SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
February 26, 1996
_________________
Date of Report
(Date of earliest event reported)
FOODBRANDS AMERICA, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-2535513
______________________________________________________________
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
1601 Northwest Expressway, Suite 1700
Oklahoma City, Oklahoma 73118-0434
_______________________________________________
(Address of principal executive offices)
(405) 879-4100
_____________________________
Registrant's telephone number,
including area code
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
On December 26, 1995, the Registrant filed a Current
Report on Form 8-K disclosing the acquisition of KPR Holdings,
L.P., a Delaware limited partnership, on December 11, 1995, and
the acquisition of TNT Crust, Inc., a Wisconsin corporation, on
December 18, 1995. Filed herewith are the appropriate historical
and pro-forma financial statements regarding the acquisitions.
(a) Financial statements of businesses acquired:
The balance sheets of KPR Holdings, L.P. as of
December 10, 1995 and December 31, 1994 and the related
statements of earnings and cash flows for the period January 1,
1995 through December 10, 1995 and the years ended December 31,
1994 and January 1, 1994, together with the Independent Auditors'
Report of Deloitte & Touche LLP thereon, are attached hereto as
Exhibit 1 and are incorporated herein by reference.
The balance sheet of TNT Crust, Inc. as of
November 30, 1995 and August 31, 1995 and the related statements
of operations and cash flows for the three months ended November
30, 1995 and 1994 are attached hereto as Exhibit 2 and are
incorporated herein by reference.
The balance sheets of TNT Crust, Inc. as of August
31, 1995 and 1994 and the related statements of operations,
changes in shareholders' equity and cash flows for years then
ended, together with the Report of Independent Public Accountants
of Arthur Andersen LLP for the year ended August 31, 1995 are
attached hereto as Exhibit 3 and are incorporated herein by
reference.
The balance sheets of TNT Crust, Inc., as of
August 31, 1994 and 1993, and the related statements of
operations, changes in shareholders' equity and cash flows for
years then ended, together with the Report of Independent
Accountants of Coopers & Lybrand L.L.P. thereon, are attached
hereto as Exhibit 4 and are incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed consolidated
statement of operations includes the historical consolidated
statement of operations of the Company for the fiscal year ended
December 30, 1995, and the historical statements of operations of
KPR Holdings, L.P. ("KPR") for the fiscal year ended December 30,
1995, (which includes the audited period January 1, 1995, through
December 10, 1995) and TNT Crust, Inc. ("TNT") for the twelve
months ended December 30, 1995, and the related pro forma
adjustments.
The pro forma results of operations are not necessarily
indicative of results of operations that would have resulted had
the acquisitions occurred on January 1, 1995, nor are they
necessarily indicative of future results of operations. As a
result of the pro forma assumption that the purchase took place
at the beginning of the year, the pro forma interest expense and
amortization of intangibles will not agree with that presented in
the historical financial statement.
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 30, 1995
(In thousands, except per share data)
<CAPTION>
Historical Pro Forma Adjustments
______________________________ _____________________ Pro Forma
Company KPR TNT Increase Decrease Operations
________ _______ _______ ________ ________ __________
<S> <C> <C> <C> <C> <C> <C>
Net sales $634,700 $98,937 $25,041 $7,670 (a) $751,008
Cost of sales 499,985 80,871 13,856 6,056 (a) 588,656
________ _______ _______ ________
Gross profit 134,715 18,066 11,185 162,352
Operating expenses:
Selling, general &
administrative 95,117 5,548 4,583 466 (a) 104,782
Amortization of intangible
assets 4,495 46 1,652 $1,136 (b) 177 (a) 7,152
_______ _______ _______ ________
Total 99,612 5,594 6,235 111,934
_______ _______ _______ ________
Operating income 35,103 12,472 4,950 50,418
Other income (expense):
Interest and financing costs (17,268) (1,513) (2,254) 9,525 (c) (30,560)
Other, net (1,193) (29) 11 (1,211)
_______ _______ _______ ________
Total (18,461) (1,542) (2,243) (31,771)
_______ _______ _______ ________
Income from continuing
operations before income taxes 16,642 10,930 2,707 18,647
Provision for income taxes 7,041 - 1,069 8,262 (e) 8,110 (d) 8,262
_______ _______ _______ ________
Income from continuing
operations $ 9,601 $10,930 $ 1,638 $10,385
======= ======= ======= =======
Earnings per share: Income
from continuing operations $0.77 $0.83 (f)
===== =====
<FN>
See accompanying notes to the Pro Forma Condensed Consolidated Statements of Operations.
</TABLE>
<PAGE>
FOODBRANDS AMERICA, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended December 30, 1995
(In thousands, except per share amounts)
Note 1 Pro Forma Adjustments
(a) To reduce the historical Company financial statements
by the results of KPR and TNT included in the Company's
financial statements since acquisition.
(b) To record the net change in amortization expense
related to the KPR and TNT acquisitions based on the
amortization of goodwill over a period of 40 years, and
elimination of the historical amortization of KPR and
TNT.
(c) To record additional interest attributable to the
increase in bank debt to finance the KPR and TNT
acquisitions, record amortization of debt issue costs
over the term of the new bank debt and eliminate
amortization of debt issue costs attributable to debt
which was extinguished.
(d) To eliminate historical income tax expense.
(e) To record income tax expense at the statutory rate
(federal and state). The pro forma tax provision and
effective tax rate is not necessarily indicative of the
actual amounts and rates.
(f) The weighted average number of common and common
equivalent shares used in the pro forma earnings per
share computation was 12,453,000.
Note 2 Historical Financial Information
The historical condensed statement of operations presented in
this proforma statement for KPR does not reflect special bonuses
declared and paid upon sale to the Company in the amount of $12.3
million which are reflected in the historical financial
statements of KPR for the period ended December 10, 1995.
Note 3 Balance Sheet
No pro forma balance sheet has been presented since the
historical balance sheet of the Company at December 30, 1995,
included in its 1995 Form 10-K, includes all assets and
liabilities of the acquisitions.
<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 hereunto duly authorized.
FOODBRANDS AMERICA, INC.
__________________________________
(Registrant)
By: /s/ William L. Brady
______________________________
William L. Brady
Vice President and Controller
DATE: February 26, 1996
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
1 Financial Statements of KPR Holdings, L.P. as
of December 10, 1995 and December 31, 1994
and January 1, 1994 (with Independent
Auditors' Report Thereon)
2 Financial Statements of TNT Crust, Inc. for
the three months ended November 30, 1995 and
1994
3 Financial Statements of TNT Crust, Inc. as of
August 31, 1995 and 1994 (with Independent
Public Accountants' Report Thereon)
4 Financial Statements of TNT Crust, Inc. as of
August 31, 1994 and 1993 (with Independent
Auditors' Report Thereon)
EXHIBIT 1
KPR HOLDINGS, L.P.
Financial Statements for the Period Ended
December 10, 1995 and the Fiscal Years Ended
December 31, 1994 and January 1, 1994 and
Independent Auditors Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
KPR Holdings, L.P.
Fort Worth, Texas
We have audited the accompanying balance sheets of KPR Holdings,
L.P. (a Delaware limited partnership) (the Company ) as of
December 10, 1995 and December 31, 1994 and the related
statements of operations, partners' capital and cash flows for
the period ended December 10, 1995 and the fiscal years ended
December 31, 1994 and January 1, 1994. These financial
statements are the responsibility of the Company s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of KPR Holdings, L.P.
as of December 10, 1995 and December 31, 1994 and the results of
its operations and its cash flows for the period ended
December 10, 1995 and the fiscal years ended December 31, 1994
and January 1, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, on
December 11, 1995, FoodBrands America, Inc. ( FoodBrands )
acquired all of the limited partnership interests in the Company
held by the Company's limited partner, KPR Holdings, Inc., and
all of the outstanding shares of common stock of the Company s
general partner, RKR-GP, Inc. for approximately $75 million,
subject to adjustment for debt and working capital levels, along
with additional consideration based on future earnings levels as
defined in the purchase agreement. In connection with the sale,
all borrowings under the Credit Agreement, described in Note 8,
were repaid by FoodBrands.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
January 6, 1996
<PAGE>
<TABLE>
KPR HOLDINGS, L.P.
BALANCE SHEETS
<CAPTION>
December 10, December 31,
1995 1994
ASSETS ___________ ____________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,292,453 $ 1,024,757
Receivables (Notes 3 and 9) 6,840,750 5,361,265
Capital contribution receivable
(Notes 1 and 11) 12,168,935 -
Inventories (Note 4) 6,898,270 4,891,595
Prepaid expenses 116,318 105,331
___________ ___________
Total current assets 27,316,726 11,382,948
INVESTMENT IN AND ADVANCES TO
FOREIGN JOINT VENTURE (Note 6) 1,896,698 1,812,165
PROPERTY, PLANT AND EQUIPMENT (Note 5) 23,915,917 23,911,932
OTHER ASSETS (Note 7) 70,662 105,685
___________ ___________
TOTAL $53,200,003 $37,212,730
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 2,133,023 $ 2,622,450
Accrued expenses 1,391,672 1,211,960
Special bonuses payable (Notes 1
and 11) 12,168,935
Interest payable 40,604 155,148
Current portion of long-term debt
(Notes 1 and 8) 19,132,195 2,098,888
___________ ___________
Total current liabilities 34,866,429 6,088,446
LONG-TERM DEBT (Note 8) 19,068,523
COMMITMENTS AND CONTINGENCIES (Note 12)
PARTNERS' CAPITAL:
Partners' capital 18,324,020 12,083,797
Cumulative translation adjustments 9,554 (28,036)
___________ ___________
Total partners' capital 18,333,574 12,055,761
___________ ___________
TOTAL $53,200,003 $37,212,730
=========== ===========
<FN>
See notes to financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
KPR HOLDINGS, L.P.
STATEMENTS OF OPERATIONS
<CAPTION>
Period Ended Fiscal Years Ended
December 10, December 31, January 1,
1995 1994 1994
____________ ___________ ___________
<S> <C> <C> <C>
NET SALES (Note 9) $92,149,142 $73,083,774 $58,062,309
COST OF SALES 75,394,240 60,391,464 47,643,455
____________ ___________ ___________
GROSS PROFIT 16,754,902 12,692,310 10,418,854
OPERATING EXPENSES:
Selling, general and administrative 5,324,450 4,946,878 4,299,570
Amortization of intangible assets 45,678 62,857 146,326
Special bonuses expense (Notes 1 and 11) 12,330,410
Loss on write-down of assets 256,278
____________ ___________ ___________
Total 17,700,538 5,266,013 4,445,896
____________ ___________ ___________
OPERATING INCOME (LOSS) (945,636) 7,426,297 5,972,958
OTHER INCOME (EXPENSES):
Interest expense (1,513,233) (1,440,411) (1,169,614)
Equity in earnings (loss) of foreign
joint venture (Note 6) (110,132) 107,243 (152,764)
Other income 281,387 135,387 46,844
____________ ___________ ___________
Total (1,341,978) (1,197,781) (1,275,534)
____________ ___________ ___________
NET INCOME (LOSS) $(2,287,614) $ 6,228,516 $ 4,697,424
=========== =========== ===========
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
KPR HOLDINGS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
PERIOD ENDED DECEMBER 10, 1995 AND FISCAL YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994
<CAPTION>
Additional
General Limited Common Paid-in Retained Translation
Partner Partner Stock Capital Earnings Adjustments Total
_______ _________ _______ __________ __________
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 27, 1992 $ - $ - $1,250 $2,670,556 $2,566,006 $(22,580) $ 5,215,232
Issuance of 2,178 shares of common stock 2 13,501 13,503
Distribution to stockholders (1,964,457) (1,964,457)
Translation adjustments 46,699 46,699
Net income 4,697,424 4,697,424
Conversion of net assets to KPR Holdings,
L.P. on December 31, 1993 7,984,282 (1,252) (2,684,057)(5,298,973)
BALANCE, JANUARY 1, 1994 - 7,984,282 - - - 4,119 8,008,401
Contribution from general partner on
January 3, 1994 250,000 250,000
Distribution to partners (2,379,001) (2,379,001)
Translation adjustments (52,155) (52,155)
Net income 62,285 6,166,231
6,228,516
BALANCE, DECEMBER 31, 1994 312,285 11,771,512 (28,036) 12,055,761
Distribution to partners (57,098) (3,584,000) (3,641,098)
Capital contribution receivable from
general and limited partner
(Note 11) 90,201 12,078,734 12,168,935
Translation adjustments 37,590 37,590
Net income (loss) 8,612 (2,296,226) (2,287,614)
BALANCE, DECEMBER 10, 1995 $354,000 $17,970,020 $ - $ - $ - $9,554$18,333,574
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
KPR HOLDINGS, L.P.
STATEMENTS OF CASH FLOWS
Period Ended Fiscal Years Ended
December 10,December 31,January 1,
1995 1994 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,287,614)$ 6,228,516$ 4,697,424
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,382,191 2,757,850 2,001,951
Loss on write-down of assets 256,278
Equity on loss (earnings) of foreign joint venture 110,132 (107,243) 152,764
Loss on sale of assets 88,613 40,668 18,060
Changes in assets and liabilities:
Receivables (1,210,012)(1,570,885)
(1,594,441)
Inventories (2,006,675) (676,749)(1,120,472)
Prepaid expenses (10,987) (7,508) (9,122)
Other assets (10,655) (52,537) (67,226)
Accounts payable (489,427) 864,486 325,255
Accrued expenses 179,711 634,546 (242,291)
Special bonuses payable 12,168,935
Interest payable (114,544) 46,794 33,430
Net cash provided by operating activities 9,799,668 8,414,216 4,195,332
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment(3,902,135) (9,852,944)(4,209,701)
Investment in and advances to foreign joint
venture (157,075) (410,615) (879,298)
Proceeds from sale of property, plant and equipment 328,841 60,000
Issuance of note receivable to affiliate (402,500)
Proceeds from repayments of note receivable 277,211 5,964
Net cash used in investing activities (3,855,658) (10,203,559)(5,083,035)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 44,501,500 36,138,38017,833,330
Repayments of long-term debt (46,536,716) (31,560,753)(14,980,536)
Distributions to partners (3,641,098)(2,379,001) (1,964,457)
Contribution from general partner 250,000 13,503
Net cash provided by (used in) financing
activities (5,676,314) 2,448,626 901,840
INCREASE IN CASH AND CASH EQUIVALENTS267,696 659,283 14,137
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,024,757 365,474 351,337
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 1,292,453$ 1,024,757 $ 365,474
See notes to financial statements.
</TABLE>
<PAGE>
KPR HOLDINGS, L.P.
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 10, 1995 AND FISCAL YEARS ENDED
DECEMBER 31, 1994 AND JANUARY 1, 1994
1. ACQUISITION OF KPR HOLDINGS, L.P.
KPR Holdings, L.P. (the Company ), a Delaware partnership,
was formed on December 31, 1993 as successor to KPR, Inc. The
Company
is owned by KPR Holdings, Inc. (the "99% limited partner")
and
RKR-GP, Inc. (the "1% general partner"). Net income is
allocated
to each of the partners based on their respective
partnership
interest; however, distributions are not required to be made
on a
pro-rata basis.
On November 14, 1995, KPR Holdings, Inc. and the
shareholders of
RKR-GP, Inc. entered into a purchase agreement to sell their
interests in the Company to FoodBrands America, Inc.
( FoodBrands ). Under the terms of this purchase agreement,
KPR
Holdings, Inc. agreed to sell its 99% limited partnership
interest
in the Company and the shareholders of RKR-GP, Inc. agreed
to sell
all its outstanding shares of common stock to FoodBrands for
approximately $75 million, subject to adjustment for debt
and
working capital levels as of the closing date, along with
additional consideration based on future earnings levels as
defined
in the purchase agreement.
This acquisition transaction closed on December 11, 1995
whereby
FoodBrands acquired the above described interests and became
the
sole owner of the Company. In connection with the closing,
FoodBrands advanced approximately $19.2 million to the
Company to
repay all outstanding borrowings under the Credit Agreement,
described in Note 8, along with the related accrued
interest. In
addition, KPR Holdings, Inc. and RKR-GP, Inc. paid the
amounts due
to the Company for their capital contribution which pursuant
to the
purchase agreement was used to fund the liability for
special
bonuses payable as of December 10, 1995, described in Note
11, to
settle amounts due to Company employees under the terms of
KPR
Holdings, Inc. s Long-Term Phantom Share Plan and bonuses.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation - The Company is
primarily
engaged in the production of pizza toppings, soups and
sauces used
by restaurants throughout the United States and, through a
joint
venture, in certain foreign countries. The Company operates
on a
fifty-two or fifty-three week accounting period with the
fiscal
year ending on the Saturday nearest to December 31.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to
make estimates and assumption that effect the reported
amounts of
assets and liabilities and disclosure of contingent assets
and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting
period. Actual results could differ from these estimates.
Inventories - Inventories are valued at the lower of cost
(determined on a first-in, first-out method) or market. The
cost
of finished goods and work in process inventories include
raw
materials, labor and allocated production costs related to
those
inventories.
Property, Plant and Equipment - Property, plant and
equipment are
carried at the Company s historical cost. Depreciation
expense is
provided on a straight-line basis over the estimated useful
lives
of the assets.
Investment in and Advances to Foreign Joint Venture - The
Company
uses the equity method of accounting for its 50% investment
in and
advances to a foreign joint venture. Accordingly, the
Company
annually recognizes its proportionate share of net income or
losses
of the joint venture.
Other Assets - Other assets consist primarily of deferred
loan
costs which are amortized on a straight-line basis over the
term of
the related debt.
Income Taxes - As a partnership, KPR Holdings, L.P. is not
subject
to state and federal income taxes. As a result, the taxable
income
of the Company, which may vary substantially from income
reported
for financial reporting purposes, is included in the state
and
federal tax returns of the individual partners. Similarly,
for the
fiscal year ended January 1, 1994, the predecessor company,
KPR,
Inc., an S-Corporation for federal income tax purposes, was
not
subject to taxation at a corporate level. Accordingly, no
provision for income taxes is reflected in the accompanying
financial statements since such amounts are the
responsibility of
the individual shareholders or partners. The tax returns of
the
Company and its predecessor are subject to examination by
state and
federal taxing authorities. If such examinations result in
changes
to taxable income or loss, the tax liability of the
individual
partners would be changed accordingly.
The Company makes periodic distributions to its general and
limited
partners primarily as reimbursement for their proportionate
share
of the estimated tax liability arising from the Company s
income.
Foreign Currency Translation - The net assets of the foreign
joint
venture, whose functional currency is other than the U. S.
dollar
are translated at year-end exchange rates. Translation
gains and
losses are not included in determining net income but are
accumulated in a separate component of stockholders equity,
as is
required by Statement of Financial Accounting Standards No.
52,
"Foreign Currency Translation."
Cash and Cash Equivalents - Cash and cash equivalents, if
any,
include highly liquid investment instruments purchased with
remaining maturities of three months or less.
Supplemental Cash Flow Information - Selected cash payments
and
noncash activities were as follows:
1995 1994 1993
Cash payments for interest $ 1,660,000 $1,394,000 $1,086,000
Noncash investing and
financing activities:
Sale of property, plant
and equipment not yet
collected 144,000
Capital contributions
receivable 12,168,935
Reclassifications - Certain reclassifications have been made
to the
1994 and 1993 financial statements to conform to the
classifications used in 1995.
3. RECEIVABLES
Receivables consisted of the following:
December 10, December
31,
1995 1994
Trade $6,239,811 $5,196,561
Purchase rebates 178,986 99,305
Note from affiliate, which bears
interest at 10% and requires monthly
payments of principal and interest
of $47,293 through February 1996 125,289
Due from sales of equipment, including
$97,550 due from affiliate 144,184
Other 152,480 65,399
$6,840,750 $5,361,265
The Company uses the direct write off method for uncollectible
receivables and as a result, no allowance for doubtful accounts
is
considered necessary.
4. INVENTORIES
Inventories consisted of the following:
December 10, December 31,
1995 1994
Raw materials $1,942,543 $1,989,515
Work in process 1,606,026 1,139,508
Finished goods 3,349,701 1,762,572
$6,898,270 $4,891,595
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
December 10, December 31,
1995 1994
Land $ 673,695 $ 883,695
Building and improvements 9,048,118 8,694,904
Equipment 24,449,293 20,647,358
Construction/equipment in progress 26,236 804,862
34,197,342 31,030,819
Less accumulated depreciation (10,281,425) (7,118,887)
$23,915,917 $23,911,932
Depreciation expense was $3,336,513, $2,694,993 and
$1,855,625 in
1995, 1994 and 1993, respectively.
6. INVESTMENT IN AND ADVANCES TO FOREIGN JOINT VENTURE
The Company and a foreign company each hold a 50% interest
in
International Meat Ingredients, Ltd. ("IMI"), a foreign
joint
venture in Ireland. IMI was formed to manufacture and sell
pizza
toppings in Europe, the Middle East and Northern Africa and
began
production in early 1993. The Company made investments in
and
advances to IMI totaling $157,075, $410,615 and $879,298 in
1995,
1994 and 1993, respectively. According to the terms of the
joint
venture agreement, as amended, investments in and advances
to IMI
are allocated to partners advances and capital.
Additionally, the
Company agreed to guarantee 50% of certain outstanding bank
debt of
IMI (approximately $463,000 at December 10, 1995) up to a
maximum
guaranty of approximately $1,198,000, based on exchange
rates at
December 10, 1995.
In addition to the above investments in and advances to IMI,
during
1995, the Company loaned $402,500 to an affiliate of their
foreign
partner under an interest bearing note agreement (Note 3),
who, in
turn, along with a similar loan by its foreign partner,
loaned such
funds to IMI under an interest bearing note agreement. As
of
December 10, 1995, this affiliate had repaid $277,211 of the
principal amount of this note receivable to the Company.
Condensed financial information regarding IMI in U. S.
dollars is
as follows:
December 10, December 31, January 1,
1995 1994 1994
Current assets $6,391,782 $ 5,532,303
Property, plant and
equipment 7,801,206 6,524,450
$14,192,988 $12,056,753
Current liabilities $ 7,099,107 $5,516,183
Noncurrent liabilities
and capital grants 3,274,281 2,941,701
Partners' advances and
capital 3,819,600 3,598,869
Total liabilities and
partners' advances
and capital $14,192,988 $12,056,753
Net sales $18,814,153 $13,809,785 $7,948,002
Net income (loss) $ (220,264) $214,486 $(305.529)
7. OTHER ASSETS
Other assets consisted of the following:
December 10, December 31,
1995 1994
Deferred loan costs $ 135,050 $ 122.550
Organization and preoperating costs 121,034
Due from KPR Holdings, Inc. 10,000 10,000
Other 13,985 13,985
159,035 267,569
Less accumulated amortization (88,373) (161,884)
$ 70,662 $105,685
8. LONG-TERM DEBT
Long-term debt consisted of the following:
December 10, December 31,
1995 1994
Credit Agreement loans:
Revolving line of credit $ 3,524,789 $ 7,736,239
Term note payable 4,750,000 6,100,000
Equipment note 4,285,700
Mortgage note payable 3,122,827 3,259,735
Advancing term loan 2,571,420 3,000,000
IMI - line of credit 857,140 1,000,000
Other notes payable 20,319 71,437
19,132,195 21,167,411
Less current portion (19,132,195) (2,098,888)
$ - $19,068,523
On December 15, 1994, the Company entered into the Second
Restated
Revolving Credit Agreement (the "Credit Agreement") which
includes
a revolving line of credit, a term note, a mortgage note, an
equipment note and an advancing term loan. The Company has
the
option to designate the interest rate for borrowings under
the
revolving line of credit, term note and advancing term loan
using
either a Floating Prime or Eurodollar borrowings option, as
defined
in the Credit Agreement. Substantially all of the Company s
assets
are pledged as collateral for loans under the Credit
Agreement. In
addition, the majority stockholder of the limited and the
general
partner has pledged certain marketable securities as
additional
collateral and has guaranteed portions of the debt under the
Credit
Agreement and all stockholders of the limited partner and
the
general partner have pledged their respective stock in the
limited
and general partner. Unconditional guaranties were also
executed
by the limited and general partner and their respective
stockholders.
Borrowings under the annually renewable revolving line of
credit
are limited to the lesser of $8,500,000, or an amount based
on a
borrowing base calculation, and bear interest at rates
ranging from
7.5% to 8.75% (the prime rate was 7.5% at December 10,
1995).
The term note requires the payment of monthly principal
installments of $112,500. During 1993, the Company entered
into an
interest rate swap agreement with its lender which expires
in
December 1997, with notional amounts exactly parallel to the
outstanding principal of the term note, which effectively
fixed the
interest rate on the term note at 7.525%.
The mortgage note, which bears interest at 8.63%, is payable
in
monthly principal and interest installments of $34,734.
The advancing term loan is payable in monthly principal
installments of $35,715. Borrowings bear interest at the
prime
rate plus .25%.
The equipment note provides for borrowings of up to
$5,000,000 and
bears interest at prime plus .25%. Monthly principal
payments of
$59,525 are required under the terms of the note.
The IMI - line of credit of $1,000,000, which was used to
fund
advances to IMI, bears interest at the prime rate, and is
payable
in monthly principal installments of $11,905.
The Credit Agreement contains several financial and
operating
covenants requiring, among other things, the maintenance of
minimum
tangible net worth, as defined, and certain financial
ratios,
including fixed-charge coverage and debt to tangible net
worth, as
defined. In addition, the Credit Agreement requires the
attainment
of certain levels of cash flows, as defined, and limitations
on
investments and capital expenditures. In the event the
Company
fails to comply with these covenants and other restrictions,
it
could be in default under the agreement and substantially
all of
its long-term debt maturities could be accelerated.
In addition, the Credit Agreement contains various covenants
which,
among other things, limit the Company s ability to incur
indebtedness or other liabilities other than under the
Credit
Agreement and restrict the Company s ability to make partner
distributions and enter into transactions with affiliates.
On December 11, 1995, in connection with the acquisition
transaction, all borrowings under the Credit Agreement,
including
the IMI - line of credit, were repaid in full by FoodBrands
(Note
1). Accordingly, all outstanding amounts under the Credit
Agreement at December 10, 1995 have been classified as
current
liabilities.
9. MAJOR CUSTOMER
Sales to a major customer, Pizza Hut, Inc., totaled
$64,312,242,
$52,167,828 and $44,547,715 in 1995, 1994 and 1993,
respectively.
Accounts receivable for this customer totaled $3,017,921 and
$2,781,656 at December 10, 1995 and December 31, 1994,
respectively.
10. RELATED PARTY TRANSACTIONS
Certain stockholders of the general and limited partners
control
affiliated companies which transact business with the
Company in
the ordinary course of business. Transactions between the
Company
and these affiliated companies during 1995, 1994 and 1993
were as
follows:
1995 1994 1994
Management fees $ 49,500 $ 162,000 $ 71,600
Finished goods purchases 2,976,000 3,289,000
Rent 736,000 486,000
Equipment purchases 2,262,000
There were no material amounts payable to affiliates as of
December 10, 1995 and December 31, 1994.
In addition, during 1995, as discussed in Note 6, the
Company made
an interest bearing loan to an affiliate of its foreign
joint
venture partner, which, at December 10, 1995 had an
outstanding
balance of $125,289. The Company also sold certain
equipment
during 1995 to an affiliate of its foreign joint venture
partner
which was recorded in receivables as of December 10, 1995.
11. BENEFIT PLANS
Defined Contribution Retirement Plan - The Company sponsors
a
defined contribution retirement plan covering all employees
that
have completed six months of service. Contributions to the
plan
are to be made in amounts determined at the Company s
discretion.
Employees are 100% vested after six years of service.
Amounts
expensed by the Company during 1995, 1994 and 1993 for the
plan
were $161,000, $119,000 and $84,000, respectively.
Voluntary Employee Benefit Association - The Company has a
Voluntary Employee Benefit Association Plan (the "Plan") for
purposes of employee health insurance. The Plan requires
the
Company to make contributions into the Plan which are
applied
toward administrative fees and premiums to an independent
insurance
carrier for insurance coverage. For 1995, 1994 and 1993,
the
Company expensed approximately $177,000, $156,000 and
$133,000,
respectively, for the Plan.
Nonqualified Stock Option Plan - KPR Holdings, Inc. (the
limited
partner) maintained a nonqualified stock option plan for the
benefit of the Company s key employees. As of December 31,
1994
options to purchase 51,536 shares of common stock of the
Limited
Partner had been granted to certain key employees at prices
which
approximated the fair market value of such options at the
date of
grant. Options granted are exercisable or cancelable in
increments
over the term of the individual option agreements, as
defined in
the agreements. During 1995, 1994 and 1993, 19,020, 7,821
and
2,178 shares of common stock, respectively, were issued
pursuant to
the exercise of certain of these options, and options for
32,500
shares were canceled during 1995. As of December 10, 1995,
as a
result of the acquisition transaction discussed in Note 1,
all
options to acquire shares of the Limited Partner s common
stock had
been exercised.
Long-Term Phantom Share Plan - KPR Holdings, Inc. also
maintained a
Long-Term Phantom Share Plan (the "Plan"). Participants of
the
Plan include certain employees who will receive payment upon
a
change in control or an initial public offering ("IPO") of
common
stock, as defined in the Plan. The required payments under
the
Plan will be based on a formula whereby the participant will
be
entitled to a payment equal to the sale price per share at
such
change in control or IPO date, for each phantom share
granted,
which at December 10, 1995 and December 31, 1994, totaled
55,810
shares. The occurrence of a change in control or an IPO
would
require the recognition of compensation expense by the
Company to
the extent any payments were required. As a result of the
acquisition transaction discussed in Note 1, payments were
made to
the participants of the Plan on December 11, 1995 as
discussed
below.
Special Bonuses - In connection with the acquisition
transaction
discussed in Note 1, the Company has declared special
bonuses of
$12,330,410, including related payroll taxes, payable to
certain
employees, upon closing of the transaction and pursuant to
the
purchase agreement, KPR Holdings, Inc. and RKR-GP, Inc.
agreed to
fund a portion of these special bonuses up to $12,168,935.
As a
result, at December 10, 1995, the Company has accrued the
unpaid
amount of these special bonuses and has recorded as a
capital
contribution receivable for the amounts required to be
funded by
KPR Holdings, Inc. and RKR-GP, Inc. On December 11, 1995,
the
remaining unpaid special bonuses were paid by the Company
and the
recorded capital contribution receivable was collected from
KPR
Holdings, Inc.
The components of special bonuses expense were as follows
Long-Term Phantom Share Plan bonuses $ 3,148,825
Earnout option bonuses 9,020,110
Salary/hourly bonuses 161,475
$12,330,410
12. COMMITMENTS AND CONTINGENCIES
The Company leases primarily equipment under operating lease
agreements with terms ranging from three to five years.
Rent
expense amounted to approximately $352,000, $389,000 and
$419,000
during 1995, 1994 and 1993, respectively. In addition, the
Company
rents one of its manufacturing facilities on a
month-to-month basis
with an affiliate. There were no material future lease
commitments
at December 10, 1995; however, on December 11, 1995, the
Company
entered into a long-term lease of the facility.
The Company is involved in two related actions involving
alleged
infringement of two patents held by C&F Packing Company,
Inc.
( C&F ). In 1993, C&F had instituted a civil action against
the
Company alleging that the Company, using equipment and a
process to
make a particular sausage product, infringed the C&F
patents. The
Company has denied these allegations and contends that C&F s
patents are invalid and that, even if valid, the process and
equipment used by the Company does not infringe the patents.
C&F
also alleged misappropriation of trade secrets and
proprietary
information, as well as other claims, all of which the
Company
denies. In addition, the Company is subject to other claims
and
litigation in the normal course of business. Although the
ultimate
costs of these matters could not be precisely determined at
December 10, 1995, the Company has accrued their estimated
liabilities related to these matters. After giving effect
to these
reserves, management believes that the ultimate settlement
of
claims and litigation will not have a material adverse
effect on
the financial statements. Future developments could cause
the
Company to change their estimates of the ultimate costs of
resolving these matters.
TNT CRUST, INC.
CONDENSED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1995 AND 1994
(Unaudited)
<PAGE>
<TABLE>
TNT CRUST, INC.
CONDENSED BALANCE SHEETS
<CAPTION>
Nov. 30, Aug. 31,
ASSETS 1995 1995
__________ __________
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,663,250 $1,597,760
Accounts receivable, less allowance for
doubtful accounts of $25,000 1,155,142 1,171,954
Inventories 369,044 252,568
Deferred income taxes 205,000 55,000
Other 44,405 162,659
__________ __________
Total current assets 3,436,841 3,239,941
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 457,890 464,628
Buildings and improvements 4,452,409 4,452,409
Machinery and equipment 7,459,255 7,354,790
Vehicles 223,465 223,465
__________ __________
12,593,019 12,495,292
Less- Accumulated depreciation 4,097,683 3,942,068
__________ __________
8,495,336 8,553,224
INTANGIBLES, net of amortization of
$1,563,029 and $1,170,661, respectively 1,750,948 2,143,316
OTHER 29,962 29,962
__________ __________
Total assets $13,713,087 $13,966,443
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED Nov. 30, Aug. 31,
STOCK AND SHAREHOLDERS EQUITY 1995 1995
__________ __________
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $3,625,000 $ 3,500,000
Accounts payable 1,210,116 1,294,794
Accrued expenses and other liabilities 488,019 751,678
Income taxes 343,672 59,032
__________ ___________
Total current liabilities 5,666,807 5,605,504
DEFERRED INCOME TAXES 603,000 570,000
LONG-TERM DEBT, less current portion:
Notes payable 14,500,000 15,500,000
Subordinated notes payable 4,630,555 4,491,775
SHAREHOLDERS EQUITY:
Common stock, $.10 par value, 1,240,000
shares authorized, 878,850 shares issued
and outstanding 87,885 87,885
Additional paid-in capital 14,812,146 14,812,146
Retained deficit (26,587,306 (27,100,867)
__________ ___________
Total shareholders equity (11,687,275) (12,200,836)
__________ ___________
Total liabilities, redeemable
preferred stock and shareholders'
equity $13,713,087 $13,966,443
=========== ===========
<FN>
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
TNT CRUST, INC.
CONDENSED STATEMENTS OF OPERATIONS - Unaudited
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
<CAPTION>
1995 1994
___________ __________
<S> <C> <C>
NET SALES $ 6,819,842 $6,372,139
COST OF SALES 4,399,599 4,021,273
___________ __________
Gross profit 2,420,243 2,350,866
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 651,259 503,362
AMORTIZATION EXPENSE 392,368 175,925
___________ __________
Income from operations 1,376,616 1,671,579
OTHER (INCOME) EXPENSE:
Interest expense, net 579,418 457,890
Other, net 3,637 (3,002)
___________ __________
583,055 454,888
___________ __________
Income before income taxes 793,561 1,216,691
INCOME TAXES 280,000 530,000
___________ __________
Net income $513,561 $686,691
=========== ==========
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
TNT CRUST, INC.
CONDENSED STATEMENTS OF CASH FLOWS - Unaudited
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
<CAPTION>
1995 1994
__________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 513,561 $ 686,691
Adjustments to reconcile to net cash provided
by operating activities-
Depreciation and amortization 606,612 401,926
Deferred income taxes 33,000 (33,000)
Changes in certain assets and liabilities-
Accounts receivable 32,550 (414,839)
Inventories (116,475) (49,767)
Other current assets (127,434) 569,274
Accounts payable and accrued expenses (348,357) (2,015,395)
Income taxes 284,610 (94,790)
__________ __________
Net cash provided by operating activities 878,067 (949,900)
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (156,357) (1,971,724)
Increase in other assets - (2,706,568)
__________ __________
Net cash used in investing activities (156,357) (4,678,292)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (736,220) -
Proceeds from issuance of long-term debt - 24,500,000
Decrease in long-term receivable 80,000 -
Repurchase of common stock and preferred stock - (21,506,253)
__________ __________
Net cash used in financing activities (656,220) 2,993,747
__________ __________
(Decrease) increase in cash 65,490 (2,634,445)
CASH AND CASH EQUIVALENTS:
Beginning of year 1,597,760 5,404,235
__________ __________
End of year $1,663,250 $2,769,790
========== ==========
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
TNT CRUST, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - Unaudited
NOVEMBER 30, 1995 AND 1994
(1)Description of the Business-
TNT Crust, Inc. (the Company ) is a manufacturer of pizza crusts
which are sold to the industrial and food service segments of the
food industry. The Company s primary ingredients include readily
available commodity items.
(2)Summary of Significant Accounting Policies-
The accompanying condensed financial statements have been
prepared without audit and, in the opinion of the Company,
contain all adjustments (adjustments are of a normal, recurring
nature) necessary for a fair presentation of the financial
position as of November 30, 1995 and August 31, 1995, and the
results of operations and cash flows for the three months ended
November 30, 1995 and 1994. Results for the three months ended
November 30, 1995 are not necessarily indicative of the results
which would have been realized for the year ending August 31,
1996 had the Company remained an independent entity (See Note 6).
The financial statements should be read in conjunction with the
Company's audited financial statements for the year ended August
31, 1995.
(3)Inventories-
Inventories consisted of the following:
Nov. 30, Aug. 31,
1995 1995
________ ________
Raw materials $150,240 $ 71,258
Finished goods 218,804 181,310
________ ________
$369,044 $252,568
======== ========
(4)Income Taxes-
The provision for income taxes consisted of the following:
Three Months Ended Nov. 30,
___________________________
1995 1994
____ ____
Current:
Federal $16,000 $25,000
State 4,000 6,000
_______ _______
20,000 31,000
_______ _______
Deferred:
Federal 209,000 390,000
State 51,000 109,000
________ ________
260,000 499,000
________ ________
$280,000 $530,000
======== ========
Deferred income taxes are recorded for temporary differences
between the financial reporting and tax reporting basis of the
Company's assets and liabilities and such amounts as measured by
currently enacted tax laws.
(5)Related Party Transactions-
The subordinated notes payable as reflected on the balance sheet
are issued to a related party. As such, all interest payments
are considered related party transactions.
(6)Subsequent Event-
On December 18, 1995, the shareholders of the Company sold all
outstanding stock of the Company to Foodbrands America, Inc. for
approximately $55.6 million. In addition, the shareholders may
also receive contingent earnout payments, not to exceed $6.5
million, based on sales growth to certain customers.
EXHIBIT 3
TNT CRUST, INC.
FINANCIAL STATEMENTS
AS OF AUGUST 31, 1995 AND 1994
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of TNT Crust, Inc.:
We have audited the accompanying balance sheet of TNT Crust,
Inc. (a Wisconsin Corporation) as of August 31, 1995, and the
related statements of operations, changes in shareholders'
equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of TNT
Crust, Inc. As of August 31, 1994, were audited by other auditors
whose report dated September 23, 1994, expressed an unqualified
opinion on those statements and included an explanatory
paragraph highlighting the recapitalization discussed in Note 1.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of TNT Crust, Inc. As of August 31, 1995, and the results of its
operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
September 22, 1995.
<PAGE>
<TABLE>
TNT CRUST, INC.
BALANCE SHEETS
AS OF AUGUST 31, 1995 AND 1994
<CAPTION>
ASSETS 1995 1994
__________ __________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,597,760 $5,404,235
Accounts receivable, less allowance for
doubtful accounts of $25,000 1,171,954 885,308
Inventories 252,568 234,361
Deferred income taxes 55,000 1,392,000
Other 162,659 32,535
__________ __________
Total current assets 3,239,941 7,948,439
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 464,628 241,355
Buildings and improvements 4,452,409 2,304,630
Machinery and equipment 7,354,790 4,555,901
Vehicles 223,465 240,731
Construction-in-progress - 719,879
__________ __________
12,495,292 8,062,496
Less- Accumulated depreciation 3,942,068 2,957,063
__________ __________
8,553,224 5,105,433
INTANGIBLES, net of amortization of
$1,170,661 and $649,547, respectively 2,143,316 870,793
OTHER 29,962 30,621
__________ __________
Total assets $13,966,443 $13,955,286
<FN>
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
<CAPTION>
1995 1994
__________ ___________
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $3,500,000 $ -
Accounts payable 1,294,794 998,515
Accrued expenses and other liabilities 751,678 4,253,605
Income taxes 59,032 169,822
__________ ___________
Total current liabilities 5,605,504 5,421,942
DEFERRED INCOME TAXES 570,000 616,000
LONG-TERM DEBT, less current portion:
Notes payable 15,500,000 -
Subordinated notes payable 4,491,775 -
REDEEMABLE PREFERRED STOCK:
8% cumulative convertible preferred, $.10
par value, 2,000 shares authorized, 1901.821
shares issued and outstanding in 1994 - 7,917,224
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, 1,240,000
shares authorized, 878,850 shares issued
and outstanding in 1995, 600,000 shares
authorized, 1,198.179 shares issued and
outstanding in 1994 87,885 120
Additional paid-in capital 14,812,146 -
Retained deficit (27,100,867) -
__________ __________
Total shareholders' equity (12,200,836) 120
__________ __________
Total liabilities, redeemable
preferred stock and shareholders'
equity $13,966,443 $13,955,286
=========== ===========
<FN>
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
TNT CRUST, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<CAPTION>
1995 1994
___________ ___________
<S> <C> <C>
NET SALES $24,403,905 $25,024,582
COST OF SALES 15,701,207 14,807,502
___________ ___________
Gross profit 8,702,698 10,217,080
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,713,446 5,854,976
AMORTIZATION EXPENSE 521,114 162,387
___________ ___________
Income from operations 5,468,138 4,199,717
OTHER (INCOME) EXPENSE:
Interest expense, net 2,200,912 (115,385)
Other, net (13,809) 30,138
___________ ___________
2,187,103 (85,247)
___________ ___________
Income before income taxes 3,281,035 4,284,964
INCOME TAXES 1,375,000 1,725,000
___________ ___________
Net income $1,906,035 $2,559,964
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
TNT CRUST, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<CAPTION>
Additional
Common Stock Paid in Retained
Shares Amount Capital Earnings
_________ ______ __________ ____________
<S> <C> <C> <C> <C>
BALANCE, August 31, 1993 1,198.179 $ 120 $ - $ -
Preferred stock dividend ($80 per
share) - - - (152,146)
Preferred stock accretion - - - (2,407,818)
Net income - - - 2,559,964
_________ _______ ____________ ____________
BALANCE, August 31, 1994 1,198.179 120 - -
Preferred stock dividend ($3.29
per share) - - - (6,252)
Preferred stock redemption - - - (16,622,402)
Common stock redemption (888.179) (89) - (11,460,285)
Stock redemption costs - - - (917,963)
Common stock issuance 1,154.750 115 14,899,885 -
Common stock split 877,385.250 87,739 (87,739) -
Net income - - - 1,906,035
___________ _______ ____________ ____________
BALANCE, August 31, 1995 878,850.000 $87,885 $14,812,146 $(27,100,867)
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
TNT CRUST, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<CAPTION
1995 1994
__________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,906,035 $2,559,964
Adjustments to reconcile to net cash provided
by operating activities-
Depreciation and amortization 1,584,798 1,037,379
Deferred income taxes 1,291,000 (1,478,000)
Gain on disposals of fixed assets (2,071) (5,000)
Noncash interest expense on subordinated debt 491,775 -
Payment of noncompete agreement (600,000) -
Changes in certain assets and liabilities-
Accounts receivable (286,646) 31,937
Inventories (18,207) (53,214)
Other current assets (130,124) -
Accounts payable and accrued expenses (3,205,648) 3,401,695
Income taxes (110,790) (79,294)
Other 657 (21,765)
__________ __________
Net cash provided by operating activities 920,779 5,393,702
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,513,905) (1,109,472)
Proceeds from disposals 4,500 5,000
__________ __________
Net cash used in investing activities (4,509,405) (1,104,472)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (3,000,000) -
Proceeds from issuance of long-term debt 22,000,000 -
Proceeds from issuance of subordinated debt 4,000,000 -
Payments of financing fees (1,193,634) -
Dividends paid (6,252) (152,146)
Repurchase of common stock and preferred stock (36,917,963) -
Proceeds from issuance of common stock 14,900,000 -
__________ __________
Net cash used in financing activities (217,849) (152,146)
__________ __________
(Decrease) increase in cash (3,806,475) 4,137,084
CASH AND CASH EQUIVALENTS:
Beginning of year 5,404,235 1,267,151
__________ __________
End of year $1,597,760 $5,404,235
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash amounts paid for-
Income taxes $194,790 $3,282,294
========== ==========
Interest $1,829,764 $ -
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
TNT CRUST, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995 AND 1994
(1) Recapitalization-
On September 16, 1994, the Company was recapitalized through
the repurchase by the Company of all its issued and outstanding
preferred stock and approximately 74% of its issued and
outstanding common stock. The aggregate purchase price for all
of the repurchased preferred and common stock was $36,000,000 or
$12,903.23 for each of the 1901.821 shares of preferred stock and
888.179 shares of common stock repurchased.
In connection with the repurchase, the Company issued to a
new investor group: (i) 1123.75 shares of newly issued common
stock of the Company for an aggregate purchase price of
$14,500,000 and (ii) 12.45% ten year subordinated notes in the
aggregate principal amount of $4,000,000. In addition, the
Company has entered into a Term and Revolving Credit Loan
Agreement with certain financial institutions under which the
Company borrowed $22,000,000 as additional funding for the
repurchase.
In conjunction with the transaction, the Company's
President has entered into an employment agreement with the
Company. In exchange for agreeing to the provisions of the
agreement, the Company's President received a $600,000 one-time
payment. Upon the execution of this agreement, the President
also entered into a nonqualified stock option agreement with the
Company which provides for an initial grant to the President of
options to purchase an amount of common stock equal to 3% of the
issued and outstanding capital stock of the Company.
The Board of Directors of the Company has also approved a
one-time bonus payment to the Company's President in the amount
of $3,400,000. Since the payment represents an amount for past
services to the Company, the $3,400,000 amount has been included
in accrued liabilities at August 31, 1994, and selling, general
and administrative expenses for fiscal 1994.
(2) Description of the Business-
TNT Crust, Inc. (the "Company") is a manufacturer of pizza
crusts which are sold to the industrial and food service segments
of the food industry. The Company's primary ingredients include
readily available commodity items.
(3) Summary of Significant Accounting Policies-
Cash and Cash Equivalents--The Company considers all highly
liquid marketable securities with a maturity date of three months
or less when purchased to be cash equivalents.
Inventories--Inventories are stated at the lower of cost or
market and are accounted for using the first-in, first-out
method. Inventories consist of raw materials, and finished
goods.
Depreciation--Property, plant and equipment are depreciated
on the straight-line method over the estimated useful life of the
assets for financial reporting purposes and using accelerated
methods for income tax purposes. Depreciation expense was
approximately $1,064,000 and $880,000 for the fiscal years ended
August 31, 1995 and 1994, respectively.
Intangibles--Intangible assets consist of the net cost after
accumulated amortization of a covenant not to compete, deferred
financing costs incurred as part of the recapitalization and
goodwill from a prior recapitalization in 1990. The covenant not
to compete and the deferred financing costs are being amortized
over the term of each agreement (five years) and the goodwill is
being amortized over a ten year period.
Income Taxes--Deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse.
Concentrations of Credit Risk--Certain financial instruments
potentially subject the Company to concentrations of credit risk.
These financial instruments consist primarily of temporary cash
investments and trade receivables. The Company places its
temporary cash investments in short-term U.S. Government Treasury
Notes.
For the years ended August 31, 1995 and 1994, the Company's
two largest customers in the pizza industry accounted for
approximately 51% and 55%, respectively, of net sales.
Concentrations of credit risk with respect to receivables are
limited due to generally short payment terms, and a dispersion of
customers across geographic areas.
(4) Inventories-
As of August 31, inventories consisted of the following:
1995 1994
________ _______
Raw materials $ 71,258 $ 61,982
Finished goods 181,310 172,379
________ ________
$252,568 $234,361
======== ========
(5) Intangibles-
As of August 31, intangibles consisted of the following:
1995 1994
_________ ________
Deferred financing costs $ 954,909 $ -
Goodwill 708,407 850,793
Covenant not to compete 480,000 20,000
__________ ________
$2,143,316 $870,793
========== ========
(6) Income Taxes-
The provision for income taxes consisted of the following:
1995 1994
__________ __________
Current:
Federal $69,000 $2,547,000
State 15,000 656,000
__________ __________
84,000 3,203,000
__________ __________
Deferred:
Federal 1,118,000 (1,282,000)
State 173,000 (196,000)
__________ __________
1,291,000 (1,478,000)
__________ __________
$1,375,000 $1,725,000
========== ===========
Deferred income taxes are recorded for temporary differences
between the financial reporting and tax reporting basis of the
Company's assets and liabilities. Deferred income tax balances
reflected in the balance sheets at August 31, 1995 and 1994,
relate to the following:
1995 1994
_______ ______
Deferred income tax benefits:
Accrued compensation $ - $1,350,000
Accrued vacation 45,000 32,000
Allowance for doubtful accounts 10,000 10,000
________ __________
$55,000 $1,392,000
======= ==========
Deferred income tax liability:
Property, plant and equipment $570,000 $616,000
======== ==========
Following is a reconciliation of the Federal statutory
income tax rate to the Company's effective tax rate:
1995 1994
_____ _____
Federal statutory income tax rate 34.0% 34.0%
Nondeductible goodwill 1.5% 1.2%
State income tax, net of Federal
income tax benefit 5.4% 7.1%
Other 1.0% (2.0%)
_____ _____
41.9% 40.3%
===== =====
(7) Long-Term Debt-
Pursuant to the Term and Revolving Credit Loan Agreement
dated September 16, 1994, the Company has a total borrowing
capacity of $21,000,000 as of August 31, 1995 through various
financing vehicles as noted below. The Term Loan Agreement
provides for fiscal year quarterly principal payments plus
interest for five years expiring August 31, 1999. The applicable
interest rate is the lender's "base rate" plus an applicable
margin of 2% to 3% as described by the agreement totaling
8.94% at August 31, 1995. The terms of the Revolving Credit Loan
Agreement provides for terms substantially similar to those of
the Term Loan Agreement except for expiration dates of one year
or less from the date of issuance. These borrowings are
collateralized by substantially all of the Company's current and
future acquired assets.
Future maturities of the above debt is as follows:
1996 $3,500,000
1997 4,000,000
1998 5,500,000
1999 6,000,000
__________
$19,000,000
===========
The Company has $2 million availability under the Revolving
Credit Loan Agreement and has no borrowings under this agreement
as of August 31, 1995.
The Term Loan and Revolving Credit Agreement also includes
various representations, warranties and covenants including the
maintenance of adjusted net worth at the end of each fiscal
quarter in an amount not less than 90% of the initial equity
investment plus 75% of positive net income, and other financial
statement ratios as described in the agreement.
The Company utilizes interest rate swaps to hedge its
interest rate exposures under the Term and Revolving Credit Loan
Agreement. Under these agreements, as of August 31, 1995, the
Company has effectively locked in fixed interest rates between
9.27% and 10.12% on its debt. These two agreements expire during
fiscal 1996 and 1998. The estimated fair value of the swaps was
$(221,345) at August 31, 1995.
(8) Subordinated Debt-
The subordinated debt as of August 31, 1995, consists of
notes payable to investors, interest at 12.45%, payable
semi-annually. Interest is payable in the form of additional
subordinated notes (PIK notes) to be issued semi-annually. All
principal, including PIK interest accrued, is due and payable on
September 16, 2004.
Notes payable to investors $4,000,000
PIK interest accrued through August 31, 1995 491,775
__________
Subordinated debt $4,491,775
==========
As of August 31, 1995, determination of the fair value of
this debt is not practical as it is issued to a related party.
The notes are collateralized by a subordinated interest in
substantially all of the Company's assets. In addition, the
Company, the subordinated note holders and the Company's bank are
parties to a subordination agreement, whereby, the Company cannot
make principal or interest payments on the subordinated notes
unless the Company has first made payment in full on the senior
debt. The agreement also details the nature of the subordination
arrangement between the parties.
(9) Redeemable Preferred Stock-
In August 1990, the Company issued 2,000 shares of 8%
cumulative convertible preferred stock for $2,000,000. Until the
redemption of the preferred stock in September 1994, accretion of
the carrying value of the redeemable preferred stock was recorded
so that the carrying amount equaled the estimated redemption
amount at the redemption dates.
(10) Shareholders Equity-
On April 6, 1995, the Board of Directors declared a six
hundred-for-one stock split effective April 6, 1995. The par
value of the new shares issued totaled $87,739, which was
transferred from additional paid-in capital to the common stock
account.
During 1995, the Board of Directors authorized the issuance
of 95,583 stock options under a nonqualified stock option plan.
The Company granted 93,194 stock options during 1995. All
options granted have an exercise price of $21.50 which
approximates market value at the date of issuance. No options
were exercised or cancelled during 1995. At August 31, 1995,
there were 2,389 shares available for future grants. All
options above have been restated to reflect the Company's six
hundred-for-one common stock split.
11) Profit Sharing Plan-
The Company has a defined contribution profit sharing plan
for all eligible employees. Company contributions are
discretionary and are determined annually by the Board of
Directors. Total profit sharing expense for fiscal 1995 and 1994
was $140,000 and $145,000, respectively.
(12) Commitments-
Certain vehicles are leased under noncancellable operating
leases which expire in 1998. The rent expense under these
operating leases totaled $53,196 in 1995 and $46,016 in 1994.
The following summarizes the future minimum lease payments
required to be made under noncancellable operating leases for the
years ending August 31:
1996 $53,196
1997 53,196
1998 44,331
Thereafter -
_______
Total $150,723
========
At August 31, 1995, outstanding commitments for the purchase
of raw material inventory at fixed prices over the next year
totaled $1,137,000.
EXHIBIT 4
TNT CRUST, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
for the years ended August 31, 1994 and 1993
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
TNT Crust, Inc.
Green Bay, Wisconsin
We have audited the accompanying balance sheets of TNT
Crust, Inc. as of August 31, 1994 and 1993, and the related
statements of operations, changes in shareholder's equity, and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and the significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of TNT Crust, Inc. as of August 31, 1994 and 1993, and the
results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, on
September 16, 1994, the Company was recapitalized through the
repurchase by the Company of all its issued and outstanding
preferred stock and approximately 74% of its issued and
outstanding common stock.
Milwaukee, Wisconsin
September 23, 1994
<PAGE>
<TABLE>
TNT CRUST, INC.
BALANCE SHEETS
August 31, 1994 and 1993
<CAPTION>
ASSETS
1994 1993
____ ____
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,404,235 $1,267,151
Accounts receivable, less allowance
for doubtful accounts of $25,000 885,308 917,245
Inventories 234,361 181,147
Deferred income taxes 1,392,000 41,000
Other 32,535 11,338
___________ __________
Total current assets 7,948,439 2,417,881
Property, plant and equipment, at cost:
Land 241,355 168,615
Buildings and improvements 2,304,630 2,238,742
Machinery and equipment 4,555,901 4,156,884
Vehicles 240,731 165,115
Construction in progress 719,879 -
___________ __________
8,062,496 6,729,356
Less accumulated depreciation 2,957,063 2,100,550
___________ __________
5,105,433 4,628,806
Intangibles, net of amortization of
$649,547 and $487,160, respectively 870,793 1,033,180
Other 30,621 30,052
___________ __________
Total assets $13,955,286 $8,109,919
=========== ==========
</TABLE>
<TABLE>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDER'S EQUITY
<CAPTION>
1994 1993
____ ____
<S> <C> <C>
Current liabilities:
Accounts payable $ 998,515 $ 895,848
Accrued expenses and other liabilities 4,253,605 712,429
Income taxes 169,822 249,116
___________ __________
Total current liabilities 5,421,942 1,857,393
Deferred income taxes 616,000 743,000
___________ __________
Total liabilities 6,037,942 2,600,393
Redeemable preferred stock:
8% cumulative convertible preferred,
$.10 par value, 2,000 shares
authorized, 1901.821 shares issued
and outstanding 7,917,224 5,509,406
Shareholder's equity:
Common stock, $.10 par value, 600,000
shares authorized, 1198.179 shares
issued and outstanding 120 120
Additional paid-in capital - -
Retained earnings - -
___________ __________
Total shareholder's equity 120 120
___________ __________
Total liabilities, redeemable
preferred stock and share-
holder's equity $13,955,286 $8,109,919
=========== ==========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
TNT CRUST, INC.
STATEMENTS OF OPERATIONS
for the years ended August 31, 1994 and 1993
<CAPTION>
1994 1993
____ ____
<S> <C> <C>
Net sales $25,024,582 $17,089,030
Cost of sales 14,807,502 9,995,965
___________ ___________
Gross profit 10,217,080 7,093,065
Selling, general and administrative
expenses 5,854,976 2,181,740
Amortization expense 162,387 162,388
___________ ___________
Income from operations 4,199,717 4,748,937
Other (income) expense:
Interest expense - 55,926
Other, net (85,247) (19,006)
___________ ___________
(85,247) 36,920
Income before income taxes
and extraordinary item 4,284,964 4,712,017
Income taxes 1,725,000 1,920,000
___________ ___________
Income before extraordinary
item 2,559,964 2,792,017
Extraordinary loss on early extinguish-
ment of debt, less applicable in-
come taxes of $220,000 - 338,000
___________ ___________
Net income $ 2,559,964 $ 2,454,017
=========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
TNT CRUST, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
for the years ended August 31, 1994 and 1993
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
_________ ______ ___________ __________
<S> <C> <C> <C> <C>
Balances, August 31,
1992 1,198.179 $120 $ - $ -
Preferred stock divi-
dend ($80 per
share) - - - (152,146)
Preferred stock ac-
cretion - - - (2,301,871)
Net income - - - 2,454,017
_________ ____ ___________ __________
Balances, August 31,
1993 1,198.179 $120 $ - $ -
Preferred stock divi-
dend ($80 per
share) - - - (152,146)
Preferred stock ac-
cretion - - - (2,407,818)
Net income - - - 2,559,964
_________ ____ ___________ __________
Balances, August 31,
1994 1,198.179 $120 $ - $ -
========= ==== =========== ==========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
TNT CRUST, INC.
STATEMENTS OF CASH FLOWS
for the years ended August 31, 1994 and 1993
<CAPTION>
1994 1993
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income $2,559,964 $2,454,017
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 1,037,379 1,096,297
Amortization of discount on debt - 274,017
Deferred income taxes (1,478,000) (141,000)
(Gain) loss on disposals (5,000) 3,529
Changes in certain assets and liabilities:
Accounts receivable 31,937 (334,542)
Inventories (53,214) (79,184)
Accounts payable and accrued expenses 3,401,695 782,661
Income taxes (79,294) 125,381
Other (21,765) 5,256
__________ __________
Net cash provided by operating
activities 5,393,702 4,186,432
__________ __________
Cash flows from investing activities:
Additions to property, plant and
equipment (1,109,472) (799,315)
Proceeds from disposals 5,000 7,800
__________ __________
Net cash used in investing activities (1,104,472) (791,515)
__________ __________
Cash flows from financing activities:
Payments on debt - (3,150,572)
Proceeds from debt - 1,250,000
Dividends paid (152,146) (456,437)
__________ __________
Net cash used in financing
activities (152,146) (2,357,009)
__________ __________
Increase in cash 4,137,084 1,037,908
Cash and cash equivalents:
Beginning of year 1,267,151 229,243
__________ __________
End of year $5,404,235 $1,267,151
========== ==========
Supplemental Disclosures
Cash amounts paid for:
Income taxes $3,282,294 $1,715,619
========== ==========
Interest $ - $ 248,727
========== ==========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUBSEQUENT EVENT
On September 16, 1994, the Company was recapitalized
through the repurchase by the Company of all its issued and
outstanding preferred stock and approximately 74% of its issued
and outstanding common stock. The aggregate purchase price for
all of the repurchased preferred and common stock was $36,000,000
or $12,903.23 for each of the 1901.821 shares of preferred stock
and 888.179 shares of common stock repurchased.
In conjunction with the transaction, the Company's
President has entered into an employment agreement with the
Company. In exchange for agreeing to the provisions of the
agreement, the Company's President received a $600,000 one-time
payment. Upon the execution of this agreement, the President
also entered into a non-qualified stock option agreement with the
Company which provides for an initial grant to the President of
options to purchase an amount of common stock equal to 3% of the
issued and outstanding capital stock of the Company.
The Board of Directors of the Company has also approved
a one-time bonus payment to the Company's President in the amount
of $3,400,000. Since the payment represents an amount for past
services to the Company, the $3,400,000 amount has been included
in accrued liabilities at August 31, 1994 and selling, general
and administrative expenses for fiscal 1994.
In connection with the repurchase, the Company issued
to a new investor group: (i) 1123.75 shares of newly issued
common stock of the Company for an aggregate purchase price of
$14,500,000 and (ii) 12.45% ten year subordinated notes in the
aggregate principal amount of $4,000,000. In add- ition, the
Company has entered into a Term and Revolving Credit Loan
Agreement with certain financial institutions under which the
Company has borrowed $22,000,000 as additional funding for the
repurchase under the Term Loan and has funds available from the
unused Revolving Credit Agreement in the amount of $2,000,000.
The Term Loan Agree- ment provides for fiscal year quarterly
principal payments plus interest for five years expiring August
31, 1999. The applicable interest rate is the lender's "base
rate" plus an applicable margin of 2% to 3% as described by the
agreement totaling 7.875% at September 16, 1994. The terms of
the Revolving Credit Loan Agreement provides for terms substan-
tially similar to those of the Term Loan Agreement except for
expiration dates of one year or less from the date of issuance.
These borrowings are collateralized by substantially all of the
Company's current and future acquired assets.
The amount of the term loan that matures in each of the next
five fiscal years is as follows:
1995 $ 3,000,000
1996 3,500,000
1997 4,000,000
1998 5,500,000
1999 6,000,000
$22,000,000
The Term Loan and Revolving Credit Agreement also
includes various representations, warranties and covenants
including the maintenance of adjusted net worth at the end of
each fiscal quarter beginning August 31, 1994 in an amount not
less than 90% of the initial equity investment plus 75% of
positive net income, and other financial statement ratios as
described in the agreement.
Also in connection with the repurchase, the Company
adopted the TNT Crust, Inc. 1994 Stock Option Plan. The plan
will provide for the Company to grant to selected officers, key
employees and consultants, the right to purchase from the Company
an amount of stock equal to 10% of the issued and outstanding
capital stock of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - The Company considers all highly
liquid marketable securities with a maturity date of three
months or less to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or
market and are accounted for using the first-in, first-out
method.
DEPRECIATION - Property, plant and equipment are depreciated
on the straight-line method over the estimated useful life
of the assets. Depreciation expense was approximately
$880,000 and $784,000 for the fiscal years ending August 31,
1994 and 1993, respectively.
INTANGIBLES - Intangible assets, principally goodwill, are
being amortized on a straight-line basis over 10 years.
INCOME TAXES - The Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No 109,
"Accounting for Income Taxes", effective September 1, 1993.
Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the
differences are expected to reverse. In prior years, the
Company accounted for income taxes using SFAS No. 96 which
recognized deferred tax assets and liabilities in a manner
similar to SFAS No. 109. Accordingly, the adoption of the
new standard had no impact on prior or current year
financial statements.
3. REDEEMABLE PREFERRED STOCK
In August 1990, the Company issued 2,000 shares of 8%
cumulative convertible preferred stock for $2,000,000.
Accretion of the carrying value of the redeemable preferred
stock is recorded so that the carrying amount will equal the
estimated redemption amount at the redemption dates. The
estimated redemption amount is based on the estimated fair
value of the Company at August 31, 1994, and the accretion
amount is limited to the amount of paid-in capital and
retained earnings. At August 31, 1994, the required accre-
tion exceeded paid-in capital and retained earnings.
4. INCOME TAXES
Income taxes, including taxes related to the extra-
ordinary item in 1993, consisted of the following:
1994 1993
____ ____
Current:
Federal $ 2,547,000 $1,463,000
State 656,000 378,000
___________ __________
3,203,000 1,841,000
___________ __________
Deferred:
Federal (1,282,000) (123,000)
State (196,000) (18,000)
___________ __________
(1,478,000) (141,000)
___________ __________
$ 1,725,000 $1,700,000
=========== ==========
Deferred income taxes are recorded for temporary differences
between the financial reporting and tax report- ing basis of the
Company's assets and liabilities. Deferred income tax balances
reflected in the balance sheet at August 31, 1994 relate to the
following:
Deferred Income Taxes
_____________________
Assets Liabilities
______ ___________
Accrued compensation $1,350,000 $ -
Accrued vacation 32,000 -
Allowance for doubtful
accounts 10,000 -
Property, plant and
equipment - 616,000
__________ ________
$1,392,000 $616,000
========== ========
Due to the existence of a strong earnings history and
therefore significant taxable income in carryback years,
management does not believe that a valuation allowance for
the realization of deferred income tax assets is necessary.
Following is a reconciliation of the Federal statutory
income tax rate to the Company's effective tax rate:
1994 1993
____ ____
Federal statutory income
tax rate 34.0% 34.0%
Nondeductible goodwill 1.2% 1.2%
State income tax, net of
Federal income tax benefit 7.1% 5.1%
Other (2.0)% 0.4%
_____ _____
40.3% 40.7%
===== =====
5. PROFIT SHARING PLAN
The Company has a defined contribution profit sharing
plan for all eligible employees. Company contributions are
discretionary and are determined annually by the Board of
Directors. Total profit sharing expense for fiscal 1994 and
1993 was $145,000 and $130,000, respectively.
6. CONCENTRATIONS OF CREDIT RISK
Certain financial instruments potentially subject the
Company to concentrations of credit risk. These financial
instruments consist primarily of temporary cash investments
and trade receivables.
The Company places its temporary cash investments in
short-term U.S. Government Treasury Notes. For the years
ended August 31, 1994 and 1993, the Company's four largest
customers in the pizza industry accounted for approximately
67% and 56%, respectively, of net sales. Concentrations of
credit risk with respect to receivables are limited due to
generally short payment terms, and a dispersion of customers
across geographic areas.
