UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 16, 1998
SPECIALTY FOODS ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-68958 75-2488183
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
520 Lake Cook Road, Suite 550, Deerfield, Illinois 60015
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (847) 405-5300
25 Tri-State International Office Center, Suite 250,
Lincolnshire, Illinois 60069
(Former name or former address, if changed since last report)
Item 5. Other Events
1. On February 13, 1998, Specialty Foods Corporation
("SFC"), a wholly-owned subsidiary of Specialty Foods
Acquisition Corporation ("SFAC"), issued a press release
announcing that it had entered into a Commitment Letter with
Donaldson, Lufkin & Jenrette Securities Corporation and DLJ
Capital Funding, Inc. (together, "DLJ") pursuant to which
DLJ committed to provide a $298.75 million Term Loan and
Revolving Credit Facility to SFC and its subsidiaries. This
transaction, which is subject to customary conditions, is
expected to close on or before March 31, 1998.
2. On February 16, 1998, SFC issued a press release
announcing the following:
It reported 1997 consolidated net sales and operating profit
of SFC and its subsidiaries of $869.8 million and $38.1
million, respectively, after adjusting for divested
businesses.
It had entered into a Commitment Letter with Bankers Trust
Company ("BTCo") pursuant to which BTCo committed to provide
funding for up to $75 million under an Accounts Receivable
Securitization Program. This Accounts Receivable
Securitization Program, which is subject to customary
conditions, is also expected to close on or before March 31,
1998.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit
No. Description
------- -----------
99.2 Press Release dated February 13, 1998 of SFC
99.3 Portions of Information Memorandum
provided by DLJ to prospective lenders under the
Term Loan and Revolving Credit Facility
99.4 Press Release dated February 16, 1998 of SFC
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
SPECIALTY FOODS ACQUISITION
CORPORATION
(Registrant)
Date: February 16, 1998 By: /s/ Robert L. Fishbune
Robert L. Fishbune
Vice President and Chief
Financial Officer
EXHIBIT 99.2
Contact: Andy Stern
Sunwest Communications
214-373-1601
FOR IMMEDIATE RELEASE: February 13, 1998
SPECIALTY FOODS CORPORATION RECEIVES COMMITMENT
FOR NEW SENIOR CREDIT FACILITY
DEERFIELD, IL - Specialty Foods Corporation today announced
that it has entered into a Commitment Letter with Donaldson,
Lufkin & Jenrette Securities Corporation and DLJ Capital
Funding, Inc. pursuant to which DLJ has committed to provide
a $298.75 million Term Loan and Revolving Credit Facility to
Specialty Foods and its subsidiaries.
Specialty Foods intends to use proceeds from the Term Loan
and Revolving Credit Facility to refinance existing
indebtedness, invest in its baking businesses, including
acquisitions, and for general corporate purposes.
Consummation of the transaction is subject to certain
customary closing conditions. Specialty Foods expects the
transaction to close on or before March 31, 1998.
Specialty Foods Corporation is a wholly-owned subsidiary of
Specialty Foods Acquisition Corporation.
Exhibit 99.3
SPECIALTY FOODS CORPORATION February 16, 1998
INFORMATION MEMORANDUM
TABLE OF CONTENTS
Executive Summary I
Summary Of Terms And Conditions II
Acquisition Strategy III
Metz Baking Company IV
Mother's Cake and Cookie CO. V
Andre-Boudin Bakeries, Inc. VI
H&M Food Systems Company, Inc. VII
Historical Financial Information VIII
Donaldson, Lufkin & Jenrette
EXECUTIVE SUMMARY
Transaction Overview
Specialty Foods Corporation ("SFC", and
together with its subsidiaries, the
"Company") is refinancing (the "Refinancing")
its existing senior secured credit facilities
(the "Existing Credit Facilities") with
$298.8 million of new senior secured credit
facilities (the "Credit Facilities"). The
Refinancing provides the Company with the
flexibility necessary to pursue its bakery
acquisition strategy and capitalize on its
leading position in the rapidly consolidating
baking industry.
To position the Company to pursue its baking
strategy, SFC divested its wholly-owned
subsidiary, Stella Holdings, Inc. ("Stella"),
a leading producer of specialty cheese
products, for an aggregate cash purchase
price of $405.0 million, (the "Stella
Divestiture"). Pursuant to the Company's
senior and senior subordinated note
indentures (the "Indentures"), asset sale
proceeds (including the proceeds of the
Stella Divestiture (the "Stella Proceeds"))
are allowed to be reinvested in the business
and excess proceeds not reinvested within 365
days must be applied to permanently reduce
indebtedness.
The Credit Facilities have been structured to
allow the Company to reinvest the Stella
Proceeds, subject to certain restrictions, in
bakery acquisitions that reduce the Company's
leverage. The Company will be required to
make a mandatory prepayment of the Credit
Facilities on November 30, 1998 with any
Stella Proceeds not reinvested by such time.
The combination of the Stella Proceeds, the
Credit Facilities, operating cash flow and
the potential divestiture of non-core assets
will enable the Company to substantially
increase its focus in the baking business and
maintain sufficient liquidity.
DLJ Capital Funding, Inc. has fully
underwritten the Credit Facilities which
consist of a $173.8 million term loan
facility (the "Term Facility"), a
$25.0 million revolving facility (the
"Revolving I Facility") and a $100.0 million
revolving facility (the "Revolving II
Facility", and together with the Revolving I
Facility, the "Revolving Facilities"). The
Term Facility will be available to SFC and
the Revolving Facilities will be available to
certain operating subsidiaries of SFC (the
"Operating Subsidiaries").
This Memorandum 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.
Corporate Structure
SFC is a wholly-owned subsidiary of Specialty
Foods Acquisition Corporation ("SFAC") and
the Operating Subsidiaries are all wholly-
owned indirect subsidiaries of SFC.
Company Overview
The Company is a leading producer, marketer
and distributor of retail bread, cookies and
other baked goods in the Midwestern and
Western U.S. The Company's bakery operations
include Metz Baking Company ("Metz"),
Mother's Cake and Cookie Co. ("Mother's") and
Andre-Boudin Bakeries, Inc. ("Boudin"). In
addition, the Company's H&M Food Systems
Company, Inc. ("H&M") subsidiary manufactures
and distributes specialty meats and meat-
based prepared foods nationally to
restaurants and food manufacturers. In 1997,
the Company generated sales of
$869.8 million.
SFC and its parent holding company SFAC were
organized in August 1993 by Acadia Partners,
L.P., Keystone, Inc., Haas Wheat & Partners
Incorporated, and other investors to acquire
a diversified group of food businesses that
were engaged in the production of breads,
cookies, specialty cheeses, pre-cooked meat
products, pickles and peppers and premium
snack products.
Since 1996, SFC has increased its focus on
its core baked goods businesses in areas
where the Company enjoys leading market
positions, while divesting non-core
businesses including the following:
Divested Businesses
Company Business Divestiture Date
------------------------------- --------------------- ----------------
Stella Holdings, Inc. Specialty cheeses December 1997
San Francisco French Bread French bread March 1997
Gai's Seattle French Baking Co. French bread February 1997
B&G Foods/Burns & Ricker, Inc. Pickles and specialty December 1996
foods
Today, SFC's bakery operations (bread, baked
goods, cookies and bakery cafes) provide it
with leading regional positions in multiple
segments of the baking industry. Combined,
these companies operate one of the largest food
distribution systems in the U.S. with a network
of more than 1,800 direct-store-delivery
("DSD") routes across 24 states.
Metz Baking Company
Metz, established in 1922 and headquartered in
Deerfield, Illinois, is a leading retail bread
company serving a 16 state area of the
Midwestern U.S. Metz owns or is licensed to
sell products under leading local and regional
brand names including Taystee, Holsum, Old
Home, Master, Country Hearth and D'Italiano, as
well as Pillsbury and Healthy Choice. Metz
sells both branded and private label products.
Metz has consistently generated operating
margins that are significantly higher than
those of its competitors.
Metz manufactures its products in 18 bakeries
located in eight states and distributes its
products directly to retail stores through a
network of over 1,400 company-owned DSD routes.
Metz's distribution network enables the company
to offer its customers the highest level of
service and on-shelf product freshness. Metz's
computer-based hand-held route management
system is installed throughout the company's
distribution network and provides full
automation of the sales documentation and order
entry process.
Between the early 1960's and 1995, Metz
achieved significant growth through a series of
acquisitions. Management intends to continue
to seek opportunities to expand by pursuing
synergistic acquisitions in contiguous regions
to its existing operations.
Mother's Cake & Cookie Co.
Founded in 1914 and based in Oakland,
California, Mother's is the second largest
retail cookie brand in the Western U.S. and is
the company's flagship brand. Principal
products include: traditional "wire cut"
cookies (oatmeal, etc.); "fun shaped" iced
cookies for kids (Circus Animals); bite sized,
assorted cookies sold in big bags (Cookie
Parade); and a line of sandwich cookies in
unique/proprietary flavors (Taffy, English Tea,
etc.). Mother's has the leading market share
in the Western U.S. in many "variety" cookie
sub-segments. Mother's also sells cookie
products under the Bakery Wagon, Mrs.
Wheatley's and Marie Lu brands and distributes
imported cookies under the Lu brand.
Mother's produces its products at a
manufacturing facility in Oakland, California,
and distributes them primarily to retail
grocers through an extensive DSD system of over
400 routes across 14 states. A majority of
these routes are Company owned and the balance
are operated by independent distributors. The
company also sells cookies nationally through
club stores, mass merchandisers and other
outlets.
Andre-Boudin Bakeries, Inc.
Established by Isadore Boudin in San Francisco
in 1849, Boudin is a leading marketer of
premium branded specialty breads and bread-
related products. Boudin sells most of its
products through 44 company-owned and operated
bakery cafes in California (35), Chicago (7)
and Dallas (2). The company also distributes
some of its products through its own direct-
mail catalog and a limited number of high-end
retail supermarkets.
H&M Food Systems Company, Inc.
Formed in 1983 and based in Fort Worth, Texas,
H&M is a leading producer of specialty meats
and meat-based prepared foods for restaurants
and food manufacturers. H&M's products range
from pre-cooked pepperoni, sausage and meat
fillings to fully prepared soups, sauces, tacos
and burritos.
H&M products are currently manufactured in
three plants in Texas. H&M is in the process
of consolidating two of its plants into a
single more efficient facility, with completion
expected by April 1998. This consolidation
provides H&M with one of the most efficient
specialty meat processing facilities in the
U.S.
Acquisition Strategy
Following the recent divestiture of most of its
non-core businesses, the Company plans to
pursue selective add-on acquisitions of bakery
businesses which are contiguous to its existing
service areas and to build enterprise value
through the realization of significant cost
synergies.
The Company's strategy is consistent with many
of the other larger players in the baking
industry. In recent years, the retail bread
segment has undergone substantial consolidation
as several regional competitors (most notably,
Interstate Brands, Earthgrains Company and
Flowers Industries) have expanded their
businesses through the acquisition of smaller
regional companies. This consolidation is
being driven by the large cost reduction
opportunities available through the combining
of manufacturing, distribution and
administrative capabilities. The economics of
this consolidation have created significant
value resulting in sharply improved earnings
and stock valuations for the major
consolidators. Public market bakery equity
multiples average 8.4x EBITDA.
Management believes that Metz is uniquely
positioned to lead the consolidation of the
bread industry within and near its core
geography of the Midwestern U.S. The Company
has identified potential acquisition candidates
with a range of synergy opportunities that
arise from a combination with Metz. Management
intends to use the Stella Proceeds to acquire
one or more of these candidates.
SUMMARY OF TERMS AND CONDITIONS
I. Parties
Term Loan Borrower
Specialty Foods Corporation ("SFC", the
"Company" or the "Term Loan Borrower").
Revolving Loan Borrowers
Certain subsidiaries of the Company (each a
"Revolving Loan Borrower" and collectively the
"Revolving Loan Borrowers") which are borrowers
under the Existing Revolving Facility (as
defined below). The Term Loan Borrower and the
Revolving Loan Borrowers are herein
collectively referred to as the "Borrowers".
Revolving Loan Guarantors
SFC and all existing and future direct and
indirect domestic subsidiaries of SFC
(collectively the "Revolving Loan Guarantors").
Arranger
Donaldson, Lufkin & Jenrette Securities
Corporation or one or more of its affiliates
("DLJ Securities" or the "Arranger").
Syndication Agent
DLJ Capital Funding, Inc. or one or more of its
affiliates ("DLJ Capital Funding" or the
"Syndication Agent").
Administrative Agent
A financial institution to be identified by the
Arranger and the Syndication Agent and
consented to by the Company (the
"Administrative Agent"; the Syndication Agent
and the Administrative Agent are herein
collectively referred to as the "Agents"), such
consent not to be unreasonably withheld.
Collateral Agent
A financial institution to be identified by the
Arranger and the Syndication Agent and
consented to by the Company (the "Collateral
Agent"), such consent not to be unreasonably
withheld.
Lenders
DLJ Capital Funding, a group of financial
institutions and other investors (collectively,
the "Lenders") to be identified by the Arranger
and the Syndication Agent and consented to by
the Company, such consent not to be
unreasonably withheld.
II. The Credit Facilities
Closing Date
No later than March 31, 1998.
General Description of Credit Facilities
A maximum amount of $298,750,000 in senior,
first-priority secured financing to be provided
to the Borrowers pursuant to a $125,000,000
revolving credit facility (the "Revolving
Facility") and a $173,750,000 term loan
facility (the "Term Facility"). The Revolving
Facility will be comprised of a $25,000,000
revolving credit facility (the "Revolving I
Facility") and a $100,000,000 revolving credit
facility (the "Revolving II Facility"). The
Term Facility and the Revolving Facility are
collectively referred to herein as the "Credit
Facilities"). Loans made under the Credit
Facilities are herein collectively referred to
as "Loans", with Loans under the Term Facility
being herein collectively referred to as "Term
Loans", Loans under the Revolving I Facility
being herein collectively referred to as
"Revolving I Loans" and Loans under the
Revolving II Facility being herein collectively
referred to as "Revolving II Loans". Revolving
I Loans and Revolving II Loans are herein
collectively referred to as "Revolving Loans".
Purpose
Proceeds of the Term Loans shall be used on the
Closing Date to refinance (the "Refinancing" or
the "Transaction") indebtedness of the Term
Loan Borrower outstanding under the Term Loan
Borrower's existing term loan facility (the
"Existing Term Loan Facility") and the
Revolving Loan Borrowers' existing revolving
loan facility (the "Existing Revolving Loan
Facility", and collectively with the Term Loan
Facility, the "Existing Credit Facilities") and
to pay reasonable fees and expenses associated
with the Transaction. Proceeds of Revolving
Loans shall be used for post-Closing Date
general corporate purposes of the Borrowers and
their subsidiaries, including permitted
acquisitions.
Revolving I Facility
Pursuant to the Revolving I Facility
(i) Revolving I Loans may be borrowed, prepaid
and reborrowed by the Revolving Loan Borrowers,
and (ii) letters of credit ("Letters of
Credit") may be issued, reimbursed and re-
issued on behalf of the Revolving Loan
Borrowers, in each case from time to time prior
to the Revolving I Facility Commitment
Termination Date (as set forth below).
Letter of Credit Availability
Outstanding Letters of Credit and related
reimbursement obligations may not exceed the
Revolving I Facility Commitment Amount (as set
forth below) in the aggregate. Each issuance
of a Letter of Credit will constitute usage
under the Revolving I Facility and will reduce
availability under the Revolving I Facility,
dollar-for-dollar. Letters of Credit must
expire on the earlier of (i) one year from the
date of issuance and (ii) the Revolving I
Facility Commitment Termination Date.
Revolving I Facility Commitment Amount
$25,000,000.
Revolving I Facility Commitment Termination Date
January 31, 2000 at which time all outstanding
Revolving I Loans will be due and payable.
Revolving II Facility
Pursuant to the Revolving II, Facility
Revolving II Loans may be borrowed and repaid
by the Revolving Loan Borrowers from time to
time prior to the Revolving II Facility
Commitment Termination Date (as set forth
below).
Revolving II Facility Commitment Amount
$100,000,000.
Revolving II Facility Commitment Termination Date
The unused portion of the Revolving II Facility
Commitment Amount shall automatically terminate
on the one-year anniversary of the Closing
Date.
Final Maturity For All Revolving II Loans
January 31, 2000 at which time all outstanding
Revolving II Loans will be due and payable.
Term Facility
Pursuant to the Term Facility non-revolving
Term Loans will be made available to the Term
Loan Borrower in a single borrowing on the
Closing Date. Once repaid, Term Loans cannot
be reborrowed.
Term Facility Commitment Amount
$173,750,000.
Final Maturity For All Term Loans
January 31, 2000 at which time all outstanding
Term Loans will be due and payable.
Amortization of the Term Facility
The Term Loans will amortize on the last day of
each January, April, July and October of each
year, in the following percentages of the
initial principal amount for each such
quarterly payment date set forth below:
Quarterly Payment Date Percentage
-------------------------------------- ----------
July 31, 1998 through October 31, 1999 0.25%
January 31, 2000 98.50%
III. Common Terms Applicable To All Facilities
Interest Rate
At the applicable Revolving Loan Borrower's
option, Revolving Loans will bear interest at
the Administrative Agent's (i) alternate base
rate plus 1.50% or (ii) reserve-adjusted LIBO
rate plus 2.50%.
At the Term Borrower's option, Term Loans will
bear interest at the Administrative Agent's
(i) alternate base rate or (ii) reserve-
adjusted LIBO rate, plus, in each case, the
following applicable margins based on the
Senior Secured Leverage Ratio (as defined
below):
Applicable Margin
------------------------------------
Senior Secured Alternate Base
Leverage Ratio Rate Loans LIBO Rate Loans
----------------- -------------- ---------------
< or = 2.00:1.00 2.50% 3.50%
> 2.00:1.00 2.75% 3.75%
Upon the occurrence of an event of default,
Loans shall bear interest at the
Administrative Agent's alternate base rate
plus the applicable margin for such Loan
plus 5.0%.
Interest Payment Dates
Interest periods for LIBO rate Loans shall be,
at the applicable Borrower's option, one, two,
three or six months. Interest on LIBO rate
Loans shall be payable on the last business day
of the applicable interest period for such
Loans and, if earlier, each third-month
anniversary of the commencement of such
interest period. Interest on alternate base
rate Loans shall be payable quarterly in
arrears.
Commitment Fee
Commencing on the Closing Date, a non-
refundable fee (the "Commitment Fee") in the
amount of 0.875% per annum will accrue on the
daily average unused portion of the Revolving I
Facility Commitment Amount and the Revolving II
Facility Commitment Amount, payable quarterly
in arrears and on the final maturities of the
Revolving I Facility and the Revolving II
Facility, respectively, (whether by stated
maturity or otherwise).
Voluntary Prepayments
Revolving I Loans are voluntarily payable at
any time without premium or penalty. Revolving
II Loans are voluntarily payable at any time
without premium; provided, however, that any
prepayment of Revolving II Loans shall result
in a corresponding reduction in the Revolving
II Facility Commitment Amount. Term Loans are
voluntarily payable at any time, provided,
however, that a prepayment premium of 2.0% will
apply for prepayments made during the first six
months after the Closing Date and a prepayment
premium of 1.0% will apply for prepayments made
during the period from the six month
anniversary of the Closing Date to the one year
anniversary of the Closing Date. Voluntary
prepayments of Loans shall be applied pro-rata
to the remaining Revolving II Loans and Term
Loans, ratably in accordance with the remaining
amortization payments (if any). In all events,
LIBO rate breakage costs, if any, shall be for
the account of the Borrowers.
Mandatory Prepayments
Customary for the type of transaction proposed
and others to be reasonably specified by the
Arranger and the Syndication Agent, including,
without limitation, (and subject to customary
baskets and exceptions to be agreed upon)
with: (i) 100% of proceeds from permitted
asset sales not reinvested within twelve months
in the acquisition of baking businesses or
investments in capital expenditures or other
long term assets relating to the baking
business, (ii) 100% of proceeds from the sale
or issuance of debt securities, (iii) 100% of
proceeds from the sale or issuance of equity,
other than proceeds substantially similar to
those defined as "Excluded Equity Issuance"
under the Existing Credit Facilities, and
(iv) on or prior to November 30, 1998, 100% of
the net proceeds from the December 5, 1997 sale
by the Company of Stella Holdings, Inc. (the
"Stella Divestiture") in excess of $15,000,000
that would be deemed to constitute "Excess
Proceeds" (as defined in the Term Borrower's
existing Indentures), in each case applied pro-
rata to the remaining Revolving II Loans and
Term Loans, ratably in accordance with the
remaining amortization payments (if any).
Notwithstanding the foregoing, any Lender
having Revolving II Loans or Term Loans will
have the right to decline to have such Loans
prepaid with the amounts set forth above, other
than amounts set for in clause (i) or clause
(iv), in which case the amounts that would have
been applied to a prepayment of such Lender's
Revolving II Loans or Term Loans, as the case
may be, shall instead be retained by the
Borrowers.
Security
The Revolving I Facility and the Revolving II
Facility will be secured, on a pari passu
basis, by a first-priority perfected lien on
all property and assets (tangible and
intangible) of each Revolving Loan Borrower and
each of their direct and indirect domestic
subsidiaries, (exclusive, however, of Specialty
Foods Finance Corporation and its accounts
receivable and other assets and property),
including, without limitation, (i) all deposit
accounts, (ii) all notes evidencing
intercompany indebtedness owed to any Revolving
Loan Borrower or any of their direct or
indirect U.S. subsidiaries and (iii) the
capital stock (or similar equity interests) of
each Revolving Loan Borrower's direct and
indirect subsidiaries, whenever acquired and
wherever located; provided, however, that no
more than 65% of the capital stock or similar
equity interests of non-U.S. subsidiaries will
be required to be pledged as security in the
event that a pledge of a greater percentage
would result in material increased tax or
similar liabilities for the Revolving Loan
Borrowers and their subsidiaries on a
consolidated basis.
The Term Facility will be secured by a first-
priority perfected lien on all property and
assets (tangible and intangible) of the Term
Loan Borrower, including, without limitation,
(i) all deposit accounts (including a cash
collateral account (the "Cash Concentration
Account") to which all existing and future cash
receipts of the Term Loan Borrower and its
direct and indirect subsidiaries would be
transferred on a daily basis, except for
(x) cash receipts not exceeding an amount to be
determined at any time (which cash may be
maintained in other deposit accounts) and
(y) asset sales proceeds transferred to the
Asset Sale Proceeds Account (as defined
below)), (ii) all notes evidencing intercompany
indebtedness owed to the Term Loan Borrower and
(iii) the capital stock (or similar equity
interests) of each of the Term Loan Borrower's
direct subsidiaries, whenever acquired and
wherever located; provided, however, that no
more than 65% of the capital stock or similar
equity interests of non-U.S. subsidiaries will
be required to be pledged as security in the
event that a pledge of a greater percentage
would result in material increased tax or
similar liabilities for the Company and its
subsidiaries on a consolidated basis.
In connection with the foregoing, SFC will
establish a direct wholly-owned, bankruptcy
remote subsidiary ("Newco") to which it will
transfer the existing cash proceeds of the
Stella Divestiture (and all other existing and
future cash proceeds from asset sales). All
such cash would be maintained in one or more
cash collateral accounts (collectively, the
"Asset Sale Proceeds Account") pledged to the
Collateral Agent for the benefit of Revolving
Loan Lenders. Withdrawals from the Asset Sale
Proceeds Account would only be made for
permitted purposes (to be determined, but
including (but not limited to) permitted
acquisitions, permitted capital expenditures
and working capital) and upon presentation of a
certificate to the Collateral Agent in form and
scope satisfactory to it. The capital stock of
Newco would be pledged to the Term Loan Lenders
and the Revolving Loan Lenders on a pari passu
basis. Newco would be subject to customary
provisions applicable to special purpose,
bankruptcy remote entities.
Guarantees
The Revolving I Facility and the Revolving II
Facility will be guaranteed, on a pari passu
basis, by each of the Revolving Loan Guarantors
and Newco.
Conditions Precedent to Initial Extensions of Credit
Customary for the type of transaction proposed
and others to be reasonably specified by the
Arranger and the Syndication Agent, including,
without limitation, the following:
1. Execution and delivery of satisfactory
credit, security, guarantee, intercreditor and
other related documentation embodying the
structure, terms and conditions contained
herein.
2. Receipt of closing certificates,
resolutions, solvency certificate, opinions of
counsel, etc. customary for the type of
transaction proposed and in each case
satisfactory in form and substance to the
Arranger and the Syndication Agent.
3. Review and satisfaction with (i) the final
structure of the Transaction, (ii) the sources
and uses of proceeds used to consummate the
Transaction and (iii) the terms and provisions
of all documents, agreements and contracts
related to the Transaction, and receipt of
executed copies of the documents in (iii)
above.
4. Receipt of (i) audited consolidated
financial statements of the Company and its
subsidiaries and Specialty Foods Acquisition
Corporation ("SFAC") and its subsidiaries for
the fiscal years ended December 31, 1994,
December 31, 1995 and December 31, 1996,
(ii) unaudited consolidated financial
statements of the Company and its subsidiaries
and SFAC and its subsidiaries for (x) the
fiscal year ended December 31, 1997 and (y) the
fiscal quarters most recently ended after
December 31, 1997 and prior to the Closing
Date, (iii) unaudited consolidated financial
statements of the Company and its subsidiaries
and SFAC and its subsidiaries for the fiscal
months most recently ended after the last
unaudited quarterly financial statement
delivered pursuant to clause (ii) above and
prior to the Closing Date, and (iv) pro-forma
consolidated balance sheets of the Company and
its subsidiaries and SFAC and its subsidiaries
as of December 31, 1997, certified by the chief
financial officers of the Company and SFAC,
respectively, giving effect to the contemplated
Transaction and the Stella Divestiture, and
reflecting the proposed legal and capital
structures of the Company and its subsidiaries
and SFAC and its subsidiaries, which legal and
capital structures shall be satisfactory in all
material respects to the Arranger and the
Syndication Agent.
5. All material governmental and third party
approvals necessary or advisable in connection
with the Transaction, the financing
contemplated hereby, and the continuing
operations of SFAC, the Borrowers or any of
their respective subsidiaries shall have been
obtained and be in full force and effect, and
all applicable waiting periods shall have
expired without any action being taken or
threatened by any competent authority which
would restrain, prevent or otherwise impose
adverse conditions on the Transaction, the
financing contemplated hereby or the continuing
operations of SFAC, the Borrowers or any of
their respective subsidiaries.
6. There shall exist no pending or threatened
material litigation, proceedings or
investigations which (i) contest the
consummation of the Transaction or the
financing contemplated hereby, or (ii) could
reasonably be expected to have a material
adverse effect on the financial condition,
operations, assets, business, properties or
prospects of SFAC, the Borrowers or any of
their respective subsidiaries.
7. No fact, event or circumstance shall exist
or arise which are reasonably likely to result
in a material adverse effect on (i) the
business, assets, debt service capacity, tax
position, environmental liability, financial
condition, operations, properties, or prospects
of SFAC, the Borrowers or any of their
respective subsidiaries since December 31, 1997
or (ii) the likelihood of consummating the
Transaction.
8. Completion of a due diligence review by the
Arranger, the Syndication Agent and their
advisors of the business, assets, financial
condition, operations, properties and prospects
of SFAC, the Borrowers and their respective
subsidiaries, the results of which shall in all
respects be reasonably satisfactory to them.
9. The Borrowers shall have repaid all
indebtedness outstanding under the Existing
Credit Facilities, cash collateralized all
letters of credit issued under the Existing
Revolving Facility (the "Existing Letters of
Credit") or issued back-to-back Letters of
Credit to support such Existing Letters of
Credit and all commitments and/or security
interests relating thereto shall have been
terminated, in each case on terms and
conditions (including in respect of all
documentation related thereto) satisfactory to
the Arranger and the Syndication Agent.
10. The Term Loan Borrower shall have
established with the Collateral Agent the Cash
Concentration Account and Newco shall have
established with the Collateral Agent the Asset
Sale Proceeds Account, in each case on terms
and conditions (including in respect of all
documentation related thereto) satisfactory to
the Arranger, the Syndication Agent and the
Collateral Agent.
11. The Administrative Agent, on behalf of the
Lenders, shall have received first priority
perfected liens and guarantees, as set forth
above under the captions "Security" and
"Guarantees", respectively, in each case to the
satisfaction of the Arranger, the Syndication
Agent and the Administrative Agent.
12. The Arranger, the Agents and the Lenders
shall have received all fees and expenses
required to be paid on or before the Closing
Date.
Additional Conditions Precedent
The making of each Loan and the issuance of
each Letter of Credit will be conditioned upon
(i) all representations in the Credit
Documentation being true and correct in all
material respects and (ii) there being no event
of default or condition which, with the giving
of notice or passage of time (or both), would
constitute an event of default.
Representations and Warranties
Customary for the type of transaction proposed
and others to be reasonably specified by the
Arranger and the Syndication Agent.
Affirmative Covenants
Customary for the type of transaction proposed
and others to be reasonably specified by the
Arranger and the Syndication Agent including,
without limitation, the following:
1. Financial information, reports, notices,
etc.
2. Compliance with laws, etc.
3. Maintenance of properties and insurance.
4. Maintenance of books and records, and
inspection rights.
5. Environmental compliance and notices.
6. Future subsidiaries.
7. Future acquisitions and leases of property.
8. Use of proceeds.
9. Establishment of interest rate protection
agreements in notional amounts and for periods
of time satisfactory to the Arranger and the
Syndication Agent.
10. Existence and business.
11. Payment of taxes.
Negative Covenants
Customary for the type of transaction proposed
and others to be reasonably specified by the
Arranger and the Syndication Agent, including,
without limitation, (and subject to baskets to
be agreed upon) the following:
1. Restricting the incurrence of additional
debt, sale leasebacks and contingent
liabilities (subject to certain exceptions
substantially similar to those in the Existing
Credit Facilities including, but not limited
to: (i) intercompany indebtedness and
additional indebtedness of foreign subsidiaries
in an aggregate principal amount of not more
than $1,000,000 at any time outstanding,
(ii) additional Capital Lease Obligations (as
defined in the Term Borrower's existing
Indentures), mortgage financings or purchase
money obligations in an aggregate principal
amount of not more than $5,000,000 at any time
outstanding, (iii) acquired indebtedness in an
aggregate maximum principal amount to be
determined, and (iv) additional unsecured
indebtedness in an aggregate principal amount
of not more than $8,000,000 at any time
outstanding, as permitted under paragraph (i)
of Section 4.09 of the 1993 Senior Note
Indenture).
2. Restricting the incurrence or sufferance of
liens, other encumbrances or further negative
pledges (subject to exceptions similar to those
in the Existing Credit Facilities).
3. Restricting the making of dividends or
similar distributions, including direct or
indirect redemptions of capital stock (subject
to exceptions similar to those in the Existing
Credit Facilities).
4. Restricting the sale of assets or similar
transfers, other than in the ordinary course of
business (subject to exceptions to be mutually
agreed upon and to include, without limitation,
the sale of businesses representing a maximum
of 40% of consolidated EBITDA).
5. Restricting the making of investments
(subject to exceptions substantially similar to
those in the Existing Credit Facilities).
6. Restricting the making of acquisitions (in
a single transaction or in a series of related
transactions); provided, however, that
acquisitions will be permitted so long
as: (i) the acquisition is in the baking
business, (ii) the Senior Secured Leverage
Ratio is less than or equal to 2.75:1.0,
(iii) the Borrower is in pro forma compliance
with all covenants, (iv) no default or event of
default exists or would occur as a result of
the acquisition, (v) the Leverage Ratio (as
defined below), calculated on a pro forma basis
after giving effect to such acquisition, is
less than the Leverage Ratio calculated prior
to giving effect to such acquisition, and
(vii) the Company's investment in any such
acquired company is in the form of an
intercompany loan from the Term Loan Borrower;
provided, that, a portion of such investment
may be in the form of equity to the extent
required to meet any applicable capital
requirements. For the purposes of any
calculations above, all such calculations shall
be made for the trailing four quarters on a pro
forma basis for such acquisition (i) computed
as if such acquisition occurred on the first
day of such calculation period and (ii) may
include any cost savings or similar adjustments
arising from such acquisition that would be
permitted (a) by Regulation S-X under the
Securities Act of 1933 or (b) under GAAP.
7. Restricting mergers, consolidations and
similar combinations.
8. Restricting transactions with affiliates.
9. Restricting the refinancing, defeasance,
repurchase or prepayment of other indebtedness.
10. Limiting the making of capital
expenditures to the amounts in the Borrower's
financial projections presented to the Arranger
and the Syndication Agent in their due
diligence review, with a carryforward provision
for unused amounts.
11. Limiting business activities.
12. All cash and cash equivalents of the
Borrowers and their subsidiaries shall be
maintained in the Cash Concentration Account,
the Asset Sale Proceeds Account, or other
deposit accounts pledged to the Collateral
Agent, as provided under the caption "Security"
above.
Financial Covenants
Customary for the type of transaction proposed
and others to be reasonably specified by the
Arranger and the Syndication Agent, including,
without limitation, the financial covenants set
forth below, to be calculated on a quarterly
basis, with the definitions similar to those in
the Existing Credit Facilities, and ratios as
follows (with all accounting terms to be
interpreted, and all accounting determinations
and computations to be made, in accordance with
generally accepted accounting principles). For
the purposes of the calculation of the
covenants below, all calculations shall be made
on a consolidated basis for the trailing four
quarters and on a pro forma basis for permitted
acquisitions (i) computed as if all permitted
acquisitions which occurred during such period
occurred on the first day of such period and
(ii) including any cost savings or similar
adjustments arising from any such permitted
acquisitions that would be permitted (a) by
Regulation S-X under the Securities Act of 1933
or (b) under GAAP.
1. Maintenance of a maximum ratio for the
Company and its subsidiaries of (i) total
consolidated debt less unrestricted cash, at
the end of each such fiscal quarter, to
(ii) EBITDA (the "Leverage Ratio"), for each
fiscal quarter following the Closing Date at
levels to be determined.
2. Maintenance of a maximum ratio for the
Company and its subsidiaries of (i) total
consolidated senior secured debt, at the end of
each such fiscal quarter, to (ii) EBITDA (the
"Senior Secured Leverage Ratio"), for each
fiscal quarter following the Closing Date at
levels to be determined.
3. Maintenance of a maximum ratio for the
Revolving Borrowers and their subsidiaries of
(i) total consolidated senior secured debt, at
the end of each such fiscal quarter, to
(ii) EBITDA for each fiscal quarter following
the Closing Date, at levels to be determined.
4. Maintenance of a minimum ratio for the
Company and its subsidiaries of (i) EBITDA to
(ii) cash interest expense calculated on a
rolling four-quarter basis (the "Interest
Coverage Ratio"), for each fiscal quarter
following the Closing Date at levels to be
determined.
Events of Default
Customary for the type of transaction proposed
and others to be reasonably specified by the
Arranger and the Syndication Agent, including,
without limitation, a cross-default to other
indebtedness of the Borrower and its
subsidiaries or any Guarantor, and a change of
control (as defined in the Existing Credit
Facilities).
Miscellaneous
Customary provisions to be included, together
with others to be reasonably specified by the
Arranger and the Syndication Agent, including,
without limitation, the following:
1. Customary indemnity and capital adequacy
provisions, including but not limited to
compensation in respect of taxes (including
gross-up provisions for withholding taxes) and
decreased profitability resulting from U.S. or
foreign capital adequacy requirements,
guidelines or policies or their interpretation
or application, and any other customary yield
and increased costs protection deemed necessary
by the Lenders to provide customary protection.
2. The Lenders will be permitted to assign and
participate Loans, notes and
commitments. Any assignments would be by
novation and, except for assignments to another
Lender or an affiliate of another Lender, would
require the consent of the Borrower (so long as
no default or event of default had occurred and
was then continuing) and, except for
assignments by either Agent, the consent of
each Agent, such consents not to be
unreasonably withheld or delayed.
Participations shall be without restrictions
and participants will have the same benefits as
the Lenders with regard to increased costs,
capital adequacy, etc. provided, that such
participants shall not be entitled to amounts
that are greater than those to which the
grantor of the related participations would be
entitled, and provision of information on the
Borrower; provided, that the right of
participants to vote on amendments, waivers,
etc. will be limited to certain customary
issues such as, without limitation, extension
of the final scheduled maturity date of the
Loans participated in by such participant.
3. Indemnification of the Arranger, each
Agent, each of the Lenders and each of their
respective affiliates, directors, officers,
trustees, agents and employees from and against
any losses, claims, damages, liabilities or
other expenses, substantially as set forth in
Annex II hereto.
4. Amendments and waivers of the Credit
Documentation will require the approval of
Lenders holding more than 50% of the Loans and
commitments, except that the consent of all the
Lenders shall be required with respect to
certain customary issues.
5. Waiver of jury trial.
6. New York governing law; consent to New York
jurisdiction; appointment of New York process
agent.
Counsel to the Arranger and the Agents
Mayer, Brown & Platt.
ACQUISITION STRATEGY
Overview
The Company plans to pursue selective add-on
acquisitions of bakery businesses which are
contiguous to its existing service areas and to
build enterprise value through the realization
of significant cost synergies. The Company
anticipates that any purchases of additional
bakery operations will contribute to the
deleveraging of the Company. Public market
bakery equity multiples average 8.4x EBITDA.
The Company's strategy is consistent with many
of the other larger players in the baking
industry. In recent years, the retail bread
segment has undergone substantial consolidation
as several regional competitors (most notably,
Interstate Brands, Earthgrains Company and
Flowers Industries) have expanded their
businesses through the acquisition of smaller
regional companies. This consolidation is
being driven by the substantial cost reduction
opportunities available through the combining
of manufacturing, distribution and
administrative capabilities. The economics of
this consolidation have created significant
value resulting in sharply improved earnings
and stock valuations for the major
consolidators.
Acquisition History
Although its origins date back to 1922, Metz
achieved significant growth through a series of
acquisitions between the early 1960's and 1995.
These acquisitions were targeted toward
providing Metz with leading positions across
the Midwestern U.S.
Metz Acquisition History
----------------------------------------------------
Date Company Acquired
------- -------------------------------
1960's Swander, DeBus, Omar
1970's Pan-O-Gold (IA), Wilkes, Peter
Pan, Zinsmaster
1988 G. Heilman
1995 Campbell Taggart (2 bakeries)
In May 1995, Metz acquired two bakeries in the
Chicago metropolitan area. Through a
combination of route consolidation and overhead
reductions, Metz was able to make these
formerly unprofitable operations profitable
within three weeks of their acquisition.
In 1988, Metz acquired the bakery businesses of
G. Heilman Brewing Co., which added sales of
approximately $280 million and 11 bakeries in
contiguous service areas.
Industry Perspective
The retail bread and sweet goods segment in
which Metz competes is a $22.5 billion
industry. Of this amount, approximately
$12.6 billion represents retail sales of bread,
buns and rolls sold to supermarkets, with the
balance comprised of sweet goods and in-store
bakery sales. As a result of substantial
consolidation within this segment, six
suppliers now represent 54% of total U.S.
retail sales of bread, buns and rolls. The
remaining 46% of the segment is comprised of a
number of regional distributors and captive
bakeries with combined annual sales of
approximately $5.8 billion.
Each of the major bread companies is focused on
a region of the U.S.: Interstate Brands has a
strong presence in the Northeast, the Mid-
Atlantic, the Southeast and the West Coast;
Earthgrains Company has a strong concentration
in the Southeast, Texas and Northern
California; Flowers Industries is focused on
the Southeast and Texas; and Metz is focused on
the Midwest. While CPC International and
Pepperidge Farm/Campbell's have distribution
throughout most of the U.S., their product
offerings are generally limited to specialty
breads and other premium products. The smaller
regional players are by their nature typically
confined to metropolitan areas or limited
geographic regions.
Historically, the retail bread segment has
undergone substantial consolidation as a number
of local companies have been transformed
through acquisitions into larger regional and
national players. This trend has accelerated
in the late 1980's and 1990's, resulting in
substantial growth for Interstate Brands,
Earthgrains Company, Flowers Industries, CPC
International and Metz.
Acquisition Economics
The attractive economics of consolidation in
the bread industry are being driven by the
substantial cost reduction opportunities that
can be achieved in an acquired company's
manufacturing, distribution, purchasing, and
general and administrative expenses.
Manufacturing and distribution cost savings are
most efficiently derived through acquisitions
of regional bakers in overlapping and
contiguous territories. By consolidating
delivery routes and manufacturing facilities of
these acquired companies with existing
operations to achieve higher utilization rates,
acquirers can reduce substantial fixed costs in
their manufacturing and distribution systems.
Purchasing and general and administrative cost
reductions, which are not limited to
overlapping and contiguous acquisitions, are
derived through reductions in corporate
overhead staffing and additional purchasing
power for major ingredient and packaging
purchases.
The economics of this consolidation are a
source of significant value creation for the
consolidators. The financial markets have
rewarded those public company players that have
increased earnings through cost reductions of
acquired companies. This trend is likely to
continue as the pace of consolidation continues
to accelerate.
Acquisition Targets
The Company has identified a number of
potential candidates that would expand its
presence within and contiguous to its current
Midwest service area. Acquisition criteria
include: (i) contribution to leading share
positions as the Company believes establishing
the #1 or #2 share in a service area is
critical to profitability, (ii) geographically
contiguous areas that allow for the highest
potential for cost savings opportunities,
(iii) complementary product lines,
manufacturing and distribution systems and
(iv) sufficient scale.
The Company has evaluated these candidates and
estimated potential savings based on the
following types of synergies:
Manufacturing savings can be achieved through
the consolidation of bakery manufacturing
facilities that are capable of servicing
overlapping geographies. Fixed costs of an
average bakery facility ($20-$40 million in
sales) are typically in the $1 to $2 million
range.
Distribution savings can be achieved through
the consolidation of direct-store-delivery
routes in overlapping areas. The average
route ($250-300,000) would typically have
fixed costs of approximately $40,000 to
$50,000.
Purchasing savings can be achieved through
the leveraging of larger purchasing power.
General and administrative savings can be
achieved through the consolidation of
headquarters functions such as accounting,
legal and other administrative activities.
METZ BAKING COMPANY
Overview
Metz Baking Company ("Metz"), founded in 1922,
is the largest manufacturer and distributor of
bread and other baked goods in the Midwestern
U.S. Metz's product line includes white and
variety pan breads and buns, sweet goods, and
other specialty items. These products are
marketed under the Taystee, Holsum, Old Home,
Master, Country Hearth, Egekvist, D'Italiano,
Pillsbury and Healthy Choice brand names and
are also sold under numerous private labels.
The majority of Metz's sales are to consumers
through retail grocers and the company's thrift
stores, with the balance to foodservice
establishments and food manufacturers.
Although its origins date back to 1922, Metz
achieved significant growth through a series of
acquisitions between the early 1960's and 1995.
These acquisitions were targeted toward
providing Metz with leading positions across
the Midwest.
Metz Acquisition History
----------------------------------------------------------
Date Company Acquired
---------- ---------------------------------------
1960's Swander, DeBus, Omar
1970's Pan-O-Gold (IA), Wilkes, Peter Pan,
Zinsmaster
1988 G. Heilman
1995 Campbell Taggart (2 bakeries)
Metz operates a network of over 1,400 DSD
routes, 18 manufacturing facilities, and
approximately 300 distribution depots and 200
thrift stores. Metz's manufacturing and
distribution capabilities enable it to offer
its customers a high level of service and on-
shelf product freshness which management
believes are critical to the success of its
business. In addition, a broad product line,
strong brands and high share positions have
provided Metz with a strong, stable financial
track record. Management believes that Metz
holds the #1 or #2 branded share position in
most of the areas it services.
Industry Overview
The retail bread and sweet goods segment in
which Metz competes is a $22.5 billion
industry. Of this amount, approximately
$12.6 billion represents retail sales of bread,
buns and rolls, with the balance comprised of
sweet goods and in-store bakery sales.
Competitors in this segment typically produce
their own products for distribution to retail
outlets through a DSD system. As a result of
substantial consolidation within this segment,
six suppliers represent approximately 54% of
total U.S. retail sales of bread, buns and
rolls. The remaining portion of the segment
is comprised of a number of regional
distributors and captive bakeries with combined
annual retail sales of approximately
$5.8 billion.
Estimated U.S. Retail Sales of Bread, Buns and
Rolls
-----------------------------------------------
Interstate Brands 22%
CPC International 10
Earthgrains Company 9
Flowers Industries 6
Metz 5
Pepperidge Farm 2
(Campbell's)
Other regional 46
distributors & captive
bakeries
------
Total 100%
Each of the major bread companies is focused on
a region of the U.S.: Interstate Brands has a
strong presence in the Northeast, the Mid-
Atlantic, the Southeast and the West Coast;
Earthgrains Company has a strong concentration
in the Southeast, Texas and Northern
California; Flowers Industries is focused on
the Southeast and Texas; and Metz is focused on
the Midwest. While CPC International and
Pepperidge Farm/Campbell's distribute
throughout most of the U.S., their product
offerings are generally limited to specialty
breads and other premium products. The smaller
regional players are by their nature typically
confined to metropolitan areas or limited
geographic regions.
The retail bread segment has experienced
moderate growth since 1990, with a CAGR of 4.6%
between 1990 and 1997. The bread segment is
expected to continue to grow modestly at 3-4%
through 2000. The majority of growth within
this segment is attributable to pricing
actions, with volume increasing at a CAGR of
approximately 1% during the 1990-1997 period.
Historically, the retail bread segment has
undergone substantial consolidation as a number
of local companies have been transformed
through acquisitions into larger regional and
national players. This trend has accelerated
in the late 1980's and 1990's, resulting in
substantial growth for Interstate Brands,
Earthgrains Company, Flowers Industries, CPC
International and Metz.
This consolidation is being driven by the
substantial cost reduction opportunities that
can be achieved in an acquired company's
manufacturing, distribution, purchasing, and
general and administrative expenses.
Manufacturing and distribution cost savings are
most efficiently derived through acquisitions
of regional bakers in overlapping and
contiguous territories. By consolidating
delivery routes and manufacturing facilities of
these acquired companies with existing
operations to achieve higher utilization rates,
acquirers can reduce substantial fixed costs in
their manufacturing and distribution systems.
Purchasing and general and administrative cost
reductions, which are not limited to
overlapping and contiguous acquisitions, are
derived through reductions in corporate
overhead staffing and additional purchasing
power for major ingredient and packaging
purchases.
The economics of this consolidation are a
source of significant value creation for the
consolidators. The financial markets have
rewarded those public company players that have
increased earnings through cost reductions of
acquired companies. This trend is likely to
continue as the pace of consolidation continues
to accelerate.
Industry Economics
Branded bread sales to supermarkets offer the
highest margins in the bread category and
account for 73% of total bread revenue. Brands
are primarily regional in nature with the
largest industry brand, Wonder Bread,
representing less than 5% of total industry
sales.
Private label bread products account for the
remaining 27% of the bread market. A
significant portion of private label products
are produced and sold by traditional retail
bread companies as a complement to their
branded product lines. Although private label
products typically have lower margins than
branded products, the incremental sale of
private label products helps to cover the fixed
costs associated with bread production and
distribution.
While gross margins in the bread industry are
relatively high (45-55%), fixed delivery and
sales costs are also substantial (35-40% of
revenues) since the majority of bread companies
distribute their products through a DSD system
rather than through the customer's warehouse.
Overall profitability is driven by maximizing
sales volume and efficiency in product
delivery.
Products
Metz sells a wide variety of bakery products
including white breads, variety breads (whole
wheat and other grain breads), buns, rolls,
sweet goods (including pastries, donuts and
snack cakes), English muffins, fruitcakes,
croutons and stuffing.
Metz sells both branded and private label
products to retail grocers. Metz's primary
brand names are either owned or licensed for
exclusive use in the company's territories.
The following table summarizes Metz's brands by
product type:
Metz Brands
--------------------------------------------------------------
Brand Products
-------------------------------- ------------------
Old Home, Holsum, Taystee, Pillsbury White bread & buns
Autumn Grain, Country Hearth, Soft variety bread &
Pillsbury buns
Hudson Bay, Nature's Harvest, Hearty variety wheat
Healthy Choice bread
D'Italiano Italian bread
Master Rye bread
Egekvist, Old Home, Mickey's Sweet goods
Nature's Harvest, Country Hearth Croutons
Customers and Channels
The majority of Metz's sales are to retail
customers and consumers through supermarkets and
the company's network of 200 thrift stores.
Metz's thrift stores are used an outlet for the
discounted, quick sale of products nearing the end
of their fresh shelf life. The remaining portion
of the company's sales are to foodservice
customers and other food manufacturers who use
bread as an ingredient.
Metz believes it enjoys excellent relations with
its customers as evidenced by the fact that it has
achieved "table captain" designation in a
significant number of retail grocery customers'
stores. The table captain designation provides
Metz with more influence and control over display,
promotion and shelf placement, which management
believes to be instrumental in capturing branded
sales.
Metz distributes its products through a network of
1,400 company-owned DSD routes and 300
distribution depots. Metz's distribution network
enables the company to offer its customers a high
level of service and on-shelf product freshness
which management believes are critical to the
success of its business.
Production
Since 1993, Metz has consolidated its
production into 18 facilities in eight states,
closing three facilities and selling one
facility. Thirteen of the facilities produce
pan bread for their local service area with the
remaining five plants specializing in other
product types distributed across a larger area.
Coordination of production across Metz's
network of facilities results in increased
efficiencies and improved facility utilization.
Metz's 18 baking plants have an aggregate 1.5
million square feet.
Bakery Facilities
--------------------------------------
Location Production Lines
------------ ----------------
Beatrice, NE Fruit Cakes
Bellevue, NE Pan Bread, Buns
Chicago, IL Pan Bread
Dubuque, IA Pan Bread, Buns
Eau Claire, WI Buns, English Muffins
Fergus Falls, MN Pan Bread
Hastings, NE Pan Bread, Buns
LaCrosse, WI Croutons
Madison, WI Pan Bread, Buns,
Donuts, Sweet Rolls
Marquette, MI Pan Bread, Buns,
Toast
Milwaukee, WI Pan Bread, Buns
Rockford, IL Pan Bread, Buns
Roseville, MN Pan Bread, Buns
Salt Lake City, UT Pan Bread, Buns,
Hearth Bread
Sioux City, IA Pan Bread, English
Muffins
Sioux Falls, SD Pan Bread, Buns,
Donuts
So. Sioux City,NE Buns, Pies
Watertown, SD Sweet Goods
The primary raw material ingredient in the
production of bread is flour. Metz makes
advance purchases of commodities significant to
its business in order to protect itself from
basic market fluctuations and lock in favorable
pricing. The majority of Metz's commodities
are purchased on the open market or pursuant to
these short-term agreements. Metz historically
has been able to pass through raw material cost
increases to its customers.
Seasonality
Metz's business tends to exhibit elements of
seasonality. Typically, the second and third
quarters are the strongest as the summer season
(May through September) generates higher bun
sales, followed by the fourth quarter which is
characterized by strong crouton and holiday
sales.
Organization
The Metz organization is highly decentralized
with full P&L responsibility assigned to its 16
area General Managers. Each General Manager is
responsible for both manufacturing and sales
within his area.
A majority of Metz's employees are subject to
collective bargaining agreements. Contracts
run for three to five years. Metz has an
excellent relationship with labor and has had
no strikes at its plants since the early
1980's.
Strategy
Metz's strategy is to fortify its position as
the leading retail bread company in the
Midwest. Metz will build this position by
focusing on two areas of improvement:
Existing business: Within its existing
geography, Metz has continued to improve the
efficiency of its production and distribution
operations through capital investment. At the
same time, the company has achieved solid top-
line gains through strong support of its
branded and private label programs.
Acquisition: Metz will continue to seek
opportunities to expand its existing geography
within the Midwest region. In particular, the
company has targeted several regional bakeries
which would have significant synergies with
Metz's selling, production and/or
administrative organization.
MOTHER'S CAKE & COOKIE CO.
Overview
Mother's Cake & Cookie Co. ("Mother's"),
founded in 1914, is the second largest retail
cookie brand in the Western U.S.. Mother's
products are marketed under the Mother's,
Bakery Wagon, Mrs. Wheatley's and Marie Lu
brand names. Mother's also distributes
imported products under the Lu brand. Mother's
sells its cookie products primarily to retail
grocers through an extensive 460 route DSD
system. In addition, Mother's distributes its
line of products nationally to club stores,
mass merchandisers, convenience stores and
vending machines.
Industry Overview
Total packaged cookie sales in the U.S.
generated approximately $5.0 billion (at
retail) with the Western U.S. accounting for
30% of those sales. Approximately 75% of
cookie products are sold through supermarkets,
with the remainder sold through various
alternate channels including club stores, mass
merchandisers, vending machines and convenience
stores.
Revenues in the cookie industry have grown at
about a CAGR of 5% since 1990. However,
overall unit growth has been much slower
reflecting strong pricing in this industry in
recent years. The market is dominated by
strong national and regional brands with
private label sales representing only 12% of
total cookie revenues. As the purchase of
cookies tends to be impulse driven, the
industry is characterized by significant retail
display and promotional activity.
The cookie category consists of many flavors,
shapes, colors and sizes. The category can
best be assessed by dividing it into three
major segments, each with its own consumer
purchase dynamics and competitive situations:
(i) chocolate chip / chocolate sandwich / fruit
filled; (ii) chocolate enrobed; and
(iii) variety. The "variety" segment includes
a large assortment of cookies including
oatmeal, kid shapes, sugar wafers and other
products. Mother's is the leading brand in
many of these "variety" segments in the Western
U.S.
Products and Brands
The company's products are marketed under four
well recognized brand names principally in the
14 Western states. Mother's does not make
private label products or engage in contract
packing for other companies.
Mother's
This is the company's flagship brand.
Principal products in the line are "variety"
cookies and include: traditional "wire cut"
cookies (oatmeal, macaroon, sugar cookies,
etc.); "fun shaped" iced cookies for kids
(Circus Animals); bite sized, assorted cookies
sold in big bags (Cookie Parade); and a line of
sandwich cookies in unique/proprietary flavors
(Taffy, English Tea, etc.).
Bakery Wagon
Bakery Wagon is the company's soft textured
cookie line targeted toward adult consumers.
This line consists of large, soft baked cookies
(i.e. Oatmeal Raisin, Raspberry Cake, etc.),
fat-free fruit cobblers and figs, and holiday
cookies.
Mrs. Wheatley's
The Mrs. Wheatley's brand is marketed east of
the Mississippi River where Mother's does not
own the rights to the Mother's trademark for
cookie sales. Mrs. Wheatley's packaging and
trade dress is identical to the Mother's brand.
This line includes the most popular SKUs
contained in the Mother's product line and is
sold primarily to major national account
customers (such as Wal-Mart, Target and Kmart)
who sell the products across the country.
Marie Lu
The Marie Lu brand is a European-style biscuit
cookie and is particularly well developed among
Hispanic consumers.
Lu
Mother's is the exclusive West Coast
distributor of Lu brand cookies, a line of
European imported specialty cookies.
Customers and Distribution
Mother's sells its products to every major
supermarket chain in the Western U.S..
Mother's believes that it enjoys excellent
relations with its customers as evidenced by
its designation as "table captain" in many of
the top retail grocery customers in California.
The table captain designation provides Mother's
with more influence over display, promotion and
shelf placement, which management believes to
be instrumental in capturing sales attributable
to consumer impulse purchasing.
Mother's utilizes a DSD system with over 400
routes, which includes company-owned delivery
routes serviced by Mother's employees and
routes serviced by independent distributors.
Mother's and its distributors utilize a single-
tier form of DSD system, under which route
drivers take orders, deliver product, build
displays, and service the merchandise on store
shelves. By contrast, most of Mother's
competitors use either a two or three tier DSD
system or ship directly to the customer's
warehouse.
Mother's believes that its one-tier
distribution system is highly effective since
commissioned route salespeople are actively
selling, building displays, merchandising
product and can respond immediately to product
demands and display opportunities. By
contrast, in a two-tier system, commissioned
sales personnel take the customer's order which
is filled and scheduled for delivery several
days later by a non-commissioned transport
driver. In a three-tier system, a part-time
merchandiser stocks the shelves using the
product dropped off by the transport driver.
Mother's utilizes a computer-based hand-held
route management system throughout its
distribution network which automates the sales
documentation process and aids in sales and
marketing analysis.
Recent interface improvements with this system
have enabled Mother's to track and analyze
detailed sales information daily at the store
level. Mother's believes that this capability
leads to improved route sales management and
highly effective store-level target marketing
to increase profitability.
Production
Mother's operates a single 156,000 square foot
manufacturing facility in Oakland, California.
The facility is well maintained and highly
efficient. Mother's is planning to increase
capacity at its manufacturing facility in 1998.
Mother's DSD system is supported by 50
warehouses located throughout its service area.
In addition, Mother's periodically utilizes
domestic contract packers for a portion of its
production requirements.
Raw materials and packaging represent more than
half of Mother's total cost of good sold. The
largest single raw material is sugar which
accounts for less than 10% of total cost of
goods.
Organization
A majority of the company's total employees are
covered by a collective bargaining agreement.
Contracts for sales and distribution employees
are staggered over several years and generally
have 3 to 4 year terms. The company has a
positive labor relations environment and has
not experienced a strike since 1985.
Strategy
Mother's strategy is to refocus the company on
the fundamentals that marked its success prior
to 1996. In 1996, Mother's shifted away from
its core Mother's brand and focused significant
resources on the introduction of new products.
These efforts were largely unsuccessful and
resulted in sharp increases in selling and
distribution expenses and declines in volume.
The result was a steep decline in Mother's
EBITDA between 1995 and 1997.
In 1997, the company discontinued many of the
new product initiatives and implemented an
aggressive program to rebuild the core Mother's
branded products in its key existing geography
and reduce selling and distribution costs. This
refocusing was very successful and resulted in
a significant turnaround in company performance
in the second half of 1997.
Mother's current objective is to continue to
rebuild the company's profitability to pre-
expansion levels. This will be achieved by a
sustained strategic focus on the basics that
were successful in turning the company around
in 1997:
Focus on Mother's brand. The company is
focusing its marketing and selling efforts on
rebuilding the Mother's brand through basic
improvements in products, packaging, pricing
and promotion. In 1998, Mother's will support
these efforts with the first advertising for
the brand since 1986.
Control selling and distribution costs. By
refocusing on the core Mother's brand and
geographies, Mother's is successfully reducing
its costs by sharply increasing its
manufacturing, selling and distribution
efficiencies.
Build non-grocery. Mother's has restructured
its selling organization to increase its
penetration of non-grocery channels.
ANDRE-BOUDIN BAKERIES, Inc.
Company Overview
During the California Gold Rush of 1849,
Isadore Boudin introduced the original
sourdough French bread to San Francisco.
Today, Boudin, which still uses the original
recipe and "mother dough" from 1849, is widely
recognized as the gold standard for San
Francisco sourdough bread.
In 1975, the owners of Boudin opened their
first full-service bakery cafe on Fisherman's
Wharf in San Francisco. Since that time,
Boudin has grown to 44 company-owned and
operated locations in California (35), Chicago
(7) and Dallas (2). Boudin also distributes its
branded bread and bread-related products
through its own direct-mail catalog and a
limited number of high-end retail supermarkets.
Boudin cafes offer a full menu of sandwiches,
soups, salads, bagels, pastries and specialty
coffees as well as fresh take-home breads. The
company operates a variety of cafe sizes and
formats ranging from small kiosks in high
traffic areas to full service cafes of up to
3,000 square feet.
Industry Overview
Boudin participates in the $7.5 billion retail
bakery restaurant market. This market includes
bread stores (companies like Breadsmith which
sell fresh take-home bread), bagel shops (such
as Einstein's), independent take-out bakeries,
retail donut stores (such as Dunkin Donuts) and
bakery cafes (such as Boudin).
The bakery cafe segment is estimated to be
about $0.5 billion in size and has experienced
double digit growth during the last five years.
In addition to Boudin, there are five multi-
location bakery cafe companies with 15 or more
units. Each of these companies offers a full
menu of sandwiches, soups, salads and pastries
and feature their own "unique" bread. All have
a regional focus with Boudin enjoying the
strongest position in the Western U.S.
Bakery / Cafe Competitors
-------------------------------------------------------
Estimated Geographic
# of Units Coverage
----------- ------------------------
Au Bon Pain 208 Northeast; Midwest
Saint Louis 62 Midwest
Bread[1]
Corner 13 Chicago, Dallas, Southern
Bakery[2] California
Le Boulangerie 15 Northern California
Le Madeleine 45 Dallas, Houston, Chicago
[1] Owned by Au Bon Pain.
[2] Owned by Brinker International.
Business Segments
Boudin sells the majority of its products
through bakery cafes, with the remaining
portion through direct-mail catalog, and
supermarkets and restaurants.
Bakery Cafes
Sales through retail bakery cafes are Boudin's
main revenue source. Since 1995, Boudin has
increased its cafe locations by over 50% from
28 to 44, including 5 kiosks. The following
chart illustrates Boudin's growth since 1993.
The company has focused its growth on the
California market where the Boudin brand name
has an especially strong franchise. Today, 28
of the company's cafes are located in the San
Francisco Bay area and 7 are located in
Southern California (San Diego and Orange
County). Boudin also operates 7 cafes in
Chicago and 2 in Dallas. Boudin's cafes are
balanced between urban locations (53%) and
major retail shopping malls (47%).
More than half of Boudin's bakery cafe sales
are at lunch including a growing lunch catering
business. The menu includes a full selection
of sandwiches, soups and salads (in a bread
bowl), and a single-serve sourdough pizza. The
cafes target an upscale young professional
consumer with an average lunch check in the
$6.00 range.
Boudin's breakfast sales have increased in
recent years with the introduction of a number
of new items including a popular sourdough
bagel and an upgraded coffee/espresso program.
The remaining portion of company sales are
afternoon coffee and snacks and, in a limited
number of locations, light dinner.
Catalog
Sales through Boudin's direct-mail increased in
1997 from the previous year. The catalog
features premium Boudin breads as well as a
broad range of bread-related food items (such
as cheeses, meats, wines, and chocolates) with
a San Francisco theme. Boudin believes that the
catalog represents a significant opportunity
for expansion of the Boudin brand outside of
California.
Restaurants and Retail Supermarkets
Less than 10% of Boudin's sales are to
supermarkets and restaurants, primarily in the
Chicago area. Boudin is exploring
opportunities to expand sales to these channels
in its core California market.
Production
Boudin's breads are produced in two bakeries in
San Francisco and an additional facility in
Chicago. In addition, the company has co-
packing arrangements with outside parties for
production of bread in Southern California and
for peak periods of its catalog operation.
Boudin also operates a commissary at its
headquarters in San Francisco.
Strategy
Between 1995 and 1997, Boudin's sales increased
as the company focused on opening new cafes in
northern and southern California. In 1998 and
beyond, Boudin is shifting its focus toward
improving bottom line performance and cash flow
with three basic strategies:
Cost reduction and control. Boudin has
implemented an extensive cost reduction program
targeted toward lowering cafe food and labor
costs. The company is also completing the
implementation of systems that provide daily on-
line access to individual cafe performance.
Same store sales. Boudin's capital investment
in future years is focused on store remodels
rather than new cafes. These programs combined
with menu shifts, pricing and service
improvements are expected to deliver sales
growth in existing cafes.
Non-cafe growth. Boudin is expanding efforts
to build its brand in the catalog and
supermarket channels. This expansion requires
little or no capital investment.
H&M FOOD SYSTEMS COMPANY, INC.
Overview
H&M Food Systems Company, Inc. ("H&M") is a
leading producer of specialty meats and meat-
based prepared foods for restaurants and food
manufacturers. Formed in 1983 and based in
Fort Worth, Texas, H&M's products are
manufactured in three plants in Texas which
will be consolidated into two more efficient
facilities by April 1998. H&M offers a broad
range of specialty meat products from basic
pepperoni, sausage and meat fillings to fully
prepared soups, sauces, tacos and burritos.
The company's meat products are sold fully-
cooked in convenient pre-packaged frozen and
refrigerated form.
Industry Overview
The majority of H&M's sales are to the
foodservice industry, a $314 billion industry
with an estimated annual growth rate of 2.5%.
This growth is forecasted to remain strong, as
the consumption of home-prepared meals
continues to decline. Within the foodservice
industry, the company has a leading position in
providing pre-cooked specialty meats to large,
national chain restaurants, principally pizza,
Mexican food and casual dining, which represent
attractive growth opportunities. Industry
experts estimate that these segments have been
growing at 5-6% annually and are expected to
continue their steady growth for the next
several years.
The remaining portion of H&M's sales are to
manufacturers of prepared foods, a sector which
is also experiencing an increased use of pre-
cooked meats. These customers typically use
meat products as components in prepared food
products such as frozen entrees, pizzas and
sauces. The company believes there are
significant opportunities to leverage its
existing market position to capitalize on the
opportunities for pre-cooked products for food
manufacturers. Since 1993, H&M's sales to this
channel have nearly doubled.
The demand for pre-cooked products for both the
foodservice and food manufacturer channels is
growing rapidly for several reasons: (i)
manufacturers are able to guarantee consistency
and quality of product at a cost-effective
price, (ii) pre-cooking substantially reduces
the risk of bacterial contamination, and (iii)
outsourcing reduces a labor expense and
required capital investment in fixed assets.
Competition in the specialty meat category
includes a range of competitors from large,
full-line meat suppliers to smaller, more
specialized regional companies.
Specialty Meat Competitors
----------------------------------------------
Large, Full-Line Specialized, Regional
Competitors Companies
------------------- ---------------------
IBP Quality Sausage
Tyson Burke
Hormel Swiss America
ConAgra
H&M offers its customers a unique combination
of a full line of specialty meats (similar to
the larger companies) and the high service and
customization capabilities of the more
specialized, regional companies.
Products
H&M sells a full line of specialty meats and
meat-based prepared foods to its customers.
All of the company's products are pre-cooked,
frozen or refrigerated, and sold in a variety
of customized package sizes. Products are
distributed nationally to the customer's
distribution centers. H&M utilizes contract
refrigerated carriers to transport its
products.
Specialty Meats
H&M's specialty meat product line consists of 3
key product types:
Extruded products include beef, pork and
Italian sausage meat pieces and toppings
primarily for pizzas, pasta sauces and stews.
Pepperoni is sold in uncut and pre-cut forms.
H&M recently developed a proprietary technology
for the production of pepperoni. This
production process offers customers a lower
cost, higher quality product.
Formed products include meatballs, meatloaf,
hamburger patties and breakfast sausage.
H&M's specialty meat products are manufactured
at its North Richland Hills and Fort Worth
facilities. Formed products are produced by an
outside co-packer.
Prepared Foods
H&M's value-added prepared foods provide its
customers with ready to cook foods that
incorporate a number of ingredients including
meat, vegetables, spices and sauces. Prepared
foods include two major product types:
Kettle products include soups, sauces, chili
and taco fillings.
Tortilla products include fully prepared,
filled and packaged burritos and tacos.
Kettle products are produced at the company's
Fort Worth facility. Tortilla products are
manufactured at the Lampasas operation.
Customers
H&M believes that one of its primary assets is
its long-standing relationships with its high-
quality, national account customer base. As a
complement to its products, the company
provides its customers with extensive technical
and manufacturing support services.
Production
Currently, H&M owns and operates three
production facilities in Texas totaling 350,000
square feet in Fort Worth, North Richland Hills
and Lampasas. In 1997, the company initiated a
major plant expansion at its North Richland
Hills facility, increasing production square
footage by 83,000 square feet. Upon completion
of this plant expansion H&M will close its Fort
Worth facility and consolidate all of its
specialty meat and kettle operations at
North Richland Hills.
The North Richland Hills project is 90%
complete and is expected to be finished
(concurrent with the permanent shutdown of the
Fort Worth Facility) in the second quarter of
1998. Upon completion of North Richland Hills
project in the second quarter of 1998, the
Company expects substantial improvement in
H&M's EBITDA resulting from the cost savings
achieved upon the combination of these
facilities.
Raw Materials
H&M's primary raw materials are beef, pork and
chicken. These raw materials are obtained from
regional and national slaughterhouses. Other
processing materials such as seasoning, smoking
and curing agents, sausage casings and packing
materials are obtained from a number of readily
available sources. H&M utilizes several
techniques for reducing the risk of changes in
commodity prices, including purchasing frozen
raw materials during seasonally low periods and
negotiating contracts that limit pricing risk
to a relatively short period through "cost
plus" pricing.
H&M's prices to its customers are generally
based on a fixed upcharge over published meat
commodity prices. As a result, H&M is able to
pass through nearly all of the changes in its
raw material prices directly to its customers.
Strategy
H&M is well positioned to continue its solid
track record of improvement by focusing on
three key strategies:
Expand customer base. Through its direct sales
force and technical services group, H&M has
developed strong relationships with its key
customers. At the same time, the company is
working aggressively to diversify its customer
base and increase the sales of its profitable
prepared foods products. In particular, H&M
has a number of initiatives underway with food
manufacturers that management expects will
generate significant sales in 1998 and beyond.
Reduce costs. The consolidation of H&M's Fort
Worth and North Richland Hills facility
provides the company with one of the most
efficient specialty meat processing facilities
in the U.S. The consolidated facility is
expected to open in the second quarter of 1998.
Maximize quality. Management has made and will
continue to make significant investments to
ensure that its product quality and product
safety programs are among the finest in the
industry. Management believes that this will
be an increasingly important point of
differentiation versus its competitors in the
future.
HISTORICAL FINANCIAL INFORMATION
The following table sets forth a summary of the
historical financial and operating results of the
Company, restated to reflect continuing businesses
as of December 31, 1997 (Metz, Mother's, Boudin and
H&M):
Summary of Historical Operating Results ($ in millions)
- -----------------------------------------------------------------
Fiscal Year Ended December 31,
1995 1996 1997
------ ------ ------
Net Revenue:
Bakery Operations $610.9 $645.7 $668.2
Meat Operations $188.9 $188.9 $201.6
------ ------ ------
Total Net Revenues (1) $799.8 $834.6 $869.8
Growth Rate - 4.4% 4.2%
Gross Profit $336.8 $353.3 $375.0
Gross Margin 42.1% 42.3% 43.1%
EBITDA(2) $85.6 $64.1 $62.5
Adjusted EBITDA(3) $74.1 $61.7 $69.1
Adjusted EBITDA Margin 9.3% 7.4% 7.9%
Capital Expenditures:
Maintenance $18.1 $18.7 $23.5
Productivity/Capacity 4.3 8.8 19.7
Fleet 0.0 0.0 1.8
------ ----- -----
Total $22.4 $27.5 $45.0
(1) Excludes net sales of divested businesses
which did not qualify for discontinued
operations treatment. The net sales for these
divested businesses were: $17.1 million and
$50.3 million for 1996 and 1995, respectively.
(2) EBITDA represents operating profit plus the
amount of the following non-cash charges:
1995 1996 1997
---- ---- ----
(in millions)
Operating Profit (Loss) ($154.4) ($182.9) $38.1
Goodwill Writedown 203.8 203.3 -
Depreciation 23.3 23.9 23.0
Amortization 12.9 7.6 1.4
Restructuring Charges - 12.2 -
------ ------ -----
Total $85.6 $64.1 $62.5
(3) Adjusted EBITDA represents EBITDA adjusted
for the impact of divested businesses which did
not qualify for discontinued operations
treatment and one-time adjustments, consisting
of lease financing expenses, non-cash accounting
estimates and allocations, and other non-cash
reserves. A reconciliation to adjusted EBITDA
is as follow:
1995 1996 1997
---- ---- ----
(in millions)
EBITDA $85.6 $64.1 $62.5
Divested Businesses .7 .2 -
One-Time Adjustments (12.2) (2.6) 6.6
----- ----- -----
Total $74.1 $61.7 $69.1
DISCUSSION OF HISTORICAL OPERATING RESULTS
1996 vs. 1995
1996 adjusted EBITDA declined to $61.7 million, a $12.4
million decrease from the prior year. Corporate
expenses increased principally due to severance
expenses associated with former senior executives of
the Company. Excluding corporate expenses, adjusted
EBITDA for the operating companies declined $8.5
million. The overall decline was driven by a decrease
in adjusted EBITDA at Mother's due to sharply higher
operating costs on lower volume. This decline was
partially offset by moderate gains at Metz and H&M.
Net sales increased $34.8 million or 4% in 1996
compared to 1995. Net sales of the Bakery Operations
increased $34.8 million or 5.7% principally due to
price increases in response to increased ingredient
costs. Net sales of the Meat Operations were flat
compared to prior year. Gross margin percentage
increased slightly to 42.3% in 1996 as improved margin
business at H&M was offset by a slight decline at Metz
and a sharp decline at Mother's. The Metz decline was
the result of record high flour costs while the decline
at Mother's was principally attributable to an
unfavorable mix shift to lower margin new products.
Selling, distribution, and general and administrative
expenses increased versus prior year primarily due to
contractual wage and fringe benefit increases for route
sales representatives in the Company's Direct Store
Delivery (DSD) System, and costs associated with new
product introductions and expanded distribution at
Mother's.
1997 vs. 1996
1997 adjusted EBITDA increased to $69.1 million, a $7.4
million increase over prior year. This increase was
driven by higher adjusted EBITDA at Metz primarily due
to increased margins and volume. A moderate gain at
H&M was more than offset by continued declines at
Mother's through the first half of 1997.
Net sales increased $35.2 million or 4.2% in 1997
compared to 1996. Net sales of the Bakery Operations
increased $22.5 million or 3.5% principally due to
increased cafe sales at Boudin's and an additional week
of sales due to the Company's fifty-three week year.
Net sales of the Meat Operations increased $12.7
million primarily due to volume gains. Gross margin
percentage increased slightly to 43.1% driven by margin
gains at Metz due to lower flour costs. Selling,
distribution, and general and administrative expenses
increased versus prior year reflecting the inflationary
impact of the Bakery Operations DSD systems, increased
costs due to additional cafes at Boudin's, offset by a
reduction in SFC corporate overhead expenses due to
staff reductions.
Liquidity and Capital Resources
Maintenance capital expenditures increased $0.6 million
in 1996, however still lagged behind the annual
historical average due to maintenance deferrals.
Maintenance related spending increased $4.8 million in
1997 reflecting a catch up for prior years' maintenance
deferrals. Productivity related capital expenditures
in 1996 were consistent with historical averages.
Productivity spending increased $10.9 million in 1997
primarily due to the commencement of a plant
consolidation project at Mother's. Fleet related
capital expenditures reflect the costs to acquire
replacement route vans. In 1998, the Bakery Operations
plans to repurchase lease obligations relating to fleet
leases and sale/leaseback obligations. Commencing in
1998, the Company will acquire rather than lease its
entire replacement fleet requirements.
The Company had approximately $228.1 million of cash on
hand as of December 31,1997 (pro forma for the
refinancing), and together with availability under the
Revolving Facilities has total liquidity of $346.8
million. The combination of the Stella proceeds,
Credit Facilities, and operating cash flow should
enable the Company to maintain sufficient liquidity
through the term of the agreement. Additionally, the
Company could generate additional liquidity through the
divestiture of non-core assets. Each of the Company's
four business units has been operated on a standalone
basis, simplifying the divestiture of any individual
unit.
Exhibit 99.4
Contact: Andy Stern
Sunwest Communications
214-373-1601
FOR IMMEDIATE RELEASE: February 16, 1998
SPECIALTY FOODS CORPORATION REPORTS
INCREASED 1997 SALES AND OPERATING PROFIT AND
RECEIVES ADDITIONAL FINANCING COMMITMENT
DEERFIELD, IL - Specialty Foods Corporation today announced that
net sales for 1997 increased to $869.8 million compared to $834.6
million for the previous year, after adjusting for divested
businesses. For continuing operations, operating profit for 1997
equaled $38.1 million, a $221 million increase from the Company's
1996 operating loss of $182.9 million, which included a goodwill
write-down of $203.3 million and a restructuring charge of $12.2
million.
In addition, Specialty Foods announced that Bankers Trust Company
has committed to provide Specialty Foods and its subsidiaries
with up to $75 million of financing under an Accounts Receivable
Securitization Program. This financing is in addition to the
commitment for a $298.75 million Term Loan and Revolving Credit
Facility which Specialty Foods announced on February 13, 1998.
Specialty Foods intends to use proceeds from the Accounts
Receivable Securitization Program to refinance its existing
accounts receivable financing and for general corporate purposes.
Consummation of the transaction is subject to certain customary
closing conditions. Specialty Foods expects the transaction to
close on or before March 31, 1998.
Specialty Foods Corporation is a wholly-owned subsidiary of
Specialty Foods Acquisition Corporation.
