UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 000-20499
F O O D B R A N D S A M E R I C A, I N C.
(Formerly known as Doskocil Companies Incorporated)
_______________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2535513
_______________________________ ___________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2601 NW Expressway, Suite 1000W, Oklahoma City, Oklahoma 73112
______________________________________________________ _________
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (405)879-5500
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
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES X NO
On November 8, 1995, the number of shares outstanding of the
registrant's common stock, $.01 par value, was 12,454,186.
<PAGE>
FOODBRANDS AMERICA, INC.
(formerly known as Doskocil Companies Incorporated)
_________________________
TABLE OF CONTENTS
FORM 10-Q
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet at
September 30, 1995 (Unaudited) and
December 31, 1994 . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of
Operations - Unaudited, Three Months and Nine
Months Ended September 30, 1995 and
October 1, 1994 . . . . . . . . . . . . . . . . . 4-5
Condensed Consolidated Statement of Cash
Flows - Unaudited, Nine Months Ended September
30, 1995 and October 1, 1994. . . . . . . . . . . 6-7
Notes to the Condensed Consolidated
Financial Statements - Unaudited . . . . . . . . 8-13
Report of Independent Accountants . . . . . . . . 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . 15-19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . 21
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands, except par value)
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
_____________ ____________
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 4,934 $ 17,376
Receivables 37,978 29,472
Inventories 49,565 48,488
Other current assets 2,818 2,365
Net current assets of discontinued
operations (Note 4) - 12,145
________ ________
Total current assets 95,295 109,846
Property, plant and equipment, net of
accumulated depreciation and amortization
of $35,446 and $31,685 101,342 92,902
Intangible assets, net of accumulated
amortization of $4,560 and $2,654 82,471 83,687
Deferred charges and other assets 40,586 43,419
Reorganization value in excess of amounts
allocable to identifiable assets, net of
accumulated amortization of $9,215 and
$7,867 27,253 39,204
Net noncurrent assets of discontinued
operations (Note 4) - 73,209
________ ________
$346,947 $442,267
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 2,837 $ 1,654
Accounts payable 19,375 13,353
Accrued liabilities 41,672 44,182
________ ________
Total current liabilities 63,884 59,189
Long-term debt 163,677 224,260
Other long-term liabilities 77,255 80,331
Stockholders' equity:
Preferred stock, 4,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value, 20,000,000
shares authorized, 12,454,239 shares
issued and outstanding (12,447,914
shares at December 31, 1994) 125 124
Capital in excess of par value 151,109 151,046
Retained earnings (deficit) (107,528) (71,108)
Minimum pension liability adjustment (1,575) (1,575)
________ ________
Total stockholders' equity 42,131 78,487
________ ________
$346,947 $442,267
======== ========
<FN>
The accompanying notes are an integral part of the condensed consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
(Dollar amounts in thousands, except per share figures)
<CAPTION>
Three Months Ended Nine Months Ended
___________________ ___________________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
_________ ________ ________ ________
<S> <C> <C> <C> <C>
Net sales $169,223 $152,189 $455,217 $358,092
Cost of sales 134,760 119,331 357,002 290,684
________ ________ ________ ________
Gross profit 34,463 32,858 98,215 67,408
Operating expenses:
Selling 18,219 17,107 51,955 34,503
General and administrative 6,581 6,706 18,926 18,245
Amortization of intangible
assets 1,092 1,289 3,254 2,796
________ ________ ________ ________
Total 25,892 25,102 74,135 55,544
________ ________ ________ ________
Operating income 8,571 7,756 24,080 11,864
Other income (expense):
Interest and financing
costs (4,081) (5,050) (12,788) (10,461)
Other, net (230) (178) (562) (498)
________ ________ ________ ________
Total (4,311) (5,228) (13,350) (10,959)
________ ________ ________ ________
Income from continuing
operations before income
taxes 4,260 2,528 10,730 905
Income tax provision 1,757 1,273 4,503 494
________ ________ ________ ________
Income from continuing
operations 2,503 1,255 6,227 411
Discontinued operations
(Note 4):
Income (loss) from
operations of the Retail
Division (less applicable
income tax benefit) - (3,348) (4,121) (3,763)
Loss on disposal of the
Retail Division (plus
applicable income tax
expense) - - (38,526) -
Extraordinary loss on early
extinguishment of debt
(less applicable income
tax benefit) - (1,433) - (2,419)
________ ________ ________ ________
Net income (loss) $ 2,503 $ (3,526) $(36,420) $ (5,771)
======== ======== ======== ========
Continued
</TABLE>
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
(Dollar amounts in thousands, except per share figures)
<CAPTION>
Three Months Ended Nine Months Ended
___________________ ___________________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
_________ _______ _________ _______
<S> <C> <C> <C> <C>
Earnings (loss) per share-
primary and fully diluted:
Income from continuing
operations $0.20 $ 0.16 $ 0.50 $ 0.05
Income (loss) from
discontinued operations - (0.42) (0.33) (0.47)
Loss on disposal of
discontinued operations - - (3.09) -
Extraordinary loss on early
extinguishment of debt - (0.18) - (0.31)
_____ ______ ______ ______
Net income (loss) $0.20 $(0.44) $(2.92) $(0.73)
===== ====== ====== ======
Weighted average number
of common and common
equivalent shares
outstanding -
primary and fully diluted 12,448 7,921 12,448 7,921
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
<CAPTION>
Nine Months Ended
____________________
Sept. 30, Oct. 1,
1995 1994
_________ _________
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 6,227 $ 411
Adjustments to reconcile income (loss) from
continuing operations to net cash provided
(used) by continuing operating activities:
Depreciation and amortization 8,188 7,453
Amortization of intangible assets 3,254 2,796
Postretirement medical benefits 676 600
Deferred compensation 610 565
Amortization included in interest expense 827 845
Deferred income taxes 3,949 -
Payments for restructuring/integration (2,430) -
Changes in:
Receivables (8,432) 4,457
Inventories (1,077) (4,456)
Other current assets (454) (281)
Deferred charges and other assets (131) (158)
Accounts payable and accrued liabilities (1,976) 1,772
Other (35) 12
_______ ________
Net cash flows provided by continuing
operations 9,196 14,016
Net cash flows used by discontinued
operations including changes in working
capital (11,517) (9,010)
_______ ________
Net cash provided (used) by operating
activities (2,321) 5,006
_______ ________
Cash flows from investing activities:
Purchase of property, plant and equipment (15,697) (4,934)
Acquisition of International Multifoods
Foodservice Corp., net of cash acquired - (137,442)
Payments received on notes receivable 325 539
Proceeds from sale of property, plant and
equipment 101 430
Proceeds from sale of Retail Division 65,786 -
Net investing activities of discontinued
operations (838) (3,446)
_______ ________
Net cash provided (used) by investing
activities 49,677 (144,853)
_______ ________
Continued
</TABLE>
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
<CAPTION>
Nine Months Ended
_____________________
Sept. 30, Oct. 1,
1995 1994
_________ _________
<S> <C> <C>
Cash flows from financing activities:
Proceeds from debt obligations, net of
issuance costs - 141,154
Borrowings under revolving working capital
facility - 181,000
Payments on revolving working capital facility - (177,500)
Payments on capital lease and debt
obligations (59,305) (1,216)
Payment on early extinguishment of debt - (1,088)
Net financing activities of discontinued
operations (549) 1,360
Issuance of common stock 56 -
_______ ________
Net cash provided (used) by financing
activities (59,798) 143,710
_______ ________
Increase (decrease) in cash and cash
equivalents (12,442) 3,863
Cash and cash equivalents at beginning of
period 17,376 6,203
_______ ________
Cash and cash equivalents at end of period $ 4,934 $ 10,066
======== ========
Supplemental disclosure of noncash operating
activities:
Loss on early extinguishment of debt, net
of income taxes $ - $ 2,419
Supplemental disclosure of noncash investing
activities:
Capital lease obligations -
Continuing operations $ - $ 550
Discontinued operations $ - $ 2,853
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE 1 GENERAL
On May 16, 1995, the stockholders of Doskocil Companies
Incorporated ("Doskocil") voted to merge Doskocil with and into a
newly-formed, wholly-owned subsidiary of Doskocil, New Doskocil
Inc., with New Doskocil Inc. being the surviving corporation (the
"Merger"). The purpose of the Merger was (i) to change the
corporate name to Foodbrands America, Inc. ("Foodbrands America")
and (ii) to help assure that Doskocil's substantial tax benefits
(in the form of net operating loss carryforwards) will continue
to be available to offset future taxable income. This was
accomplished by decreasing the likelihood of an "ownership
change", as defined for federal income tax purposes, by including
certain transfer restrictions in New Doskocil Inc.'s Certificate
of Incorporation and certain legends on its common stock
certificates.
The Merger was accounted for as a pooling of interest.
Since New Doskocil Inc. had no assets prior to the Merger, the
consolidated financial statements of Foodbrands America are the
same as Doskocil's prior to the Merger.
The accompanying condensed consolidated financial
statements include the accounts of Foodbrands America and all
majority-owned subsidiaries (collectively, the "Company") and
have been prepared without audit. The Balance Sheet at December
31, 1994, has been derived from financial statements which have
been audited by Coopers & Lybrand L.L.P., independent
accountants. Certain prior year balances have been restated to
conform to the reporting requirements for discontinued operations
(see Note 4).
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (adjustments are of a normal, recurring nature)
necessary for a fair presentation of the financial position as of
September 30, 1995 and December 31, 1994, and the results of
operations for the three months and nine months ended September
30, 1995 and October 1, 1994 and cash flows for the nine months
ended September 30, 1995 and October 1, 1994. Results for the
nine months ended September 30, 1995 are not necessarily
indicative of the results which will be realized for the year
ending December 30, 1995. The financial statements should be
read in conjunction with the Company's Annual Report on Form
10-K, as amended, for the year ended December 31, 1994.
NOTE 2 INVENTORIES
Inventories at September 30, 1995 and December 31, 1994 are
summarized as follows (in thousands):
September 30, December 31,
1995 1994
_____________ ____________
Raw materials and supplies $14,222 $16,076
Work in process 6,928 4,310
Finished goods 28,415 28,102
_______ _______
$49,565 $48,488
======= =======
NOTE 3 INCOME TAXES
The provision (benefit) for income taxes on continuing
operations consists of the following components (in thousands):
Three Months Ended Nine Months Ended
___________________ ____________________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
_________ _______ _________ ________
Current:
Federal $ 42 $ 33 $ 78 $ 44
State 151 150 476 450
______ ______ ______ ______
193 183 554 494
______ ______ ______ ______
Deferred:
Federal 1,049 916 3,325 -
State 515 174 624 -
______ ______ ______ ______
1,564 1,090 3,949 -
______ ______ ______ ______
Total $1,757 $1,273 $4,503 $ 494
====== ====== ====== ======
The effective tax rate differs from the statutory rate due
primarily to amortization of certain intangible assets which are
not deductible for tax purposes. The effective tax rate was
calculated based on the projected taxable income for the full
fiscal year and the anticipated changes in the deferred tax
assets and related valuation allowance and the deferred tax
liabilities.
In accordance with Fresh Start Reporting as prescribed by
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" issued by the American
Institute of Certified Public Accountants, the tax benefit
realized from utilizing the pre-reorganization net operating loss
carryforwards should be recorded as a reduction of the
Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets ("Reorganization Value") rather than be
realized as a benefit in the statement of operations. In the
third quarter of 1995, the Company reduced the Reorganization
Value by $1.6 million based on the recognition of $1.6 million in
deferred tax expense.
As further explained in Note 4, "Discontinued Operations",
the sale of the Retail Division in May 1995 generated taxable
income of approximately $25.1 million. Net deferred income taxes
attributable to continuing and discontinued operations of $9.0
million have been recognized in the second quarter of 1995
representing the utilization of net operating loss carryforwards
to offset taxable income.
The income tax provision (benefit) applicable to the net
losses from discontinued operations associated with the Retail
Division for the three and nine months ended September 30, 1995
and the three and nine months ended October 1, 1994, are (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
___________________ _________________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
_________ _______ _________ _______
<S> <C> <C> <C> <C>
Operations of the Retail Division:
Deferred expense (benefit) $ - $ 385 $(2,899) $ -
======= ===== ======= =====
Disposal of the Retail Division:
Current expense:
Federal $ - $ - $ 278 $ -
State - - 469 -
Deferred expense - - 9,553 -
_______ _____ _______ _____
$ - $ - $10,300 $ -
======= ===== ======= =====
</TABLE>
The deferred tax benefit recognized in the first half of
1994, based on the Company's projected realization of the benefit
in 1994, was reversed in the third quarter of 1994 as it was
determined the benefit would not be realized in 1994.
NOTE 4 DISCONTINUED OPERATIONS
On May 30, 1995, the Company sold the assets of its Retail
Division to Thorn Apple Valley, Inc. The sales price
approximated $65.8 million in cash payments plus the assumption
of long-term debt of approximately $6.0 million and certain
current liabilities related to the division of approximately $4.5
million. In connection with this sale the Company wrote off
approximately $64.3 million of post-bankruptcy intangible assets
and recorded a net loss on disposition of approximately $38.5
million. The agreement also includes a potential earnout of an
additional $10 million based upon an increase in the market value
of the purchaser's common stock. The Company reduced its debt
under its term loan by $58 million. The remainder of the
proceeds have been or will be used to pay expenses related to the
sale. The results of operations and cash flows attributable to
the Retail Division are reported as discontinued operations and
accordingly the balance sheet at December 31, 1994 and the other
financial information for the fiscal 1994 interim periods have
been restated.
The results of discontinued operations are (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
__________________ _________________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
_________ _______ _________ _______
<S> <C> <C> <C> <C>
Net sales $ - $53,166 $72,357 $170,188
======= ======= ======= ========
Income (loss) before taxes $ - $(2,963) $(7,020) $ (3,763)
Tax expense (benefit) - 385 (2,899) -
_______ _______ _______ ________
Net income (loss) $ - $(3,348) $(4,121) $ (3,763)
======= ======= ======= ========
</TABLE>
The assets and liabilities of discontinued operations
included in the December 31, 1994 balance sheet are (in
thousands):
Dec. 31,
1994
________
Working capital $12,145
Net property, plant and
equipment 22,822
Intangible and other assets 57,013
Long-term debt 6,626
Included in accounts payable and accrued liabilities at
September 30, 1995, are certain amounts, totalling $3.0 million,
relating to the sale of the Retail Division. The payments
associated with these accruals will be reflected in future
consolidated statements of cash flows as net cash flows used by
discontinued operations.
The assets included in the sale of the Retail Division had
significantly different financial and tax basis. Therefore, for
income tax purposes this transaction generated taxable income of
approximately $25.1 million requiring the utilization of net
operating loss carryforwards. The tax affect of this utilization
is approximately $9.6 million. In accordance with Fresh Start
Reporting as described above, in the second quarter of 1995, as a
direct result of the sale and the related tax affect, the Company
reduced the Reorganization Value and other post-bankruptcy
intangible assets by $64.3 million, which will in turn reduce
the amortization of that asset in the future.
NOTE 5 RESTRUCTURING AND INTEGRATION
The Company is progressing with its restructuring and
integration program announced in December 1994. As of September
30, 1995, the Company has consolidated production operations,
closed two production facilities and a distribution facility and
discontinued a production operation. The Company has also
reduced employment at various other locations as scheduled. The
program is currently on schedule to be completed during the first
half of 1996. The balance of the accrued liabilities remaining
at September 30, 1995 of the original $12.5 million provision is
$2.0 million. Management believes that the remainder of the
reserve is adequate to complete the restructuring and integration
program.
NOTE 6 SUBSEQUENT EVENTS
On October 17, 1995, the Company announced it had signed a
letter of intent to acquire KPR Holdings, L.P. ("KPR"), a
privately held producer and marketer of custom prepared foods and
prepared meat items for multi-unit restaurant chains. The
purchase price is approximately $75 million in cash payments and
the assumption of approximately $18 million in debt. The
agreement also provides for additional contingent purchase price
adjustments based on the financial performance of this company
during the first three years following closing. The Company will
finance the acquisition through a new bank facility.
Completion of the transaction is expected in the fourth
quarter of fiscal 1995. The following pro forma financial
information assumes the acquisition occurred at the beginning of
1994. These results have been prepared for comparative purposes
only and do not purport to be indicative of what would have
occurred had the acquisition been made at the beginning of 1994,
or of the results which may occur in the future.
Nine Months Ended
________________________
Sept. 30, Oct. 1,
1995 1994
_________ ________
Net sales $527,387 $411,989
Income from continuing operations $ 7,968 $ 273
Earnings per share -
primary and fully diluted:
Income from continuing
operations $ 0.64 $ 0.03
On November 9, 1995, the Company received a commitment from
Chemical Bank and CitiBank for a new credit facility to be used
to refinance existing bank debt as well as provide funds for the
KPR acquisition and future potential acquisitions. The facility
will be comprised of a $145 million term facility, $100 million
acquisition facility and a $75 million revolving facility. All
facilities will mature on January 15, 2000. The term facility
will require quarterly payments beginning May 1996. The
acquisition facility will require quarterly payments beginning
May 1997. The interest rate will vary between 1.75% to 2.5% over
LIBOR based on certain criteria and is estimated to be 8.125% on
the day the loan is scheduled to be funded. The facilities will
be secured by all tangible and intangible assets and capital
stock of the Company and its subsidiaries. The covenants will
require certain EBITDA less capital expenditure to cash interest
and debt to EBITDA ratios.
In connection with the extinguishment of the existing
credit facilities discussed above, the Company will incur, in the
fourth quarter 1995, an extraordinary loss of approximately $1.0
million, after income tax benefit.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Foodbrands America, Inc.
We have reviewed the condensed consolidated balance sheet
of Foodbrands America, Inc. and subsidiaries as of September 30,
1995, and the related condensed consolidated statements of
operations for the three month and nine month periods ended
September 30, 1995, and October 1, 1994, and the condensed
consolidated statements of cash flows for the nine month periods
ended September 30, 1995 and October 1, 1994. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet as of
December 31, 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period
ended December 31, 1994 (not presented herein), and in our report
dated March 3, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1994, is fairly stated in all
material respects in relation to the consolidated balance sheet
from which it has been derived.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
October 17, 1995
PAGE
<PAGE>
FOODBRANDS AMERICA, INC.
(formerly known as Doskocil Companies Incorporated)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Continuing Operations
________________________________
Comparability of Periods. Due to the acquisition of the
Specialty Brands Division on June 1, 1994, the financial
statements for the first nine months of 1994 reflect the
operating results of Specialty Brands for the months of June
through September 1994 only. The operating results attributable
to Specialty Brands for the first five months of 1995 include net
sales of $74.6 million, gross profit of $22.9 million and
operating income of $6.0 million.
On May 30, 1995, the Company sold the assets of its Retail
Division to Thorn Apple Valley, Inc. The results of operations
and cash flows of the division have been reported as discontinued
operations and the first nine months of 1994 have been restated
to reflect this treatment. Accordingly, the results of
continuing operations for 1995 and 1994 do not include the
operations of the Retail Division.
Three Months Ended September 30, 1995 Compared to the Three
Months Ended October 1, 1994. The Company's net sales for the
third quarter of 1995 were $169.2 million, an increase of $17.0
million or 11% over sales of $152.2 million for the third quarter
of 1994. The increase was due to increases in sales volume
primarily in the Food Service and Deli Divisions.
Gross profit for the third quarter of 1995 of $34.5 million
increased $1.6 million, or 5%, over the gross profit of $32.9
million for the third quarter of 1994. The increase in the gross
profit of the Company resulted from overall unit volume growth
which was partially offset by margin compression in the Food
Service and Deli Divisions due to volatility of their raw
material costs which occurred during the 1995 period.
Selling expenses of $18.2 million in the third quarter of
1995 increased $1.1 million over the 1994 period selling expenses
of $17.1 million. The increase is a result of increased selling
and marketing expenditures incurred in response to competition in
the Specialty Brands Division's appetizer lines.
General and administrative expenses decreased $0.1 million,
from $6.7 million to $6.6 million.
Amortization of intangible assets decreased $0.2 million
due to the reduction of amortization of intangibles created by
the utilization of net operating losses which reduced the
intangible asset "Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets."
Interest and financing costs decreased from $5.1 million to
$4.1 million as a direct result of the reduction in debt
resulting from the sale of the Retail Division.
Income tax expense for the third quarter of 1995 of $1.8
million is based on the effective tax rate for projected income
from continuing operations for 1995. The effective tax rate was
calculated based on the projected taxable income for the full
fiscal year and the anticipated changes for the year in the
deferred tax assets and related valuation allowance and the
deferred tax liabilities.
Nine Months Ended September 30, 1995 Compared to the Nine
Months Ended October 1, 1994. Net sales for the first nine
months of 1995 increased 27% to $455.2 million compared to $358.1
for the same period in 1994. The increase of $97.1 million is a
result of (i) $74.6 million of additional 1995 sales resulting
from the Specialty Brands acquisition in June 1994 and (ii)
increased sales volumes in the other divisions.
In the first nine months of 1995, gross profit increased
$30.8 million, or 46%, to $98.2 million from $67.4 million in the
first nine months of 1994. Of this total increase, $22.9 million
relates to the addition of the Specialty Brands Division. The
remaining $7.9 million increase resulted from improved
manufacturing throughput, manufacturing cost reductions and
changes in sales mix.
Selling expenses for the first nine months of 1995 of $52.0
million increased $17.5 million over the same period in 1994 of
$34.5 million. The addition of Specialty Brands accounts for
$14.8 million of this increase. The remaining increase of $2.7
million relates to increased costs associated with the increased
volumes noted above as well as increased spending in response to
increased competition in the third quarter as previously noted.
General and administrative expenses increased $0.7 million,
to $18.9 million from $18.2 million. The increase resulting from
the Specialty Brands acquisition was $1.2 million. The
offsetting $0.5 million reduction is attributable to corporate
overhead reduction efforts.
Amortization of intangibles increased $0.5 million due to
the amortization of intangibles related to the Specialty Brands
purchase partially offset by the reduction of amortization of
intangibles created by the utilization of net operating losses
which reduced the intangible asset "Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets."
Interest and financing costs increased $2.3 million because
of the debt associated with the Specialty Brands acquisition
partially offset by the reduction in debt associated with the
sale of the Retail Division.
Income tax expense for the first nine months of 1995 of
$4.5 million is based on the effective tax rate for projected
income from continuing operations for 1995. The effective tax
rate was calculated based on the projected taxable income for the
full fiscal year and the anticipated changes for the year in the
deferred tax assets and related valuation allowance and the
deferred tax liabilities. The income tax expense of $0.5 million
recorded in the first nine months of 1994 was based on the
projected taxable income for 1994.
Discontinued Operations
_______________________
Discontinued operations includes the net sales and related
expenses associated with the Retail Division's operations.
Included in the third quarter of 1994 are (i) net sales of $53.2
million, (ii) gross profit of $9.1 million, (iii) after
amortization of intangibles of $0.8 million for the quarter,
operating loss of $(1.7) million and (iv) after allocating
corporate interest expense of $1.2 million, a net loss of $(3.3)
million. The third quarter 1994 loss was after income tax
expense of $0.4 million.
Discontinued operations for the nine months ended September
30, 1995 and October 1, 1994, respectively, includes (i) net
sales of $72.4 million and $170.2 million, (ii) gross profit of
$9.1 million and $31.9 million, (iii) after amortization of
intangibles of $1.6 million and $2.5 million for each nine
months, operating income (loss) of $(4.8) million and $0.1
million and (iv) after allocating corporate interest expense of
$2.2 million and $3.9 million, income (loss) of $(4.1) million
and $(3.8) million. The nine months 1995 net loss was after tax
expense of $(2.9) million. There was no tax expense for the
nine months 1994.
Extraordinary Loss
__________________
During 1994, the Company incurred an extraordinary loss on
the early extinguishment of debt of $2.5 million. This loss
related to the write off of remaining unamortized deferred loan
costs associated with debt extinguished when the Company
consummated new bank financing in connection with the Specialty
Brands acquisition and the termination of the related interest
rate swap agreement. Of the $1.5 million income tax benefit
recorded in the second quarter of 1994, $1.4 million was reversed
in the third quarter as it was determined that the majority of
the benefit would not be realized in 1994.
Liquidity and Capital Resources
_______________________________
Management believes that cash flow from operations combined
with the borrowing capacity available under the Company's
revolving credit loan will be sufficient to meet the Company's
existing operating and debt service cash requirements for the
foreseeable future. Management also believes the reduction of
debt under its term loan as a result of the sale of the Retail
Division along with the reduced working capital requirements has
benefited the Company's overall liquidity and capital resources
and is allowing the Company to more rapidly execute its strategy
to acquire higher margin food businesses.
As a first step in implementing that strategy, on October
17, 1995, the Company announced it had signed a letter of intent
to acquire KPR Holdings, L.P. ("KPR"), a privately held producer
and marketer of custom prepared foods and prepared meat items for
multi-unit restaurant chains. The purchase price is
approximately $75 million in cash payments and the assumption of
approximately $18 million in debt. The agreement also provides
for additional contingent purchase price adjustments based on the
performance during the first three years of this company
following closing. The Company will finance the acquisition
through a new bank facility.
On November 9, 1995, the Company received a commitment from
Chemical Bank and CitiBank for a new credit facility to be used
to refinance existing bank debt as well as provide funds for the
KPR acquisition and future potential acquisitions. The facility
will be comprised of a $145 million term facility, $100 million
acquisition facility and a $75 million revolving facility. All
facilities will mature on January 15, 2000. The term facility
will require quarterly payments beginning May 1996. The
acquisition facility will require quarterly payments beginning
May 1997. The interest rate will vary between 1.75% to 2.5% over
LIBOR based on certain criteria and is estimated to be 8.125% on
the day the loan is scheduled to be funded. The facilities will
be secured by all tangible and intangible assets and capital
stock of the Company and its subsidiaries. The covenants will
require certain EBITDA less capital expenditure to cash interest
and debt to EBITDA ratios.
In connection with the extinguishment of the existing
credit facilities discussed above, the Company will incur, in the
fourth quarter 1995, an extraordinary loss of approximately $1.0
million, after income tax benefit.
Cash Flows and Capital Expenditures.
____________________________________
First nine months of 1995. For the first nine months of
1995, net cash used by operating activities was $2.3 million.
Decreases in cash resulted primarily from the use of cash in the
operations of the discontinued Retail Division. In addition,
cash decreased due to increases in receivables and inventory and
payments for restructuring/integration. Increases in cash were
provided by the results of continuing operations during the
period after adding back noncash items of depreciation,
amortization, interest and the provision for postretirement
medical benefits and deferred income taxes. Cash also decreased
due to decreases in accounts payable and accrued liabilities.
Expenditures for additions to property, plant and equipment
were $16.5 million, of which $0.8 million related to discontinued
operations. Approximately $4.8 million of these expenditures
relate to increased capacity, $3.9 million relates to new
equipment and fixtures to accommodate the transfer of production
to other facilities resulting from the integration and
restructuring program and the sale of the Retail Division and the
remainder was for replacements and modifications to existing
facilities. The source of the funds for these expenditures was
from cash provided by operations.
First nine months of 1994. For the first nine months of
1994, net cash provided by operating activities was approximately
$5.0 million. Increases in cash were provided by the results of
continuing operations during the period, after adding back
noncash items of depreciation and amortization, post retirement
medical benefits and deferred compensation. Decreases in cash
resulted primarily from the use of cash in the operations of the
discontinued Retail Division ($9.0 million) and an increase
during the period in inventory and other assets and decreases in
accounts payable and accrued liabilities offset partially by a
decrease in accounts receivable.
Cash expenditures for additions to property, plant and
equipment were approximately $8.4 million during the first nine
months of 1994 of which $3.4 million related to the Retail
Division. Of this total, approximately $3.0 million of these
expenditures were primarily attributable to construction of
additional capacity and the remainder for replacements and
modifications to existing facilities. The source of the funds
for these expenditures was from cash generated from operations,
the receipt of escrowed funds related to construction in progress
and increased borrowings under first the 1993 Credit Agreement
and later the 1994 Revolving Credit Loan.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (the following exhibits are listed and numbered
in accordance with Item 601 of Regulation S-K as of the
date of this filing)
Exhibit Number Description
______________ ___________
11.1 Calculation of Earnings per Share
15.1 Letter re: Unaudited Interim
Financial Information
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
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.
FOODBRANDS AMERICA, INC.
(formerly known as Doskocil Companies Incorporated)
Dated: November 13, 1995 By:/s/ William L. Brady
_____________________________
William L. Brady
Vice President and Controller
EXHIBIT 11.1
<TABLE>
DOSKOCIL COMPANIES INCORPORATED AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE - UNAUDITED
(Dollar amounts in thousands, except per share figures)
<CAPTION>
Three Months Ended Nine Months Ended
__________________ _________________
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
_________ _______ _________ _______
<S> <C> <C> <C> <C>
Income from continuing
operations $ 2,503 $ 1,255 $ 6,227 $ 411
Income (loss) from discontinued
operations - (3,348) (4,121) (3,763)
Loss on disposal of discontinued
operations - - (38,526) -
Extraordinary loss on early
extinguishment of debt - (1,433) - (2,419)
________ _______ ________ _______
Net income (loss) $ 2,503 $(3,526) $(36,420) $(5,771)
======== ======= ======== =======
Primary earnings per share:
__________________________
Weighted average number of
common shares outstanding 12,448 7,921 12,448 7,921
Common stock equivalents:
Dilutive options and warrants - - - -
______ _____ ______ _____
Weighted average number of
common and common equivalent
shares outstanding 12,448 7,921 12,448 7,921
====== ===== ====== =====
Income from continuing
operations $0.20 $ 0.16 $ 0.50 $ 0.05
Income (loss) from discontinued
operations - (0.42) (0.33) (0.47)
Loss on disposal of
discontinued operations - - (3.09) -
Extraordinary loss on early
extinguishment of debt - (0.18) - (0.31)
_____ ______ ______ ______
Net income (loss) per share $0.20 $(0.44) $(2.92) $(0.73)
===== ====== ====== ======
Fully diluted earnings per share*:
_________________________________
Weighted average number of
common shares outstanding 12,448 7,921 12,448 7,921
Common stock equivalents:
Dilutive options and warrants 93 - - -
______ _____ ______ _____
Weighted average number of
common and common equivalent
shares outstanding 12,541 7,921 12,448 7,921
====== ===== ====== =====
Income from continuing
operations $0.20 $ 0.16 $ 0.50 $ 0.05
Income (loss) from discontinued
operations - (0.42) (0.33) (0.47)
Loss on disposal of
discontinued operations - - (3.09) -
Extraordinary loss on early
extinguishment of debt - (0.18) - (0.31)
_____ ______ ______ ______
Net income (loss) per share $0.20 $(0.44) $(2.92) $(0.73)
===== ====== ====== ======
<FN>
* This calculation is submitted in accordance with Securities Exchange Act of 1934 Release
No. 9083 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15
because it results in dilution of less than 3%.
</TABLE>
EXHIBIT 15.1
November 8, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Foodbrands America, Inc.
Registration on Form S-8
We are aware that our report dated October 17, 1995 on our review
of interim financial information of Foodbrands America, Inc. for
the periods ended September 30, 1995, and October 1, 1994, and
included in the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1995, is incorporated by reference in
the Registration Statement on Form S-8 (File No. 33-45974) of
Foodbrands America, Inc. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a
part of the Registration Statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30,
1995 CONTAINED IN THE THIRD QUARTER 1995 FORM 10-Q REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,934
<SECURITIES> 0
<RECEIVABLES> 37,978
<ALLOWANCES> 0
<INVENTORY> 49,565
<CURRENT-ASSETS> 95,295
<PP&E> 136,788
<DEPRECIATION> 35,446
<TOTAL-ASSETS> 346,947
<CURRENT-LIABILITIES> 63,884
<BONDS> 163,677
<COMMON> 125
0
0
<OTHER-SE> 42,006
<TOTAL-LIABILITY-AND-EQUITY> 346,947
<SALES> 169,223
<TOTAL-REVENUES> 169,223
<CGS> 134,760
<TOTAL-COSTS> 134,760
<OTHER-EXPENSES> 25,892
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,081
<INCOME-PRETAX> 4,260
<INCOME-TAX> 1,757
<INCOME-CONTINUING> 2,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,503
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
