SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997 Commission File Number 33-68956
Specialty Foods Corporation
(Exact name of registrant as specified in its charter)
State of Delaware 75-2488181
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9399 W. Higgins Road, Suite 800, Rosemont, IL 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 685-1000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
The number of shares outstanding of the Registrant's common stock
as of May 1, 1997 was 100 shares of common stock.
SPECIALTY FOODS CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page No.
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-10
PART II - OTHER INFORMATION 10
SIGNATURE 10
This Report on Form 10-Q contains forward-looking statements
within the meaning of the federal securities laws which reflect
the Company's expectations and are based on currently available
information. Actual results, performance, achievements or other
information may vary materially from such statements and are
subject to future known and unknown risks, uncertainties and
events, including, among other factors, weather, economic and
market conditions, cost and availability of raw materials,
competitive activities or other business conditions.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
SPECIALTY FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1997 1996
---- ----
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 23,689 $ 37,508
Accounts receivable, net 41,344 33,031
Inventories 127,073 124,976
Net assets of discontinued operations - 59,154
Other current assets 24,164 27,673
--------- ---------
Total current assets 216,270 282,342
Property, plant, and equipment, net 265,926 266,403
Intangible assets, net 24,067 23,946
Due from Specialty Foods Acquisition Corporation 10,725 10,999
Other noncurrent assets 35,122 32,589
--------- ---------
Total assets $ 552,110 $ 616,279
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 4,154 $ 4,049
Accounts payable 106,274 120,421
Accrued expenses 100,770 108,588
--------- ---------
Total current liabilities 211,198 233,058
Long-term debt 816,099 838,059
Other noncurrent liabilities 38,997 39,205
--------- ---------
Stockholder's equity (514,184) (494,043)
--------- ---------
Total liabilities and
stockholder's equity $ 552,110 $ 616,279
========= =========
See accompanying notes to consolidated financial statements.
SPECIALTY FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share data)
Three months ended March 31,
----------------------------
1997 1996
---- ----
Net sales $ 394,544 $ 389,301
Cost of sales 286,293 285,091
-------- --------
Gross profit 108,251 104,210
Operating expenses:
Selling, distribution,
general and administrative 101,366 98,389
Amortization of intangibles 671 3,155
-------- --------
Total operating expenses 102,037 101,544
-------- --------
Operating profit 6,214 2,666
Other expenses:
Interest expense 23,034 23,796
Other (income) expense, net 2,342 (8,004)
-------- --------
Loss before income taxes (19,162) (13,126)
Provision for income taxes 187 451
-------- --------
Loss from continuing operations (19,349) (13,577)
Discontinued operations:
Net loss (2,123) (828)
Gain on disposal, net 2,454 -
-------- --------
331 (828)
Net loss $ (19,018) $ (14,405)
======== ========
See accompanying notes to condensed financial statements.
SPECIALTY FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Three months ended March 31,
----------------------------
1997 1996
---- ----
Cash flows from operating activities:
Loss from continuing operations $ (19,349) $ (13,577)
Adjustments to reconcile to net cash
from continuing operating activities
Depreciation and amortization 8,845 12,482
Debt issuance cost amortization 1,378 1,365
Gain on involuntary conversion - (8,300)
Changes in operating assets and liabilities,
net of affects from businesses
acquired or sold: (24,137) (11,056)
-------- --------
Net cash used by
continuing operations (33,263) (19,086)
Cash flows from investing activities:
Proceeds from divestiture of businesses 51,592 -
Capital expenditures (8,752) (5,036)
Property related insurance proceeds - 15,000
Other (705) 83
-------- --------
Net cash provided by
investing activities 42,135 10,047
Cash flows from financing activities:
Increase (decrease) in revolving credit (21,400) 1,400
Other (1,291) (6,691)
-------- --------
Net cash used by
financing activities (22,691) (5,291)
Decrease in cash and cash equivalents (13,819) (14,330)
Cash - beginning of period 37,508 17,331
-------- --------
Cash - end of period $ 23,689 $ 3,001
======== ========
See accompanying notes to condensed financial statements.
NOTE 1 - Interim Financial Information
In the opinion of management, the accompanying unaudited interim
condensed financial information of Specialty Foods Corporation
(SFC) and its subsidiaries (collectively, the Company) contains
all adjustments, consisting only of those of a recurring nature,
necessary to present fairly the Company's financial position and
results of operations. All significant intercompany accounts,
transactions and profits have been eliminated.
These financial statements are for interim periods and do not
include all information normally provided in annual financial
statements and should be read in conjunction with the financial
statements of the Company for the year ended December 31, 1996
included in the annual report filed on Form 10-K. The results of
operations for interim periods are not necessarily indicative of
the results that may be expected for the full year.
Certain amounts in the 1996 financial statements have been
reclassified to conform to the manner in which the 1997 financial
statements have been presented.
NOTE 2 - Inventories
The components of inventories are as follows:
March 31, December 31,
1997 1996
---- ----
Raw materials and packaging $ 23,584 $ 21,865
Work in progress 54,068 54,676
Finished goods 47,768 47,271
Other 1,653 1,164
------- -------
$127,073 $124,976
======= =======
Inventories are stated at the lower of cost or market. Cost is
determined principally by the first-in first-out ("FIFO") method.
NOTE 3 - Discontinued Operations
Discontinued operations consist of the following businesses:
Bloch and Guggenheimer, Inc. (B&G)/Burns & Ricker, Inc.
(B&R) - Pickle, pepper, and specialty snack food businesses
operated under common management. The sale of the combined
business of B&R/B&G was completed on December 27, 1996.
Gai's Seattle French Baking Company (Gai's) - A restaurant
and institutional bakery operation serving the northwestern
United States. The sale of Gai's was completed on February
24, 1997.
San Francisco French Bread (SFFB) - A sourdough hearth bread
operation located in California. The sale of SFFB was
completed on March 31, 1997.
These divestitures have been reported as discontinued operations
in the accompanying financial statements in accordance with
Accounting Principles Board Opinion No. 30. Operating results
for these businesses, including revenues of $40,072 and $82,756
for the quarters ended March 31, 1997 and 1996, respectively,
have been classified as discontinued operations in the
Consolidated Statement of Operations. No interest expense has
been allocated to discontinued operations.
The net gain on disposal of discontinued operations for the three
months ended March 31, 1997 consisted of the gain realized on the
sale of Gai's and an adjustment to the previously estimated loss
on the disposal of SFFB. Total gross sales proceeds from the
divested businesses approximated $140,000. Remaining retained
liabilities from discontinued operations are $13,868 and are
included with accrued liabilities at March 31, 1997.
NOTE 4 - Insurance Claim
In January 1996, a Stella cheese processing plant in Lena,
Wisconsin was substantially destroyed by fire. The Company has
rebuilt the plant and resumed production during the fourth
quarter 1996. A final proof of loss detailing the claim was
filed with the Company's insurance carriers during the quarter
ended March 31, 1997. The claim is currently being reviewed by
the insurers' adjuster and the Company currently anticipates a
resolution to the claim in the second or third quarter of 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Seasonality
The Company's businesses are moderately seasonal with lower
sales, operating profit, and cash flows generally occurring in
the first quarter of the year. This seasonality is due primarily
to higher bread sales in the summer months and higher cheese
sales in the fall and winter holiday season.
Results of Operations
COMPARISON OF FIRST QUARTER 1997 TO FIRST QUARTER 1996
Consolidated net sales from continuing operations increased 2% to
$395 million in 1997 compared to $389 million in 1996. Excluding
the impact of a divested plant and business line, net sales
increased by $15 million (4%) during the same period. Net sales
of the Bakery Operations decreased $2 million (1%) to $163
million in 1997. The decrease was primarily due to operating
activities which were divested in August, 1996, partially offset
by price increases taken to partially recover increased
ingredient and operating costs and higher cafe sales at Boudin
Bakeries. Net sales of the Cheese and Meat Operations,
consisting of Stella and H&M Food Systems Company, increased $8
million (4%) to $232 million. Net sales at H&M increased $9
million (23%) due to improved sales volume and increased pricing
on its formula priced products. Net sales at Stella decreased $1
million (1%) primarily due to price decreases on its formula
priced products reflecting a decrease in the cost of milk in
1997.
The Company's gross profit margin increased to 27.4% in 1997 from
26.8% in 1996 primarily due to a decrease in the cost of milk and
improved plant productivity, partially offset by increased rental
expense incurred as a result of sale leaseback transactions
involving equipment at several of the Company's facilities.
Selling, distribution, and general and administrative expenses
increased $3 million (3%) in 1997 to $101 million. Selling and
distribution expense increased primarily due to contractual wage
and fringe benefit increases for route sales representatives at
Metz and Mother's offset by a reduction in general and
administrative expense principally related to lower costs at the
Company's headquarters unit.
Other (income) expense, net was $2 million of expense in 1997
compared to $8 million of income in 1996. The net other income
in 1996 results primarily from the excess of replacement cost
over book value and lost operating profit included in the
insurance claim related to the Stella fire.
As a result of the above factors, net loss from continuing
operations increased to $19 million in 1997 compared to $14
million in 1996.
The Company reports minimal state income tax and no federal
income tax due to its net operating loss position for tax
purposes.
Liquidity and Capital Resources
Net cash used in operating activities totaled $33 million. The
increase in net cash used in operating activities in 1997 was
primarily attributable to the Company's lower operating results
and a net increase in the Company's working capital accounts.
Working capital requirements have increased in 1997 primarily as
a result of the lower accounts payable levels resulting form the
Company's effort to normalize relations with suppliers, increased
accounts receivable resulting from lower financings through the
Company's accounts receivable facility seasonal inventory increases,
and a reduction of accrued liabilities due to first quarter interest
payments. In 1996, cash used by operating activities of $19 million
was principally driven by the Company's aggressive working capital
management, and substantially offset by lower operating profit and cash
expenditures resulting from the Stella fire that had not been
collected from the Company's insurance carriers.
Net cash provided by investing activities totaled $42 million in
1997. The activity in 1997 was primarily attributable to the net
proceeds from the sale of SFFB and Gai's, offset by increased
capital expenditures. In 1996 net cash provided by investing
activities of $10 million resulted from property related proceeds
from the insurance claim relating to the fire at Stella's
facility, offset by capital expenditures.
Net cash used in financing activities amounted to $23 million in
1997 principally due to a decrease in revolving credit
borrowings. In 1996, cash used by financing activities of $5
million reflected the impact of normal payments on long-term
debt, payments of debt issuance costs and the repurchase from
former executives of the Company of senior secured debentures and
common stock, offset by increased revolving credit borrowings.
Based upon the above, the net decrease in cash in 1997 and 1996
was $14 million and $14 million, respectively.
As of March 31, 1997, the Company had a cash balance of $24
million. Additionally, the Company has borrowed $57 million
under its $125 million Revolving Credit Facility. Outstanding
letters of credit of $23 million as of March 31, 1997 also reduce
available funds under the facility. Management believes that
these funds along with operating cash flows and the collection of
the Company's insurance claim resulting from the fire at Stella's
facility should be adequate to fund the Company's short term
obligations, although there can be no assurances that cash flow
will be adequate to meet such obligations. Additionally, the
Company will also consider refinancing and additional asset sales
to address future liquidity and capital structure issues. In any
case, the Company expects that by the year 2000 it will be
required to refinance a significant portion of its indebtedness.
Currently, the Company has no specific refinancing plans.
PART II - OTHER INFORMATION
Item 8: Submission of Matters to a Vote of Security Holders
None.
Item 6: Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) The Company did not file any reports on Form 8-K during the
first quarter of 1997.
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.
SPECIALTY FOODS CORPORATION
---------------------------
(Registrant)
------------
By:
Date: May 15, 1997 /s/ Robert L. Fishbune
----------------------
Robert L. Fishbune
Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description of Document
27* Financial Data Schedule
___________
*Filed Herewith.
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