UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 2
__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>
FOODBRANDS AMERICA, INC.
(Formerly known as Doskocil Companies Incorporated)
_________________________
TABLE OF CONTENTS
FORM 10-K
Page
PART I
Item 1. Business .......................................... 1
Item 2. Properties ........................................ 9
Item 3. Legal Proceedings ................................. 10
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters ....................... 13
Item 6. Selected Financial Data ........................... 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............... 15
Item 8. Financial Statements and Supplementary Data ....... 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............... 27
PART III
Item 10. Directors and Executive Officers of the
Registrant ........................................ 28
Item 11. Executive Compensation ............................ 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management .................................... 28
Item 13. Certain Relationships and Related Transactions .... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ............................... 29
- i -
<PAGE>
PART I
Item 1. BUSINESS
General Development of Business
The registrant is a Delaware corporation whose
predecessor, Doskocil Companies Incorporated, was originally
incorporated in Delaware in 1964. In 1995, the registrant
reincorporated in Delaware and changed its name to Foodbrands
America, Inc. The registrant is referred to herein as
"Foodbrands America" and, collectively with its direct and
indirect subsidiaries, as the "Company."
The Company produces, markets and distributes frozen
and refrigerated products targeted to growth segments of the
foodservice industry, which encompasses all aspects of away-from-
home food preparation. The Company's products include pepperoni,
beef and pork toppings, as well as partially baked pizza crusts,
marketed to the pizza industry, appetizers, Mexican and Italian
foods, sauces, soups and side dishes and branded and processed
meat products. Customers include large multi-unit food chains,
major foodservice distributors, warehouse clubs and grocery store
delicatessens, principally in the United States.
Business Strategy. As a leading manufacturer and
marketer of frozen and refrigerated food products, Foodbrands
America's focus is to add value to products targeted to market
niches experiencing higher than industry growth in the
foodservice industry through distinct processes such as
developing, formulating, smoking, curing, cooking, portioning,
preserving, packaging and distributing. Concentration on market
niches coupled with differentiated food products made available
through an efficient distribution system are key elements to
building future revenue and earnings. These activities, plus
selective acquisitions of companies operating successfully in
such market niches, are designed to improve the level and
consistency of profitability, thereby increasing shareholder
value.
While historically a high proportion of the Company's
sales base was tied to commodity items having little value added,
recent changes in the Company's business mix have resulted in a
concentration of its sales base in higher growth and higher
margin food products. This represents a transformation of the
Company from a low value-added meat processor to a manufacturer
and marketer of diversified food products for foodservice
customers.
The foodservice industry is fragmented with many
companies manufacturing an extensive variety of food products
prepared away-from-home. Foodbrands America strives to
distinguish its products through product quality, solid
price/value relationships, high quality customer service, low
production costs and an ongoing new product development program.
Foodbrands America believes these characteristics are critical to
growing revenue and profits in the away-from-home dining and
foodservice industries.
Significant Transactions. On May 30, 1995, the Company
sold the assets of its Retail Division (a separate industry
segment) to Thorn Apple Valley, Inc. The sales price was
approximately $76.3 million. The sale marked the exit of the
Company from the volatile branded retail refrigerated meat case
business.
On December 11, 1995, the Company purchased KPR
Holdings, L.P., a Delaware limited partnership ("KPR"), and a
privately held producer and marketer of custom prepared foods
including soups, sauces and side dishes for multi-unit restaurant
chains and meat-based pizza toppings to major pizza operations.
The purchase price was $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. The business,
while sometimes referred to as the KPR Foods Division, is a
separate limited partnership with distinct management.
On December 18, 1995, the Company purchased all
outstanding stock of TNT Crust, Inc. ("TNT") for $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. TNT is a major producer of partially baked
and frozen self-rising crusts for use by pizza chains, frozen
pizza manufacturers, restaurants and independent pizzerias. TNT
was merged into and is operated as a segment of the Food Service
Division of the Company.
Narrative Description of Business
Products. The Company's principal products are
processed foods developed for sale to niche markets in the
foodservice industry in which the Company sees growth
opportunities focusing on providing customers with quality
products to replace "back-of-the-house" preparation. The
percentage of net sales for each of the Company's major product
lines for the years 1995, 1994 and 1993, respectively, are (i)
pizza toppings and crust - 23.3%, 26.8%, and 34.9%; (ii)
processed meat - 46.3%, 50.1%, and 63.3%; and (iii) frozen
entrees and vegetables - 29.7%, 22.0% and no percentage of net
sales (the frozen entrees and vegetables line of business was
acquired in 1994). Management believes the Company is one of the
market leaders in sales to the foodservice industry of frozen
pasta, appetizers, pizza toppings and pizza crusts, as well as
sales of burritos to convenience stores.
Processing techniques utilized by the Company to add
value to its products include developing, formulating, smoking,
curing, cooking, portioning, preserving, packaging and
distributing.
Operational Divisions. The Company's operations,
comprising one industry segment, are conducted through distinct
legal entities which are grouped into four operational divisions:
(i) the Food Service Division, which produces and markets
processed meat products, pizza toppings and pizza crusts to
restaurant chains, foodservice distributors, hospitals, school
systems, warehouse clubs and others; (ii) the KPR Foods Division,
which produces and markets meat-based pizza toppings and soups,
sauces and side dishes principally to large chain restaurants;
(iii) the Specialty Brands Division, which produces and markets
frozen food products, including ethnic foods, as well as
appetizers, entrees and portioned meats primarily to the
foodservice industry; and (iv) the Deli Division, which produces
and markets processed food products to grocery store service
delicatessens.
Food Service Division. The Food Service Division
provides 600 products under the brand names of Doskocil Foods and
Wilson Food Service, as well as private labels. The division is
a leader in processed meats, pizza toppings and, since the TNT
acquisition, partially baked pizza crusts, and is recognized as
one of the largest suppliers of pepperoni, pizza toppings and
partially baked pizza crusts in the United States. Production
plants are based in Kansas and Wisconsin.
The division's primary responsibility includes the
marketing of pizza toppings, pepperoni, pizza crusts, ham and
sliced meat products through a broker network and direct sales
force to customers who re-market the products for
"food-away-from-home" preparation and consumption. Customers
include national and regional restaurant chains, institutional
foodservice customers, foodservice distributors (such as
Alliant/Kraft and Sysco Corporation), buying group associations
(such as ComSource), warehouse clubs (such as Sam's Club) and
large food processors (such as Tombstone Pizza Corporation and
Tony's Pizza).
KPR Foods Division. KPR is a producer and marketer of
meat-based pizza toppings and soups, sauces and side dishes to
large chain customers in the foodservice industry. The division
currently offers 184 products under private labels and operates
two production facilities in Texas. KPR is also currently
involved in a 50/50 joint venture to manufacture pizza toppings
in Dublin, Ireland for sale to pizza operators in Europe, the
Middle East, Northern Africa and Asia.
Products are marketed directly to a select group of
large chain customers in the foodservice industry that have
centralized buying and product requirements. As a result, the
division's research and development group is heavily involved in
new and existing customer sales. The business is focused on a
limited number of customers such as TGI Fridays and Brinker
International.
Specialty Brands Division. The Specialty Brands
Division holds major market positions in the foodservice ethnic
frozen prepared food categories and appetizers. The division
offers a wide variety of value-added products under trademarks
that include Fred's , Rotanelli's , Posada and DeliFest Gourmet
Salads. Production plants are in California, New Mexico,
Missouri and New York.
The Specialty Brands Division markets 722 products
through four market categories. Specialty Brands' brokered sales
force sells to major foodservice distributors (such as
Alliant/Kraft and Sysco Corporation), to buying group
associations (such as Emco) and to smaller distributors. These
distributors resell products to restaurants, hotels and school
systems. Consumer products are sold primarily through food
brokers to grocery stores, warehouse clubs and military stores.
Products are sold through an in-house sales force to such vending
operators and convenience store customers as VSA, McLane's and
NCS. Major national and regional restaurant chains (such as
Applebee's, Steak-N'-Shake and Shoney's) and foodservice
management firms (such as Daka and Marriott) purchase products
through the division's direct sales force and brokers.
Deli Division. The Deli Division, a leading provider
of deli meats, offers 130 products under the Wilson's Continental
Deli , American Favorite and Fresh Cut labels. Production is
based at a plant in Cherokee, Iowa.
The Deli Division markets products primarily to the in-
store service delicatessens located in many supermarkets through
a food broker network. The Deli Division is a leading provider
of full line deli meat to in-store service delicatessens with a
customer base consisting of national grocery chains (such as
Albertson's, Inc.), national and regional wholesale warehouse
groups (such as Super Valu Stores, Inc., Fleming Companies, Inc.
and Associated Wholesale Inc.), regional grocery chains (such as
Hy-Vee Food Stores, Inc.) and independent distributors to grocery
stores (such as CCS Distributors, Inc.).
Marketing. The Company's various products are marketed
and distributed as an integrated line, offering products at
several price points as well as providing "one-stop-shopping" for
its customers. The Company organizes its sales efforts to take
advantage of the operational segmentation of its customer's
buyers. Recognizing the unique requirements of separate buying
segments, the Company offers each a complete product line
designed to meet specific needs through a specially trained sales
organization. The Company believes this focused approach to
sales offers it a competitive advantage. Another competitive
advantage is the Company's high and consistent product quality,
brand loyalty, broad mix of premium, value-priced and private
label products and its centralized distribution system.
Distribution System. The Company operates a
centralized distribution system that services its divisions. The
Company's products are shipped through its distribution/customer
service centers or are direct shipped from the production
facility based on the most efficient, cost effective method of
transportation to the customer. Customer requirements vary from
the need for large quantities of a limited number of products to
small quantities of a number of items, each requiring a different
distribution route. From the distribution centers, orders can be
filled and delivered in a single shipment regardless of the
variety of products ordered or the location of the manufacturing
facility at which they are produced. The Company can also
combine the orders of many smaller customers in the same
geographic region. Management believes this flexible
distribution system allows the Company to provide superior
service to its customers by reducing the time between the
placement of customer orders and delivery, by lowering customer
shipping costs through eliminating higher-cost fragmented
deliveries, and by allowing for "one-stop-shopping" of the
Company's broad product mix.
Government Regulation. The Company is subject to
various laws and regulations relating to the construction and
maintenance of facilities, production standards and pollution
control administered by federal, state and other government
entities, including the Environmental Protection Agency and
corresponding state agencies, the United States Department of
Agriculture ("USDA"), the Food and Drug Administration ("FDA")
and the Occupational Safety and Health Administration ("OSHA").
All of the Company's food processing plants are inspected by the
USDA or the FDA. The USDA-inspected plants have inspectors
present during some or all of their operations. Management
believes that the Company is currently in compliance in all
material respects with all applicable health, environmental and
other laws and regulations. Management does not believe that the
costs of continued compliance with existing laws and regulations
or of any other environmental liabilities will have a material
adverse effect on the Company's financial condition.
Seasonality. Sales of Food Service, KPR and Specialty
Brands Divisions' products do not fluctuate significantly due to
seasonality. Historically, however, the Company's deli business
has been seasonal. Sales of deli products generally are at their
lowest during the first quarter of the year and increase during
the second and third quarters. Net sales of Company products
historically have been higher in the fourth quarter than in any
other quarter of the year.
Employees. At December 30, 1995 the Company employed
approximately 3,193 persons, approximately 40% of whom are
covered by collective bargaining agreements. Six labor
agreements were approved in 1994 and 1995. Labor contracts
extend through various dates in 1997 for the remaining employees
covered by collective bargaining agreements. Substantially all
of the Company's employees covered by collective bargaining
agreements are members of the United Food and Commercial Workers
Union (the "UFCW").
Intellectual Property. The Company owns or has the
right to use more than 94 trademarks and 7 patents. Most of the
Company's trademarks are registered. The Company produces a
number of products which are marketed under numerous
Company-owned registered and unregistered trademarks, symbols,
emblems, logos and designs, including the following trademarks:
Foodbrands America , Fred's , Posada , Rotanelli's , Wilson's
Continental Deli , Continental Deli Lite , American Favorite ,
Wilson Foodservice , Butcher Boy , Poco Posada , Little Juan ,
Jefferson Meats , Marquez , Pizza Topper , Mr. Nuccio , Doskocil
and Pizzano . In addition, certain products are prepared
according to customer specifications and packaged under customer
trademarks and labels.
Raw Materials. The Company's primary raw materials are
meat, cheese, vegetables, milk products and flour. These raw
materials are obtained from a broad range of external sources.
Other processing materials, such as seasonings, smoking and
curing agents, sausage casings and packaging materials, are
purchased from a number of readily available sources. Severe
price swings in such raw materials, and the resultant impact on
the prices the Company charges for its products and the margins
it receives, 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 periods of the year, negotiating minimum purchase
commitments at set prices and entering into futures contracts.
Customers. The Company has a diverse customer base
located principally in the United States. Customers include
foodservice distributors, chain restaurants, quick service
restaurants, warehouse clubs, buying cooperatives, grocery
distributors, retail grocery chains, convenience stores and
institutions. No single customer represented 10% or more of the
Company's net sales in fiscal 1995.
Competition. The processed foods industry is highly
competitive with numerous companies of varying sizes.
Competition is encountered both in the procurement of raw
materials and in the sale of products. The Company's products
also compete with a large number of other food sources.
Management believes that the principal competitive factors in the
industry are price, product quality, service and brand loyalty.
Some of the Company's competitors are considerably larger, more
diversified and have correspondingly greater financial and other
resources.
Financial Information About Industry Segments
The Company is presently operating in one segment, the
processing and marketing of food products.
Item 2. PROPERTIES
The following table sets forth the location,
approximate size and description, and ownership status of each of
the Company's facilities.
Owned/
Location Approximate Size and Description Leased
________ ________________________________ ______
California:
Rialto 80,400 square feet distribution Owned
and warehouse facility on 6.0
acres
Riverside 134,300 square feet production Owned
and office facility on 7.3 acres
20,500 square feet office Leased
facility
Iowa:
Cherokee 173,900 square feet production Leased
facility on 46 acres
Kansas:
Edwardsville 114,800 square feet distribution Leased
and warehouse facility
South Hutchinson 325,600 square feet production, Owned
research, storage and office
facilities on 68 acres
Missouri:
Carthage 77,500 square feet production Owned/
facility on 15.0 acres Leased
Piedmont 87,575 square feet production Owned
facility and 2,652 square feet
power house on 6 acres
New Mexico:
Albuquerque 32,900 square feet production Owned
facility on 5.8 acres
New York:
New Rochelle 29,900 square feet production Owned
facility on 1.2 acres
Oklahoma:
Oklahoma City 29,575 square feet office Leased
facilities
Texas:
Dallas 132,000 square feet production Owned
facility on 7.1 acres
Ft. Worth 86,000 square feet production and Leased
office facility on 14.2 acres
Wisconsin:
Jefferson 345,000 square feet production Owned
facility on 11.4 acres
Green Bay 30,000 square feet production Owned
facility on 1.3 acres
75,000 square feet production Owned
facility on 3.7 acres
_________________________________
The production facility located at Cherokee, Iowa, is subject to
a long-term capital lease recorded as a liability at a net
present value of $1.0 million. The remaining leased facilities
are held under agreements which provide for fixed annual rental
payments. All properties owned by the Company as well as
leasehold and subleasehold interests of the Company are mortgaged
under the Company's credit agreement with certain financial
institutions. The Company believes its facilities are in good
repair and adequate to meet the Company's current needs.
Item 3. LEGAL PROCEEDINGS
The Company is involved in two related actions
concerning alleged infringement of two patents held by C&F
Packing Company, Inc. ("C&F") both in the U.S. District Court for
the Northern District of Texas, Ft. Worth Division. Prior to
Foodbrands America acquiring KPR, C&F had instituted a civil
action against KPR alleging that KPR, using equipment and a
process to make a particular sausage product, infringed the C&F
patents. KPR has denied these allegations and contends that
C&F's patents are invalid and that, even if valid, the process
and equipment used by KPR does not infringe the patents. C&F has
also alleged misappropriation of trade secrets and proprietary
information, as well as other claims, all of which KPR denies.
In 1988 and 1989, C&F filed actions against Doskocil
Companies Incorporated (Foodbrands America's predecessor)
alleging patent infringement and misappropriation of trade
secrets and proprietary information. In 1991, as part of
Doskocil's bankruptcy reorganization, and in settlement of the
litigation, Doskocil entered into a license agreement with C&F
and two consent decrees.
Prior to acquiring KPR, Foodbrands America instituted
a declaratory judgment action against C&F joined by KPR. The
action seeks a ruling that the equipment and process used by KPR
do not violate the C&F patents and that, in any event, it is not
a violation of the consent decrees for KPR to continue to use the
equipment and process being utilized by KPR prior to Foodbrands
America acquiring KPR. C&F has responded to the declaratory
judgment action with a Motion to Dismiss or to Transfer the
actions to the Court that entered the consent decrees. These
motions are pending and have not been ruled upon. 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 litigation is complex
and the ultimate outcome cannot be presently determined. The
Company and KPR intend to vigorously prosecute the declaratory
judgment action against C&F and KPR intends to vigorously defend
the suit by C&F.
In September 1992, United Refrigerated Services, Inc.
("URS") filed suit against Wilson Foods Company, a wholly-owned
subsidiary of the Company ("Wilson"), and unaffiliated parties
Normac Foods, Inc. ("Normac") and Thompson Builders of Marshall,
Inc. ("Thompson") in the Circuit Court of Saline County,
Missouri. The URS lawsuit involves claims for property damage as
a result of a fire in a warehouse owned by URS in Marshall,
Missouri, in which Wilson was leasing space. The URS lawsuit is
in discovery stages. URS claims real and personal property
damage of approximately $9.8 million or, alternatively, for
trebling of the real property damage (currently estimated by the
Company at approximately $2.0 million, or $6.0 million in the
aggregate).
In its answer, Wilson filed a counterclaim against URS
and a cross-claim against other codefendants for indemnity and/or
contribution. The fire occurred in a part of the URS warehouse
being leased by Wilson in which Wilson had produced sausage
patties under contract for Normac until the contract terminated
in September 1991. Normac's contractor, Thompson, was removing
Normac's equipment with a torch when fire broke out and destroyed
a large section of the URS warehouse and its contents.
In 1993, ConAgra, Inc. ("ConAgra") also filed suit
against Wilson, Normac and Thompson in Saline County, Missouri.
ConAgra seeks damages in the amount of $9.4 million from the
named defendants for frozen food that was stored in another part
of the Marshall warehouse at the time of the fire and allegedly
damaged. The ConAgra case also is in discovery.
The Company's insurer has retained counsel to defend
the Company in these matters. Wilson has substantial defenses to
these pending and threatened claims and the Company believes it
is not likely that Wilson will ultimately incur a loss in excess
of its insurance coverage.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by
this report, the Company has not solicited by proxy or otherwise
any vote of security holders on any matter.
Part II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock began trading on the New York Stock
Exchange on February 13, 1996, under the symbol "FDB." Prior to
that date, the Common Stock traded in the over-the-counter market
under the Nasdaq National Market under the symbol "FBAI."
Approximately 12,454,965 shares of the Common Stock were
outstanding as of February 22, 1996. The number of holders of
record of Common Stock at February 22, 1996 was approximately
4,202.
The following table sets forth the range of high and
low closing bid prices for the Common Stock for each full
quarterly period in fiscal 1995 and fiscal 1994, respectively, as
quoted by the Nasdaq National Market.
High Bid Low Bid
Fiscal 1995
First Quarter $ 8 1/2 $ 7 1/4
Second Quarter $13 1/2 $ 7 5/8
Third Quarter $15 5/8 $12 1/2
Fourth Quarter $14 3/8 $10
Fiscal 1994
First Quarter $15 1/4 $10 3/8
Second Quarter $13 1/2 $ 8 1/4
Third Quarter $ 9 7/8 $ 7 7/8
Fourth Quarter $ 9 1/8 $ 6
The Company has not paid any cash dividends on its
Common Stock since the Company's reorganization in 1991. The
Company does not expect to pay any dividends in the foreseeable
future and intends to continue to retain any such earnings for
the Company's operations. Additionally, payment of such
dividends is limited by the terms of the Company's 1995 credit
agreement and the indenture for the Company's 9 3/4% Senior
Subordinated Redeemable Notes due 2000.
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 $532,572 $453,734 $304,560 $255,464 $271,539 | $309,111
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 (a separate industry
segment) 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 had consolidated
production operations, closed two production facilities and two
distribution facilities and discontinued a production operation.
In connection with these actions, the Company paid $3.5 million
in 1995, which was charged against the reserve, and charged an
additional $2.1 million against the reserve for property, plant
and equipment. Of the total amount paid in 1995, $0.8 million
was for employee termination benefits for 35 employees terminated
during the year. The balance of the restructuring reserve
remaining at December 30, 1995 was comprised of accrued
liabilities of $1.2 million and a reserve against property, plant
and equipment of $2.2 million. Management believes that the
remainder of the reserve is adequate to complete the
restructuring and integration program and plans to complete the
program by the end of 1996.
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 $25.1 million for Fiscal 1995 compared
to $32.5 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
$33.1 million in Fiscal 1994 compared to $17.6 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
$17.6 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 Credit Agreement and the Senior Subordinated Notes
contain customary covenants associated with similar facilities,
including, without limitation, maintenance of a specific ratio of
total debt to EBITDA (as defined therein), maintenance of a
specific ratio of EBITDA minus capital expenditures to interest
expenses, a prohibitation on the payment of Company dividends and
limitations on Company stock repurchases, and limitations on
certain liens, acquisitions, mergers, consolidations, sale of
assets or incurrence of debt and additional guarantees, etc. The
Company currently is in compliance with all such covenants.
Company obligations under the Credit Agreement and the 9 3/4%
Notes are, and obligations under the Notes will be, guaranteed by
substantially all of the Company's direct and indirect
subsidiaries. There are currently no restrictions on the ability
of the subsidiaries to transfer funds to the Company in the form
of cash dividends, loans or advances.
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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and
supplementary information are listed in Item 14 of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections titled "Proposal I. Election of
Directors," "Directors," "Directors Whose Terms Expire in 1996,"
"Continuing Directors," "Meetings of Board of Directors and
Committees," "Executive Officers" and "Principal Stockholders" of
the Proxy Statement for the Annual Meeting of Stockholders are
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The sections titled "Compensation of Directors and
Executive Officers," "Report of the Compensation Committee of the
Board of Directors," "Stock Price Performance Graph" and
"Proposal III. Approval of the Company's Non-Employee Directors'
Deferred Stock Compensation Plan" of the Proxy Statement for the
Annual Meeting of Stockholders are incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The section titled "Principal Stockholders" of the
Proxy Statement for the Annual Meeting of Stockholders are
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section titled "Certain Relationships and Related
Transactions" of the Proxy Statement for the Annual Meeting of
Stockholders is incorporated herein by reference.
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) List of Documents filed as part of this Report:
1. Financial Statements:
Page
Consolidated Balance Sheet at
December 30, 1995 and December 31, 1994 . . F-1
Consolidated Statement of Operations
For the Years Ended December 30, 1995,
December 31, 1994 and January 1, 1994 . . . F-2
Consolidated Statement of Stockholders' Equity
For the Years Ended December 30, 1995,
December 31, 1994 and January 1, 1994 . . . F-4
Consolidated Statement of Cash Flows
For the Years Ended December 30, 1995,
December 31, 1994 and January 1, 1994 . . . F-5
Notes to Consolidated Financial Statements . . . F-8
Report of Independent Accountants. . . . . . . .F-32
Quarterly Results of Operations (Unaudited). . .F-33
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying
Accounts . . . . . . . . . . . . . . . . .F-34
Report of Independent Accountants. . . . . . . .F-35
3. Exhibits (numbered in accordance with Item 601
of Regulation S-K):
Exhibit Number Description
______________ ___________________________________________
3.1 Amended and Restated Certificate of
Incorporation of Foodbrands America, Inc.
3.2 Amended and Restated Bylaws of Foodbrands
America, Inc.
4.1 Specimen certificate for Foodbrands America,
Inc. Common Stock, par value $.01 per share
4.2 Credit Agreement among Foodbrands America,
Inc., the Lender parties hereto, Chemical
Bank and Citibank, N.A., dated as of December
11, 1995
4.3 Form of Doskocil 9 3/4% Senior Subordinated
Redeemable Notes due 2000
4.4 Indenture between Doskocil and First Fidelity
Bank, National Association, New York, as
Trustee
4.5 First Supplemental Indenture between Doskocil
and First Fidelity Bank, National
Association, New York, as Trustee dated as of
June 1, 1994
4.6 Second Supplemental Indenture between
Foodbrands and First Fidelity Bank, N.A., New
York, as Trustee, dated as of May 16, 1995
4.7 Third Supplemental Indenture between
Foodbrands America, Inc. and First Fidelity
Bank, N.A., New York, as Trustee, dated as of
December 11, 1995
4.8 Warrant Agreement dated as of October 31,
1991, between Doskocil and the signatory
banks thereto
4.9 Amended and Restated Certificate of
Incorporation of Foodbrands America, Inc.
(see Exhibit 3.1 above)
4.10 Amended and Restated Bylaws of Foodbrands
America, Inc. (see Exhibit 3.2 above)
4.11* Foodbrands America, Inc. 1992 Stock Incentive
Plan, as amended
4.12* Doskocil 1992 Stock Incentive Plan, as
amended
4.13* Doskocil 1992 Stock Incentive Plan, as
amended
10.1 Credit Agreement among Foodbrands America,
Inc., the Lender parties hereto, Chemical
Bank and Citibank, N.A., dated as of December
11, 1995 (see Exhibit 4.2 above)
10.2 Credit Agreement among Foodbrands America,
Inc., the Several Lenders from Time to Time
Parties Thereto and Chemical Bank, as Agent
dated as of May 25, 1994
10.3 First Amendment to Credit Agreement dated
November 2, 1994
10.4 Second Amendment to Credit Agreement dated
February 10, 1995
10.5 Form of Doskocil 9 3/4% Senior Subordinated
Redeemable Notes due 2000 (see Exhibit 4.3
above)
10.6 Indenture between Doskocil and First Fidelity
Bank, National Association, New York, as
Trustee (see Exhibit 4.4 above)
10.7 First Supplemental Indenture between Doskocil
and First Fidelity Bank, National
Association, New York, as Trustee dated as of
June 1, 1994 (see Exhibit 4.5 above)
10.8 Second Supplemental Indenture between
Foodbrands and First Fidelity Bank, N.A., New
York, as Trustee, dated as of May 16, 1995
(see Exhibit 4.6 above)
10.9 Third Supplemental Indenture between
Foodbrands America, Inc. and First Fidelity
Bank, N.A., New York, as Trustee, dated as of
December 11, 1995 (see Exhibit 4.7 above)
10.10 Warrant Agreement dated as of October 31,
1991, between Doskocil and the signatory
banks thereto (see Exhibit 4.8 above)
10.11* Foodbrands America, Inc. Key Management Cash
Incentive Plan
10.12* Foodbrands America, Inc. 1992 Stock Incentive
Plan, as amended (see Exhibit 4.12 above)
10.13* Doskocil 1992 Stock Incentive Plan, as
amended
10.14* Doskocil 1992 Stock Incentive Plan, as
amended
10.15* Employment Agreement dated August 2, 1994,
between Doskocil and R. Randolph Devening
10.16* Employment Agreement dated January 30, 1995,
between Doskocil and Larry P. Swafford
10.17* General Release and Separation Agreement
between Foodbrands America and Larry P.
Swafford dated as of May 25, 1995.
10.18* Employment Agreement dated October 9, 1995,
between Patrick A. O'Ray and Foodbrands
America
10.19* Employment Agreement dated December 11, 1995,
between Foodbrands America and William E.
Rosenthal
10.20* Employment Agreement dated December 11, 1995,
between Foodbrands America and Howard S. Katz
10.21* Form of Transition Employment Agreement dated
on or after December 17, 1991, between
Doskocil and Thomas G. McCarley, William L.
Brady, David J. Clapp, Raymond J. Haefele,
Bryant P. Bynum, Horst O. Sieben, and Howard
C. Madsen
10.22* First Amendment to Transition Employment
Agreement dated as of December 15, 1995,
between Foodbrands America and Horst O.
Sieben
10.23* Non-Qualified Stock Option Agreement dated
September 29, 1994 between Doskocil and R.
Randolph Devening
10.24* First Amendment to Non-Qualified Stock Option
Agreement dated as of December 15, 1995,
between Foodbrands America and R. Randolph
Devening
10.25* Form of Non-Qualified Stock Option Agreement
dated on or after September 29, 1994 between
Doskocil and William L. Brady, Bryant P.
Bynum, David J. Clapp, Horst O. Sieben,
Thomas G. McCarley, Raymond J. Haefele,
Howard C. Madsen, Patrick A. O'Ray, William
E. Rosenthal, and Howard S. Katz.
10.26* First Amendment to Non-Qualified Stock Option
Agreement dated as of December 15, 1995,
between Foodbrands America and Horst O.
Sieben.
10.27* Separation Pay Plan dated April 1, 1995
10.28* Deferred Stock Compensation Plan between
Foodbrands America and its non-employee
Directors
10.29* Form of Indemnification Agreement between
Doskocil and its non-employee Directors
10.30 Lease Agreement dated April 4, 1992, between
Doskocil and Millard Refrigerated Services-
Atlanta, as amended
10.31 Equipment Lease Agreement between Wilson
Foods and MDFC Equipment Leasing Corporation,
dated May 20, 1992, and related unconditional
Guaranty executed by Doskocil dated June 11,
1992, and Equipment Lease Addendum to date
10.32 Stock Purchase Agreement by and between
Doskocil and JLL dated February 16, 1993
10.33 Agreement dated as of March 22, 1993, by and
between Joseph Littlejohn and Levy Fund,
L.P., The Airlie Group, L.P. and Doskocil
10.34 Stockholders Agreement dated as of March 22,
1993, by and between the Airlie Group, L.P.
and Doskocil
10.35 Stock Purchase Agreement between
International Multifoods Corporation and
Doskocil Companies Incorporated dated as of
March 17, 1994
10.36 Agreement, Acknowledgement and Waiver between
Foodbrands America, Inc. and Joseph
Littlejohn & Levy Fund, L.P. dated May 16,
1995
10.37 Doskocil/Airlie Agreement dated March 7, 1995
10.38 Asset Purchase Agreement by and among Thorn
Apple Valley, Inc. and Doskocil Companies
Incorporated, Wilson Foods Corporation,
Concordia Foods Corporation, Dixie Foods
Company and Shreveport Foods Company dated
April 29, 1995
10.39 First Amendment to Asset Purchase Agreement
between Thorn Apple Valley, Inc. and
Foodbrands America, Inc., Wilson Foods
Corporation, Concordia Foods Corporation,
Dixie Foods Company and Shreveport Foods
Company dated May 26, 1995
10.40 Noncompete Agreement by Foodbrands America,
Inc., Wilson Foods Corporation, Concordia
Foods Corporation, Dixie Foods Company and
Shreveport Foods Company in favor of Thorn
Apple Valley, Inc. dated May 30, 1995
10.41 Purchase Agreement by and among KPR Holdings,
Inc. and the Shareholders of RKR-GP, Inc. and
Foodbrands America, Inc. dated as of November
14, 1995
10.42 Stock Purchase Agreement by and among TNT
Crust, Inc. and the Shareholders of TNT
Crust, Inc. and Foodbrands America, Inc.
dated as of November 22, 1995
10.43 First Amendment to Stock Purchase Agreement
by and among TNT Crust, Inc. and the
Shareholders of TNT Crust, Inc. and
Foodbrands America, Inc. dated as of December
11, 1995
10.44 Second Amendment to Stock Purchase Agreement
by and among TNT Crust, Inc. and the
Shareholders of TNT Crust, Inc. and
Foodbrands America, Inc. dated as of December
14, 1995
10.45 Master Equipment Lease Agreement between
NationsBank Leasing Corporation of North
Carolina and Foodbrands America, Inc. dated
January 31, 1996
10.46 Lease Agreement between Bam Corporation and
KPR Holdings, L.P. dated December 11, 1995
11.1 Calculation of Earnings Per Share
20.1** Annual Report on Form 11-K with Respect to
Foodbrands America, Inc. Retirement and
Profit Sharing Plan
21.1 Subsidiaries of Foodbrands America, Inc.
22.1** Proxy Statement for Annual Meeting of
Stockholders
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
* Management contracts and compensatory plans or arrangements
** To be filed by amendment.
(b) Reports on Form 8-K.
Current Report on Form 8-K, dated December 11, 1995, of
Foodbrands America, Inc. was filed with the SEC on
December 26, 1995, with respect to the Company entering
into agreements for the acquisition of assets under
Item 2 (Acquisition or disposition of assets) and Item
7 (financial statements, pro forma financial
information and exhibits).
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands, except par value)
<CAPTION>
December 30, December 31,
1995 1994
____________ ____________
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,207 $ 28,843
Receivables 46,166 29,472
Inventories 58,523 48,488
Other current assets 3,130 2,365
Net current assets of discontinued
operations - 12,145
________ ________
Total current assets 126,026 121,313
Property, plant and equipment - net of
accumulated depreciation and amortization
of $38,188 in 1995 and $31,685 in 1994 139,926 92,902
Intangible assets, net of accumulated
amortization of $5,375 in 1995 and
$2,654 in 1994 195,025 83,687
Deferred charges and other assets 46,284 43,419
Reorganization value in excess of amounts
allocable to identifiable assets, net
of accumulated amortization of $9,641 in
1995 and $7,867 in 1994 25,311 39,204
Net noncurrent assets of discontinued
operations - 73,209
________ ________
$532,572 $453,734
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 18,341 $ 1,654
Accounts payable 36,961 24,820
Accrued liabilities 50,294 44,182
________ ________
Total current liabilities 105,596 70,656
Long-term debt 305,407 224,260
Other long-term liabilities 78,340 80,331
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, 4,000,0000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value, 20,000,000
shares authorized, 12,467,738 and
12,447,914 shares issued and
outstanding, respectively 125 124
Capital in excess of par value 151,248 151,046
Retained earnings (deficit) (105,203) (71,108)
Minimum pension liability adjustment (2,941) (1,575)
________ ________
Total stockholders' equity 43,229 78,487
________ ________
$532,572 $453,734
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Fiscal Year Ended
______________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
________ ________ ________
<S> <C> <C> <C>
Net sales $634,700 $512,352 $393,270
Cost of sales 499,985 410,118 335,788
________ ________ ________
Gross profit 134,715 102,234 57,482
Operating expenses:
Selling 69,483 52,165 28,979
General and administrative 25,634 24,151 21,732
Amortization of intangible assets 4,495 4,123 2,843
Provision for restructuring and
integration (Note 4) - 10,586 -
Provision for plant closings (Note 6) - - 500
________ ________ ________
Total 99,612 91,025 54,054
________ ________ ________
Operating income 35,103 11,209 3,428
Other income (expense):
Interest and financing costs (17,268) (15,102) (9,240)
Other, net (1,193) (702) 226
________ ________ ________
Total (18,461) (15,804) (9,014)
________ ________ ________
Income (loss) from continuing operations
before income taxes 16,642 (4,595) (5,586)
Income tax provision (benefit) 7,041 600 (1,212)
________ ________ ________
Income (loss) from continuing operations 9,601 (5,195) (4,374)
Discontinued operations (Notes 3 and 10):
Income (loss) from operations of the
Retail Division, net of income tax (4,121) (8,522) 6,781
Loss on disposal of the Retail Division
(plus applicable income tax expense
of $10,300) (38,526) - -
Extraordinary loss on early extinguishment
of debt (less income tax benefit of $673
in 1995)(Note 8) (1,049) (2,481) -
Cumulative effect on prior years (to
January 2, 1993) of change in
accounting for postretirement benefits
other than pensions (Note 11) - - (34,426)
________ ________ ________
Net income (loss) $(34,095) $(16,198) $(32,019)
======== ======== ========
(continued)<PAGE>
</TABLE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Fiscal Year Ended
______________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
________ ________ _______
<S> <C> <C> <C>
Earnings (loss) per share -
primary and fully diluted:
Income (loss) from continuing
operations $ 0.77 $ (0.59) $(0.59)
Income (loss) from discontinued
operations (0.33) (0.98) 0.91
Loss on disposal of discontinued
operations (3.09) - -
Extraordinary loss on early
extinguishment of debt (0.08) (0.28) -
Cumulative effect of a change
in accounting for post-
retirement benefits other
than pensions - - (4.64)
_______ _______ ______
Net income (loss) $ (2.73) $ (1.85) $(4.32)
======= ======= ======
Weighted average number of
common and common equivalent
shares outstanding - primary
and fully diluted 12,453 8,727 7,419
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Minimum
Capital in Retained Pension Unearned
_Common Stock_ Excess of Earnings Liability Compen-
Shares Amount Par Value (Deficit) Adjustment sation
______ ______ __________ _________ __________ ________
<S> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1993 5,888 $ 59 $ 85,267 $ (22,891) $ - $ (796)
Net Loss - - - (32,019) - -
Issuance of new shares 2,000 20 26,702 - - -
Minimum pension liability
adjustment - - - - (1,575) -
Net activity under Stock
Incentive Plan 30 - 346 - - 456
______ ____ ________ _________ _______ _______
Balance, January 1, 1994 7,918 79 112,315 (54,910) (1,575) (340)
Net Loss - - - (16,198) - -
Issuance of new shares 4,512 45 38,581 - - -
Net activity under Stock
Incentive Plan 18 - 150 - - 340
______ ____ ________ _________ _______ _______
Balance, December 31, 1994 12,448 124 151,046 (71,108) (1,575) -
Net Loss - - - (34,095) - -
Issuance of new shares 20 1 202 - - -
Minimum pension liability
adjustment, net of deferred
tax - - - - (1,366) -
______ ____ ________ _________ _______ _______
Balance, December 30, 1995 12,468 $125 $151,248 $(105,203) $(2,941) $ -
====== ==== ======== ========= ======= =======
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
<CAPTION>
Fiscal Year Ended
_______________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
________ ________ ________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing
operations $ 9,601 $ (5,195) $ (4,374)
Adjustments to reconcile income (loss)
from continuing operations to net
cash provided (used) by continuing
operating activities:
Depreciation and amortization 11,509 10,508 7,806
Amortization of intangible assets 4,495 4,123 2,843
Provision for restructuring and
integration - 10,586 -
Postretirement medical benefits 487 670 1,090
Provision for plant sale - - 500
Deferred compensation 460 - -
Amortization included in interest
expense 1,195 1,279 416
Deferred income taxes 6,138 - (1,631)
Payments for restructuring/
integration (3,240) (1,020) -
Changes in:
Receivables (8,413) 430 (2,181)
Inventories (2,844) 1,713 (6,126)
Other current assets (587) (354) 1,450
Deferred charges and other assets (219) 357 (609)
Accounts payable and accrued
liabilities 4,357 9,348 8,095
Noncurrent liabilities 2,250 - (159)
Other (51) 22 (18)
________ _______ _______
Net cash provided by continuing
operations 25,138 32,467 7,102
Net cash provided (used) by
discontinued operations including
changes in working capital (12,294) 627 10,488
________ _______ _______
Net cash provided (used) by operating
activities 12,844 33,094 17,590
________ _______ _______
</TABLE>
(Continued)
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
<CAPTION>
Fiscal Year Ended
______________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
________ ________ _______
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant
and equipment (24,255) (10,063) (8,934)
Acquisition of KPR Holdings, L.P. (51,935) - -
Acquisition of TNT Crust, Inc. (56,379) - -
Acquisition of International Multifoods
Foodservice Corp. - (137,684) -
Payments received on notes receivable 358 672 517
Proceeds from sale of property,
plant and equipment 130 436 -
Proceeds from sale of Retail Division 65,786 - -
Net investing activities of
discontinued operations (838) (4,557) (12,770)
________ _______ _______
Net cash used by investing activities (67,133) (151,196) (21,187)
________ _______ _______
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations, net
of issuance costs 147,636 141,154 105,953
Borrowings under revolving working
capital facility 30,000 195,500 99,233
Payments on revolving working capital
facility (21,000) (203,500) (157,011)
Payments on capital lease and
debt obligations (112,629) (36,720) (74,437)
Payment on early extinguishment of debt - (1,088) -
Issuance of common stock 195 38,626 26,722
Net financing activities of
discontinued operations (549) 1,016 (520)
________ _______ _______
Net cash provided (used) by
financing activities 43,653 134,988 (60)
________ _______ _______
Increase (decrease) in cash
and cash equivalents (10,636) 16,886 (3,657)
Cash and cash equivalents at beginning
of period 28,843 11,957 15,614
________ ________ ________
Cash and cash equivalents at end of
period $ 18,207 $ 28,843 $ 11,957
======== ======== ========
(Continued)
</TABLE>
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
<CAPTION>
Fiscal Year Ended
______________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
________ ________ ________
<S> <C> <C> <C>
Supplemental disclosure of noncash
operating activities:
Loss on early extinguishment of
debt, net of income taxes $ (1,049) $ (2,419) $ -
Cumulative effect on prior years of
change in accounting for post-
retirement benefits other than
pensions - - (34,426)
Supplemental disclosure of noncash
investing and financing activities:
Promissory note issued upon
acquisition $ 50,000 $ - $ -
Capital lease obligations-
Continuing operations 22 550 1,285
Discontinued operations - 2,853 331
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 19,944 $ 19,441 $ 8,406
Income taxes 727 442 815
Reorganization professional and
financing fees - - 319
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
(formerly known as Doskocil Companies Incorporated)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Description of Business and Summary of Significant
Accounting Policies
a. Description of Business:
The Company produces, markets and distributes
frozen and refrigerated products targeted to growth
segments of the foodservice industry, which
encompasses all aspects of away-from-home food
preparation. The Company's products include
pepperoni, beef and pork toppings, as well as
partially baked pizza crusts, marketed to the pizza
industry, appetizers, Mexican and Italian foods,
sauces, soups and side dishes and branded and
processed meat products. Customers include large
multi-unit food chains, major foodservice
distributors, warehouse clubs and grocery store
delicatessens, principally in the United States.
The Company's annual reporting period ends on the
Saturday nearest December 31. Accordingly, the
annual reporting periods ended December 30, 1995,
December 31, 1994 and January 1, 1994 contained 52
weeks.
b. Principles of Consolidation:
The consolidated financial statements include the
accounts of Foodbrands America, Inc. ("Foodbrands
America") and all of its subsidiaries. Prior year
balances have been restated to conform to the
current year's presentation for discontinued
operations (See Note 3).
c. Use of Estimates in the Preparation of Financial
Statements:
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect 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 those estimates.
Significant estimates made by the Company include
accrued pension costs, including a minimum pension
liability adjustment, accrued postretirement
medical benefits and a valuation allowance for
deferred tax assets. Accrued pension costs and
postretirement benefits involve the use of
actuarial assumptions, including selection of
discount rates (See Note 11). Determination of the
valuation allowance for deferred tax assets
considers estimates of projected taxable
income (See Note 10). It is reasonably possible
that the Company's estimates for such items could
change in the near term.
d. Cash and Cash Equivalents:
The Company considers cash equivalents to include
all investments with a maturity at date of purchase
of 90 days or less. Cash equivalents of $10.1
million and $18.8 million at December 30, 1995 and
December 31, 1994 represent investments primarily
in Commercial Paper and U.S. Government Securities,
carried at cost, which approximates market. The
Company nets its account balances within the same
bank and presents positive cash balances as cash
and negative cash as accounts payable.
e. Concentrations of Credit Risk:
The concentrations of credit risk with respect to
trade receivables are, in management's opinion,
considered minimal due to the Company's diverse
customer base. Credit evaluations of its
customers' financial conditions are performed
periodically, and the Company generally does not
require collateral from its customers. As of
December 30, 1995, the Company had concentrations
of cash in bank balances totaling approximately
$4.2 million located at 6 banks which exposes the
Company to concentrations of credit risk. As of
December 31, 1994, the Company had concentrations
of cash in bank balances totaling approximately
$4.7 million located in 9 banks.
f. Inventories:
Inventories are valued at the lower of cost
(first-in, first-out) or market. The Company
periodically enters into futures contracts as
deemed appropriate to reduce the risk of future
price increases. These futures contracts are
accounted for as hedges. Accordingly, resulting
gains or losses are deferred and recognized as
part of the product cost and included in cash flows
from operating activities in the Consolidated
Statement of Cash Flows.
g. Property, Plant and Equipment:
Property, plant and equipment are stated at cost if
acquired after September 28, 1991, the date the
Company implemented Fresh Start Reporting as set
forth in Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the
Bankruptcy Code"("SOP 90-7"), issued by the
American Institute of Certified Public Accountants.
When assets are sold or retired, the costs of the
assets and the related accumulated depreciation are
removed from the accounts and the resulting gains
or losses are recognized.
Depreciation and amortization are provided using
the straight-line method over either the estimated
useful lives of the related assets (3 to 40 years)
or, for capital leases, the terms of the related
leases.
h. Intangible Assets and Reorganization Value:
The excess of the aggregate purchase price over
fair value of net assets acquired ("Goodwill") is
being amortized over 40 years. Trademarks and
tradenames are amortized on the straight-line
method over 20 to 25 years.
Based on the allocation of reorganization value in
conformity with the procedures specified by SOP
90-7, the portion of the reorganization value which
cannot be attributed to specific tangible or
identifiable intangible assets of the reorganized
Company has been reported as "Reorganization Value
in Excess of Amounts Allocable to Identifiable
Assets" ("Reorganization Value") and is amortized
using the straight-line method over 20 years.
The Company continually reevaluates the carrying
amount of the Reorganization Value and other
intangibles as well as the amortization period to
determine whether current events and circumstances
warrant adjustments to the carrying value and/or
revised estimates of useful lives. The specific
methodology of future pre-interest cash flows (with
assets grouped by division which is the lowest
level for which there are identifiable cash flows)
is used for this evaluation. At this time, the
Company believes that no impairment of the
Reorganization Value and other intangibles has
occurred and that no reduction of the estimated
useful lives is warranted.
i. Deferred Charges and Other Assets:
Included in deferred charges and other assets are
net deferred tax assets of $32.7 million. Deferred
loan costs associated with various debt instruments
are being amortized over the terms of the related
debt using the interest method. At December 30,
1995 and December 31, 1994, $6.1 million and $7.0
million, respectively, remained to be amortized
over future periods. Amortization expense for
these loans included in interest expense for fiscal
1995, 1994 and 1993 was approximately $1.1 million,
$1.2 million and $0.3 million, respectively.
Deferred loan costs of $1.7 million and $2.5
million were written off in Fiscal 1995 and 1994,
respectively, due to early extinguishment of
debt.
j. Income Taxes:
The Company utilizes the asset and liability
approach for financial accounting and reporting for
income taxes as set forth in Statement of Financial
Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes." SFAS 109 utilizes
the liability method and deferred income taxes are
recorded to reflect the expected tax consequences
in future years of differences between the tax
basis of assets and liabilities and their financial
reporting amounts and net operating loss
carryforwards ("NOLs") at each year-end.
Valuation allowances are established when necessary
to reduce deferred tax assets to the amount
expected to be realized. This analysis is
performed quarterly based on the best information
available. The Company will make adjustments as
necessary to the valuation allowance when
it becomes more likely than not that the net
deferred tax benefits will be realized in the
future.
k. Earnings (Loss) Per Common Share:
Primary and fully diluted earnings (loss) per share
are computed by dividing net income (loss) by the
weighted average number of common and common
equivalent shares outstanding during each period.
Options and warrants which have a dilutive effect
are considered in the per share computations.
l. Recently Issued Accounting Pronouncements:
Impairment of Long-Lived Assets. Statement of
Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires that
long-lived assets and certain identifiable
intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount
of an asset may not be recoverable. Impairment is
evaluated by comparing future cash flows
(undiscounted and without interest charges)
expected to result from the use of the asset
and its eventual disposition to the carrying amount
of the asset. This new accounting principle is
effective for the Company's fiscal year ending
December 28, 1996. The Company believes that
adoption will not have a material impact on its
financial position.
Stock-Based Compensation. Statement of Financial
Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not
require, companies to recognize compensation
expense for grants of stock, stock options and
other equity instruments to employees based on new
fair value accounting rules. Although expense
recognition for employee stock based compensation
is not mandatory, SFAS 123 requires companies that
choose not to adopt the new fair value
accounting to disclose pro-forma net income and
earnings per share under the new method. This new
accounting principle is effective for the Company's
fiscal year ending December 28, 1996. The Company
believes that adoption will not have a material
impact on its financial condition as the Company
will not adopt the fair value accounting, but will
instead comply with the disclosure requirements.
m. Reclassifications:
Certain reclassifications have been made to the
historical financial statements to conform with
current presentation.
Note 2 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.
The operating results of the acquisitions are included in
the Company's consolidated results of operations from the dates
of acquisition. The following unaudited pro forma consolidated
financial information assumes the acquisitions of KPR and TNT
occurred at the beginning of 1994 and the acquisition of
Specialty Brands occurred at the beginning of 1993. These
results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the
acquisition been made at the beginning of the periods presented,
or of the results which may occur in the future.
<TABLE>
<CAPTION>
Year Ended
____________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
_________ ________ _______
(in thousands, except
per share)
<S> <C> <C> <C>
Net sales $751,008 $689,577 $576,600
Operating income 50,418 28,457 17,188
Income (loss) from continuing
operations 10,385 (5,349) (703)
Net income (loss) (33,311) (16,352) (28,348)
Earnings (loss) per share -
primary and fully diluted:
Income (loss) from continuing
operations $0.83 $(0.61) $(0.09)
Net income (loss) (2.67) (1.87) (3.82)
</TABLE>
Note 3 Discontinued Operations
On May 30, 1995, the Company sold the assets of its Retail
Division (a separate industry segment) to Thorn Apple Valley,
Inc. The sales price approximated $65.8 million in cash payments
plus the assumption of long-term debt of approximately $6.0
million and certain current liabilities related to the division
of approximately $4.5 million. In connection with this sale the
Company wrote off approximately $64.3 million of post-bankruptcy
intangible assets and recorded a net loss on disposition of
approximately $38.5 million. The agreement also includes
potential consideration of an additional $10 million based upon
an increase in the market value of the purchaser's common stock.
Proceeds of the sale were used to reduce the Company's debt under
its term loan by $58 million. The remainder of the proceeds have
been or will be used to pay expenses related to the sale. The
results of operations and cash flows attributable to the Retail
Division are reported as discontinued operations and accordingly
the balance sheet at December 31, 1994 and the results of
operations for years prior to fiscal 1995 have been restated.
Corporate interest expense was allocated to the Retail Division
based on its net assets in proportion to the Company's
consolidated net assets.
The results of discontinued operations are (in thousands):
Fiscal Year Ended
________________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
________ ________ ________
Net sales $72,357 $238,308 $254,937
======= ======== ========
Income (loss) before taxes $(7,020) $ (8,522) $ 8,412
Tax expense (benefit) (2,899) - 1,631
_______ ________ ________
Net income (loss) $(4,121) $ (8,522) $ 6,781
======= ======== ========
The assets and liabilities of discontinued operations
included in the December 31, 1994 balance sheet are (in
thousands):
Working capital $12,145
Net property, plant and
equipment 22,822
Intangible and other assets 57,013
Long-term debt 6,626
Included in accounts payable and accrued liabilities at
December 30, 1995, are certain amounts, totalling $2.1 million,
relating to the sale of the Retail Division. The payments
associated with these accruals will be reflected in future
consolidated statements of cash flows as net cash flows used by
discontinued operations.
The assets included in the sale of the Retail Division had
significantly different financial and tax basis. Therefore, for
income tax purposes this transaction generated taxable income of
approximately $25.1 million requiring the utilization of net
operating loss carryforwards. The tax affect of this utilization
is approximately $9.6 million. As a direct result of the sale
and the related tax affect, the Company reduced the
Reorganization Value and other post-bankruptcy intangible assets
by $64.3 million, which will in turn reduce the amortization of
that asset in the future, in accordance with Fresh Start
Reporting.
Note 4 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. The charge also
included costs incurred prior to year-end associated with the
corporate legal restructuring to preserve the Company's income
tax NOLs and to change the Company's name to Foodbrands America,
Inc.
As of December 30, 1995, the Company had consolidated
production operations, closed two production facilities and two
distribution facilities and discontinued a production operation.
In connection with these actions, the Company paid $3.5 million
in 1995 that was charged against the reserve and charged an
additional $2.1 million against the reserve for property, plant
and equipment. Of the total amount paid in 1995, $0.8 million
was for employee termination benefits for 35 employees terminated
during the year. The restructuring reserve remaining at December
30, 1995 was comprised of accrued liabilities of $1.2 million and
a reserve against property, plant and equipment of $2.2 million.
Management believes that the remainder of the reserve is adequate
to complete the restructuring and integration program and plans
to complete the program by the end of 1996.
Note 5 Inventories
<TABLE>
Inventories at December 30, 1995 and December 31, 1994 are
summarized as follows (in thousands):
<CAPTION>
1995 1994
_______ _______
<S> <C> <C>
Raw materials and supplies $20,147 $16,077
Work in process 7,365 4,310
Finished goods 31,011 28,101
_______ _______
$58,523 $48,488
======= =======
</TABLE>
Note 6 Property, Plant and Equipment
<TABLE>
Property, plant and equipment at December 30, 1995 and December
31, 1994 is summarized as follows (in thousands):
<CAPTION>
1995 1994
________ ________
<S> <C> <C>
Land $ 3,053 $ 2,283
Buildings and improvements 68,461 47,971
Machinery and equipment 97,705 66,347
Construction in progress 5,621 4,663
________ ________
174,840 121,264
Less accumulated depreciation and
amortization 38,188 31,685
________ ________
136,652 89,579
Assets to be disposed of, net 3,274 3,323
________ ________
$139,926 $ 92,902
======== ========
</TABLE>
In January 1994, the Company sold all the assets of its
processed food equipment manufacturing division at South
Hutchinson, Kansas. A provision for loss was recorded in 1993
for $0.5 million in connection with the decision to sell the
unit.
Note 7 Accrued Liabilities
Accrued liabilities at December 30, 1995 and December 31,
1994 are summarized as follows (in thousands):
1995 1994
_______ _______
Interest $ 5,883 $ 6,368
Salaries, wages and payroll taxes 9,285 7,966
Employee medical benefits 11,361 8,890
Workers' compensation benefits 2,404 1,374
Pension and retirement benefits 2,098 1,797
Marketing expenses 5,360 5,301
Provisions for facility restructuring
and integration 1,240 4,500
Provisions for discontinued operations,
closed and sold facilities 2,968 506
Other 9,695 7,480
_______ _______
$50,294 $44,182
======= =======
Note 8 Long-term Debt
<TABLE>
Long-term debt, more fully described below, at December 30,
1995 and December 31, 1994 consisted of the following (in
thousands):
<CAPTION>
1995 1994
________ ________
<S> <C> <C>
Notes payable to banks $160,500 $111,000
Promissory note 50,000 -
Industrial revenue bonds and mortgage notes - 280
9 3/4% Senior Subordinated Redeemable Notes
due 2000, net of discount 109,741 109,684
Capital lease obligations 3,507 4,950
________ ________
323,748 225,914
Less current maturities 18,341 1,654
________ ________
$305,407 $224,260
======== ========
</TABLE>
Based on the borrowing rates currently available to the
Company for bank borrowings with similar terms and average
maturities, the Company believes that the carrying amount of
these borrowings at December 30, 1995, approximates face value.
The fair value of the $110.0 million of 9 3/4% Senior
Subordinated Redeemable Notes due 2000 (the "Senior Subordinated
Notes"), based on the quoted market price at December 30, 1995,
approximates the carrying amount of $109.7 million.
The aggregate amounts of long-term obligations, excluding
obligations under capitalized leases, which become due during
each of the next five fiscal years are as follows (in millions):
$16.9 in 1996, $43.0 in 1997, $59.3 in 1998, $65.5 in 1999 and
$135.5 in 2000.
Notes Payable to Banks
On December 11, 1995, the Company consummated a credit
agreement consisting of (i) a term loan for $145.0 million, (ii)
an acquisition revolving facility not to exceed $100.0 million
and (iii) a working capital revolving facility not to exceed
$75.0 million ("the Credit Agreement"). The proceeds received on
that date were net of $3.9 million of debt issuance costs and
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
Credit Agreement includes a subfacility for standby and
commercial letters of credit not to exceed $7.0 million. The
Credit Agreement ranks senior to all existing indebtedness and is
collateralized by essentially all the assets of the Company
including accounts receivable, inventory, general intangibles and
mortgaged properties.
Borrowings under the Credit Agreement bear interest at an
annual rate equal to, at the Company's option, either the
Eurodollar Rate, as defined by the agreement, plus 1.75% (subject
to adjustment based on the Company's Total Debt Ratio, as
defined) or an Alternate Base Rate, as defined in the agreement,
which is based on Chemical Bank's prime rate, plus 0.75% (subject
to adjustment based on the Company's Total Debt Ratio, as
defined). On December 30, 1995 the weighted average
interest rate on the borrowings was 7.97%. Interest on the
borrowings is payable quarterly in arrears. 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, borrowings under the working capital revolving
facility were $9.0 million and $50.9 million was available for
borrowing at that date based on accounts receivable and
inventory. The Company also has the ability to borrow an
additional $43.5 million under the acquisition revolving facility
in 1996 to fund future acquisitions.
In connection with the extinguishment of debt discussed
above, the Company incurred an extraordinary loss of $1.0
million, net of $0.7 million income tax benefit.
In connection with the early extinguishment of debt in 1994
and termination of a related interest rate swap agreement, the
Company incurred an extraordinary loss in the amount of $2.5
million.
The Credit Agreement and the Senior Subordinated Notes
described below contain certain restrictive covenants and
conditions among which are limitations on further indebtedness,
restrictions on dispositions and acquisitions of assets,
limitations on dividends and compliance with certain financial
covenants, including but not limited to a maximum total debt
ratio and minimum interest expense coverage.
Promissory Note
Upon the acquisition of KPR, the Company executed a
promissory note to the sellers for $50.0 million. The note was
payable on January 15, 1996, and bore interest at the rate of 6%.
The note was retired using funds previously not drawn down under
the term loan facility of the Credit Agreement. The note has
been classified as long term based on the classification of the
Credit Agreement.
Senior Subordinated Notes
The Senior Subordinated Notes mature on July 15, 2000.
Interest is payable on January 15 and July 15 of each year. The
Senior Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after July 15,
1998. If the Senior Subordinated Notes are redeemed during the
12-month period beginning July 15, 1998, the redemption price
(expressed as a percentage of principal amount) will be 103.0%,
and if they are redeemed during the 12-month period beginning
July 15, 1999, the redemption price will be 101.5%. The Senior
Subordinated Notes are unsecured and subordinated to all existing
and future senior indebtedness of the Company, including
borrowings under the Credit Agreement.
The Senior Subordinated Notes are guaranteed by
substantially all direct and indirect subsidiaries of the
Company, all of which are wholly owned. The guarantees are joint
and several, full, complete and unconditional. There are
currently no restrictions on the ability of the subsidiaries to
transfer funds to the Company in the form of cash dividends,
loans or advances. The Company is a holding company
with no assets, liabilities, or operations other than its
investments in its subsidiaries. The non-guarantors are
inconsequential, individually and in the aggregate to the
consolidated financial statements and separate financial
statements of the guarantors are not presented because management
has determined that they would not be material to investors.
Leases
The Company leases certain facilities, equipment and
vehicles under agreements which are classified as capital leases.
The building leases have original terms ranging from 20 to 25
years and have renewal options for varying periods ranging from
three years to 60 years. Most equipment leases have purchase
options at the end of the original lease term. Leased capital
assets included in property, plant and equipment at December 30,
1995 and December 31, 1994 are as follows (in thousands):
1995 1994
_______ _______
Buildings $ 2,666 $ 2,666
Machinery and equipment 6,079 6,479
_______ _______
8,745 9,145
Accumulated amortization 4,207 3,413
_______ _______
$ 4,538 $ 5,732
======= =======
Future minimum payments, by year and in the aggregate, under
noncancellable capital leases and operating leases with
initial or remaining terms of one year or more consist of the
following at December 30, 1995 (in thousands):
Capital Operating
Leases Leases
1996 $1,717 $ 4,413
1997 981 3,949
1998 396 3,838
1999 250 3,792
2000 142 3,754
Future years 673 4,235
______ _______
Total minimum lease payments 4,159 $23,981
Amounts representing interest 652 =======
______
Present value of net minimum
payments 3,507
Current portion 1,466
______
$2,041
======
The Company's rental expense for operating leases was (in
millions) $5.3, $4.5 and $4.0 for the fiscal years ended December
30, 1995, December 31, 1994 and January 1, 1994.
In connection with the KPR acquisition, the Company entered
into a ten year operating lease for a production facility. The
base rent is $0.8 million per year and is payable to a
corporation related to the former owners and current management
of KPR. Rent expense for 1995 was less than $0.1 million.
Note 9 Stockholders' Equity
In October 1994, the Company completed a stock rights
offering. The rights offering provided stockholders the ability
to purchase 0.68 shares for each share owned. 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.
At December 30, 1995, the Company has warrants outstanding
to purchase 282,036 shares. The warrant agreement provides the
holders an irrevocable put option, which obligates the Company to
repurchase the warrants at a price per warrant equal to the
excess of (i) the then-current market price per share of Common
Stock, over (ii) $17.53, which may be exercised by each of the
holders of the warrants only upon a Change of Control, as defined
in the current warrant agreement. The warrants may be exercised
through December 31, 1998.
Note 10 Income Taxes
Deferred tax assets primarily result from net operating loss
carryforwards and certain accrued liabilities not currently
deductible, and deferred tax liabilities result from the
recognition of depreciation and amortization in different periods
for financial reporting and income tax purposes. Income tax
expense results from the income tax payable for the year and the
change during the year in deferred tax assets and liabilities
including the realization of prereorganization net operating
losses.
<TABLE>
The provision (benefit) for income taxes in continuing
operations consists of the following components (in thousands):
<CAPTION>
Fiscal Year Ended
________________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
________ ________ _______
<S> <C> <C> <C>
Current:
Federal $ 103 $ - $ 44
State 800 600 375
______ ______ _______
903 600 419
______ ______ _______
Deferred:
Federal 5,168 - (1,370)
State 970 - (261)
______ ______ _______
6,138 - (1,631)
______ ______ _______
Total $7,041 $ 600 $(1,212)
====== ====== =======
</TABLE>
<TABLE>
The income tax provision (benefit) applicable to the net
losses from discontinued operations associated with the Retail
Division are (in thousands):
<CAPTION>
Fiscal Year Ended
______________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
_______ ____ ______
<S> <C> <C> <C>
Operations of the Retail Division
Deferred expense (benefit) $(2,899) $ - $1,631
======= ==== ======
Disposal of the Retail Division:
Current expense:
Federal $ 278 $ - $ -
State 469 - -
Deferred expense 9,553 - -
_______ ____ ______
$10,300 $ - $ -
======= ==== ======
</TABLE>
<TABLE>
The effective tax rate on income from continuing operations differs
from the statutory rate as follows:
<CAPTION>
Fiscal Year Ended
________________________________
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
________ ________ _______
(Liability Method)
________ ________ _______
<S> <C> <C> <C>
Statutory rate 35.0% (34.0)% (34.0)%
Tax effect of:
Amortization of
intangible assets 4.0 18.4 15.2
State taxes, net of
federal benefit 3.1 8.6 (1.3)
Limitation on recognition
of tax benefit - 20.1 -
Benefit of net deductible
temporary differences - - -
Other 0.2 - (1.6)
____ ____ _____
42.3% 13.1% (21.7)%
==== ==== =====
</TABLE>
<TABLE>
At December 30, 1995 and December 31, 1994, the deferred tax
assets and deferred tax liabilities were as follows (in thousands):
<CAPTION>
1995 1994
_______ _______
<S> <C> <C>
Deferred tax assets:
Retiree medical benefit plan accruals $26,962 $26,805
Pension plan accruals 5,487 5,373
Plant closing accruals 2,036 2,524
Employee compensation and benefits
accruals 5,531 7,111
Other accrued expenses 978 1,227
Net operating loss carryforwards 43,385 53,360
_______ _______
Total deferred tax assets 84,379 96,400
_______ _______
Deferred tax liabilities:
Capitalized leases (420) (265)
Accumulated depreciation (3,046) (1,496)
Intangible assets (4,787) (9,059)
Other (72) (78)
_______ _______
Total deferred tax liabilities (8,325) (10,898)
_______ _______
Net deferred tax assets 76,054 85,502
Valuation allowance (43,314) (54,564)
_______ _______
Net deferred tax assets $32,740 $30,938
======= =======
</TABLE>
In accordance with Fresh Start Reporting as prescribed by
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" issued by the American
Institute of Certified Public Accountants, the tax benefit
realized from utilizing the pre-reorganization net operating loss
carryforwards should be recorded as a reduction of the
Reorganization Value rather than be realized as a benefit in the
statement of operations. In 1995, the Company reduced the
Reorganization Value by $12.1 million.
At December 30, 1995, after considering utilization
restrictions, the Company's tax loss carryforwards approximated
$108.5 million. The net operating loss carryforwards are subject
to utilization limitations due to ownership changes. The net
operating loss carryforwards may be utilized to offset future
taxable income as follows: $76.3 million in 1996, $13.3 million
in each of years 1997 and 1998, $5.0 million in 1999 and $0.6
million in 2000. Loss carryforwards not utilized in the first
year that they are available may be carried over and utilized 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, $.9 million in 2000 and
$69.0 million during the years 2001 through 2009.
Note 11 Employee Benefit Plans
The Company and certain subsidiaries maintain employee
benefit plans covering most employees. All full-time employees
of the Company and its subsidiaries who have obtained the age of
21, have completed one year of employment and are not subject to
a collective bargaining agreement are permitted to contribute up
to 15% of their salary, not to exceed the limit set by the
Internal Revenue Service, to a 401(k) plan. The Company makes
contributions on behalf of each participant of a matching amount
not to exceed the employee's contribution or 3% of such
employee's salary.
Substantially all of the hourly employees at the Cherokee,
Iowa, Jefferson, Wisconsin and Riverside, California facilities
participate in defined benefit pension plans. Information
presented below also includes benefits and Company obligations
associated with participants of closed and sold operations.
The funded status of the defined benefit plans at December 30,
1995 and December 31, 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
_______ _______
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $65,972 $59,992
======= =======
Accumulated benefit obligation $68,229 $61,516
======= =======
Projected benefit obligation $68,229 $61,516
Plan assets at fair value 55,170 48,722
_______ _______
Projected benefit obligation
in excess of plan assets 13,059 12,794
Unrecognized net actuarial loss -
difference in assumptions and actual
experience (5,010) (1,637)
Adjustment required to recognize
additional minimum liability 4,743 1,575
_______ _______
Accrued pension cost $12,792 $12,732
======= =======
</TABLE>
Plan assets are comprised of cash and cash equivalents and
mutual funds investing primarily in interest bearing and equity
securities. The funding policy for the plan at the Cherokee
facility is to contribute amounts sufficient to meet the minimum
funding requirements of the Employee Retirement Income Security
Act of 1974 (ERISA), and the plans at the Jefferson and Riverside
facilities are funded based upon a recommendation from the
Company's actuary. Such contributions for the plan at the
Jefferson facility have, in prior years, exceeded the minimum
funding requirements.
Pension costs of the defined benefit plans for fiscal 1995,
1994 and 1993 are composed of the following components, based on
expected long-term rates of return of 9.0%, 8.5% and 9.0% and
discount rates of 7.5%, 8.75% and 7.5% for the plan at the
Jefferson facility, expected long-term rates of return of 8.5%,
8.5% and 8.5% and discount rates of 7.5%, 8.75% and 7.5% for the
plan at the Cherokee facility and expected long-term rate of
return of 9.0% and discount rate of 7.5% for fiscal 1995 for the
plan at the Riverside facility which became effective in 1995 (in
thousands):
<TABLE>
<CAPTION>
December 30, December 31, January 1,
1995 1994 1994
____________ ____________ __________
<S> <C> <C> <C>
Service cost for benefits
earned during the year $ 465 $ 370 $ 304
Interest cost on projected
benefit obligation 5,121 4,991 5,104
Return on plan assets (4,094) (4,330) (3,667)
Amortization of transition
obligation and unrecognized
prior service cost 11 - 41
______ ______ ______
Total pension cost $1,503 $1,031 $1,782
====== ====== ======
</TABLE>
Expenses for all of the Company's retirement plans for
fiscal years 1995, 1994 and 1993 were (in millions) $2.6, $2.1
and $3.0, respectively.
The Company provides life insurance and medical benefits
("Postretirement Medical Benefits") for substantially all retired
hourly and salaried employees of one of its subsidiaries under
various defined benefit plans. Contributions are made by certain
retired participants toward their Postretirement Medical
Benefits.
In 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"). Upon
adoption of the new standard, the Company recorded, in the first
quarter of 1993, a one-time, noncash charge for the cumulative
effect of the change in accounting principle of $34.4 million, a
deferred tax benefit of approximately $31.0 million and a
liability of $65.4 million for Postretirement Medical Benefits.
The obligation as of the beginning of fiscal 1993 represents the
discounted present value of accumulated retiree benefits, other
than pensions, attributed to employees' service rendered prior to
that date. The effect of adopting FAS 106 for the year ended
January 1, 1994 was to increase net periodic postretirement
benefit cost and decrease earnings before cumulative effect of
accounting change by $1.1 million ($0.15 per share) and increase
net loss by $35.5 million ($4.79 per share).
The components of net periodic postretirement benefit cost
for the years ended December 30, 1995 and December 31, 1994 were
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
______ ______
<S> <C> <C>
Service cost $ 231 $ 241
Interest on accumulated benefit obligation 5,399 5,372
Other (61) (21)
______ ______
Net periodic postretirement benefit cost $5,569 $5,592
====== ======
</TABLE>
The actuarial and recorded liabilities for these
Postretirement Medical Benefits at December 30, 1995 and December
31, 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
_______ _______
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents $68,095 $58,421
Actives not fully eligible 6,203 5,535
Actives fully eligible 226 341
_______ _______
74,524 64,297
Assets at fair value (1,056) (641)
_______ _______
Accumulated postretirement benefit obligation
in excess of plan assets 73,468 63,656
Unrecognized net gain (loss) (6,443) 2,965
Unrecognized prior service cost 379 391
_______ _______
Liability recognized on the balance sheet 67,404 67,012
Less current portion 7,854 5,076
_______ _______
Noncurrent liability for postretirement
medical benefits $59,550 $61,936
======= =======
</TABLE>
For measuring the accumulated postretirement medical benefit
obligation, a 10.5% annual rate of increase in the per capita
claims cost was assumed for 1996. This rate was assumed to
decrease gradually to 8.9% by 2000, 7.7% by 2005, and 6.5% by
2010 and remain at that level thereafter. The weighted average
discount rate used in determining the accumulated obligation was
7.5% and 8.75% for fiscal 1995 and 1994, respectively. The
expected long-term rate of return on plan assets was 6.0% for
both fiscal years 1995 and 1994.
If the health care cost trend rate were increased 1.0%, the
accumulated benefit obligation as of December 30, 1995 would have
increased by $1.4 million. The effect of this change on the
aggregate of service and interest cost for the year ended
December 30, 1995 would be an increase of $0.3 million.
The 1992 Stock Incentive Plan, as amended, (the "Plan")
authorizes the Company to grant stock options and/or Common Stock
aggregating 1,900,000 shares to directors, officers and other key
employees. In February 1992, the Company granted 105,000
restricted shares (11,666 shares subsequently lapsed), one-third
of which vested annually, beginning January 1, 1993. On January
1, 1995, the remaining restricted shares vested. The Company
also granted 105,000 performance shares (53,330 shares
subsequently lapsed) which vested annually over three years based
upon the attainment of targeted earnings. The number of
performance shares that were issued and vested is 51,670 (which
includes 35,416 shares issued under employee separation
agreements). As of December 30, 1995, the Company had also
granted under the Plan 1,426,547 Common Stock options at option
prices ranging from $9.00 to $15.25 per share. The options are
exercisable over a three to five year period. At December 30,
1995, 328,443 Common Stock options were available for future
issuance.
<TABLE>
Stock option transactions are as follows:
<CAPTION>
Options Price Range
_______ ______________
<S> <C> <C>
Outstanding, January 2, 1993 249,500 $14.00 - 14.38
Granted 27,166 $ 9.88 - 16.00
Canceled and forfeited (35,000)
Outstanding, January 1, 1994 241,666 $ 9.88 - 16.00
Granted 913,528 $ 9.00 - 11.00
Canceled and forfeited (34,000)
Outstanding, December 31, 1994 1,121,194 $ 9.00 - 16.00
Granted 475,128 $ 7.88 - 13.18
Exercised (19,686) $ 9.00 - 10.75
Canceled and forfeited (169,775)
Outstanding, December 30, 1995 1,406,861 $ 9.00 - 15.25
</TABLE>
The Company has issued 25,000 Common Stock options to
members of the Board of Directors under an option plan covering
nonemployee directors. The options vested upon granting at an
exercise price of $7.875.
Statement of Financial Accounting Standards No. 112
"Employer's Accounting for Postemployment Benefits" became
effective for fiscal year 1994. The Company generally does not
provide postemployment benefits, other than workers compensation
and long-term disability, the costs of which are estimated and
accrued as the events occur. Accordingly, implementation of this
statement has not had a material effect on the Company's
financial condition or results of operations.
Note 12 Commitments and Contingencies
The Company has committed to minimum purchases of raw
materials, supplies and equipment for delivery at various times
in 1996. The total of such commitments at December 30, 1995, is
approximately $17.5 million.
The Company is involved in two related actions alleging
infringement of two patents held by C&F Packing Company, Inc.
("C&F"). Prior to Foodbrands America acquiring KPR, C&F had
instituted a civil action against KPR alleging that KPR, using
equipment and a process to make a particular sausage product,
infringed the C&F patents. KPR has denied these allegations and
contends that C&F's patents are invalid and that, even if valid,
the process and equipment used by KPR does not infringe the
patents. C&F has also alleged misappropriation of
trade secrets and proprietary information, as well as other
claims, all of which KPR denies.
In 1988 and 1989, C&F filed actions against Doskocil
Companies Incorporated (Foodbrands America's predecessor)
alleging patent infringement and misappropriation of trade
secrets and proprietary information. In 1991, as part of
Doskocil's bankruptcy reorganization, and in settlement of the
litigation, Doskocil entered into a license agreement with C&F
and two consent decrees were entered.
Prior to acquiring KPR, Foodbrands America instituted a
declaratory judgment action against C&F joined by KPR. The
action seeks a ruling that the equipment and process used by KPR
do not violate the C&F patents and that, in any event, it is not
a violation of the consent decrees for KPR to continue to use the
equipment and process being utilized by KPR prior to Foodbrands
America acquiring KPR. C&F has responded to the declaratory
judgment action with a Motion to Dismiss or to Transfer the
actions to the Court that entered the consent decrees. These
motions are pending and have not been ruled upon. 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 litigation is complex and
the ultimate outcome can not be presently determined. The
Company and KPR intend to vigorously prosecute the declaratory
judgment action against C&F and KPR intends to vigorously defend
the suit by C&F.
In September 1992, United Refrigerated Services, Inc.
("URS") filed suit against Wilson Foods Corporation ("Wilson
Foods"), a wholly-owned subsidiary of Foodbrands America and
unaffiliated parties Normac Foods, Inc. ("Normac") and Thompson
Builders of Marshall, Inc. ("Thompson") in the Circuit Court of
Saline County, Missouri. The URS lawsuit involves claims for
property damage as a result of a fire in a warehouse owned by URS
in Marshall, Missouri, in which Wilson Foods was leasing space.
The URS lawsuit is in discovery stages. URS claims real and
personal property damage of approximately $9.8 million or,
alternatively, for trebling of the real property damage
(currently estimated by the Company at approximately $2.0
million, or $6.0 million in the aggregate).
In its answer, Wilson Foods filed a counterclaim against URS
and a cross-claim against other codefendants for indemnity and/or
contribution. The fire occurred in a part of the URS warehouse
being leased by Wilson Foods in which Wilson Foods had produced
sausage patties under contract for Normac until the contract
terminated in September 1991. Normac's contractor, Thompson, was
removing Normac's equipment with a torch when fire broke out and
destroyed a large section of the URS warehouse and its contents.
In 1993, ConAgra, Inc. ("ConAgra") also filed suit against
Wilson Foods, Normac and Thompson in Saline County, Missouri.
ConAgra seeks damages in the amount of $9.4 million from the
named defendants for frozen food that was stored in another part
of the Marshall warehouse at the time of the fire and allegedly
damaged. The ConAgra case also is in discovery.
The Company's insurer has retained counsel to defend the
Company in these matters. Wilson Foods has substantial defenses
to these pending and threatened claims and the Company believes
it is not likely that Wilson Foods will ultimately incur a loss
in excess of its insurance coverage.
In the opinion of management, the Company's exposure to
loss, if any, under various claims and legal actions that have
arisen in the normal course of business, that are not covered by
insurance, will not be material.
Note 13 Subsequent Event
On March 22, 1996, the Company filed a registration
statement to offer $120 million Senior Subordinated Notes due
2006 (the "New Notes") which was amended on April 26, 1996 and
May 9, 1996. The New Notes being offered are unsecured and
subordinated in right of payment to all existing and future
senior indebtedness. On March 29, 1996, the Company commenced a
tender offer to purchase up to all of its outstanding Senior
Subordinated Notes (existing 9-3/4% Senior Subordinated Notes)
and a related consent solicitation to amend or remove certain
covenants. The net proceeds from the New Notes are
expected to be used to consummate the tender offer, and if any
net proceeds remain after consummation of the tender offer, to
reduce the Company's outstanding indebtedness under its Credit
Agreement.
Terms of the New Notes include a guarantee by substantially
all of the Company's subsidiaries. The guarantees are joint and
several, full, complete and unconditional. There are no
restrictions on the ability of any subsidiaries to transfer funds
to the Company in the form of cash dividends, loans or advances.
The Company is a holding company with no assets, liabilities, or
operations other than its investments in its subsidiaries. The
non-guarantors are inconsequential, individually and in the
aggregate to the consolidated financial statements and separate
financial statements of the guarantors are not presented because
management has determined that they would not be material to
investors.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Foodbrands America Inc.
We have audited the consolidated financial statements of
Foodbrands America, Inc. and subsidiaries as listed in Item 14(a)
of this Form 10-K, as amended. 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, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Foodbrands America, Inc. and subsidiaries
as of December 30, 1995 and December 31, 1994, and the
consolidated results of their operations and their cash flows for
the years ended December 30, 1995, December 31, 1994 and January
1, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the consolidated financial statements,
effective January 3, 1993, the Company changed its method of
accounting for income taxes and its method of accounting for
postretirement benefits other than pensions.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
February 12, 1996, except as to the
information presented in Note 13,
for which the date is May 9, 1996.
<PAGE>
<TABLE>
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 30, 1995 and December 31, 1994.
(Amounts are in thousands except per share data.)
<CAPTION>
Quarter
________________________________________
Year ended December 30, 1995 First<F1> Second<F2> Third Fourth<F3>
____________________________ _________ __________ _____ __________
<S> <C> <C> <C> <C>
Net sales $139,412 $146,582 $169,223 $179,483
Gross profit 31,165 32,587 34,463 36,500
Income (loss) from
continuing operations 1,792 1,932 2,503 3,374
Net income (loss) (563) (38,360) 2,503 2,325
Earnings (loss) per share,
primary and fully diluted:
Income (loss) from
continuing operations $ 0.14 $0.16 $0.20 $0.27
Net income (loss) (0.05) (3.07) 0.20 0.19
</TABLE>
<TABLE>
<CAPTION>
Quarter
_____________________________________
Year ended December 31, 1994<F4><F5> First Second<F6> Third<F7> Fourth<F8>
____________________________________ _____ _________ _________ __________
<S> <C> <C> <C> <C>
Net sales $ 94,347 $111,556 $152,189 $154,260
Gross profit 14,614 19,936 32,858 34,826
Income (loss) from
continuing operations (448) (396) 1,255 (5,606)
Net income (loss) (478) (1,767) (3,526) (10,427)
Earnings (loss) per share,
primary and fully diluted:
Income (loss) from
continuing operations $(0.06) $(0.05) $0.16 $(0.50)
Net income (loss) (0.06) (0.22) (0.44) (0.93)
_______________________
<FN>
<F1> Net income includes net loss from operating activities of the discontinued Retail
Division of $2.3 million.
<F2> Net income includes net loss from operating activities of the discontinued Retail
Division of $1.8 million and loss on disposal of the division of $38.5 million.
<F3> Net income includes extraordinary loss on early extinguishment of debt of $1.0
million, net of income tax benefit of $0.7 million.
<F4> Includes the results of operations of the Specialty Brands Division acquired June
1, 1994.
<F5> Net income includes net losses from operations of the discontinued Retail Division
of breakeven, $0.4 million, $3.3 million and $4.8 million for the first, second,
third and fourth quarters, respectively.
<F6> Net income for the second quarter of the year ended December 31, 1994, included an
extraordinary loss on early extinguishment of debt, net of income tax benefit, of
$1.0 million.
<F7> Net income for the third quarter of the year ended December 31, 1994, included a
charge to the extraordinary loss of $1.4 million for the reversal of an income tax
benefit.
<F8> Net income for the fourth quarter of the year ended December 31, 1994, included a
charge of $10.6 million for restructuring and integration.
</TABLE>
<PAGE>
<TABLE>
Schedule II
FOODBRANDS AMERICA, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AN QUALIFYING ACCOUNTS
(Dollar amounts in thousands)
<CAPTION>
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Description Period Expenses Accounts Deductions End of Period
___________ ____________ __________ __________ __________ _____________
<S> <C> <C> <C> <C> <C>
1995:
Allowance for doubtful
accounts <F1> $428 $ 15 $0 $ (47) $396
1994:
Allowance for doubtful
accounts <F2> 466 170 0 (233) 403
1993:
Allowance for doubtful
accounts 314 141 0 (56) 399
____________________
<FN>
<F1> In 1995, Foodbrands America acquired TNT Crust, Inc. The purchase included the
accounts receivables of the company net of an allowance for doubtful accounts of
$25 which has been included in the balance at beginning of period for 1995.
<F2> In 1994, Foodbrands America acquired International Multifoods Foodservice Corp.
The purchase included the accounts receivables of the company net of an allowance
for doubtful accounts of $67 which has been included in the balance at beginning
of period for 1994.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Foodbrands America, Inc.
Our report on the consolidated financial statements of Foodbrands
America, Inc. and subsidiaries is included on page F-32 of this
Form 10-K, as amended. In connection with our audits of such
financial statements, we have also audited the related financial
statement schedule listed on Item 14(a) of this Form 10-K, as
amended.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
February 12, 1996
<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.
By:/s/ William L. Brady
William L. Brady
Vice President, Controller
and Assistant Corporate
Secretary
Dated: May 9, 1996
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 Amended and Restated Certificate of
Incorporation of Foodbrands America, Inc.
(incorporated herein by reference to Exhibit
3.1 to Form 8-B filed on May 7, 1995)
3.2 Amended and Restated Bylaws of Foodbrands
America, Inc. (incorporated herein by
reference to Exhibit 3.2 to Form 8-B filed on
May 17, 1995)
4.1 Specimen certificate for Foodbrands America,
Inc. Common Stock, par value $.01 per share
(incorporated herein by reference to Exhibit
4.1 to Form 8-B filed on May 17, 1995)
4.2 Credit Agreement among Foodbrands America,
Inc., the Lender parties hereto, Chemical Bank
and Citibank, N.A., dated as of December 11,
1995 (incorporated herein by reference to
Current Report on Form 8-K dated December 11,
1995, and filed on December 26, 1995)
4.3 Form of Doskocil 9 3/4% Senior Subordinated
Redeemable Notes due 2000 (incorporated herein
by reference to Exhibit 4.22 to Amendment No.
2 to Registration Statement on Form S-1 filed
April 13, 1993)
4.4 Indenture between Doskocil and First Fidelity
Bank, National Association, New York, as
Trustee (incorporated herein by reference to
Exhibit 3 to Current Report on Form 8-K, dated
April 28, 1993, and filed April 30, 1993)
4.5 First Supplemental Indenture between Doskocil
and First Fidelity Bank, National Association,
New York, as Trustee dated as of June 1, 1994
(incorporated herein by reference to Exhibit
4.7 to Annual Report on Form 10-K filed on
March 7, 1995)
4.6 Second Supplemental Indenture between
Foodbrands and First Fidelity Bank, N.A., New
York, as Trustee, dated as of May 16, 1995
(incorporated herein by reference to Exhibit
4.8 to Form 8-B filed on May 17, 1995)
4.7 Third Supplemental Indenture between
Foodbrands America, Inc. and First Fidelity
Bank, N.A., New York, as Trustee, dated as of
December 11, 1995
4.8 Warrant Agreement dated as of October 31,
1991, between Doskocil and the signatory banks
thereto (incorporated herein by reference to
Exhibit 4.2 to Annual Report on Form 10-K,
dated March 12, 1992, and filed on March 13,
1992)
4.9 Amended and Restated Certificate of
Incorporation of Foodbrands America, Inc. (see
Exhibit 3.1 above)
4.10 Amended and Restated Bylaws of Foodbrands
America, Inc. (see Exhibit 3.2 above)
4.11* Foodbrands America, Inc. 1992 Stock Incentive
Plan (incorporated herein by reference to
Exhibit 4.9 to Annual Report on Form 10-K
filed on March 31, 1994)
4.12* Doskocil 1992 Stock Incentive Plan, as amended
(incorporated herein by reference to Form S-8
filed on May 15, 1995)
4.13* Doskocil 1992 Stock Incentive Plan, as amended
(incorporated herein by reference to Form S-8
filed on September 13, 1995)
10.1 Credit Agreement among Foodbrands America,
Inc., the Lender parties hereto, Chemical Bank
and Citibank, N.A., dated as of December 11,
1995 (see Exhibit 4.2 above)
10.2 Credit Agreement among Foodbrands America,
Inc., the Several Lenders from Time to Time
Parties Thereto and Chemical Bank, as Agent
dated as of May 25, 1994 (incorporated herein
by reference to Exhibit 1 to Current Report on
Form 8-K filed on June 14, 1994)
10.3 First Amendment to Credit Agreement dated
November 2, 1994 (incorporated herein by
reference to Exhibit 4.3 to Annual Report on
Form 10-K, dated and filed on March 7, 1995)
10.4 Second Amendment to Credit Agreement dated
February 10, 1995 (incorporated herein by
reference to Exhibit 4.4 to Annual Report on
Form 10-K, dated and filed on March 7, 1995)
10.5 Form of Doskocil 9 3/4% Senior Subordinated
Redeemable Notes due 2000 (see Exhibit 4.3
above)
10.6 Indenture between Doskocil and First Fidelity
Bank, National Association, New York, as
Trustee (see Exhibit 4.4 above)
10.7 First Supplemental Indenture between Doskocil
and First Fidelity Bank, National Association,
New York, as Trustee dated as of June 1, 1994
(see Exhibit 4.5 above)
10.8 Second Supplemental Indenture between
Foodbrands and First Fidelity Bank, N.A., New
York, as Trustee, dated as of May 16, 1995
(see Exhibit 4.6 above)
10.9 Third Supplemental Indenture between
Foodbrands America, Inc. and First Fidelity
Bank, N.A., New York, as Trustee, dated as of
December 11, 1995 (see Exhibit 4.7 above)
10.10 Warrant Agreement dated as of October 31,
1991, between Doskocil and the signatory banks
thereto (see Exhibit 4.8 above)
10.11* Foodbrands America, Inc. Key Management Cash
Incentive Plan
10.12* Foodbrands America, Inc. 1992 Stock Incentive
Plan (see Exhibit 4.11 above)
10.13* Doskocil 1992 Stock Incentive Plan, as amended
(see Exhibit 4.12 above)
10.14* Doskocil 1992 Stock Incentive Plan, as amended
(see Exhibit 4.13 above)
10.15* Employment Agreement dated August 2, 1994,
between Doskocil and R. Randolph Devening
(incorporated herein by reference to the
exhibit filed with the Current Report on Form
8-K, dated August 15, 1994 and filed on August
17, 1994)
10.16* Employment Agreement dated January 30, 1995
between Doskocil and Larry P. Swafford
(incorporated herein by reference to Exhibit
10.18 to Annual Report on Form 10-K, dated and
filed on March 7, 1995)
10.17* General Release and Separation Agreement
between Foodbrands America and Larry P.
Swafford dated as of May 25, 1995
10.18* Employment Agreement dated October 9, 1995,
between Patrick A. O'Ray and Foodbrands
America
10.19* Employment Agreement dated December 11, 1995,
between Foodbrands America and William E.
Rosenthal
10.20* Employment Agreement dated December 11, 1995,
between Foodbrands America and Howard S. Katz
10.21* Form of Transition Employment Agreement dated
on or after December 17, 1991, between
Doskocil and Thomas G. McCarley, William L.
Brady, David J. Clapp, Raymond J. Haefele,
Bryant P. Bynum, Horst O. Sieben, and Howard
C. Madsen (incorporated herein by reference to
Exhibit 10.18 to Amendment No. 3 to
Registration Statement on Form S-1,
Registration Statement No. 33-59484, filed on
April 20, 1993)
10.22* First Amendment to Transition Employment
Agreement dated as of December 15, 1995,
between Foodbrands America and Horst O. Sieben
10.23* Non-Qualified Stock Option Agreement dated
September 29, 1994 between Doskocil and R.
Randolph Devening (incorporated herein by
reference to Exhibit 10.21 to Annual Report on
Form 10-K, dated and filed on March 7, 1995)
10.24* First Amendment to Non-Qualified Stock Option
Agreement dated as of December 15, 1995,
between Foodbrands America and R. Randolph
Devening
10.25* Form of Non-Qualified Stock Option Agreement
dated on or after September 29, 1994 between
Doskocil and William L. Brady, Bryant P.
Bynum, David J. Clapp, Horst O. Sieben, Thomas
G. McCarley, Raymond J. Haefele, Howard C.
Madsen, Patrick A. O'Ray, William E.
Rosenthal, and Howard S. Katz (incorporated
herein by reference to Exhibit 10.22 to Annual
Report on Form 10-K, dated and filed on March
7, 1995)
10.26* First Amendment to Non-Qualified Stock Option
Agreement dated as of December 15, 1995,
between Foodbrands America and Horst O. Sieben
10.27* Separation Pay Plan, dated April 1, 1995
(incorporated herein by reference to Exhibit
10.25 to Form 8-B filed on May 17, 1995)
10.28* Deferred Stock Compensation Plan between
Foodbrands America and its non-employee
Directors
10.29* Form of Indemnification Agreement between
Doskocil and its non-employee Directors
(incorporated herein by reference to Exhibit
10.42 to Amendment No. 1 to Registration
Statement on Form S-1 dated March 24, 1993)
10.30 Lease Agreement dated April 4, 1992, between
Doskocil and Millard Refrigerated Services-
Atlanta, as amended (incorporated herein by
reference to Exhibit 10.27 to Registration
Statement on Form S-1 dated August 28, 1992)
10.31 Equipment Lease Agreement between Wilson Foods
and MDFC Equipment Leasing Corporation, dated
May 20, 1992, and related unconditional
Guaranty executed by Doskocil dated June 11,
1992, and Equipment Lease Addendum to date
(incorporated herein by reference to Exhibit
10.38 to Amendment No. 1 to Registration
Statement on Form S-1 dated March 24, 1993)
10.32 Stock Purchase Agreement by and between
Doskocil and JLL dated February 16, 1993
(incorporated herein by reference to Exhibit 1
to Current Report on Form 8-K dated February
18, 1993 and Filed on February 19, 1993)
10.33 Agreement dated as of March 22, 1993, by and
between Joseph Littlejohn and Levy Fund, L.P.,
The Airlie Group, L.P. and Doskocil
(incorporated herein by reference to Exhibit
10.43 to Amendment No. 1 to Registration
Statement on Form S-1 dated March 24, 1993)
10.34 Stockholders Agreement dated as of March 22,
1993, by and between the Airlie Group, L.P.
and Doskocil (incorporated herein by reference
to Exhibit 10.44 to Amendment No. 1 to
Registration Statement on Form S-1 dated
March 24, 1993)
10.35 Stock Purchase Agreement between International
Multifoods Corporation and Doskocil Companies
Incorporated dated as of March 17, 1994
(incorporated herein by reference to Exhibit
10.36 to Annual Report on Form 10-K filed on
March 31, 1994)
10.36 Agreement, Acknowledgement and Waiver between
Foodbrands America, Inc. and Joseph Littlejohn
& Levy Fund, L.P. dated May 16, 1995
(incorporated herein by reference to Exhibit
10.34 to Form 8-B filed on May 17, 1995)
10.37 Doskocil/Airlie Agreement dated March 7, 1995
(incorporated herein by reference to Current
Report on Form 8-K filed on March 7, 1995)
10.38 Asset Purchase Agreement by and among Thorn
Apple Valley, Inc. and Doskocil Companies
Incorporated, Wilson Foods Corporation,
Concordia Foods Corporation, Dixie Foods
Company and Shreveport Foods Company dated
April 29, 1995 (incorporated herein by
reference to Current Report on Form 8-K filed
on April 29, 1995)
10.39 First Amendment to Asset Purchase Agreement
between Thorn Apple Valley, Inc. and
Foodbrands America, Inc., Wilson Foods
Corporation, Concordia Foods Corporation,
Dixie Foods Company and Shreveport Foods
Company dated May 26, 1995 (incorporated
herein by reference to Current Report on Form
8-K filed on May 30, 1995)
10.40 Noncompete Agreement by Foodbrands America,
Inc., Wilson Foods Corporation, Concordia
Foods Corporation, Dixie Foods Company and
Shreveport Foods Company in favor of Thorn
Apple Valley, Inc. dated May 30, 1995
(incorporated herein by reference to Form 10-Q
filed on August 9, 1995)
10.41 Purchase Agreement by and among KPR Holdings,
Inc. and the Shareholders of RKR-GP, Inc. and
Foodbrands America, Inc. dated as of November
14, 1995 (incorporated herein by reference to
Current Report on Form 8-K dated December 11,
1995 and filed on December 26, 1995)
10.42 Stock Purchase Agreement by and among TNT
Crust, Inc. and the Shareholders of TNT Crust,
Inc. and Foodbrands America, Inc. dated as of
November 22, 1995 (incorporated herein by
reference to Current Report on Form 8-K dated
December 11, 1995 and filed on December 26,
1995)
10.43 First Amendment to Stock Purchase Agreement by
and among TNT Crust, Inc. and the Shareholders
of TNT Crust, Inc. and Foodbrands America,
Inc. dated as of December 11, 1995
(incorporated herein by reference to Current
Report on Form 8-K dated December 11, 1995 and
filed on December 26, 1995)
10.44 Second Amendment to Stock Purchase Agreement
by and among TNT Crust, Inc. and the
Shareholders of TNT Crust, Inc. and Foodbrands
America, Inc. dated as of December 14, 1995
(incorporated herein by reference to Current
Report on Form 8-K dated December 11, 1995 and
filed on December 26, 1995)
10.45 Master Equipment Lease Agreement between
NationsBank Leasing Corporation of North
Carolina and Foodbrands America, Inc. dated
January 31, 1996
10.46 Lease Agreement between Bam Corporation and
KPR Holdings, L.P. dated December 11, 1995
11.1 Calculation of Earnings Per Share
20.1** Annual Report on Form 11-K with Respect to
Foodbrands America, Inc. Retirement and Profit
Sharing Plan
21.1 Subsidiaries of Foodbrands America, Inc.
22.1** Proxy Statement for Annual Meeting of
Stockholders
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
* Management contracts and compensatory plans or arrangements
** To be filed by amendment.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Foodbrands America, Inc. on Form S-8 (File No. 33-
45974) of our report, which includes an explanatory paragraph
relating to the Company's adoption of new methods of accounting
for income taxes and postretirement benefits other than pensions,
dated February 12, 1996, except as to the information in Note 13
for which the date is May 9, 1996, on our audits of the
consolidated financial statements and our report dated February
12, 1996, on our audit of the related financial statement
schedule of Foodbrands America, Inc. as of December 30, 1995, and
December 31, 1994, and for the years ended December 30, 1995,
December 31, 1994, and January 1, 1994, which reports are
included in this Annual Report on Form 10-K, as amended.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
May 9, 1996
