UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
__X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1995.
_____ 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 001-11621
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.)
1601 NW Expressway, Suite 1700, Oklahoma City, Oklahoma 73118
________________________________________________ _________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405)879-4100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
____________________________ _______________________
Common Stock, par value $.01 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
As of February 22, 1996, the aggregate market value of the
voting stock held by non-affiliates of the registrant was
$89,500,436.
APPLICABLE ONLY TO REGISTRANTS 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 Section 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 February 22, 1996, the number of shares outstanding of
the registrant's common stock, $.01 par value, was 12,454,965
shares.
DOCUMENTS INCORPORATED BY REFERENCE: The Proxy Statement
for the Annual Meeting of Stockholders is incorporated herein by
reference into Part III of this Form 10-K.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial
information and should be read in conjunction with the Financial
Statements and the Notes thereto and the related Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein. On May 30, 1995, the
Company sold the assets of its Retail Division. The historical
financial data for the Retail Division for 1995 has been reported
as discontinued operations and accordingly the historical
financial data for all prior years presented has been restated.
Additionally, as a result of the adoption of Fresh Start
Reporting in 1991, historical financial data for the period ended
September 28, 1991 is that of a different reporting entity and is
not prepared on a basis comparable to financial data for periods
ending after that date.
<TABLE>
<CAPTION>
Post-Confirmation Pre-Confirmation
________________________________________________________________________________ ________________
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Three Months Nine Months
Ended Ended Ended Ended Ended Ended
December 30, December 31, January 1, January 2, December 28, September 28,
1995 1994 1994 1993 1991 1991
____________ ____________ __________ __________ ____________ _____________
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data |
|
Net sales $634,700 $512,352 $393,270 $365,950 $ 86,843 | $277,902
======== ======== ======== ======== ======== | ========
|
Gross profit $134,715 $102,234 $ 57,482 $ 58,104 $ 14,743 | $ 42,513
Total operating expenses 99,612 91,025 <F3> 54,054 49,088 12,294 | 34,477
________ ________ ________ ________ ________ | ________
|
Operating income (loss) $ 35,103 $ 11,209 $ 3,428 $ 9,016 $ 2,449 | $ 8,036
======== ======== ======== ======== ======== | ========
Income (loss) from |
continuing operations $ 9,601 $ (5,195) $ (4,374) $ 644 $ (1,756) | $(46,683)<F6>
======== ======== ======== ======== ======== | ========
|
Net income (loss) <F1> $(34,095) <F2> $(16,198) <F4> $(32,019) <F5> $(26,834) $ 3,943 | $ 65,370 <F7>
======== ======== ======== ======== ======== | ========
Earnings (loss) per share: |
Income (loss) |
from continuing |
operations $ 0.77 $ (0.59) $ (0.59) $ 0.11 $ (0.30) | $ (9.12)<F8>
======== ======== ======== ======== ======== | ========
Net income (loss) $ (2.73) $ (1.85) $ (4.32) $ (4.63) $ 0.68 | $ 12.78 <F8>
======== ======== ======== ======== ======== | ========
Balance Sheet Data |
|
Total assets $521,763 $442,267 $298,806 $249,162 $268,759 | $303,309
Long-term debt 305,407 224,260 122,377 134,409 135,627 | 148,160
|
Cash Flow Data |
|
Depreciation $ 11,509 $ 10,508 $ 7,806 $ 7,525 $ 1,859 | $ 5,557
Amortization <F9> 4,495 4,123 2,843 2,968 596 | 3,963
____________________
<FN>
<F1> Includes income (loss), net of applicable income taxes, from operations of the discontinued Retail Division of $(4.1) million,
$(8.5) million, $6.8 million, $(27.5) million, $5.7 million and $(1.7) million in the fiscal years ended December 30, 1995,
December 31, 1994, January 1, 1994, and January 2, 1993, respectively, the three months ended December 28, 1991, and the nine
months ended September 28, 1991.
<F2> Includes the loss on disposal of the Retail Division of $38.5 million and extraordinary loss on early extinguishment of debt of
$1.0 million.
<F3> Includes a $10.6 million provision for restructuring and integration. (See Note 4 to the Financial Statements.)
<F4> Includes an extraordinary loss of $2.5 million associated with the early extinguishment of debt. (See Note 8 to the Financial
Statements.)
<F5> Includes the cumulative effect on years prior to fiscal year ended January 1, 1994 for a change in accounting for
postretirement benefits other than pensions of a noncash charge against earnings of $34.4 million. (See Note 11 to the
Financial Statements.)
<F6> Includes reorganization expenses of $41.0 million for the nine months ended September 28, 1991.
<F7> Includes an extraordinary gain of $113.8 million for the forgiveness of debt as part of the Chapter 11 reorganization of the
Company which became effective on October 31, 1991.
<F8> The per share amounts for the period ended September 28, 1991 do not provide meaningful comparisons due to the Company's
Chapter 11 reorganization.
<F9> Amortization of intangible assets only. Does not include amortization of certain other items included in interest expense of
$1.2 million, $1.3 million and $0.4 million in the fiscal years ended December 30, 1995, December 31, 1994 and January 1, 1994,
respectively, and $4.1 million in the nine months ended September 28, 1991.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The financial results of the Company's operations in
recent years have been significantly affected by certain events
and accounting changes. In addition to the items noted in Item
6, Selected Financial Data, the following is a general discussion
of the impact of certain factors on the Company's financial
statements.
Acquisitions. On December 11, 1995, the Company
purchased KPR Holdings, L.P. ("KPR") for approximately $101.9
million, including transaction related costs of the acquisition.
In addition, the Company has agreed to certain contingent
payments payable in Common Stock of the Company or cash, at the
option of the sellers, aggregating up to approximately $15.0
million, over the next three years based on the attainment of
specified earnings levels. These payments, if made, will
increase goodwill. KPR produces and markets custom prepared
foods and prepared meat items for multi-unit restaurant chains.
The acquisition has been accounted for by the purchase method of
accounting based on preliminary estimates. Final adjustments are
not expected to be material. The excess of the total purchase
price over fair value of net assets acquired of approximately
$65.8 million has been recognized as goodwill and is being
amortized over 40 years.
On December 18, 1995, the Company purchased all the
outstanding stock of TNT Crust, Inc. ("TNT") for approximately
$56.4 million, including transaction related costs of the
acquisition. In addition, the Company has agreed to a contingent
earnout payment payable in Common Stock of the Company or cash,
at the option of the sellers, not to exceed $6.5 million, based
on sales growth to certain customers. These payments, if made,
will increase goodwill. The business operates as a segment of
the Food Service Division. TNT produces and markets partially
baked and frozen self-rising crusts for use by pizza chains,
restaurants and frozen pizza manufacturers. The acquisition has
been accounted for by the purchase method of accounting based on
preliminary estimates. Final adjustments are not expected to be
material. The excess of the total purchase price over fair value
of net assets acquired of approximately $47.5 million has been
recognized as goodwill and is being amortized over 40 years.
On June 1, 1994, the Company purchased all of the
outstanding stock of International Multifoods Foodservice Corp.,
a division of International Multifoods Corporation, for
approximately $137.7 million, including transaction related costs
of the acquisition. The business, which has been renamed
Doskocil Specialty Brands Company, manufactures frozen food
products, including ethnic foods in the Mexican and Italian
categories, as well as appetizers, entrees and portioned meats.
The acquisition has been accounted for by the purchase method of
accounting. The excess of the aggregate purchase price over fair
value of net assets acquired of approximately $68.3 million and
trademarks at a fair value of $9.7 million were recognized as
intangible assets and are being amortized over 40 and 25 years,
respectively.
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 the sale the
Company wrote off approximately $64.3 million of intangible
assets and recorded a net loss on disposition of approximately
$38.5 million. The results of operations and cash flows of the
division have been reported as discontinued operations and prior
years have been restated to reflect this treatment. Accordingly,
the results of continuing operations do not include the
operations of the Retail Division.
Restructuring and Integration. In December 1994, the
Company announced a restructuring program that resulted in a
$10.6 million charge against operating income in 1994. The
restructuring program identified specific manufacturing
facilities and operations that related to excess capacity, as
well as duplication of activities after the acquisition of the
Specialty Brands Division.
As of December 30, 1995, the Company has consolidated
production operations, closed two production facilities and two
distribution facilities and discontinued a production operation.
The Company has also reduced employment at various other
locations as scheduled. Of the original $10.6 million provision,
the balance of the accrued liabilities remaining at December 30,
1995, is $1.2 million and $2.2 million remains as a reserve
against property, plant and equipment. Management believes that
the remainder of the reserve is adequate to complete the
restructuring and integration program.
Income Taxes. After considering utilization
restrictions, the Company has approximately $108.5 million of net
operating loss carryforwards ("NOLs") which will be available as
follows: $76.3 million in 1996, $13.3 million in each of the
years 1997 and 1998, $5.0 million in 1999 and $0.6 million in
2000. NOLs not utilized in the first year that they are
available may be carried over and utilized to reduce taxable
income earned in subsequent years, subject to their expiration
provisions. These carryforwards expire as follows: $10.9
million in 1996, $21.7 million in 1998, $6.0 million in 1999,
$0.9 million in 2000 and $69.0 million during the years 2001
through 2009. As a result, management anticipates that the
Company's cash income tax liability for the next four to five
years will not be material.
The amount of the Company's NOLs and the limitation of
their availability are subject to significant uncertainties. In
addition, a future change in stock ownership could result in the
Company's NOLs being substantially reduced or eliminated. The
Company has implemented certain stock transfer restrictions which
reduce this risk of loss. 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 Company will not reflect the realized income tax
benefit of pre-reorganization NOLs and deductible temporary
differences in its statement of operations. Instead, such
benefit is reflected first as a reduction in the "Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets"
("Reorganization Value") and then as a reduction in other
intangible assets arising from bankruptcy, thus reducing future
intangible amortization expense. Due to the non-deductibility of
amortization of certain intangible assets, the annual effective
tax rate in future years is expected to be in excess of the
statutory income tax rate.
In 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Implementing the standard resulted in the
Company recording a deferred tax benefit of approximately $31.0
million for deductible temporary differences. The Company
provided a valuation allowance for the remaining net deductible
temporary differences and NOLs. In determining the valuation
allowance, the Company considers projected taxable income during
the next four years. The projected taxable income before NOLs is
expected to be higher than the financial pre-tax income due to
the non-deductible amortization of the intangible assets related
to Reorganization Value and other non-deductible intangible
assets and the fact that the tax basis of the assets was
not increased as a result of the reorganization in September
1991. Accordingly, the Company expects to realize the net
deferred tax asset from future operations, which contemplates
annual increases in sales consistent with industry projections,
and historical operating margins but does not anticipate any
material asset sales or other unusual transactions. The
acquisitions of KPR and TNT are expected to increase the
likelihood that the net deferred tax asset will be realized.
This analysis is performed on a quarterly basis. The Company
will adjust the valuation allowance when it becomes more
likely than not that the net deferred tax benefits will be
realized in the future. The Company anticipates that this
analysis will support the elimination of a significant portion of
the valuation allowance in 1996. Because a majority of the
deferred tax assets and NOLs are attributable to
pre-reorganization temporary differences, the majority of the
adjustment will be recorded as a reduction of Reorganization
Value and other intangible assets arising from bankruptcy and the
remainder will be recorded as a reduction of income tax expense.
Results of Operations
Comparability of Periods. For the year ended December
30, 1995, the operating results attributable to KPR and TNT since
their acquisitions in December 1995 are sales of $7.7 million,
gross profit of $1.6 million and operating income of $1.0
million. Because of the acquisition of the Specialty Brands
Division on June 1, 1994, the financial statements for the year
ended December 31, 1994, reflect the operating results
attributable to the Specialty Brands Division for the months of
June through December 1994 only. The operating results
attributable to the Specialty Brands Division 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.
The Fiscal Year Ended December 30, 1995 ("Fiscal 1995")
Compared to the Fiscal Year Ended December 31, 1994 ("Fiscal
1994"). Net sales for Fiscal 1995 of $634.7 million increased
over net sales for Fiscal 1994 of $512.4 million by $122.3
million, or 24%. The increase is due to (i) $82.3 million of
increased sales related to the addition of the Specialty Brands
Division, KPR and TNT and (ii) increased sales volumes in the
Food Service and Deli Divisions.
Gross profit for Fiscal 1995 of $134.7 million
increased over gross profit for 1994 of $102.2 million by $32.5
million, or 32%. Of this total increase, $24.5 million resulted
from the acquisitions. The remaining $8.0 million increase
resulted from improved manufacturing throughput, manufacturing
cost reductions, including those anticipated under the
restructuring/integration program announced in 1994 and changes
in sales mix. Gross profit as a percentage of sales for Fiscal
1995 and Fiscal 1994 is 21% and 20%, respectively.
Selling expenses for Fiscal 1995 of $69.5 million
increased 33%, or $17.3 million, over Fiscal 1994 selling
expenses of $52.2 million. The addition of Specialty Brands, KPR
and TNT accounts for $14.8 million of the increase. The
remaining increase of $2.5 million relates to increased costs
associated with the increased volumes noted above as well as
higher marketing costs in response to increased competition.
General and administrative expenses increased 6%, or
$1.4 million, from $24.2 million in Fiscal 1994 to $25.6 million
in Fiscal 1995. The increase resulting from the acquisitions
noted above was $1.7 million. The offsetting $0.3 million
reduction is attributable to overhead reduction efforts.
Amortization of intangibles, a noncash element of
operating expense, increased $0.4 million due to the
amortization of intangibles related to the acquisitions of
Specialty Brands, KPR and TNT 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 $2.2 million
because of the debt associated with the acquisitions partially
offset by the reduction in debt associated with the sale of the
Retail Division. Amortization of debt issue costs and debt
discount included in interest expense for Fiscal 1995 and Fiscal
1994 was $1.2 million and $1.3 million, respectively.
Income tax expense for Fiscal 1995 of $7.0 million is
based on the statutory (federal and state) tax rate applied to
income from continuing operations after adding back expenses with
no future tax deductibility. Income tax expense for Fiscal 1994
of $0.6 million consisted solely of state income taxes.
Fiscal 1994 Compared to the Fiscal Year Ended January
1, 1994 ("Fiscal 1993"). The Company's net sales for Fiscal 1994
increased $119.1 million, or 30%, over Fiscal 1993 sales of
$393.3 million. Net sales for Fiscal 1994 of $512.4 million
includes sales volume increases in the Food Service and Deli
Divisions along with the addition of the sales of the Specialty
Brands Division of $112.8 million. These increases were
partially offset by decreases in raw material costs which
resulted in decreases in sales dollars per pound.
Gross profit for Fiscal 1994 increased 78%, or $44.7
million, over Fiscal 1993 gross profit of $57.5 million. Fiscal
1994 gross profit of $102.2 million includes the Specialty Brands
Division gross profit contribution of $34.2 million. Increases
also were provided by increased sales volumes and improved
product mix and production efficiencies in the Food Service and
Deli Divisions. Gross profit as a percentage of sales for Fiscal
1994 and Fiscal 1993 is 20% and 15%, respectively.
Selling expenses of $52.2 million in Fiscal 1994
increased 80%, or $23.2 million, over Fiscal 1993 selling
expenses of $29.0 million. The primary component of the increase
is the addition of the Specialty Brands Division with $21.6
million of selling expenses. The remainder of the increase is
due to increased marketing and brokerage costs in the other
divisions. The increases in the Food Service and Deli Divisions
are due to improved sales volume.
General and administrative expenses in Fiscal 1994
increased $2.5 million over Fiscal 1993 expenses of $21.7
million, an increase of 12%. Included in the Fiscal 1994 total
of $24.2 million are general and administrative expenses relating
to the Specialty Brands Division of $2.6 million. The reduction
in general and administrative expenses in other divisions is due
primarily to the effect of cost reduction programs instituted in
1993 and 1994.
Amortization of intangible assets increased
approximately $1.3 million in Fiscal 1994 over Fiscal 1993 due to
the Specialty Brands acquisition.
Interest and financing costs for Fiscal 1994 of $15.1
million increased $5.9 million, or 64%, over Fiscal 1993 costs of
$9.2 million. The increase is due to increased interest costs of
$5.0 million as a result of increased borrowings, generally
higher interest rates and increased amortization of debt issue
costs of $0.9 million. Amortization of debt issue costs and debt
discount included in interest expense for Fiscal 1994 and Fiscal
1993 was $1.3 million and $0.4 million, respectively.
Income tax benefit for Fiscal 1993 of $1.2 million
represents the tax benefit of losses from continuing operations
offsetting income from discontinued operations.
Discontinued Operations
Discontinued operations includes the net sales and
related expenses associated with the Retail Division's
operations. Net sales for Fiscal 1995, 1994 and 1993 were $72.4
million, $238.3 million and $254.9 million, respectively. Gross
profit was $9.1 million, $44.2 million and $53.2 million,
respectively. Operating income (loss) was $(4.8) million, $(3.5)
million and $13.1 million for each year, respectively. Corporate
interest expense allocated to the Retail Division based on net
assets was $2.0 million, $4.4 million and $4.6 million for each
fiscal year, respectively. Net income (loss) attributable to the
Retail Division after allocated interest expense was $(4.1)
million, $(8.5) million and $6.8 million. The loss for Fiscal
1995 was net of income tax benefit of $2.9 million and income for
Fiscal 1993 was net of income tax expense of $1.6 million. No
income tax benefit or expense was recognized in Fiscal 1994.
Amortization of intangible assets included in operating
expense of the Retail Division was $1.6 million, $3.2 million and
$3.3 million for Fiscal 1995, 1994 and 1993, respectively.
Extraordinary Losses
During Fiscal 1995 and Fiscal 1994, the Company
incurred an extraordinary loss on early extinguishment of debt of
$1.0 million and $2.5 million, respectively. These losses
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
acquisitions of KPR and TNT in 1995 and the Specialty Brands
Division in 1994. The loss in Fiscal 1994 included the
termination of a related interest rate swap agreement. The
Fiscal 1995 loss is net of income tax benefit of $0.7 million.
Cash Flows and Capital Expenditures
Fiscal 1995. Net cash provided by continuing
operations activities was $25.8 million for Fiscal 1995 compared
to $26.8 million in Fiscal 1994. The operations of the
discontinued Retail Division used $12.3 million of cash in Fiscal
1995. Cash of $33.9 million was provided by the results of
continuing operations after adding back noncash items. Increases
of cash were also provided by increases in accounts payable and
accrued liabilities and noncurrent liabilities. Decreases in
cash were due to increases in accounts receivable, inventories
and other assets as well as payments under the Fiscal 1994
restructuring/integration program.
The KPR acquisition costs of $101.9 million included
net accounts receivable of $6.8 million, inventory of $6.9
million, investment in foreign joint venture of $2.0 million,
intangible assets of $65.8 million and property, plant and
equipment of $23.9 million. The Company also assumed liabilities
of $3.5 million.
The TNT acquisition costs of $56.4 million included net
accounts receivable of $1.7 million, inventory of $0.3 million,
other assets of $0.1 million, intangible assets of $47.5 million
and property, plant and equipment of $8.5 million. The Company
also assumed liabilities of $1.7 million.
Assets sold with the disposal of the Retail Division
included net accounts receivable of $10.8 million, inventories of
$8.6 million, other current assets of $0.7 million, other assets
of $0.2 million and property, plant and equipment of $22.2
million. The purchaser also assumed liabilities of $10.5
million. Net cash proceeds to the Company were $65.8 million.
The Company reduced its debt under its term loan by $58.0 million
and used the remainder to pay expenses related to the sale.
Expenditures for additions to property, plant and
equipment were $24.3 million for continuing operations and $0.8
for discontinued operations. Approximately $6.9 million of these
expenditures related to increased capacity in production, $6.2
million related 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
of existing facilities. The source of the funds for these
expenditures was from cash provided by operations.
Fiscal 1994. Operating activities provided net cash of
$27.4 million in Fiscal 1994 compared to $18.1 million in Fiscal
1993. The Specialty Brands Division provided $10.6 million of
the total for Fiscal 1994. The operations of the discontinued
Retail Division provided $0.6 million of cash flow in Fiscal
1994. The cash provided by the results of continuing operations
after adding back noncash items of depreciation and amortization,
post retirement medical benefits, provisions for restructuring,
integration and plant closings was $21.0 million in Fiscal 1994,
of which $11.8 million was provided by the Specialty Brands
Division. Additional increases in cash from operating activities
resulted primarily from decreases in accounts receivable,
inventories, deferred charges and other assets and increases in
accounts payable and accrued liabilities offset partially by
increases in other current assets.
The Company's Specialty Brands Division acquisition
costs of $137.7 million included net accounts receivable of $9.2
million, inventory of $21.8 million, other current assets of $0.4
million, intangible assets of $77.3 million and plant, property
and equipment of $39.5 million. The Company also assumed
liabilities of $10.5 million.
Cash expenditures for additions to property, plant and
equipment were approximately $10.1 million for continuing
operations and $4.5 million for discontinued operations during
Fiscal 1994. Of this total, approximately $5.3 million of these
expenditures were primarily attributable to construction of
additional capacity in ham and sausage production 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 borrowings under
existing credit facilities.
In October 1994, the Company announced the completion
of a stock rights offering. The rights offering provided current
stockholders the ability to purchase 0.68 shares for each share
currently owned. The offering also provided an over-subscription
privilege for those who exercised more rights. As a result of
the offering, 4,511,867 rights were exercised at $9.00 per share
for gross proceeds of $40.6 million. Net proceeds, after
expenses, were $38.6 million. The Company used $35.0 million of
the proceeds to reduce bank debt. As a result of the offering,
JLL Associates, L.P. ("JLL") increased its ownership in the
Company to approximately 44.3% from 27.4% at January 1, 1994.
Fiscal 1993. Operating activities provided net cash of
$18.1 million in Fiscal 1993. Operations of the discontinued
Retail Division provided $10.5 million of cash flow in Fiscal
1993. Investments in property, plant and equipment totaled $8.9
million for continuing operations and $10.8 million for
discontinued operations during Fiscal 1993. These expenditures
included construction of the new facility at Forrest City,
Arkansas, construction of additional drying room at the Company's
South Hutchinson, Kansas production facility to support growth in
the Food Service Division and $7.0 million of modifications and
replacements at existing facilities. The Company sold certain
assets which had been classified as Assets Held for Sale
resulting in net proceeds of $14.9 million offset by $16.9
million of net cash used by Assets Held for Sale, all of which
are included in net investment activities of discontinued
operations.
The Company reduced its net borrowings by $26.8 million
during Fiscal 1993. The Company issued $110.0 million in 9 3/4%
Senior Subordinated Redeemable Notes due in the year 2000 (the
"Senior Subordinated Notes") and entered into a new revolving
working capital facility (the "1993 Credit Agreement"). Proceeds
were used to retire the previous bank credit agreement.
On March 22, 1993, JLL purchased from the Company two
million newly-issued shares of Common Stock at $15.00 per share
pursuant to a stock purchase agreement. The Company used the net
proceeds from the sale, $26.7 million, to repay indebtedness. As
a result of this purchase, JLL owned approximately 25% of the
Common Stock. As of January 1, 1994, through subsequent open
market purchases, JLL increased its ownership by approximately
2.4%. The purchase agreement grants certain demand and piggyback
registration rights to JLL.
Financial Condition and Liquidity
On December 11, 1995, the Company consummated (i) a
term loan for $145.0 million ($95.0 million received on that
date), (ii) an acquisition revolving facility not to exceed
$100.0 million and (iii) a working capital revolving facility not
to exceed $75.0 million, of which $55.0 million can be used to
acquire other businesses, ("the Credit Agreement"). The proceeds
received on that date were net of $3.9 million of debt issuance
costs. The proceeds received were used to repay the existing
bank debt outstanding under the previous bank term loan totaling
$53.0 million and to fund the acquisition of KPR. The
acquisition revolving facility was subsequently drawn down to
finance the acquisition of TNT. The total debt outstanding under
all facilities at December 30, 1995, was $160.5 million including
$9.0 million under the working capital revolving facility. In
January 1996 the remaining $50.0 million under the term loan was
used to retire a promissory note to the sellers of KPR. The
Credit Agreement includes a subfacility for standby and
commercial letters of credit not to exceed $7.0 million.
The term loan requires quarterly payments beginning May 1996.
The acquisition revolving facility requires quarterly payments
beginning May 1997. To the extent not previously paid, all
borrowings under the Credit Agreement are due and payable January
15, 2000. Payments totaling $16.9 million will be required in
1996. At December 30, 1995, $50.9 million was available for
borrowing at that date based on current working capital and the
Company also has the ability to borrow an additional $43.5
million under the acquisition revolving facility in 1996 to fund
future acquisitions.
Management believes that cash flow from operations
combined with the borrowing capacity available under the
Company's Credit Agreement 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 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 such as the recently
completed acquisitions of KPR and TNT.
The Company's primary raw materials are fresh and
frozen meat, cheese, vegetables, milk products and flour. Severe
price swings in such raw materials, and the resultant impact on
the price the Company charges for its products, at times have
had, and may in the future have, material adverse effects on the
demand for the Company's products and its profits. The Company
utilizes several techniques for reducing the risk of future raw
materials price increases. These techniques include purchasing
and freezing raw materials during seasonally low cost periods of
the year, negotiating certain minimum purchase commitments at set
prices and periodically entering into futures contracts. Such
techniques are generally employed prior to an expected seasonal
price increase and in connection with fixed price sales
agreements to hedge the cost of raw materials for both firm and
forecasted sales commitments that will occur during a seasonal
sales peak.
Futures contracts as described above are accounted for
as hedges. Accordingly, resulting gains or losses are deferred
and recognized as part of the product cost. The Company's fiscal
year end is typically a seasonal low point in hedging activities
and deferred losses as of the end of Fiscal 1995, 1994 and 1993
were each less than $0.1 million.
Other. A subsidiary of the Company is a defendant in a
lawsuit filed prior to the Company's acquisition. The plaintiff
alleges liability based upon patent infringement,
misappropriation of proprietary information, unfair business
practices and breach of contract. Although the plaintiff has not
specified any amount of damages, liability for patent
infringement may include disgorgement of profits which the
Company believes could be material. The subsidiary has denied
these allegations and contends that the plaintiff's patents are
invalid and that, even if valid, the process and equipment used
by the subsidiary does not infringe the patents. The Company and
its subsidiary instituted a declaratory judgement action against
the plaintiff. See "Business - Legal Proceedings."
The litigation is complex and the ultimate outcome can
not be presently determined. Although the Company will
vigorously defend its interests, no assurance can be given that a
material adverse effect will not result from the litigation.
Impact of Changing Prices and Inflation
As previously discussed, the impact of changing prices
on the Company's operations is primarily a function of the
Company's raw material commodity prices. These prices are
subject to many forces including those of the marketplace and
inflation. The impact of changing prices on raw materials has
decreased since the Company exited the volatile retail
refrigerated processed meat case business. The Company does not
believe that inflation played a major role in either the cost of
raw materials or labor, or the selling price of its products
during Fiscal 1995, Fiscal 1994 or Fiscal 1993. Like many food
processors, the Company periodically adjusts selling prices of
its products, subject to competitive constraints and costs of raw
materials.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly
authorized.
FOODBRANDS AMERICA, INC.
(formerly known as Doskocil Companies Incorporated)
Dated: February 28, 1996 By:/s/ William L. Brady
William L. Brady
Vice President and Controller
