-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M3i1sspDqlMs/ZQGZxznFE3LYbbiam3Hcv8hVBJh37ScHMMl/xOSwrMakalKUHxY mW+kgwNURkrVAUcG0IweWg== 0000912057-96-027032.txt : 19961121 0000912057-96-027032.hdr.sgml : 19961121 ACCESSION NUMBER: 0000912057-96-027032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961005 FILED AS OF DATE: 19961119 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEEBLER CORP CENTRAL INDEX KEY: 0001018848 STANDARD INDUSTRIAL CLASSIFICATION: COOKIES & CRACKERS [2052] IRS NUMBER: 363839556 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-08379 FILM NUMBER: 96669254 BUSINESS ADDRESS: STREET 1: 1 HOLLOW TREE LANE CITY: ELMHURST STATE: IL ZIP: 60126 BUSINESS PHONE: 7088332900 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 5, 1996 --------------------------------------- Commission file number: No. 333-8379 ---------------------------------------------- KEEBLER CORPORATION Delaware 36-1894790 - ------------------------------- ------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 677 Larch Ave., Elmhurst, IL 60126 --------------------------------------- (Address of principal executive offices) 630-833-2900 --------------------------------------------------- (Registrant's telephone number, including area code) Not applicable. ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filled 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 N/A No ------------ ----------- Number of shares of common stock, $1.00 par value, outstanding as of the close of business on November 19, 1996: 1,000,000. PART 1: FINANCIAL INFORMATION Item 1: FINANCIAL STATEMENTS KEEBLER CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands) | KEEBLER UBIUS | CORPORATION December 30, | OCTOBER 5, 1995 | 1996 ------------ | ----------- ASSETS (Note) | (Unaudited) | CURRENT ASSETS: | | Cash and cash equivalents $ 2,978 | $ 4,282 Trade accounts and notes receivable 117,293 | 119,736 Recoverable income taxes 1,791 | - Receivables from affiliates 8,073 | - Inventories: | Raw materials 9,284 | 22,340 Package materials 9,696 | 11,717 Finished goods 49,128 | 99,305 Other - | 1,235 ---------- | ------------ 68,108 | 134,597 | Deferred income taxes 35,694 | 49,255 Other 33,962 | 19,630 ---------- | ------------ Total current assets 267,899 | 327,500 | PROPERTY, PLANT, AND EQUIPMENT, NET 392,727 | 451,180 | INTANGIBLES INCLUDING GOODWILL 74,647 | 260,817 | PREPAID PENSION 23,836 | 32,994 | NOTES RECEIVABLE FROM AFFILIATE 125,000 | - | ASSETS HELD FOR SALE 38,950 | - | OTHER ASSETS 3,827 | 24,605 ---------- | ------------ | Total assets $ 926,886 | $ 1,097,096 ---------- | ------------ ---------- | ------------ NOTE: THE CONSOLIDATED BALANCE SHEET AT DECEMBER 30, 1995 HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 2 KEEBLER CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands)
| KEEBLER UBIUS | CORPORATION December 30, | OCTOBER 5, 1995 | 1996 ------------ | ----------- (Note) | (Unaudited) | LIABILITIES AND SHAREHOLDER'S EQUITY | | CURRENT LIABILITIES: | Commercial paper and revolving credit facilities $ 284,000 | $ - Current maturities of long-term debt 23,428 | 48,426 Trade accounts payable 52,663 | 82,611 Accrued liabilities 123,043 | 196,938 Income taxes payable - | 2,627 Restructuring reserves 38,168 | - Accounts payable to affiliate 3,016 | - ---------- | ------------ Total current liabilities 524,318 | 330,602 | LONG-TERM DEBT 130,200 | 409,462 | NOTES PAYABLE TO AFFILIATE 105,000 | - | OTHER LIABILITIES: | Deferred income taxes 43,806 | 72,714 Postretirement/employment obligations 44,603 | 39,939 Plant and facility closing costs and severance - | 34,448 Deferred compensation 16,281 | 20,899 Other 10,921 | 14,353 ---------- | ------------ Total other liabilities 115,611 | 182,353 | COMMITMENTS AND CONTINGENCIES | | CONSOLIDATED SHAREHOLDER'S EQUITY | Common Stock (1,000 shares issued and outstanding) 1,000 | 1,000 Additional paid-in capital 745,000 | 172,018 Retained earnings (deficit) (694,243) | 1,661 ---------- | ------------ Total shareholder's equity 51,757 | 174,679 ---------- | ------------ | Total liabilities and shareholder's equity $ 926,886 | $ 1,097,096 ---------- | ------------ ---------- | ------------
NOTE: THE CONSOLIDATED BALANCE SHEET AT DECEMBER 30, 1995 HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3 KEEBLER CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands)
UBIUS | KEEBLER CORPORATION ------------------------------------------------------ | --------------------------------- Forty Twelve Four | THIRTY-SIX TWELVE Weeks Ended Weeks Ended Weeks Ended | WEEKS ENDED WEEKS ENDED October 7, 1995 October 7, 1995 January 26, 1996 | OCTOBER 5, 1996 OCTOBER 5, 1996 ----------------- ---------------- ---------------- | ---------------- --------------- | NET SALES $ 1,201,910 $ 375,419 $ 101,656 | $ 1,171,354 $ 452,329 | COSTS AND EXPENSES: | Cost of sales 567,220 174,363 54,870 | 560,719 217,348 Selling, marketing, and | administrative expenses 669,117 210,072 71,427 | 574,495 221,274 Other 262 (970) 857 | 1,181 767 ---------- ---------- --------- | -------- -------- INCOME (LOSS) FROM OPERATIONS (34,689) (8,046) (25,498) | 34,959 12,940 | INTEREST, NET 22,063 6,104 (116) | 26,991 10,428 ---------- ---------- --------- | -------- -------- | INCOME (LOSS) BEFORE INCOME TAXES (56,752) (14,150) (25,382) | 7,968 2,512 Income tax expense - - - | 4,382 1,367 ---------- ---------- --------- | -------- -------- INCOME (LOSS) FROM CONTINUING | OPERATIONS BEFORE EXTRAORDINARY | ITEM (56,752) (14,150) (25,382) | 3,586 1,145 DISCONTINUED OPERATIONS: | Income from operations of discontinued | frozen foods business, net of | income taxes 5,201 2,296 - | - - Gain on disposal of frozen foods | business, net of income taxes - - 18,910 | - - ---------- ---------- --------- | -------- -------- | INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (51,551) (11,854) (6,472) | 3,586 1,145 EXTRAORDINARY ITEM-LOSS ON EARLY | EXTINGUISHMENT OF DEBT (NET OF | INCOME TAXES OF $1,259) - - - | 1,925 - ---------- ---------- --------- | -------- -------- | NET INCOME (LOSS) $ (51,551) $ (11,854) $ (6,472) | $ 1,661 $ 1,145 ---------- ---------- --------- | -------- -------- ---------- ---------- --------- | -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 KEEBLER CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
UBIUS | KEEBLER CORPORATION ----------------------------------- | ------------------- Forty Four | THIRTY-SIX Weeks Ended Weeks Ended | WEEKS ENDED October 7, 1995 January 26, 1996 | OCTOBER 5, 1996 --------------- ---------------- | ----------------- | CASH FLOWS PROVIDED FROM (USED BY) OPERATING ACTIVITIES | Net income (loss) $ (51,551) $ (6,472) | $ 1,661 Adjustments to reconcile net income to cash from | operating activities: | Discontinued operations - (18,910) | - Depreciation and amortization 36,065 1,973 | 33,140 Changes in assets and liabilities: | Trade accounts and notes receivable, net (2,365) 22,068 | 9,501 Receivables/payables from affiliates, net (3,611) (1,941) | - Inventories (12,210) 3,498 | (36,509) Income taxes payable - 25 | 3,544 Other current assets (19,478) 1,737 | (95) Accounts payable and other current liabilities (3,296) 12,296 | 38,211 Accrued liabilities (31,652) (14,469) | (35,104) Other, net 9,497 (190) | (2,031) -------- -------- | -------- Cash provided from (used by) operating activities (78,601) (385) | 12,318 | CASH FLOWS PROVIDED FROM (USED BY) INVESTING ACTIVITIES | Property additions (34,114) (3,228) | (17,989) Proceeds from property disposals 1,382 682 | 3,362 Disposition of frozen foods business - 67,749 | - Disposition of salty snacks business - (5) | - Working capital adjustment paid by United Biscuits - - | 32,609 Acquisition of Sunshine Biscuits, Inc. net of cash acquired - - | (142,670) -------- -------- | -------- Cash provided from (used by) investing activities (32,732) 65,198 | (124,688) | CASH FLOWS PROVIDED FROM (USED BY) FINANCING ACTIVITIES | Capital contributions 445,000 - | - Loss on early extinguishment of debt - - | 1,925 Payment on long-term borrowings (9,949) (2,377) | (137,484) Proceeds from long-term borrowings - - | 250,097 Commercial paper and revolving credit facilities, net 110,000 (60,100) | - Change in intercompany (445,000) - | - -------- -------- | -------- Cash provided from (used by) financing activities 100,051 (62,477) | 114,538 -------- -------- | -------- Increase (decrease) in cash and cash equivalents (11,282) 2,336 | 2,168 Cash and cash equivalents at beginning of period presented 12,543 2,978 | 2,114 -------- -------- | -------- Cash and cash equivalents at end of period presented $ 1,261 $ 5,314 | $ 4,282 -------- -------- | -------- -------- -------- | --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 KEEBLER CORPORATION Notes to Consolidated Financial Statements (Unaudited) - ------------------------------------------------------------------------------- 1. INTERIM FINANCIAL STATEMENTS The unaudited interim consolidated financial statements included herein were prepared pursuant to the rules and regulations for interim reporting under the Securities Exchange Act of 1934. Accordingly, certain information and footnote disclosures normally accompanying the annual financial statements were omitted. The interim financial statements and notes should be read in conjunction with the annual audited consolidated financial statements and notes thereto. The accompanying unaudited interim consolidated financial statements contain all adjustments, consisting only of normal adjustments, which in the opinion of management were necessary for a fair statement of the results for the interim periods. Results for the interim periods are not necessarily indicative of results for the full year. The financial statements for Keebler Corporation include the financial statements of the predecessor company (see Note 5) for all periods and dates through January 26, 1996, the date Keebler Corporation was acquired by INFLO Holdings Corporation, and the successor company for all periods and dates subsequent to January 26, 1996. This distinction between predecessor/successor financial statements has been made by inserting a double line between such financial statements. 2. ACQUISITION OF KEEBLER CORPORATION BY INFLO HOLDINGS CORPORATION On January 26, 1996, UB Investments (Netherlands) B.V., ultimately a wholly-owned subsidiary of United Biscuits (Holdings) plc., a publicly held company in the United Kingdom, sold (the "Keebler Acquisition") all the stock of UB Investments US Inc. (UBIUS) to INFLO Holdings Corporation (INFLO). Subsequent to the acquisition, UBIUS ("predecessor company") changed its name to Keebler Corporation (the Company). The aggregate gross purchase price of $487.5 million (excluding fees and expenses paid at closing of approximately $15.3 million) was financed by $125.0 million in equity from INFLO, $200.0 million in Senior Term Notes, $125.0 million in Increasing Rate Notes, the assumption of $20.3 million in existing senior indebtedness of the Company and a note payable (Seller Note) by INFLO to UB Investments (Netherlands) B.V. for $32.5 million. The Seller Note does not bear interest until January 26, 1999 and has been accounted for as a capital contribution to Keebler Corporation at a discounted value of $24.4 million. In addition, Keebler Corporation, subsequent to the purchase by INFLO, received a working capital adjustment of $32.6 million from United Biscuits pursuant to the terms of the stock purchase agreement between INFLO and United Biscuits. 6 2. ACQUISITION OF KEEBLER CORPORATION BY INFLO HOLDINGS CORPORATION - (CONTINUED) The Keebler Acquisition has been accounted for as a purchase. Under purchase accounting, the total purchase price and the fair value of liabilities assumed has been allocated to the tangible and intangible assets of Keebler Corporation based upon their respective fair values. The assigned values reflected in the October 5, 1996 balance sheet include estimates which may be revised during fiscal 1996. Using the current assigned values, the acquisition resulted in intangibles, including goodwill, of $138.9 million, which is being amortized over a 40-year period. The following provides a preliminary allocation of the purchase price. (IN MILLIONS) Purchase Price $487.5 Less: Discount recorded on seller note of $32.5 million 8.2 Less: Assets acquired 814.0 Plus: Liabilities assumed 767.9 Less: Preliminary asset purchase price allocation - Cash $(3.2) - Trade receivables 32.8 - Receivables from affiliates (39.9) - Inventory 1.6 - Deferred tax assets 42.2 - Property, plant and equipment 46.6 - Pension asset 20.6 - Note receivable from affiliate (133.0) - Other assets (16.3) - Historical goodwill (52.5) (101.1) ------ Plus: Preliminary liability purchase price allocation - Commercial paper (223.9) - Trade accounts payable 2.5 - Accrued liabilities (3.9) - Income tax payable 1.8 - Restructuring reserves 23.2 - Note payable to affiliate (105.0) - Debt (130.4) - Deferred tax liabilities 54.7 - Postretirement/postemployment obligations (17.5) - Other 3.1 (395.4) ------ ------ Unallocated excess purchase price over net assets acquired $138.9 ------ ------ 7 3. ACQUISITION OF SUNSHINE BISCUITS, INC. On June 4, 1996 (acquisition date), the Company acquired (the "Sunshine Acquisition") Sunshine Biscuits, Inc. (Sunshine) from G.F. Industries, Inc. (GFI) for an aggregate consideration of $171.6 million (excluding related fees and expenses paid at closing of approximately $2.2 million). The Sunshine Acquisition was funded by (i) $150.2 million in cash, of which $36.2 million was provided by Keebler's existing cash sources and $114.0 million was financed by borrowings under the Amended and Restated Credit Agreement (see Note 9), and (ii) the issuance to GFI of approximately $23.6 million of INFLO common stock and warrants, which was accounted for as a capital contribution. These shares and warrants represent 13.2% of INFLO's common stock on a fully diluted basis. The following provides a preliminary allocation of the purchase price. (IN MILLIONS) Purchase Price $171.6 Less: Assets acquired 194.8 Plus: Liabilities assumed 190.1 Less: Preliminary asset purchase price allocation - Receivables from affiliates $(2.8) - Inventory 3.7 - Fixed asset writedown (42.0) - Other assets (2.8) (43.9) ----- ----- Plus: Preliminary liability purchase price allocation - Accrued liabilities 1.7 - Payable to affiliates (12.5) - Debt (77.0) - Other (0.1) (87.9) ----- ----- Unallocated excess purchase price over net assets acquired $122.9 ------ ------ Results of operations for Sunshine from the acquisition date to September 30, 1996 have been included in the consolidated statements of operations for the thirty-six weeks ended October 5, 1996, while Sunshine's results of operations from July 1, 1996 to September 30, 1996 have been included in the twelve weeks ended October 5, 1996. The following unaudited pro forma information has been prepared assuming the acquisition had taken place at January 1, 1996. This forty week period includes the four week period results of the predecessor company and the thirty-six week period results of the Company. The unaudited pro forma information includes adjustments for interest expense that would have been incurred to finance the purchase, additional depreciation based on preliminary estimates of the fair values of the property, plant, and equipment acquired, and amortization of the intangibles arising from the transaction. The unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed dates. 8 3. ACQUISITION OF SUNSHINE BISCUITS, INC. - (CONTINUED) Unaudited ---------------------------- FORTY WEEKS ENDED ---------------------------- OCTOBER 7, OCTOBER 5, 1995 1996 ---------------------------- (In Thousands) Net sales $1,677,634 $1,504,927 Loss before income taxes $ (104,332) $ (32,079) Net loss $ (78,540) $ (18,357) 4. FISCAL PERIODS PRESENTED Keebler Corporation's fiscal year consists of thirteen four-week periods. Typically, the first quarter would consist of four four-week periods. The Keebler Acquisition closed on the last day of the first four-week period. The 1996 year-to-date information can be derived by the sum of the thirty-six weeks ended October 5, 1996 of Keebler Corporation and the four weeks ended January 26, 1996 of UBIUS. The statements of operations and cash flows for the forty weeks ended October 7, 1995 have been presented for the predecessor company. 5. PREDECESSOR COMPANY FINANCIAL STATEMENTS During July, 1995, the predecessor company adopted plans to discontinue the operations of its frozen foods business. On January 9, 1996, UB Investments (Netherlands) B.V. sold the frozen foods business to Windsor Food Company Ltd. for $70 million. A gain on sale of $18.9 million was recorded in the four week period ended January 26, 1996. Income from discontinued operations relating to frozen foods business was $2.3 million and $5.2 million for the twelve and forty weeks ended October 7, 1995, respectively. Net sales from these operations were $17.2 million and $54.0 million, for the twelve and forty weeks ended October 7, 1995, respectively. Expenses charged against discontinued operations include expenses associated with the costs of production, marketing, and specific administrative expenses. Expenses do not include an allocation of shared selling, distribution, and general administrative costs. The net assets of the frozen foods business as of and for the year ended December 30, 1995 were $47.7 million. Included in the net assets were inventory, prepaids, fixed assets, and certain accrued liabilities. On May 20, 1995, the predecessor company adopted plans to sell the salty snacks business. The decision to sell the salty snacks business was based on the overcapacity in a highly competitive industry. Late in 1995, it was determined that the predecessor company would not be able to sell the three operating salty snacks plants as a single unit. A buyer was found for selected assets which included the production plant in Bluffton, Indiana. The remaining production plants were closed down. The aggregate value of the net assets held for sale was $116.5 million. The predecessor company recorded an $86.5 million charge for the expected costs associated with exiting the salty snacks business. The charge was comprised of $77.6 9 5. PREDECESSOR COMPANY FINANCIAL STATEMENTS - (CONTINUED) million related to the write-down of the net assets to their net realizable value. In addition, $8.9 million was recorded for estimated severance and other costs associated with the liquidation of the salty snacks business. Net sales of the salty snacks business for the twelve and forty weeks ended October 7, 1995 were $29.6 million and $115.0 million, respectively. During these periods, the salty snacks operating results before allocations of fixed selling, distribution, and general administrative expenses were losses of $4.1 million and $15.2 million, respectively. 6. TRADE ACCOUNTS AND NOTES RECEIVABLE Trade accounts and notes receivable were net of allowances of $3.6 million at December 30, 1995 and $5.2 million at October 5, 1996. 7. PROPERTY, PLANT & EQUIPMENT A summary of property, plant and equipment, including related accumulated depreciation follows:
(IN THOUSANDS) DECEMBER 30, | OCTOBER 5, 1995 | 1996 ------------ | ---------- | Land $ 12,899 | $ 23,417 Buildings 156,200 | 118,295 Machinery and equipment 531,007 | 252,227 Office furniture and fixtures 49,589 | 32,409 Delivery equipment 6,150 | 3,989 Construction in progress 37,264 | 48,925 ------------ | ---------- 793,109 | 479,262 Accumulated depreciation (400,382) | (28,082) ------------ | ---------- $ 392,727 | $ 451,180 ------------ | ---------- ------------ | ----------
Property, plant and equipment is depreciated on a straight line basis over the estimated useful lives of the depreciable assets. Buildings are depreciated over a useful life of ten to forty years. Machinery and equipment is depreciated over a useful life of eight to twenty-five years. Office furniture and fixtures are depreciated over useful lives of five to fifteen years. Delivery equipment is depreciated over a twelve year life. 10 8. SUPPLEMENTAL CASH FLOW DISCLOSURES
FOR THE FORTY FOR THE FORTY | FOR THE THIRTY-SIX WEEKS ENDED WEEKS ENDED | WEEKS ENDED OCTOBER 7, 1995 JANUARY 26, 1996 | OCTOBER 5, 1996 --------------- ---------------- | ------------------ | (In Thousands) | Interest paid $13,106 $3,032 | $19,659 Income taxes paid $ 1,266 $ - | $ 1,217
9. DEBT COMMITMENTS Long-term debt consisted of the following as of October 5, 1996:
INTEREST FINAL OCTOBER 5, RATE MATURITY 1996 - ------------------------------------------------------------------------- (In Thousands) Revolving Loans 8.7592% January 31, 2002 $ 23,600 Term-A Loans 7.7685-8.4400% January 31, 2002 135,500 Term-B Loans 8.2685-8.9400% July 31, 2003 89,625 Term-C Loans 8.5185-9.1900% July 31, 2004 64,738 Senior Subordinated Notes 10.750% July 1, 2006 125,000 Other Senior Debt various 2001-2005 19,425 ------- 457,888 Less: Current maturities 48,426 -------- $ 409,462 -------- --------
The Company's primary credit financing as of October 5, 1996 was provided by a $447.9 million Amended and Restated Credit Agreement consisting of a $155.0 million Revolving Loan facility and three Term Loans (Term Loans A, B and C) of which the current outstanding balance aggregates to $289.9 million. Interest on the Revolving Loans and Term Loans is calculated based upon a Base Rate plus applicable margin. The Base Rate can, at the Company's option, be 1) the higher of the base domestic lending rate as established by the Administrative Agent for the Lenders under the Credit Agreement, or the Federal Funds Rate plus one-half of one-percent, or 2) a reserve percentage adjusted LIBO Rate as offered by the Administrative Agent's office in London. Base Rate loan interest rates fluctuate immediately based upon a change in the established Base Rate by the Administrative Agent. Any unused borrowings under the Revolving Loan facility are subject to a commitment fee, which will vary from 0.25% - 0.5% based upon the relationship of debt to adjusted earnings. 11 9. DEBT COMMITMENTS - (CONTINUED) As of October 5, 1996, the Company had a Revolving Loan facility with a nominal available balance of $155.0 million. Actual available borrowings under the Revolving Loan facility can be reduced by the level of qualifying working capital as defined in the Company's Credit Agreement. This gross available balance is further reduced by certain letters of credit totaling $10.9 million and outstanding borrowings. As of October 5, 1996, borrowings under the Revolving Loan facility were $23.6 million. On January 30, 1996, the Company entered into a swap transaction with the Bank of Nova Scotia, who also serves as the Administrative Agent for the Lenders under the Credit Agreement. The swap transaction had the effect of converting the base rate on $170.0 million of the Term Loans to a fixed rate obligation of 5.0185% plus applicable margin through February 1, 1999. The maturity date on the swap transaction can be extended to February 1, 2001 at the option of the Bank of Nova Scotia on January 28, 1999. The Increasing Rate Notes issued to finance the acquisition of the Company were exchanged in June 1996 through a private placement offering for new 10.75% Senior Subordinated Notes due 2006 (the Private Notes). The Company recorded a before-tax extraordinary loss of $3.2 million on the early extinguishment of the Increasing Rate Notes. The loss consists primarily of bank fees incurred at the time the Increasing Rate Notes were issued. The after-tax loss was $1.9 million. Pursuant to an exchange and registration rights agreement, the Company has registered its 10.75% Senior Subordinated Notes due 2006 (the Exchange Notes together with the Private Notes, the Notes) under the Securities Act of 1933, which the Company intends to offer in exchange for the Private Notes. Private Notes were issued and the Exchange Notes will be issued under an indenture dated June 15, 1996 between the Company, the Company's Restricted Subsidiaries (as defined in the indenture), and the U.S. Trust Company of New York, as trustee. The Notes are unsecured senior subordinated obligations of the Company guaranteed by the Restricted Subsidiaries. Interest on the Notes will be paid semi-annually on January 1 and July 1 of each year, commencing January 1, 1997. At the Company's option, the Notes can be redeemed on or prior to July 1, 1999 up to 35.0% of the aggregate original principal following a public equity offering at a redemption price of 110.0%. Other senior debt of $8.9 million has been classified as a current maturity of long-term debt pending any required amendments or modifications to the obligations as a result of the sale of UBIUS and its subsidiaries. 12 10. STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY FOR THE PERIOD FROM DECEMBER 30, 1995 THROUGH OCTOBER 5, 1996
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL ------ ---------- --------- ------- (IN THOUSANDS) Balance, December 30, 1995 (Predecessor Company) $1,000 $745,000 $(694,243) $51,757 Net loss for the four weeks (Predecessor Company) (6,472) (6,472) Purchase of Keebler by INFLO Holdings Corporation effective January 26, 1996 (596,582) 700,715 104,133 Issuance of INFLO common stock and warrants to GFI 23,600 23,600 Net income for the thirty-six weeks 1,661 1,661 ------- -------- ---------- ------- Balance, October 5, 1996 $1,000 $172,018 $1,661 $174,679 ------- -------- ---------- ------- ------- -------- ---------- -------
11. GUARANTEES OF NOTES The subsidiaries of the Company that are not Guarantors of the Company's Notes are inconsequential (which means that the total assets, revenues, income or equity of such non-guarantors, both individually and on a combined basis, is less than 3% of the Company's consolidated assets, revenues, income or equity), individually and in the aggregate, to the consolidated financial statements of the Company. The Guarantees are full, unconditional, and joint and several. Separate financial statements of the Guarantors are not presented because management has determined that they would not be material to investors in the Notes. 13 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SET FORTH BELOW IS A DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE TWELVE AND FORTY WEEKS ENDED OCTOBER 5, 1996 AND OCTOBER 7, 1995. THE FORTY WEEKS ENDED OCTOBER 5, 1996 INCLUDE FOUR WEEKS OF UBIUS UNDER FORMER MANAGEMENT AND THIRTY-SIX WEEKS OF KEEBLER CORPORATION UNDER CURRENT MANAGEMENT. THE 1995 FINANCIAL RESULTS AND THE FIRST FOUR WEEKS OF 1996 INCLUDE THE FINANCIAL INFORMATION RELATING TO THE SALTY SNACKS BUSINESS AND PRESENT THE FROZEN FOOD BUSINESS AS A DISCONTINUED OPERATION, BOTH OF WHICH WERE SOLD OR LIQUIDATED BY UBIUS PRIOR TO THE CONSUMMATION OF THE KEEBLER ACQUISITION. THE FOLLOWING DISCUSSION OF RESULTS OF OPERATIONS AND OF LIQUIDITY AND CAPITAL RESOURCES SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS OF KEEBLER CORPORATION AND RELATED NOTES THERETO APPEARING ELSEWHERE. RESULTS OF OPERATIONS Operating results in 1996 reflect the impact of additional expense associated with the acquisition of Keebler by INFLO Holdings Corporation. As a result of the acquisition, $2.8 million of additional depreciation expense was recognized in the thirty-six week period ended October 5, 1996. In addition, the Company's debt structure carries higher interest rates than that of the predecessor company. The higher cost of debt and the amortization of debt issuance costs resulted in interest charges for the forty weeks ended October 5, 1996 being $4.8 million higher as compared to the prior year. Under a preliminary allocation of the purchase price, $138.9 million of intangibles, including goodwill, was recorded which accounts for $2.4 million of amortization expense for the thirty-six week period ended October 5, 1996 as compared to $1.5 million in the comparable prior year period. The financial results of UBIUS for the forty weeks ended October 7, 1995 included the results of operations of the salty snacks business. The salty snacks business, prior to the Keebler Acquisition, was divested or liquidated by prior management as a contractual condition of the Keebler Acquisition. The condensed results of operations of this business, excluding allocations of fixed selling, distribution, and general administrative expenses, for the twelve weeks and forty weeks ended October 7, 1995 were as follows:
FOR THE PERIODS ENDED OCTOBER 7, 1995 ----------------------------- TWELVE WEEKS FORTY WEEKS ----------------------------- (In Millions) Net sales $29.6 $115.0 Loss from operations (4.1) (15.2)
The financial results of UBIUS included the results of operations of the frozen foods business for the forty weeks ended October 7, 1995 as a discontinued operation. 14 The Company's results of operations for the forty weeks ended October 5, 1996 include the results of operations of Sunshine from the acquisition date of June 4, 1996 to September 30, 1996; while the Company's results of operations for the twelve weeks then ended include Sunshine's operating results from July 1, 1996 to September 30, 1996. The Company's results for the thirty-six weeks have been combined with the operating results of the predecessor company for the four weeks ended January 26, 1996 to compare the first forty week periods of 1995 and 1996. Results of operations expressed as a percentage of net sales for the twelve weeks (third quarter) and forty weeks ended October 5, 1996 and October 7, 1995 are set forth below:
TWELVE WEEKS ENDED FORTY WEEKS ENDED --------------------- ---------------------- OCTOBER 7, OCTOBER 5, OCTOBER 7, OCTOBER 5, 1995 1996 1995 1996 --------- --------- --------- ---------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 46.4 48.0 47.2 48.3 ------ ------ ------ ----- Gross profit 53.6 52.0 52.8 51.7 Selling, marketing and admin. expenses 56.0 48.9 55.7 50.7 Other (0.3) 0.2 - 0.2 ------ ------ ------ ----- Income from operations (2.1) 2.9 (2.9) 0.8 Interest, net 1.6 2.3 1.8 2.1 ------ ------ ------ ----- Income (loss) before income taxes (3.7) 0.6 (4.7) (1.3) Income tax expense - 0.3 - 0.3 ------ ------ ------ ----- Income (loss) before extraordinary item (3.7) 0.3 (4.7) (1.6) Income from operations of discontinued frozen foods, net of income taxes 0.6 - 0.4 - Gain on disposal of frozen foods business, net of income taxes - - - 1.5 ------ ------ ------ ----- Income (loss) before extraordinary item (3.1) 0.3 (4.3) (0.1) Extraordinary item-loss on early extinguishment of debt (net of income taxes of $1,259) - - - 0.2 ------ ------ ------ ----- Net income (loss) (3.1)% 0.3% (4.3)% (0.3)% ------ ------ ------ ----- ------ ------ ------ ----- EBITDA 0.8% 5.5% 0.1% 3.5% ------ ------ ------ ----- ------ ------ ------ -----
NET SALES. Net sales increased $76.9 million or 20.5% over net sales in third quarter 1995. For the forty weeks, net sales of $1,273.0 million were $71.1 million, or 5.9% higher than the same period in 1995. Net sales in 1996 include Sunshine revenues of $162.1 million ($110.7 million in the third quarter), while net sales in 1995 included sales of the salty snacks business of $115.0 million ($29.6 million in the third quarter). After adjusting for these changes in the Company's business, the year-on-year sales increase was $24.0 million or up 2.2%. The increase was principally due to selected price increases in Keebler branded cookies and crackers, and sales volume increases in both Keebler's private label products and baked products custom manufactured ("custom products") for other marketers of branded foods. Sales of Keebler private label products increased significantly as a result of new products and the broadened distribution of the private label cracker program begun in late 1995. Increased sales of custom products benefited from the increased demand of a major customer. 15 GROSS PROFIT. Gross profit as a percentage of net sales for the twelve weeks ended October 5, 1996 decreased 1.6 percentage points to 52.0% versus 53.6% for the comparable period of 1995. For the first forty weeks, gross profit margins of 51.7% were 1.1 percentage points below those of the same period for the prior year. The decrease was principally attributable to higher flour and sugar prices and the inclusion of sales of Sunshine products, which generally carry a lower gross margin than Keebler products. Sunshine's gross profit for the third quarter of 1996 was $52.3 million or 47.3% of Sunshine net sales. These factors more than offset significant gross profit margin improvements achieved through more balanced production, reductions in fixed overhead costs, and selected price increases on certain Keebler products. SELLING, MARKETING, AND ADMINISTRATIVE EXPENSES. Selling, marketing, and administrative costs, increased $11.2 million but decreased 7.1 percentage points as a percent of net sales in the third quarter 1996 compared to the third quarter 1995. Selling, marketing and administrative expenses as a percentage of net sales were approximately 48.9% for the third quarter and 50.7% of the first forty weeks of 1996 as compared to 56.0% and 55.7%, respectively, for the comparable periods of 1995. The dollar increase was primarily due to the inclusion of Sunshine, which contributed $58.2 million to selling, marketing and administrative costs of the Company in the third quarter 1996. The improvement as a percent of net sales was principally accomplished through a targeted marketing strategy behind Keebler products and the Company's cost reduction program to rationalize the selling and administrative cost structure. OTHER. Other income and expense for the twelve weeks ended October 5, 1996 was $0.8 million of expense compared to $1.0 million of income for 1995. For the first forty weeks, other expense was $1.8 million higher in 1996 compared to the prior year principally reflecting higher amortization resulting from both the Keebler and Sunshine acquisitions. INCOME FROM OPERATIONS. Income from operations was $12.9 million for the twelve weeks ended October 5, 1996, an improvement of $21.0 million over income from operations for the comparable period of 1995. Year-to-date, income from operations of $9.5 million was $44.2 million higher than the comparable period in 1995. The increase resulted mainly from the divestiture of the salty snacks business by the predecessor company prior to the Keebler Acquisition, gross margin improvements on Keebler branded products, more efficient marketing expenditures, and reduced selling and corporate overhead costs. Year-to-date, income from operations as a percentage of net sales increased from (2.9)% to 0.8%. INTEREST EXPENSE. For the twelve weeks ended October 5, 1996, net interest expense was $10.4 million and $26.9 million for the first forty weeks in 1996 compared to $6.1 million and $22.1 million, respectively, for the comparable periods of 1995. The increase was due to the overall borrowings carrying a higher average interest rate as compared to the prior year and higher overall borrowings for the twelve week period ended October 5, 1996. 16 INCOME TAXES. The Company provided for income taxes at an effective tax rate of 55.0% for the thirty-six weeks ended October 5, 1996. The predecessor company did not provide for any income tax expense for the four week period ended January 26, 1996. The effective tax rate was higher than the statutory rate because of nondeductible expenses (principally, amortization of intangibles including goodwill). In 1995, there was no provision for income taxes due to operating losses and no ability to carryback the losses to recover taxes paid in prior years. DISCONTINUED OPERATIONS. During 1995, the predecessor company decided to dispose of the frozen food business, and therefore, presented the operations of that business as discontinued in the statement of operations. In the first four weeks of 1996, a gain of $18.9 million on the disposal of the frozen food business was recognized. EXTRAORDINARY ITEM NET OF INCOME TAXES. A before-tax extraordinary loss of $3.2 million on the early extinguishment of debt was recognized in the second quarter 1996. The loss consisted primarily of bank fees incurred when the Company refinanced the Increasing Rate Notes with Senior Subordinated Notes. The tax benefit on the extraordinary loss was $1.3 million resulting in an after-tax loss of $1.9 million. NET INCOME (LOSS). Net income of $1.1 million for the twelve week period ended October 5, 1996 was up $13.0 million from the net loss of $11.9 million in the comparable period a year ago. For the first forty weeks of 1996, the net loss of $4.8 million represented a substantial improvement over the $51.6 million net loss for the prior year. The improvement over the prior year was attributable to operating improvements, the divestiture of the unprofitable salty snacks business, and the inclusion of a $18.9 million gain on the disposition of the frozen food business. EBITDA. EBITDA is defined as earnings before interest, taxes, depreciation, amortization, extraordinary items, gains on disposal of businesses, and results of discontinued operations. EBITDA for the twelve and forty weeks ended October 5, 1996 were $24.7 million and $44.6 million, respectively, versus EBITDA of $2.8 million and $1.4 million for the comparable periods in 1995. The significant improvement resulted from operational improvements that positively benefited earnings and the divestiture of the unprofitable salty snacks business. LIQUIDITY AND SOURCES OF CAPITAL A condensed cash flow statement follows:
FORTY WEEKS ENDED ---------------------------------- OCTOBER 7, 1995 OCTOBER 5, 1996 ---------------------------------- (IN THOUSANDS) Cash (used by) provided from operating activities $ (78,601) $ 11,933 Cash (used by) provided from investing activities (32,732) (59,490) Cash (used by) provided from financing activities 100,051 52,061 -------------------------------- Increase (decrease) in cash and cash equivalents $ (11,282) $ 4,504 --------------------------------- ---------------------------------
17 Cash provided from operating activities increased $90.5 million for the forty weeks ended October 5, 1996 over the cash used in operations in the comparable period of 1995. The significant increase reflects the $27.8 million net earnings improvement along with a lower investment in accounts receivable and higher accounts payable and other current liabilities. Offsetting the increase in cash provided from operations was an increase in inventories in anticipation of higher sales. Sunshine's working capital requirements decreased $6.3 million since the date of acquisition principally due to lower trade accounts receivable. Cash used by investing activities increased by $50.4 million. The increase was directly attributed to an investment of $142.7 million made for the acquisition of Sunshine. Offsetting cash used in acquiring Sunshine was the receipt of a $32.6 million working capital adjustment paid by United Biscuits in connection with INFLO's acquisition of Keebler and a $67.7 million source of cash resulting from the disposition of the frozen food business. In addition, capital expenditures were down $12.9 million from the prior year reflecting the near completion of reinvestment into a more contemporary information technology platform and tighter restrictions on additional capital spending by new management. Cash flow provided from financing activities in 1996 reflects borrowings associated with the acquisition of Sunshine and loss on the early extinguishment of debt used to finance the Keebler Acquisition. The cash provided from financing activities of $100.1 million in 1995 was through commercial paper borrowings used to finance operating losses, capital expenditures and cash paid against restructuring reserves. As of October 5, 1996, the Company's long-term debt was $457.9 million of which current maturities were $48.4 million. As of October 5, 1996, available borrowings under the Company's Revolving Loan facility were $120.5 million. The Company has spent approximately $17.9 million on capital expenditures in fiscal 1996, excluding expenditures in the first four weeks of 1996 in which the predecessor company spent $3.2 million. As of October 5, 1996, the Company had approximately $4.3 million in cash and cash equivalents. The Company expects that available cash and existing short-term credit facilities will be sufficient to meet its normal operating requirements for the foreseeable future. 18 PART II: OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibit 27 - Financial Data Schedule. b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the twelve weeks ended October 5, 1996. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KEEBLER CORPORATION November 19, 1996 /s/ Sam K. Reed - ------------------------ ------------------------------------------ Date By: Sam K. Reed President and Chief Executive Officer November 19, 1996 /s/ E. Nichol McCully - ------------------------ ------------------------------------------ Date By: E. Nichol McCully Sr. Vice President and Chief Financial Officer November 19, 1996 /s/ James T. Spear - ------------------------ ------------------------------------------ Date By: James T. Spear Vice President Finance and Corporate Controller Chief Accounting Officer 20 EX-27 2 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Keebler Corporation Consolidated Balance Sheet at October 5, 1996 and Consolidated Statement of Operations for the thirty-six weeks ended October 5, 1996 found on pages 2 through 4 of the Company's Form 10-Q, and is qualified in its entirety by reference to such financial statements. 1,000 8-MOS DEC-28-1996 JAN-27-1996 OCT-05-1996 4,282 0 124,957 5,221 134,597 327,500 479,262 28,082 1,097,096 330,602 0 0 0 1,000 173,679 1,097,096 1,171,354 1,171,354 560,719 1,135,214 1,181 3,918 26,991 7,968 4,382 3,586 0 (1,925) 0 1,661 0 0
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