-----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, SiI8jHC0tHnI6DuyKrrxkD1jblI3/j2vsgz2BEeP2XkHJujkL9PUdT5dUWsu54Go YJIeADmu+KgNGbx9qbzp1Q== 0000950124-98-007274.txt : 19981211 0000950124-98-007274.hdr.sgml : 19981211 ACCESSION NUMBER: 0000950124-98-007274 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980928 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEEBLER FOODS CO CENTRAL INDEX KEY: 0001018848 STANDARD INDUSTRIAL CLASSIFICATION: COOKIES & CRACKERS [2052] IRS NUMBER: 363839556 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-13705 FILM NUMBER: 98766713 BUSINESS ADDRESS: STREET 1: 677 LARCH AVE CITY: ELMHURST STATE: IL ZIP: 60126 BUSINESS PHONE: 6308332900 FORMER COMPANY: FORMER CONFORMED NAME: KEEBLER CORP DATE OF NAME CHANGE: 19960715 8-K/A 1 AMENDMENT TO FORM 8-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: DECEMBER 10, 1998 (DATE OF EARLIEST EVENT REPORTED: SEPTEMBER 28, 1998) -------------------- KEEBLER FOODS COMPANY (Exact name of Registrant as specified in its charter) DELAWARE NO. 001-13705 36-3839556 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) 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 or former address, if changed since last report) -------------------- ================================================================================ 2 Keebler Foods Company, a Delaware corporation ("Keebler"), hereby amends Item 2. "Acquisition or Disposition of Assets" and Item 7. "Financial Statements, Pro Forma Financial Information and Exhibits" of Keebler's Current Report on Form 8-K dated October 9, 1998, in full to read as follows: ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On September 28, 1998, Keebler Foods Company, a Delaware corporation ("Keebler"), purchased all of the issued and outstanding shares of common stock of President International, Inc., a Delaware corporation ("PII"), the parent and sole owner of President Baking Company, Inc. ("President") from President International Trade and Investment Corporation, a company limited by shares under the International Business Companies Ordinance of the British Virgin Islands for an aggregate purchase price of $446.1 million, excluding related fees and expenses paid at closing of approximately $4.0 million. In conjunction with this acquisition, Keebler extinguished its outstanding Term Note A plus accrued interest and bank fees in the amount of $146.1 million. The funds used to consummate the acquisition came from both existing cash resources and from borrowings under the $700.0 million Senior Credit Facility Agreement dated as of September 28, 1998 among Keebler, various financial institutions and the Bank of Nova Scotia ("BNS"), as the Lead Arranger and Administrative Agent, The First National Bank of Chicago, as the Syndication Agent, and the Bank of Montreal, as the Managing Agent, as well as the $125.0 million Bridge Facility also dated as of September 28, 1998 among Keebler, various financial institutions and the Bank of Nova Scotia as the Arranger and the Administrative Agent. Keebler financed the transaction using existing cash resources of approximately $75.0 million, and borrowings of $350.0 million under a BNS Term Facility, $105.0 million under a BNS Revolver, and $75.0 million under a BNS Bridge Facility. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired: 1. The financial statements listed in the accompanying Index to the Financial Statements on page F-1 are filed on pages F-2 to F-20 as part of this current report. (b) Pro Forma Financial Information: UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated statements of operations are based on the historical financial statements of Keebler and PII during the periods presented, adjusted to give effect to the acquisition of PII. The unaudited consolidated balance sheet of PII as of September 26, 1998 was consolidated with the Keebler unaudited consolidated balance sheet at October 10, 1998 and included in the Keebler Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 16, 1998. The unaudited pro forma consolidated statements of operations for the forty weeks ended October 10, 1998, the fiscal year ended January 3, 1998 and the forty weeks ended October 4, 1997 give effect to the acquisition of PII as if it had occurred at the beginning of the period presented. The adjustments are described in the accompanying notes and are based upon available information and certain assumptions that management believes are reasonable. 2 3 The unaudited pro forma consolidated statements of operations do not purport to represent what Keebler's results of operations would actually have been had the acquisition of PII in fact occurred on such date or to project Keebler's results of operations for any future period. KEEBLER FOODS COMPANY UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FORTY WEEKS ENDED OCTOBER 10, 1998 (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
HISTORICAL -------------------------------------- KEEBLER PII FORTY WEEKS THIRTY-NINE ENDED WEEKS ENDED PRO FORMA PRO FORMA OCTOBER 10, 1998 SEPTEMBER 26, 1998 RECLASSES (A) ADJUSTMENTS ---------------- ------------------ ------------- ------------ OPERATING DATA: NET SALES $ 1,626.7 $ 360.8 $ (3.8) COSTS AND EXPENSES: Cost of sales 678.3 218.8 (5.2) Selling, marketing and administrative expenses 816.7 102.2 1.8 $ 3.9 (b) Other 7.1 6.4 (0.1) 1.7 (c) ------------- -------------- ------------- ----------- INCOME FROM OPERATIONS 124.6 33.4 (0.3) (5.6) GAIN ON THE SALE OF THE JOINT VENTURES - 7.7 - - INTEREST EXPENSE, NET 17.0 9.2 (0.3) 8.5 (d) ------------- -------------- ------------- ----------- INCOME BEFORE INCOME TAX EXPENSE 107.6 31.9 - (14.1) Income tax expense 45.2 10.2 - (0.6)(e) ------------- -------------- ------------- ----------- INCOME BEFORE EQUITY IN NET LOSS OF JOINT VENTURES 62.4 21.7 - (13.5) Equity in net loss of joint ventures - 2.2 - (2.2)(f) ------------- -------------- ------------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 62.4 19.5 - (11.3) EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax 1.7 0.7 - (0.4)(g) ------------- -------------- ------------- ----------- NET INCOME $ 60.7 $ 18.8 $ - $ (10.9) ============= ============== ============= =========== BASIC NET INCOME PER SHARE: Income before extraordinary item $ 0.75 Extraordinary item 0.02 ------------- Net income $ 0.73 ============= WEIGHTED AVERAGE SHARES OUTSTANDING 83.1 ============= DILUTED NET INCOME PER SHARE: Income before extraordinary item $ 0.71 Extraordinary item 0.02 ------------- Net income $ 0.69 ============= WEIGHTED AVERAGE SHARES OUTSTANDING 87.4 ============= OTHER DATA: EBITDA, as adjusted (h) $ 171.1 $ 44.4 $ (0.3) $ (1.7) Depreciation and amortization 46.5 11.0 - 3.9 Capital expenditures 36.0 6.2 - - PRO FORMA ------------- OPERATING DATA: NET SALES $ 1,983.7 COSTS AND EXPENSES: Cost of sales 891.9 Selling, marketing and administrative expenses 924.6 Other 15.1 ------------- INCOME FROM OPERATIONS 152.1 GAIN ON THE SALE OF THE JOINT VENTURES 7.7 INTEREST EXPENSE, NET 34.4 ------------- INCOME BEFORE INCOME TAX EXPENSE 125.4 Income tax expense 54.8 ------------- INCOME BEFORE EQUITY IN NET LOSS OF JOINT VENTURES 70.6 Equity in net loss of joint ventures - ------------- INCOME BEFORE EXTRAORDINARY ITEM 70.6 EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax 2.0 ------------- NET INCOME $ 68.6 ============= BASIC NET INCOME PER SHARE: Income before extraordinary item $ 0.85 Extraordinary item 0.02 ------------- Net income $ 0.83 ============= WEIGHTED AVERAGE SHARES OUTSTANDING 83.1 ============= DILUTED NET INCOME PER SHARE: Income before extraordinary item $ 0.81 Extraordinary item 0.02 ------------- Net income $ 0.79 ============= WEIGHTED AVERAGE SHARES OUTSTANDING 87.4 ============= OTHER DATA: EBITDA, as adjusted (h) $ 213.5 Depreciation and amortization 61.4 Capital expenditures 42.2
3 4 KEEBLER FOODS COMPANY UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 3, 1998 (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
HISTORICAL -------------------------------------- KEEBLER PII FISCAL YEAR ENDED FISCAL YEAR ENDED PRO FORMA PRO FORMA JANUARY 3, 1998 DECEMBER 27, 1997 RECLASSES (A) ADJUSTMENTS ----------------- ----------------- --------------- ------------ OPERATING DATA: NET SALES $ 2,065.2 $ 441.1 $ (4.8) COSTS AND EXPENSES: Cost of sales 888.0 276.3 (8.8) Selling, marketing and administrative expenses 1,026.3 123.9 5.0 $ 5.1 (b) Other 9.5 11.9 (0.8) 2.1 (c) ------------ ------------- ------------- ----------- INCOME FROM OPERATIONS 141.4 29.0 (0.2) (7.2) INTEREST EXPENSE, NET 33.8 13.9 (0.2) 9.1 (d) ------------ ------------- ------------- ----------- INCOME BEFORE INCOME TAX EXPENSE 107.6 15.1 - (16.3) Income tax expense 45.2 8.1 - (3.6)(e) ------------ ------------- ------------- ----------- INCOME BEFORE EQUITY IN NET LOSS OF JOINT VENTURES 62.4 7.0 - (12.7) Equity in net loss of joint ventures - 3.1 - (3.1)(f) ------------ ------------- ------------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 62.4 3.9 - (9.6) EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax 5.4 - - 2.0 (g) ------------ ------------- ------------- ----------- NET INCOME $ 57.0 $ 3.9 $ - $ (11.6) ============ ============= ============= =========== BASIC NET INCOME PER SHARE: Income before extraordinary item $ 0.80 Extraordinary item 0.07 ------------ Net income $ 0.73 ============ WEIGHTED AVERAGE SHARES OUTSTANDING 77.6 ============ DILUTED NET INCOME PER SHARE: Income before extraordinary item $ 0.77 Extraordinary item 0.07 ------------ Net income $ 0.70 ============ WEIGHTED AVERAGE SHARES OUTSTANDING 80.6 ============ OTHER DATA: EBITDA, as adjusted (h) $ 202.1 $ 46.5 $ (0.2) $ (2.1) Depreciation and amortization 60.7 17.5 - 5.1 Capital expenditures 48.4 4.9 - - PRO FORMA ------------ OPERATING DATA: NET SALES $ 2,501.5 COSTS AND EXPENSES: Cost of sales 1,155.5 Selling, marketing and administrative expenses 1,160.3 Other 22.7 ------------ INCOME FROM OPERATIONS 163.0 INTEREST EXPENSE, NET 56.6 ------------ INCOME BEFORE INCOME TAX EXPENSE 106.4 Income tax expense 49.7 ------------ INCOME BEFORE EQUITY IN NET LOSS OF JOINT VENTURES 56.7 Equity in net loss of joint ventures - ------------ INCOME BEFORE EXTRAORDINARY ITEM 56.7 EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax 7.4 ------------ NET INCOME $ 49.3 ============ BASIC NET INCOME PER SHARE: Income before extraordinary item $ 0.73 Extraordinary item 0.10 ------------ Net income $ 0.63 ============ WEIGHTED AVERAGE SHARES OUTSTANDING 77.6 ============ DILUTED NET INCOME PER SHARE: Income before extraordinary item $ 0.70 Extraordinary item 0.09 ------------ Net income $ 0.61 ============ WEIGHTED AVERAGE SHARES OUTSTANDING 80.6 ============ OTHER DATA: EBITDA, as adjusted (h) $ 246.3 Depreciation and amortization 83.3 Capital expenditures 53.3
4 5 KEEBLER FOODS COMPANY UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FORTY WEEKS ENDED OCTOBER 4, 1997 (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
HISTORICAL ------------------------------------------ KEEBLER PII FORTY WEEKS ENDED THIRTY-NINE WEEKS ENDED PRO FORMA PRO FORMA OCTOBER 4, 1997 SEPTEMBER 27, 1997 RECLASSES (A) ADJUSTMENTS ----------------- ----------------------- --------------- ------------ OPERATING DATA: NET SALES $ 1,542.2 $ 350.8 $ (3.7) COSTS AND EXPENSES: Cost of sales 668.5 217.8 (6.4) Selling, marketing and administrative expenses 770.5 96.0 2.8 $ 3.9 (b) Other 7.1 9.8 0.2 1.7 (c) ------------ ------------- ------------- ----------- INCOME FROM OPERATIONS 96.1 27.2 (0.3) (5.6) INTEREST EXPENSE, NET 28.6 10.8 (0.3) 8.2 (d) ------------ ------------- ------------- ----------- INCOME BEFORE INCOME TAX EXPENSE 67.5 16.4 - (13.8) Income tax expense 28.4 8.1 - (3.5)(e) ------------ ------------- ------------- ----------- INCOME BEFORE EQUITY IN NET LOSS OF JOINT VENTURES 39.1 8.3 - (10.3) Equity in net loss of joint ventures - 1.9 - (1.9)(f) ------------ ------------- ------------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 39.1 6.4 - (8.4) EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax 2.7 - - 2.0 (g) ------------ ------------- ------------- ----------- NET INCOME $ 36.4 $ 6.4 $ - $ (10.4) ============ ============= ============= =========== BASIC NET INCOME PER SHARE: Income before extraordinary item $ 0.50 Extraordinary item 0.04 ------------ Net income $ 0.46 ============ WEIGHTED AVERAGE SHARES OUTSTANDING 77.6 ============ DILUTED NET INCOME PER SHARE: Income before extraordinary item $ 0.49 Extraordinary item 0.04 ------------ Net income $ 0.45 ============ WEIGHTED AVERAGE SHARES OUTSTANDING 80.1 ============ OTHER DATA: EBITDA, as adjusted (h) $ 141.6 $ 41.3 $ (0.3) $ (1.7) Depreciation and amortization 45.5 14.1 - 3.9 Capital expenditures 26.1 3.1 - - PRO FORMA ------------ OPERATING DATA: NET SALES $ 1,889.3 COSTS AND EXPENSES: Cost of sales 879.9 Selling, marketing and administrative expenses 873.2 Other 18.8 ------------ INCOME FROM OPERATIONS 117.4 INTEREST EXPENSE, NET 47.3 ------------ INCOME BEFORE INCOME TAX EXPENSE 70.1 Income tax expense 33.0 ------------ INCOME BEFORE EQUITY IN NET LOSS OF JOINT VENTURES 37.1 Equity in net loss of joint ventures - ------------ INCOME BEFORE EXTRAORDINARY ITEM 37.1 EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax 4.7 ------------ NET INCOME $ 32.4 ============ BASIC NET INCOME PER SHARE: Income before extraordinary item $ 0.48 Extraordinary item 0.06 ------------ Net income $ 0.42 ============ WEIGHTED AVERAGE SHARES OUTSTANDING 77.6 ============ DILUTED NET INCOME PER SHARE: Income before extraordinary item $ 0.46 Extraordinary item 0.06 ------------ Net income $ 0.40 ============ WEIGHTED AVERAGE SHARES OUTSTANDING 80.1 ============ OTHER DATA: EBITDA, as adjusted (h) $ 180.9 Depreciation and amortization 63.5 Capital expenditures 29.2
5 6 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (a) Pro forma reclassifications to conform PII's consolidated results of operations with the Keebler basis of presentation. The more significant adjustments include the reclassification of warehousing and shipping expenses from cost of sales to selling, marketing and administrative expenses and the reclassification of cash discounts and sales returns from selling, marketing and administrative expenses to net sales. (b) Additional depreciation resulting from the preliminary valuation of PII property, plant and equipment. (c) Reflects a net increase in other expenses due to:
FORTY FISCAL FORTY WEEKS ENDED YEAR ENDED WEEKS ENDED OCTOBER 10, 1998 JANUARY 3, 1998 OCTOBER 4, 1997 ---------------- --------------- --------------- (IN MILLIONS) Additional goodwill amortization expense associated with the PII acquisition over a forty year life $ 1.1 $ 1.3 $ 1.1 Amortization of costs associated with the PII acquisition over a five year life 0.6 0.8 0.6 -------- -------- -------- $ 1.7 $ 2.1 $ 1.7 ======== ======== ========
(d) The following adjustments to net interest expense reflect the additional borrowings associated with the PII acquisition:
FORTY FISCAL FORTY WEEKS ENDED YEAR ENDED WEEKS ENDED OCTOBER 10, 1998 JANUARY 3, 1998 OCTOBER 4, 1997 ---------------- --------------- --------------- (IN MILLIONS) Elimination of PII's historical interest expense $ (8.3) $ (12.9) $ (9.7) Additional interest expense related to the New Credit Facilities 17.1 22.3 18.2 Eliminate Keebler's amortization of debt issuance costs related to debt extinguished as part of the acquisition (0.5) (0.6) (0.5) Amortization of new debt issuance costs 0.2 0.3 0.2 -------- -------- --------- $ 8.5 $ 9.1 $ 8.2 ======== ======== =========
(e) The pro forma adjustment to income tax expense assumes a combined effective tax rate of 43.7% for the forty weeks ended October 10, 1998, 46.7% for the year ended January 3, 1998 and 47.1% for the forty weeks ended October 4, 1997. (f) Elimination of the equity in net loss of joint ventures, which were sold by PII prior to the acquisition of PII by Keebler. 6 7 (g) Reflects a net (decrease) increase in the extraordinary item due to:
FORTY FISCAL FORTY WEEKS ENDED YEAR ENDED WEEKS ENDED OCTOBER 10, 1998 JANUARY 3, 1998 OCTOBER 4, 1997 ---------------- --------------- --------------- (IN MILLIONS) Elimination of the PII extraordinary item associated with writing off unamortizated debt issuance costs $ (0.7) $ - $ - Write off Keebler debt issuance costs related to debt extinguished as part of the acquisition, net of income taxes 0.3 2.0 2.0 -------- -------- -------- $ (0.4) $ 2.0 $ 2.0 ======== ======== ========
(h) EBITDA, as adjusted, is defined as income from operations before interest, taxes, depreciation, amortization and restructuring charges. EBITDA, as adjusted, is presented as additional information because Keebler believes it to be a useful indicator of a company's ability to meet debt service and capital expenditures requirements. It is not, however, intended as an alternative measure of operating results or cash flow from operations (as determined in accordance with generally accepted accounting principles). 7 8 (c) Exhibits EXHIBIT NO. DOCUMENT ----------- -------- 2.2 Stock Purchase Agreement dated as of August 24, 1998 between Keebler Foods Company and President International, Inc. (incorporated herein by reference to Exhibit 2.2 of Keebler's Current Report on Form 8-K filed with the Commission on October 9, 1998 (Commission File No. 001-13705)(the "October Report")) 10.33 $700,000,000 Senior Credit Facility dated as of September 28, 1998 among Keebler, various financial institutions and the Bank of Nova Scotia, as the Lead Arranger and Administrative Agent, The First National Bank of Chicago, as the Syndication Agent, and the Bank of Montreal, as the Managing Agent (incorporated herein by reference to Exhibit 10.33 of the October Report) 10.34 $125,000,000 Bridge Facility Credit Agreement dated as of September 28, 1998 among Keebler Foods Company, various financial institutions and the Bank of Nova Scotia as the Arranger and the Administrative Agent (incorporated herein by reference to Exhibit 10.34 of Keebler's Quarterly Report on Form 10-Q previously filed with the Commission on November 16, 1998 (Commission File No. 001-13705)) 8 9 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 FOODS COMPANY By: /s/ JAMES T. SPEAR ------------------------------------------------------ Name: James T. Spear Title: Vice President Finance and Corporate Controller (Chief Accounting Officer) Date: December 10, 1998 9 10 INDEX TO THE FINANCIAL STATEMENTS President International, Inc. Consolidated Balance Sheets at September 26, 1998 and December 27, 1997 (Unaudited)................................... F-2 Consolidated Statements of Operations for the thirty-nine weeks ended September 26, 1998 and September 27, 1997 (Unaudited)..... F-3 Consolidated Statements of Cash Flows for the thirty-nine weeks ended September 26, 1998 and September 27, 1997 (Unaudited)..... F-4 Notes to the Consolidated Financial Statements (Unaudited) ....... F-5 Report of Independent Accountants dated February 27, 1998......... F-6 Consolidated Balance Sheet at December 27, 1997 and December 28, 1996............................................... F-7 Consolidated Statement of Operations for the years ended December 27, 1997 and December 28, 1996......................... F-8 Consolidated Statement of Changes in Shareholder's Equity for the years ended December 27, 1997 and December 28, 1996......... F-9 Consolidated Statement of Cash Flows for the years ended December 27, 1997 and December 28, 1996......................... F-10 Notes to the Consolidated Financial Statements.................... F-11
F-1 11 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) CONSOLIDATED BALANCE SHEETS UNAUDITED (DOLLARS IN THOUSANDS) - -----------------------------------------------------------------------------
SEPTEMBER 26, DECEMBER 27, 1998 1997 ASSETS Current assets: Cash and cash equivalents $ 1,248 $ 1,365 Trade receivables, less allowance for doubtful accounts of $2,879 and $2,745, respectively 37,032 33,933 Inventories 39,904 49,142 Other current assets 7,311 8,005 ------------ ------------ Total current assets 85,495 92,445 Property, plant and equipment, net 49,874 48,184 Intangible assets, net of accumulated amortization of $88,663 and $83,839, respectively 268,915 279,832 Investments in joint ventures - 8,400 Other assets 8,185 6,580 ------------ ------------ Total assets $ 412,469 $ 435,441 ============ ============ LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 45,617 $ 56,448 Accounts payable 22,564 19,674 Accrued expenses 22,711 18,938 Interest payable 1,708 725 ------------ ------------ Total current liabilities 92,600 95,785 Long-term debt 87,041 108,385 Deferred income taxes 32,053 35,304 Other liabilities 3,831 3,559 ------------ ------------ Total liabilities 215,525 243,033 ------------ ------------ Shareholder's equity: Common stock - $.01 par value, 1,000 shares authorized, 100 shares issued and outstanding 1 1 Capital in excess of par value 186,226 200,512 Retained earnings (accumulated deficit) 10,717 (8,105) ------------ ------------ Total shareholder's equity 196,944 192,408 ------------ ------------ Commitments and contingent liabilities - - ------------ ------------ Total liabilities and shareholder's equity $ 412,469 $ 435,441 ============ ============
The accompanying notes are an integral part of these financial statements. F-2 12 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (DOLLARS IN THOUSANDS) - -----------------------------------------------------------------------------
THIRTY-NINE WEEKS ENDED SEPTEMBER 26, SEPTEMBER 27, 1998 1997 Net sales $ 360,818 $ 350,795 Cost of goods sold 218,778 217,815 ------------ ------------ Gross profit 142,040 132,980 Selling, marketing, distribution and administrative expenses 102,471 96,107 Other (295) (95) Amortization of intangible assets 6,466 9,802 ------------ ------------ Operating profit 33,398 27,166 ------------ ------------ Other Income (expense): Gain on the sale of the joint ventures 7,665 - Interest expense (9,604) (10,879) Interest income 412 68 ------------ ------------ (1,527) (10,811) ------------ ------------ Income before income taxes 31,871 16,355 Provision for income taxes 10,147 8,072 ------------ ------------ Income from domestic operations 21,724 8,283 Equity in net loss of joint ventures 2,173 1,861 ------------ ------------ Income before extraordinary item 19,551 6,422 Extraordinary loss from early extinguishment of debt, net of applicable income tax benefit of $484 729 - ------------ ------------ Net income $ 18,822 $ 6,422 ============ ============
The accompanying notes are an integral part of these financial statements. F-3 13 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (DOLLARS IN THOUSANDS) - -----------------------------------------------------------------------------
THIRTY-NINE WEEKS ENDED SEPTEMBER 26, SEPTEMBER 27, 1998 1997 Operating activities: Net income 18,822 6,422 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 4,528 4,265 Amortization of intangibles 6,466 9,802 Amortization of debt issuance costs 248 161 Undistributed loss of joint ventures 2,173 1,861 Extraordinary loss, net of income tax benefit 729 - Changes in operating assets and liabilities, net of effects of disposals: Decrease (increase) in accounts receivable, net (3,128) (1,796) Decrease (increase) in inventories 9,382 9,661 Decrease (increase) in other assets 7,486 2,789 Increase (decrease) in accounts payable, accrued expenses, and interest payable 8,867 5,634 Increase (decrease) in deferred income taxes (3,251) - Increase (decrease) in other liabilities 240 (120) ------------ ------------ Net cash provided by operating activities 52,562 38,679 ------------ ------------ Investing activities: Net capital expenditures (6,218) (3,117) ------------ ------------ Net cash used in investing activities (6,218) (3,117) ------------ ------------ Financing activities: Principal payments on long-term debt (5,238) (11,714) Capital contribution (14,286) - Net increase (decrease) in notes payable (26,937) (23,140) ------------ ------------ Net cash used in financing activities (46,461) (34,854) ------------ ------------ Net increase (decrease) in cash and cash equivalents (117) 708 Cash and cash equivalents, beginning of period 1,365 5,301 ------------ ------------ Cash and cash equivalents, end of period $ 1,248 $ 6,009 ============ ============
The accompanying notes are an integral part of these financial statements. F-4 14 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION INTERIM FINANCIAL STATEMENTS The preparation of financial statements in accordance with generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and revenues and expenses and the disclosure of commitments and contingent liabilities at the date of the financial statements and for the period then ended. Accordingly, actual results could differ from such estimates. In addition, 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. RECLASSIFICATIONS Certain reclassifications of prior period data have been made to conform with current period reporting. 2. JOINT VENTURES During 1992, President International Inc. ("PII" or the "Company") entered into a joint venture (Tianjin President International Foods, Inc.) in Tianjin, PRC with an affiliate of President Enterprises Corp.("PEC"), the ultimate parent company of PII, and the Tianjin Children's Food Demonstration Plant. In 1995, the PEC affiliate contributed its equity in the Tianjin joint venture totaling $1.8 million to the Company. The Company also entered into a joint venture (Shanghai President International Foods, Inc.) in Shanghai, PRC with the China Sugar and Wine Company during 1994. During 1997, PII purchased the remaining shares of Tianjin President International Foods, Inc. and Shanghai President International Foods, Inc. for $1.2 million and $2.5 million, respectively. In August 1998, PII sold the investments in Tianjin President International Foods, Inc. and Shanghai President International Foods, Inc. to President International Trade and Investment Corporation ("PITIC"), PII's direct parent, for a $14.0 million note receivable resulting in a gain of $4.6 million, net of income taxes. Up until the time the joint ventures were sold, the Company accounted for the investments using the equity method. The Company's equity in the net loss from these joint ventures totaled $2.2 million from December 28, 1997 until the date of sale. There was no royalty income from these joint ventures from December 28, 1997 until the date of sale. 3. INVENTORIES Inventories at September 26, 1998 consist of the following: SEPTEMBER 26, 1998 (IN THOUSANDS) Packaging materials $ 4,308 Raw materials 4,557 Finished goods 31,039 ---------- $ 39,904 ========== F-5 15 REPORT OF INDEPENDENT ACCOUNTANTS February 27, 1998, except for Note 12, as to which the date is December 8, 1998. To the Board of Directors and Shareholder of President International, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in shareholder's equity and of cash flows present fairly, in all material respects, the financial position of President International, Inc. and its subsidiaries at December 27, 1997 and December 28, 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP - ------------------------------ PricewaterhouseCoopers LLP F-6 16 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
DECEMBER 27, DECEMBER 28, 1997 1996 ASSETS Current assets: Cash and cash equivalents $ 1,365 $ 5,301 Trade receivables, less allowance for doubtful accounts of $2,745 and $2,111, respectively 33,933 36,710 Inventories 49,142 48,262 Other current assets 8,005 8,522 ---------- --------- Total current assets 92,445 98,795 Property, plant and equipment, net 48,184 48,786 Intangible assets, net of accumulated amortization of $83,839 and $71,905, respectively 279,832 290,397 Investments in joint ventures 8,400 6,303 Other assets 6,580 6,977 ---------- --------- Total assets $ 435,441 $ 451,258 ========== ========= LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 56,448 $ 60,926 Accounts payable 19,674 17,135 Accrued expenses 18,938 16,389 Interest payable 725 3,810 ---------- --------- Total current liabilities 95,785 98,260 Long-term debt 108,385 122,831 Deferred income taxes 35,304 38,050 Other liabilities 3,559 3,597 ---------- --------- Total liabilities 234,033 262,738 ---------- --------- Shareholder's equity: Common stock - $.01 par value, 1,000 shares authorized, 100 shares issued and outstanding 1 1 Capital in excess of par value 200,512 200,512 Accumulated deficit (8,105) (11,993) ---------- --------- Total shareholder's equity 192,408 188,520 ---------- --------- Commitments and contingent liabilities - - ---------- --------- Total liabilities and shareholder's equity $ 435,441 $ 451,258 ========== =========
The accompanying notes are an integral part of these financial statements. F-7 17 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 27, DECEMBER 28, 1997 1996 Net sales $ 441,128 $ 416,261 Cost of goods sold 276,292 266,483 ---------- ---------- Gross profit 164,836 149,778 Selling, marketing, distribution and administrative expenses 123,869 122,027 Amortization of intangible assets 11,934 13,403 ---------- ---------- Operating profit 29,033 14,348 ---------- ---------- Other income (expense): Interest expense (14,084) (15,502) Interest income 151 11 ---------- ---------- (13,933) (15,491) ---------- ---------- Income (loss) before income taxes 15,100 (1,143) Provision for income taxes 8,087 2,999 ---------- ---------- Income (loss) before domestic operations 7,013 (4,142) Equity in net loss of joint ventures (3,125) (2,019) ---------- ---------- Income (loss) before extraordinary item 3,888 (6,161) Extraordinary loss from early extinguishment of debt, net of applicable income tax benefit of $1,013 - (1,523) ---------- ---------- Net income (loss) $ 3,888 $ (7,684) ========== ==========
The accompanying notes are an integral part of these financial statements. F-8 18 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (DOLLARS IN THOUSANDS) - -----------------------------------------------------------------------------
RETAINED CAPITAL IN EARNINGS COMMON STOCK EXCESS OF (ACCUMULATED SHARES AMOUNT PAR VALUE DEFICIT) Balance at December 30, 1995 100 $ 1 $194,487 $ (4,309) Net loss - - - (7,684) Capital contribution - - 6,025 - -------- -------- -------- -------- Balance at December 28, 1996 100 1 200,512 (11,993) Net income - - - 3,888 -------- -------- -------- -------- Balance at December 27, 1997 100 $ 1 $200,512 $ (8,105) ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-9 19 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS) - ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 27, DECEMBER 28, 1997 1996 Operating activities: Net income (loss) $ 3,888 $ (7,684) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation expense 5,497 5,250 Amortization of intangibles 11,934 13,403 Amortization of debt issuance costs 214 354 Undistributed loss of joint ventures 3,125 2,019 Extraordinary loss before income tax benefit - 2,536 Changes in operating assets and liabilities, net of effects of disposals: Decrease (increase) in accounts receivable, net 2,777 (428) Decrease (increase) in inventories (880) (3,758) Decrease (increase) in other assets 2,134 849 Increase (decrease) in accounts payable, accrued expenses, and interest payable 2,003 3,842 Increase (decrease) in deferred income taxes (4,046) (739) Increase (decrease) increase in other liabilities (38) 182 ------------ ------------ Net cash provided by operating activities 26,608 15,826 ------------ ------------ Investing activities: Net capital expenditures (4,895) (3,809) Acquisition of master distributor (2,481) - Investments in joint ventures (3,724) (249) ------------ ------------ Net cash used in investing activities (11,100) (4,058) ------------ ------------ Financing activities: Proceeds from long-term debt, net of debt issuance costs 99,480 118,849 Principal payments on long-term debt (115,084) (142,225) Capital contribution - 6,025 Net increase (decrease) increase in notes payable (3,840) 8,590 ------------ ------------ Net cash used in financing activities (19,444) (8,761) ------------ ------------ Net increase (decrease) in cash and cash equivalents (3,936) 3,007 Cash and cash equivalents, beginning of year 5,301 2,294 ------------ ------------ Cash and cash equivalents, end of year $ 1,365 $ 5,301 ============ ============
The accompanying notes are an integral part of these financial statements. F-10 20 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND NATURE OF OPERATIONS President International, Inc. ("PII" or the "Company"), headquartered in Atlanta, Georgia, was incorporated in the State of Delaware on June 21, 1985. PII is a holding company whose principal asset is the common stock of its wholly-owned subsidiary, President Baking Company, Inc. ("PBC"). The ultimate parent company of PII is President Enterprises Corp. ("PEC"), a Taiwanese corporation. PBC, headquartered in Atlanta, Georgia, was incorporated in the State of Delaware on February 7, 1984. The operations of PBC consist of: * the marketing, manufacture, sale and distribution of cookies to the Girl Scouts of the United States of America annual cookie sale. The Company is a primary supplier to the annual sale. * the marketing, manufacture, sale and distribution of premium cookie and snack products under the "Famous Amos" brand name. * the marketing, manufacture, sale and distribution of a variety of cookies, crackers, brownies, snack cakes and other baked snack products under various branded and private label names. PBC sells its products to supermarkets, club stores, mass merchandisers, vending companies, wholesalers, distributors and specialty stores through its direct sales group and direct store delivery distribution systems. The direct store delivery distribution system consists of approximately 770 franchised and non-franchised routes. PBC maintains eight manufacturing facilities. PII also owns 100% interests in joint ventures located in Shanghai, People's Republic of China ("PRC") and Tianjin, PRC (Note 3). These ventures manufacture, sell and distribute a variety of food products, including cookies and soft cakes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of President International, Inc. and its domestic wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain components of the 1996 consolidated financial statements have been reclassified to conform with the 1997 presentation. F-11 21 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- FISCAL YEAR The Company's fiscal year ends on the last Saturday prior to January 1. The fiscal years ended December 27, 1997 and December 28, 1996 included fifty-two weeks. CASH AND SUPPLEMENTAL CASH FLOW INFORMATION The Company considers all highly liquid investment instruments with an original maturity of three months or less to be cash equivalents. For the years ended December 27, 1997 and December 28, 1996, the Company paid interest in the amounts of $16,804,000 and $11,831,000, respectively. For the years ended December 27, 1997 and December 28, 1996, the Company paid income taxes in the amounts of $11,731,000 and $3,414,000, respectively. INVENTORIES Inventories are carried at the lower of cost or market, cost being determined using the first-in, first-out method. Inventories include the cost of material, labor and overhead. DEFERRED GIRL SCOUT SELLING COSTS Selling and promotion costs associated with the annual Girl Scout cookie sale incurred from May 1 through the fiscal year end of each year are deferred until the subsequent fiscal year in which the related Girl Scout cookie sale revenues are recognized. Deferred selling and promotion costs at December 27, 1997 and December 28, 1996 totaled $3,023,000 and $3,104,000, respectively, and are included in other current assets. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of individual assets, which range generally from 3 to 30 years. Depreciation expense totaled $5,497,000 and $5,250,000 during the years ended December 27, 1997 and December 28, 1996, respectively. Costs for major renewals and additions are capitalized, while repairs and maintenance charges are expensed as incurred. INTANGIBLE ASSETS Intangible assets, net of accumulated amortization, include goodwill ($223,455,000 and $227,998,000 at December 27, 1997 and December 28, 1996, respectively), trademarks and trade names ($52,905,000 and $54,471,000 at December 27, 1997 and December 28, 1996, respectively) and other identifiable assets purchased by the Company. Goodwill, trademarks and trade names are being amortized over 40 years using the straight-line method. Other identifiable intangible assets are amortized using the straight-line method over 5 to 10 years. The Company evaluates its goodwill for impairment of value based upon expected future cash flows from operations. PBC markets and sells the rights to distribute its products within specifically defined geographic areas. For the years ended December 27, 1997 and December 28, 1996, PBC recognized net gains of $913,000 and $342,000, respectively, from the sale of these rights. F-12 22 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- REVENUE RECOGNITION The Company recognizes sales revenue upon shipment of the product to the customer. FORWARD AND FUTURES CONTRACTS PBC enters into forward and futures contracts which hedge anticipated purchases of certain ingredients used in the production of PBC's products. PBC recognizes gains and losses from forward and futures contracts as a component of the cost of the ingredients at the time of purchase. At December 27, 1997, PBC held forward and futures contracts for commodities involving notional amounts of approximately $55,047,000. As of December 27, 1997, PBC's net position to the market was favorable by approximately $669,000. INTEREST RATE SWAPS PBC entered into interest rate swap agreements to hedge against interest rate risk on a portion of the Term loan outstanding. At December 27, 1997, PBC was a party to interest rate swap agreements involving notional amounts of $60,000,000. The estimated year end fair value of these financial investments calculated as the present value of estimated future cash outflows was approximately $495,000. INCOME TAXES The Company files a consolidated federal income tax return with its wholly-owned subsidiaries. Annual provisions for income taxes are based on reported earnings before income taxes and include appropriate provisions for deferred income taxes resulting from the tax effects of the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. CONCENTRATIONS OF CREDIT RISK In general, the Company extends credit terms to its customers on an unsecured basis. At December 27, 1997 credit risk was generally concentrated in the following two groups of customers - national and regional supermarket chains and national, regional and local wholesalers and distributors. The Company believes that the allowance for doubtful accounts is sufficient to fully cover credit losses. MANAGEMENT ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and revenues and expenses and the disclosure of commitments and contingent liabilities at the date of the financial statements and for the period then ended. Accordingly, actual results could differ from such estimates. F-13 23 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. JOINT VENTURES During 1992, the Company entered into a joint venture (Tianjin President International Foods, Inc.) in Tianjin, PRC with an affiliate of PEC and the Tianjin Children's Food Demonstration Plant. In 1995, the PEC affiliate contributed its equity in the Tianjin joint venture totaling $1,784,000 to the Company. The Company entered into a joint venture (Shanghai President International Foods, Inc.) in Shanghai, PRC with the China Sugar and Wine Company during 1994. During 1997, PII purchased the remaining shares of Tianjin President International Foods, Inc. and Shanghai President International Foods, Inc. for $1,227,000 and $2,497,000, respectively. The Company accounts for the investments using the equity method. The Company's equity in loss from these joint ventures totaled $3,279,000 and $2,360,000, during the years ended December 27, 1997 and December 28, 1996, respectively. Royalty income from these joint ventures totaled $154,000 and $341,000 during the years ended December 27, 1997 and December 28, 1996, respectively, and has been recorded as a component of equity in net loss of joint ventures. 4. INVENTORIES Inventories at December 27, 1997 and December 28, 1996 consist of the following (dollars in thousands): 1997 1996 Packaging materials $ 4,024 $ 5,657 Raw materials 4,172 4,305 Finished goods 40,946 38,300 -------- -------- $ 49,142 $ 48,262 ======== ======== 5. PROPERTY, PLANT AND EQUIPMENT Major classifications of property, plant and equipment at December 27, 1997 and December 28, 1996 are summarized as follows (dollars in thousands): 1997 1996 Land $ 1,538 $ 1,538 Buildings and leasehold improvements 15,688 14,914 Machinery and equipment 60,438 56,657 Furniture and fixtures 4,470 4,127 Transportation equipment 273 493 Construction-in-progress 1,680 1,697 -------- -------- 84,087 79,426 Less - Accumulated depreciation (35,903) (30,640) -------- -------- $ 48,184 $ 48,786 ======== ======== F-14 24 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6. LEASES PBC's manufacturing facility in Augusta, Georgia is held under a capital lease which, including renewal options, expires in 2042. The facility may be purchased at various times during the lease term. The leased assets are included in property, plant and equipment and are being depreciated over 25 years. Future payments under the lease, including interest, are $154,000 annually through 2002, after which they average $31,000 per year. The Company and its subsidiaries also lease land, buildings and equipment under noncancelable operating leases which expire on various dates through November 30, 2006. Future minimum lease payments under these leases are summarized as follows (dollars in thousands): FISCAL YEAR AMOUNT 1998 $ 4,138 1999 3,330 2000 1,854 2001 1,323 2002 760 Thereafter 1,538 -------- $ 12,943 ======== Rent expense under operating leases for the years ended December 27, 1997 and December 28, 1996 approximated $5,959,000 and $5,614,000, respectively. 7. NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt at December 27, 1997 and December 28, 1996 consist of the following (dollars in thousands):
1997 1996 Terms loans (formerly Tranche A) payable in various scheduled annual principal instalments through 2002; interest is variable based on a spread over LIBOR or prime; principal balances bear interest at 6.9375% at December 27, 1997 and at rates ranging from 7.4375% to 7.625% at December 28, 1996 (rates are subject to adjustment via certain provisions in the credit agreement); secured by all of the assets of PBC and its subsidiaries $ 100,000 $ 50,500 Tranche B term loans payable in various scheduled annual principal instalments through 2002; interest is variable based on a spread over LIBOR or prime; principal balances bear interest at rates ranging from 8.3125% to 9.75% at December 28, 1996; secured by all of the assets of the Company. Tranche B term loans were repaid on December 19, 1997 - 64,513
F-15 25 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
1997 1996 PBC revolving line of credit; interest is variable based on a spread over LIBOR or prime; bears interest at rates ranging from 6.9375% to 8.50% at December 27, 1997 and 7.375% to 8.875% at December 28, 1996 (rates are subject to adjustment via certain provisions in the credit agreement); maximum available credit is $80,000 and $70,000 during 1997 and 1996, including outstanding letters of credit; cash advances under the line of credit cannot exceed $15,000 during a consecutive 30 day period during each fiscal year; expires in December 2002 and is secured by all of the assets of PBC and its subsidiaries 31,000 35,800 PII line of credit; interest is variable based on a spread over LIBOR; bears interest at 6.275% at December 27, 1997 and at rates ranging from 6.03% to 6.0875% at December 28, 1996; maximum available credit is $35,000; expires in April 1998, however, PII is in the process of obtaining a commitment from the Bank to extend maturity date for three years; secured by a guarantee from PEC 32,870 31,910 PBC capital lease obligation (Note 6) 963 1,034 --------- --------- 164,833 183,757 Less - Current portion (56,448) (60,926) --------- --------- $ 108,385 $ 122,831 ========= =========
Interest on the Term loans and revolving line of credit is payable at varying intervals which cannot exceed six months. PBC incurs an annual fee of .25% on the unused portion of the revolving line of credit. On December 19, 1997, PBC amended and restated its then existing senior credit facility. The amendment and restatement decreased the senior bank commitment to $180,000,000 and extended future principal payments to 2002. PBC repaid Tranche B term loans and currently has only one Term loan (formerly Tranche A). The PBC amended and restated senior credit facility imposes certain covenants on PBC, the most restrictive of which limit the payment of management fees and cash dividends and impose other restrictions relating to equity investments, additional indebtedness, leases, the creation of liens, capital expenditures, disposition of assets and major changes in ownership of PBC's capital stock. In addition, it requires the attainment of certain financial ratios as defined in the related agreement. F-16 26 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Future principal payments on notes payable and long-term debt are scheduled as follows (dollars in thousands): FISCAL YEAR AMOUNT 1998 $ 56,448 1999 13,121 2000 17,887 2001 24,397 2002 44,829 Thereafter 8,151 --------- $ 164,833 ========= 8. INCOME TAXES The Company files a consolidated federal income tax return. Pursuant to an intercompany tax sharing agreement with PII, PBC must reimburse PII for its proportionate share of the PII consolidated tax liability. The provision for income taxes for the years ended December 27, 1997 and December 28, 1996 is composed of the following (dollars in thousands): 1997 1996 Current: Federal $ 9,644 $ 3,111 State 2,489 627 -------- -------- 12,133 3,738 -------- -------- Deferred: Federal (3,450) (630) State (596) (109) -------- -------- (4,046) (739) -------- -------- $ 8,087 $ 2,999 ======== ======== F-17 27 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The provision for income taxes for the years ended December 27, 1997 and December 28, 1996 differs from taxes computed using the statutory federal income tax rate (34%). The components of such differences are summarized as follows (dollars in thousands): 1997 1996 Consolidated federal income taxes computed on pretax accounting income using the federal statutory tax rate 4,071 $ (389) State income taxes, net of federal income tax benefit 1,584 320 Amortization of goodwill 2,305 2,306 Other 127 762 -------- ------- Provisions for income taxes $ 8,087 $ 2,999 ======== ======= Deferred tax liabilities (assets) at December 27, 1997 and December 28, 1996 consist of the following temporary differences (dollars in thousands): 1997 1996 Intangibles $ 25,228 $ 27,230 Depreciation 10,037 10,454 Prepaid pension cost 786 917 Other 2,056 2,219 -------- -------- Gross deferred tax liabilities 38,107 40,820 -------- -------- Inventories (1,121) (841) Allowance for doubtful accounts (1,094) (842) Accrued expenses (2,633) (1,822) Other (955) (965) -------- -------- Gross deferred tax assets (5,803) (4,470) -------- -------- Net deferred taxes $ 32,304 $ 36,350 ======== ======== 9. EMPLOYEE BENEFIT PLANS PBC has noncontributory defined benefit pension plans covering those eligible employees at certain facilities who have attained one year of service. Employees receive retirement benefits based upon such factors as years of service and employee compensation levels. F-18 28 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Net periodic pension cost of the combined defined benefit pension plans for the years ended December 27, 1997 and December 28, 1996 is composed of the following (dollars in thousands): 1997 1996 Service cost (benefits earned during the year) $ 712 $ 592 Interest cost on projected benefit obligation 1,235 1,104 Actual return on plan assets (2,938) (1,918) Net deferred gain 1,924 1,038 ------- ------- Net pension cost $ 933 $ 816 ======= ======= The combined funded status of the plans at December 27, 1997 and December 28, 1996 is reconciled to prepaid pension expense as follows (dollars in thousands): 1997 1996 Actuarial present value of vested benefit obligation $ 16,284 $ 13,743 ========= ========= Accumulated benefit obligation $ 16,911 $ 14,241 ========= ========= Projected benefit obligation $ (17,543) $ (14,793) Plan assets at fair value 18,793 16,069 Unrecognized net loss (gain) (234) 350 Unrecognized prior service cost 287 (3) --------- --------- Prepaid pension expense $ 1,303 $ 1,623 ========= ========= The assumptions used to measure the funded status of the plans at year end were as follows: 1997 1996 Discount rate 7.75% 8.25% Expected long-term return on plan assets 10.00% 10.00% Rate of increase in compensation levels 5.00% 5.00% During 1997, PBC used a discount rate of 8.25% for purposes of determining its pension cost. Plan assets consist of certificates of deposit, stocks, bonds, and other income generating investments. PBC sponsors a 401(k) plan covering salaried employees at certain facilities who have attained one-half year of service. During 1997 and 1996 the Company matched $.67 for each employee's $1 contribution, to a maximum of 6% of each employee's gross salary. PBC previously sponsored a non-qualified deferred compensation plan covering certain salaried employees who did not participate in the 401(k) plan. During the years ended December 27, 1997 and December 28, 1996, PBC contributed $794,000 and $795,000, respectively, to these plans. PBC maintains a Voluntary Employees' Beneficiary Association in compliance with Internal Revenue Code Section 501(c)(9) for the purpose of funding medical, dental and F-19 29 PRESIDENT INTERNATIONAL, INC. (A SUBSIDIARY OF PRESIDENT ENTERPRISES CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- certain other employee benefits. Contributions made by PBC to the trust during the years ended December 27, 1997 and December 28, 1996 totaled $6,579,000 and $4,756,000, respectively. Union members at certain locations participate in union sponsored benefit plans. Contributions to the various union sponsored benefit plans totaled approximately $1,124,000 and $979,000 for the years ended December 27, 1997 and December 28, 1996, respectively. 10. RELATED PARTY TRANSACTIONS The Company had receivables totaling approximately $52,000 and $1,503,000 due from its joint ventures as of December 27, 1997 and December 28, 1996, respectively. Such receivables arise as a result of royalty arrangements and certain joint venture operating expenses funded by the Company. During 1997, the Company wrote-off the majority of its joint venture receivables totaling approximately $1,793,000. The loss from the write-off was partially offset by the Company's recognition of the joint ventures corresponding gain of approximately $1,419,000. 11. COMMITMENTS AND CONTINGENT LIABILITIES The Company is subject to litigation in the ordinary course of business. In the opinion of management, the ultimate outcome of any existing litigation would not have a material adverse effect on the Company's financial position or results of operations. At December 27, 1997, PBC had $15,000,000 available for letters of credit under the senior credit facility for the purpose of securing loans made to purchasers of distribution route rights. At December 27, 1997, approximately $13,825,000 of such loans were secured by the letters of credit. The Company incurs fees at an annual rate of .25% on all unused letters of credit. 12. SUBSEQUENT EVENTS In August 1998, the Company sold its investments in joint ventures to its immediate parent company, President International Trade and Investment Corporation ("PITIC"), for a note receivable in the amount of $14,000,000. On September 28, 1998, all of the Company's issued and outstanding common stock was sold to Keebler Foods Company. In connection with the sale, the $14,000,000 note receivable was transferred to PITIC. F-20 30 EXHIBIT INDEX EXHIBIT NO. DOCUMENT - ----------- -------- 2.2 Stock Purchase Agreement dated as of August 24, 1998 between Keebler Foods Company and President International, Inc. (incorporated herein by reference to Exhibit 2.2 of Keebler's Current Report on Form 8-K filed with the Commission on October 9, 1998 (Commission File No. 001-13705)(the "October Report")) 10.33 $700,000,000 Senior Credit Facility dated as of September 28, 1998 among Keebler, various financial institutions and the Bank of Nova Scotia, as the Lead Arranger and Administrative Agent, The First National Bank of Chicago, as the Syndication Agent, and the Bank of Montreal, as the Managing Agent (incorporated herein by reference to Exhibit 10.33 of the October Report) 10.34 $125,000,000 Bridge Facility Credit Agreement dated as of September 28, 1998 among Keebler Foods Company, various financial institutions and the Bank of Nova Scotia as the Arranger and the Administrative Agent (incorporated herein by reference to Exhibit 10.34 of Keebler's Quarterly Report on Form 10-Q previously filed with the Commission on November 16, 1998 (Commission File No. 001-13705)) -----END PRIVACY-ENHANCED MESSAGE-----