of earnings assume the acquisition took place on December 31, 1995. The
acquisition will be accounted for under the purchase method of accounting.
The Company paid approximately $287 million in cash, excluding
transaction costs, for 100% of the stock of Foodbrands and assumed all of
Foodbrands' liabilities. The excess of the aggregate purchase price over the
fair value of the identifiable assets and liabilities will be recognized as
goodwill and amortized over 40 years.
The pro forma results of operations are not necessarily indicative of
actual results of operations that would have resulted had the acquisition
occurred on the first day of fiscal 1996, nor are they necessarily indicative
of future results.
<TABLE>
<CAPTION> IBP, inc.
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
As of March 29, 1997
(In thousands)
Pro Forma Pro Forma
Historical Adjustments Combined
Company Foodbrands
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $44,892 $7,178 (38,669) (d) $13,401
Marketable securities 57,322 0 57,322
Accounts receivable, less allowance
for doubtful accounts 510,127 47,245 (1,918) (a) 555,454
Inventories 311,240 70,675 381,915
Deferred income tax benefits and 0
other current assets 47,174 29,985 77,159
--------- ------- ------- ---------
TOTAL CURRENT ASSETS 970,755 155,083 (40,587) 1,085,251
NET PROPERTY, PLANT, AND EQUIPMENT 827,456 155,406 (1,412) (f) 981,450
OTHER ASSETS:
Intangible assets, net of accumulated
amortization 204,487 193,344 281,589 (b) 679,420
(2,952) (g)
Other 49,426 53,808 (40,802) (c) 59,480
--------- ------- ------- ---------
253,913 247,152 237,835 738,900
--------- ------- ------- ---------
$2,052,124 $557,641 $195,836 $2,805,601
========= ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 0 $ 0 $325,000 (d) $ 325,000
Current maturities of long-term
debt 0 34,839 (33,183) (d) 1,656
Accounts payable and accrued 0
liabilities 517,723 92,945 (1,918) (a) 608,750
-------- ------- ------- ---------
TOTAL CURRENT LIABILITIES 517,723 127,784 289,899 935,406
LONG-TERM OBLIGATIONS 259,688 306,120 565,808
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes and other 4,550 (h)
liabilities 103,798 65,926 (40,802) (c) 133,472
--------- ------- ------- ---------
103,798 65,926 (36,252) 133,472
STOCKHOLDERS' EQUITY: 1,170,915 57,811 (57,811) (e) 1,170,915
--------- ------- ------- ---------
$2,052,124 $557,641 $195,836 $2,805,601 0
========= ======= ======= =========
See accompanying notes to the Pro Forma Condensed Consolidated Balance Sheet.
</TABLE>
<TABLE>
<CAPTION>
IBP ,inc.
Pro Forma Condensed Consolidated Statement of Earnings (Unaudited)
52 Weeks Ended December 28, 1996
(In thousands, except per share data)
Pro Forma Pro Forma
Historical Adjustments Combined
Company Foodbrands
<C> <S> <S> <S> <S>
Net sales $12,538,753 $835,175 ($68,524) (i) $13,305,404
Cost of sales 12,095,550 673,449 (68,524) (i) 12,700,475
---------- ------- ------- ----------
Gross profit 443,203 161,726 604,929
Selling, general and
administrative 120,295 113,230 7,040 (j) 240,565
------- ------- ------- -------
Earnings from operations 322,908 48,496 364,364
Interest, net (3,373) (32,270) 12,518 (k) (48,161)
------- ------ ------- -------
Earnings before income
taxes and extraordinary items 319,535 16,226 316,203
Income tax expense 120,800 308 (7,432) (l) 113,676
------- ------ ------- -------
Net earnings $198,735 $15,918 ($12,126) $202,527
======= ====== ======= =======
Earnings per share $2.06 $2.10 (m)
==== ====
See accompanying notes to the Pro Forma Condensed Consolidated Statement of Earnings.
</TABLE>
<TABLE>
<CAPTION>
IBP ,inc.
Pro Forma Condensed Consolidated Statement of Earnings (Unaudited)
13 Weeks Ended March 29, 1997
(In thousands, except per share data)
Pro Forma Pro Forma
Historical Adjustments Combined
Company Foodbrands
<C> <S> <S> <S> <S>
Net sales $3,134,590 $210,768 ($17,919) (n) $3,327,439
Cost of sales 3,051,478 171,010 (17,919) (n) 3,204,569
--------- ------- ------ ---------
Gross profit 83,112 39,758 122,870
Selling, general and
administrative 31,252 28,001 1,760 (o) 61,013
------ ------ ------ ------
Earnings from operations 51,860 11,757 61,857
Interest expense, net
and other income (expense) (550) (8,005) 3,216 (p) (11,771)
------ ----- ------ ------
Earnings before income taxes 51,310 3,752 50,086
Income tax expense 19,000 1,613 (1,891) (q) 18,722
------ ----- ------ ------
Net earnings $32,310 $2,139 $(3,085) $31,364
====== ===== ====== ======
Earnings per share $0.34 $0.33 (r)
==== ====
See accompanying notes to the Pro Forma Consolidated Statement of Earnings.
Note 1 Pro Forma Adjustments
Condensed Consolidated Balance Sheet for 13 Weeks Ended March 29, 1997
(a) To eliminate intercompany accounts receivable/payable.
(b) To record goodwill of $463,359 thousand created by the Foodbrands
acquisition less the elimination of Foodbrands' historical
goodwill of $181,770 thousand.
(c) To reclassify noncurrent deferred tax assets.
(d) To record the use of cash and borrowings under the Company's
revolving credit facility to replace Foodbrands' bank debt and pay
for the cash portion of the purchase price and liabilities funded
at closing.
(e) To eliminate the equity of Foodbrands.
(f) To adjust the carrying value of plant, property and equipment to
fair value.
(g) To eliminate bank debt issue deferred charges.
(h) To adjust the reserve for postretirement benefit obligations to
fair value.
Condensed Consolidated Statement of Earnings for 52 Weeks Ended
December 28, 1996
(i) To eliminate intercompany sales.
(j) To record net change in amortization expense related to Foodbrands
acquisition based on the amortization of the goodwill over a period
of 40 years.
(k) To record additional interest expense attributable to the increase
in debt to finance the Foodbrands acquisition.
(l) To record the tax effect of the pro forma adjustments at the
marginal tax rate of 38%.
(m) Pro forma earnings per share based on 96,632,000 average common
and common equivalent shares.
Condensed Consolidated Statement of Earnings for 13 Weeks Ended
March 29, 1997
(n) To eliminate intercompany sales.
(o) To record net change in amortization expense related to Foodbrands
acquisition based on the amortization of the goodwill over a period
of 40 years.
(p) To record additional interest expense attributable to the increase
in debt to finance the Foodbrands acquisition.
(q) To record the tax effect of the pro forma adjustments at the
marginal tax rate of 38%.
(r) Pro forma earnings per share based on 95,731,000 average common
and common equivalent shares.
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 thereunto duly authorized.
IBP, inc.
-----------------
(Registrant)
November 25, 1997 /s/ Craig J. Hart
-------------------- ---------------------
Date Craig J. Hart
Vice President and Controller
EXHIBIT INDEX
Exhibit No.
(Referenced to
Item 601 of
Regulation S-K Description of Exhibit
99.1 Consolidated Balance Sheets as of
December 28, 1996 and December 30, 1995.
99.2 Consolidated Statements of Operations for the
years ended December 28, 1996, December 30,
1995, and December 31, 1994.
99.3 Consolidated Statements of Stockholders' Equity
for the years ended December 28, 1996,
December 30, 1995, and December 31, 1994.
99.4 Consolidated Statements of Cash Flows for the
years ended December 28, 1996, December 30,
1995 and December 31, 1994.
99.5 Independent Accountants' Report of Coopers &
Lybrand L.L.P.
99.6 Consolidated Balance Sheet as of March 29,
1997 (Unaudited).
99.7 Consolidated Statements of Operations for the
quarters ended March 29, 1997 and March 30,
1996 (Unaudited).
99.8 Consolidated Statements of Cash Flows for the
quarters ended March 29, 1997 and March 30,
1996 (Unaudited).
EXHIBIT 99.1
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands, except par value)
December 28, December 30,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 10,442 $ 18,207
Receivables 46,582 46,166
Inventories 62,960 58,523
Other current assets 26,342 10,378
------- -------
Total current assets 146,326 133,274
Property, plant and equipment - net of
accumulated depreciation and amortization
of $56,434 in 1996 and $38,188 in 1995 152,778 139,926
Intangible assets, net of accumulated
amortization of $10,623 in 1996 and
$5,375 in 1995 193,390 195,025
Deferred charges and other assets 56,032 39,036
Reorganization value in excess of amounts
allocable to identifiable assets, net
of accumulated amortization of $9,641
in 1995 - 25,311
------- -------
$548,526 $532,572
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 28,368 $ 18,341
Accounts payable 33,298 36,961
Accrued liabilities 47,542 50,294
------- -------
Total current liabilities 109,208 105,596
Long-term debt 310,307 305,407
Other long-term liabilities 73,393 78,340
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, 4,000,0000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value, 20,000,000
shares authorized, 12,464,080 and
12,467,738 shares issued and
outstanding, respectively 125 125
Capital in excess of par value 151,364 151,248
Retained earnings (deficit) (94,336) (105,203)
Minimum pension liability adjustment (1,535) (2,941)
------- -------
Total stockholders' equity 55,618 43,229
------- -------
$548,526 $532,572
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
EXHIBIT 99.2
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
Net sales $835,175 $634,700 $512,352
Cost of sales 673,449 499,985 410,118
------- ------- -------
Gross profit 161,726 134,715 102,234
Operating expenses:
Selling 77,832 69,483 52,165
General and administrative 29,143 25,634 24,151
Amortization of intangible assets 6,028 4,495 4,123
Provision for restructuring and
integration, net (Note 4) 227 - 10,586
------- ------- -------
Total 113,230 99,612 91,025
------- ------- -------
Operating income 48,496 35,103 11,209
Other income (expense):
Interest and financing costs (31,374) (17,268) (15,102)
Other, net (896) (1,193) (702)
------- ------- -------
Total (32,270) (18,461) (15,804)
Income (loss) from continuing operations ------- ------- -------
before income taxes 16,226 16,642 (4,595)
Income tax provision 308 7,041 600
------- ------- -------
Income (loss) from continuing operations 15,918 9,601 (5,195)
Discontinued operations (Notes 3 and 10):
Loss from operations of the Retail
Meat Division, net of income tax - (4,121) (8,522)
Loss on disposal of the Retail Meat
Division (plus applicable income tax
expense of $10,300) - (38,526) -
Extraordinary loss on early extinguishment
of debt (less income tax benefit)
(Note 8) (5,051) (1,049) (2,481)
------- ------- -------
Net income (loss) $ 10,867 $(34,095) $(16,198)
======= ======= =======
(continued)
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
Earnings (loss) per share -
primary and fully diluted:
Income (loss) from continuing
operations $ 1.28 $ 0.77 $(0.59)
Loss from discontinued operations - (0.33) (0.98)
Loss on disposal of discontinued
operations - (3.09) -
Extraordinary loss on early
extinguishment of debt (0.41) (0.08) (0.28)
------ ------ -----
Net income (loss) $ 0.87 $ (2.73) $(1.85)
====== ====== =====
Weighted average number of
common and common equivalent
shares outstanding - primary
and fully diluted 12,471 12,453 8,727
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 99.3
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
Minimum
Capital in Retained Pension Unearned
Common Stock Excess of Earnings Liability Compen-
Shares Amount Par Value (Deficit) Adjustment sation
<C> <S> <S> <S> <S> <S> <S>
Balance,
January 1, 1994 7,918 $ 79 $112,315 $ (54,910) $(1,575) $ (340)
Net Loss - - - (16,198) - -
Issuance of
new shares 4,512 45 38,581 - - -
Net activity
under Stock
Incentive Plan 18 - 150 - - 340
Balance, ------ --- ------- ------- ----- -----
Dec. 31, 1994 12,448 124 151,046 (71,108) (1,575) -
Net Loss - - - (34,095) - -
Issuance of
new shares 20 1 202 - - -
Minimum pension
liability
adjustment, net
of deferred tax - - - - (1,366) -
Balance, ------ --- ------- ------ ----- ----
Dec. 30, 1995 12,468 125 151,248 (105,203) (2,941) -
Net Income - - - 10,867 - -
Issuance of
new shares 9 - 116 - - -
Cancellation
of stock (13) - - - - -
Minimum pension
liability
adjustment, net
of deferred tax - - - - 1,406 -
Balance, ------ --- ------- -------- ------ ----
Dec. 28, 1996 12,464 $125 $151,364 $ (94,336) $(1,535) $ -
====== === ======= ======== ====== ====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
EXHIBIT 99.4
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing
operations $ 15,918 $ 9,601 $ (5,195)
Adjustments to reconcile income (loss)
from continuing operations to net
cash provided (used) by continuing
operating activities:
Depreciation and amortization 18,346 11,509 10,508
Amortization of intangible assets 6,028 4,495 4,123
Amortization included in interest
expense 1,833 1,195 1,279
Deferred income taxes (306) 6,138 -
Provision for restructuring and
integration, net 227 - 10,586
Deferred compensation 778 460 -
Payments for restructuring/
integration (1,649) (3,240) (1,020)
Changes in:
Receivables (817) (8,413) 430
Inventories (4,997) (2,844) 1,713
Other current assets (1,077) (587) (354)
Deferred charges and other assets 1,084 (219) 357
Accounts payable and accrued
liabilities (12,569) 7,135 9,776
Other long-term liabilities (1,144) (41) 242
Other 113 (51) 22
Net cash provided by continuing ------- ------- -------
operations 21,768 25,138 32,467
Net cash provided (used) by
discontinued operations including
changes in working capital (1,636) (12,294) 627
Net cash provided (used) by operating ------- ------- -------
activities 20,132 12,844 33,094
------- ------- -------
(Continued)
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant
and equipment $(26,094) $(24,255) $(10,063)
Acquisition of KPR Holdings, L.P. (575) (51,935) -
Acquisition of TNT Crust, Inc. (91) (56,379) -
Acquisition of International Multifoods
Foodservice Corp. - - (137,684)
Payments received on notes receivable 641 358 672
Proceeds from sale of property,
plant and equipment 1,540 130 436
Increase in notes receivable (450) - -
Proceeds from sale of Retail Meat
Division - 65,786 -
Net investing activities of
discontinued operations - (838) (4,557)
------- ------- -------
Net cash used by investing activities (25,029) (67,133) (151,196)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations, net
of issuance costs 164,850 147,636 141,154
Borrowings under revolving working
capital facility 222,500 30,000 195,500
Payments on revolving working capital
facility (216,000) (21,000) (203,500)
Payment on promissory note incurred in
conjunction with the acquisition of
KPR Holdings, L.P. (50,000) - -
Payments on capital lease and
debt obligations (117,992) (112,629) (36,720)
Payment on early extinguishment of debt (6,325) - (1,088)
Issuance of common stock 99 195 38,626
Net financing activities of
discontinued operations - (549) 1,016
Net cash provided (used) by ------- ------- -------
financing activities (2,868) 43,653 134,988
Increase (decrease) in cash ------- ------- -------
and cash equivalents (7,765) (10,636) 16,886
Cash and cash equivalents at beginning
of period 18,207 28,843 11,957
Cash and cash equivalents at end of ------- ------- -------
period $ 10,442 $ 18,207 $ 28,843
======= ======= =======
(Continued)
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
Supplemental disclosure of noncash
operating activities:
Loss on early extinguishment of
debt $ (2,374) $ (1,722) $ (1,393)
Supplemental disclosure of noncash
investing and financing activities:
Promissory note issued upon
acquisition $ - $ 50,000 $ -
Capital lease obligations-
Continuing operations 6,595 22 550
Discontinued operations - - 2,853
Contingent purchase price expected
to be settled in common stock 7,201 - -
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 32,673 $ 19,944 $ 19,441
Income taxes 263 727 442
The accompanying notes are an integral part of the consolidated financial
statements.
Note 1 Description of Business and Summary of Significant Accounting
Policies
a. Description of Business:
The Company produces, markets and distributes frozen and refrigerated
products targeted to growth segments of the foodservice industry, which
encompasses all aspects of away-from-home food preparation. The Company's
products include pepperoni, beef and pork toppings, as well as partially
baked pizza crusts, marketed to the pizza industry, appetizers, Mexican and
Italian foods, sauces, soups and side dishes and branded and processed meat
products. Customers include large multi-unit restaurant chains, major food-
service distributors, warehouse clubs and grocery store delicatessens, prin-
cipally in the United States. In Fiscal 1996, 10.3% of the Company's sales
were made to a single customer.
The Company's annual reporting period ends on the Saturday nearest December
31. Accordingly, the annual reporting periods ended December 28, 1996,
December 30, 1995 and December 31, 1994 each contained 52 weeks.
b. Principles of Consolidation:
The consolidated financial statements include the accounts of Foodbrands
America, Inc. ("Foodbrands America") and all of its subsidiaries
(collectively referred to herein as the "Company").
c. Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates made by the Company include accrued pension costs,
including a minimum pension liability adjustment, accrued postretirement
medical benefits and recoverability of deferred tax assets. Accrued pension
costs and postretirement benefits involve the use of actuarial assumptions,
including selection of discount rates (See Notes 11 and 12). Recoverability
of deferred tax assets considers estimates of projected taxable income (See
Note 10).
d. Cash and Cash Equivalents:
The Company considers cash equivalents to include all investments with a
maturity at date of purchase of 90 days or less. There were no cash
equivalents at December 28, 1996. Cash equivalents of $10.1 million at
December 30, 1995, represent investments primarily in Commercial Paper and
U.S. Government Securities, carried at cost, which approximates market. The
Company nets its cash balances within the same bank and presents positive
cash balances as cash and negative balances as accounts payable.
e. Concentrations of Credit Risk:
The concentrations of credit risk with respect to trade receivables are,
in management's opinion, considered minimal due to the Company's diverse
customer base. Credit evaluations of customers' financial conditions are
performed periodically, and the Company generally does not require collateral
from its customers. As of December 28, 1996, the Company had concentrations
of cash in bank balances totaling approximately $6.5 million located at 6
banks which exposes the Company to concentrations of credit risk. As of
December 30, 1995, the Company had concentrations of cash in bank balances
totaling approximately $4.2 million located in 6 banks.
f. Inventories:
Inventories are valued at the lower of cost (first-in, first-out) or
market. The Company periodically enters into futures contracts as deemed
appropriate to reduce the risk of future price increases. These futures
contracts are accounted for as hedges. Accordingly, resulting gains or losses
are deferred and recognized as part of the product cost and included in cash
flows from operating activities in the Consolidated Statement of Cash Flows.
g. Property, Plant and Equipment:
Property, plant and equipment are stated at cost. When assets are sold or
retired, the costs of the assets and the related accumulated depreciation are
removed from the accounts and the resulting gains or losses are recognized.
Depreciation and amortization are provided using the straight-line method
over either the estimated useful lives of the related assets (3 to 40 years)
or, for capital leases, the terms of the related leases.
h. Intangible Assets and Reorganization Value:
The excess of the aggregate purchase price over fair value of net assets
acquired ("Goodwill") is being amortized over 40 years. Trademarks and
tradenames are amortized on the straight-line method over 20 to 25 years.
"Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets" ("Reorganization Value") was being amortized using the straight-line
method over 20 years. The Reorganization Value was written off in 1996 as a
result of the elimination of the valuation allowance associated with the
deferred tax assets (see Note 10).
The Company continually reevaluates the carrying amount of the intangibles
as well as the amortization period to determine whether current events and
circumstances warrant adjustments to the carrying value and/or revised
estimates of useful lives. The specific methodology of future pre-interest
cash flows (with assets grouped by division which is the lowest level for
which there are identifiable cash flows) is used for this evaluation. At
this time, the Company believes that no impairment of the intangibles has
occurred and that no reduction of the estimated useful lives is warranted.
i. Deferred Charges and Other Assets:
Included in deferred charges and other assets are net deferred tax assets
of $42.4 million and $25.5 million at December 28, 1996 and December 30,
1995, respectively. Deferred loan costs associated with various debt
instruments are being amortized over the terms of the related debt using the
interest method. At December 28, 1996 and December 30, 1995, $7.3 million
and $6.1 million, respectively, remained to be amortized over future periods.
Amortization expense for these loans included in interest expense for Fiscal
1996, 1995 and 1994 was approximately $1.8 million, $1.1 million and $1.2
million, respectively. Deferred loan costs of $2.1 million and $1.7 million
were written off in Fiscal 1996 and 1995, respectively, due to the early
extinguishment of debt.
j. Income Taxes:
The Company utilizes the asset and liability approach for financial
accounting and reporting for income taxes. Deferred income taxes are recorded
to reflect the expected tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts and net operating loss carryforwards ("NOLs") and tax credit carry-
forwards at each year-end.
k. Earnings (Loss) Per Common Share:
Primary and fully diluted earnings (loss) per share are computed by
dividing net income (loss) by the weighted average number of common and
common equivalent shares outstanding during each period. Options and
warrants which have a dilutive effect are considered in the per share
computations.
l. Recently Issued Accounting Pronouncements:
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share and Statement No. 129, Disclosure of Information
About Capital Structure. Statement No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share. Statement
No. 129 consolidates existing requirements to disclose certain information
about an entity's capital structure. Both statements are effective for
financial statements issued for periods ending after December 15, 1997.
Based on the Company's present capital structure and common stock equivalents
(stock options), the Company does not believe that the implementation of
these new standards will have a material impact on its financial statements.
m. Reclassifications:
Certain reclassifications have been made to the prior years' financial
statements to conform with current presentation.
Note 2 Acquisitions
On December 11, 1995, the Company purchased KPR Holdings, L.P. ("KPR") which
produces and markets custom prepared foods and prepared meat items for multi-
unit restaurant chains. The purchase price the Company paid was
approximately $102.1 million, including transaction related costs of the
acquisition. In addition, the Company agreed to certain contingent payments
payable in Common Stock of the Company (at a price of $13.125 per share) or
cash, at the option of the sellers, aggregating up to approximately $14.3
million, over the three year period following the acquisition based on the
attainment of specified earnings levels. In 1996, KPR achieved the required
earnings levels and a payment will be made in either Common Stock of the
Company or cash no later than April 1, 1997, in the amount of $4.3 million,
which is net of $0.4 million paid during 1996 in connection with the settle-
ment of certain litigation. The accrual of the first payment was recorded at
December 28, 1996, as an increase in goodwill, and any subsequent payments
will also increase goodwill. The acquisition was accounted for by the
purchase method of accounting. The excess of the total purchase price over
fair value of net assets acquired of $66.0 million and the realized con-
tingent payments of $4.7 million has been recognized as goodwill and the
balance remaining at December 28, 1996, is being amortized over the remaining
life of 39 years.
On December 18, 1995, the Company purchased all the outstanding stock of TNT
Crust, Inc. ("TNT") which produces and markets partially baked and frozen
self-rising crusts for use by pizza chains, restaurants and frozen pizza
manufacturers and operates as a part of the Food Service Division. The
purchase price the Company paid was approximately $56.5 million, including
transaction related costs of the acquisition. In addition, the Company
agreed to a contingent earnout payment payable in Common Stock of the Company
(at a price of $11.54 per share) or cash, at the option of the sellers, not to
exceed $6.5 million, based on sales growth to certain customers. As a result
of the sales growth achieved in 1996, $2.9 million of the contingent earnout
payment was earned and recorded as a liability in 1996. This accrual
increased goodwill and any additional amounts will also increase goodwill.
The acquisition was accounted for by the purchase method of accounting. The
excess of the total purchase price over fair value of net assets acquired of
$47.5 million and the realized contingent earnout payment of $2.9 million has
been recognized as goodwill and the balance remaining at December 28, 1996,
is being amortized over the remaining life of 39 years.
Both the KPR & TNT contingent earnout payments are included in other long-
term liabilities as an obligation expected to be settled in Common Stock of
the Company.
On June 1, 1994, the Company purchased all of the outstanding stock of
International Multifoods Foodservice Corp., a division of International
Multifoods Corporation, for approximately $137.7 million, including
transaction related costs of the acquisition. The business, which has been
renamed Specialty Brands, Inc., manufactures frozen food products, including
ethnic foods in the Mexican and Italian categories, as well as appetizers,
entrees and portioned meats. The acquisition was accounted for by the purch-
ase method of accounting. The excess of the aggregate purchase price over
fair value of net assets acquired of approximately $68.3 million and trade-
marks at a fair value of $9.7 million were recognized as intangible assets
and are being amortized over 40 and 25 years, respectively.
The operating results of the acquisitions are included in the Company's
consolidated results of operations from the dates of acquisition. The
following unaudited pro forma consolidated financial information assumes the
acquisitions of KPR, TNT and Specialty Brands occurred at the beginning of
1994. These results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisition
been made at the beginning of the periods presented, or of the results which
may occur in the future.
Year Ended
Dec. 30, Dec. 31,
1995 1994
(in thousands, except
per share)
Net sales $751,008 $689,577
Operating income 50,418 28,457
Income (loss) from continuing
operations 10,385 (5,349)
Net income (loss) (33,311) (16,352)
Earnings (loss) per share -
primary and fully diluted:
Income (loss) from continuing
operations $ 0.83 $(0.61)
Net income (loss) (2.67) (1.87)
Note 3 Discontinued Operations
On May 30, 1995, the Company sold the assets of its Retail Meat Division (a
separate industry segment) to Thorn Apple Valley, Inc. The sales price
approximated $65.8 million in cash payments plus the assumption of long-term
debt of approximately $6.0 million and certain current liabilities related to
the division of approximately $4.5 million. In connection with this sale the
Company wrote off approximately $64.3 million of post-bankruptcy intangible
assets and recorded a net loss on disposition of approximately $38.5 million.
The agreement also includes potential consideration of an additional $10
million based upon an increase in the market value to the purchaser's common
stock. Proceeds of the sale were used to reduce the Company's debt under its
term loan by $58 million and to pay expenses related to the sale. The
results of operations and cash flows attributable to the Retail Meat Division
were reported as discontinued operations. Corporate interest expense was
allocated to the Retail Meat Division based on its net assets in proportion
to the Company's consolidated net assets.
The results of discontinued operations are (in thousands):
Fiscal Year Ended
Dec. 30, Dec. 31,
1995 1994
Net sales $72,357 $238,308
Income (loss) before taxes $(7,020) $ (8,522)
Tax expense (benefit) (2,899) -
Net income (loss) $(4,121) $ (8,522)
Included in accounts payable and accrued liabilities at December 30, 1995,
were certain amounts, totalling $2.1 million, related to the sale of the
Retail Meat Division. Payments associated with these accruals have been
reflected in the 1996 consolidated statement of cash flows as net cash flows
used by discontinued operations.
The assets included in the sale of the Retail Meat Division had
significantly different financial and tax basis. Therefore, for income tax
purposes this transaction generated taxable income of approximately $28.6
million requiring the utilization of net operating loss carryforwards. The
tax affect of this utilization was approximately $10.9 million.
Note 4 Restructuring and Integration
In December 1994, the Company announced a restructuring program that
resulted in a $10.6 million charge against operating income in 1994. The
restructuring program identified specific manufacturing facilities and
operations that related to excess capacity, as well as duplication of
activities after the acquisition of the Specialty Brands Division. The
charge also included costs incurred prior to year-end associated with the
corporate legal restructuring to preserve the Company's income tax NOLs and
to change the Company's name to Foodbrands America, Inc. During 1995, the
Company completed most of the program including the consolidation of
production operations and the closing of certain production and distribution
facilities.
During Fiscal 1996, the Company paid $0.2 million that was charged against
the restructuring reserve and applied $1.0 million of the restructuring
reserve to write down the net book value of certain assets. After extensive
review of several alternative plans, the Company determined that it would not
close one of its manufacturing facilities that had been contemplated under
the 1994 restructuring program and the estimated cost to complete another
project under the program was reduced. As a result, the Company recorded
a $2.1 million credit to the restructuring and integration provision during
1996.
During Fiscal 1996, the Company established a new restructuring program
consisting of two components. The first involved the realignment of the
Company's ham production by moving an existing product line into a new
production facility with a charge of $0.6 million. The second component
involved the restructuring of the sales, marketing and administrative
activities of the Specialty Brands Division including shifting the marketing
program to an Everyday Low Pricing concept. The charge related to the
Specialty Brands Division totalled $1.7 million and included severance costs
of $0.7 million for approximately 26 employees, and the writedown of certain
assets used in the business. The total charge for the new restructuring
program of $2.3 million was netted with the $2.1 million credit from the 1994
restructuring program.
Both of the restructuring programs are substantially completed as of December
28, 1996.
Note 5 Inventories
Inventories at December 28, 1996 and December 30, 1995 are summarized as
follows (in thousands):
1996 1995
Raw materials and supplies $19,234 $20,147
Work in process 8,499 7,365
Finished goods 35,227 31,011
$62,960 $58,523
Note 6 Property, Plant and Equipment
Property, plant and equipment at December 28, 1996 and December 30, 1995 is
summarized as follows (in thousands):
1996 1995
Land $ 3,673 $ 3,053
Buildings and improvements 79,948 68,461
Machinery and equipment 117,960 97,705
Construction in progress 7,631 5,621
------- -------
209,212 174,840
Less accumulated depreciation and
amortization 56,434 38,188
------- -------
152,778 136,652
Assets to be disposed of, net - 3,274
------- -------
$152,778 $139,926
======= =======
Note 7 Accrued Liabilities
Accrued liabilities at December 28, 1996 and December 30, 1995 are summarized
as follows (in thousands):
1996 1995
Interest $ 3,579 $ 5,883
Salaries, wages and payroll taxes 8,994 9,285
Employee medical benefits 9,418 11,361
Workers' compensation benefits 2,146 2,404
Pension and retirement benefits 5,106 2,098
Marketing expenses 7,334 5,360
Provisions for facility restructuring
and integration 504 1,240
Provisions for discontinued operations,
closed and sold facilities 480 2,968
Other 9,981 9,695
------ ------
$47,542 $50,294
====== ======
Note 8 Long-term Debt
Long-term debt, more fully described below, at December 28, 1996
and December 30, 1995 consisted of the following (in thousands):
1996 1995
Notes payable to banks $210,380 $160,500
Promissory note - 50,000
10 % Senior Subordinated Notes due 2006 120,000 -
9 % Senior Subordinated Redeemable Notes
due 2000, net of discount - 109,741
Capital lease obligations 8,295 3,507
------- -------
338,675 323,748
Less current maturities 28,368 18,341
------- -------
$310,307 $305,407
======= =======
Based on the borrowing rates currently available to the Company for bank
borrowings with similar terms and average maturities, the Company believes
that the carrying amount of these borrowings at December 28, 1996,
approximates face value. The fair value of the $120.0 million of 10 % Senior
Subordinated Notes due 2006 (the "10 % Senior Subordinated Notes"), based on
the quoted market price at December 28, 1996, is $127.2 million.
The aggregate amounts of long-term obligations, excluding obligations under
capitalized leases, which become due during each of the next five fiscal
years are as follows (in millions): $26.6 in 1997, $36.1 in 1998, $38.0 in
1999, $28.2 in 2000, $28.6 in 2001 and $172.9 thereafter.
Notes Payable to Banks
On December 11, 1995, the Company consummated a credit agreement and at
December 28, 1996, it consists of (i) a Term loan A for $45.0 million, (ii) a
Term loan B for $100.0 million, (iii) an acquisition term loan for $56.1
million and (iv) a working capital revolving facility not to exceed $75.0
million ("the Credit Agreement"). The proceeds received on December 11,
1995, were net of $3.9 million of debt issuance costs and were used to repay
the existing bank debt outstanding under the previous bank term loan totaling
$53.0 million and to fund the acquisition of KPR. The acquisition revolving
facility was subsequently drawn down to finance the acquisition of TNT. The
Credit Agreement includes a subfacility for standby and commercial letters of
credit not to exceed $7.0 million. On December 28, 1996, there was $3.1
million of standby letters of credit outstanding under this subfacility. The
Credit Agreement ranks senior to all existing indebtedness and is collateral-
ized by essentially all the assets of the Company including accounts
receivable, inventory, general intangibles and mortgaged properties.
Borrowings under the Credit Agreement bear interest at an annual rate equal
to, at the Company's option, either the Eurodollar Rate, as defined by the
agreement, plus 2.75% for the Term loan B and plus 2.50% for all other loans
(subject to adjustment based on the Company's Total Debt Ratio, as defined)
or an Alternate Base Rate, as defined in the agreement, which is based on The
Chase Manhattan Bank's prime rate, plus 1.75% for the Term loan B and plus
1.50% for all other loans (subject to adjustment based on the Company's Total
Debt Ratio, as defined). On December 28, 1996, the weighted average interest
rate on the borrowings was 8.17%. Interest on the borrowings is payable
quarterly in arrears. The Term loan A requires quarterly payments which
began in May 1996 while the Term loan B and the acquisition term loan require
quarterly payments beginning in May 1997. To the extent not previously paid,
all borrowings under the Credit Agreement are due and payable February 28,
2003. At December 28, 1996, borrowings under the working capital revolving
facility were $15.5 million and $50.0 million was available for borrowing
at that date based on accounts receivable and inventory balances.
In connection with the extinguishment of debt discussed above, the Company
incurred an extraordinary loss in 1995 of $1.0 million, net of $0.7 million
income tax benefit.
In connection with the early extinguishment of debt in 1994 and termination
of a related interest rate swap agreement, the Company incurred an extra-
ordinary loss in the amount of $2.5 million.
The Credit Agreement and the 10 3/4% Senior Subordinated Notes described
below contain certain restrictive covenants and conditions among which are
limitations on further indebtedness, restrictions on dispositions and
acquisitions of assets, limitations on dividends and compliance with certain
financial covenants, including but not limited to a maximum total debt ratio
and minimum interest expense coverage.
Promissory Note
Upon the acquisition of KPR, the Company executed a promissory note to the
sellers for $50.0 million. The note was paid on January 15, 1996, and bore
interest at the rate of 6%. The note was retired using funds previously not
drawn down under the term loan facility of the Credit Agreement.
10 3/4% Senior Subordinated Notes
On May 15, 1996, Foodbrands America completed an offering of $120 million
10 3/4% Senior Subordinated Notes. The net proceeds from the offering were
used to consummate a tender offer to repurchase the outstanding 9 3/4% Senior
Subordinated Redeemable Notes due 2000 (the "9 3/4% Notes"). Interest on the
10 3/4% Senior Subordinated Notes is payable on May 15 and November 15 of
each year beginning with November 15, 1996. The 10 3/4% Senior Subordinated
Notes are unsecured and subordinated in right of payment to all existing and
future senior indebtedness, including borrowings under the Credit Agreement.
Terms of the 10 3/4% Senior Subordinated Notes include a guarantee by
substantially all of Foodbrands America's direct and indirect subsidiaries,
all of which are wholly-owned. The guarantees are joint and several, full,
complete and unconditional. There are no restrictions on the ability of any
subsidiaries to transfer funds to Foodbrands America in the form of cash
dividends, loans or advances. Foodbrands America is a holding company with
no assets, liabilities, or operations other than its investments in its
subsidiaries. The nonguarantors are inconsequential, individually and in the
aggregate to the consolidated financial statements, and separate financial
statements of the guarantors are not presented because management has
determined that they would not be material to investors.
In connection with the early extinguishment of the 9 3/4% Notes, the Company
incurred an extraordinary loss in 1996 of $5.1 million, net of $3.6 million
income tax benefit. The loss was comprised of premium fees paid to redeem
the 9 3/4% Notes and the remaining unamortized deferred loan costs and debt
discount associated with these notes.
Leases
The Company leases one facility and various equipment and vehicles under
agreements which are classified as capital leases. The building lease had an
original term of 25 years and the lease is in the first of four renewal
option periods for fifteen years each. Most equipment leases have purchase
options at the end of the original lease term. Leased capital assets
included in property, plant and equipment at December 28, 1996 and December
30, 1995 are as follows (in thousands):
1996 1995
Buildings $ 2,666 $ 2,666
Machinery and equipment 12,674 6,079
------ ------
15,340 8,745
Accumulated amortization 6,478 4,207
------ ------
$ 8,862 $ 4,538
====== ======
Future minimum payments, by year and in the aggregate, under noncancellable
capital leases and operating leases with initial or remaining terms of
one year or more consist of the following at December 28, 1996 (in thousands):
Capital Operating
Leases Leases
1997 $ 2,345 $ 5,202
1998 1,759 4,774
1999 1,613 4,300
2000 1,505 4,030
2001 2,411 976
Future years 531 3,378
------ ------
Total minimum lease payments 10,164 $22,660
Amounts representing interest 1,869 ======
Present value of net minimum ------
payments 8,295
Current portion 1,755
------
$ 6,540
======
The Company's rental expense for operating leases was (in millions) $6.4,
$5.3 and $4.5 for the fiscal years ended December 28, 1996, December 30,
1995 and December 31, 1994.
In connection with the KPR acquisition, the Company entered into a ten year
operating lease for a production facility. The base rent is $0.8 million per
year and is payable to a corporation related to the former owners and current
management of KPR. Rent expense for 1996 was $0.8 million and for 1995 was
less than $0.1 million.
Note 9 Stockholders' Equity
Effective November 1, 1996, the remaining balance of approximately 13,000
shares of Common Stock reserved for issuance to pre-bankruptcy equity holders
was cancelled pursuant to the terms on which such reserve was previously
established.
In October 1994, the Company completed a stock rights offering. The rights
offering provided stockholders the ability to purchase 0.68 shares for each
share owned. As a result of the offering, 4,511,867 rights were exercised at
$9.00 per share for gross proceeds of $40.6 million. Net proceeds, after
expenses, were $38.6 million. The Company used $35.0 million of the proceeds
to reduce bank debt.
At December 28, 1996, the Company has warrants outstanding to purchase
290,342 shares. The warrant agreement provides the holders an irrevocable
put option, which obligates the Company to repurchase the warrants at a price
per warrant equal to the excess of (i) the then- current market price per
share of Common Stock, over (ii) $17.53, which may be exercised by each of
the holders of the warrants only upon a Change of Control, as defined in the
current warrant agreement. The warrants may be exercised through December 31,
1998.
Note 10 Income Taxes
Deferred tax assets primarily result from net operating loss carryforwards
and certain accrued liabilities not currently deductible, and deferred tax
liabilities result from the recognition of depreciation and amortization in
different periods for financial reporting and income tax purposes. Income
tax expense results from the income tax payable for the year and the change
during the year in deferred tax assets and liabilities including the
realization of prereorganization net operating losses.
The provision (benefit) for income taxes in continuing operations consisted of
the following components (in thousands):
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
Current:
Federal $ 409 $ 103 $ -
State 205 800 600
----- ----- ------
614 903 600
Deferred: ----- ----- ------
Federal 5,408 5,168 -
State 987 970 -
----- ----- ------
6,395 6,138 -
----- ----- ------
Change in valuation allowance (6,701) - -
----- ----- ------
Total $ 308 $7,041 $ 600
===== ===== ======
The income tax provision (benefit) applicable to the net losses from
discontinued operations associated with the Retail Meat Division were (in
thousands):
Fiscal Year Ended
Dec. 30, Dec. 31,
1995 1994
Operations of the Retail Meat Division
Deferred expense (benefit) $(2,899) $ -
====== =====
Disposal of the Retail Meat Division:
Current expense:
Federal $ 278 $ -
State 469 -
Deferred expense 9,553 -
------ -----
$10,300 $ -
====== =====
The effective tax rate on income from continuing operations differs from the
statutory rate as follows:
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
(Liability Method)
Statutory rate 35.0% 35.0% (34.0)%
Tax effect of:
Amortization of
intangible assets 4.2 4.0 18.4
State taxes, net of
federal benefit 4.4 3.1 8.6
Limitation on recognition
of tax benefit - - 20.1
Other (0.4) 0.2 -
---- ---- ----
43.2 42.3 13.1
Change in valuation allowance (41.3) - -
---- ---- ----
1.9% 42.3% 13.1%
==== ==== ====
At December 28, 1996 and December 30, 1995, the deferred tax assets and
deferred tax liabilities were as follows (in thousands):
1996 1995
Deferred tax assets:
Retiree medical benefit plan accruals $25,909 $26,962
Pension plan accruals 2,794 5,487
Plant closing accruals 318 2,036
Employee compensation and benefits
accruals 5,771 5,531
Other accrued expenses 3,265 978
Net operating loss carryforwards 33,389 43,385
AMT credits 885 -
------ ------
Total deferred tax assets 72,331 84,379
Deferred tax liabilities: ------ ------
Capitalized leases (568) (420)
Accumulated depreciation (1,630) (3,046)
Intangible assets (5,342) (4,787)
Other (489) (72)
------ ------
Total deferred tax liabilities (8,029) (8,325)
------ ------
Net deferred tax assets 64,302 76,054
Valuation allowance - (43,314)
------ ------
Net deferred tax assets 64,302 32,740
Current portion 21,870 7,248
------ ------
Noncurrent portion $42,432 $25,492
====== ======
In the second quarter of 1996, the Company eliminated its valuation
allowance resulting in a net deferred tax asset at that time of $68.5
million. Two factors contributed to the elimination of the valuation
allowance. The first factor was the acquisitions of KPR and TNT in December
1995. The results of operations from these two acquisitions through the end
of the second quarter of 1996 exceeded expectations and enhanced the
Company's projections of taxable income. The other factor was the debt
refinancing which occurred in May 1996 which increased the Company's financial
flexibility. As a result of these two factors, the Company's projected
taxable income indicates that it is more likely than not that the net deferred
tax benefits will be realized in the future.
A majority of the deferred tax assets were attributable to pre-
reorganization temporary differences and NOLs, and the tax benefit from
utilizing the pre-reorganization temporary differences and NOLs was recorded
as a reduction of Reorganization Value and other intangible assets arising
from bankruptcy. Therefore, the adjustment in 1996 resulted in the
elimination of the remaining Reorganization Value of $23.0 million and a
reduction in intangible assets of $4.2 million. In addition, a tax benefit
of $6.7 million was recorded resulting from the elimination of the valuation
allowance associated with post-reorganization temporary differences and NOLs.
In 1995, the Company reduced the Reorganization Value by $12.1 million as a
result of utilizing pre-reorganization net operating loss carryforwards.
At December 28, 1996, after considering utilization restrictions, the
Company's tax loss carryforwards approximated $97.3 million. The net
operating loss carryforwards which are subject to utilization limitations due
to ownership changes may be utilized to offset future taxable income as
follows: $78.4 million in 1997, $13.3 million in 1998, $5.0 million in 1999,
and $0.6 million in 2000. Loss carryforwards not utilized in the first year
that they are available may be carried over and utilized in subsequent years,
subject to their expiration provisions. These carryforwards expire as
follows: $21.3 million in 1998, $6.0 million in 1999, $0.9 million in 2000,
$4.2 million in 2001 and $64.9 million during the years 2002 through 2009.
Note 11 Pension Plans
Foodbrands America and certain subsidiaries maintain employee benefit plans
covering most employees. All full-time employees of the Company who have
obtained the age of 21, have completed one year of employment and are not
subject to a collective bargaining agreement or one of the other plans
described below are permitted to contribute up to 15% of their salary, not to
exceed the limit set by the Internal Revenue Service, to a 401(k) plan. The
Company makes contributions on behalf of each participant of a matching amount
not to exceed the employee's contribution or 3% of such employee's salary.
Hourly employees at the Jefferson, Wisconsin facility who have obtained the
age of 18 and have completed one year of employment are permitted to
contribute up to 15% of their annual gross earnings, not to exceed the limit
set by the Internal Revenue Service, to a 401(k) plan. The Company
contributes $0.10 for every hour worked by participants enrolled in the plan.
In addition, approximately 14% of the Company's employees are covered under
two other profit sharing plans.
Substantially all of the hourly employees at the Cherokee, Iowa, Jefferson,
Wisconsin and Riverside, California facilities participate in defined benefit
pension plans. Information presented below also includes benefits and
Company obligations associated with participants of closed and sold
operations. The funded status of the defined benefit plans at December 28,
1996 and December 30, 1995 is as follows (in thousands):
1996 1995
Actuarial present value of benefit
obligations:
Vested benefit obligation $64,368 $65,972
Accumulated benefit obligation $66,368 $68,229
Projected benefit obligation $66,368 $68,229
Plan assets at fair value 59,528 55,170
Projected benefit obligation ------ ------
in excess of plan assets 6,840 13,059
Unrecognized net actuarial loss -
difference in assumptions and actual
experience (2,517) (5,010)
Adjustment required to recognize
additional minimum liability 2,475 4,743
------ ------
Accrued pension cost $ 6,798 $12,792
====== ======
Plan assets are comprised of cash and cash equivalents and mutual funds
investing primarily in interest bearing and equity securities. The funding
policy for the plan at the Cherokee facility is to contribute amounts
sufficient to meet the minimum funding requirements of the Employee
Retirement Income Security Act of 1974 (ERISA), and the plans at the
Jefferson and Riverside facilities are funded based upon a recommendation
from the Company's actuary. Such contributions for the plans at the
Jefferson and Riverside facilities have, in prior years, exceeded the
minimum funding requirements.
Pension costs of the defined benefit plans for fiscal 1996, 1995 and 1994
are composed of the following, based on expected long-term rates of return of
9.0%, 9.0% and 8.5% and discount rates of 7.75%, 7.5% and 8.75% for the plan
at the Jefferson facility, expected long-term rates of return of 8.5%, 8.5%
and 8.5% and discount rates of 7.75%, 7.5% and 8.75% for the plan at the
Cherokee facility and expected long-term rates of return of 9.0% and 9.0% and
discount rates of 7.75% and 7.5% for fiscal 1996 and 1995, respectively for
the plan at the Riverside facility which became effective in 1995 (in
thousands):
December 28, December 30, December 31,
1996 1995 1994
Service cost for benefits
earned during the year $ 555 $ 465 $ 370
Interest cost on projected
benefit obligation 4,933 5,121 4,991
Return on plan assets (4,635) (4,094) (4,330)
Amortization of transition
obligation and unrecognized
prior service cost 23 11 -
----- ----- -----
Total pension cost $ 876 $1,503 $1,031
===== ===== =====
Expenses for all of the Company's retirement plans for fiscal years 1996,
1995 and 1994 were (in millions) $2.9, $2.6 and $2.1, respectively.
In connection with a new labor agreement which was approved in January 1997
at the Company's Riverside facility, the defined benefit plan at that
facility has been frozen and no future benefits will accrue under the plan.
A new defined contribution plan has been established at the Riverside
facility in February 1997 which allows employees to contribute up to 15% of
their compensation. Terms of the agreement require the Company to match the
employees' contributions at a 50% level up to 3% and to make a seed
contribution of 1/2% of the employees' compensation.
Note 12 Postretirement Medical Benefits
The Company provides life insurance and medical benefits ("Postretirement
Medical Benefits") for substantially all retired hourly and salaried
employees of one of its subsidiaries under various defined benefit plans.
Contributions are made by certain retired participants toward their
Postretirement Medical Benefits.
The components of net periodic postretirement benefit cost for the years
ended December 28, 1996, December 30, 1995 and December 31, 1994 were as
follows (in thousands):
1996 1995 1994
Service cost $ 290 $ 231 $ 241
Interest on accumulated benefit
obligation 5,277 5,399 5,372
Other (33) (61) (21)
Net periodic postretirement ----- ----- -----
benefit cost $5,534 $5,569 $5,592
===== ===== =====
The actuarial and recorded liabilities for these Postretirement Medical
Benefits at December 28, 1996 and December 30, 1995 were as follows (in
thousands):
1996 1995
Accumulated postretirement benefit obligation:
Retirees and dependents $62,481 $68,095
Actives not fully eligible 6,627 6,203
Actives fully eligible 214 226
------ ------
69,322 74,524
Assets at fair value (271) (1,056)
Accumulated postretirement benefit obligation ------ ------
in excess of plan assets 69,051 73,468
Unrecognized net gain (loss) (4,917) (6,443)
Unrecognized prior service cost 367 379
------ ------
Liability recognized on the balance sheet 64,501 67,404
Less current portion 6,365 7,854
Noncurrent liability for postretirement ------ ------
medical benefits $58,136 $59,550
====== ======
For measuring the accumulated postretirement medical benefit obligation, a
9.86% annual rate of increase in the per capita claims cost was assumed for
1997. This rate was assumed to decrease gradually to 8.9% by 2000, 7.7% by
2005, and 6.5% by 2010 and remain at that level thereafter. The weighted
average discount rates used in determining the accumulated obligation was
7.75%, 7.5% and 8.75% for fiscal 1996, 1995 and 1994, respectively. The
expected long-term rate of return on plan assets was 6.0% for fiscal years
1996, 1995 and 1994.
If the health care cost trend rate were increased 1.0%, the accumulated
benefit obligation as of December 28, 1996 would have increased by $1.5
million. The effect of this change on the aggregate of service and interest
cost for the year ended December 28, 1996 would be an increase of $0.1
million.
Note 13 Stock Incentive Plans
At December 28, 1996, the Company had three stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 ("Opinion
25") and related Interpretations in accounting for its plans. FASB Statement
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") was issued by
the FASB in 1995 and, if fully adopted, changes the methods for recognition
of cost on plans similar to those of the Company. Adoption of SFAS 123 is
optional; however, pro forma disclosures as if the Company adopted the cost
recognition requirements under SFAS 123 in 1995 are presented below.
The 1992 Stock Incentive Plan, as amended, (the "Plan") authorizes the
Company to grant stock options and/or Common Stock aggregating 1,900,000
shares to directors, officers and other key employees. In February 1992,
the Company granted 105,000 restricted shares of Common Stock, of which
11,666 shares lapsed prior to vesting. The Company also granted 105,000
performance shares of Common Stock, of which 51,670 shares were issued and
vested. The Company has also granted under the Plan Common Stock options
at option prices ranging from $9.00 to $15.25 per share, which vest over a
three to five year period and expire after ten years. A summary of the status
of the Company's stock options as of December 28, 1996, December 30, 1995
and December 31, 1994 and changes during the year ended on those dates is
presented below:
1996 1995 1994
Wtd. Avg. Wtd. Avg. Wgtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding
at begin-
ning of
year 1,406,861 $10.71 1,121,194 $10.00 241,666 $14.07
Granted 14,500 13.02 475,128 12.44 913,528 9.08
Exercised (8,000) 12.38 (19,686) 9.89 - -
Forfeited (15,500) 13.29 (169,775) 10.75 (34,000) 14.26
Outstanding
at end --------- --------- ---------
of year 1,397,861 $10.70 1,406,861 $10.71 1,121,194 $10.00
========= ===== ========= ===== ========= =====
Options
exercisable
at year end 645,401 $10.84 457,753 $10.57 212,105 $12.18
========= ===== ========= ===== ========= =====
As of December 28, 1996, the stock options outstanding under the Plan have
a weighted-average remaining contractual life of 7.7 years and 329,443 Common
Stock options are available for future issuance. The weighted average fair
value of options granted during 1996 and 1995, respectively, was $8.14 and
$7.68. The compensation cost that was charged against income for this Plan
for all outstanding options for Fiscal 1996 and 1995, respectively, was $0.8
million and $0.5 million.
The fair value of each option granted during 1996 and 1995 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in 1996 and 1995, respectively: (1)
dividend yield of 0% for both years; (2) expected volatility of 48% and 49%;
(3) risk-free interest rates ranging from 6.4% to 6.8% for 1996 and 5.7% to
7.6% for 1995; and (4) expected life of 8 years for the options granted in
both years.
Director Option Agreement - The Company issued 25,000 Common Stock options
during 1995 to members of the Board of Directors under an option plan
covering nonemployee directors. The options vested upon granting at an
exercise price of $7.875, expire after ten years, and all options remain
outstanding at December 28, 1996. In accordance with Opinion 25, no
compensation costs were recorded in 1996 or 1995 for these options. The fair
value of these options granted during 1995 was estimated at $5.08 on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%; expected life of 8 years; expected
volatility of 49%; and risk-free interest rate of 7.1%.
Employee Stock Purchase Plan - The Company implemented an Associate Stock
Purchase Plan ("Stock Purchase Plan") in 1996 which authorized the issuance
of up to 100,000 shares of Common Stock to its eligible employees. Under the
terms of the Stock Purchase Plan, employees can choose each year to have up
to three percent of their annual base earnings withheld to purchase the
Company's Common Stock. The purchase price of the stock is 90 percent of the
lower of its fair market value at the beginning of the plan year or the end
of the plan year. It is estimated that the Company will sell approximately
27,000 shares to employees in 1997 under this Stock Purchase Plan. In
accordance with Opinion 25, no compensation cost has been recognized in
connection with the Stock Purchase Plan. However, as required by SFAS 123, the
following pro forma disclosures include the fair value of the employees'
purchase rights which was estimated using the Black-Scholes model with the
following assumptions for 1996: dividend yield of 0%; an expected life of 1
year; expected volatility of 48%; and risk-free interest rate of 5.9%.
Had compensation cost for the Company's three stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands except per share data):
As Reported Pro Forma As Reported Pro Forma
1996 1996 1995 1995
Net income (loss) $10,867 $10,505 $(34,095) $(34,371)
Earnings (loss) per share -
primary and fully diluted $0.87 $0.84 $(2.73 ) $(2.76)
The effects of applying SFAS 123 in this pro forma disclosure are not
necessarily indicative of future amounts as SFAS 123 does not apply to awards
prior to 1995.
Note 14 Commitments and Contingencies
The Company has committed to minimum purchases of raw materials, supplies
and equipment for delivery at various times in 1997. The total of such
commitments at December 28, 1996, is approximately $15.6 million.
In the opinion of management, the Company's exposure to loss, if any, under
various claims and legal actions that have arisen in the normal course of
business, that are not covered by insurance, will not be material.
In September 1992, United Refrigerated Services, Inc. ("URS") filed suit
against Continental Deli Foods, Inc. (formerly known as Wilson Foods
Corporation), a wholly-owned subsidiary of Foodbrands America ("Continental
Deli") the Company (formerly known as Doskocil Companies Incorporated) and
unaffiliated parties Lopez Foods, Incorporated (formerly known as Normac
Foods, Inc.) ("Lopez") and Thompson Builders of Marshall, Inc. ("Thompson")
in the Circuit Court of Saline County, Missouri. The URS lawsuit involves
claims for property damage, as a result of a fire in a warehouse owned by URS
in Marshall, Missouri, in which Continental Deli was leasing space. ConAgra,
Inc. ("ConAgra") also filed suit against Continental Deli, the Company, Lopez
and Thompson seeking to recover damages for frozen food that was stored in
another part of the Marshall warehouse at the time of the fire and allegedly
damaged.
The fire occurred in a part of the URS warehouse being leased by Continental
Deli in which Continental Deli had produced sausage patties under contract
for Lopez until the contract terminated in September 1991. Lopez's
contractor, Thompson, was removing Lopez's equipment with a torch when fire
broke out and destroyed a large section of the URS warehouse and its contents.
On March 19, 1997, all parties to the consolidated suits reached settlement
agreements in principle for all claims, including cross claims, counter
claims and third party claims. As a result of the settlement, the Company
will not incur any charge to its financial statements.
Note 15 Subsequent Event
On March 25, 1997, Foodbrands America entered into an Agreement and Plan of
Merger (the "Merger Agreement") dated as of March 25, 1997, with IBP, inc.
("IBP") and IBP Sub, Inc., a wholly owned subsidiary of IBP (the
"Purchaser"), providing for the acquisition of the Company by IBP. Pursuant
to the Merger Agreement, and subject to the terms and conditions therein, the
Purchaser will commence a tender offer (the "Tender Offer") for any and all
outstanding shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") at a price of $23.40 per share net to the seller in cash.
Upon consummation of the Tender Offer, the Merger Agreement contemplates that
the Purchaser will be merged with and into the Company (the "Merger"), with
the Company being the surviving corporation and becoming a wholly owned
subsidiary of IBP. At the effective time of the Merger, each outstanding
share of Common Stock (other than shares held by IBP, the Company or their
respective subsidiaries and other than shares the holders of which have
validly perfected their dissenters rights under Delaware law) shall be
cancelled and converted into the right to receive $23.40 per share in cash.
Concurrently with the execution and delivery of the Merger Agreement, Joseph
Littlejohn & Levy, L.P., a Delaware limited partnership, and Joseph
Littlejohn & Levy Fund II, L.P., a Delaware limited partnership (together,
"JLL"), entered into a Tender Agreement dated as of March 25, 1997 (the "JLL
Tender Agreement") among JLL, IBP and the Purchaser whereby JLL has agreed to
tender all of their shares of Common Stock in the Tender Offer. Concurrently
with the execution and delivery of the Merger Agreement, The Airlie Group,
L.P., a Delaware limited partnership ("Airlie"), entered into a Tender
Agreement dated as of March 25, 1997 (the "Airlie Tender Agreement") among
Airlie, IBP and the Purchaser whereby Airlie has agreed to tender a number of
shares which when taken together with the number of shares of Common Stock
(i) beneficially owned by IBP or its subsidiaries and (ii) which IBP or its
affiliates have the right to acquire from JLL pursuant to the JLL Tender
Agreement, would cause IBP or its affiliates to beneficially own 49.9% of the
aggregate voting power represented by the issued and outstanding capital stock
of the Company. In addition, each of JLL and Airlie has agreed with IBP to
vote in favor of the Merger Agreement, the Merger and the transactions
contemplated therein and to oppose any other acquisition proposal and to vote
against any such acquisition proposal.
Following the Merger of the Company, the contingent payments payable as a
result of the 1995 acquisitions of KPR Holdings, L.P. ("KPR") and TNT Crust,
Inc. ("TNT") described in Note 2 will be amended. The KPR payment due on
April 1, 1997 will be made in cash and an additional payment of approximately
$3.8 million would also be made following the completion of the Merger. The
contingent payments which can be earned in 1997 and 1998 could be elected to
be taken in cash or common stock of IBP (at a price of $22.50 per share), at
the option of the sellers. With regards to the TNT contingent payments,
following the consummation of the Merger the previous contingent earnout
provisions would be deleted and the sellers of TNT would receive a cash
payment of $9.5 million.
EXHIBIT 99.5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Foodbrands America, Inc.
We have audited the consolidated balance sheets of Foodbrands America, Inc.
and subsidiaries as of December 28, 1996 and December 30, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 28, 1996, December 30, 1995 and December
31, 1994. 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 consolidated financial position of Foodbrands
America, Inc. and subsidiaries as of December 28, 1996 and December 30, 1995,
and the consolidated results of their operations and their cash flows for the
years ended December 28, 1996, December 30, 1995 and December 31, 1994 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
February 18, 1997, except as to
the information presented in the
last paragraph of Note 14, and the
information presented in Note 15,
for which the date is March 26, 1997.
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 28, 1996 and December 30, 1995.
(Amounts are in thousands except per share data.)
Quarter
Year ended December 28, 1996 First Second(1) Third Fourth
Net sales $185,997 $200,710 $218,656 $229,812
Gross profit 39,309 40,050 40,307 42,060
Income from continuing
operations 2,122 8,707 1,910 3,179
Net income 2,122 3,656 1,910 3,179
Earnings per share, primary
and fully diluted:
Income from continuing
operations $0.17 $0.70 $0.15 $0.26
Net income 0.17 0.29 0.15 0.26
Quarter
Year ended December 30, 1995 First(2) Second(3) Third Fourth(4)
Net sales $139,412 $146,582 $169,223 $179,483
Gross profit 31,165 32,587 34,463 36,500
Income from continuing
operations 1,792 1,932 2,503 3,374
Net income (loss) (563) (38,360) 2,503 2,325
Earnings (loss) per share,
primary and fully diluted:
Income from continuing
operations $ 0.14 $0.16 $0.20 $0.27
Net income (loss) (0.05) (3.07) 0.20 0.19
_______________________
(1) Net income includes extraordinary loss on early extinguishment of debt of
$5.1 million, net of income tax benefit of $3.6 million and a tax benefit
of $6.7 million from the elimination of the deferred tax asset valuation
allowance.
(2) Net income includes net loss from operating activities of the
discontinued Retail Meat Division of $2.3 million.
(3) Net income includes net loss from operating activities of the
discontinued Retail Meat Division of $1.8 million and loss on disposal of
the division of $38.5 million.
(4) Net income includes extraordinary loss on early extinguishment of debt of
$1.0 million, net of income tax benefit of $0.7 million.
EXHIBIT 99.6
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands, except par value)
March 29, December 28,
ASSETS 1997 1996
Current assets: (Unaudited)
Cash and cash equivalents $ 7,178 $ 10,442
Receivables 47,245 46,582
Inventories 70,675 62,960
Other current assets 29,985 26,342
------- -------
Total current assets 155,083 146,326
------- -------
Property, plant and equipment, net of
accumulated depreciation and amortization
of $58,768 and $56,434 155,406 152,778
Intangible assets, net of accumulated
amortization of $11,949 and $10,623 193,344 193,390
Deferred charges and other assets 53,808 56,032
------- -------
$557,641 $548,526
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 34,839 $ 28,368
Accounts payable 36,421 33,298
Accrued liabilities 56,524 47,542
------- -------
Total current liabilities 127,784 109,208
Long-term debt 306,120 310,307
Other long-term liabilities 65,926 73,393
Stockholders' equity:
Preferred stock, 4,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value, 20,000,000
shares authorized, 12,467,015 shares
issued and outstanding (12,464,080
shares at December 28, 1996) 125 125
Capital in excess of par value 151,418 151,364
Retained earnings (deficit) (92,197) (94,336)
Minimum pension liability adjustment (1,535) (1,535)
Total stockholders' equity 57,811 55,618
------- -------
$557,641 $548,526
======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
EXHIBIT 99.7
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
(Dollar amounts in thousands, except per share figures)
Three Months Ended
March 29, March 30,
1997 1996
Net sales $210,768 $185,783
Cost of sales 171,010 146,688
------- -------
Gross profit 39,758 39,095
Operating expenses:
Selling 17,577 18,280
General and administrative 9,098 7,924
Amortization of intangible assets 1,326 1,747
------- -------
Total 28,001 27,951
------- -------
Operating income 11,757 11,144
Other income (expense):
Interest and financing costs (8,054) (7,419)
Other, net 49 32
------- -------
Total (8,005) (7,387)
------- -------
Income before income taxes 3,752 3,757
Income tax provision 1,613 1,635
------- -------
Net income $ 2,139 $ 2,122
======= =======
Primary and fully diluted earnings per share:
Net income $0.17 $0.17
Weighted average number of common and
common equivalent shares outstanding
used for:
Primary calculation 12,686 12,468
Fully diluted calculation 12,888 12,620
The accompanying notes are an integral part of the condensed
consolidated financial statements.
EXHIBIT 99.8
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
Three Months Ended
March 29, March 30,
1997 1996
Cash flows from operating activities:
Net income $ 2,139 $ 2,122
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 4,952 4,350
Amortization of intangible assets 1,326 1,747
Amortization included in interest expense 384 492
Deferred income taxes 1,452 1,535
Payments for restructuring/integration - (245)
Deferred compensation 723 378
Changes in:
Receivables (659) 6,237
Inventories (7,715) (5,785)
Other current assets (3,465) (3,281)
Deferred charges and other assets 166 24
Accounts payable and accrued liabilities 2,715 (11,965)
Other long-term liabilities (82) 103
Other (4) (4)
Net cash provided (used) by operating ------ ------
activities 1,932 (4,292)
Cash flows from investing activities: ------ ------
Purchase of property, plant and equipment (7,285) (4,974)
Acquisition of KPR Holdings, L.P. - (165)
Acquisition of TNT Crust, Inc. - (82)
Payments received on notes receivable 42 43
Proceeds from sale of property, plant and
equipment 186 22
Increase in notes receivable - (450)
Net cash provided (used) by investing ------ ------
activities (7,057) (5,606)
Cash flows from financing activities: ------ ------
Proceeds from debt obligations, net of
issuance costs - 49,614
Borrowings under revolving working capital
facility 44,500 50,500
Payments on revolving working capital
facility (40,500) (49,500)
Payment on promissory note - (50,000)
Payments on capital lease and debt
obligations (2,193) (590)
Issuance of common stock 54 5
Net cash provided (used) by financing ------ ------
activities 1,861 29
------ ------
Continued
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED (continued)
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
Three Months Ended
March 29, March 30,
1997 1996
Increase (decrease) in cash and cash
equivalents $ (3,264) $ (9,869)
Cash and cash equivalents at beginning of
period 10,442 18,207
------- -------
Cash and cash equivalents at end of period $ 7,178 $ 8,338
======= =======
Supplemental disclosure of noncash
investing activities:
Capital lease obligations $ 477 $ -
The accompanying notes are an integral part of the condensed
consolidated financial statements.
NOTE 1 GENERAL
The accompanying condensed consolidated financial statements
include the accounts of Foodbrands America, Inc. and all majority-
owned subsidiaries (collectively, the "Company") and have been
prepared without audit. The Balance Sheet at December 28, 1996, has
been derived from financial statements which have been audited by
Coopers & Lybrand L.L.P., independent accountants. Certain
reclassifications have been made to prior year balances to conform to
the current year presentation.
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(adjustments are of a normal, recurring nature) necessary for a fair
presentation of the financial position as of March 29, 1997 and
December 28, 1996, and the results of operations for the three months
ended March 29, 1997 and March 30, 1996 and cash flows for the three
months ended March 29, 1997 and March 30, 1996. Results for the three
months ended March 29, 1997 are not necessarily indicative of the
results which will be realized for the year ending January 3, 1998.
The financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K, as amended, for the year ended
December 28, 1996.
NOTE 2 INVENTORIES
Inventories at March 29, 1997 and December 28, 1996 are
summarized as follows (in thousands):
March 29, December 28,
1997 1996
Raw materials and supplies $24,933 $19,234
Work in process 7,926 8,499
Finished goods 37,816 35,227
$70,675 $62,960
NOTE 3 INCOME TAXES
The provision for income taxes consists of the following
components (in thousands):
Three Months Ended
March 29, 1997 March 30, 1996
Current:
Federal $ 81 $ 50
State 80 50
161 100
Deferred:
Federal 1,228 1,263
State 224 272
1,452 1,535
Total $1,613 $1,635
The effective tax rate differs from the statutory rate due primarily
to amortization of certain intangible assets which are not deductible
for tax purposes. The effective tax rate was calculated based on the
projected taxable income for the full fiscal year and the anticipated
changes in the deferred tax assets and the deferred tax liabilities.
NOTE 4 MERGER AGREEMENT
On March 25, 1997, Foodbrands America entered into an Agreement
and Plan of Merger (the "Merger Agreement") dated as of March 25,
1997, with IBP, inc. ("IBP") and IBP Sub, Inc., a wholly owned
subsidiary of IBP (the "Purchaser"), providing for the acquisition of
the Company by IBP. Pursuant to the Merger Agreement, and subject to
the terms and conditions therein, the Purchaser commenced a tender
offer (the "Tender Offer") for any and all outstanding shares of
common stock, par value $.01 per share, of the Company (the "Common
Stock") at a price of $23.40 per share net to the seller in cash. The
Tender Offer was completed on April 29, 1997 resulting in a change of
control of Foodbrands America. IBP, through the Purchaser, acquired
approximately 93.0% of the Company's Common Stock (representing
11,577,000 shares of Common Stock). The source of the funds used to
acquire control of Foodbrands America was from IBP's available cash
and borrowings under IBP's existing credit facility with a syndicate
of banks including Bank of America National Trust and Savings
Association as co-agent and First Bank National Association as
administrative agent. The credit facility is a revolving facility
which provides for borrowings up to an aggregate principal amount of
$500 million with a maturity date of December 20, 2000 which may be
extended for one year increments annually during the revolving period
with the consent of the banks involved. The applicable rate of
interest as of December 28, 1996, was 5.5%. Pursuant to the Merger
Agreement, the Purchaser has the right to require each of the members
of the board of directors of Foodbrands America to resign and to
nominate and elect new directors to fill the subsequent vacancies.
Pursuant to the Merger Agreement the Purchaser will be merged
with and into the Company on or about May 7, 1997 (the "Merger"), with
the Company being the surviving corporation and becoming a wholly
owned subsidiary of IBP. At the effective time of the Merger, each
outstanding share of Common Stock (other than shares held by IBP, the
Company or their respective subsidiaries and other than shares the
holders of which have validly perfected their dissenters rights under
Delaware law) shall be canceled and converted into the right to
receive $23.40 per share in cash.
Concurrently with the execution and delivery of the Merger
Agreement, Joseph Littlejohn & Levy, L.P., a Delaware limited
partnership, and Joseph Littlejohn & Levy Fund II, L.P., a Delaware
limited partnership (together, "JLL"), entered into a Tender Agreement
dated as of March 25, 1997 (the "JLL Tender Agreement") among JLL, IBP
and the Purchaser pursuant to which JLL tendered all of their shares
of Common Stock in the Tender Offer. Concurrently with the execution
and delivery of the Merger Agreement, The Airlie Group, L.P., a
Delaware limited partnership ("Airlie"), entered into a Tender
Agreement dated as of March 25, 1997 (the "Airlie Tender Agreement")
among Airlie, IBP and the Purchaser pursuant to which Airlie tendered
a number of shares which when taken together with the number of shares
of Common Stock (i) beneficially owned by IBP or its subsidiaries and
(ii) which IBP or its affiliates have the right to acquire from JLL
pursuant to the JLL Tender Agreement, caused IBP or its affiliates to
beneficially own 49.9% of the aggregate voting power represented by
the issued and outstanding capital stock of the Company.
Upon consummation of the Tender Offer, the contingent payment
payable as a result of the 1995 acquisition of KPR Holdings, L.P.
("KPR") was amended. The KPR payment due on April 1, 1997 was made in
cash and an additional payment of approximately $3.8 million was paid
as a result of the Tender Offer. The contingent payments which can be
earned in 1997 and 1998 can now be elected to be taken in cash or
common stock of IBP (at a price of $22.50 per share), at the option of
the sellers. Following the Merger of the Company, the contingent
payment payable as a result of the 1995 acquisition of TNT Crust, Inc.
("TNT"), will be deleted and the sellers of TNT will receive a cash
payment of $9.5 million.
In connection with the Merger, the Company will be required to
make other cash payments totaling approximately $37.0 million. These
payments include fees and expenses associated with the Merger,
payments to the holders of the Company's outstanding stock options,
stock warrants and other stock plans as the holders become fully
vested upon a change of control and payments under certain employment
agreements which become due upon a change of control. The funding for
these payments, and the payments to KPR and TNT, will be provided by
operations, the Company's working capital revolving facility and by
IBP.
As a result of the change of control which will occur pursuant
to the Tender Offer, the Company is required under the Indenture for
the Company's 10-3/4% Senior Subordinated Notes due 2006 (the "Notes")
to make an offer not more than 60 nor less than 30 days following the
occurrence of the change of control to repurchase the outstanding
Notes at a purchase price of 101% of the principal amount, plus
accrued and unpaid interest. Also as a result of the Merger, the
Company's annual utilization of its net operating loss carryforwards
will be limited.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Foodbrands America, Inc.
We have reviewed the condensed consolidated balance sheet of
Foodbrands America, Inc. and subsidiaries as of March 29, 1997, and
the related condensed consolidated statements of operations and cash
flows for the three month periods ended March 29, 1997, and March 30,
1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public Accountants.
A review of interim financial information consists principally of
applying analytical procedures to financial data and making inquiries
of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet as of
December 28, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period ended
December 28, 1996 (not presented herein), and in our report dated
February 18, 1997, except as to the information presented in the last
paragraph of Note 14, and the information presented in Note 15, for
which the date is March 26, 1997, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 28, 1996, is fairly stated in all
material respects in relation to the consolidated balance sheet from
which it has been derived.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
May 5, 1997
