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 July 1, 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 August 4, 1995, the number of shares outstanding of the
registrant's common stock, $.01 par value, was 12,434,183.
<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
July 1, 1995 (Unaudited) and
December 31, 1994 . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of
Operations - Unaudited, Three Months and Six
Months Ended July 1, 1995 and July 2, 1994 . . . 4-5
Condensed Consolidated Statement of Cash
Flows - Unaudited, Six Months Ended
July 1, 1995 and July 2, 1994 . . . . . . . . . . 6-7
Notes to the Condensed Consolidated
Financial Statements - Unaudited . . . . . . . . 8-12
Report of Independent Accountants . . . . . . . . 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . 14-19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 20-21
Signatures . . . . . . . . . . . . . . . . . . . 22
<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>
July 1, December 31,
ASSETS 1995 1994
__________ ____________
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 10,887 $ 17,376
Receivables 34,139 29,472
Inventories 51,067 48,488
Other current assets 2,272 2,365
Net current assets of discontinued
operations (Note 4) - 12,145
________ ________
Total current assets 98,365 109,846
Property, plant and equipment, net of
accumulated depreciation and amortization
of $34,572 and $31,685 98,541 92,902
Intangible assets, net of accumulated
amortization of $3,923 and $2,654 83,108 83,687
Deferred charges and other assets 40,839 43,419
Reorganization value in excess of amounts
allocable to identifiable assets, net of
accumulated amortization of $8,760 and
$7,867 29,272 39,204
Net noncurrent assets of discontinued
operations (Note 4) - 73,209
________ ________
$350,125 $442,267
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 3,080 $ 1,654
Accounts payable 18,057 13,353
Accrued liabilities 45,135 44,182
________ ________
Total current liabilities 66,272 59,189
Long-term debt 164,042 224,260
Other long-term liabilities 80,247 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, 12,447,860 shares
issued and outstanding (12,447,914
shares at December 31, 1994) 124 124
Capital in excess of par value 151,046 151,046
Retained earnings (deficit) (110,031) (71,108)
Minimum pension liability adjustment (1,575) (1,575)
________ ________
Total stockholders' equity 39,564 78,487
________ ________
$350,125 $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 Six Months Ended
___________________ ___________________
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
________ ________ ________ ________
<S> <C> <C> <C> <C>
Net sales $146,582 $111,556 $285,994 $205,903
Cost of sales 113,995 91,620 222,242 171,353
________ ________ ________ ________
Gross profit 32,587 19,936 63,752 34,550
Operating expenses:
Selling 17,267 10,229 33,736 17,396
General and administrative 6,484 5,861 12,345 11,539
Amortization of intangible
assets 1,081 946 2,162 1,507
________ ________ ________ ________
Total 24,832 17,036 48,243 30,442
________ ________ ________ ________
Operating income 7,755 2,900 15,509 4,108
Other income (expense):
Interest and financing
costs (4,352) (3,139) (8,707) (5,411)
Other, net (175) (154) (332) (320)
________ ________ ________ ________
Total (4,527) (3,293) (9,039) (5,731)
________ ________ ________ ________
Income (loss) from
continuing operations
before income taxes 3,228 (393) 6,470 (1,623)
Income tax provision
(benefit) 1,296 3 2,746 (779)
________ ________ ________ ________
Income (loss) from
continuing operations 1,932 (396) 3,724 (844)
Discontinued operations
(Note 4):
Income (loss) from
operations of the Retail
Division (less applicable
income tax benefit) (1,766) (385) (4,121) (415)
Loss on disposal of the
Retail Division (plus
applicable income tax
expense) (38,526) - (38,526) -
Extraordinary loss on early
extinguishment of debt
(less applicable income
tax benefit) - (986) - (986)
________ ________ ________ ________
Net income (loss) $(38,360) $ (1,767) $(38,923) $ (2,245)
======== ======== ======== ========
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 Six Months Ended
___________________ ___________________
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
________ ________ ________ ________
<S> <C> <C> <C> <C>
Earnings (loss) per share-
primary and fully diluted:
Income (loss) from
continuing operations $ 0.16 $(0.05) $ 0.30 $(0.11)
Income (loss) from
discontinued operations (0.14) (0.05) (0.33) (0.05)
Loss on disposal of
discontinued operations (3.09) - (3.09) -
Extraordinary loss on early
extinguishment of debt - (0.12) - (0.12)
______ ______ ______ ______
Net income (loss) $(3.07) $(0.22) $(3.12) $(0.28)
====== ====== ====== ======
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>
Six Months Ended
_____________________
July 1, July 2,
1995 1994
_________ __________
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 3,724 $ (844)
Adjustments to reconcile income (loss) from
continuing operations to net cash provided
(used) by continuing operating activities:
Depreciation and amortization 5,386 4,561
Amortization of intangible assets 2,162 1,507
Postretirement medical benefits 388 27
Amortization included in interest expense 524 404
Deferred income taxes 2,385 (1,090)
Payments for restructuring/integration (1,780) -
Deferred compensation - 493
Changes in:
Receivables (4,559) 2,950
Inventories (2,579) (4,302)
Other current assets 93 (131)
Deferred charges and other assets (95) (377)
Accounts payable and accrued liabilities 1,677 2,597
Other (4) 6
________ ________
Net cash flows provided by continuing
operations 7,322 5,801
Net cash flows used by discontinued
operations including changes in working
capital (10,474) (7,106)
________ ________
Net cash provided (used) by operating
activities (3,152) (1,305)
________ ________
Cash flows from investing activities:
Purchase of property, plant and equipment (9,367) (3,037)
Acquisition of International Multifoods
Foodservice Corp., net of cash acquired - (137,442)
Payments received on notes receivable 292 205
Proceeds from sale of property, plant and
equipment 22 361
Proceeds from sale of Retail Division 65,786 -
Net investing activities of discontinued
operations (838) (2,874)
________ ________
Net cash provided (used) by investing
activities 55,895 (142,787)
________ ________
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>
Six Months Ended
____________________
July 1, July 2,
1995 1994
________ ________
<S> <C> <C>
Cash flows from financing activities:
Bank borrowings, net of debt issuance costs - 259,780
Payments on bank borrowings (58,023) (115,000)
Payments on capital lease and debt
obligations (660) (640)
Payment on early extinguishment of debt - (1,088)
Net financing activities of discontinued
operations (549) 1,679
________ ________
Net cash provided (used) by financing
activities (59,232) 144,731
________ ________
Increase (decrease) in cash and cash
equivalents (6,489) 639
Cash and cash equivalents at beginning of
period 17,376 6,203
________ ________
Cash and cash equivalents at end of period $ 10,887 $ 6,842
======== ========
Supplemental disclosure of noncash operating
activities:
Loss on early extinguishment of debt, net
of income taxes $ - $ 986
<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
July 1, 1995 and December 31, 1994, and the results of operations
for the three months and six months ended July 1, 1995 and July
2, 1994 and cash flows for the six months ended July 1, 1995 and
July 2, 1994. Results for the six months ended July 1, 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 July 1, 1995 and December 31, 1994 are
summarized as follows (in thousands):
July 1, December 31,
1995 1994
_______ ____________
Raw materials and supplies $16,036 $16,076
Work in process 5,715 4,310
Finished goods 29,316 28,102
_______ _______
$51,067 $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 Six Months Ended
__________________ __________________
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
_______ _______ _______ _______
Current:
Federal $ 5 $ (6) $ 36 $ 11
State 81 150 325 300
______ ______ ______ ______
86 144 361 311
______ ______ ______ ______
Deferred:
Federal 1,289 (79) 2,276 (916)
State (79) (62) 109 (174)
______ ______ ______ ______
1,210 (141) 2,385 (1,090)
______ ______ ______ ______
Total $1,296 $ 3 $2,746 $ (779)
====== ====== ====== ======
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.
As further explained in Note 4, "Discontinued Operations",
the sale of the Retail Division 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 six months ended July 1, 1995 and the
three and six months ended July 2, 1994, are (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
__________________ ________________
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Operations of the Retail Division:
Deferred (benefit) $(1,724) $(385) $(2,899) $(385)
======= ===== ======= =====
Disposal of the Retail Division:
Current:
Federal $ 278 $ - $ 278 $ -
State 469 - 469 -
Deferred 9,553 - 9,553 -
_______ _____ _______ _____
$10,300 $ - $10,300 $ -
======= ===== ======= =====
</TABLE>
An income tax benefit of $1.5 million was recognized in the
second quarter and year to date 1994 on the loss on early
extinguishment of debt of $2.5 million. The benefit was
recognized based on the Company's projected realization of the
benefit 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. In connection with
this sale the Company wrote off approximately $64.3 million of
post-bankruptcy intangible assets and recorded a loss on
disposition of approximately $38.5 million upon the closing of
the sale. 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 Six Months Ended
__________________ _________________
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
_______ _______ _______ ________
<S> <C> <C> <C> <C>
Net sales $27,558 $55,146 $72,357 $117,022
======= ======= ======= ========
Income (loss) before taxes $(3,490) $ (770) $(7,020) $ (800)
Tax (expense) benefit 1,724 385 2,899 385
_______ _______ _______ ________
Net income (loss) $(1,766) $ (385) $(4,121) $ (415)
======= ======= ======= ========
</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
July 1, 1995, are certain amounts, totalling $4.5 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 have
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 $9.0 million. 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 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 July 1,
1995, the Company has closed a production facility, a production
operation and a distribution facility. The Company has also
reduced employment at various other locations as scheduled. The
program is currently on schedule to be completed by year end.
The balance of the accrued liabilities remaining at July 1, 1995
of the original $12.5 million provision is $2.6 million.
Management believes that the remainder of the reserve is adequate
to complete the restructuring and integration program.
<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 July 1, 1995,
and the related condensed consolidated statements of operations
for the three month and six month periods ended July 1, 1995, and
July 2, 1994, and the condensed consolidated statements of cash
flows for the six month periods ended July 1, 1995 and July 2,
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
July 31, 1995
<PAGE>
FOODBRANDS AMERICA, INC.
(formerly known as Doskocil Companies Incorporated)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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 six months of 1994 reflect the operating
results of Specialty Brands for the month of June 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.
Operating results attributable to Specialty Brands for the first
two months of the second quarter of 1995 included net sales of
$28.0 million, gross profit of $8.8 million and operating income
of $2.2 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 six months of 1994 have been restated to
reflect this treatment. Accordingly, the results of continuing
operations for the second quarters and first six months of 1995
and 1994 do not include the operations of the Retail Division.
Three Months Ended July 1, 1995 Compared to the Three Months
Ended July 2, 1994. The Company's net sales for the second
quarter of 1995 were $146.6 million, an increase of 31% over
sales of $111.6 million for the second quarter of 1994. Of the
increase of $35.0 million, $28.0 million was attributable to the
addition of the Specialty Brands Division in June 1994. Sales
volume in the other divisions increased but the increase in sales
dollars was partially offset by price declines directly related
to reduced raw material costs, which generally are passed along
to the customers.
Gross profit for the second quarter of 1995 of $32.6
million increased $12.7 million, or 63%, over the gross profit of
$19.9 million for the second quarter of 1994. This increase
includes the gross profit for the second quarter of 1995
attributable to the Specialty Brands Division of $8.8 million.
Other increases in the gross profit of the Company resulted from
improved manufacturing throughput, manufacturing cost reductions
and changes in sales mix in all divisions.
Selling expenses of $17.3 million in the second quarter of
1995 increased $7.1 million over the 1994 period selling expenses
of $10.2 million. Of the $7.1 million increase, $6.8 million
relates to the Specialty Brands Division, which was not included
in the first two months of the second quarter of 1994.
General and administrative expenses increased $0.6 million,
or 11%, from $5.9 million to $6.5 million. General and
administrative expenses of the Specialty Brands Division for the
first two months of the second quarter of 1995 were $0.5 million.
Amortization of intangible assets increased $0.1 million
due to amortization of intangibles related to the purchase of the
Specialty Brands Division.
Interest and financing costs increased from $3.1 million to
$4.4 million as a direct result of the borrowings related to the
purchase of the Specialty Brands Division, partially offset by
the reduction in debt due to the sale of the Retail Division.
Income tax expense for the second quarter of 1995 of $1.3
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.
Six Months Ended July 1, 1995 Compared to the Six Months Ended
July 2, 1994. Net sales for the first half of 1995 increased 39%
to $286.0 million compared to $205.9 for the same period in 1994.
The increase of $80.1 million is a result of the Specialty Brands
acquisition in June 1994, $74.6 million, and increased sales
volumes in the other divisions offset by price declines directly
related to reduced raw material costs which generally are passed
along to customers.
In the first half of 1995, gross profit increased $29.2
million, or 85%, to $63.8 million from $34.6 million in the first
half of 1994. Of this total increase, $22.9 million relates to
the addition of the Specialty Brands Division. The remaining
$6.3 million increase resulted from improved manufacturing
throughput, manufacturing cost reductions and changes in sales
mix.
Selling expenses for the first six months of 1995 of $33.7
million increased $16.3 million over the same period in 1994 of
$17.4 million. The addition of Specialty Brands accounts for
$14.8 million of this increase. The remaining increase of $1.5
million relates to increased costs associated with the increased
volumes noted above.
General and administrative expenses increased $0.8 million
or 7%. The increase resulting from the Specialty Brands
acquisition was $1.2 million. The offsetting $0.4 million
reduction is attributable to corporate overhead reduction
efforts.
Amortization of intangibles increased $0.7 million due to
the amortization of intangibles related to the Specialty Brands
purchase.
Interest and financing costs increased $3.3 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 six months of 1995 of $2.7
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 benefit of $0.8 million
recorded in the first six months of 1994 was based on the
expectation that the benefit would be realized subsequently in
1994.
Discontinued Operations
Discontinued operations includes the net sales and related
expenses associated with the Retail Division's operations.
Included in the second quarter of 1995 and 1994, respectively,
are (i) net sales of $27.6 million and $55.1 million, (ii) gross
profit of $2.9 million and $10.7 million, (iii) after
amortization of intangibles of $0.6 million and $0.8 million for
each quarter respectively, operating income (loss) of $(2.5)
million and $0.6 million and (iv) after allocating corporate
interest expense of $1.0 million and $1.4 million, income (loss)
of $(1.8) million and $(0.4) million. The second quarter 1995
and 1994 losses were after tax benefits of $1.7 million and $0.4
million.
Discontinued operations for the six months ended July 1,
1995 and July 2, 1994 includes (i) net sales of $72.4 million and
$117.0 million, (ii) gross profit of $9.1 million and $22.9
million, (iii) after amortization of intangibles of $1.6 million
and $1.7 million for each six months respectively, operating
income (loss) of $(4.8) million and $1.8 million and (iv) after
allocating corporate interest expense of $2.2 million and $2.6
million, income (loss) of $(4.1) million and $(0.4) million. The
six months 1995 and 1994 losses were after tax benefits of $2.9
million and $0.4 million.
Extraordinary Loss
During the second quarter of 1994, the Company incurred an
extraordinary loss on the early extinguishment of debt of $2.5
million. This extraordinary loss has been reported net of income
tax benefit of $1.5 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.
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
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 will benefit the
Company's overall liquidity and capital resources and will allow
the Company to more rapidly execute its strategy to acquire
higher margin food businesses.
Cash Flows and Capital Expenditures.
The following table summarizes selected cash flow and
capital expenditure data and has been prepared based on the
historical financial statements of the Company.
<TABLE>
<CAPTION>
Six Months Ended
___________________
July 1, July 2,
Cash Flow and Capital Expenditures Data (in thousands): 1995 1994
________ ________
<S> <C> <C>
Continuing Operations:
Depreciation and amortization $ 5,386 $ 4,561
Amortization of intangibles 2,162 1,507
Amortization included in interest expense 524 404
Net cash provided by continuing operating activities $ 7,322 $ 5,801
Net cash used by discontinued operating activities (10,474) (7,106)
________ ________
Net cash used by operating activities $ (3,152) $ (1,305)
======== ========
Capital expenditures $ 10,205 $ 5,911
</TABLE>
First half of 1995. For the first half of 1995, net cash used by
operating activities was $3.2 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 increased due to increases in
accounts payable and accrued liabilities.
Expenditures for additions to property, plant and equipment
were $10.2 million, of which $.8 million related to discontinued
operations. Approximately $2.1 million of these expenditures
relate to increased capacity, $2.8 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 half of 1994. For the first half of 1994, net cash used by
operating activities was approximately $1.3 million. Decreases
in cash resulted primarily from the use of cash in the operations
of the discontinued Retail Division along with increases in
inventory. These decreases were offset partially by decreases in
accounts receivable and increases in accounts payable and accrued
liabilities. The remaining increases in cash were principally
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 subtracting the deferred benefit for income
taxes.
Expenditures for additions to property, plant and equipment
were approximately $5.9 million, of which $2.9 million related to
discontinued operations, for the first half of 1994. Of the $5.9
million, approximately $2.6 million of these expenditures were
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
primarily from the receipt of escrowed funds related to
construction in progress and increased borrowings first under 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
10.1 Asset Purchase Agreement By and Among
Thorn Apple Valley, Inc. and Doskocil
Companies Incorporated and Wilson
Foods Corporation, Concordia Foods
Corporation, Dixie Foods Company and
Shreveport Foods Company dated as of
April 29, 1995 (incorporated herein by
reference to Exhibit 2 to Current
Report on Form 8-K dated April 29,
1995)
10.2 First Amendment to Asset Purchase
Agreement, dated as of May 26, 1995,
By and Among Thorn Apple Valley, Inc.
and Foodbrands America, Inc.
(successor by merger to Doskocil
Companies Incorporated) and Wilson
Foods Corporation, Concordia Foods
Corporation, Dixie Foods Company and
Shreveport Foods Company (incorporated
herein by reference to Exhibit 2 to
Current Report on Form 8-K dated May
30, 1995)
10.3 Noncompete Agreement by Foodbrands
America, Inc., Wilson Foods
Corporation, Concordia Foods
Corporation, Dixie Foods Company and
Shreveport Foods Company in favor of
Thorn Apple Valley, Inc. dated May 30,
1995
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
Current Report on Form 8-K, dated May 30, 1995, of
Foodbrands America, Inc. was filed with the SEC on June
6, 1995, with respect to the Company selling the assets
of its Retail Division to Thorn Apple Valley, Inc. under
Item 5 (other events) and Item 7 (financial statements
and exhibits).
Current Report on Form 8-K, dated May 16, 1995, of
Foodbrands America, Inc. was filed with the SEC on May
24, 1995, with respect to the Company merging with and
into Foodbrands America, Inc. under Item 5 (other
events).
Current Report on Form 8-K, dated April 29, 1995, of
Doskocil Companies Incorporated was filed with the SEC
on May 5, 1995, with respect to the Company announcing
it had entered into an agreement to sell the assets of
its Retail Division to Thorn Apple Valley, Inc. under
Item 5 (other events) and Item 7 (financial statements
and exhibits).
<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: August 9, 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 Six Months Ended
__________________ _________________
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations $ 1,932 $ (396) $ 3,724 $ (844)
Income (loss) from discontinued
operations (1,766) (385) (4,121) (415)
Loss on disposal of discontinued
operations (38,526) - (38,526) -
Extraordinary loss on early
extinguishment of debt - (986) - (986)
________ _______ ________ _______
Net income (loss) $(38,360) $(1,767) $(38,923) $(2,245)
======== ======= ======== =======
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 (loss) from continuing
operations $ 0.16 $(0.05) $ 0.30 $ (0.11)
Income (loss) from discontinued
operations (0.14) (0.05) (0.33) (0.05)
Loss on disposal of
discontinued operations (3.09) - (3.09) -
Extraordinary loss on early
extinguishment of debt - (0.12) - (0.12)
______ ______ ______ ______
Net income (loss) per share $(3.07) $(0.22) $(3.12) $(0.28)
====== ====== ====== ======
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 - - - -
______ _____ ______ _____
Weighted average number of
common and common equivalent
shares outstanding 12,448 7,921 12,448 7,921
====== ===== ====== =====
Income (loss) from continuing
operations $ 0.16 $(0.05) $ 0.30 $ (0.11)
Income (loss) from discontinued
operations (0.14) (0.05) (0.33) (0.05)
Loss on disposal of
discontinued operations (3.09) - (3.09) -
Extraordinary loss on early
extinguishment of debt - (0.12) - (0.12)
______ ______ ______ ______
Net income (loss) per share $(3.07) $(0.22) $(3.12) $(0.28)
====== ====== ====== ======
</TABLE>
EXHIBIT 15.1
August 7, 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 July 31, 1995 on our review of
interim financial information of Foodbrands America, Inc. for the
periods ended July 1, 1995, and July 2, 1994, and included in the
Company's quarterly report on Form 10-Q for the quarter ended
July 1, 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 JULY 1, 1995
CONTAINED IN THE SECOND 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> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 10,887
<SECURITIES> 0
<RECEIVABLES> 34,139
<ALLOWANCES> 0
<INVENTORY> 51,067
<CURRENT-ASSETS> 98,365
<PP&E> 133,113
<DEPRECIATION> 34,572
<TOTAL-ASSETS> 350,125
<CURRENT-LIABILITIES> 66,272
<BONDS> 164,042
<COMMON> 124
0
0
<OTHER-SE> 39,440
<TOTAL-LIABILITY-AND-EQUITY> 350,125
<SALES> 146,582
<TOTAL-REVENUES> 146,582
<CGS> 113,995
<TOTAL-COSTS> 113,995
<OTHER-EXPENSES> 24,832
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,352
<INCOME-PRETAX> 3,228
<INCOME-TAX> 1,296
<INCOME-CONTINUING> 1,932
<DISCONTINUED> (40,292)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,360)
<EPS-PRIMARY> (3.07)
<EPS-DILUTED> (3.07)
</TABLE>
EXHIBIT 10.3
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is made
this 30th day of May, 1995, by FOODBRANDS AMERICA, INC., a
Delaware corporation, WILSON FOODS CORPORATION, a Delaware
corporation, CONCORDIA FOODS CORPORATION, a Delaware corporation,
DIXIE FOODS COMPANY, a Delaware corporation, and SHREVEPORT FOODS
COMPANY, a Delaware corporation (collectively, the
"Undersigned"), in favor of THORN APPLE VALLEY, INC., a Michigan
corporation ("TAV"), with reference to the following:
(i) The Undersigned, as Seller, and TAV, as Purchaser,
are parties to an Asset Purchase Agreement dated as of the 29th
day of April, 1995, as amended by First Amendment to Asset
Purchase Agreement dated May 26, 1995 by and among the
Undersigned and TAV (the "Purchase Agreement"); and
(ii) A condition to TAV's performance of its
obligations under the Purchase Agreement is the execution and
delivery by the Undersigned of this Agreement.
NOW, THEREFORE, for good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the
Undersigned hereby jointly and severally covenant and agree as
follows:
1. Noncompetition Covenant. During the period
commencing on the date hereof and ending on the expiration of
five (5) years following the date hereof, neither the Undersigned
nor any subsidiary of the Undersigned shall, directly or
indirectly, own, manage, operate, join, advise, control, or
otherwise engage or participate in or be connected as a partner,
investor, stockholder, creditor, guarantor, advisor, or
consultant in, the business of producing and distributing ham,
bacon, franks and other sausage products similar to the products
produced and distributed from the Facilities (as defined in the
Purchase Agreement)(the "Facility Products")for sale to grocery
wholesalers, grocery store chains and individual grocery stores
intended for resale to consumers from retail grocery store
refrigerated meat cases (the "Retail Meat Case Business") within
the continental United States. Notwithstanding the foregoing,
this Agreement does not prohibit the Undersigned from, and the
term "Retail Meat Case Business" does not include, (i) the
manufacture, production and sale of deli meat products,
luncheon meats and other similar meat products under the trade
name Wilson's Continental Deli which do not compete directly with
the Facility Products, (ii) acquiring any business which produces
and sells branded meats, franks, sausages and bacon which do not
compete directly with the Facility Products, (iii) acquiring or
holding the outstanding shares of any entity engaged in the
Retail Meat Case Business if such shares are publicly traded and
the Undersigned's ownership is less than five percent (5%) of the
outstanding equity of such entity, (iv) buying, selling and
trading commodities contracts, or (v) acquiring a business or
company which has a division or facility which competes in the
Retail Meat Case Business, so long as such division or facility
accounts for less than 30% of the revenue of the acquired
business or company and the Undersigned, after such acquisition,
does not materially expand the production capacity of such
facility or division.
2. Purchase Price. As provided in Section 3.2 of the
Purchase Agreement, the consideration for the Undersigned's
satisfactory performance of this Agreement is $20,000,000 payable
in cash contemporaneously with the execution and delivery of this
Agreement.
3. Injunctive Relief. The remedy at law for any
breach of this Agreement is and will be inadequate, and if there
is a breach by the Undersigned of the provisions of this
Agreement, TAV shall be entitled to an injunction restraining the
Undersigned from violating the provisions of Section 1 hereof.
Nothing herein contained shall be construed as prohibiting TAV
from pursuing any other remedies available to it for such breach,
including, without limitation, the recovery of damages from the
Undersigned. None of these remedies shall be mutually exclusive,
and all of them may be pursued concurrently and cumulatively.
4. Separate Covenants. This Agreement shall be deemed
to consist of a series of separate covenants independent from any
provision of the Purchase Agreement. The Undersigned expressly
agree that the character, duration, and geographical scope of
this Agreement are reasonable in light of the circumstances as
they exist on the date upon which this Agreement has been
executed. However, should a determination nonetheless be made by
a court of competent jurisdiction at a later date that the
character, duration, or geographical scope of this Agreement is
unreasonable in light of the circumstances as they then exist or
as they existed at the execution of this Agreement, then it is
the intention and the agreement of the Undersigned and TAV that
this Agreement shall be construed by the court and given effect
in such a manner as to impose only those restrictions on the
conduct of the Undersigned which are reasonable in light of the
circumstances as they then exist and as are necessary to assure
TAV of the intended benefit of this Agreement. If, in any
judicial proceeding, a court shall refuse to enforce all of the
separate covenants deemed included herein because, taken together
they are more extensive than necessary to assure TAV of the
intended benefit of this Agreement, it is expressly understood
and agreed between the parties hereto that those of such
covenants which, if eliminated, would permit the remaining
separate covenants to be enforced in such proceeding shall, for
the purpose of such proceeding, be deemed eliminated from the
provisions hereof.
5. Waivers. No breach of any term of this Agreement
shall be deemed waived unless it is expressly waived in writing
by the party who might assert such breach. No waiver of any
right hereunder shall operate as a waiver of any other right or
of the same or a similar right on another occasion.
6. Attorneys' Fees. If any action or proceeding is
commenced by any party hereto for the purpose of enforcing any
provision of this Agreement, the prevailing parties in such
action or proceeding may receive as part of any award, judgment,
decision, or other resolution of such action or proceeding their
costs and reasonable attorneys' fees.
7. Assignment. This Agreement is not assignable, by
operation of law or otherwise, provided, TAV may assign its
rights hereunder to (a) any entity which at any time may be a
direct or indirect subsidiary of TAV, or (b) any successor in
interest of TAV whether by merger or consolidation or sale of all
or substantially all of its assets.
8. Entire Agreement. This Agreement, together with
the Purchase Agreement, contains the entire understanding of the
parties with regard to the subject matter hereof, supersedes all
prior agreements and understandings relating to the subject
matter hereof, and shall not be amended except by a written
instrument hereafter signed by all of the parties hereto.
9. Section Headings. The headings in this Agreement
are for reference only and shall not limit or control the meaning
thereof.
10. Notices. All notices, claims, certificates,
requests, demands and other communications hereunder will be in
writing (whether by letter, telecopy, telex or other commercially
reasonable means of written communication) and will be deemed to
have been duly given upon receipt as follows:
(a) If to TAV:
Thorn Apple Valley, Inc.
18700 West Ten Mile Road
Southfield, Michigan 48075
Attn: Mr. Joel Dorfman
President and Chief Executive Officer
Facsimile No.: (810) 552-0986
With a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Attn: Donald J. Kunz, Esq.
Facsimile No: (313) 962-0176
(b) If to the Foodbrands America, Inc.:
Foodbrands America, Inc.
2601 N.W. Expressway
Oklahoma City, Oklahoma 73112
Attn: Mr. R. Randolph Devening
Chairman, President and
Chief Executive Officer
Facsimile No. (405) 879-5568
With a copy to:
McAfee & Taft
A Professional Corporation
Tenth Floor, Two Leadership Square
Oklahoma City, Oklahoma 73102
Attn: John M. Mee, Esq.
or to such other address as the person to whom notice is to be
given may have previously furnished to the other in writing in
the manner set forth above.
11. Governing Law; Submission to Jurisdiction. THIS
AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF MICHIGAN.
12. Counterparts. This Agreement may be executed by
the parties in separate counterparts, each of which when so
executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
"UNDERSIGNED"
FOODBRANDS AMERICA, INC. a Delaware
corporation
By /s/ R. Randolph Devening
R. Randolph Devening, President
WILSON FOODS CORPORATION, a Delaware
corporation
By /s/ R. Randolph Devening
R. Randolph Devening, President
CONCORDIA FOODS CORPORATION, a
Delaware corporation
By /s/ R. Randolph Devening
R. Randolph Devening, President
DIXIE FOODS COMPANY, a Delaware
corporation
By /s/ R. Randolph Devening
R. Randolph Devening, President
SHREVEPORT FOODS COMPANY, a Delaware
corporation
By /s/ R. Randolph Devening
R. Randolph Devening, President
"TAV"
THORN APPLE VALLEY, INC. a Michigan
corporation
By /s/ Louis Glazier
Louis Glazier, Executive Vice
President Finance and Adminis-
tration
